<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
_________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
-----
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 21, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-10811
SMART & FINAL INC.
(Exact name of registrant as specified in its charter)
Delaware No. 95-4079584
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4700 South Boyle Ave.
Los Angeles, California 90058
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (213) 589-1054
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No____.
The registrant had 22,487,879 shares of common stock outstanding as of July 31,
1998.
Number of Sequentially Numbered Pages: 15
Exhibit Index at Page: 15
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<PAGE>
- --------------------------------------------------------------------------------
SMART & FINAL INC.
INDEX
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets 2
Unaudited Consolidated Statements of Income 3
Unaudited Consolidated Statements of Cash Flows 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
1
<PAGE>
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 21, JANUARY 4,
1998 1998
------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash & cash equivalents $ 20,583 $ 22,891
Trade notes and accounts receivable, less
allowance for doubtful accounts of
$3,807 in 1998 and $5,518 in 1997 76,183 75,995
Inventories 144,449 129,761
Prepaid expenses 11,861 15,906
Deferred tax asset 9,600 9,600
-------- --------
Total current assets 262,676 254,153
Property, plant and equipment:
Land 35,491 35,631
Buildings and improvements 29,564 29,530
Leasehold improvements 73,616 67,821
Fixtures and equipment 148,923 139,316
-------- --------
287,594 272,298
Less - Accumulated depreciation and amortization 96,327 85,808
-------- --------
Net property, plant and equipment 191,267 186,490
Assets under capital leases, net 4,295 4,535
Goodwill 53,471 18,940
Deferred tax asset 3,148 3,148
Other assets 19,231 20,879
-------- --------
Total Assets $534,088 $488,145
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 6,088 $ 3,576
Current maturities of notes payable to affiliates 7,600 7,600
Bank line of credit 66,000 37,000
Accounts payable 79,240 77,116
Payable to Parent and affiliates 22,171 18,589
Accrued salaries and wages 12,041 9,528
Other accrued liabilities 27,306 32,262
-------- --------
Total current liabilities 220,446 185,671
Long-term liabilities:
Notes payable, net of current maturities 17,475 4,061
Notes payable to affiliates 22,800 22,800
Bank debt 45,000 45,000
Obligations under capital leases 7,854 8,163
Other long-term liabilities 2,982 2,937
Workers' compensation reserve, postretirement
and postemployment benefits 18,795 18,068
-------- --------
Total long-term liabilities 114,906 101,029
Minority interest - 1,116
Stockholders' equity:
Preferred stock, $1 par value (authorized-
10,000,000 shares; no shares issued) - -
Common stock, $0.01 par value (authorized-
100,000,000 shares; 22,468,646 shares issued
and outstanding in 1998 and 22,386,181 in 1997) 225 224
Additional paid-in capital 144,222 142,865
Cumulative translation loss (835) (835)
Retained earnings 55,124 58,075
-------- --------
Total stockholders' equity 198,736 200,329
-------- --------
Total liabilities and stockholders' equity $534,088 $488,145
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED
------------------------- --------------------------
June 21, June 15, June 21, June 15,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales............................................................ $ 380,577 $ 334,948 $ 714,855 $ 641,932
Cost of sales, buying and occupancy.............................. 332,697 285,250 627,235 547,647
----------- ----------- ----------- -----------
Gross margin..................................................... 47,880 49,698 87,620 94,285
Operating and administrative expenses............................ 43,458 37,177 82,876 72,004
----------- ----------- ----------- -----------
Income from operations....................................... 4,422 12,521 4,744 22,281
Interest expense, net............................................ 2,438 1,727 4,566 3,264
----------- ----------- ----------- -----------
Income before income taxes, minority share
of net income, and cumulative effect of accounting change.... 1,984 10,794 178 19,017
Income taxes..................................................... 753 4,043 (27) 7,278
Minority share of net income..................................... - 10 - 116
----------- ----------- ----------- -----------
Income from consolidated subsidiaries........................ 1,231 6,741 205 11,623
Equity earnings in unconsolidated subsidiary..................... 57 100 187 200
----------- ----------- ----------- -----------
Income before cumulative effect of accounting change......... 1,288 6,841 392 11,823
Cumulative effect of accounting change (start-up costs, net of
tax effect of $758).......................................... - - 1,090 -
----------- ----------- ----------- -----------
Net income (loss)............................................ $ 1,288 $ 6,841 $ (698) $ 11,823
=========== =========== =========== ===========
Earnings (loss) per common share:
Earnings per common share before cumulative effect of
accounting change.............................................. $ 0.06 $ 0.31 $ 0.02 $ 0.54
Cumulative effect of accounting change per common share......... - - (0.05) -
----------- ----------- ----------- -----------
Earnings (loss) per common share................................ $ 0.06 $ 0.31 $ (0.03) $ 0.54
=========== =========== =========== ===========
Weighted average common shares ................................... 22,446,511 22,054,168 22,421,082 22,024,727
=========== =========== =========== ===========
Earnings (loss) per common share, assuming dilution:
Earnings per common share, assuming dilution, before
cumulative effect of accounting change......................... $ 0.06 $ 0.30 $ 0.02 $ 0.52
Cumulative effect of accounting change per common share......... - - (0.05) -
----------- ----------- ----------- -----------
Earnings (loss) per common share, assuming dilution............. $ 0.06 $ 0.30 $ (0.03) $ 0.52
=========== =========== =========== ===========
Weighted average common shares
and common share equivalents..................................... 22,865,913 22,763,837 22,848,365 22,793,111
=========== =========== =========== ===========
Dividend per common share......................................... $ 0.05 $ 0.05 $ 0.10 $ 0.10
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-four Weeks Ended
-------------------------
June 21, June 15,
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities: (Unaudited)
Net income.............................................................. $ (698) $ 11,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......................................... 13,008 11,400
Cumulative effect of accounting change, net of taxes.................. 1,090 -
Minority share of net income.......................................... - 116
Equity earnings in unconsolidated subsidiary.......................... (187) (200)
Decrease (increase) in:
Trade notes and accounts receivable................................. 2,806 1,357
Inventories......................................................... 7,583 1,877
Prepaid expenses and other.......................................... 4,699 (727)
Increase (decrease) in:
Accounts payable.................................................... (2,351) (9,768)
Accrued liabilities................................................. 2,513 (1,286)
Other liabilities................................................... (4,183) 951
-------- --------
Net cash provided by operating activities............................. 24,280 15,543
-------- --------
Cash Flows From Investing Activities:
Acquisition of property, plant and equipment............................ (12,579) (14,592)
Proceeds from disposal of property, plant and equipment................. 843 184
Acquisition of business................................................. (44,401) (5,000)
Other................................................................... (245) (1,216)
-------- --------
Net cash used in investing activities................................. (56,382) (20,624)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................................. 1,175 1,686
Borrowings on bank line of credit....................................... 65,000 6,000
Payments on bank line of credit......................................... (36,000) -
Payments on notes payable............................................... (1,883) (1,092)
Increase in payable to Parent and affiliates............................ 3,743 2,633
Quarterly dividend paid................................................. (2,241) (2,208)
-------- --------
Net cash provided by financing activities............................. 29,794 7,019
-------- --------
(Decrease) increase in cash and cash equivalents........................... (2,308) 1,938
Cash and cash equivalents at beginning of period........................... 22,891 16,795
-------- --------
Cash and cash equivalents at end of period................................. $ 20,583 $ 18,733
======== ========
Noncash Investing and Financing Activities:
Note issued in connection with acquisition of business.................. $ 17,500 $ 500
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
Smart & Final Inc. (the "Company") is a Delaware corporation and is a 55.3
percent owned subsidiary of Casino USA, Inc. (the "Parent"), and Casino Realty,
Inc., a wholly owned subsidiary of Casino USA.
The consolidated balance sheet as of June 21, 1998, the consolidated
statements of income for the twelve and twenty-four weeks ended June 21, 1998
and June 15, 1997, and cash flows for the twenty-four weeks ended June 21, 1998
and June 15, 1997 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K statement for the year ended January 4, 1998.
(2) EARNINGS PER COMMON SHARE
Earnings per common share is based on the weighted average number of shares
of common stock outstanding. Earnings per common share, assuming dilution,
includes the weighted average number of common stock equivalents outstanding
related to employee stock options and a stock purchase agreement.
(3) FISCAL YEARS
The Company's fiscal year ends on the Sunday closest to December 31. Each
fiscal year consists of twelve-week periods in the first, second and fourth
quarters and a sixteen-week period in the third quarter.
(4) DIVIDEND
On June 22, 1998, the Company declared a dividend of $0.05 per share to
stockholders of record at July 3, 1998. The dividend was paid on July 31, 1998.
(5) INCOME TAXES
Tax sharing payments for state income taxes made by the Company to the
Parent were $1,328,000 in the twenty-four weeks ended June 15, 1997. In the
twenty-four weeks ended June 21, 1998, the Company received a refund of
$1,846,000 from the Parent for state income taxes overpaid, due to the loss for
1997 and the first half of 1998. The Company paid $1,375,000 in federal income
taxes in the twenty-four week period ended June 15, 1997 and did not pay any in
the twenty-four week period ended June 21, 1998 due to losses in first half of
1998.
5
<PAGE>
SMART & FINAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(6) LEGAL ACTIONS
The Company has been named as defendant in various legal actions arising in
the normal conduct of its business. In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.
(7) ACCOUNTING STANDARDS
During the first quarter of 1998, the Company adopted the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities". This statement
requires that costs of start-up activities and organization costs be expensed as
incurred. Adoption of this statement resulted in a cumulative effect of
accounting change, net of tax, charge of $1.1 million, or $0.05 per diluted
share.
The Company adopted the provisions of AICPA Statement of Position 98-1,
"Accounting for the costs of Computer Software Developed or Obtained for
Internal Use" during the first quarter of 1998. This statement provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. Adoption of this statement had no impact on the Company's
consolidated financial statements.
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income. There was no difference between comprehensive income and
net income for the periods presented.
(8) ACQUISITION OF BUSINESS
On May 15, 1998, the Company acquired the Cash & Carry operating business
of United Grocers, Inc. which included 39 stores operating in the Pacific
Northwest. The purchase price consisted of $42.5 million in cash, plus a $17.5
million five-year unsecured note. The cash payment was financed by a bridge
loan from the Company's major commercial bank. The results of operations for
the twelve and twenty-four weeks ended June 21, 1998 include the results of
operations of the acquired Cash & Carry stores from May 15, 1998. The
acquisition has been accounted for using the purchase method of accounting. The
purchase price has been allocated to assets acquired based on preliminary
estimates subject to change when additional information and studies are
completed. The excess of the aggregate purchase price over the fair market
values of the net assets acquired, of approximately $34 million, has been
reflected in the balance sheet as "goodwill".
(9) BRIDGE LOAN
Effective April 30, 1998, the Company entered into a Credit Agreement
("Bridge Loan") with Credit Lyonnais Los Angeles Branch for $65 million. The
Bridge Loan has an interest rate structure similar to the Company's $50 million
long-term revolving unsecured line of credit. Proceeds from the Bridge loan were
used to fund the cash payment associated with the United Grocers Cash & Carry
store operations acquisition and to reduce other outstanding debt. The Bridge
loan matures on April 29, 1999.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto and the
Company's annual report on Form 10-K for the year ended January 4, 1998.
SUMMARY
Smart & Final Inc. (the "Company") reported net income of $1.3 million, or
$0.06 per diluted share, for the twelve weeks ended June 21, 1998, compared to
net income of $6.8 million, or $0.30 per diluted share, in the twelve weeks
ended June 15, 1997.
For the twenty-four weeks ended June 21, 1998, the Company reported a net
loss of $0.7 million, or $0.03 per diluted share, compared to net income of
$11.8 million, or $0.52 per diluted share, for the twenty-four weeks ended June
15, 1997. The 1998 period includes a cumulative effect of accounting change,
net of tax, charge of $1.1 million, or $0.05 per diluted share, related to
adoption of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 98-5.
The decline in operating earnings for the second quarter and for the first
half of the year was attributed primarily to a decline in year to year earnings
from Florida foodservice operations and significant reductions in vendor rebate
and allowance income. Florida operations began encountering distribution
problems early in the third quarter of 1997. Distribution efficiencies have
improved in 1998, but comparative first half earnings are substantially lower
due to these problems. Vendor income is recognized as earned and, although down
sharply in the comparative results for the first half of the year, is expected
to rise considerably in the second half comparative results. Quarterly and
year-to-date results in 1998 were also affected by slow sales growth as a result
of record rainfall.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, certain condensed
consolidated income statement data, expressed as a percentage of total sales.
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-Four Weeks Ended
-------------------- -------------------------
June 21 June 15, June 21, June 15,
1998 1997 1998 1997
-------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Sales:
Store sales........................................ 71.7% 74.5% 69.4% 73.7%
Foodservice distribution sales..................... 28.3 25.5 30.6 26.3
----- ----- ----- -----
Total Sales......................................... 100.0 100.0 100.0 100.0
Cost of sales, buying and occupancy................. 87.4 85.2 87.7 85.3
----- ----- ----- -----
Gross margin....................................... 12.6 14.8 12.3 14.7
Operating and administrative expenses............... 11.4 11.1 11.6 11.2
----- ----- ----- -----
Income from operations............................ 1.2 3.7 0.7 3.5
Interest expense, net............................... 0.6 0.5 0.6 0.5
----- ----- ----- -----
Income before income taxes, minority
share of net income, and cumulative
effect of accounting change....................... 0.5 3.2 -- 3.0
Income taxes........................................ 0.2 1.2 -- 1.1
Minority share of net income........................ -- -- -- --
----- ----- ----- -----
Income before cumulative effect of
accounting change................................. 0.3 2.0 0.1 1.8
Cumulative effect of accounting
change (start-up costs)........................... -- -- 0.2 --
----- ----- ----- -----
Net income (loss)................................... 0.3% 2.0% (0.1)% 1.8%
===== ===== ===== =====
* Totals do not aggregate due to rounding.
</TABLE>
7
<PAGE>
BACKGROUND
The Company continued its expansion program in 1998 and 1997 as shown in
the following table:
<TABLE>
<CAPTION>
Two
Quarter Ended Quarters Ended Year Ended
--------------------- --------------------- -----------
June 21, June 15, June 21, June 15, January 4,
1998 1997 1998 1997 1998
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
USA
Store count beginning 169 167 167 168 168
Stores opened:
In new markets -- -- 1 -- 1
In mature markets -- 1 1 2 3
Stores acquired 39 -- 39 -- --
---- ---- ---- ---- ----
Total 39 1 41 2 4
Relocations 1 3 3 3 7
Stores relocated/(closed) (1) (3) (3) (5) (12)
---- ---- ---- ---- ----
Store count ending 208 168 208 168 167
MEXICO
Store count beginning 6 5 5 5 5
New stores opened -- -- 1 -- --
---- ---- ---- ---- ----
Store count ending 6 5 6 5 5
Grand Total 214 173 214 173 172
==== ==== ==== ==== ====
</TABLE>
Mexico operations are not consolidated and are reported on the equity
basis.
Although new stores are important to the Company's continued growth
and profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable. In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.
Each of the Company's fiscal years consists of twelve-week periods in
the first, second and fourth quarters of the fiscal year and a sixteen-week
period in the third quarter.
COMPARISON OF TWELVE WEEKS ENDED JUNE 21, 1998 WITH TWELVE WEEKS ENDED JUNE 15,
1997.
Sales. Second quarter 1998 sales were $380.6 million, up 13.6% from
the comparable 1997 period. Sales reflect the May 15, 1998 acquisition of the
United Grocers Cash & Carry ("Cash & Carry") store operations. Excluding Cash &
Carry, Smart & Final Stores Corporation
8
<PAGE>
("Smart & Final") store sales decreased 1.3%. Comparable store sales for the
second quarter of 1998 declined 2.6% from the prior year period, due primarily
to the decision to eliminate high discount tobacco sales in the third quarter of
1997. The change in tobacco sales reduced year to year comparable sales by
approximately 3.0% in the second quarter of 1998. Average comparable
transaction size, also impacted by high discount tobacco transactions, declined
slightly, by 1.0% to $31.72 in the second quarter of 1998.
Foodservice distribution sales increased significantly from $85.4
million in the second quarter of 1997 to $107.6 million in the current year
second quarter. Growth was strong at both Smart & Final Foodservice, formerly
Port Stockton Food Distributors, Inc., where sales increased 36.5% over the
prior year quarter and in Florida foodservice operations, where sales increased
by 17.6% over the prior year quarter.
Gross Margin. Gross margin declined 3.7% from $49.7 million in the
second quarter of 1997 to $47.9 million in the current year quarter. As a
percentage of sales, gross margin declined from 14.8% to 12.6%. The decline was
primarily due to three factors: reduced vendor rebate and allowance income, a
higher mix of foodservice sales which generate lower gross margins and require
lower operating expenses than store sales, and lower foodservice gross margins
compared to 1997 caused by increased meat processing and chain account sales.
Operating and Administrative Expenses. Operating and administrative
expenses for the second quarter of 1998 were $43.5 million, up $6.3 million, or
16.9%, over the second quarter of 1997. These expenses, as a percentage of
sales, increased from 11.1% in the second quarter of 1997 to 11.4% in the second
quarter of 1998. The increased expense levels were the result of management
reorganization costs and increased direct expenses as a percentage of sales due
to a decline in sales. Additional current year marketing expenditures, in an
effort to promote sales growth, was also a factor in increased overall expenses.
Interest Expense, net. Interest expense, net increased from $1.7
million in the second quarter of 1997 to $2.4 million in the second quarter of
1998 primarily as the result of higher weighted average borrowings. Revolving
debt borrowings and notes payable increased primarily due to the Cash & Carry
acquisition.
COMPARISON OF TWENTY-FOUR WEEKS ENDED JUNE 21, 1998 WITH TWENTY-FOUR WEEKS ENDED
JUNE 15, 1997.
Sales. First half 1998 sales were $714.9 million, up 11.4% from the
comparable 1997 period. Smart & Final store sales decreased 0.7%. Comparable
store sales decreased 2.1% in the first half of 1998 primarily as a result of
the decision to eliminate high discount tobacco sales in the third quarter of
1997. This decision reduced comparative sales for the first half of 1998 by
approximately 3.0%. Record rainfall in the first half of 1998 also reduced
sales growth. Average comparable transaction size, also impacted by elimination
of high discount tobacco transactions, decreased 1.3% to $31.31 in the first
half of 1998.
9
<PAGE>
Foodservice distribution sales increased 29.5% to $218.4 million for
the first half of 1998. Significant sales growth was achieved at Smart & Final
Foodservice where sales increased 43.8% over the 1997 twenty-four week period.
The Florida foodservice operations experienced strong sales growth of 19.5% over
the first half of 1997.
Gross Margin. Gross margin declined 7.1% from $94.3 million in the
first half of 1997 to $87.6 million in the 1998 twenty-four week period. As a
percentage of sales, gross margin declined from 14.7% of sales for the first
half of 1997 to 12.3% in the comparable 1998 period. The major factors in the
lower gross margin percentage were the reduced vendor rebate and allowance
income, a higher mix of foodservice sales which generate lower gross margins,
and lower foodservice gross margins compared to 1997 caused by increased meat
processing and chain account sales.
Operating and Administrative Expenses. Operating and administrative
expenses for the first half of 1998 were $82.9 million, or 11.6% of sales,
compared with $72.0 million, or 11.2% of sales, in the first half of 1997. The
increased expenses were the result of management reorganization costs and
increased direct expenses as a percentage of sales as a result of the store
sales decline.
Interest Expense, net. Interest expense, net increased from $3.3
million, or 0.5% of sales, in the first half of 1997 to $4.6 million, or 0.6% of
sales, in the comparable 1998 period. This increase was a result of higher
weighted average borrowings in the first half of 1998 compared to the first half
of 1997.
FINANCIAL CONDITION
Cash and cash equivalents were $22.9 million at January 4, 1998, and
$20.6 million at June 21, 1998. Cash provided by operating activities for the
twenty-four weeks ended June 21, 1998 was $24.3 million and other changes in
financing activities provided $4.9 million of cash for the twenty-four week
period. The net increase in debt was $27.1 million for the first half of 1998.
The acquisition of the United Grocers Cash & Carry store operations and
investments in fixed assets and other additions during the first half of 1998
required cash of $56.4 million. During the first half of 1998, $2.2 million of
dividends were paid.
Excluding the impact of the acquisition of the United Grocers Cash &
Carry store operations, inventories declined by $7.6 million as a result of a
comprehensive turnover analysis at all operating levels to achieve lower
carrying costs. Other changes in operating assets and liabilities generally
reflect the timing of receipts and disbursements. Trade notes and accounts
receivable decreased $2.8 million, prepaid expenses decreased $4.7 million,
accrued liabilities increased $2.5 million, accounts payable decreased $2.4
million, and other liabilities decreased $4.2 million in the first half of 1998.
Stockholders' equity decreased by $1.6 million to $198.7 million at
June 21, 1998 as a result of the $0.7 million loss for the first half of 1998
and the quarterly cash dividend of $2.2 million less $1.3 million proceeds from
issuance of stock.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flow from
operations. Cash provided by operating activities was $24.3 million in the
first half of 1998, up from $15.5 million in the comparable 1997 period. At
June 21, 1998, the Company had cash of $20.6 million, compared to $22.9 million
at January 4, 1998. The Company had $98.3 million of long-term debt and
stockholders' equity of $198.7 million at June 21, 1998.
As a result of the Cash & Carry acquisition and a temporary decline in
earnings, the Company has not complied with financial covenants in certain of
its loan agreements. Lending institutions have granted the Company a waiver
until September 30, 1998, during which time the Company expects to complete
restructuring of existing debt.
The Company expects to be able to fund future acquisitions and other
cash requirements by a combination of available cash, cash from operations,
lease financings and other borrowings and proceeds from the issuance of equity
securities. The Company is constructing a new distribution facility that will be
used to serve its Southern California operations. The facility and related
fixtures and equipment will cost approximately $37 million, most of which will
be financed by a committed lease facility. During the quarter, the Company
signed a lease for new office facilities for its corporate headquarters, which
it expects to move into in the third quarter of 1998. The amount budgeted for
other capital expenditures is approximately $40.0 million for fiscal 1998.
From time to time Smart & Final may publish forward-looking statements
about anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change because
they reflect preliminary information and management assumptions, and that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements. The factors which could cause
actual results or outcomes to differ from such expectation include the extent of
the company's success in (i) changing market conditions (ii) unforeseen costs
and expenses (iii) ability to attract new customers and retain existing
customers (iv) gain or losses from sales along with the uncertainties and other
factors, including unusually adverse weather conditions, described from time to
time in the company's SEC filing and reports. This report includes " forward-
looking statements" including, without limitation, statements as to the
Company's liquidity and availability of capital resources.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
Not applicable.
ITEM 2 CHANGES IN SECURITIES
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.6 Second Amendment to Stock Purchase Agreement, dated March 7, 1989,
by and among Mr. Emmons, Casino USA, Casino France and the Company
10.82 Second Amendment to Agreement to Sell and Purchase Real Property and
Escrow Instructions dated as of May 15, 1998, by and among Smart
& Final Stores Corporation and Certified Grocers of California, Ltd.
10.92 Credit Agreement (Bridge Loan) dated as of April 30, 1998 by and
among the Company and Credit Lyonnais Los Angeles Branch
10.93 Asset Purchase Agreement dated May 15, 1998 by and among the
Company and United Grocers, Inc.
10.94 Office Lease dated as of April, 1998 by and among the Commerce
Citadel Development Authority and Smart & Final Stores Corporation
12
<PAGE>
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.95 Participation Agreement dated as of May 20, 1998 by and among the
Company, Smart & Final Realty Trust 1998, Credit Lyonnais Los
Angeles Branch, as Agent, and the Lenders named therein (Certified
Property)
10.96 Trust Agreement dated as of May 13, 1998, by and among Credit
Lyonnais Leasing Corp. and Wilmington Trust Company
10.97 Lease and Agreement dated as of May 20, 1998 by and among Smart &
Final Realty Trust 1998 and Smart & Final Inc.
10.98 Loan Agreement dated as of May 20, 1998 by and among Smart & Final
Realty Trust 1998, Credit Lyonnais Los Angeles Branch, as Agent,
and the Lenders named therein
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMART & FINAL INC.
By:
DATE: JULY 31, 1998
/s/ MARTIN A. LYNCH
-----------------------------------------
Martin A. Lynch
Executive Vice President,
Principal Financial Officer, and
Principal Accounting Officer of the Company
14
<PAGE>
SMART & FINAL INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Number Description of Exhibit Page
- -------------- ---------------------- ----
10.6 Second Amendment to Stock Purchase Agreement, dated March 7,
1989, by and among Mr. Emmons, Casino USA, Casino France and
the Company
10.82 Second Amendment to Agreement to Sell and Purchase Real
Property and Escrow Instructions dated as of May 15, 1998, by
and among Smart & Final Stores Corporation and Certified
Grocers of California, Ltd.
10.92 Credit Agreement (Bridge Loan) dated as of April 30, 1998 by
and among the Company and Credit Lyonnais Los Angeles Branch
10.93 Asset Purchase Agreement dated May 15, 1998 by and among the
Company and United Grocers, Inc.
10.94 Office Lease dated as of April, 1998 by and among the
Commerce Citadel Development Authority and Smart & Final
Stores Corporation
10.95 Participation Agreement dated as of May 20, 1998 by and among
the Company, Smart & Final Realty Trust 1998, Credit Lyonnais
Los Angeles Branch, as Agent, and the Lenders named therein
(Certified Property)
10.96 Trust Agreement dated as of May 13, 1998, by and among Credit
Lyonnais Leasing Corp. and Wilmington Trust Company
10.97 Lease and Agreement dated as of May 20, 1998 by and among
Smart & Final Realty Trust 1998 and Smart & Final Inc.
10.98 Loan Agreement dated as of May 20, 1998 by and among Smart &
Final Realty Trust 1998, Credit Lyonnais Los Angeles Branch,
as Agent, and the Lenders named therein
27 Financial Data Schedule
15
<PAGE>
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
--------------------------------------------
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment"), dated
---------
as of July 1, 1998, between ROBERT J. EMMONS ("Emmons") and CASINO GUICHARD-
------
PERRACHON, S.A., a French societe anonyme ("Casino").
------
WHEREAS, Emmons and Casino, together with Smart & Final Inc. (the
"Company") and Casino USA, Inc. ("Casino USA"), are parties to a certain Stock
- -------- ----------
Purchase Agreement dated as of March 7, 1989, as amended (the "Stock Purchase
--------------
Agreement").
- ---------
WHEREAS, the Stock Purchase Agreement provided for the grant to Emmons
of certain rights to require Casino to purchase shares of common stock of the
Company owned by Emmons, which rights have expired by their terms.
WHEREAS, Emmons currently owns and may in the future acquire certain
shares of common stock of the Company and Casino, as an inducement to Emmons to
continue to serve as chief executive officer of the Company, wishes to grant to
Emmons an option to sell to Casino certain of such shares on the terms and
conditions set forth below.
WHEREAS, Emmons and Casino wish to amend the Agreement to provide for
the grant of such option to Emmons and the Company and Casino USA wish to
consent to such Amendment.
NOW THEREFORE, the parties hereby agree as follows:
1. Grant of Option. (a) Casino hereby grants to Emmons an option
---------------
(the "Option") to sell to Casino (or a designee of Casino), free and clear of
------
any claims, liens, encumbrances, security interests and charges of any nature
whatsoever ("Liens"), and Casino hereby agrees to purchase (or to cause a
-----
designee to purchase) upon exercise of the Option, up to an aggregate of
1,000,000 shares of issued and outstanding common stock, par value $0.01 per
share, of the Company ("Shares"), at the times, in the manner and subject to the
------
limitations set forth in this Amendment, at a purchase price per Share
determined separately for each exercise of the Option equal to 99.7% of the
average of the closing prices of the Shares on the New York Stock Exchange, as
reported on the New York Stock Exchange Composite Transactions Tape, for the 22
trading days immediately preceding the date on which the relevant Exercise
Notice (as defined below) is given (the "Exercise Price").
--------------
(b) Casino shall be entitled to designate one or more other persons or
entities (including Casino USA) as the purchaser of all or a portion of the
Shares to be purchased in connection with any exercise of the Option (provided
that if a sale to any designee, other than Casino USA, results in Emmons
incurring any cost or fees that would not have been incurred in a sale directly
to Casino, such additional cost or fees shall be borne by Casino (or its
designee)).
<PAGE>
2
(c) The Option may be exercised by Emmons, in part, from time to time
during the period commencing on January 1, 2000 and terminating on December 31,
2002 (the "Option Period"); provided, however, that the Option may not be
------------- -------- -------
exercised (i) at any one time with respect to fewer than 50,000 or more than
200,000 Shares, (ii) within two months of any prior exercise, or (iii) with
respect to more than 400,000 Shares in the aggregate during any one calendar
year. The Option shall terminate and Casino shall have no further obligations
hereunder after the Option Period. Notwithstanding the foregoing, this
Amendment and the Option will terminate immediately if at any time on or prior
to December 31, 1999 Emmons voluntarily resigns his position as chief executive
officer of the Company.
2. Exercise of Option; Purchase of Shares. (a) In the event Emmons
--------------------------------------
wishes to exercise the Option, Emmons shall send a written notice to Casino
specifying the number of Shares he wishes to sell, the Exercise Price applicable
to such exercise (together with a calculation of such Exercise Price) and an
account for the payment of the exercise price (an "Exercise Notice"). Any
---------------
Exercise Notice shall be irrevocable.
(b) Within 15 days from its receipt of any Exercise Notice, Casino
will notify Emmons in writing of a date not later than 30 days from the date of
such Exercise Notice for a closing of the purchase of Shares pursuant to such
Exercise Notice (a "Closing") and the name of any designee purchaser(s) of
-------
Shares. At each Closing, (a) Emmons will deliver to Casino (or its designee(s))
(i) a certificate or certificates representing the number of Shares being
purchased in proper form for transfer upon exercise of the Option and (ii) an
opinion of counsel, reasonably satisfactory in form and substance to Casino, to
the effect that the sale of Shares pursuant to the Option will not violate the
Securities Act of 1933 (or any applicable state law governing the offer and sale
of securities) and the rules and regulations thereunder, and (b) Casino (or its
designee(s)) shall pay the aggregate purchase price for the Shares to be
purchased at the Closing by wire transfer to the account designated in the
Exercise Notice of immediately available funds in the amount of the applicable
Exercise Price times the number of Shares to be purchased.
3. Representations and Warranties of Emmons. Emmons represents and
----------------------------------------
warrants to Casino (and its designees) that: (a) this Amendment has been duly
executed and delivered by Emmons and constitutes a valid and legally binding
obligation of Emmons enforceable in accordance with its terms; (b) no
authorization, consent or approval of, or any filing with, any public body or
authority is necessary for consummation by Emmons of the transactions
contemplated hereby; and (c) any Shares sold to Casino (or its designees) upon
exercise of the Option will be transferred free and clear of all Liens and
Casino (or its designees) will receive good title to all of such Shares, free
and clear of all Liens.
4. Representations and Warranties of Casino. Casino represents and
----------------------------------------
warrants to Emmons that: (a) this Amendment has been duly authorized, executed
and delivered by Casino and constitutes a valid and legally binding obligation
of Casino enforceable in accordance with its terms; and (b) no authorization,
consent or approval of, or any filing with, any public body or authority is
necessary for consummation by Casino of the transactions contemplated by this
Amendment.
<PAGE>
3
5. Expenses. Each party hereto shall pay their own expenses incurred
--------
in connection with this Amendment and any exercise of the Option.
6. Entire Agreement; Amendment. This Amendment sets forth the entire
---------------------------
understanding and agreement between the parties as to the matters covered herein
and supersedes and replaces any prior understanding, agreement or statement of
intent, in each case, written or oral, of any and every nature with respect
thereto (including in particular Sections 6.1 and 6.2 of the Stock Purchase
Agreement which are replaced in their entirety by this Amendment). Except as
expressly amended hereby, the Stock Purchase Agreement shall remain in effect in
all respects in accordance with its terms. This Amendment may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by Emmons and Casino. Except for the right of Casino
to designate purchasers of Shares, no party to this Amendment may assign any of
their rights or obligations under this Amendment without the prior written
consent of the other party hereto.
7. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but each of which
together shall constitute one and the same document.
8. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance with the laws of the State of California, without regard to
principles of conflicts of laws.
9. Binding Effect. This Amendment shall be binding upon, inure to
--------------
the benefit of, and be enforceable by the successors and permitted assigns of
the parties hereto. Nothing expressed or referred to in this Amendment is
intended or shall be construed to give any person other than the parties to this
Amendment, or their respective successors or permitted assigns, any legal or
equitable right, remedy or claim under or in respect of this Amendment or any
provision contained herein. If any term of this Amendment is held to be
invalid, void or unenforceable, the remainder of the terms of this Amendment
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
10. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be given and shall be deemed to have been duly given if
delivered in person or sent by facsimile transmission (followed by overnight
courier) to the parties as follows:
If to Emmons, to:
Robert Emmons
736 Cima Linda Lane
Santa Barbara, California 93108
Facsimile No.: 805.565.3183
<PAGE>
4
If to Casino, to:
Casino Guichard-Perrachon, S.A.
24, rue de la Montat
42008 Saint-Etienne Cedex 2
France
Facsimile No.: 011.33.4.77.45.39.90
Attention: Pierre Bouchut
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Facsimile No.: 212.225.3999
Attention: Daniel S. Sternberg
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of change of
address shall only be effective upon receipt.
IN WITNESS WHEREOF, Emmons and Casino have duly executed this
Amendment as of the day and year first above written.
/s/ Robert J. Emmons
-------------------------
ROBERT J. EMMONS
CASINO GUICHARD-PERRACHON, S.A.
By: /s/ Christian Couvreux
------------------------
Christian Couvreux
By: /s/ Pierre Bouchut
------------------
Pierre Bouchut
<PAGE>
5
Consented to:
CASINO USA, INC.
By: /s/ Jane A. Orenstein
---------------------
SMART & FINAL INC.
By: /s/ Donald G. Alvarado
----------------------
<PAGE>
SECOND AMENDMENT TO AGREEMENT
TO SELL AND PURCHASE REAL PROPERTY
AND ESCROW INSTRUCTIONS
This Second Amendment to Agreement to Sell and Purchase Real Property
and Escrow Instructions (the "Amendment") is entered into as of May 15, 1998, by
and between Certified Grocers of California, Ltd., a California corporation
("Seller") and Smart & Final Stores Corporation, a California corporation
("Buyer") with respect to the following facts and circumstances:
1. Buyer and Seller have previously entered into that certain
Agreement to Sell and Purchase Real Property and Escrow Instructions dated
September 12, 1997 as amended by the First Amendment dated April 6, 1998 (the
"Purchase Agreement"). Capitalized terms used but not otherwise defined in this
Agreement shall have the meanings given those terms in the Purchase Agreement.
2. Buyer and Seller desire to amend the Purchase Agreement on the
terms and conditions contained herein.
It is, therefore, agreed as follows:
2. Seller and Buyer agree that the Site Work will be considered
complete in accordance with the Purchase Agreement when the following have
occurred:
(1) All known buildings and improvements have been removed from
the surface of the applicable portion of the Property.
