<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 28, 1999
Commission File Number 1-10226
THE ROWE COMPANIES
(Exact name of registrant as specified in its charter)
Nevada 54-0458563
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1650 Tysons Boulevard, Suite 710, McLean, Virginia 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 847-8670
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- ----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 11, 2000 (the exclusion from such amount of the market
value of the shares owned by any person shall not be deemed to be an admission
by the registrant that such person is an affiliate of the registrant) was
$73,815,416.
As of February 11, 2000, there were issued and outstanding 13,245,624 shares of
the registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
-------- ------------------
Portions of the Annual Report for the year ended
November 28, 1999 Parts I, II and IV
Portions of the Annual Proxy Statement for the year ended
November 28, 1999 Part III
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PART I
Item 1. Business.
General
The Rowe Companies (the "Company") is a synergistic collection of manufacturers
and retailers in the home furnishings industry. Originally founded in 1946 as
Rowe Furniture Corporation, we changed our name in March 1999 to more
appropriately reflect the expanded scope of the Company's operations.
In January 1998, the Company created a new subsidiary, The Wexford Collection,
Inc., ("Wexford"), to acquire the assets and liabilities of J&M Designs, Ltd. In
October 1998, the Company acquired The Mitchell Gold Company, ("Mitchell Gold").
In August 1999, the Company acquired Storehouse, Inc., ("Storehouse"). These
companies joined Rowe Furniture, Inc., ("Rowe"), our core upholstered furniture
subsidiary, and Home Elements, Inc., ("Home Elements"), the Company's internally
grown retail furniture chain. Home Elements previously operated under the name
The Rowe Showplace.
The Company operates in two segments of the home furnishings industry, the
wholesale (manufacturing) home furnishings segment and the retail home
furnishings segment. The wholesale home furnishings segment includes the design
and manufacture of upholstered and leather furniture, as well as casual wood
furniture. Upholstered and leather furniture includes sofas, loveseats and
chairs, covered in fabric or leather. The retail home furnishings segment sells
upholstered and leather furniture (primarily obtained from the wholesale
segment), casegoods, dining sets, rugs and other home furnishing accessories
through Company-owned stores located primarily throughout the mid-Atlantic,
southeastern, and southwestern United States. The information on pages 28 to 29
in the Annual Report to Stockholders for the fiscal year ended November 28,
1999, is included in Exhibit 13 hereto and incorporated herein by reference.
The Company is incorporated under the laws of Nevada. Its principal executive
offices are located at 1650 Tysons Boulevard, McLean, Virginia 22102, and its
telephone number is (703) 847-8670. Unless the context indicates otherwise,
references herein to the "Company" include The Rowe Companies, its predecessors,
and its subsidiaries.
Executive Officers Who Are Not Directors
Barry A. Birnbach has been in the service of the Company since 1968. He has
served as the Company's Vice President of Corporate Development since March
1999. Prior to becoming Vice President of Corporate Development, he was Vice
President - Special Account Sales at Rowe. He is the brother of Gerald M.
Birnbach, the Company's President and Chairman of the Board.
Timothy J. Fortune has been in the service of the Company since 1997. He has
served as the Company's Vice President of Human Resources since March 1999.
Prior to joining the Company, Mr. Fortune was Human Resources Administrator of
the Virginia Department of Transportation from 1993 until August 1997.
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The Industry
As reported by the American Furniture Manufacturers Association in December
1999, the following table sets forth estimated factory shipments for the
domestic furniture industry in general, and the upholstered furniture segment in
particular, during each of the four years ended December 31, 1999.
<TABLE>
<CAPTION>
1996 1997 1998 1999*
----------------------------------
(in billions)
<S> <C> <C> <C> <C>
Industry shipments....................... $20.0 $21.2 $23.0 $25.0
Upholstered furniture shipments.......... 7.9 8.5 9.5 10.5
</TABLE>
* Estimated
The principal categories of furniture products include wood, upholstered and
metal furniture products. Of these categories, wood is the largest, representing
approximately half of total industry sales, while upholstered furniture
represents approximately 40% and metal and other products account for the
balance. Within each category, furniture manufacturers generally focus on
particular price ranges and styles.
The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly
influenced by consumer behavior and confidence, personal disposable income,
demographics, housing activity, interest rates, and credit availability. The
upholstered segment of the furniture industry generally has followed the same
trends as the rest of the furniture industry. There can be no assurance that an
economic downturn would not have a material adverse effect on the Company.
Wholesale Home Furnishings Segment
Product Lines
The wholesale home furnishings segment's products encompass a full line of
upholstered furniture including sofas, loveseats, occasional chairs and sleep
sofas, covered in fabric or leather. The wholesale segment's products are
available in over 1,000 different fabrics. Styles offered include traditional,
contemporary and country. The wholesale segment also produces a line of casual
wood furniture.
The wholesale segment's product strategy is to provide a wide choice of
furniture styles and fabrics while providing high quality at competitive prices.
The wholesale segment continually reviews and evaluates its designs, and
primarily on a semi-annual basis adds and discontinues designs, as it deems
appropriate. The wholesale segment identifies trends in styles, colors and
patterns through independent research, contacts with the wholesale segment's
customers and the occasional use of independent designers. Management also
solicits opinions from its customers and manufacturing and marketing employees
prior to final design selection.
Marketing and Sales
The wholesale segment has developed a broad and diverse national customer base.
The wholesale
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segment sells its manufactured products primarily through commissioned sales
personnel who are employees of the wholesale segment, dedicated to marketing the
wholesale segment's products exclusively. Management believes that this
arrangement gives the wholesale segment a competitive advantage over many of its
competitors, which sell their products through independent sales representatives
who represent more than one manufacturer. The wholesale segment's products are
sold to over 1,100 national, regional and local furniture retailers, including
Jordan's Furniture, Sears, Crate & Barrel, Pottery Barn, Restoration Hardware
and the Company's wholly-owned subsidiaries, Home Elements and Storehouse.
While the wholesale segment sells its products throughout the United States,
management believes that there are opportunities for greater penetration in the
regions where the wholesale segment's products are not widely distributed. The
wholesale segment has targeted key retailers in these markets as opportunities
for further growth.
The general marketing practice in the furniture industry is to exhibit products
at international and regional furniture markets. The wholesale segment displays
its product lines and introduces new products in April and October of each year
at an eight-day furniture market held in High Point, North Carolina. The
wholesale segment maintains two showrooms totaling 67,400 square feet at the
High Point market. In addition, the wholesale segment has developed plans to
increase sales in foreign markets. Approximately 2.8% of 1999 segment sales were
to customers located outside of the United States.
Retail Distribution
Despite the recent consolidation in the retail furniture industry,
management believes there are ample opportunities to expand the wholesale
segment's retail distribution network. The wholesale segment strives to maintain
strong relationships with, and increase sales to its existing retailers. It
also attempts to increase sales by adding new retailers, particularly in
geographic regions where its products are not widely distributed, such as the
Southwest and the West. When adding retailers, the wholesale segment targets
what it believes to be financially sound retailers committed to progressive
marketing approaches and the desire to carry a broad selection within the
wholesale segment's product line.
Dedicated Galleries. An objective of the wholesale segment's marketing
program, through its Rowe Furniture subsidiary, is to increase the number of
dedicated, independently-owned, in-store, furniture galleries. A dedicated
gallery is an area within an independent retail furniture store where the
wholesale segment's products are displayed on an exclusive basis together with
other manufacturers' complementary furniture accessories. Rowe implemented the
gallery program featuring its furniture in order to increase market penetration.
There are approximately 100 dedicated galleries in operation. The gallery
program accounted for more than 7% of the wholesale segment's fiscal 1999
shipments. As such, a material reduction in sales at such stores may have an
adverse affect on the wholesale segment's results.
A dedicated gallery offers the retail customer a choice of a wide variety
of contemporary and traditional upholstered furniture styles, as well as
approximately 900 different fabrics. Most locations have a point-of-sale
computer system that allows the consumer to combine fabrics and styles and have
an immediate picture of the finished product. By choosing various combinations
of style and fabric, the consumer is able to customize his or her selection.
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Key Customers. The wholesale segment sells its products to over 1,000
accounts with normal credit terms being net 30 days. Shipments to the wholesale
segment's top three customers as a percentage of net shipments were 17% in 1999,
19% in 1998 and 19% in 1997. Shipments to the wholesale segment's top ten
customers as a percent of net shipments amounted to 31% in 1999, 30% in 1998 and
34% in 1997. Shipments to one customer, Levitz Furniture, as a percent of net
shipments amounted to 4% in 1999, 10% in 1998 and 16% in 1997. The decline in
net shipments to Levitz reflects the impact of store closings following its
filing under Chapter XI in 1997. The Company has purchased insurance in the
amount of $1.2 million with an expiration date of May 2000 to help protect this
exposure. While such risk coverage has been available in recent periods at a
reasonable cost, the Company may not be able to secure similar coverage at
reasonable cost when this insurance expires.
Manufacturing and Distribution
The wholesale segment manufactures its products in seven production
facilities, of which five are owned and two are leased. Two facilities
manufacture upholstered furniture; one facility manufactures upholstered and
leather furniture; one facility manufactures wood furniture and one facility is
used for frame storage and assembly. The remaining two facilities manufacture
upholstered frames and wood components in addition to kiln-drying lumber for
outside customers. Total manufacturing space is approximately 1.5 million square
feet.
Manufacturing Process. The wholesale segment primarily utilizes a
vertically integrated manufacturing process which includes kiln-drying of
hardwood, wood milling, frame construction, fabric and leather cutting, sewing,
foam cutting and filling, upholstery and final assembly of the upholstered
product. Rowe utilizes computer-aided design patterns and CNC Routers to
manufacture frames for upholstered furniture and both Rowe and Mitchell Gold
utilize specialized machines in the fabric cutting process which facilitate
design work, help maximize fabric yield, and increase the efficiency of the
assembly process. The completed pieces of upholstered furniture are then
cleaned, inspected and packed for shipping. Additionally, Wexford utilizes
advanced technology in its manufacturing of wood furniture with the recent
addition of a GreCon Dimter cutting system.
Manufacturing Efficiencies. Management has taken a number of steps to
improve manufacturing efficiencies, including implementation of computerized
systems in its manufacturing facilities to more effectively manage its
inventories, purchasing, labor and manufacturing processes; the development of
its employee involvement program; and the establishment of new internal systems
to control overhead and material usage. In addition, the wholesale segment has
added modern equipment, such as computerized routers utilized in its milling
operations and new computerized cover cutting machines that enhance efficiencies
and material utilization. Management believes through a combination of increased
efficiencies, improved product quality, accelerated deliveries and stable
pricing, the wholesale segment will maintain a competitive advantage in
marketing its products.
Product Quality and Value. The wholesale segment is committed to providing
high quality, value oriented furniture at competitive prices. Management
believes the wholesale segment adheres to strict quality standards in all
aspects of design and production, including material selection, frame design and
construction, workmanship, and appearance. Product quality improvements in
recent
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years include better undercarriage construction, the use of higher quality
cushioning materials and improved fabric matching. A lifetime, limited warranty
applicable to most of the wholesale segment's products covering the frames,
springs, mechanisms and selected cushions reflects the wholesale segment's
commitment to high quality. The wholesale segment has been successful in
providing this quality while generally holding prices constant in recent years.
Employee Involvement and Compensation. A key aspect of the wholesale
segment's manufacturing process is its employee involvement and compensation
program. This program involves workers in the improvement of the manufacturing
process by providing incentives to increase productivity, to reduce costs and to
improve quality. At Rowe, employees are compensated primarily on hourly rates
plus bonuses for productivity improvements and cost reductions on a facility-
wide basis. Management believes that this program provides incentive for
employees to contribute to facility-wide efficiency, quality improvements and
cost reductions. Since implementation of the program, Rowe has experienced a
significant increase in employee suggestions leading to efficiency improvements
and cost reductions. On a facility-wide basis, 1999 monthly incentive bonuses
ranged from 0% to approximately 12% of hourly compensation. Salaried employees
also participate in this program; however, their bonuses cannot exceed the
highest amount paid to an hourly employee. At Mitchell Gold, a piecework system
is the primary method of compensation for production employees, and an hourly
rate compensation system is utilized at Wexford.
Dedication to Customer Service. The wholesale segment is dedicated to
providing a high level of service to all its customers. The wholesale segment
maintains close contact and communicates frequently with its customers in order
to better identify, understand and meet their needs. Management believes the
utilization of wholesale segment-employed sales persons enables it to better
communicate with its customers.
Important aspects of the wholesale segment's service to certain customers
include its automated order entry, bar coding and electronic data interchange
systems. These systems give customers the ability to place orders directly, and
allows the wholesale segment to monitor the status of orders and track inventory
and sales activity. The wholesale segment is in the process of enhancing the
capabilities of these systems and increasing the number of customers who utilize
them. In addition, the wholesale segment has introduced point-of-sale computer
systems into Home Elements stores and other dealer locations that allow
retailers to display for consumers full-color pictures of various combinations
of furniture styles and fabric patterns. The wholesale segment has established
regional repair service centers so that it can respond quickly to consumers'
needs.
Another special emphasis of the wholesale segment's customer service is the
prompt delivery of its products, a significant portion of which are manufactured
and shipped generally within 30 days of receipt of an order. The wholesale
segment's order entry, credit approval, manufacturing and shipping systems are
all designed to provide prompt delivery to its customers.
Computer Systems. The wholesale segment makes extensive use of a
computerized management information system (MIS) in the manufacturing process.
The MIS, which includes software developed by Rowe, helps manage order entry,
purchasing, labor, inventories, receivables and product shipments. Management
believes that its MIS is advanced by furniture industry standards; however, the
wholesale segment intends to continue to upgrade the system by developing and/or
purchasing new software to handle new applications and additional demands of
anticipated future growth.
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Manufacturing Capacity. The wholesale segment primarily operates its
manufacturing facilities on a one-shift, five-or-six-day per week basis;
however, partial or full second shifts are in operation at all seven of its
facilities. Management believes that the wholesale segment could expand
production within existing facilities without substantial capital expenditures
by increasing personnel on first and second shifts. However, to meet anticipated
growth for year 2000 and beyond, and to lower production costs, plans for the
wholesale segment include: (1) a newly constructed 435,000 sq. ft. production
facility in Elliston, VA which replaces Rowe's Salem, VA upholstery plant; (2) a
possible expansion in 2001 of the Mitchell Gold manufacturing facility located
in Taylorsville, NC; (3) a possible expansion of the upholstery facility in
Poplar Bluff, MO in 2001 and (4) the possible purchase and/or construction in
2001 or 2002 of an additional upholstery production facility.
Backlog. The wholesale segment generally manufactures its products in
response to actual customer orders and typically ships the finished product
within 30 days following receipt of the related order, depending upon fabric
availability. Accordingly, the level of backlog at any particular time is
limited, and is not necessarily indicative of the level of future shipments. The
wholesale segment's backlog of unshipped orders was approximately $23 million as
of November 28, 1999, compared to $22 million as of November 29, 1998. The
wholesale segment anticipates that 100% of the backlog as of November 28, 1999
will be shipped in 2000.
Distribution. Rowe's products are primarily shipped to its customers
through a dedicated carriage service with a nationally recognized truck leasing
company. Under this agreement, Rowe's products are delivered in accordance with
Rowe's specifications on a modern fleet of over-the-road tractors and trailers
that prominently display the Rowe Furniture name. Management believes that this
agreement offers favorable terms, allows it to meet its delivery deadlines and
improves Rowe's name recognition. This agreement was renewed in 1999 for an
additional six years. West Coast shipments are provided by what management
believes to be a favorable arrangement for carriage of Rowe's products with a
third party motor carrier. International shipments of upholstered furniture are
primarily shipped in full containers utilizing third-party freight forwarders.
Approximately 80% of Rowe's fiscal year 1999 shipments were delivered under
these arrangements. Both Wexford and Mitchell Gold primarily ship product via
common carriers utilizing either full or partial loads.
Raw Materials
The raw materials used by the wholesale segment include fabrics, leather,
lumber, plywood, assembled frames, polyurethane foam, metal components,
mattresses and finishing materials. Other than lumber, fabric and leather, all
raw materials used by the wholesale segment are generally available on an "as
needed" basis. The wholesale segment maintains what it believes to be an
adequate supply of raw materials in inventory.
The wholesale segment currently obtains its raw materials from a limited
number of suppliers, and in the case of hardwood plywood, primarily from a
single supplier. However, management does not believe the wholesale segment is
dependent upon a single supplier for any of its materials, as substitute
suppliers are available. Management believes that its sources of raw materials
are adequate. Management forms strong relationships with its suppliers and
negotiates favorable prices for its raw materials.
To improve quality, maximize the opportunities to implement labor saving
technology, hedge
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against the potential of rising wood costs and free up kiln capacity, Rowe has
increased the substitution of hardwood plywood for hardwood in certain aspects
of the construction of its furniture frames. Because plywood construction is
less labor-intensive, and in many respects more structurally sound than hardwood
construction, this method has improved product quality while helping to reduce
overall cost.
Retail Operations
Retail Home Furnishings Segment
The retail home furnishings segment includes the Home Elements and
Storehouse retail furniture chains. The retail segment is a significant
customer of the wholesale segment, and would be included in the top ten
customer list if the retail segment was an unaffiliated customer.
The retail segment operates 59 retail stores ranging in size from 4,000 to
20,000 square feet and three distribution centers averaging approximately 75,000
square feet each. All retail store locations and distribution centers are
leased. The stores are located throughout the mid-Atlantic, southeastern, and
southwestern United States, particularly in Atlanta, Georgia, Florida, Texas
and the Washington, DC/Baltimore metropolitan area. These stores sell
upholstered and leather furniture, virtually all of which is provided by the
wholesale segment; casegoods, such as tables, bedrooms, chairs and
entertainment centers (some of which is provided by the wholesale segment); and
lamps, rugs and other accessories.
The retail segment generally targets a well-educated, middle to upper
income customer. While in the past advertising efforts have been primarily
print-based ads in newspapers and inserts, the segment began utilizing
television ads during 1999. The segment anticipates increased use of
television advertising in fiscal year 2000. Advertising costs are expected to
be higher in fiscal year 2000 as a result of this change in advertising, full
year effect of owning Storehouse and the addition of new stores, some of which
are located in new markets for the retail segment.
The retail segment anticipates adding approximately 10 to 12 new stores in
fiscal year 2000. The segment also anticipates relocating several stores to
larger and more favorable locations during the year. Year-to-date through mid-
February 2000, two stores in Louisiana have closed, two stores have opened in
Florida, and two stores have relocated. The retail segment has expanded its
administrative staff and improved its systems capabilities in support and
anticipation of current and planned growth.
As the 1999 results include only four months of operations of Storehouse,
fiscal 2000 results are expected to include significantly higher revenues and
gross profit and additional selling and administrative expenses. In addition,
costs associated with opening new stores will also result in increased selling
and administrative expenses in this segment in fiscal 2000.
Governmental Regulations and Environmental Considerations
The Company's operations are required to meet federal, state and local
regulatory standards in the areas of safety, health and environmental pollution
controls. Historically, compliance with these standards has not had a material
adverse effect on the Company's operations. Management believes that the
wholesale segment's plants are in compliance, in all material respects, with
applicable
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federal, state and local laws and regulations concerned with safety, health and
environmental protection.
The Company currently anticipates increased federal and state environmental
and health and safety regulations affecting the furniture industry, particularly
regarding flammability standards, emissions from paint and finishing operations
and wood dust levels in the manufacturing process. Any such additional
regulations could affect the wholesale segment's upholstery, wood milling and
finishing operations. The industry and its suppliers are attempting to develop
water-based finishing materials to replace commonly used organic-based finishes,
which are a major source of regulated emissions. The Company cannot at this time
estimate the impact of any new regulations on the Company's operations or the
costs of compliance.
Competition
The furniture industry is highly competitive and includes a large number of
manufacturers and retailers. The market in which the Company competes includes
a large number of manufacturers of upholstered and wood furniture as well as a
growing base of specialty furniture retailers. Certain of the Company's
competitors have greater financial resources than the Company. Management
believes that the high quality, design and competitive pricing of the Company's
products, the Company's unique retail format, the Company's reputation among
retailers and customers and the Company's commitment to customer service have
enabled the Company to compete successfully in this market.
Employees
As of November 28, 1999, the Company employed approximately 3,500 full-time
employees, of whom approximately 600 are in management, supervisory and sales
positions. None of the Company's employees are covered under a collective
bargaining agreement. The Company considers its employee relations to be good.
Trademarks
The Company has registered its "Rowe", "A Whole New Way to Buy Furniture",
"The Rowe ShowPlace", "The ShowPlace Coordinated Home Furnishings by Rowe",
"Rowe First in Fashion", "Regency Manor", "The Rowe ShowMe Machine", "Limited
Editions", "The ShowPlace", "Cover Ups", "Comfortable Stuff", "Comfortable Stuff
by Rowe" and "Robin Bruce" trademarks with the United States Patent and
Trademark Office. Applications for registration of the Company's "Mitchell
Gold", "Home Elements", "Home Wear", "MG", and "Room Sense" trademarks are
pending before the United States Patent and Trademark Office. The Company also
owns the "The Wexford Collection" and "The Wexford Group" trademarks, which are
registered with the United States Patent and Trademark Office and the California
Secretary of State. In addition, the Company has certain of its trademarks
registered in Australia, Canada, the European Community, Germany and Mexico, and
applications for registration of certain of the Company's trademarks are pending
in Australia, Brazil, Canada, the European Community and Mexico. The Company is
in the process of applying for registration of certain of its marks in
Argentina, Chile, the Dominican Republic and Saudi Arabia. Management believes
that its trademark position is adequately protected in all markets in which the
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Company does business. Management also believes that the Company's trade names
are recognized by dealers and distributors and are associated with a high level
of quality and value.
Insurance
The Company maintains what management believes is a complete liability and
property insurance program. Additionally, the Company maintains self-insurance
programs for that portion of health care costs not covered by insurance.
Financing
The Company utilizes bank financing to partially fund working capital
requirements, capital expenditures, stock repurchases and funding of
acquisitions. In 1998 and 1999, overall funding requirements increased and the
Company entered into two borrowing arrangements in November 1998 and July 1999
in the form of two $25 million revolver loans. Beyond this financing, the
Company maintains committed credit lines in the amount of $31 million through
three banking institutions. At November 28, 1999, $47 million of the $50 million
of revolver loans were outstanding. In addition, $4.2 million of short-term
borrowings were outstanding under the Company's short-term credit facilities.
As a result of the additional revolver loan as well as recent increases in
interest rates, interest expense will increase in fiscal 2000.
In conjunction with the purchase of Mitchell Gold, the Company guaranteed
and assumed responsibility for the $6.0 million Industrial Revenue Bond used to
finance the construction of a new production facility.
In August 1999, the Company executed an agreement to enter into a five-year
lease for its new upholstery manufacturing facility located in Elliston,
Virginia. In addition, the Company anticipates that it will enter into
operating leases of approximately $1.0 million for office equipment and rolling
stock at this location. As a result of these financing transactions, additional
overhead expense in the form of rent and equipment lease charges will be
incurred in 2000 and beyond.
Goodwill
The Company recognized approximately $2.6 million in goodwill from the
acquisition of Wexford, approximately $10 million in goodwill from the
acquisition of Mitchell Gold and $15.4 million from the acquisition of
Storehouse. Additional goodwill will be incurred in 2000, if the interim
earnout to Mitchell Gold is earned for the two-year period ending April 30,
2000. Given the timing of the acquisition of Storehouse in 1999 and the
anticipated payment of the Mitchell Gold earnout in 2000, the charge to the
Company in 2000 for goodwill amortization will increase significantly.
Item 2. Properties.
The following table sets forth certain information concerning the wholesale
segment's manufacturing facilities:
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<TABLE>
<CAPTION>
Approximate
Size in Owned or
Location Description Square Feet Leased
-------- ----------- ----------- ------
<S> <C> <C> <C>
Salem, Virginia............. Administrative Office (1) 335,000 Owned
Salem, Virginia............. Manufacturing 241,000 Owned
Elliston, Virginia.......... Manufacturing (1) 435,000 Leased
Poplar Bluff, Missouri...... Manufacturing 300,000 Owned
Morehouse, Missouri......... Manufacturing 136,000 Owned
Carson, California.......... Administrative Office 92,000 Leased
and Manufacturing
Taylorsville, N. Carolina... Administrative Office 265,000 Owned
and Manufacturing
Taylorsville, N. Carolina... Manufacturing 50,000 Owned
</TABLE>
(1) In January 2000, the manufacturing operations were relocated from Salem to
Elliston. The administrative offices will relocate from Salem to Elliston
upon completion of this facility. The Salem property is listed for sale.
In addition, the Company leases executive and administrative offices in McLean,
Virginia, administrative offices in Atlanta, Georgia, 59 retail store locations,
3 retail distribution centers and 2 showrooms. The Company considers these
facilities to be adequate and well maintained.
In addition, the Company owns the following properties that are held for
investment and are leased on a net basis:
<TABLE>
<CAPTION>
Approximate
Lease Size in
Location Expires Description Square Feet
-------- ------- ----------- ------------
<S> <C> <C> <C>
Christiansburg, Virginia... Various thru Industrial 79,000*
02-28-02
Jessup, Maryland........... Various thru Office/Industrial 180,000
12-31-04
Sylmar, California......... 03-31-04 Industrial 115,000
</TABLE>
* 20,000 square feet is currently leased
Investment properties located in Christiansburg, Virginia and Sylmar,
California were originally acquired by the Company between 1972 and 1985 for
utilization as manufacturing facilities. In past years, the Company ceased
utilizing these facilities for its own operations and determined that the best
return on these properties could be realized by leasing them to third parties.
In February 1995, the Company completed the sale of a 175,000 square foot
warehouse in Sylmar, California. The warehouse had been held by the Company as
investment property. The after-tax gain was
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approximately $3.0 million, net of lost rents during the disposition period. In
June of 1995, the Company purchased other rental income-producing property in
Jessup, Maryland to permit a "tax-deferred" exchange with the proceeds realized
from this transaction. A retail property located in Leesburg, Florida, which was
acquired in 1984, was sold during fiscal year 1997. In 1998, the value of the
investment property in Christiansburg, Virginia was written down by $288,000 to
more appropriately reflect current value, as new tenants have not been secured
to occupy leasable space. Aggregate rental income from investment properties,
net of commissions, was $1,399,000, $1,412,000 and $1,437,000 in 1997, 1998 and
1999, respectively.
Item 3. Legal Proceedings.
There are no pending legal proceedings, other than routine litigation
incidental to the business of the Company. While the outcome of these routine
legal proceedings cannot be predicted with certainty, it is the opinion of
management that the resolution of these legal proceedings should not have a
material adverse effect on the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies, or otherwise, during the quarter ended November 28,
1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) The information contained under the caption "Stock Price and Dividend
Data" on page 32 in the Annual Report to Stockholders for the fiscal year ended
November 28, 1999 is included in Exhibit 13 hereto and incorporated herein by
reference.
(b) Approximate Number of Equity Security Holders.
<TABLE>
<CAPTION>
Approximate Number of Record
Title of Class Holders as of November 28, 1999
-------------- -------------------------------
<S> <C>
Common Stock, par value $1.00 per share......... 1,000
</TABLE>
Item 6. Selected Financial Data.
The information contained under the caption "Five-year Summary" on page 16
in the Annual Report to Stockholders for the fiscal year ended November 28, 1999
is included in Exhibit 13 hereto and incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The management's discussion and analysis of financial condition and results
of operations section on pages 17 and 18 of the Annual Report to Stockholders
for the fiscal year ended November 28, 1999 is included in Exhibit 13 hereto and
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Risk Disclosures
Because the Company's obligations under its revolving loans, lines of
credit and Industrial Revenue Bonds bear interest at variable rates, the Company
is sensitive to changes in prevailing interest rates. A 10% fluctuation in
market interest rates would not have a material impact on earnings during the
2000 fiscal year.
Forward Looking Information
Certain portions of this report contain forward looking statements. These
statements can be identified by the use of future tense or dates or terms such
as "believe," "expect," "anticipate" or "plan." Important factors could cause
actual results to differ materially from those anticipated by some of the
statements made in this report. Some of the factors include, among other things,
changes from anticipated levels of sales, whether due to future national or
regional economic and competitive conditions, customer acceptance of existing
and new products, or otherwise; pending or future litigation; pricing pressures
due to excess capacity; raw material cost increases; transportation cost
increases; the inability of a major customer to meet its obligations; loss of
significant customers in
13
<PAGE>
connection with a merger or acquisition, bankruptcy or otherwise; actions of
current or new competitors; increased advertising costs associated with
promotional efforts; change of tax rates; change of interest rates; future
business decisions and other uncertainties, all of which are difficult to
predict and many of which are beyond the control of the Company.
Item 8. Financial Statements and Supplementary Data.
The following information on pages 19 to 31 in the Annual Report to
Stockholders of the fiscal year ended November 28, 1999 is included in Exhibit
13 hereto and incorporated herein by reference:
Consolidated Balance Sheets---- November 28, 1999 and November 29, 1998
Consolidated Statements of Income---- Years Ended November 28, 1999,
November 29, 1998 and November 30, 1997
Consolidated Statements of Stockholders' Equity---- Years Ended November 28,
1999, November 29, 1998 and November 30, 1997.
Consolidated Statements of Cash Flows---- Years Ended November 28, 1999,
November 29, 1998 and November 30, 1997.
Notes to Consolidated Financial Statements (includes selected quarterly
financial data)
Report of Independent Certified Public Accountants
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
14
<PAGE>
PART III
Notwithstanding anything below to the contrary, the Report of the
Compensation and Stock Option Committees and the Performance Graph contained on
pages 12 through 14 of the Company's 2000 Annual Meeting Proxy Statement are not
incorporated by reference in this Form 10-K.
Item 10. Directors and Executive Officers.
The information required by Item 10 is contained in the Company's 2000
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 11. Executive Compensation.
The information required by Item 11 is contained in the Company's 2000
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is contained in the Company's 2000
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is contained in the Company's 2000
Annual Meeting Proxy Statement and is incorporated herein by reference. Such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the Company's fiscal year end.
15
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1. Financial Statements:
The consolidated balance sheets as of November 28, 1999 and November 29, 1998
and the related consolidated statements of income, stockholders' equity, cash
flows and notes to consolidated financial statements for each of the three years
in the period ended November 28, 1999 together with the report of BDO Seidman,
LLP dated January 12, 2000, appearing in the 1999 Annual Report to Stockholders
are incorporated herein by reference. The following additional financial data
should be read in conjunction with the consolidated financial statements in such
1999 Annual Report to Stockholders.
2. Financial Statement Schedules:
Report of Independent Certified Public Accountants on Financial Statement
Schedule.
Schedule II--Valuation and Qualifying Accounts.
Schedules other than those listed above are omitted for the reason that
they are not required or are not applicable, or the required information is
shown in the consolidated financial statements and notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
3.1 Articles of Incorporation of the Company (incorporated by reference to
the Company's Registration Statement on Form S-1 No. 33-74504 filed
with the Securities and Exchange Commission on January 27, 1994)
3.2 Certificate of Amendment dated March 30, 1999, of Articles of
Incorporation of The Rowe Companies (incorporated by reference to the
Company's Registration Statement on Form S-8 No. 333-82571 filed with
the Securities and Exchange Commission on July 9, 1999)
3.3 By-laws of the Company (incorporated by reference to the Company's
Registration Statement on Form S-8 No. 333-82571 filed with the
Securities and Exchange Commission on July 9, 1999)
4 Specimen Stock Certificate (incorporated by reference to the Company's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on January 5, 1994)
10.1 Rowe Furniture Corporation 1983 Stock Option and Incentive Plan
(incorporated by reference to the Company's Registration Statement on
Form S-1 No. 33-74504 filed with the Securities and Exchange
Commission on January 27, 1994)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C>
10.2 The Rowe Companies Amended and Restated 1993 Stock Option and
Incentive Plan (incorporated by reference to the Company's
Registration Statement on Form S-8 No. 333-82571 filed with the
Securities and Exchange Commission on July 9, 1999)
10.3 Rowe Furniture Corporation Merged 401(k) and Employee Stock Ownership
Plan dated December 1, 1991 (incorporated by reference to the
Company's Registration Statement on Form S-1 No. 33-74504 filed with
the Securities and Exchange Commission on January 27, 1994)
10.4 Rowe Furniture Corporation Amended and Restated Supplemental Executive
Retirement Plan II (incorporated by reference to the Company's
Registration Statement on Form S-1 No. 33-74504 filed with the
Securities and Exchange Commission on January 27, 1994)
10.5 Employment Agreement dated December 6, 1984 between the Company and
Mr. Barry A. Birnbach
10.6 First Amendment to the Salary Continuation Agreement By and Between
Rowe Furniture Corporation and Barry A. Birnbach dated August 28, 1995
10.7 Employment Agreement dated December 5, 1985 between the Company and
Mr. Arthur H. Dunkin (incorporated by reference to the Company's
Registration Statement on Form S-1 No. 33-74504 filed with the
Securities and Exchange Commission on January 27, 1994)
10.8 First Amendment to the Salary Continuation Agreement By and
Between Rowe Furniture Corporation and Arthur H. Dunkin dated
August 28, 1995
10.9 Amended and Restated The Rowe Companies Cash-or-Deferred Non-Qualified
Executive Retirement Plan dated June 1, 1999
10.10 Employment Agreement dated February 2, 1998 between the Company and
Mr. Gerald M. Birnbach (incorporated by reference to the Company's
Form 10-K filed with the Securities and Exchange Commission on
February 12, 1998)
10.11 Master Agreement dated August 27, 1999 among Rowe Furniture, Inc., and
certain other Subsidiaries of The Rowe Companies that may hereafter
become party hereto, as Lessees, The Rowe Companies, The Mitchell Gold
Company, Rowe Properties, Inc., Storehouse, Inc., Home Elements, Inc.,
Rowe Diversified, Inc. and Wexford Collection, Inc. and certain other
subsidiaries of The Rowe Companies that may hereafter become party
hereto, as Guarantors, Atlantic Financial Group, LTD, as Lessor,
Crestar Bank and certain Financial Institutions parties hereto, as
Lenders and Crestar Bank, as Agent
10.12 Master Lease Agreement dated as of August 27, 1999 between Atlantic
Financial Group, LTD, as Lessor, and Rowe Furniture, Inc. and certain
other Subsidiaries of The Rowe Companies that may hereafter become
party hereto, as Lessees
10.13 Construction Agency Agreement dated as of August 27, 1999 between
Atlantic Financial Group LTD and Rowe Furniture, Inc. as Construction
Agent
10.14 Guaranty Agreement from The Rowe Companies, The Mitchell Gold Company,
Inc., Rowe Properties, Inc., Storehouse, Inc., Home Elements, Inc.,
Rowe Diversified, Inc. and Wexford Collection, Inc. dated as of August
27, 1999
10.15 Appendix A to Master Agreement, Lease, Loan Agreement and Construction
Agency Agreement dated August 27, 1999
11 Computation of per share earnings
13 Portions of the Annual Report for the year ended November 28, 1999
21 List of Subsidiaries
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
On October 15, 1999, a Form 8-K/A was filed reporting that as previously
reported, on July 31, 1999, The Rowe Companies (the "Company") completed its
acquisition of Storehouse, Inc. ("Storehouse") pursuant to the Stock Purchase
Agreement, dated August 25, 1998, among the Company and shareholders of
Storehouse (the "Agreement"). The acquisition was effected
17
<PAGE>
through the purchase by the Company of all the issued and outstanding shares
of the capital stock of Storehouse from the shareholders in exchange for a
purchase price of $11.7 million. In addition, on August 2, 1999, the Company
refinanced $12.7 million in Storehouse long-term debt. The Agreement was
included as an exhibit to the Company's Current Report on Form 8-K filed on
August 26, 1998. The Company funded the transaction through the utilization of
a $25 million revolving credit facility from Bank of America (formerly
NationsBank). Storehouse, a retail furniture store chain, is now operated as
wholly-owned subsidiary of the Company.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE ROWE COMPANIES
By: /s/ A. H. DUNKIN
------------------------------------
A. H. Dunkin, Secretary-Treasurer
February 21, 2000
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ G. M. BIRNBACH Chairman of the Board February 21, 2000
- --------------------------
G. M. Birnbach President, Director
(Principal Executive
Officer)
/s/ R.E. CHENEY Director February 21, 2000
- --------------------------
R. E. Cheney
/s/ A. H. DUNKIN Secretary-Treasurer, February 21, 2000
- --------------------------
A. H. Dunkin Director (Principal
Financial and Accounting
Officer
/s/ M. S. GOLD Director February 21, 2000
- --------------------------
M. S. Gold
/s/ H. I. PTASHEK Director February 21, 2000
- --------------------------
H. I. Ptashek
/s/ C. T. ROSEN Director February 21, 2000
- --------------------------
C. T. Rosen
/s/ K. J. ROWE Director February 21, 2000
- --------------------------
K. J. Rowe
/s/ S. J. SILVER Director February 21, 2000
- --------------------------
S. J. Silver
/s/ ALLAN TOFIAS Director February 21, 2000
- --------------------------
Allan Tofias
/s/ G. O. WOODLIEF Director February 21, 2000
- --------------------------
G. O. Woodlief
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Rowe Companies
McLean, Virginia
The audits referred to in our report dated January 12, 2000, relating to
the consolidated financial statements of The Rowe Companies, which is contained
in Item 8 of this Form 10-K (incorporated in Item 8 of the Form 10-K by
reference to the annual report of stockholders for the year ended November 28,
1999) included the audit of the financial statement schedule listed in the
accompanying index. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
__________________________________
BDO Seidman, LLP
High Point, North Carolina
January 12, 2000
20
<PAGE>
THE ROWE COMPANIES
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended November 28, 1999, November 29, 1998 and November 30, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------- ------ ------ ------ ------
Additions
---------
(1) (2)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions - End of
Description of Period Expenses (Describe) (Describe) Period
- ----------- --------- -------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
Accounts--1999........... $875 $ 413 $-- $ 424 (A) $864
Allowance for doubtful
Accounts--1998........... $316 $(1,285) $-- $(1,844)(B) $875
Allowance for doubtful
Accounts--1997........... $300 $ 3,918 $-- $ 3,902 (C) $316
</TABLE>
(A) Accounts charged off less bad debt recoveries of $5,000
(B) Accounts charged off less bad debt recoveries of $1,980,000
(C) Accounts charged off less bad debt recoveries of $274,000
21
<PAGE>
EXHIBIT (10.5)
EMPLOYMENT AGREEMENT
BARRY A. BIRNBACH
December 6, 1984
Dear Barry:
The terms of your employment with Rowe Furniture Corporation (the
"Company") have required you to dedicate your entire working time, skill,
attention and best efforts to the business of the Company. In consideration of
your services to the Company and your continuing to dedicate your entire working
time, skill, attention and best efforts to the business of the Company and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company agrees that if your employment is terminated solely for the
convenience of the Company, without cause or any other reason related to your
job performance, the Company will pay you upon such termination, a sum equal to
your annual base compensation on the date thereof for a period of two (2) years
or until you reach normal retirement age under the Company's Profit Sharing and
Retirement Fund Plan, whichever is earlier (payable monthly or in a present-
valued lump sum at the Company's option) as a termination payment.
If your termination is for an infraction of Company rules or a violation of
your employment agreement with the Company not amounting to cause (as defined
below), the Company will pay you upon termination a sum equal to your annual
base compensation of the date thereof for a period of six (6) months or until
normal retirement age under the Company's Profit Sharing and Retirement Fund
Plan, whichever is earlier, payable as set forth above.
If your termination is for cause, the Company will have the right to
terminate you without incurring any liability for subsequent compensation or
benefits. Cause is defined as intoxication, drug abuse or addiction, theft,
fraud, breach of fiduciary duty, conviction of a criminal offense other than a
misdemeanor, dishonesty in the course of employment, or the deliberate failure
to perform your employment duties.
Notwithstanding the foregoing, the Company's obligation to make termination
payments will be reduced by the amount of any compensation you receive from a
new employer following termination by this Company. You agree to use your best
efforts to seek employment following termination by this Company.
The President of the Company will have the sole and exclusive authority to
determine whether you were terminated for the sole convenience of the Company or
for an infraction not amounting to cause, and you agree that his determination
will be binding upon you and Company with respect to your termination payment.
In the event you are terminated for cause, you will have the right to contest
the grounds for such termination in accordance with
<PAGE>
the Company's regular procedures and practices then in effect.
In the event of permanent disability, termination will be based on such
disability and your rights shall be determined under the Company's disability
program then in effect.
Termination payment will be in addition to any other payments required
under the Company's regular practices then in effect, and any other payments
required by law.
Very truly yours,
ROWE FURNITURE CORPORATION
By: /s/ Gerald M. Birnbach
--------------------------------
Gerald M. Birnbach, President
Accepted:
/s/ Barry A. Birnbach
- -------------------------
Barry A. Birnbach
Date: 12-6-84
-------------
<PAGE>
Exhibit (10.6)
FIRST AMENDMENT
TO THE
SALARY CONTINUATION AGREEMENT
BY AND BETWEEN
ROWE FURNITURE CORPORATION
AND
BARRY A. BIRNBACH
This FIRST AMENDMENT (the "First Amendment") to the Salary Continuation
Agreement (the "Agreement") dated December 6, 1984 by and between ROWE FURNITURE
CORPORATION, a Nevada Corporation (the "Company"), and Barry A. Birnbach
("Birnbach").
WITNESSETH:
-----------
WHEREAS, defining "normal retirement age" for purposes of the Agreement by
reference to a tax-qualified retirement plan which has been amended and
restated several times and may be amended and restated in the future appears to
be inappropriate; and
WHEREAS, the Company and Birnbach desire to establish a grantor trust,
commonly known as a "rabbi trust," to hold assets sufficient to satisfy the
Company's financial obligations in the event of a change in control of the
Company;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
herein, the parties hereby agree as follows:
1. The second sentence of the initial paragraph of the Agreement shall be
and hereby is amended to eliminate the words, "normal retirement age under the
Company's Profit Sharing and Retirement Fund Plan" and to replace them with the
words, "age sixty-five."
2. The second paragraph of the Agreement shall be and hereby is amended to
eliminate the words, "normal retirement age under the Company's Profit Sharing
and Retirement Fund Plan" and to replace them with the words, "age sixty-five."
3. A new paragraph shall be and hereby is added to the conclusion of the
Agreement to read as follows:
Notwithstanding anything herein to the contrary, the Company shall enter
into a rabbi trust agreement with an unrelated, federally chartered bank
pursuant to which the Company shall initially transfer to such bank cash in
a nominal amount equal to one hundred dollars ($100.00). Such rabbi trust
shall be established within thirty days of the execution of this First
Amendment. Such trust may serve as the rabbi trust for other similar salary
continuation agreements to which the Company is a party, but the trustee
shall be required to keep a separate account therein, at least for
accounting purposes, for you. The Company shall transfer cash representing
the full value of the Company's liability to you under this Agreement
within fourteen days of a Change in Control (As
<PAGE>
defined in Subparagraph 10(g) of the Employment Agreement dated December 1,
1993 by and between Gerald M. Birnbach and Rowe Furniture Corporation). The
aforesaid rabbi trust shall be in essential conformity with the principles
set forth in IRS Revenue Procedure 92-64.
The Agreement is hereby reaffirmed in its entirety, except with respect to the
changes made by this First Amendment on this 28th day of August, 1995.
ROWE FURNITURE CORPORATION
By: /s/ Gerald M. Birnbach
---------------------------
GERALD M. BIRNBACH
President
/s/ Barry B. Birnbach
-----------------------
Barry A. Birnbach
<PAGE>
EXHIBIT (10.8)
FIRST AMENDMENT
TO THE
SALARY CONTINUATION AGREEMENT
BY AND BETWEEN
ROWE FURNITURE CORPORATION
AND
ARTHUR H. DUNKIN
This FIRST AMENDMENT (the "First Amendment") to the Salary Continuation
Agreement (the "Agreement") dated December 6, 1984 by and between ROWE FURNITURE
CORPORATION, a Nevada Corporation (the "Company"), and Arthur H. Dunkin
("Dunkin").
WITNESSETH:
-----------
WHEREAS, defining "normal retirement age" for purposes of the Agreement by
reference to a tax-qualified retirement plan which has been amended and
restated several times and may be amended and restated in the future appears to
be inappropriate; and
WHEREAS, the Company and Dunkin desire to establish a grantor trust,
commonly known as a "rabbi trust," to hold assets sufficient to satisfy the
Company's financial obligations in the event of a change in control of the
Company;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
herein, the parties hereby agree as follows:
1. The second sentence of the initial paragraph of the Agreement shall be
and hereby is amended to eliminate the words, "normal retirement age under the
Company's Profit Sharing and Retirement Fund Plan" and to replace them with the
words, "age sixty-five."
2. The second paragraph of the Agreement shall be and hereby is amended to
eliminate the words, "normal retirement age under the Company's Profit Sharing
and Retirement Fund Plan" and to replace them with the words, "age sixty-five."
3. A new paragraph shall be and hereby is added to the conclusion of the
Agreement to read as follows:
Notwithstanding anything herein to the contrary, the Company shall enter
into a rabbi trust agreement with an unrelated, federally chartered bank
pursuant to which the Company shall initially transfer to such bank cash in
a nominal amount equal to one hundred dollars ($100.00). Such rabbi trust
shall be established within thirty days of the execution of this First
Amendment. Such trust may serve as the rabbi trust for other similar
salary continuation agreements to which the Company is a party, but the
trustee shall be required to keep a separate account therein, at least for
accounting purposes, for you. The Company shall transfer cash representing
the full value of the Company's liability to you under this Agreement
within fourteen days of a Change in Control (As
<PAGE>
defined in Subparagraph 10(g) of the Employment Agreement dated December 1,
1993 by and between Gerald M. Birnbach and Rowe Furniture Corporation). The
aforesaid rabbi trust shall be in essential conformity with the principles
set forth in IRS Revenue Procedure 92-64.
The Agreement is hereby reaffirmed in its entirety, except with respect to the
changes made by this First Amendment on this 28th day of August, 1995.
ROWE FURNITURE CORPORATION
By: /s/ Gerald M. Birnbach
---------------------------
GERALD M. BIRNBACH
President
/s/ Arthur H. Dunkin
-----------------------
Arthur H. Dunkin
<PAGE>
EXHIBIT (10.9)
--------------
AMENDED AND RESTATED
--------------------
THE ROWE COMPANIES
------------------
CASH-OR-DEFERRED NON-QUALIFIED EXECUTIVE RETIREMENT PLAN
--------------------------------------------------------
Introduction
------------
By action of its Board of Directors, The Rowe Companies, a Nevada
corporation (the "Sponsor"), as the successor to Rowe Furniture Corporation, has
adopted The Rowe Companies Cash-or-Deferred Non-Qualified Executive Retirement
Plan (the "Plan"), dated as of November 30, 1994 and effective as of December 1,
1994, and as amended and restated in this document, effective as of June 1,
1999.
By action of its Board of Directors on March 10, 1999, the Sponsor adopted
certain amendments to the Plan, the terms of which have been incorporated into
this document and which are effective as of the date of execution of this
document. All references hereinafter to the "Plan" shall mean this Amended and
Restated The Rowe Companies Cash-or-Deferred Non-Qualified Executive Retirement
Plan.
1. Definitions
-----------
(a) "Beneficiary" shall mean the person(s) entitled, pursuant to Section
5(b) of the Plan, to receive payments under the Plan at and after the death of
the Participant, including the person(s) designated by the Participant, the
Participant's estate or the estate of a deceased Beneficiary, all as more
particularly described in Section 5(b.) hereof.
(b) "Board of Directors" shall mean the Board of Directors of the Sponsor.
(c) "Committee" shall mean the administrative committee of the Plan, as it
may be constituted from time to time, the initial members of which shall be the
President and Treasurer of the Sponsor.
(d) "Corporation" shall mean The Rowe Companies, a Nevada corporation, and
its wholly owned subsidiaries, and any successor thereto by merger,
consolidation or otherwise which may agree to continue the Plan.
(e) "Deferred Compensation" shall mean the portion of each base salary
payment, and bonus payment, exclusive of any other payments, which would have
been payable to the Participant in his capacity as an Executive while
participating in the Plan and which portion he or she has elected to defer under
the terms of an election to participate in the Plan.
<PAGE>
(f) "Effective Date" shall mean December 1, 1994.
(g) "Executive" shall mean a salaried employee of the Corporation who is an
officer and a "highly compensated employee" as such term is defined at Section
414(q) of the Internal Revenue Code of 1986, as amended.
(h) "Participant" shall mean an Executive who is selected by the Committee
to participate in the Plan and who elects to participate in the Plan, as
provided in Section 3, below.
(i) "Plan" shall mean The Rowe Companies Cash-or-Deferred Non-Qualified
Executive Retirement Plan, as described herein and as amended from time to time.
(j) "Sponsor" shall mean The Rowe Companies, a Nevada corporation, and any
successor thereto by merger, consolidation or otherwise which may agree to
continue the Plan.
2. Purpose
-------
The purpose of the Plan is to enable any Executive of the Corporation
designated by the Committee to defer receipt of compensation otherwise payable
for services as an Executive by so electing in accordance with the provisions of
the Plan, provided such election is made prior to the date such compensation is
earned by the Executive, and to receive deferred matching credits with respect
to such deferrals. An additional purpose of the Plan is to grant supplemental
deferred compensation to Participants in such amounts and at such time as
determined by the Board of Directors in its discretion.
3. Participation in the Plan
-------------------------
(a) All Executives of the Sponsor shall be eligible to participate in the
Plan on the Effective Date. Any Executive of the Sponsor hired after the
Effective Date and any employee of the Sponsor who shall become an Executive
after the Effective Date shall be eligible to participate in the Plan on the
date on which he or she performs his first paid hour of service as an Executive
of the Sponsor. Any Executive employed by another Corporation may be selected
by the Committee to participate in the Plan and may elect to participate by
filing a written notice to that effect with the Committee. Such written notice
shall be substantially in the form attached hereto as Exhibit A and shall
include the Executive's election as to the method of payment to be used for the
distribution of the Deferred Compensation Account, as described in Section 5(a)
of the Plan. An Executive's election to participate shall be effective on the
date the election is received by the Committee. An election to participate
filed by any person at a time when he or she does not qualify as an Executive as
defined in the Plan shall be void.
<PAGE>
(b) Participation in the Plan shall continue as to any Participant until
that person ceases to be an Executive. A Participant may terminate the election
to defer by notifying the Committee in writing, in which event the election to
defer shall terminate effective upon receipt of such notification of
termination. An Executive's termination of participation or election to defer
shall not cause acceleration or modification of the time- or method of payment
elected by the Participant with respect to the balance of the Deferred
Compensation Account accrued as of the effective date of such termination (or
with respect to the investment earnings credited to such Account thereafter and
before the entire balance of such Account has been distributed). A Participant
may designate a different method and time of payment for future Deferred
Compensation amounts by filing a written request with the Committee provided
that such request will become effective upon its receipt by the Committee with
respect to compensation earned and payable thereafter. No such request shall
modify in any way the method of payment previously elected by the Participant
with respect to the balance of the Deferred Compensation Account attributable to
compensation deferred prior to such request.
(c) Notwithstanding anything herein contained to the contrary, the Board of
Directors of the Corporation or a majority of the Committee may, in its sole
discretion, accelerate but not extend the method and time of payment for all or
part of such Participant's Deferred Compensation Account under the Plan to
provide for payment of any part or all of the balance of the Participant's
Deferred Compensation Account in a lump sum or in substantially equal annual
installments over any period, not to exceed 10 years, by a written instrument
signed by such majority of the Committee and delivered to the Participant (or
the Participant's Beneficiary). In addition, notwithstanding anything herein to
the contrary, in order for the Corporation to preserve its federal income tax
deduction with respect to annual total compensation payable to a Participant in
excess of $1,000,000.00, as such federal income tax deduction may be limited by
Section 162(m) of the Code, the Corporation or the Committee shall be permitted,
in its sole discretion and regardless of the election of the Participant, to
make a distribution in an amount that will not cause the Participant's total
compensatory payments from the Corporation to exceed in any given year
$1,000,000.00.
4. Deferred Compensation Accounts
------------------------------
(a) After the effective date of any election to participate properly filed
with the Committee by an Executive, the Corporation shall establish an Account
on its books in the name of the Executive (a "Deferred Compensation Account"),
which Account shall be credited with the following:
(i) Deferred Compensation;
<PAGE>
(ii) Corporation matching contributions, as described below;
(iii) Supplemental credits, as described below; and
(iv) Interest credits, as described below.
Credits of Deferred Compensation shall be made to the Participant's Deferred
Compensation Account as of the end of each payroll period during which each such
salary payment would otherwise have been paid to the Participant.
(b) In addition to the salary reductions permitted by the Plan, the
Corporation shall make a matching contribution to the Executive's Deferred
Compensation Account in accordance with the following percentages of base salary
deferrals:
<TABLE>
<CAPTION>
Corporation Matching
Executive Deferral as a Contribution as a Percentage
Percentage of Base Salary of Executive Deferral
------------------------- ----------------------------
<S> <C>
1% - 3% 75%
4% - 6% 25%
Above 6% 0%
</TABLE>
Credits of matching contributions shall be made concurrently with the credits of
the Deferred Compensation to which such matching contributions correspond.
(c) In addition to the salary reductions permitted by the Plan and the
aforesaid matching contributions, the Corporation, in the sole discretion of the
Board of Directors, may credit a Participant's Deferred Compensation Account
with additional amounts, to be known as "supplemental credits."
(d) A Participant's Deferred Compensation Account shall be credited with
interest credits or "equivalents" on a daily basis, as follows:
(i) Interest will be credited on each hypothetical account on a
daily basis in an amount that mirrors the return of certain hypothetical
investment options as approved by the Board of Directors at the election of the
participant.
(ii) Twice each year, a Participant may select a hypothetical
investment option or options as approved by the Board of Directors by which
interest credits or "equivalents" will be credited to the Participant's Deferred
Compensation Account by written notice delivered to the Committee no later than
December 1 and June 1 of each year,
<PAGE>
to be effective for the six months beginning on such dates. The Committee shall
provide each participant with a form of written notice, which shall include the
hypothetical investment options and the annual yield of such hypothetical
investment options as of the market close on the last business day of the month
prior to distribution of the form.
(iii) When an Executive first becomes a Participant, he or she shall
have until the last day of the month in which he or she becomes a Participant to
select his hypothetical investment option or options, to be effective until the
next December 1 or June 1, whichever is earlier. If an Executive has not chosen
a hypothetical investment option or options by the last day of the month in
which he or she becomes a Participant, contributions and employer match will be
invested in the most conservative investment option until he or she has selected
his hypothetical investment option or options. For an Executive who is already a
Participant as of the date of execution of this document, the Participant shall
have until the last day of the month in which this document is executed to
select his hypothetical investment option or options, to be effective until the
next December 1 or June 1, whichever is earlier. If an Executive has not chosen
a hypothetical investment option or options by the last day of the month in
which this document is executed, contributions and employer match will be
invested in the most conservative investment option until he or she has selected
his hypothetical investment option or options.
(iv) If a Participant selects more than one hypothetical investment
option, he or she shall designate for each hypothetical investment option a
percentage of his Deferred Compensation Account to which that hypothetical
investment option's yield shall apply. If the Participant fails to designate a
percentage for each hypothetical investment option, or if the percentages do not
total 100%, then the Committee will assume an equal allocation to the selected
hypothetical investment options. In the event a Participant does not select a
hypothetical investment option or options by the applicable deadline, then (A)
the hypothetical investment option or options applied to his Deferred
Compensation Account for the prior six-month period (or portion thereof) shall
govern for the next six months, in the case where such Participant had
previously selected a hypothetical investment option, or (B) the Committee will
assume equal allocations of all of the hypothetical investment options, in the
case where such Participant has never timely selected a hypothetical investment
option or options.
(v) Once each year, the Board of Directors may change the choice of
hypothetical investment options by resolution adopted by a majority of the Board
of Directors at a validly-called meeting or by unanimous written consent. In
the event of such a change, the Committee shall notify each Participant in
writing.
<PAGE>
(e) Payment of a Participant's Deferred Compensation Account under the Plan
shall be the sole liability and obligation of the Corporation employing the
Executive during the respective period(s) of his participation in the Plan. The
Deferred Compensation Account shall be for bookkeeping purposes only and no
assets shall be required to be segregated by the Corporation employing the
Executive from its general funds by reason of such Account.
5. Distributions of Deferred Compensation Accounts
-----------------------------------------------
(a) At the time of election to participate in the Plan, a Participant shall
also make (as a part of the election to participate) an election as to the
method of payment of distributions of his Deferred Compensation Account. A
Participant may elect to receive distributions (i) in one lump sum payment or
(ii) in a number of substantially equal annual installments not to exceed 10.
The single lump sum payment or the first annual installment payment, as the case
may be, shall be made as soon as administratively feasible. Amounts held for
installment payments shall continue to be credited with investment earnings, as
specified in Section 4(d). Subsequent installments shall be made as soon as
administratively feasible if installment payments are to be made annually, until
the entire balance of such Participant's Deferred Compensation Account due to
that Participant has been paid.
(b) If a Participant dies before full payment is made of such Participant's
Deferred Compensation Account, the unpaid balance of such Deferred Compensation
Account shall be paid to the surviving Beneficiary or Beneficiaries designated
in writing by the Participant and delivered to the Committee under the same
method of payment which applied or would have applied in the case of payments to
the Participant. The filing of a designation of Beneficiary shall be deemed
automatically to revoke any previously filed Beneficiary designation. If no
designation shall be in effect or no designated Beneficiary survives the
Participant, then the unpaid balance at the Participant's death shall be paid to
the estate of the Participant in one lump sum payment. Payment to the
Participant's estate or Beneficiary shall be made as soon as administratively
feasible. In the case of a Beneficiary who dies while receiving installment
payments, any installments payable after the Beneficiary's death shall be paid
to the deceased Beneficiary's estate; however, at the Committee's option, such
unpaid installment payments may be paid in one lump sum payment to the deceased
Beneficiary's estate.
