FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 28, 1996 Commission File No. 0-11577
LADD FURNITURE, INC.
(Exact name of registrant as specified in charter)
North Carolina 56-1311320
(State or other juris- (I.R.S. Employer
diction of incorpora- Identification No.)
tion or organization)
One Plaza Center, Box HP-3, High Point, North Carolina 27261-1500
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (910) 889-0333
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ____
As of November 11, 1996 there were 7,719,567 shares of Common Stock ($.30 par
value) of the registrant outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the thirteen weeks and thirty-nine weeks ended Sept. 28, 1996 and
Sept. 30, 1995
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------------- -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 124,094 159,144 390,034 461,521
Cost of sales 102,585 130,549 325,402 390,601
----------- ----------- ---------- -----------
Gross profit 21,509 28,595 64,632 70,920
Selling, general and
administrative expenses 16,852 23,402 57,750 75,553
Restructuring expense (Note 2) (892) - 3,978 25,696
--------- ----------- ---------- -----------
Operating income (loss) 5,549 5,193 2,904 (30,329)
--------- ----------- ---------- -----------
Other deductions:
Interest expense 3,182 2,997 8,900 8,646
Other expense (income) (912) 163 1,327 3,024
--------- ----------- ---------- -----------
2,270 3,160 10,227 11,670
--------- ----------- ---------- -----------
Earnings (loss) before income taxes 3,279 2,033 (7,323) (41,999)
Income tax expense (benefit) 1,477 142 (3,295) (16,591)
--------- ----------- ---------- -----------
Net earnings (loss) $ 1,802 1,891 (4,028) (25,408)
========= =========== ========== ===========
Net earnings (loss) per common share $ 0.23 0.24 (0.52) (3.29)
Weighted average number of
common shares outstanding 7,721 7,726 7,723 7,719
</TABLE>
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 28, 1996 and December 30, 1995
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
Sept. 28,
1996 December 30,
(Unaudited) 1995 *
---------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 1,713 1,272
Trade accounts receivable, less allowances
for doubtful receivables, discounts,
returns and allowances of $3,166 and $4,057,
respectively 75,736 38,288
Inventories 86,428 89,466
Prepaid expenses and other current assets 8,337 13,663
------------- ----------------
Total current assets 172,214 142,689
------------- ----------------
Property, plant and equipment, net 78,543 82,586
Businesses held for sale, net - 8,052
Intangible and other assets, net 81,088 79,659
------------- ----------------
$ 331,845 312,986
============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 5,136 309
Short-term bank borrowings - 3,037
Trade accounts payable 27,766 28,419
Accrued expenses and other current liabilities 28,965 31,396
------------- --------------
Total current liabilities 61,867 63,161
------------- --------------
Long-term debt, excluding current installments 138,234 112,598
Deferred compensation and other liabilities 2,653 6,593
Deferred income taxes 7,605 5,437
------------- --------------
Total liabilities 210,359 187,789
------------- --------------
Shareholders' equity:
Preferred stock of $100 par value. Authorized
500,000 shares; no shares issued - -
Common stock of $.30 par value. Authorized
50,000,000 shares; issued 7,719,567 and
7,726,993 shares, respectively 2,316 2,318
Additional paid-in capital 49,736 49,905
Retained earnings 69,801 73,829
------------- --------------
121,853 126,052
Less unamortized value of restricted stock (367) (855)
------------- --------------
Total shareholders' equity 121,486 125,197
------------- --------------
$ 331,845 312,986
============= ==============
</TABLE>
* Derived from the Company's 1995 audited Consolidated Financial Statements.
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the thirty-nine weeks ended September 28, 1996 and September 30, 1995
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
39 Weeks Ended
--------------------------
Sept. 28, Sept. 30,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,028) (25,408)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation of property, plant and equipment 8,137 9,891
Amortization 3,363 2,954
Restructuring expense 3,978 25,696
Provision for losses on trade accounts receivable 3,296 2,422
Gains on sales of property, plant and equipment (115) (373)
Provision for deferred income taxes 538 (15,526)
Increase (decrease) in deferred compensation and
other liabilities (2,753) 737
Change in assets and liabilities, net of divestitures
and classification of businesses held for sale:
Increase in trade accounts receivable (3,258) (15,554)
Decrease in inventories 3,473 10,999
Decrease in prepaid expenses and other
current assets 3,567 2,424
Increase (decrease) in trade accounts payable (330) 1,887
Increase (decrease) in accrued expenses and other
current liabilities (1,423) 5,915
------------ -----------
Total adjustments 18,473 31,472
------------ -----------
Net cash provided by operating activities 14,445 6,064
------------ -----------
Cash flows from investing activities:
Additions to property, plant and equipment (6,877) (8,557)
Purchase of leased manufacturing equipment (4,648) -
Proceeds from sales of property, plant and equipment 235 170
Proceeds from sale of business, net of transaction expenses 5,284 -
Proceeds from sales of idle assets 1,250 -
Additions to other assets (3,088) (1,678)
------------ -----------
Net cash used in investing activities (7,844) (10,065)
------------ -----------
Cash flows from financing activities:
Proceeds from long-term borrowings 137,837 231
Repayments of short-term bank borrowings - (2,550)
Proceeds from (repayments of) sales of accounts receivable (36,000) 7,515
Proceeds from sale/leaseback of equipment 2,614 6,691
Principal payments of long-term debt (110,430) (3,762)
Dividends paid - (1,738)
Other (171) 8
------------ -----------
Net cash provided by (used in) financing activites (6,150) 6,395
------------ -----------
Effect of exchange rate changes on cash (10) (57)
------------ -----------
Net increase in cash 441 2,337
Cash at beginning of period 1,272 576
------------ -----------
Cash at end of period $ 1,713 2,913
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 8,906 8,487
Cash paid (net refunds received) for income taxes (7,418) 327
============ ===========
</TABLE>
<PAGE>
LADD FURNITURE, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Currency Unamortized
Number Additional trans- value of Total
of shares Common paid-in lation Retained restricted shareholders'
issued stock capital adjustment earnings stock equity
------------ -------- ----------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 7,700,151 $ 2,310 49,516 (208) 101,105 (817) 151,906
Purchase of restricted
stock (2,452) (1) (68) - - 68 (1)
Shares issued in connection
with and amortization of
employee restricted
stock awards 29,294 9 457 - - (106) 360
Currency translation
adjustment - - - (66) - - (66)
Reclassification to businesses
held for sale - - - 274 - - 274
Net loss - - - - (25,190) - (25,190)
Dividends paid - - - - (2,086) - (2,086)
-------------- -------- ---------- --------- ----------- ---------- -----------
BALANCE AT DECEMBER 30, 1995 7,726,993 2,318 49,905 0 73,829 (855) 125,197
Purchase of restricted
stock (7,426) (2) (169) - - 169 (2)
Amortization of employee
restricted stock awards - - - - - 319 319
Net loss - - - - (4,028) - (4,028)
-------------- -------- ---------- --------- ----------- ---------- -----------
BALANCE AT SEPTEMBER 28, 1996
(UNAUDITED) 7,719,567 $ 2,316 49,736 0 69,801 (367) 121,486
============== ======== ========== ========= =========== ========== ===========
</TABLE>
<PAGE>
Notes:
(1) Quarterly Financial Data
The quarterly consolidated financial data are unaudited but include, in
the opinion of management, all adjustments necessary for a fair
statement of the operating results for the interim periods indicated.
All adjustments are of a normal recurring nature except as disclosed in
Notes 2 and 5 to the financial statements.
(2) Restructuring
In June 1995, the Company recorded a $25.7 million non-cash
restructuring charge. The restructuring charge resulted from the
Company's decision to divest four operating companies (businesses held
for sale), close four Company-owned retail stores and reorganize the
remaining companies to improve operating performance. During the first
quarter of 1996, the Company recorded a $5.1 million non-cash
restructuring charge resulting from the continued reorganization of the
Company's remaining businesses and the further write-down of the
Company's businesses sold or held for sale to their estimated fair
value, less disposition costs. The restructuring charge in the first
quarter of 1996 was a result of: (i) the Company's decision to
liquidate Daystrom Furniture; (ii) a shortfall in the net proceeds
anticipated from selling Fournier Furniture; and (iii) additional
severance expense relating to the continued restructuring of the
Company's remaining businesses. The severance expense included a
$130,000 adjustment to shareholders' equity for the vesting of
restricted stock.
During the second and third quarters of 1996, the estimated liquidation
value of Daystrom Furniture, one of the four businesses identified for
divestiture in 1995, was further adjusted by credits to restructuring
expense. Additionally in the third quarter of 1996, the Company
negotiated a cash settlement related to leases of its former retail
stores, which resulted in a $466,000 credit to restructuring expense.
Further, as a result of the decision to liquidate the assets of
Daystrom Furniture, the reserves related to the write-down of
Daystrom's net assets to their estimated fair value were reclassified
to the appropriate asset and liability accounts as follows (i)
$1,950,000 to accrue for severance, environmental clean-up costs, plant
closing costs and other miscellaneous expenses and (ii) $440,000 to
provide for estimated bad debts. Additionally, Daystrom's net property,
plant and equipment was reclassified to "Intangible and other assets"
and recorded at its estimated liquidation value.
The following unaudited pro forma information shows consolidated
operating results for the periods presented as though the Company had
divested the four businesses and closed its company-owned retail stores
as of January 1, 1995, excluding the restructuring expense recorded
during the second quarter of 1995 and the first nine months of 1996:
-6-
<PAGE>
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Sept 28, Sept 30, Sept 28, Sept 30,
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 123,840 130,956 374,521 377,257
Earnings (loss) before
interest and income taxes 5,866 3,632 9,006 (5,449)
</TABLE>
The costs charged against restructuring reserves during the first nine
months of 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Restructuring reserves, December 30, 1995 $ 3,964
First quarter 1996 reserve additions 815
Second quarter 1996 Daystrom reclassification 2,390
Third quarter 1996 reversal of restructuring
reserve (666)
Costs:
Write-off leasehold improvements (129)
Lease termination costs (724)
Severance payments (1,942)
Other (838)
Restructuring reserves, September 28, 1996 $ 2,870
</TABLE>
(3) Inventories
A summary of inventories follows (in thousands):
<TABLE>
<CAPTION>
September 28, December 30,
1996 1995
<S> <C> <C>
Inventories on the FIFO cost method:
Finished goods $ 47,286 50,847
Work in process 13,933 17,165
Raw materials and supplies 37,084 33,140
------------ ------------
Total inventories on
the FIFO cost method 98,303 101,152
Less adjustments of certain inven-
tories to the LIFO cost method (11,875) (11,686)
------------ ------------
$ 86,428 89,466
============ ============
</TABLE>
-7-
<PAGE>
(4) Trade Accounts Receivable Securitization Program
On March 28, 1996, the Company's trade accounts receivable
securitization program (the Securitization Program) was terminated. The
funds previously provided by the Securitization Program were replaced
by borrowings available under the revolving credit line of the
Company's bank credit facility. At December 30, 1995, trade accounts
receivable sold under the Securitization Program and excluded from the
consolidated balance sheet totaled $36.0 million.
(5) Postretirement Benefits Other Than Pensions
On May 10, 1996, the Company curtailed the postretirement features of
its health care benefit program, effective July 1, 1996, in an effort
to reduce operating costs. The effect of this action was to eliminate
the Company's financial obligation for postretirement healthcare costs.
As a result of the benefit curtailment, the Company eliminated during
the second quarter of 1996 a noncurrent liability of approximately $4.2
million which existed at March 30, 1996 resulting in a credit to
operating income ($3.7 million to cost of sales and $0.5 million to
selling, general and administrative expense). The remaining liability
balance at that time of approximately $1.1 million was reclassified as
a current liability. The curtailment of retiree health care benefits
will result in an annual cost savings of over $2.0 million, of which
approximately $1.2 million will be cash.
(6) Loan and Security Agreement
On July 12, 1996, the Company entered into a $190.0 million long-term
secured credit facility (the Facility) which consists of a $125.0
million three-year revolving credit loan and a $65.0 million term loan.
The term loan portion of the Facility will be repaid in quarterly
installments of $1,625,000 commencing January 1, 1997.
Borrowings under the revolving credit loan and the term loan bear
interest at rates selected periodically by the Company of LIBOR plus
2.75% and 3.00%, respectively, or prime plus 1.75% and 2.00%,
respectively. At September 28, 1996, LIBOR was 5.625% and the prime
rate was 8.25%. Under the Facility, the Company pays a commitment fee
of 1/2% per annum on the unused portion of the revolving credit
facility. In connection with the refinancing, the Company incurred fees
and expenses aggregating approximately $4.0 million which will be
amortized over the terms of the Facility. At current borrowing levels
and market interest rates, the effect of the Facility will be to
increase interest expense and lower profit before income taxes by
approximately $1.0 million annually.
The Facility is secured by substantially all the existing and hereafter
acquired assets of the Company. Availability on the revolving credit
loan is determined by levels of eligible inventory and eligible trade
accounts receivable of the Company. The Facility
-8-
<PAGE>
contains customary covenants for asset based loans which restrict
future borrowings, dividends and capital spending; require maintenance
of a minimum net worth; and include financial covenant ratios related
to cash flow, earnings and debt. At September 28, 1996, the Company's
availability for future borrowings under its revolving credit loan
totalled $25.3 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of net sales
to certain items included in the Consolidated Statements of Operations:
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------ ----------------
Sept 28, Sept 30, Sept 28, Sept 30,
1996 1995 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 82.7 82.0 83.4 84.6
------ ------ ------ ------
Gross profit 17.3 18.0 16.6 15.4
Selling, general and
administrative expenses 13.6 14.7 14.8 16.4
Restructuring expense (0.7) - 1.0 5.6
------ ------ ------ ------
Operating income (loss) 4.4 3.3 0.8 (6.6)
------ ------ ------ ------
Other deductions (income):
Interest expense 2.5 1.9 2.3 1.9
Other, net (0.7) 0.1 .3 .6
------ ------ ------ ------
1.8 2.0 2.6 2.5
------ ------ ------ ------
Earnings (loss) before
income taxes 2.6 1.3 (1.8) (9.1)
Income tax expense (benefit) 1.2 0.1 (0.8) (3.6)
------ ------ ------ ------
Net earnings (loss) 1.4% 1.2% (1.0)% (5.5)%
====== ====== ====== ======
</TABLE>
Net sales for the third quarter and first nine months of 1996 were
$124.1 million and $390.0 million, respectively, compared with $159.1 million
and $461.5 million during the comparable 1995 periods. Net sales in 1996
decreased from prior year levels primarily due to the sale of Brown Jordan
Company and Lea Lumber and Plywood as of December 29, 1995, the sale of Fournier
Furniture as of February 26, 1996, and the liquidation of the assets of Daystrom
Furniture beginning in July 1996. On a pro forma basis, excluding the four
divestiture companies and the company-owned retail stores, 1996 third quarter
and year-to-date net sales would have decreased from prior year levels by
approximately 5.4% and 0.7%, respectively. This decrease in pro forma sales is
primarily due to lower sales of the Company's promotional and upper priced
casegoods operations.
-9-
<PAGE>
Cost of sales as a percentage of net sales increased to 82.7% for the
third quarter of 1996 and decreased to 83.4% for the year-to-date, compared to
82.0% and 84.6%, respectively, in 1995. This resulted in a decrease in gross
profit margins to 17.3% for the third quarter and an increase to 16.6% for the
year-to-date, from 18.0% and 15.4%, respectively, in 1995. The decrease in the
third quarter gross profit margins was primarily due to the inclusion of Brown
Jordan and Lea Lumber & Plywood operating results in the 1995 year-to-date
results. The decrease in cost of sales for the year-to-date was partially
attributable to a $3.7 million non-cash credit to operations resulting from the
Company's curtailment of retiree health care benefits (see note 5). This credit
to operations was somewhat offset during the second quarter by additional
reserves recorded for discontinued products, and depressed gross margins
relating to the liquidation of Daystrom Furniture's inventory.
Selling, general and administrative (SG&A) expenses decreased to 13.6%
of net sales for the third quarter of 1996 from 14.7% for the same period in
1995, while SG&A expenses for the first nine months decreased to 14.8% from
16.4% in 1995. The lower third quarter 1996 SG&A expense reflects benefits from
cost saving actions initiated by the Company during the first quarter of 1996.
These actions included a reduction in salaried employees, consolidation of
certain administrative functions, and cutbacks in advertising expense. Included
in the first nine months SG&A expenses of 1995 was a $2.3 million non-cash
charge to increase bad debt reserves, and to provide for other miscellaneous
expenses.
During the first quarter of 1996, a $5.1 non-cash restructuring charge
was recorded as a result of: (i) the Company's decision to liquidate Daystrom
Furniture; (ii) a shortfall in the actual versus anticipated net proceeds from
selling Fournier Furniture; and (iii) additional severance expense relating to
the continued restructuring of the Company's remaining businesses. A
restructuring credit of $0.3 and $0.9 million was recorded in the second and
third quarter of 1996, respectively.
The $25.7 million restructuring expense incurred in the second quarter
of 1995 resulted from the Company's decision to divest four of its operating
companies and restructure the remaining operating companies in order to improve
their operating performance. The reserves included a non-cash charge to
write-down the businesses held for sale to the lower of carrying value or
estimated fair value; to provide for expected losses from the closing of four
Company-owned retail stores; to write down discontinued machinery due to changes
in manufacturing processes; and to provide for anticipated severance expense and
other costs.
Other deductions were 1.8% of net sales for the third quarter and 2.6%
for the first nine months of 1996, compared to 2.0% and 2.5%, respectively, in
1995. The third quarter decrease was primary due $1.7 million of income relating
to the settlement of a long-standing insurance claim, offset by an increase in
amortization expense and an increase in interest expense. Other deductions for
the first nine months of 1995 also included non-cash charges totaling $2.2
million attributable to the
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<PAGE>
write-off of unamortized bank financing fees and other noncurrent assets, and
the recognition of other liabilities.
During the first nine months, the Company's loss before income taxes was
$7.3 million in 1996, compared to a loss of $42.0 million in 1995. The Company's
estimated annual effective income tax rate for the first nine months of 1996
increased to 45.0% from the 39.5% annual rate estimated in the first nine months
of 1995. The difference in the tax rates for the respective periods result from
various permanent taxable income, deductions, or credit items that increase or
decrease the normal U.S. Federal tax rate of 34.0% when applied to the Company's
estimated annualized pre-tax income or loss during each interim period, or
actual annual pre-tax income or loss in the case of each fiscal year end.
