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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 17, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission file number 0-17098
KINDERCARE LEARNING CENTERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0941966
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification Number)
650 N.E. Holladay Street, Suite 1400
Portland, Oregon 97232
(Address of principal executive offices)
(503) 872-1300
(Registrant's telephone number, including area code)
(Former name, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's common stock, $.01 par value per
share, outstanding at October 15, 1999 was 9,468,408.
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<PAGE>
KinderCare Learning Centers, Inc. and Subsidiaries
Index
Part I. Financial Information Page
Item 1. Consolidated financial statements:
Consolidated balance sheets at September 17, 1999
and May 28, 1999 (unaudited)............................... 2
Consolidated statements of operations for the
sixteen weeks ended September 17, 1999 and
September 18, 1998 (unaudited)............................. 3
Consolidated statements of stockholders' equity
and comprehensive income for the sixteen weeks
ended September 17, 1999 and the fiscal year
ended May 28, 1999 (unaudited)............................. 4
Consolidated statements of cash flows for the
sixteen weeks ended September 17, 1999 and
September 18, 1998 (unaudited)............................. 5
Notes to unaudited consolidated financial statements......... 6
Item 2. Management's discussion and analysis of
financial condition and results of operations........... 7
Item 3. Quantitative and qualitative disclosures
about market risk ...................................... 12
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................ 13
Signatures.................................................................. 14
<PAGE>
PART I
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
KinderCare Learning Centers, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
(Unaudited)
September 17, May 28,
1999 1999
------------- -------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 5,044 $ 5,750
Receivables, net 23,804 19,299
Prepaid expenses and supplies 5,913 6,056
Deferred income taxes 14,430 14,442
------------- -------------
Total current assets 49,191 45,547
Property and equipment, net 579,900 566,365
Deferred income taxes 3,958 3,499
Deferred financing costs and other assets 22,482 23,386
------------- -------------
$ 655,531 $ 638,797
============= =============
Liabilities and Stockholders' Equity:
Current liabilities:
Bank overdrafts $ 8,542 $ 7,791
Accounts payable 8,797 8,825
Current portion of long-term debt 11,334 11,586
Accrued expenses and other liabilities 72,168 88,899
------------- -------------
Total current liabilities 100,841 117,101
Long-term debt 444,102 414,209
Self insurance liabilities 16,945 17,368
Deferred income taxes 5,823 5,646
Other noncurrent liabilities 32,366 32,683
------------- -------------
Total liabilities 600,077 587,007
------------- -------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
10,000,000 shares; none outstanding -- --
Common stock, $.01 par value; authorized 20,000,000 shares;
issued and outstanding 9,468,408 and 9,480,837, respectively 95 95
Additional paid-in capital 8,073 8,355
Notes receivable from stockholders (928) (1,128)
Retained earnings 48,464 44,705
Accumulated other comprehensive income (250) (237)
------------- -------------
Total stockholders' equity 55,454 51,790
------------- -------------
$ 655,531 $ 638,797
============= =============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
KinderCare Learning Centers, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Sixteen Weeks Ended
-------------------------------------------
September 17, 1999 September 18, 1998
------------------ ------------------
<S> <C> <C>
Revenues, net $ 207,775 $ 192,274
------------- -------------
Operating expenses:
Salaries, wages and benefits 115,316 105,435
Depreciation 11,615 10,108
Rent 8,993 9,039
Provision for doubtful accounts 1,097 593
Other 51,751 48,867
Restructuring charges -- 2
------------- -------------
Total operating expenses 188,772 174,044
------------- -------------
Operating income 19,003 18,230
Investment income 142 148
Interest expense (13,084) (12,780)
------------- -------------
Income before income taxes 6,061 5,598
Income tax expense 2,302 2,055
------------- -------------
Net income $ 3,759 $ 3,543
============= =============
Basic net income per share $ 0.40 $ 0.37
============= =============
Diluted net income per share $ 0.39 $ 0.37
============= =============
Weighted average common shares outstanding 9,474,000 9,474,000
============= =============
Weighted average common shares outstanding
and potential common shares 9,708,000 9,589,000
============= =============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
KinderCare Learning Centers, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars in thousands)
Accumulated
Common Stock Additional Stockholders' Other
---------------------- Paid-in Notes Retained Comprehensive
Shares Amount Capital Receivable Earnings Income Total
---------- --------- ----------- ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 29, 1998 9,474,197 $ 95 $ 2,009 $ (1,325) $ 31,179 $ (58) $ 31,900
---------- --------- ----------
Comprehensive income:
Net income -- -- -- -- 13,526 -- 13,526
Cumulative translation adjustment -- -- -- -- -- (179) (179)
---------- --------- ----------
Total comprehensive income -- -- -- -- 13,526 (179) 13,347
---------- --------- ----------
Issuance of common stock 6,640 -- 135 (110) -- -- 25
Proceeds from collection of
stockholders' notes receivable -- -- -- 307 -- -- 307
Reversal of pre-fresh-start
contingency -- -- 6,211 -- -- -- 6,211
---------- --------- ----------- ------------ ---------- --------- ----------
Balance at May 28, 1999 9,480,837 95 8,355 (1,128) 44,705 (237) 51,790
---------- --------- ----------
Comprehensive income:
Net income -- -- -- -- 3,759 -- 3,759
Cumulative translation adjustment -- -- -- -- -- (13) (13)
---------- --------- ----------
Total comprehensive income -- -- -- -- 3,759 (13) 3,746
---------- --------- ----------
Repurchase of common stock (12,429) -- (282) -- -- -- (282)
Proceeds from collection of
stockholders' notes receivable -- -- -- 200 -- -- 200
---------- --------- ----------- ------------ ---------- --------- ----------
Balance at September 17, 1999 9,468,408 $ 95 $ 8,073 $ (928) $ 48,464 $ (250) $ 55,454
========== ========= =========== ============ ========== ========= ==========
</TABLE>
4
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<TABLE>
<CAPTION>
KinderCare Learning Centers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Sixteen Weeks Ended
-------------------------------------------
September 17, 1999 September 18, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operations:
Net income $ 3,759 $ 3,543
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation 11,615 10,108
Provision for doubtful accounts 1,097 593
Amortization of deferred financing costs and other assets 950 950
Gain on sales and disposals of property and
equipment, net (537) (71)
Changes in operating assets and liabilities:
Increase in receivables (5,602) (3,601)
Decrease (increase) in prepaid expenses and supplies 143 (1,912)
Decrease (increase) in other assets (48) 1,402
Decrease in accounts payable, accrued expenses
and other liabilities (17,769) (12,927)
Other, net (13) (60)
------------- -------------
Net cash used by operating activities (6,405) (1,975)
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment (25,565) (24,314)
Proceeds from sales of property and equipment 952 388
Proceeds from collection of notes receivable 2 766
------------- -------------
Net cash used by investing activities (24,611) (23,160)
------------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings 31,000 30,000
Proceeds from collection of stockholders' notes receivable 200 297
Repurchase of common stock (282) --
Payments on long-term borrowings (1,359) (10,457)
Bank overdrafts 751 (461)
------------- -------------
Net cash provided by financing activities 30,310 19,379
------------- -------------
Decrease in cash and cash equivalents (706) (5,756)
Cash and cash equivalents at the beginning of the quarter 5,750 11,820
------------- -------------
Cash and cash equivalents at the end of the quarter $ 5,044 $ 6,064
============= =============
Supplemental cash flow information:
Interest paid $ 17,095 $ 16,943
Income taxes paid 832 187
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE>
KinderCare Learning Centers, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Nature of Business and Basis of Presentation
KinderCare Learning Centers, Inc. ("KinderCare") is the leading for-profit
provider of early childhood care and education services in the United States. At
September 17, 1999, KinderCare operated a total of 1,145 centers, with 1,143
centers in 39 states in the United States and two centers in the United Kingdom.
The consolidated financial statements include the financial statements of
KinderCare and its wholly owned subsidiaries: KinderCare Real Estate Corp.;
Mini-Skools Limited; KC Development Corp.; KinderCare Learning Centres Limited
and KinderCare Properties Limited. All significant intercompany balances and
transactions have been eliminated in consolidation.
The unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments, all of which are of a normal recurring nature,
necessary to present fairly the financial position of KinderCare at September
17, 1999 and the results of operations and cash flows for the sixteen weeks
ended September 17, 1999 and September 18, 1998. Interim results are not
necessarily indicative of results to be expected for a full fiscal year. The
unaudited consolidated financial statements should be read in conjunction with
the annual consolidated financial statements and notes thereto included in
KinderCare's Report on Form 10-K for the fiscal year ended May 28, 1999.
Fiscal Year
References to fiscal 2000 and fiscal 1999 are to the 53 weeks ended June 2,
2000 and the 52 weeks ended May 28, 1999, respectively. KinderCare's fiscal year
ends on the Friday closest to May 31. Typically the first quarter is 16 weeks
long and the second, third and fourth quarters are each twelve weeks long.
Fiscal 2000, however, is 53 weeks long with 13 weeks in the fourth quarter.
Net Income per Share
KinderCare reports basic and diluted net income per share in accordance
with SFAS No. 128, Earnings per Share. The difference between basic and diluted
net income per share is a result of the dilutive effect of options, which are
considered potential common shares.
Recently Issued Accounting Pronouncements
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. The new standard becomes effective for KinderCare's fiscal year
2002. KinderCare does not believe the adoption of SFAS No. 133 will have a
material impact on KinderCare's financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included elsewhere in this
document. The information presented herein refers to the sixteen weeks ended
September 17, 1999 ("first quarter of fiscal 2000") and September 18, 1998
("first quarter of fiscal 1999").
KinderCare defines occupancy, a measure of the utilization of center
capacity, as the full-time equivalent, or FTE, attendance at all of the centers
divided by the sum of the centers' licensed capacity. FTE attendance is not a
strict head count. Rather, the methodology determines an approximate number of
full-time children based on weighted averages. For example, an enrolled
full-time child equates to one FTE, while a part-time child enrolled for a
half-day equates to 0.5 FTE. The FTE measurement of center capacity utilization
does not necessarily reflect the actual number of full- and part-time children
enrolled.
KinderCare defines average tuition rate as net revenues, exclusive of fees,
which are primarily reservation and registration fees, and non-tuition income,
divided by FTE attendance for the respective period. The average tuition rate
represents the approximate weighted average tuition rate at all of the centers
paid by parents for children to attend the centers five full days during a week.
However, the occupancy mix between full- and part-time children at each center
can significantly affect these averages with respect to any specific center.
Results of Operations
First Quarter of Fiscal 2000 compared to the First Quarter of Fiscal 1999
The following table shows the comparative operating results of KinderCare,
with dollars in thousands:
<TABLE>
<CAPTION>
Sixteen Weeks Sixteen Change
Ended Percent Weeks Ended Percent Amount
September 17, of September 18, of Increase/
1999 Revenues 1998 Revenues (Decrease)
------------- ---------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues, net $ 207,775 100.0% $ 192,274 100.0% 15,501
------------- ---------- -------------- ---------- ------------
Operating expenses:
Salaries, wages and benefits:
Center expense 107,388 51.7 98,123 51.0 9,265
Field and corporate expense 7,928 3.8 7,312 3.8 616
------------- ---------- -------------- ---------- ------------
Total salaries, wages and
benefits 115,316 55.5 105,435 54.8 9,881
Depreciation 11,615 5.6 10,108 5.3 1,507
Rent 8,993 4.3 9,039 4.7 (46)
Other 52,848 25.5 49,460 25.7 3,388
Restructuring charges -- -- 2 0.0 (2)
------------- ---------- -------------- ---------- ------------
Total operating expenses 188,772 90.9 174,044 90.5 14,728
------------- ---------- -------------- ---------- ------------
Operating income $ 19,003 9.1% $ 18,230 9.5% $ 773
============= ========== ============== ========== ============
</TABLE>
Revenues, net - Net revenues increased $15.5 million, or 8.1%, to $207.8
million in the first quarter of fiscal 2000 from the comparable quarter last
year. The increase in net revenues was primarily attributable to the increase in
the average tuition rate of $6.94, or 6.2%, to $118.94 for the first quarter of
fiscal 2000 from $112.00 for the first quarter of fiscal 1999. The tuition
increase was due in part to the addition of new centers with higher than average
tuition rates, as well as targeted local increases at existing centers.
KinderCare also benefited from additional net revenues as a result of increased
fees and non-tuition income. Occupancy declined 0.4 percentage points to 67.9%
for the first quarter of fiscal 2000 from 68.3% for the first quarter of fiscal
1999. The decline was primarily a result of the increased rate of opening new,
larger centers. New centers tend to open with lower than average enrollment and
typically take three or four years to mature.
7
<PAGE>
During the first quarter of fiscal 2000, centers opened within the current
and two most previous fiscal years contributed incremental net revenues of $9.7
million over the comparable quarter last year, while centers that were closed
incrementally reduced net revenues by $2.3 million. During the first quarter of
fiscal 2000, KinderCare opened seven community centers and closed 22 centers.
During the first quarter of fiscal 1999, KinderCare opened nine community
centers and closed nine centers. Total licensed capacity was approximately
145,000 and 143,000 at the end of the first quarter of fiscal 2000 and 1999,
respectively.
Salaries, wages and benefits - Expenses for salaries, wages and benefits,
which include bonus incentives, increased $9.9 million, or 9.4%, to $115.3
million in the first quarter of fiscal 2000 from the comparable quarter last
year. The expense directly associated with the centers was $107.4 million in the
first quarter of fiscal 2000, an increase of $9.3 million from the first quarter
of fiscal 1999. The increase in center related expenses was primarily
attributable to increased staff wage rates and, to a lesser degree, increased
hours and rising health benefit costs. The expense related to field management
and corporate administration was $7.9 million in the first quarter of fiscal
2000, an increase of $0.6 million from the first quarter of fiscal 1999.
At the center level, salaries, wages and benefits expense, as a percentage
of net revenues, increased to 51.7% for the first quarter of fiscal 2000 from
51.0% for the comparable quarter last year, due to the higher wage rates
discussed above. Total salaries, wages and benefits expense, as a percentage of
net revenues, increased to 55.5% for the first quarter of fiscal 2000 from 54.8%
for the comparable quarter last year.
Depreciation - Depreciation expense increased $1.5 million to $11.6 million
in the first quarter of fiscal 2000 from the comparable quarter last year. The
increase was a result of opening 37 new, larger centers during the past four
quarters.
Rent - Rent expense did not change significantly in the first quarter of
fiscal 2000 from the comparable quarter last year. KinderCare has closed 36
leased centers in the past four quarters. Rental rates for new center leases and
renewals have been higher than the rates experienced in the past.
Other operating expenses - Other operating expenses increased $3.4 million,
or 6.8%, to $52.8 million in the first quarter of fiscal 2000 from the
comparable quarter last year. Other operating expenses include costs directly
associated with the centers, such as food, educational materials, janitorial and
maintenance costs, utilities, transportation, and insurance, and expenses
related to field management and corporate administration. The increase was due
primarily to higher expenses related to food, janitorial services, field trips
and the provision for doubtful accounts. In addition, the recognition of certain
marketing expenses was accelerated into the first quarter of fiscal 2000 as
compared to the same quarter last year. Finally, operating expenses associated
with opening new centers decreased due to the timing of the new center
development schedule. As a percentage of net revenues, other operating expenses
decreased to 25.5% for the first quarter of fiscal 2000 from 25.7% for the
comparable quarter last year primarily due to a decline in expenses related to
corporate administration.
Operating income - Operating income increased $0.8 million to $19.0 million
in the first quarter of fiscal 2000 from the comparable quarter last year. The
increased operating income was due to the growth in net revenues, offset by a
slight increase in total operating expenses as a percentage of net revenues, as
discussed above.
EBITDA, defined as income before interest expense, income taxes,
depreciation and amortization, for the first quarter of fiscal 2000 was $30.8
million, $2.3 million above the comparable quarter last year. As a percentage of
net revenues, EBITDA for the first quarter of fiscal 2000 remained flat at 14.8%
as compared to the first quarter of fiscal 1999. Adjusted EBITDA, defined as
EBITDA exclusive of restructuring charges and investment income, was $30.6
million in the first quarter of fiscal 2000, an increase of $2.3 million from
the comparable quarter last year. As a percentage of net revenues, Adjusted
EBITDA for the first quarter of fiscal 2000 and fiscal 1999 was 14.7%. Neither
EBITDA nor Adjusted EBITDA is intended to indicate that cash flow is sufficient
to fund all of KinderCare's cash needs or represent cash flow from operations as
defined by generally accepted accounting principles. In addition, EBITDA and
Adjusted EBITDA should not be used as tools for comparison as the computation
may not be similar for all companies.
Interest expense - Interest expense was $13.1 million for the first quarter
of fiscal 2000, compared to $12.8 million for the same quarter last year.
KinderCare's weighted average interest rate on its long-term debt, including
8
<PAGE>
amortization of deferred financing costs, was 9.7% for the first quarter of
fiscal 2000 versus 9.8% for the first quarter of fiscal 1999.
Income tax expense - Income tax expense during the first quarter of fiscal
2000 and fiscal 1999 of $2.3 and $2.1 million, respectively, was computed by
applying estimated effective income tax rates to income before income taxes.
Income tax expense varies from the statutory federal income tax rate due to
state and foreign income taxes, offset by tax credits.
Net income - Net income for the first quarter of fiscal 2000 was $3.8
million, or $0.40 per share, compared to $3.5 million, or $0.37 per share,
during the first quarter of fiscal 1999. The 6.1 percent increase in net income
over the comparable quarter last year was due primarily to the growth in the
average tuition rate, as well as, increased fee and non-tuition income.
Liquidity and Capital Resources
KinderCare's principal sources of liquidity are cash flow generated from
operations and borrowings under the $300.0 million revolving credit facility and
the new $100.0 million synthetic lease facility established in the first quarter
of fiscal 2000. At September 17, 1999, KinderCare was committed on outstanding
letters of credit totaling $43.0 million and had outstanding draws of $65.0
million under the revolving credit facility. KinderCare's principal uses of
liquidity are meeting debt service requirements, financing its capital
expenditures and providing working capital.
KinderCare's consolidated net cash used by operating activities for the
first quarter of fiscal 2000 was $6.4 million, which represents a $4.4 million
decrease in net cash flow from operations from the comparable period last year.
The decrease in net cash flow from operations is a result of the net impact of
changes in operating assets and liabilities. Cash and cash equivalents totaled
$5.0 million at September 17, 1999 compared to $5.8 million at May 28, 1999.
KinderCare anticipates substantially increasing its capital expenditure
budget over the next several years due to an increased rate of opening and/or
acquiring new centers and the renovation of existing facilities. In September
1999, KinderCare entered into a $100 million synthetic lease facility under
which a third-party lessor will finance the acquisition and construction of
centers for lease to KinderCare for a three to five year period, which might be
extended, subject to the consent of the lenders. KinderCare is contingently
liable for a significant portion of the cost through a residual guarantee, but
will have the right to acquire the property for its original cost at the end of
the lease term. KinderCare expects lower depreciation and interest expense and
higher rent expense as a result of implementation of the synthetic lease
facility compared to such expenses that would have been incurred if KinderCare
financed the centers directly as owner.
New enrollments are generally highest in October and February, with
attendance declining 5% to 10% during the summer months and the calendar
year-end holiday period. The decreased attendance in the summer months and
during the calendar year-end holiday period may result in decreased liquidity
during these periods.
Management believes that cash flow generated from operations and borrowings
under the revolving credit and synthetic lease facilities will adequately
provide for its working capital and debt service needs and will be sufficient to
fund KinderCare's expected capital expenditures for the foreseeable future. Any
future acquisitions, joint ventures or similar transactions may require
additional capital, and such capital may not be available to KinderCare on
acceptable terms or at all. Although no assurance can be given that such sources
of capital will be sufficient, the capital expenditure program has substantial
flexibility and is subject to revision based on various factors including but
not limited to, business conditions, cash flow requirements, debt covenants,
competitive factors and seasonality of openings. If KinderCare experiences a
lack of working capital, it may reduce its capital expenditures in the long
term. If these expenditures were substantially reduced, in management's opinion,
KinderCare's operations and its cash flow would be adversely impacted.
Subsequent to the end of the first quarter of fiscal 2000, KinderCare
acquired $10.0 million aggregate principal amount of its 9 1/2% senior
subordinated notes at an aggregate price of $9.6 million. This transaction
resulted in the write-off of deferred financing costs of $0.3 million and an
extraordinary gain of approximately $0.1
9
<PAGE>
million, net of income taxes. The recognition of the gain associated with this
transaction will be reflected in KinderCare's second quarter of fiscal 2000
financial statements.
Capital Expenditures
During the first quarters of fiscal 2000 and 1999, KinderCare opened seven
and nine community centers, respectively. Over the next three years, KinderCare
expects to increase its rate of opening and/or acquiring new centers to
approximately 45 to 50 centers per year in the aggregate and to continue its
practice of closing centers that are identified as not meeting performance
expectations.
The length of time from site selection to the opening of a community center
ranges from 18 to 24 months. The average total cost per community center
typically ranges from $1.8 million to $2.2 million depending on the size and
location of the center. However, the actual costs of a particular center may
vary from such range. New centers are located based upon detailed site analyses
that include feasibility and demographic studies and financial modeling.
However, KinderCare may not be able to successfully negotiate and acquire
properties, meet its targets for new center additions or meet targeted deadlines
for development of new centers. Frequently, new site negotiations are delayed or
canceled or construction is delayed for a variety of reasons, many of which are
outside the control of KinderCare
KinderCare has developed a new center prototype that is larger and has a
more physically appealing design than prior prototypes. The new centers have a
proforma licensed capacity of 180, while the centers constructed during fiscal
1997 and earlier have an average licensed capacity of 125. When mature, these
larger centers are designed to generate higher revenues, operating income and
margins than KinderCare's existing centers. These new centers have a higher
average cost of construction and typically take three to four years to reach
maturity. Based on KinderCare's prototype, on average a new center should begin
to produce positive EBITDA by the end of its first year of operation and begin
to produce positive net income by the end of its second year of operation.
Accordingly, as the opening of our new centers is accelerated, profitability
will be negatively impacted in the short-term, but is expected to be enhanced in
the long-term once these new, more profitable centers achieve anticipated
levels.
KinderCare also plans to make significant capital expenditures in
connection with a renovation program, which includes interior and playground
renovations and signage replacements, that are designed to bring all of its
existing facilities to a company standard for plant and equipment and to enhance
the curb appeal of these centers.
Capital expenditures during the first quarters of fiscal 2000 and fiscal
1999 totaled approximately $25.6 and $24.3 million, respectively. Expenditures
for new center development were $14.6 and $17.0 million, while expenditures for
renovations of existing facilities were $7.4 and $5.3 million during the first
quarter of fiscal 2000 and fiscal 1999, respectively. Purchases of equipment
were $2.2 and $1.6 million and corporate information systems were $1.4 and $0.4
million, respectively, during the first quarter of fiscal 2000 and 1999.
Capital expenditure limits under KinderCare's credit facilities for fiscal
year 2000 are $185.0 million. Capital expenditure limits may be increased by
carryover of a portion of unused amounts from previous periods and are subject
to exceptions. Also, KinderCare has some ability to incur additional
indebtedness under the provisions of the indenture under which the senior
subordinated notes were issued and the credit facilities, including through
mortgages or sale-leaseback transactions.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in systems failures or miscalculations which cause
disruptions of operations. KinderCare does not use information technology in the
delivery of its services, but it uses such technology extensively for financial
reporting systems, payroll, purchasing and other important support functions.
KinderCare has completed an inventory of all hardware, software
applications and data flow exchanges to or from third parties and has identified
and assigned test priorities for systems that are critical to KinderCare's
operations. KinderCare has completed testing of approximately 75% of its
critical systems, has determined that
10
<PAGE>
there are no material Year 2000 weaknesses in those systems and has remediated
any minor weaknesses identified. The remaining critical systems, although
certified compliant by the system's vendors, are in the process of being tested
with testing scheduled for completion by November 1999.
KinderCare recently replaced its non-Year 2000 compliant payroll system
based primarily on other business considerations. The new human resource/payroll
software package has been certified by the vendor as Year 2000 compliant. The
total cost of purchasing and implementing the human resource/payroll system,
most of which was incurred in fiscal 1999, was approximately $2.0 million. These
costs have been expensed as incurred or will be amortized over five years in
accordance with generally accepted accounting principles.
KinderCare has sent Year 2000 compliance questionnaires to third party
vendors, utility companies and government agencies administering subsidized
tuition programs. KinderCare has also requested compliance certificates from any
vendors identified as critical. KinderCare's critical vendors have represented
that they will achieve Year 2000 compliance. KinderCare will continue to monitor
the compliance statements of these vendors and is developing test and/or
contingency plans as deemed necessary.
KinderCare is having limited success in obtaining Year 2000 certifications
from government agencies administering subsidized tuition programs. However,
KinderCare's preliminary assessment of the Year 2000 risks is that, although
payments from these agencies may be delayed, payments ultimately will be made.
Management believes that Year 2000 failures among these agencies would not have
a material adverse effect on KinderCare's business.
KinderCare has developed detailed contingency plans in the event that the
systems and equipment or critical suppliers and vendors supporting critical
business processes are not Year 2000 compliant. The corporate business unit is
testing contingency plans to ensure that desired outcomes are achieved.
KinderCare will continue to monitor its Year 2000 risks and will make
modifications to its contingency plans as appropriate.
Currently, the primary focus of KinderCare's Year 2000 project is
contingency planning, rollover event planning and maintaining Year 2000
compliance as systems changes are introduced and vendors and business partners
re-evaluate their own compliance status. KinderCare anticipates that work on
these areas of the project will continue through 1999.
KinderCare has not incurred significant incremental costs specifically in
connection with its Year 2000 project and all upgrades and system replacements
made in connection with its Year 2000 project were part of previously planned
software and hardware upgrades. In order to achieve Year 2000 compliance,
KinderCare has needed, and expects that it will continue to need, only existing
employees who otherwise have been assigned to planned upgrades of KinderCare's
software and hardware. Although KinderCare has engaged a Year 2000 consultant to
validate its testing methodology and to conduct a readiness review, the
associated costs are immaterial.
KinderCare believes that the most reasonably likely worst-case scenario
resulting from KinderCare's inability, or the inability of KinderCare vendors or
government agencies, to become Year 2000 compliant, includes the following
adverse effects:
o Vendor Problems. KinderCare may be unable to receive materials and
supplies due to Year 2000-related failures on the part of its suppliers
causing KinderCare to be unable to meet its scheduled new center
openings. In addition, suppliers of food and other products necessary to
operate existing centers could be affected. Although KinderCare believes
that it could obtain these supplies from alternate sources, it would
likely result in increased costs.
o Payment Delays. As discussed above, payments from governmental agencies
administering tuition programs could be delayed, requiring KinderCare to
fund cash flow requirements through additional borrowings.
An independent review of all phases of KinderCare's Year 2000 project has
been completed and the review has generally confirmed that KinderCare is at low
risk for Year 2000 interruption. However, notwithstanding KinderCare's progress
and the results of this review, there are several ways in which its systems
could still be
11
<PAGE>
affected by the Year 2000 problem. First, the software code KinderCare uses in
its information systems may not in fact be Year 2000 compliant in all instances.
Second, KinderCare may be unable to complete the remaining upgrades to its
information technology systems by the year 2000. Third, even if KinderCare
completes the system upgrades by the year 2000, it may be unable to fully test
and monitor the upgrades, making it difficult for KinderCare to identify and
remedy any problems that might exist. Fourth, KinderCare's vendors, governmental
agencies and other third parties with which KinderCare does business may be
unable to achieve Year 2000 compliance in time. Moreover, KinderCare's
assessment of its Year 2000 compliance and the independent assessment it has
obtained is based on numerous assumptions about future events, including third
party compliance. There can be no guarantee that this assessment is correct and
actual results could differ materially from those anticipated.
Wage Increases
Expenses for salaries, wages and benefits represented approximately 55.5%
of net revenues for the first quarter of fiscal 2000. Low unemployment rates and
positive economic trends have challenged recruiting efforts and put pressure on
wage rates in many of KinderCare's markets. KinderCare believes that, through
increases in its tuition rates, it can recover any future increase in expenses
caused by adjustments to the federal or state minimum wage rates or other market
adjustments. However, KinderCare may not be able to increase its rates
sufficiently to offset such increased costs. KinderCare continually evaluates
its wage structure and may implement changes at targeted local levels.
Forward Looking Statements
When used in this report, press releases and elsewhere by KinderCare or
management from time to time, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements, within
the meaning of federal securities law, concerning KinderCare's operations,
economic performance and financial condition, including, in particular, the
number of centers expected to be added in future years, planned transactions and
changes in operating systems and policies and their intended results and similar
statements concerning anticipated future events and expectations that are not
historical facts.
These forward-looking statements are based on a number of assumptions and
estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of KinderCare, and reflect
future business decisions which are subject to change. A variety of factors
could cause actual results to differ materially from those anticipated in
KinderCare's forward-looking statements, including: the effects of economic
conditions; federal and state legislation regarding welfare reform,
transportation safety and minimum wage increases; competitive conditions in the
child care and early education industries; availability of a qualified labor
pool, the impact of labor organization efforts and the impact of government
regulations concerning labor and employment issues; various factors affecting
occupancy levels; availability of sites and/or licensing or zoning requirements
affecting new center development; the impact of Year 2000 compliance by
KinderCare or those entities with which KinderCare does business; and other risk
factors that are discussed in this report and, from time to time, in other
Securities and Exchange Commission reports and filings. One or more of the
foregoing factors may cause actual results to differ materially from those
expressed in or implied by the statements herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date thereof. KinderCare undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof, or thereof, as the case may be, or to reflect the
occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
KinderCare is not presently engaged in any transactions of the type
described in S-K Item 305.
12
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this document or incorporated herein
by reference:
(a) Exhibit:
4(a) - First Supplemental Indenture dated as of September 1, 1999
to the Indenture dated as of February 13, 1997 between
KinderCare and HSBC Bank USA (formerly known as Marine
Midland Bank), as Trustee.
10(a) - Credit Agreement among the Lessor, the Agent and the
Lenders, dated as of September 2, 1999.
10(b) - Participation Agreement among KinderCare Learning Centers,
Inc., as Lessee, The KinderCare Realty Trust, as Lessor,
Scotiabanc Inc., as Investor, The Chase Manhattan Bank, as
Agent for the Lenders who may become a party to the Credit
Agreement and the Lenders, dated as of September 2, 1999.
10(c) - Rules of Usage and Definitions under the Participation
Agreement.
10(d) - Agency Agreement between the Lessor and the Lessee, dated
as of September 2, 1999.
10(e) - Guarantee made by Lessee, KinderCare Real Estate Corp. and
KinderCare Development Corp. to the Agent, the Lenders and
the Investor, dated as of September 2, 1999.
10(f) - Lease, Security Agreement and Financing Statement between
the Lessor and the Lessee, dated as of September 2, 1999.
27 - Financial Data Schedule.
(b) Reports on Form 8-K: None.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on November 1, 1999.
KINDERCARE LEARNING CENTERS, INC.
(Registrant)
/s/ DAVID J. JOHNSON
---------------------------------
David J. Johnson
Chairman of the Board of Directors
and Chief Executive Officer
/s/ ROBERT ABELES
---------------------------------
Robert Abeles
Executive Vice President, Chief
Financial Officer
14
KINDERCARE LEARNING CENTERS, INC., as Issuer
and
HSBC BANK USA (formerly known as Marine Midland Bank), as Trustee
================================================================================
FIRST SUPPLEMENTAL INDENTURE
Dated as of September 1, 1999
to
Indenture
Dated as of February 13, 1997
================================================================================
9 1/2% Senior Subordinated Notes due 2009
9 1/2% Series B Senior Subordinated Notes due 2009
<PAGE>
FIRST SUPPLEMENTAL INDENTURE (hereafter, the "First Supplemental
Indenture") dated as of September 1, 1999 between KINDERCARE LEARNING CENTERS,
INC. (hereinafter, the "Company"), a corporation duly organized and existing
under the laws of the State of Delaware, and HSBC BANK USA (formerly known as
Marine Midland Bank) (hereinafter, the "Trustee"), a New York banking
corporation and trust company.
W I T N E S S E T H :
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an Indenture dated as of February 13, 1997 (hereinafter, the
"Indenture") providing for the issuance of the Company's 9 1/2% Senior
Subordinated Notes due 2009 and 9 1/2% Series B Senior Subordinated Notes due
2009 (hereinafter, the "Securities"); and
WHEREAS, pursuant to Section 901 of the Indenture, the Company may,
without the consent of any Holders, when authorized by a Board Resolution, and
the Trustee, at any time and from time to time, enter into one or more
indentures supplemental to the Indenture, in form satisfactory to the Trustee,
for the purpose of making any change to the Indenture that does not adversely
affect the legal rights of any Holder;
WHEREAS, the Board of Directors of the Company has authorized the
execution of this First Supplemental Indenture and its delivery to the Trustee;
WHEREAS, the Company has delivered an Opinion of Counsel to the
Trustee pursuant to Section 903 of the Indenture; and
WHEREAS, all other actions necessary to make this First Supplemental
Indenture a legal, valid and binding obligation of the parties hereto in
accordance with its terms and the terms of the Indenture have been performed;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Company covenants and agrees with the Trustee, for the equal and proportionate
benefit of all present and future holders of Securities, as follows:
Section 1. The definition of "Permitted Investment" in Section 101 of
the Indenture shall be amended by adding a new clause (p) as follows:
'(p) guarantees permitted under Section 1010, provided, however, that
the interest on the Indebtedness or other obligation being guaranteed shall
be included in the calculation of Consolidated Interest Expense.'
1
<PAGE>
Section 2. For all purposes of this First Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same meanings
as corresponding terms and expressions used in the Indenture; and (ii) the words
"herein", "hereof" and "hereby" and other words of similar import used in this
First Supplemental Indenture refer to this First Supplemental Indenture as a
whole and not to any particular Section hereof.
Section 3. The Trustee accepts this First Supplemental Indenture and
the amendment of the Indenture effected thereby and agrees to execute the trust
created by the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture, including the terms and provisions
defining and limiting the liabilities and responsibilities of the Trustee, which
terms and provisions shall in like manner define and limit its liabilities in
the performance of the trust created by the Indenture as hereby amended. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein, which shall be taken as the statements of the Company. The Trustee makes
no representation and shall have no responsibility as to the validity of this
First Supplemental Indenture or the proper authorization or the due execution
hereof by the Company.
Section 4. Except as hereby expressly amended, the Indenture and the
Securities issued thereunder are in all respects ratified and confirmed and all
the terms, conditions and provisions thereof shall remain in full force and
effect.
Section 5. This First Supplemental Indenture shall form a part of the
Indenture for all purposes, and every holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
Section 6. This First Supplemental Indenture may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and the
same instrument.
Section 7. This First Supplemental Indenture shall be construed in
accordance with and governed by the laws of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the day and year first
above written.
KINDERCARE LEARNING CENTERS, INC.
By: DAN R. JACKSON
-------------------------------------
Dan R. Jackson
Vice President, Financial Control
and Planning
HSBC BANK USA, as Trustee
By: FRANK J. GODINO
-------------------------------------
Frank J. Godino
Vice President
3
================================================================================
$100,000,000
CREDIT AGREEMENT
among
THE KINDERCARE REALTY TRUST 1999
as Borrower
The Several Lenders
from Time to Time Parties Hereto
BANK OF AMERICA, N.A.,
as Co-Documentation Agent
THE BANK OF NOVA SCOTIA,
as Syndication Agent
BANKERS TRUST COMPANY,
as Syndication Agent
and
THE CHASE MANHATTAN BANK,
as Administrative Agent,
Book Manager and Lead Arranger
Dated as of September 2, 1999
================================================================================
<PAGE>
-i-
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS ......................................................1
1.1 Defined Terms ...................................................1
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 1
2.1 Commitments .....................................................1
2.2 Notes............................................................1
2.3 Procedure for Borrowing..........................................2
2.4 Commitment Fees..................................................3
2.5 Prepayments......................................................3
2.6 Conversion and Continuation Options..............................4
2.7 Minimum Amounts of Tranches......................................4
2.8 Interest Rates and Payment Dates.................................4
2.9 Computation of Interest..........................................5
2.10 Inability to Determine Interest Rate.............................5
2.11 Pro Rata Treatment and Payments..................................6
2.12 Illegality.......................................................6
2.13 Requirements of Law..............................................7
2.14 Indemnity........................................................8
2.15 Taxes............................................................8
2.16 Notice of Certain Costs.........................................10
2.17 Change of Lending Office........................................11
2.18 Replacements of Lender under Certain Circumstances..............11
SECTION 3. REPRESENTATIONS AND WARRANTIES...................................11
SECTION 4. CONDITIONS PRECEDENT.............................................11
4.1 Conditions to Effectiveness.....................................11
4.2 Conditions to Each Loan.........................................12
SECTION 5. COVENANTS........................................................12
5.1 Other Activities................................................12
5.2 Ownership of Property, Indebtedness.............................12
5.3 Disposition of Assets...........................................13
5.4 Compliance with Operative Agreements............................13
5.5 Further Assurances..............................................13
5.6 Notices.........................................................13
5.7 Discharge of Liens..............................................13
5.8 Recordkeeping...................................................13
<PAGE>
-ii-
SECTION 6. REMEDIAL PROVISIONS..............................................13
6.1 Events of Default...............................................13
SECTION 7. THE AGENT........................................................17
7.1 Appointment.....................................................17
7.2 Delegation of Duties............................................18
7.3 Exculpatory Provisions..........................................18
7.4 Reliance by Agent...............................................18
7.5 Notice of Default...............................................18
7.6 Non-Reliance on Agent and Other Lenders.........................19
7.7 Indemnification.................................................19
7.8 Agent in Its Individual Capacity................................20
7.9 Successor Agent.................................................20
7.10 Co-Documentation and Syndication Agents.........................20
SECTION 8. MATTERS RELATING TO PAYMENTS AND COLLATERAL......................20
8.1 The Account.....................................................20
8.2 Proceeds of Collateral; Proceeds Remaining in Account...........22
8.3 Certain Remedial Matters........................................23
8.4 Release of the Property, etc. ..................................24
SECTION 9. MISCELLANEOUS....................................................24
9.1 Amendments and Waivers..........................................24
9.2 Notices.........................................................25
9.3 No Waiver; Cumulative Remedies..................................26
9.4 Survival of Representations and Warranties......................26
9.5 Successors and Assigns; Participations and Assignments..........26
9.6 Participations..................................................26
9.7 Assignments.....................................................27
9.8 The Register; Disclosure; Pledges to Federal Reserve Banks......29
9.9 Adjustments; Set-Off............................................29
9.10 Counterparts....................................................30
9.11 Severability....................................................30
9.12 Integration.....................................................30
9.13 GOVERNING LAW...................................................30
9.14 SUBMISSION TO JURISDICTION; WAIVERS.............................31
9.15 Acknowledgments.................................................31
9.16 WAIVERS OF JURY TRIAL...........................................32
9.17 Nonrecourse.....................................................32
<PAGE>
-iii-
EXHIBITS
- --------
Exhibit A-1 Form of Tranche A Note
Exhibit A-2 Form of Tranche B Note
Exhibit B Form of Assignment and Acceptance
Exhibit C Form of Designation Agreement
SCHEDULES
- ---------
Schedule 1.1 Commitments of Lenders
<PAGE>
CREDIT AGREEMENT, dated as of September 2, 1999 among THE KINDERCARE REALTY
TRUST 1999, a Delaware business trust (the "Borrower"), BANK OF AMERICA, N.A., a
national banking association, as Co-Documentation Agent, THE BANK OF NOVA
SCOTIA, a Delaware corporation, as Syndication Agent, BANKERS TRUST COMPANY, as
Syndication Agent, the several banks and other financial institutions from time
to time parties to this Agreement (the "Lenders") and THE CHASE MANHATTAN BANK,
a New York banking corporation, as agent for the Lenders hereunder (in such
capacity, the "Agent"), Administrative Agent, Book Manager and Lead Arranger.
The parties hereto hereby agree as follows:
1. SECTION DEFINITIONS
1.1 Defined Terms . Capitalized terms used herein but not otherwise
defined in this Agreement shall have the respective meanings set forth in Annex
A attached to the Participation Agreement dated as of the date hereof among
Lessee, the Borrower, the Investor, the Agent and the Lenders.
2. SECTION AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Lender severally agrees to make revolving credit loans (the "Loans") to the
Borrower from time to time during the Commitment Period for the purpose of
enabling the Borrower to acquire the Properties and to pay Project Costs, in an
aggregate principal amount not to exceed the amount of such Lender's Commitment.
During the Commitment Period the Borrower may use the Commitments by borrowing,
prepaying the Loans in whole or in part, and reborrowing, all in accordance with
the terms and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans, or (iii) a combination thereof, as determined by the Borrower and
notified to the Agent in accordance with Sections 2.3 and 2.6, provided that no
Loan shall be made as a Eurodollar Loan after the day that is one month prior to
the Maturity Date.
2.2 Notes. The Loans made by each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit A-1, in
the case of Tranche A Loans (each, a "Tranche A Note"), or Exhibit A-2, in the
case of Tranche B Loans (each, a "Tranche B Note"), with appropriate insertions
as to payee, date and principal amount, payable to the order of such Lender and
in a principal amount equal to the lesser of (a) the initial Commitment of such
Lender and (b) the aggregate outstanding principal amount of all Tranche A Loans
or Tranche B Loans, as the case may be, made by such Lender. Each Lender is
hereby authorized to record the date, Type and amount of each Loan made by such
Lender, each continuation thereof, each conversion of all or a portion thereof
to another Type, the date and amount of each payment or prepayment of principal
thereof and, in the case of Eurodollar Loans, the length of each Interest Period
with respect thereto, on the schedule
<PAGE>
2
annexed to and constituting a part of its Note, and any such recordation shall
constitute prima facie evidence of the existence and accuracy of the loans
therein recorded, in the absence of manifest error, provided that the failure to
make any such recordation or any error in such recordation shall not affect the
Borrower's actual obligations hereunder or under such Note. Each Note shall (i)
be dated the Initial Closing Date, (ii) be stated to mature on the Maturity Date
and (iii) provide for the payment of interest in accordance with Section 2.8.
2.3 Procedure for Borrowing . The Borrower may borrow under the
Commitments during the Commitment Period on any Business Day, provided that the
Borrower shall deliver to the Agent an irrevocable Requisition (which
Requisition must be received by the Agent prior to 12:00 Noon, New York City
time, three Business Days prior to the requested Borrowing Date, unless the
borrowing is to be entirely ABR Loans, in which event such Requisition must be
received one Business Day prior to the requested Borrowing Date), specifying (i)
the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the
borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and
(iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Each borrowing under the Commitments (other
than borrowings of Interest Payment Loans) shall be in an amount equal to (x) in
the case of ABR Loans, at least $500,000 or a whole multiple of $100,000 in
excess thereof (or if less, the Total Available Commitments or the amount
representing Property Acquisition Costs for any Property) and (y) in the case of
Eurodollar Loans, at least $500,000 or a whole multiple of $100,000 in excess
thereof. Upon receipt of any such Requisition from the Borrower, the Agent shall
promptly notify each Lender thereof. Each Lender will make the amount of its pro
rata share of each borrowing available to the Agent for the account of the
Borrower at the office of the Agent specified in Section 9.2 prior to 12:00
Noon, New York City time, on the Borrowing Date requested by the Borrower in
funds immediately available to the Agent. Such borrowing will then be made
available to the Borrower by the Agent crediting an account designated by the
Borrower on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent. The Borrower may submit no more than three (3) Requisitions in any
calendar month in total; each Requisition may be applied as to either Project
Costs or Property Acquisition Costs or both but with a maximum of one Project
Cost Requisition per month.
(b) Notwithstanding anything in the foregoing Section 2.3(a) to the
contrary, on each date during the Construction Period with respect to any
Construction Period Property which is one Business Day prior to any Scheduled
Interest Payment Date, the Borrower shall be deemed to have requested a
borrowing pursuant to Section 2.3(a) of ABR Loans in an amount equal to the
aggregate amount of Allocated Interest on the Loans due and payable on such
Scheduled Interest Payment Date with respect to the Construction Period
Properties. The Borrowing Date with respect to any such borrowing shall be the
relevant Scheduled Interest Payment Date (provided, that the making of the Loans
pursuant to such borrowing shall be subject to satisfaction of the applicable
conditions precedent set forth in Section 4.2) and the proceeds of such
borrowing shall be applied to pay such interest. On each such Borrowing Date,
the Tranche A/B Property Cost and the Tranche A/B Construction Property Cost of
each Construction Period
<PAGE>
3
Property shall be increased by an amount equal to the Allocated Interest paid on
such date with respect to such Property.
(c) A portion of the principal amount of each Loan made by each Lender
equal to the Tranche A Percentage of the principal amount of such Loan shall be
deemed to be a "Tranche A Loan" for the purposes of the Operative Agreements and
the remaining portion of the principal amount of such Loan shall be deemed to be
a "Tranche B Loan" for the purposes of the Operative Agreements, provided that
payments in respect of the Loans shall be allocated to reduce the aggregate
outstanding principal amount of Tranche A Loans and Tranche B Loans of each
Lender in the manner specified in Section 2.11(a).
2.4 Commitment Fees . Promptly after receipt from the Lessee of
payment of any Commitment Fees payable pursuant to the Participation Agreement,
the Agent shall distribute such payment to the Lenders pro rata according to
their respective Commitment Percentages and to the Investors pro rata according
to their Proportionate Share of the Investor Commitment.
2.5 Prepayments . The Borrower may at any time and from time to time
prepay the Loans, in whole or in part, without premium or penalty (other than
breakage costs if due hereunder), upon at least three Business Days' irrevocable
notice to the Agent, specifying the date and amount of prepayment and whether
the prepayment is of Eurodollar Loans, ABR Loans or a combination thereof, and,
if of a combination thereof, the amount allocable to each. Upon receipt of any
such notice the Agent shall promptly notify each Lender thereof. If any notice
of prepayment is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with accrued interest to the
payment date on the amount prepaid and amounts, if any, required to be paid
pursuant to Section 2.14. Partial prepayments pursuant to this Section 2.5(a)
shall be in an aggregate principal amount of $500,000 or a whole multiple of
$100,000 in excess thereof.
(b) If on any date the Agent or the Borrower shall receive, with
respect to any Property, any payment in respect of excess wear and tear pursuant
to Section 21.3 of the Lease (a "Wear and Tear Payment") or any Net Sales
Proceeds Shortfall pursuant to Section 21.3 of the Lease, such payment shall be
applied to prepay the Loans on such date in accordance with Section 8.1(b)(vi).
(c)(i) On any date on which the Lessee is obligated to pay the Lessor
an amount equal to (x) the Termination Value of any Property in connection with
the delivery of a Termination Notice or (y) the Termination Value of any
Property in connection with the exercise of a Purchase Option or Maturity Date
Purchase Option, such amount shall be applied to prepay the Loans on such date
in accordance with Section 8.1(b)(ii), and (ii) on any date on which any
Property shall have been sold pursuant to Section 21 of the Lease, the Borrower
shall prepay the Loans on such date in an amount equal to the proceeds of such
sale (net of costs and expenses described in Section 21.2(i) of the Lease) in
accordance with Section 8.1(b)(iii).
<PAGE>
4
(d) Each prepayment of the Loans pursuant to Section 2.5(b) or 2.5(c)
shall be allocated to reduce the Tranche A/B Property Cost of the affected
Property. Each prepayment of the Loans pursuant to Section 2.5(a) shall be
allocated to reduce the respective Tranche A/B Property Costs of all Properties,
pro rata according to the Tranche A/B Property Costs of such Properties
immediately before giving effect to such prepayment. Any amounts applied to
reduce the Tranche A/B Property Cost of any Construction Period Property
pursuant to this paragraph (d) shall also be applied to reduce the Tranche A/B
Construction Property Cost of such Property until such Tranche A/B Construction
Property Cost has been reduced to zero.
2.6 Conversion and Continuation Options . The Borrower may elect from
time to time to convert Eurodollar Loans to ABR Loans by giving the Agent at
least one Business Days' prior irrevocable notice of such election, provided
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Borrower may elect from time to
time to convert ABR Loans to Eurodollar Loans by giving the Agent at least three
Business Days' prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such notice the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans or ABR Loans may be converted as provided herein, provided that
no ABR Loan may be converted into a Eurodollar Loan when any Default or Event of
Default has occurred and is continuing, or after the date that is one month
prior to the Maturity Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in Annex A, of the length of the next Interest
Period to be applicable to such Loans, provided that no Eurodollar Loan may be
continued as such when any Default or Event of Default has occurred and is
continuing, or after the date that is one month prior to the Maturity Date and
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period.
2.7 Minimum Amounts of Tranches . Notwithstanding anything to the
contrary in this Agreement, all borrowings, conversions, continuations and
prepayments of Eurodollar Loans and all selections of Interest Periods shall be
in such amounts and be made pursuant to such elections so that, after giving
effect thereto, (a) the aggregate principal amount of the Eurodollar Loans
comprising each Eurodollar Tranche shall be equal to $750,000 or a whole
multiple of $100,000 in excess thereof and (b) no more than five Eurodollar
Tranches shall be outstanding at any one time.
2.8 Interest Rates and Payment Dates . Each Eurodollar Loan shall bear
interest for each day during each Interest Period with respect thereto at a rate
per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Eurodollar Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR.
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5
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any other amount payable hereunder shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall bear interest at a rate per annum which is
(A) in the case of overdue principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.8 plus
2% or (B) in the case of overdue interest or any other overdue amount, the ABR
plus 2%, from the date of such non-payment until such amount is paid in full (as
well after as before judgment).
(d) Interest shall be payable in arrears on each Scheduled Interest
Payment Date, provided that (i) interest accruing pursuant to paragraph (c) of
this Section 2.8 shall be payable from time to time on demand and (ii) each
prepayment of the Loans shall be accompanied by accrued interest to the date of
such prepayment on the amount prepaid and breakage costs, if any.
2.9 Computation of Interest . Whenever it is calculated on the basis
of the Prime Rate, interest shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed; and, otherwise,
interest shall be calculated on the basis of a 360-day year for the actual days
elapsed. The Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate in respect of any Eurodollar
Tranche. Any change in the interest rate on a Loan resulting from a change in
the ABR or the Eurocurrency Reserve Requirements shall become effective as of
the opening of business on the day on which such change becomes effective. The
Agent shall as soon as practicable notify the Borrower and the Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error.
2.10 Inability to Determine Interest Rate . If prior to the first day
of any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the eurodollar market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Required Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Eurodollar Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans and (y) any Loans that,
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6
on the first day of such Interest Period, were to be converted to or continued
as Eurodollar Loans shall be converted to or continued as ABR Loans. Until such
notice has been withdrawn by the Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert ABR
Loans to Eurodollar Loans.
2.11 Pro Rata Treatment and Payments . Each borrowing by the Borrower
from the Lenders hereunder and any reduction of the Commitments of the Lenders
shall be made pro rata according to the respective Commitment Percentages of the
Lenders. Except as otherwise provided in Section 2.5 or Section 8, each payment
(including each prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the respective
outstanding principal amounts of the Loans then held by the Lenders (it being
understood that, except as otherwise provided in Section 8, any payment so made
in respect of principal of any Lender's Loans shall be deemed to ratably reduce
the outstanding amount of Tranche A Loans and Tranche B Loans of such Lender).
All payments (including prepayments) to be made by the Borrower hereunder and
under the Notes, whether on account of principal, interest or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Agent, for the account of the
Lenders, at the Agent's office specified in Section 9.2, in Dollars and in
immediately available funds. The Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make its share of such borrowing
available to the Agent, the Agent may assume that such Lender is making such
amount available to the Agent, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Agent. A certificate of the Agent submitted to any Lender with respect to
any amounts owing under this Section 2.11(b) shall be conclusive in the absence
of manifest error. If such Lender's share of such borrowing is not made
available to the Agent by such Lender within three Business Days of such
Borrowing Date, the Agent shall also be entitled to recover such amount with
interest thereon at the rate per annum applicable to ABR Loans hereunder, on
demand, from the Borrower.