<PAGE>
6. Assignment and Payments Upon Incapacity
---------------------------------------
(a) No right of any Participant or Beneficiary in the Plan to receipt of
his Deferred Compensation Account shall be assignable or subject to
anticipation, encumbrance, sale, pledge, alienation, execution, levy,
attachment, charge or any other form of transfer or encumbrance of any nature
whatsoever except that a Participant may name a Beneficiary or Beneficiaries in
respect of the rights of the Participant in the event of such Participant's
death. Upon the occurrence of any event deemed by the Corporation employing the
Executive to be in violation, attempted violation or to evidence any danger of
violation of the prohibition on transfers and encumbrances described in this
paragraph, all as determined by the Committee, the Corporation may withhold any
and all payments under the Plan and make such payments to anyone else deemed by
the Corporation to be a natural object of the bounty of the Participant or
Beneficiary to whom such withheld payments would otherwise have been made.
(b) If the Committee shall find that any person to whom any payment is
payable under the Plan is unable to care for his or her affairs because of
illness or accident, or is a minor, any payment due (unless a prior claim
therefor shall have been made by a duly appointed guardian, committee, or other
legal representative) may be paid to the spouse, a child, a parent, or a brother
or sister, or to any person deemed by the Committee to have incurred expenses
for such person otherwise entitled to payment, in such manner and proportions as
the Committee may determine. Any such payment shall be a complete discharge of
the liabilities of the Corporation to make such payment to the Participant.
7. Amendment or Discontinuance of Plan
-----------------------------------
(a) The Board of Directors shall be vested with the sole power to amend the
Plan at any time and in any manner (whether in toto or with respect to an
-- ----
individual Participant) in such respects as the Board of Directors may deem
advisable by an instrument in writing, which amendment shall be binding on all
parties, subject to the principles contained in Section 7(c). Notice of any
such amendment shall be provided to all Participants.
(b) The Board of Directors reserves the right to discontinue the Plan, on a
prospective basis, by resolution adopted by a majority of the Board of Directors
at a meeting at which a quorum is present. Such discontinuance shall be subject
to the principles contained in Section 7(c).
(c) Notwithstanding the foregoing, no amendment or discontinuance of the
Plan shall, without the consent of the affected Participants, affect elections
of Participants made prior to such amendment or discontinuance or affect their
right to receive any Deferred Compensation payments attributable to compensation
deferred, matching contributions
<PAGE>
credited, interest equivalents credited, or to supplemental credits awarded,
prior to the effective date of such amendment or discontinuance.
8. Plan Not Funded
---------------
(a) The Plan is not funded. The Corporation shall not be required to
reserve, or otherwise set aside, physically or legally, any funds for the
payment of its obligations hereunder. The obligations of the Corporation with
respect to the benefits payable hereunder shall be paid out of such
Corporation's general assets and shall not be secured by any form of trust,
escrow, evidence of indebtedness or otherwise. No person having rights under
the Plan shall be deemed to have any property interest, legal or equitable, in
any specific asset of the Corporation, and, to the extent that any person
acquires any right to receive payments under the Plan, such right shall be no
greater than, nor shall it have preference or priority over, the rights of any
unsecured general creditor of the Corporation.
(b) The Corporation shall have the right, but shall not be required, to
segregate funds in its financial records equal to the aggregate Deferred
Compensation Accounts of the Participants, and to invest such funds or to direct
the investment of such funds in order to produce an income return, but such
funds and the earnings thereon shall remain solely as an asset of the
Corporation.
9. Establishment of Rabbi Trust
----------------------------
The Sponsor has entered into the Trust Agreement for the Rowe Furniture
Corporation Cash-or-Deferred Non-Qualified Executive Retirement Plan (the "Rabbi
Trust"), dated March 28, 1995, with Crestar Bank, N.A., an unrelated, federally
chartered commercial bank (the "Trustee"), in essential conformity with the
principles set forth in IRS Revenue Procedure 92-64, or its successor.
Notwithstanding anything herein to the contrary, the Sponsor shall transfer to
the Trustee an amount of cash equal to the value of the Deferred Compensation
Accounts of all Participants in the Plan as of the date of such transfer upon
the occurrence of the first to occur of the following events: (i) the net worth
of the Corporation, as determined by the certified public accountants normally
serving the Corporation, shall fail to exceed $15,000,000.00; or (ii) the change
of control of the Corporation (a "Triggering Event"). For purposes of this
Section 9, each of the events specified in the following clauses (i) through
(iii) of this Section 9 shall be deemed a "change of control": (i) any third
person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, shall become the beneficial owner of shares of the
Corporation with respect to which 25 % or more of the total number of votes for
the election of the Board of Directors may be cast, (ii) as a result of, or in
connection with, any cash tender offer,
<PAGE>
merger or other business combination, sale of assets or contested election, or
combination of the foregoing, the persons who were directors of the Corporation
shall cease to constitute a majority of the Board of Directors or (iii) the
shareholders of the Corporation shall approve an agreement providing either for
a transaction in which the Corporation will cease to be an independent publicly
owned entity or for a sale or other disposition of au or substantially all the
assets of the Corporation. The Corporation shall transfer to the Rabbi Trust
cash representing the Corporation's liability under the Plan within fourteen
days after the occurrence of a Triggering Event. The Corporation shall
thereafter transfer additional cash to the Rabbi Trust in an amount equal to any
additional liabilities incurred by the Corporation with respect to the
Participants hereunder.
10. Copies of Plan Available
------------------------
Copies of the Plan and any and all amendments thereto shall be made
available to all members of the Board of Directors and Participants during
normal business hours at the office of the Secretary of the Sponsor.
11. Plan Administration
-------------------
Unless otherwise expressly stated in the Plan, matters pertaining to the
Plan's interpretation, construction and administration shall be determined by
the Committee.
12. Binding on Successors
---------------------
In the event that the Corporation (or any entity resulting from any merger
or consolidation referred to in this Paragraph or which shall be a purchaser or
transferee so referred to) shall at any time be merged or consolidated into or
with any other entity or entities or in the event that substantially all of the
assets of the Corporation or any such entity shall be sold or otherwise
transferred to another entity, the provisions of the Plan shall be binding upon
and shall inure to the benefit of the continuing entity in (or the entity
resulting from) such merger or consolidation or the entity to which such assets
shall be sold or transferred. Except as provided in the preceding sentence, the
Plan shall not be assignable by the Corporation or by any entity referred to in
this Paragraph. The obligations and rights of a Participant under the Plan
shall not be assignable, but, in the event of the Participant's death, such
obligations and rights shall be binding upon and inure to the benefit of such
Participant's designated Beneficiaries, heirs, executors or administrators.
13. Continuation as Executive
-------------------------
<PAGE>
The Plan or the payment of any benefits hereunder shall not be construed as
giving to any Executive any right to be retained as an employee of the
Corporation.
14. Hardship Withdrawals
--------------------
For serious financial reasons beyond the Participant's control, and which
would cause the Participant great hardship if early withdrawal were not
permitted, such Participant may apply to the Committee for withdrawals from the
Plan prior to termination of the Participant's service as an Executive of the
Corporation. If such application for withdrawal is approved by the Committee,
the withdrawal will be effective at the later of the dates specified in the
Participant's application or the date of approval by the Committee. The
Committee shall direct the Corporation to pay such amount attributable to the
balance in such Participant's Deferred Compensation Account(s) up to the amount
necessary to meet the financial emergency as stated in Participant's application
for withdrawal. Following withdrawal, the Participant's Election to Defer shall
be terminated and no new Election to Defer shall be accepted or approved by the
Committee for a period of no less than six (6) months following the date of
withdrawal. Serious financial reasons may include the following: bankruptcy or
impending bankruptcy, unexpected and unreimbursed expenses of a major or
emergency nature where withdrawal of the funds would be necessary to prevent
great hardship to the Participant. Withdrawals for foreseeable expenditures
normally budgetable shall not be permitted.
15. Participation by Members of Committee
-------------------------------------
No member of the Committee shall be precluded from becoming a Participant
in the Plan; however, such member shall not be entitled to vote or act upon
matters, or sign any documents, relating specifically to such member's own
participation under the Plan, except when such matters or documents relate to
benefits and administrative matters generally. If this disqualification results
in the lack of a quorum, then the Sponsor's Board of Directors shall appoint a
sufficient number of temporary members of the Committee who shall serve for the
sole purpose of determining such a question. Fifty percent of the members of
the Committee shall constitute a quorum.
16. Claims Procedure
----------------
(a) Any claim for benefits or payments under the Plan by Participants or
Beneficiaries shall be made in writing and delivered to the Committee at the
principal office of the Sponsor. If the Participant or Beneficiary believes he
or she has been denied any benefits or payment under the Plan, either in total
or in an amount less than the full benefit or
<PAGE>
payment the claimant would normally be entitled to, the Committee shall advise
the claimant in writing of the amount of the benefit, or payment, if any, and
the specific reasons for the denial. The Committee shall also furnish the
claimant at that time with a written notice containing:
(i) A specific reference to pertinent provisions of the Plan.
(ii) A description of any additional material or information
necessary for the claimant to perfect his claim, if possible, and an explanation
of why such material or information is needed.
(iii) An explanation of the following claim review procedure.
(b) Within sixty (60) days of receipt of the information described above,
the claimant shall, if further review is desired, file a written request for
reconsideration with the Committee. So long as the claimant's request for
review is pending (including such sixty (60) day period), the claimant or his or
her duly authorized representative may review pertinent documents and may submit
issues and comments in writing to the Committee.
(c) A final and binding decision shall be made by the Committee within
sixty (60) days of the filing by the claimant of the request for
reconsideration; provided, however, that if the Committee, in its discretion,
feels that a hearing with the claimant or his or her representative present is
necessary or desirable, this period shaft be extended an additional sixty (60)
days.
(d) The decision by the Committee shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent provisions of the Plan on which the decision is based.
(e) The Committee shall use ordinary care and diligence in the
performance of its duties. The Committee shall be entitled to rely conclusively,
and shall be fully protected in any action or omission taken by it in good faith
reliance, upon the advice or opinions of any persons, firms or agents retained
by it, including, but not limited to, accountants, actuaries, counsel and other
specialists. Nothing contained herein shall preclude the Corporation from
indemnifying any member of the Committee for all actions under the Plan, or from
purchasing liability insurance to protect such persons serving thereon with
respect to their duties pursuant to the Plan.
<PAGE>
IN WITNESS WHEREOF, the duly authorized officers of The Rowe Companies have
signed and sealed the Plan on behalf of The Rowe Companies, a Nevada
corporation, on this 1st day of June, 1999.
THE ROWE COMPANIES
ATTEST:
/s/ Gerald M. Birnbach
-------------------------------
Gerald M. Birnbach, President
/s/ Arthur H. Dunkin
- ----------------------------
Arthur H. Dunkin, Secretary
[CORPORATE SEAL]
<PAGE>
"EXHIBIT A"
NOTICE OF ELECTION TO DEFER EXECUTIVE'S
---------------------------------------
COMPENSATION AND DESIGNATION OF BENEFICIARY
-------------------------------------------
TO: The Administrative Committee of The Rowe Companies Cash-or-Deferred Non-
Qualified Executive Retirement Plan
I, the undersigned, an Executive of The Rowe Companies, a Nevada
corporation (the "Corporation"), or of one of its subsidiaries, hereby
acknowledge receipt of a copy of the Amended and Restated The Rowe Companies
Cash-or-Deferred Non-Qualified Executive Retirement Plan (the "Plan"), and
further acknowledge that my election to participate in the Plan contained
therein shall be subject in all respects to the provisions of the Plan, as
amended from time to time.
Pursuant to the terms of the Plan, I hereby elect to defer receipt of the
future payment of the percentage of my salary as designated below, effective as
of the effective date of the Plan or, if later, as of the date of this notice:
________ Percent of annual salary pro rated over calendar year.
Such election shall continue to be effective until I file written notice of
termination of this election with the Committee, unless I become ineligible at
an earlier date under the terms of the Plan.
I also elect hereby that all amounts deferred under the Plan, together with
interest equivalents, if appropriate, credited thereon, shall be distributed to
me:
(check appropriate form of payment)
______ In one single lump sum payment
OR
______ In equal annual installments for _____ years (specify number
not exceeding 10).
The single lump sum payment or the first annual installment (if I have so
elected) shall be paid on or about the second day of the calendar quarter
immediately following the calendar quarter in which I cease to be an Executive,
and subsequent installments shall be paid on or about the second day of each
succeeding calendar year until the entire amount credited to my Deferred
Compensation Account shall have been paid, provided that I have chosen to take
annual installments.
I hereby designate the following beneficiary (or beneficiaries or
contingent beneficiaries in the percentages set forth following their names) in
accordance with Section 5(b) of the Plan:
<PAGE>
(give name(s), addressees), relationships), social security number(s), and,
if applicable, percentage of interest).
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
EXECUTIVE
WITNESS:
______________________________
(Signature)
_________________
Date: ____________
ACCEPTED:
THE ROWE COMPANIES
ATTEST:
_______________________________
_________________
Date: ___________
<PAGE>
EXHIBIT (10.11)
MASTER AGREEMENT
Dated as of August 27, 1999
among
ROWE FURNITURE, INC. AND
CERTAIN OTHER SUBSIDIARIES OF THE ROWE COMPANIES
THAT MAY HEREAFTER BECOME PARTY HERETO,
as Lessees,
THE ROWE COMPANIES,
THE MITCHELL GOLD CO.,
ROWE PROPERTIES, INC.,
STOREHOUSE, INC.,
HOME ELEMENTS, INC.,
ROWE DIVERSIFIED, INC.
AND
WEXFORD COLLECTION, INC. AND
CERTAIN OTHER SUBSIDIARIES OF THE ROWE COMPANIES
THAT MAY HEREAFTER BECOME PARTY HERETO,
as Guarantors,
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
CRESTAR BANK AND
CERTAIN FINANCIAL INSTITUTIONS PARTIES HERETO,
as Lenders
and
CRESTAR BANK, as Agent
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S>...................................................................................................... <C>
ARTICLE I. DEFINITIONS; INTERPRETATION................................................................ 2
ARTICLE II. ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS;
NATURE OF TRANSACTION...................................................................... 2
SECTION 2.1 Agreement to Acquire, Construct,
Fund and Lease...................................................................... 2
(a) Land....................................................................................... 2
(b) Building................................................................................... 2
SECTION 2.2 Fundings of Purchase Price, Development
Costs and Construction Costs........................................................ 3
(a) Initial Funding and Payment of Purchase Price
for Land and Development Costs on Closing Date............................................. 3
(b) Subsequent Fundings and Payments of Construction
Costs during Construction Term............................................................. 3
(c) Aggregate Limits on Funded Amounts......................................................... 4
(d) Notice, Time and Place of Fundings......................................................... 4
(e) Lessee's Deemed Representation for Each Funding............................................ 5
(f) Not Joint Obligations...................................................................... 5
(g) Non-Pro Rata Fundings...................................................................... 6
SECTION 2.3 Funded Amounts and Interest and Yield
Thereon; Facility Fee............................................................... 6
SECTION 2.4 Lessee Owner for Tax Purposes....................................................... 7
SECTION 2.5 Amounts Due Under Lease............................................................. 8
ARTICLE III. CONDITIONS PRECEDENT; DOCUMENTS............................................................ 9
SECTION 3.1 Conditions to the Obligations of the
Funding Parties on each Closing Date............................................... 9
(a) Documents.................................................................................. 9
(b) Litigation................................................................................. 14
(c) Legality................................................................................... 14
(d) No Events.................................................................................. 14
(e) Representations............................................................................ 15
(f) Cutoff Date................................................................................ 15
(g) Transaction Expenses....................................................................... 15
SECTION 3.2 Additional Conditions for the
Closing Date........................................................................ 15
(a) Loan Agreement; Guaranty Agreement.................................................. 15
(b) Master Agreement.................................................................... 15
(c) Construction Agency Agreement....................................................... 15
(d) Lease............................................................................... 15
(e) Lease Supplement.................................................................... 16
</TABLE>
-i-
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S>...................................................................................................... <C>
(f) Obligor's Resolutions and Incumbency
Certificate, etc.................................................................... 16
(g) Opinions of Counsel................................................................. 16
(h) Good Standing Certificate........................................................... 16
(i) Lessor's Consents and Incumbency
Certificate, etc.................................................................... 16
(j) Funding Request..................................................................... 17
SECTION 3.3 Conditions to the Obligations
of Lessee........................................................................... 17
(a) General Conditions......................................................................... 17
(b) Legality................................................................................... 17
(c) Purchase Agreement......................................................................... 17
SECTION 3.4 Conditions to the Obligations of the
Funding Parties on each Funding Date................................................ 17
(a) Funding Request............................................................................ 18
(b) Condition Fulfilled........................................................................ 18
(c) Representations............................................................................ 18
(d) No Bonded Stop Notice or Filed Mechanics Lien.............................................. 18
SECTION 3.5 Completion Date Conditions.......................................................... 18
(a) Title Policy Endorsements; Architect's
Certificate................................................................................ 18
(b) Construction Completion.................................................................... 19
(c) Construction Agent Certification........................................................... 19
SECTION 3.6 Addition of Lessees................................................................. 20
ARTICLE IV. REPRESENTATIONS............................................................................ 21
SECTION 4.1 Representations of Obligors......................................................... 21
(a) Financial Condition........................................................................ 21
(b) No Change.................................................................................. 22
(c) Corporate Existence; Compliance with Law................................................... 22
(d) Corporate Power; Authorization; Enforceable
Obligations................................................................................ 22
(e) No Legal Bar............................................................................... 23
(f) No Material Litigation..................................................................... 23
(g) No Default................................................................................. 23
(h) Taxes...................................................................................... 23
(i) Federal Regulations........................................................................ 24
(j) ERISA...................................................................................... 24
(k) Investment Company Act; Other Regulations.................................................. 24
(l) Purpose of Fundings........................................................................ 24
(m) Disclosure................................................................................. 25
(n) Hazardous Materials - Leased Properties.................................................... 25
(o) Leased Property............................................................................ 26
</TABLE>
-ii-
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S>....................................................................................................... <C>
SECTION 4.2 Survival of Representations and Effect
of Fundings......................................................................... 27
(a) Survival of Representations and Warranties................................................. 27
(b) Each Funding a Representation.............................................................. 27
SECTION 4.3 Representations of the Lessor....................................................... 27
(a) Securities Act............................................................................. 27
(b) Due Organization, etc...................................................................... 27
(c) Due Authorization; Enforceability, etc..................................................... 28
(d) No Conflict................................................................................ 28
(e) Litigation................................................................................. 28
(f) Lessor Liens............................................................................... 28
(g) Employee Benefit Plans..................................................................... 29
(h) General Partner............................................................................ 29
(i) Financial Information...................................................................... 29
(j) No Offering................................................................................ 29
SECTION 4.4 Representations of each Lender...................................................... 29
(a) Securities Act............................................................................. 30
(b) Employee Benefit Plans..................................................................... 30
ARTICLE V. COVENANTS OF OBLIGORS AND THE LESSOR....................................................... 30
SECTION 5.1 Affirmative Covenants............................................................... 30
(a) Financial Statements....................................................................... 30
(b) Certificates; Other Information............................................................ 31
(c) Conduct of Business and Maintenance of
Existence.................................................................................. 32
(d) Inspection of Property; Books, Records and
Discussions................................................................................ 32
(e) Notices.................................................................................... 32
(f) Taxes...................................................................................... 32
(g) Maintenance of Property.................................................................... 33
(h) Insurance.................................................................................. 33
(i) Environmental Matters...................................................................... 33
(j) Year 2000 Compliance....................................................................... 33
(k) Financial Positions........................................................................ 34
(l) Qualified Swap Agreement................................................................... 34
(m) Most Favored Lender Status................................................................. 35
SECTION 5.2 Negative Covenants................................................................ 35
(a) Negative Pledge............................................................................ 35
(b) Notice of Merger, Consolidation, Disposition of
Assets..................................................................................... 35
(c) Contingent Liabilities..................................................................... 36
SECTION 5.3 Further Assurances................................................................ 36
SECTION 5.4 Additional Required Appraisals.................................................... 36
</TABLE>
-iii-
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S>....................................................................................................... <C>
SECTION 5.5 Lessor's Covenants................................................................ 36
ARTICLE VI. TRANSFERS BY LESSOR AND LENDERS............................................................ 38
SECTION 6.1 Lessor Transfers.................................................................. 38
SECTION 6.2 Lender Transfers.................................................................. 38
ARTICLE VII. INDEMNIFICATION............................................................................ 40
SECTION 7.1 General Indemnification........................................................... 40
SECTION 7.2 Environmental Indemnity........................................................... 43
SECTION 7.3 Proceedings in Respect of Claims.................................................. 45
SECTION 7.4 General Tax Indemnity............................................................. 47
(a) Tax Indemnity.............................................................................. 47
(b) Exclusions from General Tax Indemnity...................................................... 48
(c) Contests................................................................................... 51
(d) Reimbursement for Tax Savings.............................................................. 53
(e) Payments................................................................................... 54
(f) Reports.................................................................................... 54
(g) Verification............................................................................... 54
SECTION 7.5 Increased Costs, etc................................................................ 55
(a) Illegality................................................................................. 55
(b) Requirements of Law........................................................................ 55
(c) Capital Adequacy........................................................................... 56
(d) Taxes...................................................................................... 57
(e) Tax Forms.................................................................................. 58
(f) Indemnity.................................................................................. 59
(g) Action of Affected Funding Parties......................................................... 59
SECTION 7.6 End of Term Indemnity............................................................... 60
ARTICLE VIII. MISCELLANEOUS.............................................................................. 61
SECTION 8.1 Survival of Agreements............................................................ 61
SECTION 8.2 Notices........................................................................... 61
SECTION 8.3 Counterparts...................................................................... 62
SECTION 8.4 Amendments........................................................................ 62
SECTION 8.5 Headings, etc..................................................................... 63
SECTION 8.6 Parties in Interest............................................................... 63
SECTION 8.7 GOVERNING LAW..................................................................... 64
SECTION 8.8 Expenses.......................................................................... 64
SECTION 8.9 Severability...................................................................... 64
SECTION 8.10 Liabilities of the Funding Parties................................................ 64
SECTION 8.11 Submission to Jurisdiction; Waivers............................................... 65
SECTION 8.12 Liabilities of the Agent.......................................................... 65
SECTION 8.13 Agent to Communicate with Funding
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
Parties.......................................................................... 66
SECTION 8.14 Seniority of Lease............................................................... S-1
</TABLE>
APPENDIX A Definitions and Interpretation
SCHEDULES
SCHEDULE 2.2 Commitments
SCHEDULE 8.2 Notice Information
EXHIBITS
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Assignment of Lease and Rents
EXHIBIT C Form of Security Agreement and Assignment
EXHIBIT D-1 Form of Mortgage
EXHIBIT D-2 Form of Deed of Trust
EXHIBIT E [Reserved]
EXHIBIT F Form of Assignment and Acceptance Agreement
EXHIBIT G Forms of Opinions of Counsel
EXHIBIT H Form of Certification of Construction Completion
EXHIBIT I Form of Payment Date Notice
EXHIBIT J Form of Joinder Agreement
-v-
<PAGE>
MASTER AGREEMENT
THIS MASTER AGREEMENT, dated as of August 27, 1999 (as it may be amended or
modified from time to time in accordance with the provisions hereof, this
"Master Agreement"), is among ROWE FURNITURE, INC., a Virginia corporation
- -----------------
("Rowe Furniture"), and certain Subsidiaries of Rowe Companies that may
- ----------------
hereafter become parties hereto as lessees pursuant to Section 3.6
-----------
(individually, a "Lessee" and collectively "Lessees"), THE ROWE COMPANIES, a
------ -------
Nevada corporation ("Rowe Companies"), THE MITCHELL GOLD CO., a North Carolina
--------------
corporation, ROWE PROPERTIES, INC., a California corporation, STOREHOUSE, INC.,
a Georgia corporation, HOME ELEMENTS, INC., a Virginia corporation, ROWE
DIVERSIFIED, INC., a Delaware corporation and WEXFORD COLLECTION, INC., a
California corporation and certain other Subsidiaries of Rowe Companies that may
hereafter become party hereto,(individually, a "Guarantor" and collectively
---------
"Guarantors"), ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership (the
- -----------
"Lessor"), CRESTAR BANK, a Virginia banking corporation, and certain financial
------
institutions parties hereto as lenders (together with any other financial
institution that becomes a party hereto as a lender, collectively referred to as
"Lenders" and individually as a "Lender"), and CRESTAR BANK, a Virginia banking
------- ------
corporation, as agent for the Lenders (in such capacity, the "Agent").
-----
PRELIMINARY STATEMENT
In accordance with the terms and provisions of the Bridge Agreement, (i)
the Lessor has acquired Land identified by Rowe Furniture, and contemplates
leasing such Land and any Buildings thereon to a Lessee, (ii) Rowe Furniture, as
Construction Agent for the Lessor, wishes, in certain instances, to construct
Buildings on Land for the Lessor and, when completed, the related Lessee wishes
to lease such Buildings from the Lessor as part of the Leased Properties under
the Lease, (iii) the Lessor has provided Funding for the acquisition of the
Land, with, in part, loan proceeds from Agent, and (iv) Rowe Furniture as
Construction Agent wishes to obtain, and the Lessor is willing to provide,
funding for the construction of Buildings, and (v) the Lessor wishes to obtain,
and Lenders are willing to provide, from time to time, financing of a portion of
the funding of the acquisition of the Land and Building and, if applicable, the
construction of the Buildings.
1
<PAGE>
In consideration of the mutual agreements contained in this Master
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and not
defined herein shall have the meanings assigned thereto in Appendix A hereto for
----------
all purposes hereof; and the rules of interpretation set forth in Appendix A
----------
hereto shall apply to this Master Agreement.
ARTICLE II.
ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS;
NATURE OF TRANSACTION
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease.
-----------------------------------------------
(a) Land. Subject to the terms and conditions of this Master
----
Agreement (i) pursuant to the Bridge Agreement, the Lessor has acquired such
interest in the Land and any Building thereon, from the applicable Seller
pursuant to the applicable Purchase Agreement, (ii) the Lessor hereby agrees to
lease such Land and any Building thereon to the related Lessee pursuant to the
Lease, and (iii) the related Lessee hereby agrees to lease such Land, and any
Building thereon, from the Lessor pursuant to the Lease.
(b) Building. With respect to each parcel of Land on which a Building
--------
is to be constructed, subject to the terms and conditions of this Master
Agreement, from and after the Closing Date relating to such Land (i) the
Construction Agent agrees, pursuant to the terms of the Construction Agency
Agreement, to construct and install the Building on such Land for the Lessor
prior to the Scheduled Construction Termination Date, (ii) the Lenders and the
Lessor agree to fund the costs of such construction and installation (and
interest and yield thereon), (iii) the Lessor shall lease such Building as part
of such Leased Property to the related Lessee pursuant to the Lease, and (iv)
the related Lessee shall lease such Building from the Lessor pursuant to the
Lease. Each Lender hereby consents to the appointment of Rowe Furniture as
Construction Agent.
2
<PAGE>
SECTION 2.2 Fundings of Purchase Price, Development Costs and Construction
--------------------------------------------------------------
Costs.
- -----
(a) Initial Funding and Payment of Purchase Price for Land and
----------------------------------------------------------
Development Costs on Closing Date. Subject to the terms and conditions of this
- ---------------------------------
Master Agreement, on the Closing Date, each Lender shall make available to the
Lessor its initial Loan with respect to such Land, and any Building thereon, in
an amount equal to the product of such Lender's Commitment Percentage times the
purchase price for the Land, and any Building thereon, and the development,
transaction and closing costs incurred by the Construction Agent, as agent,
through such Closing Date, which funds the Lessor shall use, together with the
Lessor's own funds in an amount equal to the product of the Lessor's Commitment
Percentage times the purchase price for the related Land and any Building
thereon, and the development, transaction and closing costs incurred by the
Construction Agent, as agent, through such Closing Date, to purchase the Land,
and any Building thereon, from the applicable Seller pursuant to the applicable
Purchase Agreement, and to pay to the Construction Agent the amount of such
development, transaction and closing costs, and the Lessor shall lease such Land
to the related Lessee pursuant to the Lease. It is expressly acknowledged that
buildings existing on the closing date of the acquisition of the Land will be
demolished as part of the development contemplated by the parties and that such
is permissible, and funding therefor shall be advanced along with funding of the
development of the Land.
(b) Subsequent Fundings and Payments of Construction Costs during
-------------------------------------------------------------
Construction Term. Subject to the terms and conditions of this Master
- -----------------
Agreement, if a Building is to be constructed on Land, on each Funding Date
following the Closing Date for each such parcel of Land until the related
Construction Term Expiration Date, (i) each Lender shall make available to the
Lessor a Loan in an amount equal to the product of such Lender's Commitment
Percentage times the amount of Funding requested by the Construction Agent for
such Funding Date, which funds the Lessor hereby directs each Lender to pay over
to the Construction Agent as set forth in paragraph (d), and (ii) the Lessor
-------------
shall pay over to the Construction Agent its own funds (which shall constitute a
part of, and an increase in, the Lessor's Invested Amount with respect to such
Leased Property) in an amount equal to the product of the Lessor's Commitment
Percentage times the amount of Funding requested by the Construction Agent for
such Funding Date.
3
<PAGE>
(c) Aggregate Limits on Funded Amounts. The aggregate amount that the
----------------------------------
Funding Parties shall be committed to provide as Funded Amounts under this
Master Agreement and the Loan Agreement shall not exceed (x) with respect to
each Leased Property the costs of purchase and construction of such Leased
Property and the related development, transaction, closing and financing costs,
or (y) $25,000,000 in the aggregate for all Leased Properties. The aggregate
amount that any Funding Party shall be committed to fund under this Master
Agreement and the Loan Agreement shall not exceed the lesser of (i) such Funding
Party's Commitment and (ii) such Funding Party's Commitment Percentage of the
aggregate Fundings requested under this Master Agreement.
(d) Notice, Time and Place of Fundings. With respect to each Funding,
----------------------------------
a Lessee or the Construction Agent, as the case may be, shall give the Lessor
and the Agent an irrevocable prior written notice not later than 11:00 a.m.,
Roanoke, Virginia time, at least three Business Days prior to the proposed
Closing Date or other Funding Date, as the case may be, pursuant, in each case,
to a Funding Request in the form of Exhibit A (a "Funding Request"), specifying
--------- ---------------
the Closing Date or subsequent Funding Date, as the case may be, the amount of
Funding requested, whether such Funding shall be a LIBOR Advance or a Prime Rate
Advance or a combination thereof and the Rent Period(s) therefor. All documents
and instruments required to be delivered on such Closing Date pursuant to this
Master Agreement shall be delivered at the offices of Mayer, Brown & Platt, 350
South Grand Avenue, 25th Floor, Los Angeles, California 90071-1503, or at such
other location as may be determined by the Lessor, the Construction Agent and
the Agent. Each Funding shall occur on a Business Day and (other than the final
Funding) shall be in an amount equal to $1,000,000 or an integral multiple of
$100,000 in excess thereof. All remittances made by any Lender and the Lessor
for any Funding shall be made in immediately available funds by wire transfer to
or, as is directed by, the Construction Agent, with receipt by the Construction
Agent not later than 12:00 noon, Roanoke, Virginia time, on the applicable
Funding Date, upon satisfaction or waiver of the conditions precedent to such
Funding set forth in Section 3; such funds shall (1) in the case of the initial
---------
Funding on the Closing Date, be used to pay the purchase price to the applicable
Seller (or to reimburse Lessor) for the related Land and pay development,
transaction and closing costs related to such Land, and (2) in the case of each
subsequent Funding be paid to the Construction Agent, for the payment or
reimbursement of Construction costs incurred through such Funding Date and not
previously paid or reimbursed. Except as otherwise expressly provided below,
any request for Funding shall be made solely by
4
<PAGE>
the Construction Agent in accordance with the Construction Agency Agreement of
even date herewith. No other Funding may occur without the Lessee's (and if a
different party, the Construction Agent's) consent except for automatic payments
and accruals under Section 2.3(c).
(e) Lessee's Deemed Representation for Each Funding. Each Funding
-----------------------------------------------
Request by a Lessee or the Construction Agent shall be deemed a reaffirmation of
each Lessee's indemnity obligations in favor of the Indemnitees under the
Operative Documents and a representation and warranty to the Lessor, the Agent
and the Lenders that on the Closing Date or Funding Date, as the case may be,
(i) the amount of Funding requested represents amounts owing in respect of the
purchase price of the related Land, and any Building thereon, and development,
transaction and closing costs in respect of the Leased Property (in the case of
the initial Funding on a Closing Date) or amounts that are then due (or that the
Lessee expects to become due within the next thirty days) to third parties in
respect of the Construction, or development and/or transaction costs, or amounts
paid by the Construction Agent to third parties in respect of the Construction
for which the Construction Agent has not previously been reimbursed by a Funding
(in the case of any Funding), (ii) no Event of Default or Potential Event of
Default exists, and (iii) the representations and warranties of each Obligor set
forth in Section 4.1 are true and correct in all material respects as though
-----------
made on and as of such Funding Date, except to the extent such representations
or warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date.
(f) Not Joint Obligations. Notwithstanding anything to the contrary
---------------------
set forth herein or in the other Operative Documents, each Lender's and the
Lessor's commitments shall be several, and not joint. In no event shall any
Funding Party be obligated to fund an amount in excess of such Funding Party's
Commitment Percentage of any Funding, or to fund amounts in the aggregate in
excess of such Funding Party's Commitment. However, in the case of a Loan Event
of Default or a Potential Loan Event of Default by Lessor (not resulting from an
Event of Default by the Lessee), Fundings shall be made directly to the
Construction Agent or, if deemed advisable by the Lenders and the Lessees, the
Lenders and Lessees shall cooperate in good faith to find a replacement Lessor;
provided that the Lenders, the Lessees and the Lessor shall negotiate in good
- --------
faith, execute and deliver appropriate amendments to the Operative Documents to
effect such direct Fundings or the replacement of the Lessor, as applicable.
5
<PAGE>
(g) Non-Pro Rata Fundings. Notwithstanding anything to the contrary
---------------------
set forth in this Master Agreement, Lessor shall satisfy its Funding obligations
on the Closing Date. The Lessor's Commitment is fully funded, the Lenders will
fund, on a pro rata basis as among themselves, 100% of the amount of the
Fundings thereafter. In no event shall any Funding Party have any obligation to
fund any amount hereunder in excess of the amount of such Funding Party's
Commitment.
SECTION 2.3 Funded Amounts and Interest and Yield Thereon; Facility Fee.
-----------------------------------------------------------
(a) The Lessor's Invested Amount for any Leased Property outstanding
from time to time shall accrue yield ("Yield") at the Lessor Rate, computed
-----
using the actual number of days elapsed and a 360 day year. If all or a portion
of the principal amount of or yield on the Lessor's Invested Amounts shall not
be paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall, without limiting the rights of the Lessor under the
Lease, to the maximum extent permitted by law, accrue yield at the Overdue Rate,
from the date of nonpayment until paid in full (both before and after judgment).
(b) Each Lender's Funded Amount for any Leased Property outstanding
from time to time shall accrue interest as provided in the Loan Agreement.
(c) Unless otherwise agreed by the Lessee and the Agent, during the
Construction Term, in lieu of the payment of accrued interest, on each Payment
Date, each Lender's Funded Amount shall automatically be increased by the amount
of interest accrued and unpaid on the related Loans pursuant to the Loan
Agreement during the Rent Period ending immediately prior to such Payment Date
(except to the extent that at any time such increase would cause such Lender's
Funded Amount to exceed such Lender's Commitment, in which event the related
Lessee shall pay such excess amount to such Lender in immediately available
funds on such Payment Date). Similarly, in lieu of the payment of accrued
Yield, on each Payment Date, the Lessor's Invested Amount shall automatically be
increased by the amount of Yield accrued on the Lessor's Invested Amount in
respect of such Leased Property during the Rent Period ending immediately prior
to such Payment Date (except to the extent that at any time such increase would
cause the Lessor's Invested Amount to exceed the Lessor's Commitment, in which
event the related Lessee shall pay such excess amount to the Lessor in
immediately available funds on
6
<PAGE>
such Payment Date). Such increases in Funded Amounts shall occur without any
disbursement of funds by the Funding Parties.
(d) Three Business Days prior to the last day of each Rent Period,
Rowe Furniture shall deliver to the Lessor and the Agent a notice substantially
in the form of Exhibit I (each, a "Payment Date Notice"), appropriately
--------- -------------------
completed, specifying the allocation of the Funded Amounts related to such Rent
Period to LIBOR Advances and Prime Rate Advances and the Rent Periods therefor,
provided that no such allocation shall be in an amount less than $1,000,000.
- --------
Each such Payment Date Notice shall be irrevocable. If no such notice is given,
the Funded Amounts shall be allocated to a LIBOR Advance with a Rent Period of
one (1) month.
(e) the Lessee hereby agrees to pay to each Funding Party a facility
fee for each day from August 27, 2000 until the Lease Termination Date equal to
(i) the applicable percentage set forth below for the corresponding Funded Debt
to Cash Flow Ratio as most recently determined based on Rowe Companies' most
recent audited annual or unaudited quarterly consolidated financial statements,
as applicable, per annum times (ii) the unused amount of such Funding Party's
--- ----- -----
Commitment on such day, times (iii) 1/360. Such facility fee shall be payable
-----
in arrears on each Quarterly Payment Date.
Facility Fee Percentages
------------------------
Funded Debt to Cash Flow Ratio Facility Fee Percentages
- ------------------------------ ------------------------
greater than 2.25:1.00 0.35%
lesser or equal to 2.25:1.00 0.25%
lesser or equal to 2.00:1.00 0.18%
lesser or equal to 1.75:1.00 0.15%
lesser or equal to 1.25:1.00 0.12%
lesser or equal to 0.50:1.00 0.10%
SECTION 2.4 Lessee Owner for Tax Purposes. With respect to each Leased
-----------------------------
Property, it is the intent of the Lessees and the Funding Parties that the Lease
be treated as an operating lease for financial accounting purposes but for
federal, state and local tax and commercial law purposes the Lease shall be
treated as the repayment and security provisions of a loan by the Lessor to the
Lessees, and that the related Lessee shall be treated as the legal and
beneficial owner entitled to any and all benefits of ownership of such Leased
Property and all payments of Basic Rent during the Lease Term shall be treated
as payments of interest and principal. Each Lessee and each Funding Party agree
7
<PAGE>
to file tax returns consistent with such intent. Nevertheless, each Lessee
acknowledges and agrees that no Funding Party or any other Person has made any
representations or warranties concerning the tax, financial, accounting or legal
characteristics or treatment of the Operative Documents and that each Lessee has
obtained and relied solely upon the advice of its own tax, accounting and legal
advisors concerning the Operative Documents and the accounting, tax, financial
and legal consequences of the transactions contemplated therein.
SECTION 2.5 Amounts Due Under Lease. With respect to each Leased
-----------------------
Property, anything else herein or elsewhere to the contrary notwithstanding, it
is the intention of the Lessees and the Funding Parties that: (i) subject to
clauses (ii) and (iii) below, the amount and timing of Basic Rent due and
- ------- ---- -----
payable from time to time from the related Lessee under the Lease shall be equal
to the aggregate payments due and payable with respect to interest on the Loans
in respect of such Leased Property and Yield on the Lessor's Invested Amounts in
respect of such Leased Property on each Payment Date; (ii) if the related Lessee
elects the Purchase Option with respect to a Leased Property or becomes
obligated to purchase such Leased Property under the Lease, the Funded Amounts
in respect of such Leased Property, all interest and Yield thereon and all other
obligations of the related Lessee owing to the Funding Parties in respect of
such Leased Property shall be paid in full by Lessee, (iii) if the Lessees
properly elect the Remarketing Option, the principal amount of, and accrued
interest on, the A Loans in respect of the Leased Properties, will be paid out
of the Recourse Deficiency Amount, and the Lessees shall only be required to pay
to the Lenders in respect of the principal amount of the B Loans and to the
Lessor in respect of the Lessor's Invested Amounts, the proceeds of the sale of
the Leased Properties in accordance with Section 14.6 of the Lease; and (iv)
upon an Event of Default resulting in an acceleration of the Lessees' obligation
to purchase the Leased Properties under the Lease, the amounts then due and
payable by the Lessee under the Lease shall include all amounts necessary to pay
in full the Loans, and accrued interest thereon, the Lessor's Invested Amounts
and accrued Yield thereon and all other obligations of the Lessees owing to the
Funding Parties pursuant to the Operative Documents.
8
<PAGE>
ARTICLE III
CONDITIONS PRECEDENT; DOCUMENTS
SECTION 3.1 Conditions to the Obligations of the Funding Parties on the
-----------------------------------------------------------
Closing Date. The obligations of the Lessor and each Lender to carry out their
- ------------
respective obligations under Section 2 of this Master Agreement to be performed
---------
on the Closing Date with respect to any Leased Property shall be subject to the
fulfillment to the satisfaction of, or waiver by, each such party hereto (acting
directly or through its counsel) on or prior to such Closing Date of the
following conditions precedent, provided that the obligations of any Funding
--------
Party shall not be subject to any conditions contained in this Section 3.1 which
-----------
are required to be performed by such Funding Party:
(a) Documents. The following documents shall have been executed and
---------
delivered by the respective parties thereto:
(i) Deed and Purchase Agreement. The related original Deed duly
---------------------------
executed by the applicable Seller and in recordable form, and copies
of the related Purchase Agreement, assigned to the Lessor, shall each
have been delivered to the Agent by Rowe Furniture, with copies
thereof to each other Funding Party with copies thereof to each other
Funding Party, as applicable (it being understood, that each Purchase
-- ----- ----------
Agreement shall be satisfactory in form and substance to the Lessor
and the Lenders).
(ii) Lease Supplement. The original of the related Lease
----------------
Supplement, duly executed by the related Lessee and the Lessor and in
recordable form, shall have been delivered to the Agent by such
Lessee.
(iii) Mortgage or Deed of Trust and Assignment of Lease and
-----------------------------------------------------
Rents. Counterparts of the Mortgage or Deed of Trust, as the case may
be, (substantially in the form of Exhibit D-1 or D-2, as the case may
----------- ---
be, attached hereto), duly executed by the Lessor and in recordable
form, shall have been delivered to the Agent (which Mortgage or Deed
of Trust, as the case may be, shall secure all of the debt to the
Agent unless such mortgage is subject to a tax based on the amount of
indebtedness secured thereby, in which case the amount secured will be
limited to debt in an amount equal to 100% of the projected cost of
acquisition and construction of such Leased Property); and the
9
<PAGE>
Assignment of Lease and Rents (substantially in the form of Exhibit B
---------
attached hereto) in recordable form, duly executed by the Lessor,
shall have been delivered to the Agent by the Lessor.
(iv) Security Agreement and Assignment. If Buildings are to be
---------------------------------
constructed on the Land, counterparts of the Security Agreement and
Assignment (substantially in the form of Exhibit C attached hereto),
---------
duly executed by the Construction Agent, with an acknowledgment and
consent thereto satisfactory to the Lessor and the Agent duly executed
by the related General Contractor and the related Architect, as
applicable, and complete copies of the related Construction Contract
and the related Architect's Agreement certified by the Construction
Agent, shall have been delivered to the Lessor and the Agent (it being
understood and agreed that if no related Construction Contract or
Architect's Agreement exists on such Closing Date, such delivery shall
not be a condition precedent to the Funding on such Closing Date, and
in lieu thereof the Construction Agent shall deliver complete copies
of such Security Agreement and Assignment and consents concurrently
with the Construction Agent's entering into such contracts).
(v) Survey. The related Lessee shall have delivered, or shall
------
have caused to be delivered, to the Lessor and the Agent, at such
Lessee's expense, an accurate survey certified to the Lessor and the
Agent in a form reasonably satisfactory to the Lessor and the Agent
and showing no state of facts unsatisfactory to the Lessor or the
Agent and prepared within ninety (90) days of such Closing Date (or
such other time period agreed to by the Lessor and the Agent) by a
Person reasonably satisfactory to the Lessor and the Agent. Such
survey shall (1) be acceptable to the Title Insurance Company for the
purpose of providing extended coverage to the Lessor and a lender's
comprehensive endorsement to the Agent, (2) show no encroachments on
such Land by structures owned by others, and no encroachments from any
part of such Leased Property onto any land owned by others, and (3)
disclose no state of facts reasonably objectionable to the Lessor, the
Agent or the Title Insurance Company, and be reasonably acceptable to
each such Person.
10
<PAGE>
(vi) Title and Title Insurance. On such Closing Date, the
-------------------------
Lessor shall receive from a title insurance company acceptable to the
Lessor and the Agent an ALTA Owner's Policy of Title Insurance issued
by such title insurance company and the Agent shall receive from such
title insurance company an ALTA Mortgagee's Policy of Title Insurance
issued by such title insurance company, in each case, in the amount of
the projected cost of acquisition and construction of such Leased
Property, reasonably acceptable in form and substance to the Lessor
and the Agent, respectively (collectively, the "Title Policy"), which
------------
may be subject to mechanic's liens arising during the course of
Construction. The Title Policy shall be dated as of such Closing
Date, and, to the extent permitted under Applicable Law, shall include
such affirmative endorsements as the Lessor or the Agent shall
reasonably request.
(vii) Appraisal. Each Funding Party shall have received a
---------
report of the Appraiser (an "Appraisal"), paid for by Rowe Furniture
---------
or the related Lessee, which shall meet the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989,
shall be satisfactory to such Funding Party and shall state in a
manner satisfactory to such Funding Party the estimated "as vacant"
value of such Land and existing Buildings or any Building to be
constructed thereon. Such Appraisal must show that the "as vacant"
value of such Leased Property (if a Building is to be constructed on
the Land, determined as if the Building had already been completed in
accordance with the related Plans and Specifications and by excluding
from such value the amount of assessments on such Leased Property) is
at least 43% of the total cost of such Leased Property, including the
trade fixtures, equipment and personal property (excluding Lessee's
Property) utilized in connection with the Leased Property and to be
funded by the Funding Parties. In the case of Land without any
Building thereon or any Plans and Specifications for a Building on the
related Closing Date, an Appraisal meeting the foregoing requirements
need not be delivered on or prior to the Closing Date but shall be
delivered on or before the 45th day following the development of Plans
and Specifications for a Building thereon; if the "as vacant" value
shown in the Appraisal so obtained by the
11
<PAGE>
Funding Parties fails to
meet the requirement of the preceding sentence, such failure shall
constitute an Event of Default.
(viii) Environmental Audit and related Reliance Letter. The
-----------------------------------------------
Lessor and the Agent shall have received an Environmental Audit for
such Leased Property, which shall be conducted in accordance with ASTM
standards and shall not include a recommendation for further
investigation and is otherwise satisfactory to the Lessor and the
Agent; and the firm that prepared the Environmental Audit for such
Leased Property shall have delivered to the Lessor and the Agent a
letter stating that the Lessor, the Agent and the Lenders may rely
upon such firm's Environmental Audit of such Land, it being understood
-------------------
that the Lessor's and the Agent's acceptance of any such Environmental
Audit shall not release or impair Lessee's obligations under the
Operative Documents with respect to any environmental liabilities
relating to such Leased Property. Lessor and/or Lenders shall have
the right to require an update of the Environmental Audit following
completion of development of the Leased Property, as a condition of
further Funding.
(ix) Evidence of Insurance. The Lessor and the Agent shall have
---------------------
received from the related Lessee certificates of insurance evidencing
compliance with the provisions of Article VIII of the Lease (including
the naming of the Lessor, the Agent and the Lenders as additional
insured or loss payee with respect to such insurance, as their
interests may appear), in form and substance reasonably satisfactory
to the Lessor and the Agent.
(x) Officer's Certificate. Each of the Agent and the Lessor
---------------------
shall have received an Officer's Certificate of Rowe Furniture stating
that, to the best of such officer's knowledge, (A) each and every
representation and warranty of Rowe Furniture contained in the
Operative Documents is true and correct in all material respects on
and as of such Closing Date as though made on and as of such Closing
Date, except to the extent such representations or warranties relate
solely to an earlier date, in which case such representations and
warranties were true and correct in all material respects on and as of
such earlier date;
12
<PAGE>
(B) no Event of Default, Potential Event of Default or Construction
Force Majeure Event has occurred and is continuing; (C) each Operative
Document to which any Lessee is a party is in full force and effect
with respect to it; and (D) no event that could reasonably be expected
to have a Material Adverse Effect has occurred since May 30, 1999.
(xi) UCC Financing Statement; Recording Fees; Transfer Taxes.
-------------------------------------------------------
Each Funding Party shall have received satisfactory evidence of (i)
the execution and delivery to Agent of a UCC-1 and, if required by
applicable law, UCC-2 financing statement to be filed with the
Secretary of State of the applicable State (or other appropriate
filing office) and the county where the related Land is located,
respectively, and such other Uniform Commercial Code financing
statements as any Funding Party deems necessary or desirable in order
to perfect such Funding Party's interests and (ii) the payment of all
recording and filing fees and taxes with respect to any recordings or
filings made of the related Deed, the Lease, the related Lease
Supplement, the related Mortgage and the related Assignment of Lease
and Rents.
(xii) Opinions. An opinion of local counsel for the related
--------
Lessee qualified in the jurisdiction in which such Leased Property is
located, in a form reasonably satisfactory to Agent, shall have been
delivered and addressed to each of the Lessor, the Agent and the
Lenders. To the extent requested by the Agent, opinions supplemental
to those delivered under Section 3.2(vi) and reasonably satisfactory
---------------
to the Agent shall have been delivered and addressed to each of the
Lessor, the Agent and the Lenders.
(xiii) Officer's Certificate. The Agent shall have received an
---------------------
Officer's Certificate of the Lessor stating that, to the best of such
officer's knowledge, (A) each and every representation and warranty of
the Lessor contained in the Operative Documents is true and correct in
all material respects on and as of such Closing Date as though made on
and as of such Closing Date, except to the extent such representations
or warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all
material respects on and
13
<PAGE>
as of such earlier date; (B) no Event of Default or Potential Event of
Default has occurred and is continuing; (C) each Operative Document to
which the Lessor is a party is in full force and effect with respect
to it; and (D) no event that could have a Material Adverse Effect has
occurred since the date of the most recent financial statements of the
Lessor delivered or required to be delivered to the Agent.
(xiv) Good Standing Certificates. The Agent shall have received
--------------------------
good standing certificates for the Lessor and the related Lessee from
the appropriate offices of the state where the related Land is
located.
(b) Litigation. No action or proceeding shall have been instituted
----------
or, to the knowledge of any Funding Party, threatened nor shall any governmental
action, suit, proceeding or investigation be instituted or threatened before any
Governmental Authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any Governmental Authority, to set aside, restrain,
enjoin or prevent the performance of this Master Agreement or any transaction
contemplated hereby or by any other Operative Document or which is reasonably
likely to materially adversely affect any Leased Property or any transaction
contemplated by the Operative Documents or which could reasonably be expected to
result in a Material Adverse Effect.
(c) Legality. In the opinion of such Funding Party or its counsel,
--------
the transactions contemplated by the Operative Documents shall not violate any
Applicable Law, and no change shall have occurred or been proposed in Applicable
Law that would make it illegal for such Funding Party to participate in any of
the transactions contemplated by the Operative Documents.
(d) No Events. (i) No Event of Default, Potential Event of Default,
---------
Event of Loss or Event of Taking relating to such Leased Property shall have
occurred and be continuing, (ii) no action shall be pending or threatened by a
Governmental Authority to initiate a Condemnation or an Event of Taking, and
(iii) there shall not have occurred any event that could reasonably be expected
to have a Material Adverse Effect since May 30, 1999.
14
<PAGE>
(e) Representations. Each representation and warranty of the parties
---------------
hereto or to any other Operative Document contained herein or in any other
Operative Document shall be true and correct in all material respects as though
made on and as of such Closing Date, except to the extent such representations
or warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date.
(f) Cutoff Date. No Closing Date shall occur after the Funding
-----------
Termination Date.
(g) Transaction Expenses. The related Lessee shall have paid the
--------------------
transaction costs then accrued and invoiced which the Lessees have agreed to pay
pursuant to Section 8.8 or will be paid in accordance with its terms.
-----------
SECTION 3.2 Additional Conditions for the Closing Date. The obligations of
------------------------------------------
the Lessor and each Lender to carry out their respective obligations under
Section 2 of this Master Agreement to be performed on the Closing Date shall be
- ---------
subject to the satisfaction of, or waiver by, each such party hereto (acting
directly or through its counsel) on or prior to the Closing Date of the
following conditions precedent in addition to those set forth in Section 3.1,
-----------
provided that the obligations of any Funding Party shall not be subject to any
- --------
conditions contained in this Section 3.2 which are required to be performed by
-----------
such Funding Party:
(a) Loan Agreement; Guaranty Agreement. Counterparts of the Loan
----------------------------------
Agreement, duly executed by the Lessor, the Agent and each Lender shall have
been delivered to each of the Lessor and the Agent. An A Note and a B Note,
duly executed by the Lessor, shall have been delivered to the Agent. The
Guaranty Agreement, duly executed by each Guarantor, shall have been delivered
to the Agent.
(b) Master Agreement. Counterparts of this Master Agreement, duly
----------------
executed by the parties hereto, shall have been delivered to each of the parties
hereto.
(c) Construction Agency Agreement. Counterparts of the Construction
-----------------------------
Agency Agreement, duly executed by the parties thereto shall have been delivered
to each of the parties hereto.
(d) Lease. Counterparts of the Lease, duly executed by the Lessees
-----
party to this Master Agreement on the Closing
15
<PAGE>
Date, and the Lessor, shall have been delivered to each Funding Party and the
original, chattel paper copy of the Lease shall have been delivered to the
Agent.
(e) Lease Supplement. The original of the Lease Supplement, duly
----------------
executed by the related Lessee and the Lessor and in recordable form, shall have
been delivered to the Agent.
(f) Obligor's Resolutions and Incumbency Certificate, etc. Each of
-----------------------------------------------------
the Agent and the Lessor shall have received (x) a certificate of the Secretary
or an Assistant Secretary of each Obligor on the Closing Date, attaching and
certifying as to (i) the Board of Directors' (or appropriate committee's)
resolution duly authorizing the execution, delivery and performance by it of
each Operative Document to which it is or will be a party, (ii) the incumbency
and signatures of persons authorized to execute and deliver such documents on
its behalf, (iii) its articles or certificate of incorporation, certified as of
a recent date by the Secretary of State of the state of its incorporation and
(iv) its by-laws, and (y) good standing certificates for such Obligor on the
Closing Date from the appropriate offices of the States of such Obligor's
incorporation and principal place of business.
(g) Opinions of Counsel. The opinion of Silver, Freedman & Taff,
-------------------
L.L.P., dated as of the Closing Date, substantially in the form set forth in
Exhibit G-1 attached hereto, and containing such other matters as the parties to
- -----------
whom it is addressed shall reasonably request, shall have been delivered and
addressed to each of the Lessor, the Agent and the Lenders. The opinion of
Brown McCarroll & Oaks Hartline, LLP, dated as of the Closing Date,
substantially in the form set forth in Exhibit G-2 attached hereto, and
-----------
containing such other matters as the parties to whom it is addressed shall
reasonably request, shall have been delivered to each of the Agent, the Lessee
and the Lenders.
(h) Good Standing Certificate. The Agent and Rowe Furniture shall
-------------------------
have received a good standing certificate for the Lessor from the appropriate
office of the State of Texas.
(i) Lessor's Consents and Incumbency Certificate, etc. The Agent and
-------------------------------------------------
Rowe Furniture shall have received a certificate of the Secretary or an
Assistant Secretary of the General Partner of the Lessor attaching and
certifying as to (i) the consents of the partners of the Lessor duly authorizing
the execution, delivery and performance by it of each Operative Document to
which it is
16
<PAGE>
or will be a party, (ii) the incumbency and signatures of persons authorized to
execute and deliver such documents on its behalf, and (iii) the Partnership
Agreement.
(j) Funding Request. The Lessor and the Agent shall have received
---------------
from the Construction Agent or a Lessee the Funding Request therefor pursuant to
Section 2.2(d).
SECTION 3.3 Conditions to the Obligations of Lessee. The obligations of
---------------------------------------
any Lessee to lease a Leased Property from the Lessor are subject to the
fulfillment on the Closing Date to the satisfaction of, or waiver by, such
Lessee, of the following conditions precedent:
(a) General Conditions. The conditions set forth in Sections 3.1 and
------------------ ------------
3.2 that require fulfillment by the Lessor, the Agent or the Lenders shall have
- ---
been satisfied, including the delivery of good standing certificates by the
Lessor pursuant to Sections 3.1(a)(xiv) and 3.2(vii) and the delivery of an
-------------------- --------
opinion of counsel for the Lessor pursuant to Section 3.2(vi) and the execution
---------------
and delivery of the Operative Documents to be executed by the Lessor, the Agent
or the Lenders in connection with such Leased Property.
(b) Legality. In the opinion of such Lessee or its counsel, the
--------
transactions contemplated by the Operative Documents shall not violate any
Applicable Law, and no change shall have occurred or been proposed in Applicable
Law that would make it illegal for such Lessee to participate in any of the
transactions contemplated by the Operative Documents.
(c) Purchase Agreement. The Purchase Agreement and all documents to
------------------
be delivered under the Purchase Agreement, including title insurance, survey and
environmental audit, shall be reasonably satisfactory to such Lessee.
SECTION 3.4 Conditions to the Obligations of the Funding Parties on each
------------------------------------------------------------
Funding Date. The obligations of the Lessor and each Lender to carry out their
- ------------
respective obligations under Section 2 of this Master Agreement to be performed
---------
on each Funding Date shall be subject to the fulfillment to the satisfaction of,
or waiver by, each such party hereto (acting directly or through their
respective counsel) on or prior to each such Funding Date of the following
conditions precedent, provided that the obligations of any Funding Party shall
--------
not be subject to any conditions contained in this Section 3.4 which are
-----------
required to be performed by such Funding Party:
17
<PAGE>
(a) Funding Request. The Lessor and the Agent shall have received
---------------
from the Construction Agent or a Lessee the Funding Request therefor pursuant to
Section 2.2(d).
- --------------
(b) Condition Fulfilled. As of such Funding Date, the condition set
-------------------
forth in Section 3.1(d)(i) shall have been satisfied.
-----------------
(c) Representations. As of such Funding Date, both before and after
---------------
giving effect to the Funding requested by the Construction Agent or a Lessee on
such date, the representations and warranties that the Construction Agent or any
Obligor is deemed to make pursuant to Section 2.2(e) shall be true and correct
--------------
in all material respects on and as of such Funding Date as though made on and as
of such Funding Date, except to the extent such representations or warranties
relate solely to an earlier date, in which case such representations and
warranties shall have been true and correct in all material respects on and as
of such earlier date.