(2) All known footings and stemwalls have been removed to a depth
of 4 feet below the existing grade.
(3) All basements on the applicable portion of the Property have
been back-filled to the existing grade elevation with 90% or better
compaction certified by a soils engineer.
For the purposes of this Paragraph 1, the "applicable portion of the Property"
means (i) the portions of the Property other than the Reserved Areas with
respect to the Pre Closing Site Work and (ii) the Reserved Areas with respect to
the Post Closing Site Work.
-1-
<PAGE>
3. During the course of Buyer's construction of its new warehouse
facility on the Property, any additional subsurface structures which impede
construction of new footings and/or on-site utilities by Buyer will be removed,
to the degree reasonably necessary to facilitate that construction, at Seller's
expense (not to exceed $15,000.00 in the aggregate), provided that both Seller
and Buyer have agreed that such additional removal is customary and reasonable.
4. Except as and to the extent expressly amended hereby, the Purchase
Agreement is unmodified and in full force and effect. This Agreement and the
Purchase Agreement are the entire agreement between Buyer and Seller with
respect to the matters described therein and herein, and neither the Purchase
Agreement nor this Agreement may modified except by a written agreement signed
by Buyer and Seller. No reference to this Agreement is necessary in any
instrument or document at any time referring to the Purchase Agreement, a
reference to the Purchase Agreement being deemed a referenced to the Purchase
Agreement, as amended by this Agreement. This Agreement shall be governed by,
and construed and enforced in accordance with, the laws of the State of
California. This Agreement may be executed in any number of counterparts, each
of which when executed and delivered will be deemed an original and all of
which, when taken together, will be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
SELLER:
CERTIFIED GROCERS OF CALIFORNIA, LTD.
a California corporation
By: /s/ Robert M. Ling, Jr.
-----------------------------------
Name: Robert M. Ling, Jr.
---------------------------------
Title: Secretary
--------------------------------
-2-
<PAGE>
BUYER:
SMART & FINAL STORES CORPORATION,
a California corporation
By: /s/ Richard N. Phegley
-----------------------------------
Name: Richard N. Phegley
---------------------------------
Title: Vice President
--------------------------------
-3-
<PAGE>
EXECUTION COPY
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of April 30, 1998 (as from time to time
amended, supplemented, modified or restated as provided herein, the
"Agreement"), is by and between SMART & FINAL INC., a Delaware corporation (the
---------
"Company"), and CREDIT LYONNAIS LOS ANGELES BRANCH, a branch duly licensed under
-------
the laws of the State of California (the "Bank ") of a banking corporation
----
organized and existing under the laws of the Republic of France.
ARTICLE I
INTERPRETATIONS AND DEFINITIONS
Section 1.01. Certain Definitions.
--------------------
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Acquisition" shall mean the acquisition by the Company of substantially
-----------
all the assets of the Cash & Carry division of United Grocers, Inc.
"Adjusted LIBOR" shall mean, for any Interest Period, a rate per annum
-------------- --- -----
equal to the quotient obtained (rounded upward, if necessary, to the next higher
1/100th of one percent) by dividing (1) the applicable LIBOR by (2) 1.00 minus
-----
the Euro-Dollar Reserve Percentage.
"Applicable Margin" shall mean, as of any date, a rate equal to the rate
-----------------
set forth below for such date:
Date during following period Applicable Margin
---------------------------- -----------------
Closing Date to 8/31/98 0.50%
9/1/98 to 10/31/98 0.75%
11/1/98 to 12/31/98 1.00%
Thereafter 1.25%
"Base Rate" shall mean the rate of interest established by Credit Lyonnais
---------
New York Branch as its "base rate", with each change in such rate to be
effective for purposes of this Agreement and the transactions contemplated
hereby without necessity of any action on the part of any Person, on the day on
which such change is effective, it being
<PAGE>
2
understood that such rate does not and shall not necessarily reflect the best or
lowest rate of interest available to Credit Lyonnais' best or preferred
commercial customers.
"Base Rate Loan" shall mean a Loan made pursuant to the terms of this
--------------
Agreement which bears interest at a rate determined by reference to the Base
Rate.
"Borrowing" shall mean a borrowing made pursuant to the terms of this
---------
Agreement, consisting of Loans extended by the Bank.
"Business Day" shall mean (i) any day other than a Saturday, Sunday or
------------
other day on which commercial banks in New York, New York or in Los Angeles,
California are authorized or required by law to close and (ii) with respect to
LIBOR Loans, any day on which commercial banks are open for domestic and
international business (including, without limitation, dealings in Dollar
deposits) in London, England and in New York, New York.
"Calculated Debt" shall mean, as to any Person, at any date, for any period
---------------
and without duplication, the sum of (i) all obligations of such Person for
borrowed money, excluding obligations under synthetic leases to the extent that
operating lease expenses for such synthetic leases are included in the
calculation of (iv) thereafter, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (iii) all obligations of such
Person as lessee under capital leases, and (iv) the product of (1) eight and (2)
operating lease expense of such Person (determined in accordance with generally
accepted accounting principles) for the period in question.
"Cash Flow" shall mean, at any date and for any period, the sum of net
---------
income (excluding pre-tax special charges recorded in the fourth quarter of
fiscal year 1997 in an amount not to exceed $8.9 million, and non-cash unusual
items and minority interest in earnings), plus interest expense, income taxes,
----
depreciation, amortization and lease expense (to the extent deducted in
determining net income) for such period.
"Cash Flow Ratio" shall mean, at any date and for any period, the ratio of
---------------
(a) Calculated Debt as at such date and for such period to (b) Cash Flow as at
such date and for such period.
"Closing Date" shall mean the date on which the initial Borrowing is made
------------
hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Commitment" shall mean $65,000,000, as such amount may be reduced from
----------
time to time in accordance with the terms of this Agreement.
"Debt" of any Person at any date shall mean, without duplication, (1) all
----
obligations of such Person for borrowed money, (2) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (3) all
obligations of such
<PAGE>
3
Person to pay the deferred purchase price of property or services, except trade
accounts payable arising in the ordinary course of business, (4) all obligations
of such Person as lessee under capital or finance leases, (5) all obligations of
such Person under take-or-pay or similar contracts, (6) all obligations of such
Person to reimburse or to indemnify the issuer of a letter of credit or
guarantee for drawings or payments thereunder, (7) all Debt of other Persons
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person, and (8) all Debt of others Guaranteed by such Person.
"Default" shall mean any event or condition which constitutes an Event of
-------
Default or which, with the passing of time or the giving of notice or both,
would become an Event of Default.
"Dollar" and the sign "$" shall mean lawful money of the United States of
------
America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Euro-Dollar Reserve Percentage" shall mean, for any day, that percentage
------------------------------
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor thereto), for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding Five Billion Dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Loans is determined, or any category of extensions of credit or other
assets which includes loans by a non-United States office of the Bank to United
States residents).
"Event of Default" shall have the meaning set forth in Section 7.01 hereof.
----------------
"Existing Debt" shall mean indebtedness of the Company for borrowed money
-------------
outstanding on the date of this Agreement.
"Final Maturity Date" shall mean April 29, 1999 or such earlier date as the
-------------------
Commitment hereunder shall terminate and the Loans mature, whether by
acceleration or otherwise.
"Guarantee" by any Person shall mean any obligation, contingent or
---------
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person or in any manner providing for the payment of any
Debt of any other Person or otherwise protecting the holder of such Debt against
loss (whether by agreement to keep well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise), provided that the term "Guarantee" shall not include endorsements
--------
for collection or deposit in the ordinary course of business. The term
"Guarantee" when used as a verb has a corresponding meaning.
<PAGE>
4
"Guarantor" or "Guarantors" shall mean each of Smart & Final Stores
--------- ----------
Corporation, American Foodservice Distributors, Inc. and Port Stockton Food
Distributors, Inc., each a California corporation, or collectively, all such
corporations.
"Interest Period" shall mean (1) with respect to any LIBOR Loan, the period
---------------
commencing on the date of such Loan and ending one, two, three or six months
thereafter, as the Company may elect pursuant to the terms of this Agreement,
provided that any such Interest Period which would otherwise end on a day which
- --------
is not a Business Day shall be extended to the next Business Day, unless such
next Business Day falls in another calendar month, in which case such Interest
Period shall end on the preceding Business Day, and provided further, however,
-------- ------- -------
that if any such Interest Period shall be for a period of less than one month,
the Loan made for such Interest Period shall be a Base Rate Loan, and (2) with
respect to any Base Rate Loan, the period commencing on the date of such Loan
and ending thirty (30) days thereafter, provided that any such Interest Period
--------
which would otherwise end on a day which is not a Business Day shall be extended
to the next Business Day. Notwithstanding but without limiting the foregoing,
no Interest Period shall end on a date which is later than the Final Maturity
Date.
"LIBOR" shall mean, with respect to any Interest Period, (i) the London
-----
Interbank Offered rate for Dollar deposits for a period comparable to such
Interest Period, which rate appears on the Teleratesystem Incorporated Service
screen, page 3750, as of 11:00 a.m., London, England time, on the date that is
two Business Days prior to the first day of such Interest Period, or (ii) if
such rate shall not be so published on such day, then the arithmetic mean
(rounded upward, if necessary, to the nearest one thirty-second of one percent)
of the London Interbank Offered rates for Dollar deposits for a period
comparable to such Interest Period appearing on the Reuters screen LIBOR page on
such day, or (iii) if neither method set forth in the preceding clauses (i) and
(ii) is available, such other method for determination as the parties shall
agree, or (iv) if such agreement is not promptly reached, then a rate determined
for such Interest Period reasonably determined by the Bank as the rate then
being paid by first-class banking organizations in the London, England interbank
market for deposits in Dollars of an amount equal to the amount of the Loan in
question, with a maturity identical to the relevant Interest Period.
"LIBOR Loan" shall mean a Loan made pursuant to the terms of this Agreement
----------
which bears interest at a rate determined by reference to LIBOR.
"Lien" shall mean, with respect to any asset, (1) any lien, charge,
----
mortgage, security interest, pledge or other encumbrance of any kind in respect
of such asset, or (ii) the interest of a vendor or a lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Loan" shall mean any of a Base Rate Loan or a LIBOR Loan, as the context
----
may require and, when used in the plural, may refer to any combination of Base
Rate Loans and LIBOR Loans outstanding from time to time pursuant to the terms
of this Agreement.
"Loan Documents" shall mean this Agreement, the Note, the Subsidiary
--------------
Guaranty and all other instruments, agreements and written contractual
obligations between the
<PAGE>
5
Company or any Guarantor and the Bank delivered pursuant to or in connection
with this Agreement.
"Material Adverse Effect" shall mean a material adverse effect on (i) the
-----------------------
property, business, operations, prospects or financial condition of the Company,
(ii) the ability of the Company or any of the Guarantors to perform its
respective obligations hereunder or under the other Loan Documents, (iii) the
validity or enforceability of all or any portion of this Agreement or of the
other Loan Documents, (iv) the rights and remedies of the Bank hereunder or
under the other Loan Documents, or (v) the timely payment of principal of or
interest on any Loans or other amounts payable from time to time hereunder.
"Note" shall mean a promissory note of the Company, executed and delivered
----
as contemplated by the terms of this Agreement, which promissory note shall be
substantially in the form set forth at Exhibit A hereto (as the same may be
amended, modified or supplemented from time to time).
"Notice of Borrowing" shall have the meaning set forth in Section 2.02
-------------------
hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
successor to any or all of its functions under ERISA.
"Person" shall mean an individual, a corporation, a partnership, an
------
association, a business trust or any other entity or organization, including
without limitation a government or political subdivision or agency or
instrumentality thereof.
"Plan" shall mean an employee benefit or other plan established or
----
maintained by the Company or any of its affiliates, which plan is covered by
Title IV of ERISA.
"Subsidiary Guaranty" shall mean the guaranty dated as of the date hereof
-------------------
executed and delivered by the Guarantors in favor of the Bank, substantially in
the form of Exhibit B hereto (as such agreement may be amended, modified or
supplemented from time to time).
"Tangible Net Worth" shall mean, as at any date, the following (determined
------------------
on a consolidated basis, without duplication, and in accordance with generally
accepted accounting principles):
(a) The gross book value of assets (excluding goodwill, patents,
trademarks, tradenames, organization expense, treasury stock, unamortized
debt discount and expense, deferred charges and other like intangibles),
minus
-----
(b) the sum of (i) reserves applicable to the assets referred to in
the foregoing clause (a), and (ii) all liabilities (including accrued and
deferred income taxes and subordinated indebtedness).
<PAGE>
6
"Wells Fargo Loan" shall mean the loan outstanding on the date of this
----------------
Agreement made to the Company by Wells Fargo Bank pursuant to an uncommitted
short-term line of credit.
Section 1.02. Accounting Terms and Determinations.
------------------------------------
Unless otherwise expressly stated herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared in
accordance with United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent with the most recent
audited consolidated financial statements of the Company delivered to the Bank.
ARTICLE II
THE LOANS
Section 2.01. The Loans.
----------
During the period from the date hereof to but excluding the Final Maturity
Date, the Bank agrees to lend from time to time to the Company, on the terms and
conditions set forth in this Agreement, amounts not to exceed in the aggregate
at any one time outstanding the amount of the Commitment. Each Loan made in
accordance with the terms of this Agreement shall be extended as part of a
Borrowing hereunder from the Bank. Each Borrowing shall be in an aggregate
principal amount of $1,000,000, or in any higher integral multiple of $1,000,000
(except that any Borrowing may be in the aggregate amount of the unused
Commitment). Amounts repaid hereunder may not be reborrowed. Notwithstanding
any other provision of this Agreement, no more than six Interest Periods shall
be in effect at any time. For purposes of the preceding sentence, Loans of
different types having the same Interest Period shall be deemed to have
different Interest Periods.
Section 2.02. Method of Borrowing.
--------------------
(A) With respect to each Borrowing made pursuant to Section 2.01 hereof,
the Company shall give the Bank irrevocable written notice substantially in the
form of Exhibit D hereto (such notice, a "Notice of Borrowing") at or before
-------------------
9:00 a.m. Los Angeles, California time on the date at least one Business Day
prior to the proposed extension of any Base Rate Loan and three Business Days
prior to the proposed extension of any LIBOR Loan, which Notice of Borrowing
shall specify:
(i) The proposed date of any such Borrowing, which date shall in any
case be a Business Day;
<PAGE>
7
(ii) the proposed principal amount of such Borrowing;
(iii) whether the proposed Loans are to be Base Rate Loans or LIBOR
Loans; and
(iv) in the case of a Borrowing consisting of LIBOR Loans, the
duration of the proposed Interest Period applicable thereto.
(B) Unless the Bank shall have determined that any applicable condition set
forth in this Agreement shall not have been satisfied, the Bank promptly shall
make the Loan available to the Company at the account designated by the Company
from time to time in writing to the Bank.
Section 2.03. The Note.
---------
(a) The Loans shall be evidenced by a Note payable to the order of the Bank
for the account of its applicable lending office. Such Note shall be dated on
or prior to the date of the first Loan advanced by the Bank hereunder, shall set
forth the amount of the Commitment as the maximum principal amount thereof, and
shall have the blanks therein appropriately completed.
(b) The Bank shall record and, prior to any transfer of its Note, shall
endorse on the schedules forming a part thereof appropriate notations evidencing
the date, the amount and the maturity of each Loan to be evidenced by the Note
and the date and amount of each payment of principal made by the Company with
respect thereto. The Bank is hereby irrevocably authorized by the Company so to
endorse the Note and to attach to and make a part of the Note a continuation of
any such schedule as and when required. The failure by the Bank to effect any
such endorsement or any error therein shall not affect the Company's obligations
with respect to unpaid Loans.
Section 2.04. Maturity of Loans.
------------------
Each Loan shall mature, and the principal amount thereof shall be due and
payable, in a single payment on the Final Maturity Date or such earlier date as
such Loans shall mature, whether by reason of acceleration, reduction in
Commitment or otherwise.
Section 2.05. Interest Rates and Payment.
---------------------------
(a) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made until it becomes
due, at a rate per annum equal to the Base Rate.
--- -----
<PAGE>
8
(b) Each LIBOR Loan shall bear interest on the outstanding principal amount
thereof, for each day from the date such Loan is made until it becomes due, at a
rate per annum equal to the sum of (i) Adjusted LIBOR and (ii) the Applicable
--- -----
Margin.
(c) Overdue principal and, to the extent permitted by law, overdue interest
on Loans made hereunder, and all other overdue amounts payable hereunder from
time to time, shall bear interest, payable on demand, for each day from the date
payment thereof was due to the date of actual payment at a rate per annum equal
--- -----
to the sum of (i) the rate otherwise applicable to such amount or, if no such
rate was applicable, then the Base Rate, and (ii) two percent (2.0%).
(d) The Bank shall determine each interest rate applicable to Loans and
other amounts due from time to time hereunder, all in accordance with the terms
of this Agreement. The Bank shall give prompt notice to the Company of each
rate of interest so determined, and its determination thereof shall be
conclusive, absent manifest error.
(e) (i) Interest accrued on each Base Rate Loan shall be payable in
arrears (A) on the first day of each calendar quarter, commencing on the first
such day following the making of such Base Rate Loan, (B) upon the prepayment
thereof in full or in part and (C) if not theretofor paid in full, at maturity
(whether by acceleration or otherwise) of such Base Rate Loan.
(ii) Interest accrued on each LIBOR Loan shall be payable in arrears
(A) on the last day of each Interest Period applicable to such Loan, (B) with
respect to any LIBOR Loan having an Interest Period in excess of three (3)
calendar months, the last day of each three (3) calendar month interval during
such Interest Period, and (C) if not theretofor paid in full, at maturity
(whether by acceleration or otherwise) of such Loan.
(f) The Company shall elect consecutive Interest Periods for the Loans by
irrevocable written notice to be received by the Bank prior to 9:00 a.m. Los
Angeles, California time on the date (A) in the case of continuation of or
conversion into a LIBOR Loan, at least three Business Days prior to the
expiration date of the current Interest Period and (B) in the case of
continuation of or conversion into a Base Rate Loan, at least one Business Day
prior to the expiration date of the current Interest Period. In the absence of
receipt by the Bank of such notice for a Loan, such Loan shall be continued as
or converted into, as the case may be, a Base Rate Loan having an Interest
Period of one day.
Section 2.06. Fees.
-----
During the period from the date of this Agreement to and including the
Final Maturity Date, the Company shall pay to the Bank a commitment fee computed
at a rate equal to one hundred and seventy-five-hundredths of one percent
(0.175%) per annum on the daily average unused amount of the Commitment. Such
--- -----
commitment fee shall be payable quarterly in arrears on the last day of June,
September, December and March
<PAGE>
9
during the period referred to in this Section 2.06, and on the date on which the
Commitment is terminated.
Section 2.07. Optional Prepayments; Reduction of Commitment.
----------------------------------------------
The Company, upon at least two Business Days' prior written notice to the
Bank, may prepay any Loans outstanding hereunder without premium or penalty
(other than as set forth below in Section 2.10), in whole or in part, at any
time or from time to time, in amounts aggregating $1,000,000 or any higher
multiple of $1,000,000, by paying the principal amount being prepaid, together
with accrued interest thereon to the date of payment thereof. Any such amount
so prepaid shall be applied to the Loans in the order determined by the Bank in
its sole discretion.. Any such prepayment shall permanently reduce the
Commitment in an amount equal to such prepayment.
Section 2.08. General Provisions as to Payments.
----------------------------------
The Company shall make each payment of principal of and interest on the
Loans, and of fees and other amounts due from time to time hereunder to the
Bank, not later than 9:00 a.m., Los Angeles, California time, on the date when
due in funds immediately available to the Bank at its address set forth on the
signature pages hereof, or at such other address as it hereafter may designate
by notice to the Company, for the account of the Bank. Whenever any payment of
principal of, or interest on, any Loan hereunder, or any other amount due from
time to time hereunder, is due on a day which is not a Business Day, the date
for payment thereof shall be extended to the following Business Day, unless, in
the case of any payment due with respect to any LIBOR Loan, such following
Business Day falls in the next calendar month, in which case such payment shall
be due on the Business Day preceding that originally scheduled for payment.
Section 2.09. Computation of Interest and Fees.
---------------------------------
Interest on Base Rate Loans shall be computed on the basis of a year of 365
or 366 days, as applicable, and paid for actual days elapsed. Interest on LIBOR
Loans, as well as on any other amounts due from time to time hereunder, shall be
computed on the basis of a year of 360 days, and paid for actual days elapsed.
Section 2.10. Funding Losses.
---------------
If any payment of principal with respect to a LIBOR Loan is made on any day
other than the last day of the Interest Period applicable to such Loan (whether
by reason of prepayment, acceleration or otherwise), or if the Company fails to
borrow any LIBOR Loan after notice has been given to the Bank in accordance with
Section 2.02 or 2.05 hereof, the Company shall reimburse the Bank on demand for
any resulting loss or expense incurred by the Bank, including without limitation
any loss incurred in obtaining,
<PAGE>
10
liquidating or employing deposits from third parties, provided that the Bank
--------
shall have delivered to the Company a certificate as to the amount of such loss,
which certificate shall be conclusive in the absence of manifest error.
Section 2.11. Taxes, Duties, Fees and Charges.
--------------------------------
(a) If the Bank is not a bank organized under the laws of the United States
of America or any state thereof, the Bank shall deliver to the Company copies,
completed and executed as required, of Form 1001 or Form 4224, as applicable, in
each case as promulgated pursuant to the Code. The Bank represents and warrants
to the Company that the information contained in such Form will be accurate in
all material respects, and agrees to notify the Company of any required changes
therein.
(b) The Company shall make all payments hereunder (whether of interest,
fees or otherwise) free and clear of, and without deduction for or on account
of, any present or future taxes, levies, imposts and assessments pursuant to the
tax laws of the United States of America or any state or commonwealth thereof,
and all interest, penalties and similar liabilities with respect thereto
(collectively, "Taxes"). If any Taxes are imposed, the Company will pay the
-----
full amount thereof, together with any additional amounts as may be necessary so
that every net payment of any amount due hereunder, after deducting or providing
for any Taxes, will not be less than the amount provided for herein. The Bank
agrees that it will designate a different lending office if such designation
will avoid the need for, or reduce the amount of, any payment or withholding by
the Company provided above and, in the sole judgment of the Bank, will not be
otherwise disadvantageous to the Bank.
(c) If the Company shall pay any Taxes as provided in this Section 2.11, or
shall make any deduction or withholding from amounts payable hereunder in
respect of any Taxes, the Company shall forward as soon as possible to the Bank
official receipts or other evidence acceptable to the Bank establishing payment,
deduction or withholding of such amounts.
(d) The Company promptly shall pay all taxes, assessments and other
governmental charges and governmental fees levied or assessed in connection with
the execution and delivery of this Agreement and the other Loan Documents, and
the performance by the parties thereto of the transactions contemplated hereby
and thereby.
ARTICLE III
CERTAIN CHANGES IN CIRCUMSTANCES
Section 3.01. Basis for Determining Interest Rate Inadequate.
-----------------------------------------------
<PAGE>
11
If, with respect to any Interest Period, (i) the Bank determines that
deposits in Dollars are not being offered to banks in the relevant market for
such Interest Period, or (ii) the Bank shall determine that interest determined
by the Bank by reference to LIBOR will not adequately and fairly cover the cost
to the Bank of maintaining and funding its LIBOR Loans, the Bank shall give
notice thereof to the Company, whereupon the obligations of the Bank to make
LIBOR Loans shall be suspended until such time as the Bank notifies the Company
that the circumstances giving rise to such suspension no longer exist and the
Bank shall extend Base Rate Loans in lieu thereof until such suspension has
ended.
Section 3.02. Illegality.
-----------
If, after the date of this Agreement, the adoption of any applicable law,
rule or regulation, or any change in any thereof, or any change in the
interpretation or administration of any thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for the Bank to make,
maintain or fund its LIBOR Loans, the Bank forthwith shall so notify the
Company, whereupon the Bank's obligation to make LIBOR Loans shall be suspended
and the Bank shall extend Base Rate Loans in lieu thereof until the Bank
notifies the Company that the circumstances giving rise to such suspension no
longer exist. Before giving any notice to the Company pursuant to this Section
3.02, the Bank will designate a different applicable lending office if such
designation will avoid the need for such notice and, in the sole judgment of the
Bank, will not otherwise be disadvantageous to the Bank. If the Bank shall
determine that it may not lawfully continue to maintain or fund any of its
outstanding LIBOR Loans to maturity and shall so specify in the notice
contemplated hereby, then the Company shall prepay in full the then-outstanding
principal amount of each such LIBOR Loan and shall borrow a Base Rate Loan in an
equal principal amount for an Interest Period coincident with the remaining term
of the Interest Period applicable to such LIBOR Loan.
Section 3.03. Increased Costs.
----------------
(A) If, after the date of this Agreement, the adoption of any applicable
law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof (including, without limitation, any such law, rule, regulation, or
change with respect to regulations or other pronouncements similar to those
contemplated by this Section 3.03 pertaining to the maintenance by the Bank or
any affiliate of the Bank of capital deemed "adequate"), or the compliance by
the Bank with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(1) shall subject the Bank to any tax, duty or other charge with
respect to its obligation to make LIBOR Loans, or otherwise with respect to the
Note, or shall
<PAGE>
12
change the basis of taxation of payments to the Bank of the principal of or
interest on the LIBOR Loans or in respect to any other amounts due from time to
time pursuant to the terms of this Agreement (except for changes in the rate of
tax on the overall net income of the Bank or its applicable lending office
imposed by the jurisdiction in which the Bank's principal executive office or
applicable lending office is located); or
(2) shall impose, modify or deem applicable any reserve (including,
without limitation, any such reserve imposed by the Board of Governors of the
Federal Reserve System), special deposit, capital adequacy or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Bank or the Bank's applicable lending office, or on the London
interbank market any other condition affecting the obligation of the Bank to
make LIBOR Loans, or otherwise with respect to the Note; and the result of any
of the foregoing is to increase the cost to the Bank of making or maintaining
any LIBOR Loan, or to reduce the amount of any sum received or receivable by the
Bank under this Agreement or the Note with respect thereto, by an amount
considered by the Bank to be material, then, within ten (10) days of demand
therefor, the Company agrees to pay to the Bank such additional amount or
amounts as will compensate the Bank for such increased cost or reduction, as the
case may be. The Bank promptly will notify the Company of any event occurring
after the date of this Agreement which would entitle the Bank to compensation
pursuant to this Section 3.03, and the Bank will designate a different
applicable lending office if such designation will avoid the need for or reduce
the amount of any such compensation and, in the sole judgment of the Bank, will
not otherwise be disadvantageous to the Bank.
(B) A certificate of the Bank claiming compensation pursuant to this
Section 3.03, which certificate sets forth the additional amount or amounts to
be paid to it hereunder, shall be conclusive and binding on the parties hereto,
in the absence of manifest error.
ARTICLE IV
CONDITIONS TO LENDING
The obligation of the Bank to make Loans hereunder on the occasion of any
Borrowing is subject to the performance by the Company of all of its obligations
under this Agreement and under the other Loan Documents, and to the satisfaction
of the following further conditions:
Section 4.01. All Borrowings.
---------------
In the case of each Loan made hereunder, including without limitation Loans
constituting the initial Borrowing:
(a) Receipt by the Bank of an appropriate Notice of Borrowing;
<PAGE>
13
(b) No Default or Event of Default shall have occurred and be continuing,
considered both before and after the making of the contemplated Borrowing;
(c) All representations and warranties set forth in this Agreement and the
other Loan Documents shall be true and correct on and as of the date of the
contemplated Borrowing, with the same force and effect as if made on such date;
(d) The Bank shall have received such other documents, evidence, materials
and information with respect to matters contemplated by this Agreement as the
Bank reasonably shall request; and
(e) With respect to any Borrowing the proceeds of which will be used to
finance the cash portion of the purchase price of the Acquisition, (i) all
conditions precedent to the Acquisition shall have been satisfied and no waiver
of such conditions shall have been made without the consent of the Bank, (ii)
the Company shall have received all consents and authorizations required
pursuant to any contractual obligation or governmental authority as may be
necessary to allow the Company to execute, deliver and perform its obligations
under this Agreement, the other Loan Documents and each other agreement or
instrument to be executed and delivered in connection with the Acquisition,
(iii) no law, regulation, order, judgment or decree of any governmental
authority shall enjoin, prohibit or restrain the making of the Loans or the
consummation of the Acquisition and (iv) the Bank shall have received copies of
the acquisition agreement and the note to be issued by the Company in favor of
United Grocers, Inc. in connection with the Acquisition.
Each Notice of Borrowing and each Borrowing shall be deemed to be a
representation and warranty by the Company as of the date of such Notice of
Borrowing as to the facts specified in clauses (b) and (c) set forth above.
Section 4.02. Initial Borrowing.
------------------
In the case of the initial Borrowing:
(a) Receipt by the Bank of the Note duly executed by the Company;
(b) Receipt by the Bank of the Subsidiary Guaranty duly executed by the
Guarantors;
(c) Receipt by the Bank of an opinion of Donald G. Alvarado, Esq., Senior
Vice President and General Counsel to the Company and the Guarantors,
substantially in the form of Exhibit C attached hereto, dated the date of such
Borrowing and otherwise satisfactory in all respects to the Bank;
(d) Receipt by the Bank of certified copies of all corporate action taken
by the Company and the Guarantors to authorize the execution, delivery and
performance of this
<PAGE>
14
Agreement and the other Loan Documents, as the case may be, together with such
other corporate documents and other papers as the Bank reasonably may request;
(e) Receipt by the Bank of certificates of duly authorized officers of the
Company and the Guarantors as to the incumbency, and setting forth a specimen
signature, of each person (i) who has signed this Agreement or the Note on
behalf of the Company or the Subsidiary Guaranty on behalf of the Guarantors and
(ii) who, until replaced by other persons duly authorized for such purpose, will
act as representatives of the Company or the Guarantors, as the case may be, for
the purpose of signing documents in connection with this Agreement, the other
Loan Documents and the transactions contemplated hereby and thereby;
(f) Receipt by the Bank of certificates of the chief financial officer of
the Company to the effect set forth in Section 4.01(b) and Section 4.01(c)
hereof;
(g) Receipt by the Bank of all fees due and payable on or before the
Closing Date of this Agreement; and
(h) Receipt by the Bank of such additional certificates and documentation
as it reasonably shall request with respect to this Agreement, the other Loan
Documents, the Loans, the use of the proceeds thereof, and compliance with the
provisions hereof and thereof and other matters relevant thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Bank as follows:
Section 5.01. Corporate Existence and Power.
------------------------------
Each of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all power and authority to carry on its business as now being
conducted and to own its properties. Each of the Company and its subsidiaries
is duly licensed or otherwise qualified and in good standing as a foreign
corporation in each other jurisdiction in which the failure so to qualify would
materially and adversely affect the conduct of the business of the Company or
its subsidiaries, or the enforceability of contractual rights of the Company or
its subsidiaries.
Section 5.02. Corporate Authorization.
------------------------
The execution, delivery and performance by the Company of this Agreement
and the Note are within the Company's corporate power, have been duly authorized
by all
<PAGE>
15
necessary corporate action and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of the certificate of
incorporation or by-laws of the Company, or of any judgment, order, decree,
agreement or instrument binding on the Company, or result in the creation of any
Lien upon any of its assets.
Section 5.03. Binding Effect.
---------------
This Agreement constitutes, and the Note when duly executed and delivered
on behalf of the Company as contemplated hereby will constitute, the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
Section 5.04. Financial Statements.
---------------------
The consolidated balance sheet of the Company and its consolidated
subsidiaries as at January 4, 1998, and the related consolidated statements of
income and retained earnings for the fiscal year then ended, certified by Arthur
Andersen LLP, copies of which have been delivered to the Bank, fairly present in
conformity with United States generally accepted accounting principles, the
consolidated financial position of the Company and its consolidated subsidiaries
as at such date, as well as their consolidated results of operations for such
fiscal year.
Section 5.05. No Material Adverse Change.
---------------------------
No event or condition which could constitute a Material Adverse Effect has
occurred since the date of the financial statements referred to in Section 5.04
hereof.
Section 5.06. Litigation.
-----------
There are no actions, suits or proceedings pending against or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its subsidiaries or any substantial portion of the property or business of the
Company or such subsidiaries in any court or before or by any governmental
department, agency or instrumentality in which there is a reasonable probability
of an adverse decision which could constitute a Material Adverse Effect.
Section 5.07. Taxes.
------
The Company has filed or has caused to be filed, and has caused each of its
subsidiaries to file or caused to be filed, all United States federal income tax
returns and all other material tax returns required to be filed by the Company
or such subsidiaries, and has paid and has caused each of its subsidiaries to
pay, all taxes shown due on the returns
<PAGE>
16
so filed, as well as all other taxes, assessments and governmental charges which
have become due, except such taxes, if any, as are being contested in good faith
and as to which adequate reserves have been provided.
Section 5.08. Governmental and Other Approvals.
---------------------------------
No approval, consent or authorization of, or filing or registration with,
any governmental authority or body or other Person is necessary for the
execution, delivery or performance by the Company of this Agreement or of the
Note, except such as have been obtained or made and are in full force and
effect.
Section 5.09 ERISA.
------
Each Plan is in compliance with, and has been administered in compliance
with, the applicable provisions of ERISA, the Code and any other United States
federal or state law, except where the failure to so comply would have a
Material Adverse Effect.
Section 5.10. Not an Investment Company.
--------------------------
The Company is not, nor is the Company directly or indirectly "controlled
by" or "under common control with" or otherwise acting on behalf of, an
"investment company", as each of the quoted terms is defined and used in the
Investment Company Act of 1940, as amended.
Section 5.11. No Breach.
----------
None of the execution and delivery of this Agreement or the other Loan
Documents, or the consummation of the transactions contemplated hereby or
thereby, or compliance with the terms and conditions hereof and thereof, will
conflict with or result in a breach of, or require any consent under, the
charter or by-laws of the Company, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Company is a party or by
which the Company or any substantial part of its property is bound or subject.
Section 5.12. Use of Credit.
--------------
The Company is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose (whether
immediate, incidental or ultimate) of buying or carrying margin stock (within
the meaning of Regulation U and Regulation X promulgated by the Board of
Governors of the Federal Reserve), and no part of the
<PAGE>
17
proceeds of any extension of credit hereunder will be used to buy or carry any
such margin stock.
Section 5.13. Public Utility Holding Company Act.
-----------------------------------
The Company is not a "holding company" or an "affiliate" of a "holding
company", or a "subsidiary company" of a "holding company", as each of such
quoted terms is used in the Public Utility Holding Company Act of 1935, as
amended.
Section 5.14. Environmental Matters.
----------------------
Without limiting any other representation of the Company set forth herein,
the Company has obtained, and has caused each of its subsidiaries to obtain, all
environmental, health and safety permits, licenses and other authorizations
required under all applicable law to carry on the business of the Company and
such subsidiaries as now being or as proposed to be conducted, except to the
extent that failure to have any such permit, license or other authorization
would not have (whether considered individually or in the aggregate) a Material
Adverse Effect. Each of such permits, licenses and authorizations is in full
force and effect, and each of the Company and its subsidiaries is in compliance
with the terms and conditions thereof, and is generally in compliance with all
applicable law pertaining to the protection of the environment, except to the
extent that failure to so comply would not have (whether considered individually
or in the aggregate) a Material Adverse Effect.
