<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
=========
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998, or
=============
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER 1-13318
==============================
REALTY INCOME CORPORATION
=========================
(Exact name of registrant as specified in its charter)
MARYLAND
========
(State or other jurisdiction of incorporation or organization)
33-0580106
==========
(I.R.S. Employer Identification No.)
220 WEST CREST STREET, ESCONDIDO, CALIFORNIA 92025
===================================================
(Address of principal executive offices)
(760) 741-2111
==============
(Registrant's telephone number)
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 [ ]
There were 26,837,164 shares of common stock outstanding as of
August 12, 1998.
Page 1
REALTY INCOME CORPORATION
Form 10-Q
June 30, 1998
Table of Contents
-----------------
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PART I. FINANCIAL INFORMATION Pages
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Item 1: Financial Statements
Consolidated Balance Sheets........................ 3-4
Consolidated Statements of Income.................. 5
Consolidated Statements of Cash Flows.............. 6-7
Notes to Consolidated Financial Statements......... 8-11
Item 2: Management's Discussion and Analysis Of
Financial Condition and Results Of Operations......11-31
PART II. OTHER INFORMATION
==========================
Item 4: Submission of matter to a vote of
security holders................................... 31
Item 6: Exhibits and Reports on Form 8-K...................31-32
SIGNATURE................................................... 32
EXHIBIT INDEX............................................... 32
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Page 2
PART I. FINANCIAL INFORMATION
==============================
ITEM 1. FINANCIAL STATEMENTS
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REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
June 30, 1998 and December 31, 1997
(dollars in thousands, except per share data)
1998 1997
(Unaudited)
=========== =========
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 249,911 $ 214,342
Buildings and improvements 548,271 485,455
--------- ---------
798,182 699,797
Less - accumulated depreciation
and amortization (160,648) (152,206)
--------- ---------
Net real estate 637,534 547,591
Cash and cash equivalents 3,116 2,123
Accounts receivable 1,490 2,888
Due from affiliates 336 348
Other assets 3,106 3,170
Goodwill, net 20,439 20,901
--------- ---------
TOTAL ASSETS $ 666,021 $ 577,021
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions payable $ 4,428 $ 4,112
Accounts payable and accrued expenses 2,649 2,180
Other liabilities 4,582 4,814
Lines of credit payable 87,900 22,600
Notes payable 110,000 110,000
--------- ---------
TOTAL LIABILITIES 209,559 143,706
--------- ---------
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Continued on next page
Page 3
(continued)
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REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
===========================
June 30, 1998 and December 31, 1997
(dollars in thousands, except per share data)
1998 1997
(Unaudited)
=========== =========
<S> <C> <C>
Stockholders' equity
Preferred stock, par value
$1.00 per share, 20,000,000 shares
authorized, no shares issued
or outstanding -- --
Common stock, par value $1.00 per
share, 100,000,000 shares
authorized, 26,836,964 and 25,698,464
shares issued and outstanding in
1998 and 1997, respectively 26,837 25,698
Paid in capital in excess of par value 610,087 582,450
Accumulated distributions
in excess of net income (180,462) (174,833)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 456,462 433,315
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 666,021 $ 577,021
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 4
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REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Income
=================================
For the Three and Six Months Ended June 30, 1998 and 1997
(dollars in thousands, except per share data)
(Unaudited)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
========== ========== ========== ==========
<S> <C> <C> <C> <C>
REVENUE
Rental $ 20,343 $ 16,006 $ 39,511 $ 31,455
Interest and
other 24 117 78 148
---------- ---------- ---------- ----------
20,367 16,123 39,589 31,603
---------- ---------- ---------- ----------
EXPENSES
Depreciation
and amorti-
zation 5,369 4,484 10,453 8,948
General and
administrative 1,711 1,332 3,176 2,585
Property 426 362 899 853
Interest 2,864 2,009 5,355 3,321
Provision for
impairment
loss -- 70 -- 70
--------- ---------- ---------- ----------
10,370 8,257 19,883 15,777
--------- ---------- ---------- ----------
Income from
operations 9,997 7,866 19,706 15,826
Gain on sales
of properties 311 202 526 427
---------- ---------- ---------- ----------
NET INCOME $ 10,308 $ 8,068 $ 20,232 $ 16,253
========== ========== ========== ==========
Basic and diluted
net income per
share $ 0.38 $ 0.35 $ 0.77 $ 0.71
========== ========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 5
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<CAPTION>
REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
For the six months ended June 30, 1998 and 1997
(dollars in thousands)
(Unaudited)
1998 1997
========= =========
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,232 $ 16,253
Adjustments to net income:
Depreciation and amortization 10,453 8,948
Provision for impairment loss -- 70
Gain on sales of properties (526) (427)
Change in assets and liabilities:
Accounts receivable and
other assets 1,655 593
Accounts payable, accrued
expenses and other liabilities 207 1,853
--------- ---------
Net cash provided by
operating activities 32,021 27,290
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of properties 2,770 2,891
Acquisition of and additions
to properties (102,014) (56,943)
--------- ---------
Net cash used in
investing activities (99,244) (54,052)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of distributions (25,545) (21,722)
Bond offering proceeds -- 110,000
Proceeds from line of credit 111,300 36,200
Payment of lines of credit (46,000) (94,200)
Proceeds from stock offerings,
net of offering costs of $109 28,392 --
Payments to the defined benefit
pension plan -- (2,223)
</TABLE>
Continued on next page
Page 6
(continued)
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REALTY INCOME CORPORATION AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
=====================================
For the six months ended June 30, 1998 and 1997
(dollars in thousands)
(Unaudited)
1998 1997
========= =========
<S> <C> <C>
Proceeds from stock options exercised 69 --
--------- ---------
Net cash provided by
financing activities 68,216 28,055
--------- ---------
Net increase in cash and
cash equivalents 993 1,293
Cash and cash equivalents,
beginning of period 2,123 1,559
--------- ---------
Cash and cash equivalents,
end of period $ 3,116 $ 2,852
========= =========
</TABLE>
Interest paid during the first six months of 1998 and 1997 was
$4.7 million and $3.1 million, respectively.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
Page 7
REALTY INCOME CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
==========================================
June 30, 1998
(Unaudited)
1. Management Statement and General
The financial statements of Realty Income Corporation ("Realty
Income" or the "Company") were prepared from the books and
records of the Company without audit and in the opinion of
management include all adjustments (consisting of only normal
recurring accruals) necessary to present a fair statement of
results for the interim periods presented. Readers of this
quarterly report should refer to the audited financial statements
of the Company for the year ended December 31, 1997, which are
included in the Company's 1997 Annual Report on Form 10-K, as
certain disclosures which would substantially duplicate those
contained in such audited financial statements have been omitted
from this report.
2. Property Acquisitions
During the first six months of 1998, the Company invested $102.0
million in 66 new properties and properties under development
with an initial aggregate contractual lease rate of 10.3%. The
66 properties are located in 29 states and contain approximately
657,300 leasable square feet. The 66 properties are 100% leased
under net leases, with an average initial lease length of 14.8
years.
During the first six months of 1997, the Company invested $56.9
million in 37 new properties and properties under development
with an initial aggregate contractual lease rate of 10.2%. The
37 properties are located in 18 states and contain approximately
589,200 leasable square feet. The 37 properties are 100% leased
under net leases, with an average initial lease length of 14.4
years.
3. Credit Facility Available for Acquisitions
The Company has a $150 million, three year, revolving, unsecured
acquisition credit facility that expires in December 2000. The
credit facility is from The Bank of New York, as agent, and
several U.S. and non-U.S. banks. In November 1997, the Company
obtained a $10 million unsecured line of credit with The Bank of
New York, which was repaid and canceled in January 1998. As of
June 30, 1998 and December 31, 1997, the outstanding balances on
the credit facility and line of credit were $87.9 million and
$22.6 million, respectively, with an effective interest rate of
approximately 6.56% and 6.66%, respectively.
Page 8
The credit facility currently bears interest at 0.85% over the
London Interbank Offered Rate ("LIBOR") and offers the Company
other interest rate options. A facility fee of 0.15%, per annum,
accrues on the total commitment of the credit facility.
The credit facility is subject to various leverage and interest
coverage ratio limitations. The Company is and has been in
compliance with these limitations.
For the six months ended June 30, 1998 and 1997, interest of
$234,000 and $82,000 respectively, was capitalized on properties
under construction. For the three months ended June 30, 1998 and
1997, interest of $154,000 and $46,000, respectively, was so
capitalized.
4. Common Stock Offerings
A. In March 1998, the Company issued 372,093 shares of common
stock to a unit investment trust at a net price to the Company of
$25.53125 per share. The net proceeds of $9.5 million were used
to repay borrowings under the credit facility of $7.9 million and
to acquire properties.
B. In February 1998, the Company issued 751,174 shares of common
stock to a unit investment trust at a net price to the Company of
$25.295 per share. The net proceeds of $18.9 million were used
to repay borrowings under the credit facility.
5. Distributions Paid and Payable
During the six months ended June 30, 1998, the Company paid three
monthly distributions of $0.16 per share and three monthly
distributions of $0.1625 per share, totaling $0.9675 per share.
For the six months ended June 30, 1997, the Company paid six
monthly distributions of $0.1575 per share, totaling $0.945 per
share. As of June 30, 1998, a distribution of $0.165 per share
was declared and paid on July 15, 1998.
6. Gain on Sales of Properties
For the six months ended June 30, 1998, the Company sold five
properties (two child care centers, one multi-tenant location and
two restaurants) for $2.8 million and recognized a gain of
$526,000. For the six months ended June 30, 1997, the Company
sold seven properties (five restaurants, one child care center
and one multi-tenant location) for $2.9 million and recognized a
gain of $427,000.
For the three months ended June 30, 1998, the Company sold two
properties (one child care center and one restaurant) for
$822,000 and recognized a gain of $311,000. For the three months
Page 9
ended June 30, 1997 the Company sold three restaurant properties
for $1.6 million and recognized a gain of $202,000.
7. Net Income per Share
Basic net income per share is computed by dividing net income by
the weighted average number of common shares outstanding during
each period. Diluted net income per share is computed by
dividing the amount of net income for the period by each share
that would have been outstanding assuming the issuance of common
shares for all potentially dilutive common shares outstanding
during the reporting period.
The following is a reconciliation of the denominator of the basic
net income per share computation to the denominator of the
diluted net income per share computation, for the three and six
months ended June 30, 1998 and 1997 (net income was available to
common shareholders for all periods presented):
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
6/30/98 6/30/97
---------- ----------
<S> <C> <C>
Weighted average shares used for
the basic net income computation 26,836,730 22,987,650
Incremental shares from the assumed
conversion of stock options 8,361 2,942
---------- ----------
Adjusted weighted average shares
used for diluted net income
computation 26,845,091 22,990,592
=========== ==========
Six Six
Months Months
Ended Ended
6/30/98 6/30/97
---------- ----------
Weighted average shares used for
the basic net income computation 26,434,892 22,987,173
Incremental shares from the assumed
conversion of stock options 7,627 2,990
---------- ----------
Adjusted weighted average shares
used for diluted net income
computation 26,442,519 22,990,163
========== ==========
</TABLE>
Page 10
8. Derivative Financial Instrument
In May 1998, the Company entered into a treasury interest rate
lock agreement to hedge against the possibility of rising
interest rates applicable to an anticipated debt offering. Under
the interest rate lock agreement, the Company receives or makes a
payment based on the differential between a specified interest
rate, 5.726%, and the actual 10-year treasury interest rate on a
notional principal amount of $100 million, at the end of six
months. Based on the 10-year treasury interest rate at
June 30, 1998, the Company has an unrecognized loss of $1.5
million.
The Company has only limited involvement with a derivative
financial instrument and does not use it for trading purposes.
The derivative financial instrument is used to manage a well-
defined interest rate risk.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
This report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. When used in this quarterly
report, the words estimated, anticipated and similar expressions
are intended to identify forward-looking statements. Such
forward-looking statements are inherently subject to risk and
uncertainties, many of which cannot be predicted with accuracy
and some of which might not even be anticipated. Future events
and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking
statements. In particular, among the factors that could cause
actual results to differ materially are the continued
qualification as a real estate investment trust, general business
and economic conditions, competition, interest rates,
accessibility of debt and equity capital markets and other risks
inherent in the real estate business including tenant defaults,
potential liability relating to environmental matters and
illiquidity of real estate investments. For further description
and detail of these and other factors please see "Business" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-
K and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Report on
Form 10-Q for the quarterly period ended March 31, 1998. Readers
are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any
Page 11
revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
GENERAL
- -------
Realty Income Corporation, a Maryland corporation ("Realty
Income" or the "Company") was organized to operate as an equity
real estate investment trust ("REIT"). Realty Income is a fully
integrated self-administered real estate company with in-house
acquisition, leasing, legal, retail and real estate research,
portfolio management and capital markets expertise. As of
June 30, 1998, the Company owned a diversified portfolio of 887
retail properties located in 43 states with over 6.9 million
square feet of leasable space. Of the 887 properties in the
portfolio, 881 are single-tenant properties with the remainder
being multi-tenant properties. As of June 30, 1998, 878 of the
881 single-tenant properties, or over 99%, were net leased with
an average remaining lease term (excluding extension options) of
approximately 8.4 years. Net leases typically require the tenant
to be responsible for property operating costs including property
taxes, insurance and maintenance.
The Company's primary business objective is to generate a
consistent and predictable level of funds from operations ("FFO")
per share and distributions to stockholders. Additionally, the
Company generally will seek to increase FFO per share and
distributions to stockholders through both active portfolio
management and the acquisition of additional properties.
The Company also intends to pay distributions at a level greater
than 95% of its taxable income (determined without regard to the
deduction for dividends paid and by excluding any net capital
gain) in order to meet REIT qualification requirements and to use
undistributed cash flow to fund additional acquisitions and for
other corporate purposes.
The Company's portfolio management focus includes: (i)
contractual rent increases on existing leases; (ii) rental
increases at the termination of existing leases when market
conditions permit; and (iii) the active management of the
Company's property portfolio, including selective sales of
properties. The Company generally pursues the acquisition of
additional properties under long-term, net lease agreements with
initial contractual base rent which, at the time of acquisition
and as a percentage of acquisition costs, is in excess of the
Company's estimated cost of capital.
Realty Income adheres to a focused strategy of acquiring
freestanding, single-tenant, retail properties leased to regional
Page 12
and national retail chains under long-term, net lease agreements.
The Company typically acquires retail store locations, which
provides capital to the operators for continued expansion and
other corporate purposes. Realty Income's acquisition and
investment activities are concentrated in specific target markets
and focus primarily on middle-market and upper-market retailers
providing goods and services which satisfy basic consumer needs.
The Company's net lease agreements generally are for initial
terms of 10 to 20 years, require the tenant to pay a minimum
monthly rent and property operating expenses (taxes, insurance
and maintenance), and provide for future rent increases
(typically subject to ceilings) based on increases in the
consumer price index or additional rent calculated as a
percentage of the tenant's gross sales above a specific level.
From 1970 through December 31, 1997, Realty Income has acquired
and leased back to regional and national retail chains 797
properties (including 32 properties that have been sold) and has
collected over 98% of the original contractual rent obligation on
these properties.
Realty Income believes that the long-term ownership of an
actively managed, diversified portfolio of retail properties
leased under long-term, net lease agreements can produce
consistent, predictable income and the potential for long-term
share price appreciation. Management believes that the income
generated under long-term leases, coupled with the tenant's
responsibility for property expenses under the net lease
structure, generally produces a more predictable income stream
than many other types of real estate portfolios.
Year 2000 Issue
Some of Realty Income's existing computer programs identify a
year by using only two digits instead of four which could cause
these programs to fail or create erroneous results beginning in
the year 2000. This situation has been referred generally as the
Year 2000 issue.
Management believes that the cost of remediation associated with
the Company's corporate level computer systems will be minimal
and the remediation is anticipated to be completed in the first
quarter of 1999. The other essential component of the Year 2000
issue is to ensure that the Company's significant tenants are
assessed for Year 2000 compliance. Management has initiated
discussions with the Company's significant tenants in order to
assess their readiness for the year 2000 issue. Due to the
nature of the tenants' businesses, management does not believe
the Year 2000 issue will materially impact the tenants' ability
to pay rent. However, the failure of one or more tenants as a
result of the Year 2000 issue could have a material adverse
effect on the Company's results of operation or financial
position.
Page 13
Upon completion of the Company's assessment program, management
will consider the necessity of implementing a contingency plan to
mitigate any adverse effects associated with the Year 2000 issue.
Though Realty Income does not expect the Year 2000 issue to have
a material adverse effect on its result of operation or financial
position there can be no assurances of that position.
Other Information
The Company's common stock is listed on the New York Stock
Exchange under the symbol "O" and its central index key ("CIK")
number is 726728.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash Reserves
Realty Income was organized for the purpose of operating as an
equity REIT which acquires and leases properties and distributes
to stockholders, in the form of monthly cash distributions, a
substantial portion of its net cash flow generated from leases on
its retail properties. The Company intends to retain an
appropriate amount of cash as working capital reserves. At
June 30, 1998, the Company had cash and cash equivalents totaling
$3.1 million.
Management believes that the Company's cash and cash equivalents
on hand, cash provided from operating activities and borrowing
capacity are sufficient to meet its liquidity needs for the
foreseeable future, except that the Company intends to utilize
additional sources of capital to fund property acquisitions and
repayment of its acquisition credit facility.
Capital Funding
Realty Income has a $150 million, three-year revolving, unsecured
acquisition credit facility that expires in December 2000. The
credit facility currently bears interest at 0.85% over the London
Interbank Offered Rate ("LIBOR") and offers the Company other
interest rate options. As of August 12, 1998, $54.8 million of
borrowing capacity was available to the Company under the
acquisition credit facility. At that time, the outstanding
balance was $95.2 million with an effective interest rate of
6.54%. This credit facility has been and is expected to be used
to acquire additional retail properties leased to national and
regional retail chains under long term lease agreements. Any
additional borrowings will increase the Company's exposure to
interest rate risk.
Page 14
Realty Income expects to meet its long-term capital needs for the
acquisition of properties through the issuance of public or
private debt or equity. In August 1997, the Company filed a
universal shelf registration statement with the Securities and
Exchange Commission covering up to $300 million in value of
common stock, preferred stock and/or debt securities.
Approximately $101.4 million in value of securities has been
issued under the universal shelf registration statement through
August 12, 1998.
In May 1998, the Company entered into a treasury interest rate
lock agreement to hedge against the possibility of rising
interest rates applicable to an anticipated debt offering. Under
the interest rate lock agreement, the Company receives or makes a
payment based on the differential between a specified interest
rate, 5.726%, and the actual 10-year treasury interest rate on a
notional principal amount of $100 million, at the end of six
months. Based on the 10-year treasury interest rate at
June 30, 1998, the Company has an unrecognized loss of $1.5
million.
On March 30, 1998, Realty Income issued 372,093 shares of common
stock at a net price to the Company of $25.53125 per share to a
unit investment trust. The net proceeds were used to repay
borrowings of $7.9 million under the acquisition credit facility
and to acquire additional properties.
On February 23, 1998, Realty Income issued 751,174 shares of
common stock at a net price to the Company of $25.295 per share
to a unit investment trust. The net proceeds were used to repay
borrowings of $18.9 million under the acquisition credit
facility.
The Company received investment grade corporate credit ratings
from Duff & Phelps Rating Company, Moody's Investor Service,
Inc., and Standard & Poor's Rating Group in December 1996.
Currently, Duff & Phelps has assigned a rating of BBB, Moody's
has assigned a rating of Baa3, and Standard & Poor's has assigned
a rating of BBB- to the Company's senior debt. These ratings are
subject to change based upon, among other things, the Company's
results of operations and financial condition.
Property Acquisitions
During the second quarter of 1998, Realty Income acquired 44
retail properties located in 20 states and invested $50.2 million
(excluding estimated unfunded development costs on properties
under construction at June 30, 1998) and selectively sold two
properties. During the quarter, the Company also invested
$60,000 in three existing properties in its portfolio. The 44
properties acquired will contain approximately 300,700 leasable
square feet and are 100% leased under net leases, with an average
Page 15
initial lease term of 14.4 years. The weighted average annual
unleveraged return on the cost of the 44 properties (including
the estimated unfunded development cost of the properties under
development) is estimated to be 10.0%, computed as estimated
contractual net operating income (which in the case of a net
leased property is equal to the base rent or, in the case of
properties under construction, the estimated base rent under the
lease) for the first year of each lease, divided by total
acquisition and estimated development costs. Since it is
possible that a tenant could default on the payment of
contractual rent, no assurance can be given that the actual
return on the cost of the 44 properties acquired in the second
quarter of 1998 will not differ from the foregoing percentage.
During the first six months of 1998, Realty Income acquired 66
retail properties located in 29 states and invested $102.0
million (excluding estimated unfunded development costs on
properties under construction at June 30, 1998) and selectively
sold five properties, increasing the number of properties in its
portfolio by 7.4% to 887 from 826 at December 31, 1997. During
the first half of 1998, the Company added two new industries and
11 new retailers to its real estate portfolio. The Company also
invested $74,000 in five existing properties in its portfolio.
The 66 properties acquired will contain approximately 657,300
leasable square feet and are 100% leased under net leases, with
an average initial lease term of 14.8 years. The weighted
average annual leveraged return on the cost of the 66 properties
(including the estimated unfunded development cost of the
properties under development) is estimated to be 10.3%, computed
as estimated contractual net operating income (which in the case
of a net leased property is equal to the base rent or, in the
case of properties under construction, the estimated base rent
under the lease) for the first year of each lease, divided by
total acquisition and estimated development costs. Since it is
possible that a tenant could default on the payment of
contractual rent, no assurance can be given that the actual
return on the cost of the 66 properties acquired in 1998 will not
differ from the foregoing percentage.
Of the properties acquired during the first six months of 1998,
61 were occupied as of August 12, 1998 and the remaining
properties were pre-leased and under construction pursuant to
contracts under which the tenant has agreed to develop the
properties (with development costs funded by the Company) and to
begin paying rent when the premises open for business. All of
the properties acquired in 1998, including the properties under
development, are leased with initial terms of 9 to 20 years.
Page 16
The following table summarized Realty Income's 1998 acquisition
activity by quarter.
<TABLE>
<CAPTION>
Initial Approx.
Properties Lease Term Leasable Total
Acquired (Years) Square Feet Invested
========== ========== =========== ============
<S> <C> <C> <C> <C>
1st quarter 22 15.5 356,600 $ 51,812,000
2nd quarter 44 14.4 300,700 50,159,000
- -------------- ---------- ---------- ----------- ------------
Totals 66 14.8 657,300 $101,971,000
============== ========== ========== =========== ============
</TABLE>
Distributions
Cash distributions paid during the first six months of 1998 and
1997 were $25.5 million and $21.7 million, respectively.
During the first quarter of 1998, the Company paid three monthly
distributions of $0.16 per share. During the second quarter of
1998, the Company paid three distributions of $0.1625 per share.
Distributions for the first six months of 1998 totaled $0.9675
per share. In April and July 1998, the monthly distributions
were increased to $0.1625 and $0.1650 per share, respectively.
In June and July 1998, the Company declared distributions of
$0.1650 per share which were paid on July 15, 1998 and payable on
August 17, 1998, respectively.
FUNDS FROM OPERATIONS ("FFO")
- -----------------------------
FFO for the second quarter of 1998 increased by $2.92 million or
23.5% to $15.33 million versus $12.41 million during the second
quarter of 1997.
The following is a reconciliation of net income to FFO, and
information regarding distributions paid and diluted weighted
average number of shares outstanding for the second quarter of
1998 and 1997 (dollars in thousands):
Page 17
<PAGE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income $ 10,308 $ 8,068
Plus depreciation and amortization 5,369 4,484
Plus provision for impairment loss -- 70
Less depreciation of furniture,
fixtures and equipment and
amortization of organization costs (40) (13)
Less gain on sales of properties (311) (202)
-------- --------
Total Funds From Operations $ 15,326 $ 12,407
======== ========
Cash Distributions Paid $ 13,083 $ 10,861
FFO in excess of Distributions $ 2,243 $ 1,546
Diluted weighted average
number of shares outstanding 26,845,091 22,990,592
</TABLE>
FFO for the first six months of 1998 increased by $5.26 million
or 21.2% to $30.08 million versus $24.82 million during the same
period of 1997.
The following is a reconciliation of net income to FFO, and
information regarding distributions paid and diluted weighted
average number of shares outstanding for the first six months of
1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net income $ 20,232 $ 16,253
Plus depreciation and amortization 10,453 8,948
Plus provision for impairment loss -- 70
Less depreciation of furniture,
fixtures and equipment and
amortization of organization costs (79) (24)
Less gain on sales of properties (526) (427)
-------- --------
Total Funds From Operations $ 30,080 $ 24,820
======== ========
Cash Distributions Paid $ 25,545 $ 21,722
FFO in excess of Distributions $ 4,535 $ 3,098
Diluted weighted average
number of shares outstanding 26,442,519 22,990,163
</TABLE>
Page 18
Management considers FFO to be an appropriate measure of the
performance of an equity REIT. FFO is used by financial analysts
in evaluating REITs and can be one measure of a REIT's ability to
make cash distribution payments. Presentation of this
information provides the reader with an additional measure to
compare the performance of different REITs, although it should be
noted that not all REITs calculate FFO the same way, so
comparisons with such REITs may not be meaningful.
Realty Income defines FFO as net income before gain on sales of
properties, plus depreciation and amortization. In accordance
with the recommendations of the National Association of Real
Estate Investment Trusts ("NAREIT"), amortization of deferred
financing costs is not added back to net income to calculate FFO.
Amortization of financing costs are included in interest expense
in the consolidated statements of income.
FFO is not necessarily indicative of cash flow available to fund
cash needs and should not be considered as an alternative to net
income as an indication of the Company's performance or to cash
flows from operating, investing, and financing activities as a
measure of liquidity or ability to make cash distributions or to
pay debt service.
RESULTS OF OPERATIONS
- ---------------------
The following is a comparison of the three and six months ended
June 30, 1998 to the three and six months ended June 30, 1997.
Rental revenue was $20.34 million for second quarter of 1998
versus $16.01 million for the comparable quarter of 1997, an
increase of 27.0% or $4.33 million. The increase in rental
revenue was primarily due to the acquisition of 162 properties
during 1997 and the first six months of 1998 (the "New
Properties"). The New Properties generated revenue of $4.99
million in the second quarter of 1998 compared to $659,000 in the
second quarter of 1997, an increase of $4.33 million.
Rental revenue was $39.51 million for the first six months of
1998 versus $31.46 million for the comparable period of 1997, an
increase of 25.6% or $8.05 million. The increase in rental
revenue was primarily due to the acquisition of the New
Properties. The New Properties generated revenue of $8.75
million in the first six months of 1998 compared to $794,000 in
the comparable period of 1997, an increase of $7.95 million.
Of the 887 properties in the portfolio as of June 30, 1998, 881
are single-tenant properties with the remaining properties being
multi-tenant properties. Of the 881 single-tenant properties
878, or over 99%, were net leased with an average remaining lease
Page 19
term (excluding extension options) of approximately 8.4 years.
At June 30, 1998, 878 of the Company's 881 single tenant
properties had leases which provide for increases in rents
through: (i) base rent increases tied to a consumer price index
with adjustment ceilings; (ii) overage rent based on a percentage
of the tenants' gross sales or (iii) fixed increases. Some
leases contain more than one of these clauses. Percentage rent,
which is included in rental revenue, was $67,000 during the
second quarter of 1998 and $76,000 in the comparable quarter of
1997. Percentage rent during the first six months of 1998 and
1997 was $275,000 and $369,000, respectively.
Same store rents generated on 717 properties owned during the
entire first six months of 1998 and 1997 increased by $319,000 or
1.1%, to $30.40 million from $30.08 million. Same store rents
generated on the same 717 properties owned during the entire
second quarter of 1998 and 1997 increased by $195,000 or 1.3%, to
$15.17 million from $14.97 million.
The following tables represent Realty Income's rental revenue by
industry (dollars in thousands):
<TABLE>
<CAPTION>
Annualized as Six Months Ended
of July 1, 1998 June 30, 1998
--------------------- ---------------------
Rental(1) Percentage Rental Percentage
Industry Revenue of Total Revenue of Total
- -------------------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Apparel Stores $ 3,927 4.5% $ 1,497 3.8%
Automotive Parts 7,398 8.4 2,745 6.9
Automotive Service 6,742 7.7 3,076 7.8
Book Stores 450 0.5 225 0.6
Child Care 24,502 27.9 11,920 30.2
Consumer Electronics 4,432 5.1 2,320 5.9
Convenience Stores 5,301 6.0 2,401 6.1
Health & Fitness 360 0.4 -- --
Home Furnishings 8,065 9.2 2,752 7.0
Office Supplies 2,476 2.8 1,256 3.2
Pet Supplies & Services 435 0.5 136 0.3
Private Education 1,000 1.1 271 0.6
Restaurants 13,902 15.9 6,804 17.2
Shoe Stores 529 0.6 247 0.6
Video Rental 3,315 3.8 1,367 3.5
Other 4,895 5.6 2,494 6.3
- -------------------- ------- ------ ------- ------
Totals $87,729 100.0% $39,511 100.0%
==================== ======= ====== ======= ======
</TABLE>
Page 20
[FN]
(1) Annualized rental revenue is calculated by multiplying the
monthly contractual base rent as of July 1, 1998 by 12 and adding
the previous 12 month's historic percentage rent, which totaled
$1.7 million. For properties under construction, an estimated
contractual base rent is used based upon the estimated total
costs of each property.
</FN>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
---------------------
Rental Percentage
Industry Revenue of Total
- -------------------- ------- ----------
<S> <C> <C>
Apparel Stores $ -- --%
Automotive Parts 2,906 9.3
Automotive Service 1,897 6.0
Book Stores 152 0.5
Child Care 11,779 37.4
Consumer Electronics 2,114 6.7
Convenience Stores 1,602 5.1
Health and Fitness -- --
Home Furnishings 1,543 4.9
Office Supplies 239 0.8
Pet Supplies & Services 8 --
Private Education -- --
Restaurants 6,768 21.5
Shoe Stores -- --
Video Rental -- --
Other 2,447 7.8
- -------------------- ------- ------
Totals $31,455 100.0%
==================== ======= ======
</TABLE>
At June 30, 1998, the Company had three properties that were not
under lease, as compared to four at March 31, 1998 and eight at
December 31, 1997. At June 30, 1998, 884, or over 99%, of the
887 properties in the portfolio were under lease agreements with
third party tenants.
Interest and other revenue during the second quarter of 1998 and
1997 totaled $24,000 and $117,000, respectively, a decrease of
$93,000. Interest and other revenue during the first six months
of 1998 and 1997 totaled $78,000 and $148,000, respectively, a
decrease of $70,000. The decrease in 1998 was primarily due to
interest earned in 1997 on bond offering proceeds in excess of
the $93.7 million used to payoff the credit facility in May 1997.
Page 21
These proceeds were invested in new properties during May and
June 1997.
Depreciation and amortization was $5.4 million in the second
quarter of 1998 versus $4.5 million in the comparable quarter of
1997 and $10.5 million for the first six months of 1998 versus
$8.9 million for the comparable six months of 1997. The increase
in 1998 was primarily due to depreciation of New Properties.
General and administrative expenses increased by $379,000 to $1.7
million in the second quarter of 1998 versus $1.3 million in the
comparable quarter of 1997. The increase in general and
administrative expenses was primarily due to an increase in
property acquisition expenses and employee costs. General and
administrative expenses as a percentage of revenue increased to
8.4% in the second quarter of 1998 as compared to 8.3% in the
comparable quarter of 1997. During 1997, the Company increased
its number of employees to 47 from 35. The majority of the new
employees work primarily on new property acquisitions and were
hired during the second and third quarter of 1997.
General and administrative expenses increased by $591,000 to $3.2
million in the first six months of 1998 versus $2.6 million in
the first six months of 1997. The increase in general and
administrative expenses was primarily due to an increase in
property acquisition expenses and employee costs. General and
administrative expenses as a percentage of revenue decreased to
8.0% in the first six months of 1998 as compared to 8.2% in the
first six months of 1997.
Property expenses are broken down into costs associated with non-
net leased multi-tenant properties, unleased single-tenant
properties and general portfolio expenses. Expenses related to
the multi-tenant and unleased single-tenant properties include,
but are not limited to, property taxes, maintenance, insurance,
utilities, property inspections, bad debt expense and legal fees.
General portfolio costs include, but are not limited to,
insurance, legal, property inspections and title search fees. At
June 30, 1998, three properties were available for lease, as
compared to four at March 31, 1998 and eight at
December 31, 1997.
Property expenses were $426,000 in the second quarter of 1998 and
$362,000 in the second quarter of 1997, an increase of $64,000.
The increase in property expenses was primarily attributable to
the New Properties. It is anticipated that property expenses
will increase as additional properties are acquired. Property
expenses as a percentage of revenue decreased to 2.3% in the
first six months of 1998 as compared to 2.7% in the first six
months of 1997.
Page 22
Property expenses were $899,000 in the first six months of 1998
and $853,000 in the comparable period of 1997, an increase of
$46,000. The increase in property expenses was primarily
attributable to the New Properties. Property expenses as a
percentage of revenue decreased to 2.1% in the second quarter of
1998 as compared to 2.2% in the same quarter of 1997.