The Company's net income was $1.8 million, or $0.23 per share, for the
third quarter of 1996, compared with net income of $1.9 million, or $0.24 share
for the same quarter of 1995. The first nine months net loss was $4.0 million,
or $0.52 per share for 1996, compared with a net loss of $25.4 million, or $3.29
per share, for 1995.
LIQUIDITY AND CAPITAL RESOURCES
On July 12, 1996, the Company completed the refinancing of its long-term
and short-term bank credit facility. The new credit facility (the Facility)
consists of a $125.0 million three-year revolving credit loan and a $65.0
million term loan. The Facility is secured by substantially all the assets of
the Company, including equipment, inventory, receivables and real property.
Borrowings under the Facility bear interest at rates selected periodically by
the Company of LIBOR plus 2.75% or prime plus 1.75% for the revolving credit
loan and LIBOR plus 3.00% or prime plus 2.00% for the term loan at September 28,
1996. At current borrowing levels and market interest rates, expected interest
expense under the Facility will lower profit before income taxes by
approximately $1.0 million annually. The term loan under the Facility will be
repaid in quarterly installments of $1,625,000 commencing January 1, 1997. In
anticipation of the refinancing, $890,000 of unamortized financing costs were
charged to operations during the first quarter of 1996. In connection with the
refinancing, the Company incurred fees and expenses aggregating approximately
$4.0 million which will be amortized over the terms of the Facility.
Effective March 28, 1996, the Company's trade accounts receivable
securitization program was terminated in anticipation of refinancing the
Company's then existing long-term credit facility. At December 30, 1995, the
Company had generated cash of $36.0 million from the securitization program
which was subsequently replaced with borrowings under the Company's long-term
credit facility.
Primarily as a result of refinancing the accounts receivable
securitization program with long-term debt, the current ratio at September 28,
1996 increased to 2.8 to 1 from 2.3 to 1 at December 30, 1995, and net working
capital increased to $110.3 million from $79.5 million between the same two
dates.
-11-
<PAGE>
During the first nine months, the Company generated cash from operating
activities of $14.4 million in 1996, compared to $6.1 million in 1995. The cash
generated during the first nine months of 1996 and 1995 were primarily from the
net loss plus depreciation, amortization, and restructuring expense and a
reduction in working capital needs. Additionally, cash was generated during the
third quarter of 1996 from a $2.6 million sale/leaseback of selected machinery
and equipment.
During the first nine months of 1996, capital spending totaled $6.9
million, down from $8.6 million during the same period in 1995. Total 1996
capital expenditures are expected to be below the current annual depreciation
rate of almost $11.0 million. The majority of the capital spending during the
first nine months of both 1995 and 1996 was to complete previously initiated
capital projects.
At September 28, 1996, the Company had $137.6 million of bank borrowings
outstanding, comprised of a $65.0 million secured term loan and a $72.6 million
secured revolving credit loan. Additionally at September 28, 1996, the Company
had approximately $5.8 million outstanding in other long-term indebtedness,
primarily consisting of fixed-rate industrial revenue bonds. Total long and
short-term debt (funded debt) represented 52.1% of total capitalization at
September 28, 1996, compared to 45.8% of total capitalization at December 30,
1995. At September 28, 1996, the Company had $45.4 million in unused long-term
revolving bank credit lines, of which $25.3 million was currently available to
meet future cash requirements.
-12-
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 12, 1996, the Company entered into a $190.0 million
long-term secured credit facility (the Facility) which
consists of a $125.0 million three-year revolving credit loan
and a $65.0 million term loan. The term loan portion of the
Facility will be repaid in quarterly installments of
$1,625,000 commencing January 1, 1997.
Borrowings under the revolving credit loan and the term loan
bear interest at rates selected periodically by the Company of
LIBOR plus 2.75% and 3.00%, respectively, or prime plus 1.75%
and 2.00%, respectively. Under the Facility, the Company pays
a commitment fee of 1/2% per annum on the unused portion of
the revolving credit facility. In connection with the
refinancing, the Company incurred fees and expenses
aggregating approximately $4.0 million which will be amortized
over the terms of the Facility. At current borrowing levels
and market interest rates, the effect of the Facility will be
to increase interest expense and lower profit before income
taxes by approximately $1.0 million annually.
The Facility is secured by substantially all the existing and
hereafter acquired assets of the Company. Availability on the
revolving credit loan is determined by levels of eligible
inventory and eligible trade accounts receivable of the
Company. The Facility contains customary covenants for asset
based loans which restrict future borrowings, dividends and
capital spending; require maintenance of a minimum net worth;
and include financial covenant ratios related to cash flow,
earnings and debt.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1 to Loan and Security
Agreement dated as of July 12, 1996 among
LADD Furniture, Inc., certain of its
subsidiaries, the financial institutions
party thereto from time to time as the
lenders, NationsBank, N.A. (South) and Fleet
Capital Corporation as the "Co-Agents," and
NationsBank, N.A. (South), as agent for the
lenders.
10.2 Amendment No. 2 to Loan and Security
Agreement dated as of July 12, 1996 among
LADD Furniture, Inc., certain of its
subsidiaries, the financial institutions
party thereto from time to time as the
lenders, NationsBank, N.A. (South) and Fleet
Capital
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<PAGE>
Corporation as the "Co-Agents," and
NationsBank, N.A. (South), as agent for the
lenders.
10.3 Equipment Leasing Agreement dated as of
September 19, 1996 between BTM Financial &
Leasing Corporation B-4 and the Company.
(b) Reports on Form 8-K
On July 24, 1996, the Company filed with the
Commission a Form 8-K dated July 18, 1996 which
reported under Item 5 (i) Loan and Security Agreement
dated as of July 12, 1996 among LADD Furniture, Inc.,
certain of its subsidiaries, the financial
institutions party thereto from time to time as the
lenders, NationsBank, N.A. (South) and Fleet Capital
Corporation as the "Co-Agents," and NationsBank, N.A.
(South), as agent for the lenders; (ii) Press Release
dated July 18, 1996 reporting the closing and funding
of the Loan and Security Agreement; and (iii) Press
Release dated July 22, 1996 reporting the second
quarter earnings of the Company.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LADD Furniture, Inc.
Date: November 11, 1996 By: s/William S. Creekmuir
----------------------
William S. Creekmuir
Executive Vice President
and Chief Financial Officer
-15-
<PAGE>
AMENDMENT NO. 1
to
LOAN AND SECURITY AGREEMENT
dated as of July 12, 1996
THIS AMENDMENT NO. 1 dated as of August 15, 1996 is made by
LADD FURNITURE, INC., a North Carolina corporation, AMERICAN FURNITURE COMPANY,
INCORPORATED, a Virginia corporation, BARCLAY FURNITURE CO., a Mississippi
corporation, CLAYTON-MARCUS COMPANY, INC., a North Carolina corporation, LADD
CONTRACT SALES CORPORATION, a North Carolina corporation, LADD INTERNATIONAL
SALES CORP., a Barbados corporation, LADD TRANSPORTATION, INC., a North Carolina
corporation, LEA INDUSTRIES, INC., a North Carolina corporation, PENNSYLVANIA
HOUSE, INC., a North Carolina corporation, PILLIOD FURNITURE, INC., a North
Carolina corporation, NATIONSBANK, N.A. (SOUTH), a national banking association
("NationsBank"), FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet"
and together with NationsBank, the "Co-Agents") and BANKAMERICA BUSINESS CREDIT,
INC., a Delaware corporation ("BABCO" and together with NationsBank and Fleet,
the "Lenders"), and NationsBank as administrative agent for the Lenders (the
"Administrative Agent").
Preliminary Statements
The Borrowers, the Lenders, the Co-Agents and the
Administrative Agent are parties to a Loan and Security Agreement dated as of
July 12, 1996 (the "Loan Agreement"; terms defined therein and not otherwise
defined herein being used herein as therein defined).
The Borrowers, the Lenders, the Co-Agents and the
Administrative Agent, in order to correct certain oversights in the preparation
of the Loan Agreement, have agreed to amend the Loan Agreement as hereinafter
set forth.
NOW, THEREFORE, in consideration of the Loan Agreement, the
Loans made by the Lenders and outstanding thereunder, the mutual promises
hereinafter set forth and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Amendments to Loan Agreement. The Loan Agreement is
hereby amended, subject to the provisions of Section 2 hereof, effective as of
July 12, 1996, by amending Section 5.2(d) Letter of Credit Fees by amending the
second sentence thereof (beginning "Such fees payable . . . ") in its entirety
to read as follows:
Such fees shall be payable to the Administrative Agent for the Ratable
benefit of the Lenders (i) as to commercial or documentary Letters of
Credit, in advance on the date of
<PAGE>
issuance and (ii) as to standby Letters of Credit, quarterly in
advance, beginning on the date of issuance and continuing thereafter so
long as such standby Letter of Credit is outstanding, and all such fees
shall be calculated based on a year of 360 days and the actual number
of days in the stated term thereof.
and by inserting in the next following sentence, immediately before the phrase
"canceled or terminated" the phrase "reduced,".
Section 2. Effectiveness of Amendment. This Amendment shall
become effective upon receipt by the Administrative Agent of at least six copies
of this Amendment duly executed and delivered by each Borrower and each Lender.
Section 3. Effect of Amendment. From and after the
effectiveness of this Amendment, all references in the Loan Agreement and in any
other Loan Document to "this Agreement," "the Loan Agreement," "hereunder,"
"hereof" and words of like import referring to the Loan Agreement, shall mean
and be references to the Loan Agreement as amended by this Amendment. Except as
expressly amended hereby, the Loan Agreement and all terms, conditions and
provisions thereof remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
Section 4. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
(b) Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of
Georgia.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWERS:
LADD FURNITURE, INC.
By:/s/William S. Creekmuir
------------------------
William S. Creekmuir
Executive Vice President
AMERICAN FURNITURE COMPANY,
INCORPORATED
By:/s/William S. Creekmuir
-----------------------
William S. Creekmuir
Vice President
LEA INDUSTRIES, INC.
(a North Carolina corporation)
By:/s/William S. Creekmuir
------------------------
William S. Creekmuir
Vice President
BARCLAY FURNITURE CO.
By:/s/William S. Creekmuir
-------------------------
William S. Creekmuir
Vice President
CLAYTON-MARCUS COMPANY, INC.
By:/s/William S. Creekmuir
-------------------------
William S. Creekmuir
Vice President
LADD CONTRACT SALES CORP.
By:/s/William S. Creekmuir
-------------------------
William S. Creekmuir
Vice President
-3-
<PAGE>
PENNSYLVANIA HOUSE, INC.
By:/s/William S. Creekmuir
--------------------------
William S. Creekmuir
Vice President
PILLIOD FURNITURE, INC.
By:/s/William S. Creekmuir
--------------------------
William S. Creekmuir
Vice President
LADD TRANSPORTATION, INC.
By:/s/William S. Creekmuir
--------------------------
William S. Creekmuir
Vice President
LADD INTERNATIONAL SALES CORP.
By:/s/William S. Creekmuir
---------------------------
William S. Creekmuir
Vice President
NATIONSBANK, N.A. (SOUTH), as
Administrative Agent, a Co-Agent
and as a Lender
By:/s/Reece Chapman
---------------------------
Reece Chapman
Senior Vice President
FLEET CAPITAL CORPORATION, as a Co-
Agent and as a Lender
By: /s/John W. Gretz
---------------------------
Name:John W. Gretz
Title:SVP
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By:/s/Victor Alfirevic
---------------------------
Name: Victor Alfirevic
Title: Vice President
-4-
AMENDMENT NO. 2
to
LOAN AND SECURITY AGREEMENT
dated as of July 12, 1996
THIS AMENDMENT NO. 2 dated as of October 10, 1996 is made by
LADD FURNITURE, INC., a North Carolina corporation, AMERICAN FURNITURE COMPANY,
INCORPORATED, a Virginia corporation, BARCLAY FURNITURE CO., a Mississippi
corporation, CLAYTON-MARCUS COMPANY, INC., a North Carolina corporation, LADD
CONTRACT SALES CORPORATION, a North Carolina corporation, LADD INTERNATIONAL
SALES CORP., a Barbados corporation, LADD TRANSPORTATION, INC., a North Carolina
corporation, LEA INDUSTRIES, INC., a North Carolina corporation, PENNSYLVANIA
HOUSE, INC., a North Carolina corporation, PILLIOD FURNITURE, INC., a North
Carolina corporation, NATIONSBANK, N.A. (SOUTH), a national banking association
("NationsBank"), FLEET CAPITAL CORPORATION, a Rhode Island corporation ("Fleet"
and together with NationsBank, the "Co-Agents"), the financial institutions
parties to the Loan Agreement (as hereinafter defined) from time to time (the
"Lenders"), and NATIONSBANK as administrative agent for the Lenders (the
"Administrative Agent").
Preliminary Statements
The Borrowers, the Lenders, the Co-Agents and the
Administrative Agent are parties to a Loan and Security Agreement dated as of
July 12, 1996, as amended by Amendment No. 1 dated as of August 15, 1996 (said
Agreement, as so amended, the "Loan Agreement"; terms defined therein and not
otherwise defined herein being used herein as therein defined).
In response to the requests of certain Lenders made in
connection with their becoming Lenders, the Borrowers, the Lenders, the
Co-Agents and the Administrative Agent have agreed to amend the Loan Agreement
as hereinafter set forth, upon and subject to all of the terms, conditions and
provisions hereof.
NOW, THEREFORE, in consideration of the Loan Agreement, the
Loans made by the Lenders and outstanding thereunder, the mutual promises
hereinafter set forth and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
Section 1. Amendments to Loan Agreement. The Loan Agreement is
hereby amended, subject to the provisions of Section 2, effective as of the date
hereof by
(a) amending Section 1.1 Definitions by
<PAGE>
(i) amending the definition "Eligible Assignee" in its
entirety to read as follows:
"Eligible Assignee" means, subject to the provisions of
Section 14.3, a commercial bank having total assets in excess of
$1,000,000,000, any Affiliate of such a bank that conducts a commercial
finance or asset based lending business and is organized under the laws
of the United States or any state thereof, and any Lender; provided
that if an Assignment Event has occurred, "Eligible Assignee" shall
included any Person who would be an "accredited investor" under and as
defined in Regulation D of the Securities and Exchange Commission.
(ii) amending the definition "Interbank Offered Rate"
in its entirety to read as follows:
"Interbank Offered Rate" means, for any Eurodollar Rate Loan
for any Interest Period therefor, the rate per annum (rounded upwards,
if necessary to the nearest 1/100 of 1%) appearing on Telerate Page
3750 (or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Eurodollar Rate" shall mean, for any Eurodollar
Rate Loan for any Interest Period therefor, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on the
Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, however, that if more
than one rate is specified on the Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
(iii) amending the definition "Net Proceeds" by amending the
first parenthetical phrase therein in its entirety to read as follows:
(including, without limitation, payments under notes or other debt
securities received in connection with any Asset Disposition, but
excluding any proceeds received in connection with the disposition of
Daystrom assets or the sale of assets contemplated by the New BOT
Transaction)
(iv) amending the definition "Permitted Lien" by amending
subsection (a) thereof in its entirety to read as follows:
-2-
<PAGE>
(a) Liens securing taxes, assessments and other governmental
charges or levies (excluding any Lien imposed pursuant to any of the
provisions of ERISA) or the claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals
incurred in the ordinary course of business or the claims of credit
card processors under agreements with one or more Borrowers as
"merchants" entered into in the ordinary course of such Borrowers'
business(es), but (i) in the case of governmental charges or levies and
warehousemen or landlords, only if payment shall not at the time be
required to be made in accordance with Section 10.6, (ii) further, in
the case of warehousemen or landlords, only if such Liens are junior to
the Security Interest in any of the Collateral or the Real Estate, and
(iii) in the case of merchant processors, only if such Liens affect
solely any funds of such Borrowers representing proceeds of
transactions processed by such merchant processors and in the
possession and control of such merchant processors in accordance with
the terms of their agreements with such Borrowers,
(v) adding thereto in proper alphabetical order the
following new definition:
"Assignment Event" means the occurrence of an Event of Default
pursuant to Section 13.1(a), 13.1(g) or 13.1(h) or the occurrence of
any other Event of Default that continues for 75 days or more without
its being cured or waived by the Lenders (or Required Lenders, as
applicable) and the Administrative Agent.
(b) amending Section 4.3 Repayment of Term Loan by
adding at the end thereof a new sentence to read as follows:
The final installment of principal of the Term Loan shall be due and
payable on the earlier of (i) October 1, 2006 and (ii) the Termination
Date.
(c) amending Article 14 by adding thereto a new
Section 14.3 to read as follows:
SECTION 14.3. Non-U.S. Lenders. Prior to the Agreement Date
or, with respect to any Lender that becomes a Lender after the Agreement
Date, prior to the "Effective Date" of the Assignment and Acceptance
pursuant to which such Lender became a Lender, each Lender which is not
incorporated under the laws of the United States of America or a state
thereof agrees that it will deliver to the Administrative Agent (i) a
letter in duplicate and two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form,
as the case may be, certifying in each case that such Lender is entitled
to receive payments under this Agreement without deduction
-3-
<PAGE>
or withholding of any United States federal income taxes, and (ii) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form,
as the case may be, to establish an exemption from United States backup
withholding tax. Each such Lender which delivers a copy of a Form 1001
or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence
further undertakes to deliver to the Administrative Agent two further
copies of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms, or other manner of certification, as the
case may be, on or before the date that any such letter or form expires
or becomes obsolete or after the occurrence of any event requiring a
change in the most recent letter and form previously delivered by it to
the Administrative Agent, and such extensions or renewals thereof as
may reasonably be requested by the Administrative Agent, certifying in
the case of a Form 1001 or 4224 that such Lender is entitled to receive
payments under this Agreement without deduction or withholding of any
United States federal income taxes, unless in any such case an event
(including without limitation any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or
which would prevent such Lender from duly completing and delivering any
such letter or form with respect to it and such Lender advises the
Administrative Agent that it is not capable of receiving payments
without any deduction or withholding of United States federal income
tax, and in the case of a Form W-8 or W-9, establishing an exemption
from United States backup withholding tax, in which case, all payments
by the Borrowers hereunder and under any Note shall be increased by the
amount necessary to pay to such Lender, net of any such withholding
tax(es) the amount of each payment provided for hereunder.