Section 5.15. Pari Passu Obligations.
-----------------------
The obligations of the Company hereunder and under the Note rank, and at
all times during the term of this Agreement will rank, pari passu with all other
unsecured and unsubordinated indebtedness of the Company for borrowed money.
Section 5.16. Disclosure.
-----------
The information, reports, financial statements, exhibits and schedules
furnished in writing by or on behalf of the Company to the Bank in connection
with the negotiation, preparation, execution or delivery of this Agreement or of
the Note, when taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements herein or therein contained not misleading.
ARTICLE VI
CERTAIN COVENANTS
<PAGE>
18
So long as the Commitment shall be in effect or any Loans shall be
outstanding, the Company agrees as follows:
Section 6.01. Reporting.
----------
(a) As soon as available, and in any event within ninety (90) days after
the end of each of the fiscal years of the Company, the Company will deliver to
the Bank consolidated and consolidating balance sheets of the Company and its
consolidated subsidiaries as at the end of each such fiscal year, and the
related statements of income and retained earnings and changes in financial
position, setting forth in each case in comparative form corresponding figures
from the preceding fiscal year, all reported on by Arthur Andersen LLP (or its
successsor), or such other firm of nationally recognized independent certified
public accountants.
(b) As soon as available, and in any event within forty-five (45) days
after the end of each of the first three fiscal quarters of the Company, the
Company will deliver to the Bank consolidated and consolidating balance sheets
of the Company and its consolidated subsidiaries as at the end of each such
quarter, and the related statements of income and changes in financial position
for such quarter and for the portion of the fiscal year then ended, setting
forth in comparative form corresponding figures from the preceding fiscal year,
all certified as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer of the Company.
(c) Simultaneously with the delivery of each set of financial statements
required to be delivered pursuant to Section 6.01(a) and Section 6.01(b) hereof,
a certificate of the chief financial officer of the Company (i) setting forth in
reasonable detail the calculations required to establish whether the Company was
in compliance with the requirements of Section 6.13 and Section 6.14 hereof, and
(ii) stating whether there exists on the date of such certificate any Default or
Event of Default and, if any such Default or Event of Default exists, setting
forth the details thereof and the action which the Company is taking or proposes
to take with respect thereto.
(d) As soon as possible and in any event within five (5) days after the
occurrence of any Default or Event of Default, the statement of the chief
financial officer of the Company setting forth the details of such Default or
Event of Default and the action which the Company is taking or proposes to take
with respect thereto.
(e) From time to time, the Company shall deliver such additional
information regarding the financial position or business of the Company as the
Bank reasonably may request.
Section 6.02. Maintenance of Existence.
-------------------------
<PAGE>
19
Except as expressly permitted pursuant to Section 6.09 hereof, the Company
will, and will cause each of its subsidiaries to, preserve and maintain the
corporate existence and all of the rights, privileges and franchises of the
Company or such subsidiaries necessary or desirable in the normal conduct of the
business of the Company or such subsidiaries, and conduct such business in a
regular manner.
Section 6.03. Maintenance of Properties.
--------------------------
The Company will, and will cause each of its subsidiaries to, keep all
property owned or leased by or on behalf of the Company or such subsidiaries in
good working order and condition, ordinary wear and tear excepted, and will
permit representatives of the Bank to inspect such properties and to examine the
books and records of the Company or such subsidiaries relating to such
properties during normal business hours.
Section 6.04. Compliance with Law.
--------------------
The Company will, and will cause each of its subsidiaries to, comply with
the requirements of all applicable law, rules, regulations and orders of any
governmental body or regulatory agency having jurisdiction, including without
limitation all laws concerning the protection of the environment.
Section 6.05. Notice of Proceedings.
----------------------
The Company will, and will cause each of its subsidiaries to, promptly
provide notice in writing to the Bank of all litigation, arbitral proceedings
and regulatory proceedings affecting the Company or such subsidiaries or any
material portion of the properties of the Company or such subsidiaries, or the
ability of the Company to perform its obligations under this Agreement or the
other Loan Documents, other than any such litigation or proceedings in which
there is no reasonable possibility of an adverse determination which could
constitute a Material Adverse Effect.
Section 6.06. Use of Proceeds.
----------------
No part of the proceeds of any Loan made hereunder will be used to purchase
or to carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. The proceeds of the Loans shall be
used solely (i) to repay a portion of the principal of the Wells Fargo Loan in
an amount not to exceed $22,500,000 and (ii) to finance the cash portion of the
purchase price of the Acquisition.
Section 6.07. Payment of Taxes.
-----------------
<PAGE>
20
The Company will, and will cause each of its subsidiaries to, pay and
discharge all taxes, assessments and governmental charges or levies imposed on
the Company or such subsidiaries or on the income or profits of the Company or
such subsidiaries or on any of the assets of the Company or such subsidiaries
prior to the date on which penalties attach thereto, other than any such taxes,
assessments, charges or levies the payment of which is being contested in good
faith and by proper proceedings, and against which the Company or any of such
subsidiaries is maintaining adequate reserves in accordance with generally
accepted accounting principles.
Section 6.08. Certain Liens.
--------------
None of the Company nor any of its subsidiaries will create, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired by it,
other than:
(a) Liens existing on the date of this Agreement securing Existing Debt;
(b) Liens imposed by any governmental authority for taxes, assessments or
charges not yet past due or that are being contested in good faith and by
appropriate proceedings if adequate reserves with respect thereto are maintained
on the books of the Company in accordance with generally accepted accounting
principles;
(c) Carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like non-consensual Liens arising in the ordinary course of business that
are not delinquent or that are being contested in good faith and by appropriate
proceedings;
(d) Pledges or deposits under worker's compensation, unemployment insurance
and other social security legislation;
(e) Deposits to secure the performance of bids, trade contracts (other than
for Debt), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business;
(f) Easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business, and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of property or
minor imperfections in title thereto that, in the aggregate, are not material
(in amount or in kind) and that do not materially detract from the value of the
property subject thereto, or interfere with the ordinary conduct of the business
of the Company or any of its subsidiaries;
(g) Liens on property of any corporation that becomes a subsidiary of the
Company after the date of this Agreement, provided that such Liens are in
--------
existence at the time such corporation becomes such subsidiary, and were not
created in anticipation thereof; and
(h) Liens upon real and/or tangible personal property acquired after the
date of this Agreement (by purchase or other financing, construction or
otherwise) by the
<PAGE>
21
Company or any of its subsidiaries, each of which Liens either (A) existed on
such property before the time of its acquisition, and was not created in
anticipation thereof, or (B) was created solely for the purpose of securing Debt
representing or incurred to finance the cost of such property, provided that no
--------
such Lien shall extend to or cover any property of the Company or such
subsidiaries other than the property acquired and the improvements thereof.
Section 6.09. Consolidations, Mergers and Sales of Assets.
--------------------------------------------
None of the Company nor any of its subsidiaries will consolidate or merge
with or into any other Person, nor sell, lease or otherwise transfer all or a
substantial part of its assets to any other Person (in any such case, whether in
one transaction or in a series of transactions), unless (i) no Default or Event
of Default shall have occurred and be continuing (considered both before and
after giving effect to any such consolidation, merger, sale, lease or transfer)
and (ii) the Company or such subsidiary shall be the surviving entity after
giving effect to any such consolidation, merger, sale, lease or transfer.
Section 6.10. Insurance.
----------
The Company will, and will cause each of its subsidiaries to, maintain
insurance with financially sound and reputable insurance companies with respect
to all property and risks of a character usually maintained by corporations
engaged in the same or similar business similarly situated, against loss, damage
and liability of the kinds and in the amounts customarily maintained by such
corporations (excluding earthquake insurance if it is not commercially
reasonable to obtain). The Company will, and will cause each of its
subsidiaries to, in any event maintain casualty insurance, automobile liability
insurance for bodily injury and property damage, comprehensive general liability
insurance, workers' compensation insurance and business interruption insurance.
Section 6.11. Certain Obligations with Respect to Subsidiaries.
-------------------------------------------------
The Company will take such action as from time to time may be necessary in
order to ensure that the Company owns at all times at least the same percentage
of the issued and outstanding shares of each class of capital stock of its
subsidiaries as is owned on the date of this Agreement.
Section 6.12. Certain Restrictions on Dividends.
----------------------------------
Upon the occurrence and during the continuance of an Event of Default, the
Company shall not make payments of any dividend (whether in cash, property or
other obligation) on, or other payment or distribution on account of or with
respect to, and shall not set apart money for a sinking or other analogous fund
for, or make any purchase,
<PAGE>
22
redemption, retirement or other acquisition of, any shares of any class of its
capital stock, or of any warrants, options or other rights to acquire the same,
or make any payments to any Person where the amount thereof is calculated with
reference to the fair market or equity value of the Company (i.e., "phantom
----
stock" payments), other than dividends payable solely in shares of common stock
of the Company to any employee stock ownership plan in existence on the date of
this Agreement.
Section 6.13. Minimum Tangible Net Worth.
---------------------------
The Company will not permit its Tangible Net Worth at any time of
determination to be less than the sum of (i) $135,000,000 and (ii) fifty percent
(50%) of the net income (but only to the extent that such net income is a
positive number) of the Company for the period commencing on January 5, 1998 and
ending on the last day of the fiscal quarter of the Company ended on or most
recently ended prior to the date of determination.
Section 6.14. Cash Flow Ratio.
----------------
The Company will not permit the Cash Flow Ratio as at the last day of the
following fiscal quarters of the Company, determined with respect to the four
(4) fiscal quarters of the Company then ended, to be greater than the ratio set
forth below opposite such fiscal quarter:
Fiscal Quarter Ratio
-------------- -----
2nd fiscal quarter of 1998 5.00:1
3rd fiscal quarters of 1998 5.00:1
4th fiscal quarter of 1998 4.50:1
Thereafter 4.25:1
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01. Events of Default.
------------------
Each of the following shall constitute an "Event of Default" hereunder:
----------------
(a) The Company shall fail to pay any principal of any Loan when due;
(b) The Company shall fail to pay any interest on any Note, any fees or any
other amount due from time to time pursuant to the terms of this Agreement
(other than amounts contemplated by the preceding clause (a)) when due, and such
failure shall continue for three (3) Business Days;
<PAGE>
23
(c) Any representation or warranty made by the Company herein or in any
instrument or document delivered pursuant to the terms hereof shall prove to be
incorrect or misleading in any material respect when made or deemed made;
(d) The Company shall fail to perform or observe any of its covenants set
forth in Section 6.08 through and including Section 6.14;
(e) The Company shall fail to perform or observe any of its covenants set
forth in this Agreement (other than those contemplated by clauses (a), (b) and
(d) of this Section 7.01), and such failure shall continue for a period of
thirty (30) days;
(f) The Company or any of its subsidiaries shall fail to make any payment
in respect of any Debt (other than Debt incurred pursuant to the terms of this
Agreement or of the Note) when due, and such failure shall continue for more
than any applicable grace period with respect thereto, provided that the
--------
aggregate amount of Debt with respect to which any such failure shall have
occurred shall equal or exceed $2,000,000 in payment of interest or $5,000,000
in payment of principal;
(g) There shall occur any event or condition which results in the
acceleration of any Debt of the Company or any of its subsidiaries (other than
Debt incurred pursuant to the terms of this Agreement or of the Note) or which,
with the giving of notice or the passage of time or both, would enable the
holder of such Debt to cause acceleration of the maturity thereof, which event
or condition, in the opinion of the Bank, evidences or could result in a
Material Adverse Effect, provided that the aggregate amount of Debt with respect
--------
to which any such event or condition shall have occurred shall equal or exceed
$5,000,000;
(h) The Company or any of its subsidiaries shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(i) An involuntary case or other proceeding shall be commenced against the
Company or any of its subsidiaries seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days, or an
order for relief shall be entered against the Company or any subsidiary under
United States federal bankruptcy laws as now or hereafter in effect;
<PAGE>
24
(j) A judgment or judgments, or order or orders for the payment of money,
in excess of $5,000,000 (whether individually or in the aggregate) shall be
rendered against the Company or any of its subsidiaries, taken as a whole, and
such judgments or orders shall continue unsatisfied and unstayed for a period of
sixty (60) days;
(k) The Company shall have incurred or shall be reasonably likely to incur
a liability to a Plan or to the PBGC, which liability or liabilities (whether
considered individually or in the aggregate) could result in a Material Adverse
Effect;
(l) There shall have occurred an event or condition which, in the opinion
of the Bank, could have a Material Adverse Effect;
(m) The Subsidiary Guaranty shall cease for any reason whatsoever to be the
legal, valid and binding obligation of any Guarantor, enforceable against such
Guarantor in accordance with its terms or if any Guarantor shall seek to
disavow, deny or disclaim any of its obligations thereunder or shall breach any
of the terms of the Subsidiary Guaranty; or
(n) The Company shall cease to own and control, directly or indirectly,
100% of the issued and outstanding shares of capital stock and share voting
rights of any Guarantor or shall cease to retain management control of any
Guarantor or shall create or suffer to exist any Lien on any such shares of any
Guarantor.
Section 7.02. Remedies.
---------
Upon the occurrence of an Event of Default specified in the preceding
Section 7.01(h) or Section 7.01(i), then, in every such event, the Commitment
shall thereupon automatically be terminated, and the principal of and accrued
interest on the Loans shall automatically and immediately become due and
payable, without presentment, demand, protest or other notice or formality of
any kind, all of which hereby are expressly waived, and upon the occurrence of
any other Event of Default specified in the preceding Section 7.01, the Bank may
terminate the Commitment hereunder or declare the principal of and accrued
interest on the Loans and all other amounts which may be due pursuant to the
terms of this Agreement and of the Note to be immediately due and payable, or
both, in which event all such amounts shall so become due and payable without
presentment, demand, protest or other notice or formality of any kind, all of
which hereby are expressly waived.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Notices.
--------
<PAGE>
25
Any notices required or permitted to be delivered pursuant to the terms of
this Agreement or the other Loan Documents, or by applicable law, shall be in
writing and shall be deemed to have been given and effective when personally
delivered, or if sent by registered or certified mail, three (3) Business Days
after date of delivery to the post office, or if sent by overnight courier
(whether express mail or private courier), when received, or, if sent by telex
or telecopier, upon receipt, in each case addressed to the Person required to
receive the same at the address stated on the signature pages hereof or in
accordance with the last unrevoked written direction from such Person to the
other parties hereto.
Section 8.02. Amendments and Waivers; Cumulative Remedies.
--------------------------------------------
(A) None of the terms of this Agreement may be waived, altered or amended
except by an instrument in writing duly executed by the Company and by the Bank.
(B) No failure or delay on the part of the Bank in exercising any right,
power or privilege under this Agreement or the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided in and contemplated by this Agreement and by the
Note are cumulative and not exclusive of any rights or remedies provided by law.
Section 8.03. Successors and Assigns.
-----------------------
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and the Bank and their respective successors and assigns, except
that the Company may not assign its rights and obligations hereunder without the
prior written consent of the Bank.
(b) The Bank (i) may assign and pledge all or any portion of its Loans and
Note to any Federal Reserve Bank as collateral security pursuant to Regulation A
and any operating circular issued by such Federal Reserve Bank, and (ii) may
assign all or any portion of its rights under this Agreement and the Note to any
lending office, branch or affiliate of Credit Lyonnais.
Section 8.04. Expenses, Indemnity, Certain Costs.
-----------------------------------
The Company shall pay all reasonable out-of-pocket expenses of the Bank
(including, without limitation, fees and expenses of counsel to the Bank) in
connection with the preparation and administration of this Agreement and the
Note, and the transactions contemplated hereby and thereby, as well as any
waiver or amendment of any provision hereof or thereof and, in connection with
any Event of Default, all out-of-pocket expenses incurred by the Bank
(including, without limitation, fees and expenses of counsel
<PAGE>
26
to the Bank) in connection with such Event of Default and collection and other
enforcement proceedings resulting therefrom. The Company agrees to indemnify the
Bank and its affiliates, directors, officers, agents and employees (each of the
Bank and its affiliates, directors, officers, agents and employees, an
"Indemnified Party"), from and against (i) all costs, expenses (including,
- ------------------
without limitation, fees and expenses of counsel) and liabilities arising out of
or relating to any litigation or other proceeding (regardless of whether the
Bank is a party thereto) which relate to the Loans, the use of the proceeds
thereof, this Agreement or the other Loan Documents, except any such costs,
expenses or liabilities incurred by reason of the gross negligence or willful
misconduct of the Indemnified Party seeking indemnity hereunder therefor, and
(ii) any documentary taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of this Agreement or the other
Loan Documents, or of any waiver or amendment of any provision hereof or
thereof.
Section 8.05. Right of Set-Off.
-----------------
Nothing in this Agreement shall impair the right of the Bank to exercise
any right of set-off or counterclaim it may have and to apply the amount subject
to such exercise to the payment of indebtedness of the Company hereunder and to
any other indebtedness of the Company to the Bank, whether or not the Bank shall
have made any demand therefor.
Section 8.06. Counterparts.
-------------
This Agreement may be signed in any number of counterparts, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
Section 8.07. Headings; Table of Contents.
----------------------------
The section and subsection headings used herein and any table of contents
hereto have been inserted for convenience of reference only, and the parties do
not intend that they be considered in interpreting this Agreement.
Section 8.08. Governing Law.
--------------
THIS AGREEMENT AND THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAW OF THE STATE OF CALIFORNIA.
<PAGE>
27
IN WITNESS WHEREOF, the parties 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.
SMART & FINAL INC.
By:/s/ Donald G. Alvarado
----------------------
Name: Donald G. Alvarado
Title: Senior Vice President
Information for Notices:
Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Telephone: (213) 584-6427
Telecopier: (213) 589-0288
CREDIT LYONNAIS
LOS ANGELES BRANCH,
as Bank
By:/s/ Rita Raychauduri
--------------------
Name: Rita Raychauduri
Title: Vice President
Information for Notices:
Credit Lyonnais Los Angeles Branch
515 South Flower Street, Suite 2200
Los Angeles, CA 90071
Telephone: (213) 362-5954
Telecopier: (213) 623-3437
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (the "Agreement") is made and entered into as
of the 15th day of May, 1998, by and between United Grocers, Inc., an Oregon
business corporation (the "Seller"), and Smart & Final Inc., a Delaware
corporation (the "Buyer").
RECITALS
--------
A. Seller through its United Grocers Cash and Carry operating division
("UGCC") is engaged in the ownership and operation of wholesale grocery
warehouse outlets, operated on a cash-and-carry basis, open only to
institutional customers for the sale of produce, dry grocery, fresh and smoked
meats, deli, frozen meats and foods and other related food products in
Washington, Oregon, Idaho and northern California (the "Business"), and is
interested in selling substantially all of the Business and assets of UGCC.
Seller also operates a separate division that is engaged in the wholesale
distribution and sale of various food products and dry goods to grocery stores.
The parties understand, acknowledge, and agree that the transaction contemplated
by this Agreement relates only to UGCC's Business assets and certain of its
liabilities as set forth below, and does not include any other assets or
liabilities of Seller.
B. Buyer desires to purchase and Seller desires to sell substantially all
of UGCC's Business and assets on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants set forth below, the parties agree as follows:
AGREEMENT
---------
1. PURCHASE AND SALE OF ASSETS.
---------------------------
1.1 Transfer of Purchased Assets. In consideration of the payment of
----------------------------
the purchase price set forth in Section 1.6 below, Seller shall sell, assign and
deliver to Buyer on the Closing Date (as defined in Section 2.1 below), free and
clear of any and all liens, charges, claims, encumbrances, pledges, security
interests, community property rights, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature, fixed
or contingent, except as otherwise set forth or identified herein, and except
for the Assumed Liabilities (as defined in Section 1.3 below), and Buyer shall
purchase and accept, all assets, properties, rights, titles and interests of
every kind and nature owned or leased by Seller and used in connection with the
Business, as specified in this Agreement, as of the Financials Date (as defined
below), whether tangible or intangible, real or personal, and wherever located
and by whomever possessed (the "Purchased Assets"), including, without
limitation, the following assets used exclusively in connection with the
Business, but excluding the Excluded Assets (as defined in Section 1.2 below):
(a) all till cash of Seller which relates to UGCC, the Business
or the Purchased Assets;
(b) all accounts receivable of Seller, whether or not evidenced
by a note, which relate directly to UGCC, the Business or the Purchased Assets,
which accounts receivable, as of April 30, 1998, the aging thereof, and the
amount of the reserves carried on the
1
<PAGE>
books and records of UGCC for bad debts with respect thereto (the "Bad Debt
Reserve"), are more specifically set forth on attached Schedule 1.1(b);
---------------
(c) all prepayments, security deposits, prepaid taxes and expenses,
credits and deferred charges of Seller which relate directly to UGCC, the
Business or the Purchased Assets;
(d) all of Seller's interest in any leases (the "Leases") for the real
properties more particularly described on Schedule 1.1(d) to this Agreement (the
---------------
"Leased Properties"), other than the Yuba City lease;
(e) all of Seller's interest in the real properties more particularly
described on Schedule 1.1(e) to this Agreement (collectively, the "Owned
---------------
Properties"). The Leased Properties and the Owned Properties are hereinafter
collectively referred to as the "Properties;"
(f) all raw materials, packaging, spare parts, work-in-process,
finished goods, inventories and supplies owned by Seller which directly relate
to UGCC, the Business or the Purchased Assets and located at the Properties;
(g) all machinery, equipment, computers, software, telephone systems,
furniture, automobiles, trucks, tractors, trailers, vehicles and other tangible
personal property owned by Seller which directly relate to UGCC, the Business or
the Purchased Assets and located at the Properties;
(h) the exclusive license to utilize those trade names and trademarks
identified on Schedule 1.1(h) and all goodwill incident thereto, and the non-
---------------
exclusive right to use the name "United Grocers" and any variant thereof for a
period of five (5) years from the Closing Date, all pursuant to the terms of the
License Agreement in the form of Exhibit A attached hereto;
---------
(i) all rights of Seller under the contracts, agreements, orders,
leases, licenses and arrangements more particularly described on Schedule 1.1(i)
---------------
to this Agreement, to the extent assignable;
(j) all rights of Seller under all permits, licenses, variances,
approvals and other authorizations obtained from foreign, federal, state or
local governments or governmental agencies or other similar rights necessary to
the operation or ownership of UGCC, the Business or the Purchased Assets, to
the extent such exist and are assignable;
(k) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment of every
kind and nature directly relating to UGCC, the Business or the Purchased Assets,
to the extent such exist and are assignable;
(l) all insurance, warranty and condemnation proceeds received after
the Closing Date hereof with respect to damage, non-conformance or loss to UGCC,
the Business or the Purchased Assets;
(m) all books, ledgers, files, documents, correspondence, brochures,
lists, studies, reports, data, business records and other printed or written
materials (including, without limitation, records pertaining to past and current
customer accounts, suppliers, distri-
2
<PAGE>
butors, personnel and agents) directly relating to UGCC, the Business or the
Purchased Assets, as such items existed on the Financials Date, up to and
through the Closing Date;
(n) subject to Section 5.3 below, all rights to receive mail and other
communications addressed to Seller or UGCC (including, without limitation, the
payments for accounts or notes receivable) that relate exclusively to UGCC, the
Business or the Purchased Assets;
(o) all rights, title and interests in and to all confidential
business and technical information, trade secrets and proprietary rights
directly relating to UGCC, the Business or the Purchased Assets; and
(p) the Business and all goodwill associated therewith.
1.2 Excluded Assets. Notwithstanding the foregoing, the following
---------------
assets are expressly excluded from the purchase and sale contemplated hereby
(the "Excluded Assets") and, as such, are not included in the Purchased Assets:
(a) any and all other assets or property of Seller, whether
tangible or intangible, real or personal;
(b) Seller's rights under or pursuant to this Agreement;
(c) all minute books, stock books, corporate seal and other corporate
records and property of any kind or character that relate exclusively to
Seller's organization, existence and capitalization;
(d) all contracts, agreements, orders, leases, licenses and
arrangements which are not expressly specified to be assumed by the Buyer or
which are not transferable to Buyer;
(e) all claims, insurance, warranties, guarantees, refunds, causes of
action, rights of recovery, rights of set-off and rights of recoupment of every
kind and nature other than those described in Section 1.1(k);
(f) the right to receive mail and other communications addressed to
Seller that relate exclusively to the Excluded Assets or the Excluded
Liabilities;
(g) shares of Seller held in its treasury;
(h) all personnel records of Seller, and all other records which
Seller is required by law to retain in its possession;
(i) all claims for refund of taxes and other governmental charges of
whatever nature for all periods prior to the Closing Date;
(j) all rights and funds in connection with retirement, employee
benefits and similar plans; and
3
<PAGE>
(k) any assets expressly designated in Schedule 1.2(k) as
---------------
Excluded Assets.
1.3 Limited Assumption of Liabilities. Subject to the terms and
---------------------------------
conditions of this Agreement, from and after the Closing Date, Buyer shall
assume and agree promptly to pay, defend, discharge and perform as and when due
only the following specific liabilities and obligations of Seller which relate
exclusively to UGCC or the Business (the "Assumed Liabilities") from the first
day after the Closing Date and thereafter, subject to certain limitations and
rights as are set forth in Section 1.5 below:
(a) all liabilities and obligations under the contracts,
agreements, orders, leases (including tenant improvement construction contracts
for the Chico, San Francisco and San Jose stores, subject to Seller's obligation
to reimburse Buyer at the Closing in an amount equal to $1,200,000, less the
aggregate amount of the expenses paid by Seller for tenant improvements and
equipment for the Chico, San Francisco and San Jose stores), licenses and
arrangements expressly assumed by and transferred to Buyer on the Closing Date,
but excluding any liabilities or obligations relating to or arising out of (i)
any breach or default (other than any breach or default caused or contributed to
by any act or omission of Buyer to the extent so caused or contributed to)
occurring thereunder on or prior to the Closing Date, or (ii) any violation of
law, tort or infringement occurring with respect thereto on or prior to the
Closing Date (other than any such violation, tort or infringement caused or
contributed to by any act or omission of Buyer to the extent so caused or
contributed to);
(b) Seller will remain responsible for, and shall pay as and when
due, all accounts payable arising with respect to Seller's purchase of
merchandise relating to the Business. As consideration therefor, Buyer shall pay
to Seller the sum of Six Million Dollars ($6,000,000), payable without interest
in two (2) equal installments, the first of which shall be due and payable on or
before the thirtieth (30th) day following the Closing Date, and the second shall
be due and payable on or before the sixtieth (60th) day following the Closing;
(c) all transfer fees due as a result of the assignment to Buyer
of the MEI software systems;
(d) the cost of restoring Seller's Yuba City premises to "vanilla
shell" condition, with utilities capped, floor holes filled with concrete,
interior ceilings and walls patched, and the premises delivered in broom-clean
condition; and
(e) notwithstanding any other provision in this Agreement to the
contrary, any and all liabilities of the Business which arise after the Closing
Date.
1.4 Excluded Liabilities. Notwithstanding anything to the contrary
--------------------
contained in this Agreement and regardless of whether such liability or
obligation is disclosed herein or on any Exhibit or Schedule hereto, Buyer shall
not assume or in any way be responsible or liable for any other liabilities or
obligations of Seller or any other liabilities or obligations whatsoever related
to UGCC, or the operation of the Business, or the condition of the Purchased
Assets at any time on or prior to the Closing Date (the "Excluded
Liabilities"), except for such liabilities and obligations of Seller as are to
be expressly assumed by Buyer pursuant to Section 1.3 above, and, further,
except for possible liability to Seller resulting from any failure by Buyer to
resolve for the benefit of Seller the Teamsters' claims pursuant to Article 3 of
the Master Labor Agreement (Successor Employer and Transfer of Rights). Without
limiting the generality of the foregoing, the Excluded Liabilities shall
include, without limitation:
4
<PAGE>
(a) all obligations, commitments or liabilities of or claims against
Seller , arising out of or in connection with the transfer and sale of the
Purchased Assets hereunder;
(b) all liabilities and obligations for transfer or sales taxes and
documentary fees imposed by virtue of the transfer and sale of the Purchased
Assets hereunder;
(c) all liabilities and obligations for any damage or injury to person
or property arising from the ownership, possession or use of any products
manufactured or sold by Seller on or prior to the Closing Date;
(d) all liabilities and obligations arising from the operation of the
Business on or prior to the Closing Date not otherwise assumed by Buyer in
connection with any law, statute, rule, regulation, order or decree of any
foreign, federal, state or local governmental or regulatory authority
(including, without limitation, those relating to business conduct, public
health and safety, occupational health and safety and the environment); and
(e) all liabilities and obligations of Seller whatsoever not expressly
assumed by Buyer in accordance with Section 1.3 above, at the Closing Date.
Nothing in this Section 1.4 shall preclude Seller from contesting any
Excluded Liabilities, so long as such contest does not prejudice any of Buyer's
rights under this Agreement.
1.5 Uncollected Receivables. Buyer shall use good faith and
-----------------------
reasonable diligence in seeking to collect all accounts receivable. Any
payments received from any debtor shall be applied first to the oldest
outstanding principal balance for such debtor. Buyer shall make its relevant
financial records available to Seller at reasonable times and upon reasonable
notice for purposes of auditing the accounts receivable collected by Buyer. If,
despite its best efforts to collect the accounts receivable, Buyer is unable to
collect and realize upon such accounts receivable to such extent as results in a
breach of the warranty and representation set forth in Section 3.7, and, as a
consequence of such breach, Seller indemnifies Buyer pursuant to Section 9.2,
then and to the extent of such indemnification, and at Seller's request, Buyer
shall assign any and all such uncollectible accounts receivable back to Seller,
and Seller shall have all rights to collect such accounts receivable or
otherwise to realize thereon for Seller's own account and without obligation to
account to Buyer.
1.6 Purchase Price. The total purchase price (the "Purchase Price")
--------------
for the Purchased Assets to be acquired by Buyer on the Closing Date is (i) the
assumption of certain liabilities as described in Section 1.3 above, and (ii)
payment of the sum of Sixty Million Dollars ($60,000,000.00) in cash and a
promissory note (the "Promissory Note"), as follows:
(a) Forty Two Million Five Hundred Thousand Dollars ($42,500,000.00)
payable by wire transfer of immediately available funds to Seller's account at
the Closing;
(b) Seventeen Million Five Hundred Thousand Dollars ($17,500,000), to
be evidenced by a negotiable Promissory Note in the form of Exhibit B attached
---------
hereto, which Promissory Note shall provide that the outstanding principal
balance thereof shall bear interest from the Closing Date at a rate of six and
one-half percent (6.50%) per annum payable quarterly in arrears, and which
principal balance shall be payable as follows:
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(i) On the first anniversary of the Closing Date, Buyer shall pay to
Seller or its order a principal installment of Two Million Five Hundred Thousand
Dollars ($2,500,000);
(ii) On the second anniversary of the Closing Date, Buyer shall pay
to Seller or its order a principal installment of Two Million Five Hundred
Thousand Dollars ($2,500,000);
(iii) On the third anniversary of the Closing Date, Buyer
shall pay to Seller or its order a principal installment of Two Million Five
Hundred Thousand Dollars ($2,500,000);
(iv) On the fourth anniversary of the Closing Date, Buyer shall pay
to Seller or its order a principal installment of Five Million Dollars
($5,000,000);
(v) On the fifth anniversary of the Closing Date, Buyer shall pay to
Seller or its order a principal installment of Five Million Dollars
($5,000,000).
1.7 Allocation of Purchase Price. The parties agree negotiate in
----------------------------
good faith to arrive at an agreement to allocate the Purchase Price among the
Purchased Assets for purposes of federal and state income and franchise taxes.
Buyer shall prepare a draft schedule for the allocation for Seller's review
within fifteen (15) days of the Closing Date.
1.8 Risk of Loss. Any and all risk of loss or damage to the
------------
Purchased Assets shall pass from Seller to Buyer on the Closing Date.
2. The Closing.
-----------
2.1 The Closing. The purchase and sale of the Purchased Assets shall
-----------
take place at 10:00 a.m. (local time) on Friday, May 15, 1998, or three (3)
business days after receipt of an early termination letter with respect to
Buyer's Hart-Scott-Rodino filing, whichever last occurs, at the offices of
counsel for Seller or at such other time and place as may be mutually agreed
upon in writing by Buyer and Seller. The time and date of purchase and sale, as
the same may be postponed or accelerated from time to time, are referred to in
this Agreement as the "Closing" and the "Closing Date," respectively.
2.2 Deliveries to be Made at Closing.
--------------------------------
(a) On the Closing Date, Seller shall deliver to Buyer the
following:
(i) Bill of Sale in the form of Exhibit C attached hereto;
---------
(ii) Assignment and Assumption of Leases in the form of Exhibit D
---------
attached hereto with respect to each of the Leased Properties;
(iii) Bargain and Sale Deed in the form of Exhibit E
---------
attached hereto with respect to each of the Owned Properties;
(iv) Assignment and Assumption of Rights, Contracts, Warranties
and Documents in the form of Exhibit F attached hereto with respect to all
---------
rights, contracts, warranties and other documents to be assumed by Buyer
pursuant to the terms of this Agreement, other than the Leases;
6
<PAGE>
(v) Supply Agreement in form and content acceptable to Seller and
Buyer pursuant to which Seller shall agree to supply various food products to
the stores operating on the Properties located in the states of Washington,
Oregon and Idaho;
(vi) License Agreement in the form of Exhibit A attached
---------
hereto;
(vii) Landlord's Consent and Estoppel Certificate in the form
of Exhibit G attached hereto executed by all parties who own or sublease the
---------
Leased Properties;
(viii) Lender's Consent in the form of Exhibit H attached
---------
hereto from all parties who hold mortgages or deeds of trust on the Owned
Properties;
(ix) Resolution from Seller's board of directors authorizing
execution of this Agreement and the transaction contemplated by the terms of
this Agreement, certified by Seller's corporate secretary;
(x) non-foreign certification executed by Seller under penalty of
perjury, certifying that Seller is not a "foreign person" under section 1445 of
the Internal Revenue Code of 1986, as amended, and any regulation thereunder;
(xi) certificates of title to that of the Purchased Assets
consisting of titled vehicles, duly endorsed (or otherwise in form sufficient)
for transfer to Buyer;
(xii) Memoranda of Lease with respect to those leases being
assigned to Buyer;
(xiii) an opinion of Schwabe, Williamson & Wyatt, P.C., given
on behalf of Seller, in form and substance acceptable to Buyer and its counsel;
(xiv) Assignment and Assumption of Equipment Lease (the
"MetLife Assignment") regarding the MetLife equipment lease in form and content
acceptable to Seller and Buyer;
(xv) Equipment Lessor's Consent and Estoppel Certificate in form
and content acceptable to Seller and Buyer regarding the MetLife equipment
lease;
(xvi) Assignment of Noncompetition Agreements (the "Assignment of
Noncompetition Agreements") in form and content acceptable to Seller and Buyer
regarding the noncompetition agreements executed by Seller and Greg Hamper and
Dennis Hamper; and
(xvii) any other documents which require Seller's signature.