Interest expense in the second quarter of 1998 increased by
$855,000 to $2.9 million, as compared to $2.0 million in the
second quarter of 1997. The following is a summary of the five
components of interest expense for the second quarter of 1998 and
1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 Net Change
-------- -------- ----------
<S> <C> <C> <C>
Interest on outstanding
loans and notes $ 2,894 $ 1,970 $ 924
Amortization of the gain on the
1996 treasury lock agreement (29) (18) (11)
Credit facility commitment fees 57 35 22
Amortization of credit facility
origination costs and deferred
bond financing costs 96 68 28
Interest capitalized (154) (46) (108)
-------- -------- --------
Totals $ 2,864 $ 2,009 $ 855
======== ======== ========
</TABLE>
Interest on outstanding loans and notes was $924,000 higher in
the second quarter of 1998 than in 1997, due to an increase in
the average outstanding balances, which was partially offset by
lower average interest rate. During the second quarter of 1998,
the average outstanding balances and interest rate (after taking
into affect amortization of the gain on the treasury lock
agreement) on the Notes and credit facility were $157.2 million
and 7.31% as compared to $103.9 million and 7.54% during the
second quarter of 1997. During the second quarter of 1998, the
credit facility's average interest rate was 6.48% and average
outstanding balance was $47.2 million. The credit facility's
balance at June 30, 1998 was $87.9 million.
Page 23
Interest expense for the first six months of 1998 increased by
$2.0 million to $5.36 million, as compared to $3.32 million in
the comparable period of 1997. The following is a summary of the
five components of interest expense for the first six months of
1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 Net Change
-------- -------- ----------
<S> <C> <C> <C>
Interest on outstanding
loans and notes $ 5,343 $ 3,248 $ 2,095
Amortization of the gain on the
1996 treasury lock agreement (57) (18) (39)
Credit facility commitment fees 113 56 57
Amortization of credit facility
origination costs and deferred
bond financing costs 190 117 73
Interest capitalized (234) (82) (152)
-------- -------- ----------
Totals $ 5,355 $ 3,321 $ 2,034
======== ======== ==========
</TABLE>
Interest on outstanding loans and notes was $2.1 million higher
in the first six months of 1998 than in 1997, due to an increase
in the average outstanding balances and higher average interest
rate. During the first six months of 1998, the average
outstanding balances and interest rate (after taking into affect
amortization of the gain on the treasury lock agreement) on the
Notes and credit facility were $143.3 million and 7.44% as
compared to $90.1 million and 7.23% during the comparable period
of 1997. During the first six months of 1998, the credit
facility's average interest rate was 6.53% and average
outstanding balance was $33.3 million.
The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. No charge was
recorded for impairment loss during the first six months of 1998.
In the second quarter and first six months of 1997, a $70,000
charge was taken to reduce the net carrying value on one property
because it became held for sale. This property was sold in the
second quarter of 1997.
During the second quarter of 1998, the Company sold two
properties (one child care center and one restaurant) for a total
of $822,000 and recorded a gain of $311,000. During the second
quarter of 1997, the Company sold three restaurant properties for
$1.6 million and recognized a gain of $202,000.
Page 24
During the first six months of 1998, the Company sold five
properties (two child care centers, one multi-tenant location and
two restaurants) for a total of $2.8 million and recorded a gain
of $526,000. During the first six months of 1997, the Company
sold seven properties (five restaurants and one child care center
and one multi-tenant location) for $2.9 million and recognized a
gain of $427,000.
In the second quarter of 1998, the Company had net income of
$10.3 million versus $8.1 million in 1997. The $2.2 million
increase in net income is primarily due to the increase in rental
revenue from the New Properties of $4.3 million, which was
partially offset by an increase in depreciation and amortization,
general and administrative, and interest expense totaling $2.1
million.
In the first six months of 1998, the Company had net income of
$20.2 million versus $16.3 million in the comparable period of
1997. The $3.9 million increase in net income is primarily due
to the increase in rental revenue from the New Properties of $8.0
million, which was partially offset by an increase in
depreciation and amortization, general and administrative, and
interest expense totaling $4.1 million.
PROPERTIES
- ----------
As of July 1, 1998, Realty Income owned a diversified portfolio
of 887 properties in 43 states consisting of over 6.9 million
square feet of leasable space. At July 1, 1998, approximately
99% of the properties were under net lease agreements. Net
leases typically require the tenant to be responsible for
property operating costs including property taxes, insurance and
maintenance.
The Company's net leased properties are retail locations
primarily leased to regional and national retail chain store
operators. The average leasable retail space of the 887
properties is approximately 7,800 square feet on approximately
47,000 square feet of land. Generally, buildings are single-
story properties with adequate parking on site to accommodate
peak retail traffic periods. The properties tend to be on major
thoroughfares with relatively high traffic counts and adequate
access, egress and proximity to sufficient population base to
constitute a sufficient market or trade area for the retailer's
business.
The following table sets forth certain information regarding the
Company's properties as of July 1, 1998, classified according to
the business of the respective tenants.
Page 25
<TABLE>
<CAPTION>
Approximate Percent of
Number of Leasable Annualized Annualized
Industry Properties Square Feet Rent (1) Rent
- -------------------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Apparel Stores 5 228,800 $ 3,927,000 4.5%
Automotive Parts 112 613,700 7,398,000 8.4
Automotive Service 97 322,700 6,742,000 7.7
Book Stores 1 30,000 450,000 0.5
Child Care 315 2,007,300 24,502,000 27.9
Consumer Electronics 37 559,200 4,432,000 5.1
Convenience Stores 61 168,200 5,301,000 6.0
Health & Fitness 1 32,700 360,000 0.4
Home Furnishings 35 1,016,100 8,065,000 9.2
Office Supplies 8 198,400 2,476,000 2.8
Pet Supplies & Services 2 28,100 435,000 0.5
Private Education 3 59,300 1,000,000 1.1
Restaurants 170 861,200 13,902,000 15.9
Shoe Stores 2 27,700 529,000 0.6
Video Rental 26 194,000 3,315,000 3.8
Other 12 555,600 4,895,000 5.6
- -------------------- ---------- ----------- ----------- ---------
TOTALS 887 6,903,000 $87,729,000 100.0%
==================== ========== =========== =========== =========
</TABLE>
[FN]
(1) Annualized Rent is calculated by multiplying the monthly
contractual base rent as of July 1, 1998 by 12 and adding the
previous twelve month's historic percentage rent, which totaled
$1.7 million, (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For the
properties under construction, an estimated contractual base rent
is used based upon the estimated total costs of each property.
</FN>
Of the 887 properties in the portfolio at July 1, 1998, 881 were
single-tenant properties with the remaining properties being
multi-tenant properties. As of July 1, 1998, 878 of the 881
single-tenant properties, or over 99%, were net leased with an
average remaining lease term (excluding extension options) of
approximately 8.4 years.
The following table sets forth certain information regarding the
timing of the lease term expirations (excluding extension
options) on the Company's 878 net leased, single-tenant retail
properties as of July 1, 1998.
Page 26
<TABLE>
<CAPTION>
Percent of
Number of Total
Leases Annualized Annualized
Year Expiring Base Rent(1)(2) Base Rent
- ------ --------- --------------- ----------
<S> <C> <C> <C>
1998 2 $ 96,000 0.1%
1999 30 1,248,000 1.5
2000 38 1,969,000 2.4
2001 48 4,076,000 5.0
2002 79 6,346,000 7.7
2003 66 5,147,000 6.3
2004 111 9,056,000 11.0
2005 84 6,036,000 7.4
2006 29 2,473,000 3.0
2007 91 5,793,000 7.1
2008 53 4,356,000 5.3
2009 16 1,144,000 1.4
2010 39 3,706,000 4.5
2011 36 4,669,000 5.7
2012 52 5,854,000 7.1
2013 48 8,401,000 10.2
2014 6 749,000 0.9
2015 27 4,976,000 6.1
2016 10 1,640,000 2.0
2017 11 4,092,000 5.0
2018 2 221,000 0.3
- ------ --------- --------------- ----------
Totals 878 $ 82,048,000 100.0%
====== ========= =============== ==========
</TABLE
<FN>
(1) Annualized base rent is calculated by multiplying the monthly
contractual base rent as of July 1, 1998 by 12. For properties
under construction, an estimated contractual base rent is used
based upon the estimated total costs of each property.
Annualized base rent does not include percentage rents (i.e.,
additional rent calculated as a percentage of the tenant's gross
sales above a specified level), if any, that may be payable under
leases covering certain properties. Percentage rent for the
previous twelve months totaled $1.7 million.
(2) This table does not include six multi-tenant properties and
three vacant, unleased single-tenant properties owned by the
Company. The lease expirations for properties under construction
are based on the estimated date of completion of such properties.
</FN>
The following table sets forth certain state-by-state information
regarding the properties owned by the Company as of July 1, 1998.
Page 27
</TABLE>
<TABLE>
<CAPTION>
Approximate Percent of
Number of Percent Leasable Annualized Annualized
State Properties Leased Square Feet Rent (1) Rent
- -------------- ---------- ------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Alabama 8 100% 56,600 $ 537,000 0.6%
Arizona 28 99 183,800 2,557,000 2.9
Arkansas 3 100 14,600 191,000 0.2
California 52 94 987,800 11,028,000 12.6
Colorado 41 100 228,500 3,208,000 3.7
Connecticut 9 100 216,300 2,825,000 3.2
Florida 56 100 564,000 5,845,000 6.7
Georgia 46 100 266,600 3,838,000 4.4
Idaho 12 100 58,500 856,000 1.0
Illinois 29 100 202,200 2,579,000 2.9
Indiana 24 100 130,000 1,691,000 1.9
Iowa 9 100 60,300 574,000 0.7
Kansas 19 100 192,500 2,128,000 2.4
Kentucky 13 100 43,500 1,078,000 1.2
Louisiana 5 100 39,600 508,000 0.6
Maryland 6 100 34,900 535,000 0.6
Massachusetts 6 100 37,900 731,000 0.8
Michigan 7 100 44,800 652,000 0.8
Minnesota 18 100 126,500 1,950,000 2.2
Mississippi 14 100 143,100 1,066,000 1.2
Missouri 30 100 176,800 2,182,000 2.5
Montana 2 100 30,000 296,000 0.3
Nebraska 9 100 93,700 1,134,000 1.3
Nevada 7 100 86,400 1,333,000 1.5
New Hampshire 1 100 6,400 125,000 0.1
New Jersey 2 100 22,700 351,000 0.4
New Mexico 3 100 12,000 107,000 0.1
New York 9 100 170,600 3,596,000 4.1
North Carolina 28 100 125,800 2,228,000 2.5
Ohio 63 100 309,900 4,990,000 5.7
Oklahoma 15 100 85,800 1,020,000 1.2
Oregon 17 100 92,400 1,257,000 1.4
Pennsylvania 16 100 118,400 1,685,000 1.9
South Carolina 22 100 90,500 1,419,000 1.6
South Dakota 1 100 6,100 84,000 0.1
Tennessee 20 100 188,400 2,235,000 2.6
Texas 138 100 1,109,800 11,157,000 12.7
Utah 7 100 45,400 594,000 0.7
Virginia 28 100 115,400 2,447,000 2.8
Washington 43 100 252,600 3,406,000 3.9
West Virginia 2 100 16,800 147,000 0.2
Wisconsin 15 100 95,000 1,291,000 1.5
Wyoming 4 100 20,100 268,000 0.3
- -------------- ---------- ------- ----------- ---------- ----------
Totals 887 99% 6,903,000 $87,729,000 100.0%
============== ========== ======= =========== ========== ==========
</TABLE> Page 28
[FN]
(1) Annualized Rent is calculated by multiplying the monthly
contractual base rent as of July 1, 1998 by 12 and adding the
previous twelve month's historic percentage rent, which totaled
$1.7 million, (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For the
properties under construction, an estimated contractual base rent
is used based upon the estimated total costs of each property.
</FN>
The following table sets forth certain information regarding the
properties owned by the Company as of July 1, 1998, classified
according to the business of the respective tenants.
<TABLE>
<CAPTION>
Number of Annualized Percent of
Properties Rent (1) Revenue
---------- ---------- ----------
<S> <C> <C> <C>
GOODS
Apparel Stores 5 $ 3,927,000 4.5%
Automotive Parts 79 4,799,000 5.5
Book Stores 1 450,000 0.5
Consumer Electronics 37 4,432,000 5.0
Home Furnishings 35 8,065,000 9.2
Office Supplies 8 2,476,000 2.8
Pet Supplies 1 253,000 0.3
Shoe Stores 2 529,000 0.6
---------- ---------- ----------
168 24,931,000 28.4
---------- ---------- ----------
GOODS WITH SERVICES
Automotive Parts 33 2,599,000 3.0
Convenience Stores 61 5,301,000 6.0
Pet Supplies & Services 1 182,000 0.2
Restaurants 170 13,902,000 15.8
Video Rental 26 3,315,000 3.8
---------- ---------- ----------
291 25,299,000 28.8
---------- ---------- ----------
SERVICES
Automotive Service 97 6,742,000 7.7
Child Care 315 24,502,000 27.9
Health & Fitness 1 360,000 0.4
Other 12 4,895,000 5.6
Private Education 3 1,000,000 1.2
---------- ---------- ----------
428 37,499,000 42.8
---------- ---------- ----------
TOTALS 887 $87,729,000 100.0%
========== ========== ==========
</TABLE>
Page 29
[FN]
(1) Annualized Rent is calculated by multiplying the monthly
contractual base rent as of July 1, 1998 by 12 and adding the
previous twelve month's historic percentage rent, which totaled
$1.7 million, (i.e., additional rent calculated as a percentage
of the tenant's gross sales above a specified level). For
properties under construction, an estimated contractual base rent
is used based upon the estimated total costs of each property.
</FN>
IMPACT OF INFLATION
- -------------------
Tenant leases generally provide for limited increases in rent as
a result of increases in the tenant's sales volumes and/or
increases in the consumer price index. Management expects that
inflation will cause these lease provisions to result in
increases in rent over time. However, during times when
inflation is greater than increases in rent as provided for in
the leases, rent increases may not keep up with the rate of
inflation.
Approximately 99% of the properties in the portfolio are leased
to tenants under net leases in which the tenant is responsible
for property costs and expenses. These features in the leases
reduce the Company's exposure to rising property expenses due to
inflation.
Inflation and increased costs may have an adverse impact on the
tenants if increases in the tenant's operating expenses exceed
increases in revenue.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
- -----------------------------------
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("Statement
No. 133"). Statement No. 133 establishes accounting and
reporting standards for derivative instruments.
The Company anticipates that the adoption of Statement No. 133
will not have a material effect on the financial position,
results of operations or liquidity of the Company.
Page 30
PART II. OTHER INFORMATION
- ---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of Realty Income Corporation
was held on May 5, 1998, at which two directors were elected to
the board of directors. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of 1934
and there was no solicitation in opposition to management's
solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
Authority
Year Term Shares to vote
Expires Voted For Percent withheld
--------- ---------- ------- ---------
Roger P. Kuppinger 2001 18,566,031 70.2 151,855
Michael D. McKee 2001 18,562,151 70.1 155,735
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
=========== ===========
<S> <C>
3.1 Articles of Incorporation of the Company (filed) as
Appendix B to the Company's Proxy Statement dated
March 28, 1997 ("1997 Proxy Statement") and
incorporated herein by reference)
3.2 Bylaws of the Company (filed as Appendix C to the
Company's 1997 Proxy Statement and incorporated
herein by reference)
4.1 Pricing Committee Resolutions and Form of 7.75%
Notes due 2007 (filed as Exhibit 4.2 to the
Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference)
4.2 Indenture dated as of May 6, 1997 between the
Company and The Bank of New York (filed as Exhibit
4.1 to the Company's Form 8-K dated May 5, 1997 and
incorporated herein by reference)
Page 31
4.3 First Supplemental Indenture dated as of
May 28, 1997, between the Company and The Bank of
New York (filed as Exhibit 4.3 to the Company's
Form 8-B and incorporated herein by reference)
10.1 Amended and restated credit agreement dated as of
November 29, 1994 and restated as of
December 30, 1997, filed herein
27 Financial Data Schedule, filed herein
</TABLE>
B. One report on Form 8-K was filed by registrant during
the quarter for which this report is filed.
A report on Form 8-K was dated and filed June 29, 1998
reporting the implementation of a stockholders rights
plan.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
REALTY INCOME CORPORATION
<TABLE>
<S> <C>
(Signature and Title) /s/ GARY M. MALINO
Date: August 12, 1998 -------------------------------------
Gary M. Malino, Senior Vice President
Chief Financial Officer (Principal
Financial and Accounting Officer)
EXHIBIT INDEX
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
=========== ===========
<S> <C>
10.1 Amended and restated credit agreement dated as of
November 29, 1994 and restated as of
December 30, 1997
27 Financial Data Schedule
</TABLE>
Page 32
<PAGE>
<PAGE>
Exhibit 10.1
CONFORMED COPY
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of November 29, 1994
and amended and restated
as of December 30, 1997
among
REALTY INCOME CORPORATION
THE BANKS NAMED HEREIN
AND
THE BANK OF NEW YORK
as Agent and Swing Line Bank
AND
BNY CAPITAL MARKETS, INC.
as Arranger
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS.............................................. 1
ARTICLE I
DEFINITIONS
Section 1.01. Definitions............................ 1
ARTICLE II
THE LOANS
Section 2.01. The Loans............................. 19
Section 2.02. Procedure for Pro Rata Loans.......... 19
Section 2.03. Pro Rata Notes........................ 20
Section 2.04. Certain Fees.......................... 21
Section 2.05. Cancellation or Reduction of the
Commitment............................ 21
Section 2.06. Optional Prepayment................... 22
Section 2.07. Mandatory Prepayment.................. 22
Section 2.08. Procedure for Competitive Loans....... 23
Section 2.09. Competitive Notes..................... 26
Section 2.10. Swing Line Advances................... 27
Section 2.11. Increase in Commitments............... 29
ARTICLE III
INTEREST, METHOD OF PAYMENT, CONVERSION, ETC.
Section 3.01. Procedure for Interest Rate
Determination......................... 31
Section 3.02. Interest on ABR Loans................. 31
Section 3.03. Interest on Eurodollar Loans.......... 31
Section 3.04. Interest on Absolute Rate
Competitive Loans..................... 32
Section 3.05. Conversion/Continuance................ 32
Section 3.06. Post Default Interest................. 33
Section 3.07. Maximum Interest Rate................. 33
ARTICLE IV
DISBURSEMENT AND PAYMENT
Section 4.01. Pro Rata Treatment.................... 34
<PAGE>
Page
----
Section 4.02. Method of Payment..................... 34
Section 4.03. Compensation for Losses............... 34
Section 4.04. Withholding, Reserves and Additional
Costs................................. 35
Section 4.05. Unavailability........................ 40
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties........ 41
ARTICLE VI
CONDITIONS OF LENDING
Section 6.01. Conditions to the Availability of the
Commitment............................ 48
Section 6.02. Conditions to All Loans............... 49
ARTICLE VII
COVENANTS
Section 7.01. Affirmative Covenants................. 50
Section 7.02. Negative Covenants.................... 55
Section 7.03. Financial Covenants................... 58
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default..................... 58
ARTICLE IX
THE AGENT AND THE BANKS
Section 9.01. The Agency............................ 61
Section 9.02. The Agent's Duties.................... 61
Section 9.03. Sharing of Payment and Expenses....... 62
Section 9.04. The Agent's Liabilities............... 62
Section 9.05. The Agent as a Bank................... 63
Section 9.06. Bank Credit Decision.................. 63
Section 9.07. Indemnification....................... 64
Section 9.08. Successor Agent....................... 64
<PAGE>
ARTICLE X
CONSENT TO JURISDICTION
Page
----
Section 10.01. Consent to Jurisdiction.............. 65
ARTICLE XI
MISCELLANEOUS
Section 11.01. APPLICABLE LAW....................... 65
Section 11.02. Set-off.............................. 65
Section 11.03. Expenses............................. 65
Section 11.04. Amendments........................... 66
Section 11.05. Cumulative Rights and No Waiver...... 66
Section 11.06. Notices.............................. 66
Section 11.07. Separability......................... 67
Section 11.08. Assignments and Participations....... 67
Section 11.09. WAIVER OF JURY TRIAL................. 69
Section 11.10. Confidentiality...................... 69
Section 11.11. Indemnity............................ 69
Section 11.12. Extension of Termination Dates;
Removal of Banks; Substitutions of
Banks................................ 70
Section 11.13. Knowledge of the Company............. 72
Section 11.14. Execution in Counterparts............ 72
TESTIMONIUM.............................................. 72
SIGNATURES............................................... 72
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
EXHIBIT A Form of Conversion/Continuance Request
EXHIBIT B Form of Pro Rata Loan Request
EXHIBIT C-1 Form of Competitive Loan Request
EXHIBIT C-2 Form of Notice to Banks
EXHIBIT C-3 Form of Competitive Bid
EXHIBIT C-4 Form of Competitive Bid Accept/Reject Notice
EXHIBIT D-1 Form of Pro Rata Note
EXHIBIT D-2 Form of Competitive Note
EXHIBIT D-3 Form of Swing Line Note
EXHIBIT E Form of Swing Line Advance Request
EXHIBIT F-1 Form of Opinion of Latham & Watkins
EXHIBIT F-2 Form of Opinion of Michael R. Pfeiffer,
General Counsel of the Company
EXHIBIT G Form of Property Management Exception Report
EXHIBIT H Form of Real Estate Investment Criteria
EXHIBIT I Subsidiary Guarantee
SCHEDULE 1 Commitments
SCHEDULE 5.01(a) Subsidiaries and Joint Ventures of the Company
SCHEDULE 5.01(q) ERISA Liabilities
SCHEDULE 5.01(r) Intellectual Property
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
-----------------------------------------------
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, dated
as of November 29, 1994 as amended and restated as of December
30, 1997 (this "Agreement"), among Realty Income Corporation, a
Maryland corporation (the "Company"), each of the banks
identified on the signature pages hereof (each, a "Bank" and,
collectively, the "Banks") and The Bank of New York, as Agent for
the Banks (the "Agent") and as the Swing Line Bank with respect
to Swing Line Advances (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has requested the Banks to lend up
to $150,000,000, subject to increase as provided herein, to the
Company on a revolving basis for the acquisition of property in
the ordinary course of the Company's business, including related
costs and expenses and for the payment of fees and expenses
incurred in connection with this Agreement and up to $15,000,000
in Swing Line Advances (as defined herein) for the purposes
stated above and for working capital.
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions.
(a) Terms Generally. The definitions ascribed to
terms in this Section 1.01 and elsewhere in this Agreement shall
apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms.
The words "include", "includes" and "including" shall be deemed
to be followed by the phrase "without limitation". The words
"hereby", "herein", "hereof", "hereunder" and words of similar
import refer to this Agreement as a whole (including any exhibits
and schedules hereto) and not merely to the specific section,
paragraph or clause in which such word appears. All references
herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, all
references to "dollars" or "$" shall be deemed references to the
lawful money of the United States of America.
Page 1
(b) Accounting Terms. Except as otherwise expressly
provided herein, all terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that, for purposes of
determining compliance with any covenant set forth in Article VII
which requires financial computations, such terms shall be
construed in accordance with GAAP as in effect on the Effective
Date applied on a basis consistent with the construction thereof
applied in preparing the Company's audited financial statements
referred to in Section 5.01(h). In the event there shall occur a
change in GAAP which but for the foregoing proviso would affect
the computation used to determine compliance with any covenant
set forth in Article VII which requires financial computations,
the Company and the Banks agree to negotiate in good faith in an
effort to agree upon an amendment to this Agreement that will
permit compliance with such covenant to be determined by
reference to GAAP as so changed while affording the Banks the
protection afforded by such covenant prior to such change (it
being understood, however, that such covenant shall remain in
full force and effect in accordance with its existing terms
pending the execution by the Company and the Banks of any such
amendment).
(c) Other Terms. The following terms shall have the
meanings ascribed to them below or in the Sections of this
Agreement indicated below:
"ABR Loans" shall mean Loans which bear interest at a
rate based upon the Base Rate and in the manner set forth in
Section 3.02.
"Absolute Rate Competitive Loan" shall mean a
Competitive Loan bearing interest at the Competitive Rate in the
manner set forth in Section 3.04.
"Adverse Environmental Condition" shall mean any of the
matters referred to in clauses (i) or (ii) of the definition of
Environmental Claim.
"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with such Person. A
Person shall be deemed to control another Person if such first
Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of such other
Person, whether through ownership of stock, by contract or
otherwise.
"Agent" shall have the meaning given to such term in
the preamble of this Agreement and shall also include any
successor agent hereunder.
Page 2
"Applicable Margin" shall mean the margin set forth in
the following chart applicable to the Pricing Level then in
effect:
Pricing Level Applicable LIBOR Margin
------------- -----------------------
I 0.575%
II 0.650%
III 0.750%
IV 0.850%
V 1.150%
"Pricing Level I" shall be applicable for so long as the
Company's Debt Rating is better than or equal to A-/A3; "Pricing
Level II" shall be applicable for so long as the Company's Debt
Rating is lower than A-/A3 but better than or equal to BBB+/Baa1;
"Pricing Level III" shall be applicable for so long as the
Company's Debt Rating is lower than BBB+/Baa1 but better than or
equal to BBB/Baa2; "Pricing Level IV" shall be applicable for so
long as the Company's Debt Rating is lower than BBB/Baa2 but
better than or equal to BBB-/Baa3; "Pricing Level V" shall be
applicable for so long as the Company's Debt Rating is lower than
BBB-/Baa3 or if the Company does not have a Debt Rating. Changes
in the applicable Pricing Level shall be effective as of the
first day of the calendar quarter following the receipt by the
Agent of a letter or letters from the applicable Rating Agencies
evidencing a change in the Company's Debt Rating.
"Assignee" has the meaning ascribed to such term in
Section 11.08(c).
"Available Commitment" shall mean (a) on any date prior
to the Termination Date, an amount equal to the remainder of (i)
the Total Commitment on such date minus (ii) the aggregate
outstanding principal amount of Loans and Swing Line Advances on
such date and (b) on and after the Termination Date, $0.
"Bank" shall have the meaning given to such term in the
preamble of this Agreement and shall also include any other
financial institution which pursuant to the provisions hereof
becomes a party to this Agreement.
"Base LIBOR" shall mean, with respect to any Interest
Period for a Eurodollar Loan, the rate reported to the Agent at
which U.S. dollar deposits are offered to The Bank of New York by
leading banks in the London interbank deposits market at
approximately 11:00 A.M., London time, on the second full
Business Day preceding the first day of such Interest Period in
an amount substantially equal to the respective Reference Amounts
for a term equal to such Interest Period.
Page 3
"Base Rate" shall mean a fluctuating interest rate per
annum as shall be in effect from time to time, which rate per
annum shall on any day be equal to the higher of:
(a) the rate of interest publicly announced by the
Agent from time to time as its prime commercial loan rate
in effect on such day; and
(b) the sum (adjusted to the nearest 1/4 of 1% or, if
there is no nearest single 1/4 of 1%, to the next higher 1/4 of
1%) of (i) 1/2 of 1% per annum and (ii) the Federal Funds
Rate.
"Borrowing Date" shall mean the date set forth in each
Loan Request as the date upon which the Company desires to borrow
Loans pursuant to the terms of this Agreement.
"Business Day" shall mean (i) with respect to any ABR
Loan or any payment of the Facility Fee, any day except a
Saturday, Sunday or other day on which commercial banks in New
York City or Los Angeles are authorized by law to close and (ii)
with respect to any Eurodollar Loan, any day on which commercial
banks are open for domestic and international business (including
dealings in U.S. dollar deposits) in London, New York City and
Los Angeles.
"Capital Lease" shall mean, with respect to any Person,
any obligation of such Person to pay rent or other amounts under
a lease with respect to any property (whether real, personal or
mixed) acquired or leased by such Person that is required to be
accounted for as a liability on a balance sheet of such Person in
accordance with GAAP.
"Capital Lease Obligations" shall mean the obligation
of any Person to pay rent or other amounts under a Capital Lease.
"Change of Control" shall mean any person or group of
Persons (within the meaning of Section 13(d) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended) who shall become the
beneficial owner, directly or indirectly, of capital stock of the
Company representing 50% or more of the voting power of the
Company or otherwise enabling such Person or group of Persons to
exercise effective control over the management of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Commitment" of any Bank shall mean, in the case of
each Bank (i) prior to any such Bank's Termination Date, the
amount set forth opposite such Bank's name under the heading
"Commitment" on Schedule 1 hereto, or set forth in the assignment
agreement executed by such Bank if it is not a Bank on the date
Page 4
hereof, as such amount may be adjusted from time to time pursuant
to assignments of such Bank and as such amount may be reduced
from time to time pursuant to Section 2.05 and (ii) after such
Bank's Termination Date, zero.
"Competitive Accept/Reject Notice" has the meaning
ascribed to such term in Section 2.08(d).
"Competitive Bid" means an offer by a Bank to make a
Competitive Loan pursuant to Section 2.08(c).
"Competitive Bid Rate" means, with respect to any
Competitive Bid, (i) in the case of a Eurodollar Competitive
Loan, the sum of the Competitive Margin plus LIBOR, and (ii) in
the case of a Absolute Rate Competitive Loan, the fixed rate of
interest at which the Bank making the Competitive Bid offers
thereby to make a Competitive Loan.
"Competitive Loan" has the meaning ascribed to such
term in Section 2.01.
"Competitive Loan Request" means a request for
Competitive Bids made pursuant to Section 2.08(b).
"Competitive Margin" means, with respect to any
Eurodollar Competitive Loan for any Interest Period, the margin
(expressed as a percentage rate per annum in the form of a
decimal fraction to no more than four decimal places) to be added
to or subtracted from LIBOR, in order to determine the interest
rate applicable to such Loan during such Interest Period, as
specified in the related Competitive Bid and the Competitive
Accept/Reject Notice.
"Competitive Notes" means, collectively, promissory
notes of the Borrower evidencing Competitive Loans, each
substantially in the form of Exhibit D-2.
"Competitive Rate" means, with respect to any Absolute
Rate Competitive Loan, the fixed rate of interest (expressed as a
percentage rate per annum in the form of a decimal to no more
than four decimal places) for such Loan, as specified in the
related Competitive Bid and Competitive Accept/Reject Notice.
"Compliance Date" shall mean each of the date of this
Agreement, each Borrowing Date, each Conversion Date and the date
of each delivery by the Company of a certificate requiring the
Company to certify as to the accuracy of the representations and
warranties contained in Article V.
"Consolidated Depreciation and Amortization" shall
mean, at any date of determination, "Depreciation and
Amortization" or the similar item, determined on a consolidated
Page 5
basis for the Company and its Subsidiaries, as shown on the most
recent consolidated statement of income for the Company and its
Subsidiaries which has been delivered to the Agent pursuant to
Section 7.01(a).
"Consolidated Funds from Operations" shall mean, for
any period, Consolidated Net Income excluding gain or loss from
debt restructurings or sales of properties plus provision for
impairment losses, plus Consolidated Depreciation and
Amortization, and after adjustments for unconsolidated
partnerships and joint ventures, determined on a consolidated
basis for the Company and its Subsidiaries, as shown on the most
recent consolidated statement of cash flows for the Company and
its Subsidiaries which has been delivered to the Agent pursuant
to Section 7.01(a).
"Consolidated Interest Expense" shall mean, for any
period, total interest expense (including that attributable to
Capital Leases in accordance with GAAP) of the Company and its
Subsidiaries, determined on a consolidated basis, in accordance
with GAAP with respect to all outstanding Indebtedness of the
Company and its Subsidiaries, including, without limitation,
paid-in-kind (PIK) interest and all net costs under Interest Rate
Protection Agreements.
"Consolidated Net Income" shall mean, for any period,
"Net Income" or the similar item, determined on a consolidated
basis for the Company and its Subsidiaries, as shown on the most
recent consolidated statement of income for the Company and its
Subsidiaries which has been delivered to the Agent pursuant to
Section 7.01(a).
"Consolidated Stockholders' Equity" shall mean, for any
period, "Total Stockholders' Equity" or the similar item,
determined on a consolidated basis for the Company and its
subsidiaries, as shown on the most recent consolidated balance
sheet for the Company and its Subsidiaries which has been
delivered to the Agent pursuant to Section 7.01(a).
"Consolidated Tangible Stockholders' Equity" shall mean
Consolidated Stockholders' Equity less all intangible assets of
the Company and its Subsidiaries. For purposes of the foregoing,
"intangible assets" means goodwill, patents, trade names,
trademarks, copyrights, franchises, organization expenses and any
other assets that are properly classified as intangible assets in
accordance with GAAP.
"Consolidated Total Assets" shall mean, at any date of
determination, "Total Assets" or the similar item, determined on
a consolidated basis for the Company and its Subsidiaries, as
shown on the most recent consolidated balance sheet for the
Page 6
Company and its Subsidiaries which has been delivered to the
Agent pursuant to Section 7.01(a).
"Consolidated Total Indebtedness" shall mean total
Indebtedness, determined on a consolidated basis for the Company
and its Subsidiaries, as shown on the most recent consolidated
balance sheet for the Company and its Subsidiaries which has been
delivered to the Agent pursuant to Section 7.01(a).
"Consolidated Total Liabilities" shall mean, at any
date of determination, "Total Liabilities" or the similar item,
determined on a consolidated basis for the Company and its
Subsidiaries, as shown on the most recent consolidated balance
sheet for the Company and its Subsidiaries which has been
delivered to the Agent pursuant to Section 7.01(a).