2.12 Illegality . Notwithstanding any other provision herein, if,
after the date hereof, the adoption of or any change in any Requirement of Law
or in the interpretation or
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7
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 2.14.
2.13 Requirements of Law . If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by Section 2.15 and changes in the
rate of tax on the overall net income of such Lender) or a franchise tax in
lieu of net income taxes;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender reasonably deems to be material, of making,
converting into, continuing or maintaining Eurodollar Loans or to reduce any
amount receivable hereunder in respect thereof, then, in any such case, the
Borrower shall promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable.
(b) If, after the date hereof, any Lender shall have determined that
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority, in each case made subsequent to the date hereof, has the effect of
reducing the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such change or compliance
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy) by an amount deemed by such Lender to
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8
be material, then from time to time, the Borrower shall promptly pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 2.13, it shall promptly notify the Borrower (with a
copy to the Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this Section 2.13
submitted by such Lender to the Borrower (with a copy to the Agent) shall be
conclusive in the absence of manifest error. The agreements in this Section 2.13
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
2.14 Indemnity . The Borrower shall indemnify each Lender against any
loss or expense which such Lender may sustain or incur as a consequence of (a)
default by the Borrower in making a borrowing of, conversion into or
continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Agreement, (b)
default by the Borrower in making any prepayment after the Borrower has given a
notice thereof in accordance with the provisions of this Agreement, (c) the
making of a prepayment of Eurodollar Loans on a day which is not the last day of
an Interest Period with respect thereto or (d) such loss or expense not being
covered by the indemnities provided for in Section 12.1(a) of the Participation
Agreement as the result of the application of Section 12.1(b) of the
Participation Agreement. Such indemnification may include an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Eurodollar
Margin included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. A certificate of any Lender setting
forth any amount or amounts which such Lender is entitled to receive pursuant to
this Section and evidencing a loss suffered by such Lender of such amount or
amounts shall be delivered to the Borrower. The provisions of this Section 2.14
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
2.15 Taxes . All payments made by the Borrower under this Agreement
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding (i) net income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Agent or any Lender and
(ii) any taxes imposed on the Agent or any Lender as a result of a present or
former connection between the Agent or such Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Agent or such Lender having executed, delivered or performed its
<PAGE>
9
obligations or received a payment under, or enforced, this Agreement or any
Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to the Agent or any Lender hereunder, the amounts so
payable to the Agent or such Lender shall be increased to the extent necessary
to yield to the Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower shall
not be required to increase any such amounts payable to any Lender that is not
organized under the laws of the United States of America or a state thereof if
such Lender fails to comply with the requirements of paragraph (b) of this
Section 2.15. Whenever any Non-Excluded Taxes are payable by the Borrower, as
promptly as possible thereafter the Borrower shall send to the Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, the Borrower shall indemnify
the Agent and the Lenders for any incremental taxes, interest or penalties that
may become payable by the Agent or any Lender as a result of any such failure.
The agreements in this Section 2.15 shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
(b) Each Lender that is not a citizen or resident of the United States
of America, a corporation, partnership or other entity created or organized in
or under the laws of the United States of America, or any estate or trust that
is subject to federal income taxation regardless of the source of its income (a
"Non-U.S. Lender") shall deliver to the Borrower and the Agent (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or
Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S.
federal withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest", a Form W-8, or any subsequent versions
thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8,
an annual certificate representing that such Non-U.S. Lender is not a "bank" for
purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within
the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
federal withholding tax on all payments by the Borrower under this Agreement and
the other Operative Agreements. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement (or, in the
case of any Participant, on or before the date such Participant purchases the
related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrower at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrower (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
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10
(c) The Borrower shall not be required to indemnify any Non-U.S.
Lender, or to pay any additional amounts to any Non-U.S. Lender, in respect of
U.S. Federal withholding tax pursuant to paragraph (a) above to the extent that
(i) the obligation to withhold amounts with respect to U.S. Federal withholding
tax existed on the date such non-U.S. Lender became a party to this Agreement
(or, in the case of a Non-U.S. Participant, on the date such Participant became
a Participant hereunder); provided, however, that this clause (i) shall not
apply to the extent that (x) the indemnity payments or additional amounts any
Lender (or Participant) would be entitled to receive (without regard to this
clause (i)) do not exceed the indemnity payment or additional amounts that the
person making the assignment, participation or transfer to such Lender (or
Participant) would have been entitled to receive in the absence of such
assignment, participation or transfer, or (y) such assignment, participation or
transfer had been requested by the Borrower, (ii) the obligation to pay such
additional amounts would not have arisen but for a failure by such Non-U.S.
Lender or Non-U.S. Participant to comply with the provisions of paragraph (b)
above or (iii) any of the representations or certifications made by a Non-U.S.
Lender or Non-U.S. Participant pursuant to paragraph (b) above are incorrect at
the time a payment hereunder is made, other than by reason of any change in
treaty, law or regulation having effect after the date such representations or
certifications were made.
(d) If the Borrower determines in good faith that a reasonable basis
exists for contesting any taxes for which indemnification has been demanded
hereunder, the relevant Lender or the Agent, as applicable, shall cooperate with
the Borrower in challenging such taxes at the Borrower's expense if so requested
by the Borrower. If any Lender or the Agent, as applicable, receives a refund of
a tax for which a payment has been made by the Borrower pursuant to this
Agreement, which refund in the good faith judgment of such Lender or Agent, as
the case may be, is attributable to such payment made by the Borrower, then the
Lender or Agent, as the case may be, shall reimburse the Borrower for such
amount as the Lender or Agent, as the case may be, determines to be the
proportion of the refund as will leave it, after such reimbursement, in no
better or worse position than it would have been in if the payment had not been
required. A Lender or Agent shall claim any refund that it determines is
available to it, unless it concludes in its reasonable discretion that it would
be adversely affected by making such claim. Neither any Lender nor the Agent
shall be obliged to disclose any information regarding its tax affairs or
computations to the Borrower in connection with this paragraph (d) or any other
provision of this Section 2.15.
(e) Each Lender represents and agrees that, on the date hereof and at
all times during the term of this Agreement, it is not and will not be a conduit
entity participating in a conduit financing arrangement (as defined in Section
7701(1) of the Code and the regulations thereunder) with respect to the
borrowings hereunder unless the Borrower has consented to such arrangement prior
thereto.
2.16 Notice of Certain Costs . Notwithstanding anything in this
Agreement to the contrary, to the extent any notice required by Section 2.13 or
2.15 is given by any Lender more than 180 days after such Lender has knowledge
(or should have had knowledge) of the occurrence of the event giving rise to the
additional cost, reduction in amounts, loss, tax or other additional amounts
described in such Sections, such Lender shall not be entitled to compensation
<PAGE>
11
under Section 2.13 or 2.15, as the case may be, for any such amounts incurred or
accruing prior to the giving of such notice to the Borrower.
2.17 Change of Lending Office . Each Lender agrees that if it makes
any demand for payment under Section 2.13 or 2.15, or if any adoption or change
of the type described in subsection 2.12 shall occur with respect to it, it
will, if requested by the Borrower, use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, as determined in its sole
discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to make payments
under Section 2.13 or 2.15, or would eliminate or reduce the effect of any
adoption or change described in subsection 2.12.
2.18 Replacements of Lender under Certain Circumstances . The Borrower
shall be permitted to replace any Lender that (a) requests reimbursement for
amounts owing pursuant to Section 2.13 or 2.15, (b) is affected in the manner
described in Section 2.12 and as a result thereof any of the actions described
in such Section is required to be taken or (c) becomes a defaulting Lender, with
a replacement bank or other financial institution, provided that (i) such
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) the Borrower shall repay (or the replacement bank or institution shall
purchase, at par) all Loans and other amounts (other than any disputed amounts),
pursuant to Section 2.12, 2.13, 2.14 or 2.15, as the case may be, owing to such
replaced Lender prior to the date of replacement, (iv) the replacement bank or
institution, if not already a Lender, and the terms and conditions of such
replacement, shall be reasonably satisfactory to the Agent, (v) the replaced
Lender shall be obligated to make such replacement in accordance with the
provisions of Section 9.7 (provided that the Borrower shall be obligated to pay
the registration and processing fee referred to therein) and (vi) any such
replacement shall not be deemed to be a waiver of any rights that the Borrower,
the Agent or any other Lender shall have against the replaced Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans, the Borrower hereby represents and warrants to the Agent and
each Lender that the representations and warranties set forth in Section 7 of
the Participation Agreement are true and correct.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Effectiveness . The effectiveness of this Agreement
is subject to the satisfaction of all conditions precedent set forth in Section
6.1 of the Participation Agreement required by said Section to be satisfied on
or prior to the Initial Closing Date.
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12
4.2 Conditions to Each Loan . The agreement of each Lender to make any
Loan requested to be made by it on any date is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower, the Lessee or the Guarantors in or
pursuant to the Operative Agreements shall be true and correct in all
material respects on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to
be made on such date.
(c) Participation Agreement Conditions. With respect to each Loan, the
applicable conditions precedent to the Advance associated therewith
specified in Section 6 of the Participation Agreement shall have been
satisfied.
(d) Investor Contribution. With respect to each Advance, the Agent
shall be satisfied that the Borrower shall receive from the Investor on the
relevant Funding Date an amount equal to the Investor Contribution
associated with such Loan.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Lessee, as of the date of such Loan that the conditions
contained in this Section 4.2 have been satisfied.
SECTION 5. COVENANTS
So long as the Commitments remain in effect, any Note remains
outstanding and unpaid or any other amount is owing to any Lender or the Agent
hereunder:
5.1 Other Activities . Without the consent of Lenders holding at least
66 2/3 % in the aggregate of the Commitment Percentages, the Borrower shall not
conduct, transact or otherwise engage in, or commit to transact, conduct or
otherwise engage in, any business or operations other than the entry into, and
exercise of rights and performance of obligations in respect of, the Operative
Agreements and other activities incidental or related to the foregoing.
5.2 Ownership of Property, Indebtedness . The Borrower shall not own,
lease, manage or otherwise operate any properties or assets other than in
connection with the activities described in Section 5.1, or incur, create,
assume or suffer to exist any Indebtedness or other consensual liabilities or
financial obligations other than as may be incurred, created or assumed or as
may exist in connection with the activities described in Section 5.1 (including
the Loans and other obligations incurred by the Borrower hereunder).
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13
5.3 Disposition of Assets . The Borrower shall not convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, business or
assets, whether now owned or hereafter acquired, except to the extent expressly
authorized by the Operative Agreements.
5.4 Compliance with Operative Agreements . The Borrower shall at all
times observe and perform all of the covenants, conditions and obligations
required to be performed by it under each Operative Agreement to which it is a
party.
5.5 Further Assurances . At any time and from time to time, upon the
written request of the Agent, the Borrower will, at the sole expense of the
Lessee, promptly and duly execute and deliver such further instruments and
documents and take such further action as the Agent or the Required Lenders may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and the other Operative Agreements and of the rights and
powers herein or therein granted.
5.6 Notices . If on any date the Borrower shall obtain actual
knowledge of the occurrence of a Default or Event of Default, the Borrower will
give prompt written notice thereof to the Agent.
5.7 Discharge of Liens . The Borrower will not create or permit to
exist at any time, and will, at its own expense, promptly take such action as
may be necessary duly to discharge, or cause to be discharged, all Lessor Liens
attributable to it, provided, that the Borrower shall not be required to
discharge any Lessor Lien while the same is being contested in good faith by
appropriate proceedings diligently prosecuted so long as such proceedings shall
not involve any material danger of impairment of any of the Liens contemplated
by the Security Documents or of the sale, forfeiture or loss of, and shall not
materially interfere with the construction, use, operation or disposition of
(including, as a result of the exercise of the Purchase Option), the Property or
title thereto or any interest therein or the payment of Rent.
5.8 Recordkeeping . On each date on which the Tranche A/B Property
Cost or Tranche A/B Construction Property Cost for any Property is increased or
decreased pursuant to this Agreement, the Borrower shall notify the Agent of the
amount of such increase or decrease and the identity of the affected Property.
SECTION 6. REMEDIAL PROVISIONS
6.1 Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
(a) The Borrower shall (i) default in the payment when due of any
principal of the Loans or (ii) default, and such default shall continue for
five or more days, in the payment when due of any interest on the Loans or
any other amounts owing hereunder or under any other Credit Document to
which it is a party; or
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14
(b) The Borrower shall default in the due performance or observance by
it of any term, covenant or agreement contained in any Credit Document to
which it is a party (other than the terms, covenants or agreements referred
to in paragraph (a) above) and such default shall have continued unremedied
for a period of thirty days after written notice thereof from Agent; or
(c) Any Guarantor shall default in the due performance or observance
by it of any term, covenant or agreement contained in the Guarantee
(including any term, covenant or agreement incorporated by reference in the
Guarantee provided that a default in the due performance or observance of
any such incorporated term, covenant or agreement shall only constitute an
Event of Default hereunder after the giving of notice, if required, and the
expiration of cure periods, if applicable, under the Corporate Credit
Agreement) and such default shall continue for thirty days after written
notice thereof from Agent; or
(d) Any representation, warranty or statement made or deemed made by
the Borrower herein or in any other Credit Document or by the Lessor or the
Lessee in the Participation Agreement, or in any statement or certificate
delivered or required to be delivered pursuant hereto or thereto, shall
prove to be incorrect in any material respect on the date as of which made
or deemed made; or
(e) Any representation, warranty or statement made or deemed made by
any Guarantor in the Guarantee or in any other Operative Agreement, or in
any statement or certificate delivered or required to be delivered pursuant
thereto, shall prove to be untrue in any material respect on the date as of
which made or deemed made; or
(f)(i) Any Lease Event of Default shall have occurred and be
continuing or (ii) the Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in the
Participation Agreement or the Trust Company shall default in the due
performance or observance by it of any term, covenant or agreement
contained in the Trust Agreement, and in each case under this clause (ii),
such default shall have continued unremedied for a period of at least 30
days after notice to the Borrower by the Agent; or
(g)(i) The Lessee or any of the Restricted Subsidiaries shall (i)
default in any payment with respect to any Indebtedness (including any
Guarantee Obligation, but excluding the Loans) in excess of $20,000,000 in
the aggregate for the Lessee and such Subsidiaries, beyond the period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness was created; or (ii) default in the observance or performance
of any other agreement or condition relating to any such Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto, or (except in the case of Indebtedness consisting of any Hedge
Agreement) any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of
such holder or holders) to cause, with the giving of notice if required,
such
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15
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable or (ii) without limiting the provisions of clause (i) above, any
such Indebtedness (other than Indebtedness consisting of any Hedge
Agreement) shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment or as a
mandatory prepayment, prior to the stated maturity thereof; or
(h)(i) The Borrower or the Investor shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower or the Investor shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or the Investor any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 90
days; or (iii) there shall be commenced against the Borrower or the
Investor any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 90 days from the entry thereof; or (iv) the
Borrower or the Investor shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or the
Investor shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(i)(i) The Lessee or any Specified Subsidiary shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Lessee or any Specified Subsidiary shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Lessee or any Specified Subsidiary any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 90 days; or (iii) there shall be commenced against
the Lessee or any Specified Subsidiary any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for
<PAGE>
16
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 90 days from the entry thereof; or (iv) the
Lessee or any Specified Subsidiary shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or
(j) Any Security Document shall cease to be in full force and effect,
or shall cease to give the Agent the Liens, rights, powers and privileges
purported to be created thereby, in favor of the Agent on behalf of the
Lenders, superior to and prior to the rights of all third Persons and
subject to no other Liens (except in each case to the extent expressly
permitted herein or in the other Operative Agreements); or
(k) The Guarantee or any material provision thereof shall cease to be
in full force and effect or any Guarantor shall deny or disaffirm such
Guarantor's obligations under the Guarantee; or
(l) One or more judgments or judicial decrees shall be entered against
the Borrower involving a liability of $100,000 or more in the case of any
one such judgment or $250,000 or more in the aggregate for all such
judgments and decrees for the Borrower (to the extent not paid or fully
covered by insurance, provided by a carrier that has acknowledged coverage)
and any such judgments or decrees shall not have been vacated, discharged
or stayed or bonded pending appeal within 90 days from the entry thereof;
or
(m)(i) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof or a waiver of such standard or
extension of any amortization period is sought or granted under Section 412
of the Code; any Plan is or shall have been terminated or is the subject of
termination proceedings under ERISA (including the giving of written notice
thereof); an event shall have occurred or a condition shall exist in either
case entitling the PBGC to terminate any Plan or to appoint a trustee to
administer any Plan (including the giving of written notice thereof); any
Plan shall have an accumulated funding deficiency (whether or not waived);
Lessee or any Subsidiary or any ERISA Affiliate has incurred or is likely
to incur a liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971
or 4975 of the Code (including the giving of written notice thereof); (ii)
there could result from any event or events set forth in clause (i) of this
Section 6.1 (m) the imposition of a lien, the granting of a security
interest, or a liability, or the reasonable likelihood of incurring a lien,
security interest or liability; and (iii) such lien, security interest or
liability will or would be reasonably likely to have a Material Adverse
Effect; or
(n) One or more judgments or decrees shall be entered against the
Lessee or any of the Restricted Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance provided by a carrier not
disputing coverage) of $20,000,000 or more in the aggregate for all such
judgments and decrees for the Lessee and the Restricted Subsidiaries, and
any such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof; or
<PAGE>
17
(o) A Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (h) or paragraph (i), automatically the Commitments shall
immediately terminate and the Loans hereunder (with accrued interest thereon)
and all other amounts owing under this Agreement and the Notes shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken so long as such event is
continuing: (i) with the consent of the Required Lenders, the Agent may, or upon
the request of the Required Lenders, the Agent shall, by notice to the Borrower
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate; and (ii) with the consent of the Required Lenders,
the Agent may, or upon the request of the Required Lenders, the Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the Notes to be
due and payable forthwith, whereupon the same shall immediately become due and
payable (any of the foregoing occurrences or actions referred to in clause (A)
or (B) above, an "Acceleration"). Except as expressly provided above in this
Section 6, presentment, demand, protest and all other notices of any kind are
hereby expressly waived.
6.2 Certain Defaults. Notwithstanding anything to the contrary
contained in Section 6.1(h), no Event of Default shall occur under Section
6.1(h) with respect to any Investor so long as (i) such Event of Default does
not threaten to interrupt the Lenders' timely receipt of all amounts due under
this Agreement and each of the other Operative Agreements whether pursuant to
the Assignment of Lease or otherwise and (ii) no other Event of Default has
occurred and is continuing.
6.3 Exercise of Remedies. Notwithstanding the foregoing provisions of
this Section 6, the Agent shall not have the right to exercise any rights or
remedies under this Section 6 against the Borrower unless it shall also, at the
direction of the Required Lenders, exercise a remedy (as then permitted and as
such Required Lender shall direct) under the Lease and the Agency Agreement, as
applicable.
SECTION 7. THE AGENT
7.1 Appointment . Each Lender hereby irrevocably designates and
appoints the Agent as the agent of such Lender under this Agreement and the
other Operative Agreements, and each such Lender irrevocably authorizes the
Agent, in such capacity, to take such action on its behalf under the provisions
of this Agreement and the other Operative Agreements and to exercise such powers
and perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Operative Agreements, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Operative Agreement or otherwise exist against the Agent.
<PAGE>
18
7.2 Delegation of Duties . The Agent may execute any of its duties
under this Agreement and the other Operative Agreements by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
7.3 Exculpatory Provisions . Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Operative
Agreement (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Lessee or any
officer thereof contained in this Agreement or any other Operative Agreement or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection with, this Agreement or
any other Operative Agreement or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other
Operative Agreement or for any failure of the Borrower to perform its
obligations hereunder or thereunder. The Agent shall not be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Operative Agreement, or to inspect the properties, books or records of the
Borrower or the Guarantor.
7.4 Reliance by Agent . The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telecopy, telex or teletype message, statement,
order or other document or conversation believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel (including, without limitation, counsel
to the Guarantor), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Operative Agreement unless it shall
first receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Operative Agreements in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
obligations owing by the Borrower hereunder.
7.5 Notice of Default . The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender, the Borrower or
the Guarantor referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give notice thereof to the
Lenders. The Agent shall take such action with respect to such Default or Event
of Default as shall be reasonably directed by the Required Lenders; provided
that unless and until the Agent
<PAGE>
19
shall have received such directions, the Agent may (but shall not be obligated
to) take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders.
7.6 Non-Reliance on Agent and Other Lenders . Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower or the Guarantor, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender represents to the Agent that it has, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of the Borrower and the Guarantor and made its own decision to
make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Operative Agreements, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower and the Guarantor. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower or the Guarantor which
may come into the possession of the Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
7.7 Indemnification . The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower or the Guarantor
and without limiting the obligation of the Borrower or the Guarantor to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date upon which the Commitments shall have terminated and the Loans shall
have been paid in full, ratably in accordance with their Commitment Percentages
immediately prior to such date), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the amounts
owing hereunder) be imposed on, incurred by or asserted against the Agent in any
way relating to or arising out of, the Commitments, this Agreement, any of the
other Operative Agreements or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. The agreements in this Section
shall survive the payment of the Loans and all other amounts payable hereunder.
<PAGE>
20
7.8 Agent in Its Individual Capacity . The Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower or the Guarantor as though the Agent were not the
Agent hereunder and under the other Operative Agreements. With respect to the
Loans made by it, the Agent shall have the same rights and powers under this
Agreement and the other Operative Agreements as any Lender and may exercise the
same as though it were not the Agent, and the terms "Lender" and "Lenders" shall
include the Agent in its individual capacity.
7.9 Successor Agent . The Agent may resign as Agent upon 20 days'
notice to the Lenders and the Borrower. If the Agent shall resign as Agent under
this Agreement and the other Operative Agreements, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower (such approval not to be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Agent's rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Loans. After any retiring
Agent's resignation as Agent, the provisions of this Section 7 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Operative Agreements.
7.10 Co-Documentation and Syndication Agents . None of the Lenders
identified on the facing page or signature pages of this Agreement as a
"Co-Documentation Agent" or "Syndication Agent" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement and the other
Operative Documents other than those applicable to all Lenders as such. Without
limiting the foregoing, none of Lenders so identified as a "Co-Documentation
Agent" or "Syndication Agent" shall have or be deemed to have any fiduciary
relationship with any Lender. Each Lender acknowledges that it has not relied,
and will not rely, on any of Lenders so identified in deciding to enter into
this Agreement and the other Operative Documents or in taking or not taking
action hereunder.
SECTION 8. MATTERS RELATING TO PAYMENTS AND COLLATERAL
8.1 The Account . The Agent shall establish an account (the "Account")
into which the Agent shall deposit all payments, receipts and other
consideration of any kind whatsoever paid under the Lease and received by the
Agent pursuant to the Assignment of Lease.
(b) Payments deposited from time to time in the Account shall be paid
out as follows:
(i) Any such payment identified by the Lessee as Basic Rent shall be
paid out of the Account by the Agent on the relevant Specified Interest
Payment Date, and shall be applied, first, ratably to the payment of
interest then due and payable on the Loans until such amounts are paid in
full, second, to the payment to the Borrower of an amount equal
<PAGE>
21
to the Investor Yield then due and payable under the Operative Agreements
until such amount is paid in full, and, third, the remainder of such amount
shall be paid out of the Account by the Agent to such Person or Persons as
the Borrower may designate.
(ii) Any payment identified by the Lessee as a payment in respect of
the Termination Value of any Property pursuant to Section 16 of the Lease
or of the Termination Value of any Property pursuant to Section 20 of the
Lease shall be paid out of the Account by the Agent promptly after receipt,
and shall be applied, first, ratably to the payment of the principal of
Tranche B Loans then outstanding in an amount not to exceed the product of
(x) the Tranche A/B Property Cost in respect of such Property and (y) the
Tranche B Percentage in respect of such Property and all interest due and
payable on such amount, second, to the payment to the Borrower of an amount
not to exceed the outstanding Investor Property Cost in respect of such
Property and the Investor Yield due and payable on such amount, third,
ratably to the payment of the principal of Tranche A Loans then outstanding
in an amount not to exceed the product of (x) the Tranche A/B Property Cost
in respect of such Property and (y) the Tranche A Percentage in respect of
such Property and all interest due and payable on such amount, and fourth,
the remainder of such amount shall be paid out of the Account by the Agent
to the Lessee.
(iii) Any payment identified by the Lessee as proceeds of the sale of
any Property pursuant to Section 21 of the Lease (but in any event
excluding costs and expenses described in Section 21.2(i) of the Lease)
("Net Sale Proceeds") shall be paid out of the Account by the Agent
(simultaneously with the payment by the Agent out of the Account of the
Maximum Residual Guarantee Amount pursuant to Section 8.1(b) (v)) promptly
after receipt, and shall be applied, first, ratably to the payment of the
principal of Tranche B Loans then outstanding in an amount not to exceed
the product of (x) the Tranche A/B Property Cost in respect of such
Property and (y) the Tranche B Percentage in respect of such Property and
all interest then due and payable on such amount, second, to the payment to
the Borrower of an amount not to exceed the outstanding Investor Property
Cost in respect of such Property, and third, the remainder of such amount
("Excess Sale Proceeds") shall be held in the Account until the Maturity
Date (or, if earlier, the date of an Acceleration) for application in
accordance with Section 8.1(b)(iv) or 8.2, as the case may be.
(iv) On the Maturity Date any Excess Sale Proceeds contained in the
Account shall be applied as follows: first, ratably to the payment of the
principal and interest on the Loans then outstanding, second, to the
payment to the Borrower of an amount not to exceed the aggregate Investor
Property Cost with respect to all Properties (whether or not the Lease has
terminated with respect to any such Property) and the Investor Yield due
and payable on such amount, and third, to the extent moneys remain after
application pursuant to clauses first and second above, in the manner
specified in Section 8.2.
(v) Any payment identified by the Lessee as the Maximum Residual
Guarantee Amount in respect of any Property shall be paid out of the
Account by the Agent
<PAGE>
22
promptly after receipt and shall be applied ratably to the payment of the
principal of Tranche A Loans then outstanding in respect of such Property.
(vi) Any payment identified by the Lessee as a Wear and Tear Payment
or any Net Sale Proceeds Shortfall pursuant to Section 21.3 of the Lease
shall be paid out of the Account by the Agent promptly after receipt, and
shall be applied, first, ratably to the payment of the principal of Tranche
B Loans then outstanding in an amount equal to the product of the Tranche B
Percentage with respect to such Property and the Tranche A/B Property Cost
with respect to such Property (in each case determined as of the date of
sale of such Property pursuant to Section 21 of the Lease immediately prior
to giving effect thereto) and all interest due and payable on such amount,
and second, the remainder of such amount shall be paid out of the Account
by the Agent to the Borrower.
(vii) Any payment identified by the Lessee as Supplemental Rent (other
than any Maximum Residual Guarantee Amount) (but in any event excluding all
Excepted Payments) shall be paid out of the Account by the Agent promptly
after receipt, and shall be applied to the payment of any amounts then
owing to the Agent, the Lenders, the Investor and the other parties to the
Operative Agreements (or any of them) (other than any such amounts payable
pursuant to the preceding provisions of this Section 8.1(b)) as shall be
designated by the Lessee (or, in the absence of such designation, ratably
according to the respective amounts so owing of which the Agent has
received written notice).
In the event that the Lessee shall fail to identify the nature of any payment
deposited by it in the Account, or the Agent in its reasonable judgment shall
determine that the identification made by the Lessee is incorrect or
inappropriate, the nature of such payment shall instead be identified by the
Agent in its reasonable judgment and applied in the manner specified above;
provided, that in the event that the Agent identifies such payment as an
Excepted Payment, such payment shall be paid out of the Account by the Agent to
such Person or Persons as the Borrower may designate.
(c) Upon the termination of the Commitments and the payment in full of
the Loans and all other amounts owing by the Borrower hereunder or under any
other Credit Document, any moneys remaining in the Account shall be paid to the
Borrower or such other Person or Persons as the Borrower may designate.
8.2 Proceeds of Collateral; Proceeds Remaining in Account . All moneys
collected by the Agent under the Guarantee or upon any sale or other disposition
of the Collateral pursuant to any Security Document, together with all other
moneys received by the Agent thereunder and (b) all moneys contained in the
Account on the date of an Acceleration or on the Maturity Date (excluding, in
the case of any application made pursuant to this Section 8.2 on the Maturity
Date, an amount equal to the aggregate amount of Excess Sale Proceeds or Maximum
Residual Guarantee Amount deposited in the Account on or prior to such date,
which amount shall instead be applied on the Maturity Date in accordance with
Section 8.1(b)(iv) or Section 8.1(b)(v), respectively), or deposited in the
Account thereafter, shall be applied as follows:
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23
First, to the payment of (x) any and all sums advanced by the Agent in
order to preserve the Collateral or preserve its security interest therein
and (y) the expenses of retaking, holding, preparing for sale or lease,
selling or otherwise disposing or realizing on the Collateral, or of any
exercise by the Agent of its rights under the Security Documents, together
with reasonable attorneys' fees and court costs;
Second, to the payment of the amounts then due and unpaid for
principal of the Tranche B Loans, according to the amounts due and payable
on the Tranche B Loans in respect of principal;
Third, to the payment of the amounts then due and unpaid for principal
of the Tranche A Loans according to the amounts due and payable on the
Tranche A Loans in respect of principal;
Fourth, to the payment of the amounts then due and unpaid for interest
accrued on the Tranche B Loans and the Tranche A Loans, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Tranche B Loans and the Tranche A Loans in respect of
principal;
Fifth, to the payment of an amount equal to the aggregate outstanding
Investor Contribution and all amounts then due and payable on account of
the Investor Yield;
Sixth, to the extent moneys remain after application pursuant to
clauses First through Fifth above, to the Lessee or to whomever may be
lawfully entitled to receive such surplus.
8.3 Certain Remedial Matters . Notwithstanding any other provision of
this Agreement or any other Credit Document:
(i) the Borrower shall at all times to the exclusion of the Agent
retain (A) all rights to Excepted Payments and to demand, collect or
commence an action at law to obtain such payments and to enforce any
judgment with respect thereto and (B) all of its rights under the
Participation Agreement; and
(ii) the Borrower shall at all times retain the right, but not to the
exclusion of the Agent, (A) to receive from the Lessee all notices,
certificates and other documents and all information that the Lessee is
permitted or required to give or furnish to the "Borrower" or the "Lessor"
pursuant to the Lease, the Participation Agreement or any other Operative
Agreement, (B) to inspect the Properties and otherwise exercise rights of
the "Lessor" under Section 10.2 of the Lease, (C) to retain all rights with
respect to insurance that Section 14 of the Lease specifically confers upon
the "Lessor", (D) to provide such insurance as the Lessee shall have failed
to maintain or as the Borrower may desire, (E) to enforce compliance by the
Lessee with the provisions of Sections 8, 9, 10, 11, 14 and 30.10 of the
Lease, and (F) subject to the other applicable provisions of this
Agreement, to perform for the Lessee under Section 17 of the Lease.
<PAGE>
24
8.4 Release of the Property, etc. If the Lessee shall at any time
purchase the Property pursuant to Section 16.2 of the Lease or exercise its
Purchase Option with respect to the Property under Section 20 of the Lease, or
if the Property shall be sold in accordance with Section 21 of the Lease, then,
upon satisfaction by the Borrower of its obligation to prepay the Loans pursuant
to Section 2.5(c) and to pay accrued interest on the Loans so prepaid pursuant
to Section 2.8, the Agent shall release the Property from the Liens created by
the Security Documents. In addition, upon the termination of the Commitments and
the payment in full of the Loans and all other amounts owing by the Borrower or
the Guarantor hereunder or under any other Operative Agreement, the Agent shall
release all of the Properties from the Liens created by the Security Documents.
Certain Surplus Land (as defined in Section 20.4 of the Lease) may be partially
released pursuant to Section 20.4 of the Lease. Upon request of the Borrower
following any such release, the Agent shall, at the sole cost and expense of the
Borrower, execute and deliver to the Borrower or the Lessee such documents as
the Borrower shall reasonably request to evidence such release.
(b) Upon request, the Agent shall join in any grant or release
consented to by Lessor pursuant to Section 12.2 of the Lease in order to
subordinate the Lien of the Mortgage and any other Security Documents to such
grant or release or to do a partial release of Surplus Land pursuant to Section
20.4 of the Lease.
(c) Notwithstanding anything to the contrary herein, upon the
termination of the Commitments and the payment in full of (i) the Loans and all
other amounts owing by the Borrower or any Guarantor hereunder or under any
other Operative Agreement and (ii) all amounts owing by the Lessee to the Lessor
or to any other Person under the Operative Agreements, all remaining moneys in
the Account shall be paid out to the Lessee.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers . Neither this Agreement, any other Credit
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 9.1 and
Section 9.3 of the Participation Agreement. The Required Lenders may, or, with
the written consent of the Required Lenders, the Agent may, from time to time,
(a) subject to receipt of the written consent of the Lessee, enter into with the
Borrower or the Guarantors, as applicable, written amendments, supplements or
modifications to the Operative Agreements for the purpose of adding any
provisions to the Operative Agreements or changing in any manner the rights of
the Agent, the Lenders, the Borrower or the Guarantors thereunder or (b) waive,
on such terms and conditions as the Required Lenders or the Agent, as the case
may be, may specify in such instrument, any of the requirements of the Operative
Agreements or any Default or Event of Default and its consequences or (c) market
the Property in accordance with the provisions of Section 22.1(b) of the Lease.
Notwithstanding the foregoing, no such amendment, supplement, modification or
waiver shall (i) reduce the amount or extend the scheduled date of maturity of
any Note, or reduce the stated rate of any interest payable hereunder or any
Commitment Fees payable under the Participation Agreement or extend the
scheduled date of any payment of such interest or
<PAGE>
25
Commitment Fees or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the consent of each Lender directly
and adversely affected thereby, or (ii) amend, modify or waive any provision of
this Section 9.1 or reduce the percentage specified in the definition of
Required Lenders, or consent to the assignment or transfer by the Borrower or
any Guarantor of any of its rights and obligations under the Operative
Agreements or release any portion of the Collateral (except in accordance with
Section 8.4) or release any Guarantor from its obligations under the Guarantee,
in each case without the written consent of all of the Lenders, or (iii) amend,
modify or waive any provision of Section 7 without the written consent of the
then Agent, or (iv) permit other investments by the Lessor without the consent
of Lenders holding 100% in the aggregate of the Commitment Percentages. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon the Borrower, the Guarantors, the
Lessee, the Lenders, the Agent and all future holders of the Notes. In the case
of any waiver, the Borrower, the Guarantors, the Lessee, the Lenders and the
Agent shall be restored to their former position and rights under the Operative
Agreements, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
9.2 Notices . All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) when delivered by hand, (b) one
Business Day after delivery to a nationally recognized courier service
specifying overnight delivery, (c) three Business Days after being deposited in
the mail, certified or registered, postage prepaid, or (d) in the case of
facsimile notice, when sent and receipt has been confirmed, addressed as follows
in the case of the Borrower and the Agent, and as set forth in Schedule 1.1 in
the case of the Lenders, or to such other address as may be hereafter notified
by the respective parties hereto and any future holders of the Notes:
The Borrower:
The KinderCare Realty Trust 1999
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Fax: (302) 651-1000
with copies to:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: Legal Department
Fax: (503) 872-1391
<PAGE>
26
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attn: Gary R. Barnum
Fax: (503) 220-2480
KinderCare Learning Centers, Inc.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils Brous
Fax: (212) 750-0003
Scotiabanc Inc.
c/o The Bank of Nova Scotia
555 SW 5th Ave., Suite 750
Portland, OR 97204-2078
Attention: Daryl Hogge
Facsimile: (503) 222-5502
The Lenders:
The Bank of Nova Scotia
555 SW 5th Ave., Suite 750
Portland, OR 97204-2078
Attention: Daryl Hogge
Facsimile: (503) 222-5502
Bank of America, N.A.
555 California Street, Mail Code: CA5-705-41-89
San Francisco, CA 94104
Attention: Kevin Leader, MD
Facsimile: (415)622-4585
The Chase Manhattan Bank
270 Park Avenue, 4th Floor
New York, NY 10017
Attention: Kathryn Duncan
Facsimile: (212) 270-0009
Citicorp USA, Inc.
633 W. Fifth Street, 63rd Floor
Los Angeles, CA 90071
Attention: Shamsara Ahmed
Facsimile: (213) 833-2381
<PAGE>
27
Credit Suisse First Boston
Eleven Madison Avenue, 20th Floor
New York, NY 10010-3629
Attention: Robert Hetu
Facsimile: (212) 325-8309
Bankers Trust Company
1 BT Plaza
130 Liberty Street
New York, NY 10006
Attention: Jennifer Laino/Larry Benison
Facsimile: (212) 250-6029/7351
Merrill Lynch Capital Corporation
250 Vesey Street, North Tower
New York, NY 10281
Attention: Benjamin Lau
Facsimile: (212)499-0265
and
Attention: Carol J.E. Feeley
Facsimile: (212)738-1649
The Agent: The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: Credit and Lending Group
Fax: (212) 972-0009
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to Section 2.3, 2.5, 2.6, 2.7 or 2.11(b) shall not be effective until
received.
9.3 No Waiver; Cumulative Remedies . No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Operative Agreements shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties . All representations
and warranties made hereunder, in the other Operative Agreements and in any
document, certificate or statement delivered pursuant hereto or in connection
herewith shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder.
<PAGE>
28
9.5 Successors and Assigns; Participations and Assignments . This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent, all future holders of the Notes and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of each Lender.
9.6 Participations . Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time sell to one or more
banks, financial institutions or other entities (each, a "Participant")
participating interests in any Loan owing to such Lender, any Note held by such
Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Operative Agreements; provided, that any such
participation shall be ratable as between the Tranche A Loans and Tranche B
Loans of such Lender. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Note for all purposes under this Agreement
and the Notes, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the Notes. In no event shall any
Participant have any right to approve any amendment or waiver of any provision
of this Agreement or any other Operative Agreement, or any consent to any
departure by the Borrower, any Guarantor or any other Person therefrom, except
to the extent that such amendment, waiver or consent would (a) reduce the
principal of, or interest on, any Loan or Note, or postpone the date of the
final maturity of any Loan or Note, or reduce the amount of any Commitment Fee,
in each case to the extent subject to such participation or (b) release all or
substantially all of the Collateral. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note, provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 9.9(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the case of Section
2.15, such Participant shall have complied with the requirements of said Section
and provided, further, that no Participant shall be entitled to receive any
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
9.7 Assignments . Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time and from time to
time, assign to any Lender or any Affiliate of any Lender (with the consent of
the Lessee if any increased costs would result therefrom) or, with the consent
of the Borrower, Lessee (provided no Event of Default shall exist
<PAGE>
29
at the time of such assignment) and the Agent (which in each case shall not be
unreasonably withheld or delayed, it being understood that, without limitation,
the Lessee shall have the right to withhold its consent to any assignment if, in
order for such assignment to comply with applicable law, the Lessee would be
required to obtain the consent of, or make any filing or registration with, any
Governmental Authority), to an additional bank, fund which is regularly engaged
in making, purchasing or investing in loans or securities or financial
institution (each, a "Purchasing Lender") all or any part of its rights and
obligations under this Agreement and the other Operative Agreements pursuant to
an Assignment and Acceptance substantially in the form of Exhibit B (an
"Assignment and Acceptance"), executed by such Purchasing Lender, such assigning
Lender (and, in the case of a Purchasing Lender that is not a Lender or an
Affiliate thereof, by the Borrower, Lessee and the Agent) and delivered to the
Agent for its acceptance and recording in the Register; provided that, except in
the case of an assignment of all of a Lender's rights and obligations under this
Agreement, (i) unless otherwise agreed to by the Borrower, the Lessee and the
Agent, no such assignment to a Purchasing Lender (other than any Lender or any
Affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 and (ii) after giving effect to each such assignment, the assigning
Lender (together with any lender which is an affiliate of such assigning Lender)
shall retain Loans and/or Commitments aggregating not less than $5,000,000. Any
such assignment shall be ratable as between the Tranche A Loans and Tranche B
Loans of the assigning Lender. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto). Such
Assignment and Acceptance shall be deemed to amend this Agreement to the extent,
and only to the extent, necessary to reflect the addition of such Purchasing
Lender and the resulting adjustment of Commitment Percentage arising from the
purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such assigning Lender. Notwithstanding any provision of this
Agreement to the contrary, the consent of (i) the Borrower shall not be required
for any assignment that occurs at any time when any of the events described in
Section 6.1(h) shall have occurred and be continuing with respect to the
Borrower, and (ii) the Lessee shall not be required for any assignment that
occurs at any time when any of the events described in Section 6.1(i) shall have
occurred and be continuing with respect to the Lessee.
(b) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and a Purchasing Lender (and, in the case of a Purchasing
Lender that is not a Lender or an Affiliate thereof, by the Borrower, the Lessee
and the Agent) together with payment to the Agent of a registration and
processing fee of $3,500, the Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto,
record the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Borrower. On or prior to such
effective date, the Borrower, at its own expense, shall execute and deliver to
the Agent new Notes (in exchange for the Notes of the
<PAGE>
30
assigning Lender), each in an amount equal to the Commitment assumed by the
relevant Purchasing Lender pursuant to such Assignment and Acceptance, and, if
the assigning Lender has retained a Commitment hereunder, new Notes to the order
of the assigning Lender, each in an amount equal to the Commitment retained by
it hereunder. Such new Notes shall be dated the Effective Date and shall
otherwise be in the form of the Notes replaced thereby.
(c) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Agent, Lessee and the Borrower, the option to provide to the Borrower all or
any part of any Advance that such Granting Bank would otherwise be obligated to
make to the Borrower pursuant to this Agreement; provided that (i) nothing
herein shall constitute a commitment by any SPC to make any Advance, (ii) if an
SPC elects not to exercise such option or otherwise fails to provide all or any
part of such Advance, the Granting Bank shall be obligated to make such Advance
pursuant to the terms hereof. The making of an Advance by an SPC hereunder shall
utilize the Commitment of the Granting Bank to the same extent, and as if, such
Advance were made by such Granting Bank. Each party hereto hereby agrees that no
SPC shall be liable for any indemnity or similar payment obligation under this
Agreement (all liability for which shall remain with the Granting Bank). In
furtherance of the foregoing, each party hereto hereby agrees (which agreement
shall survive the termination of this Agreement) that, prior to the date that is
one year and one day after the payment in full of all outstanding commercial
paper or other senior indebtedness of any SPC, it will not institute against, or
join any other person in instituting against, such SPC any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings under the
laws of the United States or any State thereof. In addition, notwithstanding
anything to the contrary contained in this Section 9.7(c), any SPC may (i) with
notice to, but without the prior written consent of, the Borrower, Lessee
(provided no Event of Default shall exist at the time of such assignment) and
the Agent and without paying any processing fee therefor, assign all or a
portion of its interests in any Advances to the Granting Bank or to any
financial institutions (consented to by the Borrower, Lessee (provided no Event
of Default shall exist at the time of such assignment) and Agent) providing
liquidity and/or credit support to or for the account of such SPC to support the
funding or maintenance of Advances and (ii) disclose on a confidential basis any
non-public information relating to its Advances to any rating agency, commercial
paper dealer or provider of any surety, guarantee or credit or liquidity
enhancement to such SPC. This section may not be amended without the written
consent of the SPC. [The Granting Bank shall indemnify Lessee for the full
amount of any reasonable costs and expenses incurred by Lessee as a result of
the operation of this Section 9.7(c). No SPC created pursuant to this provision
shall have any consent rights as a Lender under any of the Operative
Agreements.]
9.8 The Register; Disclosure; Pledges to Federal Reserve Banks . The
Agent shall maintain at its address referred to in Section 9.2 copy of each
Assignment and Acceptance delivered to it and a register (the "Register") for
the recordation of the names and addresses of the Lenders, the Commitments of
the Lenders, and the principal amount of the Loans owing to each Lender from
time to time. The entries in the Register shall be conclusive, in the absence of
clearly demonstrable error, and the Borrower, the Agent and the Lenders may
treat each Person whose name is recorded in the Register as the owner of the
Loan recorded therein for all
<PAGE>
31
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(b) Nothing herein shall prohibit any Lender from pledging or
assigning any Loan or Note to any Federal Reserve Bank in accordance with
applicable law.
9.9 Adjustments; Set-Off . If any Lender (a "Benefitted Lender") shall
at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 6.1(h) or 6.1(i), or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights now or hereafter granted under
applicable law or otherwise, and not by way of limitation of any such rights,
upon the occurrence of an Event of Default, the Agent and each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Agent or such Lender (including, without
limitation, by branches and agencies of the Agent or such Lender wherever
located) to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Agent or such
Lender under this Agreement or under any of the other Operative Agreements,
including, without limitation, all interests in obligations of the Borrower
purchased by any such Lender pursuant to Section 9.9(a), and all other claims of
any nature or description arising out of or connected with this Agreement or any
other Operative Agreement, irrespective of whether or not the Agent or such
Lender shall have made any demand hereunder and although said obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
9.10 Counterparts . This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by telecopy transmission of signature pages hereto), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Agent.
9.11 Severability . Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any
<PAGE>
32
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.12 Integration . This Agreement and the other Operative Agreements
represent the agreement of the Borrower, the Agent and the Lenders with respect
to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to subject
matter hereof not expressly set forth or referred to herein or in the other
Operative Agreements.
9.13 GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(INCLUDING 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT
EXCLUDING TO THE MAXIMUM EXTENT PERMITTED BY LAW ALL OTHER CHOICE OF LAW AND
CONFLICTS OF LAW RULES).
9.14 Submission to Jurisdiction; Waivers . The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this agreement and the other operative agreements to
which it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 9.2 or at such other address
of which the agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 9.14 any special, exemplary, punitive or consequential
damages.
9.15 Acknowledgments . The Borrower hereby acknowledges that:
<PAGE>
33
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the Notes and the other Operative
Agreements;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection with this
Agreement or any of the other Operative Agreements, and the relationship
between Agent and Lenders, on one hand, and the Borrower, on the other
hand, in connection herewith or therewith is solely that of debtor and
creditor; and
(c) no joint venture is created hereby or by the other Operative
Agreements or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Borrower and the Lenders.
9.16 WAIVERS OF JURY TRIAL . THE BORROWER, THE AGENT AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR
ANY COUNTERCLAIM THEREIN.
9.17 Nonrecourse . Anything to the contrary contained in this
Agreement or in any other Operative Agreement notwithstanding, none of the
Borrower or any Investor or any of their respective officers, directors or
shareholders or any of the their respective successors or assigns (all such
Persons being hereinafter referred to collectively as the "Exculpated Persons"),
shall be personally liable in any respect for any liability or obligation
hereunder or under any other Operative Agreement including the payment of the
principal of, or interest on, the Notes, or for monetary damages for the breach
of performance of any of the covenants contained in this Agreement, the Notes or
any of the other Operative Agreements. The Agent and the Lenders agree that, in
the event any of them pursues any remedies available to them under this
Agreement, the Notes or any other Operative Agreement, neither the Agent nor the
Lenders shall have any recourse against the Borrower, nor any other Exculpated
Person, for any deficiency, loss or claim for monetary damages or otherwise
resulting therefrom and recourse shall be had solely and exclusively against the
Collateral and the Guarantor; but nothing contained herein shall be taken to
prevent recourse against or the enforcement of remedies against the Property in
respect of any and all liabilities, obligations and undertakings contained in
this Agreement, the Notes or any other Operative Agreement. Notwithstanding the
foregoing provisions of this Section 9.17, nothing in this Agreement or any
other Operative Agreement shall (a) constitute a waiver, release or discharge of
any obligation evidenced or secured by this Agreement or any other Credit
Document, (b) limit the right of the Agent or any Lender to name the Borrower as
a party defendant in any action or suit for judicial foreclosure and sale under
any Security Document, or (c) affect in any way the validity or enforceability
of the Guarantee or any other guaranty (whether of payment and/or performance)
given to the Agent or the Lenders, or of any indemnity agreement given by the
Borrower, in connection with the Loans made hereunder.
9.18 Oregon Provisions. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989
<PAGE>
34
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE.
<PAGE>
The parties hereto have caused this Agreement to be duly executed and delivered
by their proper and duly authorized officers as of the day and year first above
written.
THE KINDERCARE REALTY TRUST 1999
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as
Trustee
By: PATRICIA A. EVANS
-------------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: TIMOTHY J. STORMS
-------------------------------------
Name: Timothy J. Storms
Title: Managing Director
BANK OF AMERICA, N.A., as
Co-Documentation Agent and as a Lender
By: KEVIN C. LEADER
-------------------------------------
Name: Kevin C. Leader
Title: Managing Director
THE BANK OF NOVA SCOTIA, as Syndication
Agent and as a Lender
By: PATRICK G. NORRIS
-------------------------------------
Name: Patrick G. Norris
Title: Officer
BANKERS TRUST COMPANY, as Syndication
Agent and as a Lender
By: MARY JO JOLLY
-------------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
<PAGE>
CITICORP USA, INC., as a Lender
By: TIMOTHY L. FREEMAN
-------------------------------------
Name: Timothy L. Freeman
Title: Managing Director/SCO
CREDIT SUISSE FIRST BOSTON, as a Lender
By: BILL O'DALY
-------------------------------------
Name: Bill O'Daly
Title: Vice President
By: KRISTIN LEPRI
-------------------------------------
Name: Kristin Lepri
Title: Associate
MERRILL LYNCH CAPITAL CORPORATION, as a
Lender
By: CAROL J.E. FEELEY
-------------------------------------
Name: Carol J.E. Feeley
Title: Vice President
WILMINGTON TRUST COMPANY, in its
individual capacity, only to the extent
expressly set forth herein
By: JILL K. MORRISON
-------------------------------------
Name: Jill K. Morrison
Title: Financial Services Officer
================================================================================
PARTICIPATION AGREEMENT
among
KINDERCARE LEARNING CENTERS, INC.