(d) No Bonded Stop Notice or Filed Mechanics Lien. As of such Funding
---------------------------------------------
Date, and as to any Funded Amount requested for any Leased Property on such
Funding Date, (i) none of the Lessor, the Agent or any Lender has received (with
respect to such Leased Property) a bonded notice to withhold Loan funds that has
not been discharged by the related Lessee or the Construction Agent, and (ii) no
mechanic's liens or materialman's liens have been filed against such Leased
Property that have not been discharged by the related Lessee, bonded over in a
manner reasonably satisfactory to the Agent or insured over by the Title
Insurance Company.
(e) Paydown of Revolver. The Agent shall have received from the
-------------------
Lessee a deposit in an amount equal to fifty percent (50%) of the amount of the
Funding requested as payment of principal borrowed under the Revolver pursuant
to Section 2(b) of the Agreement as to Synthetic Lease Fundings, dated as of
August 27, 1999, by and between the Lessee, the Guarantors, the Agent and Bank
of America, N.A., a national banking association d/b/a Nationsbank, N.A.
SECTION 3.5 Completion Date Conditions. The occurrence of the Completion
--------------------------
Date with respect to any Leased Property shall be subject to the fulfillment to
the satisfaction of, or waiver by, each party hereto (acting directly or through
its counsel) of the following conditions precedent:
18
<PAGE>
(a) Title Policy Endorsements; Architect's Certificate. The
--------------------------------------------------
Construction Agent shall have furnished to each Funding Party (1) the following
endorsements to the related Title Policy (each of which shall be subject to no
exceptions other than those reasonably acceptable to the Agent): a date-down
endorsement (redating and confirming the coverage provided under the Title
Policy and each endorsement thereto) and a "Form 9" endorsement (if available in
the applicable jurisdiction), in each case, effective as of a date not earlier
than the date of completion of the Construction, and (2) a certificate of the
Architect dated at or about the Completion Date, in form and substance
reasonably satisfactory to the Agent, the Lessor and the Lenders, and stating
that (i) the related Building has been completed substantially in accordance
with the Plans and Specifications therefor, and such Leased Property is ready
for occupancy, (ii) such Plans and Specifications comply in all material
respects with all Applicable Laws in effect at such time, and (iii) to the best
of the Architect's knowledge, such Leased Property, as so completed, complies in
all material respects with all Applicable Laws in effect at such time. The
Construction Agent shall also deliver to the Agent true and complete copies of:
(A) an "as built" or "record" set of the Plans and Specifications, (B) a plat of
survey of such Leased Property "as built" to a standard reasonably acceptable to
the Agent showing all easements, paving, driveways, fences and exterior
improvements, and (C) copies of a certificate or certificates of occupancy for
such Leased Property or other legally equivalent permission to occupy such
Leased Property.
(b) Construction Completion. Any related Construction shall have been
-----------------------
completed substantially in accordance with the related Plans and Specifications,
the related Deed and all Applicable Laws, and such Leased Property shall be
ready for occupancy and operation. All fixtures, equipment and other property
which are owned by Lessor and paid for by Fundings hereunder and which were
contemplated under the Plans and Specifications to be incorporated into or
installed in such Leased Property shall have been substantially incorporated or
installed, free and clear of all Liens except for Permitted Encumbrances.
(c) Construction Agent Certification. The Construction Agent shall
--------------------------------
have furnished the Lessor, the Agent and each Lender with a certification of the
Construction Agent (substantially in the form of Exhibit H) that:
---------
19
<PAGE>
(i) all amounts owing to third parties for the related
Construction have been paid in full (other than contingent obligations for
which the Construction Agent has made adequate reserves or obligations to
be paid from the final Funding), and no litigation or proceedings are
pending, or to the best of the Construction Agent's knowledge, are
threatened, against such Leased Property or the Construction Agent or the
related Lessee which could reasonably be expected to have a Material
Adverse Effect;
(ii) all material consents, licenses and permits and other
governmental authorizations or approvals required for such Construction and
operation of such Leased Property have been obtained and are in full force
and effect;
(iii) such Leased Property has available all services of public
facilities and other utilities necessary for the related Lessee's use and
operation of such Leased Property for its intended purposes including,
without limitation, adequate water, gas and electrical supply, storm and
sanitary sewerage facilities, telephone, other required public utilities
and means of access between the related Building and public highways for
pedestrians and motor vehicles;
(iv) all agreements, easements and other rights, public or
private, which are necessary to permit the lawful use and operation of such
Leased Property as the related Lessee intends to use such Leased Property
under the Lease and which are necessary to permit the lawful intended use
and operation by the related Lessee of all then intended utilities,
driveways, roads and other means of egress and ingress to and from the same
have been obtained and are in full force and effect and neither the
Construction Agent nor the related Lessee has any knowledge of any pending
modification or cancellation of any of the same that would result in a
Material Adverse Effect; and the use of such Leased Property by the related
Lessee does not depend on any variance, special exception or other
municipal approval, permit or consent that has not been obtained and is in
full force and effect for its continuing legal use;
(v) all of the requirements and conditions set forth in Section
-------
3.5(b) hereof have been completed and fulfilled with respect to such Leased
------
Property and the related Construction; and
20
<PAGE>
(vi) to the best of the Construction Agent's knowledge, such
Leased Property is in compliance in all material respects with all
applicable zoning laws and regulations.
SECTION 3.6 Addition of Lessees. After the date hereof, additional
-------------------
Subsidiaries of Rowe Companies may become Lessees hereunder and under the other
Operative Documents upon satisfaction of the following conditions precedent:
(a) such Subsidiary and the Guarantor shall have executed and
delivered to the Agent and the Lessor a Joinder Agreement, substantially in
the form of Exhibit J;
---------
(b) such Subsidiary shall have delivered to each of the Agent and the
Lessor (x) a certificate of the Secretary or an Assistant Secretary of such
Subsidiary, attaching and certifying as to (i) the Board of Directors'
resolution duly authorizing the execution, delivery and performance by it
of each Operative Document to which it is or will be a party, (ii) the
incumbency and signatures of persons authorized to execute and deliver such
documents on its behalf, (iii) its certificate of incorporation, certified
as of a recent date by the Secretary of State of its incorporation and (iv)
its by-laws, and (y) good standing certificates from the appropriate
offices of the States of such Subsidiary's incorporation and principal
place of business;
(c) such Subsidiary shall have delivered an opinion of Silver,
Freedman & Taff, L.L.P., addressed to each of the Lessor, the Agent and the
Lenders, substantially in the form set forth in Exhibit G-1; and
-----------
(d) the Agent, the Lessor and the Lenders shall have received such
other documents, certificates and information as any of them shall have
reasonably requested.
ARTICLE IV.
REPRESENTATIONS
SECTION 4.1 Representations of Obligors. Effective as of the date of
---------------------------
execution hereof, as of the Closing Date and as of each Funding Date, each
Obligor represents and warrants to each of the other parties hereto as follows:
21
<PAGE>
(a) Financial Condition. The consolidated balance sheets of Rowe
-------------------
Companies and its Subsidiaries as at November 29, 1998 and May 30, 1999 and the
related consolidated statements of income, stockholder's equity and cash flows
for the fiscal year ended on each such date, reported on (in the case of the
November 29, 1998 balance sheet and statements) by BDO Seidman, LLP, copies of
which have heretofore been furnished to each Funding Party, are complete and
correct in all material respects and present fairly the consolidated financial
condition of the Lessees and Rowe Companies as at such dates, and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by such
accountants and as disclosed therein). To the best knowledge of any Lessee or
Rowe Companies, there are no material liabilities, direct or indirect, fixed or
contingent, of any such Lessee or Rowe Companies, as of the date hereof, that
are not reflected in the above financial statements, other than those incurred
in the ordinary course of business since May 30, 1999, or which have been
reflected in a Form 8-K filing with the SEC.
(b) No Change. To the best knowledge of any Lessee or Rowe Companies,
---------
there has been no material adverse change in the financial condition or
operations of any such Lessee or Rowe Companies since May 30, 1999, except as
disclosed in writing to the Agent and except as reflected in Form 8-K filings
with the SEC, provided however, that the foregoing representation is made solely
as of the Closing Date.
(c) Corporate Existence; Compliance with Law. Each Obligor and each
----------------------------------------
of Rowe Companies' Significant Subsidiaries (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, except to the extent that, in the aggregate, the failure of any
such Subsidiaries to be duly organized, validly existing or in good standing
would not have a Material Adverse Effect, (b) has the corporate power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, except to the extent that, in the aggregate, the failure of
any such Subsidiaries to have any such power, authority or legal right would not
have a Material Adverse Effect, (c) is duly qualified and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification except
22
<PAGE>
to the extent that, in the aggregate, the failure to so qualify or be in good
standing would not have a Material Adverse Effect, and (d) is, to the best of
its knowledge, in compliance with all Requirements of Law except to the extent
that, in the aggregate, the failure to comply therewith would not have a
Material Adverse Effect.
(d) Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Obligor has the corporate power and authority, and the legal right, to make,
deliver and perform this Master Agreement and the other Operative Documents to
which it is a party and has taken all necessary corporate action to authorize
the Transaction on the terms and conditions of this Master Agreement and to
authorize the execution, delivery and performance of this Master Agreement and
the other Operative Documents to which it is a party. No consent or
authorization of, filing with or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with the Transaction or
with the execution, delivery, performance, validity or enforceability of this
Master Agreement or the other Operative Documents to which it is a party. This
Master Agreement has been, and each other Operative Document to which it is a
party will be, duly executed and delivered on behalf of each Obligor. This
Master Agreement constitutes, and each other Operative Documents to which it is
a party when executed and delivered will constitute, a legal, valid and binding
obligation of each Obligor enforceable against such Obligor in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) No Legal Bar. The execution, delivery and performance of this
------------
Master Agreement and the other Operative Documents to which it is a party, the
Transaction and the use of the proceeds thereof will not, to the best of such
Obligor's knowledge, violate any Requirement of Law or Contractual Obligation of
Rowe Companies or of any of its Subsidiaries and will not result in, or require,
the creation or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation, other than the Operative Documents and other than any Permitted
Encumbrances with respect to Leased Properties.
23
<PAGE>
(f) No Material Litigation. No litigation, investigation or
----------------------
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of any Obligor, threatened by or against any Obligor or any of
their Subsidiaries or against any of its or their respective properties or
revenues which would have a Material Adverse Effect.
(g) No Default. No Potential Event of Default or Event of Default
----------
has occurred and is continuing.
(h) Taxes. All tax returns now required to be filed by the Obligors
-----
have been filed (or appropriate extensions of such filings have been obtained)
and all taxes, assessments and other governmental charges (other than those
presently payable without penalty or interest and those being contested in good
faith by appropriate proceedings due from the Obligors have been paid. The
Obligors have established on their books reserves adequate for the payment of
all federal, state and other tax liabilities.
(i) Federal Regulations. No part of the proceeds of any Funding will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U or Regulation X of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect if such use would violate, or cause the Fundings or the
Commitments to be in violation of, the provisions of the Regulations of such
Board of Governors. If requested by any Funding Party or the Agent at any time,
each Obligor will furnish to the Agent and each Funding Party a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 referred to
in said Regulation U.
(j) ERISA. To the best of such Obligors' knowledge, each Plan is in
-----
compliance in all material respects with all applicable provisions of ERISA and
the Code, and no liability or obligation has been incurred with respect to any
Plan pursuant to Title IV of ERISA. No Prohibited Transaction has occurred or
exists in connection with any Plan. Neither the Obligors nor any ERISA
Affiliate is now or will be at any time from the Closing Date through the Lease
Term a sponsor or contributing employer of (1) any plan which is subject to the
minimum funding requirements under Section 412 of the Code or Section 302 of
ERISA, (2) any "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, or (3) any "multiemployer plan," as defined in Section 4001(a)(3) of
ERISA.
24
<PAGE>
(k) Investment Company Act; Other Regulations. None of the Obligors
-----------------------------------------
is subject to registration as an "investment company" or is "controlled" by such
a company, within the meaning of the Investment Company Act of 1940, as amended.
(l) Purpose of Fundings. The proceeds of the Fundings shall be used
-------------------
by the related Lessee or the Construction Agent to purchase the Land from the
applicable Seller and for Construction costs, including hard and soft costs,
plans and specifications, attorney fees, costs associated with development and
construction of the Building and any trade fixtures or equipment purchased for
use on or in connection with the Leased Property with Funding provided by the
Funding Parties.
(m) Disclosure. This Master Agreement, taken as a whole, does not
----------
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein in light of the
circumstances in which they were made, not materially misleading.
(n) Hazardous Materials - Leased Properties.
---------------------------------------
(i) To the best knowledge of the related Lessee, except as
described in the related Environmental Audit, on the Closing Date for each
Leased Property, there are no Hazardous Materials present at, upon, under
or within such Leased Property or released or transported to or from such
Leased Property (except in compliance in all material respects with all
Applicable Law).
(ii) To the best knowledge of the related Lessee, on the related
Closing Date, no Governmental Actions have been taken or, to the best
knowledge of the related Lessee, are in process or have been threatened,
which could reasonably be expected to subject such Leased Property, any
Lender or the Lessor to any Claims or Liens with respect to such Leased
Property under any Environmental Law which would have a Material Adverse
Effect, or would have a material adverse effect on the Lessor or any
Lender.
(iii) The related Lessee has obtained, or will obtain on or
before the date required by Applicable Law, all Environmental Permits to
the extent required by Applicable Law to operate each Leased Property, if
any, in accordance with Environmental Laws and is complying with and has at
all times complied with all such Environmental Permits, except to the
extent the failure to obtain such Environmental
25
<PAGE>
Permits or to so comply would not have a Material Adverse Effect.
(iv) To the best knowledge of the related Lessee, except as set
forth in the related Environmental Audit or in any notice subsequently
furnished by the related Lessee to the Agent and approved by the Agent in
writing prior to the respective times that the representations and
warranties contained herein are made or deemed made hereunder, no notice,
notification, demand, request for information, citations, summons,
complaint or order has been issued or filed to or with respect to the
related Lessee, no penalty has been assessed on the related Lessee and no
investigation or review is pending or threatened by any Governmental
Authority or other Person in each case relating to any Leased Property with
respect to any alleged material violation or liability of the related
Lessee under any Environmental Law. To the best knowledge of the related
Lessee, no material notice, notification, demand, request for information,
citations, summons, complaint or order has been issued or filed to or with
respect to any other Person, no material penalty has been assessed on any
other Person and no investigation or review is pending or threatened by any
Governmental Authority or other Person relating to any Leased Property with
respect to any alleged material violation or liability under any
Environmental Law by any other Person.
(v) To the best knowledge of the related Lessee, each Leased
Property and each portion thereof are presently in compliance in all
material respects with all Environmental Laws, and, to the best knowledge
of the related Lessee, there are no present or past facts, circumstances,
activities, events, conditions or occurrences regarding such Leased
Property (including without limitation the release or presence of Hazardous
Materials) that could reasonably be anticipated to (A) form the basis of a
material Claim against such Leased Property, any Funding Party or the
related Lessee, (B) cause such Leased Property to be subject to any
material restrictions on ownership, occupancy, use or transferability under
any Environmental Law, (C) require the filing or recording of any notice or
restriction relating to the presence of Hazardous Materials in the real
estate records in the county or other appropriate municipality in which
such Leased Property is located, or (D) prevent or materially interfere
with the
26
<PAGE>
continued operation and maintenance of such Leased Property as contemplated
by the Operative Documents.
(o) Leased Property. To the best knowledge of the related Lessee, the
---------------
present condition of each Leased Property conforms in all material respects with
all conditions or requirements of all existing material permits and approvals
issued with respect to such Leased Property, and the related Lessee's future
intended use of such Leased Property under the Lease does not, in any material
respect, violate any Applicable Law. To the best knowledge of the related
Lessee, no material notices, complaints or orders of violation or non-compliance
have been issued or threatened or contemplated by any Governmental Authority
with respect to any Leased Property or any present or intended future use
thereof. All material agreements, easements and other rights, public or
private, which are necessary to permit the lawful use and operation of each
Leased Property as the related Lessee intends to use such Leased Property under
the Lease and which are necessary to permit the lawful intended use and
operation of all presently intended utilities, driveways, roads and other means
of egress and ingress to and from the same have been, or to the related Lessee's
best knowledge will be, obtained and are or will be in full force and effect,
and the related Lessee has no knowledge of any pending material modification or
cancellation of any of the same.
SECTION 4.2 Survival of Representations and Effect of Fundings.
--------------------------------------------------
(a) Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made in Section 4.1 shall survive delivery of the Operative
-----------
Documents and every Funding, and shall remain in effect until all of the
Obligations are fully and irrevocably paid.
(b) Each Funding a Representation. Each Funding accepted by a Lessee
-----------------------------
or the Construction Agent shall be deemed to constitute a representation and
warranty by each Obligor to the effect of Section 4.1.
-----------
SECTION 4.3 Representations of the Lessor. Effective as of the date of
-----------------------------
execution hereof, as of the Closing Date and as of each Funding Date, in each
case, with respect to each of the Leased Properties, the Lessor represents and
warrants to the Agent, the Lenders, the Lessees, Rowe Companies and the
Guarantors, as follows:
27
<PAGE>
(a) Securities Act. The interest being acquired or to be acquired by
--------------
the Lessor in such Leased Property is being acquired for its own account,
without any view to the distribution thereof or any interest therein, provided
--------
that the Lessor shall be entitled to assign, convey or transfer its interest in
accordance with Section 6.1.
-----------
(b) Due Organization, etc. The Lessor is a limited partnership duly
---------------------
organized and validly existing in good standing under the laws of Texas and each
state in which a Leased Property is located and has full power, authority and
legal right to execute, deliver and perform its obligations under the Lease,
this Master Agreement and each other Operative Document to which it is or will
be a party.
(c) Due Authorization; Enforceability, etc. This Master Agreement and
--------------------------------------
each other Operative Document to which the Lessor is or will be a party have
been or will be duly authorized, executed and delivered by or on behalf of the
Lessor and are, or upon execution and delivery will be, legal, valid and binding
obligations of the Lessor enforceable against it in accordance with their
respective terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors' rights generally
and by general equitable principles.
(d) No Conflict. The execution and delivery by the Lessor of the
-----------
Lease, this Master Agreement and each other Operative Document to which the
Lessor is or will be a party, are not or will not be, and the performance by the
Lessor of its obligations under each will not be, inconsistent with its
Partnership Agreement, do not and will not contravene any Applicable Law
applicable generally to parties providing financing and do not and will not
contravene any provision of, or constitute a default under, any Contractual
Obligation of Lessor, do not and will not require the consent or approval of,
the giving of notice to, the registration with or taking of any action in
respect of or by, any Governmental Authority applicable generally to parties
providing financing, except such as have been obtained, given or accomplished,
and the Lessor possesses all requisite regulatory authority to undertake and
perform its obligations under the Operative Documents.
(e) Litigation. There are no pending or, to the knowledge of the
----------
Lessor, threatened actions or proceedings against the Lessor before any court,
arbitrator or administrative agency with respect to any Operative Document or
that would have
28
<PAGE>
a material adverse effect upon the ability of the Lessor to perform its
obligations under this Master Agreement or any other Operative Documents to
which it is or will be a party.
(f) Lessor Liens. No Lessor Liens (other than those created by the
------------
Operative Documents) exist on any Closing Date on the Leased Property, or any
portion thereof, and the execution, delivery and performance by the Lessor of
this Master Agreement or any other Operative Document to which it is or will be
a party will not subject any Leased Property, or any portion thereof, to any
Lessor Liens (other than those created by the Operative Documents).
(g) Employee Benefit Plans. The Lessor is not and will not be making
----------------------
its investment hereunder, and is not performing its obligations under the
Operative Documents, with the assets of an "employee benefit plan" (as defined
in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
defined in Section 4975(e)(1)) of the Code.
(h) General Partner. The sole general partner of the Lessor is
---------------
Atlantic Financial Managers, Inc.
(i) Financial Information. (A) The unaudited balance sheet of the
---------------------
Lessor as of December 31, 1998 and the related statements of income, partners'
capital and cash flows for the year then ended, copies of which have been
delivered to the Agent and Rowe Companies, fairly present, in conformity with
sound accounting principles, the financial condition of the Lessor as of such
date and the results of operations and cash flows for such period.
(B) Since December 31, 1998, there has been no event, act, condition
or occurrence having a material adverse effect upon the financial condition,
operations, performance or properties of the Lessor, or the ability of the
Lessor to perform in any material respect its obligations under the Operative
Documents.
(C) The Lessor has no recourse indebtedness, and the Lessor has not
entered into any other transactions, purchases, leases or other agreements,
other than immaterial transactions, purchases, leases and other agreements
entered into by the Lessor in the ordinary course of its business, in which the
Lessor has any liability to the other parties to such transactions, purchases,
leases or other agreements that is in excess of the Lessor's ownership or other
interest in the property subject to
29
<PAGE>
such transactions, purchases, leases or other agreements other than liability
for required fundings, breach of contract, misrepresentation, gross negligence,
willful misconduct, fraud, failure to turn over funds and similar exceptions to
limitations on recourse.
(j) No Offering. The Lessor has not offered the Notes to any Person
-----------
in any manner that would subject the issuance thereof to registration under the
Securities Act or any applicable state securities laws.
SECTION 4.4 Representations of each Lender. Effective as of the date of
------------------------------
execution hereof, as of the Closing Date and as of each Funding Date, each
Lender represents and warrants to the Lessor and to the Lessees as follows:
(a) Securities Act. The interest being acquired or to be acquired by
--------------
such Lender in the Funded Amounts is being acquired for its own account, without
any view to the distribution thereof or any interest therein, provided that such
--------
Lender shall be entitled to assign, convey or transfer its interest in
accordance with Section 6.2.
-----------
(b) Employee Benefit Plans. Such Lender is not and will not be making
----------------------
its investment hereunder, and is not performing its obligations under the
Operative Documents, with the assets of an "employee benefit plan" (as defined
in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
defined in Section 4975(e)(1)) of the Code.
ARTICLE V.
COVENANTS OF OBLIGORS AND THE LESSOR
SECTION 5.1 Affirmative Covenants. Each Obligor covenants and agrees
---------------------
that, it shall do, or cause to be done, the following:
(a) Financial Statements. Furnish to each Funding Party:
--------------------
(i) as soon as available, but in any event within 90 days after
the end of each fiscal year of each Obligor, a copy of the
consolidated balance sheet of Rowe Companies and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in
30
<PAGE>
comparative form the figures for the previous year, reported on
without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit, by BDO Seidman,
LLP, by a "Big 5" accounting firm, or by another nationally recognized
accounting firm designated by Rowe Companies and reasonably acceptable
to the Required Funding Parties. Alternatively, such Obligor may
furnish its annual report on Form 10-K filed with the SEC if such
annual report contains financial statements that satisfy the
requirements set forth above; and
(ii) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of
each fiscal year of each Obligor, the unaudited consolidated balance
sheet of Rowe Companies and its consolidated Subsidiaries as at the
end of such quarter and the related unaudited consolidated statements
of income and retained earnings and of cash flows of Rowe Companies
and its consolidated Subsidiaries for such quarter and the portion of
the fiscal year through the end of such quarter, setting forth in each
case in comparative form the figures for the previous year, certified
by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments).
Alternatively, such Obligor may furnish its quarterly report on Form
10-Q filed with the SEC if such quarterly report contains financial
statements that satisfy the requirements set forth above;
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
(b) Certificates; Other Information. Furnish to each Funding Party:
-------------------------------
(i) concurrently with the delivery of the financial statements
referred to in Section 5.1(a)(i), a certificate of the independent certified
-----------------
public accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any
31
<PAGE>
Potential Event of Default or Event of Default, except as specified in such
certificate;
(ii) concurrently with the delivery of the financial statements
referred to in Sections 5.1(a)(i) and (ii), a certificate of a Responsible
------------------ ----
Officer stating that such officer has obtained no knowledge of any Potential
Event of Default or Event of Default that has occurred and is continuing except
as specified in such certificate, and including calculations demonstrating
compliance with Section 5.2;
-----------
(iii) within five Business Days after the same are sent, copies of
all regular and periodic reports which Rowe Companies sends to its stockholders
generally, and within five Business Days after the same are filed, copies of all
regular and periodic reports which Rowe Companies may make to, or file with, the
SEC or any successor or analogous Governmental Authority; and
(iv) promptly, such additional financial and other information as any
Funding Party may from time to time reasonably request.
(c) Conduct of Business and Maintenance of Existence. Continue to
------------------------------------------------
engage in business of substantially the same general type as now conducted by
it, taken as a whole, and preserve, renew and, with respect to Rowe Companies
and Rowe Furniture only, keep in full force and effect its corporate existence
and take such reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
as otherwise permitted pursuant to Section 5.2(e); comply with all Contractual
--------------
Obligations and Requirements of Law except to the extent that failure to comply
therewith would not, in the aggregate, have a Material Adverse Effect.
(d) Inspection of Property; Books, Records and Discussions.
------------------------------------------------------
(i) Keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all Requirements of Law shall
be made of all dealings and transactions in relation to its business and
activities.
(ii) Permit representatives of Funding Parties to visit it any of its
properties and have access to any of its financial books and records at
reasonable times during normal business hours and to make inspections
thereof and
32
<PAGE>
such excerpts from such records as such representatives deem
necessary.
(e) Notices. Give notice to the Agent and each Funding Party within
-------
10 days after Rowe Companies knows or has reason to know thereof of (i) any
Potential Event of Default or Event of Default or (ii) any change order over
$100,000 under any Construction Contract.
(f) Taxes. Duly pay and discharge all taxes, assessments and
-----
governmental charges upon it or against its properties prior to the date on
which penalties attach unless and to the extent only that such taxes,
assessments and governmental charges shall be contested in good faith and by
appropriate proceedings by the Lessee or each Guarantor, as the case may be, and
the Lessee or each Guarantor, as the case may be, shall have set aside on its
books such reserves as are required by GAAP with respect to any such tax,
assessment or charge so contested.
(g) Maintenance of Property. Maintain all of its Properties and
-----------------------
assets in good condition, repair and working order, ordinary wear and tear
excepted.
(h) Insurance. Continuously maintain or cause to be maintained
---------
insurance with responsible carriers, or through self-insurance, against such
risks as are customarily insured against and in such amounts as are customarily
carried by entities similar to such Obligor, paying or causing to be paid as the
same become due all premiums in respect thereto, as applicable.
(i) Environmental Matters.
---------------------
(i) Conduct the Lessee's business operations in full compliance
with Environmental Laws and refrain from, and prevent any other party from,
using any Hazardous Materials on or in connections with the Properties
except such material as are incidental to the Lessee's normal course of
business, maintenance and repairs. Notwithstanding the foregoing, the
Lessee's or Rowe Companies' failure to comply with the foregoing provision
shall not constitute an Event of Default unless such failure causes a
Material Adverse Effect.
(ii) Immediately notify the Agent in writing of (A) any and all
enforcement, clean-up, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
Environmental Law
33
<PAGE>
affecting or pertaining to the Properties or the Lessee's business
operations, (B) all claims made or threatened by any third party against
the Lessee relating to damages, contribution, cost recovery compensation,
loss or injury resulting from any Hazardous Materials; and (C) any remedial
action taken by the Lessee with respect to the Properties or the Lessee's
business operations.
(j) Year 2000 Compliance. Take all action necessary to insure that
--------------------
all material date affected technology used in the Lessee's business operations
is able to correctly and effectively process date data form, into and between
the twentieth and twenty-first centuries.
(k) Financial Positions. At the end of Rowe Companies' fiscal
-------------------
quarters, tested on a rolling fiscal four quarter basis (unless otherwise
indicated), Rowe Companies will have and maintain the following financial
positions all as defined or determined in accordance with GAAP.
(i) Maximum Funded Debt to Cash Flow. Have and maintain a
--------------------------------
consolidated maximum Funded Debt to Cash Flow Ratio (based on the four
previous consecutive quarters at the effective date of determination) of
not more than 2.75 to 1.0 at each testing time.
(ii) Maximum Funded Debt to Total Capitalization. Have and
-------------------------------------------
maintain a consolidated maximum Funded Debt to Total Capitalization ratio
of not more than the following:
Ratio As of
----- -----
.60 to 1.00 as of the end of each fiscal quarter to and
including the end of the fiscal quarter ending
on or about August 31, 2000.
.55 to 1.00 as of the end of the fiscal quarter ending on
or about November 30, 2000, to and including
the end of the fiscal quarter ending on or
about August 31, 2001.
.50 to 1.00 from and after August 31, 2001.
34
<PAGE>
(ii) Minimum Interest Coverage. Have and maintain a consolidated
-------------------------
Minimum Interest Coverage Ratio (based on the four previous consecutive
quarters at the effective date of determination) at least equal to 5.00 to
1.00 at each testing time.
(l) Qualified Swap Agreement. Rowe Companies or Rowe Furniture (as
------------------------
agreed between Lessee and Agent) shall enter into a Qualified Swap Agreement by
November 30, 2000 and, thereafter, have and maintain a Qualified Swap Agreement
during the Base Term and, if the Base Term is renewed pursuant to Section 14.9
of the Lease, then during the balance of the Lease Term.
(m) Most Favored Lender Status. If Rowe Companies enters into a
--------------------------
subsequent financing where it grants to the lender more favorable covenants
(from the standpoint of the lender) or additional covenants (whether affirmative
covenants or negative covenants), except those respecting Permitted Encumbrances
both as defined in Appendix A and as defined in the Revolver, not granted under
this Master Agreement, then Rowe Companies shall notify Agent of such and, upon
request of Agent, shall execute an amendment to include such covenants in
Section 5.1 or Section 5.2, as applicable.
SECTION 5.2 Negative Covenants.
------------------
Each Obligor covenants and agrees that, so long as any of the Commitments
remain in effect or any Obligation is owing to the Funding Parties by any
Lessee, each Obligor will not, directly or indirectly, without the prior written
permission of Agent as directed by the Required Funding Parties:
(a) Negative Pledge. Without the prior express written consent of the
---------------
Agent, given or withheld in the Agent's sole discretion, create, assume, or
suffer to exist, any mortgage, deed of trust, pledge, lien, security interest,
assignment, deposit arrangement or other preferential arrangement, charge or
encumbrance (including without limitation any conditional sale, or other title
retention agreement or finance lease) of any nature, upon or with respect to any
of the Properties, now owned or hereafter acquired, or sign or file under the
Uniform Commercial Code of any jurisdiction a financing statement which names
any Obligor as a debtor, or sign any security agreement authorizing any secured
party thereunder to file such financing statement, except for Permitted
Encumbrances (as defined in Appendix A and as defined in the Revolver). Except
as provided in this section, it is not intended that the
35
<PAGE>
Operative Documents prohibit any Lien other than against the Leased Property
(subject to Permitted Encumbrances).
(b) Notice of Merger, Consolidation, Disposition of Assets. In the
------------------------------------------------------
event that any Obligor shall (i) merge or consolidate with any Person or (ii)
sell, assign, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) assets with an aggregate value greater than $1 million
to any Person, except with respect to inventory in the ordinary course of
business, then within ten (10) days of any of the foregoing, such Obligor shall
(1) forward to the Agent written notice of such transaction, specifying the
details thereof, and (2) forward a certificate of the chief financial officer of
such Obligor setting forth a reasonably detailed calculation of the financial
position of such Obligor subsequent to any such transaction and certifying that
consummation of such transaction has not and will not cause an Event of Default.
(c) Contingent Liabilities. Except as otherwise provided in the
----------------------
Operative Documents, assume, guarantee, endorse or otherwise become surety for
or upon the obligation of any Person, except by the endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
SECTION 5.3 Further Assurances. Upon the written request of the Lessor
------------------
or the Agent, each Lessee, at its own cost and expense, will cause all financing
statements (including precautionary financing statements), fixture filings and
other similar documents, to be recorded or filed at such places and times in
such manner, as may be necessary to preserve, protect and perfect the interest
of the Lessor, the Agent and the Lenders in the Leased Properties as
contemplated by the Operative Documents.
SECTION 5.4 Additional Required Appraisals. If, as a result of any
------------------------------
change in Applicable Law after the date hereof, an appraisal of all or any of
the Leased Properties is required during the Lease Term under Applicable Law
with respect to any Funding Party's interest therein, such Funding Party's
Funded Amount with respect thereto or the Operative Documents, then the related
Lessee shall pay the reasonable cost of such appraisal.
SECTION 5.5 Lessor's Covenants. The Lessor covenants and agrees that,
------------------
unless the Agent, Rowe Furniture, and the Lenders shall have otherwise consented
in writing:
(a) the proceeds of the Loans received from the
36
<PAGE>
Lenders will be used by the Lessor solely to acquire the related Leased Property
and to pay the Construction Agent or the related Lessee for certain closing,
development and transaction costs associated therewith and, for the costs of
Construction, including hard and soft costs, Plans and Specifications, attorney
fees, costs associated with construction of the Building and any fixtures or
equipment purchased for use on or in connection with the Leased Property with
Funding provided by the Funding Parties. No portion of the proceeds of the Loans
will be used by the Lessor (i) in connection with, whether directly or
indirectly, any tender offer for, or other acquisition of, stock of any
corporation with a view towards obtaining control of such other corporation or
(ii) directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock;
(b) it shall not engage in any business or activity, or invest in any
Person, except for activities similar to its activities conducted on the date
hereof, the Transaction and lease transactions similar to the Transaction;
(c) it will maintain tangible net worth in an amount no less than the
sum of (i) $100,000 plus (ii) 3% of its total assets (calculated assuming no
----
reduction in the value of any leased property from its original cost to the
Lessor);
(d) it will deliver to the Agent and Rowe Furniture, as soon as
available and in any event within 90 days after the end of each fiscal year, a
balance sheet of the Lessor as of the end of such fiscal year and the related
statements of income, partners' capital and cash flows for such fiscal year,
setting forth in each case in comparative form the figures for the previous
fiscal year, together with copies of its tax returns, all certified by an
officer of the General Partner (and if the Lessor ever prepares audited
financial statements, it shall deliver copies thereof to the Agent and Rowe
Furniture);
(e) it will permit the Agent, Rowe Furniture and their respective
representatives to examine, and make copies from, the Lessor's books and
records, and to visit the offices and properties of the Lessor for the purpose
of examining such materials, and to discuss the Lessor's performance hereunder
with any of its, or its general partner's, officers and employees;
(f) it shall not consent to the creation of any easement or other
restriction against any Leased Property other than as permitted pursuant to
Article VI of the Lease;
37
<PAGE>
(g) it shall promptly discharge each Lessor Lien and shall indemnify
the Lenders and the Lessees for any diminution in value of any Leased Property
resulting from such Lessor Liens;
(h) it shall not enter into any other transactions, leases, purchases
or other agreements, other than immaterial transactions, purchases, leases and
other agreements entered into by the Lessor in the ordinary course of its
business, in which the other parties to said transactions, leases, purchases or
other agreements will have any recourse against Lessor which is in addition to
Lessor's ownership or other interest in the property subject to such
transactions, purchases, leases or other agreements, other than liability for
required fundings, breach of contract, misrepresentation, gross negligence,
willful misconduct, fraud, failure to turn over funds and similar exceptions to
limitations on recourse;
(i) it shall not guaranty the liabilities of any other Person;
(j) it shall pay its debts as such debts become due unless such debts
are the subject of a bona fide dispute and are being contested in good faith and
by appropriate proceedings; and
(k) except for the Operative Documents, it shall not pledge, authorize
or grant any Lien against the Leased Property nor any fixtures or equipment
located therein or attached thereto.
ARTICLE VI.
TRANSFERS BY LESSOR AND LENDERS
SECTION 6.1 Lessor Transfers. The Lessor shall not assign, convey or
----------------
otherwise transfer all or any portion of its right, title or interest in, to or
under any Leased Property or any of the Operative Documents without the prior
written consent of the Lenders and Rowe Furniture which consent may be withheld
in such parties' sole discretion. Any proposed transferee of the Lessor
consented to in writing as provided for above shall make the representations set
forth in Section 4.3 to the other parties hereto and shall execute an agreement
-----------
acknowledging the same and agreeing to assume and be bound by all of the terms,
conditions and covenants set forth in the Operative Documents.
38
<PAGE>
SECTION 6.2 Lender Transfers.
----------------
(a) Any Lender may make, carry or transfer Loans at, to or for the
account of, any of its branch offices or the office of an Affiliate of such
Lender.
(b) Following the Construction Term Expiration Date, each Lender may
assign all or a portion of its interests, rights and obligations under this
Master Agreement and the Loan Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) to any Eligible Assignee;
provided, however, that (i) the Agent and, except during the continuance of a
- -------- -------
Potential Event of Default or Event of Default, Rowe Furniture must give its
prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed) unless such assignment is to an Affiliate of
the assigning Lender, (ii) unless such Lender is assigning all of its
Commitment, after giving effect to such assignment, the Commitment of both the
assignor and the assignee is at least $5,000,000 and there are no more than four
Lenders and (iii) the parties to each such assignment shall execute and deliver
to the Agent an Assignment and Acceptance, and, unless such assignment is to an
Affiliate of such Lender, a processing and recordation fee of $3,000 payable to
the Agent. Any such assignment of the Loans shall include both the A Loans and
the B Loans, on a pro rata basis. No Lessee shall be responsible for such
processing and recordation fee or any costs or expenses incurred by any Lender
or the Agent in connection with such assignment. From and after the effective
date specified in each Assignment and Acceptance, which effective date shall be
at least five (5) Business Days after the execution thereof, the assignee there
under shall be a party hereto and to the extent of the interest assigned by such
Assignment and Acceptance, have the rights and obligations of a Lender under
this Master Agreement and the Loan Agreement.
(c) Each Lender may, without the consent of any Obligor, sell
participations to one or more banks or other entities in all or a portion of its
rights and obligations under this Master Agreement and the Loan Agreement
(including all or a portion of its Commitments in the Loans owing to it),
provided, however, that (i) such Lender's obligations under this Master
- -------- -------
Agreement and the Loan Agreement shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) the participating bank or other entity shall not be
entitled to any greater benefit than its selling Lender under the cost
protection
39
<PAGE>
provisions contained in Section 7.5 of this Master Agreement, and (iv) each
-----------
Obligor, the Agent and the other Lenders shall continue to deal solely and
directly with each Lender in connection with such Lender's rights and
obligations under this Master Agreement and the other Operative Documents, and
such Lender shall retain the sole right to enforce the obligations of Lessor
relating to the Loans and to approve any amendment, modification or waiver of
any provisions of this Master Agreement and the Loan Agreement (except that such
Lender may permit the participant to approve any amendment, modification or
waiver which would reduce the principal of or the interest rate on its Loan,
extend the term of such Lender's Commitment, reduce the amount of any fees to
which such participant is entitled or extend the final scheduled payment date of
any Loan), (v) no such transfer shall be effective unless the participant
establishes to the satisfaction of the Agent its entitlement to a complete
exemption from withholding tax, and (vi) the participant designates the Agent as
its representative for dealing with the Lessees and the Agent accepts such
appointment and agrees to be responsible for obtaining the consent of or giving
notice to any Funding Party as required under the provisions of the Operative
Documents. Any Lender selling a participation hereunder shall provide prompt
written notice to the Agent of the name of such participant.
(d) Any Lender or participant may, in connection with the assignment
or participation or proposed assignment or participation, pursuant to this
Section, disclose to the assignee or participant or proposed assignee or
participant any information relating to Rowe Companies or its Subsidiaries
furnished to such Lender by or on behalf of Rowe Companies. With respect to any
disclosure of confidential, non-public, proprietary information, such proposed
assignee or participant shall agree to use the information only for the purpose
of making any necessary credit judgments with respect to this facility and not
to use the information in any manner prohibited by any law, including without
limitation, the securities laws of the United States. The proposed participant
or assignee shall agree not to disclose any of such information except as
permitted by this Master Agreement. The proposed participant or assignee shall
further agree to return all documents or other written material and copies
thereof received from any Lender, the Agent or any Lessee relating to such
confidential information unless otherwise properly disposed of by such entity.
(e) Any Lender may at any time assign all or any portion of its rights
under this Master Agreement and the Notes to a Federal Reserve Bank; provided
--------
that no such assignment shall
40
<PAGE>
release such Lender from any of its obligations hereunder.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 General Indemnification. Each Obligor, jointly and severally,
-----------------------
agrees, whether or not any of the transactions contemplated hereby shall be
consummated, to assume liability for, and to indemnify, protect, defend, save
and hold harmless each Indemnitee, on an After-Tax Basis, from and against, any
and all Claims that may be imposed on, incurred by or asserted, or threatened to
be asserted, against such Indemnitee, whether or not such Indemnitee shall also
be indemnified as to any such Claim by any other Person and whether or not such
Claim arises or accrues prior to any Closing Date or after the Lease Termination
Date, or results from such Indemnitee's negligence, in any way relating to or
arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in respect
thereof; or
(b) any Land, any Building or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition, substitution, storage,
transfer of title, redelivery, use, financing, refinancing, disposition,
operation, condition, sale (including, without limitation, any sale pursuant to
the Lease), return or other disposition of all or any part of any interest in
any Leased Property or the imposition of any Lien, other than a Lessor Lien (or
incurring of any liability to refund or pay over any amount as a result of any
Lien, other than a Lessor Lien) thereon, including, without limitation: (i)
Claims or penalties arising from any violation or alleged violation of law or in
tort (strict liability or otherwise), (ii) latent or other defects, whether or
not discoverable, (iii) any Claim based upon a violation or alleged violation of
the terms of any restriction, easement, condition or covenant or other matter
affecting title to any Leased Property or any part thereof, (iv) the making of
any Alterations in violation of any standards imposed by any insurance policies
required to be maintained by any Lessee pursuant to the Lease which are in
41
<PAGE>
effect at any time with respect to any Leased Property or any part thereof, (v)
any Claim for patent, trademark or copyright infringement, (vi) Claims arising
from any public improvements with respect to any Leased Property resulting in
any charge or special assessments being levied against any Leased Property or
any Claim for utility "tap-in" fees, and (vii) Claims for personal injury or
real or personal property damage occurring, or allegedly occurring, on any Land,
Building or Leased Property;
(d) the breach or alleged breach by any Obligor of any representation
or warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
(e) the retaining or employment of any broker, finder or financial
advisor by any Obligor to act on its behalf in connection with this Master
Agreement, or the incurring of any fees or commissions to which the Lessor, the
Agent or any Lender might be subjected by virtue of their entering into the
transactions contemplated by this Master Agreement (other than fees or
commissions due to any broker, finder or financial advisor retained by the
Lessor, the Agent or any Lender);
(f) the existence of any Lien on or with respect to any Leased
Property, the Construction, any Basic Rent or Supplemental Rent, title thereto,
or any interest therein, including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of any Leased Property or by
reason of labor or materials furnished or claimed to have been furnished to the
Construction Agent, any Lessee, or any of its contractors or agents or by reason
of the financing of any personalty or equipment purchased or leased by any
Lessee or Alterations constructed by any Lessee, except Lessor Liens and Liens
in favor of Agent, Lessor and/or Lenders;
(g) subject to the accuracy of any Funding Party's representation set
forth in Section 4.3(g) and in Section 4.4(b), the transactions contemplated
hereby or by any other Operative Document, in respect of the application of
Parts 4 and 5 of Subtitle B of Title I of ERISA and any prohibited transaction
described in Section 4975(c) of the Code; or
(h) any act or omission by any Obligor under any Purchase Agreement or
any other Operative Document, and any breach of any requirement, condition,
restriction or limitation in any Deed or Purchase Agreement;
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<PAGE>
provided, however, no Lessee shall be required to indemnify any Indemnitee under
- -------- -------
this Section 7.1 for any of the following: (1) any Claim to the extent that such
-----------
Claim results from the willful misconduct (including willful failure to act
where such Indemnitee had a duty to act), gross negligence, breach of contract
or misrepresentation of such Indemnitee; (2) any Claim resulting from Lessor
Liens which the Lessor or the Lenders are responsible for discharging under the
Operative Documents, (3) any Claim arising from a breach or alleged breach by
the Lenders of any agreement entered into in connection with the assignment or
participation of any Loan or Lessor Amount, (4) the failure on the part of the
Agent to distribute in accordance with this Agreement any amounts received and
distributable by it hereunder, (5) a Claim arising from the offer, sale or
delivery of a Note or an interest in a Note or a violation of any Requirements
of Law by any Indemnitee, and (6) the transfer by any Indemnitee of the Leased
Property other than pursuant to the Lease or in connection with the exercise of
rights or remedies under the Operative Documents; provided, further, that with
-------- -------
respect to each Construction Land Interest, each Lessee's indemnity obligations
with respect to such Leased Property shall be governed by Section 3.3 of the
Construction Agency Agreement during the Construction Term therefor. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of, and shall be separate and independent
from any other remedy under this Master Agreement or any other Operative
Document.
SECTION 7.2 Environmental Indemnity. In addition to and without
-----------------------
limitation of Section 7.1 or Section 3.3 of the Construction Agency Agreement,
-----------
each Obligor, jointly and severally, agrees to indemnify, hold harmless and
defend each Indemnitee from and against any and all claims (including without
limitation third party claims for personal injury or real or personal property
damage), losses (including but not limited to any loss of value of any Leased
Property), damages, liabilities, fines, penalties, charges, suits, settlements,
demands, administrative and judicial proceedings (including informal proceedings
and investigations) and orders, judgments, remedial action, requirements,
enforcement actions of any kind, and all reasonable costs and expenses actually
incurred in connection therewith (including, but not limited to, reasonable
attorneys' and/or paralegals' fees and expenses), including, but not limited to,
all costs incurred in connection with any investigation or monitoring of site
conditions or any clean-up, remedial, removal or restoration work by any
federal, state or local government agency, arising directly or indirectly, in
whole or in part, out
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<PAGE>
of
(i) the presence on or under any Land of any Hazardous Materials, or
any releases or discharges of any Hazardous Materials on, under, from or
onto any Land,
(ii) any activity, including, without limitation, construction,
carried on or undertaken on or off any Land, and whether by a Lessee or any
predecessor in title or any employees, agents, contractors or
subcontractors of a Lessee or any predecessor in title, or any other
Person, in connection with the handling, treatment, removal, storage,
decontamination, clean-up, transport or disposal of any Hazardous Materials
that at any time are located or present on or under or that at any time
migrate, flow, percolate, diffuse or in any way move onto or under any
Land,
(iii) loss of or damage to any property or the environment (including,
without limitation, clean-up costs, response costs, remediation and removal
costs, cost of corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic
species, vegetation, flora and fauna, and any mitigative action required by
or under Environmental Laws, in each case to the extent related to any
Leased Property,
(iv) any claim concerning any Leased Property's lack of compliance
with Environmental Laws, or any act or omission causing an environmental
condition on or with respect to any Leased Property that requires
remediation or would allow any governmental agency to record a lien or
encumbrance on the land records, or
(v) any residual contamination on or under any Land, or affecting
any natural resources on any Land, and to any contamination of any property
or natural resources arising in connection with the generation, use,
handling, storage, transport or disposal of any such Hazardous Materials on
or from any Leased Property; in each case irrespective of whether any of
such activities were or will be undertaken in accordance with applicable
laws, regulations, codes and ordinances;
44
<PAGE>
in any case with respect to the matters described in the foregoing clauses (i)
-----------
through (v) that arise or occur
---
(w) prior to or during the Lease Term,
(x) at any time during which a Lessee or any Affiliate thereof owns
any interest in or otherwise occupies or possesses any Leased Property or
any portion thereof, or
(y) during any period after and during the continuance of any Event of
Default;
provided, however, no Lessee shall be required to indemnify any Indemnitee under
- -------- -------
this Section 7.2 for any Claim to the extent that such Claim results from the
-----------
willful misconduct (including willful failure to act where such Indemnitee had a
duty to act) or gross negligence of such Indemnitee. It is expressly understood
and agreed that the indemnity provided for herein shall be separate and
independent from any other remedy under this Master Agreement, the Lease or any
other Operative Document, and shall survive for a period of three (3) years
after the termination of the Lease if the environmental report delivered
pursuant to Section 14.10 of the Lease indicates that no remedial action is
required under Applicable Law or recommended by the environmental consultant
preparing such report; provided, that there shall be no time limit with respect
--------
to any indemnity for Claims related to any violations, releases or discharges of
Hazardous Materials, presence of Hazardous Materials or other event or
circumstance described in any environmental report delivered pursuant to Section
14.10 of the Lease, unless Rowe Furniture delivers to the Lessor and the Agent a
subsequent environmental report, from a firm, and in a form, satisfactory to the
Lessor and the Agent, showing that all such violations, releases and discharges
have been cured, and all contamination related thereto has been cleaned up, all
such Hazardous Materials have been removed, all other events and circumstances
described in such original report have been cured and that all remedial action
required by Applicable Laws or recommended pursuant to the original report has
been satisfactorily completed, in which case the indemnity provided in this
Section 7.2 shall survive for a period of three (3) years after the delivery of
- -----------
such subsequent report.
SECTION 7.3 Proceedings in Respect of Claims. With respect to any amount
--------------------------------
that a Lessee is requested by an Indemnitee to pay by reason of Section 7.1 or
-----------
7.2, such Indemnitee shall, if so requested by such Lessee and prior to any
- ---
payment, submit such
45
<PAGE>
additional information to such Lessee as such Lessee may reasonably request and
which is in the possession of, or under the control of, such Indemnitee to
substantiate properly the requested payment. In case any action, suit or
proceeding shall be brought against any Indemnitee, such Indemnitee promptly
shall notify Rowe Companies of the commencement thereof (provided that the
--------
failure of such Indemnitee to promptly notify Rowe Companies shall not affect
any Obligor's obligation to indemnify hereunder except to the extent that a
Lessee's ability to contest is materially prejudiced by such failure), and such
Lessee shall be entitled, at its expense, to participate in, and, to the extent
that such Lessee desires to, assume and control the defense thereof with counsel
reasonably satisfactory to such Indemnitee; provided, however, that such
-------- -------
Indemnitee may pursue a motion to dismiss such Indemnitee from such action, suit
or proceeding with counsel of such Indemnitee's choice at the Lessees' expense;
and provided further that a Lessee may assume and control the defense of
-------- -------
such proceeding only if Rowe Companies shall have acknowledged in writing its
and each Lessee's obligations to fully indemnify such Indemnitee in respect of
such action, suit or proceeding, Lessees shall pay all reasonable costs and
expenses related to such action, suit or proceeding as and when incurred and the
related Lessee shall keep such Indemnitee fully apprised of the status of such
action suit or proceeding and shall provide such Indemnitee with all information
with respect to such action suit or proceeding as such Indemnitee shall
reasonably request; and, provided further, that no Lessee shall be entitled
-------- -------
to assume and control the defense of any such action, suit or proceeding if and
to the extent that, (A) in the reasonable opinion of such Indemnitee, (x) such
action, suit or proceeding involves any possibility of imposition of criminal
liability or any material risk of material civil liability on such Indemnitee or
(y) such action, suit or proceeding will involve a material risk of the sale,
forfeiture or loss of, or the creation of any Lien (other than a Permitted
Encumbrance) on any Leased Property or any part thereof unless the related
Lessee or Rowe Companies shall have posted a bond or other security satisfactory
to the relevant Indemnitees in respect to such risk if reasonably requested by
the Agent or (z) the control of such action, suit or proceeding would involve an
actual or potential material conflict of interest, (B) such proceeding involves
Claims not fully indemnified by the Lessees which the related Lessee and the
Indemnitee have been unable to sever from the indemnified claim(s), or (C) an
Event of Default has occurred and is continuing. The Indemnitee may participate
in a reasonable manner at its own expense and with its own counsel in any
proceeding conducted by a Lessee in accordance with the
46
<PAGE>
foregoing.
If a Lessee fails to fulfill the conditions to such Lessee's assuming the
defense of any claim after receiving notice thereof on or prior to the date that
is ten (10) days prior to the date that an answer or response is required, the
Indemnitee may undertake such defense, at the Lessees' expense. No Lessee shall
enter into any settlement or other compromise with respect to any Claim in
excess of $1,000,000 which is entitled to be indemnified under Section 7.1 or
-----------
7.2 without the prior written consent of the related Indemnitee, which consent
- ---
shall not be unreasonably withheld or delayed. Unless an Event of Default shall
have occurred and be continuing, no Indemnitee shall enter into any settlement
or other compromise with respect to any claim which is entitled to be
indemnified under Section 7.1 or 7.2 without the prior written consent of Rowe
----------- ---
Companies, which consent shall not be unreasonably withheld, unless such
Indemnitee waives its right to be indemnified under Section 7.1 or 7.2 with
----------- ---
respect to such Claim.
Upon payment in full of any Claim by the Lessees pursuant to Section 7.1 or
-----------
7.2 to or on behalf of an Indemnitee, the Lessees, without any further action,
- ---
shall be subrogated to any and all claims that such Indemnitee may have relating
thereto (other than claims in respect of insurance policies maintained by such
Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be reasonably necessary
to preserve any such claims and otherwise cooperate with the Lessees and give
such further assurances as are reasonably necessary or advisable to enable the
Lessees vigorously to pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 7.1 or 7.2 shall be
----------- ---
paid to such Indemnitee promptly upon, but in no event later than thirty (30)
days after, receipt of a written demand therefor from such Indemnitee,
accompanied by a written statement describing in reasonable detail the basis for
such indemnity and the computation of the amount so payable.
If for any reason the indemnification provided for in Section 7.1 or 7.2 is
----------- ---
unavailable to an Indemnitee or is insufficient to hold an Indemnitee harmless,
then each Obligor and each Lessee agrees to contribute to the amount paid or
payable by such Indemnitee as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect not only the relative benefits
received by such
47
<PAGE>
Indemnitee on the one hand and by Rowe Companies and the Lessees on the other
hand but also the relative fault of such Indemnitee as well as any other
relevant equitable considerations. It is expressly understood and agreed that
the right to contribution provided for herein shall survive the expiration or
termination of and shall be separate and independent from any other remedy under
this Master Agreement, the Lease or any other Operative Document.
Notwithstanding anything to the contrary set forth herein, the amount of
any Claim payable by any Obligor or Lessee to any Indemnitee under this Section
7.3 shall be reduced by the net amount of any insurance proceeds received by
such Indemnitee in respect of such Claim pursuant to any insurance policy
maintained by such Indemnitee at its own expense; provided, however, that no
--------
Indemnitee shall be required to maintain such insurance or, if such insurance is
maintained, to submit a claim under such insurance.
SECTION 7.4 General Tax Indemnity. (a) Tax Indemnity. Except as
--------------------- -------------
otherwise provided in this Section 7.4, each Obligor, jointly and severally,
-----------
shall pay on an After-Tax Basis, and on written demand shall indemnify and hold
each Tax Indemnitee harmless from and against, any and all fees (including,
without limitation, documentation, recording, license and registration fees),
taxes (including, without limitation, income, gross receipts, sales, rental,
use, turnover, value-added, property, excise and stamp taxes), levies, imposts,
duties, charges, assessments or withholdings of any nature whatsoever, together
with any penalties, fines or interest thereon or additions thereto (any of the
foregoing being referred to herein as "Taxes" and individually as a "Tax" (for
----- ---
the purposes of this Section 7.4, the definition of "Taxes" includes amounts
-----------
imposed on, incurred by, or asserted against each Tax Indemnitee as the result
of any prohibited transaction, within the meaning of Section 406 or 407 of ERISA
or Section 4975(c) of the Code, arising out of the transactions contemplated
hereby or by any other Operative Document)) imposed on or with respect to any
Tax Indemnitee, any Obligor, any Leased Property or any portion thereof or any
Land, or any sublessee or user thereof, by the United States or by any state or
local government or other taxing authority in the United States in connection
with or in any way relating to (i) the acquisition, financing, mortgaging,
construction, preparation, installation, inspection, delivery, non-delivery,
acceptance, rejection, purchase, ownership, possession, rental, lease, sublease,
maintenance, repair, storage, transfer of title, redelivery, use, operation,
48
<PAGE>
condition, sale, return or other application or disposition of all or any part
of any Leased Property or the imposition of any Lien (or incurrence of any
liability to refund or pay over any amount as a result of any Lien) thereon,
(ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from or
received with respect to any Leased Property or any part thereof, or any
interest therein or any applications or dispositions thereof, (iii) any other
amount paid or payable pursuant to the Notes or any other Operative Documents,
(iv) any Leased Property, any Land or any part thereof or any interest therein
(including, without limitation, all assessments payable in respect thereof,
including, without limitation, all assessments noted on the related Title
Policy), (v) all or any of the Operative Documents, any other documents
contemplated thereby, any amendments and supplements thereto, and (vi) otherwise
with respect to or in connection with the transactions contemplated by the
Operative Documents.