Section 2. Effectiveness of Amendment. This Amendment shall
become effective on the date (the "Amendment Effective Date") on which the
Administrative Agent shall have received each of the following documents (in
sufficient copies for each Lender):
(a) this Amendment duly executed and delivered by each
Borrower and the Required Lenders,
(b) a certificate of the Secretary of each Borrower having
attached thereto the articles or certificate of incorporation and bylaws of such
Borrower as in effect on the Amendment Effective Date attached thereto (or
containing the certification of such Secretary that no amendment or modification
of such articles or certificate or bylaws has become effective since the last
date on which such documents were delivered to the Administrative Agent pursuant
to the Loan Agreement), and to the further effect that the incumbency
certificate and corporate
-4-
<PAGE>
action delivered in connection with the occurrence of the
Effective Date remain in effect, unchanged,
(c) a certificate of the President or Financial
Officer of LADD to the effect that
(i) the representations and warranties of the Borrowers
contained in the Loan Documents are true and correct in all material
respects on and as of the Amendment Effective Date as if made on and as
of such date, and
(ii) no Default or Event of Default has occurred and is
continuing,
and such statements shall be true, and
(d) such other documents, certificates and instruments in
connection with the effectiveness of this Amendment as the Administrative Agent
or any Lender may reasonably request.
Section 3. Effect of Amendment. From and after the
effectiveness of this Amendment, all references in the Loan Agreement and in any
other Loan Document to "this Agreement," "the Loan Agreement," "hereunder,"
"hereof" and words of like import referring to the Loan Agreement, shall mean
and be references to the Loan Agreement as amended by this Amendment. Except as
expressly amended hereby, the Loan Agreement and all terms, conditions and
provisions thereof remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Administrative Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
Section 4. Counterpart Execution; Governing Law.
(a) Execution in Counterparts. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
(b) Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of
Georgia.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWERS:
LADD FURNITURE, INC.
By:
-------------------------
William S. Creekmuir
Executive Vice President
AMERICAN FURNITURE COMPANY,
INCORPORATED
By:
-------------------------
William S. Creekmuir
Vice President
LEA INDUSTRIES, INC.
(a North Carolina corporation)
By:
-------------------------
William S. Creekmuir
Vice President
BARCLAY FURNITURE CO.
By:
-------------------------
William S. Creekmuir
Vice President
CLAYTON-MARCUS COMPANY, INC.
By:
-------------------------
William S. Creekmuir
Vice President
LADD CONTRACT SALES CORP.
By:
-------------------------
William S. Creekmuir
Vice President
-6-
<PAGE>
PENNSYLVANIA HOUSE, INC.
By:
-------------------------
William S. Creekmuir
Vice President
PILLIOD FURNITURE, INC.
By:
-------------------------
William S. Creekmuir
Vice President
LADD TRANSPORTATION, INC.
By:
-------------------------
William S. Creekmuir
Vice President
LADD INTERNATIONAL SALES CORP.
By:
-------------------------
William S. Creekmuir
Vice President
-7-
<PAGE>
AGENTS/LENDERS:
NATIONSBANK, N.A. (SOUTH), as
Administrative Agent, a Co-Agent
and as a Lender
By:
-------------------------
David J. Sapp
Vice President
FLEET CAPITAL CORPORATION, as a Co-
Agent and as a Lender
By:
-------------------------
Name:
Title:
BANKAMERICA BUSINESS CREDIT, INC.,
as a Lender
By:
-------------------------
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT,
INC., as a Lender
By:
-------------------------
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION,
as a Lender
By:
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By:
-------------------------
Name:
Title:
-8-
<PAGE>
CREDITANSTALT CORPORATE FINANCE,
INC., as a Lender
By:
-------------------------
Name:
Title:
BRANCH BANKING AND TRUST COMPANY,
as a Lender
By:
-------------------------
Name:
Title:
-9-
<PAGE>
EQUIPMENT LEASING AGREEMENT
EQUIPMENT LEASING AGREEMENT dated as of September 19, 1996 (herein, as
amended and supplemented from time to time, called "this Lease"), between BTM
FINANCIAL & LEASING CORPORATION B-4, a Massachusetts corporation (herein called
"Lessor"), having a principal place of business at 125 Summer Street, Boston,
Massachusetts 02110, and LADD FURNITURE, INC., a North Carolina corporation
(herein called "Lessee"), having its principal place of business at One Plaza
Center, High Point, North Carolina 27261.
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. Definitions. Unless the context otherwise requires,
the following terms shall have the following meanings for all
purposes of this Lease and shall be equally applicable to both
the singular and the plural forms of the terms herein defined:
"Acceptance Date" for each Item of Equipment means the date on
which Lessee has unconditionally accepted such Item for lease hereunder, as
evidenced by Lessee's execution and delivery of a Lease Supplement for such Item
dated such date.
"Acquisition Cost" of each Item of Equipment means an amount
equal to the sum of (i) the total cost paid by Lessor for such Item, plus (ii)
all sales and excise taxes paid by Lessor on or with respect to the acquisition
of such Item, plus (iii) all costs and expenses paid by Lessor, or Lessee with
the approval of Lessor, in connection with the delivery and installation of such
Item.
"Acquisition Period" means the period specified as such on
each consecutively numbered Related Exhibit A now or hereafter attached hereto
and made a part hereof.
"Assignee" shall have the meaning given to such term in
Section 14(b) hereof.
"Basic Rent" means the rent payable for each Item of Equipment
during (i) the Basic Term thereof pursuant to Section 7(b) hereof, and (ii) each
Renewal Term thereof pursuant to Section 29(a) hereof.
"Basic Term" for each Item of Equipment means the period
consisting of the number of months set forth for the type of Equipment to which
such Item relates on the Related Exhibit A for such Item.
1
<PAGE>
"Basic Term Commencement Date" for each Item of Equipment
means the date specified as such on the Related Exhibit A for such Item.
"Business Day" means any day other than a day on which banking
institutions in the Commonwealth of Massachusetts or the State of North Carolina
are authorized by law to close.
"Casualty Loss Value" of each Item of Equipment as of any
Casualty Loss Value Payment Date means an amount determined by multiplying the
Acquisition Cost of such Item of Equipment by the percentage set forth opposite
such Casualty Loss Value Payment Date on the Schedule of Casualty Loss Values
attached to the Related Exhibit A for such Item.
"Casualty Loss Value Payment Date" of each Item of Equipment
shall mean the Basic Term Commencement Date for such Item and the same day of
each month thereafter and shall be as set forth in the Schedule of Casualty Loss
Values attached to the Related Exhibit A for such Item.
"Code" means the Internal Revenue Code of 1986, as the same
may be amended from time to time, or any comparable successor law.
"Early Buyout Date" means the date, specified in the Related
Exhibit A, upon which Lessee may exercise its option to purchase the Equipment
pursuant to Section 35.
"Early Buyout Value", for each Item of Equipment, means an
amount determined by multiplying the Acquisition Cost of such Item of Equipment
by the applicable percentage set forth under the caption "Early Buyout
Percentage" in the Lease Supplement for such Item.
"Equipment" means the equipment of the type(s) described on
each consecutively numbered Related Exhibit A now or hereafter attached hereto
and made a part hereof and leased or to be leased by Lessor to Lessee hereunder
or ordered by Lessor for lease to Lessee hereunder, together with any and all
accessions, additions, improvements and replacements from time to time
incorporated or installed therein which are the property of Lessor pursuant to
the terms of this Lease.
"Event of Default" means any of the events referred to
in Section 23 hereof.
"Event of Loss" with respect to any Item of Equipment means
(i) the loss of such Item of Equipment or any substantial part thereof, or (ii)
the loss of the use of such Item of Equipment due to theft or disappearance for
a period in excess of 45 days during the Term, or existing at the expiration or
earlier
2
<PAGE>
termination of the Term, or (iii) the destruction, damage beyond repair, or
rendition of such Item of Equipment or any substantial part thereof permanently
unfit for normal use for any reason whatsoever, or (iv) the condemnation,
confiscation, seizure, or requisition of use or title to such Item of Equipment
or any substantial part thereof by any governmental authority under the power of
eminent domain or otherwise.
"Interim Rent" means the rent payable for each Item of
Equipment for the Interim Term thereof pursuant to Section 7(a) hereof.
"Interim Term" for each Item of Equipment means the period
commencing on the Acceptance Date for such Item (unless the Acceptance Date is
the Basic Term Commencement Date, in which case there shall be no Interim Term
for such Item) and ending on the date immediately prior to the Basic Term
Commencement Date.
"Item of Equipment" or "Item" means a single unitary
item of the Equipment.
"Lease Supplement" means a Lease Supplement substantially in
the form attached hereto as Exhibit B, to be executed by Lessor and Lessee with
respect to each Item of Equipment as provided in Section 4 hereof, evidencing
that such Item is leased hereunder.
"Letter of Credit" means that certain standby letter of
credit, from Nationsbank, N.A. (South) as Issuer, in favor of Lessor as
beneficiary, in an aggregate amount equal to twenty-five percent (25%) of the
Acquisition Cost of the Equipment then leased hereunder (or such other amount as
Lessor may agree, from time to time, pursuant to Section 34), and any letter of
credit issued, with the consent of Lessor, in substitution or replacement
therefor.
"Lien" means liens, mortgages, encumbrances, pledges, charges
and security interests of any kind.
"Maximum Acquisition Cost" means the amount specified as such
on each consecutively numbered Related Exhibit A now or hereafter attached
hereto and made a part hereof.
"NationsBank Facility" shall mean that certain Loan and
Security Agreement entered into by and among Lessee, NationsBank, N.A. (South)
and the other parties thereto, dated as of July 12, 1996.
"Permitted Lien" has the meaning assigned to such term
in Section 15.
3
<PAGE>
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, trustee(s) of a trust,
unincorporated organization, or government or governmental authority, agency or
political subdivision thereof.
"Related Exhibit A" means, with respect to an Item of
Equipment, the particular numbered Exhibit A now or hereafter attached hereto
and made a part hereof to which such Item relates as specified in Section 4
hereof.
"Renewal Term" for each Item of Equipment means the period
following the end of the Basic Term for such Item with respect to which Lessee
has the option to renew this Lease pursuant to Section 29(a) hereof.
"Rent" means Interim Rent and Basic Rent.
"Rent Payment Date" for each Item of Equipment means (i) for
the Basic Term thereof, each date on which a payment of Basic Rent is due and
payable for such Item pursuant to Section 7(b) hereof, (ii) for the Interim Term
thereof (if any), the Basic Term Commencement Date for such Item, and (iii) for
each Renewal Term thereof, each date on which a payment of Basic Rent is due and
payable for such Item as provided in Section 29(a) hereof.
"Rental Period" for each Item of Equipment means (i) for the
Interim Term of such Item, the period from and inclusive of the Acceptance Date
for such Item to, but not inclusive of, the Basic Term Commencement Date for
such Item, (ii) for the Basic Term of such Item, each period for which a payment
of Basic Rent is to be made for such Item during the Basic Term thereof as set
forth on the Related Exhibit A for such Item (opposite the reference to Rental
Periods for Basic Term), and (iii) for each Renewal Term of such Item, each
period for which a payment of Basic Rent is to be made for such Item during such
Renewal Term as set forth on the Related Exhibit A for such Item (opposite the
reference to Rental Periods for Renewal Term).
"Supplemental Payments" means all amounts, liabilities and
obligations which Lessee assumes or agrees to pay hereunder to Lessor or others,
including payments of Casualty Loss Value and indemnities, but excluding Basic
Rent and Interim Rent.
"Term" means the full term of the Lease with respect to each
Item of Equipment, including the Interim Term (if any), the Basic Term, and the
Renewal Term.
The words "this Lease", "herein", "hereunder", "hereof" or other like words mean
and include this Equipment Leasing Agreement,
4
<PAGE>
each Related Exhibit A, each Lease Supplement, and each amendment and supplement
hereto and thereto.
2. Agreement for Lease of Equipment. Subject to, and upon all of the
terms and conditions of this Lease, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor each Item of Equipment for the Term
with respect to such Item. Provided that no Event of Default has occurred and is
continuing hereunder, Lessor agrees that it shall not interfere with Lessee's
quiet enjoyment and use of any Item of Equipment leased hereunder during the
Term thereof.
3. Conditions Precedent. Lessor shall have no obligation to purchase
any Item of Equipment and to lease the same to Lessee unless each of the
following conditions are fulfilled to the satisfaction of Lessor: (i) no event
which is (or with notice or lapse of time or both would become) an Event of
Default or Event of Loss has occurred and is continuing, nor has any information
come to Lessor's attention from which Lessor could reasonably and in good faith
infer that such event might occur; (ii) no material adverse change in the
financial condition of Lessee, which, in Lessor's good faith opinion, would
impair the ability of Lessee to pay and perform its obligations under this Lease
has occurred since the date specified as the Financial Condition Reference Date
on the Related Exhibit A for such Item, provided, that the NationsBank Facility
shall have been completed to the satisfaction of Lessor; (iii) such Item of
Equipment is reasonably acceptable to Lessor, and is free of all Liens, other
than any Lien specifically excepted in Section 15 hereof; (iv) the Acceptance
Date for such Item of Equipment is a date within the Acquisition Period
specified on the Related Exhibit A for such Item and Lessee has executed and
delivered to Lessor the Related Exhibit A for such Item; (v) the Acquisition
Cost of such Item of Equipment, when added to the total Acquisition Cost of all
Equipment of the type to which such Item relates and which has been leased
hereunder, or ordered by Lessor for lease hereunder, will not be such an amount
so as to cause the Maximum Acquisition Cost specified on the Related Exhibit A
for such Item to be exceeded; (vi) Lessor has received an invoice for such Item
of Equipment from the seller thereof, approved for payment by Lessee, showing
Lessor as the purchaser of such Item, or, if Lessee or a permitted sublessee is
the seller of such Item, a bill of sale for such Item from Lessee (or as
applicable, sublessee) to Lessor in form and substance satisfactory to Lessor,
together with evidence, satisfactory to Lessor, within sixty (60) days following
the Acceptance Date of such Items, of Lessee's (or as applicable, such
sublessee's) payment to the original seller of such Items in an amount at least
equal to ninety percent (90%) of the Acquisition Cost of such Items; (vii)
Lessor has received a Lease Supplement for such Item, duly executed by Lessee,
and dated the Acceptance Date for such Item; (viii) if such Item of Equipment is
subject to motor vehicle
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titling and registration laws, Lessor has received a copy of the application for
certificate of title therefor, as filed with, and bearing the filing stamp of,
the appropriate department of motor vehicles or other appropriate state
authority, and a copy of the manufacturer's statement or certificate of origin
therefor, reflecting Lessor or its nominee as owner and whomever Lessor shall
have designated (if any) as first lienholder; (ix) all licenses, registrations,
permits, consents and approvals required by Federal, state or local laws or by
any governmental body, agency or authority in connection with Lessor's ownership
of, and the delivery, acquisition, installation, use and operation of, each Item
of Equipment shall have been obtained to the satisfaction of Lessor; (x) Lessor
shall have received the Letter of Credit duly issued by the issuer thereof in an
amount equal to twenty-five percent (25%) of the Acquisition Cost of such Item;
(xi) Lessor shall have received a release from the Lien of the NationsBank
Facility in form and substance satisfactory to Lessor with respect to such Item;
and (xii) Lessor shall have received such other documents, opinions,
certificates and waivers, in form and substance satisfactory to Lessor, as
Lessor may require.
4. Delivery, Acceptance and Leasing of Equipment. Lessor shall not be
liable to Lessee for any failure or delay in obtaining any Item of Equipment or
making delivery thereof. Forthwith upon delivery of each Item of Equipment to
Lessee, Lessee will inspect such Item, and unless Lessee gives Lessor prompt
written notice of any defect in or other proper objection to such Item, Lessee
shall promptly upon completion of such inspection execute and deliver to Lessor
a Lease Supplement for such Item, dated the Acceptance Date of such Item. The
execution by Lessor and Lessee of a Lease Supplement for an Item of Equipment
shall (a) evidence that such Item is leased under, and is subject to all of the
terms, provisions and conditions of, this Lease, and (b) constitute Lessee's
unconditional and irrevocable acceptance of such Item for all purposes of this
Lease. An Item of Equipment shall be conclusively deemed to relate to the
particular numbered Exhibit A now or hereafter attached hereto and made a part
hereof on which is set forth (i) a description of such Item or the type of
Equipment to which such Item relates and (ii) the Acquisition Period within
which the Acceptance Date for such Item has occurred.
5. Term. The Interim Term (if any) for each Item of Equipment shall
commence on the Acceptance Date thereof, and, unless sooner terminated pursuant
to the provisions hereof, shall end on the date immediately prior to the Basic
Term Commencement Date thereof. The Basic Term for each Item of Equipment shall
commence on the Basic Term Commencement Date thereof and, unless this Lease is
sooner terminated with respect to such Item (or all Equipment) pursuant to the
provisions hereof, shall end on the date specified therefor in the Lease
Supplement for such Item. If not sooner terminated pursuant to the provisions
hereof, the
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Term for each Item of Equipment shall end on the last day of the Basic Term
thereof, or if this Lease is renewed pursuant to Section 29(a) hereof, on the
last day of the last Renewal Term thereof.
6. Return of Equipment.
(a) Upon the expiration or earlier termination of the Term with respect
to each Item of Equipment (unless Lessee has exercised its purchase option with
respect thereto pursuant to Section 29(b) hereof), Lessee will, at its expense,
surrender and deliver possession of each Item of Equipment to Lessor at a
location chosen by Lessor within seven hundred (700) miles of the then location
of each such Item, or as may be otherwise agreed by the parties. At the time of
such return to Lessor, each Item of Equipment (and each part or component
thereof) shall (i) be in good operating order, and in the repair and condition
as when originally delivered to Lessee, ordinary wear and tear from proper use
thereof excepted, (ii) be capable of being assembled and operated by a third
party purchaser or third party lessee without further inspection, repair,
replacement, alterations or improvements (excluding third party peculiar
requirements for compatibility with then existing third party products,
equipment or facilities), and in accordance and substantial compliance with any
and all statutes, laws, ordinances, rules and regulations of any Federal, state
or local governmental body, agency or authority applicable to the use and
operation of such Item of Equipment, and (iii) be free and clear of all Liens,
other than any Lien granted or placed thereon by Lessor or any Assignee. All
Equipment shall have been maintained in good working order and according to the
manufacturers recommendations, shall be deinstalled by a qualified technician,
and shall be fully disassembled, palletized and prepared as necessary for long
term storage. If any Item of Equipment is originally equipped with tires, such
Item shall, in addition to satisfying the requirements of the preceding
sentence, be returned with all tires installed thereon, with each tire having at
least fifty percent (50%) or more average remaining tread for each Item of
Equipment thereon.