THE KINDERCARE REALTY TRUST 1999,
a Delaware business trust,
as Lessor,
SCOTIABANC INC.
as an Investor,
THE CHASE MANHATTAN BANK,
as Agent for the
Lenders
and
THE LENDERS PARTIES HERETO
-----------------------------
Dated as of September 2, 1999
-----------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
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SECTION 1. THE LOANS ........................................................1
1.1 Loans ...........................................................1
1.2 Credit Agreement ................................................1
1.3 Collateral For Loans ............................................1
1.4 Guarantee .......................................................2
SECTION 2. INVESTOR CONTRIBUTION ............................................2
2.1 Investor Contribution ...........................................2
2.2 Allocated Investor Yield ........................................2
SECTION 3. SUMMARY OF THE TRANSACTIONS ......................................2
3.1 Operative Agreements ............................................2
3.2 Property Purchase and Lease. ....................................2
3.3 Construction of Improvements; Lease of Improvements. ............3
3.4 Aggregate Tranche A Percentage; Tranche A Percentage ............3
SECTION 4. THE CLOSINGS .....................................................3
4.1 Initial Closing Date ............................................3
4.2 Subsequent Funding Dates ........................................3
4.3 Trust Company Authorization .....................................3
SECTION 5. FUNDING OF ADVANCES ..............................................4
5.1 General .........................................................4
5.2 Procedures for Funding ..........................................4
SECTION 6. CONDITIONS OF THE CLOSING ........................................5
6.1 General Conditions to the Investor's and the Lenders'
Obligations to Make Loans and Investor Contributions ............5
6.2 Conditions to the Investor's and the Lenders' Obligations to
Make Advances to pay Property Acquisition Costs .................8
6.3 Conditions to the Investor's and the Lenders' Obligations to
Make Advances to Pay Project Costs for Construction on any
Property. ......................................................13
SECTION 7. REPRESENTATIONS AND WARRANTIES ..................................14
7.1 Representations and Warranties of the Investor on the Initial
Closing Date ...................................................14
7.2 Representations and Warranties of Lessor on the Initial
Closing Date ...................................................15
7.3 Representations and Warranties of the Lessee on the Initial
Closing Date ...................................................17
7.4 Representations and Warranties of the Trust Company on the
Initial Closing Date ...........................................21
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7.5 Representations and Warranties of the Lessee on Property
Closing Dates ..................................................22
7.6 Representations and Warranties of the Lessor on Property
Closing Dates ..................................................26
7.7 Representations and Warranties of the Lessee Upon each
Funding Date ...................................................27
7.8 Representations and Warranties of the Lessor Upon each
Funding Date ...................................................29
7.9 Representations and Warranties of the Investor Upon Funding
Dates ..........................................................30
SECTION 8. PAYMENT OF CERTAIN EXPENSES .....................................30
8.1 Transaction Expenses ...........................................30
8.2 Brokers' Fees and Stamp Taxes ..................................30
8.3 Certain Fees and Expenses ......................................30
8.4 Credit Agreement and Related Obligations .......................31
8.5 Commitment Fees ................................................31
8.6 Overdue Rate ...................................................31
SECTION 9. OTHER COVENANTS AND AGREEMENTS ..................................32
9.1 Covenants of the Trust and the Investor ........................32
9.2 Repayment of Certain Amounts on Maturity Date ..................33
9.3 Amendment of Certain Documents .................................34
9.4 Proceeds of Casualty ...........................................34
9.5 Intercreditor Agreement ........................................34
9.6 Walk Away Event ................................................34
SECTION 10. CREDIT AGREEMENT ................................................35
10.1 Lessee's Credit Agreement Rights ...............................35
SECTION 11. TRANSFER OF INTEREST ............................................36
11.1 Restrictions on Transfer .......................................36
11.2 Effect of Transfer .............................................37
SECTION 12. INDEMNIFICATION .................................................37
12.1 General Indemnity ..............................................37
12.2 General Tax Indemnity ..........................................38
SECTION 13. MISCELLANEOUS ...................................................42
13.1 Survival of Agreements .........................................42
13.2 No Broker, etc. ................................................43
13.3 Notices ........................................................43
13.4 Counterparts ...................................................44
13.5 Amendments and Termination .....................................44
13.6 Headings, etc. .................................................45
13.7 Parties in Interest ............................................45
13.8 GOVERNING LAW ..................................................45
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13.9 Severability ...................................................45
13.10 Liability Limited ..............................................45
13.11 Rights of Lessee ...............................................45
13.12 Further Assurances .............................................46
13.13 Successors and Assigns .........................................46
13.14 No Representation or Warranty ..................................46
13.15 Highest Lawful Rate ............................................46
13.16 Confidentiality ................................................47
13.17 Oregon Provisions ..............................................48
Annex A Rules of Usage and Definitions
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Exhibits
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Exhibit A-1 Form of Construction Agreement
Exhibit A-2 Form of Agency Agreement
Exhibit B Form of Assignment of Leases and Consent to Assignment
Exhibit C Form of Contract Assignment and Consent to Contract Assignment
Exhibit D-1 Form of Mortgage
Exhibit D-2 Form of Deed of Trust
Exhibit E Form of Guarantee
Exhibit F Form of Requisition
Exhibit G-1 Form of Opinion of Counsel to Lessee and each Guarantor
Exhibit G-2 Form of Opinion of Counsel to Lessor and Trust Company
Exhibit G-3 Form of Opinion of Local Counsel to Lessee and each Guarantor
Exhibit H Property Closing Certificate
Exhibit I Form of Ground Lease Provisions
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<PAGE>
PARTICIPATION AGREEMENT, dated as of September 2, 1999 (this
"Agreement"), among KINDERCARE LEARNING CENTERS, INC., a Delaware corporation
(the "Lessee"); THE KINDERCARE REALTY TRUST 1999, a Delaware business trust (the
"Trust" or the "Lessor"); THE CHASE MANHATTAN BANK, a New York banking
corporation, as agent (in such capacity, the "Agent") for the Lenders;
SCOTIABANC INC., as an investor ("Scotiabanc" or an "Investor" ); and each of
the financial institutions listed on the signature pages hereof (each, a
"Lender"; collectively, the "Lenders"). Capitalized terms used but not otherwise
defined in this Agreement shall have the meanings set forth in Annex A hereto.
Preliminary Statement
---------------------
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. THE LOANS
1.1 Loans. The Lenders have agreed to make loans to the Lessor in an
aggregate principal amount of up to $95,500,000 in order for the Lessor to
acquire, develop and construct the Properties in accordance with the
Construction Agreement (in the form attached hereto as Exhibit A-1) and the
Agency Agreement (in the form attached hereto as Exhibit A-2), and to pay other
Project Costs, and in consideration of the receipt of the proceeds of such
Loans, the Lessor will issue the Tranche A Notes and the Tranche B Notes.
1.2 Credit Agreement. The Loans shall be made and the Notes shall be
issued pursuant to the Credit Agreement. Pursuant to this Agreement and the
Credit Agreement, the Loans will be made to the Lessor from time to time at the
request of the Construction Agent in consideration for the Construction Agent's
agreeing for the benefit of the Lessor, pursuant to the Agency Agreement, to
assist with the acquisition by the Lessor of parcels of Land or other Property
and, if such Property is not a Completed Property, to construct Improvements in
accordance with the Plans and Specifications.
1.3 Collateral For Loans. The Loans and the obligations of the Lessor
under the Credit Agreement shall be secured by, inter alia, (i) a first priority
assignment of the Lease, granted pursuant to the Assignment of Lease and
consented to by the Lessee pursuant to the Consent to Assignment (in each case
in the respective forms set forth on Exhibit B hereto), (ii) a first priority
assignment of the Agency Agreement, granted pursuant to the Contract Assignment
and consented to by the Construction Agent pursuant to the Consent to Contract
Assignment (in each case in the respective forms set forth on Exhibit C hereto);
and (iii) a first priority mortgage lien on each Property pursuant to a Mortgage
in the form set forth on Exhibit D-1 or Exhibit D-2 hereto, as applicable.
<PAGE>
2
1.4 Guarantee. The obligations of the Lessor under the Credit
Agreement shall be guaranteed by each Guarantor to the extent provided in the
Guarantee (in the form attached hereto as Exhibit E). The Lessee and each
Subsidiary of the Lessee that is or becomes a party to the guarantee to the
Corporate Credit Agreement shall be a Guarantor and shall execute the Guarantee.
Notwithstanding whether a Guarantor is relieved of its obligations under the
guarantee to the Corporate Credit Agreement, a Guarantor shall be relieved of
its obligations under the Guarantee only if and to the extent so approved by a
majority consent of the Lenders and Investors, collectively, each Lender and
Investor having a vote proportionate to its share of the sum of Commitments plus
Investor Commitments.
SECTION 2. INVESTOR CONTRIBUTION
2.1 Investor Contribution. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties of each of the
parties hereto contained herein or made pursuant hereto, on each Funding Date,
each Investor shall make an investment in the Lessor (each, an "Investor
Contribution") in an amount equal to its Proportionate Share of 4.5% of the
amount of the Advance requested by the Construction Agent in the Requisition for
such Funding Date. The aggregate amount of Investor Contributions made by each
Investor shall not exceed its Investor Commitment. The aggregate amount of all
Investor Commitments of all Investors is $4,500,000. The Lessor shall use the
Investor Contributions to pay a portion of the Project Costs simultaneously and
pro rata with the fundings by the Lenders. The Lessee shall, on a pro rata
basis, prepay the Investor Contribution, in connection with the exercise by the
Lessee of its right to direct the Lessor to prepay the Loans in accordance with
Section 10.1(e).
2.2 Allocated Investor Yield. With respect to each Construction Period
Property, on each date which is one Business Day prior to any date on which the
Investor is entitled to a payment on account of the Investor Yield, the
Construction Agent shall be deemed to have requested that the Investor make an
Investor Contribution in an amount equal to the Investor Yield due and payable
on such date with respect to the Construction Period Properties solely for the
purpose of paying such Investor Yield which is then due and payable.
SECTION 3. SUMMARY OF THE TRANSACTIONS
3.1 Operative Agreements. On the Initial Closing Date, each of the
respective parties thereto shall execute and deliver this Agreement, the Lease,
the Construction Agreement, the Agency Agreement, the Notes, the Guarantee, the
Credit Agreement, the Assignment of Lease, the Contract Assignment, the Consent
to Assignment, the Consent to Contract Assignment and such other documents,
instruments, certificates and opinions of counsel as agreed to by the parties
hereto.
<PAGE>
3
3.2 Property Purchase and Lease. (a) On each Property Closing Date and
subject to the terms and conditions of this Agreement and the Credit Agreement
(i) the Investor will make an Investor Contribution in accordance with Section 2
hereof, (ii) the Lenders will make loans in accordance with Section 5 hereof and
the terms and provisions of the Credit Agreement secured by a Mortgage with
respect to the Property executed and delivered by the Lessor and joined in by
the Lessee, (iii) the Lessor will purchase all right, title and interest in and
to each Property identified by the Construction Agent pursuant to the Agency
Agreement with respect to such Property Closing Date and (iv) the Lessor will
simultaneously lease (or sublease, as the case may be) all of its right, title
and interest in the Property to the Lessee by executing and delivering a Lease
Supplement and Memorandum of Lease which will be recorded in the real estate
records in the county where such Property is located.
(b) On each Property Closing Date, the Lessee shall certify to the
Agent on the Property Closing Certificate the Tranche A Percentage for each
Property being acquired on such Property Closing Date. The Tranche A Percentage
so certified shall be the Tranche A Percentage for such Property for the
duration of the Term.
3.3 Construction of Improvements; Lease of Improvements. On each
Property Closing Date, the Lessor and Lessee will (provided such Property is not
a Completed Property) execute and deliver an Agency Agreement Supplement, dated
as of such Property Closing Date, pursuant to which the Lessee will agree to act
as Construction Agent and to perform the Lessor's obligations under the
Construction Agreement in connection with the completion of the construction or
renovation of the Improvements on the Land acquired on such Property Closing
Date.
3.4 Aggregate Tranche A Percentage; Tranche A Percentage.
Notwithstanding any other provision of this Agreement or the other Operative
Agreements, the Lessee agrees that in no event shall the Lessee specify a
Property for the Lessor to acquire and lease pursuant to the execution and
delivery of a Lease Supplement if the Aggregate Tranche A Percentage after
giving effect to the acquisition and lease pursuant to the execution and
delivery of a Lease Supplement of such Property would be less than 87.96%.
SECTION 4. THE CLOSINGS
4.1 Initial Closing Date. All documents and instruments required to be
delivered on the Initial Closing Date shall be delivered at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at such
other location as may be determined by the Agent and the Lessee.
<PAGE>
4
4.2 Subsequent Funding Dates. The Lessee shall deliver to the Lessor,
each Investor and the Agent a Requisition appropriately completed, in connection
with each Funding Date.
4.3 Trust Company Authorization. The Investor agrees that, with
respect to the Initial Closing Date and each Property Closing Date, the
satisfaction or waiver of the conditions contained in Section 6 hereof shall
constitute, without further act, authorization and direction by the Investor to
the Trust Company to take on behalf of the Lessor the actions specified in
Section 2.1 of the Trust Agreement.
SECTION 5. FUNDING OF ADVANCES
5.1 General. To the extent funds have been made available to the
Lessor as Loans and Investor Contributions, the Lessor will make advances of
such funds to the Construction Agent from time to time in accordance with the
terms and conditions of this Agreement and the other Operative Agreements in
order to provide sufficient funds to: (i) allow the Lessor, at the direction of
the Construction Agent to acquire the Land or Completed Property in accordance
with the terms of this Agreement and the other Operative Agreements; (ii) allow
the Lessor to pay Transaction Expenses; (iii) permit the Construction Agent to
construct the Improvements (provided that such Property is not a Completed
Property) in accordance with the Plans and Specifications and the terms of the
Construction Agreement, the Agency Agreement, the Lease and the other Operative
Agreements; and (iv) pay all other Project Costs.
5.2 Procedures for Funding. (a) Not less than three Business Days
prior to each proposed Funding Date (but only one Business Day with regard to
funding of an ABR Loan exclusively), the Construction Agent shall deliver to the
Investor and the Agent, a requisition (a "Requisition"), appropriately
completed, in the form of Exhibit F hereto.
(b) Each Requisition shall: (i) be irrevocable; and (ii) request funds
in an amount of at least $500,000 (or such lesser amount representing Property
Acquisition Costs for any Property or such lesser amount as shall be equal to
the total aggregate of the Available Commitments plus the Available Investor
Commitment at such time) for the payment of Project Costs which have previously
been incurred and were not the subject of and funded pursuant to a prior
Requisition, in each case as specified in the Requisition.
(c) So long as no Default or Event of Default has occurred and is
continuing and subject to the Lessor and the Agent having each received the
materials required by Section 6.1, 6.2 and/or 6.3, as applicable, on each
Funding Date (i) the Lenders shall make Loans to the Lessor in an aggregate
amount equal to 95.5% of the funds specified in any Requisition, up to an
aggregate principal amount equal to the Available Commitments; (ii) each
Investor shall make an
<PAGE>
5
Investor Contribution in an amount equal to its Proportionate Share of 4.5% of
the funds specified in any Requisition, up to an amount equal to the Available
Investor Commitment; and (iii) the total amount of such Loans and Investor
Contribution made on such date shall be paid to the Construction Agent to pay
the Project Costs.
(d) Notwithstanding anything to the contrary in this Agreement, (i)
the Lenders shall not be required to make Loans with respect to a Property in an
aggregate amount in excess of 95.5% of the amount allocated to such Property in
the Budget, and (ii) no Investor shall be required to make Investor
Contributions with respect to a Property in an aggregate amount in excess of its
Proportionate Share of 4.5% of the amount allocated to such Property in the
Budget.
SECTION 6. CONDITIONS OF THE CLOSINGS AND ADVANCES
6.1 General Conditions to the Investor's and the Lenders' Obligations
to Make Loans and Investor Contributions. The agreement of each Lender to make
Loans, and each Investor to make Investor Contributions, is subject to the
satisfaction, immediately prior to or concurrently with the making of such Loans
and Investor Contribution, of the following conditions precedent:
(a) Operative Agreements. Each of the Operative Agreements entered
into on the Initial Closing Date or subsequently shall have been duly
authorized, executed, acknowledged and delivered by the parties thereto and
shall be in full force and effect, and the Agent and each Investor shall
have received a fully executed copy of each of the Operative Agreements
(other than the Notes of which the Agent shall have received the originals
thereof);
(b) Taxes. All taxes, fees and other charges in connection with the
execution, delivery, and, where applicable, recording, filing and
registration of the Operative Agreements shall have been paid or provisions
for such payment shall have been made to the satisfaction of the Agent and
the Required Investors;
(c) Governmental Approvals. All necessary (or, in the reasonable
opinion of the Agent, the Investor and their respective counsel, advisable)
Governmental Actions, in each case required by any law or regulation
enacted, imposed or adopted on or after the date hereof or by any change in
fact or circumstances since the date hereof, shall have been obtained or
made and be in full force and effect except for such Governmental Actions
the absence of which will not have a Material Adverse Effect;
(d) Litigation. No action or proceeding shall have been instituted,
nor to the knowledge of the Lessee shall any action or proceeding be
threatened, before any
<PAGE>
6
Governmental Authority, nor shall any order, judgment or decree have been
issued or proposed to be issued by any Governmental Authority, which in any
case, (i) seeks to set aside, restrain, enjoin or prevent the full
performance of this Agreement, any other Operative Agreement or any of the
transactions contemplated hereby or thereby or (ii) is reasonably likely to
have a Material Adverse Effect;
(e) Legal Requirements. In the opinion of the Agent, the Investor and
their respective counsel, the transactions contemplated by the Operative
Agreements do not and will not violate in any respect any Legal
Requirements and do not and will not subject the Agent, any Lender or the
Investor to any adverse regulatory prohibitions or constraints;
(f) Corporate Proceedings of the Lessee and each Guarantor. On the
Initial Closing Date, the Agent and the Investor shall have received a copy
of the resolutions or minutes, in form and substance satisfactory to the
Agent and the Investor, of the Board of Directors of the Lessee and each
Guarantor authorizing the execution, delivery and performance of this
Agreement, the Guarantee and the other Operative Agreements to which it is
a party, certified by the Secretary or an Assistant Secretary of the Lessee
or of each Guarantor as of the Initial Closing Date, which certificate
shall be in form and substance satisfactory to the Agent and the Investor
and shall state that the resolutions or minutes thereby certified have not
been amended, modified, revoked or rescinded;
(g) Lessee and Guarantor Incumbency Certificates. On the Initial
Closing Date, the Agent and the Investor shall have received a certificate
of the Lessee and each Guarantor, dated the Initial Closing Date, as to the
incumbency and signature of the officers of the Lessee and each Guarantor
executing any Operative Agreement satisfactory in form and substance to the
Agent and the Investor, executed by the Chief Executive Officer, President
or any Vice President and the Secretary or any Assistant Secretary of the
Lessee and of each Guarantor;
(h) Corporate Proceedings of the Trust Company. On the Initial Closing
Date, the Agent, the Investor and the Lessee shall have received a copy of
the resolutions, in form and substance satisfactory to the Agent, the
Investor and the Lessee, of the Board of Directors of the Trust Company
authorizing the execution, delivery and performance of the Operative
Agreements to which it is a party, certified by the Secretary or an
Assistant Secretary of the Trust Company as of the Initial Closing Date,
which certificate shall be in form and substance satisfactory to the Agent,
the Investor and the Lessee and shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded;
<PAGE>
7
(i) Trust Company Incumbency Certificate. On the Initial Closing Date,
the Agent, the Investor and the Lessee shall have received a certificate of
the Trust Company, dated the Initial Closing Date, as to the incumbency and
signature of the officers of the Trust Company executing any Operative
Agreement, satisfactory in form and substance to the Agent, the Investor
and the Lessee, executed by the President or any Vice President, Assistant
Vice President, Trust Officer and the Secretary or any Assistant Secretary
of the Trust Company;
(j) Corporate Documents. The Agent and the Investor shall have
received true and complete copies of the articles of incorporation and
by-laws of the Lessee, and each Guarantor certified as of the Initial
Closing Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Lessee and such Guarantor;
(k) Consents, Licenses and Approvals. On the Initial Closing Date and
each Property Closing Date, the Agent and the Investor shall have received
a certificate of an Authorized Officer of the Lessee and of each Guarantor
(i) attaching copies of all consents, authorizations and filings required
to consummate the transaction contemplated by this Agreement, and (ii)
stating that such consents, licenses and filings are in full force and
effect, and each such consent, authorization and filing shall be in form
and substance satisfactory to the Agent and the Required Investors;
(l) Fees. (i) The Agent and the Arranger shall have received the fees
to be paid on the Initial Closing Date pursuant to the Fee Letter which
fees shall be paid using the proceeds of the Loans or Investor
Contributions; and (ii) all fees due and owing the Investor shall have been
paid on the Initial Closing Date;
(m) Legal Opinions. On the Initial Closing Date, the Agent and the
Investor shall have received the executed legal opinion of Stoel Rives LLP,
counsel to the Lessee and each Guarantor, substantially in the form of
Exhibit G-1 hereto;
(ii) On the Initial Closing Date, the Agent, the Lessee and the
Investor shall have received the executed legal opinion of Morris, James,
Hitchens & Williams, counsel to the Trust and the Trust Company,
substantially in the form of Exhibit G-2 hereto;
(n) Actions to Perfect Liens. On the Initial Closing Date and each
Property Closing Date as to the Property being acquired on such Property
Closing Date the Agent shall have received evidence in form and substance
satisfactory to it that all filings, recordings, registrations and other
actions, including the filing of duly executed Lender Financing Statements
and Lessor Financing Statements, the Mortgage, and the Memorandum of Lease,
necessary or, in the opinion of the Agent or the Required Investors,
desirable to perfect the Liens created by the Security Documents shall have
<PAGE>
8
been completed, to the extent required for the parties to perform the
transaction contemplated by the Operative Agreements;
(o) Lien Searches. On the Initial Closing Date the Agent and the
Investor shall have received the results of a recent search by a Person
reasonably satisfactory to the Agent, of the Uniform Commercial Code,
judgement and tax lien filings which may have been filed in the State of
Oregon with respect to personal property of the Lessee, and the results of
such search shall be satisfactory to the Agent and the Required Investors;
(p) Representations and Warranties. The representations and warranties
of the Lessor, the Lessee and each Guarantor contained herein and in each
of the other Operative Agreements shall be true and correct on and as of
each Funding Date as if made on and as of each Funding Date;
(q) Performance of Operative Agreements. The parties hereto (other
than the Investor or the Lenders) shall have performed their respective
agreements contained herein and in the other Operative Agreements on or
prior to each such Funding Date;
(r) Default. There shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Agreements and no
Default or Event of Default under any of the Operative Agreements will have
occurred after giving effect to the Advance requested by such Requisition;
(s) Material Adverse Change. As of such Funding Date, there shall not
have occurred any Material Adverse Change;
(t) Financial Statements. All financial statements shall have been
delivered in accordance with Section 7.3(i) of this Agreement; and
(u) Lender Advances. With respect to each advance, each Investor shall
be satisfied that the Lessor shall receive from the Lenders on the relevant
Funding Date Loans in an amount equal to 95.5% of the applicable Advance.
(v) Fees, Costs and Expenses. All fees, costs, expenses and
disbursements due and owing as of the relevant Funding Date (or the Initial
Closing Date if such is not a Funding Date) shall have been paid in
accordance with Section 8 of this Agreement
6.2 Conditions to the Investor's and the Lenders' Obligations to Make
Advances to pay Property Acquisition Costs.
<PAGE>
9
The obligations of each Investor to make each Investor Contribution,
and of the Lenders to make Loans to the Lessor, on a Property Closing Date for
the purpose of providing funds to the Lessor necessary to acquire a Property are
subject to the satisfaction or waiver of the following conditions precedent:
(a) Requisition. The Agent shall have received a fully executed
counterpart of the Requisition dated as of the Property Closing Date (but
delivered at least three Business Days prior to the Property Closing Date
other than with regard to funding of an ABR Loan exclusively, in which
event one Business Day will be sufficient), appropriately completed;
(b) Deed. There shall have been delivered to the Lessor, as
applicable, (i) a deed (the "Deed"), in form and substance appropriate for
recording with the applicable Governmental Authorities, with respect to
each Property (and all Improvements located thereon) being purchased on
such Property Closing Date, conveying fee simple title to such Property to
the Lessor, subject only to the Permitted Exceptions or (ii) a Ground Lease
with respect to each Property being ground leased on such Property Closing
Date (such Ground Lease, or a Memorandum of Ground Lease, as appropriate
under applicable Legal Requirements, to be in form and substance
appropriate for recording with the applicable Governmental Authorities),
subject only to Permitted Exceptions;
(c) Title. Title to each Property being acquired on such Property
Closing Date shall conform to the representations and warranties set forth
in Section 7.5(n);
(d) Lease Supplement and Memorandum of Lease. The Lessee shall have
delivered a Lease Supplement and a Memorandum of Lease executed by the
Lessee and the Lessor with respect to each Property being acquired on such
Property Closing Date to the Agent;
(e) Agency Agreement Supplement. The Construction Agent shall have
delivered an Agency Agreement Supplement executed by the Construction Agent
and the Lessor with respect to each Property (other than a Completed
Property) being acquired on such Property Closing Date to the Agent.
(f) Mortgage. The Lessee shall have recorded in the real estate
records of the county where the Property is located an original of the
Mortgage executed by the Lessor and Lessee with respect to each Property
being acquired on such Property Closing Date (or such documents as are held
by the Title Company or a closing agent acceptable to Agent and are in a
position to be so filed and recorded, as applicable) and the Lien of the
Mortgage shall conform to the representations and warranties set forth in
Section 7.5(g);
<PAGE>
10
(g) Assignment of Lease. The Lessee shall have recorded in the real
estate records of the county where the Property is located an original of
the Assignment of Lease executed by the Lessor with respect to each
Property being acquired on such Property Closing Date (or such documents as
are held by the Title Company or a closing agent acceptable to Agent and
are in a position to be so filed and recorded, as applicable);
(h) Consent to Assignment of Lease. The Lessee and each Guarantor
shall have delivered to the Agent a consent to the Assignment of Lease
executed by the Lessee and each Guarantor with respect to each Property
being acquired on such Property Closing Date;
(i) Environmental Audit. The Agent and the Investor shall have
received not less than 5 business days prior to such Property Closing Date
(i) an Environmental Audit with respect to each Property being acquired on
such Property Closing Date, prepared by the Environmental Engineer and the
results of the Environmental Audit shall be in form and substance
satisfactory to the Agent; and (ii) letters from the Environmental Engineer
stating, among other things, that the Agent, the Lenders, the Trust and the
Investor may rely on the Environmental Audits with respect to each Property
being acquired on such Property Closing Date which were prepared by such
firm as if they were originally addressed to them in all respects;
(j) Appraisal. The Agent and the Investor shall have received an
Appraisal of each Property being acquired on such Property Closing Date and
such Appraisal shall show a value for each Property at least equal to
90.91% of the projected Project Costs for such Property and shall otherwise
be in form and substance acceptable to each Lender and Investor and the
Lessor, or, in the alternative, (i) (1) if the Property has no Improvements
or Improvements which the Lessee intends to completely demolish, an
appraisal of the Land only, or (2) if the Property has Improvements which
the Lessee intends to renovate, an appraisal of the Land and Improvements,
in either case ordered by the Agent, prepared by a reputable independent
appraiser reasonably satisfactory to the Agent, which in the judgment of
counsel to the Agent, as of the applicable Property Closing Date, complies
with all of the provisions of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended, the rules and regulations adopted
pursuant thereto, and all other applicable Legal Requirements, showing the
value of the Land at least equal to the amount requested or the Requisition
with respect to such Land and (ii) a valuation letter, ordered by the
Agent, prepared by a reputable independent appraiser reasonably
satisfactory to the Agent, of such Property as if improved in accordance
with the Plans and Specifications of such Property. The valuation letter
shall state the amount of the Projected Completion Value with respect to
such Property and an estimate of the value thereof at the end of the Term.
<PAGE>
11
(k) Default. There shall not have occurred and be continuing any
Default or Event of Default under any of the Operative Agreements and no
Default or Event of Default under any of the Operative Agreements will have
occurred after giving effect to the Advance requested by such Requisition;
(l) Survey. The Agent shall have received, and the Title Company shall
have received, a survey of each Property being acquired on such Property
Closing Date, certified to the Agent, the Investor, the Lessor and the
Title Company in a manner satisfactory to them, certified as of a date
within 180 days of the Property Closing Date, by an independent
professionally licensed land surveyor satisfactory to the Agent, which
survey shall be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted by the
American Land Title Association and the American Congress on Surveying and
Mapping in 1992, and, without limiting the generality of the foregoing,
there shall be surveyed and shown on such survey the following: (i) the
locations on such Property of all the buildings, structures and other
improvements, if any, and the established building setback lines; (ii) the
lines of streets abutting such Property; (iii) all access and other
easements appurtenant to such Property; (iv) all roadways, paths,
driveways, easements, encroachments and overhanging projections and similar
encumbrances affecting such Property, whether recorded, apparent from a
physical inspection of the Property or otherwise known to the surveyor; (v)
any encroachments on any adjoining property by the building, structures and
improvements on such Property; and (vi) if such Property is described as
being on a filed map, a legend relating the survey to said map;
(m) Mortgagee's Title Insurance Policy. With respect to each Property
being acquired on such Property Closing Date, the Agent shall have received
with respect to the Mortgage a mortgagees' title policy, or marked up
unconditional binder for such insurance dated the Property Closing Date or
other evidence, satisfactory to Agent, of the commitment of the Title
Company to issue a mortgagee's title policy; such policy shall (i) be in an
amount equal to the aggregate amount shown on the Budget for such Property
(with a pending disbursements clause); (ii) be issued at ordinary rates;
(iii) insure that the Mortgage insured thereby creates a valid first Lien
on such Property, free and clear of all defects and encumbrances, except
Permitted Exceptions; (iv) name the Agent for the benefit of the Lenders as
the insured thereunder; (v) be in the form of ALTA Loan Policy - 1970
(Amended 10/17/70) (to the extent such policy is available, or if
unavailable, then such other ALTA Loan Policy form as is available in the
state in which the Property is situated); (vi) contain comprehensive,
access, tax lot, revolving credit and such other endorsements and
affirmative coverage as the Agent may reasonably request; and (vii) be
issued by the Title Company; and the Agent shall have received evidence
reasonably satisfactory to it that all premiums in respect of such policy,
and all charges for any
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12
mortgage recording tax with respect to the Mortgage and/or the Deed of
Trust have been paid or provision made therefor;
(n) Owner's Title Insurance Policy. The Lessor shall have received an
owner's title policy, or marked up unconditional binder for such insurance
or other evidence, satisfactory to Agent, of the commitment of the Title
Company to issue an owner's title policy, dated the Closing Date, for each
Property being acquired on such Property Closing Date, in standard forms
and the Lessor and Required Investors shall have received evidence
reasonably satisfactory to it that all premiums in respect of such policy
have been paid or provision made therefor;
(o) Recorded Documents. The Agent and the Investor shall have received
a copy of all recorded documents referred to, or listed as exceptions to
title in, the title policy referred to above, other than the Operative
Agreements and any Permitted Exceptions;
(p) Construction Schedule. With respect to each Property being
acquired on such Property Closing Date (other than a Completed Property),
the Agent and the Investor shall have received a copy of the schedule
prepared by or at the direction of the Construction Agent; showing, to the
satisfaction of the Agent, the estimated (i) timetable for completion of
each Improvement to be constructed on each Property being acquired on such
Property Closing Date, and (ii) timetable for the making of Loans;
(q) Budget. With respect to each Property being acquired on such
Property Closing Date (other than a Completed Property), the Agent and the
Investor shall have received a copy of the Budget with respect to the
construction of each Improvement to be constructed or installed on each
Property being acquired on such Property Closing Date, and such Budget
shall be in form and substance satisfactory to the Agent;
(r) Plans and Specifications. With respect to each Property being
acquired on such Property Closing Date (other than a Completed Property) on
which Improvements are to be constructed, the Agent and the Investor shall
have received, if available, a copy of the Plans and Specifications with
respect to each Improvement to be constructed or installed on each Property
being acquired on such Property Closing Date;
(s) Local Opinions. With respect to each Property being acquired on
such Property Closing Date, if requested by the Agent;
(i) the Agent and the Investor shall have received the executed
legal opinion of counsel to Lessee and the Guarantors, substantially in the
form of Exhibit G-1 hereto,
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13
limited to those Operative Agreements executed by Lessee and the Guarantors
on the Property Closing Date;
(ii) the Agent, the Lessee and the Investor shall have received
the executed legal opinion of counsel to Lessor, the Trust and the Trust
Company, substantially in the form of Exhibit G-2 hereto, limited to those
Operative Agreements executed by Lessor, the Trust and the Trust Company on
the Property Closing Date; and
(iii) the Agent and the Investor shall have received the executed
legal opinion of local counsel to the Lessee and the Guarantors in the
state in which such Property is located, substantially in the form of
Exhibit G-3 hereto;
(t) Insurance. With respect to the Properties for which such advance
is being requested, the Agent and the Investor shall have received evidence
in form and substance satisfactory to each of the Agent and the Required
Investors that all of the requirements of Section 14 of the Lease shall
have been satisfied; and
(u) FIRPTA Affidavit. The Agent and the Investor shall have received
either (i) a FIRPTA Affidavit from the seller of the Property in customary
form or (ii) if such seller is a "foreign person" as defined in Section
1445 of the Code, evidence that a portion of the sales price to be paid to
such seller has been withheld, if so required, in accordance with the
provisions of the Code.
6.3 Conditions to the Investor's and the Lenders' Obligations to Make
Advances to Pay Project Costs for Construction on any Property. The obligations
of each Investor to make each Investor Contribution, and of the Lenders to make
Loans to the Lessor, on a Funding Date for the purpose of providing funds to the
Lessor necessary to pay for the construction of the Improvements or the payment
of Transaction Costs or other Project Costs (other than Property Acquisition
Costs) are subject to the satisfaction or waiver of the following conditions
precedent:
(a) Requisition. The Agent shall have received at least three Business
Days prior to the Funding Date (but only one Business Day with regard to
funding of an ABR Loan exclusively) a fully executed counterpart of the
Requisition, appropriately completed;
(b) Title. Title to the Properties to which such Requisition relates
shall conform to the representations set forth in Section 7.5(n);
(c) Budget in Balance. Based upon the Budget, the Available
Commitments and the Available Investor Commitment will be sufficient to
complete the Improvement or Improvements to which the Requisition relates
on such Properties;
<PAGE>
14
(d) Lien Waivers. With respect to each Property to which such
Requisition relates, the Agent shall have received lien waivers, in form
and substance reasonably satisfactory to the Agent, from each contractor,
subcontractor, supplier and materialmen which the Lessee reasonably
believes will receive total compensation for services rendered or materials
supplied in connection with the construction of the related Improvements of
$250,000 or more; each such lien waiver shall evidence that such
contractor, subcontractor, supplier or materialmen has been paid in full
for all work performed or materials supplied to the date of the request for
such Advance, other than work which is the subject of such request; and
(e) Plans and Specifications. With respect to each Property to which
such Requisition relates, the Agent and Investor shall have received a copy
of the Plans and Specifications with respect to each Improvement to be
constructed and installed on such Property, if such Plan and Specifications
have not already been provided pursuant to Section 6.2(r), above; and
(f) Appraisal. The Agent and the Investor shall have received an
Appraisal of each Property being acquired on such Property Closing Date and
such Appraisal shall show a value for each Property at least equal to
90.91% of the projected Project Costs for such Property and shall otherwise
be in form and substance acceptable to each Lender and the Required
Investors.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of the Investor on the Initial
Closing Date. Each Investor represents and warrants with respect to itself to
each of the other parties hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. Scotiabanc is duly organized and validly
existing corporation in good standing under the laws of the State of
Delaware. Each Investor has the power and authority to carry on its
business as now conducted and to enter into and perform its obligations
under this Agreement, each Operative Agreement to which it is a party and
each other agreement, instrument and document executed and delivered by it
on the Closing Date in connection with or as contemplated by each such
Operative Agreement to which it is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof by the Investor, nor the consummation of the
transactions contemplated thereby by the Investor, nor compliance
<PAGE>
15
by it with any of the terms and provisions thereof (i) requires or will
require any approval of (which approval has not been obtained) the
shareholders of, or approval or consent of any trustee or holders of any
indebtedness or obligations of the Investor, (ii) contravenes or will
contravene any Legal Requirement applicable to or binding on it as of the
date hereof, (iii) does or will contravene or result in any breach of or
constitute any default under, or result in the creation of any Lessor Lien
upon the Property or any of the Improvements, its articles of incorporation
or by-laws, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it or its properties may be bound or (iv)
does or will require any Governmental Action by any Governmental Authority.
(c) Enforceability, etc. Each Operative Agreement to which it is a
party has been duly executed and delivered by it and constitutes, or upon
execution and delivery will constitute, a legal, valid and binding
obligation enforceable against it in accordance with the terms thereof.
(d) ERISA. The Investor is making the Investor Contribution
contemplated to be made by it hereunder for its own account and with its
general corporate assets in the ordinary course of its business, and no
part of such amount constitutes plan assets of any Plan.
(e) Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or threatened by
or against the Investor (a) with respect to any of the Operative Agreements
or any of the transactions contemplated hereby or thereby, or (b) which
could reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Investor.
7.2 Representations and Warranties of Lessor on the Initial Closing
Date. Lessor represents and warrants to each of the other parties hereto as of
the Initial Closing Date as follows:
(a) Due Organization, etc. Lessor is a duly organized and validly
existing business trust in good standing under the laws of the State of
Delaware and has the power and authority to carry on its business as now
conducted and to enter into and perform its obligations under this
Agreement, each Operative Agreement to which it is a party and each other
agreement, instrument and document executed and delivered by it on the
Closing Date in connection with or as contemplated by each such Operative
Agreement.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary
<PAGE>
16
action on its part and neither the execution and delivery thereof by the
Lessor, nor the consummation of the transactions contemplated thereby by
the Lessor, nor compliance by it with any of the terms and provisions
thereof (i) requires or will require any approval of (which approval has
not been obtained) any party or approval or consent of any trustee or
holders of any indebtedness or obligations of the Lessor (ii) contravenes
or will contravene any Legal Requirement applicable to or binding on it as
of the date hereof, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation of any Lessor
Lien upon the Property or any of the Improvements or the Trust Agreement,
any indenture, mortgage, chattel mortgage, deed of trust, conditional sales
contract, bank loan or credit agreement or other agreement or instrument to
which it or its properties may be bound or (iv) does or will require any
Governmental Action by any Governmental Authority.
(c) Enforceability, etc. Each Operative Agreement to which it is a
party has been duly executed and delivered by it and constitutes, or upon
execution and delivery will constitute, a legal, valid and binding
obligation enforceable against it in accordance with the terms thereof.
(d) Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or threatened by
or against the Lessor (a) with respect to any of the Operative Agreements
or any of the transactions contemplated hereby or thereby, or (b) which
could reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Lessor.
(e) Assignment. Lessor has not assigned or transferred any of its
right, title or interest in or under the Lease, any other Operative
Agreement or any of the Properties, except in accordance with the other
Operative Agreements.
(f) No Default. The Lessor is not in default under or with respect to
any of its Contractual Obligations in any respect which could have a
material adverse effect on the assets, liabilities, operations, business or
financial condition of the Lessor. No Default or Event of Default
attributable to it has occurred and is continuing.
(g) Use of Proceeds. The proceeds of the Loans and the Investor
Contribution shall be applied by the Lessor solely in accordance with the
provisions of the Operative Agreements.
(h) Chief Place of Business. The Lessor's chief place of business,
chief executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Agreement and each other
Operative Agreement are
<PAGE>
17
kept are located at Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001.
(i) Federal Reserve Regulations. The Lessor is not engaged principally
in, and does not have as one of its most important activities, the business
of extending credit for the purpose of purchasing or carrying any margin
stock (within the meaning of Regulation U of the Board), and no part of the
proceeds of the Loans will be used by it, directly or indirectly, to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock or for any purpose
that violates, or is inconsistent with, the provisions of Regulations of
the Board, including but not limited to, T, U or X of the Board.
(j) Investment and Holding Company Status. The Lessor is not (i) an
"investment company" as defined in, or subject to regulation under the
Investment Company Act of 1940 or (ii) a "holding company" as defined in,
or subject to regulation under, the Public Utility Holding Company Act of
1935.
(k) Securities Act. Neither the Lessor nor any Person authorized by
the Lessor to act on its behalf has offered or sold any interest in the
Property or the Notes, or in any similar security or interest relating to
the Property, or in any security the offering of which for the purposes of
the Securities Act would be deemed to be part of the same offering as the
offering of the aforementioned securities to, or solicited any offer to
acquire any of the same from, any Person other than, in the case of the
Notes, the Agent, and neither the Lessor nor any Person authorized by the
Lessor to act on its behalf will take any action which would subject the
issuance or sale of any interest in the Property or the Notes to the
provisions of Section 5 of the Securities Act or require the qualification
of any Operative Agreement under the Trust Indenture Act of 1939, as
amended.
(l) ERISA. Each Investor is making the Investor Contribution
contemplated to be made by it hereunder in the ordinary course of its
business, and no part of such amount constitutes the assets of any Plan.
(m) Lessor Liens. The Property is free and clear of all Lessor Liens.
7.3 Representations and Warranties of the Lessee on the Initial
Closing Date. The Lessee represents and warrants to each of the other parties
hereto as of the Initial Closing Date as follows:
(a) Corporate Status. The Lessee and each Material Subsidiary (a) is a
duly organized and validly existing corporation or other entity in good
standing under the laws of the jurisdiction of its organization and has the
corporate or other organizational power
<PAGE>
18
and authority to own its property and assets and to transact the business
in which it is engaged and (b) has duly qualified and is authorized to do
business and is in good standing in all jurisdictions (i) where a Property
is located and (ii) where it is otherwise required to be so qualified,
except where the failure to be so qualified could not reasonably be
expected to result in a Material Adverse Effect.
(b) Corporate Power and Authority. Each of the Lessee and the
Guarantors has the corporate power and authority to execute, deliver and
carry out the terms and provisions of the Operative Agreements to which it
is a party and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Operative Agreements to which it
is a party. Each of the Lessee and the Guarantors has duly executed and
delivered each Operative Agreement to which it is a party and each such
Operative Agreement constitutes the legal, valid and binding obligation of
each of the Lessee and the Guarantors enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
subject to general principles of equity.
(c) No Violation. Neither the execution, delivery and performance by
any of the Lessee or the Guarantors of the Operative Agreements to which it
is a party nor compliance with the terms and provisions thereof nor
consummation of the transactions contemplated therein will (i) contravene
any applicable provision of any material law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental
instrumentality, (ii) result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in
the creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of the Lessee, the Guarantor or any
of the Restricted Subsidiaries pursuant to, the terms of any material
indenture (including the Senior Note Indenture), loan agreement, lease
agreement, mortgage, deed of trust, agreement or other material instrument
to which the Lessee or any of the Restricted Subsidiaries is a party or by
which it or any of its property or assets is bound, in which, in the case
of either clause (i) or (ii), could have a Material Adverse Effect, or
(iii) violate any provision of the certificate of incorporation or by-laws
of the Lessee, the Guarantor or any of the Restricted Subsidiaries.
(d) Litigation. Except as set forth in the Lessee's Form 10-K for the
fiscal year ended May 28, 1999 as filed with the Securities and Exchange
Commission or any successor thereto, there are no actions, suits or
proceedings (including, without limitation, Environmental Claims) pending
or, to the knowledge of the Lessee, threatened with respect to the Lessee
or any of its Subsidiaries that could reasonably be expected to result in a
Material Adverse Effect.
<PAGE>
19
(e) Federal Reserve Regulations. Neither the Lessee nor any of its
Subsidiaries is engaged principally, or as one of its important activities,
in business which will violate the provisions of Regulation T, U or X of
the Board.
(f) Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with,
or exemption by, any Governmental Authority is required to authorize or is
required in connection with (i) the execution, delivery and performance of
any Operative Agreement or (ii) the legality, validity, binding effect or
enforceability of any Operative Agreement, except any of the foregoing as
to which the failure to obtain or make could not reasonably be expected to
have a Material Adverse Effect.
(g) Investment Company Act. The Lessee is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(h) True and Complete Disclosure. (i) All factual information and data
(taken as a whole) heretofore or contemporaneously furnished by the Lessee,
any of its Subsidiaries or any of their respective authorized
representatives in writing to the Lessor, the Investor, the Agent and/or
any Lender on or before the Initial Closing Date (including, without
limitation, (A) the Confidential Information Memorandum and (B) all
information contained in the Operating Agreements) for purposes of or in
connection with the Operative Agreements or any transaction contemplated
herein or therein was true and complete in all material respects on the
date as of which such information or data is dated or certified and was not
incomplete by omitting to state any material fact necessary to make such
information and data (taken as a whole) not misleading at such time in
light of the circumstances under which such information or data was
furnished, it being understood and agreed that for purposes of this Section
7.3(h)(i), such factual information and data shall not include projections
and pro forma financial information.
(ii) The projections and pro forma financial information contained in
the information and data referred to in paragraph (i) above were based on
good faith estimates and assumptions believed by the Lessee to be
reasonable at the time made, it being recognized by the Lessor, the
Investor, the Agent and the Lenders that such projections as to future
events are not to be viewed as facts and that actual results during the
period or periods covered by any such projections may differ from the
projected results.
(i) Financial Condition: Financial Statements. The consolidated
balance sheet of the Lessee and its Subsidiaries at May 28, 1999, and the
related consolidated statements of income and cash flows for the fiscal
year ended as of such date, which statements have been audited by Deloitte
& Touche, LLP, independent certified public
<PAGE>
20
accountants, who delivered an unqualified opinion with respect thereto in
each case and which have been delivered to the Agent and each Investor on
the Initial Closing Date present fairly in all material respects the
consolidated financial position of the Lessee and its Subsidiaries at the
respective dates of said statements and the results of operations for the
respective periods covered thereby. All such financial statements have been
prepared in accordance with GAAP consistently applied except to the extent
provided in the notes to said financial statements. There has been no
Material Adverse Change since May 28, 1999, other than solely as a result
of changes in general economic conditions.
(j) Tax Returns and Payments. Each of the Lessee and its Subsidiaries
has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it that have become due, other
than those not yet delinquent or contested in good faith. The Lessee and
each of its Subsidiaries have paid, or have provided adequate reserves (in
the good faith judgment of the management of the Lessee) in accordance with
GAAP for the payment of, all material federal, state and foreign income
taxes applicable for all prior fiscal years and for the current fiscal year
to the Initial Closing Date.
(k) Compliance with ERISA. Each Plan is in compliance with ERISA, the
Code and any applicable Requirement of Law; no Reportable Event has
occurred (or is reasonably likely to occur) with respect to any Plan; no
Plan is insolvent or in reorganization (or is reasonably likely to be
insolvent or in reorganization), and no written notice of any such
insolvency or reorganization has been given to the Lessee, any Subsidiary
or any ERISA Affiliate; no Plan (other than a multiemployer plan) has an
accumulated or waived funding deficiency (or is reasonably likely to have
such a deficiency); neither the Lessee nor any Subsidiary nor any ERISA
Affiliate has incurred (or is reasonably likely expected to incur) any
liability to or on account of a Plan pursuant to Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201 or 4204 of ERISA or Section 4971
or 4975 of the Code or has been notified in writing that it will incur any
liability under any of the foregoing Sections with respect to any Plan; no
proceedings have been instituted (or are reasonably likely to be
instituted) to terminate or to reorganize any Plan or to appoint a trustee
to administer any Plan, and no written notice of any such proceedings has
been given to the Lessee, any Subsidiary or any ERISA Affiliate; and no
lien imposed under the Code or ERISA on the assets of the Lessee or any
Subsidiary or any ERISA Affiliate exists (or is reasonably likely to exist)
nor has the Lessee, any Subsidiary or any ERISA Affiliate been notified in
writing that such a lien will be imposed on the assets of the Lessee, any
Subsidiary or any ERISA Affiliate on account of any Plan, except to the
extent that a breach of any of the foregoing representations, warranties or
agreements in this Section 7.3(k) would not result, individually or in the
aggregate, in an amount of liability that would be reasonably likely to
have a Material Adverse Effect. No Plan (other than a multiemployer plan)
has an
<PAGE>
21
Unfunded Current Liability that would, individually or when taken together
with any other liabilities referenced in this Section 7.3(k), be reasonably
likely to have a Material Adverse Effect. With respect to Plans that are
multiemployer plans (as defined in Section 3(37) of ERISA), the
representations and warranties in this Section 7.3(k), other than any made
with respect to (i) liability under Section 4201 or 4204 of ERISA or (ii)
liability for termination or reorganization of such Plans under ERISA, are
made to the best knowledge of the Lessee.
(l) Subsidiaries. Schedule 7.3(l) lists each Subsidiary of the Lessee
(and the direct and indirect ownership interest of the Lessee therein), in
each case existing on the Initial Closing Date. To the knowledge of the
Lessee, each Material Subsidiary as of the Initial Closing Date has been so
designated on Schedule 7.3(1).
(m) Patents, etc. The Lessee and each of the Restricted Subsidiaries
have obtained all patents, trademarks, servicemarks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions,
that are necessary for the operation of their respective businesses as
currently conducted except where the failure to obtain any such rights
could not reasonably be expected to have a Material Adverse Effect.
(n) Environmental Laws. (i) Other than instances of noncompliance that
could not reasonably be expected to have a Material Adverse Effect: (1) the
Lessee and each of its Subsidiaries are in compliance with all
Environmental Laws in all jurisdictions in which the Lessee and each of its
Subsidiaries are currently doing business (including, without limitation,
having obtained all material permits required under Environmental Laws);
and (2) the Lessee will comply and cause each of its Subsidiaries to comply
with all such Environmental Laws (including, without limitation, all
material permits required under Environmental Laws).
(ii) Neither the Lessee nor any of its Subsidiaries has treated,
stored, transported or disposed of Hazardous Materials at or from any
currently or formerly owned land, buildings and improvements owned or
leased by the Lessee or any of its Subsidiaries, but excluding all
operating fixtures and equipment, whether or not incorporated into
improvements, or facility relating to its business in a manner that could
reasonably be expected to have a Material Adverse Effect.
(iii) Nothing in Section 7.3(a) and (b) above shall affect the
operation or interpretation of any other environmental covenants,
representations or warranties in this Agreement or in any of the other
Operative Agreements.
(o) Properties. The Lessee and each of the Restricted Subsidiaries
have good title to or leasehold interest in all properties that are
necessary for the operation of their
<PAGE>
22
respective businesses as currently conducted and as proposed to be
conducted, free and clear of all Liens (other than any Liens permitted by
any of the Operative Agreements) and except where the failure to have such
good title could not reasonably be expected to have a Material Adverse
Effect.
7.4 Representations and Warranties of the Trust Company on the Initial
Closing Date. The Trust Company represents and warrants to each of the other
parties hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. It is a banking corporation duly organized
and validly existing and in good standing under the laws of the State of
Delaware and has the power and authority to enter into and perform its
obligations under the Trust Agreement and has the corporate power and
authority to act as the trustee under the Trust Agreement and to enter into
and perform the obligations under each of the other Operative Agreements to
which Trust Company or the Trust, as the case may be, is or will be a party
and each other agreement, instrument and document to be executed and
delivered by it on or before the Initial Closing Date in connection with or
as contemplated by each such Operative Agreement to which the Trust Company
or the Trust, as the case may be, is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party, either in
its individual capacity or (assuming due authorization, execution and
delivery of the Trust Agreement by the Investor) as the Trust, as the case
may be, has been duly authorized by all necessary action on its part and
neither the execution and delivery thereof, nor the consummation of the
transactions contemplated thereby, nor compliance by it with any of the
terms and provisions thereof (i) does or will require any approval or
consent of any trustee or holders of any of its indebtedness or
obligations, (ii) does or will contravene any current United States federal
law, governmental rule or regulation relating to its banking or trust
powers, (iii) does or will contravene or result in any breach of or
constitute any default under, or result in the creation of any Lien upon
any of its property under, its charter or by-laws, or any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract, bank
loan or credit agreement or other agreement or instrument to which it is a
party or by which it or its properties may be bound or affected or (iv)
does or will require any Governmental Action by any Governmental Authority
of the United States or the State of Delaware regulating its banking or
trust powers.
(c) Trust Company Enforceability, etc. The Trust Agreement and,
assuming the Trust Agreement is the legal, valid and binding obligation of
the Investor, each other Operative Agreement to which Trust Company or the
Trust, as the case may be, is a party
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23
have been, or on or before the Closing Date will be, duly executed and
delivered by Trust Company or the Trust, as the case may be, and the Trust
Agreement and each such other Operative Agreement to the extent entered
into by the Trust Company constitutes, or upon execution and delivery will
constitute, a legal, valid and binding obligation enforceable against Trust
Company in accordance with the terms thereof.
(d) Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or threatened by
or against the Trust Company with respect to any of the Operative
Agreements or any of the transactions contemplated hereby or thereby.