"Conversion/Continuance Date" shall mean the date on
which a conversion of interest rates on outstanding Loans,
pursuant to a Conversion/Continuance Request, shall take effect.
"Conversion/Continuance Request" shall mean a request
by the Company to convert or continue the interest rate on all or
portions of outstanding Loans pursuant to the terms hereof, which
shall be substantially in the form of Exhibit A and shall
specify, with respect to such outstanding Loans, (i) the
requested Conversion/Continuance Date, which shall be not less
than three Business Days after the date of such
Conversion/Continuance Request, (ii) the aggregate amount of the
Loans, from and after the Conversion/Continuance Date, which are
to bear interest as ABR Loans or Eurodollar Loans and (iii) if
any Loans are Eurodollar Loans, the term of the Interest Periods
therefor, if any.
"Covered Tax" means any Tax that is not an Excluded
Tax.
"Credit Documents" shall mean this Agreement and the
Notes.
"Default" shall mean any event or circumstance which,
with the giving of notice or the passage of time, or both, would
become an Event of Default.
"Debt Rating" shall mean the highest rating published
by at least two of the three Rating Agencies with respect to the
senior unsecured debt of the Company, provided, that if no two
Rating Agencies have published the same rating with respect to
the Company's senior unsecured debt, the Debt Rating shall be the
rating that is at the middle of the three published ratings.
"Effective Date" shall have the meaning ascribed to
such term in Section 6.01.
Page 7
"Environmental Claim" shall mean any notice, request
for information, action, claim, order, proceeding, demand or
direction (conditional or otherwise) based on, relating to or
arising out of (i) any violation of any Environmental Law by the
Company, any person acting on behalf of the Company or any
subsidiary of the Company, or (ii) any liabilities under any
Environmental Law arising out of or otherwise in respect of any
act, omission, event, condition or circumstance existing or
occurring in connection with the Company and its Subsidiaries,
including without limitation liabilities relating to the release
of hazardous substances (whether on-site or off-site), any claim
by any third party (including, without limitation, tort suits for
personal or bodily injury, tangible or intangible property
damage, damage to the environment, nuisance and injunctive
relief), fines, penalties or restrictions, or the transportation,
storage, treatment or disposal of any Hazardous Substances.
"Environmental Law" means (i) any applicable federal,
state, foreign and local law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, (x)
relating to the protection, preservation or restoration of the
environment, (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (y) the exposure to,
or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances, in each case as
amended and as now or hereafter in effect. The term
Environmental Law includes, without limitation, the federal
Comprehensive Environmental Response Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act,
the federal Water Pollution Control Act of 1972, the federal
Clean Air Act, the federal Clean Water Act, the federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the federal Solid Waste
Disposal and the federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970, each as amended and
as now or hereafter in effect (collectively, "Environmental
Ordinances"), and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries
or damages due to, or threatened as a result of, the presence of
or exposure to any Hazardous Substance.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
Page 8
"ERISA Affiliate" shall mean a corporation, partnership
or other entity which is considered one employer with the Company
under Section 4001 of ERISA or Section 414(b), (c) or (m) of the
Code.
"Eurodollar Competitive Loan" means a Competitive Loan
that bears interest by reference to LIBOR and in the manner set
forth in Section 3.03.
"Eurodollar Loans" means, collectively, Eurodollar Pro
Rata Loans and Eurodollar Competitive Loans.
"Eurodollar Pro Rata Loans" shall mean Pro Rata Loans
which bear interest at a rate based upon Base LIBOR and in the
manner set forth in Section 3.03.
"Eurodollar Reserve Percentage" shall mean for any day,
that percentage, expressed as a decimal, which is in effect on
such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement (including any marginal, supplemental or
emergency reserve requirements) for a member bank of the Federal
Reserve System in New York City with deposits exceeding one
billion dollars in respect of eurocurrency funding liabilities.
LIBOR shall be adjusted automatically on and as of the effective
date of any change in the Eurodollar Reserve Percentage.
"Event of Default" shall mean any of the events
described in Section 8.01.
"Excluded Asset Sales" shall mean, during each fiscal
year, the sale, lease (not entered into in the ordinary course of
business), transfer or disposal of assets, the aggregate proceeds
of which, in one or more transactions, are less than $20,000,000.
"Excluded Tax" means any of the following taxes,
levies, imposts, duties, deductions, withholdings or charges, and
all liabilities with respect thereto: (i) Taxes imposed on the
net income of a Bank, the Agent, Participant or Assignee
(including without limitation branch profits taxes, minimum taxes
and taxes computed under alternative methods, at least one of
which is based on net income (collectively referred to as "net
income taxes") by (A) the jurisdiction under the laws of which
such Bank, the Agent, Participant or Assignee is organized or any
political subdivision thereof, (B) the jurisdiction of such
Bank's, Participant's, Assignee's or the Agent's applicable
lending office or any political subdivision thereof or (C) any
jurisdiction in which the Bank, the Agent, Participant or
Assignee is doing business (other than solely as a result of
actions contemplated or required by this Agreement), (ii) any
Taxes to the extent that they are in effect and would apply to a
payment to such Bank or the Agent, as applicable, as of the
Page 9
Closing Date, or as of the date such Person becomes a Bank, in
the case of any Participant or Assignee pursuant to Section
11.08, (iii) any Taxes resulting from a failure to take the
actions, if any, required by subsection 4.04(a)(iv), (iv) any
Taxes to the extent of any credit or other Tax benefit which, in
the reasonable good faith judgment of such Bank, Participant,
Assignee or the Agent, as the case may be, is available to such
Bank, Participant, Assignee or the Agent, as applicable, as a
result thereof and is allocable to the transactions contemplated
by this Agreement, (v) any Taxes imposed on or measured by the
overall net income of any Bank by the United States of America or
any political subdivision or taxing authority thereof or therein,
or (vi) any Taxes that would not have been imposed but for the
failure by the Agent or such Bank, Participant or Assignee as
applicable to provide and keep current any certification or other
documentation required to qualify for an exemption from or
reduced rate of any Tax.
"Facility Fee" shall have the meaning ascribed to such
term in Section 2.04(a).
"Facility Fee Rate" with respect to any Facility Fee
payment shall mean the facility fee rate set forth in the
following chart applicable to the Pricing Level (determined as
set forth under "Applicable Margin" above including the receipt
by the Agent of a letter or letters evidencing the Company's Debt
Rating) in effect on the date on which such Facility Fee payment
is due:
Pricing Level Facility Fee
------------- ------------
I 0.125%
II 0.150%
III 0.150%
IV 0.150%
V 0.250%
"Federal Funds Rate" for any day shall mean the rate
(rounded to the nearest 1/16 of 1% or, if there is no single
nearest 1/16 of 1%, to the next higher 1/16 of 1%) on such day
for Federal Funds as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15 (519),
Selected Interest Rates", or any successor publication, under the
heading "Federal Funds (Effective)". In the event that such rate
or such publication is not published with respect to such day the
Federal Funds Rate on such day shall be the "Federal
Funds/Effective Rate" as posted by the Federal Reserve Bank of
New York for that day in its publication "Composite Closing
Quotations for U.S. Government Securities". The Federal Funds
Rate for Saturdays, Sundays and any other day on which the
Federal Reserve Bank of New York is closed shall be the Federal
Funds Rate as in effect for the next preceding day for which such
rates are published or posted, as the case may be.
Page 10
"GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other
statements by such other entities as may be approved by a
significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Guarantee" by any person shall mean any obligation,
contingent or otherwise, of such Person guaranteeing or having
the economic effect of guaranteeing any Indebtedness of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, and including any obligation of such Person, (i) to
purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of
such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, or (iii) to
maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness (and
"Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the
ordinary course of business.
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof and
any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to
government.
"Hazardous Substance" means any substance presently or
hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under
any Environmental Ordinance, whether by type or by quantity,
including any substance containing any such substance as a
component. Hazardous Substance includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any
derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Increase Notice" shall have the meaning ascribed to
such term in Section 2.11.
"Indebtedness" of any Person shall mean, without
duplication, (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services
Page 11
(including all obligations, contingent or otherwise, of such
Person in connection with letter of credit facilities, bankers'
acceptance facilities, Interest Rate Protection Agreements or
other similar facilities including currency swaps) other than
indebtedness to trade creditors and service providers incurred in
the ordinary course of business, (b) all obligations of such
Person evidenced by bonds, notes, debentures or other similar
instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such
property), (d) all Capital Lease Obligations of such Person, (e)
all Indebtedness referred to in clauses (a), (b), (c) or (d)
above secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contract
rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness,
(f) all preferred stock issued by such Person which is
redeemable, prior to the full satisfaction of the Company's
obligations under the Credit Documents (including repayment in
full of the Loans and all interest accrued thereon), other than
at the option of such Person, valued at the greater of its
voluntary or involuntary liquidation preference plus accumulated
and unpaid dividends and (g) all Indebtedness of others
Guaranteed by such Person. For purposes of this Agreement, the
amount of any Indebtedness under clauses (c) and (e) shall be the
lesser of (x) the principal amount of such Indebtedness and (y)
the value of the property subject to the Lien referred to
therein. For purposes of this Agreement tenant security deposits
shall not be deemed to be Indebtedness.
"Initial Loan" shall mean the first Loan which is made
pursuant to the terms hereof.
"Interest Period" shall mean each one, two, three or
six-month period, in the case of Eurodollar Loans; such period
being the one selected by the Company in a Pro Rata Loan Request
or Competitive Loan Request and pursuant to Section 3.03 hereof
and commencing on the date the relevant loan is made or the last
day of the current Interest Period, as the case may be.
"Interest Rate Protection Agreements" shall mean any
interest rate swap agreement, interest rate cap agreement or
similar arrangement used by a Person to fix or cap a floating
rate of interest on Indebtedness to a negotiated maximum rate or
amount.
"Key Management" shall mean Thomas A. Lewis, Richard J.
VanDerhoff, Gary M. Malino, Michael R. Pfeiffer and Richard G.
Collins.
Page 12
"Leverage Ratio" shall mean the ratio of Consolidated
Total Indebtedness to Consolidated Tangible Stockholders' Equity.
"Lien" shall mean, with respect to any asset, any
mortgage, deed of trust, lien, pledge, encumbrance, charge or
security interest in or on such asset.
"LIBOR" shall mean with respect to any Interest Period
the rate per annum (rounded to the nearest 1/16 of 1% or, if
there is no nearest single 1/16 of 1%, to the next higher 1/16 of
1%) determined pursuant to the following formula:
Base LIBOR
-----------------------------------
LIBOR = (1 - Eurodollar Reserve Percentage)
"Loan Request" shall mean either a Pro Rata Loan
Request or a Competitive Loan Request.
"Loans" shall mean, collectively, Pro Rata Loans and
Competitive Loans outstanding hereunder from time to time but
shall not include Swing Line Advances.
"Material Adverse Change" shall mean a material adverse
change in the business, properties, condition (financial or
otherwise) or operations of the Company and its Subsidiaries
(including the partnerships which were merged into the Company),
taken as a whole since December 31, 1996.
"Material Adverse Effect" shall mean (i) any material
adverse effect on the business, properties, condition (financial
or otherwise) or operations of the Company and its Subsidiaries
taken as a whole, from and after the date of any determination,
(ii) any material adverse effect on the ability of the Company to
perform its obligations hereunder and under the Credit Documents,
or (iii) any adverse effect on the legality, validity, binding
effect or enforceability of this Agreement or the Notes.
"Maturity Date" means, with respect to a Competitive
Loan, the date for repayment of such Competitive Loan, which date
shall be not less than seven days after the Borrowing Date and
not more than (i) 180 days after the Borrowing Date, in the case
of an Absolute Rate Competitive Loan, or (ii) six months after
the Borrowing Date, in the case of a Eurodollar Competitive Loan,
and in any event shall not be later than the Termination Date to
be in effect on the Borrowing Date.
"Net Cash Proceeds" shall mean (i) when used in respect
of any sale or disposition of assets of the Company or any
Subsidiary, the gross cash proceeds received by the Company, or
the relevant Subsidiary from such sale or disposition less (x)
the costs of sale, including payment of the outstanding principal
Page 13
amount of, premium or penalty, if any, and interest on any
Indebtedness which is paid or required to be paid as a result of
such sale, all legal, accounting, title and recording tax
expenses, commissions and other fees and expenses paid or to be
paid in cash solely as a result of such sale, and all other
federal, state, local and foreign taxes paid or payable in
connection therewith and (y) the portion of gross cash proceeds
from such sale or disposal which the Company must distribute to
its stockholders in order to avoid the imposition of any income
or excise tax with respect to a taxable gain (if any) associated
with such sale or disposition, (ii) when used with respect to any
loss, casualty, fire damage, theft, destruction or condemnation
of any capital asset of the Company or any Subsidiary, the gross
cash proceeds received by the Company or the relevant Subsidiary
under any insurance policy or any award or compensation received,
as the case may be, in each case as a result of any such loss,
casualty, fire damage, theft, destruction or condemnation, net of
all legal, accounting and other fees and expenses paid or to be
paid in cash as a result of such loss, casualty, fire damage,
theft, destruction or condemnation, and all other federal, state,
local and foreign taxes paid or payable in connection therewith
and less the portion of gross cash proceeds from such award or
compensation which the Company must distribute to its
stockholders in order to avoid the imposition of any income or
excise tax with respect to a taxable gain (if any) associated
with such award or compensation, provided that such award or
compensation shall not be deemed to be Net Cash Proceeds if such
proceeds have been reinvested in or have been committed to be
reinvested in the lost, damaged, stolen, destroyed or condemned
property within twelve months from the date of such award or
compensation and (iii) when used in respect of the issuance,
assumption or incurrence of Specified Additional Indebtedness by
the Company or any of its Subsidiaries, the gross cash proceeds
received by the Company or the relevant Subsidiary from such
issuance, assumption or incurrence less the costs of issuance,
assumption or incurrence. Net Cash Proceeds shall equal $0 if it
would otherwise be a negative number hereunder.
"Notes" means the Pro Rata Notes, the Competitive Notes
and the Swing Line Note.
"Participant" shall have the meaning ascribed to such
term in Section 11.08(b).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any successor thereto.
"Permitted Encumbrances" shall mean (i) Liens for taxes
not delinquent or being contested in good faith and by
appropriate proceedings and for which adequate reserves (in
accordance with GAAP) are being maintained, (ii) deposits or
pledges to secure obligations under workers' compensation, social
Page 14
security or similar laws, or under unemployment insurance, (iii)
deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of business, (iv)
mechanics', workers', materialmen's or other like Liens arising
in the ordinary course of business with respect to obligations
which are not due or which are being contested in good faith, (v)
minor imperfections of title on real estate, provided such
imperfections do not render title unmarketable, (vi) all other
Liens existing on the date of this Agreement, (vii) leases or
subleases granted to others in the ordinary course of business of
the Company and its Subsidiaries, (viii) any interest or title of
a lessor in the property subject to any Capital Lease or
operating lease, (ix) Liens arising from filing Uniform
Commercial Code financing statements regarding leases or sub-
leases, (x) any attachment or judgment Lien arising from a
judgment or order against the Company or any Subsidiary that does
not give rise to a Default or an Event of Default, provided that
such Lien is not in place for more than sixty days or has been
stayed, (xi) Liens encumbering customary initial deposits and
margin deposits, and other Liens securing Indebtedness under
Interest Rate Protection Agreements that are within the general
parameters customary in the industry and incurred in the course
of business, (xii) any option, contract or other agreement to
sell an asset provided such sale is otherwise permitted by this
Agreement, (xiii) any statutory right of a lender to which the
Company or a Subsidiary may be indebted to offset against, or
appropriate and apply to the payment of, such Indebtedness any
and all balances, credits, deposits, accounts or monies of the
Company or a Subsidiary with or held by such lender, (xiv) any
pledge or deposit of cash or property in conjunction with
obtaining bonds or letters of credit required to engage in
constructing on-site and off-site improvements required by
municipalities or other governmental authorities in the ordinary
course of business of the Company and its Subsidiaries, (xv)
Liens in favor of all of the Banks collectively, and (xvi)
purchase money security interests in personal property, with such
encumbrances, in the aggregate, not to exceed $3,500,000.
"Person" shall mean any individual, sole
proprietorship, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, public
benefit corporation, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean an employee benefit plan as defined
in Section 3(3) of ERISA which is maintained or contributed to by
the Company or an ERISA Affiliate while such entity is an ERISA
Affiliate.
Page 15
"Pro Rata Loan Request" shall mean a request by the
Company to borrow Pro Rata Loans pursuant to the terms hereof,
which shall be substantially in the form of Exhibit B and shall
specify, with respect to such requested Loans, (i) the requested
Borrowing Date, (ii) the aggregate amount of Pro Rata Loans which
the Company desires to borrow on such date, (iii) whether such
requested Loans are to bear interest as ABR Loans or Eurodollar
Loans, and (iv) if the requested Loans are to bear interest as
Eurodollar Loans the requested term of the Interest Period
therefor.
"Pro Rata Loans" shall have the meaning ascribed to
such term in Section 2.01(a).
"Pro Rata Notes" shall mean, collectively, the
promissory notes of the Company evidencing Pro Rata Loans, each
substantially in the form of Exhibit D-1.
"Pro Rata Share" shall mean, with respect to any Bank,
the proportion of such Bank's Commitment to the Total Commitment
of all the Banks or, if the Total Commitment shall have been
canceled or reduced to $0 or expired, the proportion of such
Bank's then outstanding Loans to the aggregate amount of Loans
then outstanding.
"Real Estate Investment Criteria" shall mean the Real
Estate Investment Criteria established by the Company's Board of
Directors as amended, restated, supplemented or revised from time
to time, the current version (as of the date hereof) of which are
attached hereto as Exhibit H.
"Rating Agency" shall mean Moody's Investors Service,
Inc., Standard & Poor's, a division of the McGraw Hill Companies,
Inc., or Duff & Phelps Credit Rating Co.
"Reference Amount", with respect to any Bank and
Interest Period, shall mean the amount of that Bank's Eurodollar
Loan scheduled to be outstanding during that Interest Period (i)
without taking into account any reduction in the amount of any
Bank's Loan through any assignment or transfer and (ii) rounded
up to the nearest integral multiple of $1,000,000.
"REIT" shall have the meaning ascribed to such term in
Section 5.01(w).
"Required Banks" shall mean at any date Banks having at
least 51% of the Total Commitment or, if the Total Commitment has
been canceled or terminated, holding Notes evidencing at least
51% of the aggregate unpaid principal amount of the Loans.
Page 16
"Single-Employer Plan" shall mean any Plan that is a
single-employer plan as defined in Section 4001(a)(15) of ERISA
which is subject to the provisions of Title IV of ERISA.
"Solvent" shall mean, when used with respect to any
Person, that:
(a) at the date of determination, the present fair
salable value of such Person's assets is in excess of the
total amount of such Person's liabilities;
(b) at the date of determination, such Person is able
to pay its debts as they become due; and
(c) such Person does not have unreasonably small
capital to carry on such Person's business as theretofore
operated and all businesses in which such Person then is
about to engage.
"Specified Additional Indebtedness" of any Person shall
mean Indebtedness which is not outstanding as of the date hereof,
excluding (i) Indebtedness to the Agent, the Swing Line Bank, or
the Banks hereunder and under the Notes, (ii) Indebtedness
incurred in connection with the payment of any dividend necessary
for the Company to maintain its qualification as a REIT and (iii)
up to $10,000,000 principal amount of additional unsecured
Indebtedness that matures and becomes due and payable on a date
not more than one year from the date such Indebtedness was
incurred by the Company.
"Subsidiary" shall mean any Person of which or in which
the Company and its other Subsidiaries own directly or indirectly
50% or more of:
(a) the combined voting power of all classes of stock
having general voting power under ordinary circumstances to
elect a majority of the board of directors of such Person,
if it is a corporation,
(b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar
entity, or
(c) the beneficial interest of such Person, if it is
a trust, association or other unincorporated organization;
provided, however, that "Subsidiary" shall not include any such
entity that the Company does not control. For the purposes of
this paragraph, the term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether
Page 17
through the ownership of voting equity interests, by contract or
otherwise.
"Swing Line Advance" means an advance made by the Swing
Line Bank pursuant to Section 2.10.
"Swing Line Advance Request" shall have the meaning
ascribed to such term in Section 2.10(d) hereof.
"Swing Line Bank" means The Bank of New York, or any
successor to the duties, obligations and rights of The Bank of
New York, in its capacity as the bank making Swing Line Advances
hereunder.
"Swing Line Borrowing" means a borrowing consisting of
a Swing Line Advance made by the Swing Line Bank.
"Swing Line Facility" shall have the meaning ascribed
to such term in Section 2.10(a) hereof.
"Swing Line Note" shall mean the promissory note of the
Company in the form of Exhibit D-3.
"Tax" means any present or future tax, levy, impost,
duty, charge, governmental fee, deduction or withholding of any
nature and whatever called, by whomsoever, on whomsoever and
wherever imposed, levied, collected, withheld or assessed.
"Termination Date" shall mean, with respect to any
Bank, the earliest to occur of (i) December 30, 2000 or such
later date as may be agreed to by such Bank pursuant to Section
11.12, (ii) the date on which the obligations of the Banks to
make loans hereunder shall terminate pursuant to Section 8.01 or
the Commitments shall be reduced to zero pursuant to Section
2.05, and (iii) the date specified as such Bank's Termination
Date pursuant to Section 11.12, or, if in any case (other than
clause (ii) above) such day is not a Business Day, the next
succeeding Business Day; in all cases, subject to the provisions
of Section 11.12(d).
"Texas Subsidiary" means Realty Income Texas
Properties, L.P., a Delaware limited partnership of which only
the Company and one or more of its Subsidiaries are partners.
"Total Commitment" shall mean the aggregate Commitment
of all the Banks.
"Unmatured Surviving Obligations" shall mean, as of any
date, any obligations under this Agreement which are contingent
and unliquidated and not then due and payable on such date and
which pursuant to the provisions of this Agreement survive
termination of this Agreement.
Page 18
"Wholly owned Subsidiary" shall mean any Subsidiary all
the equity interests of which (other than directors' qualifying
shares, if a corporation) at the time are owned directly or
indirectly by the Company and/or one or more Wholly owned
Subsidiaries of the Company.
ARTICLE II
THE LOANS
Section 2.01. The Loans. Prior to the Termination
Date, and subject to the terms and conditions of this Agreement,
upon the request of the Company, and upon the satisfaction by the
Company or the waiver by each of the Banks of each of the
conditions precedent contained in Section 6.02, each of the
Banks, severally and not jointly with the other Banks, agrees to
make revolving credit loans (collectively, "Pro Rata Loans") and,
to the extent offered by such Bank and accepted by the Company,
competitive rate loans (collectively, "Competitive Loans" and,
together with the Pro Rata Loans, the "Loans") to the Company
from time to time in an aggregate principal amount at any one
time outstanding not to exceed its Commitment; provided, however,
that the sum of (i) aggregate outstanding Loans and (ii)
aggregate outstanding Swing Line Advances may not exceed the
Total Commitment.
Section 2.02. Procedure for Pro Rata Loans.
(a) The Company may borrow Pro Rata Loans by
delivering a written Pro Rata Loan Request to the Agent on or
before 5:00 P.M., New York time, one Business Day prior to the
requested Borrowing Date therefor, in the case of ABR Loans, or
on the date not less than three Business Days prior to the
requested Borrowing Date therefor, in the case of Eurodollar Pro
Rata Loans. ABR Loans shall be in the minimum aggregate amount
of $1,000,000 or in integral multiples of $100,000 in excess
thereof. Eurodollar Pro Rata Loans shall be in the minimum
aggregate amount of $5,000,000 or in integral multiples of
$100,000 in excess thereof; provided, however, that Eurodollar
Pro Rata Loans used to pay Swing Line Advances may be in a
minimum aggregate amount of $2,500,000 or in integral multiples
of $100,000 in excess thereof.
(b) Upon receipt of any Pro Rata Loan Request from the
Company, the Agent shall forthwith give notice to each Bank of
the substance thereof. Not later than 2:00 P.M., New York time,
on the Borrowing Date specified in such Pro Rata Loan Request,
each Bank shall make available to the Agent in immediately
available funds at the office of the Agent at its address set
forth on the signature pages hereof, such Bank's Pro Rata Share
of the requested Pro Rata Loans.
Page 19
(c) Upon receipt by the Agent of funds and
satisfaction by the Company or waiver by each of the Banks of
each of the conditions precedent contained in Section 6.02, the
Agent shall disburse to the Company on the requested Borrowing
Date the Pro Rata Loans requested in such Pro Rata Loan Request.
The Agent may, but shall not be required to, advance on behalf of
any Bank such Bank's Pro Rata Share of the Pro Rata Loans on a
Borrowing Date unless such Bank shall have notified the Agent
prior to such Borrowing Date that it does not intend to make
available its Pro Rata Share of such Loans on such date (it being
understood that no action or inaction by the Agent regarding such
an advance shall affect the rights of the Company with respect to
any non-performing Bank). If the Agent makes such advance, the
Agent shall be entitled to recover such amount on demand from the
Bank on whose behalf such advance was made, and if such Bank does
not pay the Agent the amount of such advance on demand, the
Company shall promptly repay such amount to the Agent. Until
such amount is repaid to the Agent by such Bank or the Company,
such advance shall be deemed for all purposes to be a Pro Rata
Loan made by the Agent. The Agent shall be entitled to recover
from the Bank or the Company, as the case may be, interest on the
amount advanced by it for each day from the Borrowing Date
therefor until repaid to the Agent, at a rate per annum equal to
(i) in the case of the Bank, the Federal Funds Rate, for the
three-day period beginning on the Borrowing Date, and the
applicable rate on the Pro Rata Loans made on the Borrowing Date
for the period beginning on the fourth day after the Borrowing
Date, and (ii) in the case of the Company, the applicable rate on
the Pro Rata Loans made on the Borrowing Date.
(d) In lieu of delivering the written notice described
above, the Company may give the Agent telephonic notice of any
request for borrowing by the time required under this Section
2.02; provided that such telephonic notice shall be confirmed by
delivery of a written notice to the Agent promptly but in no
event later than 4:00 P.M., New York City time, on the date of
such telephonic notice.
Section 2.03. Pro Rata Notes. The Company's
obligation to repay the Pro Rata Loans shall be evidenced by Pro
Rata Notes, one such Pro Rata Note payable to the order of each
Bank. The Pro Rata Note of each Bank shall (i) be in the
principal amount of such Bank's Commitment, (ii) be dated the
date of the initial Loan and (iii) be stated to mature on the
Termination Date as such date may be extended hereunder and bear
interest from its date until maturity on the principal balance
(from time to time outstanding thereunder) payable at the rates
and in the manner provided herein. Each Bank is authorized to
indicate upon the grid attached to its Pro Rata Note all Pro Rata
Loans made by it pursuant to this Agreement, interest elections
and payments of principal and interest thereon. Such notations
shall be presumptive as to the aggregate unpaid principal amount
Page 20
of all Pro Rata Loans made by such Bank, and interest due
thereon, but the failure by any Bank to make such notations or
the inaccuracy or incompleteness of any such notations shall not
affect the obligations of the Company hereunder or under the Pro
Rata Notes.
Section 2.04. Certain Fees.
(a) The Company shall pay to the Agent for the account
of the Banks a fee (the "Facility Fee") equal to the Facility Fee
Rate per annum (on the basis of a 360-day year for the actual
number of days involved) on the daily average amount of the Total
Commitment, regardless of usage, (excluding the amount of any
canceled or reduced portion of the Commitment for which the
Facility Fee was paid in connection with such cancellation or
reduction pursuant to Section 2.05 hereof) during the quarter
with respect to which such Facility Fee is being paid. Such
Facility Fee shall be payable in arrears on the last Business Day
of each calendar quarter, commencing on the first such date after
the date hereof, on any date that the Total Commitment is
canceled or reduced pursuant to Section 2.05 (but only with
respect to the amount of such cancellation or reduction) and on
the Termination Date.
(b) The Company shall pay to the Agent for its own
account such fees as have been or may hereinafter be agreed to
between the Agent and the Company, in the amounts and at the
times agreed upon.
(c) On the Effective Date the Company shall pay to the
Agent for the account of each of the Banks (other than The Bank
of New York) such fees as have been or may hereinafter be agreed
to between the Agent and the Company, in the amounts and at the
times agreed upon.
Section 2.05. Cancellation or Reduction of the
Commitment. The Company shall have the right, upon not less than
three Business Days' written notice to the Agent and upon payment
of the Facility Fees relating to the amount of the Total
Commitment canceled or reduced which have been accrued through
the date of such cancellation or reduction, with respect to the
amount of the cancellation or reduction, to cancel the Total
Commitment in full or to reduce the amount thereof; provided,
however, that the Total Commitment may not be canceled so long as
any Loan or Swing Line Advance remains outstanding; and provided,
further, that the amount of any partial reduction in the Total
Commitment shall not exceed the remainder of (i) the Total
Commitment on such date minus (ii) the aggregate outstanding
principal amount of Loans and Swing Line Advances on such date.
Partial reductions of the Total Commitment shall be in the amount
of $5,000,000 or in integral multiples of $1,000,000 in excess
thereof (or, if the aggregate outstanding amount of Loans is less
Page 21
than $5,000,000, then all of such lesser amount). All such
cancellations or reductions shall be permanent.
Section 2.06. Optional Prepayment. The Company shall
have the right, on not less than three Business Days' written
notice to the Agent in the case of Eurodollar Pro Rata Loans, and
upon written notice delivered by 11:00 A.M. New York City time
the day of the proposed prepayment to the Agent in the case of
ABR Loans or Swing Line Advances, to prepay Pro Rata Loans or
Swing Line Advances bearing interest on the same basis and having
the same Interest Periods, if any, in whole or in part, without
premium or penalty, in the aggregate principal amount of
$1,000,000 ($100,000 in the case of Swing Line Advances) or in
integral multiples of $100,000 in excess thereof (or, if the
outstanding aggregate amount of such Loan or Swing Line Advance
is less than $1,000,000 or $100,000, respectively, then all of
such lesser amount), together with accrued interest on the
principal being prepaid to the date of prepayment and, in the
case of Eurodollar Loans, the amounts required by Section 4.03.
Subject to the terms and conditions hereof, prepaid Loans may be
reborrowed.
Section 2.07. Mandatory Prepayment.
(a) If (i) the Company or any Subsidiary shall sell,
lease (other than in the ordinary course of business), assign,
transfer or otherwise dispose of any of its assets, other than
pursuant to Excluded Asset Sales, in an exchange that qualifies
under Section 1031 of the Code, or to the extent that the Net
Cash Proceeds therefrom received are reinvested in similar assets
within 90 days of such disposition of such assets, (ii) the
Company or a Subsidiary issues, assumes or incurs Specified
Additional Indebtedness or (iii) the Company sells or issues
equity securities, other than pursuant to the Company's Stock
Incentive Plan, the Company shall prepay outstanding Pro Rata
Loans and Swing Line Advances with the Net Cash Proceeds
therefrom.
(b) Application of Prepayments. All prepayments
required to be made pursuant to this Section 2.07 shall be
applied in the following order: first, to compensate the Banks
for any amounts required by Section 4.03, in the case that such
prepayment shall apply to any Eurodollar Pro Rata Loans, second,
to accrued interest on the principal amount of Pro Rata Loans
being prepaid, third, to the principal of the Pro Rata Loans then
outstanding, if any, fourth, to accrued interest on the principal
amount of Swing Line Advances being prepaid, and fifth, to the
principal of the Swing Line Advances then outstanding, if any;
provided that any prepayments shall be applied in a manner to
minimize the payments, if any, required by the Company pursuant
to Section 4.03 with respect to such prepayment; and provided,
further, that the accrued interest on, and the outstanding
Page 22
principal of, Pro Rata Loans to be prepaid shall be applied to
prepayment of ABR Loans and Eurodollar Pro Rata Loans in
proportion to the outstanding aggregate principal amount of such
ABR Loans or Eurodollar Pro Rata Loans, respectively, relative to
that of all Pro Rata Loans.
(c) Officer's Certificate. Promptly upon receipt of
any Net Cash Proceeds, other than pursuant to any Excluded Asset
Sales, the Company shall deliver to the Agent a certificate
signed by the chief financial officer of the Company, which shall
be in form and substance satisfactory to the Agent, setting forth
the amount of the gross cash proceeds received and the items
deducted therefrom in reasonable detail in order to confirm the
amount of such Net Cash Proceeds and also setting forth the
Company's year-to-date asset sales.
Section 2.08. Procedure for Competitive Loans. (a)
Prior to the Termination Date, the Company may request that the
Banks make offers to make Competitive Loans in dollars on the
terms and conditions hereinafter set forth; provided, however,
that (i) the aggregate principal amount of Competitive Loans that
may be borrowed on any Borrowing Date may not exceed the
Available Commitment (after giving effect to any Loans to be
repaid or prepaid on such Borrowing Date and any other Loans to
be made on such Borrowing Date), (ii) the aggregate amount of
Competitive Loans outstanding on any day may not exceed 50% of
the Total Commitment (after giving effect, with respect to any
day, to any Loans being repaid or prepaid on such day and any
other Loans to be made on such day) and (iii) the Company may not
request Competitive Loans before the fifth Business Day after the
Effective Date. Each Bank may, but shall have no
obligation to, make such offers and the Company may, but shall
have no obligation to, accept any such offers, in the manner set
forth in this Section 2.08.