(b) Exclusions from General Tax Indemnity. Section 7.4(a) shall not
------------------------------------- --------------
apply to:
(i) Taxes on, based on, or measured by or with respect to net
income of the Lessor, the Agent and the Lenders (including, without
limitation, minimum Taxes, capital gains Taxes, Taxes on or measured by
items of tax preference or alternative minimum Taxes);
(ii) Withholding Taxes, other than withholding Taxes imposed by
the United States or any state in which Leased Property is located (i) on
payments with respect to the Notes, to the extent imposed by reason of a
change in Applicable Law occurring after the date on which the holder of
such Note became the holder of such Note or (ii) on Rent, to the extent the
net payment of Rent after deduction of such withholding Taxes would be less
than amounts currently payable with respect to the Funded Amounts;
(iii) Taxes on, based on, or in the nature of or measured by
Taxes on doing business, business privilege, franchise, capital, capital
stock, net worth, or mercantile license or similar taxes other than (A) any
increase in such Taxes imposed on such Tax Indemnitee by any state in which
Leased Property is located, net of any decrease in such taxes realized by
such Tax Indemnitee, to the extent that such tax increase would not have
occurred if on each Funding Date the Lessor and the Lenders had advanced
funds to a Lessee or the Construction Agent in the form of loans
49
<PAGE>
secured by the Leased Property in an amount equal to the Funded Amounts
funded on such Funding Date, with debt service for such loans equal to the
Basic Rent payable on each Payment Date and a principal balance at the
maturity of such loans in a total amount equal to the Funded Amounts at the
end of the Lease Term, or (B) any Taxes that are or are in the nature of
sales, use, rental, license or property Taxes relating to any Leased
Property;
(iv) Taxes that are based on, or measured by, the fees or other
compensation received by a Person acting as Agent (in its individual
capacities) or any Affiliate of any thereof for acting as trustee under the
Loan Agreement;
(v) Taxes that result from any act, event or omission, or are
attributable to any period of time, that occurs after the earlier of (A)
the expiration of the Lease Term with respect to any Leased Property and,
if such Leased Property is required to be returned to the Lessor in
accordance with the Lease, such return and (B) the discharge in full of the
Lessees' obligations to pay the Lease Balance, or any amount determined by
reference thereto, with respect to any Leased Property and all other
amounts due under the Lease, unless such Taxes relate to acts, events or
matters occurring prior to the earlier of such times or are imposed on or
with respect to any payments due under the Operative Documents after such
expiration or discharge;
(vi) Taxes imposed on a Tax Indemnitee that result from any
voluntary sale, assignment, transfer or other disposition or bankruptcy by
such Tax Indemnitee or any related Tax Indemnitee of any interest in any
Leased Property or any part thereof, or any interest therein or any
interest or obligation arising under the Operative Documents, or from any
sale, assignment, transfer or other disposition of any interest in such Tax
Indemnitee or any related Tax Indemnitee, it being understood that each of
the following shall not be considered a voluntary sale: (A) any
substitution, replacement or removal of any of the Leased Property by any
Lessee, (B) any sale or transfer resulting from the exercise by any Lessee
of any termination option, any purchase option or sale option, (C) any sale
or transfer while an Event of Default shall have occurred and be continuing
under the Lease, and (D) any sale or transfer resulting from the Lessor's
exercise of remedies under the Lease;
50
<PAGE>
(vii) any Tax which is being contested in accordance with the
provisions of Section 7.4(c), during the pendency of such contest;
--------------
(viii) any Tax that is imposed on a Tax Indemnitee as a result of
such Tax Indemnitee's gross negligence or willful misconduct (including
willful failure to act where such Tax Indemnitee had a duty to act) (other
than gross negligence or willful misconduct imputed to such Tax Indemnitee
solely by reason of its interest in any Leased Property) or as a result of
such Tax, Indemnitee's failure to comply with Section 2.4;
(ix) any Tax that results from a Tax Indemnitee engaging, with
respect to any Leased Property, in transactions other than those permitted
by the Operative Documents;
(x) to the extent any tax, interest, penalties or additions
to tax result in whole or in part from the failure of a Tax Indemnitee to
file a return or pay a Tax that it is required to file or pay in a proper
and timely manner, unless such failure (A) results from the transactions
contemplated by the Operative Documents in circumstances where Lessee did
not give timely notice to such Tax Indemnitee of such filing or payment
requirement that would have permitted a proper and timely filing of such
return or payment of such Tax, as the case may be, or (B) results from the
failure of Lessee to supply information necessary for the proper and timely
filing of such return or payment of such Tax, as the case may be, that was
not in the possession of such Tax Indemnitee; and
(xi) as to Lessor, any Tax that results from the breach by the
Lessor of its representation and warranty made in Section 4.3(g) or as to
--------------
any Lender the breach of such Lender of its representation and warranty
made in Section 4.4(b).
--------------
(c) Contests. If any claim shall be made against any Tax Indemnitee
--------
or if any proceeding shall be commenced against any Tax Indemnitee (including a
written notice of such proceeding) for any Taxes as to which the Obligors may
have an indemnity obligation pursuant to Section 7.4, or if any Tax Indemnitee
-----------
shall determine that any Taxes as to which the Obligors may have an indemnity
obligation pursuant to Section 7.4 may be payable, such Tax Indemnitee shall
-----------
promptly notify Rowe
51
<PAGE>
Companies. Rowe Companies shall be entitled, at its expense, to participate in,
and, to the extent that Rowe Companies desires to, assume and control the
defense thereof; provided, however, that Rowe Companies shall have acknowledged
-------- -------
in writing its and each Obligor's obligation to fully indemnify such Tax
Indemnitee in respect of such action, suit or proceeding if the contest is
unsuccessful; and, provided further, that Rowe Companies shall not be
-------- -------
entitled to assume and control the defense of any such action, suit or
proceeding (but the Tax Indemnitee shall then contest, at the sole cost and
expense of Rowe Companies and the Lessees, on behalf of Rowe Companies with
representatives reasonably satisfactory to Rowe Companies or a Lessee) if and to
the extent that, (A) in the reasonable opinion of such Tax Indemnitee, such
action, suit or proceeding (x) involves any meaningful risk of imposition of
criminal liability or any material risk of material civil liability on such Tax
Indemnitee or (y) will involve a material risk of the sale, forfeiture or loss
of, or the creation of any Lien (other than a Permitted Encumbrance) on any
Leased Property or any part thereof unless Rowe Companies or a Lessee shall have
posted a bond or other security satisfactory to the relevant Tax Indemnitees in
respect to such risk if reasonably requested by the Agent, (B) such proceeding
involves Claims not fully indemnified by the Obligors which Rowe Companies and
the Tax Indemnitee have been unable to sever from the indemnified claim(s), (C)
an Event of Default has occurred and is continuing, (D) such action, suit or
proceeding involves matters which extend beyond or are unrelated to the
Transaction and if determined adversely could be materially detrimental to the
interests of such Tax Indemnitee notwithstanding indemnification by the Lessees
or (E) such action, suit or proceeding involves the federal or any state income
tax liability of the Tax Indemnitee. With respect to any contests controlled by
a Tax Indemnitee, (i) if such contest relates to the federal or any state income
tax liability of such Tax Indemnitee, such Tax Indemnitee shall be required to
conduct such contest only if Rowe Companies shall have provided to such Tax
Indemnitee an opinion of independent tax counsel selected by the Tax Indemnitee
and reasonably satisfactory to Rowe Companies stating that a reasonable basis
exists to contest such claim or (ii) in the case of an appeal of an adverse
determination of any contest relating to any Taxes, an opinion of such counsel
to the effect that such appeal is more likely than not to be successful,
provided, however, such Tax Indemnitee shall in no event be required to appeal
- -------- -------
an adverse determination to the United States Supreme Court. The Tax Indemnitee
may participate in a reasonable manner at its own expense and with its own
counsel in any proceeding conducted by Rowe Companies in accordance with the
52
<PAGE>
foregoing.
Each Tax Indemnitee shall at Rowe Companies' and the Lessees' expense
supply Rowe Companies with such information and documents in such Tax
Indemnitee's possession reasonably requested by Rowe Companies as are necessary
or advisable for Rowe Companies to participate in any action, suit or proceeding
to the extent permitted by this Section 7.4. Unless an Event of Default shall
-----------
have occurred and be continuing, no Tax Indemnitee shall enter into any
settlement or other compromise with respect to any Claim which is entitled to be
indemnified under this Section 7.4 without the prior written consent of Rowe
-----------
Companies, which consent shall not be unreasonably withheld, unless such Tax
Indemnitee waives its right to be indemnified under this Section 7.4 with
-----------
respect to such Claim.
Notwithstanding anything contained herein to the contrary, (a) a Tax
Indemnitee will not be required to contest (and Rowe Companies shall not be
permitted to contest except on its own behalf if it is subject thereto) a claim
with respect to the imposition of any Tax if such Tax Indemnitee shall waive its
right to indemnification under this Section 7.4 with respect to such claim (and
-----------
any related claim with respect to other taxable years the contest of which is
precluded as a result of such waiver) and (b) no Tax Indemnitee shall be
required to contest any claim if the subject matter thereof shall be of a
continuing nature and shall have previously been the subject of a judicial
decision adverse to such Tax Indemnitee, unless there has been a change in law
which in the opinion of Tax Indemnitee's counsel creates substantial authority
for the success of such contest. Each Tax Indemnitee and Rowe Companies shall
consult in good faith with each other regarding the conduct of such contest
controlled by either.
(d) Reimbursement for Tax Savings. If (x) a Tax Indemnitee shall
-----------------------------
obtain a credit or refund of any Taxes paid by any Obligor pursuant to this
Section 7.4 or (y) by reason of the incurrence or imposition of any Tax for
- -----------
which a Tax Indemnitee is indemnified hereunder or any payment made to or for
the account of such Tax Indemnitee by any Obligor pursuant to this Section 7.4,
-----------
such Tax Indemnitee at any time realizes a reduction in any Taxes for which the
Obligors are not required to indemnify such Tax Indemnitee pursuant to this
Section 7.4, which reduction in Taxes was not taken into account in computing
- -----------
such payment by any Obligor to or for the account of such Tax Indemnitee, then
such Tax Indemnitee shall promptly pay to Rowe Companies (xx) the amount of such
credit or refund, together with the amount of any
53
<PAGE>
interest received by such Tax Indemnitee on account of such credit or refund or
(yy) an amount equal to such reduction in Taxes, as the case may be; provided
--------
that no such payment shall be made so long as an Event of Default shall have
occurred and be continuing (but shall be paid promptly after all Events of
Default have been cured) and, provided, further, that the amount payable to Rowe
-------- -------
Companies by any Tax Indemnitee pursuant to this Section 7.4(d) shall not at any
--------------
time exceed the aggregate amount of (i)(A) all indemnity payments made by the
Obligors under this Section 7.4 to such Tax Indemnitee with respect to the Taxes
-----------
which gave rise to the credit or refund or with respect to the Tax which gave
rise to the reduction in Taxes, plus (B) the amount of interest, if any, paid to
such Tax Indemnitee with respect to such refund or credit by taxing authority
less (ii) the amount of all prior payments made to Rowe Companies by such Tax
Indemnitee under this Section 7.4(d). Each Tax Indemnitee agrees to act in good
--------------
faith to claim such refunds and other available Tax benefits, and take such
other actions as may be reasonable to minimize any payment due from the Obligors
pursuant to this Section 7.4. The disallowance or reduction of any credit,
-----------
refund or other tax savings with respect to which a Tax Indemnitee has made a
payment to Rowe Companies and the Lessees under this Section 7.4(d) shall be
--------------
treated as a Tax for which any Obligor is obligated to indemnify such Tax
Indemnitee hereunder without regard to Section 7.4(b) hereof.
--------------
(e) Payments. Any Tax indemnifiable under this Section 7.4 shall be
-------- -----------
paid by Rowe Companies or a Lessee directly when due to the applicable taxing
authority if direct payment is practicable and permitted. If direct payment to
the applicable taxing authority is not permitted or is otherwise not made, any
amount payable to a Tax Indemnitee pursuant to Section 7.4 shall be paid within
-----------
thirty (30) days after receipt of a written demand therefor from such Tax
Indemnitee accompanied by a written statement describing in reasonable detail
the amount so payable, but not before the date that the relevant Taxes are due.
Any payments made pursuant to Section 7.4 shall be made to the Tax Indemnitee
-----------
entitled thereto or Rowe Companies, as the case may be, in immediately available
funds at such bank or to such account as specified by the payee in written
directions to the payor, or, if no such direction shall have been given, by
check of the payor payable to the order of the payee by certified mail, postage
prepaid at its address as set forth in this Master Agreement. Upon the request
of any Tax Indemnitee with respect to a Tax that Rowe Companies and the Lessees
are required to pay, Rowe Companies shall furnish to such Tax Indemnitee the
original or a certified copy of a receipt for Rowe Companies or a Lessee's
54
<PAGE>
payment of such Tax or such other evidence of payment as is reasonably
acceptable to such Tax Indemnitee.
(f) Reports. If any Obligor knows of any report, return or statement
-------
required to be filed with respect to any Taxes that are subject to
indemnification under this Section 7.4, such Obligor shall, if such Obligor is
-----------
permitted by Applicable Law, timely file such report, return or statement (and,
to the extent permitted by law, show ownership of the applicable Leased Property
in such Lessee); provided, however, that if such Obligor is not permitted by
-------- -------
Applicable Law or does not have access to the information required to file any
such report, return or statement, such Obligor will promptly so notify the
appropriate Tax Indemnitee, in which case Tax Indemnitee will file such report.
In any case in which the Tax Indemnitee will file any such report, return or
statement, the related Lessee shall, upon written request of such Tax
Indemnitee, prepare such report, return or statement for filing by such Tax
Indemnitee or, if such Tax Indemnitee so requests, provide such Tax Indemnitee
with such information as is reasonably available to such Lessee.
(g) Verification. At Rowe Companies' request, the amount of any
------------
indemnity payment by an Obligor or any payment by a Tax Indemnitee to Rowe
Companies pursuant to this Section 7.4 shall be verified and certified by an
-----------
independent public accounting firm selected by Rowe Companies and reasonably
acceptable to the Tax Indemnitee. Unless such verification shall disclose an
error in Rowe Companies' favor of 2% or more of the related indemnity payment,
the costs of such verification shall be borne by Rowe Companies. In no event
shall Rowe Companies or any Lessee have the right to review the Tax Indemnitee's
tax returns or receive any other confidential information from the Tax
Indemnitee in connection with such verification. The Tax Indemnitee agrees to
cooperate with the independent public accounting firm performing the
verification and to supply such firm with all information reasonably necessary
to permit it to accomplish such verification, provided that the information
--------
provided to such firm by such Tax Indemnitee shall be for its confidential use.
The parties agree that the sole responsibility of the independent public
accounting firm shall be to verify the amount of a payment pursuant to this
Master Agreement and that matters of interpretation of this Master Agreement are
not within the scope of the independent accounting firm's responsibilities.
SECTION 7.5 Increased Costs, etc.
--------------------
(a) Illegality. Notwithstanding any other provision
----------
55
<PAGE>
herein, if any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Funding Party to make or
maintain LIBOR Advances as contemplated by this Master Agreement, (a) the
commitment of such Funding Party hereunder to continue LIBOR Advance as such and
convert Funded Amounts to LIBOR Advance shall forthwith be canceled and (b) such
Funding Party's Funded Amounts then outstanding as LIBOR Advance, if any, shall
be converted automatically to Prime Rate Advances on the respective last days of
the then current Rent Periods with respect to such Funded Amounts or within such
earlier period as required by law. If any such conversion of a LIBOR Advance
occurs on a day which is not the last day of the then current Rent Period with
respect thereto, each Obligor, jointly and severally, shall pay to such Funding
Party such amounts, if any, as may be required pursuant to Section 7.5(f).
--------------
(b) Requirements of Law. In the event that Eurocurrency Reserve
-------------------
Requirements or any change in any Requirement of Law or in the interpretation or
application thereof or compliance by any Funding Party 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 Funding Party to any tax of any kind
whatsoever with respect to this Master Agreement, any Note or any
LIBOR Advance made by it, or change the basis of taxation of payments
to such Funding Party in respect thereof (except for taxes covered by
Section 7.5(d) and changes in franchise taxes or the rate of tax on
--------------
the overall net income of such Funding Party);
(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 Funding Party which is not
otherwise included in the determination of the LIBOR Rate; or
(iii) shall impose on such Funding Party any other condition;
and the result of any of the foregoing is to increase the cost to
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<PAGE>
such Funding Party, by an amount which such Funding Party reasonably deems to be
material, of making, converting into, continuing or maintaining LIBOR Advances
or to reduce any amount receivable hereunder in respect thereof then, in any
such case, each Obligor, jointly and severally, shall promptly pay such Funding
Party, upon its demand, any additional amounts necessary to compensate such
Funding Party for such increased cost or reduced amount receivable. If any
Funding Party becomes entitled to claim any additional amounts pursuant to this
subsection, it shall promptly notify Rowe Furniture, through 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 subsection submitted by such Funding
Party, through the Agent, to Rowe Furniture in good faith and setting forth in
reasonable detail (and a reasonable basis for such claimed additional amounts)
the calculation of such amounts shall be conclusive in the absence of manifest
error. This covenant shall survive the termination of this Master Agreement and
the payment of the Notes and all other amounts payable under the Operative
Documents until the second anniversary of such payment and termination.
(c) Capital Adequacy. In the event that any Funding Party or
----------------
corporation controlling such Funding Party 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 Funding Party or such corporation with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
does or shall have the effect of reducing the rate of return on such Funding
Party's capital as a consequence of its obligations hereunder to a level below
that which such Funding Party could have achieved but for such change or
compliance (taking into consideration such Funding Party's policies with respect
to capital adequacy) by an amount reasonably deemed by such Funding Party to be
material, then from time to time, after submission by such Funding Party in good
faith (and setting forth a reasonable basis for additional amounts claimed) to
Rowe Furniture (with a copy to the Agent) of a written request therefor setting
forth in reasonable detail the calculation of such amount (which request shall
be conclusive in the absence of manifest error), each Obligor, jointly and
severally, shall pay to such Funding Party such additional amount or amounts as
will compensate such Funding Party for such reduction. This covenant shall
survive the termination of this Master Agreement and the payment of the Notes
and all other amounts payable under the Operative Documents until the second
anniversary of such payment and termination.
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(d) Taxes. Subject to Section 7.5(e), all payments made by a Lessee
----- --------------
under the Lease and the other Operative Documents 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, in the case of
the Agent and each Funding Party, net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or such Funding Party, as the
case may be, as a result of a present or former connection between the
jurisdiction of the government or taxing authority imposing such tax and the
Agent or such Funding Party (excluding a connection arising solely from the
Agent or such Funding Party having executed, delivered or performed its
obligations or received a payment under, or enforced, this Master Agreement or
any other Operative Document) or any political subdivision or taxing authority
thereof or therein (all such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions and withholdings being hereinafter called "Withholding
-----------
Taxes"). If any Withholding Taxes are required to be withheld from any amounts
- -----
payable to the Agent or any Funding Party hereunder or under any other Operative
Document, the amounts so payable to the Agent or such Funding Party (so long as
such Funding Party has provided all applicable forms described in Section
7.5(e), unless the failure to provide such forms is attributable to a change in
Applicable Law occurring after the date such Funding Party becomes a party to
this Master Agreement, the Lease or any Operative Document) shall be increased
to the extent necessary to yield to the Agent or such Funding Party (after
payment of all Withholding Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in the Operative Documents.
Whenever any Withholding Taxes are payable by a Lessee, as promptly as possible
thereafter such Lessee shall send to the Agent for its own account or for the
account of such Funding Party, as the case may be, a certified copy of an
original official receipt received by such Lessee showing payment thereof. If a
Lessee fails to pay any Withholding Taxes when due to the appropriate taxing
authority or fails to remit to the Agent the required receipts or other required
documentary evidence, each Obligor, jointly and severally, shall indemnify the
Agent and the Funding Parties for any incremental taxes, interest or penalties
that may become payable by the Agent or any Funding Party as a result of any
such failure. The agreements in this subsection shall survive the termination
of this Master Agreement and the payment of the Notes and all other amounts
payable under the Operative Documents.
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(e) Tax Forms. Each Funding Party to this Master Agreement on the
---------
Closing Date that is not incorporated under the laws of the United States of
America or a state thereof agrees that, on or prior to the Initial Closing Date,
it will deliver to Rowe Furniture and the Agent (i) two duly completed signed
originals of United States Internal Revenue Service Form W-8BEN or W-8ECI or
successor applicable form, as the case may be, and (ii) an Internal Revenue
Service Form W-8 or W-9 or successor applicable form. Each such Funding Party
also agrees to deliver to Rowe Furniture and the Agent two further signed
originals of the said Form W-8BEN or W-8ECI and Form W-8 or W-9, or successor
applicable forms or other manner of certification, as the case may be, on or
before the date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to Rowe Furniture, and such extensions or renewals thereof as
may reasonably be requested by Rowe Furniture or the Agent, unless in any such
case an event (including, without limitation, any change in Applicable Law has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Funding Party from duly completing and delivering any such form with respect to
it and such Funding Party so advises Rowe Furniture and the Agent. Such Funding
Party shall certify (i) in the case of a Form W-8BEN or W-8ECI, that it is
entitled to receive payments under the Operative Documents without deduction or
withholding of any United States federal income taxes and (ii) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax.
(f) Indemnity. Each Obligor, jointly and severally, agrees to
---------
indemnify each Funding Party and to hold each Funding Party harmless from any
loss or expense which such Funding Party may sustain or incur as a consequence
of (a) default by a Lessee in payment when due of the principal amount of or
interest on any LIBOR Advance, (b) default by a Lessee in making a borrowing or
conversion after such Lessee or the Construction Agent has given (or is deemed
to have given) a notice in accordance with this Master Agreement, (c) default by
a Lessee in making a borrowing of, conversion into or continuation of LIBOR
Advances after a or the Construction Agent Lessee has given a notice requesting
the same in accordance with the provisions of this Master Agreement, (d) default
by a Lessee in making any prepayment of LIBOR Advances after such Lessee has
given a notice thereof in accordance with the provisions of the Operative
Documents or (e) the making of a prepayment, payment or conversion, of LIBOR
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Advances on a day which is not the last day of a Rent Period with respect
thereto, including, without limitation, in each case, any such loss (other than
non-receipt of the Applicable Margin or, without duplication, anticipated
profits) or expense arising from the reemployment of funds obtained by it or
from fees payable to terminate the deposits from which such funds were obtained
(it being understood that any such calculation will be made on notional amounts
as the Funding Parties are not required to show that they matched deposits
specifically). A certificate as to any additional amounts payable pursuant to
this subsection submitted by such Funding Party, through the Agent, to Rowe
Furniture in good faith shall be conclusive in the absence of manifest error.
This covenant shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable under the Operative Documents.
(g) Action of Affected Funding Parties. Each Funding Party agrees to
----------------------------------
use reasonable efforts (including reasonable efforts to change the booking
office for its Loans) to avoid or minimize any illegality pursuant to Section
-------
7.5(a) or any amounts which might otherwise be payable pursuant to Section
- ------ -------
7.5(c) or (d); provided, however, that such efforts shall not cause the
- ------ --- -------- -------
imposition on such Funding Party of any additional costs or legal or regulatory
burdens reasonably deemed by such Funding Party to be material and shall not be
reasonably deemed by such Funding Party to be otherwise contrary to its
policies. In the event that such reasonable efforts are insufficient to avoid
all such illegality or all amounts that might be payable pursuant to Section
-------
7.5(c) or (d), then such Funding Party (the "Affected Funding Party") shall use
- ------ --- ----------------------
its reasonable efforts to transfer to any other Funding Party (which itself is
not then an Affected Funding Party) its Loans and Commitment, subject to the
provisions of Section 6.2; provided, however, that such transfer shall not be
----------- -------- -------
reasonably deemed by such Affected Funding Party, in its sole discretion, to be
disadvantageous to it or contrary to its policies. In the event that the
Affected Funding Party is unable, or otherwise is unwilling, so to transfer its
Loans and Commitment, Rowe Furniture may designate an alternate lender
(reasonably acceptable to the Agent) to purchase the Affected Funding Party's
Loans and Commitment, at par and including accrued interest, and, subject to the
provisions of Section 6.2, the Affected Funding Party shall transfer its
-----------
Commitment to such alternate lender and such alternate lender shall become a
Funding Party hereunder. Any fee payable to the Agent pursuant to Section 6.2
-----------
in connection with such transfer shall be for the account of Rowe Companies and
the Lessees.
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SECTION 7.6 End of Term Indemnity. In the event that at the end of the
---------------------
Lease Term for the Leased Properties: (i) the related Lessee elects the option
set forth in Section 14.6 of the Lease, and (ii) after the Lessor receives the
sales proceeds from the Leased Properties under Section 14.6 or 14.7 of the
Lease, together with Lessees' payment of the Recourse Deficiency Amount, the
Lessor shall not have received the entire Lease Balance, then, within 90 days
after the end of the Lease Term, the Lessor or the Agent may obtain, at Lessees'
sole cost and expense, a report from the Appraiser (or, if the Appraiser is not
available, another appraiser reasonably satisfactory to the Lessor or the Agent,
as the case may be, and approved by Rowe Furniture, such approval not to be
unreasonably withheld) in form and substance satisfactory to the Lessor and the
Agent (the "Report") to establish the reason for any decline in value of the
------
Leased Properties from the Lease Balance. The Lessees, jointly and severally,
shall promptly reimburse the Lessor for the amount equal to such decline in
value to the extent that the Report indicates that such decline was due to
(w) extraordinary use, failure to maintain, to repair, to restore, to
rebuild or to replace, failure to comply with all Applicable Laws, failure
to use, workmanship, method of installation or removal or maintenance,
repair, rebuilding or replacement, or any other cause or condition within
the power of a Lessee to control or effect resulting in the Building
failing to be of the type and quality contemplated by the Appraisal
(excepting in each case ordinary wear and tear), or
(x) any Alteration made to, or any rebuilding of, any Leased Property
or any part thereof by any Lessee, or
(y) any restoration or rebuilding carried out by any Lessee or any
condemnation of any portion of any Leased Property pursuant to Article X of
the Lease, or
(z) any use of any Leased Property or any part thereof by any Lessee
other than as permitted by the Lease, or any act or omission constituting a
breach of any requirement, condition, restriction or limitation set forth
in the related Deed or the related Purchase Agreement.
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ARTICLE VII.
MISCELLANEOUS
SECTION 8.1 Survival of Agreements. Subject to limitations contained in
----------------------
the Operative Documents, the representations, warranties, covenants, indemnities
and agreements of the parties provided for in the Operative Documents, and the
parties' obligations under any and all thereof, shall survive the execution and
delivery of this Master Agreement and any of the Operative Documents, the
transfer of any Land to the Lessor as provided herein (and shall not be merged
into any Deed), any disposition of any interest of the Lessor in any Leased
Property, the purchase and sale of the Notes, payment therefor and any
disposition thereof, in each case in accordance with the Operative Documents,
and shall be and continue in effect notwithstanding any investigation made by
any party hereto or to any of the other Operative Documents. Except as
expressly set forth in the Operative Documents, including, without limitation,
as set forth in Article VII hereof and in Section 17.17 of the Lease, the
representations, warranties, covenants and agreements of the parties provided
for in the Operative Documents shall terminate upon the termination or
expiration of the Operative Documents.
SECTION 8.2 Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be addressed to such parties at the addresses therefor as set forth
in Schedule 8.2, or such other address as any such party shall specify to the
------------
other parties hereto, and shall be deemed to have been given (i) the Business
Day after being sent, if sent by overnight courier service; (ii) the Business
Day received, if sent by messenger; (iii) the day sent, if sent by facsimile and
confirmed electronically or otherwise during business hours of a Business Day
(or on the next Business Day if otherwise sent by facsimile and confirmed
electronically or otherwise); or (iv) when received or refused, if sent by
registered or certified mail, postage prepaid; provided, however, that if any
--------
party shall refuse to accept delivery of any notice sent by messenger, such
notice shall be deemed given when tendered for delivery.
SECTION 8.3 Counterparts. This Master Agreement may be executed by the
------------
parties hereto in separate counterparts (including by facsimile), 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.
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SECTION 8.4 Amendments. No Operative Document nor any of the terms
----------
thereof may be terminated, amended, supplemented, waived or modified with
respect to any Obligor or any Funding Party, except (a) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Lessees, with the written agreement or consent of Rowe Furniture, and (b) in the
case of a termination, amendment, supplement, waiver or modification to be
binding on the Funding Parties, with the written agreement or consent of the
Required Funding Parties; provided, however, that
-------- -------
(x) notwithstanding the foregoing provisions of this Section 8.4 or
-----------
clause (y) below, the consent of each Funding Party affected thereby shall be
- ----------
required for any amendment, modification or waiver directly:
(i) modifying any of the provisions of this Section 8.4, changing
-----------
the definition of "Required Funding Parties" or "Required Lenders", or
------------------------ ----------------
increasing the Commitment of such Funding Party;
(ii) amending, modifying, waiving or supplementing any of the
provisions of Section 3 of the Loan Agreement or the representations of
such Funding Party in Section 4.2 or 4.3 or the covenants of such Funding
----------- ---
Party in Section 6 of this Master Agreement;
---------
(iii) reducing any amount payable to such Funding Party under the
Operative Documents or extending the time for payment of any such amount,
including, without limitation, any Rent, any Funded Amount, any fees, any
indemnity, any Leased Property Balance, the Lease Balance, any Funding
Party Balance, the Recourse Deficiency Amount, interest or Yield; or
(iv) consenting to any assignment of the Lease not in compliance with
Article IX of the Lease or the extension of the Lease Term, releasing any
of the collateral assigned to the Agent and the Lenders pursuant to any
Mortgage and any Assignment of Lease and Rents (but excluding a release of
any rights that the Lenders may have in any Leased Property, or the
proceeds thereof as contemplated in the definition of "Release Date"),
releasing any Lessee from its obligations in respect of the payments of
Rent and the Lease Balance, releasing any Obligor from its obligations
under the Operative Documents or changing the absolute and unconditional
character of any such obligation; and
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(y) no such termination, amendment, supplement, waiver or modification
shall, without the written agreement or consent of the Lessor, the Agent and the
Required Lenders, be made to the Lease or any Security Agreement and Assignment;
and
(z) subject to the foregoing clauses (x) and (y), so long as no Event
----------- ---
of Default has occurred and is continuing, the Lessor, the Agent and the Lenders
may not amend, supplement, waive or modify any terms of the Loan Agreement, the
Notes, the Mortgages and the Assignments of Lease and Rents without the consent
of the related Lessee and Rowe Companies (such consent not to be unreasonably
withheld or delayed); provided that in no event may any Operative Document be
--------
amended so as to increase the obligations of any Obligor, or deprive any Obligor
of any rights thereunder, without the written consent of the related Lessee and
Rowe Companies.
SECTION 8.5 Headings, etc. The Table of Contents and headings of the
--------------
various Articles and Sections of this Master Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
SECTION 8.6 Parties in Interest. Except as expressly provided herein,
-------------------
none of the provisions of this Master Agreement is intended for the benefit of
any Person except the parties hereto and their respective successors and
permitted assigns.
SECTION 8.7 GOVERNING LAW. THIS MASTER AGREEMENT HAS BEEN DELIVERED IN,
-------------
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE COMMONWEALTH OF VIRGINIA APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE.
SECTION 8.8 Expenses. Whether or not the transactions herein contemplated
--------
are consummated, each Obligor, jointly and severally, agrees to pay, as
Supplemental Rent, all actual, reasonable and documented out-of-pocket costs and
expenses of the Lessor, the Agent and the Lenders in connection with the
preparation, execution and delivery of the Operative Documents and the documents
and instruments referred to therein and any amendment, waiver or consent
relating thereto (including, without limitation, the reasonable fees and
disbursements of Mayer, Brown & Platt, but not including any fees and
disbursements for any other outside counsel representing any Lender) and of the
Lessor,
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the Agent and the Lenders in connection with endeavoring to enforce the
Operative Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees actually incurred and
disbursements reasonably incurred of counsel for the Lessor and the Agent for
itself and on behalf of other Lenders.
SECTION 8.9 Severability. Any provision of this Master 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.
SECTION 8.10 Liabilities of the Funding Parties. No Funding Party shall
----------------------------------
have any obligation to any other Funding Party or to Lessee with respect to the
transactions contemplated by the Operative Documents except those obligations of
such Funding Party expressly set forth in the Operative Documents or except as
set forth in the instruments delivered in connection therewith, and no Funding
Party shall be liable for performance by any other party hereto of such other
party's obligations under the Operative Documents except as otherwise so set
forth. No Lender shall have any obligation or duty to any Obligor, any other
Funding Parties or any other Person with respect to the transactions
contemplated hereby except to the extent of the obligations and duties expressly
set forth in the Operative Documents.
SECTION 8.11 Submission to Jurisdiction; Waivers. Each party hereto
-----------------------------------
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Master Agreement or any other Operative
Document, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
Commonwealth of Virginia sitting in Montgomery County, the courts of the
United States of America for the Western District of Virginia, and
appellate courts from any thereof;
(ii) consents that any such action or proceedings may be brought to
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead
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or claim the same;
(iii) 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 such party
at its address set forth in Schedule 8.2 or at such other address of which
------------
the other parties hereto shall have been notified pursuant to Section 8.2;
-----------
and
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law.
SECTION 8.12 Liabilities of the Agent. The Agent shall have no duty,
------------------------
liability or obligation to any party to this Master Agreement with respect to
the transactions contemplated hereby except those duties, liabilities or
obligations expressly set forth in this Master Agreement or the Loan Agreement,
and any such duty, liability or obligations of the Agent shall be as expressly
limited by this Master Agreement or the Loan Agreement, as the case may be. All
parties to this Master Agreement acknowledge that the Agent is not, and will not
be, performing any due diligence with respect to documents and information
received pursuant to this Master Agreement or any other Operative Agreement
including, without limitation, any Environmental Audit, Title Policy or survey.
The acceptance by the Agent of any such document or information shall not
constitute a waiver by any Funding Party of any representation or warranty of
any Obligor even if such document or information indicates that any such
representation or warranty is untrue.
SECTION 8.13 Agent to Communicate with Funding Parties. Notwithstanding
-----------------------------------------
any provision to the contrary contained in any Operative Document, wherever in
any Operative Document the consent of, or notice to, any Funding Party is
required, each Obligor shall be entitled to request such consent directly from,
or give such notice directly to, the Agent on behalf of the applicable Funding
Parties, and the Agent shall thereupon be responsible for presenting such
request or forwarding such notice to the applicable Funding Parties, and for
communicating any response back to the initiating Obligor. An Obligor shall be
deemed to have complied with any requirement of requesting consent from or
providing notice to any Funding Party upon its delivery of such request or
notice to Agent in compliance with the notice provisions of the applicable
Operative Document, and such Obligor may rely on any response properly delivered
by the
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Agent on behalf of such Funding Party to such Obligor. Nothing in this Section
shall diminish or negate the right of any Funding Party to receive notice or
provide consent under any Operative Document, but Lessee's obligation to provide
any required consent or notice shall be satisfied by providing such consent or
notice to Agent.
SECTION 8.14 Seniority of Lease. Anything contained in this Agreement or
------------------
any other Operative Document to the contrary notwithstanding, the rights of the
Lessee under the Lease are, provided that no Event of Default shall have
occurred and be continuing, prior and senior to this Agreement and the other
Operative Documents and the rights of the Agent, the Lenders and the Lessor
hereunder and thereunder whether or not the Lease (or a memorandum thereof) is
recorded prior to the recordation of any of the other Operative Documents.
67
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Master Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
ROWE FURNITURE, INC., as Lessee
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry W. Angle
--------------------
Title: Treasurer
---------------------------
S-1
<PAGE>
THE ROWE COMPANIES, as Guarantor
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry W. Angle
--------------------
Title: Assistant Treasurer
---------------------------
THE MITCHELL GOLD CO., as
Guarantor
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry W. Angle
--------------------
Title: Treasurer
---------------------------
ROWE PROPERTIES, INC., as
Guarantor
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry W. Angle
--------------------
Title: Treasurer
---------------------------
STOREHOUSE, INC., as Guarantor
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry W. Angle
--------------------
Title: Treasurer
---------------------------
HOME ELEMENTS, INC., as Guarantor
By: /s/ Garry W. Angle
------------------------------
Name Printed: Garry w. Angle
--------------------
Title: Treasurer
---------------------------
S-2
<PAGE>
ROWE DIVERSIFIED, INC., as Guarantor
By:
Name Printed:
Title:
WEXFORD COLLECTION, INC., as
Guarantor
By:
Name Printed:
Title:
S-3
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD.,
as Lessor
By: Atlantic Financial Managers,
Inc., its General Partner
By: /s/ Stephen Brookshire
----------------------------
Name: Stephen Brookshire
Title: President
S-4
<PAGE>
CRESTAR BANK, as Lender
By: /s/ Martha D. Shifflett
------------------------------
Name Printed: Martha D. Shifflett
--------------------
Title: Sr. Vice President
---------------------------
S-5
<PAGE>
CRESTAR BANK, as Agent
By: /s/ Martha D. Shifflett
------------------------------
Name Printed: Martha D. Shifflett
--------------------
Title: Sr. Vice President
---------------------------
S-6
<PAGE>
SCHEDULE 2.2
PAYMENT INSTRUCTIONS AND
AMOUNT OF EACH FUNDING PARTY'S COMMITMENT
Lessor Commitment Percentage: 3.5%
Lessor Commitment: $875,000
Lender Commitment Percentages:
Crestar Bank 96.5%
Lender Commitments: $24,125,000
<PAGE>
SCHEDULE 8.2
ADDRESSES FOR NOTICES
Rowe Companies/
Rowe Furniture: The Rowe Companies
239 Rowan Street
Salem, Virginia 24153
Attn: Garry W. Angle
Lessor: Atlantic Financial Group, Ltd.
c/o Grogan & Brawner
2311 Cedar Springs Road
Suite 150
Dallas, Texas 75201
Attn: Stephen Brookshire
Agent or Lender: Crestar Bank
510 South Jefferson Street
Roanoke, Virginia 24011
Attn: Martha Shifflett
<PAGE>
EXHIBIT (10.12)
===============================================================================
MASTER LEASE AGREEMENT
Dated as of August 27, 1999
between
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
and
ROWE FURNITURE, INC. AND
CERTAIN OTHER SUBSIDIARIES
OF THE ROWE COMPANIES
THAT MAY HEREAFTER BECOME PARTY HERETO,
as Lessees
___________________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
(Lease Agreement)
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS............................................. 1
ARTICLE II. LEASE OF LEASED PROPERTY................................ 2
2.1 Acceptance and Lease of Property........................ 2
2.2 Acceptance Procedure.................................... 2
ARTICLE III. RENT.................................................... 2
3.1 Basic Rent.............................................. 2
3.2 Supplemental Rent....................................... 2
3.3 Method of Payment....................................... 3
3.4 Late Payment............................................ 3
3.5 Net Lease; No Setoff, Etc............................... 3
3.6 Certain Taxes........................................... 5
3.7 Utility Charges......................................... 6
ARTICLE IV. WAIVERS................................................. 6
ARTICLE V. LIENS; EASEMENTS; PARTIAL CONVEYANCES................... 7
ARTICLE VI. MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS................ 9
6.1 Maintenance and Repair; Compliance With Law............. 9
6.2 Alterations............................................. 9
6.3 Title to Alterations.................................... 10
ARTICLE VII. USE..................................................... 10
ARTICLE VIII. INSURANCE............................................... 10
ARTICLE IX. ASSIGNMENT AND SUBLEASING............................... 12
ARTICLE X. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE............... 12
10.1 Event of Loss........................................... 12
10.2 Event of Taking......................................... 14
10.3 Casualty................................................ 16
10.4 Condemnation............................................ 16
10.5 Verification of Restoration and Rebuilding.............. 17
10.6 Application of Payments................................. 17
10.7 Prosecution of Awards................................... 18
10.8 Application of Certain Payments Not Relating
to an Event of Taking................................... 19
10.9 Other Dispositions...................................... 19
10.10 No Rent Abatement....................................... 19
ARTICLE XI. INTEREST CONVEYED TO LESSEES............................ 19
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII. EVENTS OF DEFAULT....................................... 20
ARTICLE XIII. ENFORCEMENT............................................. 23
13.1 Remedies................................................ 23
13.2 Remedies Cumulative; No Waiver; Consents................ 26
13.3 Purchase Upon an Event of Default....................... 26
ARTICLE XIV. SALE, RETURN OR PURCHASE OF LEASED PROPERTY;
RENEWAL.................................................................. 27
14.1 Lessee's Option to Purchase............................. 27
14.2 Conveyance to Lessee.................................... 27
14.3 Acceleration of Purchase Obligation..................... 28
14.4 Determination of Purchase Price......................... 28
14.5 Purchase Procedure...................................... 28
14.6 Option to Remarket...................................... 29
14.7 Rejection of Sale....................................... 32
14.8 Return of Leased Property............................... 33
14.9 Renewal................................................. 33
14.10 Environmental Report.................................... 34
ARTICLE XV. LESSEE'S EQUIPMENT...................................... 34
ARTICLE XVI. RIGHT TO PERFORM FOR LESSEE............................. 35
ARTICLE XVII. MISCELLANEOUS........................................... 35
17.1 Reports................................................. 35
17.2 Binding Effect; Successors and Assigns;
Survival................................................ 35
17.3 Quiet Enjoyment......................................... 36
17.4 Notices................................................. 36
17.5 Severability............................................ 37
17.6 Amendment; Complete Agreements.......................... 37
17.7 Construction............................................ 37
17.8 Headings................................................ 37
17.9 Counterparts............................................ 38
17.10 Governing Law........................................... 38
17.11 Discharge of Lessee's Obligations by its
Subsidiaries or Affiliates.............................. 38
17.12 Liability of Lessor Limited............................. 38
17.13 Estoppel Certificates................................... 39
17.14 No Joint Venture........................................ 39
17.15 No Accord and Satisfaction.............................. 39
17.16 No Merger............................................... 39
17.17 Survival................................................ 40
17.18 Chattel Paper........................................... 40
17.19 Time of Essence......................................... 40
17.20 Recordation of Lease.................................... 40
17.21 Investment of Security Funds............................ 40
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
17.22 [Reserved.]............................................. 41
17.23 Land and Building....................................... 41
17.24 Joint and Several....................................... 41
</TABLE>
APPENDICES AND EXHIBITS
- -----------------------
APPENDIX A Defined Terms
EXHIBIT A Lease Supplement
-iii-
<PAGE>
THIS MASTER LEASE AGREEMENT (as from time to time amended or supplemented,
this "Lease"), dated as of August 27, 1999, is among ATLANTIC FINANCIAL GROUP,
-----
LTD., a Texas limited partnership (together with its successors and assigns
hereunder, the "Lessor"), as Lessor, and ROWE FURNITURE, INC., a Virginia
------
corporation ("Rowe Furniture"), and certain other Subsidiaries of The Rowe
--------------
Companies hereafter parties hereto (individually, with its successors and
permitted assigns hereunder, each a "Lessee" and collectively, the "Lessees"),
------ -------
as Lessees.
PRELIMINARY STATEMENT
A. Lessor has acquired certain parcels of real property specified by
Construction Agent, including the improvements thereon (the "Land", such land
----
being more particularly described in the related Lease Supplement).
B. Lessor desires to lease to each Lessee, and each Lessee desires to
lease from Lessor, the Land as described in the Lease Supplement(s) to which
such Lessee is a party.
C. The Construction Agent will construct, or cause to be constructed,
certain improvements on the Land which as constructed will be the property of
Lessor and will become part of such property subject to the terms of this Lease.
D. With respect to each Leased Property, it is the intent of the Lessees
and the Funding Parties that the Lease be treated as an operating lease for
financial accounting purposes but for federal, state and local tax and
commercial law purposes the Lease shall be treated as the repayment and security
provisions of a loan by the Lessor to the Lessee, and that the related Lessee
shall be treated as the legal and beneficial owner entitled to any and all
benefits of ownership of such Leased Property and all payments of Basic Rent
during the Lease Term shall be treated as payments of interest and principal.
Each Lessee and each Funding Party agree to file tax returns consistent with
such intent.
In consideration of the mutual agreements herein contained and other good
and valuable consideration, receipt of which is hereby acknowledged, Lessor and
Lessees hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
Terms used herein and not otherwise defined shall have the meanings
assigned thereto in Appendix A hereto for all purposes hereof.
----------
1
<PAGE>
ARTICLE II.
LEASE OF LEASED PROPERTY
------------------------
Section 2.1 Acceptance and Lease of Property. Lessor does hereby lease,
--------------------------------
to the related Lessee hereunder for the Lease Term, the Land and Appurtenances
thereto, together with any Building which thereafter may be constructed thereon
pursuant to the Construction Agency Agreement, but excluding Lessee's Property
(the "Leased Property," as more particularly defined in Appendix A to the Master
Agreement) and such related Lessee does hereby lease, expressly for the direct
benefit of Lessor, commencing on such Closing Date for the Lease Term, the
Leased Property.
Section 2.2 Acceptance Procedure. The Leased Property shall be deemed to
--------------------
be included in the leasehold estate of this Lease and shall be subject to the
terms and conditions of this Lease as of such Closing Date. The demise and
lease of each Leased Property pursuant to this Section 2.2 shall include any
-----------
additional right, title or interest in such Leased Property which may at any
time be acquired by Lessor, the intent being that all right, title and interest
of Lessor in and to such Leased Property shall at all times be demised and
leased to the related Lessee hereunder.
ARTICLE III
RENT
----
Section 3.1 Basic Rent. Subject to Section 2.3(c) of the Master
----------
Agreement, beginning with and including the first Payment Date occurring after
the Closing Date, each Lessee shall pay to the Agent the Basic Rent for the
Leased Properties subject to a Lease Supplement to which such Lessee is a party,
in installments, payable in arrears on each Payment Date during the Lease Term.
Section 3.2 Supplemental Rent. Each Lessee shall pay to the Agent, or
-----------------
to whomever shall be entitled thereto, any and all Supplemental Rent on the date
the same shall become due and payable, but subject to notice and cure periods as
hereinafter provided, and in the event of any failure on the part of such Lessee
to pay any Supplemental Rent payable to the Agent or any Funding Party within
applicable notice and cure periods, the Agent shall have all rights, powers and
remedies provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. All Supplemental Rent to be paid to the Agent or any
Funding Party pursuant to this Section 3.2 shall be payable in the type of funds
-----------
and in the manner set forth in Section 3.3.
-----------
2
<PAGE>
Section 3.3 Method of Payment. Basic Rent shall be paid to the Agent,
-----------------
and Supplemental Rent payable to the Agent, any Funding Party or any Indemnitee
(including amounts due under Article XIV hereof) shall be paid to the Agent (or
-----------
to such Funding Party or Indemnitee as may be entitled thereto) or, in each
case, to such Person as the Agent (or such Funding Party or Indemnitee) shall
specify in writing to the related Lessee, and at such place as the Agent (or
such Funding Party or Indemnitee) shall specify in writing to the related
Lessee, which specifications by the Agent shall be given by the Agent at least
five (5) Business Days prior to the due date therefor. Each payment of Basic
Rent (including payments under Article XIV hereof) shall be made by the Lessees
-----------
prior to 12:00 p.m. (noon) Roanoke, Virginia time at the place of payment in
funds consisting of lawful currency of the United States of America which shall
be immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next succeeding Business Day, unless paying on the
next succeeding Business Day puts payment into a different LIBOR period, in
which case payment will be credited to or made on the next preceding Business
Day to avoid LIBOR breakage costs. The foregoing practice of crediting payments
to avoid LIBOR breakage costs shall apply to any payments due Agent or any
Funding Parties under the Operative Documents, whether or not specifically
stated. Anything contained in the Operative Documents to the contrary
notwithstanding, any and all payment obligations of Lessees and Guarantors shall
be deemed satisfied by payment to Agent, notwithstanding participation and
claims of other Funding Parties.
Section 3.4 Late Payment. If any Basic Rent shall not be paid on the
------------
date when due (but subject to notice and cure periods as hereinafter provided
and as may be provided in the Operative Documents), the related Lessee shall pay
to the Agent, as Supplemental Rent, interest (to the maximum extent permitted by
law) on such overdue amount from and including the due date thereof to but
excluding the Business Day of payment thereof at the Overdue Rate.
Section 3.5 Net Lease; No Setoff, Etc. This Lease is a net lease and
-------------------------
notwithstanding any other provision of this Lease, each Lessee shall pay all
Basic Rent and Supplemental Rent, and all costs, charges, taxes (other than
taxes covered by the exclusion described in Section 7.4(b) of the Master
Agreement), assessments and other expenses foreseen or unforeseen, for which
such Lessee or any Indemnitee is or shall become liable by reason of such
Lessee's or such Indemnitee's estate, right, title or interest in the Leased
Properties, or that are connected with or arise out of the acquisition (except
the initial costs of
3
<PAGE>
purchase by Lessor of its interest in any Leased Property, which costs, subject
to the terms of the Master Agreement, shall be funded by the Funding Parties
pursuant to the Master Agreement), construction (except costs to be funded under
the Construction Agency Agreement), installation, possession, use, occupancy,
maintenance, ownership, leasing, repairs and rebuilding of, or addition to, the
Leased Properties or any portion thereof, and any other amounts payable
hereunder and under the other Operative Documents without (except as otherwise
provided herein or under the Operative Documents) counterclaim, setoff,
deduction or defense and without abatement, suspension, deferment, diminution or
reduction, and each Lessee's obligation to pay all such amounts throughout the
Lease Term, including the Construction Term, is absolute and unconditional. The
obligations and liabilities of each Lessee hereunder shall in no way be
released, discharged or otherwise affected for any reason, including without
limitation: (a) any defect in the condition, merchantability, design, quality or
fitness for use of any Leased Property or any part thereof, or the failure of
any Leased Property to comply with all Applicable Law, including any inability
to occupy or use any Leased Property by reason of such non-compliance; (b) any
damage to, removal, abandonment, salvage, loss, contamination of or Release
from, scrapping or destruction of or any requisition or taking of any Leased
Property or any part thereof; (c) any restriction, prevention or curtailment of
or interference with any use of any Leased Property or any part thereof
including eviction; (d) any defect in title to or rights to any Leased Property
or any Lien on such title or rights or on any Leased 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, the Agent or any Lender; (f) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceedings relating to any Lessee, Lessor, any
Lender, the Agent or any other Person, or any action taken with respect to this
Lease by any trustee or receiver of any Lessee, Lessor, any Lender, the Agent,
or any other Person, or by any court, in any such proceeding; (g) any claim that
any Lessee has or might have against any Person, including without limitation,
Lessor, any vendor, manufacturer, contractor of or for any Leased Property or
any part thereof, the Agent, any Governmental Authority, 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 Document or of any other agreement; (i) any
invalidity or unenforceability or illegality or disaffirmance of this Lease
against or by any Lessee or any provision hereof or any of the other Operative
Documents or any provision of any thereof whether or not related to the
Transaction; (j) the impossibility or illegality of performance by any Lessee,
Lessor or both; (k) any action by any court, administrative agency or other
Governmental
4
<PAGE>
Authority; (l) any restriction, prevention or curtailment of or interference
with the Construction or any use of any Leased Property or any part thereof; or
(m) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not any Lessee shall have notice or knowledge of any of
the foregoing. Except as specifically set forth in Articles XIV or X of
-------- --- -
this Lease or elsewhere in this Lease or in other Operative Documents, this
Lease shall be noncancellable by each Lessee in any circumstance whatsoever and
each Lessee, to the extent permitted by Applicable Law, 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 such
Lessee hereunder. Each payment of Basic Rent, and each payment of Supplemental
Rent payable to the Agent, any Funding Party or any Indemnitee, made by a Lessee
hereunder shall be final and such Lessee shall not seek or have any right to
recover all or any part of such payment from Lessor, the Agent, any Lender or
any party to any agreements related thereto for any reason whatsoever subject
only to the final sentence of this paragraph. Each Lessee assumes the sole
responsibility for the condition, use, operation, maintenance, and management of
the Leased Properties leased by it and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of either
any Lessee or any subtenant of any Lessee on any account or for any reason
whatsoever, other than solely by reason of Lessor's willful misconduct or gross
negligence. The Lessee agreements in this Section shall not affect any claim,
action or right the Lessee may have against the Lessor, the Agent or any other
Person.
Section 3.6 Certain Taxes. Without limiting the generality of Section
------------- -------
3.5, each Lessee agrees to pay when due all real estate taxes, personal property
- ---
taxes, gross sales taxes, including any sales or lease tax imposed upon the
rental payments hereunder or under a sublease, occupational license taxes, water
charges, sewer charges, assessments of any nature and all other governmental
impositions and charges of every kind and nature whatsoever (the "tax(es)"),
-------
when the same shall be due and payable without penalty or interest; provided,
--------
however, that this Section shall not apply to any of the taxes covered by the
- -------
exclusion described in Section 7.4(b) of the Master Agreement. It is the
intention of the parties hereto that, insofar as the same may lawfully be done,
Lessor shall be, except as specifically provided for herein, free from all
expenses in any way related to the Leased Properties and the use and occupancy
thereof. Any tax relating to a fiscal period of any taxing authority falling
partially within and partially outside the Lease Term, shall be apportioned and
adjusted between Lessor and the related Lessee. Each Lessee covenants to
furnish Lessor and the Agent, upon the Agent's written request, within forty-
five
5
<PAGE>
(45) days after the last date when any tax must be paid by such Lessee as
provided in this Section 3.6, official receipts of the appropriate taxing,
-----------
authority or other proof satisfactory to Lessor, evidencing the payment thereof.
So long as no Event of Default has occurred and is continuing, the related
Lessee may defer payment of a tax so long as the validity or the amount thereof
is contested by such Lessee with diligence and in good faith; provided, however,
-------- -------
that such Lessee shall settle such contest, post sufficient bond or pay the tax
in sufficient time to prevent delivery of a tax deed. Such contest shall be at
the related Lessee's sole cost and expense. Each Lessee covenants to indemnify
and save harmless Lessor, which indemnification shall survive the termination of
this Lease, the Agent and each Lender from any actual and reasonable costs or
expenses incurred by Lessor, the Agent or any Lender as a result of such
contest.
Section 3.7 Utility Charges. Each Lessee agrees to pay or cause to be
---------------
paid as and when the same are due and payable all charges for gas, water, sewer,
electricity, lights, heat, power, telephone or other communication service and
all other utility services used, rendered or supplied to, upon or in connection
with the Leased Properties leased by it.
ARTICLE IV.
WAIVERS
-------
During the Lease Term, Lessor's interest in the Leased Properties,
including the Building(s) (whether or not completed) and the Land, is demised
and let by Lessor "AS IS" subject to (a) the rights of any parties in possession
thereof, (b) the state of the title thereto existing at the time Lessor acquired
its interest in the Leased Properties, (c) any state of facts which an accurate
survey or physical inspection might show (including the survey delivered on the
related Closing Date), (d) all Applicable Law, and (e) any violations of
Applicable Law which may exist upon or subsequent to the commencement of the
Lease Term. EACH LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR WILL OWN AND HOLD
TITLE TO THE LEASED PROPERTIES, LESSOR IS NOT RESPONSIBLE FOR THE DESIGN,
DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE BUILDING(S) OR ANY ALTERATIONS.
NEITHER LESSOR, THE AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO
HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE,
HABITABILITY, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED
PROPERTIES (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED
6
<PAGE>
PROPERTIES (OR ANY PART THEREOF), ALL SUCH WARRANTIES BEING HEREBY DISCLAIMED,
AND NEITHER LESSOR, THE AGENT NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT,
HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE OF ANY LEASED PROPERTY, OR ANY
PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAW, except that Lessor hereby
represents and warrants that each Leased Property is and shall be free of Lessor
Liens. As between Lessor and the Lessees, each related Lessee has been afforded
full opportunity to inspect each Leased Property, is satisfied with the results
of its inspections of such Leased Property and is entering into this Lease
solely on the basis of the results of its own inspections and all risks incident
to the matters discussed in the two preceding sentences, as between Lessor, the
Agent or the Lenders on the one hand, and the Lessees, on the other, are to be
borne by the Lessees. The provisions of this Article IV have been negotiated,
----------
and, except to the extent otherwise expressly stated, the foregoing provisions
are intended to be a complete exclusion and negation of any representations or
warranties by Lessor, the Agent or the Lenders, express or implied, with respect
to the Leased Properties, that may arise pursuant to any law now or hereafter in
effect, or otherwise.
ARTICLE V.
LIENS; EASEMENTS; PARTIAL CONVEYANCES
-------------------------------------
No Lessee shall directly or indirectly create, incur or assume, any Lien on
or with respect to any Leased Property, the title thereto, or any interest
therein, including any Liens which arise out of the possession, use, occupancy,
construction, repair or rebuilding of any Leased Property or by reason of labor
or materials furnished or claimed to have been furnished to a Lessee, or any of
its contractors or agents or Alterations constructed by a Lessee, except, in all
cases, Permitted Encumbrances and except as otherwise consented to by the Lessor
and the Agent.
Notwithstanding the foregoing paragraph, at the request of a Lessee, Lessor
shall, from time to time during the Lease Term and upon reasonable advance
written notice from such Lessee, and receipt of the materials specified in the
next succeeding sentence, consent to and join in any (i) grant of easements,
licenses, rights of way and other rights in the nature of easements, including,
without limitation, utility easements to facilitate Lessees' use, development
and construction of the Leased Properties, (ii) release or termination of
easements, licenses, rights of way or other rights in the nature of easements
which are for the benefit of the Land or the Building(s) or any portion thereof,
(iii) dedication or transfer of portions of the Land, not improved with a
Building, for road,
7
<PAGE>
highway or other public purposes, (iv) execution of agreements for ingress and
egress and amendments to any covenants and restrictions affecting the Land or
the Building(s) or any portion thereof, (v) request to any Governmental
Authority for platting or subdivision or replatting or resubdivision approval
with respect to the Land or any portion thereof or any parcel of land of which
the Land or any portion thereof forms a part or a request for rezoning or any
variance from zoning or other governmental requirements, and (vi) other matters
as Lessee may reasonably request associated with possession, use, occupancy,
development, construction, Alterations, renovations, expansion, remodeling,
repair, conveyance or rebuilding of or affecting the Leased Property. Lessor's
obligations pursuant to the preceding sentence shall be subject to the
requirements that:
(a) any such action shall be at the sole cost and expense of the
requesting Lessee and such Lessee shall pay all actual and reasonable out-of-
pocket costs of Lessor and the Agent in connection therewith (including, without
limitation, the reasonable fees of attorneys, architects, engineers, planners,
appraisers and other professionals reasonably retained by Lessor or the Agent in
connection with any such action, it being expressly understood that such parties
may be approved in advance by Lessor and retained by Lessee as Construction
Agent so that duplicate charges may be avoided);
(b) the requesting Lessee shall have delivered to Lessor and Agent a
certificate of a Responsible Officer of such Lessee stating that
(i) such action will not cause any Leased Property, the Land or
any Building or any portion thereof to fail to comply in any material
respect with the provisions of this Lease or any other Operative Documents,
or in any material respect with Applicable Law; and
(ii) such action will not materially reduce the Fair Market
Sales Value, utility or useful life of any Leased Property, the Land or any
Building nor Lessor's interest therein; and
(c) in the case of any release or conveyance, if Lessor, the Agent or
any Lender so reasonably requests, the requesting Lessee will cause to be issued
and delivered to Lessor and the Agent by the Title Insurance Company an
endorsement to the Title Policy confirming that such release or reconveyance
does not impair the validity, enforceability or priority of this Lease or the
Lessor's interest in the Leased Property.
8
<PAGE>
ARTICLE VI.
MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
----------------------------------------
Section 6.1 Maintenance and Repair; Compliance With Law. Each Lessee, at
-------------------------------------------
its own expense, shall at all times (a) maintain each Leased Property leased by
it in good repair and condition (subject to ordinary wear and tear), in
accordance with prudent industry standards and, in any event, in no less a
manner as other similar property owned or leased by such Lessee or its
Affiliates, (b) make all Alterations in accordance with, and maintain (whether
or not such maintenance requires structural modifications or Alterations) and
operate and otherwise keep each Leased Property in compliance in all material
respects with, all Applicable Laws and insurance requirements, subject to
Lessee's right to contest as hereafter provided, and (c) make all material
repairs, replacements and renewals of each Leased Property or any part thereof
which may be required to keep such Leased Property in the condition required by
the preceding clauses (a) and (b). Each Lessee shall perform the foregoing
----------- ---
maintenance obligations regardless of whether any Leased Property is occupied or
unoccupied, and nothing herein shall require any Lessee to continuously operate
the Leased Property. Each Lessee waives any right that it may now have or
hereafter acquire to (i) require Lessor, the Agent or any Lender to maintain,
repair, replace, alter, remove or rebuild all or any part of any Leased Property
or (ii) make repairs at the expense of Lessor, the Agent or any Lender pursuant
to any Applicable Law or other agreements or otherwise. NEITHER LESSOR, THE
AGENT NOR ANY LENDER SHALL BE LIABLE TO ANY LESSEE OR TO ANY CONTRACTORS,
SUBCONTRACTORS, LABORERS, MATERIALMEN, SUPPLIERS OR VENDORS FOR SERVICES
PERFORMED OR MATERIAL PROVIDED ON OR IN CONNECTION WITH ANY LEASED PROPERTY OR
ANY PART THEREOF. Neither Lessor, the Agent nor any Lender shall be required to
maintain, alter, repair, rebuild or replace any Leased Property in any way.
Anything contained in this Lease to the contrary notwithstanding, whenever any
obligation, order, rule or requirement, including those claimed to arise under
Applicable Law, whether asserted by Governmental Authority or any other Person
(other than the Agent, a Funding Party or an Indemnitee), is in fact, asserted,
and the same would require the performance or payment by Lessee, and Lessee in
good faith believes the same ought to be contested, Lessee shall, subject to
indemnification obligations of this Lease, have the right to so contest and to
defer performance and payment until the matter is finally resolved; provided,
however, that this sentence shall not be deemed to modify or extend the cure
period for any Event of Default.
Section 6.2 Alterations. Each Lessee may, without the consent of Lessor
-----------
(which will not be unreasonably withheld),
9
<PAGE>
delayed or conditioned), at such Lessee's own cost and expense, make Alterations
which do not diminish the value, utility or useful life of any Leased Property.
Section 6.3 Title to Alterations. Title to all Alterations shall
--------------------
without further act vest in Lessor (subject to each Lessee's right to remove
Lessee's Property, provided that such removal shall not materially diminish the
value of the Leased Property) and shall be deemed to constitute a part of the
Leased Properties and be subject to this Lease. Notwithstanding the foregoing,
Lessee may from time to time remove and convey as Lessor's Agent, such
Alterations so long as the proceeds are used to acquire and/or make other
Alterations, improvements or installations (including replacement of Equipment
financed through funds advanced by Lessor or Lender to the Leased Property) and
such removal does not materially diminish the value of the Leased Property.
Lessor further acknowledges and does hereby waive any rights or claims of lien
(including statutory liens) against Lessee's Property.
ARTICLE VII
USE
---
Each Lessee may use each Leased Property leased by it or any part thereof
for any lawful purpose, and in a manner consistent with the standards applicable
to properties of a similar nature in the geographic area in which such Leased
Property is located, provided that such use does not materially adversely affect
--------
the Fair Market Sales Value, utility, remaining useful life or residual value of
such Leased Property, and does not materially violate or conflict with, or
constitute or result in a material default under, any Applicable Law or any
insurance policy required hereunder. No Lessee shall commit or permit any waste
of any Leased Property or any material part thereof if such waste would
materially adversely affect the value or useful life of the Leased Property.
ARTICLE VII
INSURANCE
---------
(a) At any time during which any part of any Building or any
Alteration is under construction and as to any part of any Building or any
Alteration under construction, the related Lessee shall maintain, or cause to be
maintained, at its sole cost and expense, as a part of its blanket policies or
otherwise, "all risks" non-reporting completed value form of builder's risk
insurance.
10
<PAGE>
(b) During the Lease Term, each Lessee shall maintain, at its sole
cost and expense, as a part of its blanket policies or otherwise, insurance
against loss or damage to any Building by fire and other risks, including
comprehensive boiler and machinery coverage, on terms and in amounts no less
favorable than insurance covering other similar properties owned or leased by a
Lessee and that are in accordance with prudent industry practice, but in no
event less than the replacement cost of such Building from time to time.
(c) During the Lease Term, each Lessee shall maintain, at its sole
cost and expense, commercial general liability insurance with respect to the
Leased Properties, as is ordinarily procured by prudent Persons who own or
operate similar properties in the same geographic area. Such insurance shall be
on terms and in amounts that are no less favorable than insurance maintained by
a Lessee or its Affiliates with respect to similar properties that it owns or
leases and that are in accordance with prudent industry practice. Such
insurance policies shall also provide that each Lessee's insurance shall be
considered primary insurance. Nothing in this Article VIII shall prohibit
------------
Lessor, the Agent or any Lender from carrying at its own expense other insurance
on or with respect to the Leased Properties, provided that any insurance carried
--------
by Lessor, the Agent or any Lender shall not prevent any Lessee from carrying
the insurance required hereby.
(d) Each policy of insurance maintained by a Lessee pursuant to
clauses (a) and (b) of this Article VIII shall provide that all insurance
- ----------- --- ------------
proceeds in respect of any loss or occurrence shall be adjusted by such Lessee,
except if, and for so long as an Event of Default exists, all losses shall be
adjusted solely by, and all insurance proceeds shall be paid solely to, the
Agent (or Lessor if the Loans have been fully paid) for application pursuant to
this Lease. For so long as no Event of Default exists, insurance proceeds in an
aggregate amount not exceeding $10,000,000 may be paid directly to the
applicable Lessee, and insurance proceeds exceeding $10,000,000 shall be paid to
the Agent, in each case for application pursuant to this Lease.
(e) On the Closing Date for each Leased Property, on the Completion
Date for each Leased Property and on each anniversary of the Initial Closing
Date, each Lessee shall furnish Lessor with certificates showing the insurance
required under this Article VIII to be in effect and naming Lessor, the Agent
------------
and the Lenders as additional insureds. Such certificates shall include a
provision for thirty (30) days' advance written notice by the insurer to Lessor
and the Agent in the event of cancellation or expiration or nonpayment of
premium with respect
11
<PAGE>
to such insurance. Each Lessee shall provide evidence to Lessor and the Agent
that each insurance policy required by this Article VIII has been renewed or
------------
replaced prior to the scheduled expiration date therefor.
(f) Each policy of insurance maintained by a Lessee pursuant to this
Article VIII shall (i) contain the waiver of any right of subrogation of the
- ------------
insurer against Lessor, the Agent on behalf of the Lenders, and (ii) provide
that in respect of the interests of Lessor, the Agent and the Lenders, such
policies shall not be invalidated by any fraud, action, inaction or
misrepresentation of any Lessee or any other Person acting on behalf of any
Lessee.
(g) All insurance policies carried in accordance with this Article
-------
VIII shall be maintained with insurers rated at least A by A.M. Best & Company,
- ----
and in all cases the insurer shall be qualified to insure risks in the State
where each Leased Property is located.
ARTICLE IX.
ASSIGNMENT AND SUBLEASING
-------------------------
No Lessee may assign or sublease any of its right, title or interest in, to
or under this Lease, except as set forth below. Each Lessee may assign its right
under this Lease of all or any portion of any Leased Property, provided that (a)
--------
all obligations of such Lessee shall continue in full effect as obligations of a
principal and not of a guarantor or surety, as though no assignment had been
made. Each Lessee may sublet all or any portion of its interest in, to or under
this Lease and all or any portion of the Leased Property provided (i) each such
sublease shall be expressly subject and subordinate to this Lease, the Loan
Agreement and the other Operative Documents; and (ii) each such sublease shall
terminate on or before the Lease Termination Date. Each Lessee shall give the
Agent and Lessor prompt written notice of any such assignment or sublease.
Except pursuant to an Operative Document, this Lease shall not be mortgaged
or pledged by any Lessee, nor shall any Lessee mortgage or pledge any interest
in any Leased Property or any portion thereof. Any such mortgage or pledge
shall be void.
ARTICLE X.
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
-----------------------------------------
Section 10.1 Event of Loss. (a) Any event (i) which would otherwise
-------------
constitute a Casualty during the Base Term, and (ii) which, in the good-faith
judgment of the related Lessee,
12
<PAGE>
renders repair and restoration of a Leased Property impossible or impractical,
or requires repairs to a Leased Property that would cost in excess of 50% of the
original cost of such Leased Property, and (iii) as to which such Lessee, within
sixty (60) days after the occurrence of such event, delivers to Lessor an
Officer's Certificate notifying Lessor of such event and of such judgment, shall
constitute an "Event of Loss". In the case of any other event which constitutes
-------------
a Casualty, the related Lessee shall restore such Leased Property pursuant to
Section 10.3. In the case of an Event of Loss where such Leased Property is
- ------------
susceptible of repair or restoration, the Officer's Certificate delivered
pursuant to clause (iii) above shall further specify whether such Lessee elects
either (x) to repair and restore the Leased Property, or (y) pay to Lessor the
Leased Property Balance in accordance with subsection (c) below; provided, that
the Lessee shall not have the right to elect to repair and restore the Leased
Property if, on the date of such Officer's Certificate, a Potential Event of
Default or an Event of Default shall have occurred and be continuing.
(b) Any election by a Lessee to repair and restore the Leased Property
pursuant to clause (x) above shall be accompanied by (i) a Construction
Contract, in form for execution, for the repair or restoration of the Leased
Property together with the related Plan and Specifications, each of which shall
be reasonably satisfactory in form and substance to the Agent; and (ii) such
other evidence and assurances as may be necessary to demonstrate to the Agent's
reasonable satisfaction that the insurance proceeds expected to be received in
connection with such Event of Loss, together with any remaining Fundings
available under the Master Agreement plus Lessee's other sources of funds
(whether borrowed or otherwise), but in any case subject to compliance with
Article V of the Master Agreement, will be sufficient to complete the repair or
restoration of the Leased Property. Upon the Agent's confirmation that the
Lessee has satisfied the conditions for the repair or restoration of the Leased
Property as set forth above, (x) the Lessee shall rebuild the Leased Property as
provided in Section 10.3, and (y) the Lessee shall turn over to the Agent all
------------
insurance proceeds received in connection with such Event of Loss, and the Agent
shall disburse such proceeds, together with any insurance proceeds received by
the Agent or Lessor in connection with such Event of Loss and remaining Fundings
available under the Master Agreement, in accordance with the Master Agreement in
the same manner as if the Building were being originally constructed, provided
that the Lessee complies with all conditions to Fundings (including without
limitation delivery of all assignments, consents, security agreements and title
insurance policies) as required under the Master Agreement for such original
construction.
13
<PAGE>
(c) If an Event of Loss other than an Event of Taking shall occur, and the
related Lessee does not elect to repair or restore the Leased Property as
provided in subsection (b) above (and satisfy the conditions set forth therein)
or the Leased Property is otherwise not susceptible of repair or restoration,
the related Lessee shall pay to Lessor on the later of (A) ten (10) days
following related Lessee's receipt of insurance proceeds under policies carried
pursuant to Article XIII, (B) the thirtieth day after delivery of the Officer's
Certificate of an Event of Loss or (C) the next Payment Date following delivery
of the Officer's Certificate pursuant to clause (iii) above an amount equal to
------------
the related Leased Property Balance unless such date is less than thirty (30)
days after receipt by Lessor and Agent of an Officer's Certificate pursuant to
clause (C) above or Lessee's receipt of insurance proceeds (whichever if later),
in which case, such payment shall be made on the second Payment Date following
delivery of the Officer's Certificate pursuant to clause (iii) above. Upon
------------
Lessor's receipt of such Leased Property Balance on such date, Lessor shall
cause Lessor's interest in such Leased Property to be conveyed to the related
Lessee in accordance with and subject to the provisions of Section 14.5 hereof;
------------
upon completion of such purchase, but not prior thereto, this Lease with respect
to such Leased Property and all obligations hereunder with respect to such
Leased Property shall terminate, except with respect to obligations and
liabilities hereunder, actual or contingent, that have arisen or relate to
events occurring on or prior to such date of purchase, or which are expressly
stated herein to survive termination of this Lease. Notwithstanding anything to
the contrary herein, Lessee's obligation to pay Basic Rent on each Payment Date
shall continue until the payment in full of the Lease Property Balance as set
forth above.
Upon the consummation of the purchase of any Leased Property pursuant to
this Section 10.1(c), any proceeds derived from insurance required to be
---------------
maintained by the related Lessee pursuant to this Lease for any Leased Property
remaining after payment of such purchase price shall be paid over to, or
retained by, such Lessee or as it may direct, and Lessor and its assigns
(including the Agent and any other Funding Party) shall assign to such Lessee,
without warranty, all of its rights to and interest (if any) in such insurance
required to be maintained by such Lessee pursuant to this Lease.
Section 10.2 Event of Taking. (a) Any event (i) which constitutes a
---------------
Condemnation of all of, or substantially all of, a Leased Property, or (ii) (A)
which would otherwise constitute a Condemnation, (B) which, in the good-faith
judgment of the related Lessee, renders restoration and rebuilding of a Leased
Property impossible or impractical, or requires repairs to a
14
<PAGE>
Leased Property that would cost in excess of 50% of the original cost of such
Leased Property, and (C) as to which such Lessee, within sixty (60) days after
the occurrence of such event, delivers to Lessor an Officer's Certificate
notifying Lessor of such event and of such judgment, shall constitute an "Event
-----
of Taking". In the case of any other event which constitutes a Condemnation, the
- ---------
related Lessee shall restore and rebuild such Leased Property pursuant to
Section 10.4. In the case of an Event of Taking where such Leased Property is
- ------------
susceptible of repair or restoration, the Officer's Certificate delivered
pursuant to clause (ii) above shall further specify whether such Lessee elects
either (x) to repair and restore the Leased Property, or (y) pay to Lessor the
Leased Property Balance in accordance with subsection (c) below; provided, that
the Lessee shall not have the right to elect to repair and restore the Leased
Property if, on the date of such Officer's Certificate, a Potential Event of
Default or an Event of Default shall have occurred and be continuing.
(b) Any election by a Lessee to repair and restore the Leased Property
pursuant to clause (x) above shall be accompanied by (i) a Construction
Contract, in form for execution, for the repair or restoration of the Leased
Property together with the related Plan and Specifications, each of which shall
be reasonably satisfactory in form and substance to the Agent; and (ii) such
other evidence and assurances as may be necessary to demonstrate to the Agent's
reasonable satisfaction that the Awards proceeds expected to be received in
connection with such Event of Taking, together with any remaining Fundings
available under the Master Agreement plus Lessee's other sources of funds
(whether borrowed or otherwise), but in any case subject to compliance with
Article V of the Master Agreement, will be sufficient to complete the repair or
restoration of the Leased Property. Upon the Agent's confirmation that the
Lessee has satisfied the conditions for the repair or restoration of the Leased
Property as set forth above, (x) the Lessee shall rebuild the Leased Property as
provided in Section 10.4, and (y) the Lessee shall turn over to the Agent all
------------
Award proceeds received in connection with such Event of Taking, and the Agent
shall disburse such Award proceeds, together with any Award proceeds received by
the Agent or Lessor in connection with such Event of Taking and remaining
Fundings available under the Master Agreement, in accordance with the Master
Agreement in the same manner as if the Building were being originally
constructed, provided that the Lessee complies with all conditions to Fundings
(including without limitation delivery of all assignments, consents, security
agreements and title insurance policies) as required under the Master Agreement
for such original construction.
15
<PAGE>
(c) If an Event of Taking shall occur, and the related Lessee does not
elect to repair or restore the Leased Property as provided in subsection (b)
above (and satisfy the conditions set forth therein) or the Leased Property is
otherwise not susceptible of repair or restoration, the related Lessee shall pay
to Lessor (1) on the later of (A) ten (10) days following receipt of Award
proceeds, (B) the thirtieth day after delivery of the Officer's Certificate
notifying Lessor of such Event of Taking, or (C) the next Payment Date following
the occurrence of such Event of Taking, an amount equal to the related Leased
Property Balance, provided however, if such date is less than thirty (30) days
after receipt by Lessor and Agent of an Officer's Certificate or receipt of
Award proceeds described above, such payment shall be postponed to the second
Payment Date following delivery of the Officer's Certificate. Upon Lessor's
receipt of such Leased Property Balance on such date, Lessor shall cause
Lessor's interest in such Leased Property to be conveyed to the related Lessee
in accordance with and subject to the provisions of Section 14.5 hereof
------------
(provided that such conveyance shall be subject to all rights of the condemning
authority); upon completion of such purchase, but not prior thereto, this Lease
with respect to such Leased Property and all obligations hereunder with respect
to such Leased Property shall terminate, except with respect to obligations and
liabilities hereunder, actual or contingent, that have arisen or relate to
events occurring on or prior to such date of purchase, or which are expressly
stated herein to survive termination of this Lease. Notwithstanding anything to
the contrary herein, Lessee's obligation to pay Basic Rent on each Payment Date
shall continue until the payment in full of the Lease Property Balance as set
forth above.
Upon the consummation of the purchase of such Leased Property pursuant to
this Section 10.2(c), all Awards received by Lessor and its assigns (including
---------------
the Agent and any other Funding Party), after deducting any reasonable costs
incurred by such recipient in collecting such Awards, received or payable on
account of an Event of Taking with respect to such Leased Property during the
related Lease Term shall be paid to the related Lessee, and all rights of such
recipient in Awards not then received shall be assigned to Lessee by such
recipient.
Section 10.3 Casualty. If a Casualty shall occur which is not an Event
--------
of Loss as to which the Lessee is required to pay the related Leased Property
Balance pursuant to Section 10.1(a), the related Lessee shall rebuild and
---------------
restore the affected Leased Property, will complete the same prior to the Lease
Termination Date (unless at such time Lessee has exercised the purchase option),
and will cause the condition set forth in Section 3.5(c) of the Master Agreement
--------------
to be fulfilled with respect to such
16
<PAGE>
restoration and rebuilding prior to the Lease Termination Date, regardless of
whether insurance proceeds received as a result of such Casualty are sufficient
for such purpose.
Section 10.4 Condemnation. If a Condemnation shall occur which is not an
------------
Event of Taking as to which the Lessee is required to pay the related Leased
Property Balance pursuant to Section 10.2(a), the related Lessee shall rebuild
---------------
and restore the affected Leased Property, will complete the same prior to the
Lease Termination Date, and will cause the condition set forth in Section 3.5(c)
--------------
of the Master Agreement to be fulfilled with respect to such restoration and
rebuilding prior to the Lease Termination Date.
Section 10.5 Verification of Restoration and Rebuilding. In the event of
------------------------------------------
Casualty or Condemnation, to verify the related Lessee's compliance with the
foregoing Section 10.3 or 10.4, as appropriate, Lessor, the Agent, the Lenders
------------ ----
and their respective authorized representatives may, upon five (5) Business
Days' notice to such Lessee, make inspections of the affected Leased Property
with respect to (i) the extent of the Casualty or Condemnation and (ii) the
restoration and rebuilding of the related Building and the Land. All actual and
reasonable out-of-pocket costs of such inspections incurred by Lessor, the Agent
or any Lender will be paid by the related Lessee promptly after written request.
No such inspection shall unreasonably interfere with the related Lessee's
operations or the operations of any other occupant of such Leased Property.
None of the inspecting parties shall have any duty to make any such inspection
or inquiry and none of the inspecting parties shall incur any liability or
obligation by reason of making or not making any such inspection or inquiry.
Section 10.6 Application of Payments. All proceeds (except for payments
-----------------------
under insurance policies maintained other than pursuant to Article VIII of this
------------
Lease) received at any time by Lessor, any Lessee or the Agent from any
Governmental Authority or other Person with respect to any Condemnation or
Casualty to any Leased Property or any part thereof or with respect to an Event
of Loss or an Event of Taking, plus the amount of any payment that would have
----
been due from an insurer but for a Lessee's self-insurance or deductibles ("Loss
----
Proceeds"), shall (except to the extent Section 10.9 applies) be applied as
- -------- ------------
follows:
(a) In the event the related Lessee purchases such Leased Property
pursuant to Section 10.1 or Section 10.2, such Loss Proceeds shall be
------------ ------------
applied as set forth in Section 10.1 or Section 10.2, as the case may be;
------------ ------------
17
<PAGE>
(b) In the event of a Casualty at such time when no Event of Default
has occurred and is continuing and the related Lessee is obligated to
repair and rebuild such Leased Property pursuant to Section 10.3, such
------------
Lessee may, in good faith and subsequent to the date of such Casualty,
certify to Lessor and to the applicable insurer that no Event of Default
has occurred and is continuing, in which event the applicable insurer shall
pay the Loss Proceeds to such Lessee;
(c) In the event of a Condemnation at such time when no Event of
Default has occurred and is continuing and the related Lessee is obligated
to repair and rebuild such Leased Property pursuant to Section 10.4, such
------------
Lessee may, in good faith and subsequent to the date of such Condemnation,
certify to Lessor and the Agent that no Event of Default has occurred and
is continuing, in which event the applicable Award shall be paid over to
such Lessee; and
(d) As provided in Sections 10.8 and 10.9, if such sections are
----------------------
applicable.
During any period of repair or rebuilding pursuant to this Article X, this
---------
Lease will remain in full force and effect and Basic Rent shall continue to
accrue and be payable without abatement or reduction. Each Lessee shall
maintain records setting forth information relating to the receipt and
application of payments in accordance with this Section 10.6. Such records
------------
shall be kept on file by each Lessee at its offices and shall be made available
to Lessor, the Lenders and the Agent upon request.
Section 10.7 Prosecution of Awards.
---------------------
(a) If any Condemnation shall occur, the party receiving the notice of
such Condemnation shall give to the other party and the Agent promptly, but
in any event within thirty (30) days after the occurrence thereof, written
notice of such occurrence and the date thereof, generally describing the
nature and extent of such Condemnation. With respect to any Event of
Taking or any Condemnation, the related Lessee shall control the
negotiations with the relevant Governmental Authority as to any proceeding
in respect of which Awards are or may be required, under Section 10.6, to
------------
be assigned or released to such Lessee, unless an Event of Default shall
have occurred and be continuing, in which case (i) the Agent (or Lessor if
the Loans have been fully paid) shall control such negotiations; and (ii)
such Lessee hereby irrevocably assigns, transfers and sets over to Lessor
all rights of such Lessee to any Award on account of any Event of Taking or
any Condemnation
18
<PAGE>
and, if there will not be separate Awards to Lessor and such Lessee on
account of such Event of Taking or Condemnation, irrevocably authorizes and
empowers the Agent (or Lessor if the Loans have been fully paid) during the
continuance of an Event of Default, with full power of substitution, in the
name of such Lessee or otherwise (but without limiting the obligations of
such Lessee under this Article X), to file and prosecute what would
---------
otherwise be such Lessee's claim for any such Award and to collect, receipt
for and retain the same. In any event Lessor and the Agent may participate
in such negotiations, and no settlement will be made without the prior
consent of the Agent (or Lessor if the Loans have been fully paid), not to
be unreasonably withheld.
(b) Notwithstanding the foregoing, each Lessee may prosecute, and
Lessor shall have no interest in, any claim with respect to Lessee's
Property and such Lessee's other personal property and equipment not
financed by or otherwise property of Lessor, business interruption or
similar award and such Lessee's relocation expenses.
Section 10.8 Application of Certain Payments Not Relating to an Event of
-----------------------------------------------------------
Taking. In case of a requisition for temporary use of all or a portion of any
- ------
Leased Property which is not an Event of Taking, this Lease shall remain in full
force and effect with respect to such Leased Property, without any abatement or
reduction of Basic Rent, and the Awards for such Leased Property shall, unless
an Event of Default has occurred and is continuing, be paid to the related
Lessee.
Section 10.9 Other Dispositions. Notwithstanding the foregoing
------------------
provisions of this Article X, so long as an Event of Default shall have occurred
---------
and be continuing, any amount that would otherwise be payable to or for the
account of, or that would otherwise be retained by, Lessee pursuant to this
Article X shall be paid to the Agent (or Lessor if the Loans have been fully
- ---------
paid) as security for the obligations of the Lessees under this Lease and, at
such time thereafter as no Event of Default shall be continuing, such amount
shall be paid promptly to the related Lessee to the extent not previously
applied by Lessor or the Agent in accordance with the terms of this Lease or the
other Operative Documents.
Section 10.10 No Rent Abatement. Unless and until Lessee or its designee
-----------------
shall have purchased the Leased Property as contemplated by Section 10.1 or
Section 10.2, Rent shall not abate hereunder by reason of any Casualty, any
Event of Loss, any Event of Taking or any Condemnation of any Leased Property,
and each Lessee shall continue to perform and fulfill all of such Lessee's
obligations, covenants and agreements hereunder
19
<PAGE>
notwithstanding such Casualty, Event of Loss, Event of Taking or Condemnation
until the Lease Termination Date.
ARTICLE XI.
INTEREST CONVEYED TO LESSEES
----------------------------
Each Lessee and Lessor intend that this Lease be treated, for accounting
purposes, as an operating lease. For all other purposes, each Lessee and Lessor
intend that the transaction represented by this Lease be treated as a financing
transaction; for such purposes, as provided in the Lease Supplements, it is the
intention of the parties hereto (i) that this Lease, as supplemented by the
Lease Supplements, be treated as a mortgage or deed of trust (whichever is
applicable in the jurisdictions in which the Leased Properties are located) and
security agreement, encumbering the Leased Properties, and that, pursuant to the
Lease Supplements, each Lessee, as grantor, grant to Lessor, as mortgagee or
beneficiary and secured party, or any successor thereto, a first and paramount
Lien on each Leased Property in which such Lessee has an interest, (ii) that
Lessor shall have, pursuant to the Lease Supplements, all of the rights, powers
and remedies of a mortgagee, deed of trust beneficiary or secured party
available under Applicable Law to take possession of and sell (whether by
foreclosure or otherwise as provided in the Lease Supplements) any Leased
Property, (iii) that the effective date of such mortgage, security deed or deed
of trust shall be the effective date of this Lease, or the related Lease
Supplement, if later, (iv) that the recording of this Lease or a Lease
Supplement shall be deemed to be the recording of such mortgage, security deed
or deed of trust, and (v) that the obligations secured by such mortgage,
security deed or deed of trust shall include the Funded Amounts and all Basic
Rent and Supplemental Rent hereunder and all other obligations of and amounts
due from each Lessee hereunder and under the Operative Documents.
ARTICLE XII
EVENTS OF DEFAULT
-----------------
The following events shall constitute Events of Default (whether any such
event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
20
<PAGE>
(a) any Lessee shall fail to make any payment of Basic Rent when due,
and such failure shall continue for ten (10) days after written notice thereof
from Lessor or the Agent;
(b) any Lessee shall fail to make any payment of Rent (other than
Basic Rent and other than as set forth in clause (c) or any other amount payable
----------
hereunder or under any of the other Operative Documents (other than Basic Rent
and other than as set forth in clause (c)) when due (unless such amount is due
----------
to a third party other than the Agent, a Funding Party or an Indemnitee, and
such amount is being contested in good faith by such Lessee), and such failure
shall continue for a period of ten (10) days after written notice thereof from
Lessor or the Agent;
(c) any Lessee shall fail to pay the Funded Amount or Lease Balance
when due pursuant to Sections 10.1, 10.2, 14.1 or 14.2, or any Lessee shall fail
------------- ---- ---- ----
to pay the Recourse Deficiency Amount when required pursuant to Article XIV or
-----------
the Construction Agent shall fail to make any undisputed payment when due under
the Construction Agency Agreement;
(d) any Lessee shall fail to maintain insurance as required by Article
-------
VIII hereof, and such failure shall continue until the earlier of (i) fifteen
- ----
(15) days after written notice thereof from Lessor and (ii) the day immediately
preceding the date on which any applicable insurance coverage would otherwise
lapse or terminate;
(e) Rowe Companies or Rowe Furniture shall (i) default in any payment
of principal of or interest on any Indebtedness or in the payment of any
Guarantee Obligation, beyond the period of grace (not to exceed 30 days), if
any, provided in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created, and such default shall be continuing and shall
result in a Material Adverse Effect; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, and such default shall be continuing,
or any other event shall occur or condition exist and be continuing, the effect
of which default or other event or condition is to cause, such Indebtedness to
become due or required to be purchased, redeemed or otherwise defeased prior to
its stated maturity or such Guarantee Obligation to become payable and such
default shall result in a Material Adverse Effect;
(f) (i) Rowe Companies or Rowe Furniture 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
21
<PAGE>
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 or other similar official for it or for all or any
substantial part of its assets, or Rowe Companies or Rowe Furniture shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against Rowe Companies or Rowe Furniture 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 60 days; or (iii)
there shall be commenced against Rowe Companies or Rowe Furniture 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 60 days from the entry thereof; or (iv) Rowe Companies or Rowe Furniture
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) Rowe Companies or Rowe Furniture shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due;
(g) the occurrence of any Prohibited Transaction involving any Plan,
or other event or circumstance which is not promptly cured and which might
constitute grounds for termination of any Plan or grounds for the appointment by
the appropriate United States District Court of a trustee to administer any such
Plan, the filing of a notice of intent to terminate any Plan or the termination
of any Plan, and in each case above, such event or condition, together with all
other events or conditions, if any, could in the opinion of the Agent subject
any Obligor or any of its Significant Subsidiaries to any tax, penalty or other
liability to a Plan, or otherwise which would, in the reasonable opinion of the
Agent, have a Material Adverse Effect;
(h) any Operative Document ceases to be in full force and effect or
shall be declared null and void or the validity or enforceability thereof shall
be contested by any Obligor, or any Obligor shall deny it has any further
liability or obligation under the Operative Documents;
(i) one or more judgments, decrees, or orders for the payment of money
which in the aggregate causes a material adverse change in any Obligor's ability
to meet its obligations under the
22
<PAGE>
Operative Documents shall be rendered against any Obligor, and such judgments,
decrees, or orders shall continue unsatisfied and in effect for a period of
thirty (30) days after entry thereof without being vacated, discharged,
satisfied, stayed or bonded pending appeal;
(j) any representation or warranty by Rowe Furniture or any Lessee in
any Operative Document or in any certificate or document delivered to Lessor,
the Agent or any Lender pursuant to any Operative Document shall have been
incorrect in any material respect when made;
(k) any Lessee or Rowe Furniture shall fail in any material respect to
timely, perform or observe any covenant, condition or agreement (not included in
clause (a), (b), (c), (d), (e), (f), (g), (h) or (i) of this Article XII) to be
- ---------- --- --- --- --- --- -- --- --- -----------
performed or observed by it hereunder or under any other Operative Document and
such failure shall continue for a period of thirty (30) days after such Lessee's
receipt of written notice thereof from Lessor, the Agent or any Lender;
(l) any Guarantor shall repudiate or terminate the Guaranty, or the
Guaranty shall at any time cease to be in full force and effect or cease to be
the legal, valid and binding obligation of the Guarantors; or
(m) Rowe Companies or Rowe Furniture (as agreed between Lessee and
Agent) shall fail to enter into a Qualified Swap Agreement by November 30, 2000
or, thereafter, fail to have and maintain a Qualified Swap Agreement due to an
early termination of such agreement or if for any other reason the Qualified
Swap Agreement shall cease to be in full force and effect or cease to be the
legal, valid and binding obligation of the other counterparty thereunder.
ARTICLE XII
ENFORCEMENT
-----------
Section 13. Remedies. Upon the occurrence and during the continuance of
--------
any Event of Default, Lessor may do one or more of the following as Lessor in
its sole discretion shall determine, without limiting any other right or remedy
Lessor may have on account of such Event of Default (including, without
limitation, the obligation of the Lessees to purchase the Leased Properties as
set forth in Section 14.3):
------------
(a) Lessor may, by notice to Rowe Furniture, rescind or terminate this
Lease as of the date specified in such notice; provided, however, (A) no
-------- -------
reletting, reentry or
23
<PAGE>
taking of possession of any Leased Property by Lessor will be construed as
an election on Lessor's part to terminate this Lease unless a written
notice of such intention is given to Rowe Furniture, (B) notwithstanding
any reletting, reentry or taking of possession, Lessor may at any time
thereafter elect to terminate this Lease for a continuing Event of
Default,(C) no act or thing done by Lessor or any of its agents,
representatives or employees and no agreement accepting a surrender of any
Leased Property shall be valid unless the same be made in writing and
executed by Lessor and (d) Lessor hereby waives any right it may otherwise
have as a landlord under Applicable Law, prior to its rescission or
termination of this Lease as provided above, to take possession of the
Leased Property without affording the related Lessee an opportunity for a
hearing or the merits and due process prior to such taking of possession;
(b) Lessor may (i) demand that the Lessees, and the Lessees shall upon
the written demand of Lessor, return the Leased Properties promptly to
Lessor in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Articles VI and XIV hereof as if the Leased
----------- ---
Properties were being returned at the end of the Lease Term, and Lessor
shall not be liable for the reimbursement of any Lessee for any costs and
expenses incurred by such Lessee in connection therewith and (ii) without
prejudice to any other remedy which Lessor may have for possession of the
Leased Properties, and to the extent and in the manner permitted by
Applicable Law, enter upon any Leased Property and take immediate
possession of (to the exclusion of the related Lessee) any Leased Property
or any part thereof and expel or remove the related Lessee and any other
person who may be occupying such Leased Property, by summary proceedings or
otherwise, all without liability to any Lessee for or by reason of such
entry or taking of possession, whether for the restoration of damage to
property caused by such taking or otherwise and, in addition to Lessor's
other damages, the Lessees shall be responsible for the actual and
reasonable costs and expenses of reletting, including brokers' fees and the
reasonable costs of any alterations or repairs made by Lessor;
(c) Lessor may, at its option, not terminate this Lease, and continue
to collect all Basic Rent, Supplemental Rent, and all other amounts
(including, without limitation, the Funded Amount) due Lessor (together
with all costs of collection) and enforce the Lessees' obligations under
this Lease as and when the same become due, or are to be performed, and at
the option of Lessor, upon any abandonment of any Leased Property by Lessee
or re-entry of same by
24
<PAGE>
Lessor, Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease with respect thereto and may make such reasonable
alterations and necessary repairs in order to relet such Leased Property,
and relet such Leased Property or any part thereof for such term or terms
(which may be for a term extending beyond the term of this Lease) and at
such rental or rentals and upon such other terms and conditions as Lessor
in its reasonable discretion may deem advisable; and upon each such
reletting all rentals actually received by Lessor from such reletting shall
be applied to the Lessees' obligations hereunder. If such rentals received
from such reletting during any Rent Period are less than the Rent to be
paid during that Rent Period by the Lessees hereunder, the Lessees shall
pay any deficiency, as calculated by Lessor, to Lessor on the Payment Date
for such Rent Period;
(d) If any Leased Property has not been sold, Lessor may, whether or
not Lessor shall have exercised or shall thereafter at any time exercise
any of its rights under paragraph (b) or (c) of this Article XIII with
------------- ------------
respect to such Leased Property, demand, by written notice to the related
Lessee specifying a date (the "Final Rent Payment Date") not earlier than
-----------------------
30 days after the date of such notice, that such Lessee purchase, on the
Final Rent Payment Date, such Leased Property in accordance with the
provisions of Sections 14.2, 14.4 and 14.5; provided, however, that (1)
------------- ---- ---- -------- -------
such purchase shall occur on the date set forth in such notice,
notwithstanding the provision in Section 14.2 calling for such purchase to
------------
occur on the Lease Termination Date; and (2) Lessor's obligations under
Section 14.5(a) shall be limited to delivery of a special warranty deed and
---------------
quit claim bill of sale of such Leased Property, without recourse or
warranty, but free and clear of Lessor Liens;
(e) Lessor may exercise any other right or remedy that may be
available to it under Applicable Law, or proceed by appropriate court
action (legal or equitable) to enforce the terms hereof or to recover
damages for the breach hereof. Separate suits may be brought to collect any
such damages for any Rent Period(s), and such suits shall not in any manner
prejudice Lessor's right to collect any such damages for any subsequent
Rent Period(s), or Lessor may defer any such suit until after the
expiration of the Lease Term, in which event such suit shall be deemed not
to have accrued until the expiration of the Lease Term; or
(f) Lessor may retain and apply against Lessor's damages all sums
which Lessor would, absent such Event of
25
<PAGE>
Default, be required to pay to, or turn over to, a Lessee pursuant to the
terms of this Lease.
(g) Anything contained in this Section 13.1 or elsewhere in this Lease
or the other Operative Documents to the contrary notwithstanding, any
payments of Basic Rent made to Lessor hereunder shall be first applied
against and deemed payments made to Funding Parties in full or partial
satisfaction of the Notes, whether or not such payments are actually
remitted by Lessor to Lenders.
Section 13.2 Remedies Cumulative; No Waiver; Consents. To the extent
----------------------------------------
permitted by, and subject to the mandatory requirements of, Applicable Law, each
and every right, power and remedy herein specifically given to Lessor or
otherwise in this Lease shall be cumulative and shall be in addition to every
other right, power and remedy herein specifically given or now or hereafter
existing at law, in equity or by statute, and each and every right, power and
remedy whether specifically herein given or otherwise existing may be exercised
from time to time and as often and in such order as may be deemed expedient by
Lessor, and the exercise or the beginning of the exercise of any power or remedy
shall not be construed to be a waiver of the right to exercise at the same time
or thereafter any right, power or remedy. No delay or omission by Lessor in the
exercise of any right, power or remedy or in the pursuit of any remedy shall
impair any such right, power or remedy or be construed to be a waiver of any
default on the part of any Lessee or to be an acquiescence therein. Lessor's
consent to any request made by any Lessee shall not be deemed to constitute or
preclude the necessity for obtaining Lessor's consent, in the future, to all
similar requests. No express or implied waiver by Lessor of any Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Potential Event of Default or Event of Default. Lessor hereby waives
any right to distrain Lessee's Property and any landlord lien or similar lien
upon Lessee's Property, regardless of whether such lien is created by statute or
otherwise. Lessor agrees, at the request of the Lessee, to execute an
acknowledgment of its waiver of any landlord's or similar lien for the benefit
of any present or future holder of a security interest in, or lessor of any
Lessee's Property, subject to the approval of the form and substance of such
waiver by Lessor, which approval shall not be unreasonably withheld or delayed.
Lessor acknowledges, and agrees to acknowledge in the future (in a written form
reasonably satisfactory to the Lessee and Lessor), to such persons, at such
times and for such purposes as the Lessee may reasonably request, that Lessee's
Property is the Lessee's property and not fixtures or a part of the Leased
Property or any portion thereof (regardless of whether or not or to what extent
such Lessee's
26
<PAGE>
Property is affixed to the Leased Property or any portion thereof), or otherwise
subject to the terms of this Lease, and that Lessor has no right, title or
interest in any of Lessee's Property. The Lessee agrees that, upon termination
of this Lease, and unless the Lessee has purchased the Leased Property, it will
promptly remove all Lessee's Property from the Leased Property and repair any
damage to the Leased Property caused by such removal.
Section 13. Purchase Upon an Event of Default. Upon the occurrence of an
---------------------------------
Event of Default, until the later of (i) the date that is sixty (60) days after
Rowe Furniture or a Lessee receives written notice of such Event of Default and
(ii) such time as Lessor notifies Rowe Furniture or the applicable Lessee that
it has commenced material preparations for the sale or release of the Leased
Properties, the Lessees may purchase all, but not less than all, of the Leased
Properties for the Lease Balance, plus any amounts due pursuant to Section 7.5
of the Master Agreement. Such purchase shall be made in accordance with Section
-------
14.5, upon not less than five (5) Business Days' written notice (which shall be
- ----
irrevocable) to Lessor, which notice shall set forth the date of purchase (which
shall be a date no later than 10 Business Days from the date of such notice).
ARTICLE XIV
SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL
----------------------------------------------------
Section 14. Lessee's Option to Purchase. Subject to the terms,
---------------------------
conditions and provisions set forth in this Article XIV, each Lessee shall have
-----------
the option (the "Purchase Option"), at any time during the term of this Lease
---------------
(but subject to the provisions of Section 3.3 respecting deferment of payment to
fall on a Payment Date to avoid breakage costs), to be exercised as set forth
below, to purchase from Lessor, Lessor's interest in all of the Leased
Properties. Such option shall be exercised by written notice to Lessor, which
notice shall be irrevocable; such notice shall specify the date that such
purchase shall take place, which date shall be a date occurring not less than
thirty (30) days after such notice or the Lease Termination Date (whichever is
earlier). If the Purchase Option is exercised pursuant to the foregoing, then,
subject to the provisions set forth in this Article XIV, on the applicable
-----------
purchase date or the Lease Termination Date, as the case may be, Lessor shall
convey to each Lessee, without recourse or warranty (other than as to the
absence of Lessor Liens) and each Lessee shall purchase from Lessor, Lessor's
interest in the Leased Properties leased by such Lessee.
27
<PAGE>
Section 14.2 Conveyance to Lessee. Unless (a) the Lessees shall have
--------------------
properly exercised the Purchase Option and purchased the Leased Properties
pursuant to Section 14.1, or (b) the Lessees shall have properly exercised the
------------
Remarketing Option and shall have fulfilled all of the conditions of Section
-------
14.6 hereof, then, subject to the terms, conditions and provisions set forth in
- ----
this Article XIV, the applicable Lessee shall purchase from Lessor, and Lessor
-----------
shall convey to such Lessee, on the Lease Termination Date all of Lessor's
interest in the Leased Properties leased to such Lessee. Any Lessee may
designate, in a notice given to Lessor not less than ten (10) days prior to the
closing of such purchase, or any purchase pursuant to Section 14.1,(time being
------------
of the essence), the transferee to whom the conveyance shall be made (if other
than to such Lessee), in which case such conveyance shall (subject to the terms
and conditions set forth herein) be made to such designee; provided, however,
-------- -------
that such designation of a transferee shall not cause any Lessee to be released,
fully or partially, from any of its obligations under this Lease.
Section 14.3 Acceleration of Purchase Obligation. The Lessees shall be
-----------------------------------
obligated to purchase Lessor's interest in the Leased Properties immediately,
automatically and without notice upon the occurrence of any Event of Default
specified in clause (f) of Article XII, for the purchase price set forth in
---------- -----------
Section 14.4. Upon the occurrence and during the continuance of any other Event
- ------------
of Default, the Lessees shall be obligated to purchase Lessor's interest in the
Leased Properties for the purchase price set forth in Section 14.4 upon notice
------------
of such obligation from Lessor.
Section 14.4 Determination of Purchase Price. Upon the purchase by the
-------------------------------
Lessees of Lessor's interest in the Leased Properties upon the exercise of the
Purchase Option or pursuant to Section 14.2 or 14.3, the aggregate purchase
--------------------
price for all of the Leased Properties shall be an amount equal to the Lease
Balance as of the closing date for such purchase, plus any amount due pursuant
----
to Section 7.5(f) of the Master Agreement as a result of such purchase.
Section 14.5 Purchase Procedure.
------------------
(a) If a Lessee shall purchase Lessor's interest in a Leased Property
pursuant to any provision of this Lease, (i) such Lessee shall accept from
Lessor and Lessor shall convey such Leased Property by a duly executed and
acknowledged special warranty deed and quit claim bill of sale
substantially in the form of the instruments by which the Land was conveyed
to Lessor of such a Leased Property in recordable form, (ii) upon the date
fixed for any purchase
28
<PAGE>
of Lessor's interest in Leased Property hereunder, the related Lessee(s) or
its designee shall pay to the order of the Agent (or Lessor if the Loans
have been paid in full) the Lease Balance or Leased Property Balance, as
applicable, plus any amount due pursuant to Section 7.5 of the Master
Agreement as a result of such purchase by wire transfer of immediately
available funds, and (iii) Lessor and the Funding Parties will execute and
deliver to the related Lessee such other documents, including releases,
affidavits, termination agreements and termination statements, as may be
legally required or as may be reasonably requested by Lessee in order to
effect such conveyance, free and clear of Lessor Liens and the Liens of the
Operative Documents.
(b) Each Lessee or its designee shall, at such Lessee's or such
designee's sole cost and expense, obtain all required governmental and
regulatory approval and consents and in connection therewith shall make
such filings as required by Applicable Law; in the event that Lessor is
required by Applicable Law to take any action in connection with such
purchase and sale, the Lessees shall pay prior to transfer all costs
incurred by Lessor in connection therewith. Without limiting the
foregoing, all actual and reasonable costs incident to such conveyance,
including, without limitation, each Lessee's attorneys' fees, Lessor's
attorneys' fees, commissions, each Lessee's and Lessor's escrow fees,
recording fees, title insurance premiums and all applicable documentary
transfer or other transfer taxes and other taxes required to be paid in
order to record the transfer documents that might be imposed by reason of
such conveyance and the delivery of such deed shall be borne entirely by
and paid by the Lessees.
(c) Upon expiration or termination of this Lease resulting in
conveyance of Lessor's interest in the title to the Leased Properties to
the Lessees, there shall be no apportionment of rents (including, without
limitation, water rents and sewer rents), taxes, insurance, utility charges
or other charges payable with respect to the Leased Properties, all of such
rents, taxes, insurance, utility or other charges due and payable with
respect to the Leased Properties prior to termination being payable by the
Lessees hereunder and all due after such time being payable by the Lessees
as the then owners of the Leased Properties.
Section 14.6 Option to Remarket. Subject to the fulfillment of each of
------------------
the conditions set forth in this Section 14.6, the Lessees shall have the option
------------
to market all of, but not less than all of, the Leased Properties for Lessor
(the "Remarketing Option").
------------------
29
<PAGE>
The Lessees' effective exercise and consummation of the Remarketing Option
shall be subject to the due and timely fulfillment of each of the following
provisions, the failure of any of which, unless waived in writing by Lessor and
the Lenders, shall render the Remarketing Option and the Lessees' exercise
thereof null and void, in which event, each Lessee shall be obligated to perform
its obligations under Section 14.2.
------------
(a) Not later than twelve months prior to the Lease Termination Date,
Rowe Furniture shall give to Lessor and the Agent written notice of the
Lessees' exercise of the Remarketing Option.
(b) Not later than ten (10) Business Days prior to the Lease
Termination Date, each Lessee shall deliver to Lessor and the Agent an
environmental assessment of each Leased Property leased by it dated not
later than forty-five (45) days prior to the Lease Termination Date. Such
environmental assessment shall be prepared by an environmental consultant
selected by Lessees and reasonably acceptable to the Agent, shall be in
form, detail and substance reasonably satisfactory to the Agent, and shall
otherwise indicate no material adverse change in the environmental
condition of each Leased Property from that described in the related
Environmental Audit.
(c) On the date of Rowe Furniture's notice to Lessor and the Agent of
the Lessees' exercise of the Remarketing Option, each of the Construction
Conditions shall have been timely satisfied and no Event of Default or
Potential Event of Default shall exist, and thereafter, no Event of Default
or Potential Event of Default shall exist under this Lease.
(d) Each Lessee shall have completed all Alterations, restoration and
rebuilding of the Leased Properties leased by it pursuant to Sections 6.1,
------------
6.2, 10.3 and 10.4 (as the case may be) or shall provide reasonable
--- ---- ----
assurances acceptable to Lessor that such Alterations will be completed
within a reasonable period of time and shall have provided or shall provide
reasonable assurances acceptable to Lessor that it will fulfill all of the
conditions and requirements in connection therewith pursuant to said
Sections, in each case within a reasonable period of time.
--------
(e) Each Lessee shall promptly provide any maintenance records
relating to each Leased Property leased by it to Lessor, the Agent and any
potential purchaser upon request, and shall otherwise do all things
reasonably necessary to deliver possession of such Leased Property to the
potential purchaser. After reasonable prior notice, each Lessee shall
30
<PAGE>
allow Lessor, the Agent and any potential purchaser access to any Leased
Property for the purpose of inspecting the same, provided that Lessor,
Agent and such potential purchaser shall use best efforts not to disrupt
Lessee's business.
(f) On the Lease Termination Date, each Lessee shall surrender the
Leased Properties leased by it in accordance with Section 14.8 hereof,
------------
unless the Lease has been renewed pursuant to Section 14.9 or the Leased
------------
Properties have been purchased pursuant to Section 14.1 (it being
------------
understood that Lessee may change its position and exercise its option to
purchase at any time prior to sale by Lessor to a third party).
(g) In connection with any such sale of the Leased Properties, each
Lessee will provide to the purchaser all customary "seller's" indemnities
in favor of the purchaser (taking into account the location and nature of
the Leased Properties and negotiations between Lessee, Lessor and the
potential purchaser), representations and warranties regarding title,
absence of Liens (except Lessor Liens) and the condition of the Leased
Properties, including, without limitation, an environmental indemnity,
which shall not extend beyond two years after the closing of such sale.
Each Lessee shall fulfill all of the requirements set forth in clause (b)
----------
of Section 14.5, and such requirements are incorporated herein by
------------
reference. As to Lessor, any such sale shall be made on an "as is, with
all faults" basis without representation or warranty by Lessor, other than
the absence of Lessor Liens.
(h) In connection with any such sale of Leased Properties, each Lessee
shall pay directly, and not from the sale proceeds, all prorations,
credits, costs and expenses of the sale of the Leased Properties leased by
it, whether incurred by Lessor, any Lender, the Agent or such Lessee,
including without limitation, the cost of all title insurance, surveys,
environmental reports, appraisals, transfer taxes, Lessor's and the Agent's
attorneys' fees, such Lessee's attorneys' fees, commissions, escrow fees,
recording fees, and all applicable documentary and other transfer taxes.
To the extent the sum of gross sales proceeds, less the Recourse Deficiency
Amount plus costs and expenses of sale, exceed the Lease Balance as of the
date of sale, such sums shall be paid over to Lessee.
(i) The Lessees, jointly and severally, shall pay to the Agent on the
Lease Termination Date (or to such other Person as Agent shall notify
Lessee in writing, or in the
31
<PAGE>
case of Supplemental Rent, to the Person entitled thereto) an amount equal
to the Recourse Deficiency Amount, plus all accrued and unpaid Basic Rent
----
and Supplemental Rent, and all other amounts hereunder which have accrued
prior to or as of such date, in the type of funds specified in Section 3.3
-----------
hereof.
If the Lessees have exercised the Remarketing Option, the following additional
provisions shall apply: During the period commencing on the date twelve months
prior to the scheduled expiration of the Lease Term, one or more of the Lessees
shall, as nonexclusive agent for Lessor, use commercially reasonable efforts to
sell Lessor's interest in the Leased Properties and will attempt to obtain the
highest purchase price therefor. All such marketing of the Leased Properties
shall be at the Lessees' sole expense. Lessee promptly shall submit all bids to
Lessor and the Agent and Lessor and the Agent will have the right to review the
same and the right to submit any one or more bids. All bids shall be on an all-
cash basis. In no event shall such bidder be Lessee or any Subsidiary or
Affiliate of Lessee. The written offer must specify the Lease Termination Date
as the closing date. If, and only if, the aggregate selling price (net of
closing costs and prorations, as reasonably estimated by the Agent) is less than
the difference between the Lease Balance at such time minus the Recourse
Deficiency Amount, then Lessor or the Agent may, in its sole and absolute
discretion, by notice to Rowe Furniture, reject such offer to purchase, in which
event the parties will proceed according to the provisions of Section 14.7
------------
hereof. If neither Lessor nor the Agent rejects such purchase offer as provided
above, the closing of such purchase of the Leased Properties by such purchaser
shall occur on the Lease Termination Date, contemporaneously with the Lessees'
surrender of the Leased Properties in accordance with Section 14.8 hereof, and
------------
the gross proceeds of the sale (i.e., without deduction for any marketing,
closing or other costs, prorations or commissions) shall be paid directly to the
Agent (or Lessor if the Funded Amounts have been fully paid); provided, however,
-------- -------
that if the sum of the gross proceeds from such sale plus the Recourse
Deficiency Amount paid by the Lessees on the Lease Termination Date pursuant to
Section 14.6(i), minus any and all costs and expenses (including broker fees,
- ---------------
appraisal costs, legal fees and transfer taxes) actually and reasonably incurred
by the Agent or Lessor in connection with the marketing of the Leased Properties
or the sale thereof exceeds the Lease Balance as of such date, then the excess
shall be paid to Rowe Furniture on the Lease Termination Date. No Lessee shall
have the right, power or authority to bind Lessor in connection with any
proposed sale of the Leased Properties.
32
<PAGE>
Section 14.7 Rejection of Sale. Notwithstanding anything contained
-----------------
herein to the contrary, if Lessor or the Agent rejects the purchase offer for
the Leased Properties as provided in Section 14.6, then (a) the Lessees, jointly
------------
and severally, shall pay to the Agent the Recourse Deficiency Amount pursuant to
Section 14.6(i), (b) Lessor shall retain title to the Leased Properties, and (c)
- ---------------
in addition to each Lessee's other obligations hereunder, the Lessees, jointly
and severally, will reimburse Lessor and the Agent, within ten (10) Business
Days after written request, for all reasonable costs and expenses incurred by
Lessor or Agent during the period ending on the first anniversary of the Lease
Termination Date in connection with the marketing, sale, closing or transfer of
the Leased Properties, which obligation shall survive the Lease Termination Date
and the termination or expiration of this Lease.
Section 14.8 Return of Leased Property. If Lessor retains title to any
-------------------------
Leased Property pursuant to Section 14.7 hereof, then each Lessee shall, on the
------------
Lease Termination Date, and at its own expense, return possession of the Leased
Properties leased by it to Lessor for retention by Lessor or, if the Lessees
properly exercise the Remarketing Option and fulfill all of the conditions of
Section 14.6 hereof and neither Lessor nor the Agent rejects such purchase offer
- ------------
pursuant to Section 14.6, then each Lessee shall, on such Lease Termination
------------
Date, and at its own cost, transfer possession of the Leased Properties leased
by it to the independent purchaser thereof, in each case by surrendering the
same into the possession of Lessor or such purchaser, as the case may be, free
and clear of all Liens other than Lessor Liens, in as good condition as it was
on the Completion Date therefor in the case of new Construction, or the Funding
Date (as modified by Alterations permitted by this Lease), ordinary wear and
tear excepted, and in compliance in all material respects with Applicable Law.
Each Lessee shall, on and within a reasonable time before and after the Lease
Termination Date, cooperate with Lessor and the independent purchaser of any
Leased Property leased by such Lessee in order to facilitate the ownership and
operation by such purchaser of such Leased Property after the Lease Termination
Date, which cooperation shall include the following, all of which such Lessee
shall do on or before the Lease Termination Date or as soon thereafter as is
reasonably practicable: providing all books and records regarding the
maintenance and ownership of such Leased Property and all know-how, data and
technical information relating thereto, providing a copy of the Plans and
Specifications, granting or assigning all licenses (to the extent assignable)
necessary for the operation and maintenance of such Leased Property, and
cooperating in seeking and obtaining all necessary Governmental Action. Each
Lessee shall have also paid the cost of all Alterations commenced prior to the
Lease Termination Date. The obligations of such
33
<PAGE>
Lessee under this Article XIV shall survive the expiration or termination of
-----------
this Lease.
Section 14.9 Renewal. Subject to the conditions set forth herein, Rowe
-------
Furniture may, by written notice to Lessor and the Agent given not later than
six months prior to the then scheduled Lease Termination Date, request the
renewal of this Lease, for five years in the case of the first renewal term and
five years in the case of the second renewal term, in each case commencing on
the date following such Lease Termination Date. No later than the date that is
45 days after the date the request to renew has been delivered to each of Lessor
and the Agent, the Agent will notify Rowe Furniture whether or not Lessor and
the Lenders consent to such renewal request (which consent, in the case of
Lessor and the Lenders, may be granted or denied in their sole discretion, and
may be conditioned on such conditions precedent as may be specified by Lessor
and the Lenders). If the Agent fails to respond within such time frame, such
failure shall be deemed to be a rejection of such request. If the Agent
notifies Rowe Furniture of Lessor's and the Lenders' consent to such renewal,
such renewal shall be effective.
Section 14.10 Environmental Report. Upon termination of this Lease,
--------------------
unless the Lessees have exercised the Remarketing Option and complied with
Section 14.6, each Lessee shall deliver, at the Lessees' expense, to Lessor and
- ------------
the Agent an environmental assessment of each Leased Property leased by it at
any time during the Lease Term. Such environmental assessment shall be prepared
by an environmental consultant, selected by Lessee and reasonably acceptable to
Lessor and Agent, and shall be in a form, reasonably satisfactory to Lessor and
the Agent.
ARTICLE XV.
LESSEE'S EQUIPMENT
------------------
After any repossession of any Leased Property (whether or not this Lease
has been terminated), the related Lessee, at its expense and so long as such
removal of such trade fixture, personal property or equipment shall not result
in a violation of Applicable Law, shall, within a reasonable time after such
repossession or within sixty (60) days after such Lessee's receipt of Lessor's
written request (whichever shall first occur), remove all of Lessee's Property
(to the extent that the same can be readily removed from such Leased Property
without causing material damage to such Leased Property); provided, however,
-------- -------
that such Lessee shall not remove any such trade fixtures, personal property or
equipment that has been financed by Lessor under the Operative Documents or
otherwise constituting Leased Property (or that constitutes a replacement of
such
34
<PAGE>
property). Any of a Lessee's trade fixtures, personal property and
equipment not so removed by such Lessee within such period shall be considered
abandoned by such Lessee, and title thereto shall without further act vest in
Lessor, and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without notice to any Lessee and without obligation to account therefor
and the related Lessee will pay Lessor, upon written demand, all reasonable
costs and expenses incurred by Lessor in removing, storing or disposing of the
same and all costs and expenses incurred by Lessor to repair any damage to such
Leased Property caused by such removal. Each Lessee will immediately repair at
its expense all damage to such Leased Property caused by any such removal
(unless such removal is effected by Lessor, in which event such Lessee shall pay
all reasonable costs and expenses incurred by Lessor for such repairs). Lessor
shall have no liability in exercising Lessor's rights in good faith and using
reasonable care under this Article XV, nor shall Lessor be responsible for any
----------
loss of or damage to any Lessee's personal property and equipment.