(b) Until each such Item of Equipment has been returned to Lessor in
the condition and as otherwise provided in this Section 6, Lessee shall continue
to pay Lessor, on the same dates on which Basic Rent for such Item was payable
during the Basic Term thereof (or, if the Term of such Item has been renewed
pursuant to Section 29(a), the most recent Renewal Term thereof), the same Basic
Rent for such Item that was payable on the last Rent Payment Date of the Basic
Term thereof (or, if the Term of such Item has been renewed pursuant to Section
29(a), the same Basic Rent that was payable on the last Rent Payment Date of the
most recent Renewal Term); provided, that during such holdover period, Lessee
shall use its best efforts to secure the return of the
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Equipment as required under this Section 6. The provision for payment pursuant
to this Section 6(b) shall not be in abrogation of Lessor's right under this
Section 6 to have such Equipment returned to it hereunder.
(c) The provisions of this Section 6 are of the essence of this Lease,
and upon application to any court of equity having jurisdiction in the premises,
Lessor shall be entitled to a decree against Lessee requiring specific
performance of the covenants of Lessee set forth in this Section 6.
7. Rent.
(a) Interim Rent. Lessee hereby agrees to pay Lessor Interim Rent for
each Item of Equipment as to which there is an Interim Term, payable on the Rent
Payment Date of the Interim Term for such Item, in the amount obtained by
multiplying (i) the Acquisition Cost of such Item by (ii) the percentage set
forth (in the column captioned Interim Rent Percentage) on the Related Exhibit A
for such Item, by (iii) the number of days from and including the Acceptance
Date for such Item through the end of the Interim Term for such Item.
(b) Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for each
Item of Equipment during the Basic Term thereof at the times and on the Rent
Payment Dates set forth on the Related Exhibit A for such Item and in an amount
obtained by multiplying (i) the Acquisition Cost of such Item by (ii) the
percentage of Acquisition Cost set forth (in the column captioned Basic Rent
Percentage) on such Related Exhibit A.
(c) Supplemental Payments. Lessee also agrees to pay to Lessor, or to
whomsoever shall be entitled thereto as expressly provided herein, all
Supplemental Payments, promptly as the same shall become due and owing, and in
the event of any failure on the part of Lessee so to pay any such Supplemental
Payment hereunder Lessor shall have all rights, powers and remedies provided for
herein or by law or equity or otherwise in the case of nonpayment of Rent.
(d) Method of Payment. All payments of Rent and Supplemental Payments
required to be made by Lessee to Lessor shall be made by check or in good funds.
If the date that any payment of Rent is due is other than a Business Day the
payment of Rent otherwise payable on such date shall be payable on the next
succeeding Business Day. In the event of any assignment to an Assignee pursuant
to Section 14(c) hereof, all payments which are assigned to such Assignee,
whether Rent, Supplemental Payments or otherwise, shall be paid in such manner
as shall be designated by Lessor or such Assignee. All payments of Rent required
to be made by Lessee to Lessor hereunder shall be paid to Lessor at its address
specified at the beginning of this Lease
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or at such other address as Lessor may hereafter designate in writing to Lessee.
Time is of the essence in connection with the payment of Rent and Supplemental
Payments.
8. Net Lease. This Lease is a net lease. Lessee
acknowledges and agrees that its obligations hereunder,
including, without limitation, its obligations to pay Rent for
all Equipment leased hereunder and to pay all Supplemental
Payments payable hereunder,
(a) shall be unconditional and irrevocable under any
and all circumstances,
(b) shall not be subject to cancellation, termination,
modification or repudiation by Lessee, and
(c) shall be paid and performed by Lessee without notice or
demand and without any abatement, reduction, diminution, setoff,
defense, counterclaim or recoupment whatsoever, including, without
limitation, any abatement, reduction, diminution, setoff, defense,
counterclaim or recoupment due or alleged to be due to, or by reason
of,
(i) any past, present or future claims which Lessee
may have against Lessor, any Assignee, any manufacturer or
supplier of the Equipment or any Item thereof, or any other
Person for any reason whatsoever, or
(ii) any defect in the Equipment or any Item
thereof, or the condition, design, operation or fitness
for use thereof, or
(iii) any damage to, or any loss or destruction
of, the Equipment or any Item thereof, or
(iv) any Liens or rights of others with respect to
the Equipment or any Item thereof, or
(v) any prohibition or interruption of or other
restriction against Lessee's use, operation or possession of
the Equipment or any Item thereof, for any reason whatsoever,
or any interference with such use, operation or possession by
any Person or entity, or
(vi) any default by Lessor in the performance of any
of its obligations herein contained, or any other indebtedness
or liability, howsoever and whenever arising, of Lessor, or of
any Assignee, or of Lessee to any other Person, or by reason
of insolvency, bankruptcy or similar proceedings by or against
Lessor,
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any Assignee or Lessee, or
(vii) for any other reason whatsoever, whether
similar or dissimilar to any of the foregoing, any
present or future law to the contrary notwithstanding;
it being the intention of the parties hereto that all Rent and Supplemental
Payments payable by Lessee hereunder shall continue to be payable in all events
and in the manner and at the times herein provided, without notice or demand,
unless the obligation to pay the same shall be terminated pursuant to the
express provisions of this Lease. Lessee retains its rights and remedies against
Lessor or any Assignee for breach of covenant, representation or warranty,
negligence or wilful malfeasance.
9. Lessor's Title; Equipment to be and Remain Personal Property. Title
to the Equipment shall at all times remain in Lessor and at no time during the
Term shall title become vested in Lessee. This Lease is intended to be a true
lease and not a lease intended as security or a lease in the nature of a
security interest. Lessee shall acquire no right, title or interest in or to the
Equipment, except the right to use the same pursuant to the terms of this Lease.
It is the intention and understanding of both Lessor and Lessee, and Lessee
shall take all such actions as may be required to assure, that the Equipment
shall be and at all times remain personal property, notwithstanding the manner
in which the Equipment may be attached or affixed to realty. Lessee shall obtain
and record such instruments and take such steps as may be necessary to prevent
any Person from acquiring any rights in the Equipment by reason of the Equipment
being claimed or deemed to be real property. Upon request by Lessor, Lessee
shall obtain and deliver to Lessor valid and effective waivers, in recordable
form, by the owners, landlords and mortgagees of the real property upon which
the Equipment or any Item of Equipment is located or certificates of Lessee that
it is the owner of such real property or that such real property is not leased
and/or mortgaged. Lessee shall cause each Item of Equipment subject to motor
vehicle titling and registration laws to be titled in the name of Lessor, as
owner, and, if permitted by applicable law, to be registered in the name of
Lessee, as lessee, and shall cause all certificates of title to be promptly
furnished to Lessor.
10. Use of Equipment; Compliance with Laws. Lessee agrees that the
Equipment will be used and operated solely in the conduct of its business and in
compliance with any and all insurance policy terms, conditions and provisions
and in substantial compliance with all statutes, laws, ordinances, rules and
regulations of any Federal, state or local governmental body, agency or
authority applicable to the use and operation of the Equipment, including,
without limitation, environmental, noise and pollution laws (including
notifications and reports). Lessee
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shall procure and maintain in effect all licenses, registrations, certificates,
permits, approvals and consents required by Federal, state or local
laws or by any governmental body, agency or authority in connection
with the ownership, delivery, installation, use and operation of each Item
of Equipment, including, without limitation, those required by environmental,
noise and pollution laws (including notifications and reports), and including,
in the case of any Item subject to motor vehicle titling and
registration laws, all titles, registrations, registration plates,
permits, licenses, and all renewals thereof. The Equipment will at all times
be and remain in the possession and control of Lessee. Lessee shall
notify Lessor of any change in its principal place of business set
forth above. Lessee shall not change the location of any Item of
Equipment as specified in the Lease Supplement with respect thereto without
delivering prior written notice to Lessor of the new location to which such Item
will be moved and receiving Lessor's prior written consent to such move. The
Equipment shall in no event be used or located outside of the continental limits
of the United States. Lessee shall use and operate the Equipment or cause it to
be used and operated only by personnel authorized by Lessee, and Lessee shall
use every reasonable precaution to prevent loss or damage to each Item of
Equipment from fire and other hazards.
11. Maintenance and Repair of Equipment. Lessee agrees, at its own cost
and expense, to keep, repair, maintain and preserve the Equipment in good order
and operating condition, reasonable wear and tear excepted and in compliance
with such maintenance and repair standards and procedures as are customarily
followed by Lessee with respect to similar items of equipment, and as otherwise
may be required to enforce warranty claims against each vendor and manufacturer
of each Item of Equipment, and in compliance with all requirements of law
applicable to the maintenance and condition of the Equipment, including, without
limitation, environmental, noise and pollution laws and regulations (including
notifications and reports). Lessee shall maintain the exterior and interior of
the Equipment in good appearance, reasonable wear and tear excepted. Lessee
shall, at its own cost and expense, supply the necessary power and other items
required in the operation of the Equipment and make available to Lessor all
maintenance records for inspection, upon reasonable prior notice, at Lessee's
place of business where the applicable Item of Equipment is located, at
reasonable times and intervals during Lessee's regular business hours. Lessee
hereby waives any right now or hereafter conferred by law to make repairs on the
Equipment at the expense of Lessor.
12. Replacements; Alterations; Modifications. In case any
Item of Equipment (or any equipment, part or appliance therein)
is required to be altered, added to, replaced or modified in
order to comply with any laws, regulations, requirements or rules
("Required Alteration") pursuant to Sections 10 or 11 hereof,
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Lessee agrees to make such Required Alteration at its own expense
and the same shall immediately be and become the property of Lessor
and subject to the terms of this Lease. Lessee may make any optional
alteration to any Item of Equipment ("Optional Alteration") provided
such Optional Alteration does not impair the value, use or remaining
useful life of such Item of Equipment. In the event such Optional
Alteration is readily removable without causing material damage to the Item of
Equipment, and is not a part, item of equipment or appliance which replaces any
part, item of equipment or appliance originally incorporated or installed in or
attached to such Item of Equipment on the Acceptance Date therefor or any part,
item of equipment or appliance in replacement of or substitution for any such
original part, item of equipment or appliance, any such Optional Alteration
shall be and remain the property of Lessee. To the extent such Optional
Alteration is not readily removable without causing material damage to the Item
of Equipment to which such Optional Alteration has been made, or is a part, item
of equipment or appliance which replaces any part, item of equipment or
appliance originally incorporated or installed in or attached to such Item of
Equipment on the Acceptance Date therefor or any part, item of equipment or
appliance in replacement of or substitution for any such original part, item of
equipment or appliance, the same shall immediately be and become the property of
Lessor and subject to the terms of this Lease. Lessee agrees that, within 45
days after the close of any calendar quarter in which Lessee has made any
Required Alterations, Lessee will give written notice thereof to Lessor
describing, in reasonable detail, the Required Alterations and specifying the
cost thereof with respect to each Item of Equipment and the date or dates when
made. Any parts installed or replacements made by Lessee upon any Item of
Equipment pursuant to its obligation to maintain and keep the Equipment in good
order, operating condition and repair under Section 11 hereof shall be
considered accessions to such Item of Equipment and title thereto shall be
immediately vested in Lessor. Except as required or permitted by the provisions
of this Section 12, Lessee shall not materially modify an Item of Equipment
without the prior written authority and approval of Lessor.
12A. Early Buyout. In the event that Basic Rent shall be
increased or Lessee shall be obligated to make a lump sum payment
to Lessor pursuant to Section 19(c), and so long as no Event of
Default shall have occurred and be continuing hereunder, Lessee
shall have the right at its option on any Early Buyout Date
specified on the Related Exhibit A for any Item, on at least
ninety (90) days' prior written notice to Lessor, to terminate
this Lease with respect to all, but not less than all, of the
Items of Equipment then leased hereunder and subject to said
Related Exhibit A, with such termination to be effective on the
Early Buyout Date specified in said Related Exhibit A. On such
Early Buyout Date (but in no event prior to Lessor's receipt of
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the amounts specified in the next succeeding sentence), Lessor shall,
without recourse or warranty (except as to the absence of Liens
granted or placed thereon by Lessor or any Assignee pursuant to
Section 14(c)), sell the Equipment on an "as-is", "where-is" basis
for cash to Lessee, and Lessee shall pay to Lessor the sum of the
amounts specified in the following sub-clauses (i) through (v): (i) the
aggregate Basic Rent due and payable for all of the Equipment on the Early
Buyout Date, plus (ii) all accrued and unpaid Interim Rent and Basic Rent owing
for each Item of Equipment for all Rental Periods prior to the Rental Period for
which the Basic Rent payment specified in the preceding sub-clause (i) is
payable, plus (iii) the Early Buyout Value of such Item of Equipment as of such
Early Buyout Date, plus (iv) any sales or excise taxes on or measured by such
early buyout (other than gross or net income taxes attributable to such sale),
plus (v) all accrued and unpaid Supplemental Payments owing by Lessee as of the
Early Buyout Date. Until payment of the amounts set forth in the next preceding
sentence as aforesaid, this Lease (including the provisions of this Section 12A)
shall continue in full force and effect with respect to the Equipment. In the
event of any such sale and the receipt by Lessor of the amounts described above,
and upon compliance by Lessee with the provisions of this Section 12A, the
obligations of Lessee to pay Basic Rent hereunder with respect to each Item of
Equipment so sold shall cease for any Rental Period that commences on or after
the Early Buyout Date and the Term with respect to each such Item shall end
effective as of the Early Buyout Date. Lessor shall be under no duty to take any
action in connection with any such sale other than the duty to transfer to
Lessee, without recourse or warranty, on an "as-is", "where-is" basis (except as
to the absence of Liens granted or placed thereon by Lessor or any Assignee
pursuant to Section 14(c)), all of Lessor's right, title and interest in and to
the Equipment so sold against receipt by Lessor of the payments provided for
herein.
13. Identification Marks; Inspection. Lessee agrees, upon the request
of Lessor, at Lessee's sole cost and expense, to place markings on the Equipment
by stencil or by a metal tag or plate affixed thereto showing plainly,
distinctly and conspicuously Lessor's title and ownership thereto; provided,
however, that such identification markings are to be placed so as not to
interfere with the usefulness of such Item of Equipment. If during the Term any
such identification marking shall at any time be defaced or destroyed, Lessee
shall immediately cause such defaced or destroyed identification marking to be
restored or replaced. Lessee shall not allow the name of any Person other than
Lessee or its affiliates to be placed upon any Item of Equipment as a
designation which might be interpreted as indicating a claim of ownership
thereto or a security interest therein by any Person other than Lessor or any
Assignee. Upon the request of Lessor, Lessee shall make the Equipment available
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to Lessor for inspection at Lessee's premises (including, without
limitation, the use of photographic and video equipment, provided that
the same is used solely for the purpose of recording pertinent
Equipment information and shall not be used to record or display
information that Lessee notifies Lessor is proprietary or confidential)
and shall also make Lessee's records pertaining to the Equipment
available to Lessor for inspection.
14. Assignment and Subleasing.
(a) By Lessee. LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUBLEASE OR OTHERWISE RELINQUISH POSSESSION OF ANY ITEM OF EQUIPMENT, OR
ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER AND
ANY ATTEMPTED SUBLEASE, RELINQUISHMENT, ASSIGNMENT, TRANSFER OR ENCUMBERING BY
LESSEE SHALL BE NULL AND VOID. Lessee may, without Lessor's consent, sublease
any Item of Equipment to any affiliate or wholly-owned subsidiary of Lessee
provided that (i) no Event of Default has occurred and is continuing hereunder,
(ii) any such sublease shall be subject and subordinate in all respects to this
Lease and the rights of Lessor (and any Assignee) hereunder, (iii) the sublease
term shall in no event exceed the then remaining portion of the Term of such
Item of Equipment, and any Renewal Term thereof, (iv) Lessee will provide Lessor
with the name and address of each such sublessee and the location of each
subleased Item of Equipment, which location will in no event be outside of the
continental limits of the United States, and (v) Lessee shall, and shall cause
any such sublessee to, execute and deliver such instruments (including sublease
agreements and Uniform Commercial Code financing statements) as may be
reasonably requested by Lessor in connection with any such sublease, and to
provide copies of each sublease agreement to Lessor upon Lessor's written
request. No such subleasing by Lessee will reduce any of the obligations of
Lessee hereunder or the rights of Lessor (and any Assignee) hereunder, and all
of the obligations of Lessee hereunder shall be and remain primary and shall
continue in full force and effect as the obligations of a principal and not of a
guarantor or surety. Any sublease shall, if requested by Lessor (or any
Assignee) be assigned by Lessee (with such assignment to be consented to by the
sublessee thereof) to Lessor or any such Assignee.
(b) In the event Lessee shall sell, convey or transfer to any person,
all or substantially all of the assets as an entirety of any affiliate or
wholly-owned subsidiary to whom Lessee has subleased any Items of Equipment
pursuant to Section 14(a) above, the successor corporation formed by such sale,
conveyance or transfer shall succeed to, and be substituted for, and may
exercise every right and power of, Lessee under this Lease with respect to all,
but not less than all, of the Items of Equipment so subleased, with the same
effect as if such successor corporation had been named as a Lessee herein,
provided that such
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successor corporation shall execute and deliver to Lessor and each Assignee an
agreement containing an effective assumption by such successor corporation of
the due and punctual performance and observance of each covenant and condition
of this Lease; provided, however, that Lessee shall not be released from its
obligations hereunder with respect to such Items of Equipment, which obligations
shall at all times remain primary and direct, without the prior written consent
of Lessor. In the event such consent is withheld by Lessor, Lessee may have the
option, upon ten (10) days prior written notice) to terminate this Lease on a
Rent Payment Date designated in such notice (a "Termination Payment Date"), with
respect to all, but not less than all, of the Items of Equipment subleased to
such successor entity, by purchasing such Items of Equipment from Lessor for an
amount with respect to each such Item, payable in immediately available funds,
equal to the sum of (i) the Casualty Loss Value of such Item of Equipment on
such Termination Payment Date, plus (ii) the Basic Rent due and payable for such
Item of Equipment on such Termination Payment Date, plus (iii) any applicable
sales, excise or other taxes imposed as a result of such sale (other than gross
or net income taxes attributable to such sale), plus (iv) any Supplemental
Payments then due and owing to Lessor hereunder. Lessor's sale of each Item of
Equipment shall be on an as-is, where-is basis, without any representation or
warranty by, or recourse to, Lessor (except as to the absence of Liens granted
or placed thereon by Lessor or any Assignee pursuant to Section 14(c)).