(b) The Company may request Competitive Loans under
this Section 2.08 by giving a Competitive Loan Request to the
Agent, by telephone, telex, telecopy or in writing not later than
12:00 Noon, New York time (if not in writing, to be confirmed in
writing in substantially the form of Exhibit C-1 not later than
2:00 P.M., New York time, on the same day), on (i) the fourth
Business Day prior to the proposed Borrowing Date, in the case of
Eurodollar Competitive Loans, and (ii) on the Business Day
immediately prior to the proposed Borrowing Date, in the case of
Absolute Rate Competitive Loans. The Agent shall promptly notify
each Bank, by a letter in substantially the form of Exhibit C-2,
of each such Competitive Loan Request received by it from the
Company and of the terms contained therein.
(c) Each Bank may, if it elects so to do, irrevocably
offer to make a Competitive Loan of the requested type to the
Company at a Competitive Bid Rate or Rates, as specified by such
Page 23
Bank in accordance with the related Competitive Loan Request, by
submitting a Competitive Bid, in substantially the form of
Exhibit C-3 and indicating the maximum and minimum principal
amounts of the Competitive Loan which such Bank would be willing
to make (which amount may, subject to the proviso to the first
sentence of Section 2.08(a), exceed such Bank's Commitment, but
shall be in a principal amount equal to $1,000,000 or in integral
multiples of $100,000 in excess thereof), the Competitive Rate,
or Competitive Margin for the relevant Interest Period, as the
case may be, and any other terms and conditions required by such
Bank, not later than 9:30 A.M., New York time, on (i) the third
Business Day prior to the proposed Borrowing Date, in the case of
Eurodollar Competitive Loans or (ii) the proposed Borrowing Date,
in the case of Absolute Rate Competitive Loans, to the Agent
(which shall give notice thereof to the Borrower as promptly as
practicable and in no event later than 10:00 A.M., New York
time); provided that, if the Agent, at such time (if any) as it
is a Bank, shall elect to submit a Competitive Bid, the Agent
shall communicate the substance of its Competitive Bid to the
Company not later than 15 minutes prior to the applicable
deadline specified above. Banks may submit multiple Competitive
Bids. Any Competitive Bid that does not conform substantially
with Exhibit C-3 may be rejected by the Agent, after conferring
with the Company, and the Agent shall notify the Bank that
submitted such Competitive Bid of such rejection as promptly as
practicable. The Agent shall (i) disclose the Competitive Bids
received to the Company as promptly as reasonably practicable
after the deadline stated above for the submission of Competitive
Bids, (ii) maintain in confidence all Competitive Bids until each
of them has been disclosed to the Company and (iii) provide
copies of all Competitive Bids (or other written notice
containing all of the terms thereof) to the Company as soon as
practicable after completion of the bidding process described in
this Section 2.08.
(d) The Company shall, not later than (i) 12:00 Noon,
New York time, on the third Business Day prior to the proposed
Borrowing Date, in the case of Eurodollar Competitive Loans or
(ii) 12:00 Noon, New York time, on the proposed Borrowing Date,
in the case of Absolute Rate Competitive Loans, either
(i) cancel the Borrowing Request by giving the Agent
notice to that effect or
(ii) accept one or more Competitive Bids, in its sole
discretion, by giving notice to the Agent of the principal
amount of each Competitive Loan (which principal amount
shall be equal to or greater than the minimum amount
offered by the relevant Bank and equal to or less than the
maximum amount offered by such Bank for such Competitive
Loan pursuant to Section 2.08(c)), to be made by each Bank,
and reject any remaining Competitive Bids, by giving the
Page 24
Agent notice to that effect; provided that the aggregate
principal amount of such offers accepted by the Company
shall be in a principal amount equal to $1,000,000 or in
integral multiples of $100,000 in excess thereof, each such
notice to be in substantially the form of Exhibit C-4 (a
"Competitive Accept/Reject Notice"); provided that
(A) the failure by the Company to give such notice in
a timely fashion shall be deemed to be a rejection of all
the Competitive Bids,
(B) the Company shall not accept a Competitive Bid
made at a Competitive Bid Rate if such Company has rejected
a Competitive Bid made at a lower Competitive Bid Rate,
(C) the aggregate principal amount of the Competitive
Bids accepted by the Company shall not exceed the principal
amount specified in the Competitive Loan Request,
(D) if the Company shall accept Competitive Bids made
at a particular Competitive Bid Rate but shall be
restricted by other conditions hereof from borrowing the
principal amount of Competitive Loans specified in such
Competitive Loan Request in respect of which Competitive
Bids at such Competitive Bid Rate have been made or if the
Company shall accept Competitive Bids made at a particular
Competitive Bid Rate but the aggregate amount of
Competitive Bids made at such Competitive Bid Rate shall
exceed the amount specified in the Competitive Loan
Request, then the Company shall accept a pro rata portion
of each Competitive Bid made at such Competitive Bid Rate
aggregating the portion of Competitive Loans with respect
to which Competitive Bids at such Competitive Bid Rate have
been received (provided further that if the principal
amount of Competitive Loans to be so allocated is not
sufficient to enable Competitive Loans to be so allocated
to each such Bank in a principal amount equal to $1,000,000
or in integral multiples of $100,000 in excess thereof, the
Company shall select the Banks to be allocated such
Competitive Loans in a principal amount equal to not less
than $1,000,000 but may round up allocations to the next
higher integral multiple of $100,000 if necessary), and
(E) except as provided in clause (E) above, no
Competitive Bid shall be accepted for a Competitive Loan
unless such Competitive Loan is in a principal amount equal
to $5,000,000 or an integral multiple of $1,000,000 in
excess thereof.
(e) If the Company notifies the Agent that a Borrowing
Notice for Competitive Loans is canceled, the Agent shall give
prompt notice thereof to the Banks.
Page 25
(f) If the Company accepts one or more Competitive
Bids, the Agent shall promptly give notice (i) to each Bank of
the date and aggregate amount of such Competitive Loan(s), the
Competitive Bid Rate therefor and whether or not any Competitive
Bid made by such Bank has been accepted by the Company, and (ii)
to each Bank whose Competitive Bid, or any portion thereof, has
been accepted by the Company, of the principal amount of the
Competitive Loan to be made by such Bank and the date for
repayment thereof, together with the Competitive Rate or
Competitive Margin, as applicable, and any other terms applicable
to such Competitive Loan.
(g) Following any acceptance by the Company and
notification by the Agent pursuant to Section 2.06(f), and upon
satisfaction, or waiver by the Banks, of each of the applicable
conditions precedent contained in Article VI, each such Bank
shall disburse to the Agent, by 2:00 P.M. on the specified
Borrowing Date, the aggregate principal amount of the Competitive
Loans accepted by the Company, whereupon the Agent shall promptly
disburse such funds to the Company in funds immediately available
at the Company's office specified in Section 11.06.
(h) Nothing in this Section 2.08 shall be construed as
a right of first offer in favor of the Banks or to otherwise
limit the ability of the Company to request and accept credit
facilities from any Person (including any Bank).
Section 2.09. Competitive Notes. The Company's
obligation to repay the Competitive Loans shall be evidenced by
Competitive Notes, one such Competitive Note payable to the order
of each Bank making a Competitive Loan pursuant to Section 2.08.
The Competitive Note of each Bank shall (i) be in the principal
amount of 50% of the Total Commitment or, if less, the aggregate
principal amount outstanding under Competitive Loans made by such
Bank, (ii) be dated the date of the initial Competitive Loan made
by such Bank and (iii) be stated to mature on the last Maturity
Date of any Competitive Loan made by such Bank as such date may
be extended hereunder and bear interest from its date until
maturity on the principal balance (from time to time outstanding
thereunder) payable at the rates and in the manner provided
herein. Each Bank is authorized to indicate upon the grid
attached to its Competitive Note all Competitive Loans made by it
pursuant to this Agreement, interest elections and payments of
principal and interest thereon. Such notations shall be
presumptive as to the aggregate unpaid principal amount of all
Competitive Loans made by such Bank, and interest due thereon,
but the failure by any Bank to make such notations or the
inaccuracy or incompleteness of any such notations shall not
affect the obligations of the Company hereunder or under the
Competitive Notes.
Page 26
Section 2.10. Swing Line Advances.
(a) Prior to the Termination Date, and subject to the
terms and conditions of this Agreement, the Swing Line Bank shall
make, on the terms and conditions hereinafter set forth, Swing
Line Advances to the Company from time to time on any Business
Day in an aggregate amount not to exceed at any time outstanding
$15,000,000 (the "Swing Line Facility"); provided, however, that
the sum of (i) the aggregate outstanding Loans plus (ii) the
aggregate outstanding Swing Line Advances, may not exceed the
Total Commitment. Each Swing Line Borrowing shall be in an
amount of not less than $100,000 or an integral multiple of
$100,000 in excess thereof. Each Bank other than the Swing Line
Bank shall be deemed to, and hereby agrees to, have irrevocably
and unconditionally purchased from the Swing Line Bank a
participation in such Swing Line Advance in an amount equal to
such Bank's Pro Rata Share of the principal amount thereof.
(b) Interest. Each Swing Line Advance shall bear
interest at a rate agreed upon by the Company and the Swing Line
Bank but in no event higher than a rate based upon the Base Rate
and in the manner set forth in Section 3.02, as if such Swing
Line Advance were an ABR Loan. Such interest shall be payable in
arrears at the end of the applicable interest period or as
otherwise agreed by the Company and the Swing Line Bank. The
interest period for any Swing Line Advance shall not exceed 30
days.
(c) Swing Line Note. The Company's obligation to
repay its Swing Line Advances shall be evidenced by a Swing Line
Note which shall be (i) payable to the Swing Line Bank, (ii) in
the principal amount of $15,000,000 or, if less, the principal
amount of the Company's Swing Line Advances from time to time
outstanding, (iii) dated not later than the date of the Company's
first Swing Line Advance and (iv) stated to mature with respect
to each Swing Line Advance from time to time outstanding
thereunder on the date determined pursuant to this Section 2.10
but in any event not later than the Termination Date. The Swing
Line Bank is authorized to indicate upon the grid attached to the
Swing Line Note all borrowings thereunder and payments of
principal and interest thereon. Such notations shall be
presumptively correct as to the aggregate unpaid principal amount
of the Swing Line Advance made by the Swing Line Bank, and
interest due thereon, but the failure by the Swing Line Bank to
make such notations or the inaccuracy or incompleteness of any
such notations shall not affect the obligations of the Company
hereunder or under the Swing Line Note.
(d) Procedure. Each Swing Line Borrowing shall be
made on notice, given not later than 12:00 P.M., New York time on
the date of the proposed Swing Line Borrowing, by the Company to
the Swing Line Bank and the Agent. Each such notice of a
Page 27
proposed Swing Line Borrowing (a "Swing Line Advance Request")
shall be by telephone or telecopier (and if by telecopier, in the
form of Exhibit E thereto), and, if by telephone, confirmed
immediately in writing, specifying therein the requested (i) date
of such borrowing, (ii) amount of such borrowing and (iii)
maturity of such borrowing (which maturity shall be no later than
the thirtieth day after the requested date of such borrowing
subject to successive thirty day extensions thereof, at the
Company's option, so long as the total outstanding amount of
Swing Line Advances remains less than or equal to $15,000,000).
To the extent it is required to do so pursuant to Section 2.10(a)
above, the Swing Line Bank will make the amount of the requested
Swing Line Advance available to the Agent in immediately
available funds, at the office of the Agent at its address set
forth on the signature pages hereof. After the Agent's receipt
of such funds and upon satisfaction by the Company, or waiver by
the Agent of each of the conditions precedent contained in
Article VI applicable thereto, the Agent will disburse such funds
to the Company.
(e) Repayment. The Company shall repay to the Agent
for the account of the Swing Line Bank the outstanding principal
amount of each Swing Line Advance made to the Company on the
earlier of the maturity date specified in the applicable Swing
Line Advance Request (which maturity shall be no later than the
thirtieth day after the requested date of such borrowing subject
to successive thirty day extensions thereof, at the Company's
option, so long as the total outstanding amount of Swing Line
Advances remains less than or equal to $5,000,000) and the
Termination Date.
(f) Conversion of Swing Line Advances. Subject to
Section 4.03, (i) if the aggregate outstanding Swing Line
Advances shall at any time exceed $1,000,000 the Company may, at
its option, convert such Swing Line Advances to an ABR Loan and
if the aggregate outstanding Swing Line Advances shall at any
time exceed $2,500,000 the Company may, at its option, convert
such Swing Line Advances to a Eurodollar Pro Rata Loan; (ii) if
the aggregate outstanding Swing Line Advances shall at any time
exceed $7,500,000, Swing Line Advances in excess of such amount
shall, on the next date on which interest is payable on any Swing
Line Advance, unless converted at the Company's option pursuant
to clause (i) above, automatically be converted to an ABR Loan;
and (iii) if a Default shall occur and be continuing, the Swing
Line Bank may, at its option, convert such Swing Line Advances to
an ABR Loan. Upon election of any conversion under clause (i),
the Company shall notify the Swing Line Bank in writing of such
conversion, whether such Swing Line Advances shall be ABR Loans
or Eurodollar Pro Rata Loans and the Business Day on which such
conversion is to be effective (which notice in the case of the
Eurodollar Pro Rata Loans shall not be less than three days prior
to the requested date for conversion) and upon any automatic
Page 28
conversion under clause (ii) or election of conversion under
clause (iii), the Swing Line Bank shall immediately notify the
Company in writing of such conversion. On the Business Day of
any conversion described above, such Swing Line Advances shall
constitute an ABR Loan or a Eurodollar Pro Rata Loan and shall
bear interest at the rate of interest then applicable to ABR
Loans or Eurodollar Pro Rata Loans, as the case may be. Upon
written demand by the Swing Line Bank on or before 1:00 P.M., New
York time, with a copy of such demand to the Agent, each other
Bank shall purchase from the Swing Line Bank, and the Swing Line
Bank shall sell to each such other Bank, such other Bank's Pro
Rata Share of such outstanding Swing Line Advance as of the date
of such demand, by making available to the Agent for the account
of the Swing Line Bank not later than 2:00 P.M., New York time,
in immediately available funds, an amount equal to the portion of
the outstanding principal amount of such Swing Line Advance to be
purchased by such Bank. The Company hereby agrees to each such
sale. Each Bank agrees to purchase its Pro Rata Share of an
outstanding Swing Line Advance on (i) the Business Day on which
demand therefor is made by the Swing Line Bank, provided that
notice of such demand is given not later than 1:00 P.M., New York
time, on such Business Day or (ii) the first Business Day next
succeeding such demand if notice of such demand is given after
such time. If and to the extent that any Bank shall not have so
made the amount of such Swing Line Advance available to the
Agent, such Bank agrees to pay to the Agent forthwith on demand
such amount together with interest thereon, for each day from the
date of demand by the Swing Line Bank until the date such amount
is paid to the Agent, at a rate per annum equal to (i) the
Federal Funds Rate, for the three-day period beginning on the
date of such demand, and (ii) the rate of interest then
applicable to ABR Loans or Eurodollar Pro Rata Loans, as the case
may be, for the period beginning on the fourth day after the date
of such demand, changing as and when said rate changes.
Section 2.11. Increase in Commitments. (a)(i) The
Company may, by submitting a notice (an "Increase Notice") to the
Agent, request that the Banks increase the Total Commitment up to
the amount specified therein, provided that the amount of such
increase shall be an integral multiple of $5,000,000 and the
Total Commitment after such increase shall not be greater than
$200,000,000. Promptly upon receipt of such Increase Notice
from the Company, the Agent shall notify the Banks and any new
lenders of the contents thereof. Each Bank and new lender shall
provide written notice to the Agent, no later than 21 days after
the date on which the Increase Notice shall have been given to
the Agent, of the amount, if any, by which such Bank agrees to
increase its Commitment or such new lender agrees to establish as
its Commitment. Promptly upon receipt of such notice from any
Bank, the Agent shall notify the Company of the contents thereof.
To the extent that the aggregate amount of the proposed
Commitments of such new lenders and the proposed increase of the
Page 29
Commitments of such existing Banks is less than the aggregate
amount of the increase of the Commitments requested by the
Company, the Company may either (A) request the Agent to solicit
the Banks for further increases in their Commitments or (B) amend
the Increase Notice by reducing the requested amount by which the
aggregate amount of the Commitments is to be increased to an
amount equal to the aggregate amount of proposed Commitments of
such new lenders and the proposed increase of the Commitments of
such existing Banks.
(ii) Upon the effectiveness of the increase in
Commitments pursuant to Section 2.11(b) below, each of the new
lenders shall execute and deliver a counterpart of this
Agreement, Schedule 1 shall be amended by the Company and the
Agent to reflect the increase in the Commitment of any existing
Bank and the Commitments of such new lenders, and such new
lenders shall be and become Banks hereunder for all purposes
hereof and of the Credit Documents. In connection with any such
increase, the Borrower shall execute and deliver new Pro Rata
Notes to reflect appropriately such new Commitments and the Banks
(including such new lenders) shall effect such purchases and
sales among themselves of portions of the outstanding Loans
(other than outstanding Competitive Loans) as shall be necessary
to reflect such Commitments, as specified by the Agent, and, in
connection with such purchases and sales, the Borrower shall pay
to each affected Bank, in the case of Banks that are sellers of
Loans, an amount equal to the amount that the Borrower would have
had to pay pursuant to Section 4.04 if such Loans, or portions
thereof, were prepaid on such Increase Date or, in the case of
Banks that are purchasers of Loans, such amount, determined as if
Section 4.04 were applicable thereto, specified by such Bank as
necessary to compensate it for the funding of the Loans, or
portions thereof, purchased by it.
(b) An increase in Commitments pursuant to this
Section 2.11 shall become effective on the Increase Date so long
as each of the following conditions shall have been fulfilled on
and as of such date: (i) the Agent shall have consented to any
such new lenders; (ii) the Agent shall have received opinions of
counsel to the Borrower in form and substance reasonably
satisfactory to the Agent; (iii) the conditions to the making of
Loans set forth in Section 6.02 shall be fulfilled on and as of
such Increase Date as if Loans were made thereon; and (iv) the
Agent shall have received such other instruments and documents,
in form and substance satisfactory to it, as it shall have
reasonably requested.
Page 30
ARTICLE III
INTEREST, METHOD OF PAYMENT, CONVERSION, ETC.
Section 3.01. Procedure for Interest Rate
Determination.
(a) Unless the Company shall request in a Loan Request
or in a Conversion/Continuance Request that Pro Rata Loans (or
portions thereof) bear interest as Eurodollar Pro Rata Loans, the
Pro Rata Loans shall bear interest as ABR Loans.
(b) Competitive Rate Loans shall bear interest as
Absolute Rate Competitive Loans or Eurodollar Competitive Loans
as determined in accordance with Section 2.08.
Section 3.02. Interest on ABR Loans. Each ABR Loan
shall bear interest from the date of such ABR Loan until maturity
thereof or until such Loan is repaid, or the beginning of any
relevant Interest Period, as the case may be, payable in arrears
on the last day of each calendar quarter of each year, commencing
with the first such date after the date hereof, and on the date
such ABR Loan is repaid, at a rate per annum (on the basis of a
365- or 366-day year for the actual number of days involved in
the case of ABR Loans which accrue interest based upon the Prime
Rate and on the basis of a 360-day year for the actual number of
days involved in the case of ABR Loans which accrue interest
based upon the Federal Funds Rate) equal to the Base Rate in
effect from time to time, which rate shall change as and when
said Base Rate shall change. If an ABR Loan is outstanding, the
Agent shall notify the Company of the Base Rate when said Base
Rate shall change; provided that the failure to give notice shall
not affect the Company's obligations with respect to such ABR
Loan.
Section 3.03. Interest on Eurodollar Loans.
(a) Each Eurodollar Loan shall bear interest from the
date of such Loan until maturity thereof or until such Loan is
repaid, payable in arrears, with respect to Interest Periods of
three months or less, on the last day of such Interest Period,
and with respect to Interest Periods longer than three months, on
the day which is three months after the commencement of such
Interest Period and on the last day of such Interest Period, at a
rate per annum (on the basis of a 360-day year for the actual
number of days involved), determined by the Agent with respect to
each Interest Period with respect to Eurodollar Loans, equal to
the sum of (i) the Applicable Margin, in the case of Eurodollar
Pro Rata Loans or the Competitive Margin, in the case of
Eurodollar Competitive Loans and (ii) LIBOR.
Page 31
(b) The Interest Period for each Eurodollar Loan shall
be selected by the Company at least three Business Days prior to
the beginning of such Interest Period. If the Company fails to
notify the Agent of the subsequent Interest Period for an
outstanding Eurodollar Pro Rata Loan at least three Business Days
prior to the last day of the then current Interest Period of such
Eurodollar Pro Rata Loan, then such outstanding Eurodollar Pro
Rata Loan shall become an ABR Loan at the end of such current
Interest Period.
(c) Notwithstanding the foregoing: (i) if any
Interest Period for a Eurodollar Loan would otherwise end on a
day which is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period shall
end on the immediately preceding Business Day; (ii) any Interest
Period that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall
end on the last Business Day of a calendar month; and (iii) no
Interest Period for a Eurodollar Loan may extend beyond the
Termination Date.
(d) Eurodollar Loans shall be made by each Bank from
its branch or affiliate identified as its Eurodollar Lending
Office on the signature page hereto, or such other branch or
affiliate as it may hereafter designate to the Company and the
Agent as its Eurodollar Lending Office. A Bank shall not change
its Eurodollar Lending Office designation if it, at the time of
the making of such change, increases the amounts that would have
been payable by the Company to such Bank under this Agreement in
the absence of such a change.
Section 3.04. Interest on Absolute Rate Competitive
Loans. Each Absolute Rate Competitive Loan shall bear interest
from the date of such Loan to (but excluding) its Maturity Date,
payable in arrears, with respect to maturities of three months or
less, on its Maturity Date, and with respect to maturities longer
than three months, on the day which is three months after the
making of such loan (and each three month anniversary thereafter,
if any) and on its Maturity Date, at a rate per annum equal to
the applicable Competitive Rate.
Section 3.05. Conversion/Continuance.
(a) The Company may request, by delivery to the Agent
of a written Conversion/Continuance Request not less than three
Business Days prior to a requested Conversion/ Continuance Date,
that all or portions of the outstanding ABR Loans and Eurodollar
Pro Rata Loans, in the aggregate amount of $1,000,000 or in
integral multiples of $100,000 in excess thereof (or, if the
Page 32
aggregate amount of outstanding Loans is less than $1,000,000,
then all such lesser amount), shall bear interest from and after
the Conversion Date as either ABR Loans or Eurodollar Pro Rata
Loans.
(b) Upon receipt of any such Conversion/ Continuance
Request from the Company, the Agent shall forthwith give notice
to each Bank of the substance thereof. Effective on such
Conversion/Continuance Date and upon payment by the Company of
the amounts, if any, required by Section 4.03, the Loans or
portions thereof as to which the Conversion/Continuance Request
was made shall commence to accrue interest as set forth in this
Article III for the interest rate selected by the Company.
(c) In lieu of delivering the above described notice,
the Company may give the Agent telephonic notice hereunder by the
required time under this Section 3.04; provided that such
telephonic notice shall be confirmed by delivery of a written
notice to the Agent by no later than 4:00 P.M., New York City
time, the date of such telephonic notice.
Section 3.06. Post Default Interest. Upon the
occurrence and during the continuation of an Event of Default,
all Loans, Swing Line Advances and any unpaid installment of
interest shall bear interest at a rate per annum equal to the sum
of (i) 2% and (ii) with respect to ABR Loans and Swing Line
Advances, the rate of interest then applicable to ABR Loans,
changing as and when said rate shall change, with respect to
Eurodollar Loans, the rate of interest applicable to each such
Eurodollar Loan, and with respect to Absolute Rate Competitive
Loans, the Competitive Rate applicable to such Absolute Rate
Competitive Loan. Interest payable pursuant to this Section 3.06
shall be payable on demand.
Section 3.07. Maximum Interest Rate.
(a) Nothing in this Agreement or the Notes shall
require the Company to pay interest at a rate exceeding the
maximum rate permitted by applicable law. Neither this Section
nor Section 11.01 is intended to limit the rate of interest
payable for the account of any Bank to the maximum rate permitted
by the laws of the State of New York (or any other applicable
law) if a higher rate is permitted with respect to such Bank by
supervening provisions of U.S. Federal law.
(b) If the amount of interest payable for the account
of any Bank on any interest payment date in respect of the
immediately preceding interest computation period, computed
pursuant to this Article III, would exceed the maximum amount
permitted by applicable law to be charged by such Bank, the
amount of interest payable for its account on such interest
payment date shall automatically be reduced to such maximum
permissible amount.
Page 33
ARTICLE IV
DISBURSEMENT AND PAYMENT
Section 4.01. Pro Rata Treatment. Each payment of the
Facility Fee and each reduction of the Total Commitment shall be
apportioned among the Banks in proportion to each Bank's Pro Rata
Share. Except as provided in Section 4.04 or 4.05, the ABR Loans
and Eurodollar Pro Rata Loans or portions thereof as to which a
Conversion/Continuance Request has been made pursuant to Section
3.05 hereof shall at all times bear interest on the same basis
(as ABR Loans and Eurodollar Pro Rata Loans) and the Interest
Periods applicable thereto, if any, shall be of the same
duration.
Section 4.02. Method of Payment. All payments by the
Company hereunder and under the Notes shall be made without set-
off or counterclaim to the Agent, for its account or for the
account of the Bank or Banks entitled thereto, as the case may
be, in lawful money of the United States and in immediately
available funds at the office of the Agent on the date when due.
Section 4.03. Compensation for Losses.
(a) Compensation. In the event that (i) the Company
makes a prepayment under Section 2.06 on a day other than the
last day of the Interest Period for the amount so prepaid, (ii) a
Conversion/Continuance Date selected pursuant to Section 3.05
falls on a day other than the last day of the Interest Period for
the amount as to which a conversion is made, (iii) the Company
revokes any notice given under Section 2.02 requesting Eurodollar
Loans, (iv) the Loans or portions thereof are converted into ABR
Loans pursuant to Section 4.05 on a day other than the last day
of the Interest Period for the Eurodollar Loans so converted, (v)
the Eurodollar Loans shall be declared to be due and payable
prior to the scheduled maturity thereof pursuant to Section 8.01
or (vi) Swing Line Advances shall be converted into an ABR Loan
on any day other than the maturity date for such Swing Line
Advances, the Company shall pay to each Bank or the Swing Line
Bank, as the case may be, promptly after its demand an amount
which will compensate such Bank or the Swing Line Bank, as the
case may be, for any cost, loss, premium or penalty incurred
(other than any cost, loss, premium or penalty incurred as a
consequence of any Tax, which shall be governed by the provisions
of Section 4.04(a)) by such Bank or the Swing Line Bank, as the
case may be, as a result of such prepayment, conversion,
declaration or revocation of notice in respect of funds deemed
(pursuant to the last sentence of this Section 4.03(a)) obtained
for the purpose of making or maintaining such Bank's Eurodollar
Loans or the Swing Line Bank's Swing Line Advances, or any part
thereof (it being understood, however, that the foregoing shall
not be construed as covering any amounts paid pursuant to Section
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2.10(c) by a Bank to the Swing Line Bank in connection with the
conversion of a Swing Line Loan). Such compensation shall
include an amount equal to the excess, if any, of (i) the amount
of interest which would have accrued on the amount so paid or
prepaid, or not borrowed or converted, for the period from the
date of such payment or prepayment or conversion or failure to
borrow to the last day of such Interest Period or the maturity
date of Swing Line Advances (or, in the case of a failure to
borrow, the Interest Period that would have commenced on the date
of such failure to borrow) in each case at the applicable rate of
interest for such Loan provided for herein (excluding, however,
the Applicable Margin included therein) over (ii) the amount of
interest (as reasonably determined by such Bank) which would have
accrued to such Bank on such amount by placing such amount on
deposit for a comparable period with leading banks in the London
interbank market. For purposes of calculating amounts payable by
the Company to the Banks under this Section, each Eurodollar Loan
made by a Bank (and each related reserve, special deposit or
similar requirement) shall be conclusively deemed to have been
funded at Base LIBOR used in determining LIBOR for such
Eurodollar Loan by a matching deposit or other borrowing in the
London interbank deposits market for a comparable amount and for
a comparable period, whether or not such Eurodollar Loan is in
fact so funded.
(b) Certificate, Etc. Each Bank and the Swing Line
Bank, if applicable, shall promptly notify the Company, with a
copy to the Agent, upon becoming aware that the Company may be
required to make any payment pursuant to this Section 4.03. When
requesting payment pursuant to this Section 4.03, each Bank and
the Swing Line Bank, if applicable, shall provide to the Company,
with a copy to the Agent, a certificate, signed by an officer of
such Bank or Swing Line Bank, setting forth the amount required
to be paid by the Company to such Bank or Swing Line Bank and the
computations made by such Bank or Swing Line Bank to determine
such amount. In the absence of manifest error, such certificate
shall be conclusive and binding on the Company as to the amount
so required to be paid by the Company to such Bank.
(c) Participants. Subject to Section 11.08(e), each
Participant shall be deemed a "Bank" for the purposes of this
Section 4.03.
Section 4.04. Withholding, Reserves and Additional
Costs.
(a) Taxes.
(i) Withholding. To the extent permitted by law, all
payments under this Agreement and under the Notes (including
payments of principal and interest) shall be payable to each Bank
free and clear of any and all present and future Covered Taxes.
Page 35
If any Taxes are required to be withheld or deducted from any
amount payable under this Agreement or any Note, then (1) the
Company shall pay any such Tax before the date on which penalties
attach thereto, and (2) in the event such Tax is a Covered Tax,
the amount payable under this Agreement or such Note shall be
increased to the amount which, after deduction from such
increased amount of all Covered Taxes required to be withheld or
deducted therefrom, will yield to such Bank the amount stated to
be payable under this Agreement or such Note. The Company shall
execute and deliver to any Bank upon its request such further
instruments as may be necessary or desirable to give full force
and effect to any such increase, including a new Note of the
Company to be issued in exchange for any Note theretofore issued.
The Company shall also hold each Bank harmless and indemnify it
for any stamp or other taxes with respect to the preparation,
execution, delivery, recording, performance or enforcement of the
Credit Documents (all of which shall be included with "Taxes").
If any Covered Taxes are paid by any Bank, the Company shall, not
later than 10 days after demand of such Bank, reimburse such Bank
for such payments, together with any interest, penalties and
expenses incurred in connection therewith, plus interest thereon
at a rate per annum (based on a 360-day year for the actual
number of days involved) equal to the interest rate then
applicable to ABR Loans, changing as and when such rate shall
change, from the date such payment or payments are made by such
Bank to the date of reimbursement by the Company. The Company
shall deliver to the Agent certificates or other valid vouchers
for all Taxes or other charges deducted from or paid with respect
to payments made by the Company hereunder.
(ii) Tax Refund. If the Company determines in good
faith that, (a) acting in the name of a Bank, Participant,
Assignee or the Agent it is more likely than not to win a contest
involving a Covered Tax, or (b) acting in the name of the
Company, a reasonable basis exists for contesting a Covered Tax,
then the relevant Bank, Participant, Assignee or the Agent, as
applicable, shall cooperate with the Company in challenging such
Tax at the Company's expense if requested by the Company (it
being understood and agreed that neither the Agent nor any Bank,
Participant or Assignee shall have any obligation to contest, or
any responsibility for contesting any Tax). If any Bank,
Participant, Assignee or the Agent, as applicable, receives a
refund (whether by way of direct payment or by offset) of any
Covered Tax for which a payment has been made pursuant to
subsection 4.04(a)(i) which, in the reasonable good faith
judgment of such Bank, Participant, Assignee or Agent, as the
case may be, is allocable to such payment made under subsection
4.04(a)(i), the amount of such refund (together with any interest
received thereon) shall be paid to the Company to the extent
payment has been made in full pursuant to subsection 4.04(a)(i).
Page 36
(iii) U.S. Tax Certificates. Each Bank that is
organized under the laws of any jurisdiction other than the
United States or any state thereof shall deliver to the Agent for
transmission to the Company, on or prior to the Closing Date (in
the case of each Bank listed on the signature pages hereof) or on
the date (and as a condition to effectiveness) of an assignment
pursuant to which it becomes a Bank (in the case of each other
Bank), and at such other times as may be necessary in the
determination of the Company or the Agent (each in the reasonable
exercise of its discretion), such certificates, documents or
other evidence, properly completed and duly executed by such Bank
(including, without limitation, Internal Revenue Service Form
1001 or Form 4224 or any other certificate or statement of
exemption required by Treasury Regulations Section 1.1441-4(a) or
Section 1.1441-6(c) or any successor thereto) to establish that
such Bank is not subject to deduction or withholding of United
States federal income tax under Section 1441 or 1442 of the Code
or otherwise (or under any comparable provisions of any successor
statute) or is subject to deduction or withholding at a reduced
rate under any applicable treaty or otherwise with respect to any
Payments to such Bank of principal, interest, fees or other
amounts payable under this Agreement or any of the Notes. The
Company shall not be required to pay any additional amount to any
such Bank under subsection 4.04(a)(i) if such Bank shall have
failed to satisfy the requirements of the immediately preceding
sentence; provided that if such Bank shall have satisfied such
requirements on the Closing Date (in the case of each Bank listed
on the signature pages hereof) or on the date of the agreement
pursuant to which it became a Bank (in the case of each other
Bank), nothing in this subsection 4.04(a)(iii) shall relieve the
Company of its obligation to pay any additional amounts pursuant
to subsection 4.04(a)(i) in the event that, as a result of any
change in applicable law, such Bank is no longer properly
entitled to deliver certificates, documents or other evidence at
a subsequent date establishing the fact that such Bank is not
subject to withholding as described in the immediately preceding
sentence.