7.5 Representations and Warranties of the Lessee on Property Closing
Dates. The Lessee hereby represents and warrants to each of the other parties
hereto as of each Property Closing Date as follows:
(a) Representations and Warranties. The representations and warranties
of the Lessee set forth herein and of the Lessee, the Construction Agent and
each Guarantor set forth in each of the other Operative Agreements are true and
correct in all respects on and as of such Property Closing Date as if made on
and as of such Property Closing Date. The Construction Agent, the Lessee and
each Guarantor are in compliance with their respective obligations under the
Operative Agreements and there exists no Default or Event of Default under any
of the Operative Agreements.
(b) No Default. No Default or Event of Default will occur under any of
the Operative Agreements as a result of, or after giving effect to, the Advance
requested by the Requisition on such Property Closing Date.
(c) Authorization by the Lessee. The execution and delivery of each
Lease Supplement, Memorandum of Lease, Consent to Assignment and other Operative
Agreement delivered by the Lessee on such Property Closing Date and the
performance of the obligations of the Lessee under each such Lease Supplement,
Memorandum of Lease, Consent to Assignment and other Operative Agreements have
been duly authorized by all requisite corporate action of the Lessee.
(d) Execution and Delivery by the Lessee. Each Lease Supplement,
Memorandum of Lease, Consent to Assignment and other Operative Agreement
delivered on such Property Closing Date by the Lessee have been duly executed
and delivered by the Lessee.
(e) Valid and Binding Obligations. Each Lease Supplement, Memorandum
of Lease, Consent to Assignment and other Operative Agreement delivered by the
Lessee on such
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24
Property Closing Date is a legal, valid and binding obligation of
the Lessee, enforceable against the Lessee in accordance with its respective
terms.
(f) Recording of Documents. Each of the Deed, or the Ground Lease or a
Memorandum of Ground Lease, as applicable, the Lease Supplement, the Memorandum
of Lease, the Assignment of Lease, the Consent to the Assignment of Lease and
the Mortgage delivered on such Property Closing Date has been recorded with the
appropriate Governmental Authorities in the order set forth in this paragraph,
and the UCC Financing Statements with respect to the Property being acquired
will be filed with the appropriate Governmental Authorities (or are held by the
Title Company or a closing agent acceptable to Agent and are in a position to be
so filed and recorded, as applicable).
(g) Priority of Liens. When recorded, (i) each Mortgage, each
Assignment of Lease and each Memorandum of Lease delivered on such Property
Closing Date, constitutes a valid and perfected first lien on each applicable
Property (or leasehold interest in a Ground Lease, as the case may be) in an
amount not less than the Tranche A/B Property Cost with respect to such
Property, subject only to the Permitted Exceptions, and (ii) the Lessor
Financing Statements perfect the Lessor's interest under the Lease to the extent
the Lease is a security agreement governed by Article 9 of the Uniform
Commercial Code.
(h) Flood Zone. No portion of any Property being acquired by the
Lessor on such Property Closing Date is located in an area identified as a
special flood hazard area by the Federal Emergency Management Agency or other
applicable agency, or if any such Property is located in an area identified as a
special flood hazard area by the Federal Emergency Management Agency or other
applicable agency, then flood insurance has been obtained for such Property in
accordance with Section 14.2(b) of the Lease and in accordance with the National
Flood Insurance Act of 1968, as amended.
(i) Insurance Coverage. The Lessee maintains insurance coverage for
each Property being acquired by the Lessor on such Property Closing Date which
meets the requirements of Section 14.1 of the Lease and all of such coverage is
in full force and effect.
(j) Legal Requirements. Each Property being acquired by the Lessor on
such Property Closing Date complies with all material Legal Requirements
(including all zoning and land use laws and Environmental Laws), to the extent
of all Legal Requirements applicable to its condition as of the Property Closing
Date.
(k) Consents, etc. All material consents, licenses and building
permits required by all Legal Requirements for construction, completion,
occupancy and operation of each Property being acquired on such Property Closing
Date have been obtained and are in full force
<PAGE>
25
and effect (or if not yet obtained or available, such consents, licenses and
building permits should be obtainable in the ordinary course).
(l) Utilities. All utility services and facilities necessary for the
use of the Improvements existing, or to be constructed, on the Land (including
gas, electrical, water and sewage services and facilities) will be available to
the Property on or prior to the Outside Completion Date.
(m) Environmental Matters.
(1) The Property being acquired on such Property Closing Date
does not contain any Hazardous Materials in amounts or concentrations
which (i) constitute a violation of, or (ii) could give rise to
liability under, any Environmental Law, other than a violation or
liability which would have a de minimis effect on the Property.
(2) The Property and all operations at the Property are in
compliance and, to the knowledge of the Lessee have in the last ten
years been in compliance, in all material respects with all applicable
Environmental Laws, and there is no contamination at, on or under the
Property or violation of any Environmental Law with respect to the
Property or the business operated by Lessee or any of its Subsidiaries
at the Property (the "Business"), other than a violation which would
have a de minimis effect on the Property.
(3) Neither the Lessee nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding compliance with Environmental Laws
with regard to the Property, nor does the Lessee have knowledge that
any such notice will be received or is being threatened.
(4) To the knowledge of Lessee or any of its Subsidiaries,
Hazardous Materials have not been transported or disposed of from the
Property in violation of any Environmental Law, nor have any Hazardous
Materials been generated, treated, stored or disposed of at, on or
under the Property in violation of any applicable Environmental Law.
(5) No judicial proceeding or governmental or administrative
action is pending or, to the best knowledge of the Lessee, threatened,
under any Environmental Law to which the Lessee or any Subsidiary is
or will be named as a party with respect to the Property, nor are
there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other
<PAGE>
26
administrative or judicial requirements outstanding under any
Environmental Law with respect to the Property or the Business.
(6) There has been no release or threat of release of Hazardous
Materials at or from the Property, or arising from or related to the
operations of the Lessee or any Subsidiary in connection with the
Property, in violation of or in amounts or in a manner that could
reasonably be expected to give rise to any material liability under
any Environmental Laws.
(7) Nothing in this Section 7.5(m) shall affect the operation or
interpretation of any other environmental covenants, representations
or warranties in this Agreement or in any of the other Operative
Agreements.
(n) Title to the Properties. Upon the acquisition of each Property on
such Property Closing Date, the Lessor has, as applicable, (i) good and
marketable title to such Property in fee simple or (ii) good and valid leasehold
title to such Property leased under any Ground Lease, subject in each case only
to the Permitted Exceptions. The Lessor has the right to grant the Mortgage on
such Property. Except as otherwise provided in the Lease, the Lessor will at all
times have good and marketable title to such Properties, subject only to
Permitted Exceptions.
(o) Location of the Properties. Each Property being acquired on such
Property Closing Date is located in the continental United States of America.
(p) Execution and Delivery by the Construction Agent. The execution
and delivery of each Operative Agreement delivered by the Construction Agent on
such date and the performance of the Construction Agent's obligations under each
Agency Agreement Supplement and Operative Agreement have been duly authorized by
all requisite corporate action of the Construction Agent.
(q) Agency Agreement Supplements. Each Operative Agreement delivered
by the Construction Agent on such date has been duly executed and delivered by
the Construction Agent.
(r) Valid and Binding Obligations of the Construction Agent. Each
Operative Agreement delivered by the Construction Agent on such date is a legal,
valid and binding obligation of the Construction Agent, enforceable against the
Construction Agent in accordance with its terms.
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27
(s) Conditions Precedent in Operative Agreements. All conditions
precedent contained in this Agreement and in the other Operative Agreements
relating to the acquisition of a Property by the Lessor have been satisfied in
full or waived by the Agent and the Lessor.
(t) Hart-Scott-Rodino. The acquisition of the Property being acquired
on such Property Closing Date does not conflict with, violate, or require the
consent of any governmental entity, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
7.6 Representations and Warranties of the Lessor on Property Closing
Dates. The Lessor hereby represents and warrants to each of the other parties
hereto as of each Property Closing Date as follows:
(a) Representations and Warranties; No Default. The representations
and warranties of the Lessor set forth herein and in each of the other Operative
Agreements are true and correct in all respects on and as of such Property
Closing Date as if made on and as of such Property Closing Date. The Lessor is
in compliance with its respective obligations under the Operative Agreements and
there exists no Default or Event of Default caused by or attributable to it
under any of the Operative Agreements. No Default or Event of Default caused by
or attributable to it will occur under any of the Operative Agreements as a
result of, or after giving effect to, the Advance requested by the Requisition
on such Property Closing Date.
(b) Authorization by the Lessor. The execution and delivery of each
Lease Supplement, Memorandum of Lease, Mortgage, Assignment of Lease and other
Operative Agreement delivered by the Lessor on such Property Closing Date and
the performance of the obligations of the Lessor under each such Lease
Supplement, Memorandum of Lease, Mortgage, the Assignment of Lease and other
Operative Agreement have been duly authorized by all requisite action of the
Lessor.
(c) Execution and Delivery by the Lessor. Each Lease Supplement,
Memorandum of Lease, Mortgage, Assignment of Lease and other Operative Agreement
delivered by the Lessor on such Property Closing Date have been duly executed
and delivered by the Lessor.
(d) Valid and Binding Obligations. Each Lease Supplement, Memorandum
of Lease, Mortgage, Assignment of Lease and other Operative Agreement delivered
by the Lessor on such Property Closing Date is a legal, valid and binding
obligation of the Lessor, enforceable against the Lessor in accordance with its
terms.
(e) Conditions Precedent in Operative Agreements. All conditions
precedent contained in this Agreement and in the other Operative Agreements to
be satisfied by the Lessor relating to the acquisition of a Property by the
Lessor have been satisfied in full.
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28
7.7 Representations and Warranties of the Lessee Upon each Funding
Date. The Lessee hereby represents and warrants to each of the other parties
hereto as of each Funding Date as follows:
(a) Representations and Warranties. The representations and warranties
of the Construction Agent, the Lessee and each Guarantor set forth herein and in
each of the other Operative Agreements are true and correct in all respects on
and as of such Funding Date as if made on and as of such Funding Date. The
Construction Agent, the Lessee and each Guarantor is in compliance with their
respective obligations under the Operative Agreements and there exists no
Default or Event of Default under any of the Operative Agreements. No Default or
Event of Default will occur under any of the Operative Agreements as a result
of, or after giving effect to, the Advance requested by the Requisition on such
date.
(b) Title to Properties. The Lessor, as applicable, (i) has good and
marketable title to each Property in fee simple and (ii) good and valid
leasehold title to each Property under any Ground Lease, in each case subject
only to the Permitted Exceptions; provided that the Lessee makes no
representations or warranties as to the absence of Lessor Liens.
(c) Priority of Liens. Each Mortgage, Supplement to the Assignment of
Lease and Lease Memorandum constitutes a valid and perfected first lien on each
applicable Property (or leasehold interest in a Ground Lease, as the case may
be) in an amount not less than the Tranche A/B Property Cost with respect to
such Property, subject only to Permitted Exceptions.
(d) Insurance. The Construction Agent has obtained insurance coverage
covering the Property which meets the requirements of the Agency Agreement and
the other Operative Agreements before commencing construction, repairs or
Modifications, as the case may be, and such coverage is in full force and
effect.
(e) Property-Related Matters. Each Construction Period Property, when
improved in accordance with the Plans and Specifications, will comply in all
material respects and each Completed Property complies in all material respects
with all Legal Requirements (including all applicable zoning and land use laws
and Environmental Laws) and Insurance Requirements. The Plans and Specifications
have been or will be prepared in accordance with all applicable Legal
Requirements (including all applicable Environmental Laws and building,
planning, zoning and fire codes) and upon completion of the applicable
Improvements in accordance with the Plans and Specifications, such Improvements
on the Construction Period Property will not encroach in any manner onto any
adjoining land (except as permitted by express written easements or variance)
and such Improvements and the use thereof by the Lessee and its agents,
assignees, employees, invitees, lessees, licensees and tenants will comply with
all applicable Legal Requirements (including all applicable Environmental Laws
and building, planning, zoning and fire codes). Upon completion of such
Improvements in accordance with
<PAGE>
29
the Plans and Specifications, (i) there will be no material defects to such
Improvements including the plumbing, heating, air conditioning and electrical
systems thereof and (ii) all water, sewer, electric, gas, telephone and drainage
facilities and all other utilities required to adequately service such
Improvements for its intended use will be available pursuant to adequate permits
(including any that may be required under applicable Environmental Laws). There
is no action, suit or proceeding (including any proceeding in condemnation or
eminent domain or under any applicable Environmental Law) pending or, to the
knowledge of Lessee, threatened which materially adversely affects the title to,
or the use, operation or value of, the Properties. No fire or other casualty
with respect to the Properties has occurred which fire or other casualty has had
a material adverse effect on the Lessee's ability to perform its obligations
under the Agency Agreement and the other Operative Agreements. All utilities
serving the Properties, or proposed to serve the Properties in accordance with
the Plans and Specifications, are located in, and in the future will be located
in, and vehicular access to the Improvements on each of the Properties is
provided by, either public rights-of-way abutting the Property or Appurtenant
Rights. All material applicable licenses, approvals, authorizations, consents,
permits (including, without limitation, building, demolition and environmental
permits, licenses, approvals, authorizations and consents), easements and
rights-of-way, including proof of dedication, required for (i) the use,
treatment, storage, transport, disposal or disposition of any Hazardous
Substance on, at, under or from the Properties during the construction of the
Improvements thereon and the use and operation of the Improvements following
such construction, (ii) the construction of the Improvements in accordance with
the Plans and Specifications and the Agency Agreement and (iii) the use and
operation of the Improvements following such construction as permitted pursuant
to the Lease have been obtained from the appropriate Governmental Authorities
having jurisdiction or from private parties (or if not yet obtained or
available, such consents, licenses and building permits should be obtainable in
the ordinary course).
(f) Lease Requirements. The Improvements, when completed, will comply
with all requirements and conditions set forth in the Lease and all other
conditions and requirements of the Operative Documents.
(g) Conditions Precedent contained in the Operative Agreements. All
conditions precedent contained in this Agreement and in the other Operative
Agreements relating to the relevant Advance have been satisfied.
(h) Projected Completion Value. The Property Cost of each Improvement
as established by the Budget will not exceed an amount equal to one hundred ten
percent (110%) of the Projected Completion Value with respect to such
Improvements.
7.8 Representations and Warranties of the Lessor Upon each Funding
Date. The Lessor hereby represents and warrants to each of the other parties
hereto as of each Funding Date as follows:
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30
(a) Representations and Warranties. The representations and warranties
of the Lessor set forth herein and in each of the other Operative Agreements are
true and correct in all respects on and as of such Funding Date as if made on
and as of such Funding Date. The Lessor is in compliance with its respective
obligations under the Operative Agreements.
(b) Authority of the Lessor. The execution and delivery of each
Operative Agreement delivered by the Lessor on such date and the performance of
the obligations of the Lessor under each Operative Agreement has been duly
authorized by all requisite action of the Lessor.
(c) Execution and Delivery by the Lessor. Each Operative Agreement
delivered by the Lessor on such date has been duly executed and delivered by the
Lessor.
(d) Valid and Binding Obligations of the Lessor. Each Operative
Agreement delivered by the Lessor on such date is a legal, valid and binding
obligation of the Lessor, enforceable against the Lessor in accordance with its
terms.
(e) Conditions Precedent contained in the Operative Agreements. All
conditions precedent contained in this Agreement and in the other Operative
Agreements to be satisfied by the Lessor relating to the relevant Advance have
been satisfied in full.
7.9 Representations and Warranties of the Investor Upon Funding Dates.
The Investor hereby represents and warrants to each of the other parties hereto
as of each Funding Date that: (a) the representations and warranties of the
Investor set forth herein and in each of the other Operative Agreements are true
and correct in all respects on and as of such Funding Date as if made on and as
of such Funding Date and (b) the Investor is in compliance with its obligations
under the Operative Agreements.
SECTION 8. PAYMENT OF CERTAIN EXPENSES
Lessor shall, from the proceeds of the Advances, for the benefit of
the Investor, the Trust Company, the Trust, the Agent and each of the Lenders,
take the following actions, as applicable:
8.1 Transaction Expenses. In each case, to the extent not paid by
third parties, (a) On the Initial Closing Date, pay, or cause to be paid, all
reasonable fees, expenses and disbursements of each of the Lessor's, the Trust
Company's, the Agent's, Lessee's and the Investor's counsel in connection with
the transactions contemplated by the Operative Agreements and incurred in
connection with such Initial Closing Date, all Transaction Expenses, and all
other expenses in connection with such Initial Closing Date, including all costs
relating to all fees, taxes and expenses for the recording, registration and
filing of documents.
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31
(b) On each Property Closing Date or each subsequent Funding Date,
pay, or cause to be paid, all reasonable fees, expenses and disbursements of
each of the Lessor's, the Trust Company's, the Agent's, Lessee's and the
Investor's counsel in connection with the transactions contemplated by the
Operative Agreements and incurred in connection with such Property Closing Date,
all Transaction Expenses arising from such Property Closing Date, and all other
expenses in connection with such Property Closing Date, including all expenses
relating to each Appraisal, and all fees, taxes and expenses for the recording,
registration and filing of documents.
8.2 Brokers' Fees and Stamp Taxes. Pay or cause to be paid brokers'
fees and any and all stamp, transfer and other similar taxes, fees and excises,
if any, including any interest and penalties, which are payable in connection
with the transactions contemplated by this Agreement and the other Operative
Agreements.
8.3 Certain Fees and Expenses. Pay or cause to be paid (i) the initial
and annual Trust Company's fee and all expenses of the Trust Company and any
necessary co-trustees (including reasonable counsel fees and expenses) or any
successor owner trustee, for acting as trustee under the Trust Agreement, (ii)
all costs and expenses incurred by the Lessee, the Agent, the Investor, the
Trust Company or the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Agreements, whether or not such
amendments or supplements are ultimately entered into, or giving or withholding
of waivers of consents hereto or thereto, which have been requested by the
Lessee, and (iii) all costs and expenses incurred by the Lessor, the Lessee, the
Investor, the Trust Company or the Agent in connection with any purchase of any
Property by the Lessee pursuant to Section 20 of the Lease.
8.4 Credit Agreement and Related Obligations. (a) Pay, on or prior to
the due date thereof, all costs, fees, indemnities, expenses and other amounts
(other than principal and interest on the Loans, but including breakage costs
and interest on overdue amounts pursuant to Section 2.14 of the Credit Agreement
or otherwise) required to be paid by the Lessor (except for such amounts as to
which the Trust Company is individually liable) under any Operative Agreement.
(b) Pay the Agent all fees specified in the Fee Letter at the time and
in the manner required by the Fee Letter any pay the Investor any fees due and
owing to the Investor as of the day of such Advance.
(c) Pay the Investor promptly after receipt of notice therefor any
additional amounts payable to the Investor in respect of the Investor
Contribution under Sections 2.13, 2.14 and 2.15 of the Credit Agreement (it
being agreed that the Investor is, for purposes of this Agreement, a beneficiary
of the provisions of Sections 2.13, 2.14 and 2.15 of the Credit Agreement and
subject to the provisions of Sections 2.16 and 2.17, mutatis mutandis).
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32
8.5 Commitment Fees. (a) Pay to the Agent for the account of each
Lender the Commitment Fee on each Commitment Fee Payment Date.
(b) Pay to the Investor the Investor Commitment Fee for the period
from and including the first day of the Commitment Period to the Maturity Date,
computed at a rate per annum equal to the Commitment Fee Rate on the average
daily amount of the Available Investor Commitment during the period for which
payment is made, payable quarterly in arrears on each Commitment Fee Payment
Date, commencing on the first such date to occur after the Initial Closing Date.
(c) The Commitment Fee and the Investor Commitment Fee shall be
calculated on the basis of a 365- (or 366-, as the case may be) day year for the
actual days elapsed. If all or a portion of the Commitment Fee or the Investor
Commitment Fee shall not be paid when due, such overdue amount shall bear
interest, payable by the Lessee on demand, at a rate per annum equal to the
applicable Overdue Rate, from the date of such non-payment until such amount is
paid in full (as well after as before judgment).
8.6 Overdue Rate. If all or a portion of the Investor Yield, the
Investor Contribution or any other amount owed to the Investor shall not be paid
when due, such overdue amount shall bear interest, payable on demand, at a rate
per annum equal to the applicable Overdue Rate, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
SECTION 9. OTHER COVENANTS AND AGREEMENTS
9.1 Covenants of the Trust and the Investor. Each of the parties
hereby agrees that so long as this Agreement is in effect:
(a) Discharge of Liens. Each of the Investor, the Trust and the Trust
Company, in its individual capacity, will not create or permit to exist at any
time, and will, at its own cost and expense, promptly take such action as may be
necessary duly to discharge, or to cause to be discharged, all Lessor Liens on
the Property attributable to it or any of its Affiliates; provided, however,
that the Investor, the Trust and the Trust Company shall not be required to so
discharge any such Lessor Lien while the same is being contested in good faith
by appropriate proceedings diligently prosecuted so long as such proceedings
shall not involve any material danger of impairment of the Liens of the Security
Documents or of the sale, forfeiture or loss of, and shall not interfere with
the use or disposition of, the Property or title thereto or any interest therein
or the payment of Rent.
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33
(b) Trust Agreement. Without prejudice to any right under the Trust
Agreement of the Trust Company to resign, or the Investor's right under the
Trust Agreement to remove the institution acting as owner trustee, each of the
Investor and the Trust Company hereby agrees with the Lessee and the Agent (i)
not to terminate or revoke the trust created by the Trust Agreement except as
permitted by the Trust Agreement, (ii) not to amend, supplement, terminate or
revoke or otherwise modify any provision of the Trust Agreement without the
prior written consent of any party hereto adversely affected by such amendment
and (iii) to comply with all of the terms of the Trust Agreement, the
nonperformance of which would adversely affect such party.
(c) Successor Trust Company. The Trust Company or any successor may
resign or be removed by the Investor as trustee of the Trust, a successor
trustee may be appointed, and a corporation may become the trustee under the
Trust Agreement, only in accordance with the provisions of Article 9 of the
Trust Agreement and with the consent of the Lessee, which consent shall not be
unreasonably withheld or delayed.
(d) Indebtedness; Other Business. The Trust shall not contract for,
create, incur or assume any indebtedness, or, without the consent of the
Investor and Lenders holding at least 66 2/3 % in the aggregate of the
Commitment Percentages, enter into any business or other activity, other than
pursuant to or under the Operative Agreements.
(e) No Violation. The Investor will not instruct the Trust to take any
action in violation of the terms of any Operative Agreement.
(f) No Voluntary Bankruptcy. Neither Investors nor the Trust shall,
nor shall Investors cause the Trust to (i) commence any case, proceeding or
other action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, arrangement,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (ii) seek appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial benefit of its
creditors; and neither the Investor nor the Trust shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in this paragraph.
(g) Change of Chief Place of Business. The Trust shall give prompt
notice to the Lessee and the Agent if the Trust's chief place of business or
chief executive office, or the office where the records concerning the accounts
or contract rights relating to the Property are kept, shall cease to be located
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001 or if it shall change its name.
(h) Loan Documents. Provided that no Lease Default is continuing, none
of the Lenders, the Trust, the Lessor, the Agent nor the Investor shall consent
to or permit any material
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34
amendment, supplement, waiver or other modification of the terms and provisions
of the Credit Agreement, the Notes or the Security Documents, in each case
without the prior written consent of the Lessee.
(i) Disposition of Assets. The Trust shall not convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets, whether now owned or hereafter acquired, except to the extent expressly
authorized by the Operative Agreements.
(j) Compliance with Operative Agreements. The Trust shall at all times
observe and perform all of the covenants, conditions and obligations required to
be performed by it under each Operative Agreement to which it is a party.
9.2 Repayment of Certain Amounts on Maturity Date. The Investor, the
Lessor and the Agent hereby agree that if (i) on the Maturity Date (after giving
effect to all payments made by the Lessee under the Lease and the application of
all sales proceeds pursuant to Section 8 of the Credit Agreement) there remains
any outstanding principal or accrued and unpaid interest under the Tranche B
Notes (the aggregate amount of such outstanding principal, the "Tranche B
Deficit") and (ii) during the Marketing Period the Lessor or the Investor have
received any Marketing Period Equity Return, then on the Maturity Date the
Investor shall pay to the Agent an amount up to the amount of the Tranche B
Deficit, but in no event greater than the Marketing Period Equity Return
received by it.
9.3 Amendment of Certain Documents. The Agent, for itself and on
behalf of the Lenders, hereby agrees for the benefit of the Trust and the
Investor that it will not amend, alter or otherwise modify, or consent to any
amendment, alteration or modification of, the Credit Agreement and Lease
(including the definitions of any terms used in such document) without the prior
written consent of the Trust and the Investor, as the case may be, if such
amendment, alteration or modification would materially and adversely affect the
interests of the Trust or the Investor. The parties hereto agree that provisions
requiring such consent include, but are not limited to, any amendment,
alteration or modification that would release the Lessee from any of its
obligations in respect of the payment of Basic Rent, Supplemental Rent,
Termination Value, Maximum Residual Guarantee Amount or the Purchase Option
Price or any other payments in respect of the Property as set forth in the
Lease, or amend the provisions of Section 8 of the Credit Agreement, or reduce
the amount of, or change the time or manner of payment of, obligations of the
Lessee as set forth in the Lease, or create or impose any obligation on the part
of the Trust or the Investor under the Lease, or extend or shorten the duration
of the Term, or modify the provisions of this Section 9.3.
9.4 Proceeds of Casualty. The Lessor and the Investor agree, for the
benefit of the Agent and the Lenders, that if at any time either the Lessor or
the Investor receives any proceeds as a result, directly or indirectly, of any
Casualty or Condemnation with respect to the
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35
Property which the Lessor is entitled to retain and hold in accordance with the
terms of the Lease, the Lessor and the Investor agree that they will promptly
deposit such amounts in an account with the Agent. The Lessor and the Investor
also agree that they will execute and deliver such documents and instruments as
the Agent may reasonably request in order to grant the Agent, for the benefit of
the Lenders, a valid and perfected, first priority security interest in such
proceeds.
9.5 Intercreditor Agreement. The Lessee, the Agent, the Lenders and
the Lessor hereby agree and confirm that the provisions of Section 8 of the
Credit Agreement are intended to constitute an intercreditor agreement and a
subordination agreement under Section 510 of the Bankruptcy Code or any similar
provision therein.
9.6 Walk Away Event. If a Walk-Away Event shall have occurred, the
Lessor or the Lessee shall have the right to terminate the Lease and the other
Operative Agreements solely with respect to the affected property by notice to
the other party and, upon termination by either party and satisfaction of the
other requirements under Section 10 of the Lease, the Lessee shall have no
financial or other obligations under any of the Operative Agreements except (i)
specific obligations of the Lessee under the Operative Agreements that accrued
prior to termination of the Lease and (ii) obligations of the Lessee arising out
of any Event of Default which (A) are independent of the Walk-Away Event, (B) do
not occur solely as a result of the Walk-Away Event and (C) occur prior to
termination of the Lease.
9.7 Administrative Agent under Participation Agreement and Mortgages.
For purposes of this Agreement and each Mortgage, the parties hereto agree that
Agent shall be the Agent of the Investors and the Lenders, with Agent's duties
and obligations hereunder and thereunder being subject to the limitations, and
Agent being entitled to the rights, set forth in Section 7 of the Credit
Agreement. Agent shall also perform its obligations under Section 2.4 of the
Credit Agreement as to Investor Yield for the benefit of the Investors. Where
Agent's satisfaction is required under Sections 6.2(i), 6.2(p) and 6.2(q) of
this Agreement and in the definition of "Independent Engineer" in Annex A to
this Agreement, such satisfaction shall also include the reasonable satisfaction
of the Required Investors; provided, however, that the Required Investors shall
provide their comments of dissatisfaction directly to the Agent, who shall pass
on such comments to interested and involved parties (which parties shall include
the Lessee); provided, further, that notwithstanding the foregoing, the Lessee
shall have no obligation under this Agreement to ascertain or verify the
satisfaction of the Required Investors and may instead rely wholly on its
communications with, and satisfaction of, the Agent in respect of the subject
matter of such Sections and such definition.
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36
SECTION 10. CREDIT AGREEMENT
10.1 Lessee's Credit Agreement Rights. Notwithstanding anything to the
contrary contained in the Credit Agreement, the Agent, the Lessee, the Investor
and the Trust hereby agree that:
(a) the Lessee shall have the right to give the notices referred to in
Section 2.3 of the Credit Agreement;
(b) the Lessee shall have the right to convert or continue Loans in
accordance with Section 2.6 of the Credit Agreement;
(c) the Lessee shall receive copies of all notices delivered to the
Lessor under the Credit Agreement and the other Operative Agreements and such
notices shall not be effective until received;
(d) the Lessee shall have the right to select Interest Periods in
accordance with the terms of the Credit Agreement;
(e) the Lessee shall have the right to give notice of prepayment of
the Loans in accordance with the Credit Agreement, provided that if the Lessee
shall give notice of prepayment of the Loans, the Lessee shall prepay a pro rata
portion of the Investor Contribution;
(f) the Lessee shall have the right to cure, to the extent susceptible
to a cure, any Default or Event of Default of the Lessor under the Credit
Agreement;
(g) the Lessee shall have the right to approve any successor Agent
pursuant to Section 7.9 of the Credit Agreement;
(h) the Lessee shall have the right, on behalf of the Lessor, to
select any person or persons (including the Lessee) to whom funds may be paid at
the discretion of the Lessor in accordance with Sections 8.1 and 8.2 of the
Credit Agreement;
(i) the Lessee shall have the right to consent to any assignment by a
Lender, if required pursuant to Section 9.7 of the Credit Agreement; and
(j) the Lessee shall have the right to designate the portion of the
Loans on which interest is due and payable for purposes of the definitions of
"Allocated Interest" and "Allocated Investor Yield";
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37
(k) the Lessee shall have the right to request that another lending
office be designated pursuant to Section 2.17 of the Credit Agreement;
(l) the Lessee shall have the obligation to notify the Agent of the
amounts or information specified in Section 5.8 of the Credit Agreement; and
(m) without limiting the foregoing clauses (a) through (l), and in
addition thereto, (x) the Trust shall not exercise any right under the Credit
Agreement without giving the Lessee at least ten (10) Business Days' prior
written notice (or such shorter period as may be required but in no case less
than three (3) Business Days) and, following such notice, the Trust shall take
such action, or forbear from taking such action (other than an execution of any
amendment, waiver or modification thereof, as the Lessee shall direct and (y)
the Lessee shall have the right to exercise any other right of the Trust under
the Credit Agreement upon not less than two (2) Business Days' prior written
notice from the Lessee to the Trust and the Investor. Notwithstanding the
foregoing, the Investor shall retain the exclusive right to direct the Trust
with respect to the exercise of the Excepted Rights.
SECTION 11. TRANSFER OF INTEREST
11.1 Restrictions on Transfer. (a) The Investor may not assign, convey
or otherwise transfer any of its right, title or interest in or to the Trust
Estate or the Trust Agreement without the consent of the Borrower, Lessee
(provided no Event of Default shall exist at the time of such assignment) and
the Agent (which in each case shall not be unreasonably withheld or delayed, it
being understood that, without limitation, the Lessee shall have the right to
withhold its consent to any assignment if, in order for such assignment to
comply with applicable law, the Lessee would be required to obtain the consent
of, or make any filing or registration with, any Governmental Authority). Any
transfer by the Investor as above provided, shall be effected pursuant to an
agreement in form and substance reasonably satisfactory to the Agent, the
Investor, the Trust Company, the Lessee and their respective counsel.
(b) Notwithstanding the provisions of Section 11.1(a) to the contrary,
the Investor may at any time sell to an Affiliate or to any Investor or Lender
or any Affiliate of any Investor or Lender participating interests in the
economic interest held by the Investor in the Trust Estate or the Trust
Agreement, provided that the Investor's obligations under this Agreement and the
other Operative Agreements to the other parties hereto and thereto shall remain
unchanged, the Investor shall remain solely responsible for the performance
thereof and the Agent, the Lessee and the other parties to the Operative
Agreements shall continue to deal solely and directly with the Investor in
connection with the Investor's rights and obligations under this Agreement and
the other Operative Agreements.
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38
11.2 Effect of Transfer. From and after any transfer effected in
accordance with this Section 11, the transferor shall be released, to the extent
of such transfer, from its liability hereunder and under the other documents to
which it is a party in respect of obligations to be performed on or after the
date of such transfer; provided, however, that any transferor Investor shall
remain liable under the Trust Agreement to the extent that the transferee
Investor shall not have assumed the obligations of the transferor Investor
thereunder. Upon any transfer by the Trust or an Investor as above provided, any
such transferee shall assume the obligations of the Trust, and the Lessor or
Investor, as the case may be, and shall be deemed the "Trust", "Lessor" or
"Investor", as the case may be, for all purposes of such documents and each
reference herein to the transferor shall thereafter be deemed a reference to
such transferee for all purposes, except as provided in the preceding sentence.
Notwithstanding any transfer of all or a portion of the transferor's interest as
provided in this Section 11, the transferor shall be entitled to all benefits
accrued and all rights vested prior to such transfer including rights to
indemnification under any such document.
SECTION 12. INDEMNIFICATION
12.1 General Indemnity. (a) The Lessee, whether or not any of the
transactions contemplated hereby shall be consummated, hereby assumes liability
for and agrees to defend, indemnify and hold harmless each Indemnified Person on
an After Tax Basis from and against any Claims which may be imposed on, incurred
by or asserted against an Indemnified Person in any way relating to or arising
or alleged to arise out of (i) the financing, refinancing, purchase, acceptance,
rejection, ownership, design, construction, delivery, acceptance, nondelivery,
leasing, subleasing, possession, use, operation, repair, modification,
transportation, condition, sale, return, repossession (whether by summary
proceedings or otherwise), or any other disposition of the Property or any part
thereof; (ii) any latent or other defects in any Property whether or not
discoverable by an Indemnified Person or the Lessee; (iii) a violation of
Environmental Laws, Environmental Claims or other loss of or damage relating to
the Property; (iv) the Operative Agreements, or any transaction contemplated
thereby; (v) any breach by the Lessee or the Construction Agent of any of its
respective representations or warranties under the Operative Agreements or
failure by the Lessee to perform or observe any covenant or agreement to be
performed by either under any of the Operative Agreements; and (vi) personal
injury, death or property damage to any Person relating to the Property,
including Claims based on strict liability in tort; but in any event excluding
(x) Claims to the extent such Claims arise solely out of the gross negligence or
willful misconduct of such Indemnified Person, (y) Claims to the extent such
Claims arise solely out of events occurring after the expiration of the Term and
after the Lessee's discharge of all its obligations under the Lease or (z) any
Taxes including any Claim (or any portion of a Claim) made upon an Indemnified
Person by a third party that at its origin is based upon a Tax (other than
amounts necessary to make any payments hereunder on an After Tax Basis, where
the Lessee is otherwise specifically required to make such payments on an After
<PAGE>
39
Tax Basis). The Lessee shall be entitled to control, and shall assume full
responsibility for the defense of any Claim; provided, however, that the Trust,
the Trust Company, the Agent and the Investor named in such Claim, may each
retain separate counsel (the Investors collectively obtaining a single counsel)
at the sole expense of the Lessee in the event of and to the extent of a
material conflict or a potential material conflict. The Lessee and each
Indemnified Person agree to give each other prompt written notice of any Claim
hereby indemnified against but the giving of any such notice by an Indemnified
Person shall not be a condition to the Lessee's obligations under this Section
12.1(a), except to the extent failure to give such notice materially prejudices
Lessee's rights hereunder. After an Indemnified Person has been fully
indemnified for a Claim pursuant to this Section 12.1(a), and so long as no
Lease Event of Default shall have occurred and be continuing, the Lessee shall
be subrogated to any right of such Indemnified Person with respect to such
Claim. None of the Indemnified Persons shall settle a Claim without the consent
of the Lessee, which consent shall not be unreasonably withheld or delayed.
(b) Notwithstanding anything to the contrary herein, during the
Construction Period, the Lessee shall not be obligated under any of the
Operative Agreements to indemnify any Person with respect to any costs arising
from third-party damage claims other than (i) those third-party claims caused by
or resulting from the actions or failure to act by Lessee, or any of its agents,
employees, consultants, contractors or subcontractors (or anyone else under the
control of Lessee or such Persons), while Lessee is in possession or control of
the Property and (ii) those Claims imposed, incurred or asserted pursuant to (x)
clause (iii) of Section 12.1(a), (y) a breach of the representations made by
Lessee pursuant to Section 7.5(m), or (z) a violation by Lessee of the covenants
contained in Section 9.1 of the Lease and Section 2.7(a) of the Agency Agreement
with respect to Environmental Laws or Section 9.2 of the Lease.
12.2 General Tax Indemnity. (a) The Lessee shall pay and assume
liability for, and does hereby agree to indemnify, protect and defend the
Property and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis.
(b) Provided that no Default or Event of Default has occurred and is
continuing, if any Tax Indemnitee obtains a refund or a reduction in a liability
(but only if such reduction relates to a Tax not otherwise indemnifiable
hereunder and has not been taken into account in determining the amount of a
payment on an After Tax Basis) as a result of any Imposition paid or reimbursed
by the Lessee (in whole or in part), such Tax Indemnitee shall promptly pay to
the Lessee the lesser of (x) the amount of such refund or reduction in liability
and (y) the amount previously so paid or advanced by the Lessee, in each case
net of reasonable expenses not already paid or reimbursed by the Lessee. Any
subsequent loss of such refund or reduction paid to the Lessee shall be treated
as an Imposition indemnifiable under this Section 12.2 without regard to clause
(i) through (vii) in the second paragraph of the definition of Impositions.
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40
(c)(i) Subject to the terms of Section 12.2(g), the Lessee shall pay
or cause to be paid all Impositions directly to the taxing authorities where
feasible and otherwise to the Tax Indemnitee, as appropriate, and the Lessee
shall at its own expense, upon such Tax Indemnitee's reasonable request, furnish
to such Tax Indemnitee copies of official receipts or other satisfactory proof
evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted
pursuant to Section 12.2(g) and which the Lessee pays directly to the taxing
authorities, the Lessee shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment. In the case of
Impositions for which the Lessee reimburses a Tax Indemnitee, the Lessee shall
do so within twenty (20) days after receipt by the Lessee of demand by such Tax
Indemnitee describing in reasonable detail the nature of the Imposition and the
basis for the demand (including the computation of the amount payable), but in
no event shall the Lessee be required to pay such reimbursement prior to thirty
(30) days before the latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which a contest is conducted
pursuant to Section 12.2(g), the Lessee shall pay such Impositions or reimburse
such Tax Indemnitee for such Impositions, to the extent not previously paid or
reimbursed pursuant to subsection (a), prior to the latest time permitted by the
relevant taxing authority for timely payment after conclusion of all contests
under Section 12.2(g).
(iii) Impositions imposed with respect to a Property for a billing
period during which the Lease expires or terminates with respect to such
Property (unless the Lessee has exercised the Purchase Option with respect to
the Property) shall be adjusted and prorated on a daily basis between the Lessee
and the Lessor, whether or not such Imposition is imposed before or after such
expiration or termination and each party shall pay or reimburse the other for
each party's pro rata share thereof, except if the Lease has terminated in
connection with the Lease Event of Default or Credit Agreement Event of Default,
in which case Lessee shall be obligated to indemnify for such Impositions paid
for real property taxes until the sooner in time of (x) one year after Lease
termination or (y) the sale of such Property by sale or foreclosure pursuant to
the Operative Agreements.
(iv) At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be verified and certified
by an independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The fees and expenses of such independent public accounting
firm shall (i) in the case of the Trust Company or the Trustee, be paid by the
Lessee, and (ii) in the case of all other Tax Indemnitees, be paid by the Lessee
unless such verification shall result in an adjustment in the Lessee's favor of
10% or more of the payment as computed by such Tax Indemnitee, in which case
such fee shall be paid by such Tax Indemnitee.
<PAGE>
41
(d) The Lessee shall be responsible for preparing and filing any real
and personal property or ad valorem tax returns in respect of the Property. In
case any other report or tax return shall be required to be made with respect to
any obligations of the Lessee under or arising out of subsection (a) and of
which the Lessee has knowledge, the Lessee, at its sole cost and expense, shall
notify the relevant Tax Indemnitee of such requirement and (except if such Tax
Indemnitee notifies the Lessee that such Person intends to file such report or
return) (A) to the extent required or permitted by and consistent with Legal
Requirements, make and file in its own name such return, statement or report;
and (B) in the case of any other such return, statement or report required to be
made in the name of such Tax Indemnitee, advise such Tax Indemnitee of such fact
and prepare such return, statement or report for filing by such Tax Indemnitee
or, where such return, statement or report shall be required to reflect items in
addition to any obligations of the Lessee under or arising out of subsection
(a), provide such Tax Indemnitee at the Lessee's expense with information
sufficient to permit such return, statement or report to be properly made with
respect to any obligations of the Lessee under or arising out of subsection (a).
Such Tax Indemnitee shall, upon the Lessee's request and at the Lessee's
expense, provide any data maintained by such Tax Indemnitee (and not otherwise
within the control of the Lessee) with respect to the Property which the Lessee
may reasonably require to prepare any required tax returns or reports;
(e) If as a result of the payment or reimbursement by the Lessee of
any expenses of a Tax Indemnitee or the payment of any Transaction Expenses
incurred in connection with the transactions contemplated by the Operative
Agreements, any Tax Indemnitee shall suffer a net increase in any federal, state
or local income tax liability, the Lessee shall indemnify such Tax Indemnitee
(without duplication of any indemnification required by subsection (a)) on an
After Tax Basis for the amount of such increase. The calculation of any such net
increase shall take into account any current or future tax savings and the
timing thereof realized or reasonably expected to be realized by such Tax
Indemnities, in respect thereof, and shall be based on a mutually agreed upon
discount rate, as well as any interest, penalties and additions to tax payable
by such Tax Indemnities, in respect thereof;
(f) As between the Lessee and the Lessor, the Lessee shall be
responsible for, and the Lessee shall indemnify and hold harmless the Trust
Company in its individual capacity and as the trustee of Lessor (without
duplication of any indemnification required by subsection (a)) on an After Tax
Basis against, any obligation for United States withholding taxes imposed in
respect of the interest payable on the Notes to the extent, but only to the
extent, Lessor has actually paid funds to a taxing authority with respect to
such withholding taxes (and, if the Lessor receives a demand for such payment
from any taxing authority, the Lessee shall discharge such demand on behalf of
the Lessor);
(g)(i) If a written claim is made against any Tax Indemnitee or if any
proceeding shall be commenced against such Tax Indemnitee (including a written
notice of such
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42
proceeding), for any Impositions, such Tax Indemnitee shall promptly notify
Lessee in writing and shall not take action with respect to such claim or
proceeding without the consent of Lessee for thirty (30) days after the receipt
of such notice by Lessee; provided, that, in the case of any such claim or
proceeding, if action shall be required by law or regulation to be taken prior
to the end of such 30-day period, such Tax Indemnitee shall, in such notice to
Lessee, inform Lessee, and no action shall be taken with respect to such claim
or proceeding without the consent of Lessee before the end of such shorter
period; provided, further, that the failure of such Tax Indemnitee to give the
notices referred to this sentence shall not diminish Lessee's obligation
hereunder except to the extent such failure precludes Lessee from contesting all
or part of such claim.
(ii) If, within thirty (30) days of receipt of such notice from the
Tax Indemnitee (or such shorter period as the Tax Indemnitee has noticed Lessee
is required by law or regulation for the Tax Indemnitee to commence such
contest), Lessee shall request in writing that such Tax Indemnitee contest such
Imposition, the Tax Indemnitee shall, at the expense of Lessee, in good faith
conduct and control such contest (including, without limitation, by pursuit of
appeals) relating to the validity, applicability or amount of such Impositions
(provided, however, that (A) if such contest can be pursued independently from
any other proceeding involving a tax liability of such Tax Indemnitee, the Tax
Indemnitee, at Lessee's request, shall allow Lessee to conduct and control such
contest and (B) in the case of any contest that Lessee is not entitled to
control, the Tax Indemnitee may request Lessee to conduct and control such
contest if possible or permissible under applicable law or regulation) by, in
the sole discretion of the Person conducting and controlling such contest, (1)
resisting payment thereof, (2) not paying the same except under protest, if
protest is necessary and proper, (3) if the payment be made, using reasonable
efforts to obtain a refund thereof in appropriate administrative and judicial
proceedings, or (4) taking such other action as is reasonably requested by
Lessee from time to time. Furthermore, in the case of a contest controlled by
the Lessee, the Lessee shall be required to acknowledge its liability for the
Impositions which are the subject of the claim if unfavorably resolved as a
condition to such control of the contest.
(iii) The party controlling any contest shall consult in good faith
with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of such contest; provided that all
decisions ultimately shall be made in the sole discretion of the controlling
party. The parties agree that a Tax Indemnitee may at any time decline to take
further action with respect to the contest of any Imposition and may settle such
contest if such Tax Indemnitee shall waive its rights to any indemnity from
Lessee that otherwise would be payable in respect of such claim (and any future
claim by any taxing authority with respect to other taxable periods that are
based, in whole or in part, upon the resolution of such claim) and shall pay to
Lessee any amount previously paid or advanced by Lessee pursuant to this Section
12.2 by way of indemnification or advance for the payment of an Imposition (but
excluding previously
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43
paid costs described in Section 12.2(g)(iv)(A)), and no other then future
liability of the Lessee is likely with respect to such Imposition.
(iv) Notwithstanding the foregoing provisions of this Section 12.2, a
Tax Indemnitee shall not be required to take any action and Lessee shall not be
permitted to contest any Impositions in its own name or that of the Tax
Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to such Tax
Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and
expenses that such Tax Indemnitee actually incurs in connection with contesting
such Impositions, including, without limitation, all reasonable legal,
accounting and investigatory fees and disbursements, (B) in the case of a claim
that must be pursued in the name of an Tax Indemnitee (or an Affiliate thereof),
the amount of the potential indemnity (taking into account all similar or
logically related claims that have been or could be raised in any audit
involving such Tax Indemnitee for which Lessee may be liable to pay an indemnity
under this Section 12.2) is more than $50,000, unless the pursuit of such
contest is in a manner mutually satisfactory to the Tax Indemnitee and the
Lessee, (C) the Tax Indemnitee shall have reasonably determined that the action
to be taken will not result in any material danger of sale, forfeiture or loss
of any Property, or any part thereof or interest therein, will not interfere
with the payment of Rent, and will not result in risk of criminal liability, (D)
if such contest shall involve the payment of the Imposition prior to the
contest, Lessee shall provide to the Tax Indemnitee an interest-free advance in
an amount equal to the Imposition that the Tax Indemnitee is required to pay
(with no additional net after-tax cost to such Tax Indemnitee), (E) in the case
of a claim that must be pursued in the name of an Tax Indemnitee (or an
Affiliate thereof), Lessee shall have provided to such Tax Indemnitee an opinion
of independent tax counsel selected by the Lessee and reasonably satisfactory to
such Tax Indemnitee stating that a reasonable basis exists to contest such claim
(or, in the case of an appeal of an adverse determination, an opinion of such
counsel to the effect that there is substantial authority for the position
asserted in such appeal) and (F) no Event of Default shall have occurred and be
continuing. In no event shall a Tax Indemnitee be required to appeal an adverse
judicial determination to the United State Supreme Court. In addition, a Tax
Indemnitee shall not be required to contest any claim in its name (or that of an
Affiliate) if the subject matter thereof shall be of a continuing nature and
shall have previously been decided adversely by a court of competent
jurisdiction pursuant to the contest provisions of this Section 12.2, unless
there shall have been a change in law (or interpretation thereof) and the Tax
Indemnitee shall have received, at the Lessee's expense, an opinion of
independent tax counsel selected by the Tax Indemnitee and reasonably acceptable
to the Lessee stating that as a result of such change in law (or interpretation
thereof), it is more likely than not that the Tax Indemnitee will prevail in
such contest.
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44
SECTION 13. MISCELLANEOUS
13.1 Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Agreements, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Agreement, the transfer of the
Property to the Trust, the construction of any Improvements, any disposition of
any interest of the Trust in the Property or the Improvements or any interest of
the Investor in the Trust, the payment of the Notes and any disposition thereof
and shall be and continue in effect notwithstanding any investigation made by
any party and the fact that any party may waive compliance with any of the other
terms, provisions or conditions of any of the Operative Agreements. Except as
otherwise expressly set forth herein or in other Operative Agreements, the
indemnities of the parties provided for in the Operative Agreements shall
survive the expiration or termination of any thereof.
13.2 No Broker, etc. Each of the parties hereto represents to the
others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act, except for the Arranger, the fees of which shall be paid
by the Lessee. Any party who is in breach of this representation shall indemnify
and hold the other parties harmless from and against any liability arising out
of such breach of this representation.
13.3 Notices. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to any Person to be
effective shall be in writing (including by facsimile transmission) and shall be
deemed to have been duly given or made (a) when delivered by hand, (b) one
Business Day after delivery to a nationally recognized courier service
specifying overnight delivery, (c) three Business Days after being deposited in
the mails, certified or registered, postage prepaid or (d) in the case of
facsimile notice, when sent and receipt has been confirmed, addressed to such
Person as indicated:
If to the Lessee, to it at:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: Chief Financial Officer
Fax: (503) 872-1349
with copies to:
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45
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: General Counsel
Fax: (503) 872-1391
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attn: Gary R. Barnum
Fax: (503) 220-2480
KinderCare Learning Centers, Inc.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils Brous
Fax: (212) 750-0003
If to the Investors, to them at:
Scotiabanc Inc.
c/o The Bank of Nova Scotia
555 SW 5th Ave., Suite 750
Portland, OR 97204-2078
Attention: Daryl Hogge
Facsimile: (503) 222-5502
If to the Lenders, to them at:
The Investors, at the above addresses
Bank of America, N.A.
555 California Street, Mail Code: CA5-705-41-89
San Francisco, CA 94104
Attention: Kevin Leader, MD
Facsimile: (415) 622-4585
The Chase Manhattan Bank
270 Park Avenue, 4th Floor
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46
New York, NY 10017
Attention: Kathryn Duncan
Facsimile: (212) 270-0009
Citicorp USA, Inc.
633 W. Fifth Street, 63rd Floor
Los Angeles, CA 90071
Attention: Shamsara Ahmed
Facsimile: (213) 833-2381
Credit Suisse First Boston
Eleven Madison Avenue, 20th Floor
New York, NY 10010-3629
Attention: Robert Hetu
Facsimile: (212) 325-8309
Bankers Trust Company
1 BT Plaza
130 Liberty Street
New York, NY 10006
Attention: Jennifer Laino/Larry Benison
Facsimile: (212) 250-6029/7351
Merrill Lynch Capital Corporation
250 Vesey Street, North Tower
New York, NY 10281
Attention: Benjamin Lau
Facsimile: (212)449-0265
and
Attention: Carol J.E. Feeley
Facsimile: (212)738-1649
If to the Trust, to it at:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Facsimile: (302) 651-1000
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47
If to the Agent, to it at:
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: Credit and Lending Group
Fax: (212) 972-0009
From time to time any party may designate a new address for purposes of
notice hereunder by notice to each of the other parties hereto.
13.4 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
13.5 Amendments and Termination. (a) Neither this Agreement nor any of
the terms hereof may be terminated, amended, supplemented, waived or modified
except by an instrument in writing signed by the party against which the
enforcement of the termination, amendment, supplement, waiver or modification
shall be sought. This Agreement may be terminated by an agreement signed in
writing by the Trust, the Investor, the Lessee, the Agent and the Lenders.
Notwithstanding the foregoing provisions to the contrary, (i) in the case of the
Lenders, the action of the Required Lenders shall control, except as otherwise
provided in Section 9.1 of the Credit Agreement and (ii) in the case of the
Investors, the action of the Required Investors shall control, except as
otherwise provided in the Trust Agreement.