(c) By Lessor. Lessor may, at any time, without notice to, or the
consent of, Lessee sell, assign or transfer or grant a security interest in all
or any part of Lessor's rights, obligations, title or interest in, to and under
the Equipment or any Item(s) thereof, this Lease, any Lease Supplement and/or
any Rent and Supplemental Payments payable under this Lease or any Lease
Supplement. Any entity to whom any such sale, assignment, transfer or grant of
security interest is made is herein called an "Assignee" and any such sale,
assignment, transfer or grant of security interest is herein called an
"assignment". An Assignee may re-assign and/or grant a security interest in any
of such rights, obligations, title or interest assigned to such Assignee. Lessee
agrees to execute related acknowledgments and other documents that may be
reasonably requested by Lessor or an Assignee. Each Assignee shall have and may
enforce all of the rights and benefits of Lessor hereunder with respect to the
Item(s) of Equipment and related Lease Supplement(s) covered by the assignment,
including, without limitation, the provisions of Section 8 hereof and Lessee's
representations and warranties under Section 21 hereof. Lessee acknowledges that
any such assignment will not materially change its duties or materially increase
its burdens or risks hereunder. Each such assignment shall be subject to
Lessee's rights hereunder so long as no Event
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of Default has occurred and is continuing hereunder and in no event shall there
be more than two (2) Assignees (or, one (1) Assignee, together with Lessor) at
any one time during the term of this Lease. Lessee shall be under no obligation
to any Assignee except upon written notice of such assignment from Lessor or, in
the case of a reassignment, from the Assignee. Upon written notice to Lessee of
an assignment, Lessee agrees to pay the Rent and Supplemental Payments with
respect to the Item(s) of Equipment covered by such assignment to such Assignee
in accordance with the instructions specified in such notice without any
abatement, defense, setoff, counterclaim or recoupment whatsoever, and to
otherwise comply with all notices, directions and demands which may be given by
Lessor or such Assignee with respect to such Item(s), in accordance with the
provisions of this Lease. Notwithstanding any such assignment, all obligations
of Lessor to Lessee under this Lease shall be and remain enforceable by Lessee
against Lessor and any Assignee to whom an assignment has been made.
15. Liens. Lessee will not directly or indirectly create, incur, assume
or suffer to exist any Lien on or with respect to (i) the Equipment or any Item
thereof, Lessor's title thereto or any interest therein, or (ii) this Lease or
any of Lessor's interests hereunder, except any Lien granted or placed thereon
by Lessor or any Assignee pursuant to Section 14(c) hereof (a "Permitted Lien").
Lessee, at its own expense, will promptly pay, satisfy and otherwise take such
actions as may be necessary to keep this Lease and the Equipment free and clear
of, and to duly discharge or eliminate or bond in a manner satisfactory to
Lessor and each Assignee, any such Lien not excepted above if the same shall
arise at any time. Lessee will notify Lessor and each Assignee in writing
promptly upon becoming aware of any tax or other Lien (other than any lien
excepted above) that shall attach to the Equipment or any Item of Equipment, and
of the full particulars thereof.
16. Loss, Damage or Destruction.
(a) Risk of Loss, Damage or Destruction. Lessee hereby assumes all risk
of loss, damage, theft, taking, destruction, confiscation, requisition or
commandeering, partial or complete, of or to each Item of Equipment, however
caused or occasioned, such risk to be borne by Lessee with respect to each Item
of Equipment from the date of this Lease, and continuing until such Item of
Equipment has been returned to Lessor in accordance with the provisions of
Section 6 hereof or has been purchased by Lessee in accordance with the
provisions of Section 29(b) hereof. Lessee agrees that no occurrence specified
in the preceding sentence shall impair, in whole or in part, any obligation of
Lessee under this Lease, including, without limitation, the obligation to pay
Rent.
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(b) Payment of Casualty Loss Value Upon an Event of Loss. If
an Event of Loss occurs with respect to an Item of Equipment during the Term
thereof, Lessee shall give Lessor prompt written notice thereof and shall pay to
Lessor on the Casualty Loss Value Payment Date next following the date of such
Event of Loss (or on the last day of the Term if there is no succeeding Casualty
Loss Value Payment Date) the sum of (i) all unpaid Interim Rent and Basic Rent
payable for such Item of Equipment for any Rental Period prior to the Rental
Period in which the Event of Loss has occurred, plus (ii) (x) if Basic Rent for
such Item of Equipment is payable in advance, the Casualty Loss Value of such
Item of Equipment determined as of the Casualty Loss Value Payment Date next
preceding or coincident with the date of such Event of Loss, plus the Basic Rent
payable for such Item for the Rental Period in which such Event of Loss has
occurred if such Basic Rent was not paid on the Rent Payment Date therefor, or
(y) if Basic Rent for such Item is payable in arrears, the Casualty Loss Value
of such Item of Equipment determined as of the Casualty Loss Value Payment Date
next following the date of such Event of Loss, plus the Basic Rent payable for
such Item of Equipment for the Rental Period in which such Event of Loss has
occurred if such Casualty Loss Value Payment Date for such Item is a Rent
Payment Date, plus (iii) all other Supplemental Payments due for such Item of
Equipment as of the date of payment of the amounts specified in the foregoing
clauses (i) and (ii). Any payments received at any time by Lessor or by Lessee
from any insurer or other party (except Lessee) as a result of the occurrence of
such Event of Loss will be applied in reduction of Lessee's obligation to pay
the foregoing amounts, if not already paid by Lessee, or, if already paid by
Lessee, will be applied promptly to reimburse Lessee for its payment of such
amount, unless an Event of Default shall have occurred and be continuing. Upon
payment in full of such Casualty Loss Value, Basic Rent, Interim Rent (if
applicable) and Supplemental Payments, (A) the obligation of Lessee to pay Rent
hereunder with respect to such Item of Equipment shall terminate and the Term of
such Item shall terminate, and (B) Lessee shall, as agent for Lessor, as soon as
practicable, dispose of such Item or Items of Equipment in a manner reasonably
acceptable to Lessor.
(c) Substitution of Equipment Upon an Event of Loss. Provided no Event
of Default has occurred and is continuing, in lieu of payment of the amounts
indicated in sub-clause (b) above, Lessee may, on or prior to the date on which
such payments would have otherwise been due, convey, or cause to be conveyed to
Lessor, as replacement for any Item of Equipment with respect to which an Event
of Loss has occurred, good and marketable title to a Replacement Item free and
clear of all liens, claims, security interests and encumbrances and having a
value and utility at least equal, and being in as good operating condition as,
such Item of Equipment with respect to which the Event of Loss has
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occurred, assuming such Item was in the condition and repair required by the
terms of this Lease. Prior to or at the time of any such conveyance, Lessee, at
its own expense, shall furnish, or cause to be furnished to Lessor a bill of
sale, in form and substance satisfactory to Lessor, with respect to such
Replacement Item and execute a supplement hereto identifying such Replacement
Item as subject to this Lease. Upon full compliance by Lessee with the terms of
this sub-clause (c), Lessor will transfer to Lessee, without recourse or
warranty (except as to the absence of Liens granted or placed thereon by Lessor
or any Assignee pursuant to Section 14(c)), on an "as-is", "where-is" basis, all
of Lessor's right, title and interest in and to the Item of Equipment so
replaced. For all purposes hereof, each such Replacement Item shall, after such
conveyance be deemed part of the property leased hereunder and shall be deemed
an "Item of Equipment" as defined herein.
(d) Application of Payments Not Relating to an Event of Loss. Any
payments (including, without limitation, insurance proceeds) received at any
time by Lessor or Lessee from any governmental authority or other party with
respect to any loss or damage to any Item or Items of Equipment not constituting
an Event of Loss, will be applied directly in payment of repairs or for
replacement of property in accordance with the provisions of Section 11 and 12
hereof, if not already paid by Lessee, or if already paid by Lessee and no Event
of Default shall have occurred and be continuing, shall be applied to reimburse
Lessee for such payment, and any balance remaining after compliance with the
provisions of said Sections with respect to such loss or damage shall be
retained by Lessor.
17. Insurance. Lessee will cause to be carried and maintained, at its
sole expense, with respect to the Equipment at all times during the Term thereof
and until the Equipment has been returned to Lessor (a) physical damage
insurance (including theft and collision insurance in the case of all Items of
Equipment consisting of motor vehicles) insuring against all risks of physical
loss or damage to the Equipment, in an amount not less than the greater of the
Casualty Loss Value of the Equipment or the replacement value of the Equipment,
and (b) insurance against liability for bodily injury, death and property damage
resulting from the use and operation of the Equipment in an amount not less than
$5,000,000 per occurrence, in each case with exclusions and deductibles
acceptable to Lessor and no greater than those applicable to insurance on
similar equipment owned by Lessee. Such insurance policy or policies will name
Lessor and each Assignee as the sole loss payees with respect to such Equipment,
as their interests may appear, on all policies referred to in clause (a) of the
preceding sentence, and will name Lessor and each Assignee as additional
insureds on all policies referred to in clause (b) of the preceding sentence.
Such policies will provide that the same may not be invalidated
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against Lessor or any Assignee by reason of any violation of a condition or
breach of warranty of the policies or the application therefor by Lessee, that
the policies may be cancelled or materially altered or reduced in coverage
(except as otherwise permitted under the terms of this Lease) by the insurer
only after thirty (30) days' prior written notice to Lessor and each Assignee,
and that the insurer will give written notice to Lessor and each Assignee in the
event of nonpayment of premium by Lessee when due. The policies of insurance
required under this Section shall be valid and enforceable policies issued by
insurers of recognized responsibility acceptable to Lessor and each Assignee and
authorized to do an insurance business in the state in which each Item of
Equipment is located. In the event that any of such policies referred to in
clause (b) of the first sentence of this Section shall now or hereafter provide
coverage on a "claims-made" basis, Lessee shall continue to maintain such
policies in effect for a period of not less than three (3) years after the
expiration of the Term of the last Item of Equipment leased to Lessee hereunder.
Upon the execution of this Lease and thereafter not less than thirty (30) days
prior to the expiration dates of any expiring policies theretofore furnished
under this Section, certificates of the insurance coverage required by this
Section and, if requested by Lessor or any Assignee, copies of the policies
evidencing such insurance coverage, shall be delivered by Lessee to Lessor and
each other named loss payee and/or additional insured. Any certificate of
insurance issued with respect to a blanket policy covering other equipment not
subject to this Lease shall specifically describe the Equipment as being
included therein and covered thereby to the full extent of the coverages and
amounts required hereunder. If Lessee shall fail to cause the insurance required
under this Section to be carried and maintained, Lessor or any Assignee may
provide such insurance and Lessee shall reimburse Lessor or any such Assignee,
as the case may be, upon demand for the cost thereof as a Supplemental Payment
hereunder.
18. General Tax Indemnity. Lessee agrees to pay, defend and indemnify
and hold Lessor, each Assignee and their respective successors and assigns
harmless on an after-tax basis from any and all Federal, state, local and
foreign taxes, fees, withholdings, levies, imposts, duties, assessments and
charges of any kind and nature whatsoever, together with any penalties, fines or
interest thereon (herein called "taxes or other impositions") howsoever imposed,
whether levied or imposed upon or asserted against Lessor, any Assignee, Lessee,
the Equipment, any Item of Equipment, or any part thereof, by any Federal, state
or local government or taxing authority in the United States, or by any taxing
authority or governmental subdivision of a foreign country, upon or with respect
to (a) the Equipment, or any Item of Equipment or any part thereof, (b) the
manufacture, construction, ordering, purchase, ownership, delivery, leasing,
subleasing, re-leasing, possession, use, maintenance,
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registration, re-registration, titling, re-titling, licensing, documentation,
return, repossession, sale or other application or disposition of the Equipment,
or any Item of Equipment or any part thereof, (c) the rentals, receipts or
earnings arising from the Equipment or any Item of Equipment or any part
thereof, or (d) this Lease, each Lease Supplement, the Rent and/or Supplemental
Payments payable by Lessee hereunder; provided, however, that the foregoing
indemnity shall not apply to any taxes or other impositions (i) based upon or
measured solely by Lessor's or any Assignee's net income, (ii) federal superfund
taxes computed on net taxable income as adjusted on Form 4626, or (iii)
receipts, capital, net worth, excess profits or items of tax preference,
including minimum taxes and withholding taxes measured by income, and which are
imposed or levied by any Federal, state or local taxing authority in the United
States; and further provided, that notwithstanding anything contained herein to
the contrary, if Lessor shall receive any refund or rebate in respect of the
Item listed in Exhibit A-1 under the caption "Tax Rebate" Lessor shall pay the
same over to Lessee. Lessee will promptly notify Lessor of all reports or
returns required to be made with respect to any tax or other imposition with
respect to which Lessee is required to indemnify hereunder, and will promptly
provide Lessor with all information necessary for the making and timely filing
of such reports or returns. Lessor will promptly notify Lessee of all reports or
returns of which it has knowledge that are required to be made with respect to
any tax or other imposition with respect to which Lessee is required to
indemnify hereunder, and of which Lessee does not have knowledge, and will
promptly provide Lessee with all information necessary for the making and timely
filing of such reports or returns. If Lessor requests that any such reports or
returns be prepared and filed by Lessee, Lessor will promptly forward to Lessee,
upon receipt by Lessor, all forms and information received from the applicable
taxing authority necessary to prepare and make such filing and will cooperate
with Lessee in preparing and making such filing. Subject to the foregoing,
Lessee will prepare and file the same if permitted by applicable law to file the
same, and if not so permitted, Lessee shall prepare such reports or returns for
signature by Lessor, and shall forward the same, together with immediately
available funds for payment of any tax or other imposition due, to Lessor, at
least ten (10) days in advance of the date such payment is to be made. Lessor
will promptly notify Lessee of any valuation notice received by Lessor and
provide copies of such notices to Lessee to allow Lessee the right of an appeal
before the expiration of applicable deadlines. Should Lessor fail to so notify
Lessee, Lessor agrees to indemnify Lessee for any increased taxes payable by
Lessee due solely as a result, and only to the extent, of any valuation increase
for which Lessee was prevented from appealing. Throughout the Term of this
Lease, Lessee has Lessor's permission to appeal the values of any and all
property covered by this Lease within the limits of the law.
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Upon written request, Lessee shall furnish Lessor with copies of all paid
receipts or other appropriate evidence of payment for all taxes or other
impositions paid by Lessee pursuant to this Section 18. All of the indemnities
contained in this Section 18 shall continue in full force and effect
notwithstanding the expiration or earlier termination of this Lease in whole or
in part, including the expiration or termination of the Term with respect to any
Item (or all) of the Equipment, and are expressly made for the benefit of, and
shall be enforceable by, Lessor and each Assignee.
19. Special Tax Indemnity.
(a) Tax Assumptions. In entering into this Lease and the
transactions contemplated hereby, Lessor has made the following tax assumptions
for each Item of Equipment (the "Tax Assumptions"): (i) Lessor will be entitled
to the benefit of depreciation deductions for Federal income tax purposes under
the Accelerated Cost Recovery System provided for in Section 168 of the Code and
depreciation deductions for state income tax purposes for Lessor's Home State
(hereinafter defined) based upon one hundred percent (100%) of the Acquisition
Cost of each such Item of Equipment, commencing in the calendar year in which
the Acceptance Date for each such Item of Equipment occurs, and on the basis
that each Item of Equipment shall have the applicable recovery period and
property classification, and that Lessor shall be entitled to use the method of
depreciation and depreciation convention, specified on the Tax Schedule
(hereinafter defined) attached to and made a part of the Related Exhibit A for
such Item (the "Depreciation Deduction"); (ii) [intentionally omitted]; and
(iii) for each year of the Term, with respect to each Item of Equipment,
including any year in which a Tax Loss (hereinafter defined) occurs, Lessor will
be subject to tax as follows: (a) for each such year up to and including the
year in which such Tax Loss occurs, at a composite Federal and state corporate
income tax rate that is equal to the highest marginal rate for corporations
provided for under the Code and the laws of Lessor's Home State (the "Highest
Composite Marginal Tax Rate") and that is actually in effect for each such year,
and (b) for each such year following the year in which such Tax Loss occurs, at
a composite Federal and state corporate income tax rate that is equal to the
Highest Composite Marginal Tax Rate actually in effect in the year in which such
Tax Loss occurs and which, under the provisions of the Code and the laws of
Lessor's Home State then in effect, is to be applicable to each such following
year. As used herein the term "Lessor's Home State" means the state specified as
such on any Tax Schedule, and the term "Tax Schedule" means the schedule of tax
assumptions attached to and made a part of each Related Exhibit A.
(b) Lessee's Tax Representations and Warranties.
Lessee represents and warrants to Lessor that (i) at the time
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Lessor becomes the owner of each Item of Equipment such Item will constitute
tangible personal property; (ii) at all times during the Term, with respect to
each Item of Equipment, such Item will not constitute property "used
predominantly outside the United States" or "tax-exempt use property" within the
meaning of Sections 168(g)(1)(A) and 168(h)(1)(A), respectively, of the Code;
(iii) in determining the Depreciation Deduction for each Item of Equipment,
Lessor shall be entitled to assume that each such Item shall have the applicable
recovery period, property classification and useful life specified on the Tax
Schedule attached to the Related Exhibit A for such Item; (iv) at the end of the
Basic Term with respect to each Item of Equipment, the fair market value of such
Item will be an amount equal to at least twenty percent (20%) of the Acquisition
Cost thereof, without including in such value any increase or decrease for
inflation or deflation during the Basic Term thereof, and after subtracting from
such value any cost to Lessor for removal and delivery of possession of such
Item to Lessor at the end of the Term thereof; (v) each Item of Equipment will
be useful or usable by Lessor at the end of the Term thereof for purposes other
than continued leasing by or transfer to any member of the Lessee Group (as such
term is defined in Revenue Procedure 75-21, C.B.