(b) On the Closing Date, Buyer shall deliver to Seller the following:
(i) the cash portion of the Purchase Price described in Section
1.6(a) and the Promissory Note described in Section 1.6(b);
7
<PAGE>
(ii) additional funds in the amount necessary to pay Buyer's
share of closing costs and prorations;
(iii) Assignment and Assumption of Leases in the form of
Exhibit D attached hereto with respect to each of the Leased Properties;
- ---------
(iv) Assignment and Assumption of Rights, Contracts,
Warranties and Documents in the form of Exhibit F attached hereto;
---------
(v) Supply Agreement in form and content acceptable to
Seller and Buyer;
(vi) License Agreement in the form of Exhibit A attached
---------
hereto;
(vii) Resolution from Buyer's board of directors authorizing
execution of this Agreement and the transaction contemplated by the terms of
this Agreement, certified by Buyer's corporate secretary;
(viii) an opinion of Crosby, Heafey, Roach & May, Professional
Corporation, given on behalf of Buyer, in form and substance acceptable to Buyer
and its counsel;
(ix) the MetLife Assignment in form and content acceptable
to Seller and Buyer;
(x) Assignment of Noncompetition Agreements in form and
content acceptable to Seller and Buyer; and
(xi) any other documents which require Buyer's signature.
All deliveries shall be considered to have taken place simultaneously
as a single transaction, and no delivery shall be considered to have been made
until all deliveries are completed. With respect to any Purchased Assets sold
hereunder which cannot be physically delivered at the Closing because they are
in the possession of third parties, Seller shall give irrevocable instructions
to such third parties that all rights, title and interests in such Purchased
Assets have been vested in Buyer.
3. REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and
-----------------------------------------
warrants to Buyer as follows:
3.1 Ownership of the Purchased Assets. Seller owns or leases all the
---------------------------------
Purchased Assets which at the Closing will be delivered to Buyer, free and clear
of any and all liens, charges, claims, encumbrances, pledges, security
interests, community property rights, equities, liabilities, debts, obligations,
restrictions on transfer or other defects in title of any kind or nature, fixed
or contingent, except for the Assumed Liabilities, and the matters approved by
Buyer pursuant to Section 5.6(b) below.
3.2 Authority to Enter Agreement; Enforceability. Except as may be
---------------------------------------------
required to satisfy Article 3 of Seller's labor agreement with the Teamsters,
Seller has the right, power, legal capacity and authority to enter into and to
carry out the terms and provisions of this Agreement (including, without
limitation, the sale and delivery of the Purchased Assets being sold pursuant to
this Agreement) and the other agreements to be entered into by Seller in
connection with the consummation of this Agreement without obtaining the
approval or consent of any other
8
<PAGE>
party or authority, except for such approvals or consents the failure to so
obtain will not have a material adverse economic effect either alone or in the
aggregate of $50,000 or more (a "Material Adverse Effect") on UGCC, the
Purchased Assets, the Business, its financial condition or the results of its
operations, and this Agreement and such other agreements constitute the legal,
valid and binding agreements of Seller, enforceable against Seller in accordance
with their respective terms.
3.3 Organization and Standing. Seller is a business corporation duly
-------------------------
organized and validly existing under the laws of the State of Oregon with full
corporate power and authority to own, lease and operate its assets and its
properties and carry on the Business as now conducted. Seller is currently
doing business in Washington, Oregon, Idaho and California, and is qualified to
do business in each such jurisdiction. To Seller's knowledge, Seller's books
and records which relate to the Business are complete and correct in all
material respects and in all material respects fairly reflect the conduct of the
Business.
3.4 No Violation. Except as may be required to satisfy Article 3 of
------------
Seller's labor agreement with the Teamsters, the execution and delivery of the
Agreement by Seller and the consummation of the transactions contemplated hereby
will not:
(a) result in the breach of any of the terms or conditions of or
constitute a default under, and is not prohibited by the articles of
incorporation or bylaws of Seller or any contract, agreement, commitment,
indenture mortgage, note, security agreement, bond, license, pledge,
encumbrance, lien, claim, charge, right, option or other instrument or
obligation, in any such case, to which Seller is now a party or by which Seller,
or any of its properties or assets, may be bound or affected and which is
material to UGCC or the Business; or
(b) to Seller's knowledge, violate any law, statute, ordinance,
rule or regulation of any administrative agency or governmental body or any
order, writ, injunction, judgment or decree or any court, administrative agency
or governmental body or any decision or finding of any arbitration panel, except
for any applicable "bulk sales" or other similar statute (compliance of which is
being waived by the parties hereto) and, further, except for any such violation
which will not have or result in a Material Adverse Effect.
3.5 Financial Statements. Schedule 3.5 to this Agreement contains
-------------------- ------------
UGCC's unaudited trial balance sheet as of May 1, 1998. The foregoing financial
statements (i) are in accordance with the books and records of Seller and were
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with prior periods (except for the absence of notes and other
presentation items) and (ii) fairly present UGCC's financial condition as of the
dates and for the periods specified. UGCC has no liabilities or obligations,
whether contingent or absolute, direct or indirect, matured or unmatured, which
are not shown or provided for on Schedule 3.5, except those incurred in the
------------
ordinary course of business since May 1, 1998, and Seller knows of no basis for
the assertion of any such liabilities or obligations. May 1, 1998, which is the
date of the most recent trial balance sheet, is sometimes referred to below as
the "Financials Date".
3.6 Absence of Certain Changes. Since the Financials Date, except as
--------------------------
disclosed on Schedule 3.6 to this Agreement, there has not been with respect to
------------
UGCC:
(a) any material or significant change in the condition (financial or
other), net worth, assets, liabilities, capitalization, business, properties or
results of operations of
9
<PAGE>
UGCC other than changes (i) described in the Schedules to this Agreement or (ii)
made or incurred in the ordinary course of business;
(b) any material employment or other contracts or commitments entered
into by Seller (other than those made or incurred in the ordinary course of
business), except as described in the Schedules to this Agreement (for which
purposes, a contract or commitment shall be deemed material if it calls for
payments or performance in an amount or of a value in excess of $10,000, and
which is not otherwise cancelable without material liability to Seller upon 30
days or less notice);
(c) any sale, assignment, transfer or other disposition of any assets
or properties, the latest cost of which on the accounting records of Seller
exceeds $10,000, excluding any inventory or supplies disposed of in the ordinary
course of business consistent with past practices;
(d) any capital expenditure, capital addition or capital improvement
(other than those made or incurred in the ordinary course of business) involving
an amount in excess of $10,000;
(e) any mortgage, lien, pledge, encumbrance, or security interest
created on any Purchased Asset, tangible or intangible, except purchase money
security interests created in the ordinary course of business consistent with
past practices;
(f) any material damage, destruction or loss (whether or not covered
by insurance) having or resulting in a Material Adverse Effect;
(g) any material increase in the compensation payable or to become
payable by Seller to any officer, director or other employee, agent, independent
contractor or consultant, in any such case who, by the terms hereof or as
expressly contemplated hereby, will be employed or engaged by Buyer at or
following the Closing, or any declaration, payment, commitment or obligation of
any kind for the payment by Seller of any bonus, additional salary or
compensation, any worker compensation claims or any retirement, termination or
severance benefits, to officers, directors, employees, agents, independent
contractors, or consultants, in any such case who, by the terms hereof or as
expressly contemplated hereby, will be employed or engaged by Buyer at or
following the Closing, other than pursuant to existing written commitments of
Seller otherwise disclosed in the Schedules to this Agreement, except in the
ordinary course of business;
(h) any material change in the amount of any notes or other
obligations payable by Seller to such officers, directors, employees, agents,
independent contractors, or consultants in any such case who, by the terms
hereof or as expressly contemplated hereby, will be employed or engaged by Buyer
at or following the Closing;
(i) any primary union picketing adversely affecting or, to Seller's
knowledge, threatening the Business;
(j) any revocation or termination, or any notice of any threatened
revocation or termination, of any permit or license issued to Seller or, to
Seller's knowledge, to any of its employees, independent contractors,
consultants or agents to the extent that such revocation or termination has, has
resulted in, or would have or result in a Material Adverse Effect;
10
<PAGE>
(k) any guaranty by Seller with respect to the Business, or any
revocation or cancellation of any loan or guaranty in excess of $50,000 in value
made to Seller for the benefit of the Business;
(l) any change or, to Seller's knowledge, anticipated change in
the relationship between Seller and any of its customers, vendors, suppliers,
employees, agents, independent contractors or consultants which has, has
resulted in, or would have or result in a Material Adverse Effect to the
Business;
(m) any other event or condition which has resulted in a Material
Adverse Effect to the Business; or
(n) any agreement or commitment obligating Seller to do any of
the things set forth in this Section 3.6.
3.7 Accounts Receivable. Those accounts receivable listed on
-------------------
Schedule 1.1(b) set forth a complete and accurate list of UGCC's accounts
- ---------------
receivable as of the date therein indicated, together with an accurate aging
thereof as of said date. The Bad Debt Reserve is fairly based on actual
experience of the Business. Said accounts receivable and all accounts
receivable which have arisen since the Financials Date (i) are valid and
enforceable claims for the sales and services which give rise to such accounts,
and (ii) are subject to no defenses or offsets and are fully collectible in the
ordinary course of business without resort to legal proceedings, subject to the
Bad Debt Reserve.
3.8 Inventories. Buyer acknowledges receipt of a schedule of all
-----------
inventory of UGCC as of April 1, 1998. Seller and Buyer also shall conduct a
physical inventory of UGCC's inventory on or before the Closing Date, the cost
of which shall be paid equally by Seller and Buyer. If the inventory to be
conducted on or before the Closing Date reflects an inventory value of less than
$22,000,000, then Seller shall pay to Buyer an amount equal to the difference
between the actual inventory value and $22,000,000, and if the inventory to be
conducted on or before the Closing Date reflects an inventory value of more than
$25,000,000, then Buyer shall pay to Seller an amount equal to the difference
between the actual inventory value and $25,000,000. The amount, if any, to be
paid by Seller or Buyer for the inventory adjustment shall be added to or
subtracted from Buyer's initial (and if necessary, second) post-Closing payment
for accounts payable as set forth in Section 1.3(b) above. Seller represents
and warrants that (i) UGCC's inventory shall be transferred to Buyer at the
Closing free and clear of all claims, and (ii) the inventory is and will be in
good and salable condition and not obsolete, and (iii) Seller will maintain the
inventory at historic levels through the Closing Date.
3.9 Prepaid Items, Accounts Payable and Accrued Expenses. Seller's
------------------------------------------- --------
audited balance sheet as of the Financials Date presents fairly the prepaid
items, accounts payable and accrued expenses of Seller with respect to UGCC as
at and for the Financials Date. Except as set forth on Schedule 3.9, all
------------
prepaid items, accounts payable and accrued expenses incurred after the
Financials Date were incurred in the ordinary course of business and are usual
and normal in amount, both individually and in the aggregate.
3.10 Tax Matters. With respect to UGCC, Seller has properly prepared
-----------
and filed returns for and paid in full all federal, state, local and foreign
taxes, assessments, additions to taxes, penalties and interest with respect
thereto, to the extent such filings and payments are required prior to the
Financials Date and, although Internal Revenue Service audits now are in
11
<PAGE>
progress with respect to all open years, there is no known outstanding or
proposed deficiency or assessment known to Seller by any federal, state, local
or foreign government with respect to any tax period. Any amounts set up as
reserves for taxes on the financial statements contained in Schedule 3.5 with
------------
respect to UGCC are sufficient for the payment of all accrued and unpaid federal
income, accumulated earnings or other federal taxes, and state, local or foreign
income, franchise, real property, personal property, sales, use, withholding and
all other taxes imposed on Seller or its property or payable by it, including
interest, additions to taxes and penalties, if any, with respect thereto,
whether known or unknown and whether disputed or not, as of the Closing Date,
the dates of the respective financial statements and for all periods prior
thereto.
3.11 Employees; Collective Bargaining Agreements. Schedule 3.11 to
------------------------------------------- -------------
this Agreement contains a true and complete list of the employees of UGCC as of
the Closing Date. Seller has paid in full to all employees of UGCC all wages,
salaries, commissions, bonuses and other direct compensation for all services
performed by them, except for such accrued and unpaid amounts, including accrued
vacation pay as listed on Schedule 3.5 hereto (which shall be paid by Seller on
------------
or before the Closing Date), and except for matters and disputes which are the
subject of pending grievances under the Teamster collective bargaining contract.
Seller shall be solely responsible for any liability or obligation arising out
of Seller's hiring or Seller's employment of its employees prior to the Closing
Date, including any such liability arising from any pending grievances (as they
relate to the period prior to the Closing Date) which, if they still exist after
the Closing, Seller may contest at its sole cost and expense. Buyer shall be
solely responsible for any liability or obligation arising out of Buyer's hiring
or Buyer's employment of its employees after Closing, and for any other
liability or obligation arising out of the operation of the Business after
Closing. Seller is a party to a labor agreement with various Teamster unions,
compliance with which creates conditions to Closing on this transaction. Buyer
or an affiliate of Buyer shall expressly assume, and shall promptly and
faithfully perform, all obligations on the part of Seller to be performed under
Seller's collective bargaining agreements identified on Schedule 3.15, or,
-------------
alternatively, Buyer, as a condition to Seller's obligation to close and
consummate the transactions contemplated hereby, shall have either obtained the
waiver and release contemplated by Section 7.8 below or shall indemnify, defend
and hold Seller harmless from any liability with respect thereto. Except as set
forth in Schedule 3.11, Seller is in compliance with all material laws and
-------------
regulations respecting employment and employment practices, terms and conditions
of employment, wages and hours, employee benefit plans and taxes (including
withholding taxes) relating to employment or to personal services provided to
UGCC. No employee of UGCC is in material violation of any employment agreement,
consulting agreement, proprietary information nondisclosure agreement or any
other contract or agreement with UGCC. Except as set forth in Schedules 3.11
--------------
and 3.15, to Seller's knowledge (a) there are no agreements, commitments or
- --------
other obligations of Seller, whether oral or written, which would prevent or
obstruct the dismissal of any of those employees who, by the terms hereof or as
expressly contemplated hereby, will be employed or engaged by Buyer at or
following the Closing Date, (b) Seller has no collective bargaining agreements
nor any obligations with respect to former collective bargaining agreements with
respect to UGCC, and (c) UGCC has no agents, independent contractors or
consultants to which the above-described obligations would apply.
3.12 The Properties
--------------
(a) To Seller's knowledge, the structural components of the
Properties are in good and physically sound condition;
(b) At the Closing, Seller will own the Owned Properties subject
only to the matters in the Approved Title (as hereinafter defined);
12
<PAGE>
(c) Seller is the lessee under each of the Leases. Each of the
Leases is in full force and effect and is enforceable in accordance with its
terms. Neither Seller nor, to the best of Seller's knowledge, the lessors are in
material breach or default under any of the Leases and no event has occurred
which with notice or lapse of time, or both, could constitute a material breach
or default under any such Lease or could accelerate any obligation or create any
lien or encumbrance under any such Lease. Except as disclosed in Schedule
--------
1.1(d), Seller has not assigned any of its interest in any of the Leases. No
- ------
claim has been asserted or, to the best of Seller's knowledge, exists that is
adverse to the rights of Seller under any of the Leases;
(d) A true, correct, and complete schedule of all service and other
contracts affecting the Properties is attached as Schedule 3.12(d), identifying
----------------
the contractor, his duties, the term of the contract, the rate of compensation
payable, the length of notice required to cancel such contract and stating
whether such contract would be binding on Buyer and survive the Closing;
(e) To Seller's knowledge, all utility connections located on the
Properties (including without limitation gas, electricity, water, sanitary and
storm sewage facilities) (i) are of sufficient size and capacity to service the
Properties, (ii) have been completed, installed, activated and fully paid for
and (iii) enter the Properties through adjoining public streets, or if they pass
through adjoining private land, do so in accordance with valid public easements
or private easements which will inure to the benefit of Buyer. Buyer as owner
of the Owned Properties and lessee of the Leased Properties, shall at Closing
have an unqualified right to use such facilities without paying any liens, "tap-
in" fees or similar charges with respect to the use thereof, except for normal
water and sewer rents and nominal charges for any additional connection thereto
which Buyer's intended use may require;
(f) To Seller's knowledge, there are presently in good standing and
effect all licenses, certificates of occupancy, environmental impact reports and
permits as may be required for the operation of the Properties, the failure to
obtain which will not have a Material Adverse Effect on such Property or the
business operations conducted thereon;
(g) Seller has received no notice of any default or breach by Seller
under any covenants, conditions, restrictions, rights-of-way, or easements which
may affect the Properties or any portion thereof, and no such default or breach
now exists;
(h) To Seller's knowledge, the heating, air conditioning, mechanical,
electrical and other systems and equipment used in connection with the
Properties are operative and in good working condition, ordinary wear and tear
excepted, and any repairs required prior to settlement shall be made by Seller
at its sole cost and expense, unless the obligation to repair the same is that
of the landlord, subtenant, or other party in priority of contract to Seller;
and
(i) To Seller's knowledge, the current uses at the Properties
conform to the applicable zoning restrictions;
3.13 Tangible Personal Property. Section 3.13A to this Agreement
-------------------------- -------------
contains a true and complete list describing and specifying the location of all
vehicles, equipment, furniture, fixtures, leasehold improvements and all other
tangible personal property or assets (other than those items of nominal value)
used, owned, possessed or leased by, or in the possession of, UGCC in connection
with the Business. Except as set forth in Schedule 3.13B to this Agreement, all
--------------
personal property (except items of nominal value) owned, used, possessed or
leased by UGCC
13
<PAGE>
is owned, used, possessed or leased by UGCC or Seller free and clear of all
liens, claims, charges, pledges, security interests, encumbrances, liabilities,
debts, equities, restrictions on transfer or other defects in title of any kind
or nature. All items of personal property owned, used, possessed or leased by
Seller in connection with the operations of UGCC are, to Seller's knowledge, in
good operating condition and repair, normal wear and tear excepted. All leases
pursuant to which UGCC holds any items of personal property are listed on
Schedule 3.13B to this Agreement and are in full force and effect and are
- --------------
enforceable in accordance with their terms. Except as set forth on Schedule
--------
3.13B, none of such leases have been amended or modified. Neither Seller nor, to
- -----
the best of Seller's knowledge, the other parties thereto are in material breach
or default under any of such leases; and no event has occurred which with notice
or lapse of time, or both, could constitute a material breach or default by
Company or, to the best of Seller's knowledge, the other parties thereto under
such leases or could accelerate any obligation or create any lien or encumbrance
under such leases. Seller has not assigned any of its interest in such leases.
No claim has been asserted or, to the best of Seller's knowledge, exists that is
adverse to the rights of Seller to the continued possession of the leased
property under such leases.
3.14 Intangible Property. Schedule 3.14 to this Agreement contains a
------------------- -------------
true and complete list of all patents, copyrights, trademarks, service marks,
trade names, logos and identifying marks and styles used by Seller in connection
with the Business (the "Intangible Property"). Except as disclosed on Schedule
--------
3.14 to this Agreement, Seller owns and has the full right to use the name
- ----
"Commissary Cash & Carry" and all the Intangible Property in each jurisdiction
in which it conducts business. On the Closing Date, Seller will record an
Abandonment of Fictitious Business Name Statement or similar statement or
declaration by which Seller withdraws its registration of the fictitious or
assumed business name of "Commissary Cash & Carry."
3.15 Contracts and Agreements. Schedule 3.15 contains a true and
------------------------ -------------
complete list of the following material agreements, contracts, leases (other
than the Leases) or other obligations or commitments, whether written or oral
(collectively "Contracts") pertaining to UGCC, to which Seller is a party or by
which it or UGCC's property is bound, including (i) contracts with employees
(but excluding contracts with employees which can be canceled at will with
thirty (30) or fewer days' notice without cost or other liability by reason of
such termination); (ii) contracts with customers involving the purchase or sale
of goods or services in an aggregate amount in excess of $10,000; (iii)
contracts with suppliers or manufacturers of products sold by Seller in the
ordinary course of business; (iv) bonus, deferred or incentive compensation,
group insurance or other employee benefit plans involving employees who, by the
terms hereof or as expressly contemplated hereby, will be employed or engaged by
Buyer at or following the Closing; (v) collective bargaining contracts; (vi)
leases as lessor or lessee involving the payment or receipt of rent in the
aggregate in excess of $10,000; (vii) advertising or public relations contracts;
(viii) conditional sales contracts, security agreements, pledge agreements,
trust receipts or any other agreements or arrangements whereby any material
assets of Seller are subject to a lien, encumbrance, charge or other
restriction; (ix) mortgages, indentures, notes or other instruments for or
relating to any borrowing of money or the extension of credit or the deferred
purchase of property involving an amount in excess of $10,000; (x) guarantees of
any obligations for the borrowing of money or otherwise involving an amount in
excess of $10,000, or any other agreements of guarantee or indemnification
(other than endorsements made for collection in the ordinary course of
business); (xi) agreements or arrangements for the purchase or sale of any
material assets other than in the ordinary course of business; (xii) continuing
contracts for future purchase of materials, supplies or equipment involving an
amount in excess of $10,000; (xiii) agreements, contracts or commitments
relating to the acquisition of all or substantially all of the assets, capital
stock or ownership interests of any business enterprise; (xiv) contracts
restricting doing business in any areas or in any way limiting competition; and
(xv) any other contracts (other than contracts entered into in the ordinary
course of business) to be performed in
14
<PAGE>
whole or in part more than 30 days from the date hereof calling for aggregate
payments by UGCC or Seller in excess of $10,000 and which are not terminable
without cost or liability on 30-days' notice. Except as set forth on Schedule
--------
3.15, none of the Contracts have been amended or modified. Each of the Contracts
- ----
is in full force and effect and is enforceable in accordance with its terms.
Neither Seller nor, to the best of Seller's knowledge, the other parties thereto
are in material breach or default under any such Contracts and no event has
occurred which with notice or lapse of time, or both, could constitute a
material breach or default under any such Contract or could accelerate any
obligation or create any lien or encumbrance under any such Contract. Seller has
not assigned any of its interest in the Contracts. No claim has been asserted
or, to the best of Seller's knowledge, exists that is adverse to the rights of
Seller under any of the Contracts.
3.16 Insurance. Within thirty (30) days of the Closing Date, Seller
---------
will deliver to Buyer a true and complete copy of all life, fire, casualty,
liability and all other insurance policies maintained by Seller pertaining to
the Business and the Properties, for the purpose of identification of later
claims which may be forwarded to Buyer but responsibility for which has been
retained by Seller.
3.17 Litigation. Except as set forth on Schedule 3.17 to this
---------- -------------
Agreement, there is no suit, action or legal, administrative, arbitration or
other proceeding pending, filed or initiated by, against or affecting Seller or
UGCC which would affect Seller's ability to consummate the transactions
contemplated by this Agreement or, if determined adversely against Seller, would
have or result in a Material Adverse Effect on UGCC, and Seller has no
knowledge of any suit, action or legal, administrative, arbitration or other
proceeding threatened by, against or affecting Seller or UGCC, which would
affect Seller's ability to consummate the transactions contemplated by this
Agreement or which, if determined adversely against Seller, would have or result
in a Material Adverse Effect on UGCC.
3.18 Compliance with Law and Other Instruments. Seller has received
-----------------------------------------
no notice that the business and operations of Seller with respect to UGCC have
not been or are not being conducted in accordance with all applicable laws,
statutes, ordinances, rules and regulations of all authorities (including,
without limitation, those relating to business conduct, public health and
safety, occupational health and safety and the environment), except where the
failure to so conduct the business and operation of Seller would not have or
result in a Material Adverse Effect. Seller is not in violation, nor will entry
into the transaction contemplated by this Agreement result in a violation or
breach of, or default under, any term or provision of its articles of
incorporation or its bylaws or of any order, judgment, writ, injunction, decree,
license or permit of any court or any governmental or regulatory authority or of
any indenture, mortgage, deed of trust, lease, contract, instrument, commitment
or other agreement or arrangement, or subject to any restriction of any kind or
character, in any such case, which would materially and adversely affect UGCC,
the Business or its prospects.
3.19 Licenses and Permits. Schedule 3.19 to this Agreement contains a
-------------------- -------------
true and complete list of all material licenses, permits, orders, approvals and
other authorizations issued to UGCC or to Seller on behalf of UGCC and its
employees, which are in full force and effect and which in any way relate to the
Business. UGCC and its employees or agents have all licenses, permits, orders,
approvals and other authorizations required for the conduct of the Business as
presently conducted and, to the best of Seller's knowledge, no suspension or
cancellation of any of them is threatened.
15
<PAGE>
3.20 Benefit Plans. Except as described in Schedule 3.20, UGCC does
------------- -------------
not have any employee benefit plans ("Plans") which are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") including, but not
limited to, pension, retirement, profit sharing and stock bonus plans or any
Employee Plan that is a multi-employer plan as defined in Section 3(37) of
ERISA. To the extent that it may affect employees or the Purchased Assets, each
Plan is now, and has always been, established, maintained and operated in all
material respects in accordance with all applicable laws (including but not
limited to ERISA and the Internal Revenue Code of 1986, as amended, and
regulations thereunder) and in accordance with the Plan documents. There is no
unfunded liability for vested or nonvested benefits, or any pending or, to the
best knowledge of Seller, threatened litigation or arbitration concerning or
involving any UGCC Plan which could subject the Purchased Assets of UGCC to any
claims.
3.21 Brokerage and Finders' Fees. Seller has not incurred any
---------------------------
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions with respect to the transactions contemplated by this Agreement.
3.22 Suppliers and Customers. No single supplier (other than Iowa
-----------------------
Beef) who accounted for more than ten percent (10%) of UGCC's purchases, or
customer who accounted for more than ten percent (10%) of UGCC's sales, during
its most recent complete fiscal year, or the fiscal year to date, nor any
supplier who is a material source of supply of any goods essential to the
Business, has (i) canceled or otherwise terminated, or made any overt threat to
Seller to cancel or otherwise terminate, its relationship with Seller or (ii)
materially decreased its sale of services or supplies to Seller or its purchase
of products therefrom or made any overt threat to Seller with respect thereto.
3.23 Hazardous Materials. There are no underground storage tanks,
-------------------
sumps, grease traps, clarifiers, wells and/or on-site sewage disposal systems
now in use on the Properties. To the best of Seller's knowledge, except as
disclosed in the Phase 1 Environmental Site Assessments previously delivered to
Buyer, the Properties are not, and as of the Close of Escrow shall not be, in
violation of any Environmental Law, as defined below, and do not contain
Hazardous Materials, as defined below, except in concentrations beneath
applicable state and federal action levels. During the time in which Seller
owned or leased the Properties, neither Seller nor, to the best of Seller's
knowledge, any third party, used, generated, stored, or disposed of, on, under
or about the Properties, or transported to or from them, any Hazardous
Materials, except in compliance with applicable law. Seller has received no
notice from any governmental agency of any investigation or proceeding by such
agency concerning the presence or alleged presence of Hazardous Materials on the
Properties. The term "Environmental Law" shall include any federal, state or
local law, ordinance or regulation pertaining to health, waste disposal or the
environment, including, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act of 1986, the Resource Conservation and
Recovery Act of 1976, the Federal Clean Air Act, the Federal Water Pollution
Control Act and Federal Clean Water Act of 1977, the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Pesticide Act of 1978, the Federal
Toxic Substances Control Act, the Federal Safe Drinking Water Act, the Hazardous
Materials Transportation Act, similar state health & safety statutes, and
regulations adopted and publications promulgated pursuant to such laws. The
term "Hazardous Materials" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls and urea formaldehyde, and any other materials
classified as hazardous or toxic under any Environmental Law, including, without
limitation, any materials defined as "Hazardous Substances", "Hazardous
Materials", "Toxic Substances", or "Hazardous Waste." Hazardous Materials does
not include any inventory included as part of the Purchased Assets.
16
<PAGE>
3.24 No Misrepresentation. The representations, warranties and
--------------------
statements made by Seller in or pursuant to this Agreement are true, complete
and correct in all material respects. None of such representations, warranties
or statements contains any untrue statement of material facts or omits to state
any material fact necessary to make any such representation, warranty or
statement, under the circumstances in which it is made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
---------------------------------------
warrants to Seller as follows:
4.1 Organization and Standing. Buyer is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, with full corporate power and authority to carry on its business and
to enter into and carry out the terms of this Agreement.
4.2 Authority to Enter Agreement; Enforceability. Except for the
--------------------------------------------
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's board of directors, which approval has not
yet been obtained, (i) Buyer has the right, power and authority to enter into
and to carry out the terms of this Agreement and such other agreements to be
entered into by Buyer in connection with the consummation of this Agreement
without obtaining the approval or consent of any other party or authority, and
(ii) this Agreement and such other agreements, including, without limitation,
the Promissory Notes and the Supply Agreement constitute the legal, valid and
binding agreements of Buyer, enforceable against Buyer in accordance with their
respective terms.
4.3 Compliance with Law and Other Instruments. Except for the
-----------------------------------------
requirement that the terms and conditions of this Agreement and the other
agreements to be entered into by Buyer in connection with the consummation of
this Agreement be approved by Buyer's board of directors, which approval has not
yet been obtained, neither the execution and delivery of this Agreement or such
other agreements, nor the consummation of the transactions contemplated by this
Agreement and such other agreements, will conflict with, or result in a
violation or breach of, or constitute a default under, any term or provision of
Buyer's articles of incorporation or bylaws, or any order, judgment, writ,
injunction, decree, license, permit, law, statute ordinance, rule or regulation
of any court or any governmental or regulatory authority (except for the bulk
sales provisions of the California Commercial Code) or any indenture, mortgage,
deed of trust, lease, contract, instrument, commitment or other agreement or
arrangement to which Buyer is a party or by which it or its properties are
bound. Buyer is duly licensed as a produce dealer with the California
Department of Food and Agriculture, Market Enforcement Division and has obtained
all other material permits, approvals and licenses necessary to operate the
Business from and after the Closing Date.
4.4 Brokerage and Finders' Fees. Buyer has not incurred any
---------------------------
liability to any broker, finder or agent for any brokerage fees, finders' fees
or commissions with respect to the transactions contemplated by this Agreement.
4.5 Litigation. Except as set forth on Schedule 4.5 to this
---------- ------------
Agreement, there is no suit, action or legal, administrative, arbitration or
other proceeding pending, filed or initiated by, against or affecting Buyer
which would affect buyer's ability to consummate the transactions contemplated
by this Agreement, and Buyer has no knowledge of any suit, action or legal,
administrative, arbitration or other proceeding threatened by, against or
affecting Buyer which would affect buyer's ability to consummate the
transactions contemplated by this Agreement.
17
<PAGE>
4.6 No Misrepresentation. The representations, warranties and
--------------------
statements made by Buyer in or pursuant to this Agreement are true, complete and
correct in all material respects. None of such representations, warranties or
statements contains any untrue statement of material facts or omits to state any
material fact necessary to make any such representation, warranty or statement,
under the circumstances in which it is made, not misleading.
5. COVENANTS OF THE PARTIES.
------------------------
5.1 Operation of the Business of Seller. During the period from and after
-----------------------------------
the date of this Agreement and until the Closing Date, Seller covenants and
agrees that, unless it obtains Buyer's prior written consent to the contrary,
or except as specifically authorized in this Agreement, or except as provided
for on Seller's financial statements attached hereto as Schedule 3.5, Seller
------------
shall, with respect to UGCC:
(a) make, amend and terminate contracts only in the ordinary
course of business;
(b) refrain from suffering or refrain from creating any security
interest, encumbrance or restriction on its properties or assets, except in the
ordinary course of business consistent with past practices;
(c) refrain from disposing of any of UGCC's properties or assets,
except in the ordinary course of business consistent with past practices;
(d) refrain from entering into or becoming a party to any employment,
consulting or sales representation agreement, except in the ordinary course of
business consistent with past practices;
(e) refrain from increasing the rate of compensation paid or payable
by it to such of UGCC's officers, directors, employees, agents, independent
contractors or consultants as, pursuant to the terms hereof or as expressly
contemplated hereby, are to be employed or engaged by Buyer at or following the
Closing, except pursuant to existing contractual obligations, and from making
loans or advances to such officers, directors, agents, employees, independent
contractors, or consultants as, pursuant to the terms hereof or as expressly
contemplated hereby, are to be employed or engaged by Buyer at or following the
Closing, or any member of the families of any of them, except for advances for
reasonable business expenses in accordance with past practices, or except with
respect to those retention bonuses and severance payments disclosed on Schedule
--------
3.6;
- ---
(f) refrain from paying or agreeing to pay any bonus, extra
compensation, pension or severance pay under any pension plan or otherwise,
except pursuant to existing contractual obligations;
(g) maintain its books accounts and records in the usual, regular and
ordinary manner and in compliance with all applicable laws;
(h) except as may ultimately be determined upon resolution of pending
labor grievances, meet its obligations under all contracts and not become in
default thereunder;
(i) maintain all of its assets in good repair, order and condition,
ordinary wear and tear excepted;
18
<PAGE>
(j) refrain from borrowing or agreeing to borrow any funds other than
under existing banking or credit relationships, in the ordinary course of
business consistent with past practices;
(k) refrain from guaranteeing or agreeing to guarantee the
obligations of others;
(l) refrain from waiving or committing to waive any rights of
substantial value except for good and valuable consideration;
(m) refrain from canceling or materially amending any insurance policy
except in exchange for a new policy with at least the same coverage;
(n) refrain from entering into any transaction which would in any
significant respect change the character of the Business; and
(o) use its best efforts to operate in such manner as to assure that
the representations and warranties of Seller set forth in this Agreement will be
true, correct and complete in all material respects on and as of the Closing
Date.
5.2 Access to Information and Records. Seller shall give Buyer and
---------------------------------
its counsel, accountants and other representatives (collectively, "Buyer's
Representatives") full access, during normal business hours, throughout the
period prior to the Closing Date, to (i) all information concerning UGCC's
assets, properties, contracts, commitments, books and records, and to cause
Seller to furnish Buyer and Buyer's Representatives during such period with all
information concerning UGCC's affairs as they reasonably may request and (ii)
the Properties during reasonable business hours upon not less than twenty-four
(24) hours telephonic notice for any purpose including, without limitation,
inspection and conducting soil and other tests and examinations of all books,
records and files of Seller regarding the Properties, regardless of where same
are located. Buyer shall obtain insurance coverage for damages to persons and
property and liability coverage, naming Seller as an additional insured, in such
amounts and from such companies as reasonably approved by Seller. In addition,
Buyer shall repair any damage, and shall indemnify, defend and hold Seller and
its properties harmless from any cost, claim or expense arising from such entry
by Buyer or from the performance of any such test by Buyer, provided that such
indemnity shall not extend any cost, claim or expense incurred by Seller as a
result of Buyer's discovery or reporting of any hazardous materials on the
Properties. Buyer shall conduct such investigation in such manner as will least
disrupt the business operations of Seller and UGCC.
5.3 Assumption of Labor Contracts and Employment Agreements. Buyer
-------------------------------------------------------
or an affiliate of Buyer shall expressly assume, and shall promptly and
faithfully perform, all obligations on the part of Seller to be performed under
Seller's collective bargaining agreements identified on Schedule 3.15, or,
-------------
alternatively, Buyer, as a condition to Seller's obligation to close and
consummate the transactions contemplated hereby, shall have either obtained the
waiver and release contemplated by Section 7.8 below or shall indemnify, defend
and hold Seller harmless from any liability with respect thereto. Buyer also
shall assume all of Seller's individual employment agreements listed on Schedule
--------
3.15 which relate exclusively to UGCC and the Business.