(b) To the extent a definition contained in Annex A hereto is to be
amended such amendment shall be accomplished by an amendment only to the
Operative Agreements in which such defined term is used or otherwise
incorporated in such Operative Agreement.
13.6 Headings, etc.. The Table of Contents and headings of the various
Sections and Subsections of this Agreement are for convenience of reference only
and shall not modify, define, expand or limit any of the terms or provisions
hereof.
13.7 Parties in Interest. Except as expressly provided herein, none of
the provisions of this Agreement are intended for the benefit of any Person
except the parties hereto.
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT EXCLUDING TO THE
MAXIMUM
<PAGE>
48
EXTENT PERMITTED BY LAW ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW
RULES).
13.9 Severability. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Liability Limited. The Lessee and the Investor each acknowledge
and agree that the Trust Company is (except as otherwise expressly provided
herein or therein) entering into this Agreement and the other Operative
Agreements to which it is a party (other than the Trust Agreement), solely in
its capacity as trustee under the Trust Agreement and not in its individual
capacity and that Trust Company shall not be liable or accountable under any
circumstances whatsoever in its individual capacity for or on account of any
statements, representations, warranties, covenants or obligations stated to be
those of the Trust, except for its own gross negligence or willful misconduct
and as otherwise expressly provided herein or in the other Operative Agreements.
13.11 Rights of Lessee. Notwithstanding any provision of the Operative
Agreements, if at any time all obligations (i) of the Trust under the Credit
Agreement and the Security Documents and (ii) of the Lessee under the Operative
Agreements have in each case been satisfied or discharged in full, then the
Lessee shall be entitled to (a) terminate the Lease (to the extent not
previously terminated) and (b) receive all amounts then held under the Operative
Agreements and all proceeds with respect to the Properties. Upon the fulfillment
of the obligations contained in clauses (i) and (ii) above, the Lessor shall
transfer to the Lessee all of its right, title and interest in and to the
Properties (to the extent not previously transferred to the Lessee in accordance
with the Lease) and any amounts or proceeds referred to in the foregoing clause
(b) shall be paid over to the Lessee.
13.12 Further Assurances. The parties hereto shall promptly cause to
be taken, executed, acknowledged or delivered, at the sole expense of the
Lessee, all such further acts, conveyances, documents and assurances as the
other parties may from time to time reasonably request in order to carry out and
effectuate the intent and purposes of this Agreement, the other Operative
Agreements and the transactions contemplated hereby and thereby (including,
without limitation, the preparation, execution and filing of any and all Uniform
Commercial Code financing statements and other filings or registrations which
the parties hereto may from time to time request to be filed or effected). The
Lessee, at its own expense, shall take such action as may be reasonably
requested in order to maintain and protect all security interests provided for
hereunder or under any other Operative Agreement.
<PAGE>
49
13.13 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
13.14 No Representation or Warranty. Nothing contained herein, in any
other Operative Agreement or in any other materials delivered to the Lessee in
connection with the transactions contemplated hereby or thereby shall be deemed
a representation or warranty by the Agent or the Arranger or any of their
Affiliates as to the proper accounting treatment or tax treatment that should be
afforded to the Lease and the Lessor's ownership of the Properties and the Agent
expressly disclaims any representation or warranty with respect to such matters.
13.15 Highest Lawful Rate. It is the intention of the parties hereto
to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the obligations of the Lessee, the Lessor or the
Investor or any other party under any Operative Agreement, shall be subject to
the limitation that payments of interest or of other amounts constituting
interest shall not be required to the extent that receipt thereof would be in
excess of the Highest Lawful Rate, or otherwise contrary to provisions of law
applicable to the recipient limiting rates of interest which may be charged or
collected by the recipient. Accordingly, if the transactions or the amount paid
or otherwise agreed to be paid for the use, forbearance or detention of money
under this Agreement, the Lease and any other Operative Agreement would exceed
the Highest Lawful Rate or otherwise be usurious with respect to the recipient
of any such amount, then, in that event, notwithstanding anything to the
contrary in this Agreement, the Lease or any other Operative Agreement, it is
agreed as follows as to the recipient of any such amount:
(a) the provisions of this Section 13.15 shall govern and control over
any other provision in this Agreement, the Lease and any other Operative
Agreement and each provision set forth therein is hereby so limited;
(b) the aggregate of all consideration which constitutes interest that
is contracted for, charged or received under this Agreement, the Lease, or any
other Operative Agreement shall under no circumstances exceed the maximum amount
of interest allowed by any Requirement of Law (such maximum lawful interest
rate, if any, with respect to such Lender herein called the "Highest Lawful
Rate"), and all amounts owed under this Agreement, the Lease and any other
Operative Agreement shall be held subject to reduction and (i) the amount of
interest which would otherwise be payable to the recipient hereunder and under
the Lease, the Loan Documents and any other Operative Agreement, shall be
automatically reduced to the amount allowed under any Requirement of Law and
(ii) any unearned interest paid in excess of the Highest Lawful Rate shall be
credited to the payor by the recipient (or, if such consideration shall have
been paid in full, refunded to the payee);
<PAGE>
50
(c) all sums paid, or agreed to be paid for the use, forbearance and
detention of the money under this Agreement, the Lease, or any other Operative
Agreement shall, to the extent permitted by any Requirement of Law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest, together with any other fees, late
charges and other sums payable pursuant to or in connection with this Agreement,
the Lease, and any other Operative Agreement executed in connection herewith or
therewith, and deemed interest under any Requirement of Law exceeds that amount
which would have accrued at the Highest Lawful Rate, the amount of interest and
any such fees, charges and sums to accrue to the recipient of such interest,
fees, charges and sums pursuant to the Operative Agreement shall be limited,
notwithstanding anything to the contrary in the Operative Agreement to that
amount which would have accrued at the Highest Lawful Rate for the recipient,
but any subsequent reductions, as applicable, shall not reduce the interest to
accrue pursuant to the Operative Agreement below the recipient's Highest Lawful
Rate until the total amount of interest payable to the recipient (including all
consideration which constitutes interest) equals the amount of interest which
would have been payable to the recipient (including all consideration which
constitutes interest), plus the amount of fees which would have been received
but for the effect of this Section 3.15.
13.16 Confidentiality. The Lessor, the Investor, the Agent and each
Lender shall hold all non-public information furnished by or on behalf of the
Lessee in connection with such Investor's and Lender's evaluation of whether to
become an Investor or a Lender hereunder or obtained by such Investor or Lender
or the Agent pursuant to the requirements of this Agreement or any of the other
Operative Agreements ("Confidential Information"), in accordance with its
customary procedure for handling confidential information of this nature and (in
the case of a Lender that is a bank) in accordance with safe and sound banking
practices and in any event may make disclosure as required or requested by any
governmental agency or representative thereof or pursuant to legal process or to
such Investor's or Lender's or the Agent's attorneys, professional advisors or
independent auditors, provided that unless specifically prohibited by applicable
law or court order, each of the Investor, the Lenders and the Agent shall notify
the Lessee of any request by any governmental agency or representative thereof
(other than any such request in connection with an examination of the financial
condition of such Investor or such Lender by such governmental agency) for
disclosure of any such non-public information prior to disclosure of such
information, and provided further that in no event shall any Investor, Lender or
the Agent be obligated or required to return any materials furnished by the
Lessee or any Subsidiary of the Lessee. Subject to this Section 13.16, the
Lessee authorizes each Investor to disclose to any potential assignee of or
participant in the Investor's interest in the Investor Commitment and authorizes
each Lender to disclose to any Participant or Purchasing Lender and any
prospective Participant or Purchasing Lender any and all financial information
in such Investor's or Lender's possession concerning the Lessee and its
Affiliates that has been delivered to such Investor or
<PAGE>
51
Lender by or on behalf of the Lessee pursuant to this Agreement or the other
Operative Agreements or which has been delivered to such Investor or Lender by
or on behalf of the Lessee in connection with such Lender's credit evaluation of
the Lessee and its Affiliates prior to becoming a party to this Agreement.
13.17 Year 2000. Any reprogramming required to permit the proper
functioning, in and following the year 2000, of computer and information systems
used in the management of the Lessee's business (including systems supplied by
others or with which such systems interface) to the extent reasonably determined
by Lessee to prevent consequences which could result in an Event of Default or a
Material Adverse Effect, and the testing of all such systems and equipment, as
so reprogrammed, will be completed by October 31, 1999. The cost to the Lessee
of such reprogramming and testing and of the reasonably foreseeable consequences
of year 2000 to the Lessee (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) will not result in an Event of
Default or a Material Adverse Effect.
13.18 Oregon Provisions. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES
AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER
CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR
SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS
CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
KINDERCARE LEARNING CENTERS, INC.
By: DAN R. JACKSON
------------------------------------
Name: Dan R. Jackson
Title: Vice President
Financial Control & Planning
THE KINDERCARE REALTY TRUST 1999
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as
Trustee
By: PATRICIA A. EVANS
------------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
SCOTIABANC INC., as an Investor
By: WILLIAM E. ZARRETT
------------------------------------
Name: William E. Zarrett
Title: Senior Relationship Manager
BANK OF AMERICA, N.A., as a Lender
By: KEVIN C. LEADER
------------------------------------
Name: Kevin C. Leader
Title: Managing Director
<PAGE>
THE CHASE MANHATTAN BANK, as Agent
and a Lender
By: TIMOTHY J. STORMS
------------------------------------
Name: Timothy J. Storms
Title: Managing Director
CITICORP USA, INC., as a Lender
By: TIMOTHY L. FREEMAN
------------------------------------
Name: Timothy L. Freeman
Title: Managing Director/SCO
CREDIT SUISSE FIRST BOSTON, as a Lender
By: BILL O'DALY
------------------------------------
Name: Bill O'Daly
Title: Vice President
By: KRISTIN LEPRI
------------------------------------
Name: Kristin Lepri
Title: Associate
BANKERS TRUST COMPANY, as a Lender
By:
------------------------------------
Name:
Title:
MERRILL LYNCH CAPITAL CORPORATION,
as a Lender
By: CAROL J.E. FEELEY
------------------------------------
Name: Carol J.E. Feeley
Title: Vice President
<PAGE>
THE BANK OF NOVA SCOTIA, as a Lender
By: PATRICK G. NORRIS
------------------------------------
Name: Patrick G. Norris
Title: Officer
WILMINGTON TRUST COMPANY, in its
individual capacity, only to the extent
expressly set forth herein
By: PATRICIA A. EVANS
------------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
Annex A
-------
Rules of Usage and Definitions
Rules of Usage
--------------
The following rules of usage shall apply to this Annex A and the
Operative Agreements (and each appendix, schedule, exhibit and annex to the
foregoing) unless otherwise required by the context or unless otherwise defined
therein:
(a) Except as otherwise expressly provided, any definitions defined
herein or in any other document shall be equally applicable to the singular
and plural forms of the terms defined.
(b) Except as otherwise expressly provided, references in any document
to articles, sections, paragraphs, clauses, annexes, appendices, schedules
or exhibits are references to articles, sections, paragraphs, clauses,
annexes, appendices, schedules or exhibits in or to such document.
(c) The headings, subheadings and table of contents used in any
document are solely for convenience of reference and shall not constitute a
part of any such document nor shall they affect the meaning, construction
or effect of any provision thereof.
(d) References to any Person shall include such Person, its successors
and permitted assigns and transferees.
(e) Except as otherwise expressly provided, reference to any agreement
means such agreement as amended, modified, extended or supplemented from
time to time in accordance with tide applicable provisions thereof.
(f) Except as otherwise expressly provided, references to any law
includes any amendment or modification to such law and any rules or
regulations issued thereunder or any law enacted in substitution or
replacement therefor.
(g) When used in any document, words such as "hereunder", "hereto",
"hereof" and "herein" and other words of like import shall, unless the
context clearly indicates to the contrary, refer to the whole of the
applicable document and not to any particular article, section, subsection,
paragraph or clause thereof.
(h) References to "including" means including without limiting the
generality of any description preceding such term and for purposes hereof
the rule of ejusdem
<PAGE>
2
generis shall not be applicable to limit a general statement, followed by
or referable to an enumeration of specific matters, to matters similar to
those specifically mentioned.
(i) Each of the parties to the Operative Agreements and their counsel
have reviewed and revised, or requested revisions to, the Operative
Agreements, and the usual rule of construction that any ambiguities are to
be resolved against the drafting party shall be inapplicable in the
construing and interpretation of the Operative Agreements and any
amendments or exhibits thereto.
Definitions
"ABR" shall mean, for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to time by
the Agent as its prime rate in effect at its principal office in New York
City (the Prime Rate not being intended to be the lowest rate of interest
charged by the Agent in connection with extensions of credit to debtors);
each change in the Prime Rate shall be effective on the date such change is
publicly announced as effective. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average rounded upwards, if necessary, to the
nearest 1/100 of 1% of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for the day of such
transactions received by the Agent from three Federal funds brokers of
recognized national standing selected by it. If for any reason the Agent
shall have determined that it is unable to ascertain the Federal Funds
Effective Rate for any reason, including the inability or failure of the
Agent to obtain sufficient quotations in accordance with the terms thereof,
the ABR shall be determined without regard to clause (b) of the first
sentence of this definition, as appropriate, until the circumstances giving
rise to such inability no longer exist. Any change in the ABR due to a
change in the Prime Rate or the Federal Funds Effective Rate shall be
effective on the effective date of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans" shall mean Loans the rate of interest applicable to which
is based upon the ABR.
"Acceleration" shall have the meaning set forth in Section 6.1 of
the Credit Agreement.
<PAGE>
3
"Account" shall have the meaning set forth in Section 8.1(a) of the
Credit Agreement.
"Advance" shall mean an advance of Loans by the Lenders and an advance
of the Investor Contribution by the Investor, in each case pursuant to
Section 6 of the Participation Agreement to pay Project Costs.
"Affiliate" shall mean, when used with respect to a specified person,
another person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the person specified; provided, however, that in no case shall the
Trust Company be considered to be an Affiliate of any of the Trustee, the
Trust, the Agent or the Investor, nor shall any of the Trustee, Trust,
Agent or Investor be considered to be an Affiliate of the Trust Company.
"After Tax Basis" shall mean, with respect to any payment to be
received, the amount of such payment increased so that, after deduction of
the amount of all taxes required to be paid by the recipient (less any tax
savings realized and the present value of any tax savings projected to be
realized by the recipient as a result of the payment of the indemnified
amount) with respect to the receipt by the recipient of such amounts, such
increased payment (as so reduced) is equal to the payment otherwise
required to be made.
"Agency Agreement" shall mean the Agency Agreement dated as of the
Initial Closing Date between the Construction Agent and the Lessor, as
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof or of any other Operative Agreement.
"Agency Agreement Event of Default" shall have the meaning set forth
in Section 5.1 of the Agency Agreement.
"Agency Agreement Supplement" shall mean a supplement to the Agency
Agreement executed by the Construction Agent and the Trust on each Property
Closing Date.
"Agent" shall mean The Chase Manhattan Bank, a New York banking
corporation, as the agent for the Lenders under the Credit Agreement and
the other Operative Agreements, or any successor agent appointed in
accordance with the terms of the Credit Agreement.
"Aggregate Tranche A Percentage" shall mean, as of any date of
determination, a fraction, expressed as a percentage, equal to the sum of
the aggregate of the Maximum Residual Guarantee Amounts with respect to
each of the Properties as of such date
<PAGE>
4
divided by the aggregate of the Tranche A/B Property Cost of each of the
Properties as of such date.
"Allocated Interest" shall mean, with respect to any Construction
Period Property, as of any Scheduled Interest Payment Date, the amount of
interest due and payable on such date with respect to a portion of the
Loans (which portion shall be designated by the Borrower by written notice
to the Agent (an "Allocation Notice")) having an aggregate principal amount
equal to the Tranche A/B Construction Property Cost of such Property as of
such date.
"Allocated Investor Yield" shall mean, with respect to any
Construction Period Property, as of any Scheduled Interest Payment Date,
the amount of Investor Yield due and payable on such date with respect to a
portion of the Investor Contribution (which portion shall be designated by
the Borrower by written notice to the Agent and the Investor (an "Investor
Allocation Notice")) having an aggregate principal amount equal to the
Investor Property Cost of such Property as of such date.
"Allocation Notice" shall have the meaning defined in the definition
of "Allocated Interest" above.
"Applicable Eurodollar Margin" shall mean, with respect to each
Eurodollar Loan at any date, the applicable percentage per annum as set
forth below based upon the Status in effect on such date, as follows:
Status Applicable Eurodollar Margin
------ ----------------------------
Level I Status 2.500%
Level II Status 2.000%
Level III Status 1.750%
Level IV Status 1.500%
Level V Status 1.250%
"Appraisal" shall mean, with respect to each Property, an appraisal,
ordered by the Agent, prepared by a reputable independent appraiser
reasonably satisfactory to the Agent, of such Property as if improved in
accordance with the Plans and Specifications for such Property, which in
the judgment of counsel to the Agent, as of the applicable
<PAGE>
5
Property Closing Date, complies with all of the provisions of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, as amended, the
rules and regulations adopted pursuant thereto, and all other applicable
Legal Requirements. The appraisal shall state the amount of the Projected
Completion Value with respect to such Property and an estimate of the value
thereof at the end of the Term.
"Appraisal Procedure" shall have the meaning given such term in
Section 21.4 of the Lease.
"Appurtenant Rights" shall mean (i) all agreements, easements, rights
of way or use, rights of ingress or egress, privileges, appurtenances,
tenements, hereditaments and other rights and benefits at any time
belonging or pertaining to the Land or the Improvements, including, without
limitation, the use of any streets, ways, alleys, vaults or strips of land
adjoining, abutting, adjacent or contiguous to the Land and (ii) all
permits, licenses and rights, whether or not of record, appurtenant to the
Land.
"Arranger" shall mean Chase Securities, Inc.
"Assignment and Acceptance" shall have the meaning set forth in
Section 9.7 of the Credit Agreement.
"Assignment of Lease" shall mean the collective reference to each
Assignment of Leases, Rents and Guarantee dated as of each Property Closing
Date from the Lessor to the Agent for the benefit of the Lenders, as each
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof or of any other Operative Agreement.
"Authorized Officer" shall mean the Chairman of the Board, the Chief
Executive Officer and Chairman of the Board, the Chief Financial Officer,
the Executive Vice President - Corporate Services, the Vice President -
Financial Control and Planning, the Vice President, General Counsel and
Secretary, the Treasurer or any other senior officer of the Company
designated as such in writing to the Agent by the Company.
"Available Commitment" shall mean, as to any Lender at any time, an
amount equal to the excess, if any, of (a) the amount of such Lender's
Commitment over (b) the aggregate principal amount of all Loans made by
such Lender then outstanding.
"Available Investor Commitment" shall mean at any time, an amount
equal to the excess, if any, of (a) the amount of Investor Commitment over
(b) the aggregate amount of all Investor Contributions made by the
Investors as of such date.
<PAGE>
6
"Basic Rent" shall mean, the sum of (i) the Tranche A Basic Rent, (ii)
the Tranche B Basic Rent and (iii) the Investor Yield, calculated as of the
applicable date on which Basic Rent is due.
"Basic Term" shall mean for each Property, the period commencing on
the Property Closing Date for such Property and ending on the Maturity
Date.
"Benefitted Lender" shall have the meaning set forth in Section 9.9 of
the Credit Agreement.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States (or any successor).
"Borrower" shall mean Lessor, in its capacity as borrower under the
Credit Agreement.
"Borrowing Date" shall mean any Business Day specified in a
Requisition as a date on which the Borrower requests the Lenders to make
Loans under the Credit Agreement.
"Budget" shall mean with respect to each Property, the estimated
Project Cost to be incurred in connection therewith, attached as Schedule I
to the Agency Agreement, as modified from time to time in accordance with
the terms of the Agency Agreement.
"Budgeted Total Property Cost" shall mean, at any date of
determination, with respect to any Construction Period Property, an amount
equal to the aggregate amount which the Construction Agent in good faith
expects to be expended in order to achieve Completion with respect to such
Construction Period Property (including amounts expected to be expended to
pay Allocated Interest and Allocated Investor Yield with respect to such
Construction Period Property).
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or
required by law to close, and in the case of a Eurodollar Loan, any day on
which dealings in U.S. dollar deposits are carried on in the interbank
Eurodollar market and on which commercial banks are open for domestic and
international business in New York and London.
"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of any Person or any of its Subsidiaries, in each case taken
at the amount thereof accounted for as liabilities in accordance with GAAP.
<PAGE>
7
"Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which,
in conformity with GAAP, is, or is required to be, accounted for as a
capital lease on the balance sheet of that Person.
"Casualty" shall mean any damage or destruction of all or any portion
of a Property as a result of fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of-1980, 42 U.S.C. ss.ss. 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986, and
all rules and regulations thereunder.
"Certificate" shall mean a certificate issued pursuant to the Trust
Agreement to evidence an investment in the beneficial ownership of the
Trust Estate, and shall include any certificate issued in exchange therefor
or replacement thereof.
"Change of Control" shall mean and be deemed to have occurred if (a)
(i) KKR, its Affiliates and the Management Group shall at any time not own,
in the aggregate, directly or indirectly, beneficially and of record, at
least 35% of the outstanding Voting Stock of the Company (other than as the
result of one or more widely distributed offerings of Company Common Stock,
in each case whether by the Company or by KKR, its Affiliates or the
Management Group) and/or (ii) any person, entity or "group" (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended) shall at any time have acquired direct or indirect beneficial
ownership of a percentage of the outstanding Voting Stock of the Company
that exceeds the percentage of such Voting Stock then beneficially owned,
in the aggregate, by KKR, its Affiliates and the Management Group, unless,
in the case of either clause (i) or (ii) above, KKR, its Affiliates and the
Management Group have, at such time, the right or the ability by voting
power, contract or otherwise to elect or designate for election a majority
of the Board of Directors of the Company; and/or (b) at any time Continuing
Directors shall not constitute a majority of the Board of Directors of the
Company.
"Claims" shall mean any and all actions, suits, penalties, claims and
demands and reasonable out-of-pocket liabilities, losses, costs and
expenses (including, without limitation, reasonable attorney's fees and
expenses) of any nature whatsoever.
"Closing Date" shall mean the Initial Closing Date and each Property
Closing Date, as applicable.
<PAGE>
8
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto, and the regulations
promulgated and rulings issued thereunder.
"Collateral" shall mean all assets of the Lessor, now owned or
hereafter acquired, upon which a Lien is purported to be created by the
Security Documents.
"Commitment" shall mean, as to any Lender, the obligation of such
Lender to make Loans to the Borrower under the Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed the
amount set forth opposite such Lender's name on Schedule 1.1 of the Credit
Agreement.
"Commitment Fee" shall mean, on each Commitment Fee Payment Date, an
amount per annum equal to the product of the Available Commitment on such
Commitment Fee Payment Date times 0.50%.
"Commitment Fee Payment Date" shall mean the last day of each March,
June, September and December during the Commitment Period and the last
Business Day of the Commitment Period or such earlier date as the
Commitments shall terminate as provided in the Credit Agreement.
"Commitment Percentage" shall mean, as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"Commitment Period" shall mean the period from and including the
Initial Closing Date to but not including the earliest of (i) the
Completion Date for all of the Properties, (ii) the Outside Completion Date
and (iii) the date on which an Acceleration occurs.
"Company" shall mean KinderCare Learning Centers, Inc., a Delaware
corporation.
"Company Common Stock" shall mean any class of outstanding common
stock of the Company.
"Completed Property" shall mean a Property on which the Improvements
are in existence (and are not intended to be renovated) as of the Property
Closing Date with respect thereto.
<PAGE>
9
"Completion" shall mean, with respect to any Improvements, such time
as (i) substantial completion of the Improvements has been achieved in
accordance with the Plans and Specifications and in compliance with all
material Legal Requirements and Insurance Requirements and (ii) the
Construction Agent shall deliver an Officer's Certificate to the Agent
certifying to such Completion.
"Completion Date" shall mean, with respect to a Property, the date on
which Completion has occurred.
"Condemnation" shall mean any taking or sale of the use, access,
occupancy, easement rights or title to any Property or any part thereof,
wholly or partially (temporarily or permanently), by or on account of any
actual eminent domain proceeding or other taking of action by any Person
having the power of eminent domain, including an action by a Governmental
Authority to change the grade of, or widen the streets adjacent to, any
Property, or alter the pedestrian or vehicular traffic flow to any Property
so as to result in a change in access to such Property, or by or on account
of an eviction by paramount title or any transfer made in lieu of any such
proceeding or action.
"Confidential Information" shall have the meaning provided in Section
13.16 of the Participation Agreement.
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Company dated July 1999 delivered to the
Lenders in connection with the Operative Agreements.
"Consent to Assignment" shall mean the collective reference to each
Lessee's Consent to Assignment dated as of each Property Closing Date from
the Lessee and the Guarantors to the Agent, as amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof
or of any other Operative Agreement.
"Consent to Contract Assignment" shall mean the Consent to Contract
Assignment dated as of the Initial Closing Date from the Construction Agent
to the Agent, as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof or of any other Operative
Agreement.
"Consolidated Earnings" shall mean, for any period, "income from
continuing operations before income taxes and extraordinary items" of the
Company and the Restricted Subsidiaries for such period, determined in a
manner consistent with the manner in which such amount was determined in
accordance with the audited financial statements referred to in Section
9.1(a) of the Corporate Credit Agreement (as incorporated by reference into
Section 10 of the Guarantee).
<PAGE>
10
"Consolidated EBITDA" shall mean, for any period, the sum, without
duplication, of the amounts for such period of (a) Consolidated Earnings,
(b) Consolidated Interest Expense, (c) depreciation expense, (d)
amortization expense, including amortization of deferred financing fees,
(e) non-recurring charges, (f) non-cash charges, (g) losses on asset sales
and (h) restructuring charges or reserves less the sum of the amounts for
such period of (i) non-recurring gains, (j) non-cash gains and (k) gains on
asset sales, all as determined on a consolidated basis for the Company and
the Restricted Subsidiaries in accordance with GAAP, provided that there
shall be excluded from Consolidated Earnings for any period the income from
continuing operations before income taxes and extraordinary items of all
Unrestricted Subsidiaries for such period to the extent otherwise included
in Consolidated Earnings.
"Consolidated Interest Expense" shall mean, for any period, cash
interest expense (including that attributable to Capital Leases in
accordance with GAAP), net of cash interest income, of the Company and the
Restricted Subsidiaries on a consolidated basis with respect to all
outstanding Indebtedness of the Company and the Restricted Subsidiaries,
including, without limitation, all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing and net costs under Hedge Agreements (other than currency swap
agreements, currency future or option contracts and other similar
agreements), but excluding, however, amortization of deferred financing
costs and any other amounts of non-cash interest, all as calculated on a
consolidated basis in accordance with GAAP, provided that there shall be
excluded from Consolidated Interest Expense for any period the cash
interest expense (or income) of all Unrestricted Subsidiaries for such
period to the extent otherwise included in Consolidated Interest Expense.
"Consolidated Senior Debt" shall mean, as of any date of
determination, Consolidated Total Debt as of such date minus Consolidated
Subordinated Debt as of such date.
"Consolidated Senior Debt to Consolidated EBITDA Ratio" shall mean, as
of any date of determination, the ratio of (a) Consolidated Senior Debt as
of the last day of the relevant Test Period to (b) Consolidated EBITDA for
such Test Period.
"Consolidated Subordinated Debt" shall mean, as of any date of
determination, all Indebtedness of the Company and the Restricted
Subsidiaries for borrowed money that is (a) outstanding on such date and
(b) subordinated in right of payment to the Guaranteed Obligations, all
calculated on a consolidated basis in accordance with GAAP.
"Consolidated Total Debt" shall mean, as of any date of determination,
the sum of (a) all Indebtedness of the Company and the Restricted
Subsidiaries for borrowed money outstanding on such date and (b) all
Capitalized Lease Obligations of the Company and
<PAGE>
11
the Restricted Subsidiaries outstanding on such date, all calculated on a
consolidated basis in accordance with GAAP.
"Construction Agent" shall mean KinderCare Learning Centers, Inc., a
Delaware corporation, as construction agent under the Agency Agreement.
"Construction Agreement" shall mean the Construction Agreement dated
as of the Initial Closing Date between the Lessor and the Lessee, as
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof or of any other Operative Agreement.
"Construction Commencement Date" shall mean, with respect to any
Construction Period Property, the date on which construction and renovation
of the Improvements to be built thereon commences.
"Construction Period" shall mean, with respect to a Construction
Period Property, the period commencing on the Property Closing Date for
such Construction Period Property and ending on the earlier to occur of (i)
the Completion Date and (ii) the Outside Completion Date.
"Construction Period Amount" shall mean the Property Cost at any given
time of each Property for which the Construction Commencement Date has
occurred and for which the Construction Period has not terminated.
"Construction Period Property" shall mean, at any date of
determination, any Land and the Improvements being constructed thereon
during the Construction Period.
"Construction Risk Event" shall have the meaning set forth in Section
5.4 of the Agency Agreement.
"Construction Risk Payment" shall have the meaning set forth in
Section 5.4 of the Agency Agreement.
"Construction Termination Date" shall mean February 13, 2001.
"Continuing Director" shall mean, at any date, an individual (a) who
is a member of the Board of Directors of the Company on the date hereof,
(b) who, as at such date, has been a member of such Board of Directors for
at least the 12 preceding months, (c) who has been nominated to be a member
of such Board of Directors, directly or indirectly, by KKR or Persons
nominated by KKR or (d) who has been nominated to be a member of such Board
of Directors by a majority of the other Continuing Directors then in
office.
<PAGE>
12
"Contract Assignment" shall mean the Assignment of Contracts dated as
of the Initial Closing Date from the Lessor to the Agent for the benefit of
the Lenders, as amended, supplemented or otherwise modified from time to
time in accordance with the terms thereof or of any other Operative
Agreement.
"Contractual Obligation" shall mean, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any of
its property is bound.
"Control" shall mean (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to
any Person, the possession directly or indirectly, of the power to direct
or cause the direction of the management policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"Corporate Credit Agreement" means that certain $390,000,000 Credit
Agreement dated as of February 13, 1997 among the Company, the several
lenders from time to time parties thereto, The Chase Manhattan Bank, as
Administrative Agent, Bankers Trust Company, as Syndication Agent and Wells
Fargo Bank, N.A. as Documentation Agent, as it may be amended, modified,
supplemented or replaced from time to time.
"Credit Agreement" shall mean the Credit Agreement dated as of the
Initial Closing Date among the Lessor, the Agent and the Lenders, as
amended, supplemented or otherwise modified from time to time in accordance
with the terms thereof or of any other Operative Agreement.
"Credit Agreement Default" shall mean any event or condition which,
with the lapse of time or the giving of notice, or both, would constitute a
Credit Agreement Event of Default.
"Credit Agreement Event of Default" shall mean any event or condition
defined as an "Event of Default" in Section 6.1 of the Credit Agreement.
"Credit Documents" shall mean the Credit Agreement, the Notes, the
Guarantee, the Lease and the Security Documents.
"Deed" shall have the meaning set forth in Section 6.2(d) of the
Participation Agreement.
"Default" shall mean any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute an Event of
Default.
<PAGE>
13
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" shall mean each Subsidiary of the Company that
is organized under the laws of the United States, any state thereof, the
District of Columbia or any territory thereof.
"Effective Date" shall have the meaning set forth in the Assignment
and Acceptance.
"Environmental Audit" shall mean a Phase I environmental audit of a
Property and such additional environmental studies or audits recommended by
such Phase I, prepared by the Environmental Engineer.
"Environmental Claim" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations (other than
internal reports prepared by the Company or any of its Subsidiaries (a) in
the ordinary course of such Person's business or (b) as required in
connection with a financing transaction or an acquisition or disposition of
real estate) or proceedings relating in any way to any Environmental Law or
any permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (i) any and all
Claims by governmental or regulatory authorities for enforcement, cleanup,
removal, response, remedial or other actions or damages pursuant to any
applicable Environmental Law and (ii) any and all Claims by any third party
seeking damages, contribution, indemnification, cost recovery, compensation
or injunctive relief resulting from Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the environment.
"Environmental Engineer" shall mean Giles Engineering Company, or any
other environmental engineer reasonably acceptable to the Agent and the
Required Investors.
"Environmental Law" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code and rule of common
law now or hereafter in effect and in each case as amended, and any binding
judicial or administrative interpretation thereof, including any binding
judicial or administrative order, consent decree or judgment, relating to
the environment, human health or safety or Hazardous Materials.
"Environmental Violation" shall mean any activity, occurrence or
condition that violates or results in non-compliance with any applicable
Environmental Laws or results in a written complaint or other written claim
from a Governmental Authority with respect to any Environmental Laws.
<PAGE>
14
"Equipment" shall mean equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased, leased or
otherwise acquired by using the proceeds of the Loans or the Investor
Contribution by the Lessee and now or subsequently attached to, contained
in or used or usable in any way in connection with any operation or letting
of the Property, including but without limiting the generality of the
foregoing, all screens, awnings, shades, blinds, curtains, draperies,
artwork, Christmas decorations, bidets, toilets, carpets, rugs, storm doors
and windows, shelving, furniture and furnishings, heating, electrical, and
mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and
systems, stoves, ranges, laundry equipment, cleaning systems (including
window cleaning apparatus), telephones, communication systems (including
satellite dishes and antennae), televisions, computers, sprinkler systems
and other fire prevention and extinguishing apparatus and materials,
security systems, motors, engines, machinery, pipes, pumps, tanks,
conduits, appliances, fittings and fixtures of every kind and description.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) that together with the Company or a Subsidiary would be deemed to
be a "single employer" within the meaning of Section 414(b) or (c) of the
Code or, solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.
"Eurocurrencv Reserve Requirements" shall mean for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.
"Eurodollar Base Rate" shall mean, with respect to each day during
each Interest Period pertaining to any Eurodollar Loan, the rate of
interest determined on the basis of the rate for deposits in Dollars for a
period equal to such Interest Period commencing on the first day of such
Interest Period appearing on Page 3750 of the Telerate screen as of 11:00
A.M., London time, two Business Days prior to the beginning of such
Interest Period. In the event that such rate does not appear on Page 3750
of the Telerate Service (or otherwise on such service), the "Eurodollar
Rate" for the purposes of this paragraph
<PAGE>
15
shall be determined by reference to such other publicly available service
for displaying eurodollar rates as may be agreed upon by the Agent and the
Borrower or, in the absence of such agreement, the "Eurodollar Rate" for
the purposes of this paragraph shall instead be the rate per annum notified
to the Agent by the Reference Lender as the rate at which the Reference
Lender is offered Dollar deposits at or about 10:00 A.M., New York time,
two Business Days prior to the beginning of such Interest Period, in the
interbank eurodollar market where the eurodollar and foreign currency and
exchange operations in respect of its Eurodollar Loans are then being
conducted for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount
of its Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula (rounded
upward to the nearest 1/l00th of 1%):
Eurodollar Base Rate
-----------------------------------------
1.00 - Eurocurrency Reserve Requirements.
"Eurodollar Tranche" shall mean the collective reference to Eurodollar
Loans the then current Interest Periods with respect to all of which begin
on the same date and end on the same later date (whether or not such Loans
shall originally have been made on the same day).
"Event of Default" shall mean a Lease Event of Default or a Credit
Agreement Event of Default.
"Excepted Payments" shall mean:
(a) all indemnity payments (including indemnity payments made pursuant
to Section 12 of the Participation Agreement), to which the Lessor, the
Investor, or any of their respective Affiliates is entitled;
(b) any amounts (other than, without limitation, Basic Rent,
Termination Value, the Marketing Residual Guarantee Amount or Purchase
Option Price) payable under any Operative Agreement to reimburse the Trust
Company, the Investor, or any of their respective Affiliates (including the
reasonable expenses of the Trust Company and the Investor incurred in
connection with any such payment) for performing or complying
<PAGE>
16
with any of the obligations of the Lessee under and as permitted by any
Operative Agreement;
(c) any amount payable to the Investor by any transferee of the
interest of the Investor as the purchase price of the Investor's interest
in the Trust Estate (or a portion thereof);
(d) any insurance proceeds (or payments with respect to risks
self-insured or policy deductibles) under liability and title policies
other than such proceeds or payments payable to the Lessee or the Agent;
(e) any insurance proceeds under policies maintained by the Trust
Company or the Investor.
(f) Transaction Expenses or other amounts or expenses paid or payable
to or for the benefit of the Trust Company or the Investor;
(g) all right, title and interest of the Investor or the Trust Company
to any Property, any portion thereof or any other property to the extent
any of the foregoing has been released from the Liens of the Mortgage and
the Assignment of Lease pursuant to the terms thereof and not otherwise
purchased by the Lessee or a third party pursuant to the terms of the
Lease;
(h) any payments in respect of interest to the extent attributable to
payments referred to in clauses (a) through (g) above; and
(i) any rights of the Investor or the Trust Company to demand,
collect, sue for or otherwise receive and enforce payment of any of the
foregoing amounts.
"Excepted Rights" shall mean the rights retained by the Trust Company
pursuant to Section 8.3(i) of the Credit Agreement and all right, title and
interest of the Lessor in the Shared Rights.
"Excess Sales Proceeds" shall have the meaning given to such term in
Section 8.1 (b)(iii) of the Credit Agreement.
"Exculpated Persons" shall have the meaning set forth in Section 9.17
of the Credit Agreement.
"Expiration Date" shall mean the final day of the Term.
<PAGE>
17
"Fair Market Sales Value" shall mean the amount, which in any event
shall not be less than zero, that would be paid in cash in an arm's-length
transaction between an informed and willing purchaser and an informed and
willing seller, neither of whom is under any compulsion to purchase or
sell, respectively, for the ownership of any Property. Fair Market Sales
Value shall be determined based on the assumption that, except for purposes
of Section 21.3 of the Lease, any Property is in the condition and state of
repair required under Section 10.1 of the Lease and that the Lessee is in
compliance with the other requirements of the Operative Agreements.
"Fixtures" shall mean all fixtures relating to the Improvements,
including all components thereof, located in or on such Improvements,
together with all replacements, modifications, alterations and additions
thereto.
"Force Majeure Event" shall mean any event beyond the control of the
Construction Agent, other than a Casualty or Condemnation, including
strikes, lockouts, adverse soil conditions, acts of God, adverse weather
conditions, inability to obtain labor or materials, governmental
activities, civil commotion and enemy action and delays in obtaining
necessary permits and approvals from any Governmental Authority; but
excluding any event, cause or condition that results from the Construction
Agent's financial condition.
"Foreign Subsidiary" shall mean each Subsidiary of the Company that is
not a Domestic Subsidiary.
"Funding Date" shall mean a Business Day on which the Construction
Agent, on behalf of the Lessor requests the Lenders to make Loans and the
Investor to make an Investor Contribution, in each case, to the Lessor in
accordance with the Participation Agreement and the Credit Agreement in
order to fund Project Costs.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, consistently
applied.
"Governmental Action" shall mean all permits, authorizations,
registrations, consents, approvals, waivers, exceptions, variances, orders,
judgments, written interpretations, decrees, licenses, exemptions,
publications, filings, notices to and declarations of or with, or required
by, any Governmental Authority, or required by any Legal Requirement, and
shall include, without limitation, all environmental and operating permits
and licenses that are required for the full use, occupancy, zoning and
operation of the Property.
<PAGE>
18
"Governmental Authority" shall mean any Federal, state, county,
municipal or other local governmental authority or judicial or regulatory
agency, board, body, commission, instrumentality, court or
quasi-governmental authority.
"Granting Bank" has the meaning specified in Section 9.7(c) of the
Credit Agreement.
"Ground Lease" shall mean a ground lease between the Lessor, as ground
lessee, or assignee of a ground lessee, and the owner of the fee interest
in the applicable parcel of Land, as ground lessor, as such Land is
described on Schedule 1 of the Lease Supplement for each Property that is
subject to a Ground Lease, which is in form and substance reasonably
acceptable to the Agent, the Lessor and their respective counsel,
including, but not limited to, language substantially in the form of
Exhibit I to the Participation Agreement.
"Guarantee" shall mean the Guarantee dated as of the Initial Closing
Date from the Guarantor to the Agent for the benefit of the Lessor, the
Agent, for the ratable benefit of the Lenders and the Investor and their
respective successors and assigns, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the terms
thereof or of any other Operative Agreement.
"Guarantee Obligations" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such Indebtedness or any
property constituting direct or indirect security therefor, (b) to advance
or supply funds (i) for the purchase or payment of any such Indebtedness or
(ii) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(c) to purchase property, securities or services primarily for the purpose
of assuring the owner of any such Indebtedness of the ability of the
primary obligor to make payment of such Indebtedness or (d) otherwise to
assure or hold harmless the owner of such Indebtedness against loss in
respect thereof; provided, however, that the term "Guarantee Obligations"
shall not include endorsements of instruments for deposit or collection in
the ordinary course of business. The amount of any Guarantee Obligation
shall be deemed to be an amount equal to the stated or determinable amount
of the Indebtedness in respect of which such Guarantee Obligation is made
or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Guaranteed Obligations" shall have the meaning given to such term in
Section 1(a) of the Guarantee.
<PAGE>
19
"Guarantor" shall mean the Company and each Subsidiary of the Lessee
that is or becomes a party to the Guarantee.
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, friable asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing regulated levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous waste", "hazardous
materials", "extremely hazardous waste", "restricted hazardous waste",
"toxic substances", "toxic pollutants", "contaminants", or "pollutants", or
words of similar import, under any applicable Environmental Law; and (c)
any other chemical, material or substance, exposure to which is prohibited,
limited or regulated by any Governmental Authority.
"Hedge Agreements" shall mean interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements entered into by the Company in order to protect the Company or
any of the Restricted Subsidiaries against fluctuations in interest rates
or currency exchange rates.
"Impositions" shall mean, except to the extent described in the
following sentence, any and all liabilities, losses, expenses and costs of
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings ("Taxes") (including (i) real and personal
property taxes, including personal property taxes on any property covered
by the Lease that is classified by Governmental Authorities as personal
property, and real estate or ad valorem taxes in the nature of property
taxes; (ii) sales taxes, use taxes and other similar taxes (including rent
taxes and intangibles taxes); (iii) any excise taxes; (iv) real estate
transfer taxes, conveyance taxes, stamp taxes and documentary recording
taxes and fees; (v) taxes that are or are in the nature of franchise,
income, value added, privilege and doing business taxes, license and
registration fees; and (vi) assessments on the Property, including all
assessments for public improvements or benefits, whether or not such
improvements are commenced or completed within the Term), and in each case
all interest, additions to tax and penalties thereon, which at any time
prior to, during or with respect to the Term or in respect of any period
for which the Lessee shall be obligated to pay Supplemental Rent, may be
levied, assessed or imposed by any Federal, state, city, county or local
authority upon or with respect to (a) the Property or any part thereof or
interest therein; (b) the purchase, sale, leasing, financing, refinancing,
demolition, construction, renovation, substitution, subleasing, assignment,
control, condition, occupancy, servicing, maintenance, repair, ownership,
possession, activity conducted on, delivery, insuring, use, operation,
improvement, transfer of title, return or other disposition of the Property
or any part thereof or interest therein; (c) the Notes or other
indebtedness with respect to the Property or any part thereof or interest
<PAGE>
20
therein; (d) the rentals, receipts or earnings arising from the Property or
any part thereof or interest therein; (e) the Operative Agreements or any
payment made or accrued pursuant thereto; (f) the income or other proceeds
received with respect to the Property or any part thereof or interest
therein upon the sale or disposition thereof; (g) any contract (including
the Agency Agreement) relating to the construction or renovation of the
Improvements; (h) the issuance of the Notes; or (i) otherwise in connection
with the transactions contemplated by the Operative Agreements.
The term "Imposition" shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are in
the nature of, sales, use, rental, value added, transfer or property taxes)
that are imposed on a Tax Indemnitee by the United States federal
government that are based on or measured by the gross or net income
(including taxes based on capital gains and minimum taxes) of such Person;
provided that this clause (i) shall not be interpreted to prevent a payment
from being made on an After Tax Basis if such payment is otherwise required
to be so made;
(ii) Taxes and impositions (other than Taxes that are, or are in
the nature of, sales, use, rental, value added, transfer or property taxes)
that are imposed by any state or local jurisdiction or taxing authority
within any state or local jurisdiction and that are based upon or measured
by the gross or net income or gross or net receipts from rental (including
any minimum taxes, withholding taxes or taxes on or measured by capital,
net worth, excess profits or items of tax preference or taxes that are
capital stock, franchise or doing business taxes) except that this clause
(ii) shall not apply to (and thus shall not exclude) any such Taxes imposed
on a Tax Indemnitee by the state (or any local taxing authority thereof or
therein) where the Property is located, possessed or used under the Lease;
unless such Taxes or impositions are imposed by reason of the place of
incorporation or principal place of business of such Tax Indemnitee with
such state other than by reason of the transactions contemplated by the
Operative Agreement provided that this clause (ii) shall not be interpreted
to prevent a payment from being made on an After Tax Basis if such payment
is otherwise required to be so made;
(iii) any interest or penalties imposed on a Tax Indemnitee as a
result of the failure of such Tax Indemnitee to file any return or report
timely and in the form prescribed by law or to pay any Tax or imposition;
provided that this clause (iii) shall not apply (x) if such interest or
penalties arise as a result of a position taken (or requested to be taken)
by the Lessee in a contest controlled by the Lessee under Section 12.2(g)
of the Participation Agreement or (y) to any such interest or penalties
that result from such Tax Indemnitee's complying with the reporting
procedures set forth in Section 12.2(d) of the Participation Agreement or
the failure of Lessee to comply with the procedures set forth in Section
12.2(d);
<PAGE>
21
(iv) any Taxes or impositions imposed on the Lessor that are a
result of the Lessor not being considered a "United States person" as
defined in Section 7701(a) (30) of the Code;
(v) any Taxes which are imposed on a Tax Indemnitee solely as a
result of the gross negligence or willful misconduct of such Tax Indemnitee
itself (as opposed to gross negligence or willful misconduct imputed to
such Tax Indemnitee), but not Taxes imposed as a result of ordinary
negligence of such Tax Indemnitee;
(vi) any Taxes or impositions imposed upon the Lessor with
respect to any voluntary transfer, sale, financing or other voluntary
disposition by the Lessor (other than a transfer contemplated and permitted
by the Operative Agreements, including any transfer in connection with (1)
the exercise by the Lessee of its Purchase Option, (2) the occurrence of a
Lease Event of Default or a Credit Agreement Event of Default, or (3) a
Casualty or Condemnation affecting the Property) of any interest in the
Property or any interest in, or created pursuant to, the Operative
Agreements) or any voluntary transfer of any interest in the Lessor (other
than in connection with the existence of a Lease Event of Default or a
Credit Agreement Event of Default) or any involuntary transfer of any of
the foregoing interests resulting from the bankruptcy or insolvency of the
Lessor (other than in connection with the existence of a Lease Event of
Default or a Credit Agreement Event of Default); or
(vii) any gift, or inheritance, taxes; or
Any Tax or imposition excluded from the defined term "Imposition" in any
one of the foregoing clauses (i) through (vii) shall not be construed as
constituting an Imposition by any provision of any other of the
aforementioned clauses.
"Improvements" shall mean the buildings, structures, Fixtures,
Equipment, and other improvements of every kind existing at any time and
from time to time on or under any parcel of Land, together with any and all
appurtenances to such buildings, structures or improvements, including
sidewalks, utility pipes, conduits and lines, parking areas and roadways,
and including all additions to or changes in the Improvements at any time.
"Indebtedness" of any Person shall mean (a) all indebtedness of such
Person for borrowed money, (b) the deferred purchase price of assets or
services that in accordance with GAAP would be shown on the liability side
of the balance sheet of such Person, (c) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder, (d) all indebtedness of a second Person secured by
any Lien on any property owned by such first Person, whether or not such
indebtedness has been assumed, (e) all Capitalized Lease Obligations of
such Person, (f)
<PAGE>
22
all obligations of such Person under interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements and (g) without duplication, all Guarantee Obligations of such
Person, provided that Indebtedness shall not include trade payables and
accrued expenses, in each case arising in the ordinary course of business.
"Indemnified Person" shall mean the Trust Company, in its individual
and its trust capacity, the Agent, the Lessor, the Investors, the Lenders
and their respective successors, assigns, directors, shareholders,
partners, officers, employees, agents and Affiliates.
"Independent Engineer" shall mean any construction engineering firm
reasonably satisfactory to the Agent and the Lessee.
"Initial Closing Date" shall mean September 1, 1999.
"Insurance Requirements" shall mean all terms and conditions of any
insurance policy required by the Lease to be maintained by the Lessee or
required by the Agency Agreement to be maintained by the Construction Agent
and all requirements of the issuer of any such policy.
"Interest Period" shall mean, with respect to any Eurodollar Loan:
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(b) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Eurodollar
Loan and ending one, two, three or six months (if available)
thereafter, as selected by the Borrower by irrevocable notice to the
Agent not less than three Business Days prior to the last day of the
then current Interest Period with respect thereto;
provided that, the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that 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;
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23
(ii) any Interest Period that would otherwise extend beyond the
Maturity Date shall end on the Maturity Date; and
(iii) 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.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended, together with the rules and regulations promulgated
thereunder.
"Investor" shall mean each of Scotiabanc Inc. and any other Person
which becomes an Investor pursuant to Section 11 of the Participation
Agreement.
"Investor Allocation Notice" shall have the meaning defined in the
definition of "Allocated Investor Yield".
"Investor Commitment" shall mean, as to any Investor, the obligations
of the Investor to make Investment Contributions to the Lessor pursuant to
the Participation Agreement in an aggregate amount at any one time not
exceeding the amount set forth opposite such Investor's name on Exhibit D
to the Trust Agreement.
"Investor Commitment Fee" shall mean an amount equal to the product of
(i) the Available Investor Commitment on each Commitment Fee Payment Date
and (ii) .50%.
"Investor Contribution" shall have the meaning specified in Section
2.1 of the Participation Agreement.
"Investor Property Cost" shall mean with respect to a Property an
amount equal to the Investor Contribution attributable to such property
outstanding from time to time, if any.
"Investor Yield" shall mean an amount, as of the last day of each of
March, June, September and December sufficient to provide the Investor with
an annual pre-tax yield on the Investor Contribution as of such date of 125
basis points in excess of (i) the highest rate of interest per annum
payable on any then outstanding Eurodollar Tranche, or (ii) if no
Eurodollar Tranche is then outstanding, the rate of interest per annum on
any then outstanding ABR Loan.
"KKR" shall mean each of Kohlberg Kravis Roberts & Co., L.P. and KKR
Associates, L.P.
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24
"Land" shall mean the parcel or parcels of land described on Schedule
1 of the Lease Supplement for such parcel or parcels of land and all
Appurtenant Rights attached thereto.
"Lease" shall mean the Lease, Security Agreement and Financing
Statement dated as of the Initial Closing Date between the Lessor and the
Lessee, together with any Lease Supplements thereto and Memoranda of Lease,
as amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof or of any other Operative Agreement.
"Lease Default" shall mean any event or condition which, with the
lapse of time or the giving of notice, or both, would constitute a Lease
Event of Default.
"Lease Event of Default" shall have the meaning given to such term in
Section 17.1 of the Lease.
"Lease Supplement" shall mean each Lease Supplement substantially in
the form of Exhibit A to the Lease together with all attachments and
schedules thereto, as such Lease Supplement may be supplemented, amended or
modified from time to time.
"Legal Requirements" shall mean all Federal, state, county, municipal
and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees and injunctions affecting any Property or
the demolition, construction, renovation, use or alteration thereof,
whether now or hereafter enacted and in force, including any that require
repairs, modifications or alterations in or to any Property or in any way
limit the use and enjoyment thereof (including all building, zoning and
fire codes and the Americans with Disabilities Act of 1990, 42 U.S.C. ss.