1975-1, 715).
(c) Indemnity. (A) If by reason of (i) any act or failure to
act of Lessee (regardless of whether any such act or failure to act is permitted
or required by the terms of this Lease or otherwise), or (ii) the breach of or
inaccuracy in law or in fact of any of Lessee's representations and warranties
set forth in subsection (b) of this Section 19 or the breach of any of Lessee's
representations and warranties set forth in any certificate or document
delivered by Lessee in connection with the delivery and acceptance of any Item
of Equipment, or (iii) with respect to any Item of Equipment, any amendment,
modification, repeal or other change of or to the Code or any technical
corrections thereto (or any comparable change in the income tax law of Lessor's
Home State) enacted or adopted prior to the Acceptance Date of such Item (or any
changes to the existing regulations promulgated under the Code or any new
regulations prior to such Acceptance Date) which adversely changes or affects
the Tax Assumptions, or (iv) the sale or other disposition of any Item of
Equipment or the interest of Lessor therein after the occurrence of an Event of
Default, or (v) the inclusion in this Lease of Lessee's option to purchase the
Equipment or any Items thereof pursuant to Section 12A or any exercise by Lessee
of such option, Lessor shall lose the benefit of, or shall not have or shall
lose the right to claim, or shall suffer a disallowance or recapture of, or
delay in claiming, all or any portion of the Depreciation Deduction with respect
to any Item of Equipment, or (B) if, for Federal, foreign, state or local income
tax purposes, any item of income, loss or deduction with respect to any Item of
Equipment is treated as derived from,
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or allocable to, sources outside the United States (whether or not any foreign
income taxes imposed as a result thereof may be credited against Federal, state
or local income taxes of Lessor), or (C) if there shall be included in the gross
income of Lessor for Federal, state or local income tax purposes any amount on
account of any addition, modification or improvement to or in respect of any
Item of Equipment made or paid for by Lessee (any such loss, failure to have or
loss of the right to claim, disallowance, recapture, delay in claiming,
treatment, or inclusion referred to in any of the foregoing clauses (A) through
(C) of this paragraph (c) being hereinafter called a "Tax Loss"), then a Tax
Loss shall be deemed to have occurred, and the Basic Rent for such Item of
Equipment shall, on the Rent Payment Date next following written notice by
Lessor to Lessee that a Tax Loss has occurred, and on each succeeding Rent
Payment Date, be increased by such amount which, after deduction of all taxes
required to be paid by Lessor in respect of the receipt or accrual of such
amount under the laws of the United States, any state or any political
subdivision thereof or any foreign taxing authority, will maintain Lessor's
after-tax yield and aggregate after-tax cash flows in respect of such Item of
Equipment at levels which are each not less than the levels of Lessor's
after-tax-yield and aggregate after-tax cash flows that would have been
applicable if such Tax Loss had not occurred, and Lessee shall pay to Lessor an
amount which, after the deduction of any additional taxes required to be paid by
Lessor in respect of the receipt or accrual of such amount, shall be equal to
the amount of any interest, penalty or additions to tax which may be imposed in
connection with such Tax Loss. In the event that the Term with respect to any
Item of Equipment is terminated prior to the time Lessee is obligated to make
the increased Basic Rent payments to Lessor with respect to such Item of
Equipment as set forth in the preceding sentence, or in the event Lessee (or
Lessor, if an Event of Default or event which, with notice or passage of time or
both would constitute an Event of Default, shall have occurred and be continuing
hereunder) shall, by written notice to the other party, elect to have such
indemnity paid by Lessee to Lessor in a lump sum payment, then, in either event,
Lessee shall pay to Lessor, within thirty (30) days from the date of such
written notice by Lessor to Lessee, in lieu of the increased Basic Rent payment
or payments set forth in the preceding sentence, such lump sum as shall (after
deduction of all taxes required to be paid by Lessor in respect of the receipt
or accrual of such payment under the laws of the United States, any state or any
political subdivision thereof or any foreign taxing authority) be necessary to
maintain Lessor's after-tax yield and aggregate after-tax cash flows in respect
of such Item of Equipment at levels which are each not less than the levels of
Lessor's after-tax yield and aggregate after-tax cash flows that would have been
applicable if such Tax Loss had not occurred, and Lessee shall also pay to
Lessor an amount which, after the deduction of any additional taxes required to
be paid by Lessor
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in respect of the receipt or accrual of such amount, shall be equal to the
amount of any interest, penalty or additions to tax which may be imposed in
connection with such Tax Loss. Lessor's after-tax yield and aggregate after-tax
cash flows shall be determined by taking into account (i) the assumptions used
by Lessor in originally calculating Rent and Casualty Loss Value, and Early
Buyout percentages, including the Tax Assumptions (as such Tax Assumptions may
have been revised pursuant to the next sentence hereof) and (ii) the Highest
Composite Marginal Tax Rate actually in effect during each year from the date of
such original calculations to the date of such Tax Loss, both dates inclusive.
If Lessee shall disagree with the amounts calculated to be paid by it pursuant
to this Section 19(c), such amounts shall be reviewed and determined by the
independent public accountants regularly retained by Lessor Lessor agrees to
cooperate with such independent public accountants and to supply them with all
information reasonably necessary to permit them to accomplish such review and
determination. The costs of such verification shall be borne by Lessee unless
such verification shall result in an adjustment in Lessee's favor of ten percent
or more in the net present value of the indemnity payment or payments determined
by Lessor in which case such costs shall be borne by Lessor. Lessee will have no
right to examine the tax returns of Lessor in connection with the verification
procedure described in this Section 19(c). In the event Lessor shall suffer a
Tax Loss with respect to which Lessee is required to pay an indemnity hereunder,
and the full amount of such indemnity has been paid or provided for hereunder,
the Tax Assumptions, without further act of the parties hereto, shall thereupon
be and be deemed to be amended, if and to the extent appropriate, to reflect
such Tax Loss. In the event any indemnity payments shall be paid to Lessor under
this Section 19 with respect to any Item(s) of Equipment, the Casualty Loss
Values and Early Buyout Values of such Item(s) of Equipment shall be adjusted
appropriately.
The indemnification obligations of Lessee under this Section 19 shall survive
the expiration or termination of this Lease and the Term of the Equipment.
(d) Exceptions to Indemnity. Lessee shall not be required to
make any indemnity payment to Lessor provided for in this Section 19 with
respect to an Item of Equipment, if Lessor shall have suffered a Tax Loss with
respect to such Item of Equipment to the extent such Tax Loss would not have
occurred in the absence of one or more of the following: (i) an Event of Loss
with respect to such Item of Equipment, if Lessee shall have paid to Lessor all
of the amounts payable under Section 16 hereof, and to the extent that such
payment compensates Lessor for such Tax Loss; or (ii) the failure of Lessor to
claim the Depreciation Deduction in a timely and proper manner, unless such
failure is due to Lessee's failure to provide Lessor with the information
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reasonably necessary to make such claim; or (iii) the failure of Lessor to have
sufficient income to benefit from the Depreciation Deduction after giving effect
to all permitted tax loss carry forwards and carry backs (but this exception
shall only apply if the Depreciation Deduction would be otherwise available to
Lessor); or (iv) a voluntary transfer or other voluntary disposition by Lessor
of all or any part of its interest in such Item of Equipment, other than (a) any
such transfer or disposition pursuant to Sections 16 or 24 or a sale to Lessee
by Lessor pursuant to Section 29(b) hereof, and (b) any assignment and/or grant
of a security interest pursuant to the provisions of Section 14(b) hereof.
(e) Contests
(i) Initiation. If a claim is made against Lessee or Lessor or if any
proceeding shall be commenced against Lessor (including a written notice of such
proceeding) that results or could result in a Tax Loss (a "Claim"), Lessor shall
promptly notify Lessee in writing and shall not take any action with respect to
such Claim without the written consent of Lessee, not to be unreasonably
withheld or delayed, for 10 days after the receipt of such notice by Lessee;
provided, however, that if Lessor shall be required by law or regulation to take
action prior to the end of such 10-day period, Lessor shall, in such notice to
Lessee, so inform Lessee, and Lessor shall not take any action with respect to
such Claim without the written consent of Lessee, not to be unreasonably
withheld or delayed, before the date on which Lessor shall be required by law or
regulation to take action.
(ii) Control. If Lessor shall have given notice to Lessee as described
in clause (i) of this Section 19(e) in respect of a Claim, and Lessee shall
request that Lessee contest such Claim, then
(I) in the case of any Claim that may be procedurally
segregated and contested independently from any tax that is not subject
to indemnification by Lessee, Lessor shall permit Lessee to contest
such Claim in the name of Lessee, if permitted by law, or, otherwise,
in the name of Lessor, provided, that (other than in the case of
contest conducted in the name of Lessee without any reference to Lessor
(any such contest described in this parenthetical being referred to
herein as a "Lessee Controlled Contest")) if Lessor determines in its
good faith judgment that permitting Lessee to conduct such contest
could have material adverse business consequences to Lessor, Lessor
shall have the right to control (or reassert control over) such
contest, or
(II) in the case of a Claim which cannot be
procedurally segregated and contested independently from
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taxes not subject to indemnification by Lessee, Lessor shall itself
contest (or shall request Lessee to contest) in good faith (including,
without limitation, by pursuit of appeals and administrative
procedures), the validity, applicability or amount of such Claim by
(A) resisting payment thereof, or
(B) not paying the same except under protest (which
protest must be pursued in appropriate administrative and/or
judicial proceedings) if protest shall be necessary and
proper, or
(C) if payment shall be made, using reasonable
efforts to obtain a refund thereof in appropriate
administrative and/or judicial proceedings;
provided, however, that in no event shall such contest be required or
permitted unless:
(1) other than in the case of a Lessee Controlled
Contest, the amount at issue (taking into account all similar
and logically related issues) exceeds $25,000;
(2) Lessee shall have agreed in writing to pay Lessor
and shall pay as incurred all reasonable costs and expenses
that Lessor shall incur in connection with contesting such
Claim (including, without limitation, all reasonable legal and
accounting fees and disbursements);
(3) Lessor shall have reasonably determined that the
action to be taken will not result in any material danger of
sale, forfeiture or loss of the Equipment or the creation of
any Lien (except for Permitted Liens);
(4) Lessor shall have reasonably determined that
there is no risk of criminal liability that may be imposed
with respect to Lessor;
(5) no Event of Default shall have occurred and be
continuing at any time during such contest;
(6) if such contest shall involve payment of the
Claim by Lessor, Lessee shall advance the amount thereof plus
interest, penalties and additions to tax with respect thereto
to Lessor on an interest-free basis (with no additional net
after-tax cost to Lessor but taking into account any net tax
savings associated with such advance); and
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(7) other than in the case of a Lessee Controlled
Contest, tax counsel selected by Lessor and reasonably
acceptable to Lessee shall have furnished to Lessor, upon the
request of Lessor, an opinion, prepared at Lessee's expense,
to the effect that a bona fide defense to such Claim exists.
Lessor shall not be entitled to settle, compromise or pay such Claim,
in the case of a Lessee Controlled Contest, so long as such contest is
required to be and is being prosecuted diligently and in good faith,
and, in the case of a Contest controlled by Lessor which Lessor is
required to pursue, without the prior written consent of Lessee. If
Lessee is the Controlling Party (as defined below), it shall be
entitled to settle the contest without the consent of Lessor only if it
shall have delivered to Lessor a written acknowledgement of its
obligation to pay such Claim.
Notwithstanding anything contained herein to the contrary,
(x) Lessor will not be required to contest (and Lessee shall
not be permitted to contest) a Claim if Lessor shall waive its right to
indemnification under this Section 19(e) with respect to such Claim
(and any related claim with respect to other taxable years the contest
of which is materially adversely affected as a result of such waiver),
it being understood that any such waiver shall be without prejudice to
Lessor's rights with respect to any other Tax Loss, in which event
Lessor shall promptly pay Lessee all amounts theretofore paid or
advanced by Lessee in respect of such Tax Loss, and
(y) Lessor shall not be required to contest any Claim if the
subject matter thereof shall be of a continuing nature and the relevant
legal issue shall have previously been decided adversely pursuant to
Section 19(e) unless Lessee shall have delivered an opinion of counsel
selected by Lessor and reasonably satisfactory to Lessee that, taking
into account such previous decision, there is a reasonable basis for
contesting such Claim, and
(z) Lessor shall not be required, nor Lessee permitted, to
appeal (1) any adverse judicial determination, unless requested to do
so in writing by Lessee within 30 days of such adverse determination,
and unless Lessee shall have indemnified Lessor for all costs and
expenses which may be incurred by Lessor in prosecuting such appeal, or
(2) any adverse determination of a court at the trial level beyond the
next higher court having appellate jurisdiction, or (3) any adverse
determination to the U.S. Supreme Court.
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(iii) Conduct. The party conducting the contest ("Controlling Party")
shall keep the other party ("Noncontrolling Party") and its counsel reasonably
advised with respect to the contest of such Claim but the decisions regarding
what actions to be taken (including without limitation the forum in which such
contest shall be brought), shall be made by the Controlling Party in its sole
judgment. The Noncontrolling Party shall be permitted, at its own expense, to
the extent practicable, to comment on any material written submissions made by
the Controlling Party. The Controlling Party shall have the right to select
counsel to conduct the contest.
(iv) Final Determination. "Final Determination", for the purposes of
this subsection (e), means a final decision of a court of competent jurisdiction
after all allowable appeals have been exhausted by either party to the action,
or a determination within the meaning of Section 1313(a) of the Code.
(I) In the case of a contest described in clause (A) of
Section 13(e)(ii)(II), if the Final Determination (hereinafter defined)
shall be adverse to Lessor, Lessor shall promptly notify Lessee thereof
and the indemnity amounts payable under this Section 19 with respect to
the Tax Loss shall be computed by Lessor as of the date of such Final
Determination. Lessor shall notify Lessee in writing of such
computation and Lessee shall promptly make the indemnity payments
required in accordance with this Section 19.
(II) if Lessor sues for a refund after making a payment of
tax, interest and/or penalty attributable to a Claim pursuant to clause
(B) or (C) of Section 13(e)(ii)(II), then
(A) if the Final Determination shall be in favor
of Lessor,
(x) no future payments shall be due
hereunder in respect of such matter (or an
appropriate reduction shall be made if the Final
Determination is partly in favor of and partly
adverse to Lessor) other than any outstanding costs
or expenses incurred by Lessor with respect to such
contest, and
(y) Lessor shall pay to Lessee an amount
equal to the amounts theretofore paid by Lessee to
Lessor in respect of such Tax Payment (or a
proportionate part thereof if the Final Determination
is partly in favor of and partly adverse to Lessor)
on or before the next succeeding Rent Payment Date
(or within thirty (30) days from such Final
Determination, if there
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is no succeeding Rent Payment Date), together with
the amount of any penalty or interest actually
refunded to Lessor as a result of such Final
Determination, and
(B) if the Final Determination shall be adverse to
Lessor, the indemnity amounts payable under this Section 19
with respect to the Tax Loss shall be computed by Lessor as of
the date of such Final Determination, Lessor shall notify
Lessee in writing of such computation and Lessee shall make
the indemnity payments required in accordance with this
Section 19, taking into account any amounts advanced by Lessee
pursuant to clause (6) of Section 13(e)(ii)(II).
(f) Consolidated Tax Returns; Lessor's Assigns. For purposes
of this Section 19, the term "Lessor" will include the corporation constituting
Lessor, its successor(s) in interests, each Assignee and each of their
respective successors in interests and assigns and any Consolidated Group
(hereinafter defined) of which Lessor or any such Assignee or any of their
respective successors in interests or assigns is, or may become a member, and
each member of such Consolidated Group. As used in this subsection (f) the term
"Consolidated Group" means an affiliated group (within the meaning of Section
1504 of the Code) that files consolidated returns for Federal income tax
purposes and any group filing combined or consolidated returns pursuant to the
rules of any state taxing authority.
20. Indemnification. Lessee hereby assumes liability for, and does
hereby agree to indemnify, protect, save, defend, and hold harmless Lessor, each
Assignee and their respective officers, directors, stockholders, successors,
assigns, agents and servants (each such party being herein, for purposes of this
Section 20, called an "indemnified party") on an after-tax basis from and
against, any and all obligations, fees, liabilities, losses, damages, penalties,
claims, demands, actions, suits, judgments, costs and expenses, including legal
expenses, of every kind and nature whatsoever, imposed on, incurred by, or
asserted against any indemnified party, in any way relating to or arising out of
(a) the manufacture, construction, ordering, purchase, acceptance or rejection,
ownership, titling or retitling, registration or reregistration, delivery,
leasing, subleasing, re-leasing, possession, use, operation, storage, removal,
return, repossession, sale or other disposition of the Equipment or any Item of
Equipment, or any part thereof, including, without limitation, any of such as
may arise from (i) loss or damage to any property or death or injury to any
persons, (ii) patent or latent defects in the Equipment (whether or not
discoverable by Lessee or any indemnified party), (iii) any claims based on
strict liability in tort, and (iv) any claims based on patent, trademark,
tradename or copyright infringement, and (v) any
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claims based upon any non-compliance with or violation of any environmental
control, noise or pollution laws or requirements, including without limitation,
fines and penalties arising from violations of or noncompliance with such
requirements or failure to report discharges, and costs of clean-up of any
discharge; or (b) any failure on the part of Lessee to perform or comply with
any of the terms of this Lease, or (c) any power of attorney issued to Lessee to
license, relicense, title, retitle, register or reregister Items of Equipment
subject to motor vehicle titling and registration laws, and any towing charges,
parking tolls, fines, parking and speeding tickets, odometer certifications and
other civil and criminal motor vehicle violations with respect to any such Item,
and all penalties and interest applicable thereto, provided, however, that
Lessee shall not be required to indemnify any indemnified party for any matters
which arise as a direct result of the gross negligence or willful misconduct of
such indemnified party. Lessee shall give each indemnified party prompt notice
of any occurrence, event or condition known to Lessee as a consequence of which
any indemnified party may be entitled to indemnification hereunder. Lessee shall
forthwith upon demand of any such indemnified party reimburse such indemnified
party for amounts expended by it in connection with any of the foregoing or pay
such amounts directly. Lessee shall be subrogated to an indemnified party's
rights in any matter with respect to which Lessee has actually reimbursed such
indemnified party for amounts expended by it or has actually paid such amounts
directly pursuant to this Section 20. In case any action, suit or proceeding is
brought against any indemnified party in connection with any claim indemnified
against hereunder, such indemnified party will, promptly after receipt of notice
of the commencement of such action, suit or proceeding, notify Lessee thereof,
enclosing a copy of all papers served upon such indemnified party, but failure
to give such notice or to enclose such papers shall not relieve Lessee from any
liability hereunder, unless such failure is a direct result of the gross
negligence or willful misconduct of such indemnified party, in which case such
relief shall be solely with respect to such indemnified party. Lessee may, and
upon such indemnified party's request will, at Lessee's expense, resist and
defend such action, suit or proceeding, or cause the same to be resisted or
defended by counsel selected by Lessee and reasonably satisfactory to such
indemnified party and in the event of any failure by Lessee to do so, Lessee
shall pay all costs and expenses (including, without limitation, attorney's fees
and expenses) incurred by such indemnified party in connection with such action,
suit or proceeding. The provisions of this Section 20, and the obligations of
Lessee under this Section 20, shall apply from the date of the execution of this
Lease notwithstanding that the Term may not have commenced with respect to any
Item of Equipment, and shall survive and continue in full force and effect
notwithstanding the expiration or earlier termination of this Lease in whole or
in part, including the
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expiration or termination of the Term with respect to any Item (or all) of the
Equipment, and are expressly made for the benefit of, and shall be enforceable
by, each indemnified party.