ARTICLE XVI
RIGHT TO PERFORM FOR LESSEE
---------------------------
If any Lessee shall fail to perform or comply with any of its agreements
contained herein, Lessor, upon notice to Rowe Furniture or such Lessee, and
failure of such party to thereafter perform or comply within reasonable time
frames, may perform or comply with such agreement, and Lessor shall not thereby
be deemed to have waived any default caused by such failure, and the amount of
such payment and the amount of the actual and reasonable expenses of Lessor
(including actual and reasonable attorneys' fees and expenses) incurred in
connection with such payment or the performance of or compliance with such
agreement, as the case may be, shall be deemed Supplemental Rent, payable by the
related Lessee to Lessor within thirty (30) days after written demand therefor.
ARTICLE XVII
MISCELLANEOUS
-------------
Section 17.1 Reports. To the extent required under Applicable Law and
-------
to the extent it is reasonably practical for a Lessee to do so, such Lessee
shall prepare and file in timely fashion, or, where such filing is required to
be made by Lessor or it is otherwise not reasonably practical for a Lessee to
make such filing, Lessee shall prepare and deliver to Lessor (with a copy to the
Agent) within a reasonable time prior to the date for filing and Lessor shall
file, any material reports with respect
35
<PAGE>
to the condition or operation of such Leased Property that shall be required to
be filed with any Governmental Authority.
Section 17.2 Binding Effect; Successors and Assigns; Survival. The terms
------------------------------------------------
and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor and the Lessees, shall be binding upon their respective
successors, legal representatives and assigns (including, in the case of Lessor,
any Person to whom Lessor may transfer any Leased Property or any interest
therein in accordance with the provisions of the Operative Documents), and inure
to the benefit of their respective permitted successors and assigns, and the
rights granted hereunder to the Agent and the Lenders shall inure (subject to
such conditions as are contained herein) to the benefit of their respective
permitted successors and assigns. Each Lessee hereby acknowledges that Lessor
has assigned all of its right, title and interest to, in and under this Lease to
the Agent and the Lenders pursuant to the Loan Agreement and related Operative
Documents, and that all of Lessor's rights hereunder may be exercised by the
Agent.
Section 17.3 Quiet Enjoyment. Lessor covenants that it will not
---------------
interfere in the related Lessee's or any of its permitted sublessees' quiet
enjoyment of the Leased Properties in accordance with this Lease during the
Lease Term, so long as no Event of Default has occurred and is continuing. Such
right of quiet enjoyment is independent of, and shall not affect, Lessor's
rights otherwise to initiate legal action to enforce the obligations of the
Lessees under this Lease.
Section 17.4 Notices. Unless otherwise specified herein, all notices,
-------
offers, acceptances, rejections, consents, requests, demands or other
communications to or upon the respective parties hereto shall be in writing and
shall be deemed to have been given as set forth in Section 8.2 of the Master
Agreement. All such notices, offers, acceptances, rejections, consents,
requests, demands or other communications shall be addressed as follows or to
such other address as any of the parties hereto may designate by written notice:
If to Lessor: Atlantic Financial Group, Ltd.
c/o Grogan & Brawner
2311 Cedar Springs Road, Suite 150
Dallas, Texas 75201
Attn: Stephen Brookshire
If to Rowe Furniture: The Rowe Companies
239 Rowan Street
Salem, VA 24153
Attn: Garry W. Angle
36
<PAGE>
With a copy to: Sidney J. Silver, Esq.
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W., 7th Fl.
Washington, D.C. 20005
If to Agent: Crestar Bank
510 South Jefferson Street
Roanoke, Virginia 24011
Attn: Martha Shifflett
If to a Lender, to the address provided in the Master Agreement.
Section 17.5 Severability. Any provision of this Lease that shall be
------------
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, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Law, each Lessee hereby
waives any provision of law that renders any provision hereof prohibited or
unenforceable in any respect.
Section 17.6 Amendment; Complete Agreements. Neither this Lease nor any
------------------------------
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, except by an instrument in writing signed by Lessor and Rowe Furniture
in accordance with the provisions of Section 8.4 of the Master Agreement. This
Lease, together with the applicable Lease Supplement and the other Operative
Documents, is intended by the parties as a final expression of their lease
agreement and as a complete and exclusive statement of the terms thereof, all
negotiations, considerations and representations between the parties having been
incorporated herein and therein. No course of prior dealings between the
parties or their officers, employees, agents or Affiliates shall be relevant or
admissible to supplement, explain, or vary any of the terms of this Lease or any
other Operative Document. Acceptance of, or acquiescence in, a course of
performance rendered under this or any prior agreement between the parties or
their Affiliates shall not be relevant or admissible to determine the meaning of
any of the terms of this Lease or any other Operative Document. No
representations, undertakings, or agreements have been made or relied upon in
the making of this Lease other than those specifically set forth in the
Operative Documents.
37
<PAGE>
Section 17.7 Construction. This Lease shall not be construed more
------------
strictly against any one party, it being recognized that both of the parties
hereto have contributed substantially and materially to the preparation and
negotiation of this Lease.
Section 17.8 Headings. The Table of Contents and headings of the
--------
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions
hereof.
Section 17.9 Counterparts. This Lease 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.
Section 17.10 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
VIRGINIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH
STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD OR
MORTGAGE ESTATES HEREUNDER, AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT
THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATES IN WHICH SUCH ESTATES ARE LOCATED.
Section 17.11 Discharge of Lessee's Obligations by its Subsidiaries or
--------------------------------------------------------
Affiliates. Lessor agrees that performance of any of any Lessee's obligations
- ----------
hereunder by one or more of such Lessee's Subsidiaries or Affiliates shall
constitute performance by Lessee of such obligations to the same extent and with
the same effect hereunder as if such obligations were performed by such Lessee,
but no such performance shall excuse any Lessee from any obligation not
performed by it or on its behalf under the Operative Documents.
Section 17.12 Liability of Lessor Limited. Except as otherwise expressly
---------------------------
provided below in this Section 17.12, it is expressly understood and agreed by
-------------
and between each Lessee, Lessor and their respective successors and assigns that
nothing herein contained shall be construed as creating any liability of Lessor
or any of its Affiliates or any of their respective officers, directors,
employees or agents, individually or personally, for any failure to perform any
covenant, either express or implied, contained herein, all such liability (other
than that resulting from Lessor's gross negligence or willful misconduct
(including willful failure to act where Lessor had a duty to act), except to the
extent imputed to Lessor by virtue of any Lessee's action or failure to act), if
any, being expressly
38
<PAGE>
waived by each Lessee and by each and every Person now or hereafter claiming by,
through or under any Lessee, and that, so far as Lessor or any of its Affiliates
or any of their respective officers, directors, employees or agents,
individually or personally, is concerned, each Lessee and any Person claiming
by, through or under any Lessee shall look solely to the right, title and
interest of Lessor in and to the Leased Properties and any proceeds from
Lessor's sale or encumbrance thereof (provided, however, that no party shall be
-------- -------
entitled to any double recovery) for the performance of any obligation under
this Lease and under the Operative Documents and the satisfaction of any
liability arising therefrom (other than that resulting from Lessor's gross
negligence or willful misconduct (including willful failure to act where Lessor
had a duty to act), except to the extent imputed to Lessor by virtue of any
Lessee's action or failure to act).
Section 17.13 Estoppel Certificates. Each party hereto agrees that at
---------------------
any time and from time to time during the Lease Term, it will promptly, but in
no event later than thirty (30) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser has signed a commitment or letter of
intent to purchase any Leased Property or any part thereof or any Note),
assignee or mortgagee or third party designated by such other party, a
certificate stating (a) that this Lease is unmodified and in force and effect
(or if there have been modifications, that this Lease is in force and effect as
modified, and identifying the modification agreements); (b) the date to which
Basic Rent has been paid; (c) whether or not there is any existing default by
any Lessee in the payment of Basic Rent or any other sum of money hereunder, and
whether or not there is any other existing default by either party with respect
to which a notice of default has been served, and, if there is any such default,
specifying the nature and extent thereof; (d) whether or not, to the knowledge
of the signer after due inquiry and investigation, there are any setoffs,
defenses or counterclaims against enforcement of the obligations to be performed
hereunder existing in favor of the party executing such certificate and (e)
other items that may be reasonably requested; provided that no such certificate
--------
may be requested unless the requesting party has a good faith reason for such
request.
Section 17.14 No Joint Venture. Any intention to create a joint venture,
----------------
partnership or other fiduciary relationship between Lessor and any Lessee is
hereby expressly disclaimed.
Section 17. No Accord and Satisfaction. The acceptance by Lessor of any
--------------------------
sums from any Lessee (whether as Basic Rent or otherwise) in amounts which are
less than the amounts due and payable by the Lessees hereunder is not intended,
nor shall be
39
<PAGE>
construed, to constitute an accord and satisfaction of any dispute between
Lessor and any Lessee regarding sums due and payable by any Lessee hereunder,
unless Lessor specifically deems it as such in writing.
Section 17.16 No Merger. In no event shall the leasehold interests,
---------
estates or rights of any Lessee hereunder, or of the holder of any Notes secured
by a security interest in this Lease, merge with any interests, estates or
rights of Lessor in or to the Leased Properties, it being understood that such
leasehold interests, estates and rights of each Lessee hereunder, and of the
holder of any Notes secured by a security interest in this Lease, shall be
deemed to be separate and distinct from Lessor's interests, estates and rights
in or to the Leased Properties, notwithstanding that any such interests, estates
or rights shall at any time or times be held by or vested in the same person,
corporation or other entity.
Section 17.17 Survival. The obligations of each Lessee to be performed
--------
under this Lease prior to the Lease Termination Date and the obligations of
Lessee pursuant to Articles III, X, XI, XIII, Sections 14.2, 14.3, 14.4, 14.5,
-------- --- - -- ---- ------------- ---- ---- ----
14.7, 14.8, Articles XV, and XVI, and Sections 17.2, 17.10 and 17.12 shall
- ---- ---- -------- -- --- -------------------- -----
survive the expiration or termination of this Lease. The extension of any
applicable statute of limitations by Lessor, any Lessee, the Agent or any
Indemnitee shall not affect such survival.
Section 17.18 Chattel Paper. To the extent that this Lease constitutes
-------------
chattel paper (as such term is defined in the Uniform Commercial Code in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the sole
original counterpart, which shall be identified as the original counterpart by
the receipt of the Agent.
Section 17.19 Time of Essence. Time is of the essence of this Lease.
---------------
Section 17.20 Recordation of Lease. Each Lessee will, at its expense,
--------------------
cause this Lease or a memorandum of lease in form and substance reasonably
satisfactory to Lessor and such Lessee (if permitted by Applicable Law) to be
recorded in the proper office or offices in the States and the municipalities in
which the Land is located.
Section 17.21 Investment of Security Funds. The parties hereto agree
---------------------------
that any amounts not payable to a Lessee pursuant to any provision of Article
-------
VIII, X or XIV or this Section 17.21 shall be held by the Agent (or Lessor if
- ---- - --- -------------
the Loans have been fully paid) as security for the obligations of the Lessees
under
40
<PAGE>
this Lease and the Master Agreement and of Lessor under the Loan Agreement. At
such time as such amounts are payable to the Lessee, such amounts, net of any
amounts previously applied to the Lessees' obligations hereunder or under the
Master Agreement (which application is hereby agreed to by Lessee), shall be
paid to the related Lessee. Any such amounts which are held by the Agent (or
Lessor if the Loans have been fully paid) pending payment to a Lessee shall
until paid to such Lessee, as provided hereunder or until applied against the
Lessees' obligations herein and under the Master Agreement and distributed as
provided in the Loan Agreement or herein (after the Loan Agreement is no longer
in effect) in connection with any exercise of remedies hereunder, be invested by
the Agent or Lessor, as the case may be, as directed from time to time in
writing by Lessee (provided, however, if an Event of Default has occurred and is
-------- -------
continuing it will be directed by the Agent or, if the Loans have been fully
paid, Lessor) and at the expense and risk of the Lessees, in Permitted
Investments. Any gain (including interest received) realized as the result of
any such investment (net of any fees, commissions and other expenses, if any,
incurred in connection with such investment) shall be applied in the same manner
as the principal invested. Lessee upon demand shall pay to the Agent or Lessor,
as appropriate, the amount of any loss incurred in connection with all such
investments and the liquidation thereof.
Section 17.22 [Reserved.]
--------
Section 17.23 Land and Building. If any Building and the Land on which
-----------------
such Building is located are subject to separate Lease Supplements, at any time
that the related Lessee exercises an option to purchase such Building or such
Land, or to renew this Lease with respect to such Building or such Land, or is
obligated to purchase such Building or such Land as a result of an Event of
Loss, an Event of Taking or an Event of Default, such purchase or renewal shall
be made simultaneously with respect to all of such Building and such Land.
Section 17.24 Joint and Several. Each obligation of each Lessee
-----------------
hereunder shall be a joint and several obligation of all of the Lessees.
Section 17.25 Lease Senior. Anything contained in the Operative
------------
Documents to the contrary notwithstanding, in event of any conflict between the
terms of this Master Lease Agreement and the other Operative Documents regarding
provisions of the Master Lease Agreement, the terms of this Master Lease shall
govern.
Section 17.26 Agent to Communicate with Funding Parties. Notwithstanding
-----------------------------------------
any provision to the contrary contained in any Operative Document, wherever in
any Operative Document the
41
<PAGE>
consent of, or notice to, any Funding Party is required, each Obligor shall be
entitled to request such consent directly from, or give such notice directly to,
the Agent on behalf of the applicable Funding Parties, and the Agent shall
thereupon be responsible for presenting such request or forwarding such notice
to the applicable Funding Parties, and for communicating any response back to
the initiating Obligor. An Obligor shall be deemed to have complied with any
requirement of requesting consent from or providing notice to any Funding Party
upon its delivery of such request or notice to Agent in compliance with the
notice provisions of the applicable Operative Document, and such Obligor may
rely on any response properly delivered by the Agent on behalf of such Funding
Party to such Obligor. Nothing in this Section shall diminish or negate the
right of any Funding Party to receive notice or provide consent under any
Operative Document but Lessee's obligation to provide any required consent or
notice shall be satisfied by providing such consent or notice to Agent.
[Signature page follows]
42
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Lease Agreement to
be duly executed and delivered and attested by their respective officers
thereunto duly authorized as of the day and year first above written.
ROWE FURNITURE, INC.,
as Lessee
By: /s/ Garry W. Angle
----------------------
Name: Garry W. Angle
Title: Treasurer
S-1
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD.,
as Lessor
By: Atlantic Financial Managers,
Inc., its General Partner
By: /s/ Stephen Brookshire
--------------------------
Name: Stephen Brookshire
Title: President
S-2
<PAGE>
EXHIBIT A
THIS IS A CREDIT LINE DEED OF TRUST
-----------------------------------
[THE SECURED PARTY DESIRES THIS FINANCING STATEMENT TO BE INDEXED AGAINST
THE RECORD OWNER OF THE REAL ESTATE.]
This Instrument was prepared by
and when recorded return to:
Rex A. Palmer, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
VIRGINIA LEASE SUPPLEMENT, MEMORANDUM OF LEASE
AND DEED OF TRUST AND SECURITY AGREEMENT
THIS VIRGINIA LEASE SUPPLEMENT, MEMORANDUM OF LEASE AND DEED OF TRUST AND
SECURITY AGREEMENT (this "Lease Supplement") dated as of August ___, 1999
----------------
between ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership, having an
address of 2311 Cedar Springs Road, Suite 150, Dallas, Texas 75201 as the lessor
(the "Lessor") [The Lessor being referred to as a "Grantor" and a "Grantee" for
------
indexing purposes], and ROWE FURNITURE, INC., a Virginia corporation, having an
address of 239 Rowan Street, Salem, Virginia 24153, as lessee (the "Lessee")
------
[The Lessee being referred to as a "Grantor" and a "Grantee" for indexing
purposes] and _________________, as trustee (the "Trustee"), a resident of the
-------
_________________, Virginia and having an address at
___________________________________________________ [The Trustee being referred
to as a "Grantee" under this Lease Supplement for indexing purposes] as Grantee
under this Deed of Trust for indexing purposes.
WHEREAS Lessor is the owner of the land described on Exhibit A hereto (the
---------
"Land") and wishes to lease the Land and any Building and other improvements now
----
on the Land or which hereafter may be constructed on the Land pursuant to the
Lease to Lessee excluding, however, Lessee's Property;
THIS IS A CREDIT LINE DEED OF TRUST securing future advances from the Lessor to
the Lessee. The name of the Lessor is Atlantic Financial Group, Ltd., a Texas
limited partnership having an address of 2311 Cedar Springs Road, Suite 150,
Dallas, Texas 75201. The maximum aggregate
<PAGE>
amount of principal to be secured by the property described herein at any one
time shall not exceed $________________________.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. Definitions; Interpretation. For purposes of this Lease
---------------------------
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix A attached hereto and
incorporated by reference, dated as of August ___, 1999, between Lessee and
Lessor; and the rules of interpretation set forth in Appendix A attached hereto
are also incorporated herein by reference.
SECTION 2. The Properties. Effective upon the execution and delivery of
--------------
this Lease Supplement by Lessor and Lessee, the Land and all Buildings and other
improvements on the Land or which hereafter may be constructed on the Land
pursuant to the Lease but excluding Lessee's Property (the "Subject Property")
----------------
shall be subject to the terms and provisions of the Lease and Lessor hereby
leases the Subject Property to Lessee and hereby grants, conveys, transfers and
assigns to Lessee those interests, rights, titles, estates, powers and
privileges provided for in the Lease with respect to the Subject Property
(collectively, the "Appurtenant Rights") and Lessee hereby hires and leases the
------------------
Subject Property together with the Appurtenant Rights from the Lessor. The term
of the Lease with respect to the Subject Property begins on the date hereof and
ends on ________, 2004 subject to the right of the Lessee to extend the Lease
for two five-year periods subject to the conditions set forth in the Lease. The
Lease contains certain purchase rights and options during the term of the Lease
pursuant to which the Lessee may acquire the Subject Property, all as more fully
set forth in the Lease. A copy of the Lease is on file in the office of the
Lessor.
SECTION 3. Interest Conveyed to Lessee; Deed of Trust. Lessor and Lessee
------------------------------------------
intend that the Lease and this Lease Supplement be treated, for accounting
purposes, as an operating lease. For all other purposes, Lessee and Lessor
intend that the transaction represented by the Lease and this Lease Supplement
be treated as a financing transaction; for such purposes, it is the intention of
the parties hereto (i) that the Lease and this Lease Supplement be treated as a
deed of trust and security agreement, encumbering the Subject Property, and that
Lessee, as grantor, hereby grants to the Trustee, as trustee for the benefit of
Lessor, as beneficiary and secured party, or any successor thereto, the Subject
Property and a first and paramount Lien thereon, (ii) that Lessor shall have, as
a result of such determination, all of the rights, powers and remedies of a deed
of trust beneficiary or secured party available under Applicable Law to take
possession of and sell (whether by foreclosure or otherwise) any Subject
Property, (iii) the Trustee shall have the customary powers of a trustee under a
deed of trust on real property, (iv) that the effective date of such deed of
trust shall be the effective date of this Lease Supplement, (v) that the
recording of this Lease Supplement shall be deemed to be the recording of such
deed of trust, and (vi) that the obligations secured by such deed of trust shall
include the Lessor's Funded Amounts and all Basic Rent and Supplemental Rent
A-2
<PAGE>
hereunder and all other obligations of and amounts due from Lessee to Lessor
hereunder and under the Operative Documents. In furtherance of the foregoing,
Lessor (for the remainder of this Section called "Agent"), and Lessee (for the
-----
remainder of this Section called "Grantor") agree as follows:
-------
A. This instrument shall constitute a Deed of Trust and Security
Agreement dated as of August __, 1999 (this "Deed of Trust"), made by
-------------
Lessee (the "Grantor") having an address at 239 Rowan Street, Salem,
-------
Virginia 24153 to _________________________, a resident of ____________,
Virginia, trustee ("Trustee") having an address at
-------
___________________________________________________________________________
____________________________________________, and grantee for indexing
purposes, for the benefit of Atlantic Financial Group, Ltd., a Texas
limited partnership, doing business in Virginia as Atlantic Financial
Group, L.P., having an address at 2311 Cedar Springs Road, Suite 150,
Dallas, Texas 75201 ("Loan Party").
----------
B. TO SECURE PAYMENT OF ALL AMOUNTS OWING BY GRANTOR UNDER THE LEASE
AND THE OTHER OPERATIVE DOCUMENTS, THE GRANTOR HEREBY CONVEYS ALL OF THE
GRANTOR'S THE SUBJECT PROPERTY AND ALL RENTS, LEASES, ISSUES AND PROCEEDS
THEREOF (INCLUDING AWARDS AND LOSS PROCEEDS) TO THE TRUSTEE AND HEREBY
GRANTS, ASSIGNS, TRANSFERS, WARRANTS AND SETS OVER, EXCEPT AS HEREINAFTER
SET FORTH, WITH GENERAL WARRANTY OF TITLE TO THE TRUSTEE, IN TRUST FOR THE
USE AND BENEFIT OF THE LOAN PARTY, AND GRANTS THE LOAN PARTY AND THE
TRUSTEE A SECURITY INTEREST IN THE SUBJECT PROPERTY AND ALL RENTS, LEASES,
ISSUES AND PROCEEDS THEREOF (INCLUDING INSURANCE AND CONDEMNATION
PROCEEDS), TO HAVE AND TO HOLD the Subject Property and the rights and
privileges hereby granted unto the Trustee, its successors and assigns for
the uses and purposes set forth, until all amounts due from Grantor under
the Lease are paid, subject, however, to easements, conditions and
restrictions of record to the extent the same lawfully affect the Subject
Property.
C. If an Event of Default has occurred and is continuing under the
Lease, at the direction of the Loan Party:
(i) the Trustee or its agents may enter and take possession of the
Subject Property by actual physical possession or by written notice served
personally upon or sent by registered or certified mail, postage prepaid,
to Grantor, and Grantor shall surrender possession upon request and Trustee
may take possession without further authorization required, and may let the
Trust Property and receive the rents, issues and profits thereof, make
repairs and
A-3
<PAGE>
apply said rentals and profits, after payment of all necessary or proper
charges and expenses, on account of the amounts hereby secured.
(ii) the Trustee, shall, as a matter of right, at the option of the
Loan Party, be entitled to the appointment of a receiver for the Subject
Property, and the Grantor hereby consents to such appointment and waives
notice of any application therefor.
(iii) Trustee may proceed to sell the Subject Property at public
auction, as a whole or in such parcels, for cash or credit and, in addition
to the requirements imposed by state law, upon any terms as the Trustee
deems appropriate. Before such sale at public auction is made, there shall
first be advertisement of the time, place and terms of sale at least once a
week for four (4) successive weeks in a newspaper published or having a
general circulation in the City or County of Virginia, as applicable, in
which the Land is located. At least fourteen (14) days prior to such sale,
or in the event that such sale is postponed, any subsequent sale, written
notice of the time, place and terms of sale shall be given by certified or
registered mail to the Grantor at its address for notice as provided above.
In the event the sale is postponed, the Trustee shall advertise the
postponed subsequent sale in the same manner as the original advertisement
of sale provided for above. Loan Party may become the purchaser of the
Subject Property so sold, and no purchaser shall be required to see to the
proper application of the purchase money. The proceeds of any such sale
shall be applied as required by Section 55-59.4 of the Code of Virginia of
1950, as amended and in effect on the date hereof (the "Code").
----
D. The Grantor hereby waives the benefit of all appraisement,
valuation, stay, extension, reinstatement and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale of
the Subject Property or any interest therein.
E. The Trustee shall be entitled to enforce payment of the
indebtedness and performance of the Lessee's obligations and to exercise
all rights and powers under this instrument or under any of the other
Operative Documents or other agreement or any laws now or hereafter in
force, notwithstanding some or all of the Lessee's obligations may now or
hereafter be otherwise secured, whether by deed of trust, mortgage,
security agreement, pledge, lien, assignment or otherwise. Neither the
acceptance of this instrument nor its enforcement, shall prejudice or in
any manner affect the Trustee's right to realize upon or enforce any other
security now or hereafter held by the Trustee, it being agreed that the
Trustee shall be entitled to enforce this instrument and any other security
now or hereafter held by the Trustee in such order and manner as the
Trustee or the Loan Party may determine in its
A-4
<PAGE>
absolute discretion. No remedy herein conferred upon or reserved to the
Trustee or the Loan Party is intended to be exclusive of any other remedy
herein or by law provided or permitted, but each shall be cumulative and
shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute. Every power or remedy
given by any of the Operative Documents to the Trustee or the Loan Party or
to which they may otherwise be entitled, may be exercised, concurrently or
independently, from time to time and as often as may be deemed expedient by
the Loan Party. In no event shall the Trustee, in the exercise of the
remedies provided in this instrument (including, without limitation, the
appointment of a receiver and the entry of such receiver on to all or any
part of the Subject Property), be deemed a "mortgagee in possession," and
the Trustee shall not in any way be made liable for any act, either of
commission or omission, in connection with the exercise of such remedies.
F. The Trustee's sole duty with respect to the custody, safekeeping
and physical preservation of any Subject Property in its possession, under
Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal
with it in the same manner as the Trustee deals with similar property for
its own account. Neither the Trustee, the Loan Party nor any of their
respective directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Subject Property or
for any delay in doing so or shall be under any obligation to sell or
otherwise dispose of any Subject Property upon the request of the Grantor
or any other Person or to take any other action whatsoever with regard to
the Subject Property or any part thereof.
G. All powers, authorizations and agencies contained in this Deed of
Trust are coupled with an interest and are irrevocable until this
instrument is terminated and the lien created hereby is released.
H. Pursuant to Section 9-402 of the Uniform Commercial Code, the
Grantor authorizes the Trustee or the Loan Party to file financing
statements with respect to the Subject Property with the signature of the
Grantor in such form and in such filing offices as the Trustee or the Loan
Party reasonably determines appropriate to perfect the security interests
of the Trustee and the Loan Party under this Deed of Trust. A carbon,
photographic or other reproduction of this Deed of Trust shall be
sufficient as a financing statement for filing in any jurisdiction.
I. It is the intention of the parties hereto that this instrument
shall constitute a Security Agreement within the meaning of the Uniform
Commercial Code of the State in which the Subject Property is located (the
"Uniform Commercial Code"). If an Event of Default shall occur and be
-----------------------
A-5
<PAGE>
continuing, then in addition to having any other right or remedy available
at law or in equity, the Trustee, at the direction of the Loan Party, shall
have the option of either (i) proceeding under the Uniform Commercial Code
and exercising such rights and remedies as may be provided to a secured
party by the Uniform Commercial Code with respect to all or any portion of
the Subject Property which is personal property (including, without
limitation, taking possession of and selling such property) or (ii)
treating such property as real property and proceeding with respect to both
the real and personal property constituting the Subject Property in
accordance with the Trustee's rights, powers and remedies with respect to
the real property (in which event the default provisions of the Uniform
Commercial Code shall not apply). If the Trustee, at the direction of the
Loan Party, shall elect to proceed under the Uniform Commercial Code, then
five days' notice of sale of the personal property shall be deemed
reasonable notice and the reasonable expenses of retaking, holding,
preparing for sale, selling and the like incurred by the Trustee or the
Loan Party shall include, but not be limited to, reasonable attorneys' fees
and legal expenses. At the Trustee's request, the Grantor shall assemble
the personal property and make it available to the Trustee and the Loan
Party at a place designated by the Trustee or the Loan Party which is
reasonably convenient to both parties.
The Grantor, the Trustee and the Loan Party further agree, to the
extent permitted by law, that this instrument upon recording or
registration in the real estate records of the proper office shall
constitute a financing statement filed as a "fixture filing" within the
meaning of Sections 9-313 and 9-402 of the Uniform Commercial Code.
The Grantor, upon request by the Trustee or the Loan Party from time
to time, shall execute, acknowledge and deliver to the Trustee or the Loan
Party one or more separate security agreements, in form reasonably
satisfactory to the Trustee and the Loan Party, covering all or any part of
the Subject Property and will further execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, any financing statement,
affidavit, continuation statement or certificate or other document as the
Trustee or the Loan Party may reasonably request in order to perfect,
preserve, maintain, continue or extend the security interest under and the
priority of this instrument. The Grantor further agrees to pay to the
Trustee and the Loan Party on demand all costs and expenses actually and
reasonably incurred by the Trustee or the Loan Party in connection with the
preparation, execution, recording, filing and re-filing of any such
document and all reasonable costs and expenses of any record searches for
financing statements the Trustee or the Loan Party shall reasonably
require. If the Grantor shall fail to furnish any financing or
continuation statement within 10 days after request by the Trustee
A-6
<PAGE>
or the Loan Party, then pursuant to the provisions of the Uniform
Commercial Code, the Grantor hereby authorizes the Trustee and the Loan
Party, without the signature of the Grantor, to execute and file any such
financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or
chattels shall not be construed as in any way impairing the right of the
Trustee to proceed against any personal property encumbered by this Deed of
Trust as real property, as set forth above.
J. The Grantor acknowledges that in connection with the rights and
responsibilities of the Trustee under this instrument with respect to any
action taken by the Trustee or the exercise or non-exercise by the Trustee
of any option, voting right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this instrument, as
between the Grantor and the Loan Party, the Trustee shall be conclusively
presumed to be acting as agent for the Loan Party with full and valid
authority so to act or refrain from acting, and the Grantor shall be under
no obligation, or entitlement, to make any inquiry respecting such
authority.
K. Except as otherwise set forth herein, to the fullest extent
permitted by law, the Grantor waives the benefit of all laws now existing
or that may subsequently be enacted providing for (i) any appraisement
before sale of any portion of the Subject Property, (ii) any extension of
the time for the enforcement of the collection of the indebtedness or the
creation or extension of a period of redemption from any sale made in
collecting such debt and (iii) exemption of the Subject Property from
attachment, levy or sale under execution or exemption from civil process.
Except as otherwise set forth herein, to the full extent the Grantor may do
so, the Grantor agrees that the Grantor will not at any time insist upon,
plead, claim or take the benefit or advantage of any law now or hereafter
in force providing for any appraisement, valuation, stay, exemption,
extension, reinstatement or redemption, or requiring foreclosure of this
instrument before exercising any other remedy granted hereunder and the
Grantor, for the Grantor and its successors and assigns, and for any and
all Persons ever claiming any interest in the Subject Property, to the
extent permitted by law, hereby waives and releases all rights of
reinstatement, redemption, valuation, appraisement stay of execution,
notice of election to mature or declare due the whole of the secured
indebtedness and marshaling in the event of foreclosure of the liens hereby
created.
L. Neither the commencement nor continuation of proceedings to
foreclose this instrument nor the exercise of any other rights hereunder
nor the recovery of any judgment by the Trustee and the Loan Party in any
such proceedings shall prejudice, limit or preclude the Trustee's and the
Loan Party's rights to commence or continue one or more foreclosure or
other
A-7
<PAGE>
proceedings or obtain a judgment against any other collateral (either
in or outside the State in which the Subject Property is located) which
directly or indirectly secures the obligations secured hereby, and the
Grantor expressly waives any objections to the commencement of,
continuation of, or entry of a judgment in such other proceedings or
exercise of any remedies in such proceedings based upon any action or
judgment connected to this instrument, and the Grantor also waives any
right to seek to dismiss, stay, remove, transfer or consolidate either such
other proceedings or any action under this instrument on such basis. It is
expressly understood and agreed that to the fullest extent permitted by
law, the Trustee may, at its election, cause the sale of all collateral
which is the subject of a single foreclosure action at either a single sale
or at multiple sales conducted simultaneously and take such other measures
as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the obligations secured
hereby (directly or indirectly) in the most economical and least time-
consuming manner.
M. Except as provided in the Operative Documents, the Trustee and the
Loan Party, with the express written consent of the Grantor, may at any
time or from time to time renew or extend this instrument, or alter or
modify the same in any way, or the Trustee may waive any of the terms,
covenants or conditions hereof in whole or in part and may release any
portion of the Subject Property or any other security, and grant such
extensions and indulgences in relation to the obligations secured hereby as
the Loan Party may determine without the consent of any other person and
without any obligation to give notice of any kind thereto and without in
any manner affecting the priority of the lien hereof on any part of the
Subject Property.
N. If Trustee shall be made a party to or shall intervene in any
action or proceeding, whether in court or before any governmental agency,
affecting the Subject Property or the title thereto or the interest of
Trustee under this instrument, including, without limitation, any form of
condemnation or eminent domain proceeding, Trustee shall be reimbursed by
Grantor upon demand for all actual and reasonable costs, charges and
reasonable attorneys' fees incurred by it in any such case. All such sums
shall be secured hereby, are due and payable within ten (10) days after
demand, and if not paid within ten (10) days after demand, shall bear
interest at the default rate set forth in the Operative Documents.
Trustee shall be under no duty to take any action hereunder except as
expressly required, to perform any act which would involve it in expense or
liability, or to institute or defend any suit in respect hereof, unless
properly indemnified to its satisfaction. All reasonable expenses,
charges, counsel fees and other disbursements incurred by Trustee from and
after the occurrence of
A-8
<PAGE>
an Event of Default in and about the administration and execution of the
trust created hereby, and the performance of its duties and powers
hereunder shall be secured by this instrument prior to the indebtedness
represented by the Lease, and shall bear interest at the default rate set
forth in the Operative Documents. Loan Party, with or without cause, is
hereby authorized and empowered to substitute and appoint, from time to
time, by an instrument recorded wherever this instrument is recorded, a
trustee in the place of any Trustee hereunder.
Except as otherwise herein expressly provided, this instrument shall
be construed to impose and confer upon the parties hereto, including the
Loan Party, all duties, rights and obligations as set forth in Sections 55-
59, 55-59.1, 55-59.2, 55-59.3, 55-59.4 and 55-60 of the Code as now in
force and further to incorporate herein the following provisions by short
form reference below, of Sections 55-59.4 and 55-60 of the Code: Renewal,
extension or reinstatement permitted. Bidder's deposit of not more than 10%
of the sale price may be required.
Grantor agrees to indemnify, defend and hold Trustee harmless from and
against any and all liability, loss, damage and expense, including
reasonable attorneys' fees, which it may incur by reason of this instrument
or by reason of any action taken by Trustee hereunder, and from and against
any and all claims and demands whatsoever which may be asserted against
Trustee by reason of any alleged obligation or undertaking on its part to
perform or discharge any of the terms, covenants or conditions contained
herein, unless caused by the gross negligence or willful misconduct of the
Trustee. Should Trustee incur any such liability, loss, damage or expense,
the amount thereof, together with interest thereon at the default rate set
forth in the Operative Documents, shall be secured by this instrument and
shall be payable by Grantor to Trustee within ten (10) days after demand
therefor.
O. This instrument shall not operate to place upon Loan Party any
responsibility for the operation, control, care, management or repair of
the Subject Property prior to Loan Party taking possession thereof, and the
execution of this Deed of Trust by Grantor shall constitute conclusive
evidence that all responsibility for the operation, control, care,
management and repair of the Subject Property prior to Loan Party taking
possession thereof is and shall be that of Grantor.
P. This instrument is given to secure not only existing indebtedness,
but also future advances made pursuant to or as provided in the Operative
Documents, whether such advances are obligatory or to be made at the option
of the Loan Party, or otherwise, to the same extent as if such future
advances were made on the date of execution of this instrument, although
there
A-9
<PAGE>
may be no advance made at the time of execution hereof, and although
there may be no indebtedness outstanding at the time any advance is made.
To the fullest extent permitted by law, the lien of this instrument shall
be valid as to all such indebtedness, including all revolving credit and
future advances, from the time this instrument is recorded.
Notwithstanding anything in this instrument to the contrary, although the
amount of indebtedness secured by this instrument may increase or decrease
from time to time, the maximum principal amount of indebtedness secured by
this instrument at any one time shall not exceed _______________________
_________________ AND NO/100 DOLLARS ($_______________) plus all costs of
enforcement and collection of this instrument and the other Operative
Documents, plus the total amount of any advances made pursuant to the
Operative Documents to protect the collateral and the security interest and
lien created hereby; together with interest on all of the foregoing as
provided in the Operative Documents.
SECTION 4. Ratification; Incorporation. Except as specifically modified
---------------------------
hereby, the terms and provisions of the Lease are hereby ratified and confirmed
and remain in full force and effect. The terms of the Lease (as amended by this
Lease Supplement) are by this reference incorporated herein and made a part
hereof.
SECTION 5. Original Lease Supplement. The single executed original of
-------------------------
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the original
executed counterpart of this Lease Supplement (the "Original Executed
-----------------
Counterpart"). To the extent that this Lease Supplement constitutes chattel
- -----------
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF VIRGINIA, BUT EXCLUDING ALL
OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES OF SUCH STATE.
SECTION 7. Counterpart Execution. This Lease Supplement may be executed
---------------------
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one and the same
instrument.
A-10
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
ATLANTIC FINANCIAL GROUP, LTD., doing
business in Virginia as ATLANTIC FINANCIAL
GROUP, L.P., as the Lessor
By: Atlantic Financial Managers, Inc., its General
Partner
By: /s/ Stephen S. Brookshire
-------------------------
Name: Stephen S. Brookshire
Title: President
S-1
<PAGE>
ROWE FURNITURE, INC., as the Lessee
By:
------------------------------------
Name:
Title:
S-2
<PAGE>
STATE OF _________________ )
) ss.:
COUNTY OF ________________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the [City] [County] of ______________, this _____ day of
__________, 1999, by ________________________, as ________________ of ROWE
FURNITURE, INC., a Virginia corporation, on behalf of the corporation.
[Notary Seal] ____________________________
Notary Public
My Commission Expires:_____________________
N-1
<PAGE>
STATE OF TEXAS )
) ss.:
COUNTY OF ________________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of ______________, this _____ day of ____________,
1999, by Stephen S. Brookshire, as President of ATLANTIC FINANCIAL MANAGERS,
INC, a Texas corporation, which is the general partner of ATLANTIC FINANCIAL
GROUP, LTD., a Texas limited partnership, doing business in Virginia as ATLANTIC
FINANCIAL GROUP, L.P., on behalf of such corporation as general partner of such
partnership.
[Notarial Seal] ___________________________
Notary Public
My Commission Expires:_____________________
N-2
<PAGE>
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as of the date hereof.
CRESTAR BANK, as the Agent
By:__________________________
Name:___________________________________
Title:____________________________________
S-3
<PAGE>
Exhibit A
---------
<PAGE>
EXHIBIT (10.13)
================================================================================
CONSTRUCTION AGENCY AGREEMENT
dated as of August 27, 1999
between
ATLANTIC FINANCIAL GROUP, LTD.
and
ROWE FURNITURE, INC.
as Construction Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S>............................................................................ <C>
ARTICLE I DEFINITIONS.................................................... 1
1.1. Defined Terms....................................................... 1
ARTICLE II APPOINTMENT OF CONSTRUCTION AGENT.............................. 1
2.1. Appointment......................................................... 1
2.2. Acceptance; Construction............................................ 2
2.3. Commencement of Construction........................................ 2
2.4. Supplements to this Agreement....................................... 2
2.5. Term................................................................ 3
2.6. Identification of Properties; Construction Documents................ 3
2.7. Scope of Authority.................................................. 3
2.8. Covenants of the Construction Agent................................. 5
ARTICLE III THE BUILDING; INDEMNITY........................................ 6
3.1. Amendments; Modifications........................................... 6
3.2. Casualty, Condemnation and Construction Force
Majeure Events...................................................... 6
3.3. Indemnity........................................................... 6
ARTICLE IV PAYMENT OF FUNDS............................................... 7
4.1. Funding of Property Acquisition Costs and Property
Buildings Costs..................................................... 7
ARTICLE V CONSTRUCTION AGENCY EVENTS OF DEFAULT.......................... 7
5.1. Construction Agency Events of Default............................... 7
5.2. Damages............................................................. 8
5.3. Remedies; Remedies Cumulative....................................... 9
ARTICLE VI NO CONSTRUCTION AGENCY FEE..................................... 9
6.1. Lease as Fulfillment of Lessor's Obligations........................ 9
ARTICLE VII LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS................... 10
7.1. Exercise of the Lessor's Rights..................................... 10
7.2. Lessor's Right to Cure Construction Agent's
Defaults............................................................ 10
ARTICLE VIII MISCELLANEOUS.................................................. 10
8.1. Notices............................................................. 10
8.2. Successors and Assigns.............................................. 10
8.3. GOVERNING LAW....................................................... 11
8.4. Amendments and Waivers.............................................. 11
8.5. Counterparts........................................................ 11
8.6. Severability........................................................ 11
8.7. Headings and Table of Contents...................................... 11
</TABLE>
-i-
<PAGE>
EXHIBITS
Exhibit A Form of Supplement to Construction Agency Agreement
-ii-
<PAGE>
CONSTRUCTION AGENCY AGREEMENT
-----------------------------
CONSTRUCTION AGENCY AGREEMENT, dated as of August 27, 1999 (as amended,
supplemented or otherwise modified from time to time, this "Agreement"), between
---------
ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership, (the "Lessor"), and
------
ROWE FURNITURE, INC., a Virginia corporation ("Rowe Furniture", and in its
--------------
capacity as construction agent, the "Construction Agent").
------------------
PRELIMINARY STATEMENT
A. Lessor, the Guarantors, the Lessees signatory thereto, the Lenders
signatory thereto and Crestar Bank, as agent for such Lenders (in such capacity,
the "Agent") are parties to that certain Master Agreement, dated as of even date
-----
herewith (as amended, supplemented or otherwise modified from time to time
pursuant thereto, the "Master Agreement").
----------------
B. Subject to the terms and conditions hereof, (i) the Lessor desires to
appoint Rowe Furniture as the Construction Agent to act as its sole and
exclusive agent for the construction of the Buildings in accordance with the
Plans and Specifications and pursuant to the Master Agreement, and (ii) the
Construction Agent desires, for the benefit of the Lessor, to cause such
Buildings to be constructed in accordance with the Plans and Specifications and
pursuant to the Master Agreement and this Agreement, in each case in accordance
with the terms 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:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. Capitalized terms used but not otherwise defined in
-------------
this Agreement shall have the meanings set forth in the Master Agreement.
ARTICLE II
APPOINTMENT OF CONSTRUCTION AGENT
2.1 Appointment. Pursuant to and subject to the terms and conditions set
-----------
forth herein and in the Master Agreement and the
-1-
<PAGE>
other Operative Documents, the Lessor hereby irrevocably designates and appoints
Rowe Furniture as the Construction Agent to act as its exclusive agent for the
construction of the Buildings in accordance with the Plans and Specifications on
such Land.
2.2 Acceptance; Construction. Rowe Furniture hereby unconditionally
------------------------
accepts the designation and appointment as Construction Agent. The Construction
Agent will cause the Buildings to be constructed on the Land substantially in
accordance with the Plans and Specifications and, in accordance with the
Operative Documents, to be equipped in substantial compliance in all material
respects with all Requirements of Law and insurance requirements. If a Leased
Property will be leased by a Lessee other than Rowe Furniture, Rowe Furniture
may appoint such Lessee as its sub-construction agent with respect to such
Leased Property, provided that such appointment shall not affect Rowe
--------
Furniture's obligations hereunder, which obligations shall be primary and shall
remain in full force and effect.
2.3 Commencement of Construction. Subject to Construction Force Majeure
----------------------------
Events, the Construction Agent hereby agrees, unconditionally and for the
benefit of the Lessor, to cause construction of a Building to commence on each
parcel of Land as soon as is reasonably practicable, in its reasonable judgment,
after the Closing Date in respect of such Land. For purposes hereof,
construction of a Building shall be deemed to commence on the date (the
"Construction Commencement Date") on which excavation for the foundation for
- -------------------------------
such Building commences. Without limiting the foregoing, no phase of such
construction shall be undertaken until all permits required for such phase have
been issued therefor.
2.4 Supplements to this Agreement. On the Closing Date of each parcel of
-----------------------------
Land, the Lessor and the Construction Agent shall each execute and deliver to
the Agent 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 Land 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. On or
prior to the Closing Date of each parcel of Land, the Construction Agent shall
prepare and deliver to the Lessor and the Agent a construction budget (the
"Construction Budget") for the related Leased Property, which shall be attached
- --------------------
as an exhibit to the related Supplement to this Agreement, setting forth in
reasonable detail the budget for the Construction of the proposed Building on
such Land in accordance
-2-
<PAGE>
with the Plans and Specifications therefor, and all related costs, including the
capitalized interest and Yield expected to accrue during the related
Construction Term, provided, however, the Construction Agent may prepare and
deliver to the Lessor and the Agent a preliminary construction budget for the
related Leased Property on the Closing Date, but, in any event, and as a
condition to any Funding occurring after the Closing Date, the Construction
Agent shall deliver a final Construction Budget (which shall not differ
materially from the preliminary construction budget) to the Lessor and the Agent
within 30 days of the Closing Date.
2.5 Term. This Agreement shall commence on the date hereof and shall
----
terminate with respect to any given Leased Property upon the first to occur of:
(a) payment by the related Lessee of the Leased Property Balance and
termination of the Lease with respect to such Leased Property in accordance
with the Lease;
(b) the expiration or earlier termination of the Lease;
(c) termination of this Agreement pursuant to Article V hereof;
---------
(d) the payment by the Construction Agent of the Leased Property
Balance or the Construction Failure Payment with respect to such Leased
Property pursuant to this Agreement; and
(e) the completion after the Completion Date of all punchlist items.
2.6 Identification of Properties; Construction Documents. The
----------------------------------------------------
Construction Agent may execute any of its duties and obligations under this
Agreement by or through agents, contractors, employees or attorneys-in-fact, and
the Construction Agent, as agent for the Lessor, shall enter into such
agreements with architects and contractors as the Construction Agent deems
necessary or desirable for the construction of the Buildings pursuant hereto
(the "Construction Documents"); provided, however, that no such delegation shall
---------------------- -------- -------
limit or reduce in any way the Construction Agent's duties and obligations under
this Agreement; provided, further, contemporaneously with the execution and
-------- -------
delivery of a Construction Document, the Construction Agent will execute and
deliver to the Lessor the Security Agreement and Assignment, pursuant to which
the Construction Agent assigns to the Lessor, among other things, all of the
Construction Agent's rights under and interests in such Construction Documents.
Each construction contract with a
-3-
<PAGE>
general contractor shall be with a reputable general contractor with experience
in constructing projects that are similar in scope and type to the proposed
Building, and shall provide for a commercially reasonable retainage amount.
2.7 Scope of Authority. (a) Subject to the terms, conditions,
------------------
restrictions and limitations set forth in the Operative Documents, the Lessor
hereby expressly authorizes the Construction Agent, or any agent or contractor
of the Construction Agent, and the Construction Agent unconditionally agrees,
for the benefit of the Lessor, to take all action necessary or desirable for the
performance and satisfaction of all of the Construction Agent's obligations
hereunder with respect to the Leased Properties acquired or leased by the Lessor
upon which a Building is to be constructed, including, without limitation:
(i) overseeing, directing, supervising and monitoring all design and
supervisory functions relating to the construction of the Buildings and all
engineering work related to the construction of the Buildings;
(ii) negotiating and entering into all contracts or arrangements to
procure the equipment and services necessary to construct the Buildings on
such terms and conditions as are customary and reasonable in light of local
standards and practices;
(iii) obtaining all necessary permits, licenses, consents, approvals
and other authorizations, including those required under Applicable Law
(including Environmental Laws), from all Governmental Authorities in
connection with the development of the Land and the construction of the
Buildings on the Land in accordance with the Plans and Specifications;
(iv) maintaining all books and records with respect to the
construction, operation and management of the Leased Properties; and
(v) performing any other acts necessary or appropriate in connection
with the identification, acquisition (or leasing) and development of the
Land and construction of the Buildings 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 unless such contract expressly contains an
acknowledgment by the other party or parties thereto that the obligations of the
Lessor are non-recourse, and that the Lessor shall have no
-4-
<PAGE>
personal liability with respect to such obligations. Nothing contained herein
shall be construed to require advance waiver of statutory mechanics lien rights,
any such waiver, if secured, being pursuant to a separate instrument. Subject to
the foregoing, the Lessor shall execute such documents and take such other
actions as the Construction Agent shall reasonably request, at the Construction
Agent's expense, to permit the Construction Agent to perform its duties
hereunder.
(c) Subject to the terms and conditions of this Agreement and the other
Operative Documents, the Construction Agent shall have sole management and
control over the construction means, methods, sequences and procedures with
respect to the construction of the Buildings.
2.8 Covenants of the Construction Agent. The Construction Agent hereby
-----------------------------------
covenants and agrees that it will:
(a) following the Construction Commencement Date, cause construction
of a Building on the Land to be prosecuted diligently and without undue
interruption substantially in accordance with the Plans and Specifications
for such Land, in accordance with the Construction Budget for such Leased
Property and in compliance in all material respects with all Requirements
of Law and insurance requirements;
(b) notify the Lessor and the Agent in writing not less than thirty
(30) days after the occurrence of each Construction Force Majeure Event;
(c) take all reasonable and practical steps to cause the Completion
Date for such Leased Property to occur on or prior to the Scheduled
Construction Termination Date for such Leased Property, and cause all Liens
(including, without limitation, Liens or claims for materials supplied or
labor or services performed in connection with the construction of the
Buildings), other than Permitted Liens and Lessor Liens, to be discharged
or bonded off if disputed in good faith by appropriate proceedings by the
Construction Agent;
(d) following the Completion Date for each Leased Property, cause all
outstanding punch list items with respect to the Buildings on such Leased
Property to be completed within a reasonable time after said Completion
Date; and
(e) at all times during construction of any Building, cause all title
to all personalty financed by the Lessor on or within such Leased Property
to be and remain vested in
-5-
<PAGE>
the Lessor and cause to be on file with the applicable filing office or
offices all necessary documents under Article 9 of the Uniform Commercial
Code to perfect such title free of all Liens other than Permitted Liens, it
being understood and acknowledged that such Lessor's rights, title and
interest in and to said personalty have been assigned to the Agent pursuant
to the Operative Documents.
ARTICLE III
THE BUILDING; INDEMNITY
3.1 Amendments; Modifications. The Construction Agent may, subject to
-------------------------
the conditions, restrictions and limitations set forth herein and in the
Operative Documents (but not otherwise), at any time during the term hereof
revise, amend or modify the Plans and Specifications and the related
Construction Documents without the consent of the Lessor; provided, however,
-------- -------
that the Lessor's prior written consent (which shall not be unreasonably
withheld, conditioned or delayed) will be required in the following instances:
(x) such revision, amendment or modification by its terms would result in the
Completion Date of the Buildings occurring after the Scheduled Construction
Termination Date, or (y) such revision, amendment or modification would result
in the cost for such Leased Property exceeding the then remaining Commitments or
exceeding the Construction Budget for such Leased Property, or (z) the aggregate
effect of such revision, amendment or modification, when taken together with any
previous or contemporaneous revision, amendment or modification to the Plans and
Specifications for such Leased Property, would be to reduce the Fair Market
Sales Value of such Leased Property in a material respect when completed.
3.2 Casualty, Condemnation and Construction Force Majeure Events. If at
------------------------------------------------------------
any time prior to the Completion Date with respect to any Building there occurs
a Casualty or a Construction Force Majeure Event or the Lessor or the
Construction Agent receives notice of a Condemnation, then, except as otherwise
provided in the Lease, in each case the Construction Agent shall promptly and
diligently take all commercially reasonable and practical steps to cause the
construction of the Building to be completed substantially in accordance with
the Plans and Specifications and with the terms hereof, and cause the Completion
Date to occur on or prior to the Scheduled Construction Termination Date.
3.3 Indemnity. During the Construction Term for each Leased Property,
---------
the Construction Agent agrees to assume liability for, and to indemnify,
protect, defend, save and hold harmless the Lessor, on an After-Tax Basis, from
and against, any and all Claims that may be imposed on, incurred by or asserted
or
-6-
<PAGE>
threatened to be asserted, against the Lessor, whether or not the Lessor
shall also be indemnified as to any such Claim by any other Person, in any way
relating to or arising out of (i) the Construction Agent's (or any
subcontractor's) own actions or failures to act while in possession or control
of any Leased Property, (ii) fraud, misapplication of funds, illegal acts or
willful misconduct on the part of the Construction Agent (or any subcontractor),
(iii) any event described in paragraph (f) of Article XII of the Lease with
respect to the Construction Agent or (iv) the inaccuracy of any representation
or warranty made by the Construction Agent. The foregoing indemnities are in
addition to, and not in limitation of, the indemnities with respect to
environmental claims set forth in Section 7.2 of the Master Agreement. The
provisions of Section 7.3 of the Master Agreement shall apply to any amounts
that the Construction Agent is requested to pay pursuant to this Section 3.3.
-----------
The provisions of this Section 3.3 shall survive termination of this Agreement.
-----------
ARTICLE IV
PAYMENT OF FUNDS
4.1 Funding of Property Acquisition Costs and Property Buildings Costs.
------------------------------------------------------------------
(a) During the course of the construction of the Buildings on any Land, the
Construction Agent may request that the Lessor advance funds for the payment of
acquisition, transaction and closing costs of any fixtures and equipment (other
than Lessee's Property) or property improvements costs, and the Lessor will
comply with such request to the extent provided for under, and subject to the
conditions, restrictions and limitations contained in, the Master Agreement and
the other Operative Documents.
(b) The proceeds of any funds made available to the Lessor to pay
acquisition, transaction and closing costs or improvements costs shall be made
available to the Construction Agent in accordance with the Funding Request
relating thereto and the terms of the Master Agreement. The Construction Agent
will use such proceeds only to pay the acquisition, development, transaction and
closing costs of any fixtures and equipment (other than Lessee's Property) or
property improvement costs for the Leased Properties specified in the Funding
Request relating to such funds.
ARTICLE V
CONSTRUCTION AGENCY EVENTS OF DEFAULT
5.1 Construction Agency Events of Default. If any one or more of the
-------------------------------------
following events (each a "Construction Agency Event of Default") shall occur and
------------------------------------
be continuing (after expiration of
-7-
<PAGE>
applicable notice and cure periods, if any, provided for herein or in any other
Operative Document):
(a) the Construction Agent fails to apply any funds paid by, or on
behalf of, the Lessor to the Construction Agent for the purposes
contemplated under the Operative Documents;
(b) subject to Construction Force Majeure Events, the Construction
Commencement Date with respect to any Leased Property shall fail to occur
for any reason on or prior to the date that is one year after the Closing
Date with respect to such Leased Property;
(c) the Completion Date with respect to any Leased Property shall
fail to occur for any reason on or prior to the earlier of the Funding
Termination Date and the Scheduled Construction Termination Date for such
Leased Property;
(d) any Event of Default shall have occurred and be continuing; or
(e) the Construction Agent shall fail to observe or perform in any
material respect any term, covenant or condition of this Agreement (except
those specified in clauses (a) through (d) above), and such failure shall
----------- ---
remain uncured for a period of thirty (30) days after written notice
thereof to the Construction Agent; provided, however, no Construction
-------- -------
Agency Event of Default shall be deemed to occur if such failure or breach
cannot reasonably be cured within such period, so long as the Construction
Agent shall have promptly commenced the cure thereof and continues to act
with diligence to cure such failure or breach and such failure or breach is
cured within one hundred eighty (180) days after written notice thereof to
the Construction Agent;
then, in any such event, the Lessor may, in addition to the other rights and
remedies provided for in this Article, immediately terminate this Agreement as
to any Leased Property or Properties or all of the Leased Properties,
separately, successively or concurrently (all in Lessor's sole discretion) by
giving the Construction Agent written notice of such termination, and upon the
giving of such notice, this Agreement shall terminate as to such Leased Property
or Properties or all of the Leased Properties (as the case may be) and all
rights of the Construction Agent and, subject to the terms of the Operative
Documents, all obligations of the Lessor under this Agreement with respect to
such Leased Property or Properties or all of the Leased Properties (as the case
may be) shall cease.
-8-
<PAGE>
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 which accrued prior to such termination, all of which
shall survive any such termination.
5.3 Remedies; Remedies Cumulative. (a) If a Construction Agency Event
-----------------------------
of Default shall have occurred and be continuing, the Construction Agent shall
have the right, at its option, to cure such Construction Agency Event of Default
by purchasing the affected Leased Property or Properties for the Leased Property
Balance(s) therefor from the Lessor within thirty (30) days after the occurrence
of the Construction Agency Event of Default in accordance with the terms, and
subject to the conditions, restrictions and limitations of Section 14.5 of the
Lease; in the event that the Construction Agent does not exercise its option to
purchase such Leased Property or Properties, the Construction Agent shall pay to
the Lessor the Construction Failure Payment(s) therefor within five (5) Business
Days of the demand therefor by the Lessor, and shall surrender and return such
Leased Property or Properties to the Lessor or its designee in accordance with
the terms of Section 14.8 of the Lease. In the event that the Construction
Agent returns any Leased Property to the Lessor pursuant to the previous
sentence, the Construction Agent shall take such action as the Lessor may
reasonably request in order to transfer to the Lessor (or its designee) all of
the Construction Agent's rights and claims in, to and under the related
Construction Contract(s), Architect's Agreement(s), all agreements, security
deposits, guaranties and surety bonds related thereto and all governmental
permits related to such Construction, and the Construction Agent shall provide
to the Lessor copies of all books, records and documentation with respect to the
foregoing.
(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 the
other Operative Documents 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.
-9-
<PAGE>
ARTICLE VI
NO CONSTRUCTION AGENCY FEE
6.1 Lease as Fulfillment of Lessor's Obligations. All obligations,
--------------------------------------------
duties and requirements imposed upon or allocated to the Construction Agent
shall be performed by the Construction Agent at the Construction's Agent's sole
cost and expense, and the Construction Agent will not be entitled to, and the
Lessor shall not have any obligation to pay, any agency fee or other fee or
compensation, and the Construction Agent shall not be entitled to, and the
Lessor shall not have any obligation to make or pay, any reimbursement therefor,
it being understood that this Agreement is being entered into as consideration
for and as an inducement to the Lessor entering into the Lease and the other
Operative Documents.
ARTICLE VII
LESSOR'S RIGHTS; CONSTRUCTION AGENT'S RIGHTS
7.1 Exercise of the Lessor's Rights. The Construction Agent hereby
-------------------------------
acknowledges and agrees that the rights and powers of the Lessor under this
Agreement have been assigned to, and may be exercised by, the Agent, for the
benefit of the Lenders, pursuant to the Loan Agreement and the related Operative
Documents.