12101 et seq. and any other similar Federal, state or local laws or
ordinances and the regulations promulgated thereunder) and any that may
relate to environmental requirements (including all Environmental Laws),
and all permits, certificates of occupancy, licenses, authorizations and
regulations relating thereto, and all covenants, agreements, restrictions
and encumbrances contained in any instruments which are either of record or
known to the Lessee affecting any Property, the Appurtenant Rights and any
easements, licenses or other agreements entered into pursuant to Section
12.2 of the Lease.
"Lender Financing Statements" shall mean UCC financing statements
appropriately completed and executed for filing in the appropriate state
and county offices in the State in which each Property is located in order
to perfect a security interest in favor of the Agent in the Equipment
located on any Property, as the same may be supplemented, amended or
modified from time to time.
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25
"Lenders" shall mean the several banks and other financial
institutions from time to time party to the Credit Agreement.
"Lessee" shall mean KinderCare Learning Centers, Inc., a Delaware
corporation, as lessee under the Lease or its successor and assigns.
"Lessor" shall mean The KinderCare Realty Trust 1999, a Delaware
business trust or its successor and assigns.
"Lessor Financing Statements" shall mean UCC financing statements
appropriately completed and executed for filing in the appropriate state
and county offices in the State in which each Property is located in order
to protect the Lessor's interest under the Lease to the extent the Lease is
a security agreement, as the same may be supplemented, amended or modified
from time to time, as the same shall be assigned to the Agent pursuant to
appropriate UCC financing statements.
"Lessor Lien" shall mean any Lien, true lease or sublease or
disposition of title arising as a result of (a) any claim against the
Lessor or the Trust Company, not resulting from the transactions
contemplated by the Operative Agreements, (b) any act or omission of the
Lessor or the Trust Company, which is not required by the Operative
Agreements or is in violation of any of the terms of the Operative
Agreements, (c) any claim against the Lessor or the Trust Company, with
respect to Taxes or Transaction Expenses against which the Lessee is not
required to indemnify the Lessor or the Trust Company, pursuant to the
Participation Agreement or (d) any claim against the Lessor arising out of
any transfer by the Lessor of all or any portion of the interest of the
Lessor in the Property, the Trust Estate or the Operative Agreements other
than the transfer of title to or possession of the Property by the Lessor
pursuant to and in accordance with the Lease, the Credit Agreement or the
Participation Agreement or pursuant to the exercise of the remedies set
forth in Section 17 of the Lease.
"Level I Status" shall mean, on any date, the Consolidated Total Debt
to Consolidated EDITDA Ratio is greater than or equal to 5.50:1.00 as of
such date.
"Level II Status" shall mean, on any date, the circumstance that Level
I Status does not exist and the Consolidated Total Debt to Consolidated
EBITDA Ratio is greater than or equal to 4.50:1.00 as of such date.
"Level III Status" shall mean, on any date, the circumstance that
neither Level I Status nor Level II Status exists and the Consolidated
Total Debt to Consolidated EBITDA Ratio is greater than or equal to
3.50:1.00 as of such date.
<PAGE>
26
"Level IV Status" shall mean, on any date, the circumstance that none
of Level I Status, Level II Status or Level III Status exists and the
Consolidated Total Debt to Consolidated EBITDA Ratio is greater than or
equal to 2.50:1.00 as of such date.
"Level V Status" shall mean, on any date, the circumstance that none
of Level I Status, Level II Status, Level III Status or Level IV Status
exists and the Consolidated Total Debt to Consolidated EBITDA Ratio is less
than 2.50:1.00 as of such date.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, encumbrance, charge or security interest in or on
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement relating to such
asset and (c) in the case of securities, any purchase option, call or
similar right of a third party (excluding rights of first refusal) with
respect to such securities.
"Limited Deficiency Amount" shall mean, with respect to each Property,
the amount equal to the sum of the Termination Value with respect to such
Property on each Payment Date less the Maximum Residual Guarantee Amount as
of such date with respect to such Property.
"Loan Year" shall mean a period of time from the Initial Closing Date
or any anniversary of the Initial Closing Date to the immediately
succeeding anniversary of the Initial Closing Date.
"Loans" shall have the meaning set forth in Section 2.1(a) of the
Credit Agreement.
"Management Group" shall mean, at any time, the Chairman of the Board,
the President, any Executive Vice President or Vice President, the
Treasurer and the Secretary of the Company at such time.
"Margin Stock" shall have the meaning provided in Regulation U.
"Marketing" shall mean, if the Lessee has not given the Maturity Date
Election Notice in accordance with Section 20.2 of the Lease, the period
commencing on the date twelve months prior to the Maturity Date and ending
on the Maturity Date.
"Marketing Period" shall mean, if the Lessee has not given the
Maturity Date Election Notice in accordance with Section 20.2 of the Lease,
the period commencing on the date twelve months prior to the Maturity Date
and ending on the Maturity Date.
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27
"Marketing Period Equity Return" shall mean the total of all amounts
received by the Lessor or the Investor during the Marketing Period with
respect to the Lessee's payment of the Purchase Option Price or the
proceeds of any sale of a Property pursuant to Section 21 of the Lease;
provided that "Marketing Period Equity Return" shall in no event include
any payment made by the Lessee in respect of Investor Yield.
"Material Adverse Change" shall mean any change in the business,
assets, operations, properties or financial condition of the Company and
its Subsidiaries taken as a whole that would materially adversely affect
the ability of the Company and the Guarantors taken as a whole to perform
their obligations under the Operative Agreements taken as a whole.
"Material Adverse Effect" shall mean a circumstance or condition
affecting the business, assets, operations, properties or financial
condition of the Company and its Subsidiaries taken as a whole that would
materially adversely affect (a) the ability of the Company and the
Guarantors taken as a whole to perform their obligations under the
Operative Agreements taken as a whole or (b) the rights and remedies of the
Agent and the Lenders under the Operative Agreements taken as a whole.
"Material Subsidiary" shall mean, at any date of determination, any
Restricted Subsidiary of the Company (a) whose total assets at the last day
of the Test Period ending on the last day of the most recent fiscal period
for which Section 9.1 Financials have been delivered were equal to or
greater than 5% of the consolidated total assets of the Company and the
Restricted Subsidiaries at such date or (b) whose gross revenues for such
Test Period were equal to or greater than 5% of the consolidated gross
revenues of the Company and the Restricted Subsidiaries for such period, in
each case determined in accordance with GAAP.
"Maturity Date" shall mean February 13, 2004.
"Maturity Date Election Notice" shall have the meaning set forth in
Section 20.2 of the Lease.
"Maturity Date Purchase Option" shall mean the Lessee's Purchase
Option to purchase the Property on the Maturity Date in accordance with
Section 20.2 of the Lease.
"Maximum Purchase Option Amount" shall mean 75% of the highest
Termination Value of all Properties owned by the Lessor during the Term.
"Maximum Residual Guarantee Amount" for each Property at any time
shall mean an amount equal to the product of (x) the Tranche A/B Property
Cost in respect of such Property at such time and (y) the Tranche A
Percentage in respect of such Property.
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28
"Memorandum of Ground Lease" shall mean memorandum of any Ground Lease
in form suitable for recording under the laws of the jurisdiction in which
the Land subject to the Ground Lease is located.
"Memorandum of Lease" shall have the meaning set forth in Section 30.8
of the Lease.
"Modifications" shall have the meaning set forth in Section 11.1(a) of
the Lease.
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgage" means each (i) Mortgage and Security Agreement from Lessor
and Lessee to the Agent, substantially in the form of Exhibit D-1 to the
Participation Agreement and (ii) Deed of Trust and Security Agreement from
Lessor and Lessee in favor of the Agent, substantially in the form of
Exhibit D-2 to the Participation Agreement (in form and substance
appropriate for recording), as the same may be supplemented, amended or
modified from time to time. The decision to use the "Mortgage" form or the
"Deed of Trust" form shall be made by Agent with respect to each Property,
and each such form shall be modified as necessary or desirable in Agent's
opinion to comply with all applicable laws and to set forth the provisions
and remedies customarily used by secured lenders with respect to the
applicable jurisdiction in which such instrument is to be recorded.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Net Proceeds" shall mean all amounts paid in connection with any
Casualty or Condemnation, and all interest earned thereon, less the expense
of claiming and collecting such amounts, including all reasonable costs and
expenses in connection therewith for which the Agent or Lessor are entitled
to be reimbursed pursuant to the Lease.
"Net Sale Proceeds Shortfall" shall mean the amount by which the
proceeds of a sale of a Property described in Section 21.1 of the Lease
(net of all expenses of sale) are less than the Limited Deficiency Amount
for such Property.
"Non-Completed Property" shall have the meaning set forth in Section
5.4 of the Agency Agreement.
"Non-Completion Amount" shall mean with respect to a Non-Completed
Property, an amount equal to the sum of (i) 89% of the Termination Value of
the Improvements and (ii) 100% of the Termination Value of the Land.
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29
"Non-Excluded Taxes" shall have the meaning set forth in Section 2.15
of the Credit Agreement.
"Non-U.S. Lender" shall have the meaning set forth in Section 2.14(c)
of the Credit Agreement.
"Notes" shall mean the collective reference to the Tranche A Notes and
the Tranche B Notes.
"Obligations" shall mean the collective reference to (i) the unpaid
principal of and interest on the Notes and all other obligations and
liabilities of the Borrower to the Agent or the Lenders (including interest
accruing at the then applicable rate provided in the Credit Agreement after
the maturity of the Loans and interest accruing at the then applicable rate
provided in the Credit Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the other Credit
Documents or any other document made, delivered or given in connection
therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise (including all
reasonable fees and disbursements of counsel to the Agent or to the Lenders
that are required to be paid by the Borrower pursuant to the terms of the
Credit Agreement or any other Credit Document), (ii) all amounts payable by
the Lessee under the Lease and any of the Operative Agreements (including
indemnities and Commitment Fees) to the Agent and/or the Lenders and the
Lessor and (iii) all amounts owing by the Lessee to the Investor in respect
of accrued and unpaid Investor Yield and outstanding fundings of the
Investor Contribution.
"Officer's Certificate" shall mean a certificate signed by any
individual holding the office of vice president or higher, which
certificate shall certify as true and correct the subject matter being
certified to in such certificate.
"Operative Agreements" shall mean the following:
(a) the Participation Agreement;
(b) the Notes;
(c) the Lease, the Memorandum of Lease and each Lease Supplement;
(d) the Assignment of Lease and each supplemental assignment;
(e) the Consent to Assignment;
(f) the Credit Agreement;
(g) the Mortgage;
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30
(h) the UCC Financing Statements;
(i) the Construction Agreement;
(j) the Contract Assignment;
(k) the Agency Agreement and each Agency Agreement Supplement;
(1) the Guarantee;
(m) the Requisitions; and
(n) the Trust Agreement.
"Outside Completion Date" with respect to each Property shall mean the
earliest of (i) the date which is eighteen (18) months after the
Construction Commencement Date for such Property, as such date may be
extended by up to a total of three (3) months due to the occurrence of one
or more Force Majeure Events, (ii) the Completion Date for such Property
and (iii) the Construction Termination Date.
"Overdue Rate" shall mean (i) with respect to Tranche A Basic Rent,
Tranche B Basic Rent and any other amount owed under or with respect to the
Credit Agreement or the Security Documents, the rate set forth in Section
2.8(c) of the Credit Agreement, (ii) with respect to Investor Yield and the
Investor Contribution, the rate set forth in Section 2.8(c) of the Credit
Agreement and (iii) with respect to any other amount, the amount referred
to in clause (B) of Section 2.8(c) (iii) of the Credit Agreement.
"Participant" shall have the meaning set forth in Section 9.6 of the
Credit Agreement.
"Participation Agreement" shall mean the Participation Agreement dated
as of the Initial Closing Date among the Lessee, the Lessor, the Investors,
the Agent and the Lenders, as it may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof or of any
other Operative Agreement.
"Payment Date" shall mean each Specified Interest Payment Date and any
other date on which a payment is otherwise due under the terms of the
Credit Agreement or, if all amounts due under the Credit Agreement have
been paid in full and the Credit Agreement has been terminated, the first
Business Day of each calendar month during the Term.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Exceptions" shall mean: (i) Liens of the types described in
clauses (i), (ii), (v) and (viii) of the definition of Permitted Liens;
(ii) Liens for Taxes not yet due; and (iii) all encumbrances of record,
exceptions, restrictions, easements, rights of way, servitudes,
encroachments and irregularities in title, other than Liens which, in the
<PAGE>
31
reasonable assessment of the Agent, materially impair the use of the
Property for its intended purpose or its value as Collateral.
"Permitted Liens" shall mean: (i) the respective rights and interests
of the parties to the Operative Agreements as provided in the Operative
Agreements; (ii) the rights of any sublessee or assignee under a sublease
or an assignment expressly permitted by the terms of the Lease; (iii) Liens
for Taxes that either are not yet due or are being contested in accordance
with the provisions of Section 12.2 of the Participation Agreement; (iv)
Liens arising by operation of law, materialmen's, mechanics', workmen's,
repairmen's, employees', carriers', warehousemen's and other like Liens in
connection with any Modifications or arising in the ordinary course of
business for amounts that either are not more than 30 days past due or are
being diligently contested in good faith by appropriate proceedings, so
long as such proceedings satisfy the conditions for the continuation of
proceedings to contest Taxes set forth in Section 12.2(g) of the
Participation Agreement; (v) Liens of any of the types referred to in
clause (iv) above that have been bonded for not less than the full amount
in dispute (or as to which other security arrangements satisfactory to the
Lessor have been made), which bonding (or arrangements) shall comply with
applicable Legal Requirements, and shall have effectively stayed any
execution or enforcement of such Liens; (vi) Liens arising out of judgments
or awards with respect to which appeals or other proceedings for review are
being prosecuted in good faith and for the payment of which adequate
reserves have been provided as required by GAAP or other appropriate
provisions have been made, so long as such proceedings have the effect of
staying the execution of such judgments or awards and satisfy the
conditions for the continuation of proceedings to contest Taxes set forth
in Section 12.2 of the Participation Agreement; (vii) Permitted Exceptions;
and (viii) easements, rights of way and other encumbrances on title to real
property pursuant to Section 12.2 of the Lease.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company,
trust, unincorporated organization, Governmental Authority or any other
entity.
"Plan" shall mean any multiemployer or single-employer plan, as
defined in Section 4001 of ERISA and subject to Title IV of ERISA, that is
or was within any of the preceding five plan years maintained or
contributed to by (or to which there is or was an obligation to contribute
or to make payments of) the Company, a Subsidiary or an ERISA Affiliate.
"Plans and Specifications" shall mean the plans and specifications for
the Improvements to be constructed on the Property, as such Plans and
Specifications may be amended, modified or supplemented from time to time
in accordance with the terms of the Operative Agreements.
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32
"Project Costs" shall mean all costs and expenses incurred by the
Construction Agent or otherwise expended in connection with the acquisition
of any Land and the design, construction and installation of any
Improvements, including Property Acquisition Costs, all professional fees
and other soft costs incurred in connection therewith, Transaction Expenses
and other pre-closing and closing costs incurred by Lessee in connection
with the transactions contemplated by the Operative Agreements and payment
of the interest on the Tranche A Loans and the Tranche B Loans and payment
of the Investor Yield during the Construction Period, as the same are
reflected in the Budget prepared in accordance with the Agency Agreement.
"Projected Completion Value" shall mean the estimated value of any
Improvements assuming such Improvements are completed in accordance with
the Plans and Specifications, as established by an Appraisal.
"Property" shall mean each parcel of Land (including all Appurtenant
Rights attached thereto) to be acquired or ground leased by the Lessor
pursuant to the provisions of the Participation Agreement, as more
particularly described in the Requisition and the Lease Supplement with
respect to such Land, together with all of the Improvements at any time
located on or under such Land or multiple parcels of Land with Improvements
as the context may require.
"Property Acquisition Cost" shall mean the cost to the Lessor to
purchase a Property or, in the case of a Property subject to a Ground
Lease, the initial cost to enter into such Ground Lease, on a Property
Closing Date with respect to such Property, including all professional
fees, and permitting, survey, title, freight and installation costs and
other similar costs.
"Property Closing Certificate" shall mean a certificate executed by
any of the Chief Executive Officer, President, Vice President, Secretary or
Assistant Secretary of Lessee certifying (i) the Tranche A Percentage for
the particular Property and (ii) the Aggregate Tranche A Percentage for the
Properties after giving effect to the acquisition of the particular
Property substantially in the form attached as Exhibit H to the
Participation Agreement.
"Property Closing Date" shall mean each date on which the Lessor
purchases or ground leases any Property.
"Property Cost" shall mean with respect to a Property the aggregate
amount of the Tranche A/B Property Cost allocated to such Property pursuant
to the Credit Agreement, plus the Investor Property Cost for such Property
plus any interest on the Loans and Investor Yield capitalized during the
Construction Period.
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33
"Proportionate Share" shall mean, as to any Investor, the share set
forth opposite such Investor's name on Exhibit D to the Trust Agreement.
"Purchase Notice" shall have the meaning set forth in Section 20.1 of
the Lease.
"Purchase Option" shall have the meaning set forth in Section 20.1 of
the Lease.
"Purchase Option Price" shall have the meaning set forth in Section
20.1 of the Lease.
"Purchasing Lender" shall have the meaning specified in Section 9.7(a)
of the Credit Agreement.
"Reference Lender" shall mean The Chase Manhattan Bank.
"Register" shall have the meaning set forth in Section 9.8(d) of the
Credit Agreement.
"Regulation D" shall mean Regulation D of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
reserve requirements.
"Regulation T" shall mean Regulation T of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and any successor to all or a portion thereof establishing
margin requirements.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental
Rent, in each case payable under the Lease.
"Reportable Event" shall mean any of the events set forth in Section
4043 of ERISA and the regulations thereunder, other than those events as to
which the thirty day notice period is waived.
"Required Investors" shall mean, at any time, an Investor or Investors
holding more than 50% of the Proportionate Share of the Investor
Commitment.
"Required Lenders" shall mean, at any time, the Lenders the Commitment
Percentages of which aggregate more than 50%.
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34
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation, By-Laws, Articles of Association or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation
or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of
its property or to which such Person or any of its property is subject.
"Requisition" shall have the meaning set forth in Section 5.2 of the
Participation Agreement.
"Restricted Domestic Subsidiary" shall mean each Restricted Subsidiary
that is also a Domestic Subsidiary.
"Restricted Foreign Subsidiary" shall mean any Foreign Subsidiary that
is also a Restricted Subsidiary.
"Restricted Subsidiary" shall mean any Subsidiary of the Borrower
other than an Unrestricted Subsidiary.
"S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc.
"Scheduled Interest Payment Date" shall mean (a) as to any ABR Loan,
the last day of each of March, June, September and December as long as such
Loan is outstanding and the Maturity Date, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such
Interest Period and (c) as to any Eurodollar Loan having an Interest Period
longer than three months, each day which is three months after the first
day of such Interest Period and the last day of such Interest Period and,
in addition, in each case the date of any refinancing or conversion of such
Loan with or to a Loan of a different Type.
"Section 9.1 Financials" shall mean the financial statements
delivered, or required to be delivered to the Lenders, pursuant to Section
9.1(a) or (b) of the Corporate Credit Agreement together with the
accompanying officer's certificate delivered, or required to be delivered,
pursuant to Section 9.1 (e) of the Corporate Credit Agreement, as said
Sections have been incorporated by reference in Section 10 of the
Guarantee.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Security Documents" shall mean the collective reference to the
Mortgage, the Deed of Trust, the Lease, the Memorandum of Lease, the
Assignment of Lease and the
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35
Contract Assignment, and all other security documents hereafter delivered
to the Agent granting a Lien on any asset or assets of any Person to secure
the obligations and liabilities of the Lessor under the Credit Agreement
and/or under any of the other Credit Documents or to secure any guarantee
of any such obligations and liabilities.
"Senior Note Indenture" shall mean the Indenture dated as of June 2,
1994, and supplemented as of November 7, 1996, as the same may be further
amended, supplemented or otherwise modified from time to time, between the
Company and AmSouth Bank N.A., as trustee, pursuant to which the Senior
Notes were issued.
"Senior Notes" shall mean the 10-3/8% Senior Notes of the Company due
June 1, 2001 in an initial aggregate principal amount of $100,000,000.
"Shared Rights" shall mean the rights retained by the Lessor, but not
to the exclusion of the Agent, pursuant to Section 8.3(ii) of the Credit
Agreement.
"Significant Casualty" shall mean a Casualty that in the reasonable,
good faith judgment of the Lessee (as evidenced by an Officer's
Certificate) either (a) renders the related Property unsuitable for
continued use as commercial or retail property of the type of such Property
immediately prior to such Casualty or (b) is so substantial in nature that
restoration of such Property to substantially its condition as existed
immediately prior to such Casualty would be impracticable or impossible.
"Significant Condemnation" shall mean a Condemnation that in the
reasonable, good faith judgment of the Lessee (as evidenced by an Officer's
Certificate) either (a) renders the related Property unsuitable for
continued use as commercial or retail property of the type of such Property
immediately prior to such Condemnation or (b) is such that restoration of
such Property to substantially its condition as existed immediately prior
to such Condemnation would be impracticable or impossible.
"SPC" has the meaning specified in Section 9.7(c) of the Credit
Agreement.
"Specified Interest Payment Date" shall mean (a) any Scheduled
Interest Payment Date and (b) any date on which interest is payable
pursuant to Section 2.7(d)(ii) of the Credit Agreement in connection with
any prepayment of the Loans.
"Specified Subsidiary" shall mean, at any date of determination, (a)
any Material Subsidiary or (b) any Unrestricted Subsidiary (i) whose total
assets at the last day of the Test Period ending on the last day of the
most recent fiscal period for which Section 9.1 Financials have been
delivered were equal to or greater than 15% of the consolidated total
assets of the Company and its Subsidiaries at such date or (ii) whose gross
revenues for such Test Period were equal to or greater than 15% of the
consolidated gross revenues of
<PAGE>
36
the Company and its Subsidiaries for such period, in each case determined
in accordance with GAAP.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum reserve percentages
(including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board and any other banking
authority to which the Agent is subject for new negotiable nonpersonal time
deposits in dollars of over $100,000 with maturities approximately equal to
the applicable Interest Period. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
"Status" shall mean, as to the Company as of any date, the existence
of Level I Status, Level II Status, Level III Status, Level IV Status or
Level V Status, as the case may be, on such date. Changes in Status
resulting from changes in the Consolidated Senior Debt to Consolidated
EBITDA Ratio shall become effective (the date of such effectiveness, the
"Status Effective Date") as of the first day following the most recent
fiscal year or period for which (a) Section 9.1 Financials are delivered to
the Lenders and (b) an officer's certificate is delivered by the Company to
the Lenders setting forth, with respect to such Section 9.1 Financials, the
then-applicable Status, and shall remain in effect until the next change to
be effected pursuant to this definition, provided that (i) notwithstanding
the foregoing, for the period from and including the Initial Closing Date
to but excluding the initial Status Effective Date the Status of the
Company shall be deemed to be Level III and (ii) each determination of the
Consolidated Senior Debt to Consolidated EBITDA Ratio pursuant to this
definition shall be made with respect to the Test Period ending at the end
of the fiscal period covered by the relevant financial statements.
"Subsidiary" of any Person shall mean and include (a) any corporation
more than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person directly or indirectly through Subsidiaries and (b) any partnership,
association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries has more than a 50% equity interest at the
time. Unless otherwise expressly provided, all references herein to a
"Subsidiary" shall mean a Subsidiary of the Company.
"Supplemental Rent" shall mean all amounts, liabilities and
obligations (other than Basic Rent) which Lessee assumes or agrees to pay
to Lessor or any other Person
<PAGE>
37
under the Lease or under any of the other Operative Agreements (other than
the Guarantee made by the Guarantors in favor of the Agent).
"Tax Indemnitee" shall mean the Lessor, the Investor, the Trust
Company, the Agent, each Lender and their Affiliates, successors, assignees
and assigns.
"Taxes" shall have the meaning set forth in the definition of
Impositions.
"Term" shall mean the Basic Term.
"Termination Date" shall have the meaning set forth in Section 16.2(a)
of the Lease.
"Termination Notice" shall have the meaning set forth in Section
16.1(a) of the Lease.
"Termination Value" shall mean with respect to all Properties, as of
any determination date, an amount equal to the sum of (i) the aggregate
outstanding principal of the Notes, accrued and unpaid interest on the
Notes and any other amounts due under the Credit Agreement, plus (ii) the
aggregate outstanding amount of the Investor Contributions and all accrued
amounts due on account of the Investor Yield plus (iii) all other amounts
due and owing to the Investor, Agent or Lenders under any Operative
Agreements, including, without limitation, Breakage Costs. "Termination
Value" with respect to a particular Property shall mean an amount equal to
the product of the Termination Value of all the Properties times a
fraction, the numerator of which is the Property Cost allocable to the
particular Property in question and the denominator of which is the
aggregate Property Cost for all the Properties. If it is necessary to
allocate the Termination Value of a Property between Land and Improvements,
the Termination Value shall be allocated prorata between the Land and the
Improvements based on the Property Cost of each of the Land and the
Improvements.
"Test Period" shall mean, for any determination under the Credit
Documents, the four consecutive fiscal quarters of the Company then last
ended.
"Title Company" shall mean Chicago Title Insurance Company, or such
other title insurance company selected by Lessee and reasonably acceptable
to the Agent and the Investor.
"Total Condemnation" shall mean a Condemnation that involves a taking
of Lessor's entire title to a Property.
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38
"Tranche A Basic Rent" shall mean the interest due on the Tranche A
Loans on any Specified Interest Payment Date pursuant to the Credit
Agreement (but not including interest on overdue amounts under Section
2.8(c) of the Credit Agreement or otherwise).
"Tranche A Loan" shall have the meaning set forth in Section 2.3(c) of
the Credit Agreement.
"Tranche A Note" shall have the meaning set forth in Section 2.2 of
the Credit Agreement.
"Tranche A Percentage" shall mean, with respect to a Property, upon
the date on which the Borrower first borrows any Loans in connection with
the payment of Tranche A/B Property Cost for such Property, the maximum
percentage of the Tranche A/B Property Cost in respect of such Property
which may be allocated to Tranche A Loans as of such date without causing
the Lease to be treated as a Capital Lease for the purposes of Statement of
Financial Accounting Standards (SFAS) No. 13, as determined in good faith
by the Lessee and certified to the Agent in accordance with the terms of
the Participation Agreement; provided, however, in no event shall such
percentage be less than 87.0%. The Tranche A Percentage for a Property, as
determined upon the date on which the Borrower first borrows any Loans in
connection with the payment of Tranche A/B Property Cost for such Property,
shall be the Tranche A Percentage for such Property at all times
thereafter. The Land which constitutes a part of a Property shall have a
Tranche A Percentage equal to 100%.
"Tranche A/B Construction Property Cost" shall mean with respect to
each Construction Period Property, at any date of determination, an amount
equal to (a) the aggregate principal amount of Loans made on or prior to
such date with respect to such Property minus (b) the aggregate principal
amount of prepayments of the Loans allocated to reduce the Tranche A/B
Construction Property Cost of such Property pursuant to Section 2.5(d) of
the Credit Agreement.
"Tranche A/B Property Cost" shall mean, with respect to each Property,
at any date of determination, an amount equal to (a) the aggregate
principal amount of Loans made on or prior to such date with respect to
such Property minus (b) the aggregate amount of prepayments of the Loans
allocated to reduce the Tranche A/B Property Cost of such Property pursuant
to Section 2.5(d) of the Credit Agreement.
"Tranche B Basic Rent" shall mean the scheduled interest due on the
Tranche B Loans on any Payment Date pursuant to the Credit Agreement (but
not including interest on overdue amounts under Section 2.8(c) of the
Credit Agreement or otherwise).
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39
"Tranche B Deficit" shall have the meaning specified in Section 9.3 of
the Participation Agreement.
"Tranche B Loan" shall have the meaning set forth in Section 2.3(c) of
the Credit Agreement.
"Tranche B Note" shall have the meaning set forth in Section 2.2 of
the Credit Agreement.
"Tranche B Percentage" shall mean 100% minus the Tranche A Percentage.
"Transaction Expenses" shall mean:
(a) the reasonable out-of-pocket expenses, disbursements or costs
of Agent, Arranger and Lessee incurred in connection with the
consummation of the transactions contemplated by the Operative
Agreements;
(b) the reasonable fees and reasonable out-of-pocket expenses of
the Trust Company in connection with the transactions contemplated by
the Operative Agreements, including, without limitation, the initial
and annual Trust Company's fee and all reasonable fees and reasonable
out-of pocket expenses of the Trust Company and any necessary
co-trustees (including reasonable counsel fees and expenses) or any
successor trustee, for acting as trustee under the Trust Agreement;
(c) the fee payable to Arranger in connection with the
transactions contemplated by the Operative Agreements;
(d) any and all Taxes (to the extent provided in Section 12.2 of
the Participation Agreement) and fees incurred in recording or filing
any Operative Agreement or any other transaction document, any deed,
declaration, deed of trust, security agreement, notice or financing
statement with any public office, registry or governmental agency in
connection with the transactions contemplated by the Operative
Agreements;
(e) any real estate brokers' fees and any and all stamp, transfer
and other similar taxes, fees and excises, if any, including any
interest and penalties, which are payable in connection with the
acquisition of any Property;
(f) all reasonable out-of-pocket costs and expenses incurred in
connection with the enforcement or preservation of any rights under
the Operative Agreements, including, without limitation, the fees and
disbursements of counsel
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40
(including the allocated fees and expenses of in-house counsel) to the
Agent, each Lender and the Investor;
(g) all reasonable out-of-pocket costs and expenses incurred in
connection with any amendment, supplement or modification to the
Operative Agreements requested by the Lessee or any Guarantor and any
other documents prepared in connection therewith, and the consummation
and administration of the transactions contemplated thereby,
including, without limitation, the reasonable fees and disbursements
of counsel to the Agent and the Investor; and
(h) all reasonable out-of-pocket costs and expenses incurred by
the Lessor, the Lessee, the Investor or the Agent in connection with
any purchase of the Property by the Lessee pursuant to the Lease.
"Transferee" shall have the meaning set forth in Section 2.12 of the
Credit Agreement.
"Trust" shall mean the Lessor.
"Trustee" shall have the meaning set forth in the Trust Agreement.
"Trust Agreement" shall mean the Trust Agreement dated as of the
Initial Closing Date between the Investor and the Trust Company as amended,
supplemented and otherwise modified from time to time in accordance with
the terms thereof and of any other Operative Agreement.
"Trust Company" shall mean Wilmington Trust Company, in its individual
capacity, and any successor trustee under the Trust Agreement in its
individual capacity.
"Trust Estate" shall have the meaning set forth in the Trust
Agreement.
"Type" mean, as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
"UCC Financing Statements" shall mean collectively the Lender
Financing Statements and the Lessor Financing Statements.
"Unfunded Amount" shall have the meaning specified in Section 3.2 of
the Agency Agreement.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the present value of the accrued benefits under the Plan as
of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards
<PAGE>
41
No. 87 as in effect on the date hereof, based upon the actuarial
assumptions that would be used by the Plan's actuary in a termination of
the Plan, exceeds the fair market value of the assets allocable thereto.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial
Code as in effect in any applicable jurisdiction.
"Unrestricted Subsidiary" shall mean (a) any Subsidiary of the Company
that is formed or acquired after the Initial Closing Date, provided that at
such time (or promptly thereafter) the Company designates such Subsidiary
an Unrestricted Subsidiary in a written notice to the Agent, (b) any
Restricted Subsidiary on the Initial Closing Date subsequently redesignated
as an Unrestricted Subsidiary by the Company in a written notice to the
Agent, provided that such re-designation shall be deemed to be an
investment on the date of such re-designation in an Unrestricted Subsidiary
in an amount equal to the sum of (i) the net worth of such re-designated
Restricted Subsidiary immediately prior to such redesignation (such net
worth to be calculated without regard to any Guarantee provided by such
re-designated Restricted Subsidiary) and (ii) the aggregate principal
amount of any Indebtedness owed by such re-designated Restricted Subsidiary
to the Company or any other Restricted Subsidiary immediately prior to such
re-designation, all calculated, except as set forth in the parenthetical to
clause (i), on a consolidated basis in accordance with GAAP, and (c) each
Subsidiary of an Unrestricted Subsidiary; provided, however, that (i) at
the time of any written re-designation by the Company to the Agent of any
Unrestricted Subsidiary as a Restricted Subsidiary, the Unrestricted
Subsidiary so re-designated shall no longer constitute an Unrestricted
Subsidiary, (ii) no Unrestricted Subsidiary may be redesignated as a
Restricted Subsidiary if a Default or Event of Default would result from
such re-designation and (iii) no Restricted Subsidiary may be re-designated
as an Unrestricted Subsidiary if a Default or Event of Default would result
from such re-designation. On or promptly after the date of its formation,
acquisition or re-designation, as applicable, each Unrestricted Subsidiary
(other than an Unrestricted Subsidiary that is a Foreign Subsidiary) shall
have entered into a tax sharing agreement containing terms that, in the
reasonable judgment of the Agent, provide for an appropriate allocation of
tax liabilities and benefits.
"Voting Stock" shall mean, with respect to any Person, shares of such
Person's capital stock having the right to vote for the election of
directors of such Person under ordinary circumstances.
"Walk-Away Event" shall mean a Total Condemnation, a Significant
Casualty, Significant Condemnation or an Environmental Violation (with
respect to which however the evaluation of the effect of the Casualty,
Condemnation or Environmental Violation, as appropriate, is made by an
Independent Engineer and not the Lessee) as to a Property that occurs after
the Construction Commencement Date and before the Construction
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42
Period has terminated with respect to such Property that requires the
Lessee to terminate the Lease in accordance with Section 16.
"Wear and Tear Payment" shall have the meaning set forth in Section
2.5(b) of the Credit Agreement.
AGENCY AGREEMENT
AGENCY AGREEMENT, dated as of September 2, 1999 (this "Agreement"),
between THE KINDERCARE REALTY TRUST 1999, a Delaware business trust (the
"Lessor"), and KINDERCARE LEARNING CENTERS, INC., a Delaware corporation (the
"Construction Agent").
Preliminary Statement
The Lessor and KinderCare Learning Centers, Inc. (the "Lessee") are
parties to that certain Lease dated as of the date hereof (as amended,
supplemented or otherwise modified, the "Lease"), pursuant to which the Lessee
has agreed to lease certain properties from the Lessor (the "Properties").
The Lessor and the Lessee are also parties to that certain
Construction Agreement dated as of the date hereof (as amended, supplemented or
otherwise modified, the "Construction Agreement"), pursuant to which the Lessor
has agreed, for the benefit of the Lessee, to cause the construction of the
Improvements in accordance with the Plans and Specifications.
Subject to the terms and conditions hereof, (i) the Lessor desires to
appoint the Construction Agent as its sole and exclusive agent in connection
with the acquisition of the Properties and construction of the Improvements in
accordance with the Plans and Specifications and (ii) the Construction Agent
desires to assume, for the benefit of the Lessor, each of the Lessor's
obligations under the Construction Agreement, including the obligations
thereunder to cause the construction of the Improvements in accordance with the
Plans and Specifications and such other liabilities and obligations as are
herein set forth.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings set forth in Annex A to the Participation
Agreement dated as of the date hereof among Lessor, Lessee, Investor, Agent and
the Lenders.
SECTION 2. APPOINTMENT OF CONSTRUCTION AGENT
2.1 Appointment. Subject to the terms and conditions hereof, the
Lessor hereby irrevocably designates and appoints the Construction Agent as its
exclusive agent in connection with the acquisition from time to time of the
Properties and construction of the
<PAGE>
2
Improvements in accordance with the Plans and Specifications on such Properties,
and pursuant to the terms of the Participation Agreement and the other Operative
Agreements.
2.2 Assumption. The Construction Agent hereby unconditionally assumes,
for the benefit of the Lessor, the performance and satisfaction of all of the
Lessor's obligations under the Construction Agreement.
2.3 Supplements to this Agreement. On the Property Closing Date of
each Property on which Improvements are to be constructed, the Lessor and the
Construction Agent shall each execute and deliver a supplement to this Agreement
in the form of Exhibit A to this Agreement, appropriately completed, pursuant to
which the Lessor and the Construction Agent shall, among other things, each
acknowledge and agree that the construction and development of such Property
will be governed by the terms of this Agreement. Following the execution and
delivery of a supplement to this Agreement as provided above, such supplement
and all supplements previously delivered under this Agreement shall constitute a
part of this Agreement.
2.4 Term. (a) This Agreement shall commence on the date hereof and
shall terminate with respect to any given Property upon the earlier to occur of:
(i) payment by the Lessee of the Termination Value and termination
of the Lease with respect to such Property in accordance with Section
16 of the Lease;
(ii) payment by the Lessee of the Purchase Option Price and
termination of the Lease with respect to such Property in accordance
with Section 20 of the Lease;
(iii) the expiration of the Lease with respect to such Property or
earlier termination of the Lease upon a sale of such Property pursuant
to Section 21.1 of the Lease or otherwise;
(iv) the Completion Date with respect to such Property; and
(v) payment by the Construction Agent of the Construction Risk
Payment with respect to such Property in accordance with Section 5.4
hereof.
provided, however, that any termination of this Agreement with respect to a
Property shall not relieve the Construction Agent from any preexisting
obligation with respect to such Property or with respect to any other Property.
2.5 Scope of Authority. (a) The Lessor hereby expressly authorizes the
Construction Agent to, and the Construction Agent shall take all action
necessary or desirable for the performance and satisfaction of all of the
Lessor's obligations under the Construction Agreement and to fulfill all of the
obligations of the Construction Agent, including, without limitation:
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3
(i) the right to submit Requisitions under the Credit Agreement and
the Participation Agreement and to receive the proceeds of Advances
under the Credit Agreement and to receive the same directly from the
Agent;
(ii) the identification of and assistance with the acquisition of
Properties in accordance with the terms and conditions of the
Participation Agreement provided that such Properties shall be located
only within the United States;
(iii) all design and supervisory functions relating to the
construction of the Improvements and performing all engineering work
related to the construction of the Improvements;
(iv) negotiating and entering into all contracts or arrangements to
procure the equipment necessary to construct the Improvements on such
terms and conditions as are customary and reasonable in light of local
standards and practices;
(v) obtaining all necessary permits, licenses, consents, approvals
and other authorizations, including those required under applicable
Environmental Laws, from all Governmental Authorities in connection
with the development and construction of the Improvements
substantially in accordance with the Plans and Specifications;
(vi) maintaining all books and records with respect to the
construction, operation and management of the Properties, including,
without limitation, the allocation of the Advances among the
Properties so as to maintain an accurate record of each Project Cost;
and
(vii) performing any other acts necessary in connection with the
acquisition of the Properties and construction and development of the
Improvements in accordance with the Plans and Specifications.
(b) Neither the Construction Agent nor any of its Affiliates or agents
shall enter into any contract which would, directly or indirectly, impose any
liability or obligation on the Lessor.
(c) Subject to the terms and conditions of this Agreement, the
Construction Agent shall have sole management and control over the construction
means, methods, sequences and procedures with respect to the construction of the
Improvements.
2.6 Delegation of Duties. The Construction Agent may execute any of
its duties under this Agreement by or through agents, contractors, employees or
attorneys-in-fact; provided that no such delegation shall limit or reduce in any
way the Construction Agent's duties and obligations under this Agreement.
2.7 Covenants of the Construction Agent. The Construction Agent hereby
covenants and agrees that it will:
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4
(a) cause construction of the Improvements on each Property to be
prosecuted diligently and continuously in accordance with the Plans and
Specifications for such Property and in compliance with all Legal
Requirements and Insurance Requirements for use as a child care center;
(b) cause the Completion Date for such Property to occur on or prior
to the Outside Completion Date, free and clear (by removal or bonding) of
Liens (other than Permitted Liens or Lessor Liens) or material claims for
materials supplied or labor and services performed in connection with the
construction of the Improvements;
(c) pay and discharge any and all Project Costs in connection with the
Properties, including, without limitation, the costs of, as applicable,
constructing, equipping and furnishing each of the Properties and payment
of all real estate taxes, insurance premiums and other items payable prior
to Completion of a Property, as the same become due and payable;
(d) following the Completion Date for each Property use reasonable
good-faith efforts to cause all outstanding punch list items with respect
to the Improvements on such Property to be completed;
(e) cause the Improvements on each Property to be constructed for an
amount equal to or less than 110% of the Projected Completion Value with
respect to such Improvements; and
(f) comply fully and punctually with all of the terms, covenants and
conditions on its part to be complied with under the Construction
Agreement.
SECTION 3. THE IMPROVEMENTS
3.1 Amendments; Modifications. (a) The Construction Agent may at any
time revise, amend or modify (i) the Plans and Specifications without the
consent of the Lessor; provided that any such amendment to the Plans and
Specifications does not (x) result in the Completion Date of the Improvements
occurring after the Outside Completion Date and/or (y) result in the Project
Costs of any Improvements subject to such amendment exceeding either (1) the sum
of the then Available Commitments and the then Available Investor Commitment
(reduced by the amount, if any, necessary to pay for the cost of construction
and development of Improvements on other Properties which are currently under
construction but have not yet been completed (such amount, the "Unfunded
Amount")) or (2) 110% of the Projected Completion Value with respect to such
Improvements, and (ii) the Budget; provided that such revisions, amendments or
modifications to the Budget do not result in any increase in the Project Costs
greater than either (1) the sum of the then Available Commitments and the then
Available Investor Commitment (reduced by the Unfunded Amount) or (2) 110% of
the Projected Completion Value with respect to the Improvements.
<PAGE>
5
(b) The Construction Agent agrees that it will not implement any
revision, amendment or modification to the Plans and Specifications for any
Property if the aggregate effect of such revision, amendment or modification
would be to reduce the fair market value of the Property when completed, unless
such revision, amendment or modification is required by Legal Requirements or
Insurance Requirements or unless required to prevent the Improvements from being
constructed in violation of Section 8.2 of the Lease.
SECTION 4. PAYMENT OF FUNDS
4.1 Right to Receive Construction Cost. (i) In connection with the
acquisition of any Property and during the course of the construction of the
Improvements on any Property, the Construction Agent may request that the Lessor
advance funds for the payment of Project Costs, and the Lessor will comply with
such request to the extent provided for under the Participation Agreement. The
Construction Agent and the Lessor acknowledge and agree that the Lessee's right
to request funds and the Lessor's obligation to advance funds for the payment of
Project Costs is subject in all respects to the terms and conditions of the
Participation Agreement and each of the other Operative Agreements.
(ii) The proceeds of any funds made available to the Lessor to pay
Project Costs shall be made available to the Construction Agent or its designee
in accordance with the Requisition relating thereto and the terms of the
Participation Agreement. The Construction Agent will use such proceeds only to
pay the Project Costs set forth in the Requisition relating to such funds.
SECTION 5. EVENTS OF DEFAULT
5.1 Events of Default. If any one or more of the following events
(each, as used in this Agreement, an "Agency Agreement Event of Default") shall
occur:
(a) the Construction Agent fails to apply any funds paid by the Lessor
to the Construction Agent for the acquisition of the Properties and the
construction of the Improvements to the payment of Property Acquisition
Costs or Project Costs;
(b) the Construction Commencement Date with respect to any
Improvements does not occur within six (6) months of the Property Closing
Date for the Land on which such Improvements are to be located (subject to
delay caused by Force Majeure Events, not to exceed three (3) months in the
aggregate);
(c) the Completion Date with respect to any Property shall fail to
occur for any reason on or prior to the Outside Completion Date;
(d) the Construction Agent shall fail to maintain insurance as
required by Section 6 hereof; or
<PAGE>
6
(e) the Construction Agent shall fail to observe or perform any term,
covenant or condition of this Agreement (other than those set forth in
Section 5.1(a), (b), (c) or (d) hereof) and such failure shall remain
uncured for a period of 30 days after written notice thereof from Lessor,
provided that, if such failure is curable but cannot be cured within such
thirty-day period, so long as the Construction Agent is diligently taking
steps to cure such failure, the Construction Agent shall have an additional
period, not to exceed ninety (90) days, in which to cure such failure;
then, in any such event, so long as such event is continuing and subject to
Section 5.3(a) and Section 5.4, the Lessor may, in addition to the other rights
and remedies provided for in this Article, terminate this Agreement by giving
the Construction Agent five (5) days notice of such termination and upon the
expiration of the time fixed in such notice, this Agreement shall terminate and
all rights and obligations of the Construction Agent and the Lessor under this
Agreement shall cease. The Construction Agent shall pay all costs and expenses
incurred by or on behalf of the Lessor, including reasonable fees and expenses
of counsel, as a result of any Agency Agreement Event of Default; provided,
however, that Construction Agent may cure a default under clause (b), (c), (d)
or (e) of Section 5.1 hereof in the event such default relates to a specific
Property by (i) purchasing such Property for its Termination Value and (ii) as
Lessee, terminating the Lease with respect to such Property in accordance with
Section 19.1 of the Lease within ten (10) Business Days of such Agency Agreement
Event of Default.
5.2 Damages. The termination of this Agreement pursuant to Section 5.1
shall in no event relieve the Construction Agent of its liability and
obligations hereunder, all of which shall survive any such termination.
5.3 Remedies; Remedies Cumulative. (a) If an Agency Agreement Event of
Default shall have occurred and be continuing, the Lessor shall have all rights
available at law, equity or otherwise. Notwithstanding the foregoing, the
Construction Agent shall have the right to cure an Agency Agreement Event of
Default hereunder with respect to any given Property by purchasing such Property
from the Lessor for the Termination Value for such Property.
(b) No failure to exercise and no delay in exercising, on the part of
the Lessor, any right, remedy, power or privilege under this Agreement or under
any other Operative Agreement shall operate as a waiver thereof nor shall any
single or partial exercise of any right, remedy, power or privilege under this
Agreement preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided in this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
5.4 Limitation on Remedies. Notwithstanding any provision in this
Agreement or any other Operative Agreement to the contrary, if an Agency
Agreement Event of Default described in Section 5.1(c) or resulting from a
default under Section 2.7 hereof shall have occurred (such Agency Agreement
Event of Default, a "Construction Risk Event") and no other Event of Default has
occurred and is continuing, the Construction Agent shall either (i)(A) arrange
for the sale of the applicable Property (a "Non-Completed Property") on behalf
of the
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7
Lessor to a third party in an arms length transaction, such sale to close within
90 days after the occurrence of such Construction Risk Event, and pay to the
Lessor an amount (the "Construction Risk Payment") equal to the sum of (1) the
Non-Completion Amount for such Non-Completed Property and (2) the net proceeds
realized by the Lessor from the sale of such Non-Completed Property (provided
that if such sale does not occur within such 90-day period, such sale shall be
deemed to have occurred on the 90th day and the net proceeds shall be deemed to
be $1.00), but not in excess of the Termination Value for such Non-Completed
Property, and shall also pay all costs and expenses attributable to the sale of
such Non-Completed Property, including, without limitation, fees and
disbursements of counsel to the Lessor and (B) satisfy each of the conditions
set forth in Section 10.1 of the Lease; or (ii) purchase such Non-Completed
Property from the Lessor for Termination Value for such Non-Completed Property
within 90 days after the occurrence of such Construction Risk Event. Any sale of
the Non-Completed Property pursuant to clause (A) above shall be subject to the
approval of the Agent if the Construction Risk Payment with respect thereto is
not equal to or greater than the Termination Value with respect to such
Non-Completed Property; provided, however, that no withholding of approval by
the Agent shall result in the Construction Agent's liability hereunder for any
amount in excess of the NonCompletion Amount. The payment by the Construction
Agent of either amount set forth in the first sentence of this Section 5.4 shall
satisfy the liability of the Lessee under the Lease for any Lease Event of
Default occurring prior to the Completion Date with respect to a Construction
Period Property that is caused by an event that is also an Agency Agreement
Event of Default. The limitation of Construction Agent's liability contained in
this Section 5.4 shall in no event constitute a limitation on Lessee's liability
under Section 12 of the Participation Agreement.
SECTION 6. INSURANCE
The Construction Agent shall procure insurance for the Improvements
during the Construction Period in accordance with the following provisions:
6.1 Public Liability and Workers' Compensation Insurance. The
Construction Agent shall procure and carry, commercial general liability
insurance for claims for injuries or death sustained by persons or damage to
property while on the Properties. Such general liability insurance shall be on
terms and in amounts that are no less favorable than insurance maintained by the
Construction Agent with respect to similar properties that it constructs. The
commercial general liability insurance policy shall be endorsed to name the
Lessor, the Trust Company, the Investor, the Agent and the Lenders as additional
insureds. Each policy shall also specifically provide that the policy shall be
considered primary insurance which shall apply to any loss or claim before any
contribution by any insurance which such parties may have in force. The
Construction Agent shall, in the operation of the Properties, comply with the
applicable workers' compensation laws and protect the Lessor against any
liability under such laws.
6.2 Hazard and Other Insurance. The Construction Agent shall keep, or
cause to be kept, the Improvements and building materials insured against loss
or damage by fire and other risks on terms and in amounts that are no less
favorable than insurance covering other similar properties constructed and
developed by the Construction Agent and that are in
<PAGE>
8
accordance with normal industry practice. Notwithstanding the foregoing, during
the Construction Period for any Property, the Construction Agent will maintain
builder's risk insurance providing for replacement cost coverage and deductibles
not to exceed $1,000 (subject to (i) deductibles described in Section 6.3 with
respect to earthquake insurance and (ii) a deductible of the greater of 2% of
the value of the Property or $25,000 for flood and coastal wind coverage). So
long as no Event of Default has occurred and is continuing, any loss payable
under the insurance policy required by this Section will be paid to and adjusted
solely by the Construction Agent.
6.3 Additional Coverage. The Lessor, in its sole discretion, may
require the Construction Agent to carry, during the Construction Period, with
respect to any Construction Period Property, additional insurance, including
broad form fire and casualty and condemnation and earthquake coverage.
Notwithstanding the foregoing, during the Construction Period for any Property,
the amount of such earthquake insurance shall at all times equal or exceed an
aggregate of $5,000,000 for Construction Period Properties, with a deductible of
not greater than 2% of the value of the Property or $25,000, whichever is
greater, and an aggregate of $15,000,000 for all properties operated by the
Company (including the Properties). The Lessor may reasonably request the
Construction Agent to revise its determinations regarding probable maximum loss.
The Lessor may request, at its sole discretion, that an independent consultant
review the Construction Agent's determinations regarding probable maximum loss.
6.4 Extent of Coverage. The Construction Agent agrees that it shall
furnish the Lessor with certificates or, if requested by the Lessor, copies of
policies showing the insurance required to be in effect under Sections 6.1(a),
6.2 and 6.3 and naming the Lessor, the Owner Trustee, the Investor, the Agent
and the Lenders as additional insureds and showing the mortgagee endorsement in
favor of the Agent required by this Section 6.4. All such insurance shall be at
the cost and expense of the Construction Agent. Such certificates shall include
a provision for 30 days' advance written notice by the insurer to the Lessor in
the event of a cancellation of such insurance. The Construction Agent agrees
that the insurance policy or policies required by Sections 6.1(a), 6.2 and 6.3
shall include an appropriate clause pursuant to which such policy shall provide
that it will not be invalidated should the Construction Agent waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. The Construction Agent hereby waives any and all such
rights against the Lessor, the Trust Company, the Investor, the Agent and the
Lenders to the extent of payments made under such policies. All property
insurance policies required by Section 6.2 and 6.3 shall include a "New York" or
standard form mortgagee endorsement in favor of the Agent. The Lessor may
carry separate liability insurance, at its own expense, so long as (i) the
Construction Agent's insurance is designated as primary and in no event excess
or contributory to any insurance the Lessor may have in force which would apply
to a loss covered under the Construction Agent's policy and (ii) each such
insurance policy will not cause the Construction Agent's insurance required
under Section 6 to be subject to a co-insurance exception of any kind. The
Construction Agent shall pay as they become due all premiums for the insurance
required by Sections 6.1, 6.2 and 6.3, shall renew or replace each policy prior
to the expiration date thereof and shall promptly deliver to the Lessor and the
Agent certificates for renewal and replacement policies. Notwithstanding
anything in this Section 6.4 to the contrary, any insurance which the
<PAGE>
9
Construction Agent is required to obtain and maintain pursuant to Sections 6.1,
6.2 and 6.3 may be carried under "blanket" and umbrella covering other
properties and liabilities of the Construction Agent. Notwithstanding anything
contained herein or in any other Operative Agreement to the contrary, the
Construction Agent shall have the right to maintain insurance deductibles
consistent with its current program.