21. NO WARRANTIES. LESSOR HEREBY LEASES THE EQUIPMENT TO LESSEE AS-IS
AND EXPRESSLY DISCLAIMS AND MAKES NO REPRESENTATION OR WARRANTY, EITHER
EXPRESSED OR IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY,
MERCHANTABILITY, DURABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE
OF, OR ANY OTHER MATTER CONCERNING, THE EQUIPMENT. LESSEE HEREBY WAIVES ANY
CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING
INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY
LESSEE'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER, INCLUDING COMPLIANCE
WITH ENVIRONMENTAL LAWS. So long and only so long as an Event of Default shall
not have occurred and be continuing, and so long and only so long as the
Equipment shall be subject to this Lease and Lessee shall be entitled to
possession of the Equipment hereunder, Lessor authorizes Lessee, at Lessee's
expense, to assert for Lessor's account, all rights and powers of Lessor under
any manufacturer's, vendor's or dealer's warranty on the Equipment or any part
thereof and Lessor will cooperate with Lessee in connection with such assertion
to the extent deemed reasonably necessary by Lessee; provided, however, that
Lessee shall indemnify, protect, save, defend and hold harmless Lessor from and
against any and all claims, and all costs, expenses, damages, losses and
liabilities incurred or suffered by Lessor in connection therewith, as a result
of, or incident to, any action by Lessee pursuant to the foregoing
authorization.
22. Lessee's Representations and Warranties. Lessee hereby represents
and warrants that (a) Lessee is a corporation duly organized, validly existing
and in good standing under the laws of its state of incorporation set forth
above, and is qualified to do business in, and is in good standing in, each
state or other jurisdiction in which the nature of its business makes such
qualification necessary, and where the failure to so qualify would have a
material adverse effect on such business (including each state or other
jurisdiction in which the Equipment or any part thereof will be located, unless
the permitted sublessee and the operator of the Equipment is so qualified in
such state or other jurisdiction); (b) Lessee has the corporate power and
authority to execute and perform this Lease and to lease the Equipment
hereunder, and has duly authorized the execution, delivery and performance of
this Lease; (c) the leasing of the Equipment from Lessor by Lessee, the
execution and delivery of this Lease, each Lease Supplement and other related
instruments, documents and agreements, and the compliance by Lessee with the
terms hereof and thereof, and the payment and performance by Lessee of all of
its obligations hereunder and thereunder (i) have been duly and legally
authorized by appropriate corporate
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action taken by Lessee, (ii) are not in contravention of, and will not result in
a violation or breach of, any of the terms of Lessee's Certificate of
Incorporation (or equivalent document), its By-Laws, or of any provisions
relating to shares of the capital stock of Lessee, and (iii) will not violate or
constitute a breach of any provision of law, any order of any court or other
agency of government, or any indenture, agreement or other instrument to which
Lessee is a party, or by or under which Lessee or any of Lessee's property is
bound, or be in conflict with, result in a breach of, or constitute (with due
notice and/or lapse of time) a default under any such indenture, agreement or
instrument, or result in the creation or imposition of any Lien upon any of
Lessee's property or assets; (d) this Lease has been executed by the duly
authorized officer or officers of Lessee and delivered to Lessor and
constitutes, and when executed by the duly authorized officer or officers of
Lessee and delivered to Lessor each Lease Supplement and related instruments,
documents and agreements with respect to each Item of Equipment will constitute,
the legal, valid and binding obligations of Lessee, enforceable in accordance
with their terms; (e) neither the execution and delivery of this Lease or any
Lease Supplement by Lessee, nor the payment and performance by Lessee of all of
its obligations hereunder and thereunder, requires the consent or approval of,
the giving of notice to, or the registration, filing or recording with, or the
taking of any other action in respect of, any Federal, state, local or foreign
government or governmental authority or agency or any other Person; (f) no
mortgage, deed of trust, or other Lien which now covers or affects, or which may
hereafter cover or affect, any property or interest therein of Lessee, now
attaches or hereafter will attach to the Equipment or any Item of the Equipment,
or in any manner affects or will affect adversely Lessor's right, title and
interest therein; (g) Lessee holds all licenses, certificates and permits from
governmental authorities necessary to use and operate the Equipment in
accordance with the provisions of this Lease; (h) there is no litigation or
other proceeding now pending or, to the best of Lessee's knowledge, threatened,
against or affecting the Lessee, in any court or before any regulatory
commission, board or other administrative governmental agency which would
adversely affect or impair the title of Lessor to the Equipment, or which, if
decided adversely to Lessee, would materially adversely affect the business
operations or financial condition of Lessee; and (i) all balance sheets,
statements of profit and loss and other financial data that have been delivered
to Lessor with respect to Lessee (i) are complete and correct in all material
respects, (ii) fairly present the financial condition of Lessee on the dates for
which, and the results of its operations for the periods for which, the same
have been furnished, and (iii) except as otherwise disclosed therein, have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods covered thereby; and there has been
no material adverse
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<PAGE>
change in the condition of Lessee, financial or otherwise, since the date of the
most recent financial statements delivered to Lessor with respect to Lessee,
other than as disclosed to Lessor by Lessee.
23. Events of Default. Any of the following events shall
constitute an Event of Default:
(a) Lessee shall fail to make any payment of Interim Rent or Basic Rent
or any Supplemental Payment within five (5) business days after the same is due
and payable; or
(b) Lessee shall fail to observe or perform any of the covenants or
agreements of Lessee set forth in Sections 6, 14(a) or 17 hereof; or
(c) Lessee shall fail to perform or observe any other covenant,
condition, or agreement to be performed or observed by it under this Lease, or
in any agreement or certificate furnished to Lessor or any Assignee in
connection herewith, and such failure shall continue unremedied for thirty (30)
days after written notice to Lessee specifying such failure and demanding the
same to be remedied; or
(d) Lessee shall be in default (i) under any lease, loan agreement or
other agreement, instrument or document heretofore, now or hereafter entered
into between Lessee and Lessor, or between Lessee and any parent, subsidiary or
affiliate of Lessor, and such default shall have been declared by the party
entitled to declare the same, or (ii) under any promissory note heretofore, now
or hereafter executed by Lessee and delivered to any party referred to in clause
(i) above evidencing a loan made by any such party to Lessee; or any obligation
of Lessee under the NationsBank Facility or to any Person (other than Lessor, or
any parent, subsidiary or affiliate of Lessor) in excess of $5,000,000 relating
to the payment of borrowed money or the payment of rent or hire under any lease
agreement, shall be actually accelerated prior to the maturity thereof or result
in cancellation or termination of any such lease, by reason of a default in
payment or performance by Lessee (excluding any such default which is being
contested in good faith by Lessee by appropriate proceedings and the liability
for which has not been reduced to judgment); or an attachment or other Lien
shall be filed or levied against a material part of the property of Lessee in
the aggregate and such judgment shall continue unstayed and in effect, or such
attachment or Lien shall continue undischarged or unbonded, for a period of 45
days; or
(e) Lessee shall become insolvent or make an assignment for the benefit
of creditors or consent to the appointment of a trustee or receiver; or a
trustee or a receiver shall be appointed for Lessee or for a substantial part of
its property
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without its consent and shall not be dismissed for a period of 90 days; or any
petition for the relief, reorganization or arrangement of Lessee, or any other
petition in bankruptcy or for the liquidation, insolvency or dissolution of
Lessee, shall be filed by or against Lessee and, if filed against Lessee, shall
be consented to or be pending and not dismissed for a period of 90 days, or an
order for relief under any bankruptcy or insolvency law shall be entered by any
court or governmental authority of competent jurisdiction with respect to
Lessee; or any execution or writ or process shall be issued under any action or
proceeding against Lessee whereby any of the Equipment may be taken or
restrained; or Lessee's corporate existence shall cease; or Lessee shall
(whether in one transaction or a series of transactions), without Lessor's prior
written consent, sell, transfer, dispose of, pledge or otherwise encumber (other
than by the Lien of the NationsBank Facility), all or substantially all of its
assets or property, or consolidate or merge with any other entity, or become the
subject of, or engage in, a leveraged buy-out or any other form of corporate
reorganization such that Lessee or any surviving corporation of Lessee shall
have a Tangible Net Worth of less than $35,000,000; or
(f) any representation, warranty, statement or certification made by
Lessee under this Lease or in any Lease Supplement or in any document or
certificate furnished Lessor or any Assignee in connection herewith or pursuant
hereto, shall prove to be untrue or incorrect in any material respect when made,
or shall be breached; or
(g) the Letter of Credit shall be repudiated or contested by the issuer
thereof, or shall be unenforceable in whole or in part, or shall expire, or
Lessor shall have received notice from the issuer thereof that the Letter of
Credit shall not be renewed and Lessee shall have failed to deliver to Lessor a
substitute letter of credit satisfactory to Lessor on or before the date fifteen
(15) days prior to such expiration.
As used in this Section 22, "Tangible Net Worth" means the total of the
par value of common stock and any class or series of preferred stock (after
deduction for treasury stock), additional paid-in capital, general contingency
reserves and retained earnings or deficit of Lessee, determined in accordance
with generally accepted accounting principles, minus the following items
(without duplication of deductions), if any, appearing on the balance sheet of
Lessee: (i) the book value of all assets (including, without limitation,
goodwill) which would be treated as intangibles under generally accepted
accounting principles; and (ii) any write-up in the book amount of any existing
asset resulting from a re-evaluation thereof from the book amount entered upon
acquisition in excess of that permitted under generally accepted accounting
principles.
24. Remedies Upon Default. Upon the occurrence of any Event of
Default and at any time thereafter so long as the same shall be
continuing, Lessor may exercise one or more of the following remedies
as Lessor in its sole discretion shall elect:
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(a) Lessor may terminate or cancel this Lease, without prejudice to any
other remedies of Lessor hereunder, with respect to all or any Item of
Equipment, and whether or not this Lease has been so terminated or cancelled,
may enter the premises of Lessee to take immediate possession of the Equipment
and remove all or any Item of Equipment by summary proceedings or otherwise, or
may cause Lessee, at Lessee's expense, to store, maintain, surrender and deliver
possession of the Equipment or such Item in the same manner as provided in
Section 6 hereof, all without liability to Lessor for or by reason of such entry
or taking of possession, whether for the restoration of damage to property
caused by such taking or otherwise;
(b) Lessor may hold, keep idle or lease to others the Equipment or any
Item of Equipment, as Lessor in its sole discretion may determine, free and
clear of any rights of Lessee and without any duty to account to Lessee with
respect to such action or inaction or for any proceeds with respect thereto,
except that Lessee's obligation to pay Basic Rent for any Rental Periods
commencing after Lessee shall have been deprived of possession pursuant to this
Section 24 shall be reduced by the net proceeds, if any, received by Lessor from
leasing the Equipment or such Item to any Person other than Lessee for the same
Rental Periods or any portion thereof;
(c) Lessor may sell the Equipment or any Item of Equipment at public or
private sale as Lessor may determine, free and clear of any rights of Lessee,
and Lessee shall pay to Lessor, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Basic Rent due for the Equipment or Item(s) so
sold for any Rental Period commencing after the date on which such sale occurs),
the sum of (i) all unpaid Interim Rent and Basic Rent payable for each Item of
Equipment for all Rental Periods through the date on which such sale occurs,
plus (ii) an amount equal to the excess, if any, of (x) the Casualty Loss Value
of the Item(s) of Equipment so sold, computed as of the Rent Payment Date
coincident with or next preceding the date of such sale, over (y) the net
proceeds of such sale, plus interest at the rate specified in Section 25 hereof
on the amount of such excess from the Rent Payment Date as of which such
Casualty Loss Value is computed until the date of actual payment, plus (iii) all
unpaid Supplemental Payments due with respect to each Item of Equipment so sold;
(d) whether or not Lessor shall have exercised, or shall thereafter at
any time exercise, any of its rights under subsection (a) or (b) above with
respect to any Item(s) of Equipment, Lessor, by written notice to Lessee
specifying a payment date, may demand that Lessee pay to Lessor, and Lessee
shall pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent
due for any Item(s) of
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Equipment for any Rental Period commencing after the payment date specified in
such notice and in lieu of the exercise by Lessor of its remedies under
subsection (b) above in the case of a re-lease of such Item(s) or under
subsection (c) above with respect to a sale of such Item(s)), the sum of (i)
all unpaid Interim Rent and Basic Rent payable for such Item(s) for
all Rental Periods through the payment date specified in such notice,
plus (ii) all unpaid Supplemental Payments due with respect to such
Item(s) as of the payment date specified in such notice, plus (iii)
whichever of the following amounts Lessor, in its sole discretion, shall
specify in such notice (together with interest on such amount at the rate
specified in Section 26 hereof from the payment date specified in such notice to
the date of actual payment): (x) an amount, with respect to each such Item,
equal to the Basic Rent payable for such Item for the remainder of the then
current Term, after discounting such Basic Rent payment to present worth as of
the payment date specified in such notice at the Discount Rate (hereinafter
defined), or (y) an amount, with respect to each such Item, equal to the
Casualty Loss Value of such Item computed as of the Rent Payment Date coincident
with or next preceding the payment date specified in such notice; provided,
however, that with respect to any such Item returned to or repossessed by
Lessor, the amount recoverable by Lessor pursuant to the foregoing clause (x)
shall be reduced (but not below zero) by an amount equal to the fair market
rental value of such Item for such remaining Term after discounting such fair
market rental value to present worth at the Discount Rate as of the date on
which Lessor has obtained possession of such Item, and the amount recoverable by
Lessor pursuant to the foregoing clause (y) shall be reduced (but not below
zero) by an amount equal to the fair market sales value of such Item as of the
date on which Lessor has obtained possession of such Item; and
(e) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof or to
rescind this Lease.
In addition, Lessee shall be liable for all reasonable costs and
expenses, including attorney's fees, incurred by Lessor or any Assignee by
reason of the occurrence of any Event of Default or the exercise of Lessor's
remedies with respect thereto, including all costs and expenses incurred in
connection with the return of the Equipment subject to the distance requirements
of, and otherwise in accordance with, Section 6 hereof or in placing the
Equipment in the condition required by said Section. For the purpose of
subsection (d) above, the "fair market rental value" or "fair market sales
value" of any Item of Equipment shall mean such value as has been determined by
an independent nationally recognized qualified appraiser selected by Lessor.
Except as otherwise expressly provided above, no remedy referred to in this
Section 24 is intended to be exclusive, but each shall be
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cumulative and in addition to any other remedy referred to above or otherwise
available to Lessor at law or in equity; and the exercise or beginning of
exercise by Lessor of any one or more of such remedies shall not constitute the
exclusive election of such remedies and shall not preclude the simultaneous or
later exercise by Lessor of any or all of such other remedies. No express or
implied waiver by Lessor of any Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Event of Default. To the
extent permitted by applicable law, Lessee hereby waives any rights now or
hereafter conferred by statute or otherwise which may require Lessor to sell,
lease or otherwise use the Equipment in mitigation of Lessor's damages as set
forth in this Section 24 or which may otherwise limit or modify any of Lessor's
rights and remedies in this Section 24. As used herein, the term "Discount Rate"
means the discount rate of the Federal Reserve Bank of Boston, Massachusetts,
that is in effect on the payment date specified in any notice given by Lessor to
Lessee pursuant to subsection (d) of this Section 24.
25. Lessor's Right to Perform for Lessee. If Lessee fails to make any
Supplemental Payment required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor may itself, after
notice to Lessee, make such payment or perform or comply with such agreement,
and the amount of such payment and the amount of the reasonable expenses of
Lessor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the rate specified in Section 26 hereof, shall, if not paid by Lessee
to Lessor on demand, be deemed a Supplemental Payment hereunder; provided,
however, that no such payment, performance or compliance by Lessor shall be
deemed to cure any Event of Default hereunder.
26. Late Charges. Lessee shall pay to Lessor, upon demand, to the
extent permitted by applicable law, interest on any installment of Basic Rent or
Interim Rent not paid when due, and on any Supplemental Payment or other amount
payable under this Lease which is not paid when due, for any period for which
any of the same is overdue (without regard to any grace period) at a rate equal
to the higher of (a) nine and 20/100 percent (9.20%) per annum, or (b) the Prime
Rate as announced by Chase Manhattan Bank in New York.
27. Further Assurances. Lessee will promptly and duly execute and
deliver to Lessor and any Assignee such other documents and assurances,
including, without limitation, such amendments to this Lease as may be
reasonably required by Lessor and by any Assignee, and Uniform Commercial Code
financing statements and continuation statements, and will take such further
action as Lessor or any Assignee may from time to time
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reasonably request in order to carry out more effectively the intent and
purposes of this Lease and to establish and protect the rights and remedies
created or intended to be created in favor of Lessor and of any Assignee and
their respective rights, title and interests in and to the Equipment.