- ----
19
<PAGE>
5.4 Best Efforts; Further Assurances. Each party to this Agreement
--------------------------------
shall use its best efforts to cause the satisfaction of all conditions to the
consummation of this Agreement which are in the control of such party and to
cooperate as necessary in the satisfaction of all other conditions to the
consummation of this Agreement. Each party hereto will, from time to time after
the execution and consummation of this Agreement, execute and deliver such
instruments, documents and assurances and take such further actions as the other
parties may reasonably request to carry out the purpose and intent of this
Agreement. The parties agree to cooperate in determining whether mail received
by Seller or the Buyer after the Closing Date belongs to the other party, and
both parties agree to forward mail belonging to the other party as soon as is
reasonably practicable upon receipt.
5.5 Publicity. All notices to third parties and all other publicity
---------
concerning this Agreement and the transactions contemplated by this Agreement
shall be jointly planned and coordinated between Buyer, on the one hand, and
Seller on the other hand. No party shall make a unilateral press release or
public announcement, or announcement to employees, creditors, customers or
others without the prior written approval of the other parties except as may be
required by law.
5.6 Trade Secrets, Non-Competition, Etc. As a material inducement to
-----------------------------------
Buyer to enter into and consummate this Agreement, Seller agrees that, after
the Closing Date:
(a) Trade Secrets. Seller shall not, without the prior written
-------------
consent of Buyer, except as may be required by law, governmental rules and
regulations or litigation between the parties, disclose or use, in any way, any
information currently belonging to Seller and used exclusively in the Business,
and which information derives independent economic value, actual or potential,
from not being generally known to the public or to other persons who can obtain
the economic value from its use or disclosure, and which has been the subject of
reasonable efforts on the part of Seller, in the operation of the Business, to
maintain as secret, whether or not such information was conceived by Seller
("Trade Secrets"), including without limitation any such information concerning
any procedures, operations, investments, techniques, data, compilations of
information, records, financing, costs, employees, purchasing, accounting,
marketing, merchandising, sales, customers, salaries, pricing, profits, plans
for future development, and the identity, requirements, preferences, practices
and methods of doing business of specific parties with whom UGCC transacts
business, and all other information which is related to the Business; all of
which Trade Secrets will be the exclusive and valuable property of Buyer.
(b) Tangible Items. All customer lists, files, records,
--------------
documents, drawings, plans, specifications, manuals, books, forms, receipts,
notes, reports, memoranda, studies, data, calculations, recordings, catalogues,
compilations of information, correspondence and all copies, abstracts and
summaries of the foregoing and all physical items related to and used
exclusively in the Business, other than a merely personal item, whether of a
public nature or not, and whether prepared by Seller or not, are and shall be
the exclusive property of Buyer and shall not be removed from the premises of
Buyer, without the prior written consent of Buyer. Buyer agrees to give Seller
prior written notice of any proposed destruction of any of the above tangible
items sufficient to allow Seller to make necessary copies of such items.
(c) Solicitation of Employees. During the period commencing on
-------------------------
the Closing Date and ending five (5) years from that date, Seller shall not,
directly or indirectly, call on, solicit, interfere with or attempt to entice
away any existing employee of Buyer, provided, however, that nothing herein
shall prohibit or restrict Seller's employment or engagement of any person who
is an existing employee of Buyer if such employment or engagement was not the
result of any activity on the part of Seller otherwise prohibited by this
Section 5.6(d), and whose
20
<PAGE>
employment by Seller was not the result of active solicitation of such person,
directly or indirectly by Seller, and provided further that nothing herein shall
prohibit or restrict Seller's right to advertise or otherwise publicize
employment opportunities or positions available with Seller.
(d) Noncompetition.
--------------
(i) As used herein, the term "Competitive Activity" shall
mean any participation in, assistance of business from, engagement in business
with, or assistance, promotion or organization of, any person, partnership,
corporation, firm, association or other business organization, entity or
enterprise by Seller which, directly or indirectly, is engaged in, or
hereinafter engages in the ownership or operation of wholesale grocery warehouse
sales outlets on a cash-and-carry format. Nothing herein shall in any way
prohibit Seller from continuing to engage in the grocery distribution and sales
business to its present and any future grocery store members and customers. For
purposes of this Section 5.6(e), and notwithstanding anything to the contrary
herein set forth, "Competitive Activities" shall not include (i) any activity of
or carried on by any member or customer of Seller, (ii) Seller's selling of
merchandise to any of its customers or members who may be engaged in business
activities competitive with those of Buyer, nor (iii) Seller's rendering of
services to its customers or members who may be engaged in business activities
competitive with those of Buyer, so long as those services are of such quality
and nature as are offered generally to all of Seller's members or customers.
(ii) During the period commencing on the Closing Date and
ending five (5) years from that date, Seller shall not engage in any Competitive
Activity in the States of Washington, Oregon, Idaho or California.
(e) Injunctive Relief. Seller hereby acknowledges and agrees that
-----------------
it would be difficult to fully compensate Buyer for damages resulting from the
breach or threatened breach of the foregoing provisions and, accordingly, that
Buyer, shall be entitled to temporary and injunctive relief, including temporary
restraining orders, preliminary injunctions and permanent injunctions, to
enforce such provisions. This provision with respect to injunctive relief shall
not, however, diminish the right of Buyer to claim and recover damages.
5.7 Escrow; Title Insurance; Closing Costs and Prorations. Seller
-----------------------------------------------------
and Buyer agree that an escrow or escrows (the "Escrow") will be opened with
Chicago Title Escrow Company ("Escrow Holder") for the purpose of obtaining
title insurance with respect to the Owned Properties and the Leased Properties
and for consummating the transfers of the Owned Properties and the Leased
Properties pursuant to the terms of this Agreement. Such Escrow will be subject
to the terms and conditions set forth below:
(a) Escrow. Within three (3) business days after the date
------
of execution of this Agreement, the parties shall open an Escrow with Escrow
Holder, at Escrow Holder's office. The Escrow shall be deemed opened when the
parties have given Escrow Holder an executed copy of this Agreement. This
Agreement shall serve as escrow instructions to Escrow Holder, and the parties
shall execute additional instructions if Escrow Holder so requires, provided
that such instructions do not change the terms of this Agreement but merely
offer protection for Escrow Holder. Any additional instructions shall provide
that this Agreement shall prevail in case of any inconsistency between it and
the additional instructions. Escrow shall close on the Closing Date concurrently
with the closing of the transaction contemplated by this Agreement, and the
parties acknowledge that the Bargain and Sale Deeds ("Deeds") and the Memoranda
of Lease shall be deposited with Escrow Holder for recordation at the Closing
Date
21
<PAGE>
consistent with the terms of this Agreement. When Title Company (hereinafter
defined) is in a position to issue the Title Policies (hereinafter defined), and
upon instructions from Seller and Buyer, Escrow Holder shall immediately close
Escrow by recording the Deeds and the Memoranda of Lease in the appropriate
counties. The failure of Seller or Buyer to be in a position to close Escrow by
the Closing Date for any reason other than failure of a condition shall
constitute a default under this Agreement. If Escrow Holder is not in a position
to close Escrow on the Closing Date, it shall close as soon thereafter as
possible, unless prior to closing, it receives notice from either party
directing it not to close. Close of Escrow shall occur when Escrow Holder
performs all of the acts listed below:
(i) Record the Deeds with instructions for the county recorders to
send the Deeds to Buyer and attach tax information after recording;
(ii) Record the Memoranda of Lease with instructions for the county
recorders to send the Memoranda of Lease to Buyer;
(iii) Instruct the Title Company to deliver the Title Policies to
Buyer; and
(iv) Forward to Seller and Buyer an accounting of all funds received
and disbursed for each party and copies of all executed and recorded or filed
documents, with recording or filing dates shown thereon.
(b) Title Insurance. Promptly after the opening of Escrow,
---------------
Escrow Holder shall order and deliver to Buyer a current preliminary title
report ("Title Reports") on each of the Owned Properties and the Leased
Properties, together with copies of all documents underlying any exceptions (the
"Exceptions") shown thereon, and a map of the encroachments, easements,
dedications and rights of way thereon. Buyer shall have ten (10) days after
receipt of the Title Reports and all underlying documents within which to give
notice to Seller of Buyer's approval of the Title Reports or disapproval of any
of the Exceptions. Buyer's failure to give any notice within the time limit
shall be deemed approval of the Title Reports. Seller then shall have the
right, but not the obligation, to elect to remove any disapproved Exceptions
within ten (10) days after Buyer's notice of disapproval (the "Title Cure
Period"). If Seller gives notice within the Title Cure Period that Seller will
remove any Exception before the Closing Date, such Exception shall be deemed
removed for purposes hereof, and Seller shall be obligated to remove such
Exception before the Closing Date. With respect to any Exception consisting of
a financial encumbrance such as a mortgage, deed of trust or other debt
security, other than the interests of the landlords with respect to the Leased
Properties, such matter shall automatically be deemed a disapproved Exception,
and Seller hereby covenants to remove such Exception before the Closing Date.
If Seller does not remove or agree to remove any disapproved Exception within
the Title Cure Period, Buyer shall have five (5) days to give Seller notice that
Buyer waives its objection to such Exception or elects to terminate this
Agreement. If Buyer does not give any notice, this contingency shall be deemed
satisfied. The condition of title as approved by Buyer is referred to herein as
the "Approved Title." A condition to Buyer's completing this transaction shall
be the willingness of Chicago Title Insurance Company ("Title Company") to
issue, upon payment of Title Company's regularly scheduled premium and
recordation of the Grant Deeds or Memoranda of Lease, as applicable, an ALTA
standard coverage owner's policy of title insurance for the Owned Properties,
and a CLTA standard coverage leasehold policy of title insurance with respect to
the Leased Properties (the title policies shall be referred to collectively as
the "Title Policies").
22
<PAGE>
Each Title Policy shall have liability in the amount allocated to such property
by Buyer, showing title to the Owned Properties or the leasehold interest in the
Leased Properties vested of record in Buyer subject only to any matters in the
Approved Title, any other matters that Buyer has approved in writing, and the
standard printed exceptions of the Title Policies. The Title Policies shall, at
Buyer's cost, contain such special endorsements as Buyer may reasonably require,
with reinsurance or coinsurance as Buyer may designate.
(c) Closing Costs and Prorations. Seller and Buyer each shall
----------------------------
pay their own attorneys' fees. Seller shall pay the title insurance premiums
for the Title Policies, the cost of any special endorsements which Seller agrees
to provide to remove disapproved Exceptions, documentary transfer taxes on the
Deeds, one-half (1/2) of all escrow fees, and one-half (1/2) of the Hart-Scott-
Rodino filing fee. Buyer shall pay for recording the Deeds and the Memoranda of
Lease, the cost of any special endorsements which Buyer elects to obtain, one-
half (1/2) of all escrow fees, and one-half (1/2) of the Hart-Scott-Rodino
filing fee. Rents shall be prorated as of the Closing Date. Buyer shall obtain
its own insurance for the Owned Properties and the Leased Properties, and
Seller's insurance premiums shall not be prorated. At least three (3) days
prior to the Closing Date, Escrow Holder shall submit to Seller and Buyer an
estimated closing statement. In the event that Escrow is canceled without
default by either party, the cost of cancellation shall be borne equally by
Seller and Buyer. In the event of default, the defaulting party shall pay all
escrow cancellation fees.
5.8 Restoration of Yuba City Premises. Promptly after the Closing
---------------------------------
Date, Buyer shall restore Seller's Yuba City premises to "vanilla shell"
condition, with utilities capped, floor holes filled with concrete, interior
ceilings and walls patched, and the premises delivered in broom-clean condition,
all at Buyer's sole cost and expense as described in Section 1.3(d) above.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's
---------------------------------------------------
obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Buyer in writing):
6.1 Representation and Warranties. All representations and
-----------------------------
warranties of Seller contained in this Agreement, or any certificate, Schedule,
Exhibit, statement, report or other document delivered or furnished by Seller
pursuant this Agreement, shall be true, correct and complete in all material
respects as of the Closing Date as if made at and as of such date.
6.2 Covenants. Seller shall have performed and satisfied in all
---------
material respects all covenants and conditions required by this Agreement to be
performed or satisfied by Seller on or prior to the Closing Date.
6.3 Closing Documents. All of the documents set forth in Section 2.2
-----------------
shall have been duly executed and delivered to Buyer.
6.4 Material Errors. Buyer shall not have discovered any material
---------------
(i) error, misstatement or omission in any of the representations or warranties
made by Seller in this Agreement, or any certificate, schedule, exhibit
statement, report or other documents delivered or furnished by Seller pursuant
to this Agreement, or (ii) failure on the part of Seller to perform or satisfy
any covenants or conditions required to be performed or satisfied by Seller
under this Agreement.
6.5 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted or threatened prior to or at the Closing Date before any court or
other governmental body, or instituted or threatened by any public authority,
the result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement or which could have a material adverse
effect on Seller or its properties, Business or prospects.
6.6 Absence of Damage to Property. UGCC's tangible property,
-----------------------------
including the Properties, shall not have suffered any substantial (meaning
greater than $10,000 in value) damage or destruction not covered by insurance,
whether by fire or otherwise, and whether or not covered by insurance, which
could have a material adverse effect on the Business or its prospects.
6.7 Consents. Seller shall have obtained the consent or approval of
--------
each person whose consent to or approval of the transactions contemplated by
this Agreement or the other agreements to be entered into in connection with
this Agreement is required in order to consummate this Agreement and such other
agreements or to continue the operation of the Business as it is currently
conducted, except any consents the failure to obtain would not have or result in
a Material Adverse Effect. Such consents and approvals shall include, without
limitation, any consents and approvals required by applicable federal, state or
local governmental authorities.
23
<PAGE>
6.8 Close of Escrow; Title Insurance. Escrow Holder shall be in a
--------------------------------
condition to close Escrow, and Title Company shall be in a position to issue the
Title Policies, all in accordance with Section 5.6 above.
6.9 Due Diligence Review. Buyer and Buyer's Representatives shall
--------------------
have completed their due diligence review of Seller to their complete
satisfaction.
6.10 Board Approval. Buyer's board of directors shall have approved
--------------
of the terms and conditions of this Agreement and the other agreements to be
entered into in connection with this Agreement.
6.11 Approval of Documentation. The form and substance of all
--------------------------
certificates, instruments of transfer and other documents to be furnished by
Seller and its counsel under this Agreement shall be satisfactory in all
reasonable respects to Buyer and its counsel.
7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's
----------------------------------------------------
obligation to consummate this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by Seller in writing):
7.1 Representations and Warranties. All representations and
------------------------------
warranties of Buyer contained in this Agreement shall be true, correct and
complete in all material respects as of the Closing Date as if made at and as of
such date.
7.2 Covenants. Buyer shall have performed and satisfied all
---------
covenants and conditions required by this Agreement to be performed or satisfied
by it in all material respects on or prior to the Closing Date, including,
without limitation, approval by Buyer's Board of Directors of the terms and
conditions of this Agreement and the other agreements to be entered into in
connection with this Agreement.
7.3 Closing Documents. All of the documents set forth in Section 2.2
-----------------
shall have been duly executed and delivered to Seller.
7.4 Material Errors, Etc. The Company shall not have discovered any
--------------------
material (i) error, misstatement or omission in any of the representations or
warranties made by Buyer in this Agreement, or any certificate, schedule,
exhibit, statement, report or other document delivered or furnished by Buyer
pursuant to this Agreement; or (ii) failure on the part of Buyer to perform or
satisfy any covenants or conditions required to be performed or satisfied by
Buyer under this Agreement.
24
<PAGE>
7.5 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted prior to or at the Closing Date before any court or other
governmental body, or instituted or threatened by any public authority, the
result of which could prevent or make illegal the consummation of the
transactions contemplated hereunder or under the other agreements to be entered
into in connection with this Agreement, or which could have a Material Adverse
Effect on Seller or its properties, Business or prospects, or which seek to
enjoin the consummation of the transaction contemplated hereby, or which seek
damages from Seller or its officers or directors in a material amount if such
transaction is consummated.
7.6 Close of Escrow; Title Insurance. Escrow Holder shall be in a
--------------------------------
condition to close Escrow, and Title Company shall be in a position to issue the
Title Policies, all in accordance with Section 5.6 above.
7.7 Approval of Documentation. The form and substance of all
-------------------------
certificates and other documents to be delivered by Buyer and its counsel under
this Agreement shall be satisfactory in all reasonable respects to Seller and
its counsel.
7.8 Assumption of Seller's Labor Agreement. As a condition to
--------------------------------------
Closing, Buyer or an affiliate of Buyer shall expressly assume or affirm, or
indemnify, defend and hold Seller harmless from, Seller's collective bargaining
agreements identified on Schedule 3.15 insofar as they apply to the Business or
-------------
UGCC. This condition will be excused if each of the Teamster unions which are
party to the Master Labor Agreement and Cash & Carry Supplement executes a
waiver and release of Seller containing all of the following terms:
(a) that any obligations of Seller to bargain with the union over the
decision or the effects of the transactions contemplated by this Agreement have
been fully satisfied;
(b) that the union releases Seller from further bargaining and all
contractual obligations regarding the Cash & Carry Supplement;
(c) that all grievances, disputes or claims between Seller and the
Teamster unions arising under the Cash & Carry Supplement or Master Labor
Agreement (including, but not limited to, all grievances, disputes or claims
arising out of the transactions contemplated in this Agreement) have been fully
and finally resolved or waived; and
(d) that the collective bargaining agreement and the bargaining
relationship between the Teamster unions and Seller regarding the UGCC stores
terminate at Closing.
8. TERMINATION.
-----------
8.1 Termination. This Agreement may be terminated on or before the
-----------
Closing Date without liability on the part of any party exercising such right of
termination:
(a) by the mutual consent of Buyer and Seller ;
(b) by any party hereto because a condition to that party's
obligation to consummate the transactions contemplated by this Agreement has not
been satisfied or waived and the other party is not in default;
(c) by any party hereto if there has been a material
misrepresentation or breach on the part of the other party of the warranties of
such other party as set forth in this Agreement or made pursuant hereto, or if
there has been any material failure on the part of the other party to perform
its obligations or comply with the covenants under this Agreement.
8.2 Procedure and Effect of Termination. In the event of
-----------------------------------
termination, written notice thereof shall be given to the other party and this
Agreement shall terminate without further action by any of the parties hereto.
If this Agreement is terminated as provided in Sections 8.1(a) or 8.1(b), no
party hereto shall have any liability or further obligations to any other party
to this Agreement.
25
<PAGE>
8.3 Liquidated Damages. In the event a party terminates this
------------------
Agreement pursuant to Section 8.1(c), then that party, so long as such party is
not also in breach or default of any obligation, warranty or representation
hereunder, in addition to its right of termination, may seek liquidated damages
against the other party, as follows:
(a) IF THIS TRANSACTION DOES NOT CLOSE AS A CONSEQUENCE OF DEFAULT BY
BUYER, SELLER SHALL BE ENTITLED TO RECEIVE FROM BUYER THE SUM OF FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00) AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT
SELLER'S ACTUAL DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE IF BUYER
DEFAULTS, AND THAT SUCH SUM IS THE BEST ESTIMATE OF THE AMOUNT OF DAMAGES SELLER
WOULD SUFFER. THIS SUM SHALL BE THE AMOUNT THAT SELLER IS ENTITLED TO RECEIVE
AS LIQUIDATED DAMAGES AND SHALL BE SELLER'S SOLE REMEDY. SELLER SHALL HAVE NO
RIGHT, AND HEREBY WAIVES ALL RIGHT, TO AN ACTION FOR SPECIFIC PERFORMANCE OF
THIS AGREEMENT. THE PARTIES WITNESS THEIR AGREEMENT TO THIS LIQUIDATED DAMAGES
PROVISION AND THIS WAIVER OF SPECIFIC PERFORMANCE BY SEPARATELY INITIALING THIS
SECTION:
Seller: ___________ Buyer: ____________
(b) IF THIS TRANSACTION DOES NOT CLOSE AS A CONSEQUENCE OF DEFAULT BY
SELLER, BUYER SHALL BE ENTITLED TO RECEIVE FROM SELLER THE SUM OF FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00) AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT
BUYER'S ACTUAL DAMAGES WOULD BE DIFFICULT OR IMPOSSIBLE TO DETERMINE IF SELLER
DEFAULTS, AND THAT SUCH SUM IS THE BEST ESTIMATE OF THE AMOUNT OF DAMAGES BUYER
WOULD SUFFER. THIS SUM SHALL BE THE AMOUNT THAT BUYER IS ENTITLED TO RECEIVE AS
LIQUIDATED DAMAGES AND SHALL BE BUYER'S SOLE REMEDY. BUYER SHALL HAVE NO RIGHT,
AND HEREBY WAIVES ALL RIGHT, TO AN ACTION FOR SPECIFIC PERFORMANCE OF THIS
AGREEMENT. THE PARTIES WITNESS THEIR AGREEMENT TO THIS LIQUIDATED DAMAGES
PROVISION AND THIS WAIVER OF SPECIFIC PERFORMANCE BY SEPARATELY INITIALING THIS
SECTION:
Seller: ___________ Buyer: ____________
9. SURVIVAL AND INDEMNIFICATION.
----------------------------
9.1 Survival of Representations, Warranties and Covenants. For a
------------------------------------------- ---------
period commencing on the Closing Date and ending on the third anniversary
thereof, all representations, warranties and agreements made by Buyer and Seller
in this Agreement (including statements contained in any schedule, certificate,
exhibit, statement, report or other document delivered by or on behalf of any
party hereto or in connection with the transactions contemplated hereby) shall
survive the execution, delivery and performance of this Agreement and any
investigations, inspections, examinations, or audits made by or on behalf of the
parties. Nothing in this Section 9.1 shall affect the obligations and
indemnities of the parties with respect to the covenants and agreements
contained in this Agreement that are permitted or required to be performed, in
whole or in part, after the Closing Date.
9.2 Indemnification.
---------------
(a) For a period commencing on the Closing Date and ending on the
third anniversary thereof, Seller agrees to indemnify Buyer and hold Buyer
harmless against and in respect of any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Seller, (ii) any default or failure of Seller's commitments or obligations under
this Agreement, (iii) by reason of any act or omission of Seller which
constitutes a breach or default under this Agreement, (iv) any claim for a fee
or commission by any broker or finder in connection with this Agreement
resulting from Seller's actions, (v) the Excluded Liabilities, or (vi) failure
by the parties to comply with the "Bulk Sales" laws in effect in any states
applicable to this transaction; provided, however, that, notwithstanding the
foregoing, Seller's indemnity obligation with respect to the Excluded
Liabilities shall survive through that period commencing on the Closing Date and
ending on that date two years following the date that payment or performance of
the most remote obligation arising with respect to the Excluded Liabilities, by
its terms, becomes due, and provided further, that Seller shall have no
obligation to indemnify Buyer from or against any damages, claims, losses,
expenses, costs, obligations or liabilities unless and until Buyer has tendered
such claim to Buyer's insurance carrier(s), and then only to the extent that the
same is not recoverable under any policy of insurance maintained by Buyer.
Seller shall reimburse Buyer on demand for any payment made or loss suffered by
Buyer at any time after the execution of this Agreement, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide compromise or
settlement of claims, demands or actions, in respect of any damages to which the
foregoing indemnity relates.
26
<PAGE>
(b) For a period commencing on the Closing Date and ending on the
third anniversary thereof, Buyer agrees to indemnify Seller and hold Seller
harmless against and in respect of any and all damages, claims, losses,
expenses, costs, obligations and liabilities, including court costs and
reasonable attorneys' fees, which arise or result from or are incident or
related to (i) the inaccuracy of any representation or breach of any warranty of
Buyer, (ii) any default or failure of Buyer's commitments or obligations under
this Agreement, (iii) by reason of any act or omission of Buyer which
constitutes a breach or default under this Agreement, (iv) any claim for a fee
or commission by any broker or finder in connection with this Agreement
resulting from Buyer's actions, or (v) the Assumed Liabilities, provided,
however, that, notwithstanding the foregoing, Buyer's indemnity obligation with
respect to the Assumed Liabilities shall survive through that period commencing
on the Closing Date and ending on that date two years following the date that
payment or performance of the most remote obligation arising with respect to the
Assumed Liabilities, by its terms, becomes due, and provided further, that Buyer
shall have no obligation to indemnify Seller from or against any damages,
claims, losses, expenses, costs, obligations or liabilities unless and until
Seller has tendered such claim to Seller's insurance carrier(s), and then only
to the extent that the same is not recoverable under any policy of insurance
maintained by Seller. Buyer shall reimburse Seller on demand for any payment
made or loss suffered by it at any time after the execution of the Agreement,
based upon the judgment of any court of competent jurisdiction or pursuant to a
bona fide compromise or settlement of claims, demands or actions, in respect of
any damages to which the foregoing indemnity relates.
(c) The party indemnified hereunder (the "Indemnitee") shall promptly
notify the indemnifying party (the "Indemnitor") of the existence of any claim,
demand, or other matter involving liabilities to third parties to which the
Indemnitor's indemnification obligations would apply and shall give the
Indemnitor thirty (30) days (or such shorter period as required by the
contingencies of such claim, demand or other matter involving liabilities to
third parties) in which to elect to defend the same at its own expense and with
counsel of its own selection (who shall be approved by the Indemnitee, which
approval shall not be unreasonably withheld); provided that the Indemnitee shall
at all times also have the right to fully participate in the defense at its own
expense. If the Indemnitor shall, within such thirty (30) day period, fail to
defend, the Indemnitee shall have the right, but not the obligation, to
undertake the defense of, and to compromise or settle (exercising reasonable
business judgment) the claim or other matter on behalf, for the account, and at
the risk and expense of the Indemnitor. Notwithstanding the foregoing, if the
matter might have an effect on the ongoing Business or the Purchased Assets or
Buyer's relationship with customers or suppliers, Buyer shall have first right
to defend the same on the basis set forth in the preceding sentence. Except as
provided above, the Indemnitee shall not compromise or settle the claim or other
matter without the written consent of the Indemnitor, such consent not to be
unreasonably withheld. If the claim is one that cannot by its nature be
defended solely by the Indemnitor, the Indemnitee shall make available all
information and assistance that the Indemnitor may reasonably request; provided
that any associated expenses shall be paid by the Indemnitor.
9.3 Limitations Upon Indemnity Claims. Neither party (the "Liable
---------------------------------
Party") shall have any liability to the other (for indemnification or otherwise)
for any matters arising under or otherwise with respect to this Agreement or the
transactions contemplated hereby until the aggregate of all losses, claims,
damages, expenses, costs, obligations and liabilities otherwise payable by the
liable party with respect to such matters exceeds $500,000, and then only for
the amount by which the aggregate of such losses, claims, damages, expenses,
costs, obligations and liabilities exceeds $500,000. This limitation will not
apply to (a) any breach of any of the liable party's warranties or
representations of which the liable party had actual knowledge at any time prior
to the date on which such warranty or representation is made, (b) any breach of
contract with or for the benefit of a third party, or (c) any intentional breach
by the liable party of any covenant or obligation on its part to be performed
hereunder. In no event shall either Buyer or Seller have any liability for
indemnification with respect to any representation or warranty, or any covenant
or obligation to be performed and complied with hereunder, unless the indemnitee
notifies the indemnitor, on or before the expiration of the survival periods
specified in Section 9.2(a) or 9.2(b), as the case may be, of the claim,
specifying the factual basis of that claim in reasonable detail to the extent
then known by the indemnitee.
27
<PAGE>
9.4 Exclusive Remedy. Except (i) as provided in Section 8 with
----------------
respect to liquidated damages in certain circumstances therein described, and
(ii) for injunctive relief provided in Section 5.5, the rights of
indemnification set forth in this Section 9 shall be the exclusive remedy with
respect to any claim by any party against any other party with respect to any
matter that is otherwise subject to indemnification hereunder.
10. MISCELLANEOUS.
-------------
10.1 Notices. Whenever the service or the giving of any document or
-------
consent by or on behalf of any party hereto upon any other party is herein
provided for, or becomes necessary or convenient under the provisions of this
Agreement or any document related hereto, a valid and efficient service of such
document shall be effected by delivering the same in writing to such party in
person, by Federal Express or other reputable courier, by facsimile, or by
sending the same by registered or certified mail, return receipt requested, and
shall be deemed received upon personal delivery if delivered personally, by
Federal Express or other reputable courier or by facsimile, or four (4) business
days after deposit in the mail in the United States, postage prepaid, addressed
to the person to receive such notice or communication at the following address:
If to Seller: United Grocers, Inc.
6433 SE Lake Road
Portland, Oregon 97222
Attention: Mr. Charles Carlbom
Phone: (503) 833-1003
Fax: (503) 833-1008
With a copy to: Schwabe, Williamson & Wyatt, P.C.
1800 Pacwest Center - Suites 1600-1800
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Attention: Mark Long, Esq.
Phone: (503) 222-9981
Fax: (503) 796-2900
If to Buyer: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Attention: Donald G. Alvarado, Esq.
Phone: (213) 589-9726
Fax: (213) 589-0415
With a copy to: Crosby, Heafey, Roach & May
700 South Flower Street, Suite 2200
Los Angeles, California 90017-4209
Attention: Richard W. Lasater II, Esq.
Phone: (213) 896-8000
Fax: (213) 896-8080
Each of the parties shall be entitled to specify a different address
by giving notice as aforesaid.
10.2 Entire Agreement. This Agreement, and the Exhibits and Schedules
----------------
attached hereto, constitute the entire agreement between the parties hereto
pertaining to the subject matter hereof and supersede all prior agreements,
understandings, negotiations, and discussions, whether oral or written.
28
<PAGE>
10.3 Amendment and Modification. No supplement, modification, waiver
--------------------------
or termination of this Agreement shall be binding unless executed in writing by
the party to be bound. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions (whether or
not similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.4 Headings. The headings of this Agreement are included for
--------
purposes of reference and convenience only, and shall not define, construe or
limit the meaning of any provision of this Agreement.
10.5 Successors and Assigns. All of the terms, provisions and
----------------------
obligations of this Agreement shall be binding upon and enforceable by, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns. Notwithstanding the foregoing, neither this Agreement
nor any rights or obligations hereunder shall be assigned, pledged, hypothecated
or otherwise transferred by a party, in whole or in part, without the prior
written consent of the other party, except (i) by operation of law, or (ii) by
Buyer to any entity that Buyer controls (provided that such assignment shall not
relieve Buyer of its obligations hereunder, if such assignee does not perform
such obligations), or (iii) by Seller to any lender of Seller, provided that
such assignment only shall be an assignment of Seller's rights to receive
payments from Buyer (including the cash, Promissory Note and rights to indemnity
from Buyer) pursuant to this Agreement.
10.6 Governing Law; Venue. The validity, construction and
--------------------
interpretation of this Agreement shall be governed by the internal laws of the
State of Oregon applicable to contracts made and to be performed wholly within
that state.
10.7 Third Parties. Nothing in this Agreement, expressed or implied,
-------------
is intended to confer upon any person other than the parties hereto any rights
or remedies under or by reason of this Agreement.
10.8 Expenses; Attorneys' Fees. Each party shall bear the expenses
-------------------------
(including, without limitation, attorneys' fees) incurred by it in connection
with the negotiation, execution and delivery of this Agreement and the
agreements contemplated by this Agreement. In the event any party takes legal
action (including arbitration or mediation) to enforce any of the terms of this
Agreement, the party who is determined to be the prevailing party shall be
entitled to recover its reasonable expenses, including attorneys' fees for
pretrial investigation, at trial, and on appeal, incurred in such action.
10.9 Arbitration; Mediation. Any dispute, claim or controversy
----------------------
concerning, arising out of, or relating to this Agreement (including, without
limitation, any such dispute, claim or controversy concerning, arising out of,
or relating to the making, performance or interpretation hereof) shall first be
mediated by the parties. If the dispute, claim or controversy is not settled by
way of mediation, the parties shall submit the same to binding arbitration in
Portland, Oregon, in accordance with ORS 36.300-36.365, and judgment or decree
on the arbitration award or the decision of the arbitrator(s) may be entered in
any court of competent jurisdiction. THE PARTIES UNDERSTAND, ACKNOWLEDGE AND
AGREE THAT THEY ARE HEREBY WAIVING THEIR RESPECTIVE RIGHTS TO A JURY TRIAL BY
AGREEING TO SUBMIT ANY AND ALL DISPUTES TO FINAL AND BINDING ARBITRATION.
29
<PAGE>
10.10 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which, together, shall
constitute one and the same instrument.