SECTION 7. LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS
7.1 Exercise of the Lessor's Rights. Subject to the terms of the
Contract Assignment made by the Lessor in favor of the Agent, the Construction
Agent hereby acknowledges and agrees that the rights and powers of the Lessor
under this Agreement have been assigned to the Agent.
7.2 Lessor's Right to Cure Construction Agent's Defaults. Upon written
notice to the Construction Agent, except in emergencies, the Lessor, without
waiving or releasing any obligation or Agency Agreement Event of Default, may
(but shall be under no obligation to) remedy any Agency Agreement Event of
Default hereunder for the account of and at the sole cost and expense of the
Construction Agent. All out of pocket costs and expenses so incurred (including
reasonable fees and expenses of counsel), together with interest thereon at the
Overdue Rate from the date on which such sums or expenses are paid by the
Lessor, shall be paid by the Construction Agent to the Lessor on demand.
SECTION 8. MISCELLANEOUS
8.1 Notices. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to any Person to be
effective shall be in writing (including by facsimile transmission) and shall be
deemed to have been duly given or made (a) when delivered by hand, (b) three
Business Days after being deposited in the mails, certified or registered with
appropriate postage prepaid, (c) one Business Day after delivery to a nationally
recognized courier service specifying overnight delivery or (d) in the case of
facsimile notice, when sent and receipt has been confirmed, addressed to such
Person as indicated:
If to the Lessor, to it at:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Fax: (302) 651-1000
<PAGE>
10
If to the Construction Agent, to it at:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: Chief Financial Officer
Fax: (503) 872-1349
with copies to:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: General Counsel
Fax: (503) 872-1391
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attn: Gary R. Barnum
Fax: (503) 220-2480
KinderCare Learning Centers, Inc.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils Brous
Fax: (212) 750-0003
From time to time any party may designate a new address for purposes
of notice hereunder by notice to each of the other parties hereto.
8.2 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Lessor, the Construction Agent and their respective
successors and assigns.
8.3 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES.
8.4 Amendments and Waivers. The Lessor and the Construction Agent may
from time to time, enter into written amendments, supplements or modifications
hereto.
<PAGE>
11
8.5 Counterparts. This Agreement may be executed on any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.6 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.7 Headings and Table of Contents. The headings and table of contents
contained in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
KINDERCARE LEARNING CENTERS, INC.
By: DAN R. JACKSON
-------------------------------------
Name: Dan R. Jackson
Title: Vice President
Financial Control & Planning
THE KINDERCARE REALTY TRUST 1999
By: WILMINGTON TRUST COMPANY, not
in its individual capacity but
solely as Trustee
By: JILL K. MORRISON
---------------------------------
Name: Jill K. Morrison
Title: Financial Services Officer
GUARANTEE
GUARANTEE dated as of September 2, 1999, made by KINDERCARE LEARNING
CENTERS, INC., a Delaware corporation (the "Company") and the other parties
hereto, as joint and several guarantors hereunder (together with the Company and
any other Subsidiary of the Company that may become a party hereto as provided
herein, the "Guarantors" and individually, a "Guarantor"), in favor of the
Beneficiaries (as hereinafter defined).
Preliminary Statement
The Guarantors wish to induce (i) THE KINDERCARE REALTY TRUST 1999
(the "Lessor") to enter into the Lease and the other Operative Agreements to
which it is a party; (ii) the Lenders to enter into the Credit Agreement and the
other Operative Agreements to which they are party; and (iii) SCOTIABANC INC.
(the "Investor") to enter into the Participation Agreement (as hereinafter
defined) and the other Operative Agreements to which they are party.
NOW, THEREFORE, in consideration of the premises contained herein and
to induce (i) the Lessor to enter into the Lease and the other Operative
Agreements to which it is a party; (ii) the Lenders to enter into the Credit
Agreement and the other Operative Agreements to which they are party; and (iii)
the Investor to enter into the Participation Agreement and the other Operative
Agreements to which it is a party, the Guarantors hereby agree for the benefit
of the Lessor, the Agent, for the ratable benefit of the Lenders, and the
Investor and their respective successors and assigns (individually a
"Beneficiary", collectively, the "Beneficiaries"), as follows:
1. Defined Terms. (a) Capitalized terms not otherwise defined herein
(including in the Preliminary Statement) shall have the meanings ascribed to
them in Annex A to the Participation Agreement dated as of the date hereof among
Kindercare Learning Centers, Inc. (the "Lessee"), the Lessor, the Investor, the
Trust Company, The Chase Manhattan Bank, as agent (the "Agent") and the several
banks and financial institutions from time to time party thereto (the
"Lenders"), as the same may from time to time be amended, supplemented or
otherwise modified (the "Participation Agreement").
(b) As used herein, the following terms shall have the following
meanings:
"Contribution Obligations" means the collective reference to the
outstanding amount of the Investor Contributions and the Investor Yield with
respect thereto and all rights of the Investor to receive distributions under
the Trust Agreement and any of the other Operative Agreements.
"Guaranteed Obligations" means the collective reference to (i)
the Note Obligations, (ii) the Contribution Obligations and (iii) the Lease
Obligations and, with respect to each such obligation, interest accruing thereon
at the applicable rate provided in the Operative
<PAGE>
2
Agreements after maturity and interest accruing at the then applicable rate
provided in the Operative Agreements after the filing of any petition in
bankruptcy, or the commencement of an insolvency, reorganization or like
proceeding, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding and whether such obligations are direct or indirect,
absolute or contingent, due or to become due, or now existing or hereinafter
incurred, which may arise, under, out of or in connection with any of the
Operative Agreements, any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, Investor
Contributions or Investor Yield, reimbursement obligations, fees, indemnities,
costs, expenses, or payment obligations (including, without limitation, all fees
and disbursements of counsel to any of the Beneficiaries).
"Lease Obligations" means the collective reference to the payment
obligations and undertakings applicable to the Lessee contained in or arising
under the Lease or any of the other Operative Agreements to which the Lessee is
a party, including, but not limited to, the full and punctual payment by the
Lessee, when due, of any and all Rent, the payments required pursuant to Section
17.2 of the Lease, the Purchase Option Price and the Maximum Residual Guarantee
Amount.
"Note Obligations" means the collective reference to the unpaid
principal of and interest on the Notes and all other payment obligations and
liabilities of the Lessor to the Agent and the Lenders under the Notes, the
Credit Agreement and any of the other Operative Agreements.
2. Guarantee. (a) Subject to the provisions of paragraph 2(b), (c) and
(d), the Guarantors hereby, jointly and severally, unconditionally and
irrevocably guaranty to the Beneficiaries and their respective successors,
endorsees, transferees and assigns the prompt and complete payment when due
(whether at the stated maturity, by acceleration or otherwise) of the Guaranteed
Obligations.
(b) Anything to the contrary notwithstanding, (i) if a Construction
Risk Event has occurred and if no other Lease Event of Default or Lease Default
has occurred and is continuing at such time, the obligations of the Guarantors
hereunder shall be limited to the Note Obligations in the amount of the
Non-Completion Amount and (ii)(A) if no Lease Event of Default or Lease Default
on the Maturity Date has occurred and is continuing, the obligations of the
Guarantors hereunder shall be limited to the unpaid principal of and interest on
the Tranche A Notes and (B) if any (x) Lease Event of Default or (y) on the
Maturity Date, any Lease Default (other than or in addition to a Construction
Risk Event) has occurred and is continuing, the Guarantors shall be liable for
the Guaranteed Obligations.
(c) Without affecting any of the Construction Agent's obligations
under Section 5.4 of the Agency Agreement, anything to the contrary
notwithstanding, this Guarantee shall not include any Construction Period
Amount.
(d) Anything herein or in any other Operative Agreement to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Operative Agreement shall in no event exceed the amount which
can be guaranteed by such Guarantor under applicable federal and state laws
relating to the insolvency of debtors.
<PAGE>
3
(e) Each Guarantor further agrees to pay any and all expenses
(including, without limitation, all fees and disbursements of counsel) which may
be paid or incurred by any Agent, Lender or Investor in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any
or all of the Guaranteed Obligations and/or enforcing any rights with respect
to, or collecting against, such Guarantor under this Guarantee. This Guarantee
shall remain in full force and effect until the Guaranteed Obligations are paid
in full and the Commitments are terminated, notwithstanding that from time to
time prior thereto the Borrower may be free from any Guaranteed Obligations.
(f) Each Guarantor agrees that the Guaranteed Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing this Guarantee or affecting the rights and remedies
of the Agent or any Beneficiary hereunder.
(g) No payment or payments made by the Borrower, any of the
Guarantors, any other guarantor or any other Person or received or collected by
the Agent or any Beneficiary from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Guaranteed Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment or payments (other than
payments made by such Guarantor in respect of the Guaranteed Obligations or
payments received or collected from such Guarantor in respect of the Guaranteed
Obligations), remain liable for the Guaranteed Obligations up to the maximum
liability of such Guarantor hereunder until the Guaranteed Obligations are paid
in full and the Commitments are terminated.
3. Right of Set-off. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, the Agent and each Beneficiary is hereby authorized at any time or from
time to time, without presentment, demand, protest or other notice of any kind
to the Borrower, any Guarantor or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special) and any other Indebtedness at any time held or
owing by the Agent or such Beneficiary (including, without limitation, by
branches and agencies of the Agent or such Beneficiary wherever located) to or
for the credit or the account of such Guarantor against and on account of the
obligations and liabilities of such Guarantor hereunder or under any of the
other Operative Agreements, and all other claims of any nature or description
arising out of or connected with this Guarantee or any other Operative
Agreement, irrespective of whether the Agent or such Beneficiary shall have made
any demand hereunder and although said obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
4. No Subrogation. Notwithstanding any payment or payments made by the
Guarantors hereunder or any set-off or application of funds of the Guarantors by
any Beneficiary, no Guarantor shall be entitled to exercise or enforce any
subrogation rights of the Agent or any Beneficiary against the Borrower or any
other Person or any collateral security or guarantee or right of offset held by
the Agent or any Beneficiary for the payment of the Guaranteed Obligations, nor
shall any Guarantor seek or be entitled to seek any contribution or
<PAGE>
4
reimbursement from the Borrower or any other Person in respect of payments made
by such Guarantor hereunder, until all amounts owing to the Agent and the
Beneficiaries by the Borrower on account of the Guaranteed Obligations and all
amounts owing hereunder are paid in full and the Commitments are terminated. If
any amount shall be paid to any Guarantor on account of such subrogation rights
at any time when all of the Guaranteed Obligations and all amounts owing
hereunder shall not have been paid in full or the Commitments shall not have
been terminated, such amount shall be held by such Guarantor in trust for the
Agent and the Beneficiaries, segregated from other funds of such Guarantor, and
shall, forthwith upon receipt by such Guarantor, be turned over to the Agent in
the exact form received by such Guarantor (duly indorsed by such Guarantor to
the Agent, if required), to be applied against the Guaranteed Obligations,
whether matured or unmatured, in such order as the Agent may determine.
5. Amendments, etc. with respect to the Guaranteed Obligations; Waiver
of Rights. The Guarantors shall remain obligated hereunder notwithstanding that,
without any reservation of rights against the Guarantors and without notice to
or further assent by the Guarantors, any demand for payment of any of the
Guaranteed Obligations made by the Agent or any Beneficiary may be rescinded by
such party and any of the Guaranteed Obligations continued, and the Guaranteed
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Agent or any Beneficiary, and the Credit Agreement, the Participation
Agreement and the other Operative Agreements may be amended, modified,
supplemented or terminated, in whole or in part, as the Agent (or the Required
Lenders or Required Investors, as the case may be) may deem advisable from time
to time in accordance with the terms thereof, and any collateral security,
guarantee or right of offset at any time held by the Agent or any Beneficiary
for the payment of the Guaranteed Obligations may be sold, exchanged, waived,
surrendered or released. Neither the Agent nor any Beneficiary shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Guaranteed Obligations or for this Guarantee or any property
subject thereto. When making any demand hereunder against the Guarantors, the
Agent or any Beneficiary may, but shall be under no obligation to, make a
similar demand on the Borrower or any other guarantor, and any failure by the
Agent or any Beneficiary to make any such demand or to collect any payments from
the Borrower or any other guarantor or any release of the Borrower or such other
guarantor shall not relieve the Guarantors from their obligations under this
Guarantee, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of the Agent or any Beneficiary against the
Guarantors. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Agent or any
Beneficiary upon this Guarantee or acceptance of this Guarantee, the Guaranteed
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Guarantee; and all dealings between the Borrower and such Guarantor,
on the one hand, and the Agent and the Beneficiaries, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment
<PAGE>
5
to or upon the Borrower or such Guarantor with respect to the Guaranteed
Obligations except for notices specifically required by the Operative
Agreements. Each Guarantor understands and agrees that this Guarantee shall be
construed as a continuing, absolute and unconditional guarantee and surety of
payment without regard to (a) the validity, regularity or enforceability of the
Credit Agreement or any other Operative Agreement, any of the Guaranteed
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by the Agent
or any Beneficiary, (b) any defense, set-off or counterclaim (other than a
defense of payment or performance) which may at any time be available to or be
asserted by the Borrower or such Guarantor against the Agent or any Beneficiary,
or (c) any other circumstance whatsoever (with or without notice to or knowledge
of the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Guaranteed
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Agent and any Beneficiary may, but shall be under no obligation
to, pursue such rights and remedies as it may have against the Borrower or any
other Person or against any collateral security or guarantee for the Guaranteed
Obligations or any right of offset with respect thereto, and any failure by the
Agent or any Beneficiary to pursue such other rights or remedies or to collect
any payments from the Borrower or any such other Person or to realize upon any
such collateral security or guarantee or to exercise any such right of offset,
or any release of the Borrower or any such other Person or any such collateral
security, guarantee or right of offset, shall not relieve such Guarantor of any
liability hereunder, and shall not impair or affect the rights and remedies,
whether express, implied or available as a matter of law, of the Agent and the
Beneficiaries against such Guarantor. This Guarantee shall remain in full force
and effect and be binding in accordance with and to the extent of its terms upon
such Guarantor and the successors and assigns thereof, and shall inure to the
benefit of the Agent and the Beneficiaries, and their respective successors,
indorsees, transferees and assigns, until all the Guaranteed Obligations and the
obligations of such Guarantor under this Guarantee shall have been satisfied by
payment in full and the Commitments and Investor Commitments shall be
terminated, notwithstanding that from time to time during the term of the Credit
Agreement, Lease and other Operative Agreements the Borrower may be free from
any Guaranteed Obligations.
7. Reinstatement. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Guaranteed Obligations is rescinded or must otherwise be restored or
returned by the Agent or any Beneficiary upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or the Guarantors, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or the Guarantors or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
8. Payments. The Guarantors hereby guarantee that payments hereunder
will be paid to the Agent without set-off or counterclaim in Dollars at the
office of the Agent located at 270 Park Avenue, New York, New York 10017.
9. Representations and Warranties. In order to induce the Lenders to
enter into the Credit Agreement and to make the Loans, the Investor to enter
into the Participation Agreement and make the Investor Contribution and the
Lessor to enter into the Lease, the
<PAGE>
6
Company hereby represents and warrants to the Beneficiaries that each of the
representations and warranties of the Company set forth in the Participation
Agreement is true and correct in all material respects and agrees that each of
such representations and warranties shall survive the execution and delivery of
this Guarantee, the Credit Agreement, the Lease, the Participation Agreement and
the making of the Loans and Investor Contribution.
10. Covenants. (a) The Company hereby covenants and agrees that so
long as this Guarantee is in effect and until the Commitments have terminated
and the Guaranteed Obligations and all amounts owing hereunder are paid in full,
the Company will, and will cause its Subsidiaries to, comply with all of the
covenants set forth in Section 9 and Section 10 of the Corporate Credit
Agreement, as such covenants exist on the date hereof, which covenants are
hereby expressly incorporated by reference in this Guarantee as though set forth
in full in this Guarantee, mutatis mutandis. Capitalized terms used in said
Section 9 and Section 10 shall have the meanings given to such terms in Section
1 of the Corporate Credit Agreement, except that all references in said Sections
to the "Borrower" shall mean the "Company", to the "Administrative Agent" shall
mean the "Agent", to the "Lenders" shall mean the "Investors and Lenders party
to the Participation Agreement" to the "Credit Documents" shall mean the
"Operative Agreements". The covenants set forth in said Section 9 and Section 10
are incorporated herein as they exist on the date hereof and no amendment,
supplement, waiver or other modification, including termination or replacement
of the Corporate Credit Agreement, shall be effective for purposes of this
Section 10(a) without the majority consent of the Lenders and Investors,
collectively, each Lender and Investor having a vote proportionate to its share
of the sum of Commitments plus Investor Commitments.
(b) The Company will cause any entity that becomes a guarantor to the
Corporate Credit Agreement after the Initial Closing Date to execute a
supplement to this Guarantee, in form and substance reasonably satisfactory to
the Agent, in order to become a Guarantor.
11. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made (a) when delivered by hand, (b) one Business Day
after delivery to a nationally recognized courier service specifying overnight
delivery, (c) three Business Days after being deposited in the mail, postage
prepaid, or (d) in the case of telecopy notice, when sent, confirmation of
receipt received, addressed as follows:
(a) if to the Agent or any Lender or Investor, at its address or
telecopy number for notices provided in Section 9.2 of the Credit
Agreement; and
(b) if to any Guarantor, at its address or telecopy number for notices
set forth below:
<PAGE>
7
The Company
and the other
Guarantors: KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: Chief Financial Officer
Fax: (503) 872-1349
With a copy to: KinderCare Learning Centers, Inc.
650 Holladay, Suite 1400
Portland, Oregon 97232
Attention: General Counsel
Fax: (503) 872-1391
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attn: Gary R. Barnum
Fax: (503) 220-2480
KinderCare Learning Centers, Inc.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils Brous
Fax: (212) 750-0003
The Agent, each Beneficiary and each Guarantor may change its address
and transmission numbers for notices by notice in the manner provided in this
Section 11.
12. Severability. Any provision of this Guarantee which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Integration. This Guarantee and the other Operative Agreements
represents the agreement of the Guarantors with respect to the subject matter
hereof and there are no promises or representations by the Agent or any
Beneficiary relative to the subject matter hereof not reflected herein or in the
other Operative Agreements.
14. Amendments in Writing; No Waiver; Cumulative Remedies (a) None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantors
and the Agent as provided in Section 9.1 of the Credit Agreement and the
Required Investors.
<PAGE>
8
(b) Neither the Agent nor any Lender shall not by any act (except by a
written instrument pursuant to Section 14(a) hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Beneficiary, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Agent or any Beneficiary of any right or remedy hereunder on any
one occasion shall not be construed as a bar to any right or remedy which the
Agent or such Beneficiary would otherwise have on any future occasion.
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
15. Section Headings. The section headings used in this Guarantee are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Guarantee shall be binding upon the
successors and assigns of the Guarantors and shall inure to the benefit of the
Agent and the Beneficiaries and their successors and assigns.
17. SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH GUARANTOR HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ALL LEGAL ACTIONS OR
PROCEEDINGS RELATING TO THIS GUARANTEE OR ANY OTHER OPERATIVE AGREEMENT TO
WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE SUPREME
COURT OF THE STATE OF NEW YORK, AND THE APPELLATE COURTS THEREOF AND WAIVES
THE RIGHT TO REMOVE ANY SUCH ACTION OR PROCEEDING TO ANY FEDERAL COURT;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURT, WAIVES ANY OBJECTION THAT IT MAY HAVE NOW OR HEREAFTER TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND WAIVES ANY
OBJECTION THAT SUCH ACTION OR PROCEEDING IN ANY SUCH COURT WAS BROUGHT IN
AN INCONVENIENT FORUM AND AGREES NOT TO PLEAD, CLAIM OR ASSERT THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED
OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID TO, OR BY PERSONAL SERVICE AT, ITS ADDRESS SET FORTH HEREIN OR SUCH
OTHER ADDRESS
<PAGE>
9
OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT HERETO, WHETHER OR NOT
SUCH ADDRESS BE WITHIN THE JURISDICTION OF ANY SUCH COURT;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE AGENT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO
IN THIS SECTION 17 ANY SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES.
(b) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTEE OR ANY
OTHER OPERATIVE AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
(c) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES THE
RIGHT TO ASSERT, ARGUE OR RAISE, IN ANY ACTION BROUGHT BY THE AGENT AGAINST EACH
GUARANTOR UNDER THIS GUARANTEE, THAT THE AGENT OR THE BENEFICIARIES STRUCTURED
THE TRANSACTION CONTEMPLATED BY THE OPERATIVE AGREEMENTS IN SUCH A MANNER
PRIMARILY TO CIRCUMVENT THE CALIFORNIA ONE-FORM-OF-ACTION AND ANTI-DEFICIENCY
LAWS, INCLUDING CALIFORNIA CODE OF CIVIL PROCEDURE ss.ss. 580a, 580b, 580d AND
726.
(d) Each Guarantor hereby waives all of the Guarantors' rights of
subrogation and reimbursement and any other rights and defenses available to
each Guarantor by reason of California Civil Code Sections 2787 to 2855,
inclusive, including (a) any defenses each Guarantor may have to the obligations
undertaken by each Guarantor in this Guaranty by reason of an election of
remedies by any Beneficiary, and (b) any rights or defenses each Guarantor may
have by reason of protection afforded to Borrower with respect to the
obligations guaranteed hereby pursuant to the antideficiency or other laws of
the State of California limiting or discharging Borrower's indebtedness,
including California Code of Civil Procedure Section 580a, 580b, 580d or 726.
Each Guarantor's waiver of defenses under clause (c) above is made even though
an election of remedies by Beneficiary, such as a nonjudicial foreclosure with
respect to security for a guaranteed obligation, destroys each Guarantor's
rights of subrogation and reimbursement against Borrower by the operation of
California Code of Civil Procedure Section 580d or otherwise. The foregoing
waivers shall not be deemed a waiver of the defense that the Obligations have
been paid or the Commitments reduced.
18. GOVERNING LAW. AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING
5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT EXCLUDING TO THE
MAXIMUM EXTENT
<PAGE>
10
PERMITTED BY LAW ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES).
19. Authority of Agent. Each Guarantor acknowledges that the rights
and responsibilities of the Agent under this Guarantee with respect to any
action taken by the Agent or the exercise or non-exercise by the Agent of any
option, right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guarantee shall, as between the Agent and the
any Beneficiary, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and each Guarantor, the Agent shall be conclusively
presumed to be acting as agent for the Lenders with full and valid authority so
to act or refrain from acting, and no Guarantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.
20. Third Party Beneficiaries. Each Guarantor expressly acknowledges
and agrees that, to the extent not a direct beneficiary hereof, each Indemnified
Person shall be a third party beneficiary of this Guarantee.
21. Right of Contribution. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of any
payment made hereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder who has not paid its
proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 4 hereof. The provisions
of this Section shall in no respect limit the obligations and liabilities of any
Guarantor to Beneficiaries and each Guarantor shall remain liable to the
Beneficiaries for the full amount guaranteed by such Guarantor hereunder.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Guarantee to be
duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
KINDERCARE LEARNING CENTERS, INC.
By: DAN R. JACKSON
-------------------------------------
Title: Vice President
Financial Control & Planning
KINDERCARE REAL ESTATE CORP.
By: DAN R. JACKSON
-------------------------------------
Title: Vice President & Treasurer
KC DEVELOPMENT CORP.
By: DAN R. JACKSON
-------------------------------------
Title: Vice President & Treasurer
================================================================================
LEASE, SECURITY AGREEMENT AND FINANCING STATEMENT
between
THE KINDERCARE REALTY TRUST 1999
as Lessor,
and
KINDERCARE LEARNING CENTERS, INC.,
as Lessee
---------------------------
Dated as of September 2, 1999
---------------------------
================================================================================
THIS LEASE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN
BANK, AS AGENT (THE "AGENT"), UNDER A CREDIT AGREEMENT, DATED AS OF SEPTEMBER 2,
1999 AMONG THE KINDERCARE REALTY TRUST 1999, THE LENDERS, AND THE AGENT, AS
AMENDED OR SUPPLEMENTED. THIS LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS.
TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM
IS DEFINED IN THE UNIFORM COMMERCIAL CODE OF THE STATE WHERE THE PROPERTY IS
LOCATED, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE TRANSFER
OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART CONTAINING
THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON THE SIGNATURE PAGE HEREOF.
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS ..................................................... 1
1.1 Defined Terms .............................................. 1
SECTION 2. PROPERTY AND TERM ............................................... 1
2.1 Property ................................................... 1
2.2 Lease Term ................................................. 1
2.3 Title ...................................................... 1
2.4 Lease Supplements .......................................... 1
SECTION 3. RENT ............................................................ 2
3.1 Rent ....................................................... 2
3.2 Supplemental Rent .......................................... 2
3.3 Performance on a Non-Business Day .......................... 2
SECTION 4. UTILITY CHARGES ................................................. 3
4.1 Utility Charges ............................................ 3
SECTION 5. QUIET ENJOYMENT ................................................. 3
5.1 Quiet Enjoyment ............................................ 3
SECTION 6. NET LEASE ....................................................... 3
6.1 Net Lease; No Setoff; Etc. ................................. 3
6.2 No Termination or Abatement ................................ 4
SECTION 7. OWNERSHIP OF PROPERTY ........................................... 4
7.1 Ownership of the Property .................................. 4
SECTION 8. CONDITION OF PROPERTY ........................................... 6
8.1 Condition of the Property .................................. 6
8.2 Possession and Use of the Property ......................... 6
SECTION 9. COMPLIANCE ...................................................... 6
9.1 Compliance with Legal Requirements and Insurance
Requirements ............................................... 6
9.2 Environmental Matters ...................................... 6
SECTION 10. ................................................................. 7
10.1 Maintenance and Repair; Return ............................. 7
10.2 Right of Inspection ........................................ 8
10.3 Environmental Inspection ................................... 9
SECTION 11. MODIFICATIONS .................................................. 9
i
<PAGE>
11.1 Modifications, Substitutions and Replacements .............. 9
SECTION 12. TITLE ..........................................................10
12.1 Warranty of Title ..........................................10
12.2 Grants and Releases of Easements ...........................10
SECTION 13. PERMITTED CONTESTS .............................................11
13.1 Permitted Contests Other Than in Respect of Impositions ....11
SECTION 14. INSURANCE ......................................................11
14.1 Public Liability and Workers' Compensation Insurance .......11
14.2 Hazard and Other Insurance .................................12
14.3 Coverage ...................................................12
SECTION 15. CONDEMNATION AND CASUALTY ......................................13
15.1 Casualty and Condemnation ..................................13
SECTION 16. LEASE TERMINATION ..............................................15
16.1 Termination upon Certain Events ............................15
16.2 Procedures .................................................15
SECTION 17. DEFAULT ........................................................15
17.1 Lease Events of Default ....................................15
17.2 Final Payment ..............................................17
17.3 Lease Remedies .............................................17
17.4 Waiver of Certain Rights ...................................19
17.5 Assignment of Rights Under Contracts .......................19
17.6 Remedies Cumulative ........................................19
SECTION 18. LESSOR'S RIGHT TO CURE .........................................19
18.1 Lessor's Right to Cure Lessee's Lease Defaults .............19
SECTION 19. LEASE TERMINATION ..............................................20
19.1 Provisions Relating to Lessee's Termination
of this Lease or Exercise of Purchase Option ...............20
19.2 Aggregate Tranche A Percentage .............................20
SECTION 20. PURCHASE OPTION ................................................20
20.1 Purchase Option ............................................20
20.2 Maturity Date Purchase Option ..............................21
20.3 Obligation to Purchase All Properties ......................21
20.4 Partial Sale Option ........................................21
SECTION 21. SALE OF PROPERTY ...............................................21
21.1 Sale Procedure .............................................22
21.2 Application of Proceeds of Sale ............................22
ii
<PAGE>
21.3 Indemnity for Excessive Wear ...............................22
21.4 Appraisal Procedure ........................................23
21.5 Certain Obligations Continue ...............................23
SECTION 22. HOLDING OVER ...................................................23
22.1 Holding Over ...............................................23
SECTION 23. RISK OF LOSS ...................................................24
23.1 Risk of Loss ...............................................24
SECTION 24. SUBLETTING AND ASSIGNMENT ......................................24
24.1 Subletting and Assignment ..................................24
24.2 Subleases ..................................................24
SECTION 25. ESTOPPEL CERTIFICATES ..........................................24
25.1 Estoppel Certificates ......................................24
SECTION 26. NO WAIVER ......................................................25
26.1 No Waiver ..................................................25
SECTION 27. ACCEPTANCE OF SURRENDER ........................................25
27.1 Acceptance of Surrender ....................................25
SECTION 28. NO MERGER OF TITLE .............................................25
28.1 No Merger of Title .........................................25
SECTION 29. NOTICES ........................................................25
29.1 Notices ....................................................25
SECTION 30. MISCELLANEOUS ..................................................27
30.1 Miscellaneous ..............................................27
30.2 Amendments and Modifications ...............................27
30.3 Successors and Assigns .....................................27
30.4 Headings and Table of Contents .............................27
30.5 Counterparts ...............................................27
30.6 GOVERNING LAW ..............................................27
30.7 Limitations on Recourse ....................................28
30.8 Memorandum of Lease ........................................28
30.9 Priority ...................................................28
30.10 Ground Lease ...............................................28
30.11 Construction Period Limitation .............................28
30.13 State Law Recitals and Provisions ..........................29
iii
<PAGE>
Exhibits
Exhibit A Lease Supplement
Exhibit B Memorandum of Lease
iv
<PAGE>
LEASE, SECURITY AGREEMENT AND FINANCING STATEMENT (together with any
Lease Supplements and Lease memoranda, this "Lease") dated as of September 2,
1999 between THE KINDERCARE REALTY TRUST 1999, a Delaware business trust, having
its principal office at Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, as lessor (the "Lessor"),
and KINDERCARE LEARNING CENTERS, INC., a Delaware corporation, having its
principal office at 650 NE Holladay, Suite 1400, Portland, Oregon 97232,
Attention: Chief Financial Officer, as lessee (the "Lessee").
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not otherwise
defined in this Lease shall have the respective meanings specified in Annex A to
the Participation Agreement dated as of the date hereof among Lessee, Lessor,
Agent, the Investors and the Lenders named therein, as such Participation
Agreement may be amended, supplemented or otherwise modified from time to time,
and the rules of usage set forth in Annex A to the Participation Agreement.
SECTION 2. PROPERTY AND TERM
2.1 Property. Subject to the terms and conditions hereinafter set
forth and contained in the respective Lease Supplement relating to each
Property, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
each Property.
2.2 Lease Term. The Property is leased for the Term, unless extended
or earlier terminated in accordance with the provisions of this Lease.
2.3 Title. The Property is leased to Lessee without any representation
or warranty, express or implied, by Lessor (except as expressly provided in the
Operative Agreements) and subject to the rights of parties in possession, the
existing state of title (including, without limitation, the Permitted
Exceptions) and all applicable Legal Requirements. Lessee shall in no event have
any recourse against Lessor for any defect in title to the Property.
2.4 Lease Supplements. On each Property Closing Date, Lessee and
Lessor shall each execute and deliver a Lease Supplement for the Property to be
leased on such date in substantially the form of Exhibit A hereto and thereafter
such Property shall be subject to the terms of this Lease.
<PAGE>
2
SECTION 3. RENT
3.1 Rent. (a) On each applicable Payment Date occurring after the
termination of the Construction Period with respect to a Construction Period
Property and on each applicable Payment Date after the Property Closing Date
with respect to a Completed Property, Lessee shall pay the Basic Rent
attributable to such Property.
(b) Basic Rent shall be due and payable in lawful money of the United
States and shall be paid by wire transfer of immediately available funds on the
due date therefor to such account or accounts at such bank or banks or to such
other Person or in such other manner as Lessor shall from time to time direct.
(c) Neither Lessee's inability or failure to take possession of all,
or any portion, of the Property when delivered by Lessor, nor Lessor's inability
or failure to deliver all or any portion of the Property to Lessee, whether or
not attributable to any act or omission of Lessee or any act or omission of
Lessor, or for any other reason whatsoever, shall delay or otherwise affect
Lessee's obligation to pay Rent in accordance with the terms of this Lease.
3.2 Supplemental Rent. (a) Lessee shall pay to Lessor or the Person
entitled thereto any and all Supplemental Rent promptly as the same shall become
due and payable, and if Lessee fails to pay any Supplemental Rent, Lessor shall
have all rights, powers and remedies provided for herein or by law or equity or
otherwise in the case of nonpayment of Basic Rent. Lessee shall pay to Lessor as
Supplemental Rent, among other things, on demand, to the extent permitted by
applicable Legal Requirements, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by Lessor for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid. The expiration or
other termination of Lessee's obligations to pay Basic Rent hereunder shall not
limit or modify the obligations of Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Lease or any other Operative
Agreement, in the event of any failure on the part of Lessee to pay and
discharge any Supplemental Rent as and when due, Lessee shall also promptly pay
and discharge any fine, penalty, interest or cost which may be assessed or added
for nonpayment or late payment of such Supplemental Rent, all of which shall
also constitute Supplemental Rent.
(b) Lessee shall make a payment of Supplemental Rent equal to the
Maximum Residual Guarantee Amount in accordance with Section 21.1(c).
3.3 Performance on a Non-Business Day. If any payment is required
hereunder on a day that is not a Business Day, then such payment shall be due on
the next succeeding Business Day, unless, in the case of payments based on the
Eurodollar Rate, the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
<PAGE>
3
SECTION 4. UTILITY CHARGES
4.1 Utility Charges. Lessee shall pay, or cause to be paid, all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on each Property during the
Term. Lessee shall be entitled to receive any credit or refund with respect to
any utility charge paid by Lessee and the amount of any credit or refund
received by Lessor on account of any utility charges paid by Lessee, net of the
costs and expenses incurred by Lessor in obtaining such credit or refund, shall
be promptly paid over to Lessee. All charges for utilities imposed with respect
to the Property for a billing period during which this Lease expires or
terminates shall be adjusted and prorated on a daily basis between Lessor and
Lessee, and each party shall pay or reimburse the other for each party's pro
rata share thereof.
SECTION 5 QUIET ENJOYMENT
5.1 Quiet Enjoyment. So long as no Lease Event of Default shall have
occurred and be continuing, Lessee shall peaceably and quietly have, hold and
enjoy each Property for the Term, free of any claim or other action by Lessor or
anyone rightfully claiming by, through or under Lessor.
SECTION 6. NET LEASE
6.1 Net Lease; No Setoff; Etc. This Lease shall constitute a net lease
and, notwithstanding any other provision of this Lease, it is intended that
Basic Rent and Supplemental Rent shall be paid without counterclaim, setoff,
deduction or defense of any kind and without abatement, suspension, deferment,
diminution or reduction of any kind, and Lessee's obligation to pay all such
amounts is absolute and unconditional. The obligations and liabilities of Lessee
hereunder shall in no way be released, discharged or otherwise affected for any
reason, including, without limitation, to the maximum extent permitted by law:
(a) any defect in the condition, merchantability, design, construction, quality
or fitness for use of any portion of any Property, or any failure of any
Property to comply with all Legal Requirements, including any inability to
occupy or use any Property by reason of such non-compliance; (b) any damage to,
abandonment, loss, contamination of or Release from or destruction of or any
requisition or taking of any Property or any part thereof, including eviction;
(c) any restriction, prevention or curtailment of or interference with any use
of any Property or any part thereof, including eviction; (d) any defect in title
to or rights to any Property or any Lien on such title or rights or on any
Property; (e) any change, waiver, extension, indulgence or other action or
omission or breach in respect of any obligation or liability of or by Lessor,
any Investor, Agent or any Lender; (f) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceedings relating to Lessee, Lessor, any Investor, Agent, any Lender or any
other Person, or any action taken with respect to this Lease by any trustee or
receiver of Lessee, Lessor, any Investor, Agent, any Lender or any other Person,
or by any court, in any such proceeding; (g) any claim that Lessee has or might
have against any Person, including, without limitation, Lessor, any Investor,
Agent or any Lender; (h) any failure on the part of Lessor to perform or comply
with any of the terms of this Lease, any other Operative Agreement or of any
other agreement;
<PAGE>
4
(i) any invalidity or unenforceability or disaffirmance against or by Lessee of
this Lease or any provision hereof or any of the other Operative Agreements or
any provision of any thereof; (j) the impossibility of performance by Lessee,
Lessor or both; (k) any action by any court, administrative agency or other
Governmental Authority; any restriction, prevention or curtailment of or any
interference with the construction on or any use of any Property or any part
thereof; or (m) any other occurrence whatsoever, whether similar or dissimilar
to the foregoing, whether or not Lessee shall have notice or knowledge of any of
the foregoing. This Lease shall be noncancellable by Lessee for any reason
whatsoever except as expressly provided herein, and Lessee, to the extent
permitted by Legal Requirements, waives all rights now or hereafter conferred by
statute or otherwise to quit, terminate or surrender this Lease, or to any
diminution, abatement or reduction of Rent payable by Lessee hereunder. If for
any reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise, except as otherwise expressly provided herein,
Lessee shall, unless prohibited by Legal Requirements, nonetheless pay to Lessor
(or, in the case of Supplemental Rent, to whomever shall be entitled thereto) an
amount equal to each Rent payment at the time and in the manner that such
payment would have become due and payable under the terms of this Lease if it
had not been terminated in whole or in part, and in such case, so long as such
payments are made and no Lease Event of Default shall have occurred and be
continuing, Lessor will deem this Lease to have remained in effect. Each payment
of Rent made by Lessee hereunder shall be final and, absent manifest error in
the computation of the amount thereof, Lessee shall not seek or have any right
to recover all or any part of such payment from Lessor, any Investor, Agent or
any party to any agreements related thereto for any reason whatsoever. Lessee
assumes the sole responsibility for the condition, use, operation, maintenance,
and management of the Property and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of Lessee
or any subtenant of Lessee on any account or for any reason whatsoever.
6.2 No Termination or Abatement. Lessee shall remain obligated under
this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein. Lessee hereby
waives all right (i) to terminate or surrender this Lease, except as otherwise
expressly provided herein, or (ii) to avail itself of any abatement, suspension,
deferment, reduction, setoff, counterclaim or defense with respect to any Rent.
Lessee shall remain obligated under this Lease in accordance with its terms and
Lessee hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease. Notwithstanding any such statute or otherwise, Lessee shall be bound
by all of the terms and conditions contained in this Lease.
SECTION 7. OWNERSHIP OF PROPERTY
7.1 Ownership of Property. (a) Lessor and Lessee intend that (i) for
financial accounting purposes with respect to Lessee (A) this Lease will be
treated as an "operating lease" pursuant to Statement of Financial Accounting
Standards (SFAS) No. 13, as amended, (B) Lessor will be treated as the owner and
lessor of the Property and (C) Lessee will
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5
be treated as the lessee of the Property, but (ii) for federal, state and local
income tax and all other purposes (A) this Lease will be treated as a financing
arrangement, (B) the Lenders will be treated as senior lenders making loans to
Lessee in an amount equal to the Loans, which Loans will be secured by the
Property, (C) Lessor will be treated as a subordinated lender making a loan to
Lessee in an amount equal to the Investor Contribution, which loan is secured by
the Property, and (D) Lessee will be treated as the owner of the Property and
will be entitled to all tax benefits ordinarily available to an owner of
property like the Property for such tax purposes.
(b) Lessor and Lessee further intend and agree that, for the purpose
of securing Lessee's obligations for the repayment of the above-described loans,
(i) this Lease shall also be deemed to be a security agreement and financing
statement within the meaning of Article 9 of the Uniform Commercial Code and a
real property mortgage or deed of trust, as applicable; (ii) the conveyance
provided for in Section 2 shall be deemed a grant of a security interest in and
a mortgage lien on the Lessee's right, title and interest in the Properties
(including the right to exercise all remedies as are contained in the applicable
Mortgage and Memorandum of Lease upon the occurrence of a Lease Event of
Default) and all proceeds of the conversion, voluntary or involuntary, of the
foregoing into cash, investments, securities or other property, whether in the
form of cash, investments, securities or other property, for the benefit of the
Lessor to secure the Lessee's payment of all amounts owed by the Lessee under
this Lease and the other Operative Agreements and Lessor holds title to the
Properties so as to create and grant a first lien and prior security interest in
each Property (A) pursuant to this Lease for the benefit of the Agent under the
Assignment of Lease, to secure to the Agent the obligations of the Lessee under
the Lease and (B) pursuant to the Mortgages to secure to the Agent the
obligations of the Lessor under the Mortgages and the Notes; (iii) the
possession by Lessor or any of its agents of notes and such other items of
property as constitute instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (iv) notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from financial intermediaries,
bankers or agents (as applicable) of Lessee shall be deemed to have been given
for the purpose of perfecting such security interest under applicable law.
Lessor and Lessee shall, to the extent consistent with this Lease, take such
actions as may be necessary to ensure that, if this Lease were deemed to create
a security interest in the Properties in accordance with this Section, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the
Basic Term. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
any Investor, the Trust Company, Agent, or any Lender has provided or will
provide tax, accounting or legal advice to Lessee regarding this Lease, the
Operative Agreements or the transactions contemplated hereby and thereby, or
made any representations or warranties concerning the tax, accounting or legal
characteristics of the Operative Agreements, and that Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Agreements as it deems appropriate.
(c) Lessor and Lessee further intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting Lessee or
Lessor, the transactions evidenced by this Lease shall be regarded as loans made
by an unrelated third party lender to Lessee.
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6
SECTION 8. CONDITION OF PROPERTY
8.1 Condition of the Property. LESSEE ACKNOWLEDGES AND AGREES THAT IT
IS RENTING EACH PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY LESSOR (EXCEPT AS EXPRESSLY PROVIDED IN THE OPERATIVE
AGREEMENTS) AND SUBJECT TO (A) THE EXISTING STATE OF TITLE, (B) THE RIGHTS OF
ANY PARTIES IN POSSESSION THEREOF, (C) ANY STATE OF FACTS WHICH AN ACCURATE
SURVEY OR PHYSICAL INSPECTION MIGHT SHOW AND (D) VIOLATIONS OF LEGAL
REQUIREMENTS WHICH MAY EXIST ON THE DATE HEREOF. NONE OF LESSOR, THE INVESTOR,
THE AGENT AND ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED, INCLUDING THE
CONDITION OF ANY IMPROVEMENTS THEREON, THE SOIL CONDITION, OR ANY ENVIRONMENTAL
OR HAZARDOUS MATERIAL CONDITION) OR SHALL BE DEEMED TO HAVE ANY LIABILITY
WHATSOEVER AS TO THE TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN,
OPERATION, OR FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY
OTHER REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY PROPERTY (OR ANY PART THEREOF) AND NONE OF LESSOR, THE INVESTOR,
THE AGENT AND ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREIN OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY
WITH ANY LEGAL REQUIREMENT.
8.2 Possession and Use of the Property. Each Property shall be used in
a manner consistent with the Agency Agreement and, after the Completion Date for
the Property, as a child care center or other facility operated by the Lessee in
the conduct of its business. Lessee shall pay, or cause to be paid, all charges
and costs required in connection with the use of the Properties. Lessee shall
not commit or permit any waste of any Property or any part thereof.
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance Requirements.
Subject to the terms of Section 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall (a) comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements relating to each
Property, including the use, construction, operation, maintenance, repair and
restoration thereof, whether or not compliance therewith shall require
structural or extraordinary changes in the Improvements or interfere with the
use and enjoyment of each Property, and (b) procure, maintain and comply with
all licenses, permits, orders, approvals, consents and other authorizations
required for the construction, renovation, use, maintenance and operation of
each Property and for the use, operation, maintenance, repair and restoration of
the Improvements.
(a) Environmental Matters. Promptly upon Lessee's actual knowledge of
the presence of Hazardous Substances in any portion of a Property in
concentrations and conditions that constitute an Environmental Violation, Lessee
shall notify Lessor in writing of
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7
such condition. In the event of such Environmental Violation, Lessee shall, not
later than thirty (30) days after Lessee has actual knowledge of such
Environmental Violation, either deliver to Lessor and the Agent an Officer's
Certificate and a Termination Notice with respect to such Property pursuant to
Section 16.1, if applicable, or, at Lessee's sole cost and expense, promptly and
diligently undertake any response, clean up, remedial or other action necessary
to remove, cleanup or remediate the Environmental Violation in accordance with
the terms of Section 9.1. If Lessee does not deliver a Termination Notice with
respect to such Property pursuant to Section 16.1, Lessee shall, upon completion
of remedial action by Lessee, cause to be prepared by an environmental
consultant reasonably acceptable to Lessor a report describing the Environmental
Violation and the actions taken by Lessee (or its agents) in response to such
Environmental Violation, and a statement by the consultant that such
Environmental Violation has been remedied in full compliance with applicable
Environmental Laws.
(b) In addition, Lessee shall provide to Lessor, within five (5)
Business Days of receipt, copies of all written or electronic communications
with any Governmental Authority relating to any Environmental Law in connection
with any Property. Lessee shall also promptly provide such detailed reports of
any such existing or threatened environmental claims as reasonably may be
requested by Lessor, any Investor and the Agent.
SECTION 10. MAINTENANCE AND REPAIR
10.1 Maintenance and Repair; Return. (a) Lessee, at its sole cost and
expense, shall maintain each the Property in good condition (ordinary wear and
tear excepted) and make all necessary repairs thereto, of every kind and nature
whatsoever, whether interior or exterior, ordinary or extraordinary, structural
or nonstructural or foreseen or unforeseen, in each case as required by all
Legal Requirements and Insurance Requirements and on a basis reasonably
consistent with the operation and maintenance of commercial properties
comparable in type and location to the applicable Property subject, however, to
the provisions of Section 15 with respect to Condemnation and Casualty.
(b) Lessor shall under no circumstances be required to build any
Improvements on any Property, make any repairs, replacements, alterations or
renewals of any nature or description to any Property, make any expenditure
whatsoever in connection with this Lease or maintain any Property in any way.
Lessor shall not be required to maintain, repair or rebuild all or any part of
any Property, and Lessee waives the right to (i) require Lessor to maintain,
repair, or rebuild all or any part of any Property, or (ii) make repairs at the
expense of Lessor pursuant to any Legal Requirement, Insurance Requirement,
contract, agreement, covenants, condition or restriction at any time in effect.
(c) Lessee shall, upon the expiration or earlier termination of the
Term with respect to a Property, vacate, surrender and transfer such Property to
Lessor, at Lessee's own expense, free and clear of all Liens other than
Permitted Liens and Lessor Liens, in as good condition as they were on the
Completion, ordinary wear and tear excepted, and in compliance with all Legal
Requirements and the other requirements of this Lease (and in any event without
(x) any asbestos installed or maintained in any part of such Property, (y) any
polychlorinated byphenyls (PCBs) in, on or used, stored or located at such
Property, and (z) any other Hazardous
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8
Substances). Unless Lessee has previously irrevocably exercised the Maturity
Date Purchase Option, Lessee shall provide, or cause to be provided or
accomplished, at the sole cost and expense of Lessee, to or for the benefit of
Lessor or a purchaser, at least thirty Business Days prior to the expiration or
earlier termination of the Term with respect to a Property, each of the
following: (i) an endorsement to the title policy issued for such Property
showing (A) record title of the Lessor in the leasehold or fee estate, as the
case may be, subject to no Liens other than Permitted Liens described in clauses
(i) and (viii) of the definition of Permitted Liens, Liens described in clause
(ii) of the definition of Permitted Exceptions, and Lessor Liens and (B) the
Mortgage as a valid and perfected first lien; (ii) an environmental assessment
for such Property satisfying the requirements set forth in Section 10.3 below;
(iii) an assignment (to the extent assignable) of all of the Lessee's right,
title and interest in and to each agreement executed by Lessee in connection
with the construction, renovation, development, use, maintenance or operation of
such Property (including all warranty, performance, service and indemnity
provisions); (iv) copies of all Plans and Specifications relating to the design,
construction, renovation or development of such Property; (v) an assignment (to
the extent assignable) of all permits, licenses, approvals and other
authorizations from all Governmental Authorities in connection with the
construction, operation and use of such Property; (vi) copies of all books and
records and in the case of any Non-Completed Property, all Budgets and
construction schedules, with respect to the construction, renovation,
maintenance, repair, operation or use of such Property; (vii) in the case of any
Non-Completed Property, (x) evidence satisfactory to Lessor that all building
materials purchased or contracted for purchase which have not been incorporated
into the Improvements at such Property are (A) owned by Lessor free from any
Liens, (B) secured, segregated and identifiable (and if stored off-site, the
location of such place of storage) and (C) insured under policies in amounts and
by insurers reasonably satisfactory to Lessor; (y) evidence satisfactory to
Lessor that adequate provision has been made for the protection of materials
stored on-site and for the protection of the Improvements, to the extent then
constructed, against deterioration and against other loss or damage or theft,
and (z) an agreement, in form and substance reasonably satisfactory to Lessor,
from all contractors, construction managers, architects, engineers and other
designee professionals that each will continue to perform under their respective
contracts for the benefit of Lessor or its assignee; and (viii) an estoppel
certificate in form and substance reasonably acceptable to Lessor from the
ground lessor of any Ground Lease. Lessee shall cooperate with any independent
purchaser of such Property in order to facilitate the ownership and operation by
such purchaser of such Property after such expiration or earlier termination of
the Term, including providing all books, reports and records regarding the
maintenance, repair and ownership of such Property and all data and technical
information relating thereto, granting or assigning all licenses necessary for
the operation and maintenance of such Property and cooperating in seeking and
obtaining all necessary licenses, permits and approvals of Governmental
Authorities. Lessee shall have also paid the total cost for the completion of
all Modifications commenced prior to such expiration or earlier termination of
the Term. The obligation of Lessee under this Section 10.1(c) shall survive the
expiration or termination of this Lease.
10.2 Right of Inspection. Lessor may, at reasonable times and with
reasonable prior notice, enter upon, inspect and examine at its own cost and
expense (unless a Lease Event of Default exists, in which case the out-of-pocket
costs and expenses of Lessor shall be paid by Lessee), any Property. Lessee
shall furnish to Lessor statements, no more than once per year, accurate in all
material respects, regarding the condition and state of repair of each Property.
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9
Lessor shall have no duty to make any such inspection or inquiry and shall not
incur any liability or obligation by reason of not making any such inspection or
inquiry.
10.3 Environmental Inspection. Not less than 9 months prior to the
Maturity Date (unless Lessee has previously irrevocably exercised the Maturity
Date Purchase Option), and not more than thirty Business Days prior to surrender
of possession of a Property, Lessor shall, at Lessee's sole cost and expense,
obtain a report by an environmental consultant selected by Lessor certifying
that each Property or any portion thereof (i) does not contain Hazardous
Substances under circumstances or in concentrations that could result in a
violation of or liability under any Environmental Law and (ii) is in compliance
with all Environmental Laws. If such is not the case on either such date, then
Lessee shall be deemed to have irrevocably exercised the Maturity Date Purchase
Option pursuant to Section 20.2.