(iv) Mitigation. Each Bank agrees that, as promptly
as practicable after the officer of such Bank responsible for
administering the Loans under this Agreement becomes aware of the
occurrence of an event or the existence of a condition that would
require the Company to make payments with respect to such Bank
under subsection 4.04(a)(i), it will, to the extent not
inconsistent with such Bank's internal policies, use reasonable
efforts (1) to make, fund or maintain the Commitments or Loans of
such Bank through another lending office of such Bank, or (2)
take such other reasonable measures, if as a result the
additional amounts that would otherwise be required to be paid by
the Company with respect to such Bank pursuant to subsection
4.04(a)(i) would be materially reduced and if, as determined by
such Bank in its sole discretion, the making, funding or
Page 37
maintaining of such Commitments or Loans through such other
lending office or in accordance with such other measures, as the
case may be, would not otherwise materially adversely affect such
Commitments or Loans or the interests of such Bank.
(v) Replacement of Bank. If the Company becomes
obligated to pay additional amounts described in Section 4.04(a)
as a result of any condition described in such section and
payment of such amount is demanded by any Bank, then the Company
may, on ten business days' prior written notice to the Agent and
such Bank, cause such Bank to (and such Bank shall) assign all of
its rights and obligations under this Agreement to a Bank or
other entity selected by the Company for a purchase price equal
to the outstanding principal amount of such Bank's Loans and all
accrued interest and fees, provided that in no event shall the
assigning Bank be required to pay or surrender to such purchasing
Bank or other entity any of the fees received by such assigning
Bank pursuant to this Agreement. The Company shall remain
obligated to pay to such assigning Bank all additional amounts
described in Section 4.04(a) arising on or prior to the date of
such assignment as a result of any condition described in such
section and demanded by any Bank.
(b) Additional Costs. (i) If after the date hereof,
any change in any law or regulation or in the interpretation
thereof by any court or administrative or governmental authority
charged with the administration thereof or the enactment of any
law or regulation shall either (1) impose, modify or deem
applicable any reserve, special deposit or similar requirement
against the Banks' Commitments or the Loans or Swing Line
Advances or (2) impose on any Bank any other condition regarding
this Agreement, its Commitment or the Loans or Swing Line
Advances and the result of any event referred to in clause (1) or
(2) of this clause (b) shall be to increase the cost (other than
an increase in cost as a consequence of any Tax, which shall be
governed by the provisions of Section 4.04(a)) to any Bank of
maintaining its Commitment or any Loans or Swing Line Advances
(which increase in cost shall be calculated in accordance with
each Bank's reasonable averaging and attribution methods) by an
amount which any such Bank deems to be material, then, upon
receipt by the Company of written notice by such Bank, the
Company shall be obligated to pay to such Bank within 10 days of
any written demand therefor an amount equal to such increase in
cost incurred by any such Bank after the date the Company
receives such notice; provided that in respect of any Loan or
Swing Line Advances such amount shall bear interest, after
receipt by the Company of any such demand until payment in full
thereof, at a rate per annum (based on a 360-day year, for the
actual number of days involved) equal to the sum of 2% and the
interest rate then applicable to ABR Loans, changing as and when
such rate shall change.
Page 38
(ii) If any Bank shall have determined that the
adoption of any applicable law, rule, regulation or guideline
regarding capital adequacy, or any change therein, or any change
in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof (including any
such adoption or change made prior to the date hereof but not
effective until after the date hereof), or compliance by any Bank
with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of
reducing the rate of return on capital for any such Bank or any
corporation controlling such Bank as a consequence of its
obligations under this Agreement to a level below that which such
Bank or such corporation could have achieved but for such
adoption, change or compliance (taking into consideration such
Bank's or such corporation's policies with respect to capital
adequacy), then upon receipt by the Company of written notice by
such Bank, the Company shall be obligated to pay to such Bank
upon receipt of written demand from such Bank such additional
amount or amounts as will compensate such Bank for such reduction
suffered by such Bank after the date the Company receives such
notice, plus interest thereon at a rate per annum (based on a
360-day year, for the actual number of days involved) equal to
the sum of 2% and the interest rate then applicable to ABR Loans,
changing as and when such rate shall change, from the date of
such demand by such Bank to the date of payment by the Company.
(iii) Mitigation. Each Bank agrees that, as promptly
as practicable after the officer of such Bank responsible for
administering the Loans under this Agreement becomes aware of the
occurrence of an event or the existence of a condition that would
require the Company to make payments with respect to such Bank
under subsection 4.04(b)(i) or (ii), it will, to the extent not
inconsistent with such Bank's internal policies, use reasonable
efforts (1) to make, fund or maintain the Commitments or Loans of
such Bank through another lending office of such Bank, or (2)
take such other reasonable measures, if as a result the
additional amounts that would otherwise be required to be paid by
the Company with respect to such Bank pursuant to subsection
4.04(b)(i) or (ii) would be materially reduced and if, as
determined by such Bank in its sole discretion, the making,
funding or maintaining of such Commitments or Loans through such
other lending office or in accordance with such other measures,
as the case may be, would not otherwise materially adversely
affect such Commitments or Loans or the interests of such Bank.
(iv) Replacement of Bank. If the Company becomes
obligated to pay additional amounts described in Section
4.04(b)(i) or (ii) as a result of any condition described in such
section and payment of such amount is demanded by any Bank, then
the Company may, on ten business days' prior written notice to
Page 39
the Agent and such Bank, cause such Bank to (and such Bank shall)
assign all of its rights and obligations under this Agreement to
a Bank or other entity selected by the Company for a purchase
price equal to the outstanding principal amount of such Bank's
Loans and all accrued interest and fees, provided that in no
event shall the assigning Bank be required to pay or surrender to
such purchasing Bank or other entity any of the fees received by
such assigning Bank pursuant to this Agreement. The Company
shall remain obligated to pay to such assigning Bank all
additional amounts described in Section 4.04(b) arising on or
prior to the date of such assignment as a result of any condition
described in such section and demanded by any Bank.
(c) Lending Office Designations. Before giving any
notice to the Company pursuant to this Section 4.04, each Bank
shall, if possible, designate a different lending office if such
designation will avoid the need for giving such notice and will
not, in the judgment of such Bank, be otherwise disadvantageous
to such Bank.
(d) Certificate, Etc. Each Bank shall promptly notify
the Company, with a copy to the Agent, upon becoming aware that
the Company may be required to make any payment pursuant to this
Section 4.04. When requesting payment pursuant to this Section
4.04, each Bank shall provide to the Company, with a copy to the
Agent, a certificate, signed by an officer of such Bank, setting
forth the amount required to be paid by the Company to such Bank
and the computations made by such Bank to determine such amount.
Determinations and allocations by such Bank for purposes of this
Section 4.04 shall be conclusive and binding upon the Company,
provided that such determinations and allocations are made on a
reasonable basis and are mathematically accurate.
(e) Participants. Subject to Section 11.08(e), each
Participant shall be deemed a "Bank" for the purposes of this
Section 4.04.
Section 4.05. Unavailability. If at any time any Bank
shall have determined in good faith (which determination shall be
conclusive) that the making or maintenance of all or any part of
such Bank's Eurodollar Loans has been made impracticable or
unlawful because of compliance by such Bank in good faith with
any law or guideline or interpretation or administration thereof
by any official body charged with the interpretation or
administration thereof or with any request or directive of such
body (whether or not having the effect of law), because U.S.
dollar deposits in the amount and requested maturity of such
Eurodollar Loans are not available to the Bank in the London
Eurodollar interbank market, or because of any other reason, then
the Agent, upon notification to it of such determination by such
Bank, shall forthwith advise the other Banks and the Company
thereof. Upon such date as shall be specified in such notice and
Page 40
until such time as the Agent, upon notification to it by such
Bank, shall notify the Company and the other Banks that the
circumstances specified by it in such notice no longer apply, (i)
notwithstanding any other provision of this Agreement, such
Eurodollar Loans of such Bank shall automatically and without
requirement of notice by the Company be converted to ABR Loans
and (ii) the obligation of only such Bank to allow borrowing,
elections and renewals of Eurodollar Loans shall be suspended,
and, if the Company shall request in a Loan Request or
Conversion/Continuance Request that such Bank make a Eurodollar
Loan, the loan requested to be made by such Bank shall instead be
made as an ABR Loan.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties. As of
each Compliance Date, the Company represents and warrants to the
Banks that:
(a) Subsidiaries. At the date hereof, the Company has
no Subsidiaries and is a participant in no joint ventures other
than as listed on Schedule 5.01(a).
(b) Good Standing and Power. The Company is duly
organized and validly existing and in good standing under the
laws of the State of Maryland; and the Company has the power to
own its property and to carry on its business as now being
conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the
properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good
standing, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect. Each of the
corporate Subsidiaries of the Company are corporations, each duly
organized and validly existing, under the laws of the
jurisdiction of its incorporation; each other Subsidiary is an
entity duly organized and validly existing under the laws of the
jurisdiction of its organization; and each Subsidiary has the
power to own its property and to carry on its business as now
being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the character of the
properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary,
except where the failure to be so organized, existing, qualified,
or to be in good standing, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect.
Page 41
(c) Corporate Authority. The Company has full
corporate power and authority to execute, deliver and perform its
obligations under this Agreement, to make the borrowings
contemplated hereby, and to execute and deliver the Notes and to
incur the obligations provided for herein and therein, all of
which have been duly authorized by all proper and necessary
corporate action. No consent or approval of stockholders is
required as a condition to the validity or performance by the
Company of its obligations under this Agreement or the Notes.
(d) Authorizations. All authorizations, consents,
approvals, registrations, notices, exemptions and licenses with
or from Governmental Authorities and other Persons which are
necessary for the borrowing hereunder, the execution and delivery
of the Credit Documents, the performance by the Company of its
obligations hereunder and thereunder have been effected or
obtained and are in full force and effect.
(e) Binding Agreements. This Agreement constitutes,
and the Notes, when executed and delivered pursuant hereto for
value received will constitute, the valid and legally binding
obligations of the Company enforceable in accordance with their
terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect relating to or affecting the rights and remedies of
creditors; and the effect of general principles of equity,
regardless of whether enforcement is sought in a proceeding at
law or in equity, and the discretion of the court before which
any proceeding therefor may be brought.
(f) Litigation. There are no proceedings or
investigations, so far as the executive officers of the Company
know, pending or threatened before any court or arbitrator or
before or by any Governmental Authority which (i) in any one case
or in the aggregate, if determined adversely to the interests of
the Company or any of its Subsidiaries, could reasonably be
expected to have a Material Adverse Effect, (ii) relates to any
Credit Document or the lending transactions contemplated hereby
and thereby or (iii) seeks to (or is expected to) rescind,
terminate, revoke, cancel, withdraw, suspend, modify or withhold
any material license or permit of the Company or any of the
Subsidiaries.
(g) No Conflicts. There is no statute, regulation,
rule, order or judgment, and no provision of any material
agreement or instrument binding on the Company or any of its
Subsidiaries, or affecting their respective properties and no
provision of the certificate of incorporation, by-laws, governing
partnership agreement or other organizational document of the
Company or any of its Subsidiaries, which would prohibit,
conflict with or in any way prevent the execution, delivery, or
performance of the terms of the Credit Documents or the
Page 42
incurrence of the obligations provided for herein and therein, or
result in or require the creation or imposition of any Lien on
any of the Company's or its Subsidiaries' properties as a
consequence of the execution, delivery and performance of any
Credit Document or the lending transactions contemplated hereby
and thereby.
(h) Financial Condition. (i) (A) The consolidated
balance sheet as of December 31, 1996, together with consolidated
statements of income, stockholders' equity and cash flows for the
fiscal year then ended, audited by KPMG Peat Marwick, included in
the Realty Income Corporation 1996 Year End Report and (B) the
consolidated balance sheet as of September 30, 1997, together
with the consolidated statements of income and cash flows for the
9 months then ended certified by the chief financial officer of
the Company, heretofore delivered to the Agent, fairly present
the financial condition of the Company and its consolidated
Subsidiaries and the results of their operations as of the dates
and for the periods referred to and have been prepared in
accordance with GAAP consistently applied throughout the periods
involved. As of the date hereof, there are no material
liabilities, direct or indirect, fixed or contingent, of the
Company and its Subsidiaries as of the dates of such balance
sheet which are not reflected therein or in the notes thereto.
(ii) Since December 31, 1996 there has been no Material Adverse
Change.
(i) Taxes. The Company and each of its Subsidiaries
has filed or caused to be filed all tax returns which are
required to be filed and has paid all taxes required to be shown
to be due and payable on said returns or on any assessment made
against it or any of its property and all other taxes,
assessments, fees, liabilities, penalties or other charges
imposed on it or any of its property by any Governmental
Authority, except for any taxes not yet delinquent and any taxes,
assessments, fees, liabilities, penalties or other charges which
are being contested in good faith and for which adequate reserves
(in accordance with GAAP) have been established.
(j) Use of Proceeds. The proceeds of the Loans and
Swing Line Advances will be used by the Company for the purposes
described in the Whereas clause hereto.
(k) Margin Regulations. No part of the proceeds of
any Loan will be used to purchase or carry, or to reduce or
retire or refinance any credit incurred to purchase or carry or
extend credit to others for the purpose of purchasing or
carrying, any "margin stock" as defined in Regulation G or
Regulation U of the Board of Governors of the Federal Reserve
System.
Page 43
(l) No Material Misstatements. All written
information relating to the Company and its Subsidiaries
heretofore delivered by the Company and its Subsidiaries to the
Agent or any Bank in connection with the Credit Documents is
complete and correct in all material respects.
(m) Title to Properties; Possession Under Leases. The
Company and its Subsidiaries each have good and marketable title
to, or valid leasehold interests in, all properties and assets
reflected on the consolidated balance sheet of the Company as of
September 30, 1997, referred to in Section 5.01(h), except for
such properties and assets as have been disposed of in the
ordinary course of business and except for minor defects in title
that do not, individually or in the aggregate, materially
interfere with the ability of the Company or any of such
Subsidiaries to conduct its business as now conducted. All such
assets and properties are free and clear of all Liens, except
Liens permitted pursuant to this Agreement.
(n) Leases. To the Company's knowledge, no condition
exists which, with the giving of notice or the passage of time,
or both, would permit any lessee to cancel its obligations under
any lease to which the Company or any Subsidiary is a party that
would create, individually or in the aggregate, a Material
Adverse Effect; (ii) the Company has received no notice that any
lessee or lessees intend to cease operations at any leased
property or properties prior to the expiration of the term of the
applicable lease (other than temporarily due to casualty,
remodeling, renovation or any similar cause) that would create,
individually or in the aggregate, a Material Adverse Effect; and
(iii) to the Company's knowledge, none of the lessees or their
sub-lessees, if any, under any of the leases to which the Company
or any Subsidiary is a party to or is the subject of any
bankruptcy, reorganizations, insolvency or similar proceeding
that would create, individually or in the aggregate, a Material
Adverse Effect.
(o) Conduct of Business. At the date hereof, the
Company and its Subsidiaries hold all authorizations, consents,
approvals, registrations, franchises, licenses and permits, with
or from Governmental Authorities and other Persons as are
required or necessary for them to own their properties and
conduct their business as now conducted unless and to the extent
that any failure to hold such authorizations, consents,
approvals, registrations, franchises, licenses and permits,
individually or in the aggregate, could not have a Material
Adverse Effect.
(p) Compliance with Laws and Charter Documents.
Neither the Company nor any Subsidiary thereof is, or as a result
of performing any of its obligations under the Credit Documents
will be, in violation of (a) any law, statute, rule, regulation
Page 44
or order of any Governmental Authority (including Environmental
Laws) applicable to it or its properties or assets, (b) its
certificate of incorporation, by-laws, governing partnership
agreement or other organizational document or (c) judgments or
agreements to which it is a party or by which its assets may be
bound unless and to the extent that such violations, individually
or in the aggregate, would not have a Material Adverse Effect.
(q) ERISA. (i) Neither the Company nor any ERISA
Affiliate has engaged in a transaction with respect to any Plan
which, assuming the taxable period of such transaction expired as
of the Compliance Date, could subject the Company or any ERISA
Affiliate to a tax or penalty imposed by either Section 4975 of
the Code or Section 502(i) of ERISA in an amount that would have
a Material Adverse Effect.
(ii) Except as set forth on Schedule 5.01(q),
neither the Company nor any ERISA Affiliate has incurred any
liability since December 30, 1993, under Title IV of ERISA with
respect to any "single employer plan" within the meaning of
Section 4001(a)(15) of ERISA. No Single-Employer Plan had an
accumulated funding deficiency, whether or not waived, as of the
last day of the most recent fiscal year of such Plan ended prior
to the Compliance Date, and each Plan has complied in all
material respects with the applicable provisions of ERISA and the
Code. Neither the Company nor any ERISA Affiliate is (A)
required to give security to any Single-Employer Plan pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, or (B)
subject to a lien in favor of such a Plan under Section 302(f) of
ERISA.
(iii) No liability under Sections 4062, 4063, 4064
or 4069 of ERISA has been or is expected by the Company to be
incurred by the Company or ERISA Affiliate with respect to any
Single-Employer Plan in an amount that could have a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate has
incurred or expects to incur any withdrawal liability with
respect to any Plan which is a multiemployer plan in an amount
which would have a Material Adverse Effect.
(iv) Under each Single-Employer Plan, as of the
last day of the most recent plan year ended prior to the
Compliance Date, the actuarially determined present value of all
benefit liabilities (as determined on the basis of the actuarial
assumptions contained in the Plan's most recent actuarial
valuation) did not exceed the fair market value of the asset of
such Plan by an amount that would have a Material Adverse Effect.
(v) Insofar as the representations and warranties
of the Company contained in clause (i) above relates to any Plan
which is a multiemployer plan, such representations and
warranties are made to the best knowledge of the Company and its
Page 45
ERISA Affiliates. As used in this Section, (A) "accumulated
funding deficiency" shall have the meaning assigned to such term
in Section 412 of the Code and Section 302 of ERISA; (B)
"multiemployer plan" and "plan year" shall have the respective
meanings assigned to such terms in Section 3 of ERISA; (C)
"benefit liabilities" shall have the meaning assigned to such
term in Section 4001 of ERISA; (D) "taxable period" shall have
the meaning assigned to such term in Section 4975 of the Code;
and (E) "withdrawal liability" shall have the meaning assigned to
such term in Part 1 of Subtitle E of Title IV of ERISA.
(r) Intellectual Property. The Company and each of
its Subsidiary owns, or is licensed to use, all trademarks, trade
names, patents and copyrights (the "Intellectual Property")
necessary for the conduct of its business as currently conducted,
including, without limitation, the Intellectual Property listed
on Schedule 5.01(r) hereto. To the knowledge of the Company, no
claim has been asserted or is pending by any Person challenging
or questioning the use by the Company or any Subsidiary of any
such Intellectual Property or the validity or effectiveness of
any such Intellectual Property, nor does the Company know of any
valid basis for any such claim. To the knowledge of the Company,
the use of such Intellectual Property by the Company and its
Subsidiaries does not infringe on the rights of any Person, nor,
to the knowledge of the Company, are there any uses by other
Persons of such Intellectual Property which infringe on the
rights of the Company and its Subsidiaries.
(s) Not an Investment Company or Public Utility
Holding Company. Neither the Company nor any of its Subsidiaries
is or, after giving effect to the transactions contemplated
hereby will be (i) an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended or (ii) subject to
regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act or any foreign, federal, state or local
statute or regulation limiting its ability to incur indebtedness
for money borrowed as contemplated hereby.
(t) Environmental Matters. Except as they would not
individually or in the aggregate have a Material Adverse Effect
(i) the businesses as presently or formerly engaged in by the
Company are and have been conducted in compliance with all
applicable Environmental Laws, including, without limitation,
having all permits, licenses and other approvals and
authorizations, during the time the Company engaged in such
businesses, (ii) the properties presently or formerly owned or
operated by the Company (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the
properties, and buildings thereon) (the "Properties") do not
contain any Hazardous Substance other than in compliance with
applicable Environmental Law (provided, however, that with
Page 46
respect to Properties formerly owned or operated by the Company,
such representation is limited to the period the Company owned or
operated such Properties), (iii) the Company has not received any
notices, demand letters or request for information from any
Federal, state, local or foreign governmental entity or any third
party indicating that the Company may be in violation of, or
liable under, in any respect, any Environmental Law in connection
with the ownership or operation of the Company's businesses, (iv)
there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending
or threatened against the Company with respect to the Company or
the Properties relating to any violation, or alleged violation,
of any Environmental Law, (v) no reports have been filed, or are
required to be filed, by the Company concerning the release of
any Hazardous Substance or the threatened or actual violation of
any Environmental Law on or at the Properties, (vi) no Hazardous
Substance has been disposed of, transferred, released or
transported from any of the Properties during the time such
Property was owned or operated by the Company, other than in
compliance with applicable Environmental Law, (vii) there have
been no environmental investigations, studies, audits, tests,
reviews or other analyses conducted by or which are in the
possession of the Company relating to the Company or the
Properties which have not been delivered to the Banks prior to
the date hereof, (viii) none of the Properties has been used at
any time by the Company as a sanitary landfill or hazardous waste
disposal site and (ix) the Company has not incurred, and none of
the Properties are presently subject to, any material liabilities
(fixed or contingent) relating to any suit, settlement, court
order, administrative order, judgment or claim asserted or
arising under any Environmental Law.
(u) Solvency. On the date of each Loan and Swing Line
Advance hereunder, and after the payment of all estimated legal,
investment banking, accounting and other fees related hereto, the
Company and each of its Subsidiaries will be Solvent.
(v) Insurance. All of the properties (other than
properties leased to other Persons) and operations of the Company
and its Subsidiaries of a character usually insured by companies
of established reputation engaged in the same or a similar
business similarly situated are adequately insured, by
financially sound and reputable insurers, against loss or damage
of the kinds and in amounts customarily insured against by such
Persons, and the Company and its Subsidiaries carry, with such
insurers in customary amounts, such other insurance as is usually
carried by companies of established reputation engaged in the
same or a similar business similarly situated.
(w) REIT Status. The Company qualifies, and will
elect or has elected to be treated, as a real estate investment
trust under Sections 856 through 860 of the Code and the rules
Page 47
and regulations thereunder (a "REIT") beginning with its taxable
year ending December 31, 1994. No fact, event or condition has
occurred which could jeopardize the Company's tax status as a
REIT.
ARTICLE VI
CONDITIONS OF LENDING
Section 6.01. Conditions to the Availability of the
Commitment. The obligations of each Bank hereunder are subject
to, and the Banks' Commitment shall not become available until
the date (the "Effective Date") on which, each of the following
conditions precedent shall have been satisfied or waived in
writing by each of the Banks, and upon such satisfaction or
waiver each Bank will give a written confirmation of the same to
the Company on request:
(a) Credit Agreement. The Agent shall have received
this Agreement duly executed and delivered by each of the Banks
and the Company.
(b) Notes. The Agent on behalf of each Bank shall
have received Pro Rata Notes and Swing Line Notes in the
principal amounts set forth in Sections 2.03 and 2.10(c), duly
executed and delivered by the Company.
(c) Good Standing Certificates. The Agent on behalf
of the Banks shall have received from the Company copies of good
standing certificates, dated within five (5) days prior to the
date hereof, confirming the Company's representation as to good
standing in Section 5.01(b).
(d) Secretary's Certificate. The Agent on behalf of
the Banks shall have received from the Company a certificate from
the Secretary or Assistant Secretary of the Company, dated as of
the date hereof, (i) certifying the incumbency of the officers
executing the Credit Documents and all related documentation,
(ii) attaching and certifying the resolutions of the Board of
Directors of the Company relating to the execution, delivery and
performance of this Agreement, and (iii) attaching and certifying
the Certificate of Incorporation and By-laws of the Company.
(e) Authorizations. The Agent shall have received
copies of all authorizations, consents, approvals, registrations,
notices, exemptions and licenses with or from Governmental
Authorities and other Persons which are necessary for the
borrowing hereunder, the execution and delivery of the Credit
Documents, the performance by the Company of its obligations
hereunder and thereunder.
Page 48
(f) Opinion of Company Counsel. The Agent shall have
received a favorable written opinion, dated the date hereof, of
Latham & Watkins, special New York counsel for the Company, in
substantially the form of Exhibit F-1 and of Michael R. Pfeiffer,
general counsel of the Company, in substantially the form of
Exhibit F-2.
(g) Litigation. There shall not be pending or
threatened any action or proceeding before any court or
administrative agency relating to the lending transactions
contemplated by this Agreement or any Note which, in the judgment
of the Agent or any Bank, could materially impair the ability of
the Company to perform its obligations hereunder or thereunder.
(h) Other Agreements. The Agent shall have received
copies of other tax sharing, management and other similar
agreements between the Company and any of its Subsidiaries or
Affiliates, which shall be in form and substance satisfactory to
the Agent.
(i) Capital Structure. The Company's capital
structure shall be acceptable to the Agent.
(j) Fees. The Agent shall have received from the
Company the fees set forth in Section 2.04 and fees of Agent's
counsel which are due and payable on the Effective Date.
(k) Other Documents. The Agent shall have received
such other certificates and documents as the Agent and the Banks
reasonably may require.
Section 6.02. Conditions to All Loans. The
obligations of each Bank in connection with each Loan (including
the Initial Loan) and the obligations of the Swing Line Bank in
connection with each Swing Line Advance (including the first
Swing Line Advance) are subject to the conditions precedent that,
on the date of each such Loan and after giving effect thereto,
each of the following conditions precedent shall have been
satisfied or waived in writing by each Bank, and upon such
satisfaction or waiver each Bank will give a written confirmation
of the same to the Company on request:
(a) Requests. For each Loan, the Agent shall have
received either a Pro Rata Loan Request in substantially the form
of Exhibit B or a Competitive Loan Request in substantially the
form of Exhibit C-1; for each Swing Line Advance, the Agent and
the Swing Line Bank shall have received a Swing Line Advance
Request in substantially the form of Exhibit E.
(b) No Default. No Default or Event of Default shall
have occurred and be continuing, and the Agent shall have
Page 49
received from the Company a certificate to that effect signed by
an authorized officer of the Company.
(c) Representations and Warranties; Covenants. The
representations and warranties contained in Article V (other than
representations and warranties that speak as of a specific date)
shall be true and correct with the same effect as though such
representations and warranties had been made at the time of such
Loan or Swing Line Advance, and the Agent shall have received
from the Company a certificate to that effect signed by an
authorized officer of the Company.
ARTICLE VII
COVENANTS
Section 7.01. Affirmative Covenants. Until the
Termination Date, and thereafter until payment in full of the
Notes and performance of all other obligations of the Company
hereunder (other than Unmatured Surviving Obligations), the
Company will:
(a) Financial Statements; Compliance Certificates.
Furnish to the Agent and to each Bank
(i) as soon as available, but in no event more
than 60 days following the end of each fiscal quarter,
copies of all consolidated quarterly balance sheets, income
statements and other financial statements and reports of
the Company and its Subsidiaries, prepared in a format and
in scope consistent with the financial statements and
reports of the Company referenced in Section 5.01(h);
(ii) as soon as available, but in no event more
than 105 days following the end of each fiscal year, a copy
of the annual consolidated audit report and financial
statements relating to the Company and its Subsidiaries,
certified by KPMG Peat Marwick, one of the other "Big Six"
accounting firms or another independent certified public
accountant reasonably satisfactory to the Agent, prepared
in a format and in scope consistent with the
December 31, 1996 financial statements and reports of the
Company referenced in Section 5.01(h);
(iii) as soon as available, but in no event later
than 60 days following the end of each fiscal year, an
annual forecast for the then-current fiscal year, prepared
in a manner and in the form of the forecast provided on the
date of this Agreement or in such other form as is
reasonably acceptable to the Agent and the Required Banks
Page 50
together with an annual rent roll dated the most-recent
December 31;
(iv) together with each of the financial
statements delivered pursuant to clauses (i) and (ii) of
this Section 7.01(a), a certificate of the Chief Financial
Officer of the Company stating whether as of the last date
of such financial statements any event or circumstance
exists which constitutes a Default or Event of Default and,
if so, stating the facts with respect thereto, together
with calculations, where applicable, which establish the
Company's (and where applicable, each of the Company's
Subsidiaries') compliance therewith;
(v) promptly upon receipt thereof, copies of any
reports and management letters submitted to the Company or
any of its Subsidiaries or their accountants in connection
with any annual or interim audit of the books of the
Company or its Subsidiaries, together with the responses
thereto, if any; and
(vi) such additional information, reports or
statements as the Agent and the Banks from time to time may
reasonably request including but not limited to the
quarterly furnishing to the Agent of the most recent
Property Management Exception Report in a form
substantially similar to Exhibit G hereto, a list of the
Company's current property portfolio and a list of the
Company's past quarter's acquisitions on an acquisition
cost basis, an appraised value basis (to the extent
available) and a projected annual rent basis.
(b) Notification of Defaults and Adverse Developments.
Notify the Agent (i) promptly, and in any event not later than
five Business Days after the discovery by any officer of the
Company of the occurrence of any Default or Event of Default;
(ii) promptly, and in any event not later than five Business Days
after the discovery by any officer of the Company of the
occurrence of a Material Adverse Change; (iii) promptly, and in
any event not later than ten Business Days after the discovery by
any officer of the Company of any litigation or proceedings that
are (to the knowledge of any executive officer of the Company)
instituted or threatened against the Company or its Subsidiaries
or any of their respective assets that (a) could reasonably be
expected to have a Material Adverse Effect or (b) seeks to (or is
expected to) rescind, terminate, revoke, cancel, withdraw,
suspend, modify or withhold any material license or permit of the
Company or any of the Subsidiaries; (iv) promptly, and in any
event not later than five Business Days after the discovery by
any officer of the Company of the occurrence of each and every
event which would be an event of default (or an event which with
the giving of notice or lapse of time or both would be an event
Page 51
of default) under any Indebtedness of the Company or any of its
Subsidiaries in a principal amount in excess of $5,000,000, such
notice to include the names and addresses of the holders of such
Indebtedness and the amount thereof and (v) promptly, and in any
event not later than five days after the end of the calendar
quarter in which the Company receives notice of a change in the
rating published by any of the Rating Agencies with respect to
the Company's senior unsecured debt. Upon receipt of any such
notice of default or adverse development, the Agent shall
forthwith give notice to each Bank of the details thereof.
(c) Notice of ERISA Events. Within 10 days after the
Company or any ERISA Affiliate knows that any of the events
described in the succeeding two sentences have occurred, the
Company shall furnish to the Agent a statement signed by a senior
officer of the Company describing such event in reasonable detail
and the action, if any, proposed to be taken with respect
thereto. The events referred to in the preceding sentence are,
with respect to any Single-Employer Plan: (i) any reportable
event described in Section 4043 of ERISA, other than a reportable
event for which the 30-day notice requirement has been waived by
the PBGC; (ii) the provision to any affected party as such term
is defined in Section 4001 of ERISA of a notice of intent to
terminate the Plan; (iii) the adoption of or amendment to the
Plan if, after giving effect to such amendment, the Plan is a
plan described in Section 4021(b) of ERISA; (iv) receipt of
notice of an application by the PBGC to institute proceedings to
terminate the Plan pursuant to Section 4042 of ERISA; (v)
withdrawal from or termination of the Plan during a plan year for
which the Company or any ERISA Affiliate is or would be subject
to liability under Sections 4063 or 4064 of ERISA; (vi) cessation
of operations by the Company or any ERISA Affiliate at a facility
under the circumstances described in Section 4062(e) of ERISA;
(vii) adoption of an amendment to the Plan which would require
security to be given to the Plan pursuant to Section 401(a)(29)
of the Code or Section 307 of ERISA; and (viii) failure by the
Company or any ERISA Affiliate to make payment to the Plan which
would give rise to a lien in favor of the Plan under Section
302(f) of ERISA. Such events shall also include receipt of
notice of withdrawal liability pursuant to Section 4202 of ERISA
with respect to a Plan that is a multiemployer plan.
(d) Other Reports, Notices and Materials. Furnish to
the Agent (i) as soon as available copies of reports, notices and
other materials sent to the Company or any of its Subsidiaries
from any Governmental Authority, including the Securities and
Exchange Commission, the Internal Revenue Service and PBGC and
(ii) within 90 days of adoption by the Company's board of
directors, copies of any revisions, supplements, amendments or
restatements to the Real Estate Investment Criteria.
Page 52
(e) Environmental Matters. (i) Comply, and cause its
Subsidiaries to comply, in all material respects, with all
applicable Environmental Laws, (ii) notify the Agent promptly
after receiving notice or becoming aware of any order, notice,
claim or proceeding under any Environmental Laws, other than
those that are clearly not material, and (iii) promptly forward
to Agent a copy of any Environmental Claim, order, notice,
permit, application, or any other communication or report
received by Company or any of its Subsidiaries in connection with
any such matters as they may affect such premises, if material.