7.2 Lessor's Right to Cure Construction Agent's Defaults. The Lessor,
----------------------------------------------------
without waiving or releasing any obligation or Construction Agency Event of
Default, may, upon prior written notice to the Construction Agent and expiration
of any applicable cure period (but shall be under no obligation to), remedy any
Construction Agency Event of Default for the account of and at the sole cost and
expense of the Construction Agent. All reasonable out of pocket costs and
expenses so incurred (including actual and 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.
ARTICLE VIII
MISCELLANEOUS
8.1 Notices. All notices, consents, directions, approvals, instructions,
-------
requests, demands and other communications required or permitted by the terms
hereof to be given to any Person shall be given in writing in the manner
-10-
<PAGE>
provided in, shall be sent to the respective addresses set forth in, and the
effectiveness thereof shall be governed by the provisions of, Section 8.2 of the
Master Agreement.
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
legal representatives, successors and permitted assigns. Except as permitted
herein, the Construction Agent shall not assign its rights or obligations
hereunder without the prior written consent of the Lessor and the Agent.
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 VIRGINIA, 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.
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 agreement.
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.
-11-
<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.
ROWE FURNITURE, INC.
By: /s/ Garry W. Angle
-----------------------------
Name: Garry W. Angle
Title: Treasurer
S-1
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD.
By: Atlantic Financial Managers,
Inc., its General Partner
By /s/ Stephen Brookshire
------------------------
Name: Stephen Brookshire
Title: President
S-2
<PAGE>
EXHIBIT A
Supplement to Construction Agency Agreement
-------------------------------------------
SUPPLEMENT to Construction Agency Agreement, dated as of ______________,
____, between ATLANTIC FINANCIAL GROUP, LTD., a Texas limited partnership (the
"Lessor"), and ROWE FURNITURE, INC., a Virginia corporation (in its capacity as
- -------
construction agent, the "Construction Agent"). Capitalized terms used but not
- ------------------
otherwise defined herein shall have the meanings given them in the Construction
Agency Agreement.
The Lessor and the Construction Agent are parties to that certain
Construction Agency Agreement, dated as of August ___, 1999 (as amended,
supplemented or otherwise modified, the "Construction Agency Agreement"),
-----------------------------
pursuant to which (i) the Lessor has appointed the Construction Agent as its
sole and exclusive agent in connection with the development of the Land and
construction of the Buildings in accordance with the Plans and Specifications,
and (ii) the Construction Agent has agreed, for the benefit of the Lessor, to
cause the construction of the Buildings to be completed in accordance with the
Plans and Specifications.
Subject to the terms and conditions of the Construction Agency Agreement,
the Lessor and the Construction Agent desire that the terms of the Construction
Agency Agreement apply to the Land described in Schedule 1 and wish to execute
----------
this Supplement to provide therefor.
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:
1. The Construction Agent agrees to act as Construction Agent and to
perform its obligations under the Construction Agency Agreement in connection
with the completion of construction of the Building on the Land described in
Schedule 1 in accordance with the Plans and Specifications for such Land. The
- ----------
Construction Agent hereby represents and warrants to Lessor that the
Construction Agent has heretofore delivered to Lessor a true, correct and
complete copy of the Plans and Specifications for the Building on the Land
described in Schedule 1 or, if not available on the date hereof, will deliver
- ----------
such Plans and Specifications as soon as available.
A-1
<PAGE>
2. Each of the Lessor and the Construction Agent acknowledges and agrees
that the development of the Land described in Schedule 1 and the construction of
----------
the Buildings thereon shall be governed by the terms of the Construction Agency
Agreement, the Lease and the Master Agreement.
3. The anticipated construction budget relating to the construction and
development of the Building on the Land described in Schedule 1 is set forth on
----------
Schedule 2. The acquisition cost of the Land described in Schedule 1 was
- ---------- ----------
$___________.
4. This Supplement shall, upon its execution and delivery, constitute a
part of the Construction Agency Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ROWE FURNITURE, INC.
By
------------------------------
Name:
Title:
ATLANTIC FINANCIAL GROUP, LTD.
By: Atlantic Financial Managers,
Inc., its General Partner
By
------------------------------
Name:
Title:
A-2
<PAGE>
Schedule 1 to Supplement
Description of Land
-------------------
A-3
<PAGE>
Schedule 2 to Supplement
Construction Budget
-------------------
A-4
<PAGE>
EXHIBIT (10.14)
================================================================================
GUARANTY AGREEMENT
from
THE ROWE COMPANIES,
THE MITCHELL GOLD CO.,
ROWE PROPERTIES, INC.,
STOREHOUSE, INC.,
HOME ELEMENTS, INC.,
ROWE DIVERSIFIED, INC.
and
WEXFORD COLLECTION, INC.
Dated as of August 27, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Guaranty................................................. 2
SECTION 2. Bankruptcy............................................... 3
SECTION 3. No Right of Set-Off...................................... 3
SECTION 4. Continuing Guaranty...................................... 3
SECTION 5. Reinstatement............................................ 3
SECTION 6. Certain Actions.......................................... 3
SECTION 7. Application.............................................. 4
SECTION 8. Waiver................................................... 4
SECTION 9. Assignment............................................... 4
SECTION 10. Miscellaneous............................................ 5
</TABLE>
<PAGE>
GUARANTY AGREEMENT
------------------
THIS GUARANTY AGREEMENT, dated as of August 27, 1999 (as amended or
otherwise modified from time to time, this "Guaranty"), is made by The Rowe
--------
Companies, a Nevada corporation ("Rowe Companies"), the Mitchell Gold Co., a
--------------
North Carolina corporation, Rowe Properties, Inc., a California corporation,
Storehouse, Inc., a Georgia corporation, Home Elements, Inc., a Virginia
corporation, Rowe Diversified, Inc., a Delaware corporation, and Wexford
Collection, Inc., a California corporation (the "Guarantors").
----------
W I T N E S S E T H:
-------------------
WHEREAS, Rowe Furniture, Inc. and certain other subsidiaries of The Rowe
Companies that may thereafter become party thereto, as Lessees, The Rowe
Companies, The Mitchell Gold Co., Rowe Properties, Inc., Storehouse, Inc., Home
Elements, Inc., Rowe Diversified, Inc. and Wexford Collection, Inc. and certain
other subsidiaries of The Rowe Companies that may thereafter become party
thereto, as Guarantors, Atlantic Financial Group, Ltd., as Lessor, Crestar Bank
and certain financial institutions parties thereto, as Lenders, and Crestar
Bank, as Agent, have entered into that certain Master Agreement, dated as of
August 27, 1999 (as it may be modified, amended or restated from time to time as
and to the extent permitted thereby, the "Master Agreement"; and, unless
----------------
otherwise defined herein, terms which are defined or defined by reference in the
Master Agreement (including Appendix A thereto) shall have the same meanings
when used herein as such terms have therein); and
WHEREAS, it is a condition precedent to the Funding Parties consummating
the transactions to be consummated on the Initial Closing Date that the
Guarantors execute and deliver this Guaranty; and
WHEREAS, it is in the best interests of the Guarantors that the
transactions contemplated by the Master Agreement be consummated on the Initial
Closing Date; and
WHEREAS, this Guaranty, and the execution, delivery and performance hereof,
have been duly authorized by all necessary corporate action of the Guarantors;
and
WHEREAS, this Guaranty is offered by the Guarantors as an inducement to the
Funding Parties to consummate the transactions contemplated in the Master
Agreement, which transactions, if consummated, will be of benefit to the
Guarantors;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the cash sum of $1.00
paid by each Funding Party and Rowe Furniture to each Guarantor and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Guarantors, the Guarantors hereby agree as follows:
SECTION 1. Guaranty. The Guarantors hereby, jointly and severally,
--------
unconditionally guarantee to the Agent and the Funding Parties the full and
prompt payment when due, whether by acceleration or otherwise, and at all times
thereafter, and the full and prompt performance, of all of the Liabilities (as
hereinafter defined), including interest and earnings on any such Liabilities
whether accruing before or after any bankruptcy or insolvency case or proceeding
involving any Guarantor, or any other Person and, if interest or earnings on any
portion of such obligations ceases to accrue by operation of law by reason of
the commencement of such case or proceeding, including such interest and
earnings as would have accrued on any such portion of such obligations if such
case or proceeding had not commenced, and further agrees to pay all reasonable
expenses (including reasonable attorneys' fees and legal expenses) actually paid
or incurred by each of the Funding Parties in endeavoring to collect the
Liabilities, or any part thereof, and in enforcing this Guaranty. The term
"Liabilities", as used herein, shall mean all of the following, in each case
- ------------
howsoever created, arising or evidenced, whether direct or indirect, joint or
several, absolute or contingent, or now or hereafter existing, or due or to
become due: (i) all amounts payable by the Lessees to the Agent and the Funding
Parties under the Lease (including, without limitation, Basic Rent, Supplemental
Rent and the Recourse Deficiency Amount), the Master Agreement, the Construction
Agency Agreement or any other Operative Document, and (ii) all principal of the
Notes and interest accrued thereon, and all additional amounts and other sums at
any time due and owing, and required to be paid, to the Funding Parties under
the terms of the Master Agreement, the Loan Agreement, the Construction Agency
Agreement, the Assignments of Lease and Rents, the Mortgages, the Notes or any
other Operative Document; provided, however, that the Guarantors will not be
-------- -------
obligated to pay to the Agent and Funding Parties under this Guaranty any
amounts greater than the Lessees would have had to pay to the Agent and the
Funding Parties under the Lease, the Master Agreement, the Construction Agency
Agreement and the other Operative Documents assuming that such documents were
enforced in accordance with their terms (and without giving effect to any
discharge or limitation thereon resulting or arising by reason of the bankruptcy
or insolvency of a Lessee), plus all actual and reasonable costs of enforcing
this Guaranty.
By way of extension but not in limitation of any of its other obligations
hereunder, the Guarantors stipulate and agree
2
<PAGE>
that in any event any foreclosure proceedings are commenced with respect to any
Leased Property and result in the entering of a foreclosure judgment, any such
foreclosure judgment, to the extent related to the Liabilities and payable to
any of the Funding Parties, shall be treated as part of the Liabilities, and the
Guarantors, jointly and severally, unconditionally guarantee the full and prompt
payment of such judgment.
SECTION 2. Bankruptcy. Each Guarantor agrees that, in the event any
----------
bankruptcy, reorganization or insolvency proceeding shall be instituted by or
against such Guarantor and, if instituted against such Guarantor, shall not be
dismissed or stayed for a period of sixty days, and if such event shall occur at
a time when any of the Liabilities may not then be due and payable, such
Guarantor will pay to the Funding Parties forthwith the full amount which would
be payable hereunder by it if all Liabilities were then due and payable.
SECTION 3. No Right of Set-Off. Notwithstanding anything contained herein
-------------------
to the contrary, each Funding Party hereby waives any setoff rights it may have
at law or equity against any of the balances, credits, deposits, accounts or
moneys of any Guarantor held by such Funding Party.
SECTION 4. Continuing Guaranty. THIS GUARANTY SHALL IN ALL RESPECTS BE A
-------------------
CONTINUING, ABSOLUTE AND UNCONDITIONAL GUARANTY OF PROMPT AND COMPLETE PAYMENT
AND PERFORMANCE (AND NOT MERELY OF COLLECTION), AND SHALL REMAIN IN FULL FORCE
AND EFFECT (NOTWITH-STANDING, WITHOUT LIMITATION, THE DISSOLUTION OF ANY
GUARANTOR) UNTIL THE TERMINATION OF THE COMMITMENTS AND THE FULL AND FINAL
PAYMENT OF ALL OF THE LIABILITIES.
SECTION 5. Reinstatement. Each Guarantor further agrees that, if at any
-------------
time all or any part of any payment theretofore applied to any of the
Liabilities is or must be rescinded or returned for any reason whatsoever
(including, without limitation, the insolvency, bankruptcy or reorganization of
any Guarantor), such Liabilities shall, for the purposes of this Guaranty, to
the extent that such payment is or must be rescinded or returned, be deemed to
have continued in existence, notwithstanding such application, and this Guaranty
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application had not been made.
SECTION 6. Certain Actions. The Funding Parties may, from time to time
---------------
at their discretion and without notice to any Guarantor, take any or all of the
following actions: (a) retain or obtain (i) a security interest in any Lessee's
interests in the Lease and (ii) a lien or a security interest hereafter granted
by any Person upon or in any property (other than
3
<PAGE>
Lessee's Property and property listed as Permitted Encumbrances), located on the
Land or in the Building, in each case to secure any of the Liabilities or any
obligation hereunder; (b) retain or obtain the primary or secondary obligation
of any obligor or obligors, in addition to the Guarantors, with respect to any
of the Liabilities; (c) extend or renew for one or more periods (regardless of
whether longer than the original period), or release or compromise any
obligation of the Guarantors hereunder or any obligation of any nature of any
other obligor (including, without limitation, the Lessor and the Lessees) with
respect to any of the Liabilities; (d) release or fail to perfect its Lien upon
or security interest in, or impair, surrender, release or permit any
substitution or exchange for, all or any part of any property securing any of
the Liabilities or any obligation hereunder, or extend or renew for one or more
periods (regardless of whether longer than the original period) or release or
compromise any obligations of any nature of any obligor with respect to any such
property; and (e) resort to the Guarantors for payment of any of the
Liabilities, regardless of whether the Agent or any other Person shall have
resorted to any property securing any of the Liabilities or any obligation
hereunder or shall have proceeded against any Lessee or any other obligor
primarily or secondarily obligated with respect to any of the Liabilities (all
of the actions referred to in this clause (e) being hereby expressly waived by
----------
each Guarantor).
SECTION 7. Application. Any amounts received by any Funding Party from
-----------
whatever source on account of the Liabilities shall be applied by it toward the
payment of such of the Liabilities, and in such order of application, as is set
forth in the Operative Documents.
SECTION 8. Waiver. Each Guarantor hereby expressly waives: (a) notice of
------
the acceptance of this Guaranty; (b) notice of the existence or creation or non-
payment of all or any of the Liabilities; (c) presentment, demand, notice of
dishonor, protest, and all other notices whatsoever; and (d) all diligence in
collection or protection of or realization upon the Liabilities or any thereof,
any obligation hereunder, or any security for or guaranty of any of the
foregoing.
SECTION 9. Assignment. Subject to Article 6 of the Master Agreement,
----------
each Funding Party may, from time to time, whether before or after any
discontinuance of this Guaranty, at its sole discretion and without notice to
the Guarantors, assign or transfer any or all of its portion of the Liabilities
or any interest therein; and, notwithstanding any such assignment or transfer or
any subsequent assignment or transfer thereof, such Liabilities shall be and
remain Liabilities for the purposes of this Guaranty, and each and every such
immediate and successive assignee or transferee of any of the Liabilities or of
any
4
<PAGE>
interest therein shall, to the extent of such assignee's or transferee's
interest in the Liabilities, be entitled to the benefits of this Guaranty to the
same extent as if such assignee or transferee were such Funding Party.
SECTION 10. Miscellaneous. No delay in the exercise of any right or
-------------
remedy shall operate as a waiver thereof, and no single or partial exercise of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy; nor shall any modification or waiver of
any of the provisions of this Guaranty be binding upon any Funding Party except
as expressly set forth in a writing duly signed and delivered on its behalf. No
action permitted hereunder shall in any way affect or impair any Funding Party's
rights or the Guarantors' obligations under this Guaranty. For the purposes of
this Guaranty, Liabilities shall include all of the obligations described in the
definition thereof, notwithstanding any right or power of any Lessee or the
Lessor or anyone else to assert any claim or defense (other than final payment
or full performance) as to the invalidity or unenforceability of any such
obligation, and no such claim or defense shall affect or impair the obligations
of the Guarantors hereunder. Each Guarantor hereby acknowledges that there are
no conditions to the effectiveness of this Guaranty.
This Guaranty shall be binding upon each Guarantor and upon each
Guarantor's successors and permitted assigns; and all references herein to the
Guarantors or any Guarantor shall be deemed to include any successor or
successors, whether immediate or remote, to such Person; provided that no
--------
Guarantor shall assign its obligations hereunder without the prior written
consent of the Agent on behalf of the Funding Parties.
Wherever possible each provision of this Guaranty shall be interpreted in
such manner as to be effective and valid under Applicable Law, but if any
provision of this Guaranty shall be prohibited by or invalid thereunder, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guaranty.
Each Guarantor: (a) submits for itself and its property in any legal
action or proceeding relating to this Guaranty, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of Virginia, the courts of the United
States of America for the Western District of Virginia, and appellate courts
from any thereof; (b) consents that any such action or proceedings may be
brought to 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
5
<PAGE>
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
delivering a copy thereof to it at its address set forth in the Master Agreement
or at such other address of which the other parties to the Master Agreement
shall have been notified pursuant to Section 8.2 of the Master Agreement; and
(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 of the
Funding Parties to sue in any other jurisdiction.
All notices, demands, declarations, consents, directions, approvals,
instructions, requests and other communications required or permitted by this
Guaranty shall be in writing and shall be deemed to have been duly given when
addressed to the appropriate Person and delivered in the manner specified in
Section 8.2 of the Master Agreement.
THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF VIRGINIA, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
6
<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this Guaranty to be executed
and delivered as of the date first above written.
THE ROWE COMPANIES, as Guarantor
By: /s/ Garry W. Angle
-------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: ASSISTANT TREASURER
----------------------------------
THE MITCHELL GOLD CO.,
as Guarantor
By: /s/ Garry W. Angle
-------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
----------------------------------
ROWE PROPERTIES, INC.,
as Guarantor
By: /s/ Garry W. Angle
-------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
----------------------------------
STOREHOUSE, INC.,
as Guarantor
By: /s/ Garry W. Angle
------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
----------------------------------
HOME ELEMENTS, INC., as Guarantor
By: /s/ Garry W. Angle
-------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
ROWE DIVERSIFIED, INC.,
as Guarantor
By: /s/ Garry W. Angle
------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
S-1
<PAGE>
WEXFORD COLLECTION, INC.,
as Guarantor
By: /s/ Garry W. Angle
------------------------------------
Name Printed: GARRY W. ANGLE
---------------------------
Title: TREASURER
----------------------------------
S-2
<PAGE>
EXHIBIT (10.15)
APPENDIX A
to
Master Agreement, Lease,
Loan Agreement and Construction Agency Agreement
------------------------------------------------
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
--------------
intention appears:
(i) the singular number includes the plural number and vice versa;
---- -----
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative Document),
document or instrument means such agreement, document or instrument as
amended, supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms of the
other Operative Documents and reference to any promissory note includes any
promissory note which is an extension or renewal thereof or a substitute or
replacement therefor;
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any Applicable Law means that provision of such Applicable Law from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other
provision;
(vi) reference in any Operative Document to any Article, Section,
------- -------
Appendix, Schedule or Exhibit means such Article or Section thereof or
-------- -------- ------- ------- -------
Appendix, Schedule or Exhibit thereto;
-------- -------- -------
(vii) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to an Operative Document as a whole and not to
any particular Article,
-------
<PAGE>
Section, paragraph or other provision of such Operative Document;
-------
(viii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding".
B. Accounting Terms. In each Operative Document, unless expressly
----------------
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. Bridge Agreement. Letter Agreement dated April 28, 1999 by and among
----------------
Atlantic Financial Group, Ltd. and Rowe Furniture Inc. (formerly known as Rowe
Industries, Inc.), as amended through the Closing Date.
D. Conflict in Operative Documents. If there is any conflict between any
-------------------------------
Operative Documents, each such Operative Document shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Master Lease Agreement
shall prevail and control.
E. Defined Terms. Unless a clear contrary intention appears, terms
-------------
defined herein have the respective indicated meanings when used in each
Operative Document.
"A Loan" means the A Percentage of Fundings made pursuant to the Loan
------
Agreement and the Master Agreement.
"A Note" is defined in Section 2.2 of the Loan Agreement.
------
"A Percentage" means 85%.
------------
"Address" means with respect to any Person, its address set forth in
-------
Schedule 8.2 to the Master Agreement or such other address as it shall have
identified to the parties to the Master Agreement in writing in the manner
provided for the giving of notices thereunder.
"Adjusted LIBO Rate" means with respect to each day during each Rent Period
------------------
pertaining to a LIBOR Advance, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
-2-
<PAGE>
LIBOR
-------------------------------------
1 - Eurocurrency Reserve Requirements
"Advance" means a LIBOR Advance or a Prime Rate Advance.
-------
"Affiliate" means any Person which directly or indirectly controls, or is
---------
controlled by, or is under common control with, an Obligor. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"After-Tax Basis" means (a) with respect to any payment to be received by
---------------
an Indemnitee (which, for purposes of this definition, shall include any Tax
Indemnitee), the amount of such payment supplemented by a further payment or
payments so that, after deducting from such payments the amount of all Taxes
(net of any current credits, deductions or other Tax benefits arising from the
payment by the Indemnitee of any amount, including Taxes, for which the payment
to be received is made) imposed currently on the Indemnitee by any Governmental
Authority or taxing authority with respect to such payments, the balance of such
payments shall be equal to the original payment to be received and (b) with
respect to any payment to be made by any Indemnitee, the amount of such payment
supplemented by a further payment or payments so that, after increasing such
payment by the amount of any current credits or other Tax benefits realized by
the Indemnitee under the laws of any Governmental Authority or taxing authority
resulting from the making of such payments, the sum of such payments (net of
such credits or benefits) shall be equal to the original payment to be made;
provided, however, for the purposes of this definition, and for purposes of any
- -------- -------
payment to be made to either a Lessee or an Indemnitee on an after-tax basis, it
shall be assumed that (i) federal, state and local taxes are payable at the
highest combined marginal federal and state statutory income tax rate (taking
into account the deductibility of state income taxes for federal income tax
purposes) applicable to corporations from time to time and (ii) such Indemnitee
or such Lessee has sufficient income to utilize any deductions, credits (other
than foreign tax credits, the use of which shall be determined on an actual
basis) and other Tax benefits arising from any payments described in clause (b)
----------
of this definition.
"Agent" means Crestar Bank, a Virginia banking corporation, in its capacity
-----
as agent under the Master Agreement and the Loan Agreement.
"Alterations" means, with respect to any Leased Property, alterations,
-----------
improvements, modifications and additions to such Leased Property.
-3-
<PAGE>
"Applicable Law" means all applicable laws (including Environmental Laws),
--------------
rules, regulations (including proposed, temporary and final income tax
regulations), statutes, treaties, codes, ordinances, permits, certificates,
orders and licenses of and interpretations by, any Governmental Authority, and
applicable judgments, decrees, injunctions, writs, orders or like action of any
court, arbitrator or other administrative, judicial or quasi-judicial tribunal
or agency of competent jurisdiction (including those pertaining to health,
safety or the environment (including, without limitation, wetlands) and those
pertaining to the construction, use or occupancy of any Leased Property).
"Applicable Margin" means with respect to each day (i) for each LIBOR
-----------------
Advance the applicable percentage set forth below for the corresponding Funded
Debt to Cash Flow Ratio as most recently determined based on Rowe Companies'
most recent audited annual or unaudited quarterly consolidated financial
statements, tested each quarter on a rolling four quarter basis beginning August
31, 1999, as applicable, and (ii) 0% for each Prime Rate Advance.
Applicable Margin for LIBOR Advances
------------------------------------
Funded Debt to Cash Flow Ratio Spread over LIBOR
- ------------------------------ -----------------
greater than 2.25:1.00 1.30%
less than 2.25:1.00 1.00%
less than 2.00:1.00 0.80%
less than 1.75:1.00 0.65%
less than 1.25:1.00 0.50%
less than 0.50:1.00 0.35%
"Appraisal" is defined in Section 3.1 of the Master Agreement.
---------
"Appraiser" means an MAI appraiser appointed by the Agent and reasonably
---------
satisfactory to the related Lessee.
"Appurtenances" means, with respect to any Land, (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 such Land or the Buildings thereon, including
without limitation, the use of any streets, ways, alleys, vaults or strips of
land adjoining, abutting, adjacent or contiguous to such Land and (ii) all
permits, licenses and rights, whether or not of record, appurtenant to such
Land.
"Architect" means with respect to any Leased Property the architect engaged
---------
in connection with the construction of the related Building, if any, who may be
an employee of the General Contractor for such Leased Property.
-4-
<PAGE>
"Architect's Agreement" means, with respect to any Leased Property, the
---------------------
architectural services agreement, if any, between the Construction Agent (or a
Lessee) and the related Architect.
"Assignment and Assumption" means an assignment and assumption agreement,
-------------------------
substantially in the form of Exhibit F to the Master Agreement.
"Assignment of Lease and Rents" means, with respect to any Leased Property,
-----------------------------
the Assignment of Lease and Rents, dated as of the related Closing Date, from
the Lessor to the Agent, substantially in the form of Exhibit B to the Master
Agreement.
"Award" means any award or payment received by or payable to the Lessor or
-----
a Lessee on account of any Condemnation or Event of Taking (less the actual
costs, fees and expenses, including reasonable attorneys' fees, incurred in the
collection thereof, for which the Person incurring the same shall be reimbursed
from such award or payment).
"B Loan" means the B Percentage of Fundings made pursuant to the Loan
------
Agreement and the Master Agreement.
"B Note" is defined in Section 2.2 of the Loan Agreement.
------
"B Percentage" means 11.5%.
------------
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended.
---------------
"Base Term" means, with respect to any Leased Property, (a) the period
---------
commencing on the related Closing Date and ending on August __, 2004 or (b) such
shorter period as may result from earlier termination of the Lease as provided
therein.
"Basic Rent" means the rent payable pursuant to Section 3.1 of the Lease,
----------
determined in accordance with the following: each installment of Basic Rent
payable on any Payment Date shall be in an amount equal to the sum of (A) the
aggregate amount of Lender Basic Rent payable on such Payment Date, plus (B) the
----
aggregate amount of Lessor Basic Rent payable on such Payment Date, in each case
for the Leased Property or Properties that are then subject to the Lease.
"Beneficial Owner" has the meaning defined in Rule 13-D-3 of the Securities
----------------
and Exchange Commission.
"Board" means the Board of Governors of the Federal Reserve System and any
-----
successor thereto or to the functions thereof.
-5-
<PAGE>
"Board of Directors", with respect to a corporation, means either the Board
------------------
of Directors or any duly authorized committee of that Board which pursuant to
the by-laws of such corporation has the same authority as that Board as to the
matter at issue.
"Building" means, with respect to any Leased Property, the buildings,
--------
structures and improvements located or to be located on the related Land, along
with all fixtures used or useful in connection with the operation of such Leased
Property, including, without limitation, all furnaces, boilers, compressors,
elevators, fittings, pipings, connectives, conduits, ducts, partitions,
equipment and apparatus of every kind and description now or hereafter affixed
or attached to the Building, financed by the Lessor and/or the Lenders and all
Alterations (including all restorations, repairs, replacements and rebuilding of
such buildings, improvements and structures) thereto (but in each case excluding
Lessee's Property). The property intended by the parties on the Closing Date to
be financed by the Lessor and/or the Lenders is set forth on Schedule I to the
Lease Supplement.
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which banks are required or authorized to be closed for business in Roanoke,
Virginia and, if the applicable Business Day relates to a LIBOR Advance, on
which trading is not carried on by and between banks in the London interbank
market.
"Capital Stock" means any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Capitalized Lease Obligations" means with respect to any person any and
-----------------------------
all lease obligations required or permitted under GAAP to be capitalized on the
books of such person.
"Casualty" means an event of damage or casualty relating to all or part of
--------
any Leased Property that does not constitute an Event of Loss.
"Claims" means liabilities, obligations, damages, losses, demands,
------
penalties, fines, claims, actions, suits, judgments, proceedings, settlements,
utility charges, costs, expenses and disbursements (including, without
limitation, reasonable legal fees and expenses) of any kind and nature
whatsoever.
"Closing Date" means the date on which the initial Funding occurs under the
------------
Master Agreement.
"Code" or "Tax Code" means the Internal Revenue Code of 1986, as amended.
---- --------
-6-
<PAGE>
"Commitment" means as to each Funding Party, its obligation to make
----------
Fundings as investments in each Leased Property, or to make Loans to the Lessor,
in an aggregate amount not to exceed at any one time outstanding the amount set
forth for such Funding Party on Schedule 2.2 to the Master Agreement (as it may
be adjusted from time to time pursuant to Section 6 of the Master Agreement).
"Commitment Percentage" means as to any Funding Party, at a particular
---------------------
time, the percentage of the aggregate Commitments in effect at such time
represented by such Funding Party's Commitment, as such percentage is shown for
such Funding Party on Schedule 2.2 to the Master Agreement (as it may be
adjusted from time to time pursuant to Section 6 of the Master Agreement).
"Commonly Controlled Entity" means an entity, whether or not incorporated,
--------------------------
which is under common control with Rowe Companies within the meaning of Section
4001 of ERISA or is part of a group which includes the Company and which is
treated as a single employer under Section 414 of the Code.
"Competitor" means any Person significantly and directly engaged in the
----------
business of (x) providing information or processing services to third parties
particularly in the transaction card (such as credit cards, debit cards and
retail cards) processing or mutual fund business or (y) payment instruments or
consumer funds transfers.
"Completion Date" with respect to any Leased Property means the Business
---------------
Day on which the conditions specified in Section 3.5 of the Master Agreement
have been satisfied or waived with respect to such Leased Property.
"Condemnation" means any condemnation, requisition, confiscation, seizure
------------
or other taking or sale of the use, occupancy or title to any Leased Property or
any part thereof in, by or on account of any actual eminent domain proceeding or
other action by any Governmental Authority or other Person under the power of
eminent domain or any transfer in lieu of or in anticipation thereof, which in
any case does not constitute an Event of Taking. A Condemnation shall be deemed
to have "occurred" on the earliest of the dates that use is prevented or
occupancy or title is taken.
"Construction" means, with respect to any Leased Property, the construction
------------
of the related Building pursuant to the related Plans and Specifications.
"Construction Agency Agreement" means the Construction Agency Agreement,
-----------------------------
dated as of August 27, 1999, between Rowe Furniture and the Lessor.
-7-
<PAGE>
"Construction Agency Event of Default" is defined in Section 5.1 of the
------------------------------------
Construction Agency Agreement.
"Construction Agent" means Rowe Furniture in its capacity as construction
------------------
agent pursuant to the Construction Agency Agreement.
"Construction Budget" is defined in Section 2.4 of the Construction Agency
-------------------
Agreement.
"Construction Commencement Date" is defined in Section 2.3 of the
------------------------------
Construction Agency Agreement.
"Construction Conditions" means the conditions set forth in Section 3.5 of
-----------------------
the Master Agreement.
"Construction Contract" means, with respect to any Leased Property, that
---------------------
certain construction contract, if any, between a Lessee or the Construction
Agent and a General Contractor for the Construction of the related Building,
provided that such contract shall be assigned to the Lessor, and such assignment
shall be consented to by such General Contractor, pursuant to an assignment of
such construction contract substantially in the form of the Security Agreement
and Assignment set forth as Exhibit D to the Master Agreement.
"Construction Failure Payment" with respect to any Leased Property means an
----------------------------
amount equal to the sum of (i) 100% of the acquisition cost of the related Land,
plus (ii) 89.9% of the Construction costs (including development and transaction
- ----
costs, but excluding any upfront structuring fees) related to such Leased
Property that have been incurred through the date of payment, plus (iii) any
----
amounts owed with respect to such Leased Property pursuant to Section 3.3 of the
Construction Agency Agreement or Section 7.2 or 7.5 of the Master Agreement,
plus (iv) the cost of tenant improvements that were not part of the Construction
- ----
Budget for such Leased Property.
"Construction Force Majeure Event" means, with respect to any Leased
--------------------------------
Property:
(a) an act of God arising after the related Closing Date, or
(b) any change in any state or local law, regulation or other legal
requirement arising after such Closing Date and relating to the use of
the Land or the construction of a building on the Land, or
(c) strikes, lockouts, labor troubles, unavailability of materials, riots,
insurrections or other causes beyond a Lessee's control
-8-
<PAGE>
which prevents the Construction Agent from completing the Construction prior to
the Scheduled Construction Termination Date and which could not have been
avoided or which cannot be remedied by the Construction Agent through the
exercise of all commercially reasonable efforts or the expenditure of funds (but
only to the extent commercially reasonable) and, in the case of (b) above, the
existence or potentiality of which was not known prior to such Closing Date
through the exercise of reasonable due diligence by the Construction Agent.
"Construction Land Interest" means each parcel of Land for which the
--------------------------
Completion Date has not yet occurred.
"Construction Term" means, with respect to any Leased Property, the period
-----------------
commencing on the related Closing Date and ending on the related Construction
Term Expiration Date, or such shorter period as may result from earlier
termination of the Lease as provided therein.
"Construction Term Expiration Date" means, with respect to any Leased
---------------------------------
Property, the earliest of the following:
(a) the related Completion Date,
(b) the date on which the aggregate Funded Amounts equal the Commitments,
and
(c) the related Scheduled Construction Termination Date.
"Contractual Obligation", as applied to any Person, means any provision of
----------------------
any Securities issued by that Person or any indenture, mortgage, deed of trust,
contract, undertaking, agreement, instrument or other document to which that
Person is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting any of the properties of such Person).
"Crestar Bank" means Crestar Bank, a Virginia banking corporation.
------------
"Deed" means, with respect to any Land, a General Warranty Deed (or, if the
----
related Title Policy is acceptable to the related Lessee and the Agent, a
Special or Limited Warranty Deed), from the applicable Seller to the Lessor,
conveying such Land.
"Default" means any of the events specified in Article XII of the Lease,
-------
without giving effect to any requirement for the giving of notice, for the lapse
of time, or both, or for the happening of any other condition, event or act.
-9-
<PAGE>
"Dollars" and the sign "$" means lawful money of the United States of
-------
America.
"Eligible Assignee" means (i) a commercial bank organized under the laws of
-----------------
the United States, or any state thereof, or any foreign bank that has a branch
or agency in the United States, having total assets in excess of $1,000,000,000
or any commercial finance or asset based lending Affiliate of any commercial
bank and (ii) any Lender or any Affiliate of any Lender, which, in either case,
is not a Competitor.
"Environmental Audit" means, with respect to each parcel of Land, a Phase I
-------------------
Environmental Assessment, dated no more than 90 days prior to the related
Closing Date, by an environmental services firm reasonably satisfactory to the
Funding Parties and the applicable Lessee.
"Environmental Laws" means and include the Resource Conservation and
------------------
Recovery Act of 1976, (RCRA) 42 U.S.C. (S)(S) 6901-6987, as amended by the
Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. (S)(S) 9601-9657, (CERCLA), the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. (S)(S) 1801-1812, the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601-2671, the Clean Air Act, 42
U.S.C. (S)(S) 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. (S)(S) 136 et seq., and all similar federal, state and local
environmental laws, ordinances, rules, orders, statutes, decrees, judgments,
injunctions, codes and regulations, and any other federal, state or local laws,
ordinances, rules, codes and regulations, relating to the environment, human
health or natural resources or the regulation or control of or imposing
liability or standards of conduct concerning human health, the environment,
Hazardous Materials or the clean-up or other remediation of any Leased Property,
or any part thereof, as any of the foregoing may have been from time to time
amended, supplemented or supplanted.
"Environmental Permits" means all permits, licenses, authorizations,
---------------------
certificates and approvals of Governmental Authorities required by Environmental
Laws.
"EPA" shall mean the United States Environmental Protection Agency.
---
"Equity" means total stockholders' equity as determined in accordance with
------
GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time or any successor federal statute.
-10-
<PAGE>
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
which together with the Lessee would be treated as a single employer under
Section 4001 of ERISA.
"Eurocurrency Reserve Requirements" means for any day as applied to a LIBOR
---------------------------------
Advance, the maximum rate (expressed as a decimal) at which reserves (including
any marginal, supplemental, or emergency reserves) are required to be maintained
on such day under Regulation D by a member of the Federal Reserve System against
"Eurocurrency liabilities" (as such term is used in Regulation D). Without
limiting the effect of the foregoing, the Eurocurrency Reserve Requirement shall
reflect any other reserves required to be maintained by a member of the Federal
Reserve System against (1) any category of liabilities which includes deposits
by reference to which the interest rate for LIBOR Advances is to be determined;
or (2) any category of extensions of credit or other assets which include LIBOR
Advances.
"Event of Default" means any event or condition designated as an "Event of
----------------
Default" in Article XII of the Lease.
"Event of Loss" is defined in Section 10.1 of the Lease.
-------------
"Event of Taking" is defined in Section 10.2 of the Lease.
---------------
"Excluded Individuals" means with respect to any Person, the officers,
--------------------
directors, employees, agents and representatives of such Person involved,
directly or indirectly, in (a) any aspect of its transaction card business, such
as credit cards, debit cards or retail cards, (b) the securities investment
decisions of such Person whether made for its own account or the accounts of
others, (c) the payment instruments and consumer funds transfer business of such
Person or (d) the transfer agent services and custodial accounts business of
such Person.
"Executive Officer" means with respect to any Person, the Chief Executive
-----------------
Officer, President, Vice Presidents (if elected by the Board of Directors of
such Person), Chief Financial Officer, Treasurer, Assistant Treasurer,
Secretary, Assistant Secretary and any Person holding comparable offices or
duties (if elected by the Board of Directors of such Person).
"Fair Market Sales Value" means, with respect to any Leased Property or any
-----------------------
portion thereof, the fair market sales value as determined by an independent
appraiser chosen by the Lessor or, so long as any Loans are outstanding, the
Agent, and, unless an Event of Default has occurred and is continuing,
reasonably acceptable to the related Lessee (provided if the Lessor and Lessee
cannot agree each shall select an independent appraiser and the two (2) selected
shall select a third whose decision shall be binding), that would be obtained in
an arm's-length
-11-
<PAGE>
transaction between an informed and willing buyer (other than a lessee currently
in possession) and an informed and willing seller, under no compulsion,
respectively, to buy or sell and neither of which is related to the Lessor or
any Lessee, for the purchase of such Leased Property. Such fair market sales
value shall be calculated as the value for such Leased Property, assuming, in
the determination of such fair market sales value, that such Leased Property is
in the condition and repair required to be maintained by the terms of the Lease
(unless such fair market sales value is being determined for purposes of Section
13.1 of the Lease and except as otherwise specifically provided in the Lease or
the Master Agreement, in which case this assumption shall not be made).
"Final Rent Payment Date" with respect to any Leased Property is defined in
-----------------------
Section 13.1(e) of the Lease.
"Financing Lease" means any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"Funded Amount" means, as to the Lessor, the Lessor's Invested Amounts,
-------------
and, as to each Lender, the outstanding principal amount of such Lender's Loans.
"Funded Debt" means the aggregate of all Indebtedness of Rowe Companies
-----------
plus Capitalized Lease Obligations.
"Funded Debt to Cash Flow Ratio" means a ratio of Funded Debt to earnings
------------------------------
before interest, depreciation, taxes, amortization and Rent (EBITDAR) (as
determined in accordance with GAAP).
"Funding" means any funding by the Funding Parties pursuant to Section 2.2
-------
of the Master Agreement.
"Funding Date" means the Closing Date and each other date during the
------------
Construction Term on which a Funding occurs under Section 2 of the Master
Agreement.
"Funding Parties" means the Lessor and the Lenders, collectively.
---------------
"Funding Party Balance" means, with respect to any Leased Property, (i) for
---------------------
the Lessor as of any date of determination, an amount equal to the sum of the
outstanding related Lessor's Invested Amount, all accrued and unpaid Yield on
such outstanding related Lessor's Invested Amount, all unpaid related fees owing
by any Obligor to the Lessor under the Operative Documents, and all other
related amounts owing to the Lessor by the Lessees
-12-
<PAGE>
under the Operative Documents, and (ii) for any Lender as of any date of
determination, an amount equal to the sum of the outstanding related Loans of
such Lender, all accrued and unpaid interest thereon, all unpaid related fees
owing to such Lender by any Obligor under the Operative Documents, and all other
related amounts owing to such Lender by the Lessees under the Operative
Documents.
"Funding Request" is defined in Section 2.2 of the Master Agreement.
---------------
"Funding Termination Date" means December 31, 2000.
------------------------
"GAAP" means as to a particular Person, such accounting principles as, in
----
the opinion of the independent public accountants regularly retained by such
Person, conform at the time to United States generally accepted accounting
principles.
"General Partner" means Atlantic Financial Managers, Inc., a Texas
---------------
corporation.
"Governmental Action" means all permits, authorizations, registrations,
-------------------
consents, approvals, waivers, exceptions, variances, orders, judgments, decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with, or required by, any Governmental Authority, or required by any Applicable
Law and shall include, without limitation, all citings, environmental and
operating permits and licenses that are required for the use, occupancy, zoning
and operation of any Leased Property.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation" means as to any Person (the "guaranteeing person"),
-------------------- -------------------
and without duplication, any obligation of (a) the guaranteeing person or (b)
another Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness (the "primary
-------
obligations") of any other third Person (the "primary obligor") in any manner,
- ----------- ---------------
whether directly or indirectly, including, without limitation, any obligation of
the guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (1) for the purchase or payment of any
such primary obligation or (2) to maintain working capital or equity capital of
the primary
-13-
<PAGE>
obligor or otherwise to maintain the net worth or solvency of the primary
obligor or (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation; provided,
--------
however, that the term Guarantee Obligation shall not include (x) endorsements
- ------
of instruments for deposit or collection in the ordinary course of business, (y)
any bond or guarantee given by The Rowe Companies or any Affiliate or Subsidiary
on behalf of any Affiliate or Subsidiary solely for the performance of
contractual obligations with customers or on behalf of customers in the ordinary
course of business by such Affiliate or Subsidiary. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Lessee in good faith.
"Guarantor" is defined in the preamble to the Master Agreement.
---------
"Guaranty" means the Guaranty Agreement, dated as of August __, 1999,
--------
issued by the Guarantors.
"Hazardous Material" means any substance, waste or material which is toxic,
------------------
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous, including petroleum, crude oil or any fraction
thereof, petroleum derivatives, by products and other hydrocarbons, or which is
or becomes regulated under any Environmental Law by any Governmental Authority,
including any agency, department, commission, board or instrumentality of the
United States, any jurisdiction in which a Leased Property is located or any
political subdivision thereof and also including, without limitation, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon
----
gas.
"Indebtedness" means, with respect to any Person at any time, without
------------
duplication, (i) all obligations of such Person for borrowed money, including
but not limited to the existing $6,000,000 Industrial Revenue Bond financing for
the 263,000 square foot manufacturing facility of The Mitchell Gold Co. in
Taylorsville, North Carolina, and any standby letters of credit and corporate
credit card obligations, (ii) all obligations of
-14-
<PAGE>
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person upon which interest charges are customarily
paid, (iv) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (v) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (other than accounts payable to suppliers incurred in the
ordinary course of business and not overdue), (vi) all obligations of others
secured by any lien, security interest or encumbrance on property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (vii) all Capitalized Lease Obligations of such Person, (viii)
current liabilities in respect of unfunded vested benefits under any Plan, of
Rowe Companies and (ix) all Guarantee Obligations of such Person and/or its
Subsidiaries (but without double counting any Guarantee Obligation when
accounted for on a consolidated basis), provided that, with respect to the
Guaranty, such obligations shall be limited to eighty five percent (85%) of the
outstanding Lease Balance.
"Indemnitee" means the Agent (in its individual capacity and in its
----------
capacity as Agent), each Lender, and the Lessor, and their respective
Affiliates, successors, permitted assigns, permitted transferees, employees,
officers, directors and agents.
"Indemnitee Group" means the respective Affiliates, employees, officers,
----------------
directors and agents of the Agent (in its individual capacity), each Lender or
the Lessor, as applicable.
"Interest Expense" means with respect to the Indebtedness of Rowe Companies
----------------
and its Subsidiaries for the applicable period, all amounts which would, in
accordance with GAAP, be incurred or expensed during such period with respect to
interest on such Indebtedness, including, without limitation, (i) imputed
interest in respect of Financing Leases, (ii) amortization of debt discount
expense and (iii) capitalized interest expense.
"Joinder Agreement" means an agreement substantially in the form of Exhibit
-----------------
J to the Master Agreement pursuant to which a Subsidiary of Rowe Companies shall
become a Lessee.
"Land" means the land described in the related Lease Supplement.
----
"Laws" means all ordinances, statutes, rules, regulations, orders,
----
injunctions, writs, treaties or decrees of any Governmental Authority, or of any
court or similar entity established by any thereof.
-15-
<PAGE>
"Lease" means the Master Lease Agreement, dated as of August __, 1999
-----
together with each Lease Supplement thereto, among the Lessees and the Lessor.
"Lease Balance" means, with respect to all of the Leased Properties, as of
-------------
any date of determination, an amount equal to the aggregate sum of the
outstanding Funded Amounts of all Funding Parties, all accrued and unpaid
interest on the Loans, all accrued and unpaid Yield on the Lessor's Invested
Amounts, all unpaid fees owing to the Funding Parties under the Operative
Documents, including all other amounts owing to the Funding Parties by the
Lessees under the Operative Documents.
"Lease Supplement" is defined in Section 2.1 of the Lease.
----------------
"Lease Term" means (a) the Base Term, as it may be renewed pursuant to
----------
Section 14.9 of the Lease or (b) such shorter period as may result from earlier
termination of the Lease as provided therein.
"Lease Termination Date" means the last day of the Lease Term.
----------------------
"Leased Property" means Land and the related Building(s) and Appurtenances.
---------------
For purposes of the Lease, "Leased Property" means the Land identified in a
Lease Supplement and the Buildings related thereto and Appurtenances, unless the
context provides otherwise, but expressly excludes Lessee's Property.
"Leased Property Balance" means, with respect to any Leased Property, as of
-----------------------
any date of determination, an amount equal to the aggregate sum of the
outstanding related Funded Amounts of all Funding Parties, all accrued and
unpaid interest on the related Loans, all accrued and unpaid Yield on the
related Lessor Invested Amounts, all related unpaid fees owing to the Funding
Parties under the Operative Documents, and all other amounts owing to the
Funding Parties by any Lessee under the Operative Documents with respect to such
Leased Property.
"Lender Basic Rent" means, for any Rent Period under the Lease, the
-----------------
aggregate amount of interest accrued on the Loans pursuant to Section 2.4 of the
Loan Agreement during such Rent Period.
"Lenders" means such financial institutions as are, or who may hereafter
-------
become, parties to the Loan Agreement as lenders to the Lessor as permitted
under Section 6.2(b) of the Master Agreement.
-16-
<PAGE>
"Lending Office" for each Lender means the office such Lender designates in
--------------
writing from time to time to Rowe Furniture and the Agent.
"Lessee" is defined in the preamble to the Master Agreement. The "related"
------
Lessee with respect to any Leased Property means the Lessee that is party to the
Lease Supplement for such Leased Property.
"Lessee's Property" means personal property and all renewals and
-----------------
replacements thereof, in each case, now owned or hereafter acquired by the
Lessee or any subtenant or permitted assignee of the Lessee and installed or
located at or on the Leased Property or necessary for the operations of the
Lessee's business that (i) is not financed by any Funding advanced under any
Operative Document, (ii) is not permanently affixed or attached to the Building
so that it does not constitute an integral part of the Leased Property and (iii)
would not diminish the value of the Leased Property when removed. The property
intended by the parties on the Closing Date to be financed by the Lessor and/or
the Lenders is set forth on Schedule I to the Lease Supplement.
"Lessor" is defined in the preamble to the Master Agreement.
------
"Lessor Basic Rent" means, for any Rent Period under the Lease, the
-----------------
aggregate amount of Yield accrued and unpaid on the Lessor's Invested Amounts
pursuant to Section 2.3(a) of the Master Agreement during such Rent Period.
"Lessor Liens" means Liens on or against any Leased Property, the Lease,
------------
any other Operative Document or any payment of Rent (a) which result from any
act or omission of, or any Claim against, the Lessor unrelated to the
Transaction or from Lessor's failure to perform as required under the Operative
Documents or (b) which result from any Tax owed by the Lessor, except any Tax
for which an Obligor is obligated to indemnify (including, without limitation,
in the foregoing exception, any assessments with respect to any Leased Property
noted on the related Title Policy or assessed in connection with any
construction or development by a Lessee or the Construction Agent).
"Lessor Rate" is defined in the Lessor Side Letter.
-----------
"Lessor Side Letter" means the letter agreement, dated as of August __,
------------------
1999, between Rowe Furniture and the Lessor.
"Lessor's Invested Amount" means the amounts funded by the Lessor pursuant
------------------------
to Section 2 of the Master Agreement that are not proceeds of Loans by a Lender,
as such amount may be increased
-17-
<PAGE>
during the related Construction Term pursuant to Section 2.3(c) of the Master
Agreement.
"LIBOR" means the London interbank offered rate for U.S. Dollar deposits
-----
applicable to any Rent Period, being determined for purposes hereof as the rate
per annum (rounded upward, if necessary, to the nearest one-tenth of 1%)
appearing on page 3750 of the Telerate Service (or on any successor or
substitute page of the Telerate Service, or any successor to or substitute for
such service, providing rate quotations comparable to those currently provided
on such page of such service, as determined by the Agent from time to time for
purposes of providing quotations of interest rates applicable to U.S. Dollar
deposits in the London interbank market) quoted at approximately 11:00 a.m.,
London time, two Business Days prior to the first day of such Rent Period for
the offering to leading banks in the London interbank market of U.S. Dollar
deposits in immediately available funds for a period, and in an amount,
comparable to the Rent Period and principal amount of the LIBOR Advances which
shall be made by the Agent and outstanding during such Rent Period.
"LIBOR Advance" means that portion of the Funded Amount bearing interest at
-------------
a rate based on the Adjusted LIBO Rate.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, encumbrance (including, without limitation, any
easement, right-of-way, zoning or similar restriction or title defect), lien
(statutory or other) or priority or other security agreement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing and the filing of any financing
statement under the UCC or comparable law of any jurisdiction).
"Loan" shall have the meaning specified in Section 2.1 of the Loan
----
Agreement.
"Loan Agreement" means the Loan Agreement, dated as of August __, 1999,
--------------
among the Lessor, the Agent and the Lenders.
"Loan Documents" means the Loan Agreement, the Notes, the Assignments of
--------------
Lease and Rents, the Mortgages and all documents and instruments executed and
delivered in connection with each of the foregoing.
"Loan Event of Default" means any of the events specified in Section 5.1 of
---------------------
the Loan Agreement, provided that any requirement for the giving of notice, the
--------
lapse of time, or both, or any other condition, event or act has been satisfied.
-18-
<PAGE>
"Loan Potential Event of Default" means any event, condition or failure
-------------------------------
which, with notice (if required) and expiration of any applicable cure period,
would become a Loan Event of Default.
"Loss Proceeds" is defined in Section 10.6 of the Lease.
-------------
"Margin Regulations" means Regulations T, U and X of the Board of Governors
------------------
of the Federal Reserve System, as the same may be in effect from time to time.
"Master Agreement" means the Master Agreement, dated as of August 27, 1999
----------------
among the Lessees, the Guarantors, the Lessor, the Agent and the Lenders.
"Material Adverse Effect" means with respect to any event or occurrence of
-----------------------
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), a materially adverse
effect on (i) the ability of any Obligor to perform its obligations under any
Operative Document, or (ii) the value or useful life of any Leased Property, or
the enforceability of the Master Agreement, the Lease, the Construction Agency
Agreement or the Guaranty.
"Minimum Interest Coverage Ratio" means the ratio of (i) net income plus
-------------------------------
interest expense plus taxes to (ii) interest expense, as determined in
accordance with GAAP.
"Mortgage" means, with respect to any Leased Property, that certain
--------
mortgage, deed of trust or security deed, dated as of the related Closing Date,
by the Lessor to the Agent, in the form of Exhibit D-1 or D-2 attached to the
Master Agreement, with such modifications as are satisfactory to the Lessor and
the Agent in conformity with Applicable Law to assure customary remedies in
favor of the Agent in the jurisdiction where the Leased Property is located.
"Notes" means the A Note and the B Note issued by the Lessor under the Loan
-----
Agreement, and any and all notes issued in replacement or exchange therefor in
accordance with the provisions thereof.
"Obligations" means all indebtedness (whether principal, interest, fees or
-----------
otherwise), obligations and liabilities of each Lessee to the Funding Parties
(including without limitation all extensions, renewals, modifications,
rearrangements, restructures, replacements and refinancings thereof, whether or
not the same involve modifications to interest rates or other payment terms of
such indebtedness, obligations and liabilities), whether arising under any of
the Operative Documents or otherwise, and whether now existing or hereafter
created, absolute or contingent, direct or indirect, joint or several,
-19-
<PAGE>
secured or unsecured, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, or acquired by Funding
Parties outright, conditionally or as collateral security from another,
including but not limited to the obligation of each Lessee to repay future
advances by the Funding Parties, whether or not made pursuant to commitment and
whether or not presently contemplated by any Lessee and the Funding Parties
under the Operative Documents.
"Obligor" means any Guarantor or Lessee.
-------
"Officer's Certificate" of a Person means a certificate signed by the
---------------------
Chairman of the Board or the President or any Executive Vice President or any
Senior Vice President or any other Vice President of such Person signing with
the Treasurer or any Assistant Treasurer or the Controller or any Assistant
Controller or the Secretary or any Assistant Secretary of the such Person, or by
any Vice President who is also Controller or Treasurer signing alone.
"Operative Documents" means the Master Agreement, the Purchase Agreement,
-------------------
the Lease, the Security Agreement and Assignment, the Notes, the Loan Agreement,
the Guaranty, the Assignments of Lease and Rents, the Mortgages, the
Construction Agency Agreement, the Joinder Agreements and the other documents
delivered in connection with the transactions contemplated by the Master
Agreement.
"Overdue Rate" means the lesser of (a) the highest interest rate permitted
------------
by Applicable Law and (b) an interest rate per annum (calculated on the basis of
a 365-day (or 366-day, if appropriate) year equal to 2.0% above the Prime Rate
in effect from time to time or, in the case of Yield, 2% above the Lessor Rate.
"Partnership Agreement" means the Agreement of Limited Partnership of
---------------------
Atlantic Financial Group, Ltd., dated as of February 28, 1996, among the General
Partner and the persons listed on Schedule A thereto as limited partners.
"Payment Date" means the last day of each Rent Period (and if such Rent
------------
Period is longer than three months, the day that is 90 days after the first day
of such Rent Period) or, if such day is not a Business Day, the next Business
Day, unless paying on next succeeding Business Day puts payment in a different
LIBOR period, in which case, payment will be credited to or made on the next
preceding Business Day to avoid LIBOR breakage costs.
"Payment Date Notice" is defined in Section 2.3(d) of the Master Agreement.
-------------------
-20-
<PAGE>
"Permitted Encumbrances" means the following with respect to any Leased
----------------------
Property: (a) the respective rights and interest of the related Lessee, the
Lessor, the Agent and any Lender, as provided in the Operative Documents, (b)
Liens for Taxes either not yet due or being contested in good faith and by
appropriate proceedings, so long as enforcement thereof is stayed pending such
proceedings, (c) materialmen's, mechanics', workers', repairmen's, employees' or
other like Liens arising after the related Closing Date in the ordinary course
of business for amounts either not yet due or being contested in good faith and
by appropriate proceedings, so long as enforcement thereof is stayed pending
such proceedings,(d) Liens arising after such Closing Date out of judgments or
awards with respect to which at the time an appeal or proceeding for review is
being prosecuted in good faith, so long as the enforcement thereof has been
stayed pending such appeal or review, (e) easements, rights of way,
reservations, servitudes and rights of others against the Land which do not
materially and adversely affect the value or the utility of such Leased
Property, (f) other Liens incidental to the conduct of the related Lessee's
business which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not in the aggregate materially
detract from the value of such Leased Property or materially impair the use
thereof, (g) assignments and subleases expressly permitted by the Operative
Documents, (h) Liens created with consent of the Lessor and the Agent and (i)
Liens reflected on the Title Policy delivered with respect to such Leased
Property on the Closing Date.
"Person" means an individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, nonincorporated
organization or government or any agency or political subdivision thereof.
"Plan" means any "employee pension benefit plan," defined in Section 3(2)
----
of ERISA, that is sponsored or maintained by The Rowe Companies or by any ERISA
Affiliate of The Rowe Companies and which is intended to be qualified under
Section 401(a) of the Code.
"Plans and Specifications" means with respect to any Building the final
------------------------
plans and specifications for such Building prepared by the Architect, and, if
applicable, referred to by the Appraiser in the Appraisal, as such Plans and
Specifications may be hereafter amended, supplemented or otherwise modified from
time to time.
"Potential Event of Default" means any event, condition or failure which,
--------------------------
with notice (if required) and expiration of any applicable cure period, would
become an Event of Default.
-21-
<PAGE>
"Prime Rate" means the interest rate established from time to time by the
----------
Agent and recorded in its credit administration division as a reference used by
the Agent in determining the lending rates on commercial loans. The Prime Rate
is not intended to be the lowest rate of interest charged on any extension of
credit to any customer. Any change in the interest rate based on the Prime Rate
resulting from a change in the Prime Rate shall be effective as of the opening
of business on the day on which such change in the Prime Rate becomes effective.
"Prime Rate Advance" means that portion of the Funded Amount bearing
------------------
interest at the Prime Rate.
"Prohibited Transaction" means a "prohibited transaction" as defined in
----------------------
Section 406 of ERISA.
"Property" or "Properties" means all of the personal or real property
-------- ----------
assets leased or owned by the Lessee, and any buildings and structures now or
later owned, leased, used or operated by the Lessee.
"Purchase Agreement" means with respect to any Land, the purchase agreement
------------------
with the Seller for the conveyance of such Land to the Lessor.
"Purchase Option" is defined in Section 14.1(a) of the Lease.
---------------
"Qualified Swap Agreement" means an interest swap agreement in a form
------------------------
published by the International Swaps and Derivatives Association, Inc. executed
by Rowe Companies as of the Closing Date that shall conform to the following
general guidelines and shall otherwise be acceptable in form and substance to
the Agent:
(a) a notional amount of not less than $20,000,000 shall be hedged under
the swap agreement directly between Rowe Companies and a counterparty
not affiliated with the Lessee rated at least (short term) A-1 by
Standard & Poor's Ratings Service and P-1 by Moody's Investors
Service, Inc., with Rowe Companies assigning its rights under such
swap agreement to the Agent; and
(b) under the terms of the swap agreement, Rowe Companies shall agree to
pay to the counterparty a fixed rate of interest at a market rate to
be determined at the time of the execution of the swap agreement in
exchange for the counterparty's agreement to pay a variable rate of
interest based on 30-day LIBOR and otherwise determined by reference
to Rowe Companies' outstanding payment obligations under the Operative
Documents.