10.11 Severable Provisions. If any of the provisions of this
--------------------
Agreement are determined to be illegal or otherwise unenforceable, in whole or
in part, the remaining provisions, and any partially unenforceable provisions to
be the extent enforceable, shall nevertheless be binding and enforceable. For
the purpose of determining the scope of the covenants set forth in Section
5.5(e)(ii) above, each of the subsections thereof shall be considered a separate
covenant such that if the geographic scope of any such subsections shall be
determined by a court of competent jurisdiction to be excessive and invalid,
such subsections shall be severed and the remaining subsections shall be deemed
enforceable and remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UNITED GROCERS, INC., an
Oregon business corporation
("Seller")
By: /s/ Charles S. Carlbom
-----------------------
Its President
SMART & FINAL INC.,
a Delaware corporation
("Buyer")
By: /s/ Robert J. Emmons
---------------------
Its President
By: /s/ Martin A. Lynch
--------------------
Its Vice President
30
<PAGE>
EXHIBITS
--------
A - License Agreement
B - Promissory Note
C - Bill of Sale
D - Assignment and Assumption of Leases
E - Bargain and Sale Deed
F - Assignment and Assumption of Rights, Contracts, Warranties and
Documents
G - Landlord's Consent and Estoppel Certificate
H - Lender's Consent
31
<PAGE>
SCHEDULES
---------
Schedule No. Description
- ------------ -----------
1.1(b) Accounts Receivable; Bad Debt Reserves
1.1(d) Real Property Leases
1.1(e) Owned Properties
1.1(h) Trade Names and Trademarks
1.1(i) Contracts, Agreements, Orders, Leases, Licenses and
Arrangements
1.2(k) Excluded Assets
3.5 Trial Balance Sheet as of May 1, 1998
3.6 Material or Significant Changes in Financial Position
3.9 Prepaid Items, Accounts Payable and Accrued Expenses
3.11 Employees
3.12(d) Service Contracts
3.13A List of Tangible Personal Property
3.13B Personal Property Leases
3.14 Intangible Property
3.15 Other Agreements
3.17 Litigation Affecting Seller
3.19 Licenses and Permits
3.20 Employee Benefit Plans
4.5 Litigation Affecting Buyer
32
<PAGE>
THE CITADEL OFFICE LEASE
between
COMMERCE CITADEL DEVELOPMENT AUTHORITY
Landlord
and
SMART & FINAL STORES CORPORATION
Tenant
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1. PREMISES....................................................................................... 1
1.1 Lease of Premises........................................................................ 1
1.2 Rentable Area............................................................................ 1
1.3 Verification of Rentable Area and Useable Area........................................... 2
2. TERM........................................................................................... 2
2.1 Effective Date........................................................................... 2
2.2 Term..................................................................................... 2
2.3 Condition of Premises.................................................................... 2
2.4 Delivery and Approval of Working Drawings................................................ 3
2.5 Delivery of Permits...................................................................... 3
2.6 Delivery of Premises..................................................................... 4
2.7 Commencement Date........................................................................ 4
2.8 Notice of Commencement Date.............................................................. 4
2.9 Landlord's Contingencies................................................................. 4
(a) Rent Abatement.................................................................... 5
(b) Reimbursement of Costs............................................................ 5
2.10 Tenant's Right to Terminate............................................................. 5
3. RENT........................................................................................... 6
3.1 Payment of Base Rent..................................................................... 6
3.2 Other Assessments........................................................................ 6
3.3 Definition of Rent....................................................................... 6
3.4 Late Charge and Interest................................................................. 6
3.5 Acceleration of Base Rent Payments....................................................... 7
3.6 Disputes as to Payments of Rent.......................................................... 7
3.7 Rent Abatement........................................................................... 7
(a) Abated Rent During Construction Period............................................ 7
(b) Abatement Due to Delays in Delivery of Premises................................... 7
4. ADJUSTMENTS TO RENT............................................................................ 8
4.1 Cost of Living Adjustment - Base Rent Increase........................................... 8
4.2 Operating Expense Adjustment............................................................. 8
4.3 Procedure for Payment of Operating Expense Adjustment.................................... 9
4.4 Tenant's Pro Rata Share.................................................................. 10
4.5 Operating Expenses....................................................................... 10
4.6 Exclusions from Operating Expenses....................................................... 12
4.7 Limited Exclusion from Taxes of "Proposition 13" Increases............................... 16
4.8 "Grossing Up" Operating Expenses......................................................... 16
</TABLE>
1
<PAGE>
<TABLE>
<C> <S> <C>
4.9 Review of Operating Expenses............................................................ 17
4.10 Real Property Tax Exclusions............................................................ 18
5. ARBITRATION.................................................................................... 19
5.1 General Submittals to Arbitration........................................................ 19
5.2 JAMS..................................................................................... 19
5.3 Pre-Decision Actions..................................................................... 20
5.4 Arbitrator's Decision.................................................................... 20
6. USE............................................................................................ 20
6.1 Permitted Use............................................................................ 20
6.2 Restriction on Use....................................................................... 21
6.3 Compliance With Law...................................................................... 21
(a) Legal Requirements................................................................ 21
(b) Compliance by Landlord............................................................ 21
(c) Compliance by Tenant.............................................................. 22
(d) Compliance by Other Tenants....................................................... 22
6.4 Hazardous Material....................................................................... 22
(a) Tenant's Representations.......................................................... 22
(b) Tenant's Indemnification of Landlord.............................................. 23
(c) Landlord's Representations........................................................ 23
(d) Landlord's Indemnification of Tenant.............................................. 24
(e) Definition of Hazardous Material.................................................. 24
6.5 Tenant's Access to Premises.............................................................. 25
7. ALTERATIONS AND IMPROVEMENTS................................................................... 25
7.1 Initial Tenant Improvements.............................................................. 25
7.2 Tenant's Rights to Make Alterations...................................................... 25
7.3 Installation of Alterations.............................................................. 26
7.4 Tenant Improvements...................................................................... 26
7.5 Tenant's Extra Improvements.............................................................. 26
7.6 Alterations by Landlord.................................................................. 27
8. TENANT'S REPAIRS............................................................................... 27
9. NO LIENS....................................................................................... 28
10. LANDLORD'S REPAIRS............................................................................. 28
10.1 Scope of Landlord's Repairs............................................................. 28
10.2 Landlord's Right of Entry to Make Repairs............................................... 29
10.3 Tenant's Right to Perform Landlord's Maintenance Obligations............................ 29
(a) General Action.................................................................... 29
(b) Emergency Action.................................................................. 29
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(c) Restrictions on Action............................................................ 30
(d) Reimbursement for Action.......................................................... 30
11. BUILDING SERVICES.............................................................................. 30
11.1 Standard Building Services.............................................................. 30
11.2 Building HVAC System.................................................................... 31
11.3 After-Hours HVAC........................................................................ 31
11.4 Landlord's Right To Cease Providing Services............................................ 31
11.5 Tenant's Rights Upon Interruption of Services........................................... 32
(a) Tenant's Abatement Rights......................................................... 32
(b) Tenant's Termination Rights....................................................... 33
11.6 Tenant's Right to Manage the Building................................................... 33
12. ASSIGNMENT AND SUBLETTING...................................................................... 34
12.1 Right to Assign or Sublease............................................................. 34
12.2 Procedure For Assignment or Sublease.................................................... 34
12.3 Grounds for Landlord's Refusal.......................................................... 34
12.4 Conditions Regarding Consent to Sublease and Assignment................................. 35
12.5 Duration of Landlord's Consent.......................................................... 36
12.6 Assignment to Affiliates................................................................ 36
12.7 Landlord's Right to Assign.............................................................. 37
12.8 Release of Tenant....................................................................... 37
12.9 Landlord's Recognition of Transfers Upon Lease Termination.............................. 37
13. SUBSTITUTED PREMISES........................................................................... 38
14. INDEMNIFICATION; INSURANCE..................................................................... 38
14.1 Tenant's Indemnification of Landlord.................................................... 38
14.2 Landlord's Indemnification of Tenant.................................................... 39
14.3 Tenant's Insurance...................................................................... 39
14.4 Landlord's Insurance.................................................................... 40
14.5 Insurance Policy Requirements........................................................... 41
14.6 Assumption of Risk...................................................................... 41
14.7 Allocation of Insured Risks/Subrogation................................................. 41
15. DAMAGE OR DESTRUCTION.......................................................................... 42
15.1 Loss Covered By Insurance............................................................... 42
15.2 Loss Not Covered By Insurance........................................................... 43
15.3 Loss Caused by Tenant or Tenant's Employees............................................. 43
15.4 Destruction During Final 18 Months...................................................... 44
15.5 Destruction of Tenant's Personal Property, Tenant Improvements or Tenant's Extra
Improvements............................................................................ 44
15.6 Exclusive Remedy........................................................................ 44
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16. EMINENT DOMAIN................................................................................. 44
16.1 Permanent Taking - When Lease Can Be Terminated......................................... 44
16.2 Permanent Taking - When Lease Cannot Be Terminated...................................... 45
16.3 Temporary Taking........................................................................ 45
16.4 Exclusive Remedy........................................................................ 45
16.5 Release Upon Termination................................................................ 45
17. DEFAULTS....................................................................................... 45
17.1 Default by Tenant....................................................................... 45
17.2 Default by Landlord..................................................................... 46
18. LANDLORD'S REMEDIES AND RIGHTS................................................................. 46
18.1 Termination of Lease.................................................................... 46
18.2 Right of Re-Entry....................................................................... 47
18.3 Waiver of Redemption.................................................................... 47
18.4 Right to Perform........................................................................ 47
18.5 Civil Code ' 1951.4 Remedy.............................................................. 47
18.6 Remedies Not Exclusive.................................................................. 48
19. ATTORNEYS' FEES................................................................................ 48
20. SUBORDINATION.................................................................................. 48
20.1 Subordination of Lease.................................................................. 48
20.2 Attornment by Tenant.................................................................... 48
20.3 Existing Mortgage....................................................................... 49
21. RULES AND REGULATIONS.......................................................................... 49
22. HOLDING OVER................................................................................... 49
22.1 Surrender of Possession................................................................. 49
22.2 Payment of Money After Termination...................................................... 50
23. INSPECTIONS AND ACCESS......................................................................... 50
24. NAME OF BUILDING AND PROJECT................................................................... 50
25. SURRENDER OF LEASE............................................................................. 51
26. WAIVER......................................................................................... 51
27. SALE BY LANDLORD............................................................................... 51
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28. NO LIGHT AND AIR EASEMENT...................................................................... 51
29. FORCE MAJEURE.................................................................................. 52
30. ESTOPPEL CERTIFICATES.......................................................................... 52
31. PARKING FACILITIES............................................................................. 52
31.1 Parking Attributable to the Building.................................................... 52
31.2 Parking Attributable to Expansion Space................................................. 53
32. SECURITY SERVICES.............................................................................. 53
32.1 Landlord's Right to Furnish Security Services........................................... 53
32.2 Tenant's Right to Install Security System............................................... 53
33. NOTICES........................................................................................ 53
34. OPTIONS TO EXTEND LEASE TERM................................................................... 54
34.1 Options to Extend....................................................................... 54
34.2 Base Rent During Option Periods......................................................... 54
34.3 Determination of Base Rent by Arbitration............................................... 54
35. OPTIONS TO LEASE ADDITIONAL SPACE.............................................................. 55
35.1 Space in 400 Citadel Drive (Option A)................................................... 55
35.2 Space in 500 Citadel Drive (Option B)................................................... 55
36. RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE............................................... 56
36.1 Right of First Refusal.................................................................. 56
36.2 Method of Offer and Exercise............................................................ 56
36.3 Effect of Exercise...................................................................... 56
36.4 Superior Rights of Existing Tenants..................................................... 57
37. FIRST RIGHT TO NEGOTIATE FOR PURCHASE OF BUILDING OR BUILDINGS................................. 57
38. TENANT'S RIGHT TO TERMINATE THE LEASE.......................................................... 57
39. TENANT'S RIGHT TO TERMINATE LEASE OF FULL FLOOR OR OPTION A SPACE.............................. 58
40. SIGNAGE........................................................................................ 58
40.1 Building-Top Signage.................................................................... 58
40.2 Monument Signage........................................................................ 58
40.3 Eyebrow Signage......................................................................... 59
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40.4 Interior Signage........................................................................ 59
40.5 Exterior Directional Signage............................................................ 59
40.6 Landlord's Approval..................................................................... 59
40.7 Compliance with Law..................................................................... 59
40.8 Maintenance and Repair of Exterior Signs................................................ 59
40.9 Removal of Signs........................................................................ 60
40.10 Transferability of Signage Rights....................................................... 60
41. USE OF APPURTENANT BUILDING COMPONENTS......................................................... 60
42. BROKERAGE COMMISSIONS.......................................................................... 60
43. ANTENNA........................................................................................ 61
43.1 License to Install and Operate Antenna.................................................. 61
43.2 Permitted Use of Antenna................................................................ 61
43.3 Access.................................................................................. 63
43.4 License Not Assignable Separate from Lease.............................................. 63
44. HELIPORT....................................................................................... 63
45. TITLE INSURANCE................................................................................ 63
46. FINANCIAL INCENTIVES TO TENANT................................................................. 63
46.1 Loan.................................................................................... 63
46.2 Fee Waiver/Reimbursement................................................................ 64
47. TENANT'S FINANCIAL INFORMATION................................................................. 64
48. MISCELLANEOUS.................................................................................. 64
48.1 Authorization to Sign Lease............................................................. 64
48.2 Entire Agreement........................................................................ 65
48.3 Severability............................................................................ 65
48.4 Covenants and Conditions................................................................ 65
48.5 Gender and Headings..................................................................... 65
48.6 Successors and Assigns.................................................................. 65
48.7 Governing Law........................................................................... 65
48.8 Exhibits................................................................................ 65
48.9 Modification For Lender................................................................. 65
48.10 Transportation System Management Program................................................ 65
48.11 Quiet Enjoyment......................................................................... 66
48.12 Memorandum of LeasE..................................................................... 66
48.13 Time is of the Essence.................................................................. 66
48.14 Cumulative Remedies..................................................................... 66
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48.15 Nondiscrimination and Nonsegregation.......................................................... 66
48.16 Survival...................................................................................... 66
48.17 Confidentiality............................................................................... 66
48.18 Reasonableness and Good Faith................................................................. 67
48.19 Minimization of Interference.................................................................. 67
48.20 Waiver of Consequential Damages............................................................... 67
EXHIBIT "A" SITE PLAN OF PROJECT A-1
EXHIBIT "B" LEGAL DESCRIPTION OF PROJECT B-1
EXHIBIT "C" FLOOR PLANS OF PREMISES C-1
EXHIBIT "D" CONSTRUCTION AGREEMENT D-1
EXHIBIT "E" NOTICE OF COMMENCEMENT DATE E-1
EXHIBIT "F" RULES AND REGULATIONS F-1
EXHIBIT "G" STANDARDS FOR UTILITIES AND SERVICES G-1
EXHIBIT "H" HVAC SPECIFICATIONS H-1
EXHIBIT "I" SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT I-1
EXHIBIT "J" ESTOPPEL CERTIFICATE J-1
EXHIBIT "K" PARKING FACILITIES K-1
EXHIBIT "L" LOCATION OF PARKING SPACES L-1
EXHIBIT "M" MEMORANDUM OF LEASE M-1
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LEASE SUMMARY
This LEASE AGREEMENT (the "Lease"), dated this _____ day of April, 1998, is
made and entered into by and between the Commerce Citadel Development Authority,
a California corporation ("Landlord"), and Smart & Final Stores Corporation, a
California corporation ("Tenant").
1. Project Name and Address: The Citadel, 5675 E. Telegraph Road, Commerce,
California 90040.
2. Premises: All four (4) floors of Building E, located at 600 Citadel Drive,
Commerce, California 90040 (the "Building"), as shown on Exhibit "A".
Rentable Area of the Premises: 81,382 square feet.
Rentable Area of the Building: 81,382 square feet.
3. Initial Base Rent: $45,573.92 per month, subject to Paragraph 4.1 below,
based on a rate of $0.56/rentable square foot (NNN) per month.
4. Tenant's Pro Rata Share of the Building: 100%.
5. Minimum periodic CPI increase: 14% every 5 years ("Minimum Increase"), but
not to exceed 18% in such 5-year period.
6. Estimated Commencement Date: October 1, 1998.
7. Term: Fifteen (15) years.
8. Security Deposit: None.
9. Guarantor(s): None.
10. Broker(s): Trammell Crow Company (Landlord's broker); Investment
Development Services, Inc., and CB Commercial Real Estate (Tenant's
brokers).
11. Use of Premises: General office purposes, training and educational
facilities, and any other legally permitted uses compatible with office
buildings comparable to the Building.
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12. Address for Payments and Notices:
Landlord:
--------
Commerce Citadel Development Authority
City Hall
2535 Commerce Way
Commerce, California 90040
Attn: Justin McCarthy
Director of Community Development
Tenant:
------
Smart & Final Stores Corporation
524 Chapala Street
Santa Barbara, California 93101
Attention: Property Manager
with copies to:
--------------
Smart & Final Stores Corporation
4700 South Boyle Avenue
Los Angeles, California 90058
Attn: Legal Department
and:
---
Allen, Matkins, Leck, Gamble & Mallory LLP
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067-6050
Attn: Anton N. Natsis, Esq.
13. Parking Charge: $0.00 per month per automobile.
Maximum number of automobiles: 486.
Parking ratio: six (6) cars per one thousand (1,000) rentable square feet
of the Premises.
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LEASE AGREEMENT
1. PREMISES.
1.1 Lease of Premises. Landlord hereby leases to Tenant, and Tenant
-----------------
hereby leases from Landlord, the premises referred to in Item 2 of the Lease
Summary (the "Premises"). The Premises are located within the Building
identified in Item 2 of the Lease Summary. The Building is part of a mixed use
retail, office and hotel project commonly known as "The Citadel" (the
"Project"). The Project is located on a parcel of real property located in the
City of Commerce, County of Los Angeles, State of California (the "Land"). The
site plan of the Project, showing the location of the Building, is set forth on
Exhibit "A". The legal description of the Land is set forth on Exhibit "B".
Floor plans of the Premises (designating the "Occupied Portion" and the
"Unoccupied Portion" referenced in Paragraph 1.2 below) are set forth on Exhibit
"C". The Land is owned by the Commerce Community Development Commission, a
public body corporate and politic of the State of California (the "Commission").
Landlord is the lessee of those portions of the Land identified as Parcels A, B
and C on Exhibit "B" hereto, and is the owner of the outlet mall, office
buildings and other improvements located thereon, pursuant to Landlord's
assumption of the ground lessee's interest under three separate ground leases
each dated November 17, 1989, entered into between the Redevelopment Agency of
the City of Commerce (the Commission's predecessor in interest), as lessor, and
Crow-Staley-Commerce #1 Limited Partnership, as lessee (collectively, the
"Retail/Office Ground Leases"). The Commission is the lessee of that portion of
the Land identified as Parcel D on Exhibit "B" hereto, and is the owner of the
hotel and other improvements located thereon, pursuant to the Commission's
assumption of the ground lessee's interest under a fourth ground lease, also
dated November 17, 1989, entered into between the Redevelopment Agency of the
City of Commerce, as lessor, and Crow-Staley-Commerce #1 Limited Partnership, as
lessee (the "Hotel Ground Lease"); notwithstanding the fact that the Commission
holds both the lessor's and lessee's interests under the Hotel Ground Lease,
those interests have not merged and the Hotel Ground Lease continues in full
force and effect.
1.2 Rentable Area. The Rentable Area of the Premises and the Rentable
-------------
Area of the Building are as specified in Item 2 of the Lease Summary. A portion
of the fourth floor of the Premises containing approximately fourteen thousand
eight hundred thirty (14,830) square feet of Rentable Area (the "Occupied
Portion") is currently occupied by an existing tenant which Landlord is working
to relocate to another portion of the Project. The remaining portion of the
Premises, containing approximately sixty-six thousand five hundred fifty-two
(66,562) square feet of Rentable Area (the "Unoccupied Portion) is currently
unoccupied and available for immediate delivery to Tenant. Landlord and Tenant
hereby stipulate that the Occupied Portion and Unoccupied Portion of the
Premises contain the number of square feet of Rentable Area specified above. If
it becomes necessary to determine the Rentable Area of other portions of the
Premises now or hereafter leased or released by Tenant under this Lease
(including without limitation: the size of the Option A Space, Option B Space or
Right of First Refusal Space leased by Tenant pursuant to Paragraphs 35 and 36
below; the size of full floors or option space released pursuant to Paragraph 39
below, or; the size of any part of
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the Occupied Portion delivered to Tenant if possession of the Occupied Portion
is delivered in stages rather than all at once), then all such Rentable Area
measurements shall be made in accordance with the American National Standard
Institute Publication ANSI 265.1-1986, commonly known as the "BOMA standards".
1.3 Verification of Rentable Area and Useable Area. To the extent that
----------------------------------------------
the size of the Premises is increased or reduced pursuant to the terms of this
Lease, the Rentable Area of the increase or reduction shall be determined in
accordance with the BOMA standards and this Paragraph 1.3. Tenant's architect
shall calculate and certify in writing to Landlord and Tenant the number of
rentable square feet and useable square feet of such increased or increased
portion of the Premises. In the case of increases, such certification shall be
delivered to Landlord within thirty (30) days after Landlord's delivery of the
increased portion. In the case of reductions in size, such certification shall
be delivered to Landlord within thirty (30) days after the effective date of the
reduction. If Landlord disagrees with Tenant's architect's determination of the
rentable square feet and/or useable square feet, Landlord shall so notify Tenant
in writing within thirty (30) days after Landlord's receipt of said written
certification. The parties shall diligently attempt in good faith to resolve
the disagreement within sixty (60) days after the date of Landlord's disapproval
notice. If the parties are unable to resolve their dispute within that time,
then the dispute shall be resolved by arbitration in accordance with Paragraph 5
of this Lease. Upon the agreement of the parties (or the arbitrator's issuance
of its decision), the parties will execute an amendment to this Lease specifying
the re-determined amount of rentable square footage and useable square footage
within the Premises.
2. TERM.
2.1 Effective Date. The Lease will become effective upon execution by
--------------
Landlord and Tenant and delivery to Tenant of a fully signed original
counterpart of this Lease.
2.2 Term. The term of the Lease shall be for the number of years
----
specified in Item 7 of the Lease Summary (the "Term") beginning on the
Commencement Date (as defined in Paragraph 2.3 below) and expiring on the last
day of the month in which the fifteenth (15th) anniversary of the Commencement
Date occurs (the "Lease Expiration Date"), unless this Lease is sooner
terminated as hereinafter provided. For purposes of this Lease, the term "Lease
Year" shall mean each consecutive twelve (12) month period during the Term;
provided that the last Lease Year shall end on the Lease Expiration Date.
2.3 Condition of Premises. Landlord shall deliver the Premises to Tenant
---------------------
in its existing "as-is" condition, subject to the provisions of this Section
2.3. At the time of such delivery, the Premises shall consist of the following
items (sometimes collectively referred to herein as the "Base Building"): (i)
the base, shell and core of the Building; (ii) all base building systems,
including without limitation heating, ventilation and air conditioning ("HVAC"),
mechanical (including without limitation elevators), electrical, plumbing and
telephone (collectively, the "Building Systems"); (iii) the curtain wall; (iv)
the structural components of the Building; and the exterior roof of the
Building. Notwithstanding the "as-is" nature of Landlord's delivery of the Base
Building, Landlord agrees that it shall promptly improve
2
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the Base Building, at Landlord's expense, as necessary to remedy any defects
which are disclosed to Landlord by Tenant in a written notice delivered not
later than thirty (30) days after the earlier of (a) the date on which Tenant
discovers the defect, or (b) Landlord's delivery to Tenant of the portion of the
Premises in which the defect is located. Further notwithstanding the "as-is"
nature of Landlord's delivery of the Base Building, Landlord agrees to make any
improvements to the Base Building as and when required by the Construction
Agreement attached hereto as Exhibit "D". Moreover, Landlord covenants that upon
Landlord's delivery to Tenant of the Base Building, each component thereof
identified above shall be in good working order and shall comply with all
applicable laws, and Landlord shall at its expense make any improvements
necessary to cause said covenant to be true (regardless of the date on which
Tenant notifies Landlord of the need for such improvement). Tenant acknowledges
that portions of the Premises are now or have previously been occupied by other
tenants, and that upon delivery to Tenant the Premises may, in Landlord's
discretion, include some or all tenant improvements previously installed in
connection with such occupancy.
2.4 Delivery and Approval of Working Drawings. Tenant shall endeavor to
-----------------------------------------
deliver to Landlord the "Construction Drawings" and "Final Working Drawings" (as
defined in the Construction Agreement attached hereto as Exhibit "D"), in form
and content acceptable to Landlord, by no later than May 1, 1998. Tenant
acknowledges that its failure to do so will delay Landlord's application for the
"Permits" identified in Paragraph 2.5 below. Landlord shall provide Tenant and
its representatives with access to the Premises for the purpose of allowing
Tenant to prepare the Construction Drawings and Final Working Drawings. To the
extent that Tenant or its representatives request access to portions of the
Premises still occupied by another tenant, Landlord shall provide such access
after notice to the tenant in occupancy as Landlord deems sufficient, and at
such times as are mutually acceptable to Landlord, Tenant and the tenant in
occupancy. As used herein, the term "Drawing Delivery Date" shall mean the date
on which Tenant completes its obligations under this Paragraph 2.4.
2.5 Delivery of Permits. Upon Tenant's performance of its obligations
-------------------
under Paragraph 2.4 above, Landlord shall apply to the City of Commerce for the
issuance of construction permits ("Permits") necessary for the construction of
the improvements contemplated by the "Approved Working Drawings" (as that term
is defined in the above referenced Construction Agreement). Landlord shall use
its best efforts to deliver the Permits by no later than thirty (30) days after
the Drawing Delivery Date (the "Permit Delivery Deadline"). The Permit Delivery
Deadline shall be extended by one (1) day for each "day of delay" in the
issuance of the permits. As used in this Paragraph, the term "day of delay"
shall mean the number of days between the Drawing Delivery Date and the day on
which the Permits are issued, less the sum of the following: (i) thirty days;
plus (ii) the number of days in which the City of Commerce's processing of the
Permit applications is delayed by the acts or omissions of Tenant (but only to
the extent that Landlord has given Tenant at least one (1) business day's prior
written notice of the action or omission which Landlord or the City claims
constitutes the Tenant delay), including without limitation Tenant's failure to
pay any necessary permit fees (subject to any fee waiver available pursuant to
Paragraph 46.2 below); plus (iii) the number of days in which the processing of
the permit applications is delayed by a force majeure event described in
Paragraph 29 below.
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2.6 Delivery of Premises. Landlord shall deliver the Unoccupied Portion
--------------------
of the Premises to Tenant by no later than the Permit Delivery Deadline.
Landlord shall use its best efforts to deliver the Occupied Portion of the
Premises to Tenant by the latter of (a) June 15, 1998 or (b) forty-five (45)
days after the Drawing Delivery Date. All portions of the Premises delivered by
Landlord to Tenant shall be delivered unencumbered by leases to other tenants.
To the extent that any portion of the Premises is currently occupied by other
tenants, Landlord shall bear the full costs, if any, of relocating and/or
otherwise removing those other tenants from the Premises. Tenant's entry,
possession and use of the Premises from the delivery date until the day prior to
the Commencement Date shall be subject to all of the terms and conditions of
this Lease, including without limitation all insurance and indemnification
provisions, except that no Base Rent or Operating Expenses shall be payable by
Tenant for the period from said delivery date until the Commencement Date.
2.7 Commencement Date. The Term shall commence on the earlier to occur of
-----------------
(a) the date which is four (4) months after the date on which Landlord has
delivered to Tenant the Permits and the Unoccupied Portion of the Premises in
the condition required by Paragraph 2.3 above, or (b) November 1, 1998 (the
"Commencement Date").
2.8 Notice of Commencement Date. Landlord shall send Tenant notice of the
---------------------------
occurrence of the Commencement Date in substantially the form as in the attached
Exhibit "E", which notice Tenant shall acknowledge by executing a copy of the
notice and returning it immediately to Landlord. If Tenant fails to sign and
return the notice to Landlord within thirty (30) days of receipt (with any
changes as are necessary to make the notice factually correct), the notice as
sent by Landlord shall be deemed to have correctly set forth the Commencement
Date.
2.9 Landlord's Contingencies. Until Landlord causes Nippon Credit Bank
------------------------
("Nippon") to enter into a Subordination, Non-Disturbance and Attornment
Agreement as contemplated by Paragraph 20.3 below ("Non-Disturbance Agreement")
relative to the deed of trust encumbering portions of the Project in favor of
Nippon (the "Nippon Trust Deed") or until Landlord causes Nippon to request the
reconveyance of the Nippon Trust Deed in connection with Landlord's payment to
Nippon of amounts secured thereby, this Lease and Tenant's interest in the
Premises hereunder is subject to termination upon foreclosure under the Nippon
Trust Deed. Furthermore, Landlord cannot deliver the Occupied Portion of the
Premises to Tenant as required hereunder until Landlord enters into a written
relocation agreement ("Relocation Agreement") with the current tenant of the
Occupied Portion of the Premises, Consumer Credit Counselors of Los Angeles
("CCCLA"). Nippon's execution of the Non-Disturbance Agreement or the
reconveyance of the Nippon Trust Deed, and CCCLA's execution of the Relocation
Agreement, are collectively referred to herein as the "Landlord's
Contingencies." Landlord acknowledges that (a) its failure to cause the
Landlord's Contingencies to be satisfied by May 15, 1998 will likely delay the
Commencement Date of this Lease, (b) that because of such delay Tenant will
remain in the existing premises owned by Tenant located in the City of Vernon
("Vernon Property") beyond the scheduled date of Tenant's sale of the Vernon
Property, and (c) that Tenant will be obligated to pay certain penalties
("Holdover Penalties") to the purchaser of the Vernon Property due to Tenant's
failure to vacate the Vernon Property in a timely manner. Accordingly, Landlord
agrees that if it fails to cause the Landlord's Contingencies to be satisfied by
the dates specified in Paragraph's
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2.9(a) and 2.9(b) below, then Tenant shall have the following remedies:
(a) Rent Abatement. If the Landlord's Contingencies have not been
--------------
satisfied by May 15, 1998, then Tenant shall be entitled to receive one (1) day
of abated Rent for each day between May 15, 1998 and the day that the Landlord's
Contingencies are satisfied, but only to the extent that such delay actually
delays Tenant's occupancy of the Premises. The amount of such abated Rent shall
be reduced by the amount of any Holdover Penalties which are waived by the
purchaser of the Vernon Property. Furthermore, the May 15, 1998 date referenced
in this Paragraph shall be extended by one day for each day which the purchaser
of the Vernon Property agrees to postpone (without penalty to Tenant) the
deadline for Tenant's departure from the Vernon Property. Tenant agrees to
negotiate in good faith with the purchaser of the Vernon Property to postpone
said departure date and to waive some or all of the Holdover Penalties. In no
event shall the amount of Rent abatement hereunder exceed Ninety Thousand
Dollars ($90,000.00).
(b) Reimbursement of Costs. If the Landlord's Contingencies have not
----------------------
been satisfied by June 15, 1998, then Tenant may terminate the Lease pursuant to
Paragraphs 2.10(iii), 2.10(iv) or 2.11(v) below. If Tenant so terminates this
Lease, Landlord shall reimburse Tenant up to Three Hundred Thousand Dollars
($300,000.00) for its space planning costs, negotiation costs and related costs
incurred in connection with this Lease. Such reimbursement shall be in the form
of waivers of permit fees (in an amount not to exceed Two Hundred Thousand
Dollars ($200,000.00)) and reimbursement of other relocation expenses (in an
amount not to exceed One Hundred Thousand Dollars ($100,000.00)) in connection
with Tenant's relocation of its distribution facility to the City of Commerce,
notwithstanding Tenant's location of its corporate offices outside the City of
Commerce.
2.10 Tenant's Right to Terminate. Tenant shall have the right to terminate
---------------------------
this Lease, without penalty, upon thirty (30) days' written notice to Landlord
in any of the following situations: (i) if Landlord has not delivered the entire
Premises and the Permits to Tenant by August 31, 1998; (ii) if at any time
thereafter it can be determined that (due to delays caused by Landlord) Tenant
will be unable to commence business operations upon the entire Premises by
December 31, 1998; (iii) if by June 15, 1998 Nippon has not executed the Non-
Disturbance Agreement or caused the reconveyance of the Nippon Trust Deed; (iv)
if Nippon commences foreclosure proceedings under the Nippon Trust Deed (but
such termination notice shall not be effective if the lien thereof is removed or
the proceedings have been discontinued, withdrawn or cancelled within 90 days
after the commencement of foreclosure proceedings); or (v) if CCCLA has not
entered into the Relocation Agreement by June 15, 1998. Any termination notice
delivered pursuant to item (i) above may be delivered at any time after August
31, 1998 but prior to Landlord's delivery of the entire Premises and Permits.
Any termination notice delivered pursuant to item (ii) above may be delivered at
any time after August 31, 1998 but prior to Tenant's commencement of business
operations upon the entire Premises. Any termination notice delivered pursuant
to item (iii) above may be delivered at any time after June 15, 1998 but prior
to the execution of the Non-Disturbance Agreement or reconveyance of the Nippon
Trust Deed. Any termination notice delivered pursuant to item (iv) above may be
delivered at any time after Nippon commences foreclosure proceedings but prior
to the removal of the subject lien or the discontinuation, withdrawal or other
cancellation of those proceedings by Nippon or its trustee. Any
5
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termination notice delivered pursuant to item (v) above may be delivered at any
time after June 15, 1998 but prior to CCCLA's execution of the Relocation
Agreement. Said termination shall, at Tenant's option (as specified in the
termination notice), be effective either with respect to the entire Premises or
only such portions thereof which have not been delivered as of the date of the
notice or will not be useable by December 31, 1998.
3. RENT.
3.1 Payment of Base Rent. Tenant agrees to pay Landlord as monthly rent
--------------------
for the Premises the sum specified in Item 3 of the Lease Summary as computed
and adjusted from time to time pursuant to Paragraph 4.1 below (the "Base
Rent"), in advance, on or before the first day of each calendar month during the
Term. In addition to the payment of Base Rent, Tenant shall also pay an
Operating Expense Adjustment (as defined in Paragraph 4.2 below) computed
pursuant to Paragraph 4.2 below. On the Commencement Date, Tenant shall pay to
Landlord the prorated Base Rent attributable to the month in which the
Commencement Date occurs if the Commencement Date occurs on a date other than
the first day of a calendar month. Tenant shall not prepay, and Landlord shall
not accept prepayments of, Base Rent in a combined sum exceeding the amount of
Base Rent for three (3) months.
3.2 Other Assessments. In addition to the Base Rent, Tenant shall pay,
-----------------
prior to delinquency, provided Tenant is billed for the same, all personal
property taxes, charges, rates, duties and license fees assessed against or
levied upon Tenant's occupancy of the Premises, or upon any trade fixtures,
furnishings, equipment or other personal property contained in the Premises
(collectively, "Tenant's Personal Property").
3.3 Definition of Rent. Base Rent Operating Expense Adjustment, Taxes and
------------------
all other payments, disbursements or reimbursements that Tenant is obligated to
pay under the Lease (collectively, the "Rent") constitute "rent" within the
meaning of California Civil Code Section 1951(a). Any Rent payable to Landlord
by Tenant for any fractional month shall be prorated based on the actual number
of days in that month. All payments owed by Tenant under the Lease shall be
paid to Landlord in lawful money of the United States of America at the location
specified in Item 12 of the Lease Summary. All payments of Rent shall be paid
without deduction, setoff or counterclaim, except as otherwise provided in this
Lease.
3.4 Late Charge and Interest. Tenant acknowledges that the late payment
------------------------
of Rent will cause Landlord to incur costs not contemplated by this Lease,
including administrative costs, loss of use of the overdue funds and other
costs, the exact amount of which would be impractical and extremely difficult to
ascertain. Landlord and Tenant agree that if Landlord does not receive a
payment of Rent within ten (10) days after Tenant's receipt of notice from
Landlord that such payment is due, Tenant shall pay to Landlord a late charge of
five percent (5%) of the overdue amount per month as a late charge; provided,
however, that it Tenant's payment of Rent is overdue more than three (3) times
in any twelve (12) month period, then no such notice from Landlord shall be
required thereafter, and a late charge shall accrue immediately upon Landlord's
failure to receive a Rent payment when due.
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Whenever interest is required to be paid under this Lease, the interest shall be
calculated from the date the payment was due or should have been due if
correctly assessed or estimated (or any overcharge paid), until the date payment
is made or the refund is paid or is credited against Rent next due.
3.5 Acceleration of Base Rent Payments. In the event a late charge
----------------------------------
becomes payable pursuant to Paragraph 3.4 above for three (3) installments of
Base Rent within a twelve (12) month period, then all subsequent Base Rent
payments for the next two (2) Lease Years shall immediately and automatically
become payable by Tenant in advance on a quarterly basis instead of monthly.
3.6 Disputes as to Payments of Rent. Except as specifically set forth in
-------------------------------
this lease, Tenant agrees to pay the Rent required under this Lease within the
time limits set forth in this Lease. Except as otherwise specifically provided
in this Lease, Tenant shall have no right to claim any offset against or
reduction in any Rent due hereunder.
3.7 Rent Abatement.
--------------
(a) Abated Rent During Construction Period. Tenant shall not be
--------------------------------------
obligated to pay any monthly Base Rent, or any Operating Expense Adjustment
attributable to the period between Landlord's delivery of possession of the
Premises to Tenant and the Commencement Date; provided, however, that during
such period Tenant shall be responsible for all utility charges incurred in
connection with Tenant's construction of the Tenant Improvements (as that term
is defined in the Construction Agreement attached hereto as Exhibit "D".