SECTION 11. MODIFICATIONS
11.1 Modifications, Substitutions and Replacements. (a) So long as no
Lease Event of Default has occurred and is continuing, Lessee, at its sole cost
and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to a Property or any part thereof
(collectively, "Modifications"); provided, that: (i) except for any Modification
required to be made pursuant to a Legal Requirement or an Insurance Requirement,
no Modification, individually, or when aggregated with any (A) other
Modification or (B) grant, dedication, transfer or release pursuant to Section
12.2, shall impair the value of such Property or the utility or useful life of
such Property from that which existed immediately prior to such Modification;
(ii) the Modification shall be performed expeditiously and in a good and
workmanlike manner; (iii) Lessee shall comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements applicable to the
Modification, including the obtaining of all permits and certificates of
occupancy, and the structural integrity of such Property shall not be adversely
affected; (iv) Lessee shall maintain or cause to be maintained commercially
reasonable builders' risk insurance at all times when a Modification is in
progress; (v) subject to the terms of Section 13 relating to permitted contests,
Lessee shall pay all costs and expenses and discharge any Liens arising with
respect to the Modification; (vi) such Modifications shall comply with Sections
8.2 and 10.1 and shall not change the primary character of such Property; and
(vii) no Improvements shall be demolished, except to the extent such demolition
does not impair the value, utility or useful life of such Property. All
Modifications (other than those that may be readily removed without impairing
the value, utility or remaining useful life of such Property) shall remain part
of the realty and shall be subject to this Lease, and title thereto shall
immediately vest in Lessor. So long as no Lease Event of Default has occurred
and is continuing, Lessee may place upon a Property any inventory, trade
fixtures, machinery, equipment or other property belonging to Lessee or third
parties and may remove the same at any time during the term of this Lease;
provided that such inventory, trade fixtures, machinery, -------- equipment or
other property, or their respective operations, do not impair the value, utility
or remaining useful life of such Property.
(b) Following the Completion Date with respect to any Property, Lessee
shall notify Lessor of the undertaking of any Modifications to the Property the
cost of which is anticipated to exceed $500,000. Prior to undertaking any such
Modifications, Lessee shall
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10
deliver to Lessor (i) a brief narrative of the work to be done and a copy of the
plans and specifications relating to such work; and (ii) an Officer's
Certificate stating that such work when completed will comply with the
requirements of Section 11(a) hereof. Lessor, by itself or its agents, shall
have the right, but not the obligation, from time to time to inspect such
Modifications to ensure that the same is completed consistent with the plans and
specifications.
(c) Following the Completion Date with respect to any Property, Lessee
shall not without the consent of Lessor undertake any Modifications to such
Property if such Modifications cannot be completed on or prior to the Expiration
Date.
SECTION 12. TITLE
12.1 Warranty of Title. (a) Lessee agrees that, except as otherwise
provided herein and subject to the terms of Section 13 relating to permitted
contests, Lessee shall not directly or indirectly create or allow to remain, and
shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon any Property or any
Modifications or any Lien, attachment, levy or claim with respect to the Rent or
with respect to any amounts held by the Agent pursuant to the Credit Agreement,
other than Permitted Liens. Lessee shall promptly notify Lessor in the event it
receives knowledge that a Lien (other than a Permitted Lien) exists with respect
to the Property.
(b) Nothing contained in this Lease shall be construed as constituting
the consent or request of Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
construction, alteration, addition, repair or demolition of or to any Property
or any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY PROPERTY OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
PROPERTY.
12.2 Grants and Releases of Easements. Provided that no Lease Event of
Default shall have occurred and be continuing and subject to the provisions of
Sections 8, 9, 10 and 11, Lessor hereby consents to the following actions by
Lessee, in the name and stead of Lessor, but at Lessee's sole cost and expense:
(a) the granting (prior to the Lien of the Mortgage) of easements, licenses,
rights-of-way and other rights and privileges in the nature of easements
reasonably necessary or desirable for the construction, use, repair, renovation
or maintenance of any Property as herein provided; (b) the release (free and
clear of the Lien of the Mortgage) of existing easements or other rights in the
nature of easements which are for the benefit of any Property; (c) the
dedication or transfer (prior to the Lien of the Mortgage) of unimproved
portions of any Property for road, highway or other public purposes; (d) the
execution of petitions to have any Property annexed to any municipal corporation
or utility district; (e) the execution of closing statements and transfer
affidavits required to be signed at the initial purchase or closing of the
Property, provided such transfer affidavits are specifically without recourse to
the Lessor; and (f) the execution of amendments to any covenants and
restrictions
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11
affecting any Property; provided, that in each case Lessee shall have delivered
to Lessor an Officer's Certificate stating that: (i) such grant, release,
dedication or transfer does not impair the present or future value or present or
future utility or remaining useful life of the applicable Property, (ii) such
grant, release, dedication or transfer is necessary in connection with the
construction, use, maintenance, alteration, renovation or improvement of the
applicable Property, (iii) Lessee shall remain obligated under this Lease and
under any instrument executed by Lessee consenting to the assignment of Lessor's
interest in this Lease as security for indebtedness, in each such case in
accordance with their terms, as though such grant, release, dedication or
transfer, had not been effected and (iv) Lessee shall pay and perform any
obligations of Lessor under such grant, release, dedication or transfer. Without
limiting the effectiveness of the foregoing, provided that no Lease Event of
Default shall have occurred and be continuing, Lessor shall, upon the request of
Lessee, and at Lessee's sole cost and expense, execute and deliver any
instruments necessary or appropriate to confirm any such grant, release,
dedication or transfer to any Person permitted under this Section.
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impostions. Except to
the extent otherwise provided for in Section 12.2 of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Legal Requirement, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
encroachment, and Lessor agrees not to pay, settle or otherwise compromise any
such item, provided that (a) the commencement and continuation of such
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against the applicable Properties, Lessor, the Agent, the
Investor and the Lenders; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on any Property and no part of any Property nor
any Rent would be in any danger of being sold, forfeited, lost or deferred; (c)
at no time during the permitted contest shall there be a risk of the imposition
of criminal liability or civil liability on Lessor, the Agent or any Lender for
failure to comply therewith; and (d) in the event that, at any time, there shall
be a material risk of extending the application of such item beyond the earlier
of the Maturity Date and the Expiration Date for the applicable Property, then
Lessee shall deliver to Lessor an Officer's Certificate certifying as to the
matters set forth in clauses (a), (b) and (c) of this Section 13.1. Lessor, at
Lessee's sole cost and expense, shall execute and deliver to Lessee such
authorizations and other documents as may reasonably be required in connection
with any such contest and, if reasonably requested by Lessee, shall join as a
party therein at Lessee's sole cost and expense.
SECTION 14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance. During the
Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while on each Property. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by owners of similar properties, that are in accordance
with normal
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12
industry practice. The policy shall be endorsed to name Lessor, the Trust
Company, the Investor, the Agent and the Lenders as additional insureds. The
policy shall also specifically provide that the policy shall be considered
primary insurance which shall apply to any loss or claim before any contribution
by any insurance which Lessor, the Trust Company, the Agent or the Lenders may
have in force. Lessee shall, in the operation of the Property, comply with the
applicable workers' compensation laws and protect Lessor against any liability
under such laws.
14.2 Hazard and Other Insurance. (a) During the Term, Lessee shall
keep each Property insured against loss or damage by fire and other risks on
terms and in amounts that are no less favorable than insurance maintained by
owners of similar properties, that are in accordance with normal industry
practice, are in amounts equal to the actual replacement cost of the
Improvements. Notwithstanding the foregoing, during the Construction Period for
any Property, Lessee will maintain builder's risk insurance providing for
replacement cost coverage and deductibles not to exceed $1,000 (subject to (i)
deductibles described in Section 14.2(c) with respect to earthquake insurance
and (ii) a deductible of the greater of 2% of the value of the Property or
$25,000 for flood and coastal wind coverage). So long as no Lease Event of
Default exists, any loss payable under the insurance policy required by this
Section will be paid to and adjusted solely by Lessee, subject to Section 15.
(b) If at any time during the Term the area in which any Property is
located is designated a "flood-prone" area pursuant to the Flood Disaster
Protection Act of 1973 or any amendments or supplements thereto, then Lessee
shall comply with the National Flood Insurance Program as set forth in the Flood
Disaster Protection Act of 1973, as may be amended. In addition, Lessee will
fully comply with the requirements of the National Flood Insurance Act of 1968
and the Flood Disaster Protection Act of 1973, as each may be amended from time
to time, and with any other Legal Requirement, concerning flood insurance to the
extent that it applies to any Property.
(c) Lessor may require, to be decided by Lessor in its sole
discretion, and Lessee shall obtain upon request by Lessor, insurance against
loss or damage by earthquake in amounts equal to the probable maximum loss of
all property owned or leased by KinderCare Learning Centers, Inc. and any of its
Subsidiaries in the State of California. Notwithstanding the foregoing, during
the Construction Period for any Property, the amount of such earthquake
insurance shall at all times equal or exceed an aggregate of $5,000,000 for
Construction Period Properties, with a deductible of not greater than 2% of the
value of the Property or $25,000, whichever is greater, and an aggregate of
$15,000,000 for all properties operated by the Company (including the
Properties). The Lessor may reasonably request Lessee to revise its
determinations regarding probable maximum loss. The Lessor may request, at its
sole discretion, that an independent consultant review Lessee's determinations
regarding probable maximum loss.
14.3 Coverage. (a) Lessee shall furnish Lessor with certificates
showing the insurance required under Sections 14.1 and 14.2 to be in effect and
naming Agent, the Lenders, the Lessor, each Investor, and the Trust Company as
an additional insured with respect to liability insurance and showing the
mortgagee endorsement required by Section 14.3(c). All such insurance shall be
at the cost and expense of Lessee. Such certificates shall include a provision
in which the insurer agrees to provide thirty (30) days' advance written notice
by the insurer to Lessor and the Agent in the event of cancellation or
modification of such insurance that could be
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13
adverse to the interests of Lessor, the Trust Company or the Agent. If a Lease
Event of Default has occurred and is continuing and Lessor so requests, Lessee
shall deliver to Lessor copies of all insurance policies required by this Lease.
(b) Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. Lessee hereby waives any and all such rights against
Lessor, the Trust Company, each Investor, the Agent and the Lenders to the
extent of payments made under such policies.
(c) All insurance policies required by Section 14.2 shall include a
"New York" or standard form mortgagee endorsement in favor of the Agent.
(d) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this Lease to
be subject to a coinsurance exception of any kind.
(e) Lessee shall pay as they become due all premiums for the insurance
required by this Lease, shall renew or replace each policy prior to the
expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.
(f) Other than with respect to Section 14.2(c) of this Lease or
Section 6.3 of the Agency Agreement with regard to Construction Period
Properties, Lessee shall have the right to maintain insurance deductibles
consistent with its current program.
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the provisions of this
Section 15 and Section 16 (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation of
a Lease Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest in) any
award, compensation or insurance proceeds to which Lessee or Lessor may become
entitled by reason of their respective interests in a Property (i) if all or a
portion of such Property is damaged or destroyed in whole or in part by a
Casualty or (ii) if the use, access, occupancy, easement rights or title to such
Property or any part thereof is the subject of a Condemnation; provided,
however, if a Lease Default shall have occurred and be continuing such award,
compensation or insurance proceeds shall be paid directly to Lessor or, if
received by Lessee, shall be held in trust for Lessor, and shall be paid over by
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14
Lessee to Lessor, and provided further that in the event of any Casualty or
Condemnation, the estimated cost of restoration of which is in excess of
$500,000, any such award, compensation or insurance proceeds shall be paid
directly to Lessor, or if received by Lessee, shall be held in trust for Lessor
and shall be paid over by Lessee to Lessor to be held and applied by Lessor
toward payment of the cost of restoration in accordance with Section 15.1(e),
or, if applicable, in accordance with Section 16.
(b) So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof; provided that if the estimated cost of restoration of the
Property or the payment on account of such title defect is in excess of
$500,000, then Lessor shall be entitled to participate in any such proceeding or
action. At Lessee's reasonable request, and at Lessee's sole cost and expense,
Lessor and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease
shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessor or Lessee shall receive notice of a Casualty or a
possible Condemnation of a Property or any interest therein, Lessor or Lessee,
as the case may be, shall give notice thereof to the other and to the Agent
promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by Lessee or
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating that either (i) (x) such Casualty is not a Significant Casualty or (y)
such Condemnation is neither a Total Condemnation nor a Significant Condemnation
and that this Lease shall remain in full force and effect with respect to the
applicable Property and, at Lessee's sole cost and expense, Lessee shall
promptly and diligently restore the applicable Property in accordance with the
terms of Section 15.1(e) or (ii) this Lease shall terminate with respect to the
applicable Property in accordance with Section 16.1.
(e) If pursuant to this Section 15.1, this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to the
affected Property, Lessee shall, at its sole cost and expense, promptly and
diligently repair any damage to the applicable Property caused by such Casualty
or Condemnation in conformity with the requirements of Sections 10.1 and 11.1
using the as-built plans and specifications for the applicable Property (as
modified to give effect to any subsequent Modifications, any Condemnation
affecting the Property and all applicable Legal Requirements) so as to restore
the applicable Property to the same condition, operation, function and value as
existed immediately prior to such Casualty or Condemnation. In such event, title
to the applicable Property shall remain with Lessor. Lessor shall make
disbursements from time to time of any award, compensation or insurance proceeds
held by it to Lessee for application to the cost of restoration subject to the
satisfaction of the following conditions: (i) Lessor shall have received a fully
executed counterpart of a Requisition requesting funds in an amount not
exceeding the cost of work completed or incurred since the last disbursement,
together with reasonably satisfactory evidence of the stage of completion and of
performance of the work in a good and workman-like manner and in accordance with
the as-built plans and specifications, (ii) at the time of any such
disbursement, no Lease Default shall have occurred and be continuing, and no
mechanic's or materialmen's liens shall have been filed and remain undischarged,
except those discharged by the disbursement of the requested funds or bonded,
(iii) Lessor shall be reasonably satisfied that sufficient funds are available
to complete such restoration and (iv) title to the Property shall conform to the
representation set forth in
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15
Section 7.7 (b) of the Participation Agreement. Provided no Lease Default shall
have occurred and be continuing, any award, compensation or insurance proceeds
remaining after restoration of the Project as herein provided shall be paid to
Lessee.
(f) In no event shall a Casualty or Condemnation with respect to which
this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to
a Property or Lessee receives notice of a Condemnation with respect to a
Property, and following such Casualty or Condemnation, such Property cannot
reasonably be restored on or before the date which is twelve months prior to the
Maturity Date to substantially the same condition as existed immediately prior
to such Casualty or Condemnation or before such day such Property is not in fact
so restored, then Lessee shall exercise its Purchase Option with respect to such
Property on the next Payment Date or irrevocably agree in writing to exercise
the Maturity Date Purchase Option with respect to such Property, and in either
such event such remaining Casualty or Condemnation proceeds shall be paid to the
Agent, which shall pay such funds to Lessee upon the closing of the purchase of
such Property.
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) If Lessor or Lessee shall
have received notice of a Total Condemnation, then Lessee shall be obligated,
within thirty (30) days after Lessee receives notice thereof, to deliver a
written notice in the form described in Section 16.2(a) (a "Termination Notice")
of the termination of this Lease with respect to the applicable Property.
(b) If either: (i) Lessee or Lessor shall have received notice of a
Condemnation, and Lessee shall have delivered to Lessor an Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and Lessee shall have delivered to Lessor an Officer's Certificate that such
Casualty is a Significant Casualty; or (iii) an Environmental Violation occurs
or is discovered and Lessee shall have delivered to Lessor an Officer's
Certificate stating that, in the reasonable, good-faith judgment of Lessee, the
cost to remediate the same will exceed $1,000,000; then, Lessee shall,
simultaneously with the delivery of the Officer's Certificate pursuant to the
preceding clause (i), (ii) or (iii), deliver a Termination Notice with respect
to the affected Property.
16.2 Procedures. (a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the affected Property on a date not
more than thirty (30) days after Lessor's receipt of such Termination Notice
(the "Termination Date"); (ii) a binding and irrevocable agreement of Lessee to
pay the Termination Value and purchase such Property on such Termination Date
and (iii) the Officer's Certificate described in Section 16.1(b).
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, plus all amounts owing in respect
of Rent for such Property
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16
(including Supplemental Rent) theretofore accruing and Lessor shall convey such
Property to Lessee (or Lessee's designee) all in accordance with Section 19.1.
SECTION 17. DEFAULT
17.1 Lease Events of Default. If any one or more of the following
events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to make payment of (i) any Basic Rent or any
Supplemental Rent representing amounts owed under the Credit Agreement or
the other Credit Documents within five (5) or more days after the same has
become due and payable or (ii) any Maximum Residual Guarantee Amount,
Purchase Option Price or Termination Value after the same has become due
and payable; or
(b) Lessee shall fail to make payment of any other Supplemental Rent
due and payable within five (5) or more days after receipt of notice
thereof; or
(c) Lessee shall fail to maintain insurance as required by Section 14;
or
(d) Lessee shall fail to observe or perform any term, covenant or
condition of Lessee under the Participation Agreement or any other
Operative Agreement other than the Lease to which it is a party (other than
those set forth in Section 17.1(a), (b) or (c) hereof) and such failure
shall continue for thirty (30) days after written notice thereof from
Lessor or any representation or warranty by Lessee set forth in this Lease
or in any other Operative Agreement or in any document entered into in
connection herewith or therewith or in any document, certificate or
financial or other statement delivered in connection herewith or therewith
shall be false or inaccurate in any material way; or
(e) Lessee shall fail to observe or perform any term, covenant or
condition of Lessee under this Lease (other than those set forth in Section
17.1(a), (b), (c) or (d) hereof) and such failure shall continue for thirty
days after written notice thereof from Lessor, provided that, if such
failure is curable but cannot be cured within such thirty-day period, so
long as the Lessee is diligently taking steps to cure such failure, the
Lessee shall have an additional period, not to exceed ninety (90) days, in
which to cure such failure; or
(f) an Agency Agreement Event of Default shall have occurred and be
continuing; or
(g) Lessee or any Guarantor shall (i) file a petition under the United
States bankruptcy laws or any other applicable insolvency law or statute of
the United States of America or any State or Commonwealth thereof, (ii)
make a general assignment for the benefit of its creditors, (iii) consent
to the appointment of a receiver of itself or the whole or any substantial
part of its property, (iv) fail to cause the discharge of any custodian,
trustee or receiver appointed for Lessee or any Guarantor or the whole or a
substantial part of its property within ninety (90) days after such
appointment, or (v) file a petition or
<PAGE>
17
answer seeking or consenting to reorganization under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof; or
(h) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof shall be
filed against Lessee or any Guarantor and not dismissed within ninety (90)
days from the date of its filing, or a court of competent jurisdiction
shall enter an order or decree appointing, without its consent of, a
receiver of Lessee or any Guarantor or the whole or a substantial part of
its property, and such order or decree shall not be vacated or set aside
within ninety (90) days from the date of the entry thereof; or
(i) a Credit Agreement Event of Default shall have occurred and be
continuing;
(j) an event of default under the Corporate Credit Agreement shall
have occurred and be continuing; or
(k) any Security Document shall cease to be in full force and effect,
or shall cease to give the Agent the Liens, rights, powers and privileges
purported to be created thereby, in favor of the Agent on behalf of the
Lenders, superior to and prior to the rights of all third Persons and
subject to no other Liens (except in each case to the extent expressly
permitted herein or in the other Operative Agreements); or
(l) the Guarantee or any material provision thereof shall cease to be
in full force and effect or any Guarantor shall deny or disaffirm such
Guarantor's obligations under the Guarantee;
then, in any such event, Lessor may, so long as such event is continuing, in
addition to the other rights and remedies provided for in this Section 17 and in
Section 18.1, terminate this Lease by giving Lessee five (5) Business Days
notice of such termination, and this Lease shall terminate. Lessee shall, to the
fullest extent permitted by law, pay as Supplemental Rent all costs and expenses
incurred by or on behalf of Lessor, including fees and expenses of counsel, as a
result of any Lease Event of Default hereunder; provided, however, that Lessee
may cure a default under clause (c), (d),(e) or (f) of Section 17.1 in the event
such default relates to a specific Property by (i) purchasing such Property for
its Termination Value and (ii) terminating this Lease with respect to such
Property in accordance with Section 19.1 within ten (10) Business Days of such
Lease Event of Default.
17.2 Final Payment. If an Event of Default shall have occurred and be
continuing, Lessor shall have the right to recover, by demand to Lessee and at
Lessor's election, and Lessee shall pay to Lessor, as and for a final payment,
but exclusive of the indemnities payable under Section 12 of the Participation
Agreement, and in lieu of all damages beyond the date of such demand the sum of
(a) the Termination Value, plus (b) all other amounts owing in respect of Rent
and Supplemental Rent theretofore accruing under this Lease; provided, however,
if an Event of Default has occurred pursuant to Section 17.1(g) or (h), such
final payment shall
<PAGE>
18
be immediately due and payable without demand or notice. Upon payment of the
amount specified pursuant to the first sentence of this Section 17.2, Lessee
shall be entitled to receive from Lessor, at Lessee's request and cost, an
assignment of Lessor's right, title and interest in the Property, in each case
in recordable form and otherwise in conformity with local custom and free and
clear of the Lien of this Lease. The Property shall be quitclaimed to Lessee (or
Lessee's designee) "AS IS" and in their then present physical condition. If any
statute or rule of law shall limit the amount of such final payment to less than
the amount agreed upon, Lessor shall be entitled to the maximum amount allowable
under such statute or rule of law. It is the intent of the Lessor and the Lessee
that the payment required to be made pursuant to this Section together with the
payment of the Maximum Residual Guarantee Amount shall be treated as an
obligation on the part of the Lessee to repay a loan obligation to the Lenders
and the Lessor in such amounts; provided, that Lessee shall not be entitled to
receive an assignment of Lessor's interest under the Ground Leases, if any, or
in the Properties unless Lessee shall have paid in full the Termination Value of
each of the Properties.
17.3 Lease Remedies. Lessor and Lessee intend that for commercial law
and bankruptcy law purposes, this Lease will be treated as a financing
arrangement, as set forth in Section 7. If, as a result of applicable state law,
which cannot be waived, this Lease is deemed to be a lease of the Properties,
rather than a financing arrangement, and Lessor is unable to enforce the
remedies set forth in Section 17.2, the following remedies shall be available to
Lessor:
(a) Surrender of Possession. If a Lease Event of Default shall have
occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, Lessee shall, upon thirty (30) days written
notice, surrender to Lessor possession of the Property and Lessee shall quit the
same. Lessor may enter upon and repossess the Property by such means as are
available at law or in equity, and may remove Lessee and all other Persons and
any and all personal property and Lessee's equipment and personalty and
severable Modifications from the Property. Lessor shall have no liability by
reason of any such entry, repossession or removal performed in accordance with
applicable law.
(b) Reletting. If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessor may, but shall be under no obligation to, relet all, or any
portion, of the Property, for the account of Lessee or otherwise, for such term
or terms (which may be greater or less than the period which would otherwise
have constituted the balance of the Term) and on such conditions (which may
include concessions or free rent) and for such purposes as Lessor may determine,
and Lessor may collect, receive and retain the rents resulting from such
reletting. Lessor shall not be liable to Lessee for any failure to relet the
Property or for any failure to collect any rent due upon such reletting.
(c) Damages. None of (i) the termination of this Lease pursuant to
Section 17.1; (ii) the repossession of the Property; or (iii) except to the
extent required by applicable law, the failure of Lessor to relet all, or any
portion, of the Property, the reletting of all or any portion thereof, nor the
failure of Lessor to collect or receive any rentals due upon any such reletting
shall relieve Lessee of its liability and obligations hereunder, all of which
shall survive any such termination, repossession or reletting. If any Lease
Event of Default shall have occurred and be continuing and notwithstanding any
termination of this Lease pursuant to Section 17.1, Lessee
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19
shall forthwith pay to Lessor all Basic Rent and other sums due and payable
hereunder to and including the date of such termination. Thereafter, on the days
on which the Basic Rent or Supplemental Rent, as applicable, are payable under
this Lease or would have been payable under this Lease if the same had not been
terminated pursuant to Section 17.1 and until the end of the Term or what would
have been the Term in the absence of such termination, Lessee shall pay Lessor,
as current liquidated damages (it being agreed that it would be impossible
accurately to determine actual damages) an amount equal to the Basic Rent and
Supplemental Rent that are payable under this Lease or would have been payable
by Lessee hereunder if this Lease had not been terminated pursuant to Section
17.1, less the net proceeds, if any, which are actually received by Lessor with
respect to the period in question of any reletting of the Property or any
portion thereof; provided that Lessee's obligation to make payments of Basic
Rent and Supplemental Rent under this Section 17.3 shall continue only so long
as Lessor shall not have received the amounts specified in Section 17.2. In
calculating the amount of such net proceeds from reletting, there shall be
deducted all of Lessor's, the Agent's and any Lenders' expenses in connection
therewith, including repossession costs, brokerage commissions, fees and
expenses for counsel and any necessary repair or alteration costs and expenses
incurred in preparation for such reletting. To the extent Lessor receives any
damages pursuant to this Section 17.3, such amounts shall be regarded as amounts
paid on account of Rent.
(d) Acceleration of Rent. If a Lease Event of Default shall have
occurred and be continuing, and this Lease shall not have been terminated
pursuant to Section 17.1, and whether or not Lessor shall have collected any
current liquidated damages pursuant to Section 17.3(c), Lessor may upon written
notice to Lessee accelerate all payments of Basic Rent due hereunder and, upon
such acceleration, Lessee shall immediately pay Lessor, as and for final
liquidated damages and in lieu of all current liquidated damages on account of
such Lease Event of Default beyond the date of such acceleration (it being
agreed that it would be impossible accurately to determine actual damages) an
amount equal to the sum of (a) all Basic Rent (assuming interest at a rate per
annum equal to the Overdue Rate), as applicable, due from the date of such
acceleration until the end of the Term, plus ---- (b) the Maximum Residual
Guarantee Amount that would be payable under Section 21.1(c) assuming the
proceeds of the sale pursuant to such Section 21.1(c) are equal to zero, which
sum is then discounted to present value at a rate equal to the rate then being
paid on United States treasury securities with maturities corresponding to the
then remaining Term. Following payment of such amount by Lessee, Lessee will be
permitted to stay in possession of the Property for the remainder of the Term,
subject to the terms and conditions of this Lease, including the obligation to
pay Supplemental Rent, provided that no further Lease Event of Default shall
occur and be continuing, following which Lessor shall have all the rights and
remedies set forth in this Section 17 (but not including those set forth in this
Section 17.3). If any statute or rule of law shall limit the amount of such
final liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
17.4 Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain
re-entry or possession; (b) any right of redemption, re-entry or repossession;
(c) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt; and (d) any other rights which might otherwise
limit or modify any of Lessor's rights or remedies under this Section 17.
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20
17.5 Assignment of Rights Under Contracts. If a Lease Event of Default
shall have occurred and be continuing, and whether or not this Lease shall have
been terminated pursuant to Section 17.1, Lessee shall upon Lessor's demand
immediately assign, transfer and set over to Lessor all of Lessee's right, title
and interest in and to each agreement executed by Lessee in connection with the
construction, renovation, development, use or operation of the Property
(including all right, title and interest of Lessee with respect to all warranty,
performance, service and indemnity provisions), as and to the extent that the
same relate to the construction renovation, and operation of the Property.
17.6 Remedies Cumulative. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise including, without limitation, any
mortgage foreclosure remedies contained in the Memorandum of Lease.
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor, without
waiving or releasing any obligation or Lease Event of Default, may (but shall be
under no obligation to) remedy any Lease Event of Default for the account and at
the sole cost and expense of Lessee, including the failure by Lessee to maintain
any insurance required by Section 14, and may, to the fullest extent permitted
by law, and notwithstanding any right of quiet enjoyment in favor of Lessee,
enter upon any Property for such purpose and take all such action thereon as may
be necessary or appropriate therefor. No such entry shall be deemed an eviction
of Lessee. All out-of-pocket costs and expenses so incurred (including the fees
and expenses of counsel), together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid by Lessor, shall be paid
by Lessee to Lessor on demand as Supplemental Rent.
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Option. In connection with any termination of this Lease
with respect to any Property pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is to terminate with respect
to the applicable Property or upon the Expiration Date with respect to the
applicable Property, and upon tender by Lessee of the amounts set forth in
Section 16.2(b), 20.1 or 20.2, as applicable:
(a) Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense an assignment of Lessor's entire interest
in the applicable Properties (by a special or limited warranty deed in the case
of real property) in each case in recordable form and otherwise in conformity
with local custom and free and clear of the Lien of the applicable Mortgage and
any Lessor Liens; and
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21
(b) Lessor shall execute and deliver to Lessee any real estate tax
affidavit, a FIRPTA affidavit and any other similar document required to be
executed and delivered by law and in conformity with local custom; and
(c) The applicable Property shall be conveyed to Lessee "AS IS" and in
then present physical condition.
19.2 Aggregate Tranche A Percentage. Notwithstanding any other
provision of this Lease or the other Operative Agreements, the Lessee shall not
be permitted to terminate this Lease with respect to a Property pursuant to
Section 16 or exercise its Purchase Option with respect to a Property pursuant
to Section 20.1 if the Aggregate Tranche A Percentage, after giving effect to
the termination of this Lease with respect to such Property, would be less than
87.0%.
SECTION 20. PURCHASE OPTION
20.1 Purchase Option. Provided that no Lease Default or Lease Event of
Default shall have occurred and be continuing, Lessee shall have the option
(exercisable by giving Lessor irrevocable written notice (the "Purchase Notice")
of Lessee's election, which election shall be irrevocable, to exercise such
option not less than ten (10) days prior to the date of purchase pursuant to
such option) to purchase one or more of the Properties on the date specified in
such Purchase Notice, which date must occur prior to the date which is nine
months prior to the Maturity Date, at a price equal to the Termination Value
(the "Purchase Option Price") (which the parties do not intend to be a "bargain"
purchase price) of such Property. If Lessee exercises its option to purchase one
or more of the Properties pursuant to this Section 20.1 (the "Purchase Option"),
Lessor shall transfer to Lessee or Lessee's designee (as contemplated in Section
191. hereof) all of Lessor's right, title and interest in and to such Property
as of the date specified in the Purchase Notice upon receipt of the Purchase
Option Price and all Rent and other amounts then due and payable under this
Lease and any other Operative Agreement, in accordance with Section 19.1.
20.2 Maturity Date Purchase Option. Not less than nine months prior to
the Maturity Date, Lessee may give Lessor and Agent irrevocable written notice
(the "Maturity Date Election Notice") that Lessee is electing to exercise the
Maturity Date Purchase Option. If Lessee does not give a Maturity Date Election
Notice on or before the date nine months prior to the Maturity Date, then Lessee
shall be obligated to remarket the Properties pursuant to Section 21. If Lessee
has elected to exercise the Maturity Date Purchase Option, then on the Maturity
Date Lessee shall pay to Lessor an amount equal to the Termination Value for all
the Properties (which the parties do not intend to be a "bargain" purchase
price) and, upon receipt of such amount plus all Rent and other amounts then due
and payable under this Lease and any other Operative Agreement, Lessor shall
transfer to Lessee or Lessee's designee all of Lessor's right, title and
interest in and to the Properties in accordance with Section 19.1.
20.3 Obligation to Purchase All Properties. If on the date which is
nine months prior to the Maturity Date the then Termination Value of all the
Properties is less than the
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Maximum Purchase Option Amount, then on the Maturity Date Lessee shall be
required to exercise its Purchase Option on the Maturity Date with respect to
all remaining Properties.
20.4 Partial Sale Option. If the Property includes any undeveloped
(excluding any de minimis site improvements) surplus land area that is not part
of Lessee's business operation, and provided that no Lease Default or Lease
Event of Default shall have occurred and be continuing, Lessee shall have the
option (the "Partial Sale Option"), exercisable by giving Lessor not less than
fifteen (15) days written notice of Lessee's election to transfer and convey any
such undeveloped surplus Land (the "Surplus Land") on the following terms and
conditions: (a) the Person to whom the transfer and conveyance is made shall not
be an Affiliate of Lessee; (b) the purchase price for the Surplus Land shall be
equal to or greater than Fair Market Sales Value thereof and the net proceeds
from the sale of the Surplus Land shall be retained by Lessee; (c) the
applicable Property, excluding the Surplus Land transferred and conveyed
therefrom, shall (on and after the date of such transfer and conveyance) (A)
satisfy all of the terms and conditions of the Operative Agreements and (B)
comply with all applicable Legal Requirements (including building, planning and
zoning codes) and (d) all Rent and other amounts due and payable by Lessee under
any Operative Agreement shall be paid on or prior to the date of such transfer
and conveyance. Lessee shall not be permitted to exercise the Partial Sale
Option unless it shall deliver to Lessor a certificate of Lessee, executed by an
executive officer of Lessee, certifying that the Fair Market Sales Value of the
Property without such Surplus Land shall be equal to or greater than the Project
Costs applicable to such Property; provided, however, that, in the event the
Fair Market Sales Value of the Surplus Land constitutes more than fifteen
percent (15%) of the Project Costs applicable to such Property, Lessor may
require Lessee to deliver an update to the Appraisal which indicates that the
Fair Market Sales Value of the Property without such Surplus Land shall be equal
to or greater than the Project Costs applicable to such Property.
SECTION 21. SALE OF PROPERTY
21.1 Sale Procedure (a) With respect to each Property, unless Lessee
shall have elected to purchase such Property and has paid the Purchase Option
Price with respect thereto, or otherwise terminated this Lease with respect
thereto and paid the Termination Value with respect thereto, Lessee shall (i)
pay to Lessor the Maximum Residual Guarantee Amount for such Property as
provided for in Section 21.1(c), and (ii) sell such Property to one or more
third parties for cash in accordance with Section 21.1(b).
(b) During the Marketing Period, Lessee, as nonexclusive broker for
Lessor, shall use its best efforts to obtain bids for the cash purchase of each
Property being sold for the highest price available in the relevant market,
shall notify Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have offered
to pay for such Property and shall provide Lessor with such additional
information about the bids and the bid solicitation procedure as Lessor may
request from time to time. Lessor (as directed by the Required Investors) may
reject any and all bids and may assume sole responsibility for obtaining bids by
giving Lessee written notice to that effect; provided, however, that
notwithstanding the foregoing, Lessor may not reject a bid if such bid, together
with any amounts to be paid pursuant to Section 21.3, is greater than or equal
to the sum of the Limited Deficiency Amount and all costs and expenses referred
to in Section 21.2(i) and is a
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23
bona fide offer by a third party purchaser who is not an Affiliate of Lessee. If
the price which a prospective purchaser shall have offered to pay for all or any
of the Properties is less than the sum of the Limited Deficiency Amount and all
costs and expenses referred to in Section 21.2(i), Lessor (as directed by the
Required Investors) may elect to retain the Property by giving Lessee at least
two Business Days' prior written notice of Lessor's election to retain the
Property, and upon receipt of such notice, Lessee shall surrender the Property
to Lessor pursuant to Section 10.1(c). Unless Lessor shall have elected to
retain the Property pursuant to the preceding sentence, Lessor shall sell the
Property free of any Lessor Liens attributable to it, without recourse or
warranty, for cash to the purchaser or purchasers identified by Lessee or
Lessor, as the case may be. Lessee shall surrender the Property so sold to each
purchaser in the condition specified in Section 10.1.
(c) On each date during the Marketing Period on which a Property is
sold pursuant to Section 21.1(b), and on the Maturity Date with respect to any
Properties remaining unsold, Lessee shall pay to Lessor the Maximum Residual
Guarantee Amount for such Property.
21.2 Application of Proceeds of Sale. Lessor shall apply the proceeds
of sale of each Property in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor for the payment of all
reasonable costs and expenses incurred by Lessor in connection with the
sale; and
(ii) SECOND, the balance shall be paid to the Agent to be applied
pursuant to the provisions of the Credit Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the sale
described in Section 21.1(b) with respect to any Property, less all expenses
incurred by Lessor in connection with such sale, shall be less than the Limited
Deficiency Amount for such Property at the time of such sale and if it shall
have been determined (pursuant to the Appraisal Procedure) that the Fair Market
Sales Value of such Property shall have been impaired by greater than expected
wear and tear during the Term, Lessee shall pay to Lessor within ten (10) days
after receipt of Lessor's written statement (i) the amount of such excess wear
and tear determined by the Appraisal Procedure or (ii) the amount of the Net
Sale Proceeds Shortfall, whichever amount is less.
21.4 Appraisal Procedure. For determining the Fair Market Sales Value
of a Property or any other amount which may, pursuant to any provision of any
Operative Agreement, be determined by an appraisal procedure, Lessor and Lessee
shall use the following procedure (the "Appraisal Procedure"). Lessor and Lessee
shall endeavor to reach a mutual agreement as to such amount for a period of ten
(10) days from commencement of the Appraisal Procedure, and if they cannot agree
within ten (10) days, then two qualified appraisers, one chosen by Lessee and
one chosen by Lessor, shall mutually agree thereupon, but if either party shall
fail to choose an appraiser within twenty (20) days after notice from the other
party of the selection of its appraiser, then the appraisal by such appointed
appraiser shall be binding on Lessee and Lessor. If the two appraisers cannot
agree within twenty (20) days after both shall have been appointed, then a third
appraiser shall be selected by the two appraisers or, failing agreement as to
such third appraiser within thirty (30) days after both shall have been
appointed, by the American Arbitration Association. The decisions of the three
appraisers shall be given within twenty (20) days of the appointment of the
third appraiser and the decision of the appraiser most different
<PAGE>
24
from the average of the other two shall be discarded and such average shall be
binding on Lessor and Lessee; provided that if the highest appraisal and the
lowest appraisal are equidistant from the third appraisal, the third appraisal
shall be binding on Lessor and Lessee. The fees and expenses of all of the
appraisers shall be paid by the Lessee. Notwithstanding the foregoing, for
determining the Fair Market Sales Value of a Property for any purpose under this
Section 21, in lieu of the foregoing Appraisal Procedure, an appraiser may be
selected by Lessor (as directed by the Required Lenders) and consented to by the
Agent (which consent shall not be unreasonably withheld).
21.5 Certain Obligations Continue. During the Marketing Period, the
obligation of Lessee to pay Rent with respect to each Property (including the
installment of Basic Rent due on the Maturity Date) shall continue undiminished
until payment in full to Lessor of the sale proceeds, the Maximum Residual
Guarantee Amount, if any, the amount due under Section 21.3, if any, and all
other amounts due to Lessor with respect to the Property. Lessor shall have the
right, but shall be under no duty, to solicit bids, to inquire into the efforts
of Lessee to obtain bids or otherwise to take action in connection with any such
sale, other than as expressly provided in this Section 21.
SECTION 22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason remain in possession
of a Property after the expiration or earlier termination of this Lease (unless
the Property is conveyed to Lessee), such possession shall be as a tenancy at
sufferance during which time Lessee shall continue to pay Supplemental Rent that
would be payable by Lessee hereunder were the Lease then in full force and
effect with respect to such Property and Lessee shall continue to pay Basic Rent
at an annual rate equal to the rate payable hereunder immediately preceding such
expiration or earlier termination; provided, however, that from and after the
sixtieth (60th) day Lessee shall remain in possession of such Property after
such expiration or earlier termination, Lessee shall pay Basic Rent at an annual
rate equal to two hundred percent (200%) of the Basic Rent payable hereunder
immediately preceding such expiration or earlier termination. Such Basic Rent
shall be payable from time to time upon demand by Lessor. During any period of
tenancy at sufferance, Lessee shall, subject to the second preceding sentence,
be obligated to perform and observe all of the terms, covenants and conditions
of this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenants at sufferance, to continue its occupancy and use
of the Property. Nothing contained in this Section 22 shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease as to any Property and nothing
contained herein shall be read or construed as preventing Lessor from
maintaining a suit for possession of any Property or exercising any other remedy
available to Lessor at law or in equity.
SECTION 23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in the enjoyment
and beneficial use of the Property as a result of the damage or destruction
thereof by fire, the
<PAGE>
25
elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and
Lessor shall in no event be answerable or accountable therefor.
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Lessee may not assign this Lease or
any of its rights or obligations hereunder in whole or in part. Provided no
Event of Default exists and is continuing, Lessee may, without the consent of
Lessor, sublease the Property or a portion thereof to any Person. No sublease or
other relinquishment of possession of the Property shall in any way discharge or
diminish any of Lessee's obligations to Lessor hereunder and Lessee shall remain
directly and primarily liable under this Lease as to the Property, or any
portion thereof, so sublet. Any sublease of the Property shall be made subject
to and subordinate to this Lease and to the rights of Lessor hereunder and shall
be terminable by Lessor upon the termination of this Lease.
24.2 Subleases. Promptly following the execution and delivery of any
sublease permitted by this Section 24, Lessee shall deliver a copy of such
executed sublease to Lessor and the Agent.
SECTION 25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates. At any time and from time to time upon not
less than twenty (20) days prior request by Lessor, the Lessee shall furnish to
the Lessor a certificate signed by an individual having the office of vice
president or higher in the Certifying Party certifying that this Lease is in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the Basic Rent
or Renewal Rent and Supplemental Rent have been paid; to the best knowledge of
the signer of such certificate, whether or not the Lessor is in default under
any of its obligations hereunder (and, if so, the nature of such alleged
default); and such other matters under this Lease as the Lessor may reasonably
request. Any such certificate furnished pursuant to this Section 25 may be
relied upon by the Lessor, and any existing or prospective mortgagee, purchaser
or lender, and any accountant or auditor, of, from or to the Lessor (or any
Affiliate thereof).
SECTION 26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
<PAGE>
26
SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender. (a) As of the Expiration Date, if any
Default shall have occurred and be continuing under the Lease or the
representations and warranties set forth in Sections 7.5 and 7.7 of the
Participation Agreement shall not be true and correct in all material respects,
then Lessee shall be deemed to have irrevocably exercised the Maturity Date
Purchase Option pursuant to Section 20.2.
(b) Except as otherwise expressly provided in this Lease, no surrender
to Lessor of this Lease or of all or any portion of the Property or of any
interest therein shall be valid or effective unless agreed to and accepted in
writing by Lessor and, prior to the payment or performance of all obligations
under the Credit Documents, the Agent, and no act by Lessor or the Agent or any
representative or agent of Lessor or the Agent, other than a written acceptance,
shall constitute an acceptance of any such surrender.
SECTION 28. NO MERGER OF TITLE
28.1 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, (b) the fee estate in the Property, except as may
expressly be stated in a written instrument duly executed and delivered by the
appropriate Person, or (c) a beneficial interest in Lessor.
SECTION 29. NOTICES
29.1 Notices. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person to be effective shall be in writing (including by facsimile transmission)
and shall be deemed to have been duly given or made (a) when delivered by hand,
(b) one Business Day after delivery to such nationally recognized courier
service specifying overnight delivery, (c) three Business Days after being
deposited in the mail, certified or registered, postage prepaid or (d) in the
case of facsimile notice, when sent and receipt has been confirmed, addressed to
such Person as indicated:
<PAGE>
27
If to Lessee:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: Chief Financial Officer
Fax: (503) 872-1349
With a copy to:
KinderCare Learning Centers, Inc.
650 NE Holladay, Suite 1400
Portland, Oregon 97232
Attention: General Counsel
Fax: (503) 872-1391
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Attn: Gary R. Barnum
Fax: (503) 220-2480
KinderCare Learning Centers, Inc.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Attention: Nils Brous
Fax: (212) 750-0003
If to Lessor:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Fax: (302) 651-1000
with a copy to the Agent:
The Chase Manhattan Bank
270 Park Avenue
New York, NY 10017
Attention: Credit and Lending Group
Facsimile: (212) 972-0009
and to the Investor:
<PAGE>
28
Scotiabanc Inc.
c/o The Bank of Nova Scotia
555 SW 5th Ave., Suite 750
Portland, OR 97204-2078
Attention: Daryl Hogge
Facsimile: (503) 222-5502
or such additional parties and/or other address as such party may hereafter
designate.
SECTION 30. MISCELLANEOUS
30.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of Lessee or Lessor arising
from events commencing prior to the expiration or earlier termination of this
Lease shall survive such expiration or earlier termination. If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any right or option of
Lessee provided in this Lease, including any right or option described in
Sections 15, 16, 22 or 21, would, in the absence of the limitation imposed by
this sentence, be invalid or unenforceable as being in violation of the rule
against perpetuities or any other rule of law relating to the vesting of an
interest in or the suspension of the power of alienation of property, then such
right or option shall be exercisable only during the period which shall end
twenty-one (21) years after the date of death of the last survivor of the
descendants of Franklin D. Roosevelt, the former President of the United States,
Henry Ford, the deceased automobile manufacturer, and John D. Rockefeller, the
founder of the Standard Oil Company, known to be alive on the date of the
execution and delivery of this Lease.
30.2 Amendments and Modifications. Neither this Lease nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions of this
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
30.4 Headings and Table of Contents. The headings and table of
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
30.5 Counterparts; Original Lease. This Lease may be executed in any
number of counterparts, each of which shall be an original, but all of which
shall together constitute one and the same legally binding instrument.
Notwithstanding the foregoing, to the extent this Lease constitutes chattel
paper, as such term is defined in the UCC, a single executed original of this
Lease containing the receipt of lessor therefor on or following the signature
page thereof shall be the "original executed counterpart" of this Lease and no
security interest in this Lease may be created through the transfer or
possession of any counterpart other than the "original executed counterpart".
<PAGE>
29
30.6 GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK (INCLUDING 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW
BUT EXCLUDING TO THE MAXIMUM EXTENT PERMITTED BY LAW ALL OTHER CHOICE OF LAW AND
CONFLICTS OF LAW RULES) APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION,
PERFECTION AND ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF
REMEDIES WITH RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE IN WHICH THE APPLICABLE PROPERTY IS
LOCATED.
30.7 Limitations on Recourse. Except as expressly set forth in the
Operative Agreements, Lessee agrees to look solely to Lessor's estate and
interest in the Property, the proceeds of sale thereof, any insurance proceeds
or any other award or any third party proceeds received by Lessor in connection
with the Property for the collection of any judgment requiring the payment of
money by Lessor in the event of liability by Lessor, and no other property or
assets of Lessor, the Trust Company member, partner or other owner of an
interest, direct or indirect, in Lessor, or any director, officer, shareholder,
employee, beneficiary, Affiliate of any of the foregoing shall be subject to
levy, execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to this Lease, the relationship of Lessor and
Lessee hereunder or Lessee's use of the Property or any other liability of
Lessor to Lessee; provided that nothing in this Section shall be construed to
impair or limit the rights of Lessee against the Investor under the Operative
Agreements. Nothing in this Section shall be interpreted so as to limit the
terms of Section 6.1 or 6.2.
30.8 Memorandum of Lease. This Lease shall not be recorded, but Lessor
and Lessee shall, upon the execution and delivery of each Lease Supplement,
execute and deliver a memorandum of this Lease (a "Memorandum of Lease")
substantially in the form of Exhibit B and otherwise in form suitable for
recording under the laws of the jurisdiction in which the Property covered by
such Lease Supplement is located, which memorandum shall be recorded at Lessee's
sole cost and expense.
30.9 Priority. On and prior to the Maturity Date, the Mortgage shall
be subject and subordinate to this Lease and following the Maturity Date, the
Mortgage, at the sole election of the Agent, shall be senior to this Lease
without any further act by any Person.
30.10 Ground Lease. During the Term, Lessee shall observe and perform
all of the obligations of Lessor under any Ground Lease (including the payment
of all rent and other amounts thereunder) and, in connection therewith, shall,
prior to the occurrence and continuation of a Lease Event of Default, have the
benefit of all of Lessor's rights as lessee under any Ground Lease.
30.11 Construction Period Limitation. Notwithstanding any provisions
in this Lease to the contrary, upon the occurrence of a default by the Lessee
with respect to a Construction Period Property during the Construction Period,
the Lessee shall not have any
<PAGE>
30
greater obligations hereunder with respect to such Construction Period Property
than the Construction Agent has with respect to such Construction Property under
the Agency Agreement.
30.12 Security Agreement and Financing Statement. The mailing address
of debtor (the Lessee herein) and of the secured party (the Lessor herein) from
which information concerning security interests hereunder may be obtained is as
set forth on the signature pages of this Agreement. A carbon, photographic or
other reproduction of this Agreement or of any financing statement related to
this Agreement shall be sufficient as a financing statement for any of the
purposes referenced herein.
30.13 State Law Recitals and Provisions.
(a) Statutory Notice Concerning Insurance. Effective January 1,
1996, Chapter 313 of Oregon Laws 1995 amends ORS 746.201 to require that in
loans in which the lender has the right to purchase insurance in the event the
borrower fails to carry insurance, the loan document must contain a warning in
substantially the following form in 10-point type:
"WARNING
"Unless you provide us with evidence of the insurance coverage as
required by our contract or loan agreement, we may purchase insurance
at your expense to protect our interest. This insurance may, but need
not, also protect your interest. If the collateral becomes damaged,
the coverage we purchase may not pay any claim you make or any claim
made against you. You may later cancel this coverage by providing
evidence that you have obtained property coverage elsewhere.
"You are responsible for the cost of any insurance purchased by
us. The cost of this insurance may be added to your contract or loan
balance. If the cost is added to your contract or loan balance, the
interest rate on the underlying contract or loan will apply to this
added amount. The effective date of coverage may be the date your
prior coverage lapsed or the date you failed to provide proof of
coverage.
"The coverage we purchase may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for
property damage coverage or any mandatory liability insurance
requirements imposed by applicable law."
(b) Statutory Notice Concerning Written Agreements. UNDER OREGON
LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY LENDERS AFTER OCTOBER 3,
1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL,
FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST
BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY LENDERS TO BE ENFORCEABLE.
<PAGE>
31
30.14 Limited Power of Attorney. To the extent required by Lessee,
Lessor hereby agrees to provide Lessee with a Limited Power of Attorney
permitting Lessee to act on behalf of Lessor in connection with the matters
referenced in Section 12.2 (provided, all such actions shall be conducted in
compliance with the terms of such Section 12.2, without modification of such
provisions pursuant to the utilization of the Limited Power of Attorney by
Lessee); provided, however, the Limited Power of Attorney may be utilized only
to the extent no Default or Event of Default shall have occurred or be
continuing at the time of the contemplated exercise of the Limited Power of
Attorney.
To the extent any Event of Default has occurred and is continuing or the
Lessee has received written notice of the occurrence of any Default, the Limited
Power of Attorney shall immediately terminate and be void and of no further
force or effect unless reinstated in writing by the Lessor and acknowledged and
agreed to by the Agent. Each action taken by the Lessee under the Limited Power
of Attorney shall automatically, without further action, be deemed to be a
representation and warranty as of such date that the conditions set forth in the
first sentence of this Section 30.14 are satisfied in full as of such date.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease, Security
Agreement and Financing Statement be duly executed and delivered as of the date
first above written.
KINDERCARE LEARNING CENTERS, INC.
By: DAN R. JACKSON
------------------------------------
Name: Dan R. Jackson
Title: Vice President
Financial Control & Planning
THE KINDERCARE REALTY TRUST 1999
By: WILMINGTON TRUST COMPANY, not
individually but solely as Trustee
By: JILL K. MORRISON
------------------------------------
Name: Jill K. Morrison
Title: Financial Services Officer
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on this 2nd day of September, 1999.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By: TIMOTHY J. STORMS
------------------------------------
Name: Timothy J. Storms
Title: Managing Director
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<S> <C>
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<PERIOD-START> MAY-29-1999
<PERIOD-END> SEP-17-1999
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<PP&E> 750,732
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<BONDS> 444,102
0
0
<COMMON> 95
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<TOTAL-LIABILITY-AND-EQUITY> 655,531
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