(f) Taxes. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges upon it, its income and its properties prior
to the date on which penalties are attached thereto, unless and
to the extent that (i) such taxes, assessments and governmental
charges shall be contested in good faith and by appropriate
proceedings by the Company or such Subsidiary, as the case may
be, (ii) adequate reserves (in accordance with GAAP) are
maintained by the Company or such Subsidiary, as the case may be,
with respect thereto, and (iii) any failure to pay and discharge
such taxes, assessments and governmental charges could not have a
Material Adverse Effect.
(g) Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible insurance
companies against such risks, on such properties and in such
amounts as is customarily maintained by similar businesses; and
file and cause each of its Subsidiaries to file with the Agent
upon its request or the request of any Bank a detailed list of
the insurance companies, the amounts and rates of the insurance,
the dates of the expiration thereof and the properties and risks
covered thereby.
(h) Corporate Existence. Except as permitted by
Section 7.02(c), maintain, and cause each of its Subsidiaries to
maintain, its existence in good standing and qualify and remain
qualified to do business in each jurisdiction in which the
character of the properties owned or leased by it therein or in
which the transaction of its business is such that the failure to
maintain such existence or to qualify could reasonably be
expected to have a Material Adverse Effect.
(i) Authorizations. Obtain, make and keep in full
force and effect all material authorizations from and
registrations with Governmental Authorities.
(j) Maintenance of Records. Maintain, and cause each
of its Subsidiaries to maintain, complete and accurate books and
records in which full and correct entries in conformity with GAAP
shall be made of all dealings and transactions in its respective
business and activities.
Page 53
(k) Inspection. Permit, and cause each of its
Subsidiaries to permit, the Agent and the Banks to have one or
more of their officers and employees, or any other Person
designated by the Agent or the Banks, visit and inspect any of
the properties of the Company and its Subsidiaries (upon
reasonable request and notice and in accordance with the
agreement, if any, relating to any such property) and to examine
the minute books, books of account and other records of the
Company and its Subsidiaries and make copies thereof or extracts
therefrom, and discuss its affairs, finances and accounts with
its officers and, at the request of the Agent or the Banks, with
the Company's independent accountants, during normal business
hours and at such other reasonable times and as often as the
Agent or the Banks reasonably may desire.
(l) Conduct of Business. (i) Engage in as its
principal business investing in real estate in the United States,
(ii) preserve, renew and keep in full force and effect all its
material contracts, (iii) preserve, renew and maintain in full
force and effect all its franchises and licenses material to the
normal conduct of its business as now conducted, and (iv) comply
with all of the terms of all instruments which evidence, secure
or govern the Indebtedness of the Company and its Subsidiaries
and materially all laws, rules and regulations of all
Governmental Authorities.
(m) Maintenance of Property, Etc. (i) Maintain, keep
and preserve and cause each of its Subsidiaries to maintain, keep
and preserve all of its properties in good repair, working order
and condition and from time to time make all necessary and proper
repairs, renewals, replacements, and improvements thereto, and
(ii) maintain, preserve and protect and cause each of its
Subsidiaries to maintain, preserve and protect all franchises,
licenses, copyrights, patents and trademarks material to its
business, so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
(n) Insurance on Leased Properties. Use its, and
cause its Subsidiaries to use their, commercially reasonable best
efforts to ensure that each lessee of a property owned in whole
or in part, directly or indirectly, by the Company or any
Subsidiary, and each mortgagor of a property on which the Company
or any Subsidiary holds a mortgage, has, and until the
Termination Date will keep, in place adequate insurance which
names the Company or such Subsidiary as a loss payee. For the
purposes of the preceding sentence "adequate insurance" shall
mean insurance, with financially sound and reputable insurers in
such amounts and insuring against such risks as are customarily
maintained by similar businesses.
(o) Further Assurances. The Company agrees to do all
acts and things, as may be required by law or as, in the
Page 54
reasonable judgment of the Agent, may be necessary or advisable
to carry out the intent and purpose of this Agreement.
Section 7.02. Negative Covenants. Until the
Termination Date, and thereafter until payment in full of the
Notes and performance of all other obligations of the Company
hereunder (other than Unmatured Surviving Obligations), the
Company will not:
(a) Indebtedness. Create, incur or assume any
Indebtedness, except (i) Indebtedness to the Agent and the Banks
hereunder and under the Notes, (ii) Indebtedness incurred to pay
dividends enabling the Company to maintain its status as a REIT,
(iii) Indebtedness incurred to purchase Interest Rate Protection
Agreements and (iv) Indebtedness that would otherwise be
permitted under the Credit Documents, provided that, in each of
the aforementioned cases, (A) the agreements and covenants
entered into in connection therewith would be, in the written
determination of the Agent, no more restrictive on the Company
than the agreements and covenants hereunder, (B) such
Indebtedness is unsecured, (C) the maturity of such Indebtedness
(including all scheduled payments of principal) is later than the
Termination Date, (D) such Indebtedness ranks pari passu or
subordinate to the Notes and (E) after giving effect to the
incurrence of such Indebtedness, the Company's interest coverage
ratio referred to in Section 7.03(c) herein for the most recent
four-quarter period ending on the ending date of the Company's
last fiscal quarter would have been greater than 2.50:1.00. The
Company shall not permit any Subsidiary to create, incur, assume
or suffer to exist any Indebtedness except to the Company or
another Subsidiary, and such Indebtedness may not exceed
$3,500,000."
(b) Mortgages and Pledges. Create, incur, assume or
suffer to exist, or permit any of its Subsidiaries to create,
incur, assume or suffer to exist, any Lien of any kind upon or in
any of its property or assets, whether now owned or hereafter
acquired, except Permitted Encumbrances.
(c) Merger, Acquisition or Sales of Assets. (i)
Acquire, or permit any of its Subsidiaries to acquire, all or any
substantial portion of the assets of any Person other than (a)
the acquisition of property in the ordinary course of the
Company's business; or (b) the acquisition of the equity
interests of an entity for the purpose of controlling the
property of that entity in the ordinary course of the Company's
business, provided that the aggregate purchase price paid by the
Company in all transactions under this clause (b) and clause
(ii)(b) below shall not exceed $50,000,000; (ii) enter into any
merger or consolidation, or permit any Subsidiary to do so, other
than (a) a merger or consolidation of a Wholly owned Subsidiary
with one or more other Wholly owned Subsidiaries or into the
Page 55
Company, (b) a merger or consolidation of a Subsidiary or the
Company with an entity for the purpose of controlling the
property of that entity in the ordinary course of the Company's
business, provided that the aggregate purchase price paid by the
Company in all transactions under this clause (b) and clause
(i)(b) above shall not exceed $50,000,000, or (c) a merger of the
Company into another corporation primarily for the purpose of
changing the jurisdiction of incorporation of the Company,
provided that the surviving entity shall assume all obligations
of the Company hereunder; or (iii) sell, lease or otherwise
dispose of any assets of the Company or any of the Subsidiaries
other than in the ordinary course of the Company's business for
the fair market value thereof; provided, that the Company shall
be permitted to spend up to $10,000,000 to acquire shares of its
common stock.
(d) Negative Pledge. Grant any Person a negative
pledge on any assets of the Company or of the Subsidiaries,
except as provided in the Stockholder Notes and in any Permitted
Note Refinancing.
(e) Loans and Investments. Purchase or acquire the
obligations or stock of, or any other interest in, or make loans,
advances or capital contributions to, or form any joint ventures
or partnerships with, any Person, or permit any Subsidiary so to
do, except (i) investments in real estate which satisfy each of
the Real Estate Investment Criteria, (ii) direct obligations of,
or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America with
a maturity not exceeding one year and debt of federal government
agencies and treasury and United States government money market
accounts, (iii) short-term domestic or Eurodollar time deposits
of any Bank or any bank having a combined capital and surplus of
not less than $500,000,000 and a long-term debt rating of A or
better from Standards & Poor's Corporation or A2 or better from
Moody's Investors Services, Inc. with a maturity not exceeding
one year, (iv) normal business banking accounts and short-term
certificates of deposit in federally insured financial
institutions, (v) capital contributions to the Texas Subsidiary
by the Company or a Subsidiary of the purchase price for
acquisitions by the Texas Subsidiary of properties that the
Company would be allowed to acquire directly under this
Agreement, provided that, the Subsidiary Guarantee of the
Company's payment obligations under this Agreement, attached
hereto as Exhibit I, shall remain in full force and effect, and
(vi) shares of the Company's common stock; provided that the
Company shall not spend more than $10,000,000 in acquiring such
shares.
(f) Dividends and Purchase of Stock. Declare any
dividends (other than dividends payable in capital stock of the
Company) on any shares of any class of its capital stock, or
Page 56
apply any of its property or assets to the purchase, redemption
or other retirement of, or set apart any sum for the payment of
any dividends on, or for the purchase, redemption or other
retirement of, or make any other distribution by reduction of
capital or otherwise in respect of, any shares of any class of
capital stock of the Company, or permit any Subsidiary which is
not a Wholly owned Subsidiary so to do, or permit any Subsidiary
to purchase or acquire any shares of any class of capital stock
of the Company; provided, however, so long as an Event of Default
pursuant to Section 8.01(a) has not occurred and is not
continuing, the Company may, and may permit its Subsidiaries to,
pay dividends and other distributions with respect to capital
stock; and provided further that the Company may spend up to
$10,000,000 to acquire shares of its common stock.
(g) Stock of Subsidiaries. Issue, sell or otherwise
dispose of any shares of capital stock of any Subsidiary (except
in connection with a merger or consolidation of a Wholly owned
Subsidiary permitted by Section 7.02(c) or with the dissolution
of any Subsidiary) or permit any Subsidiary to issue any
additional shares of its capital stock except pro rata to its
stockholders.
(h) Terms of Indebtedness. Amend or modify, or permit
to be amended or modified the terms of any Company or Subsidiary
Indebtedness for borrowed money or any documents relating thereto
in a manner which would (i) increase the principal amount of such
Indebtedness, (ii) increase the interest borne by such
Indebtedness, (iii) shorten the maturity of such Indebtedness or
(iv) elevate, in relation to the Loans and Swing Line Advances,
the ranking in terms of payment of such Indebtedness, without
prior written consent from the Agent.
(i) Contracts. Amend or modify (i) the Company's
certificate of incorporation, (ii) the Real Estate Investment
Criteria to a material degree or (iii) any tax sharing,
management or other similar agreement between or among the
Company and any of its Subsidiaries without the approval of the
independent board of directors.
(j) Transactions with Affiliates. Enter into any
transactions, including without limitation, the purchase, sale or
exchange of property or the rendering of any service, with any
Affiliate, or permit any Subsidiary so to do, except in the
ordinary course of and pursuant to the reasonable requirements of
its business and upon fair and reasonable terms no less favorable
to the Company or such Subsidiary, as the case may be, than could
be obtained in an arm's length transaction with a person not an
Affiliate.
(k) Mortgage Financings. Enter into any mortgage
financings.
Page 57
(l) Significant Properties. Without the prior written
consent of the Required Banks (which consent shall not be
unreasonably withheld, and which consent the Banks and the Agent
shall use their best efforts to grant or deny within 10 Business
Days of receipt by the Agent of the Company's written request
therefor, provided that the failure to grant, deny or explain the
inability to make a determination about such consent for 20
Business Days after the Agent's receipt of the Company's request
shall be deemed to constitute a grant of such consent), purchase
or acquire an interest in (i) multi-tenant office buildings, (ii)
hotels, motels, bowling alleys or mobile home parks or (iii) any
individual lot of property the price of which exceeds $15,000,000
or two contiguous lots occupied by more than one tenant, the
price of which exceeds $30,000,000.
Section 7.03. Financial Covenants. Until the
Termination Date, and thereafter until payment in full of the
Notes and performance of all other obligations of the Company
hereunder (other than Unmatured Surviving Obligations),
(a) Tangible Stockholders' Equity. The Company
will maintain Consolidated Tangible Stockholders' Equity of not
less than the sum of (i) $350,000,000 plus (ii) 75% of the sum of
the net proceeds received by the Company after December 31, 1997
from any offering of its equity securities.
(b) Leverage Ratio. The Company will maintain, as
measured at the end of each fiscal quarter, a Leverage Ratio of
not more than 1.00:1.00.
(c) Interest Coverage Ratio. The Company will not
permit the ratio of (i) the sum of Consolidated Funds from
Operations and Consolidated Interest Expense to (ii) Consolidated
Interest Expense for the four quarter period ending on the last
day of each fiscal quarter to be less than 2.50:1.00.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. If one or more of
the following events (each, an "Event of Default") shall occur:
(a) Default shall be made in the payment of any
installment of principal of any Note or Swing Line Advance when
due and payable, whether at maturity, by notice of intention to
prepay or otherwise; or default shall be made in the payment of
any installment of interest upon any Note or Swing Line Advance
when due and payable, and such default shall have continued for
five days; or
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(b) Default shall be made in the payment of the
Facility Fee or any other fee or amount payable hereunder when
due and payable and such default shall have continued for five
days; or
(c) Default shall be made in the due observance or
performance of any term, covenant, or agreement contained in
Section 7.01(j) or in Section 7.03; or
(d) Default shall be made in the due observance or
performance of any other term, covenant or agreement contained in
this Agreement, and such default shall have continued unremedied
for a period of 30 days after any officer of the Company becomes
aware, or should have become aware, of such default; or
(e) Any representation or warranty made or deemed made
by the Company herein or any statement or representation made in
any certificate or report delivered by or on behalf of the
Company in connection herewith or in connection with any Note
shall prove to have been false or misleading in any material
respect when made; or
(f) Any obligation (other than its obligation
hereunder) of the Company or any of its Subsidiaries for the
payment of Indebtedness in excess of $500,000 is not paid when
due or within any grace period for the payment therefor or
becomes or is declared to be due and payable prior to the
expressed maturity thereof, or there shall have occurred an event
which, with the giving of notice or lapse of time, or both, would
cause any such obligation to become, or allow any such obligation
to be declared to be, due and payable; or
(g) An involuntary case or other proceeding shall be
commenced against the Company or any Subsidiary seeking
liquidation, reorganization or other relief with respect to it or
its debts under any applicable Federal or State bankruptcy,
insolvency, reorganization or similar law now or hereafter in
effect or seeking the appointment of a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official
of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and
unstayed, or an order or decree approving or ordering any of the
foregoing shall be entered and continued unstayed and in effect,
in any such event, for a period of 60 days; or
(h) The commencement by the Company or any of its
Subsidiaries of a voluntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the
consent by any of them to the entry of a decree or order for
relief in respect of the Company or any of its Subsidiaries in an
Page 59
involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or
proceeding against any of them, or the filing by any of them of a
petition or answer or consent seeking reorganization or relief
under any applicable Federal or State law, or the consent by any
of them to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the
Company or any of its Subsidiaries or any substantial part of
their respective property, or the making by any of them of an
assignment for the benefit of creditors, or the admission by any
of them in writing of inability to pay their debts generally as
they become due, or the taking of corporate action by the Company
or any of its Subsidiaries in furtherance of any such action; or
(i) One or more judgments against the Company or any
of its Subsidiaries or attachments against its property, which in
the aggregate exceed $500,000, or the operation or result of
which could be to interfere materially and adversely with the
conduct of the business of the Company or any of its
Subsidiaries, remain unpaid, unstayed on appeal, undischarged,
unbonded, or undismissed for a period of 30 days; or
(j) With respect to any Single-Employer Plan, any of
the following shall occur: (A) the provision to any affected
party as such term is defined in Section 4001 of ERISA of a
notice of intent to terminate the Plan, the adoption of an
amendment to the Plan if, after giving effect thereto, the Plan
is a plan described in Section 4021(b) of ERISA or receipt of
notice of an application by the PBGC to institute proceedings to
terminate the Plan pursuant to Section 4042 of ERISA; in each
case, if the amount of unfunded benefit liabilities, as such term
is defined in Section 4001(a)(18) of ERISA, of the Plan as of the
date such event occurs is more than $5,000,000, (B) the Company
or any ERISA Affiliate incurs liability under Sections 4062(e),
4063 or 4064 of ERISA in an amount in excess of $5,000,000, (C)
an amendment is adopted to the Plan which would require security
to be given to the Plan pursuant to Section 401(a)(29) of the
Code or Section 307 of ERISA in an amount in excess of
$5,000,000, (D) the Company or any ERISA Affiliate fails to make
a payment to the Plan which would give rise to a lien in favor of
the Plan under Section 302(f) of ERISA in an amount in excess of
$5,000,000, or (E) any Person shall engage in any non-exempt
"prohibited transaction" (as defined in Section 406 or 407 of
ERISA or Section 4975 of the Code) involving any Plan, in an
amount in excess of $5,000,000; or
(k) Any court or governmental or regulatory authority
shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other
order (whether temporary, preliminary or permanent) which is in
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effect and which prohibits, enjoins or otherwise restricts in a
manner that would have a Material Adverse Effect on any of the
lending transactions contemplated under the Credit Documents; or
(l) The Company shall fail to maintain its status as a
"real estate investment trust", as such term is defined in the
Code; or
(m) There shall occur a Change of Control; or
(n) During any twelve month period two or more members
of Key Management are terminated or resign;
then (i) upon the happening of any of the foregoing Events of
Default, the obligation of the Banks to make any further Loans or
the obligation of the Swing Line Bank and the other Banks to make
any further Swing Line Advances under this Agreement shall
terminate upon declaration to that effect delivered by the Agent
or the Required Banks to the Company and (ii) upon the happening
of any of the foregoing Events of Default which shall be
continuing, the Notes and the Swing Line Advances shall become
and be immediately due and payable upon declaration to that
effect delivered by the Agent or the Required Banks to the
Company; provided that upon the happening of any event specified
in Section 8.01(g) or (h), the Notes and Swing Line Advances
shall become immediately due and payable and the obligation of
the Banks to make any further Loans and the obligation of the
Swing Line Bank and the other Banks to make any further Swing
Line Advances hereunder shall terminate without declaration or
other notice to the Company. The Company expressly waives any
presentment, demand, protest or other notice of any kind.
ARTICLE IX
THE AGENT AND THE BANKS
Section 9.01. The Agency. (a) Each Bank appoints The
Bank of New York as its Agent hereunder and irrevocably
authorizes the Agent to take such action on its behalf and to
exercise such powers hereunder as are specifically delegated to
the Agent by the terms hereof, together with such powers as are
reasonably incidental hereto, and the Agent hereby accepts such
appointment subject to the terms hereof. The relationship
between the Agent and the Banks shall be that of agent and
principal only and nothing herein shall be construed to
constitute the Agent a trustee for any Bank nor to impose on the
Agent duties or obligations other than those expressly provided
for herein.
Section 9.02. The Agent's Duties. The Agent shall
promptly forward to each Bank copies, or notify each Bank as to
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the contents, of all notices and other communications received
from the Company pursuant to the terms of this Agreement and the
Notes and, in the event that the Company fails to pay when due
the principal of or interest on any Loan, the Agent shall
promptly give notice thereof to the Banks. As to any other
matter not expressly provided for herein or therein, the Agent
shall have no duty to act or refrain from acting with respect to
the Company, except upon the instructions of the Required Banks.
The Agent shall not be bound by any waiver, amendment,
supplement, or modification of this Agreement or any Note which
affects its duties hereunder and thereunder, unless it shall have
given its prior written consent thereto. The Agent shall have no
duty to ascertain or inquire as to the performance or observance
of any of the terms, conditions, covenants or agreements binding
on the Company pursuant to this Agreement or any Note nor shall
it be deemed to have knowledge of the occurrence of any Default
or Event of Default (other than a failure of the Company to pay
when due the principal or interest on any Loan), unless it shall
have received written notice from the Company or a Bank
specifying such Default or Event of Default and stating that such
notice is a "Notice of Default".
Section 9.03. Sharing of Payment and Expenses. All
funds for the account of the Banks received by the Agent in
respect of payments made by the Company pursuant to, or from any
Person on account of, this Agreement or any Note shall be
distributed forthwith by the Agent among the Banks, in like
currency and funds as received, ratably in proportion to their
respective interests therein. In the event that any Bank shall
receive from the Company or any other source any payment of, on
account of, or for or under this Agreement or any Note (whether
received pursuant to the exercise of any right of set-off,
banker's lien, realization upon any security held for or
appropriated to such obligation or otherwise as permitted by law)
other than in proportion to its Pro Rata Share, then such Bank
shall purchase from each other Bank so much of its interest in
obligations of the Company as shall be necessary in order that
each Bank shall share such payment with each of the other Banks
in proportion to each Bank's Pro Rata Share; provided that no
Bank shall purchase any interest of any Bank that does not, to
the extent that it may lawfully do so, set-off against the
balance of any deposit accounts maintained with it the
obligations due to it under this Agreement. In the event that
any purchasing Bank shall be required to return any excess
payment received by it, the purchase shall be rescinded and the
purchase price restored to the extent of such return, but without
interest.
Section 9.04. The Agent's Liabilities. Each of the
Banks and the Company agrees that (i) neither the Agent in such
capacity nor any of its officers or employees shall be liable for
any action taken or omitted to be taken by any of them hereunder
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except for its or their own gross negligence or willful
misconduct, (ii) neither the Agent in such capacity nor any of
its officers or employees shall be liable for any action taken or
omitted to be taken by any of them in good faith in reliance upon
the advice of counsel, independent public accountants or other
experts selected by the Agent, and (iii) the Agent in such
capacity shall be entitled to rely upon any notice, consent,
certificate, statement or other document (including any telegram,
cable, telex, facsimile or telephone transmission) believed by it
to be genuine and correct and to have been signed and/or sent by
the proper Persons.
Section 9.05. The Agent as a Bank. The Agent shall
have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not the Agent, and the
terms "Bank" or "Banks", unless the context otherwise indicated,
include the Agent in its individual capacity. The Agent may,
without any liability to account, maintain deposits or credit
balances for, invest in, lend money to and generally engage in
any kind of banking business with the Company or any Subsidiary
or affiliate of the Company as if it were any other Bank and
without any duty to account therefor to the other Banks.
Section 9.06. Bank Credit Decision. Neither the Agent
nor any of its officers or employees has any responsibility for,
gives any guaranty in respect of, nor makes any representation to
the Banks as to, (i) the condition, financial or otherwise, of
the Company or any Subsidiary thereof or the truth of any
representation or warranty given or made herein or in any other
Credit Document, or in connection herewith or therewith or (ii)
the validity, execution, sufficiency, effectiveness,
construction, adequacy, enforceability or value of this Agreement
or any other Credit Document or any other document or instrument
related hereto or thereto. Except as specifically provided
herein and in the other Credit Documents to which the Agent is a
party, the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Bank with any
credit or other information with respect to the operations,
business, property, condition or creditworthiness of the Company
or any of its Subsidiaries, whether such information comes into
the Agent's possession on or before the date hereof or at any
time thereafter. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other
Bank, based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Bank also acknowledges that it will
independently and without reliance upon the Agent or any other
Bank, based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement or
any Note.
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Section 9.07. Indemnification. Each Bank agrees
(which agreement shall survive payment of the Loans and the
Notes) to indemnify the Agent, to the extent not reimbursed by
the Company, ratably in accordance with their respective
Commitments, from and against any and all liabilities,
obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out
of this Agreement or any other Credit Document, or any action
taken or omitted to be taken by the Agent hereunder or
thereunder; provided that no Bank shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the
Agent or any of its officers or employees. Without limiting the
foregoing, each Bank agrees to reimburse the Agent promptly upon
demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Agent in such capacity
in connection with the preparation, execution or enforcement of,
or legal advice in respect of rights or responsibilities under,
this Agreement or any Note or any amendments or supplements
hereto or thereto, to the extent that the Agent is not reimbursed
for such expenses by the Company.
Section 9.08. Successor Agent. The Agent may resign
at any time by giving written notice thereof to the Banks and the
Company, and the Agent may be removed at any time by the Required
Banks by giving written notice thereof to the Agent, the other
Banks and the Company at least ten Business Days prior to the
effective date of such removal. Upon any such resignation or
removal, the Required Banks shall have the right to appoint a
successor Agent. If no successor Agent shall have been so
appointed by the Required Banks and shall have accepted such
appointment within 30 days after the resigning Agent's giving of
notice of resignation, or the Required Banks' giving notice of
removal, as the case may be, the resigning Agent may, on behalf
of the Banks, appoint a successor Agent, which shall be a
commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and
surplus of at least $250,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the resigned or
removed Agent, and the resigned or removed Agent shall be
discharged from its duties and obligations under this Agreement.
After any Agent's resignation hereunder as Agent, the provisions
of this Article IX shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this
Agreement.
Page 64
ARTICLE X
CONSENT TO JURISDICTION
Section 10.01. Consent to Jurisdiction. The Company
hereby irrevocably submits to the non-exclusive jurisdiction of
the State of New York for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this
Agreement and each Note. The Company hereby appoints CT
Corporation System, with offices on the date hereof at 1633
Broadway, New York, New York 10019, as its authorized agent on
whom process may be served in any action which may be instituted
against it by the Agent or the Banks in any state or federal
court in the Borough of Manhattan, The City of New York, arising
out of or relating to any Loan or this Agreement and each Note.
Service of process upon such authorized agent and written notice
of such service to the Company shall be deemed in every respect
effective service of process upon the Company, and the Company
hereby irrevocably consents to the jurisdiction of any such court
in any such action and to the laying of venue in the Borough of
Manhattan, The City of New York. The Company hereby irrevocably
waives any objection to the laying of the venue of any such suit,
action or proceeding brought in the aforesaid courts and hereby
irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient forum. Notwithstanding the foregoing, nothing
herein shall in any way affect the right of the Agent or any Bank
to bring any action arising out of or relating to the Loans or
this Agreement and each Note in any competent court elsewhere
having jurisdiction over the Company or its property.
ARTICLE XI
MISCELLANEOUS
Section 11.01. APPLICABLE LAW. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
Section 11.02. Set-off. Each Bank is authorized to
set off and apply any and all deposits at any time held by such
Bank against obligations of the Company under the Credit
Documents.
Section 11.03. Expenses. The Company agrees to pay
(i) all reasonable out-of-pocket expenses of the Agent
(including, without limitation, all reasonable fees and expenses
of Sullivan & Cromwell, as counsel to the Agent) in connection
with the preparation of this Agreement and the other Credit
Documents and any amendments, supplements or modifications hereto
or thereto, (ii) all reasonable out-of-pocket expenses incurred
Page 65
by the Agent, the Swing Line Bank and any Bank, including fees
and expenses of counsel, in connection with the enforcement of,
and the protection of their rights under, any provisions of this
Agreement, the Notes or any amendment or supplement hereto or
thereto, whether or not any loan is made hereunder, and (iii) all
reasonable out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of counsel, in connection with
the syndication of the Loans. The Company shall pay any transfer
taxes, documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of
this Agreement or the Notes incurred up to and including the date
of this Agreement.
Section 11.04. Amendments. Any provision of this
Agreement or the Notes may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the
Company and the Required Banks (and, if the rights or duties of
the Agent or the Swing Line Bank are affected thereby, by the
Agent and the Swing Line Bank, respectively); provided that no
such amendment, waiver or modification shall, unless signed by
all the Banks, (i) increase or decrease the Commitment of any
Bank, subject any Bank to any additional obligation or change the
several nature of the obligations of each Bank, (ii) reduce the
principal of or rate of interest on any Loan (other than interest
payable pursuant to Section 3.06) or any fees hereunder, (iii)
except as otherwise provided in Section 11.12, postpone the date
fixed for any payment of principal of or interest on any Loan or
any fees hereunder or for any reduction or termination of any
Commitment, (iv) except as otherwise may result from actions
taken in accordance with Section 11.12, change the percentage of
any of the Commitments or of the aggregate unpaid principal
amount of the Notes or Swing Line Advances, or the number of
Banks, which shall be required for the Banks or any of them to
take any action under this Section or any other provision of this
Agreement, or (v) amend or waive the provisions of Article IV or
of this Section 11.04.
Section 11.05. Cumulative Rights and No Waiver. Each
and every right granted to the Agent, the Swing Line Bank and the
Banks hereunder or under any other document delivered hereunder
or in connection herewith, or allowed them by law or equity,
shall be cumulative and may be exercised from time to time. No
failure on the part of the Agent, the Swing Line Bank or any Bank
to exercise, and no delay in exercising, any right will operate
as a waiver thereof, nor will any single or partial exercise by
the Agent, the Swing Line Bank or any Bank of any right preclude
any other or future exercise thereof or the exercise of any other
right.
Section 11.06. Notices. Any communication, demand or
notice to be given hereunder or with respect to the Notes will be
duly given when delivered in writing or by telecopy to a party at
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its address as indicated below, except that notices from the
Company pursuant to Section 2.02 will not be effective until
received by the Agent.
A communication, demand or notice given pursuant to
this Section 11.06 shall be addressed:
If to the Company, at
220 West Crest Street
Escondido, California 92025-1725
Telecopy: (619) 741-8674
Attention: Legal Department
If to the Agent or the Swing Line Bank, at its address
as indicated on the signature pages hereof, with a copy, only in
the case of default notices, to:
Sullivan & Cromwell
444 South Flower Street, 12th Floor
Los Angeles, California 90071
Telecopy: (213) 683-0457
Attention: Alison S. Ressler
If to any Bank, at its address as indicated on the
signature pages hereof.
Unless otherwise provided to the contrary herein, any
notice which is required to be given in writing pursuant to the
terms of this Agreement may be given by telex, telecopy or
facsimile transmission.
Section 11.07. Separability. In case any one or more
of the provisions contained in this Agreement shall be invalid,
illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired
thereby.
Section 11.08. Assignments and Participations.
(a) This Agreement shall be binding upon and inure to
the benefit of the Company, the Swing Line Bank and the Banks and
their respective successors and assigns, except that the Company
may not assign any of its rights hereunder without the prior
written consent of the Banks.
(b) Any Bank may at any time grant to one or more
banks or other institutions (each a "Participant") participating
interests in its Commitment or any or all of its Loans. In the
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event of any such grant by a Bank of a participating interest to
a Participant, whether or not upon notice to the Company and the
Agent, such Bank shall remain responsible for the performance of
its obligations hereunder, and the Company and the Agent shall
continue to deal solely and directly with such Bank in connection
with such Bank's rights and obligations under this Agreement.
Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of
the Company hereunder including the right to approve any
amendment, modification or waiver of any provision of this
Agreement; provided that such participation agreement may provide
that such Bank will not agree to any modification, amendment or
waiver of this Agreement described in clauses (i) through (vi),
inclusive, of Section 11.04 without the consent of the
Participant. Subject to Section 11.08(e), the Company agrees
that each Participant shall be entitled to the benefits of
Sections 4.03, 4.04 and 11.04 with respect to its participating
interest. An assignment or other transfer which is not permitted
by clause (c) below shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted
in accordance with this clause (b).
(c) Any Bank may at any time assign to one or more
banks or other institutions (each an "Assignee") all, or (except
insofar as such assignment relates to Competitive Loans) a
proportionate part of all, of its rights and obligations under
this Agreement and the Notes, and such Assignee shall assume such
rights and obligations, pursuant to an instrument executed by
such Assignee and such transferor Bank, with (and subject to) the
signed consents of the Company and the Agent and the Swing Line
Bank (which consents shall not be unreasonably withheld or
delayed); provided, however, any such assignment shall be in the
minimum aggregate amount of $10,000,000; provided, further, that
the foregoing consent requirement shall not be applicable in the
case of, and this subsection (c) shall not restrict, an
assignment of all, or (except insofar as such assignment relates
to Competitive Loans) a proportionate part of all, of its rights
and obligations under this Agreement and the Notes by any Bank to
an Affiliate of such Bank or a pledge and assignment of all, or
(except insofar as such assignment relates to Competitive Loans)
a proportionate part of all, of its rights and obligations under
this Agreement and the Notes to a Federal Reserve Bank as
collateral; and provided, further, that no consent of the Company
shall be required if an Event of Default has occurred and is
continuing. Upon (i) execution and delivery of such an
instrument, (ii) payment by such Assignee to such transferor Bank
of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee and (iii) payment by the
transferee Bank or transferor Bank to the Agent of an
administrative fee in the amount of $3,500, such Assignee shall
be a Bank party to this Agreement and shall have all the rights
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and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank (and the
Company as to the transferor Bank) shall be released from its
obligations hereunder to a corresponding extent, and no further
consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c),
the transferor Bank, the Agent and the Company shall make
appropriate arrangements so that, if required, new Notes are
issued to the Assignee.
(d) No Assignee, Participant or other transferee of
any Bank's rights shall be entitled to receive any greater
payment under Section 4.03 or 4.04 than such Bank would have been
entitled to receive with respect to the rights transferred,
unless such transfer is made with the Company's prior written
consent or by reason of the provisions of Section 4.04 requiring
such Bank to designate a different lending office under certain
circumstances or at a time when the circumstances giving rise to
such payment did not exist.
(e) No Participant of any Bank shall be entitled to
receive any greater payment under Section 4.03, Section 4.04 or
Section 11.04 than such Bank would have been entitled to receive
if it had not granted a participation to such Participant.
Section 11.09. WAIVER OF JURY TRIAL. THE COMPANY, THE
AGENT AND EACH OF THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE
NOTES OR THE RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 11.10. Confidentiality. Except as may be
required to enforce the rights and duties established hereunder,
the parties hereto shall preserve in a confidential manner all
information received from the other pursuant to this Agreement,
the Notes and the transactions contemplated hereunder and
thereunder, and shall not disclose such information except to
those persons with which a confidential relationship is
maintained (including regulators, legal counsel, accountants, or
designated agents), or where required by law. Nothing in this
paragraph shall prevent the filing of this Agreement with the
Securities and Exchange Commission.