(b) Abatement Due to Delays in Delivery of Premises. To the extent
-----------------------------------------------
that delivery of all or part of the Unoccupied Portion of the Premises and/or
the Occupied Portion of the Premises in the condition required by Paragraph 2.3
above has not occurred by the dates (the "Outside Delivery Dates") which are
thirty (30) days after the applicable delivery dates specified in Paragraph 2.6
above, then the monthly Base Rent attributable to any portions of the Premises
not delivered by the applicable Outside Delivery Date shall be abated at the
rate of two (2) days for each one (1) day between the applicable Outside
Delivery Date and the date of delivery. Furthermore, if Landlord's delivery of
one hundred percent (100%) of the Premises does not occur until after the forty-
fifth (45th) day following the Outside Delivery Date for the Unoccupied Portion
of the Premises, then monthly Base Rent for the entire Premises shall be abated
until the date which is four (4) months after the latter to occur of (i) the
date on which Landlord delivers the remainder of the Premises to Tenant in the
condition required by Paragraph 2.3 above or (ii) the date on which Landlord
delivers to Tenant the last of the Permits. Notwithstanding the foregoing,
Tenant's abatement of Base Rent shall be reduced on a day-for-day basis by a
period equal to the number of days by which delivery of the Premises is delayed
due to the acts or omissions of Tenant (including without limitation Tenant's
failure to fulfill its obligations under Paragraph 2.4 above), or to the extent
that delivery of the Premises is delayed due to an event of force majeure
described in Paragraph 29 below.
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4. ADJUSTMENTS TO RENT.
4.1 Cost of Living Adjustment - Base Rent Increase. The monthly Base Rent
----------------------------------------------
payable by Tenant in accordance with Paragraph 3.1 above shall be adjusted,
upwards only, effective every five (5) years after the Commencement Date (the
"Adjustment Dates") by the greater of: (a) the Minimum Increase specified in
Item 5 of the Lease Summary, or (b) the percentage increases, if any, in the
Consumer Price Index for Urban Wage Earners and Clerical Workers, Los Angeles-
Anaheim-Riverside, All Items (1982-1984 = 100) (the "Index"), as published by
the United States Department of Labor, Bureau of Labor Statistics (the "Bureau")
occurring between the previous Adjustment Date and the current Adjustment Date
(or, in the case of the first such adjustment, occurring between the
Commencement Date and the first Adjustment Date). In no event, however, will
the monthly rental be increased by more than eighteen percent (18%) on any
Adjustment Date. The Index for the second month preceding each Adjustment Date
during the Term shall be compared with the Index for the second month preceding
the last Adjustment Date (or for the first Adjustment Date, the second month
preceding the date of this Lease), and the Base Rent shall be increased in
accordance with the percentage increase, if any, between them. Landlord shall
use its best efforts to calculate and give Tenant notice of any such increase in
the Base Rent on or near each Adjustment Date, and Tenant shall commence to pay
the increased Base Rent effective on the Adjustment Date of each year.
In the event that Landlord is unable to deliver to Tenant the notice of the
increased Base Rent at least thirty (30) business days prior to the Adjustment
Date, Tenant shall commence to pay the increased Base Rent on the first day of
the month following the date which is sixty (60) days after the date Tenant
receives such notice, which notice must be sent at least five (5) business days
prior to the first day of such month ("Payment Date"). Tenant shall also pay,
together with the first payment of the increased Base Rent, an amount determined
by multiplying the amount of the increase in Base Rent times the number of
months which have elapsed between the Adjustment Date and the Payment Date.
Should the Bureau discontinue the publication of the Index, or publish the same
less frequently, or alter the same in some other manner, Landlord, in its
reasonable discretion, shall adopt a substitute index or procedure which
reasonably reflects and monitors consumer prices.
4.2 Operating Expense Adjustment. Tenant shall pay, in addition to the
----------------------------
Base Rent computed and due pursuant to Paragraphs 3.1 and 4.1 above, an
additional sum as an operating expense adjustment (the "Operating Expense
Adjustment"). Such additional amount shall be equal to Tenant's Pro Rata Share
of Operating Expenses (as defined in Paragraphs 4.4 and 4.5 below). As used in
this Paragraph 4, "Expense Year" or "calendar year" shall mean each calendar
year in which any portion of the Term falls, through and including the calendar
year in which the Lease Term expires.
4.3 Procedure for Payment of Operating Expense Adjustment. Tenant shall
-----------------------------------------------------
pay the Operating Expense Adjustment as follows:
(a) Landlord shall endeavor to give Tenant a yearly expense estimate
statement (the "Estimate Statement") on or before May 1 of each Expense Year.
The Estimate Statement shall set
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forth (i) Landlord's reasonable estimate (the "Estimate") of what the total
amount of Operating Expenses for the then-current Expense Year shall be;
provided, however, that if the Estimate, as it relates to Operating Expense,
exceeds one hundred five percent (105%) of the Operating Expenses for the prior
Expense Year, then upon Tenant's request Landlord shall promptly provide Tenant
with a reasonable explanation of such excess. The failure of Landlord to timely
furnish the Estimate Statement for any Expense Year shall not preclude Landlord
from enforcing its rights to collect any Operating Expenses under this Paragraph
4. Tenant shall pay, with its next installment of Base Rent due (but not prior
to thirty (30) days after Tenant's receipt of the "Statement", as that term is
defined in Paragraph 4.3(b) below, for the preceding Tax Year), a fraction of
the Estimate for the then current Expense Year (reduced by any amounts paid
pursuant to the last sentence of this Paragraph 4.3(a)). Such fraction shall
have as its numerator the number of months which have elapsed in such current
Expense Year to the month of such payment, both months inclusive, and shall have
twelve (12) as its denominator. Until a new Estimate Statement is furnished,
Tenant shall pay monthly, with the monthly Base Rent installments, an amount
equal to one-twelfth (1/12) of the total Estimate set forth in the previous
Estimate Statement delivered by Landlord to Tenant.
(b) Within one hundred twenty (120) days after the end of each
calendar year, Landlord shall provide a statement (the "Statement") to Tenant
showing: (i) the amount of actual Operating Expenses for such calendar year and
Tenant's Pro Rata Share thereof, (ii) any amount paid by Tenant towards
Operating Expenses during such calendar year on an estimated basis and (iii) any
revised estimate of Tenant's obligations for Operating Expenses for the current
calendar year.
(c) If the Statement shows that Tenant's estimated payments were less
than Tenant's actual obligations for Operating Expenses for such calendar year,
Tenant shall pay the difference to Landlord within thirty (30) days after
receipt of the applicable Statement. If the Statement shows an increase in
Tenant's estimated payments for the current calendar year, Tenant shall pay the
difference between the new and former estimates, for the period from January 1
of the current calendar year through the month in which the Statement is sent.
(d) If the Statement shows that Tenant's estimated payments exceeded
Tenant's actual obligations for Operating Expenses, Landlord shall credit such
difference against payments of the Base Rent next due. If the Term shall have
expired, Tenant shall receive a refund of such difference within thirty (30)
days after Landlord sends the Statement.
(e) No delay by Landlord in providing the Statement (or separate
statements) shall be deemed a default by Landlord or a waiver of Landlord's
right to require payment of Tenant's obligations for actual or estimated
Operating Expenses.
(f) Tenant's obligations to pay estimated and actual amounts towards
Operating Expenses for the first and/or final calendar years shall be prorated
to reflect the portion of such years included in the Term. Such proration shall
be made by multiplying the difference of Tenant's Pro Rata Share of the total
estimated or actual (as the case may be) Operating Expenses for such calendar
years by a fraction, the numerator which shall be the number of days of the Term
during such calendar year, and the
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denominator of which shall be three hundred sixty five (365).
(g) The parties acknowledge that the Building is a part of a mixed
use development, containing restaurant, hotel, food court and outlet center uses
as well as office uses, and that the Operating Expenses and Taxes incurred in
connection with the Project should be shared among the tenants of the Building
and the tenants of the other buildings in the Project. Different uses to which
portions of the Project are put place different demands on the services provided
by Landlord, and different portions of the Project, when considered as separate
elements, have different values, both before and after development for different
uses. Many Operating Expenses and Taxes will be incurred for the benefit of the
Building or other buildings only, or for the benefit of the outlet center or
food court portions of the Project only, and Landlord will use reasonable
efforts to segregate costs where feasible. The effect of such segregation shall
be that Operating Expenses and Taxes allocated to the tenants of the Building
shall include all of those attributable solely to the Building, plus an
equitable portion of those attributable to the Project as a whole. Landlord
shall have the right to equitably allocate the costs and charges that benefit
the entire Project among the Land and different parcels in the Project and the
different uses to which they are put in a reasonable, consistent manner ("Cost
Pools"), such that the manner in which categories of common area charges within
each Cost Pool are allocated to Tenant hereunder generally coincides with the
manner in which such categories of common area charges are allocated to other
tenants of the office buildings within the Project. All costs allocated to the
Land and buildings thereon shall be allocated among the Building and other
buildings in proportion to the Rentable Area of each.
4.4 Tenant's Pro Rata Share. During those times when the Premises are
-----------------------
located entirely within the Building, the term "Tenant's Pro Rata Share" means
the ratio, from time to time, of the Rentable Area of the Premises to the
Rentable Area of the Building. During those times, if any, when the Premises
are located in other buildings within the Project in addition to the Building,
the term "Tenant's Pro Rata Share" shall be calculated separately for the
Building and each other such building, and shall mean with respect to each
building the ratio, from time to time, of the Rentable Area of the portion of
the Premises within the building in question to the Rentable Area of that
building. Tenant's Pro Rata Share as of the Commencement Date is stipulated to
be the figure specified in Item 4 of the Lease Summary, which has been computed
using the square footage figures set forth in Item 2 of the Lease Summary.
4.5 Operating Expenses. "Operating Expenses" are defined to be the sum of
------------------
all costs, expenses, and disbursements, of every kind and nature whatsoever, and
the taxes, actually incurred by Landlord in connection with (i) the Reciprocal
Easement Agreement dated September 21, 1982 executed by Daon Corporation and Pen
Nom I Corp. recorded September 24, 1982 as Instrument No. 82-970494 in the
Official Records of Los Angeles County, (ii) the covenants, conditions and
restrictions set forth a document recorded March 1, 1990 as Instrument No. 90-
330359 in the Official Records of Los Angeles County, and (iii) the ownership,
management, maintenance, operation, administration and repair of all or any
portion of the Building or Project, including the roads, walks, plazas,
landscaped areas, common areas, parking structures, improvements and facilities
thereon. Without limiting the generality of the foregoing, and except for those
items excluded from the
10
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definition of Operating Expenses pursuant to Paragraph 4.6 below, the definition
of "Operating Expenses" shall include the following:
(a) All utility costs not otherwise charged (pursuant to Paragraph
3.3 above) directly to Tenant or to any other tenant;
(b) All wages and benefits and costs of employees, independent
contractors, or employees of independent contractors engaged in the operation,
maintenance and security of the Project;
(c) All expenses for janitorial, maintenance, security and safety
services;
(d) All repairs to, replacement of, and physical maintenance of the
Project, including the cost of all supplies, uniforms, equipment, tools and
materials;
(e) Any license, permit and inspection fees required in connection
with the operation of the Project;
(f) Any auditor's fees for accounting provided for the operation and
maintenance services;
(g) Any legal fees, costs and disbursements as would normally be
incurred in connection with the operation, maintenance and repair of the
Project;
(h) All reasonable fees for management services provided by a
management company or by Landlord or an agent of Landlord;
(i) The annual amortization of costs (including interest on the
unamortized cost at the rate (the "Interest Rate") which is the lesser of (i)
Landlord's actual cost, (ii) two percent (2%) over the interest rate publicly
announced from time to time by the Bank of America (or, if Bank of America
ceases to exist, announced by the largest state chartered bank operating in the
State of California) as its prime rate, or (iii) the maximum rate permitted by
law), incurred by Landlord after completion of the Building for any capital
improvements installed or paid for by Landlord and required by any laws, rules
or regulations of any governmental or quasi-governmental authority enacted after
the Commencement Date;
(j) The annual amortization of costs (including interest on the
unamortized costs at the Interest Rate) incurred by Landlord after completion of
the Building for any capital improvement reasonably intended as a labor-saving
measure or to affect other economies in the operation or maintenance of the
Building;
(k) All insurance expenses, which shall mean all premiums and other
charges paid by Landlord with respect to the insurance of the Project, provided
that such insurance is either required or permitted to be carried by Landlord
hereunder or is customarily carried by operators of other comparable first-class
office buildings in Southern California which are of comparable size and located
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in the immediate vicinity of the Building (the "Comparable Buildings");
(l) Such other usual costs and expenses which are paid by other
landlords for the purpose of providing for the on-site operation, servicing,
maintenance and repair of Comparable Buildings;
(m) All actual taxes, assessments, levies, charges, water and sewer
charges, rapid transit and other similar or comparable governmental charges
(collectively, the "Taxes") levied or assessed on, imposed upon or attributable
to the calendar year in question (a) to the Premises or the Land, and/or (b) to
the operation of the Building, including but not limited to taxes against the
Building or Land, personal property taxes or assessments levied or assessed
against the Building, plus any tax measured by gross rentals received from the
Building, together with any costs incurred by Landlord, including attorneys'
fees, in contesting any such taxes but excluding any net income, corporate,
franchise, capital stock, estate or inheritance taxes; provided that, if at any
time during the Term there shall be levied, assessed or imposed on Landlord or
the Building by any governmental entity, any general or special, ad valorem or
specific excised capital levy or other taxes on the payments received by
Landlord under this Lease or other leases affecting the Building and/or any
license fee, excise or franchise taxes measured by or based, in whole or in
part, upon such payments, and/or transfer or transaction taxes based directly or
indirectly upon the transaction represented by this Lease or other leases
affecting the Building, and/or any occupancy, use, per capita or other taxes,
based directly or indirectly upon the use or occupancy of the Premises or the
Building, then all such taxes shall be deemed to be included within the
definition of the term "Taxes."
(n) Expenses incurred in connection with the provision of heating,
ventilation and air conditioning; and
(o) Window washing expenses.
4.6 Exclusions from Operating Expenses. Notwithstanding anything to the
----------------------------------
contrary set forth elsewhere in this Lease, the following items shall be
excluded from the definition of "Operating Expenses":
(a) Costs incurred in connection with the original construction of the
Building or in connection with any major change in the Building such as adding
or deleting floors;
(b) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for other tenants
in the Building or incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for tenants or other occupants of the
Building;
(c) Depreciation, interest and principal payments on mortgages, and
other debt costs, if any;
(d) Costs of correcting defects in or inadequacy of the initial design
or construction of
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the Building;
(e) Expenses directly resulting from the gross negligence of Landlord,
its agents, servants or employees;
(f) Legal fees, space planners fees, real estate brokers leasing
commissions, and advertising expenses or other expenses incurred in connection
with the original development or original leasing of the Building or future
leasing of the Building;
(g) Costs incurred by Landlord for repairs, replacements and/or
restoration to or of the Building to the extent that Landlord is reimbursed by
insurance or condemnation proceeds or by tenants, warrantors or other third
persons;
(h) Any bad debt loss, rent loss or reserves for bad debts or rent
loss;
(i) Expenses in connection with services or other benefits which are
not offered to Tenant or for which Tenant is charged directly but which are
provided to another tenant or occupant of the Building;
(j) Costs associated with the operation of the business of the
partnership or entity which constitutes Landlord, as the same are distinguished
from the costs of operation of the Building or Project, including partnership
accounting and legal matters, costs of defending any lawsuits with any mortgagee
(except as the actions of Tenant may be in issue), costs of selling,
syndicating, financing, mortgaging or hypothecating any of Landlord's interest
in the Building, costs of any disputes between Landlord and its employees (if
any) not engaged in Building operation, disputes of Landlord with Building
management, or outside fees paid in connection with disputes with other tenants;
(k) The wages of any employee to the extent that the employee does not
devote substantially all of his or her time to the office portion of the
Project;
(l) Costs, fines, interest or penalties incurred by Landlord due to
the violation by Landlord of (i) any governmental rule or regulation or (ii) the
terms and conditions of any lease of space in the Building; provided, however,
that such costs, fines, interest or penalties shall not be excluded from
Operating Expenses if they were incurred due to the fault of Tenant;
(m) Amounts paid as ground rental by Landlord;
(n) Any building system maintenance contracts, Earthquake or any other
type of insurance, unless such maintenance costs and/or insurance coverage was
carried during the initial Lease Year, or, in the alternative, the Operating
Expenses have been "grossed up" to include what such maintenance and/or
insurance coverage would have cost had it been carried during the initial Lease
Year;
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(o) Wages and fees incurred in connection with the ownership,
management and operation of any parking structure now or hereafter located on
the Project, provided Tenant does not utilize said parking structure;
(p) Any Operating Expenses in connection with the ground floor and
mezzanine levels, or any other floor in the Building devoted to retail operation
(but only during such periods, if any, that said floors and levels are not
leased by Tenant hereunder);
(q) Any Operating Expenses actually incurred more than two (2) years
prior to the year in which Landlord proposes that such costs be included;
(r) Costs incurred by Landlord with respect to goods and services
(including utilities sold and supplied to tenants and occupants of the Building)
to the extent that Landlord is entitled to reimbursement for such costs other
than through the Operating Expense pass-through provisions of such tenants'
lease;
(s) Salaries and bonuses of officers and executives of Landlord above
the level of on-site Citadel General Manager;
(t) Attorneys' fees and other costs and expenses incurred in
connection with negotiations or disputes with present or prospective tenants or
other occupants of the Building, except those attorneys' fees and other costs
and expenses incurred in connection with negotiations, disputes or claims
relating to items of Operating Expenses, enforcement of rules and regulations of
the Building and such other matters relating to the maintenance of standards
required of Landlord under this Lease;
(u) Costs of a capital nature, including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools, all as determined in accordance with generally accepted
accounting principals, consistently applied; provided, however, that the
following costs (amortized over the useful life of the improvement together with
interest at the Interest Rate identified in Paragraph 4.5(i) above) of the
following capital improvements shall be included in the definition of Operating
Expenses: (i) capital improvements made to comply with any law or governmental
regulation enacted after the Commencement Date of this Lease; and (ii) any other
capital improvements which reduce Operating Expenses, but limited to the amount
of Operating Expenses reasonably anticipated to be reduced thereby. Tenant's
above commercially reasonable standard utilization of building systems shall not
be excluded from the Operating Expenses;
(v) Overhead and profit increments paid to third parties, or to
subsidiaries or affiliates of Landlord, for services provided to the Building to
the extent the same exceeds the costs that would generally be charged for such
services if rendered on a competitive basis (based upon a standard of similar
owner-manager multi-story office buildings in the general area of the Premises)
by unaffiliated third parties capable of providing such service;
(w) Base Rent payments incurred in leasing air conditioning systems,
elevators or other
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equipment ordinarily considered to be of a capital nature, except equipment not
affixed to the Building which is used in providing janitorial or similar
services;
(x) Costs of installing the initial landscaping and the initial
sculpture, paintings and objects of art for the Building and Project;
(y) Taxes and assessments attributable to the tenant improvements or
property of other tenants of the Building if such taxes or assessments are
separately paid by Tenant for its own tenant improvements or property rather
than being included in Operating Expenses;
(z) marketing and promotional costs, including but not limited to
leasing commissions, real estate brokerage commissions, and attorneys' fees in
connection with the negotiation and preparation of letters, deal memos, letters
of intent, leases, subleases and/or assignments, space planning costs, and other
costs and expenses incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants or other
occupants of the Building;
(aa) advertising and promotional expenditures, including but not
limited to tenant newsletters and Building promotional gifts, events or parties
for existing or future occupants, and the costs of signs (other than the
Building directory) in or on the Building identifying the owner of the Building
or other tenants' signs and any costs related to the celebration or
acknowledgment of any state or federal holidays;
(bb) costs in excess of Ten Thousand Dollars ($10,000.00) per calendar
year arising from the presence or removal of Hazardous Materials located in the
Project, including, without limitation, any costs incurred pursuant to the
requirements of any governmental laws, ordinances, regulations or orders
relating to health, safety or environmental conditions, including but not
limited to regulations concerning asbestos, soil and ground water conditions or
contamination regarding hazardous materials or substances; provided, however,
that nothing herein shall limit Landlord's right to recover such costs from
Tenant separate and apart from Operating Expenses to the extent otherwise
permitted in this Lease; and
(cc) during all periods when Tenant is managing the Building pursuant
to the terms of this Lease, management fees which exceed an amount equal to (i)
two percent (2%) of Operating Expenses less (ii) janitorial, utility, HVAC and
other costs paid directly by Tenant.
4.7 Limited Exclusion from Taxes of "Proposition 13" Increases.
----------------------------------------------------------
Notwithstanding anything to the contrary set forth above, increases in Taxes
resulting from a "change in ownership" (as that term is defined in 18 C.F.R. '
462) of the Premises, Building or Project during the first ten (10) years of the
Term of this Lease shall only be deemed to be Taxes if they relate to (i) the
first change in ownership to occur during the first five (5) years of the Term
of the Lease, and (ii) the first change in ownership to occur during the sixth
(6th) through tenth (10th) years of the Term of the Lease. Notwithstanding the
foregoing, none of the following shall constitute a "change in ownership" for
purposes of this
15
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Paragraph 4.7: (a) the purchase by Landlord, the Commerce Redevelopment
Commission, the City of Commerce or any affiliate of the City of Commerce (the
"Related Parties") of the ground lessee's interest under any of the
Retail/Office Ground Leases or under the Hotel Ground Lease or of any loan made
to any of the Related Parties in connection with the said purchase; (b) any
subsequent modification of any of the Retail/Office Ground Leases or the Hotel
Ground Lease; (c) any assignment or sublease of any of the Retail/Office Ground
Leases or the Hotel Ground Lease by any of the Related Parties to any of the
other Related Parties; or (d) the acquisition by any of the Related Parties of
the fee interest in the Project or any portion thereof in connection with the
termination of any of the Retail/Office Ground Leases or the Hotel Ground Lease.
4.8 "Grossing Up" Operating Expenses. The provisions of this Section 4.8
--------------------------------
shall not apply to the Building at any time during which Tenant is leasing at
least ninety-five percent (95%) of the Rentable Area of the Building. The
provisions of this Section 4.8 shall apply to any other building(s) within the
Project (excluding the Building) during any time in which any portion of the
Premises is located in such other building(s). If any building to which the
provisions of this Section 4.8 apply is not fully constructed and completed
and/or does not have at least ninety-five percent (95%) of the Rentable Area
thereof occupied during any calendar year period, then the Operating Expenses
(other than those specific to the building as opposed to other portions of the
Project) for such period shall be deemed to be equal to the total of (i) the
Operating Expenses, other than Taxes, which would have been incurred by Landlord
if the building had been fully constructed and completed and ninety-five percent
(95%) of the Rentable Area of the building had been occupied for the entirety of
such calendar year and (ii) the actual Taxes as defined in Paragraph 4.4(n)
above. The annual amortization of costs shall be determined by dividing the
original cost of such capital expenditure by the number of years of useful life
of the capital item acquired, which useful life shall equal the number of years
permitted by the Internal Revenue Service for amortization; if no Internal
Revenue Service guidelines are available with respect to the item in question,
the useful life shall be determined by Landlord on a reasonable, equitable and
consistent basis. Operating Expenses shall be computed according to the cash or
accrual basis of accounting, as Landlord may elect (in a reasonable, equitable
and consistent basis) in accordance with standard and reasonable accounting
principles employed by Landlord.
4.9 Review of Operating Expenses. Tenant shall have the right, not more
----------------------------
than once with respect to each Lease Year, to cause Landlord's books and records
with respect to the subject calendar year to be audited, inspected, reviewed
and/or copied (the "Audit"), subject to the terms and conditions set forth
below.
(a) Landlord shall be obligated to keep such books and records for all
Lease years associated with this Lease until eighteen (18) months following the
Lease Year in question.
(b) In connection with the delivery of each Statement and Estimate
Statement, Landlord shall provide to Tenant substantial detail of the
calculations of the Operating Expenses or of the amounts charged, as the case
may be. Landlord shall provide, by account and sub-account, the total Operating
Expenses and all adjustments corresponding thereto. Landlord shall also provide
in reasonable detail the calculation of Tenant's Pro Rata Share of the Operating
Expenses.
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(c) The Audit shall be conducted either by Tenant's in-house
accountants or by a certified public accountant selected by Tenant (the
"Auditor").
(d) The Audit may be conducted upon no less than ten (10) business
days' notice to Landlord and must be completed within eighteen (18) months after
receipt by Tenant of the Statement which is the subject of the Audit; provided,
however, that Landlord shall cooperate in good faith with Tenant in order to
allow Tenant and its Auditor to complete the Audit within said period. If an
Audit has not been requested and completed within the time periods required
hereby, then the Statement shall be binding on both Landlord and Tenant.
(e) The Audit shall be conducted only during Landlord's regular
business hours. The Audit shall be conducted only at the office where Landlord
maintains the books and records pertaining to Operating Expenses for the
Project, which office shall at all times be located in Southern California.
(f) No Audit shall be conducted if Tenant is in default under any
provision of this Lease beyond the expiration of any applicable cure period,
including but not limited to timely payment of any amount due pursuant to the
Statement.
(g) The right to conduct the Audit may be exercised by Tenant or its
subtenants or assignees only to the extent that Tenant or such subtenant or
assignee occupied at least one full floor of the Building during the Lease Year
in question.
(h) Tenant shall deliver to Landlord a copy of the results of the
Audit within ten (10) days after Tenant's receipt thereof from the Auditor.
(i) Tenant shall bear the cost of the Audit, including without
limitation all of Landlord's copying costs relative thereto; provided, however,
that if (after conclusion of any contest by Landlord pursuant to Paragraph
4.9(k) below) reveals that the Statement overstated the amount of Tenant's Pro
Rata Share of Operating Expenses by more than five percent (5%), Landlord shall
reimburse Tenant for the reasonable cost of the Audit within thirty (30) days
after Tenant delivers to Landlord a written request for reimbursement and copies
of the Auditor's invoice and any other documentation evidencing expenses
incurred by Tenant in connection with the Audit.
(j) If the Audit indicates that Tenant has overpaid Operating
Expenses, Tenant may submit a claim for the overpaid amount to Landlord,
detailing the nature of the overpayment. Landlord shall thereafter have thirty
(30) days to either pay the amount claimed or to contest the claim by giving
notice thereof to Tenant detailing the nature of Landlord's contest of Tenant's
claims. If Landlord timely contests the claim, then either Landlord or Tenant
may submit the claim to arbitration in accordance with Paragraph 5 below. If
the arbitration discloses that the Statement overstated the amount of Tenant's
Pro Rata Share of Operating Expenses, then Landlord shall within thirty (30)
days after the date of the arbitrator's decision reimburse to Tenant the amount
of the overpayment. If (i) the claim is not timely contested by Landlord, or
(ii) the arbitration discloses that the Statement overstated
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the amount of Operating Expenses by more than five percent (5%), then Landlord
shall also reimburse to Tenant the reasonable expenses incurred by Tenant in
connection with the Audit and the arbitration, which reimbursement shall be made
within thirty (30) days after (i) the date of the arbitrator's decision and (ii)
Tenant's delivery to Landlord of copies of the Auditor's invoice and any other
documentation evidencing expenses incurred by Tenant in connection with the
Audit.
(k) Except as provided in this Paragraph 4.9, Tenant shall keep all
information gained in connection with any Audit confidential. Tenant shall not
disclose any information gained in connection with any Audit to any third
parties (not including Tenant's agents, employees and consultants) except to
those who must receive the information in order to carry out the purpose of this
Paragraph 4.8 and who agree in writing to keep the information confidential;
provided, however, that Tenant may disclose such information to the extent
reasonably necessary in connection with financing arrangements or assignments of
Tenant's interest in the Premises so long as Tenant takes reasonable steps to
ensure that the applicable lender or assignee keeps such information
confidential, and Tenant may disclose such information as required by law or in
connection with the issuance of financial statements of Tenant and or its
affiliates.
4.10 Real Property Tax Exclusions. Notwithstanding anything to the
----------------------------
contrary set forth in the Lease, Taxes shall not include (i) any excess profits
taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and
succession taxes, estate taxes, federal and state income taxes, and other taxes
to the extent applicable to Landlord's general or net income (as opposed to
rents or receipts), (ii) taxes on tenant improvements in any space in the
Building or the Project based upon an assessed level in excess of the assessed
level for which Tenant is individually and directly responsible under this
Lease, but only to the extent that said taxes on tenant improvements are
separately assessed and the assessed level for which Tenant is responsible can
be accurately determined, (iii) penalties incurred as a result of Landlord's
negligence, inability or unwillingness to make payments of, and/or to file any
tax or informational returns with respect to, any Taxes, when due, (iv) any real
estate taxes directly payable by Tenant or any other tenant in the Building
under the applicable provisions in their respective leases, and (v) any items
included as Operating Expenses or specifically excluded from Operating Expenses.
5. ARBITRATION.
5.1 General Submittals to Arbitration. The submittal of all matters to
---------------------------------
arbitration in accordance with the terms of this Paragraph 5 is the sole and
exclusive method, means and procedure to resolve any and all claims, disputes or
disagreements arising under this Lease, including, but not limited to any matter
relating to Landlord's failure to approve an assignment, sublease or other
transfer of Tenant's interest in the Lease under Paragraph 12 below, any other
defaults by Landlord, or any default by Tenant under this Lease (a "Default"),
except for (i) verification of the rentable square footage or usable square
footage of the Premises, which determination shall be made pursuant to
Paragraphs 1.2 and 1.3 above, (ii) all claims by either party which (A) seek
anything other than enforcement of rights under this Lease, or (B) are primarily
founded upon matters of fraud, wilful misconduct, bad faith or any other
allegations of tortious action, and seek the award of punitive or exemplary
damages, and (iii) claims relating to Landlord's exercise of any unlawful
detainer rights pursuant to California law or
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rights or remedies used by Landlord to gain possession of the Premises or
terminate Tenant's right of possession to the Premises, which disputes shall be
resolved by suit filed in the Superior Court of Los Angeles County, California,
the decision of which court shall be subject to appeal pursuant to applicable
law. The parties hereby irrevocably waive any and all rights to the contrary and
shall at all times conduct themselves in strict, full, complete and timely
accordance with the terms of this Paragraph 5 and all attempts to circumvent the
terms of this Paragraph 5 shall be absolutely null and void and of no force or
effect whatsoever. As to any matter submitted to arbitration (except with
respect to the payment of money) to determine whether a matter would, with the
passage of time, constitute a Default, such passage of time shall be tolled from
the time the matter is submitted to arbitration hereunder until an affirmative
arbitrated determination, as long as it is simultaneously determined in such
arbitration that the challenge of such matter as a potential Event of Default by
Tenant was made in good faith. As to any matter submitted to arbitration with
respect to the payment of money, to determine whether a matter would, with the
passage of time, constitute an Event of Default, such passage of time shall not
commence to run in the event that the party which is obligated to make the
payment does in fact make the payment to the other party. Such payment can be
made "under protest," which shall occur when such payment is accompanied by a
good faith notice stating the reasons that the party has elected to make a
payment under protest. Such protest will be deemed waived unless the subject
matter identified in the protest is submitted to arbitration as set forth in
this Paragraph 5.
5.2 JAMS. Any dispute to be arbitrated pursuant to the provisions of this
----
Paragraph 5 shall be determined by binding arbitration before a retired judge of
the Superior Court of the State of California (the "Arbitrator") under the
auspices of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). Such
arbitration shall be initiated by the parties, or either of them, within ten
(10) days after either party sends written notice (the "Arbitration Notice") of
a demand to arbitrate by registered or certified mail to the other party and to
JAMS. The Arbitration Notice shall contain a description of the subject matter
of the arbitration, the dispute with respect thereto, the amount involved, if
any, and the remedy or determination sought. The parties may agree on a retired
judge from the JAMS panel. If they are unable to promptly agree, JAMS will
provide a list of three available judges and each party may strike one. The
remaining judge (or if there are two, the one selected by JAMS) will serve as
the Arbitrator. In the event that JAMS shall no longer exist or if JAMS fails
or refuses to accept submission of such dispute, then the dispute shall be
resolved by binding arbitration before the American Arbitration Association
("AAA") under the AAA's commercial arbitration rules then in effect.
5.3 Pre-Decision Actions. The Arbitrator shall schedule a pre-hearing
--------------------
conference to resolve procedural matters, arrange for the exchange of
information, obtain stipulations, and narrow the issues. The parties will
submit proposed discovery schedules to the Arbitrator at the pre-hearing
conference. The scope and duration of discovery will be within the sole
discretion of the Arbitrator. The Arbitrator shall have the discretion to order
a pre-hearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, and examination by deposition of parties and
third-party witnesses. This discretion shall be exercised in favor of discovery
reasonable under the circumstances.
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5.4 Arbitrator's Decision. The arbitration shall be conducted in Los
---------------------
Angeles County, California. Any party may be represented by counsel or other
authorized representative. In rendering a decision(s), the Arbitrator shall
determine the rights and obligations of the parties according to the substantive
and procedural laws of the State of California and the terms and provisions of
this Lease. The Arbitrator's decision shall be based on the evidence introduced
at the hearing, including all logical and reasonable inferences therefrom. The
Arbitrator may make any determination, and/or grant any remedy or relief that is
just and equitable; provided however, that the Arbitrator shall have no
authority to alter any of the terms or provisions of this Lease. The decision
must be based on, and accompanied by, a written statement of decision explaining
the factual and legal basis for the decision as to each of the principal
controverted issues. The decision shall be conclusive and binding, and it may
thereafter be confirmed as a judgment by the Superior Court of the State of
California, subject only to challenge on the grounds set forth in the California
Code of Civil Procedure Section 1285 et seq. The validity and enforceability of
the Arbitrator's decision is to be determined exclusively by the California
courts pursuant to the provisions of this Lease. The Arbitrator may award
costs, including without limitation attorneys' fees, and expert and witness
costs, to the prevailing party, if any, as determined by the Arbitrator in his
discretion. The Arbitrator's fees and costs shall be paid by the non-prevailing
party as determined by the Arbitrator in his discretion. A party shall be
determined by the Arbitrator to be the prevailing party if its proposal for the
resolution of dispute is the closer to that adopted by the Arbitrator.
6. USE.
6.1 Permitted Use. The Premises shall be used only for the purposes
-------------
specified in Item 11 of the Lease Summary and for no other purpose. Tenant
shall use the Premises for general office purposes, training and educational
facilities, and any other legally permitted, non-retail, uses consistent with
the character of the Building as a first-class office building, and Tenant shall
not use or permit the Premises to be used for any other purpose or purposes
whatsoever without the prior written consent of Landlord, which consent may be
withheld in Landlord's sole and absolute discretion. In connection with, and
incidental to, Tenant's use of the Premises, Tenant, at its sole cost and
expense and upon compliance with all applicable laws, may install "dwyer" or
similar units, microwave or convection ovens, kitchenettes, dishwashers and an
executive dining facility (provided same do not require a modification to the
Building's certificate of occupancy) in the Premises for the purpose of arming
or re-heating food for the employees and business guests of Tenant (but not for
use as a public restaurant or private cafeteria or for cooking), provided that
Tenant shall obtain all permits required by any governmental authorities for the
operation thereof and such installation shall comply with the provisions of this
Lease, including, without limitation, Paragraph 7 of this Lease. Tenant may
also install, at its sole cost and expense and subject to and in compliance with
the provisions of Paragraph 7 of this Lease, vending machines for the exclusive
use of the officers, employees and business guests of Tenant, each of which
vending machines (if it dispenses any beverages or other liquids or
refrigerates) shall have a waterproof pan located thereunder or refrigerant
recovery system connected to a drain.