28. Notices. All notices provided for or required under the terms and
provisions hereof shall be in writing, and any such notice shall be deemed given
when personally delivered or when deposited in the United States mails, with
proper postage prepaid, for first class certified mail, return receipt
requested, addressed (i) if to Lessor or Lessee, at their respective addresses
as set forth herein or at such other address as either of them shall, from time
to time, designate in writing to the other, and (ii) if to any Assignee, to the
address of such Assignee as such Assignee shall designate in writing to Lessor
and Lessee.
29. Lessee's Renewal and Purchase Options.
(a) Lessee's Renewal Option. If (i) no Event of Default shall
have occurred and be continuing and (ii) this Lease shall not have been earlier
terminated, Lessee shall be entitled, at its option upon written notice to
Lessor, as hereinafter provided, to renew this Lease with respect to all, but
not less than all, Items of Equipment then subject to this Lease for the Renewal
Term(s) specified on the Related Exhibit A for such Item. The first Renewal Term
with respect to each such Item of Equipment will commence at the expiration of
the Basic Term of such Item, and each succeeding Renewal Term will commence at
the expiration of the next preceding Renewal Term. All of the provisions of this
Lease shall be applicable during each Renewal Term for each such Item of
Equipment, except that, during each Renewal Term, Basic Rent shall be the fair
market rental value thereof determined in accordance with Section 29(c) hereof
and shall be payable at the times and on the Rent Payment Dates set forth on
said Related Exhibit A. If Lessee intends to exercise said renewal option with
respect to any of said Renewal Terms, Lessee shall give written notice to Lessor
to such effect at least one hundred twenty (120) days prior to the expiration of
the Basic Term of the Item(s) of Equipment whose Basic Term first expires
hereunder, in the case of the first Renewal Term, and at least one hundred
twenty (120) days prior to the expiration of the then current Renewal Term of
the Item(s) of Equipment whose Basic Term first expires hereunder in the case of
the then next succeeding Renewal Term. If Lessee fails to give such written
notice to Lessor with respect to any of said Renewal Terms, it shall be
conclusively presumed that Lessee has elected not to exercise said renewal
option with respect to said Renewal Term, in which case (unless Lessor has
otherwise agreed in writing or Lessee has exercised its purchase option under
Section 29(b) hereof) each such Item of Equipment shall be returned to Lessor
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in accordance with the provisions of Section 6 hereof and until each such Item
has been so returned Lessee shall continue to pay Lessor the Basic Rent for each
such Item as specified in the next to last sentence of Section 6 hereof.
(b) Lessee's Purchase Option. If (i) no Event of Default shall
have occurred and be continuing, and (ii) this Lease shall not have been earlier
terminated, Lessee shall be entitled, at its option, upon written notice to
Lessor, as hereinafter provided, to purchase all, but not less than all, Items
of Equipment then subject to this Lease, on the date immediately following the
date of the expiration of the Basic Term of each such Item of Equipment or, as
the case may be, the expiration of the then Renewal Term of each such Item of
Equipment, for an amount, with respect to each Item of Equipment, payable in
immediately available funds, equal to the fair market sales value thereof
determined in accordance with Section 29(c) hereof, plus any applicable sales,
excise or other taxes imposed as a result of such sale (other than gross or net
income taxes attributable to such sale). Lessor's sale of each Item of Equipment
shall be on an as-is, where-is basis, without any representation by, or recourse
or warranty to, Lessor (except as to the absence of Liens granted or placed
thereon by Lessor or any Assignee pursuant to Section 14(c)). If Lessee intends
to exercise said purchase option, Lessee shall give written notice to Lessor to
such effect at least one hundred twenty (120) days prior to the expiration of
the Basic Term of the Item(s) of Equipment whose Basic Term first expires
hereunder, or, if Lessee has renewed this Lease pursuant to Section 29(a)
hereof, then at least one hundred twenty (120) days prior to the expiration of
the then current Renewal Term of the Item(s) of Equipment whose Basic Term first
expires hereunder. If Lessee fails to give such written notice to Lessor as
aforesaid, Lessor shall be entitled to presume that Lessee has elected not to
exercise said purchase option, and, unless Lessor otherwise agrees in writing,
each such Item of Equipment shall be returned to Lessor in accordance with the
provisions of Section 6 hereof. Until each such Item has been so returned to
Lessor (or if Lessee has exercised its said purchase option but has failed, for
whatever reason, to pay Lessor the purchase option amount on the payment date
specified in the first sentence of this Section 29(b) with respect to any Item
then until such payment has been made to Lessor), Lessee shall continue to pay
Lessor the Basic Rent for each such Item as specified in the next to last
sentence of Section 6 hereof.
(c) Determination of Fair Market Sales Value and Fair Market
Rental Value; Appraisal Procedure. If Lessee has elected to exercise its renewal
option, as provided in Section 29(a) hereof, or has elected to exercise its
purchase option, as provided in Section 29(b) hereof, then as soon as
practicable following Lessor's receipt of the written notice from Lessee of
Lessee's intent to exercise such option, Lessor and Lessee shall
39
<PAGE>
consult for the purpose of determining the fair market rental value or fair
market sales value, as the case may be, of each Item of Equipment as
of the end of the Basic Term thereof, or, if this Lease has been
renewed pursuant to Section 29(a) hereof, then as of the end of the then
current Renewal Term thereof, and any values agreed upon in writing shall
constitute such fair market rental value or fair market sales value of each such
Item of Equipment for the purposes of this Section 29. If Lessor and Lessee have
not agreed upon such fair market sales value or fair market rental value, as the
case may be, of any Item of Equipment by the thirtieth (30th) day before the
Basic Term or, if applicable, the then current Renewal Term, of such Item
expires, the same shall be determined by a qualified independent appraiser
proposed by Lessor and reasonably acceptable to Lessee, at the equally shared
expense of Lessor and Lessee (or, if the parties are unable to agree upon an
appraiser, averaging the determinations (disregarding the one that differs most
from the other two) of three qualified independent appraisers, one appointed by
Lessor at Lessor's expense, the second by Lessee at Lessee's expense, and the
third by the first two appraisers at the equally shared expense of Lessor and
Lessee (or, if such first two appraisers cannot agree on the third appraiser, by
a court having jurisdiction), and such determination shall be conclusively
binding on Lessor and Lessee. For all purposes of this Section 29, fair market
sales value and fair market rental value shall be determined on the basis of,
and shall equal in value, the amount which would obtain in an arm's length
transaction between an informed and willing buyer-user or lessee (other than a
lessee currently in possession and a used equipment or scrap dealer) and an
informed and willing seller or lessor under no compulsion to sell or lease, and
in such determination, costs of removal from the location of current use shall
not be a deduction from such value, and it shall be assumed (whether or not the
same be true) that the Equipment has been maintained in accordance with the
requirements of Section 11 hereof and would have been returned to Lessor in
compliance with the requirements of Section 6 hereof.
30. Financial Information. Lessee agrees to furnish Lessor (a) as soon
as available, and in any event within 120 days after the last day of each fiscal
year of Lessee, a copy of the consolidated balance sheet of Lessee and its
consolidated subsidiaries as of the end of such fiscal year, and related
consolidated statements of operations and shareholders' equity of Lessee and its
consolidated subsidiaries for such fiscal year, audited by an independent
certified public accounting firm of recognized standing, each on a comparative
basis with corresponding statements for the prior fiscal year, and a copy of
Lessee's Form 10-K, if any, filed with the Securities and Exchange Commission
for such fiscal year; (b) within 45 days after the last day of each fiscal
quarter of Lessee (except the last such fiscal quarter), a copy of the
consolidated balance
40
<PAGE>
sheet and consolidated statement of shareholders' equity as of the end of
such quarter, and a copy of the consolidated statement of operations
covering the fiscal year to date of Lessee and its consolidated
subsidiaries on a comparative basis with the corresponding period of the prior
year, all in reasonable detail and certified by the treasurer or principal
financial officer of Lessee, together with a copy of Lessee's Form 10-Q, if any,
filed with the Securities and Exchange Commission for such quarterly period; (c)
contemporaneously with its transmittal to each stockholder of Lessee and to the
Securities and Exchange Commission, all such other financial statements and
reports as Lessee shall send to its stockholders and to the Securities and
Exchange Commission; (d) as soon as available to Lessee, the notice of any
adjustment resulting from any audit of the books and/or records of Lessee by any
taxing authority having jurisdiction over Lessee in the event that such
adjustment involves an amount greater than or equal to $10,000,000; and (e) such
additional financial information as Lessor may reasonably request concerning
Lessee.
31. Expenses. Lessee agrees, whether or not the transactions
contemplated by this Lease are consummated, to pay (or reimburse Lessor for the
payment of) lien searches, filing fees, and fees and expenses relating to the
titling and registration of any Item(s) of Equipment incurred by or on behalf of
Lessor in connection with the negotiation and documentation of this Lease, any
Guaranty and any other related instruments and documents.
32. Miscellaneous. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating or
diminishing Lessor's rights under the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law which
renders any provision of this Lease prohibited or unenforceable in any respect.
No term or provision of this Lease may be amended, altered, waived, discharged
or terminated orally, but may be amended, altered, waived, discharged or
terminated only by an instrument in writing signed by a duly authorized officer
of the party against which the enforcement of the amendment, alteration, waiver,
discharge or termination is sought.
Lessee's Initial's.
A waiver on any one occasion shall not be construed as a waiver on a future
occasion. All of the covenants, conditions and obligations contained in this
Lease shall be binding upon and shall inure to the benefit of the respective
successors and
41
<PAGE>
assigns of Lessor and (subject to the restrictions of Section 14(a)
hereof) Lessee. If there is more than one Lessee named herein, the
liability of each Lessee shall be joint and several. This Lease, each
Lease Supplement and each related instrument, document, agreement and
certificate, collectively constitute the complete and exclusive statement of the
terms of the agreement between Lessor and Lessee with respect to the acquisition
and leasing of the Equipment, and cancel and supersede any and all prior oral or
written understandings with respect thereto.
33. Venue; Governing Law. Lessee agrees that at Lessor's sole election
any suit, action or proceeding brought by Lessor against Lessee in connection
with or arising out of this Lease may be brought in any federal or state court
located in the Commonwealth of Massachusetts, and Lessee waives personal service
of all process upon it and consents that service of process may be made by
telecopy, mail or messenger directed to it at its address set forth above and
that service so made shall be deemed to be completed upon the earlier of actual
receipt or five (5) days after the same shall have been posted to Lessee's said
address. Nothing herein contained shall affect Lessor's right to serve legal
process in any other manner permitted by law or to bring any suit, action or
proceeding against Lessee or its property in the courts of any other
jurisdiction. This Lease shall in all respects be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts, including all
matters of construction, validity and performance.
34. Letter of Credit. On each anniversary of the last Basic Term
Commencement Date beginning with the second anniversary, provided that no Event
of Default or event which, with notice or passage of time or both would
constitute an Event of Default has occurred and is continuing, Lessee may
request that Lessor release all or any portion of the Letter of Credit then
outstanding. Lessee shall provide Lessor with such information in connection
with such request as Lessor may request, but Lessor shall have no obligation to
release the Letter of Credit and the decision as to whether to release all or
any portion of the Letter of Credit shall be within Lessor's sole discretion.
[Remainder of page intentionally left blank]
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
duly executed by their duly authorized representatives as of the date first
above written.
BTM FINANCIAL & LEASING CORPORATION B-4
Attest: (Lessor)
By:
Assistant Secretary Title:
(Corporate Seal)
LADD FURNITURE, INC.
Attest: (Lessee)
By:
Assistant Secretary Title:
(Corporate Seal)
COUNTERPART NO. OF SERIALLY NUMBERED MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS DOCUMENT
CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO
SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE
TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART
NO. 1.
<PAGE>
EXHIBIT A-1 TO EQUIPMENT LEASING AGREEMENT
DATED AS OF SEPTEMBER 19, 1996
(Page 1 of 3)
Type of Equipment: Various New and Used Furniture Manufacturing
Equipment, subject to review by, and approval of, Lessor
Maximum Acquisition Cost: $4,500,000
Acquisition Period: From September 1, 1996 to December 31, 1996, both
dates inclusive.
Number of Months in Basic Term: Sixty-Nine (69) Months
Basic Term Commencement Date: The last day of the calendar quarter next
following the Acceptance Date of an Item of Equipment, or such Acceptance Date
if it is the last day of a calendar quarter.
Interim Rent Percentages, Basic Rent Percentages and Early Buyout
Percentages:
<TABLE>
<CAPTION>
============================================================================================================================
<S> <C> <C> <C> <C>
Acceptance Payment Interim Rent Basic Rent Early Buyout
Date Number Percentage* Percentage* Percentage*
============================================================================================================================
9/1/96-9/30/96 1-27 0.0477 1.2868 37.28
- ----------------------------------------------------------------------------------------------------------------------------
28-39 1.3941
- ----------------------------------------------------------------------------------------------------------------------------
40-69 1.5728
============================================================================================================================
10/1/96-12/31/96 1-24 0.0474 1.2807 37.19
- ----------------------------------------------------------------------------------------------------------------------------
25-36 1.3163
- ----------------------------------------------------------------------------------------------------------------------------
37-69 1.5653
============================================================================================================================
</TABLE>
*as a percentage of Acquisition Cost and subject to adjustments
corresponding to adjustments in the Basic Rent Percentage.
The Basic Rent Percentage, Interim Rent Percentage, and Early Buyout Percentages
of each Item of Equipment set forth in the above table were computed on the
assumption that the rate defined as the "closing rate" published daily on page
217 of Telerate, for the United States Treasury Note maturing 3.50 years from
the Acceptance Date of such Item of Equipment(the "Applicable Rate"), as
determined on the Rent Adjustment Computation Date (hereinafter defined), is
equal to 5.32% (the "Assumed Note Rate").
In the event that on a Rent Adjustment Computation Date the Applicable Rate is
actually greater or lesser than the Assumed Note Rate,
(i) the Basic Rent Percentages set forth in the above table
will, effective on and as of the first Rent Payment Date for such Item
of Equipment for the Basic Term thereof, be increased (if the
Applicable Rate is greater than the Assumed Note Rate on the Rent
Adjustment Computation Date) or be decreased (if the Applicable Rate is
less than the Assumed Note Rate on the Rent Adjustment Computation
Date) by .000528% for each basis point in the differential between the
Assumed Note Rate and the actual Applicable Rate on the Rent Adjustment
Computation Date, and
(ii) the Interim Rent Percentages set forth in the above table
will, effective on and as of the Rent Payment Date for the Interim Term
thereof, be increased (if the Applicable Rate is greater than the
Assumed Note Rate on
<PAGE>
EXHIBIT A-1 TO EQUIPMENT LEASING AGREEMENT
DATED AS OF SEPTEMBER 19, 1996
(Page 2 of 3)
the Rent Adjustment Computation Date) or be decreased (if the
Applicable Rate is less than the Assumed Note Rate on the Rent
Adjustment Computation Date) and be determined by dividing the
weighted average Basic Rent Percentage for such Item of Equipment
(after giving effect to the adjustment, if any, in the Basic Rent
Percentage specified in clause (i) of this sentence) by 30, and
(iii) the Early Buyout Percentages set forth in the above
table will be increased (if the Applicable Rate is greater than the
Assumed Note Rate on the Rent Adjustment Computation Date) or be
decreased (if the Applicable Rate is less than the Assumed Note Rate on
the Rent Adjustment Computation Date) by 0.2692% for each basis point
in the differential between the Assumed Note Rate and the actual
Applicable Rate on the Rent Adjustment Computation Date, and
The term "Rent Adjustment Computation Date" means the date six (6)
Business Days prior to the Acceptance Date of such Item of Equipment,
if the said United States Treasury Note rates used in computation of
the Applicable Rate is published on page 217 of Telerate for said date,
or the first Business Day thereafter for which said United States
Treasury Note rates used in computation of the Applicable Rate is so
published if such rates are not so published for the Acceptance Date of
such Item of Equipment. As used herein the term "basis point" means
1/10th of 1%. In the event of any such adjustment in the Basic Rent
Percentage, Interim Rent Percentage, and Early Buyout Percentage, the
Casualty Loss Values and Termination Values will be appropriately
adjusted to preserve Lessor's economic return.
Rental Periods for Basic Term: Each full calendar month.
Rent Payment Dates for Basic Term: The first day of each
calendar month during the Basic Term.
Periodicity of Basic Rent Payments During Basic Term: Monthly in
arrears on each Rent Payment Date.
Basic Term: Sixty-Nine (69) Months
Early Buyout Date: For any Item of Equipment, the date sixty
(60) months after the Basic Term Commencement Date of such Item.
Renewal Term(s): One (1) Renewal Term of twenty-four (24) months.
Rental Periods for Renewal Term(s): Each full calendar month.
Rent Payment Dates for Renewal Terms(s): The first day of each
calendar month during each Renewal Term.
Periodicity of Basic Rent Payments During Renewal Term: Monthly
in arrears on each Rent Payment Date.
Financial Condition Reference Date: June 30, 1996
Tax Rebate: A rebate of franchise tax (other than a franchise tax paid by Lessor
and not indemnified by Lessee) with respect to superline project anticipated to
be located in Swanton, Ohio for Lessee's Affiliate Pilliod Furniture, in the
amount of approximately $50,000.
<PAGE>
EXHIBIT A-1 TO EQUIPMENT LEASING AGREEMENT
DATED AS OF SEPTEMBER 19, 1996
(Page 3 of 3)
LADD FURNITURE, INC. (Lessee) BTM FINANCIAL & LEASING
CORPORATION B-4 (Lessor)
By: By:
Title: Title: Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,713
<SECURITIES> 0
<RECEIVABLES> 75,736
<ALLOWANCES> 3,166
<INVENTORY> 86,428
<CURRENT-ASSETS> 172,214
<PP&E> 78,543
<DEPRECIATION> 0
<TOTAL-ASSETS> 331,845
<CURRENT-LIABILITIES> 61,867
<BONDS> 138,234
0
0
<COMMON> 2,316
<OTHER-SE> 119,170
<TOTAL-LIABILITY-AND-EQUITY> 331,845
<SALES> 390,034
<TOTAL-REVENUES> 390,034
<CGS> 325,402
<TOTAL-COSTS> 325,402
<OTHER-EXPENSES> 71,955
<LOSS-PROVISION> 3,296
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> (7,323)
<INCOME-TAX> (3,295)
<INCOME-CONTINUING> (4,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,028)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