-22-
<PAGE>
"Quarterly Payment Date" means the last Business Day of each March, June,
----------------------
September and December of each year.
"Recourse Deficiency Amount" means, as of any date of determination
--------------------------
thereof, the sum of (i) the aggregate principal amount of the A Loans then
outstanding, plus (ii) all accrued and unpaid interest on the A Loans.
----
"Regulation U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System.
"Regulation X" means Regulation X of the Board of Governors of the Federal
------------
Reserve System.
"Regulations" means the income tax regulations promulgated from time to
-----------
time under and pursuant to the Code.
"Release" means the release, deposit, disposal or leak of any Hazardous
-------
Material into or upon or under any land or water or air, or otherwise into the
environment, including, without limitation, by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
"Release Date" means, with respect to any Leased Property, the earlier of
------------
(i) the date that the related Leased Property Balance has been paid in full, and
(ii) the date on which the Agent gives notice to the Lessor and the Lessee that
the Lenders release any and all interest they may have in such Leased Property,
and all proceeds thereof, and any rights to direct, consent or deny consent to
any action by the Lessor and the Lessee with respect to such Leased Property.
"Remarketing Option" is defined in Section 14.6 of the Lease.
------------------
"Rent" means Basic Rent and Supplemental Rent, collectively.
----
"Rent Period" means (i) in the case of Prime Rate Advances, means the
-----------
period from, and including, a Quarterly Payment Date to, but excluding, the next
succeeding Quarterly Payment Date; and (ii) with respect to any LIBOR Advance:
(1) initially, the period commencing on the borrowing or conversion date,
as the case may be, with respect to such LIBOR Advance and ending one,
two, three or six months thereafter, as selected by Rowe Furniture in
its Funding Notice or Payment Date Notice, as the case may be, given
with respect thereto; and
-23-
<PAGE>
(2) thereafter, each period commencing on the last day of the next
preceding Rent Period applicable to such LIBOR Advance and ending one,
two, three or six months thereafter, as selected by Rowe Furniture by
irrevocable notice to the Agent in its related Payment Date Notice;
provided, however that:
-------- -------
(a) The initial Rent Period for any Funding shall commence on
the Funding Date of such Funding and each Rent Period occurring
thereafter in respect of such Funding shall commence on the day on
which the next preceding Rent Period expires;
(b) If any Rent Period would otherwise expire on a day which is
not a Business Day, such Rent Period shall expire on the next
succeeding Business Day, provided that if any Rent Period in respect
--------
of LIBOR Advances would otherwise expire on a day that is not a
Business Day but is a day of the month after which no further Business
Day occurs in such month, such Rent Period shall expire on the next
preceding Business Day;
(c) Any Rent Period in respect of LIBOR Advances which begins on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Rent Period shall, subject to
paragraph (d) below, expire on the last Business Day of such calendar
-------------
month; and
(d) No Rent Period shall extend beyond the Lease Termination
Date.
"Report" is defined in Section 7.6 of the Master Agreement.
------
"Required Lenders" means, at any time, Lenders holding an aggregate
----------------
outstanding principal amount of Loans equal to at least 66-2/3% of the aggregate
outstanding principal amount of all Loans.
"Required Funding Parties" means, at any time, Funding Parties holding an
------------------------
aggregate outstanding principal amount of Funded Amounts equal to at least 66-
2/3% of the aggregate outstanding principal amount of all Funded Amounts.
"Requirements of Law" means, as to any Person, the charter and by-laws or
-------------------
other organizational or governing documents of such Person, and any law, rule or
regulation, permit, approval, authorization, license or variance, order 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
-24-
<PAGE>
subject, including, without limitation, the Securities Act, the Securities
Exchange Act, Regulations T, U and X of the Board of Governors of the Federal
Reserve System, and any building, environmental or land use requirement or
permit or occupational safety or health law, rule or regulation.
"Responsible Officer" means the chairman and the chief executive officer of
-------------------
Rowe Companies, the chief financial officer of Rowe Companies, the treasurer of
Rowe Companies or the senior vice president-finance of Rowe Companies, or any
assistant treasurer of Rowe Companies.
"Reuters Screen" means, when used in connection with any designated page
--------------
and LIBOR, the display page so designated on the Reuters Monitor Money Rates
Service (or such other page as may replace that page on that service for the
purpose of displaying rates comparable to LIBOR).
"Revolver" means the Revolving Credit Loan Agreement, dated November 25,
--------
1998, between Rowe Companies, successor in interest to Rowe Furniture
Corporation, its subsidiaries and Agent, as amended from time to time.
"Rowe Companies" means The Rowe Companies, a Nevada corporation.
--------------
"Rowe Furniture" means Rowe Furniture, Inc., a Virginia corporation.
--------------
"Scheduled Construction Termination Date" means with respect to any
---------------------------------------
Building the earlier of (i) two years after the Closing Date for the related
Land and (ii) eighteen months after the commencement of the Construction of such
Building.
"SEC" means the United States Securities and Exchange Commission.
---
"Securities" means any stock, shares, voting trust certificates, bonds,
----------
debentures, notes or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as "securities", or any certificates of interest, shares, or
participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire any of the
foregoing.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
-25-
<PAGE>
"Security Agreement and Assignment" means, with respect to any Leased
---------------------------------
Property, the Security Agreement and Assignment (Construction Contract,
Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans,
Specifications and Drawings) from the Construction Agent to the Lessor,
substantially in the form of Exhibit C to the Master Agreement.
"Seller" means, as to any Leased Property, the seller thereof to the
------
Lessor.
"Significant Subsidiary" means at any date, any Subsidiary of Rowe
----------------------
Companies which, together with its Subsidiaries, (i) has a proportionate share
of Consolidated Net Assets that exceeds 30% at the time of determination or (ii)
has equity in the Consolidated Net Income that exceeds 30% for the period of the
four most recently completed fiscal quarters preceding the time of
determination.
"Subsidiary" means as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, directly or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in the Operative Documents
shall refer to a Subsidiary or Subsidiaries of Rowe Companies.
"Supplemental Rent" means any and all amounts, liabilities and obligations
-----------------
other than Basic Rent which any Lessee assumes or agrees or is otherwise
obligated to pay under the Lease or any other Operative Document (whether or not
designated as Supplemental Rent) to the Lessor, the Agent, any Lender or any
other party, including, without limitation, amounts under Article XVI of the
Lease, and indemnities and damages for breach of any covenants, representations,
warranties or agreements, and all overdue or late payment charges in respect of
any Funded Amount.
"Tax" or "Taxes" is defined in Section 7.4 of the Master Agreement.
--- -----
"Tax Code" means the Internal Revenue Code of 1986, as amended and in
--------
effect from time to time.
"Tax Indemnitee" means the Lessor, the Agent, any Lender and their
--------------
respective Affiliates, successors, permitted assigns, permitted transferees,
employees, officers, directors and agents thereof, provided, however, that in no
-------- -------
event shall any Lessee be a Tax Indemnitee.
-26-
<PAGE>
"Telerate" means, when used in connection with any designated page and
--------
LIBOR, the display page so designated on the Dow Jones Telerate Service (or such
other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Title Insurance Company" means the company that has or will issue the
-----------------------
title policies with respect to a Leased Property, which company shall be
reasonably acceptable to the Funding Parties.
"Title Policy" is defined in Section 3.1 of the Master Agreement.
------------
"Total Capitalization" means Equity and Funded Debt of the Lessee.
--------------------
"Transaction" means all the transactions and activities referred to in or
-----------
contemplated by the Operative Documents.
"UCC" means the Uniform Commercial Code of Virginia, as in effect from time
---
to time.
"Withholding Taxes" is defined in Section 7.5(d) of the Master Agreement.
-----------------
"Yield" is defined in Section 2.3 of the Master Agreement.
-----
-27-
<PAGE>
EXHIBIT (11)
THE ROWE COMPANIES
AND WHOLLY-OWNED SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Net earnings available to basic shares $13,901 $11,200 $ 6,286
Add interest expense on assumed
conversion of convertible debentures, net
of tax 132 11 -
------- ------- -------
Net earnings available to diluted shares $14,033 $11,211 $ 6,286
======= ======= =======
Weighted average common shares
outstanding (Basic) 13,426 13,672 14,250
Effect of dilutive stock options and
convertible debentures 946 456 416
------- ------- -------
Weighted average common shares and
equivalents outstanding (Diluted) 14,372 14,128 14,666
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 13
Stock Price and Dividend Data
- -----------------------------
<TABLE>
<CAPTION>
Market Price Dividends
Quarter Ended High Low Paid Per Share
<S> <C> <C> <C> <C>
1999 February 28 12 3/4 8 15/16 $0.032
May 30 11 7/8 9 1/16 0.032
August 29 10 1/2 8 3/16 0.032
November 28 9 1/2 7 5/8 0.032
------
$0.127
======
1998 March 1 8 11/16 6 $0.027
May 31 10 8 3/16 0.027
August 30 9 1/4 7 3/8 0.027
November 29 9 7/8 6 1/4 0.027
------
$0.109
======
</TABLE>
Stock prices and dividends paid per share have been adjusted to give retroactive
effect to a 10% stock dividend declared on November 2, 1999.
The Company's shares are traded on the New York Stock Exchange under the symbol
ROW. On November 28, 1999, the Company had approximately 1,000 stockholders of
record.
________________________________________________________________________________
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Year Ended November 28, 1999 Compared
To Year Ended November 29, 1998
Net shipments in 1999 increased by $96,264,000, or 49.8%, to $289,664,000 from
$193,400,000 in 1998. Included in net shipments were operations at newly
acquired subsidiaries, including twelve months of operations at The Mitchell
Gold Company ("Mitchell Gold") versus one month in 1998 and four months of
operations at Storehouse, Inc. ("Storehouse"), acquired August 1, 1999 (see Note
2). Excluding these new subsidiaries, net shipments in 1999 increased more than
8% versus 1998. Management believes that shipments increased primarily from the
addition of new dealers, increased purchases by existing customers and favorable
product mix.
Gross profit in 1999 increased by $36,021,000, or 69.2%, to $88,094,000 from
$52,073,000 in 1998. As a percentage of shipments, gross profit in 1999
increased to 30.4% from 26.9% in 1998. Excluding the effect of the acquisition
of Storehouse, gross profit as a percent of shipments increased to 28.4%.
Management believes that this increase was primarily a result of improved
product mix and
<PAGE>
improved manufacturing efficiencies, particularly at Rowe Furniture, Inc. ("Rowe
Furniture"), our core upholstery manufacturing subsidiary, and increased sales
at Home Elements stores. Management anticipates that gross profit as a
percentage of shipments will continue to increase as a result of increased
shipments in the retail segment.
Selling and administrative expenses in 1999 increased by $30,951,000, or 90.3%,
to $65,243,000 from $34,292,000 in 1998. Of this increase, $21,500,000
represents costs at newly acquired subsidiaries Storehouse and Mitchell Gold;
$5,000,000 results from new stores opened in late 1998 and throughout 1999 at
Home Elements, including staff expansion to support the growth in 1999 and
further anticipated growth in 2000; and the remaining $4,500,000 results from
increased direct selling expenses, the expansion of corporate staff to
coordinate and monitor the activities of the subsidiaries and the gain on the
sale of Levitz Furniture in 1998. Management anticipates that selling and
administrative expenses will increase in 2000 as a result of including a full
twelve months of operations at Storehouse, addition of stores particularly at
Home Elements, as well as other activities supporting the growth of the Company.
Operating income in 1999 increased by $5,070,000, or 28.5%, to $22,851,000 from
$17,781,000 in 1998. The increase related to higher shipments and gross profit
at Rowe Furniture, as well as the favorable operating results of Mitchell Gold.
Interest expense in 1999 increased by $1,992,000, or 287%, to $2,686,000 from
$694,000 in 1998. The increase in interest expense results from borrowings
incurred to finance working capital needs at The Wexford Collection, Inc.
("Wexford"), acquired in early 1998; the acquisition in late 1998 of Mitchell
Gold; and the acquisition in 1999 of Storehouse, as well as to finance capital
expenditures and treasury stock repurchases. Essentially all of the Company's
long-term debt is at floating rates tied to LIBOR.
Management anticipates that interest expense will increase by at least
$1,000,000 in 2000 as a result of increased borrowings primarily related to
acquisitions, and recent increases in the LIBOR index.
Other income in 1999 increased by $804,000, or 77.1%, to $1,847,000 from
$1,043,000 in 1998. Virtually all of this increase resulted from certain non-
recurring transactions at Storehouse and the write-down of investment property
of $288,000 in 1998.
Net earnings increased by $2,701,000, or 24.1%, to $13,901,000 from $11,200,000
in 1998. Included in net earnings in 1998 was approximately $0.02 per share
after-tax gain on sale of a receivable, partially offset by an increase in
reserve for bad debts, write-down of investment property and other unusual
charges.
Year Ended November 29, 1998
Compared to Year Ended November 30, 1997
Net shipments in 1998 increased by $49,282,000, or 34.2%, to $193,400,000 from
$144,118,000 in 1997. Management believes that shipments increased primarily
from the addition of new dealers, increased purchases by existing customers and
favorable product mix. Included in net shipments were eleven months and one
month of operations at newly acquired subsidiaries, Wexford and
<PAGE>
Mitchell Gold, respectively (see Note 2). Excluding these new subsidiaries, net
shipments in 1998 increased more than 23% versus 1997.
Gross profit in 1998 increased by $13,119,000, or 33.7%, to $52,073,000 from
$38,954,000 in 1997. As a percentage of net shipments, gross profit in 1998
decreased to 26.9% from 27.0% in 1997. Management believes that the percentage
decrease was due primarily to costs associated with a wage increase and
additional overtime and training requirements at Rowe Furniture and lower
margins at Wexford.
Selling and administrative expenses in 1998 increased by $4,113,000, or 13.6%,
to $34,292,000 from $30,179,000 in 1997. The increase in selling and
administrative expenses was primarily from higher direct selling expenses and
salaries. As a percentage of shipments, selling and administrative expenses in
1998 decreased to 17.7% from 20.9% in 1997. The percentage decrease in selling
and administrative expenses in 1998 resulted primarily from a gain on the sale
of Levitz Furniture receivable previously written off in August 1997. This
recovery in 1998, partially offset by an increase in reserve for bad debts and
other unusual charges, reduced expenses by $750,000 pre-tax.
Operating income in 1998 increased by $9,006,000, or 102.6%, to $17,781,000 from
$8,775,000 in 1997. The increase related to higher shipments and gross profit
partially offset by increased selling and administrative expenses, net of the
Levitz recovery and other items. The 1997 operating income included the Levitz
Furniture receivable write-off of approximately $3,900,000.
Interest expense in 1998 increased by $415,000, or 148.7%, to $694,000 from
$279,000 in 1997. The increase in interest expense resulted from additional
short-term borrowings primarily associated with working capital requirements for
Wexford, capital expenditures and purchases of treasury stock.
Other income in 1998 decreased by $347,000 to $1,043,000 from $1,390,000 in 1997
primarily from a write-down of investment property of approximately $288,000,
pre-tax, to reflect estimated values (see Note 1).
Net earnings increased by $4,914,000, or 78.2%, to $11,200,000 in 1998 from
$6,286,000 in 1997. Included in net earnings in 1998 is approximately $0.02 per
share after-tax gain on sale of a Levitz Furniture receivable, partially offset
by an increase in reserve for bad debts, write-down of investment property and
other unusual charges. Net earnings in 1997 were impacted by $0.19 per share
due to the write-off of the Levitz receivable.
Liquidity and Capital Resources
The Company has historically financed its operations and capital requirements
primarily with internally generated funds. Working capital needs, particularly
at Wexford, along with capital expenditures and purchases under the Company's
stock repurchase program necessitated greater use of short-term bank financing
throughout most of 1998. In November 1998, the Company entered into a
$25,000,000 revolving bank loan to fund the acquisition of Mitchell Gold and
provide working capital for the Company and its subsidiaries. In July 1999, the
Company entered into another $25,000,000 revolving bank loan to fund the
acquisition of Storehouse and pay off higher rate debt of
<PAGE>
Storehouse. The Company will lease a new plant to replace the Salem, Virginia,
upholstery plant. This plant was brought into service in January 2000. (see
Notes 2 and 6).
Net cash provided by operating activities was $12,124,000, $3,011,000 and
$11,207,000 in 1999, 1998 and 1997, respectively. Fluctuations in net cash
provided by operating activities are primarily the result of changes in net
income and changes in working capital accounts, including reduction of supplier
payables and payments to eliminate factoring loans at Wexford during 1998.
Capital expenditures were $8,830,000, $6,951,000 and $3,261,000 for 1999, 1998
and 1997, respectively. These expenditures were incurred primarily in
connection with the expansion of the Company's production capacity and additions
of equipment and information systems, including upgrades and replacements
associated with Year 2000 requirements. The Company also invested $8,892,000
(net of cash acquired) and $12,942,000 in 1999 and 1998, respectively, to
acquire new businesses, including Storehouse in 1999 and Mitchell Gold and
Wexford in 1998.
Financing activities provided (utilized) net cash of $8,203,000, $18,512,000 and
($9,331,000) in 1999, 1998 and 1997, respectively. This includes the revolving
bank loans entered into during 1998 and 1999, offset by the reduction of higher
rate debt at Storehouse in 1999, as well as repurchases of the Company's common
stock and dividends paid to stockholders.
Management anticipates that the Company's capital expenditures for 2000 will
approximate $13,000,000. These expenditures include capital equipment for
efficiency improvements and capacity expansions at its manufacturing facilities,
continuing upgrades and improvements to information systems and additional
retail locations at Home Elements and Storehouse.
In 2000, the Company anticipates the payment of $5,000,000 associated with the
interim earn-out provision of the Mitchell Gold purchase agreement.
The amount outstanding under the Company's lines of credit was $4,164,000 at
November 28, 1999. The Company has a total of $31,000,000 available under
existing lines of credit.
The Company believes that net cash provided by operating activities and
available lines of credit will be utilized to fund anticipated growth and to
meet the Company's foreseeable capital requirements and operating needs through
2000.
Interest Risk Disclosures
Because the Company's obligations under its term loans, revolving loans, lines
of credit and industrial revenue bonds bear interest at variable rates, the
Company is sensitive to changes in prevailing interest rates. A 10% fluctuation
in market interest rates would not have a material impact on earnings during the
2000 fiscal year.
<PAGE>
Forward Looking Statements
Certain portions of this report, particularly the Notes to the Consolidated
Financial Statements and the Management's Discussion and Analysis of Financial
Condition and Results of Operations, contain forward looking statements. These
statements can be identified by the use of future tense or dates or terms such
as "believe," "expect," "anticipate," or "plan." Important factors could cause
actual results to differ materially from those anticipated by some of the
statements made in this report. Some of the factors include, among other things,
changes from anticipated levels of sales, whether due to future national or
regional economic and competitive conditions, customer acceptance of existing
and new products, or otherwise; pending or future litigation; pricing pressures
due to excess capacity; raw material cost increases; transportation cost
increases; the inability of a major customer to meet its obligations; loss of
significant customers in connection with a merger or acquisition, bankruptcy or
otherwise; actions of current or new competitors; increased advertising costs
associated with promotional efforts; change of tax rates; change of interest
rates; future business decisions and other uncertainties, all of which are
difficult to predict and many of which are beyond the control of the Company.
<PAGE>
The Rowe Companies Annual Report 1999
Five Year Summary
<TABLE>
<CAPTION>
1999(1) 1998(2) 1997 1996 1995
(52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
- --------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net shipments $ 289,664 $ 193,400 $ 144,118 $ 142,723 $ 124,939
Gross profit 88,094 52,073 38,954 37,593 30,496
Operating income 22,851 17,781 8,775 10,248 5,706
Net earnings (3)(4)(5) $ 13,901 $ 11,200 $ 6,286 $ 7,052 $ 7,207
Working capital $ 33,959 $ 30,473 $ 17,404 $ 18,232 $ 14,907
Total assets 168,580 110,462 63,710 64,280 58,035
Long-term debt 54,608 33,796 - - 569
Stockholders' equity $ 54,659 $ 45,236 $ 39,442 $ 40,188 $ 35,621
Net earnings per common share - basic $ 1.04 $ 0.82 $ 0.44 $ 0.48 $ 0.48
Weighted average common shares 13,426 13,672 14,250 14,707 14,968
Net earnings per common share assuming dilution $ 0.98 $ 0.79 $ 0.43 $ 0.47 $ 0.47
Weighted average common shares and equivalents 14,372 14,128 14,666 15,117 15,184
Cash dividends paid per share $ 0.127 $ 0.109 $ 0.091 $ 0.073 $ 0.073
</TABLE>
Weighted average shares, earnings per share and cash dividends paid per share
have been adjusted to give retroactive effect to a 10%
stock dividend declared November 2, 1999.
(1) The 1999 amounts include Storehouse, Inc., acquired August 1, 1999 (See Note
2 of the financial statements)
(2) The 1998 amounts include The Wexford Collection, Inc., acquired January 1,
1998 and The Mitchell Gold Co., acquired October 31, 1998 (See Note 2 of the
financial statements).
(3) The results of operations for 1998 include an after-tax gain of
approximately $0.02 per share reflecting the sale of Levitz Furniture
receivable, partially offset by an increase in reserve for bad debts, write-
down of investment property and other unusual charges.
(4) The results of operations for 1997 include unusual charges, net of taxes, of
$2.7 million, or $0.19 per share, primarily associated with the write-off of
a receivable from Levitz Furniture.
(5) The results of operations for 1995 include an after-tax gain on the sale of
property of approximately $3.0 million, or $0.20, per share and an after-tax
restructuring charge of $265,000, or $0.02 per share.
<PAGE>
The Rowe Companies Annual Report 1999
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
11/28/1999 11/29/1998
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,104 $ 2,480
Accounts receivable (net of allowance
for losses of $864,000 in 1999 and $875,000 in 1998) (Note 12) 38,340 29,631
Inventories (Notes 1 & 3) 41,381 22,666
Deferred income taxes (Note 11) 238 181
Prepaid expenses and other 3,098 1,060
---------- ---------
Total current assets 88,161 56,018
---------- ---------
PROPERTY AND EQUIPMENT (Notes 1, 4 & 6) 36,186 26,530
---------- ---------
OTHER ASSETS
Cash value of life insurance (Note 7) 3,874 3,750
Investment property (net of accumulated depreciation of
$2,657,000 in 1999 and $2,403,000 in 1998) (Notes 1 & 9) 7,629 7,844
Goodwill (net of amortization of $977,000 in 1999 and 27,938 12,612
$161,000 in 1998) (Notes 1 & 2)
Miscellaneous 4,792 3,708
---------- ---------
Total other assets 44,233 27,914
---------- ---------
$ 168,580 $ 110,462
========== =========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6) $ 353 $ 487
Short-term bank borrowings (Note 5) 4,164 2,093
Accounts payable 28,436 16,928
Accrued expenses:
Compensation 3,769 3,013
Income taxes 1,783 933
Other 6,823 1,555
Customer Deposits 8,620 262
Deferred compensation - current portion (Note 7) 254 274
---------- ---------
Total current liabilities 54,202 25,545
---------- ---------
LONG-TERM DEBT (Note 6) 54,608 33,796
DEFERRED COMPENSATION (Note 7) 4,035 3,250
DEFERRED INCOME TAXES (Note 11) 1,076 2,635
---------- ---------
Total liabilities 113,921 65,226
---------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2, 7, 8 & 9)
STOCKHOLDERS' EQUITY (Note 10) COMMON STOCK, par value $1 per share:
1999 1998
----------------------------
Authorized shares 50,000,000 20,000,000
Issued shares 16,512,962 14,905,795 16,513 14,906
Outstanding shares 13,260,833 12,264,576
CAPITAL IN EXCESS OF PAR VALUE 23,039 9,363
RETAINED EARNINGS 36,077 38,713
---------- ---------
75,629 62,982
LESS TREASURY STOCK - 3,252,129 shares in
1999 and 2,641,219 shares in 1998, at cost (20,970) (17,746)
---------- ---------
Total stockholders' equity 54,659 45,236
---------- ---------
$ 168,580 $ 110,462
========== =========
Ratio of current assets to current liabilities 1.6 to 1 2.2 to 1
Ratio of cash and receivables
to current liabilities 0.8 to 1 1.3 to 1
</TABLE>
See notes to consolidated financial statements
<PAGE>
The Rowe Companies Annual Report 1999
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
- ---------------------------------------------------------------------------------------------------------------
11/28/1999 11/29/1998 11/30/1997
- ---------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Net shipments (Note 12) $ 289,664 $ 193,400 $ 144,118
Cost of shipments 201,570 141,327 105,164
--------- --------- ---------
Gross profit 88,094 52,073 38,954
Selling and administrative expenses 65,243 34,292 30,179
--------- --------- ---------
Operating income 22,851 17,781 8,775
Interest expense (2,686) (694) (279)
Other income, net (Note 9) 1,847 1,043 1,390
--------- --------- ---------
Earnings before taxes 22,012 18,130 9,886
Taxes on income (Note 11) 8,111 6,930 3,600
--------- --------- ---------
Net earnings $ 13,901 $ 11,200 $ 6,286
========= ========= =========
Net earnings per common share (Note 1) $ 1.04 $ 0.82 $ 0.44
========= ========= =========
Weighted average common shares 13,426 13,672 14,250
========= ========= =========
Net earnings per common share assuming dilution (Note 1) $ 0.98 $ 0.79 $ 0.43
========= ========= =========
Weighted average common shares and equivalents 14,372 14,128 14,666
========= ========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
The Rowe Companies Annual Report 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended
11/28/99 11/29/98 11/30/97
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
Cash received from customers $ 282,710 $ 189,437 $ 142,136
Cash paid to suppliers and employees (262,017) (180,372) (128,135)
Income taxes paid, net of refunds (7,726) (6,403) (3,781)
Interest paid (2,686) (694) (279)
Interest received 159 337 306
Other receipts - net 1,684 706 960
--------- --------- ---------
Net cash provided by operating activities 12,124 3,011 11,207
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 19 - 338
Capital expenditures (8,830) (6,951) (3,261)
Payments to acquire businesses (8,892) (10,442) -
Investment in Storehouse, Inc. (Note 2) - (2,500) -
--------- --------- ---------
Net cash used in investing activities (17,703) (19,893) (2,923)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings (payments) under line of credit 2,071 362 (1,879)
Proceeds from issuance of long-term debt 25,132 25,000 -
Payments to reduce long-term debt (14,522) (1,444) (420)
Proceeds from issuance of common stock 460 968 388
Dividends paid (1,714) (1,498) (1,308)
Purchase of treasury stock (3,224) (4,876) (6,112)
--------- --------- ---------
Net cash provided by (used in) financing activities 8,203 18,512 (9,331)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 2,624 1,630 (1,047)
Cash and cash equivalents at beginning of year 2,480 850 1,897
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,104 $ 2,480 $ 850
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
<TABLE>
<S> <C> <C> <C>
Net earnings $ 13,901 $ 11,200 $ 6,286
--------- --------- ---------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 6,165 3,773 2,777
Provision for deferred compensation 1,083 762 979
Payments made for deferred compensation (319) (590) (526)
Deferred income taxes (472) 545 (50)
Provision for losses on accounts receivable (recoveries) 413 (1,285) 3,919
Loss (gain) on disposition of assets 4 - (124)
Change in operating assets and liabilities, net of effects
of acquisition of businesses:
Decrease (increase) in accounts receivable (9,379) (3,963) (1,982)
Decrease (increase) in inventories (5,692) (2,164) (2,071)
Decrease (increase) in prepaid expenses and other (795) (468) (8)
Decrease (increase) in other assets (1,210) 378 (155)
Increase (decrease) in accounts payable 3,830 (2,549) 2,326
Increase (decrease) in accrued expenses 2,170 (2,619) (164)
Increase (decrease) in customer deposits 2,425 (9) -
--------- --------- ---------
Total adjustments (1,777) (8,189) 4,921
--------- --------- ---------
Net cash provided by operating activities $ 12,124 $ 3,011 $11,207
========= ========= =========
Supplemental Disclosures of Cash Flows:
Fair value of assets acquired other than cash $ 37,272 $31,955
Liabilities assumed (28,380) (18,513)
Convertible debentures issued - (3,000)
--------- ---------
Payments to acquire businesses $ 8,892 $ 10,442
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
The Rowe Companies Annual Report 1999
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Year Ended November 28, 1999, November 29, 1998 and November 30, 1997
------------------------------------------------------------------------------
Common Stock Treasury Stock
--------------------------------------- --------------------
Capital in
Shares $1 Par Excess of Retained Number of
Issued Value Par Value Earnings Shares Cost
- ------------------------------------------------------------------------------------------- ---------- -------------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1996 14,564,103 $ 14,564 $ 8,349 $ 24,033 1,309,245 $ 6,758
Acquisition of treasury stock 815,016 6,112
Cash dividends paid, $0.091 per share (1,308)
Exercise of stock options 103,680 104 284
Net earnings for the year ended
November 30, 1997 6,286
---------- -------- -------- -------- --------- --------
Balance at November 30, 1997 14,667,783 14,668 8,633 29,011 2,124,261 12,870
Acquisition of treasury stock 516,958 4,876
Cash dividends paid, $0.109 per share (1,498)
Exercise of stock options 238,012 238 730
Net earnings for the year ended
November 29, 1998 11,200
---------- -------- -------- -------- --------- --------
Balance at November 29, 1998 14,905,795 14,906 9,363 38,713 2,641,219 17,746
Acquisition of treasury stock 324,592 3,224
Cash dividends paid, $0.127 per share (1,714)
Exercise of stock options 106,104 106 354
10% stock dividend (Note 1) 1,501,063 1,501 13,322 (14,823) 286,318
Net earnings for the year ended
November 28, 1999 13,901
---------- -------- -------- -------- --------- --------
Balance at November 28, 1999 16,512,962 $ 16,513 $ 23,039 $ 36,077 3,252,129 $ 20,970
========== ======== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business- The Rowe Companies (the "Company") consists of three
manufacturing subsidiaries - Rowe Furniture, Inc. ("Rowe"), The Mitchell Gold
Company ("Mitchell Gold"), and The Wexford Collection, Inc. ("Wexford") - and
two retail furniture chains - Storehouse, Inc. ("Storehouse") and Home Elements,
Inc. ("Home Elements"). Storehouse and Home Elements are geographically
distributed across the mid-Atlantic, southeastern, and southwestern United
States. The manufacturing subsidiaries sell upholstered, leather and casual
wood furniture throughout the United States and in some international markets.
Principles of Consolidation- The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany
transactions and balances have been eliminated.
Revenue Recognition - The manufacturing subsidiaries recognize sales when
products are shipped and invoiced to customers. The retail subsidiaries
recognize sales when the goods are delivered to the customer or services have
been rendered. Customer deposits represent cash received for items not
currently in inventory and items on hand but not yet delivered to the customer.
Credit Risk-Substantially all of the Company's trade accounts receivable are
from companies in the retail furniture industry. Management periodically
performs credit evaluations of its customers and generally does not require
collateral. The Company uses credit insurance to minimize the risk on certain
accounts. The Company has no concentrated credit risk except as described in
Note 12.
Use of Estimates- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Inventories-Inventories are valued at the lower of cost or market. All
subsidiaries utilize the first-in, first-out (FIFO) method to compute cost
except for Storehouse, which utilizes the last-in, first-out (LIFO) method.
Property, Equipment and Depreciation- Property and equipment are stated at cost.
For financial reporting purposes, depreciation is computed over the estimated
useful lives of the assets using primarily the straight-line method. Accelerated
methods are used for income tax purposes. Assets are depreciated for financial
reporting purposes based on estimated useful lives as follows: buildings and
improvements (5 to 45 years), machinery and equipment (3 to 10 years) and
leasehold improvements (terms of leases).
Long-Lived Assets- Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. This
policy is in accordance with Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." In the second quarter of 1998, the Company recorded a
non-cash impairment loss of $288,000 ($177,000 net of tax) related to a write-
down of one investment property which had been leased to various tenants. One of
the leases had not been renewed and the Company had not been able
<PAGE>
to lease this space to other tenants. As a result, the projected future cash
flows from this facility were less than the carrying value of the asset;
therefore an impairment loss was recognized.
Fair Value of Financial Instruments- Financial instruments of the Company
include long-term debt and line of credit agreements. Based upon the current
borrowing rates available to the Company, estimated fair values of these
financial instruments approximate their recorded carrying amounts.
Intangible Assets -Intangible assets consist principally of values assigned to
the excess of cost over the fair value of net assets acquired (Goodwill). These
assets are being amortized using the straight-line method over 25 years. The
Company evaluates the carrying amount of goodwill based on profitability
projections and estimated cash flows. If estimated future cash flows are not
sufficient to recover the carrying amounts of goodwill, the assets will be
written down to fair value.
Advertising Costs- Costs incurred for advertising are expensed when incurred.
Costs incurred under cooperative advertising programs are recognized when the
related revenues are recognized. The charges to expense were $8,176,000,
$4,357,000 and $3,638,000 in 1999, 1998 and 1997, respectively. The increase
for 1999 reflects additional advertising costs at Storehouse and Mitchell Gold.
Income Taxes- Income taxes are calculated using the liability method specified
by SFAS No. 109, "Accounting For Income Taxes."
Earnings Per Share- The Company adopted SFAS No. 128, "Earnings Per Share," in
1998, resulting in the restatement of earnings per share for all prior periods.
Basic earnings per share are based upon the weighted average shares outstanding
during the period. Outstanding stock options and convertible debentures, which
are dilutive, are treated as common stock equivalents for purposes of computing
diluted earnings per share. In November, 1999, the Company's Board of Directors
declared a 10% stock dividend. All earnings per share, weighted average shares,
dividends paid per share and stock option amounts have been restated to reflect
the stock dividend.
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Net earnings available to basic shares $13,901 $11,200 $ 6,286
Add interest expense on assumed
conversion of convertible debentures, net
of tax 132 11 -
------- ------- -------
Net earnings available to diluted shares $14,033 $11,211 $ 6,286
======= ======= =======
Weighted average common shares
outstanding (Basic) 13,426 13,672 14,250
Effect of dilutive stock options and
convertible debentures 946 456 416
------- ------- -------
Weighted average common shares and
equivalents outstanding (Diluted) 14,372 14,128 14,666
======= ======= =======
</TABLE>
Statement of Cash Flows- For purposes of the Statement of Cash Flows, the
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Fiscal Year- The Company's accounting fiscal year end is the Sunday of each year
closest to November 30.
Reclassifications- Certain prior year amounts have been reclassified to conform
to current year presentation. The reclassifications have no effect on the
results of operations previously reported.
NOTE 2 - ACQUISITIONS
On January 1, 1998, the Company acquired, through a newly created subsidiary,
The Wexford Collection, Inc., the assets and assumed certain liabilities of J &
M Designs, Ltd.-Carson, California, a manufacturer of solid wood reproductions.
The purchase price included a cash payment of $200,000. The Company has
accounted for the acquisition using the purchase method of accounting.
On October 31, 1998, the Company acquired all of the issued and outstanding
common stock of Mitchell Gold, a privately owned company located in North
Carolina. The purchase price of Mitchell Gold consisted of an initial payment of
$13 million, comprised of $10 million in cash and $3 million of convertible
debentures. Additional earn-out provisions allow for a maximum purchase price
of $32 million, if certain earnings targets are attained over a two to five year
period. The Company has accounted for the acquisition using the purchase method
of accounting.
On August 1, 1999, the Company completed the acquisition of Storehouse, a
privately owned, 43-store chain of retail furniture stores headquartered in
Atlanta, Georgia. Storehouse has operations throughout the mid-Atlantic,
southeast and southwestern United States. The purchase price for Storehouse
consisted of $11.7 million in cash and the assumption of $12.7 million in debt.
The Company utilized a $25 million unsecured revolving credit facility to fund
the cash purchase price and retire the debt, including $2.5 million previously
loaned by the Company in the form of a subordinated note. The Company has
accounted for the acquisition using the purchase method of accounting.
<PAGE>
Each of the above companies is now operated as a wholly-owned subsidiary of the
Company, and their operations are included in the Consolidated Statements of
Income from the dates of acquisition.
The unaudited pro forma combined information has been prepared by the Company's
management based upon historical financial statements of the Company, Mitchell
Gold and Storehouse, and gives effect to the transactions as if they had
occurred at the beginning of the periods presented. This unaudited pro forma
information may not be indicative of the results that actually would have
occurred if the combinations had been in effect on the date indicated or which
may be obtained in the future.
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands, except per share amounts)
<S> <C> <C>
Net shipments $333,484 $291,492
Net earnings 13,289 8,551
Net earnings per common share 0.99 0.63
Net earnings per common share
assuming dilution 0.93 0.61
</TABLE>
NOTE 3 - INVENTORIES
Inventory components are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Retail merchandise $18,000 $ 2,044
Finished goods 3,166 3,281
Work-in-process 4,391 4,494
Raw materials 15,824 12,847
------- -------
Total inventories $41,381 $22,666
======= =======
</TABLE>
Included in retail merchandise at November 28, 1999 was $15,110,000 of inventory
valued by Storehouse using the LIFO method to determine cost. If this inventory
had been valued using FIFO, retail merchandise and total inventories would have
increased by $60,000 over the amounts shown above.
NOTE 4- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<PAGE>
<TABLE>
<CAPTION>
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Land $ 683 $ 683
Buildings and improvements 23,318 17,416
Leasehold improvements 6,664 1,971
Machinery and equipment 41,756 32,371
Construction-in-process 1,117 6,347
------- -------
73,538 58,788
Less accumulated depreciation 37,352 32,258
------- -------
Net property and equipment $36,186 $26,530
======= =======
</TABLE>
The construction-in-process in 1998 related primarily to a new manufacturing
facility for Mitchell Gold which was completed early in fiscal 1999.
Note 5- SHORT-TERM BORROWINGS
The Company has unsecured short-term lines of credit of $31,000,000 with banks
at rates not to exceed the prime interest rate. The following summarizes
aggregate short-term borrowings:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Amount outstanding at year end $4,164 $ 2,093 $1,731
Maximum amount outstanding at any month end 9,813 12,956 5,394
Average borrowings (based on weighted daily balances) 5,615 9,255 3,840
Weighted average interest rate during the year 5.7% 6.1% 6.2%
Weighted average interest rate at year end 6.0% 5.7% 6.4%
</TABLE>
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Revolving bank loans $46,207 $25,000
Industrial revenue bond 5,565 5,785
Convertible debentures 3,000 3,000
Other 189 498
------- -------
54,961 34,283
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Less current maturities 353 487
------- -------
Total long-term debt $54,608 $33,796
======= =======
</TABLE>
In November 1998 and July 1999, the Company executed agreements for revolving
bank loans payable in full on April 30, 2002, and July 31, 2002, respectively.
The agreements require quarterly interest payments at the London Interbank
Offering Rate ("LIBOR") plus a spread ranging from .35% to 1.30%. The revolving
bank loans contain financial covenants including ratios on leverage to cash
flow, debt to total capitalization and interest coverage. At November 28, 1999,
the Company was in compliance with the provisions of the agreements. The
proceeds from the loans were used to provide working capital for the Company and
its subsidiaries, fund the initial purchase amount to acquire Mitchell Gold and
provide funding for the acquisition and retirement of long-term debt of
Storehouse (Note 2).
The industrial revenue bond proceeds were used to construct a new manufacturing
and office facility for Mitchell Gold. Annual principal payments are required
ranging from $220,000 to $405,000 through 2017. Interest rates range from 3.0%
to 5.0%. The bonds are collateralized primarily by the new facility.
The convertible debentures were issued in connection with the acquisition of
Mitchell Gold as part of the initial purchase amount. The convertible debentures
can be converted to 393,444 shares (adjusted for the 10% stock dividend) of the
Company's common stock at any time after October 31, 1999, and prior to maturity
at October 31, 2001. The debentures bear interest at the rate of 7% payable
quarterly (Note 2).
The aggregate annual maturities of long-term debt during each of the five fiscal
years subsequent to November 28, 1999, are approximately $353,000 in 2000;
$3,299,000 in 2001; $46,454,000 in 2002; $255,000 in 2003; $260,000 in 2004; and
$4,340,000 thereafter.
NOTE 7- DEFERRED COMPENSATION PLANS
Effective December 1, 1986, as amended in 1991, the Company established deferred
compensation contracts for certain officers of the Company. The contracts fixed
a minimum level for retirement benefits to be paid to participants based on age
at retirement with the Company. The contracts are not funded. Charges to expense
were $100,000 in 1999, $101,000 in 1998 and $457,000 in 1997.
The Company also has deferred compensation agreements with key employees.
Vesting is based upon age and years of service. Life insurance contracts have
been purchased which may be used to fund these agreements. The charges to
expense were $140,000 in 1999, $140,000 in 1998 and $107,000 in 1997.
The Company has non-qualified retirement plans for certain personnel. The plans
enable participants to defer income on a pre-tax basis and are not funded. The
Company matches a portion of the deferral for certain participants. The charges
to expense were $377,000 in 1999, $168,000 in 1998 and $132,000 in 1997.
NOTE 8- EMPLOYEE BENEFIT PLANS
The Company maintains 401(k) and savings plans that cover substantially all
employees. Contributions to the plans were $621,000 in 1999, $531,000 in 1998
and $417,000 in 1997.
<PAGE>
Note 9 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under long-term real estate leases for offices,
warehouses, showrooms and retail locations expiring at various dates through
2009 with certain renewal options. Certain of the lease agreements for store
locations have, in addition to base rental, contingent rentals based on sales
volume and payments based on a pro-rata distribution of the expenses associated
with common areas. Rental payments charged to expense were $5,532,000 in 1999,
$2,205,000 in 1998 and $1,762,000 in 1997. The increase for 1999 reflects
additional rental costs at Storehouse.
The Company is a lessor of its investment properties primarily under long-term
operating leases. The lease arrangements have initial terms of three to twelve
years and some contain provisions to increase the monthly rentals at specific
intervals. Rental income, net of commissions, was $1,437,000 in 1999, $1,412,000
in 1998 and $1,399,000 in 1997 and is included in other income in the
accompanying Consolidated Statements of Income.
Minimum lease commitments at November 28, 1999, under long-term operating real
estate leases are as follows:
Lease Expense Lease Income
------------- ------------
2000 $ 9,815,000 $1,366,000
2001 9,165,000 1,260,000
2002 8,587,000 1,223,000
2003 8,171,000 1,108,000
2004 7,741,000 1,005,000
Thereafter 18,150,000 1,730,000
----------- ----------
$61,629,000 $7,692,000
=========== ==========
In August 1999, the Company executed an agreement to enter into a five-year
lease of a new manufacturing facility in Elliston, Virginia, currently under
construction. Funding under the agreement is limited to $25 million. Payments
under this lease are based on LIBOR plus a spread ranging from .35% to 1.30%.
The Company has an option to renew the lease for up to two five-year extensions,
subject to certain conditions. Upon expiration of the lease, the Company has the
option to purchase the property, or the facility can be sold to a third party
with the Company's guarantee of a residual value of not less than 85% of the
total cost. The above table of minimum lease commitments excludes any payment
related to this guarantee. The agreement contains financial covenants including
ratios on leverage to cash flow, debt to total capitalization and interest
coverage. At November 28, 1999, the Company was in compliance with these
covenants. The facility was placed in service in January 2000.
In addition, the Company is obligated through a dedicated contract carriage
agreement for delivery services for periods ranging from 6 to 10 years. Current
monthly expense is $262,000 plus a variable mileage charge.
Health Insurance Plan
<PAGE>
The Company and its subsidiaries maintain self-insurance programs for that
portion of health care costs not covered by insurance. The Company is liable for
claims from $30,000 up to $100,000 per person annually, and aggregate claims
ranging from $600,000 up to $7,500,000 in 1999. Self-insurance costs are accrued
based upon the aggregate of the liability for reported claims and an estimated
liability for claims incurred but not reported.
Employment Agreements
The Company has employment agreements with certain key officers of the Company,
which provide for salary continuation of two years in the event of termination
of employment without cause. In addition, the Company has an agreement with an
officer, which provides annual compensation of $792,000, adjusted for changes in
the consumer price index, through November 30, 2004. Payments under this
agreement were $802,000 in 1999.
In connection with the acquisitions in 1998 and 1999, the Company's subsidiaries
have employment agreements with certain key officers for periods of three to
five years with salaries up to $275,000.
Litigation
The Company has been named as a defendant in various lawsuits arising in the
ordinary course of business. It is not possible at the present time to estimate
the ultimate outcome of these actions; however, management believes that the
resulting liability, if any, will not be material based on the Company's
previous experience with lawsuits of these types.
NOTE 10 - STOCK OPTION PLANS
The Company has two stock option plans as described below. The Company applies
APB Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretation in accounting for the plans. Under APB Opinion 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation cost is
recognized.
Under the 1993 incentive stock option plan (as amended), 3,264,937 shares of
unissued common stock or treasury stock have been made available for grants.
These options were granted at market value on the date of grant, have been
adjusted for stock splits and dividends and are exercisable for a term of eight
to ten years from the date of grant.
Under the 1983 incentive stock option plan (as amended), 3,132,420 shares of
unissued common stock or treasury stock were available for grants. These options
are exercisable for a term of ten years from the date of grant. These options
were granted at market value on the date of grant and have been adjusted for
stock splits and dividends. Effective January 28, 1993, no further options may
be granted under this plan.
SFAS 123, "Accounting for Stock-Based Compensation," requires the Company to
provide pro forma information regarding net income and earnings per share as if
compensation costs for the Company's stock option plans had been determined in
accordance with the fair value based method prescribed in SFAS 123. The Company
estimated the fair value of each stock option at the grant date by using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively; dividend yield
of 1.5%, 1.0% and 1.0%; expected volatility of 45.6, 42.0 and 32.7 percent;
risk-free interest rates of 6.0%, 5.2% and 6.0%; and expected lives of 4, 4 and
8 years.
<PAGE>
Under the accounting provisions of SFAS Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
1999 1998 1997
- ------------------------------------------------------------------------
Net earnings
As reported $13,901,000 $11,200,000 $6,286,000
Pro forma $12,756,000 $10,474,000 $6,209,000
Net earnings per common share
As reported $ 1.04 $ 0.82 $ 0.44
Pro forma $ 0.95 $ 0.77 $ 0.44
Net earnings per common share
assuming dilution
As reported $ 0.98 $ 0.79 $ 0.43
Pro forma $ 0.90 $ 0.74 $ 0.42
A summary of the status of the Company's two fixed stock option plans, as of the
balance sheet date and changes during the years ending on those dates, is
presented below:
<TABLE>
<CAPTION>
November 28, 1999 November 29, 1998 November 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of year 1,569,613 $6.01 1,094,823 $ 4.69 1,192,646 $4.45
Granted 774,466 9.69 744,028 7.18 36,850 8.01
Exercised (116,824) 3.94 (261,813) 3.70 (114,048) 3.40
Forfeited (122,057) 7.84 (7,425) 10.68 (20,625) 3.78
---------- --------- ---------
Outstanding
at end of year 2,105,198 $7.37 1,569,613 $ 6.01 1,094,823 $4.69
========== ========= =========
Weighted-average
fair value of
options granted
during the year $2.35 $4.01 $ 3.00
===== ===== ======
</TABLE>
The following table summarizes information about fixed stock options outstanding
at November 28, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Range Number Weighted Weighted Number Weighted
of Outstanding at Average Average Exercisable Average
Exercise November 28, Remaining Exercise November 28, Exercise
Prices 1999 Contractual Life Price 1999 Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.78 - $2.79 126,585 3 $ 1.95 126,585 $ 1.95
3.86 - 5.00 374,804 5 4.66 374,804 4.66
6.25 - 6.94 381,502 8 6.58 381,502 6.58
</TABLE>
<PAGE>
7.30 - 8.18 433,924 9 7.66 59,400 7.75
8.98 - 9.60 442,266 9 9.25 380,600 9.19
10.28 - 12.05 346,117 9 10.39 50,325 11.03
-------- -------
2,105,198 $ 7.37 1,373,216 $ 6.57
========= =========
NOTE 11- TAXES ON INCOME
Provisions for income taxes in the Consolidated Statements of Income consisted
of the following components:
1999 1998 1997
----------- ----------- ----------
Current $ 8,575,000 $6,385,000 $3,650,000
Deferred (464,000) 545,000 (50,000)
----------- ---------- ----------
Total taxes on income $ 8,111,000 $6,930,000 $3,600,000
=========== ========== ==========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The source of
the temporary differences and their effects on deferred taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Bad debt reserve $ 330,000 $ 335,000
Deferred compensation 1,685,000 1,404,000
Net operating loss carryforwards 479,000 -
Other 708,000 349,000
----------- -----------
Gross deferred tax assets 3,202,000 2,088,000
----------- -----------
Receivables 632,000 958,000
Inventories 641,000 -
Property and equipment 541,000 1,426,000
Investment property 2,179,000 1,926,000
Other 47,000 232,000
----------- -----------
Gross deferred tax liabilities 4,040,000 4,542,000
----------- -----------
Net deferred tax liability $ (838,000) $(2,454,000)
=========== ===========
Included in the balance sheet:
Deferred income tax-current $ 238,000 $ 181,000
Deferred income tax liabilities-non-current (1,076,000) (2,635,000)
----------- -----------
Net deferred tax liability $ (838,000) $(2,454,000)
=========== ===========
</TABLE>
At November 28, 1999, the Company had deferred tax assets relating to net
operating loss carryforwards for income tax purposes of $1,200,000 that will
expire in fiscal 2017.
The following summary reconciles taxes at the federal statutory tax rate with
the actual taxes:
1999 1998 1997
---- ---- ----
<PAGE>
Income tax expense, computed
at the statutory rate $7,704,000 $6,245,000 $3,360,000
State income taxes, net of
federal income tax benefit 558,000 480,000 304,000
Life insurance transactions (65,000) (41,000) (40,000)
Goodwill 231,000 - -
Other items, net (317,000) 246,000 (24,000)
---------- ---------- ----------
Total taxes on income $8,111,000 $6,930,000 $3,600,000
========== ========== ==========
Note 12 - MAJOR CUSTOMER INFORMATION
Shipments to the Company's top three customers as a percent of net shipments
were 17% in 1999, 19% in 1998 and 19% in 1997. Shipments to the Company's top
ten customers, as a percent of net shipments, amounted to 31% in 1999, 30% in
1998 and 34% in 1997. Shipments to one customer, Levitz Furniture, as a percent
of net shipments amounted to 4% in 1999, 10% in 1998 and 16% in 1997.
Receivables from the Company's top three customers as a percent of year-end
receivables amounted to 25% in 1999 and 30% in 1998.
NOTE 13 -SEGMENT REPORTING
The Company's operations are classified into two business segments; wholesale
and retail home furnishings. Prior to the acquisition of Storehouse, the Company
reported its operations as one segment, wholesale home furnishings.
The wholesale home furnishings segment manufactures upholstered furniture.
Upholstered furniture includes sofas, loveseats, occasional chairs and sleep
sofas, covered with fabric or leather. Additionally, the Company manufactures a
line of casual wood furniture.
The retail home furnishings segment sells home furnishings and accessories to
customers through Company-owned stores. These products consist of upholstered
furniture (primarily obtained from related companies), casegoods and home
accessories.
The other category is comprised of additional subsidiaries reviewed by
management including parent company expenses. During 1998, the Company created a
parent company organization that moved the investment in subsidiaries from Rowe
Furniture to the parent, and is included in other below.
<TABLE>
<CAPTION>
Wholesale Retail
Home Home
Furnishings Furnishings Inter-segment
Segment Segment Eliminations Other Consolidated
1999 (in thousands) ------------
----
<S> <C> <C> <C> <C> <C>
Net shipments $ 252,222 $ 50,446 $ (13,004) $ - $ 289,664
Interest expense 2,462 443 (219) - 2,686
Depreciation and amortization 4,671 1,241 - 253 6,165
Pre-tax net earnings(loss) 22,222 (1,528) (325) 1,643 22,012
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Capital expenditures 7,174 1,485 - 171 8,830
Total assets 118,261 48,892 (92,698) 94,125 168,580
1998
Net shipments $ 185,733 $ 13,389 $ (5,722) $ - $ 193,400
Interest expense 694 - - - 694
Depreciation and amortization 3,023 249 - 501 3,773
Pre-tax net earnings(loss) 16,165 (325) (297) 2,587 18,130
Capital expenditures 6,423 389 - 139 6,951
Total assets 96,935 4,246 (59,652) 68,933 110,462
1997
Net shipments $ 137,835 $ 10,965 $ (4,682) $ - $ 144,118
Interest expense 268 2 - 9 279
Depreciation and amortization 2,301 220 - 256 2,777
Pre-tax net earnings(loss) 9,150 (369) 30 1,075 9,886
Capital expenditures 2,918 74 - 269 3,261
Total assets 84,849 3,340 (32,886) 8,407 63,710
</TABLE>
NOTE 14 - QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarter First Second Third Fourth
- ------------------------------------------------------------------------------------------------------------------
(Unaudited, in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1999
Net shipments $59,966 $63,895 $70,234 $95,569
Gross profit 16,467 17,882 21,277 32,468
Net earnings 3,092 3,042 2,923 4,844
Net earnings per common share(1) 0.23 0.23 0.22 0.36
Net earnings per common share
assuming dilution(1) 0.21 0.21 0.21 0.35
1998
Net shipments $45,331 $45,617 $47,972 $54,480
Gross profit 12,206 11,804 12,641 15,422
Net earnings(2) 2,598 2,429 2,232 3,941
Net earnings per common share(1)(2) 0.19 0.17 0.16 0.29
Net earnings per common share
assuming dilution(1)(2) 0.18 0.17 0.15 0.29
</TABLE>
(1) Earnings per share calculations for each of the quarters are based on the
weighted average shares outstanding for each period, adjusted for the 10%
stock dividend. The sum of the quarters may not necessarily be equal to the
full year earnings per share amounts.
<PAGE>
(2) Earnings for the second quarter of 1998 include a gain of approximately
$0.02 per share, after tax, in unusual items reflecting the sale of the
Levitz Furniture receivable partially offset by increase in reserve for bad
debts, write-down of investment property and other unusual charges.
NOTE 15 - RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," which is
effective for fiscal years beginning after December 15, 1998. The SOP requires
that the costs of start-up activities be expensed as incurred. Currently, the
Company defers all costs incurred prior to the opening of a new Company-owned
store and amortizes these costs over the store's first twelve months of
operations. The SOP requires companies to report the initial application of the
standard as a cumulative effect of an accounting change. The Company will adopt
this standard in the first quarter of fiscal 2000. Management believes that the
adoption of this standard will not have a material effect on the Company's
results.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Historically, the Company has not entered
into derivatives contracts either to hedge existing risks or for speculative
purposes. Management believes that the adoption of this standard will not have a
material effect on the Company's results.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of The Rowe Companies is responsible for the accuracy and
consistency of all the information contained in the annual report, including all
accompanying consolidated financial statements. The statements have been
prepared to conform with generally accepted accounting principles and include
amounts based on management's estimates and judgments.
The Rowe Companies maintains a system of internal accounting controls designed
to provide reasonable assurance that financial records are accurate, Company
assets are safeguarded, and financial statements present fairly the consolidated
financial position of the Company.
The Audit Committee of the Board of Directors, composed solely of outside
directors, reviews the scope of audits and the findings of the independent
certified public accountants. The auditors meet regularly with the Audit
Committee to discuss audit and financial issues.
BDO Seidman, LLP, the Company's independent certified public accountants, has
audited the financial statements prepared by management. Their opinion on the
financial statements is presented as follows.
<PAGE>
Gerald M. Birnbach Arthur H. Dunkin
Chairman of the Board and President Secretary-Treasurer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Rowe Companies
McLean, Virginia
We have audited the accompanying consolidated balance sheets of The Rowe
Companies and subsidiaries as of November 28, 1999 and November 29, 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended November 28, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Rowe Companies
and subsidiaries at November 28, 1999 and November 29, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended November 28, 1999, in conformity with generally accepted accounting
principles.
High Point, North Carolina BDO SEIDMAN, LLP
January 12, 2000
<PAGE>
EXHIBIT (21)
THE ROWE COMPANIES
AND WHOLLY-OWNED SUBSIDIARIES
LIST OF SUBSIDIARIES
The Company has eight wholly-owned subsidiaries:
(1) Rowe Furniture, Inc., a Virginia Corporation
(2) Rowe Properties, Inc., a California Corporation
(3) Home Elements, Inc., a Virginia Corporation
(4) Rowe Worldwide, Inc., a US Virgin Islands Corporation
(5) The Wexford Collection, Inc., a California Corporation
(6) Rowe Diversified, Inc., a Delaware Corporation
(7) The Mitchell Gold Company, a North Carolina Corporation
(8) Storehouse, Inc., a Georgia Corporation
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Rowe Companies
McLean, Virginia
We hereby consent to the incorporation by reference of our reports dated
January 12, 2000, relating to the consolidated financial statements and schedule
of The Rowe Companies appearing in the Company's Annual Report on Form 10-K for
the year ended November 28, 1999 into the Company's previously filed
registration statements file numbers 2-94943, 33-90486, 33-77766, 33-77768 and
333-82571.
/s/ BDO Seidman, LLP
--------------------
BDO Seidman, LLP
High Point, North Carolina
February 19, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-28-1999
<PERIOD-END> NOV-28-1999
<CASH> 5,104
<SECURITIES> 0
<RECEIVABLES> 38,340
<ALLOWANCES> 864
<INVENTORY> 41,381
<CURRENT-ASSETS> 88,161
<PP&E> 73,538
<DEPRECIATION> 37,352
<TOTAL-ASSETS> 168,580
<CURRENT-LIABILITIES> 54,202
<BONDS> 54,608
0
0
<COMMON> 16,513
<OTHER-SE> 38,146
<TOTAL-LIABILITY-AND-EQUITY> 168,580
<SALES> 289,664
<TOTAL-REVENUES> 289,664
<CGS> 201,570
<TOTAL-COSTS> 201,570
<OTHER-EXPENSES> 63,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,686
<INCOME-PRETAX> 22,012
<INCOME-TAX> 8,111
<INCOME-CONTINUING> 13,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,901
<EPS-BASIC> 1.04<F1>
<EPS-DILUTED> 0.98<F1>
<FN>
<F1> A 10% stock dividend was declared November 2, 1999. Prior financial data
schedules have not been restated for this transaction
</FN>
</TABLE>