Section 11.11. Indemnity. The Company agrees to
indemnify the Agent, the Swing Line Bank and each of the Banks
and their respective directors, officers, employees and agents
(each such person being called an "Indemnitee") against, and to
hold each Indemnitee harmless from, any and all losses, claims,
damages and liabilities of any party other than the Company and
related expenses, including reasonable counsel fees and expenses
incurred by or asserted against any Indemnitee arising out of, in
Page 69
any way connected with, or as a result of (i) the execution or
delivery of this Agreement or any Note or any agreement or
instrument contemplated hereby or thereby, the performance by the
parties thereto of their respective obligations hereunder or
thereunder or the consummation of the transactions and the other
transactions contemplated hereby or thereby, (ii) the use of the
proceeds of the Loans or (iii) any claim, litigation,
investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto and
notwithstanding that any claim, proceeding, investigation or
litigation relating to any such losses, claims, damages,
liabilities or expenses is or was brought by a stockholder,
creditor, employee or officer of the Company; provided that such
indemnity shall not, as to any Indemnitee, be available to the
extent that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction by
final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of any Indemnitee or from the
breach by any Indemnitee of its obligations hereunder or with
respect to claims or actions solely between or among the Banks
relating to this Agreement or the transactions contemplated
hereby and provided further, that such Indemnity shall not apply
to any loss, claim, damage, or liability or related expense
incurred as a consequence of any additional costs (as
contemplated by Section 4.04(b)) or any Tax, which shall be
governed by the provisions of Section 4.04(b) and (a),
respectively.
The provisions of this Section 11.11 shall remain
operative and in full force and effect regardless of the
expiration of the term of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the
Loans, the reduction or cancellation of the Commitment, the
invalidity or unenforceability of any term or provision of this
Agreement or any Note, or any investigation made by or on behalf
of the Banks. All amounts due under this Section 11.11 shall be
payable in immediately available funds upon written demand
therefor.
Section 11.12. Extension of Termination Dates; Removal
of Banks; Substitutions of Banks.
(a) (i) No earlier than the first anniversary of the
Effective Date and no later than 120 days prior to the scheduled
Termination Date, the Company may, at its option, request all the
Banks then party to this Agreement to extend their scheduled
Termination Dates by one calendar year by means of a letter,
addressed to each such Bank and the Agent. If such a request is
accepted and the Termination Date is extended pursuant to
subsection 11.12(a)(ii), the Company may, at its option, no
earlier than the date one year after the first request for
extension and no later than 120 days prior to the rescheduled
Page 70
Termination Date, make one further request that all the Banks
then party to this Agreement to extend their scheduled
Termination Dates by one additional year in the same manner,
subject to the provisions of subsection 11.12(a)(ii); provided
that in no event shall the Termination Date be extended to a date
which is later than the fifth anniversary of the Effective Date.
(ii) Each Bank electing (in its sole discretion) so to extend its
scheduled Termination Date shall execute and deliver within
forty-five (45) days following such request counterparts of such
letter to the Company and the Agent, whereupon (unless Banks with
an aggregate percentage of the Total Commitment in excess of 25%
decline to extend their respective scheduled Termination Dates,
in which event the Agent shall notify all the Banks thereof),
such Bank's scheduled Termination Date shall be extended to the
anniversary date of the year immediately succeeding such Bank's
then-current scheduled Termination Date. If no such election is
received within such forty-five day period from any Bank, such
Bank shall be deemed to have elected not to extend its scheduled
Termination Date.
(b) With respect to any Bank which has declined to
extend such Bank's scheduled Termination Date and if Banks with
an aggregate percentage of the Total Commitment not in excess of
25% have not declined to extend their respective Termination
Dates, the Company may in its discretion, upon not less than 30
days' prior written notice to the Agent and each Bank, remove
such Bank as a party hereto. Each such notice shall specify the
date of such removal (which shall be a Business Day), which shall
thereupon become the scheduled Termination Date for such Bank.
(c) In the event that any Bank does not extend its
scheduled Termination Date pursuant to subsection (a) above or is
the subject of a notice of removal pursuant to subsection (b)
above, then, at any time prior to the Termination Date for such
Bank (a "Terminating Bank"), the Company may, at its option,
arrange to have one or more other financial institutions
acceptable to the Agent (which may be a Bank or Banks and each of
which shall herein be called a "Successor Bank") succeed to all
or a percentage of the Terminating Bank's outstanding Loans, if
any, and rights under this Agreement and assume all or a like
percentage (as the case may be) of such Terminating Bank's
Commitment and other obligations hereunder, as if (i) in the case
of any Bank electing not to extend its scheduled Termination Date
pursuant to subsection (a) above, such Successor Bank had
extended its scheduled Termination Date pursuant to such
subsection (a) and (ii) in the case of any Bank that is the
subject of a notice of removal pursuant to subsection (b) above,
no such notice of removal had been given by the Company. Such
succession and assumption shall be effected by means of one or
more agreements supplemental to this Agreement among the
Terminating Bank, the Successor Bank, the Company and the Agent.
Page 71
On and as of the effective date of each such supplemental
agreement, each Successor Bank party thereto shall be and become
a Bank for all purposes of this Agreement and to the same extent
as any other Bank hereunder and shall be bound by and entitled to
the benefits of this Agreement in the same manner as any other
Bank.
(d) On the originally scheduled Termination Date for
any Terminating Bank, such Terminating Bank's Commitment shall
terminate and, except to the extent assigned pursuant to
subsection (c) above, the Company shall pay in full all of such
Terminating Bank's Loans and all other amounts payable to such
Bank hereunder, including any amounts payable pursuant to Section
4.3 on account of such payment.
(e) To the extent that all or a portion of any
Terminating Bank's obligations are not assumed pursuant to
subsection (c) above, the Total Commitment shall be reduced on
the applicable Termination Date and each Bank's percentage of the
reduced Total Commitment shall be revised pro rata to reflect
such Terminating Bank's absence.
Section 11.13. Knowledge of the Company. As used in
this Agreement, knowledge of the Company shall mean to the best
of any executive officer's knowledge, after a reasonable
investigation.
Section 11.14. Execution in Counterparts. This
Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but
all the counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
REALTY INCOME CORPORATION
By: /s/ Michael R. Pfeiffer
---------------------------
Name: Michael R. Pfeiffer
Title: Senior Vice
President, General
Counsel and
Secretary
Page 72
THE BANK OF NEW YORK,
as Agent for the Banks
By: /s/ Lisa Y. Brown
---------------------------
Name: Lisa Y. Brown
Title: Vice President
Address for Notices:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
With a copy to:
The Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, CA 90024
Attn: Lisa Y. Brown
Vice President
Fax: (310) 996-8667
THE BANK OF NEW YORK
as a Bank and as the
Swing Line Bank
By: /s/ Lisa Y. Brown
---------------------------
Name: Lisa Y. Brown
Title: Vice President
Page 73
Address for Notices:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
With a copy to:
The Bank of New York
10990 Wilshire Boulevard
Suite 1700
Los Angeles, CA 90024
Attn: Lisa Y. Brown
Vice President
Fax: (310) 996-8667
Eurodollar Lending Office:
One Wall Street
18th Floor
New York, NY 10286
Attn: Kalyani Bose
Agency Function
Administration
Fax: (212) 635-6365
SANWA BANK CALIFORNIA
By: /s/ Dirk Price
Name: Dirk A. Price
Title: Vice President
Address for Notices:
Sanwa Bank California
601 S. Figueroa St., 8th Floor
Los Angeles, CA 90017
Attn: Dirk A. Price
Vice President
Fax: (213) 896-7282
Page 74
Eurodollar Lending Office:
Sanwa Bank California
601 S. Figueroa St., 8th Floor
Los Angeles, CA 90017
Attn: Dirk A. Price
Vice President
Fax: (213) 896-7282
FIRST UNION NATIONAL BANK
By: /s/ John Schissel
---------------------------
Name: John Schissel
Title: Vice President
Address for Notices:
One First Union Center, DC-6
Charlotte, NC 28288
Attn: John Schissel
Fax: (704) 383-6205
Eurodollar Lending Office:
One First Union Center, DC-6
Charlotte, NC 28288
Attn: John Schissel
Fax: (704) 383-6205
BANK HAPOALIM, B.M.
SAN FRANCISCO BRANCH
By: /s/ Paul Watson
---------------------------
Name: Paul Watson
Title: Vice President
By: /s/ John Rice
---------------------------
Name: John Rice
Title: Vice President/
Senior Loan Officer
Page 75
Address for Notices:
250 Montgomery Street, Ste 700
San Francisco, CA 94104
Attn: Paul Watson
Fax: (415)989-9948
Eurodollar Lending Office:
250 Montgomery Street, Ste 700
San Francisco, CA 94104
Attn: Paul Watson
Fax: (415)989-9948
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By: /s/ Christopher E. Sarisky
---------------------------
Name: Christopher E.
Sarisky
Title: Assistant Treasurer
By: /s/ Colleen Madden
---------------------------
Name: Colleen Madden
Title: Vice President
Address for Notices:
Dresdner Bank AG
333 So. Grand Ave., Ste. 1700
Los Angeles, CA 90071
Attn: Vitol Wiacek
Fax: (213) 473-5450
Eurodollar Lending Office:
Dresdner Bank AG, New York Branch
75 Wall Street
New York, NY 10005
Attn: Robert Reddington
Fax: (212) 429-2130
Page 76
BANK OF MONTREAL
By: /s/ John Mead
---------------------------
Name: John Mead
Title: Director
Address for Notices:
115 S. LaSalle St., 12th Fl.
Chicago, IL 60603
Attn: Jeff Forsythe
Director
Fax: (312) 750-4352
Eurodollar Lending Office:
115 S. LaSalle St., 12th Fl.
Chicago, IL 60603
Attn: Debra Fahey
Fax: (312) 750-4345
AMSOUTH BANK
By: /s/ John Meriwether
---------------------------
Name: John Meriwether
Title: Senior Vice
President
Address for Notices:
P.O. Box 11007
Birmingham, AL 35288
Attn: John Meriwether
Fax: (205) 326-4075
Eurodollar Lending Office:
P.O. Box 11007
Birmingham, AL 35288
Attn: Sue Ailshie
Fax: (205) 326-4075
Page 77
EXHIBIT A
FORM OF CONVERSION/CONTINUANCE REQUEST
[Dated as provided
in Section 3.05]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to [convert/continue] [$___________
Principal Amount] [the entire outstanding amount] of its [ABR
Loans] [Eurodollar Pro Rata Loans] with an Interest Period of
____ days and ending on __________, ____] [to/as] [ABR Loans]
[Eurodollar Pro Rata Loans], pursuant to the Amended and Restated
Revolving Credit Agreement, dated as of November 29, 1994 and
amended and restated as of December __, 1997, among the Company,
the Banks and The Bank of New York, as Agent and Swing Line Bank
(as amended, supplemented or otherwise modified from time to
time, the "Agreement"), such [conversion/ continuance to be
effective as of ___________, ____. [The Interest Period for the
Eurodollar Pro Rata Loans shall be _____ days, with a Scheduled
Maturity on __________.]
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the
Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Page 78
EXHIBIT B
FORM OF PRO RATA LOAN REQUEST
[Dated as provided
in Section 2.02]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to borrow $____________ of Loans on
_________, ____ pursuant to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994 and amended and
restated as of December __, 1997, among the Company, the Banks
and The Bank of New York, as Agent and Swing Line Bank (as
amended, supplemented or otherwise modified from time to time,
the "Agreement"). [The Company hereby requests that such Loan
constitute a Eurodollar Pro Rata Loans with a scheduled maturity
of ___________, 19__ and an Interest Period of _____ days.]
The Company hereby confirms that the amounts of Loans
outstanding on the date hereof is as follows:
Total Commitment $150,000,000
Outstanding Pro Rata Loans $___________
Outstanding Competitive
Loans $___________
Availability $___________
The Company also hereby confirms that each of the
representations and warranties (other than the representations
and warranties that speak as of a specific date) contained in
Article V of the Agreement is true and correct on the date hereof
and, after giving effect to this borrowing, will be true and
correct on the proposed borrowing date as though such
representation or warranty had originally been made on such
dates. No Default or Event of Default has occurred and is
continuing, nor will any such event occur as a result of this
borrowing.
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the
Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Page 79
EXHIBIT C-1
Form of Competitive Loan Request
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Request for Competitive Bids
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994 and amended and
restated as of December __,1997 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), among
Realty Income Corporation (the "Company"), the banks from time to
time parties thereto and The Bank of New York, as Agent.
Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to such terms in the Credit
Agreement.
The Company hereby gives you notice pursuant to Section
2.08 of the Credit Agreement that it requests the Lenders to make
offers to make Competitive Loans under the Credit Agreement, and
in that connection sets forth below the terms on which such
Competitive Loans are requested to be made:
(A) Borrowing Date(1)
(B) Principal Amount
of Competitive Loan(2)
(C) Maturity Date(3)
(D) Interest rate basis [Absolute Rate] [Eurodollar]
(E) Interest Period, if any(4)
Very truly yours,
REALTY INCOME CORPORATION
By:_______________________
Title:
Page 80
(1) Must be a Business Day.
(2) Must be an amount not less than $1,000,000, or an
integral multiple of $100,000 in excess thereof.
(3) At least seven days after the Borrowing Date and not more
than (i) 180 days after the Borrowing Date, in the case
of Absolute Rate Competitive Loans, or (ii) six months
after the Borrowing Date, in the case of Eurodollar
Competitive Loans.
(4) One, two, three or six months with respect to Eurodollar
Competitive Loans. Not applicable to Absolute Rate
Competitive Loans.
Page 81
EXHIBIT C-2
FORM OF NOTICE TO BANKS
[Date]
[Name of Bank]
[Address]
Attention: ________________
Re: Notice of a Request for Competitive Bids
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994 and amended and
restated as of December __, 1997 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), among
Realty Income Corporation (the "Company"), the banks from time to
time parties thereto and The Bank of New York, as Agent.
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
The Company delivered to the Agent a Competitive Loan
Request on ____________, ____, pursuant to Section 2.08 of the
Credit Agreement, and in that connection you are invited to
submit a Bid to make a Competitive Loan to the Company by [TIME],
on _______________, ___. Your Bid must comply with Section 2.08
of the Credit Agreement and the terms set forth below on which
the Competitive Loan Request was made:
(A) Proposed Borrowing Date ____________________________
(B) Principal amount of
Competitive Loan ____________________________
(C) Interest rate basis [Absolute Rate] [Eurodollar]
----------------------------
(E) Interest Period and the
last day thereof ____________________________
Very truly yours,
THE BANK OF NEW YORK, as
Agent
By:___________________________
Title:
Page 82
EXHIBIT C-3
FORM OF COMPETITIVE BID
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Competitive Bid
Reference is made to the Amended and Restated Revolving
Credit Agreement, dated as of November 29, 1994, and amended and
restated as of December __, 1997 (as amended, modified or
supplemented from time to time, the "Credit Agreement"), among
Realty Income Corporation (the "Company"), the other lenders from
time to time parties thereto and The Bank of New York, as Agent.
Capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Credit Agreement.
[NAME OF BANK] hereby submits a Competitive Bid to make
an [Absolute Rate] [Eurodollar] Competitive Loan pursuant to
Section 2.08 of the Credit Agreement, in response to the
Borrowing Request made by the Company on ______________, ____,
and in that connection sets forth below the terms on which such
Competitive Bid is made:
(A) Principal Amount(1) _______________
(B) Competitive Bid _______________
(C) Competitive Bid
[Rate] [Margin](2) _______________
(1) Principal amount must be at least $1,000,000, or an integral
multiple of $100,000 in excess thereof, and not greater than
the requested Competitive Loan. Multiple bids may be
accepted by the Agent.
(2) In the case of Absolute Rate Competitive Loans, __%; in the
case of Eurodollar Competitive Loans, a margin (+/- __%)
over LIBOR.
Page 83
The undersigned hereby confirms that it will, subject
only to the conditions set forth in the Credit Agreement, extend
credit to the Borrower upon acceptance by the Borrower of this
Competitive Bid in accordance with Section 2.08 of the Credit
Agreement.
Very truly yours,
[NAME OF BANK]
By:______________________
Title:
Page 84
EXHIBIT C-4
FORM OF COMPETITIVE BID ACCEPT/REJECT NOTICE
[Date]
The Bank of New York, as Agent
One Wall Street
New York, New York 10286
Attention: Kalyani Bose
Agency Function Administration
Re: Competitive Bid Acceptance/Reject Letter
Realty Income Corporation (the "Company") refers to the
Amended and Restated Revolving Credit Agreement, dated as of
November 29, 1994, and amended and restated as of December __,
1997 (as amended, modified or supplemented or extended from time
to time, the "Credit Agreement"), among the Company, the banks
from time to time parties thereto (the "Banks") and The Bank of
New York, as Agent.
In accordance with Section 2.08 of the Credit
Agreement, we have received a summary of bids in connection with
our Competitive Loan Request, dated ________, ____, and in
accordance with Section 2.08 of the Credit Agreement, we hereby
accept the following Competitive Bids for Competitive Loans to be
made on _________, ____, with a Maturity Date of _________, ____:
Competitive
Principal Amount Rate/Margin Bank
---------------- ----------- -------------
%/+/-. %
We hereby reject the following Competitive Bids:
Competitive
Principal Amount Rate/Margin Bank
---------------- ----------- -------------
%/+/-. %
Very truly yours,
REALTY INCOME CORPORATION
By:_______________________
Title:
Page 85
EXHIBIT D-1
FORM OF PRO RATA NOTE
$__________________ December __, 1997
Realty Income Corporation, a Maryland corporation (the
"Company"), for value received, hereby promises to pay on the
Termination Date to the order of _______________ (the "Bank"), at
the office of The Bank of New York, as Agent, at One Wall Street,
New York, New York 10286, in lawful money of the United States,
the principal sum of $__________ or if less, the aggregate unpaid
principal amount of all Pro Rata Loans made by the Bank to the
Company pursuant to that certain Amended and Restated Revolving
Credit Agreement dated as of November 29, 1994 and amended and
restated as of December __, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Agreement") among the
Company, each of the banks party thereto, and The Bank of New
York, as Agent and Swing Line Bank.
This Note shall bear interest, and such interest shall
be payable, as set forth in the Agreement for ABR Loans and
Eurodollar Pro Rata Loans. Upon the occurrence and during the
continuation of an Event of Default, this Note shall bear
interest at the default rate pursuant to Section 3.06 of the
Agreement.
Except as otherwise provided in the Agreement, with
respect to Eurodollar Pro Rata Loans, if interest or principal on
the Loan evidenced by this Note becomes due and payable on a day
which is not a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day, and interest shall
be payable thereon at the rate herein specified during such
extension.
This Note is one of the Pro Rata Notes referred to in
the Agreement, and is subject to prepayment in whole or in part
and its maturity is subject to acceleration upon the terms
provided in the Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings
specified in the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
All Pro Rata Loans made by the Bank to the Company
pursuant to the Agreement and all payments of principal hereof
and interest thereon may be indicated by the Bank upon the grid
attached hereto which is a part of this Note. Such notations
Page 86
shall be presumptive as to the aggregate unpaid principal amount
of and interest on all Pro Rata Loans made by the Bank pursuant
to the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Loan and Payments of Principal and Interest
Interest Interest
Method period (if
Amount (ABR or Eurodollar
Date of Loan Eurodollar) Loan)
- -------- --------- ----------- ----------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 87
Name of
Amount of Unpaid Amount of Person
Principal Principal Interest Making
Paid Balance Paid Notation
- --------- --------- ---------- ----------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 88
EXHIBIT D-2
FORM OF COMPETITIVE NOTE
$[75,000,000] __________________
Realty Income Corporation, a Maryland corporation (the
"Company"), for value received, hereby promises to pay on the
Termination Date to the order of _______________ (the "Bank"), at
the office of The Bank of New York, as Agent, at One Wall Street,
New York, New York 10286, in lawful money of the United States,
the principal sum of $[75,000,000] or if less, the aggregate
unpaid principal amount of all Competitive Loans made by the Bank
to the Company pursuant to that certain Amended and Restated
Revolving Credit Agreement dated as of November 29, 1994 and
amended and restated as of December __, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Agreement") among the Company, each of the banks party thereto,
and The Bank of New York, as Agent and Swing Line Bank.
This Note shall bear interest, and such interest shall
be payable, as set forth in the Agreement for Absolute Rate
Competitive Loans and Eurodollar Competitive Loans. Upon the
occurrence and during the continuation of an Event of Default,
this Note shall bear interest at the default rate pursuant to
Section 3.06 of the Agreement.
Except as otherwise provided in the Agreement, with
respect to Eurodollar Competitive Loans, if interest or principal
on the Loan evidenced by this Note becomes due and payable on a
day which is not a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day, and interest shall
be payable thereon at the rate herein specified during such
extension.
This Note is one of the Competitive Notes referred to
in the Agreement, and is subject to prepayment in whole or in
part and its maturity is subject to acceleration upon the terms
provided in the Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings
specified in the Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
All Competitive Loans made by the Bank to the Company
pursuant to the Agreement and all payments of principal hereof
Page 89
and interest thereon may be indicated by the Bank upon the grid
attached hereto which is a part of this Note. Such notations
shall be presumptive as to the aggregate unpaid principal amount
of and interest on all Competitive Loans made by the Bank
pursuant to the Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Loan and Payments of Principal and Interest
Interest
Interest period (if
Method (ABR Eurodollar
Amount Absolute Rate competitive
Date of Loan or Eurodollar) Loan)
- -------- --------- -------------- -------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 90
Name of
Amount of Unpaid Amount of Person
Principal Principal Interest Making
Paid Balance Paid Notation
- --------- --------- ---------- ----------
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Page 91
EXHIBIT D-3
FORM OF SWING LINE NOTE
$15,000,000 December __, 1997
Realty Income Corporation, a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the
order of The Bank of New York (the "Bank"), on the maturity date
thereof, the principal amount of each Swing Line Advance made by
the Bank pursuant to that certain Revolving Credit Agreement,
dated as of November 29, 1994, and amended and restated as of
December __, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Agreement"), among the Company, each of
the banks party thereto, and The Bank of New York, as Agent and
Swing Line Bank.
The Company also promises to pay interest on the unpaid
principal amount hereof from time to time outstanding from the
date hereof until maturity (whether by acceleration or otherwise)
and, after maturity, until paid, at the rate or rates per annum,
on the date or dates and in the manner specified in the
Agreement.
Payments of both principal and interest are to be made
in lawful money of the United States of America in immediately
available funds to the Swing Line Bank, in the manner specified
in the Agreement.
This Note is the Swing Line Note referred to in the
Agreement, which among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain
events and for the amendment or waiver of certain provisions of
the Agreement, all upon the terms and conditions therein
specified. Unless otherwise defined herein, capitalized terms
used herein have the respective meanings specified in the
Agreement.
This Note shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New
York.
The Bank is authorized to indicate upon the grid
attached to this Note all borrowings hereunder and payments of
principal and interest hereon. Such notations shall be
presumptive as to the aggregate unpaid principal amount of and
interest on all Swing Line Advances made by the Bank pursuant to
the Agreement.
REALTY INCOME CORPORATION
By___________________________
Name:
Title:
Page 92
SWING LINE ADVANCES AND PRINCIPAL PAYMENTS
Amount of Swing
Line Advances Made
Swing Line
Date Advance Maturity Interest Rate
- ----- -------------- ---------- --------------
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
Page 93
Amount of
Amount of Unpaid
Principal Principal
Repaid Balance
Swing Line Swing Line Notation
Advance Advance Total Made by
- ---------- ---------- -------- ----------
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
___________________________________________________________
Page 94
EXHIBIT E
FORM OF SWING LINE ADVANCE REQUEST
[Dated as provided
in Section 2.10]
The Bank of New York
One Wall Street, 18th Floor
New York, New York 10286
Attn: Kalyani Bose
Realty Income Corporation (the "Company") hereby gives
notice of its intention to borrow $____________ in a Swing Line
Advance on _________, ____ pursuant to the Amended and Restated
Revolving Credit Agreement, dated as of November 29, 1994 and
amended and restated as of December __, 1997, among the Company,
the Banks and The Bank of New York, as Agent and Swing Line Bank
(as amended, supplemented or otherwise modified from time to
time, the "Agreement").
The Company hereby confirms that the amounts of Loans
and Swing Line Advances outstanding on the date hereof are as
follows:
Total Commitment $150,000,000
Outstanding Loans $___________
Commitment Availability $___________
Swing Line Facility $ 15,000,000
Outstanding Swing Line Advances $___________
Swing Line Availability $___________
The Company also hereby confirms that each of the
representations and warranties (other than the representations
and warranties that speak as of a specific date) contained in
Article V of the Agreement is true and correct on the date hereof
and, after giving effect to this borrowing, will be true and
correct on the proposed borrowing date as though such
representation or warranty had originally been made on such
dates. No Default or Event of Default has occurred and is
continuing, nor will any such event occur as a result of this
borrowing.
Unless otherwise defined herein, capitalized terms used
herein shall have the respective meanings specified in the
Agreement.
REALTY INCOME CORPORATION
By:_______________________
Name:
Title:
Page 95
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 1
December __, 1997
EXHIBIT F-1
FORM OF OPINION OF LATHAM & WATKINS
The Bank of New York,
as Agent for the Banks
One Wall Street, Twenty-Second Floor
New York, New York 10286
The Banks Signatory to the Credit
Agreement Referred to Below
Re: Amended and Restated Revolving Credit Agreement
dated as of November 29, 1994 and amended and
restated as of December __, 1997, among Realty
Income Corporation, the Banks Named Therein and The
Bank of New York, as Agent and Swing Line Bank
Ladies/Gentlemen:
We have acted as special counsel for Realty Income
Corporation, a Maryland corporation (the "Company"), in
connection with the Amended and Restated Revolving Credit
Agreement (the "Credit Agreement") dated as of November 29, 1994
and amended and restated as of December __, 1997, among the
Company, each of the banks identified on the signature pages
thereof (the "Banks") and The Bank of New York, as Agent for the
Banks and Swing Line Bank (the "Agent"). This opinion is rendered
to you pursuant to Section 6.01(f) of the Credit Agreement.
Capitalized terms defined in the Credit Agreement are used herein
as therein defined.
In our capacity as such counsel, we have examined such
matters of fact and questions of law as we have considered
appropriate for purposes of rendering the opinions expressed
below. We have examined among other things, the following:
(a) The Credit Agreement;
Page 96
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 2
(b) The following promissory notes of the Company
dated _________________, 1997 (collectively,
the "Notes", and together with the Credit
Agreement, the "Loan Documents"): (i) note in
the original principal amount of $__________
payable to The Bank of New York; (ii) note in
the original principal amount of $_____________
payable to ______________; [and (____) note in
the original principal amount of $_____________
payable to _____________________;]
(c) The Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws
of the Company; and
(d) Such other documents and agreements as we deem
necessary for purposes of rendering the
opinions expressed below.
In our examination, we have assumed the genuineness of
all signatures (other than those of officers of the Company on
the Loan Documents as to which we have relied on a certificate of
incumbency), the authenticity of all documents submitted to us as
originals, and the conformity to authentic original documents of
all documents submitted to us as copies.
We have been furnished with, and with your consent have
relied upon, certificates of officers of the Company with respect
to certain factual matters. In addition, we have obtained and
relied upon such certificates and assurances from public
officials as we have deemed necessary.
We are opining herein as to the effect on the subject
transaction only of the federal laws of the United States and the
internal laws of the State of New York, as applicable, and we
express no opinion with respect to the applicability thereto, or
the effect thereon, of the laws of any other jurisdiction or as
to any matters of municipal law or the laws of any other local
agencies within any state.
Our opinions set forth in paragraph 1 below are based
upon our consideration of only those statutes, rules and
regulations which, in our experience, are normally applicable to
bank credit transactions.
Subject to the foregoing and the other matters set
forth herein, it is our opinion that, as of the date hereof:
Page 97
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 3
1. None of the execution and delivery of the Loan
Documents by the Company, the borrowing of the funds pursuant to
the Loan Documents by the Company and the payment of the
indebtedness of the Company evidenced by the Notes: (a) violate
any federal or New York statute, rule, or regulation applicable
to the Company (including, without limitation, Regulations G, T,
U, or X of the Board of Governors of the Federal Reserve System),
or (b) require any consents, approvals, authorizations,
registrations, declarations, or filings by the Company under any
applicable federal or New York statute, rule or regulation.
2. Each of the Loan Documents has been duly
executed and delivered by the Company and constitutes a legally
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms.
3. The Company is not an "investment company" as
such term is defined in the Investment Company Act of 1940, as
amended.
The opinions set forth in paragraph 2 above are subject
to the following limitations, qualifications and exceptions:
(a) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws
now or hereafter in effect relating to or
affecting the rights or remedies of creditors;
(b) the effect of general principles of equity,
whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the
court before which any proceeding therefor may be
brought;
(c) the unenforceability under certain circumstances
under law or court decisions of provisions
providing for the indemnification of or
contribution to a party with respect to a
liability where such indemnification or
contribution is contrary to public policy;
(d) the unenforceability of any provision requiring
the payment of attorney's fees, except to the
extent that a court determines such fees to be
reasonable; and
Page 98
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 4
(e) we express no opinion with respect to the
enforceability of Section 10.01 of the Credit
Agreement by a federal court.
To the extent that the obligations of the Company may
be dependent upon such matters, we assume for purposes of this
opinion that: all parties to the Loan Documents other than the
Company are duly incorporated, validly existing and in good
standing under the laws of their respective jurisdictions of
incorporation; all parties to the Loan Documents other than the
Company have the requisite corporate power and authority to
execute and deliver the Loan Documents and to perform their
respective obligations under the Loan Documents to which they are
a party; and the Loan Documents to which such parties other than
the Company are a party have been duly authorized, executed and
delivered by such parties and constitute their legally valid and
binding obligations, enforceable against them in accordance with
their terms. We express no opinion as to compliance by any
parties to the Loan Documents with any state or federal laws or
regulations applicable to the subject transactions because of the
nature of their business.
This opinion is rendered only to you and is solely for
your benefit in connection with the transactions covered hereby.
This opinion may not be relied upon by you for any other purpose,
or furnished to, quoted to or relied upon by any other person,
firm or corporation for any purpose, without our prior written
consent.
Very truly yours,
Page 99
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 1
December ___ , 1997
EXHIBIT F-2
FORM OF OPINION OF MICHAEL R. PFEIFFER, ESQ.
The Bank of New York,
as Agent for the Banks
One Wall Street
22nd Floor
New York, New York 10286
The Banks Signatory to the Credit
Agreement Referred to Below
Re: Amended and Restated Revolving Credit Agreement
dated as of November 29, 1994 and amended and
restated as of December __, 1997, among Realty
Income Corporation, the Banks Named Therein and The
Bank of New York, as Agent and Swing Line Bank
Ladies/Gentlemen:
I am general counsel of Realty Income Corporation, a
Maryland corporation (the "Company"). This opinion is rendered to
you pursuant to Section 6.01(f) of the Amended and Restated
Revolving Credit Agreement (the "Credit Agreement") dated as of
November 29, 1994 and amended and restated as of December __,
1997, among the Company, each of the banks identified on the
signature pages thereof (the "Banks") and The Bank of New York,
as Agent for the Banks and Swing Line Bank (the "Agent").
Capitalized terms defined in the Credit Agreement are used herein
as therein defined.
In my capacity as general counsel, I have examined such
matters of fact and questions of law as I have considered
appropriate for purposes of rendering the opinions expressed
below, except where a statement is qualified as to knowledge or
awareness, in which case I have made no or limited inquiry as
specified below. I have examined, among other things, the
following:
(a) The Credit Agreement;
Page 100
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 2
(b) The following promissory notes of the Company dated
_____________, 1997 (collectively, the "Notes", and
together with the Credit Agreement, the "Loan
Documents"): (i) note in the original principal
amount of $_____________ payable to The Bank of New
York; (ii) note in the original principal amount of
$____________ payable to _______________
[[and] (_____) note in the original principal amount
of $__________ payable to ________________];
(c) The Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws of the
Company; and
(d) Such other documents and agreements as I deem
necessary for purposes of rendering the opinions
expressed below.
In my examination, I have assumed the genuineness of
all signatures (other than those of officers of the Company on
the Loan Documents), the authenticity of all documents submitted
to me as originals, and the conformity to authentic original
documents of all documents submitted to me as copies.
I have been furnished with, and with your consent have
relied upon, certificates of officers of the Company with respect
to certain factual matters. In addition, I have obtained and
relied upon such certificates and assurances from public
officials as I have deemed necessary.
I am opining herein as to the effect on the subject
transaction only of the federal laws of the United States and the
internal laws of the State of California, as applicable, and I
express no opinion with respect to the applicability thereto, or
the effect thereon, of the laws of any other jurisdiction or as
to any matters of municipal law or the laws of any other local
agencies within any state.
Whenever a statement herein is qualified by "to the
best of my knowledge" or a similar phrase, it is intended to
indicate that I do not have current actual knowledge of the
inaccuracy of such statement. Except as otherwise expressly
indicated, I have not undertaken any independent investigation to
determine the accuracy of any such statement, and no inference
that I have any knowledge of any matters pertaining to such
statement should be drawn from my representation of the Company.
Page 101
The Bank of New York,
as Agent for the Banks
December __, 1997
Page 3
Subject to the foregoing and the other matters set
forth herein, it is my opinion that, as of the date hereof:
1. Based solely on certificates from public
officials, I confirm that the Company is qualified to do business
in the states in which the Company owns properties.
2. To the best of my knowledge, there are no
proceedings or investigations pending or threatened before any
court or arbitrator or before or by any governmental authority
which would have a material adverse effect on the legality,
validity, binding effect or enforceability of any Loan Document.
This opinion is delivered by me as general counsel for
the Company to you and is solely for your benefit in connection
with the transactions covered hereby. This opinion may not be
relied upon by you for any other purpose, or furnished to, quoted
to or relied upon by any other person, firm or corporation for
any purpose, without my prior written consent.
Very truly yours,
Page 102
Exhibit G
---------
Form of Property Management Exception Report
This document has been excluded.
Page 103
Exhibit H
---------
Real Estate Investment Criteria
The Investment Committee is authorized, without prior Board of
Director approval, to approve real estate investments which meet
all of the following criteria:
1. The Purchase Price for each property shall not exceed
$10,000,000.
2. The investment must consist of a fee interest in real
property.
3. If the real property is unimproved at the time of
acquisition, there must be an agreement to complete
specified improvements on the property by a certain date.
4. Prior to, or concurrent with the acquisition, the property
must be net-leased to a tenant approved by the Company's
Investment Committee.
5. The real estate investment may not cause (i) the total
investment with that tenant to exceed $25 million, or (ii)
the amount of annualized rental revenue to be derived by the
Company from a tenant to exceed 5% of the Company's previous
12 months' rental revenues.
6. The real estate investment may not cause the amount of
annualized rental revenue to be derived by the Company from
any one industry to exceed 25% of the Company's previous 12
month's rental revenues.
Page 104
EXHIBIT I
SUBSIDIARY GUARANTY
This SUBSIDIARY GUARANTY, dated as of December 13, 1994, is made
by each entity that is identified on Schedule A hereto or that
hereafter executes and delivers a Subsidiary Joinder pursuant to
the Credit Agreement described herein (each such entity, a
"Guarantor") in favor of the lenders (the "Lenders") from time to
time party to the Credit Agreement (as defined below), and The
Bank of New York ("BONY"), as agent (BONY and any successor
thereto in such capacity, "Agent") for the Lenders and in favor
of all other present and future Holders of any of the Guaranteed
Obligations described herein.
RECITALS
A. The Lenders and Agent have entered into that
certain Credit Agreement, dated as of November 28, 1994 (as
amended, supplemented or otherwise modified from time to time,
the "Credit Agreement"), among Realty Income Corporation, a
Delaware corporation ("Borrower"), Agent and the Lenders.
B. Each Guarantor is a Subsidiary of Borrower and
expects to derive substantial direct and indirect benefit from
the transactions contemplated by the Credit Agreement.
C. It is a condition precedent to the making of
Loans by the Lenders under the Credit Agreement that each
Guarantor shall have guaranteed payment of each and all debts,
liabilities and obligations of Borrower under the Credit
Agreement and the Notes (collectively, the "Obligations"), on the
terms set forth herein.
D. Borrower has agreed, in the Credit Agreement, to
cause any future Subsidiaries of Borrower to which the Borrower
or any Subsidiary of Borrower transfers its properties located in
the State of Texas to become party to this Guaranty, as a
Guarantor hereunder, by executing and delivering a Subsidiary
Joinder as set forth in the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing and
in order to induce the Lenders to make Loans under the Credit
Agreement, each Guarantor hereby agrees as follows:
Page 105
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as
otherwise specifically provided herein, the terms which are
defined in Article I of the Credit Agreement shall have the same
meanings when used in this Guaranty and the provisions of
Sections 1.2 and 1.3 of the Credit Agreement shall apply to this
Guaranty.
SECTION 1.2 Certain Defined Terms. As used in this
Guaranty, the following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States
Code, as from time to time amended.
"Disallowed Post-Commencement Interest and Expenses"
means interest computed at the rate provided in the Credit
Agreement and claims for reimbursements, costs, expenses or
indemnities under the terms of the Credit Agreement accruing or
claimed at any time after commencement of any Insolvency or
Liquidation Proceeding, if the claim for such interest,
reimbursement, cost, expense or indemnity is not allowable,
allowed or enforceable against Borrower in such Insolvency or
Liquidation Proceeding.
"Guaranty" means this Subsidiary Guaranty, dated as of
_______________, 1994, made by the Guarantors for the benefit of
the Lenders, Agent and other Holders of Guaranteed Obligations.
"Guaranty Taxes" is defined in Section 3.8(a).
"Holder" means, in respect of any Guaranteed
Obligation, the Person entitled to enforce payment thereof and
specifically includes Agent and the Lenders.
"Insolvency or Liquidation Proceeding" means any (i)
any case under the Bankruptcy Code, any other insolvency or
bankruptcy case or proceeding, or any receivership, liquidation,
reorganization or other similar case or proceeding, relative to
Borrower or to any of its creditors, as such, or to a substantial
part of any of its assets, or (ii) any proceeding for the
liquidation, dissolution or other winding up of Borrower, whether
voluntary or involuntary and whether or not involving insolvency
or bankruptcy, or (iii) any assignment for the benefit of
creditors or any other marshaling of assets and liabilities of
Borrower.
"Subordinated Liabilities" is defined in Section
2.8(a).
Page 106
ARTICLE II
GUARANTY AND RELATED PROVISIONS
SECTION 2.1 Guaranty. Each Guarantor hereby
unconditionally:
(a) guarantees the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of
(i) all Obligations now outstanding or hereafter arising
under or in connection with the Credit Agreement or the
Notes, whether for principal, interest, fees, taxes,
additional compensation, expense reimbursements,
indemnification or otherwise, and (ii) each other debt,
liability or obligation of Borrower now outstanding or
hereafter arising under any of the Credit Agreement and the
Notes (such Obligations, liabilities and other debts,
liabilities and obligations, collectively, the "Guaranteed
Obligations"), and
(b) agrees to pay on demand (i) all Disallowed
Post-Commencement Interest and Expenses, to the Person
entitled to payment thereof if the claim therefor had been
allowed in any Insolvency or Liquidation Proceeding and (ii)
all costs and expenses (including, without limitation,
reasonable attorneys' fees and legal expenses) incurred by
any Holder of Guaranteed Obligations in enforcing this
Guaranty; provided, however, that the amount of each
Guarantor's payment obligations hereunder shall not exceed
an aggregate amount equal to such Guarantor's stockholders'
or partners' equity, as the case may be.
SECTION 2.2 Acceleration of Payment. If (i) the
Notes become immediately due and payable pursuant to Section 8.01
of the Credit Agreement, then all liability of each Guarantor
under this Guaranty in respect of any Guaranteed Obligation that
is not then due and payable shall thereupon become and be
immediately due and payable, without notice or demand.
SECTION 2.3 Guaranty Absolute and Unconditional.
Each Guarantor guarantees that the Guaranteed Obligations will be
paid in accordance with the terms of the Credit Agreement and the
Notes, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such
terms or the rights and claims of any Holder of Guaranteed
Obligations against Borrower with respect thereto and even if any
such rights or claims are modified, reduced or discharged in an
Insolvency or Liquidation Proceeding or otherwise. The
obligations of each Guarantor under this Guaranty are independent
of the Guaranteed Obligations, and a separate action or actions
may be brought and prosecuted against each Guarantor to enforce
against Borrower or whether Borrower is joined in any such action
Page 107
or actions. The liability of each Guarantor under this Guaranty
shall be absolute and unconditional irrespective of (i) any lack
of validity or enforceability of the Credit Agreement or any Note
or any other agreement or instrument relating thereto; (ii) any
change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from the
Credit Agreement or any Note, including, without limitation, any
increase in the Guaranteed Obligations resulting from the
extension of additional credit to Borrower or otherwise; (iii)
any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or
consent to departure from any other guaranty, for all or any of
the Guaranteed Obligations; (iv) any manner of application of
collateral, or proceeds thereof, to all or any of the Guaranteed
Obligations, or any manner of sale or other disposition of any
collateral for all or any of the Guaranteed Obligations or any
other assets of Borrower; (v) any change, restructuring or
termination of the corporate structure or existence of Borrower;
or (vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, a surety or guarantor.
SECTION 2.4 Guaranty Irrevocable and Continuing.
This Guaranty is an irrevocable and continuing offer and
agreement guaranteeing payment of any and all Guaranteed
Obligations and shall extend to all Guaranteed Obligations now
outstanding or created or incurred at any future time, whether or
not created or incurred pursuant to any agreement presently in
effect or hereafter made, until all obligations of the Lenders to
extend credit to Borrower have expired or been terminated, and
all Guaranteed Obligations have been fully, finally and
indefeasibly paid. To the extent any contingent Obligation
survives the expiration or termination of the Credit Agreement
and the repayment of the Loans, each Guarantor's liability under
this Guaranty shall likewise survive. This Guaranty may be
released only in writing.
SECTION 2.5 Reinstatement. If at any time any
payment on any Guaranteed Obligation is set aside, avoided or
rescinded or must otherwise be restored or returned, this
Guaranty and the liability of each Guarantor under this Guaranty
shall remain in full force and effect and, if previously released
or terminated, shall be automatically and fully reinstated,
without any necessity for any act, consent or agreement of any
Guarantor, as fully as if such payment had never been made and as
fully as if any such release or termination had never become
effective.
Page 108
SECTION 2.6 Waiver. Each Guarantor hereby waives
and agrees not to assert or take advantage of:
(a) Marshaling. Any right to require any Holder of
Guaranteed Obligations to proceed against or exhaust its
recourse against Borrower or any other Subsidiary Guarantor
or any other Person liable for any of the Guaranteed
Obligations or against any collateral for any of the
Guaranteed Obligations or against any other Person or
property, before demanding and enforcing payment of the
Guaranteed Obligations from any Guarantor under this
Guaranty;
(b) Other Defenses. Any defense that may arise by
reason of (i) the incapacity, lack of authority, death or
disability of Borrower or any other Person; (ii) the
revocation or repudiation of any of the Credit Agreement or
the Notes by Borrower or any other Person; (iii) the
unenforceability in whole or in part of the Credit Agreement
or the Notes or any other instrument, document or agreement;
(iv) the failure of any Holder of Guaranteed Obligations to
file or enforce a claim against any Person liable for any of
the Guaranteed Obligations or in any Liquidation or
Insolvency Proceeding; or (v) any borrowing or grant of a
security interest under Section 364 of the Bankruptcy Code;
(c) Notices. Presentment, demand for payment,
protest, notice of discharge, notice of acceptance of this
Guaranty, notice of the incurrence of, or any default in
respect of, any debt, liability or obligation guaranteed
hereunder, and all other indulgences and notices of every
type or nature, including, without limitation and to the
maximum extent permitted by law, notice of the disposition
of any collateral for any of the Guaranteed Obligations;
(d) Election of Remedies. Any defense based upon
an election of remedies (including, if available, an
election to proceed by non-judicial foreclosure) or any
other act or omission of any Holder of Guaranteed
Obligations or any other Person which destroys or otherwise
impairs any right that any Guarantor might otherwise have
for subrogation, recourse, reimbursement, indemnity,
exoneration, contribution or otherwise against Borrower or
any other Person;
(e) Collateral. Any defense based upon any taking,
modification or release of any collateral or guaranties for
the Guaranteed Obligations, or any failure to create or
perfect or ensure the priority or enforceability of any
security interest in any collateral for any of the
Guaranteed Obligations or any act or omission related
thereto;
Page 109
(f) Offsets. Any right to recoup from or offset
against any of the Guaranteed Obligations any claim that may
be held or asserted by or available to (i) Borrower or any
other Guarantor or any other Person liable for any of the
Guaranteed Obligations against any Holder of Guaranteed
Obligations or (ii) any Guarantor against Borrower, any
other Guarantor, any other Holder of Guaranteed Obligations
or any other Person; or
(g) Defenses of Others. Any other claim, right or
defense (including, by way of illustration and without
limitation, such matters as failure or insufficiency of
consideration, statute of limitations, breach of contract,
tortious conduct, accord and satisfaction, and discharge by
agreement, conduct or in a Liquidation or Insolvency
Proceeding), except the defense of payment, that may be held
or asserted by or available to (i) Borrower or any other
Guarantor or any other Person liable for any of the
Guaranteed Obligations against any Holder of Guaranteed
Obligations or (ii) any Guarantor against Borrower, any
other Guarantor, any other Holder of Guaranteed Obligations
or any other Person.
SECTION 2.7 Subrogation. Each Guarantor hereby
represents, warrants and agrees, in respect of any and all
present and future rights of subrogation, recourse,
reimbursement, indemnity, exoneration, contribution and other
claims that such Guarantor at any time may have against Borrower,
any other Guarantor or any other Person liable for the payment of
any of the Guaranteed Obligations (including, without limitation,
the owner of any interest in collateral for any of the Guaranteed
Obligations) as a result of or in connection with this Guaranty
or any payment hereunder, that:
(a) No Agreement. Such Guarantor has not entered
into, and agrees that it will not enter into, any agreement
providing, directly or indirectly, for any such right or
claim against Borrower or, except as set forth in Section
2.10, against any other Subsidiary of Borrower, and each
such agreement now existing or hereafter entered into
(except Section 2.10) is and shall be void;
(b) Release. Such Guarantor forever waives and
releases, and agrees never to sue upon, any such right or
claim against Borrower and, except as set forth in Section
2.10, against any other Subsidiary of Borrower, whether or
not the Guaranteed Obligations have been paid in full;
(c) Capital Contribution. Each payment made by
such Guarantor under this Guaranty shall be a contribution
to the capital of Borrower, and no such payment shall give
rise to any claim (as that term is defined in the Bankruptcy
Code) in favor of such Guarantor against Borrower;
Page 110
(d) Subordination of Contribution Rights. Each
Guarantor reserves, as against each other Guarantor, its
right of contribution under Section 2.10 but agrees that all
such contribution rights shall be included among the
Subordinated Liabilities; and
(e) Deferral of Other Rights and Claims. Until all
obligations of the Lenders to extend credit to Borrower have
expired or been terminated and all the Guaranteed
Obligations have been paid in full, such Guarantor will not
demand, sue for, accept or receive any payment or transfer
on account of any such right or claim from any Person (other
than Borrower and its Subsidiaries) liable for the payment
of any of the Guaranteed Obligations.
SECTION 2.8 Subordination Provisions.
(a) Subordination. Any and all present and future
debts, liabilities and obligations of every type and
description (whether for money borrowed, on intercompany
accounts, for provision of goods or services, under tax
sharing or contribution agreements or on account of any
other transaction, agreement, occurrence or event and
whether absolute or contingent, direct or indirect, matured
or unmatured, liquidated or unliquidated, created directly
or acquired from another, or sole, joint, several or joint
and several) of Borrower now outstanding or hereafter
incurred or owed to any Guarantor (the "Subordinated
Liabilities") shall be, and hereby are, subordinated to full
and final payment of the Guaranteed Obligations.
(b) Prohibited Payments. No Guarantor will demand,
sue for, accept or receive, or cause or permit any other
Person to make, any payment on or transfer of property on
account of any Subordinated Liabilities except to the extent
payment is permitted at the time under Section 7.02 of the
Credit Agreement.
(c) No Liens or Transfers. No Guarantor will
demand, accept or hold any Lien upon any real or personal
property of Borrower as security for any of the Subordinated
Liabilities and agrees that any such Lien shall be void.
(d) Insolvency Proceedings. In any Insolvency or
Liquidation Proceeding, the Holders of Guaranteed
Obligations shall be entitled to receive payment in full of
all amounts due or to become due on or in respect of the
Guaranteed Obligations, or provision shall be made for such
payment in money or money's worth, before any Guarantor is
entitled to receive any payment or distribution of any kind
or character, whether in cash, property or securities, on
account of any of the Subordinated Liabilities, and to that
Page 111
end the Holders of Guaranteed Obligations shall be entitled
to receive, for application to the payment thereof, all
payments and distributions of any kind or character, whether
in cash, property or securities (including any such payment
or distribution which may be payable or deliverable by
reason of the payment of any other debt or liability of
Borrower being subordinated to the payment of the
Subordinated Liabilities), which may be payable or
deliverable in respect of the Subordinated Liabilities in
any such Insolvency or Liquidation Proceeding.
(e) Disallowed Post-Commencement Interest and
Expenses. If in any Insolvency or Liquidation Proceeding
(i) any payment or distribution of any kind or character,
whether in cash, property or securities (including any such
payment or distribution which may be payable or deliverable
by reason of the payment of any other debt or liability of
Borrower being subordinated to the payment of the
Subordinated Liabilities) is payable or deliverable in
respect of the Subordinated Liabilities, and (ii) the
Holders of Guaranteed Obligations are not otherwise entitled
to receive such payment or distribution pursuant to Section
2.8(d), and (iii) any amount remains unpaid to any Holder of
Guaranteed Obligations on account of any Disallowed Post-
Commencement Interest and Expenses, then the Holders of
Guaranteed Obligations shall be entitled to receive payment
of all such unpaid Disallowed Post-Commencement Interest and
Expenses from and out of any and all such payments and
distributions in respect of the Subordinated Liabilities.
(f) Held in Trust. If any payment, transfer or
distribution is made to any Guarantor upon any Subordinated
Liabilities that is not permitted to be made under this
Section 2.8 or that the Holders of Guaranteed Obligations
are entitled to receive under this Section 2.8, such
Guarantor shall receive and hold the same in trust, as
trustee for the benefit of the Holders of Guaranteed
Obligations, and shall forthwith transfer and deliver the
same to Agent, in precisely the form received (except for
any required endorsement), for application to the payment of
Guaranteed Obligations or any unpaid Disallowed Post-
Commencement Interest and Expenses.
(g) Claims in Bankruptcy. Each Guarantor will
file all claims against Borrower in any Liquidation or
Insolvency Proceeding in which the filing of claims is
required or permitted by law upon any of the Subordinated
Liabilities and will assign to Agent, for the benefit of the
Holders of Guaranteed Obligations, all rights of such
Guarantor thereunder. If any Guarantor does not file any
such claim at least 30 days prior to any applicable claims
bar date, Agent is hereby authorized (but shall not be
Page 112
obligated), as attorney-in-fact for such Guarantor with full
power of substitution, either to file such claim or proof
thereof in the name of such Guarantor or, at Agent's option,
to assign the claim and cause the claim or proof thereof to
be filed by an agent or nominee. Agent and its agents and
nominees shall have the sole right, but no obligation, to
accept or reject any plan proposed in such Insolvency or
Liquidation Proceeding and to cast any votes and to take any
other action with respect to all claims upon any of the
Subordinated Liabilities.
(h) Subordination Effective and not Impaired. This
Section 2.8 shall remain effective for so long as this
Guaranty is continuing and thereafter for so long as any
Guaranteed Obligation is outstanding. Each Guarantor's
obligations under this Section 2.8 (i) shall be absolute and
unconditional as set forth in Section 2.3, irrevocable and
continuing as set forth in Section 2.4, subject to
reinstatement as set forth in Section 2.5, and not be
affected or impaired by any of the matters waived in Section
2.6, (ii) shall be subject to the provisions of Article V,
and (iii) shall otherwise be as equally enduring and free
from defenses as such Guarantor's liability under this
Guaranty.
SECTION 2.9 Fraudulent Transfer Limitation. If, in
any action to enforce this Guaranty or any proceeding to allow or
adjudicate a claim under this Guaranty, a court of competent
jurisdiction determines that enforcement of this Guaranty against
any Guarantor for the full amount of the Guaranteed Obligations
is not lawful under, or would be subject to avoidance under,
Section 548 of the Bankruptcy Code or any applicable provision of
comparable state law, the liability of such Guarantor under this
Guaranty shall be limited to the maximum amount lawful and not
subject to avoidance under such law.
SECTION 2.10 Contribution among Guarantors. The
Guarantors desire to allocate among themselves, in a fair and
equitable manner, their rights of contribution from each other
when any payment is made by one of the Guarantors under this
Guaranty. Accordingly, if any payment is made by a Guarantor
under this Guaranty (a "Funding Guarantor") that exceeds its Fair
Share, the Funding Guarantor shall be entitled to a contribution
from each other Guarantor in the amount of such other Guarantor's
Fair Share Shortfall, so that all such contributions shall cause
each Guarantor's Aggregate Payments to equal its Fair Share. For
these purposes:
(a) "Fair Share" means, with respect to a Guarantor
as of any date of determination, an amount equal to (i) the
ratio of (x) the Adjusted Maximum Amount of such Guarantor
to (y) the aggregate Adjusted Maximum Amounts of all
Page 113
Guarantors, multiplied by (ii) the aggregate amount paid on
or before such date by all Funding Guarantors under this
Guaranty.
(b) "Fair Share Shortfall" means, with respect to a
Guarantor as of any date of determination, the excess, if
any, of the Fair Share of such Guarantor over the Aggregate
Payments of such Guarantor.
(c) "Adjusted Maximum Amount" means, with respect
to a Guarantor as of any date of determination, the maximum
aggregate amount of the liability of such Guarantor under
this Guaranty, limited to the extent required under Section
2.9 (except that, for purposes solely of this calculation,
any assets or liabilities arising by virtue of any rights to
or obligations of contribution under this Section 2.10 shall
not be counted as assets or liabilities of such Guarantor).
(d) "Aggregate Payments" means, with respect to a
Guarantor as of any date of determination, the aggregate net
amount of all payments made on or before such date by such
Guarantor under this Guaranty (including, without
limitation, under this Section 2.10).
The amounts payable as contributions hereunder shall be
determined as of the date on which the related payment or
distribution is made by the Funding Guarantor. The allocation
and right of contribution among the Guarantors set forth in this
Section 2.10 shall not be construed to limit in any way the
liability of any Guarantor under this Guaranty to the Holders of
the Guaranteed Obligations.
SECTION 2.11 Joint and Several Obligation. This
Guaranty and all liabilities of each Guarantor hereunder shall be
the joint and several obligation of each Guarantor and may be
freely enforced against each Guarantor, for the full amount of
the Guaranteed Obligations (subject to Section 2.9), without
regard to whether enforcement is sought or available against any
other Guarantor.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 Condition of Borrower. Each Guarantor
is fully aware of the financial condition of Borrower and is
executing and delivering this Guaranty based solely upon such
Guarantor's own independent investigation of all matters
pertinent hereto and is not relying in any manner upon any
representation or statement by any Holder of Guaranteed
Obligations. Each Guarantor represents and warrants that it is
Page 114
in a position to obtain, and each Guarantor hereby assumes full
responsibility for obtaining, any additional information
concerning the financial condition of Borrower and any other
matter pertinent hereto as such Guarantor may desire, and such
Guarantor is not relying upon or expecting any Holder of
Guaranteed Obligations to furnish to such Guarantor any
information now or hereafter in the possession of any Holder of
Guaranteed Obligations concerning the same or any other matter.
By executing this Guaranty, each Guarantor knowingly accepts the
full range of risks encompassed within a contract of this type,
which risks each Guarantor acknowledges. No Guarantor shall have
the right to require any Holder of Guaranteed Obligations to
obtain or disclose any information with respect to the Guaranteed
Obligations, the financial condition or prospects of Borrower,
the ability of Borrower to pay or perform the Guaranteed
Obligations, the existence, perfection, priority or
enforceability of any collateral security for any or all of the
Guaranteed Obligations, the existence or enforceability of any
other guaranties of all or any part of the Guaranteed
Obligations, any action or non-action on the part of any Holder
of Guaranteed Obligations, Borrower, or any other Person, or any
other event, occurrence, condition or circumstance whatsoever.
SECTION 3.2 Amendments.
(a) Amendment to Guaranty. No amendment or waiver
of any provision of this Guaranty, and no consent to any
departure by any Guarantor herefrom, shall in any event be
effective unless the same shall be in writing and signed by
the Required Banks, and then such waiver or consent shall be
effective only in the specific instance and for the specific
purpose for which given, except that no amendment, waiver or
consent shall, unless in writing and signed by all the
Lenders, (i) limit the liability of any Guarantor hereunder,
(ii) postpone any date fixed for payment hereunder, or (iii)
change the number of Lenders required to take any action
hereunder.
(b) Amendment or Modification of The Notes. The
Notes may be amended, modified or supplemented in accordance
with their terms without notice to or consent or agreement
by any Guarantor, including, without limitation, so as to
(i) alter, compromise, modify, accelerate, extend, renew,
refinance or change the time or manner for making of
advances, provision of other financial accommodations, or
the payment or performance of all or any portion of the
Guaranteed Obligations, (ii) increase or reduce the rate of
interest or amount of principal payable on the Notes, (iii)
release or discharge Borrower or any other Person as to all
or any portion of the Guaranteed Obligations, or (iv)
release, substitute or add any one or more guarantors or
Page 115
endorsers, accept additional or substituted security for
payment or performance of the Guaranteed Obligations, or
release or subordinate any security therefor.
SECTION 3.3 Notices. All notices and other
communications provided for hereunder shall be in writing
(including telecopier communication) and mailed, telecopied or
delivered; if to any Guarantor, at c/o Realty Income Corporation,
220 West Crest Street, Escondido, CA 92025-1707, Attention:
Richard J. VanDerhoff, Esq., with a copy to: Michael J. Brody
Esq., Latham & Watkins, 633 West Fifth Street, Suite 4000, Los
Angeles, CA 90071-2007, if to Agent, at The Bank of New York, One
Wall Street, 18th Floor, New York, NY 10286, Attention: Kalyani
Bose -- Agency Function Administration, with a copy to: Sullivan
& Cromwell, 444 South Flower Street, Los Angeles, CA 90071,
Attention: Alison S. Ressler; and if to any Lender, at its
address specified in the Credit Agreement, or, as to any party,
at such other address as shall be designated by such party in a
written notice to each other party. All such notices and other
communications shall, when mailed or telecopied be effective when
deposited in the mails or telecopied respectively.
SECTION 3.4 Right of Set-off. If any request is
made or consent is given by the Required Banks pursuant to
Section 8.01 of the Credit Agreement for a declaration by Agent
that the Notes are immediately due and payable, or if the Notes
become immediately due and payable pursuant to Section 8.01 of
the Credit Agreement, each Lender shall have the right at any
time and from time to time thereafter, to the fullest extent
permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any
time held and other liability at any time owing by such Lender to
or for the credit or the account of any Guarantor against any and
all liability of such Guarantor under this Guaranty, whether or
not such Lender shall have made any demand under this Guaranty
and even though such liability may then be contingent and
unmatured. Each Lender agrees promptly to notify the effected
Guarantor after any such set-off and application made by such
Lender, but the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each
Lender under this Section 3.4 are in addition to other rights and
remedies (including, without limitation, other rights of set-off)
which such Lender may have.
SECTION 3.5 Successors and Assigns. This Guaranty
is binding upon and enforceable against each Guarantor, its
successors and assigns, and shall inure to the benefit of, and be
enforceable by, each Holder of any of the Guaranteed Obligations
and such Holder's heirs, representatives, successors and assigns.
SECTION 3.6 No Inquiry. Each Holder of Guaranteed
Obligations may rely, without further inquiry, on the power and
Page 116
authority of each Guarantor, Borrower and each of its
Subsidiaries and on the authority of all officers, directors and
agents acting or purporting to act on their behalf.
SECTION 3.7 Bankruptcy. So long as any Commitments
or Guaranteed Obligation are outstanding, no Guarantor will,
without the prior written consent of Agent and the Required
Banks, commence or join with any other Person in commencing any
Insolvency or Liquidation Proceeding against Borrower or any of
its Subsidiaries.
SECTION 3.8 No Waiver; Remedies. No failure on the
part of any Holder of Guaranteed Obligations to exercise, and no
delay in exercising, any right hereunder shall operate as a
waiver thereof, and any single or partial exercise of any right
hereunder shall not preclude any other or further exercise of any
other right or of the same right as to any other matter or on a
subsequent occasion.
SECTION 3.9 Remedies Cumulative. All rights,
powers and remedies of each Holder of Guaranteed Obligations
under this Guaranty, under any other agreement now or at any time
hereafter in effect between any such Holder and each and all of
the Guarantors (whether relating to the Guaranteed Obligations
or otherwise) or now or hereafter existing at law or in equity or
by statute or otherwise, shall be cumulative and concurrent and
not alternative and each such right, power and remedy may be
exercised independently of, and in addition to, each other such
right, power or remedy.
SECTION 3.10 Severally Enforceable. This Guaranty
may be enforced severally and successively by any one or more of
the Holders of Guaranteed Obligations in one or more actions,
whether independent, concurrent, joint, successive or otherwise.
The claims, rights and remedies of any Holder of Guaranteed
Obligations (i) may not be modified or waived by any other
Holder, except as set forth in Section 3.2(a), and (ii) shall not
be reduced, discharged, affected or impaired by any deed, act or
omission, whether or not wrongful, of any other Holder.
SECTION 3.11 Counterparts. This Guaranty may be
executed in counterparts, and each such counterpart for all
purposes shall be deemed an original and all such counterparts
together shall constitute but one and the same agreement.
SECTION 3.12 Severability. If any provision hereof
or the application thereof in any particular circumstance is held
to be unlawful or unenforceable in any respect, all other
provisions hereof and such provision in all other applications
shall nevertheless remain effective and enforceable to the
maximum extent lawful.
Page 117
SECTION 3.13 Integration. This Guaranty is
intended as an integrated and final expression of the entire
agreement of such Guarantor with respect to the subject matter
hereof. No representation, understanding, promise or condition
concerning the subject matter hereof shall be binding upon any
Holder of Guaranteed Obligations unless expressed herein or
therein, and no course of prior dealing or usage of trade, and no
parol or extrinsic evidence of any nature, shall be admissible to
supplement, modify or vary any of the terms hereof. Acceptance
of or acquiescence in a course of performance rendered under this
Guaranty or any other dealings between any Guarantor and any
Holder of Guaranteed Obligations shall not be relevant to
determine the meaning of this Guaranty even though the accepting
or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
SECTION 3.14 GOVERNING LAW; SUBMISSION TO
JURISDICTION; WAIVER OF JURY TRIAL.
(a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF
THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
JURISDICTION OF THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION
OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE BY ANY MEANS
PERMITTED BY NEW YORK LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES
ALL RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
GUARANTY, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE, AND AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY.
SECTION 3.15 Acceptance and Notice. Each Guarantor
acknowledges acceptance hereof and reliance hereon by each Holder
Page 118
of any of the Guaranteed Obligations and waives, irrevocably and
forever, all notice thereof.
IN WITNESS WHEREOF, the Guarantors have caused this
Subsidiary Guaranty to be duly executed and delivered by an
officer of each Guarantor thereunto duly authorized as of the
date first above written.
THE GUARANTORS:
Realty Income Texas Properties, L.P,
a Delaware limited partnership
By: Realty Income Corporation
Its: General Partner
By: _______________________________
Michael R. Pfeiffer
Senior Vice President,
General Counsel
Page 119
Schedule 1
----------
Commitments
-----------
BANK ALLOCATION
- ----------------------------------------------------
The Bank of New York $32,000,000
AmSouth Bank $22,000,000
Bank of Montreal $22,000,000
Dresdner Bank $22,000,000
First Union $22,000,000
Sanwa Bank $17,000,000
Bank Hapoalim $13,000,000
============
TOTAL $150,000,000
Schedule 5.01(a)
----------------
Subsidiaries and Joint Ventures of the Company
----------------------------------------------
SUBSIDIARIES:
Realty Income Texas Properties, Inc., a Delaware corporation
Realty Income Texas Properties, L.P., a Delaware limited
partnership
CO-TENANCIES:
Sizzler #514
101 North Village Court
San Dimas, CA 91773
Sizzler #567
9588 Baseline Road
Rancho Cucamonga, CA 91730
Children's World #134
510 West Second Street
Corona, CA 91720
Page 120
Schedule 5.01(q)
----------------
ERISA Liabilities
-----------------
1. Termination of the Realty Income Corporation Defined
Benefit Pension Plan (the "Plan") on January 2, 1996. All Plan
benefits were distributed on or before February 24, 1997.
Page 121
Schedule 5.01(r)
----------------
Intellectual Property
---------------------
REGISTERED U.S. SERVICE MARKS:
#1,470,945 "R.I.C."
#1,470,946 "RIC"
#1,908,766 "Realty Income Corporation"
#1,928,373 Building & Sun Design
APPLIED FOR U.S. SERVICE MARKS:
#75/182,734 "Realty Income"
#75/182,736 "Realty Income" with Building & Sun Design
Page 122
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
This Schedule contains summary financial information extracted from
the registrant's Balance Sheet as of June 30, 1998 and Income
Statement for the three months ended June 30, 1998 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,116,000
<SECURITIES> 0
<RECEIVABLES> 1,826,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> <F1> 0
<PP&E> 798,182,000
<DEPRECIATION> (160,648,000)
<TOTAL-ASSETS> 666,021,000
<CURRENT-LIABILITIES> <F1> 0
<BONDS> 197,900,000
<COMMON> 26,837,000
0
0
<OTHER-SE> 429,625,000
<TOTAL-LIABILITY-AND-EQUITY> 666,021,000
<SALES> 0
<TOTAL-REVENUES> 39,589,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,528,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,355,000
<INCOME-PRETAX> 20,232,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,232,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,232,000
<EPS-PRIMARY> 0.77
<EPS-DILUTED> 0.77
<FN>
Current assets and current liabilities are not applicable to
the Company under current industry standards.
/FN
Page 1
<PAGE>
</TABLE>