6.2 Restriction on Use. Tenant shall not do or permit to be done in or
------------------
about the Premises or Building or Project, or bring, keep or permit to be
brought or kept therein, anything which is
20
<PAGE>
prohibited by the Rules and Regulations attached hereto as Exhibit "F" or which
is prohibited by any standard form fire insurance policy or which will in any
way increase the existing rate of or affect, any fire or other insurance upon
the Building or its contents.
6.3 Compliance With Law.
-------------------
(a) Legal Requirements. As used herein, the term "Legal Requirements"
------------------
shall mean each and every one of the following: (i) each law, statute, ordinance
or other governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated, including without limitation any standard
or regulation now or hereafter imposed, by a state, federal or local
governmental body charged with the establishment, regulation and enforcement of
occupational health or safety standards for employers, employees, landlords or
tenants, that relates to Tenant's use or occupancy of the Premises or the
operation of the Building; (ii) the requirements of any Board of Fire
Underwriters or other similar body now or hereafter instituted; and (iii) any
order, directive or certificate of occupancy issued pursuant to any laws which
affect the condition, use or occupancy of the Premises, including, but not
limited to, any requirements of structural changes related to or affected by
Tenant's acts, occupancy or use of the Premises.
(b) Compliance by Landlord. Landlord shall keep and maintain the Base
----------------------
Building (together with any Building Systems located outside the Premises), in
compliance with any Legal Requirements; provided, however, that Tenant hereby
covenants and agrees that if such compliance is required in the Premises, or on
a floor of the Building on which the Premises are located, and (i) such
compliance relates to Tenant's tenant improvements or Alterations, or (ii) such
compliance is required as a result of Tenant's non-general office use of the
Premises, Tenant shall be responsible for the cost of causing, and Tenant shall
cause, the tenant improvements, Alterations, Base Building or Building Systems
located outside the Premises and on the floor(s) on which the Premises are
located (but then only to the extent that the cost of such compliance is not
included in Operating Expenses), as the case may be, to comply with such Legal
Requirements. In the event Landlord is required to perform work in the Premises
in order to comply with any Legal Requirements and alternative means of
compliance are available, then Tenant shall have the right to approve the
alternative selected by Landlord for compliance, provided that in the event
Tenant requires Landlord to propose a different alternative than the one
Landlord has selected, then the alternative approved by Tenant shall not impose
a materially greater economic burden on Landlord than the alternative originally
selected by Landlord for compliance unless Tenant agrees to reimburse Landlord
for such increases in the economic burden, and provided further that Tenant's
approval shall not be unreasonably withheld or delayed.
(c) Compliance by Tenant. Tenant shall not use the Premises in any
--------------------
manner which materially violates any of the Legal Requirements applicable to
Tenant's use of the Premises. Nothing in this Paragraph 6.3(c) is intended to
or shall expand, alter or modify Tenant's obligations with respect to the
maintenance, repair or alteration of the Premises, Tenant's tenant improvements,
Tenants Alterations, the Base Building, or Building Systems.
(d) Compliance by Other Tenants. Subject to Paragraph 21 below,
---------------------------
Landlord shall
21
<PAGE>
not be liable to Tenant for any other occupant's or tenant's failure to conduct
itself in accordance with the provisions of this Paragraph 6. Tenant shall not
be released or excused from the performance of any of its obligations under the
Lease in the event of any such failure.
6.4 Hazardous Material.
------------------
(a) Tenant's Representations. Tenant hereby represents, warrants and
------------------------
covenants that: Tenant's business operations in the Premises do not involve the
use, storage or generation of Hazardous Material (as defined in Paragraph 6.4(e)
below); Tenant shall not cause or permit any Hazardous Material to be brought
upon, stored, manufactured, generated, blended, handled, recycled, disposed of,
used or released on, in, under or about the Premises, Building or Project by
Tenant or Tenant's agents, employees, contractors, subtenants, assigns and
invitees (collectively, "Tenant's Affiliates"); Landlord acknowledges, however,
that Tenant will maintain products in the Premises which are incidental to the
operation of its offices, such as photocopy supplies, secretarial supplies and
limited janitorial supplies, which products contain chemicals which are
categorized as Hazardous Materials. Landlord agrees that the use of such
products in the Premises in compliance with all applicable laws and in the
manner in which such product are designed to be used shall not be a violation by
Tenant of this Paragraph 6.4. For purposes of this Paragraph 6.4,
"Environmental Laws" shall mean, collectively, any and all federal, state or
local environmental, health and/or safety related law, decision of the courts,
ordinance, rule, regulation, code, order, directive, guideline, permit or permit
condition currently existing and as amended, enacted, issued or adopted in the
future which is applicable to the Premises.
(b) Tenant's Indemnification of Landlord. Tenant shall indemnify,
------------------------------------
protect, defend and hold Landlord, the Commerce Redevelopment Commission, and
their partners, officers, employees, agents, lenders and each of their
respective successors and assigns (collectively, the "Indemnified Landlord
Parties") harmless from any and all claims, judgments, damages, penalties,
enforcement actions, taxes, fines, remedial actions, liabilities, losses, costs
and expenses (including, without limitation, reasonable attorneys' fees,
litigation, arbitration and administrative proceeding costs, expert and
consultant fees and laboratory costs), which arise during or after the Term in
whole or in part as a result of the presence of any Hazardous Material, in, on,
under or about the Premises or the Building, the surface or subsurface of the
Project and/or other properties due to Tenant's or Tenant's Affiliates'
activities, or failure to act, on or about the Project. Without limiting the
foregoing, if any Hazardous Material is found in the soil, surface or ground
water in, on, under or about the Project at any time during or after the Term,
the presence of which was caused by Tenant and/or Tenant's Affiliates, Tenant
shall, at its sole cost and expense, promptly take all actions as are necessary
to return the Project to the condition existing prior to the introduction or
release of such Hazardous Material. Such actions shall be conducted in
accordance with applicable Environmental Laws and Landlord's prior written
approval, which approval shall not be unreasonably withheld.
(c) Landlord's Representations. Landlord hereby represents to Tenant
--------------------------
that to the best of Landlord's knowledge without investigation, and except as
previously disclosed to Tenant in writing or otherwise set forth herein, there
are no Hazardous Materials in the Building or Project.
22
<PAGE>
After the date hereof and thereafter throughout the Term, Landlord shall be
responsible for removal or encapsulation of any Hazardous Materials (except for
those brought onto the Premises by Tenant or Tenant's Affiliates) as necessary
to comply with all applicable laws, codes, regulations and ordinances and the
requirements of the Environmental Protection Agency and any other regulatory
agency having jurisdiction. If, during the Term of this Lease, air sampling
tests conducted by properly certified individuals or entities detect asbestos in
amounts exceeding minimums which require corrective action, as set by any local,
state, or federal government or agency, Landlord will, at Landlord's sole cost
and expense (unless the presence of such amounts of asbestos is caused by
Tenant, in which case Landlord's remedial actions hereunder shall be done at
Tenant's expense), commence correction of said condition, within ten (10)
business days after the receipt of notice of such monitoring results, and shall
diligently continue such corrective action until completed. Landlord's
remediation of Hazardous Materials in the Premises as required above shall be
performed at night and on weekends so as not to disturb Tenant's business
operations. If, during the construction of Tenant's initial tenant improvements,
Hazardous Materials are discovered within the Premises, Landlord shall
diligently remove such Hazardous Materials at Landlord's sole cost and expense
prior to the Commencement Date. Landlord hereby acknowledges that the California
Asbestos Notification Act (the California Health and Safety Code Sections 25915,
et seq.) requires that every owner of a commercial or industrial building who
knows that the building contains asbestos containing materials must provide
written notice to its tenants and to its employees and contractors working in
the building. Tenant acknowledges that Landlord has previously informed Tenant
that prior to the construction of the Project, the Land was used as a site for
the use, generation, manufacture, storage, disposal or transportation of any
Hazardous Materials. Landlord represents and warrants to Tenant that, to the
best of Landlord's knowledge without investigation, the Land and Building and
every part thereof (i) are not currently being used for the generation,
manufacture, storage, disposal, transportation or other use of any Hazardous
Materials, and (ii) are presently in compliance with all federal, state and
local laws, ordinances, regulations, orders and directives pertaining to
Hazardous Materials, including without limitation those relating to soil and
ground water conditions. Tenant acknowledges that as a result of leakage from
underground fuel tanks located beneath the Land prior to the development of the
Project, hydrocarbons within the definition of "Hazardous Materials" set forth
below are currently located in, on, under or about the Premises. Landlord is in
the process of monitoring said hydrocarbons and performing such remediation
measures with respect thereto as required by applicable Environmental Laws.
Landlord covenants to Tenant that Landlord shall continue such monitoring and
remediation until the expiration of the Term of this Lease, or until such
monitoring and remediation is no longer required by applicable Environmental
Laws, whichever occurs first.
(d) Landlord's Indemnification of Tenant. Landlord shall indemnify,
------------------------------------
protect, defend and hold Tenant and Tenant's Affiliates harmless from any and
all claims, judgments, damages, penalties, enforcement actions, taxes, fines,
remedial actions, liabilities, losses, costs and expenses (including, without
limitation, reasonable attorneys' fees, litigation, arbitration and
administrative proceeding costs, expert and consultant fees and laboratory
costs), which arise before, during or after the Term in whole or in part as a
result of the presence of any Hazardous Material, in, on, under or about the
Premises or the Building, the surface or subsurface of the Project and/or other
properties to the extent the presence of such Hazardous Materials are not due to
Tenant or Tenant's Affiliates'
23
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activities on or about the Project.
(e) Definition of Hazardous Material. For purposes of this Lease, the
--------------------------------
term "Hazardous Material" means any hazardous or toxic substance, material or
waste which is (i) defined as a "hazardous waste," "extremely hazardous waste"
or "restricted hazardous waste" under Sections 25115, 25117 or 25112.7, or
listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"hazardous substance" under Section 25136 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act), (iii) defined as a "hazardous material," "hazardous substance" or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory), (iv) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
or Hazardous Substances), (v) listed under Article 9 or defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22 of the California Code of
Regulations, Division 4, Chapter 20, (vi) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1317), (vii) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq., (viii) defined as a "hazardous substance" pursuant to Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., (ix) defined as a hazardous waste, "hazardous material,"
------
"hazardous substance," "toxic chemical," "toxic air contaminant," or "hazardous
air pollutant" under the Clean Water Act, 33 U.S.C Section 1251 et seq., the
------
Clean Air Act, 42 U.S.C. Section 7901 et seq., the Toxic Substances Control Act,
------
15 U.S.C. Section 2601 et seq., the Porter-Cologne Water Quality Control Act,
------
California Water Code Section 13000 et seq., or listed as a substance known to
------
cause cancer or reproductive toxicity pursuant to the Safe Drinking Water and
Toxic Enforcement Act of 1986 (Proposition 65), the California Health and Safety
Code Section 25249.5 et seq., Chapter 3.5, Division 26, the California Health
------
and Safety Code (Toxic Air Contaminants), Superfund Amendments and
Reauthorization Act of 1986, Occupational Safety and Health Act of 1970, or
California Occupational Safety and Health Act of 1973, (x) defined as a
hazardous waste, hazardous material or hazardous substance under any regulations
promulgated under any of the foregoing laws, or (xi) any hazardous or toxic
material, substance, chemical, waste, contaminant, emission, discharge or
pollutant or comparable material listed, identified, or regulated pursuant to
any federal, state or local law, ordinance or regulation which has as a purpose
the protection of health, safety or the environment, including but not limited
to petroleum or petroleum products or wastes derived therefrom. Each reference
to a statute, law or regulation herein shall be deemed to include any amendments
or successor statutes thereto which are enacted from time to time.
6.5 Tenant's Access to Premises. Tenant shall have access to the Premises
---------------------------
twenty-four (24) hours a day, seven (7) days a week.
7. ALTERATIONS AND IMPROVEMENTS.
7.1 Initial Tenant Improvements. The initial Tenant Improvements to be
---------------------------
built by Tenant
24
<PAGE>
shall be constructed in accordance with the provisions of this Paragraph 7 and
the Construction Agreement attached hereto as Exhibit "D".
7.2 Tenant's Rights to Make Alterations. Following the Commencement Date,
-----------------------------------
Tenant, at its sole cost and expense, shall have the right upon receipt of
Landlord's written consent (which consent shall not be unreasonably withheld,
delayed or conditioned), to make alterations, additions, or improvements to the
Premises (collectively, the "Alterations"). Notwithstanding the foregoing,
Landlord's consent to the Alterations shall not be required if all of the
following conditions are met: (i) Tenant provides Landlord with written notice
of Tenant's intention to make the Alterations, delivered at least ten (10) days
prior to commencement of construction thereof, which describes in detail the
proposed Alterations; (ii) Tenant agrees to remove, upon the expiration or
earlier termination of this Lease, any aspect of the Alterations which are not
normal for general office use; (iii) the Alterations do not adversely affect the
utility or value of the Premises or the Building for future tenants; (iv) the
Alterations do not alter the exterior appearance of the Building and cannot be
seen from the exterior of the Building (and, during any period in which Tenant
is not leasing the entire Building, if the Alterations cannot be seen from the
common areas of the Building); (v) the Alterations are not of a structural
nature; (vi) the Alterations will not adversely affect the Building Systems; and
(vii) the Alterations are not otherwise prohibited under this Lease. All
Alterations made hereunder, regardless of whether or not Landlord's consent is
required, shall be made in accordance with this Paragraph 7, including without
limitation in conformity with the requirements of Paragraph 7.3 below.
7.3 Installation of Alterations. Any Alterations installed by Tenant
---------------------------
during the Term shall be done in strict compliance with all of the following:
(a) Except to the extent, if any, that Landlord's consent is not
required by Paragraph 7.2 above, no such work shall proceed without Landlord's
prior written approval (which approval shall not be unreasonably withheld,
delayed or conditioned) of: (i) Tenant's contractors, subcontractors,
architects, engineers and other consultants; (ii) certificates of insurance from
a company or companies approved by Landlord, furnished to Landlord by Tenant's
contractor, for (l) Combined Single Limit Bodily Injury and Property Damage
Insurance covering comprehensive general liability and automobile liability, in
an amount not less than One Million Dollars ($1,000,000.00) per occurrence and
endorsed to show Landlord as an additional insured, and (2) Workers'
Compensation as required by law, with all certificates endorsed to show a waiver
of subrogation by the insurer to any claims Tenant's contractor may have against
Landlord; and (iii) detailed plans and specifications for such work;
(b) All such work shall be done in first-class workmanlike manner and
in conformity with a valid building permit and/or all other permits or licenses
when and where required, copies of which shall be furnished to Landlord at least
ten (10) business days before the work is commenced, and any work not acceptable
to any governmental authority or agency having or exercising jurisdiction over
such work, or not reasonably satisfactory to Landlord, shall be promptly
replaced and corrected at Tenant's sole cost and expense. Landlord's review and
approval of any such work is for Landlord's benefit only and shall not expose
Landlord to any liability. No work shall proceed until and unless Landlord has
received at least ten (10) days prior written notice that such work is to
commence;
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(c) To the extent that alterations or repairs to be made by Tenant
have a material effect on the Building Systems, Landlord shall have the right to
require the alterations or repairs to be performed by contractors designated by
Landlord.
(d) All work by Tenant shall be diligently and continuously pursued
from the date of its commencement through its completion; and
(e) Tenant shall obtain any bonds required by Landlord pursuant to
Paragraph 9 below.
7.4 Tenant Improvements. The Tenant Improvements shall become Landlord's
-------------------
property upon the expiration or earlier termination of this Lease. The Tenant
Improvements, upon expiration of the Term or earlier termination of the Lease,
shall be surrendered to Landlord without compensation to Tenant in good
condition and repair, reasonable wear and tear excepted.
7.5 Tenant's Extra Improvements. All Alterations and any tenant
---------------------------
improvements made by or on behalf of Tenant (collectively, the "Tenant's Extra
Improvements"), whether temporary or permanent in character, made either by
Landlord or Tenant, shall become Landlord's property upon the expiration or
earlier termination of this Lease, except that Tenant may remove any Tenant's
Extra Improvements which Tenant can substantiate to Landlord have not been paid
for with any tenant improvement allowance funds provided to Tenant by Landlord.
All Tenant's Extra Improvements shall be surrendered to Landlord without
compensation to Tenant in good condition and repair, reasonable wear and tear
excepted, upon expiration or earlier termination of the Lease; provided,
however, that at the election of Landlord, exercisable by written notice to
Tenant either concurrent with Landlord's approval of the Tenant's Extra
Improvements (where Landlord has approval rights thereof) or within ten (10)
business days after Landlord receives notice of the proposed Tenant's Extra
Improvements (where Landlord has no approval rights), Tenant shall, at Tenant's
sole cost and expense, prior to the expiration or earlier termination of the
Lease, remove from the Premises Tenant's Extra Improvements (or that portion of
Tenant's Extra Improvements requested to be removed by Landlord) and repair all
damage to the Premises caused by such removal. All of Tenant's Personal
Property, including moveable furniture, trade fixtures, and equipment not
attached to the Building or the Premises, shall be completely removed by Tenant
prior to the expiration of the Term or earlier termination of the Lease. Tenant
shall repair all damage caused by such removal prior to the expiration or
earlier termination of the Lease. Any of Tenant's Personal Property not so
removed shall, at the option of Landlord, automatically become the property of
Landlord. Thereafter, Landlord may retain or dispose of, in any manner
permitted by applicable law, any Tenant's Personal Property not so removed,
without any liability or compensation to Tenant.
7.6 Alterations by Landlord. Landlord shall, at its expense, make any
-----------------------
alterations to the Building or the Project relative to any of the following: (a)
compliance with exterior path-of-travel access requirements under the Americans
with Disabilities Act of 1990; (b) correction of latent or structural defects;
and (c) removal, encapsulation or other remediation of asbestos or other
Hazardous
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Materials from the Premises. Except as specifically set forth in this lease, in
no event shall any payments owed by Tenant under the Lease be abated, nor shall
Landlord have any liability for interruption or interference to Tenant's
business, on account of Landlord's failure to make repairs under this Paragraph
7.6.
8. TENANT'S REPAIRS.
Subject to Landlord's obligations in Paragraph 10.1 below, Tenant shall, at
Tenant's sole cost and expense, keep the non-structural, non-Base Building and
non-"Premises Systems" (as that term is defined in Paragraph 10.1 below)
portions of the Premises in good and sanitary condition and repair at all times
during the Term. All damage, injury or breakage to any part or portion of the
Premises or the Building or the Project caused by the willful misconduct or
negligent act or omission of Tenant or Tenant's agents, contractors, employees,
licensees, directors, officers, partners, trustees, visitors or invitees
(collectively, "Tenant's Employees") shall be promptly repaired by Tenant to the
satisfaction of Landlord at Tenant's sole cost and expense and pursuant to the
provisions of Paragraph 7.3 above (collectively, the "Repairs") (except to the
extent the cost of such Repairs are covered by insurance carried or required to
be carried by Landlord pursuant to the terms of this Lease). Upon reasonable
advance notice to Tenant, Landlord may make any Repairs which are not made by
Tenant within a reasonable amount of time (except in the case of emergency when
such Repairs can be made immediately), and charge Tenant for the cost of such
Repairs. Tenant shall be solely responsible for the design and function of all
of Tenant's Extra Improvements whether or not installed by Landlord at Tenant's
request. Except as specifically set forth in this Lease, Tenant waives all
rights to make any Repairs at Landlord's cost, or to deduct the cost of such
Repairs from any payment owed to Landlord under the Lease.
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9. NO LIENS.
Tenant shall at all times keep the Premises, the Building and the Project
free from any liens arising out of any work performed or allegedly performed,
materials furnished or allegedly furnished or obligations incurred by or on
behalf of Tenant. At any time Tenant either desires or is required to make any
Alterations or Repairs which cost One Hundred Thousand Dollars ($100,000.00) or
more, Landlord may require Tenant, at Tenant's sole cost and expense, to obtain
and provide to Landlord a completion and/or performance bond in a form and by a
surety acceptable to Landlord and in amount not less than one and one-half
(1-1/2) times the estimated cost of such Alterations or Repairs to insure
Landlord against liability from mechanics' and materialmen's liens and to insure
completion of the work and may also require such additional items or assurances
as Landlord in its sole discretion may deem reasonable or desirable; provided,
however, that Tenant shall not be required to obtain such bonds so long as
Tenant maintains a net worth of at least One Hundred Twenty-Five Million Dollars
($125,000,000.00), as shown on Tenant's annual report to its shareholders and
Tenant's Form 10Q statement filed quarterly with the Securities and Exchange
Commission. Tenant agrees to indemnify and hold Landlord and the Indemnified
Parties harmless from and against any and all claims for mechanics',
materialmen's or other liens in connection with any Alterations, Repairs, or any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant. Landlord reserves the right to enter the Premises for the purpose of
posting such notices of non-responsibility as may be permitted by law or desired
by Landlord.
10. LANDLORD'S REPAIRS.
10.1 Scope of Landlord's Repairs. Landlord shall, as part of Operating
---------------------------
Expenses to the extent permitted under Paragraph 4 of this Lease, operate,
improve, lease, manage and maintain the Building, Base Building, Common Areas,
and the Parking Facilities in accordance with all governmental laws, rules and
regulations in a manner consistent with Class "A" buildings located in the
vicinity of the Building. Landlord shall maintain and repair all of the
following in order to keep them in proper working order, condition and repair,
except for non-insured damage or wear and tear which is the result of willful
misconduct or negligent acts or omissions by Tenant or Tenant's Affiliates: (i)
the structural elements and the public and common areas of the Building as the
same may exist from time to time; (ii) the Base Building; (iii) the Building
Systems located outside the Premises; (iv) the systems, equipment and facilities
located in the Premises which are either above the drop ceiling or constitute
electrical facilities (the "Premises Systems"); (v) the Building's
telecommunications system; (vi) the Building's exterior roof structure and
membrane; and (vii) the existing in-wall plumbing and underground sewer lines
serving the Premises. Landlord shall have no obligation to make repairs under
this Paragraph 10 until a reasonable time after receipt of written notice of the
need for such repairs has elapsed. Except as otherwise set forth in this Lease,
in no event shall any payments owed by Tenant under the Lease be abated, nor
shall Landlord have any liability for interruption or interference to Tenant's
business on account of Landlord's failure to make repairs under this Paragraph
10.
10.2 Landlord's Right of Entry to Make Repairs. Landlord and Landlord's
-----------------------------------------
Employees (as defined in Paragraph 14.1 below) shall have the right to enter the
Premises at all reasonable times for
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the purpose of making any alterations, additions, improvements or repairs to the
Premises or the Building as Landlord may deem necessary or desirable, without
liability or compensation to Tenant, except in emergencies or as otherwise
specifically set forth in this Lease; provided, however, that any such entry
shall be accomplished after business hours, as expeditiously as reasonably
possible and in a manner so as to cause as little interference to Tenant as
reasonably possible.
10.3 Tenant's Right to Perform Landlord's Maintenance Obligations. At all
------------------------------------------------------------
times during which Tenant is the lessee of one hundred percent (100%) of the
Building pursuant to this Lease, Tenant shall have the rights set forth in this
Paragraph 10.3 with respect to the Building. The rights set forth herein shall
not apply to the Option A Space, the Option B Space, or any other portion of the
Project outside of the Building which may be leased by Tenant from time to time
pursuant to this Lease.
(a) General Action. Tenant may provide Landlord with written notice
--------------
(the "Repair Notice") of any event or circumstance which pursuant to the terms
of this Lease requires Landlord to repair, alter, improve and/or maintain the
Premises (a "Required Action"). Landlord shall provide the Required Action
within the time period required by this Lease, or, if no specific time period is
specified in this Lease, Landlord shall commence the Required Action within a
reasonable time (not to exceed ten (10) days) after the date of Landlord's
receipt of the Repair Notice (the "Notice Date"), and shall complete the
Required Action within thirty (30) days after the Notice Date; provided that if
the nature of the Required Action is such that the same cannot reasonably be
completed within a thirty (30) day period, Landlord's time period for completion
shall not be deemed to have expired if Landlord diligently commences such cure
within such period and thereafter diligently proceeds to rectify and complete
the Required Action, as soon as possible). If Landlord fails to commence or
complete the Required Action within the applicable time periods, then upon
Tenant's delivery to Landlord of a second written notice specifying that Tenant
is taking the Required Action (the "Second Notice"), Tenant may proceed to take
the Required Action.
(b) Emergency Action. Notwithstanding the foregoing, (i) if there
----------------
exists an emergency such that the Premises or a portion thereof are rendered
untenantable, and (ii) if Tenant's personnel are forced to vacate the Premises
or such portion thereof due to the emergency, and (iii) if Tenant gives the
Building's management office notice (the "Emergency Notice") of Tenant's
intention to take action with respect thereto (the "Necessary Action"), and (iv)
if the Necessary Action is also a Required Action, and (v) if Landlord does not
commence the Necessary Action within one (1) business day after the Emergency
Notice (the "Emergency Cure Period") and thereafter use its best efforts and due
diligence to complete the Necessary Action as soon as possible, then Tenant may
take the Necessary Action. To the extent Tenant is entitled to recover damages
from Landlord by reason of Landlord's failure timely to commence and/or complete
the Necessary Action, Tenant's damages may include, without limitation, the
fully documented, reasonable costs incurred in any temporary relocation of
Tenant's personnel previously located in such untenantable space which shall
have occurred, including by way of example only, higher rent, broker's
commissions, fees of consultants and other reasonable costs of temporarily
moving to other premises.
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(c) Restrictions on Action. If any Necessary Action will affect the
----------------------
Building Systems, the structural integrity of the Building, or the exterior
appearance of the Building, Tenant shall use only those contractors used by
Landlord in the Building for work on the Building Systems, or its structure, and
Landlord shall provide Tenant (when available and upon Tenant's request) with
notice identifying such contractors and any changes to the list of such
contractors, unless such contractors are unwilling or unable to perform such
work or the cost of such work is not competitive, in which event Tenant may
utilize the services of any other qualified contractors which normally and
regularly performs similar work in the Comparable Buildings except for any
contractors who Landlord specifically notifies Tenant in writing within five (5)
business days of Landlord's receipt of a Repair Notice or within one (1)
business day of Landlord's receipt of an Emergency Notice that Tenant may not
use for such work (which notice shall specify the commercially reasonable
reasons for Landlord's not allowing Tenant to use such contractor.)
(d) Reimbursement for Action. If any Required Action or Necessary
------------------------
Action is taken by Tenant pursuant to the terms of this Paragraph 10.3, then
Landlord shall reimburse Tenant for its reasonable and documented costs and
expenses in taking the Required Action or Necessary Action within thirty (30)
days after receipt by Landlord of an invoice from Tenant which sets forth a
reasonably particularized breakdown of its costs and expenses in connection with
taking the Required Action or Necessary Action on behalf of Landlord (the
"Repair Invoice"). In the event Landlord does not reimburse Tenant for the
Repair Invoice within thirty (30) days of receipt, then Tenant may deduct from
the next Rent payable by Tenant under this Lease, the amount set forth in the
Repair Invoice plus interest at the Interest Rate (the "Offset Right").
Notwithstanding the foregoing, if Landlord delivers to Tenant within thirty (30)
days after receipt of the Repair Invoice, a written objection to the payments of
such invoice, setting forth with reasonable particularity Landlord's reason for
its claim that the Required Action or Necessary Action did not have to be taken
by Landlord pursuant to the terms of this Lease or that Tenant breached the
terms of this Paragraph 10.3, or that the charges are excessive (in which case
Landlord shall pay the amount it contends would not have been excessive), then
Tenant shall not be entitled to deduct such amount from Rent, but the dispute
may be submitted to arbitration in accordance with the terms of Paragraph 5 of
this Lease for resolution.
11. BUILDING SERVICES.
11.1 Standard Building Services. Landlord shall furnish the Premises with
--------------------------
such standard building services and utilities as set forth in Exhibit "G".
11.2 Building HVAC System. Subject to all governmental rules, regulations
--------------------
and guidelines applicable thereto, Landlord shall provide heating, ventilating
and air conditioning ("HVAC") from Monday through Friday, during the period from
7 a.m. to 6 p.m. and on Saturday during the period from 9 a.m. to 1 p.m., except
for the date of observation of the Holidays (the "normal business hours").
Landlord shall cause the HVAC equipment in the Building (the "Building HVAC
System") to perform in accordance with the HVAC specifications attached to this
Lease as Exhibit "H" (the "HVAC Specifications") at all times that HVAC is
required to be provided under this Lease. Landlord shall also cause the
Building HVAC System and indoor air quality of the Common Areas within the
Building
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and the Premises to meet for the entire Term and any periods of occupancy of the
Premises or any part thereof by Tenant prior to the Commencement Date the
standards set forth in Standard 62-1989 ("Ventilation for Acceptable Indoor Air
Quality"), including both the requirements of the Ventilation Rate Procedure and
Indoor Air Quality Procedure and the maintenance requirements, recommendations
and guidelines contained therein, promulgated by the American Society of
Heating, Refrigerating and Air Conditioning Engineers ("ASHRAE"), and any laws,
ordinances, rules or regulations now in effect or hereafter promulgated by any
governmental authority having jurisdiction over the Building or persons
occupying or working in the Building relating to office building indoor air
quality (collectively, the "Indoor Air Quality Standard"). In the event the
indoor air quality of the Premises or the Building Common Areas does not meet
the Indoor Air Quality Standard, such condition shall be referred to as a "Sick
Building," and in addition to any other obligations or liabilities of Landlord
and rights and remedies of Tenant with respect thereto, the terms of Paragraph
11.5 below shall apply. In the event that the Indoor Air Quality Standard is
subsequently modified, Tenant shall have the right to require Landlord to modify
the Building HVAC System, at Tenant's sole expense, to comply with such modified
Indoor Air Quality Standard. Tenant shall have the right, at Tenant's sole
expense, to install, maintain and replace a private HVAC system or systems (the
"Tenant HVAC System") separate from the Building HVAC System, in Tenant's
computer rooms, user rooms and other areas contained wholly within the Premises,
provided that such Tenant HVAC System does not materially interfere with the
operation, maintenance, or replacement of the Building HVAC System; provided,
however, that if the Tenant HVAC System does materially interfere with the
Building HVAC System, Tenant shall, so long as Tenant does not materially
interfere with the use or enjoyment of other tenants of their premises, have the
option, at its sole cost and expense, to alter the Building HVAC System (subject
to Tenant's compliance with the provisions of Paragraph 7 above), so long as the
Building HVAC System continues to operate at materially the same performance
level prior to such material interference by the Tenant HVAC System.
11.3 After-Hours HVAC. Tenant agrees to pay Landlord the sum of Two
----------------
Dollars and Seventeen Cents ($2.17) per operating hour per unit for HVAC
services which are provided to the Premises at Tenant's request during hours
other than the "normal business hours" identified in Paragraph 11.2 above.
11.4 Landlord's Right To Cease Providing Services. Landlord reserves the
--------------------------------------------
right in its reasonable discretion to temporarily interrupt, reduce or cease
service of the heating, air conditioning, ventilation, elevator, plumbing,
electrical, or telephone systems and/or utilities to the Premises, the Building
or the Project, for any or all of the following reasons or causes:
(a) any accident, emergency, governmental regulation, or act of God,
including, but not limited to, any cause set forth in Paragraph 29 below; or
(b) the making of any repairs, additions, alterations or improvements
to the Premises or the Building until said repairs, additions, alterations or
improvements shall have been completed (provided, however, that the same shall
be accomplished as expeditiously as reasonably possible and in a manner so as to
cause as little interference to Tenant as reasonably possible, and to the extent
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possible shall be conducted after normal business hours).
No such interruption, reduction or cessation of any such building services
or utilities shall constitute an eviction or disturbance of Tenant's use or
possession of the Premises or Building, or an ejection of Tenant from the
Premises, or a breach by Landlord of any of its obligations, or render Landlord
liable for any damages, including but not limited to any damages, compensation
or claims arising from any interruption or cessation of Tenant's business, or
entitle Tenant to be relieved from any of its obligations under the Lease, or
result in any abatement of Rent (except as specifically set forth in this
Lease). In the event of any such interruption, reduction or cessation, Landlord
shall use reasonable diligence to restore such service where it is within
Landlord's reasonable control to do so.
11.5 Tenant's Rights Upon Interruption of Services. Tenant shall have the
---------------------------------------------
rights set forth in this Paragraph 11.5 if Tenant is prevented from using the
Premises or any portion thereof (the "Affected Area") to conduct its normal
business operations, and does not, in fact, use the Affected Area for a period
of three (3) consecutive business days or more, due to any of the following
events (collectively, the "Abatement Events"): (i) Landlord's failure to provide
passenger elevator service, janitorial service, HVAC, electricity or water
(collectively, the "Essential Services") to the Affected Area as required by
this Lease, except where such failure is caused by an event described in
Paragraph 29 below; (ii) Landlord's provision to the Affected Area of Essential
Services at a quality level which is materially below that which Landlord is
required to provide under the terms of this Lease, except where the provision of
Essential Services at such reduced level is caused by an event described in
Paragraph 29 below; (iii) the presence, in a form or concentration in violation
of applicable law then in effect, of Hazardous Materials regarded as unhealthful
under applicable regulations then in effect in or about the Premises (which
Hazardous Materials were not brought onto the Premises by Tenant or Tenant's
Affiliates); or (iv) a Sick Building condition which results from Landlord's
failure to maintain the Building HVAC System as required by Paragraph 11.2
above.
(a) Tenant's Abatement Rights. Upon the occurrence of an Abatement
-------------------------
Event, Tenant shall have the right to deliver written notice to Landlord
identifying the Abatement Event and requesting that Landlord immediately cure
the Abatement Event ("Cure Notice"). If Landlord fails to cure the Abatement
Event within two (2) business days after delivery of the Cure Notice, then Rent
applicable to the Affected Area shall be abated from the date which occurs three
(3) full business days prior to delivery to Landlord of the Cure Notice until
the date when such Abatement Event is cured; provided, however, that if Tenant
has previously paid Rent to Landlord for a period of time subsequent to the
commencement of Tenant's right to abate Rent hereunder, then Landlord shall,
within ten (10) business days following the date of such abatement, reimburse to
Tenant the amount of such excess payments, or Tenant, in addition to its other
remedies under this Lease, shall have the right to offset an amount equivalent
to such excess payments against the sums next due under this Lease.
(b) Tenant's Termination Rights. If any Abatement Event shall not be
---------------------------
cured within one hundred eighty (180) days after Landlord's receipt of the Cure
Notice, then Tenant, upon notice to Landlord (the "Services Termination Notice")
after the expiration of such one hundred eighty (180) day period (the
"Termination Cure Period"), may terminate this Lease either as to (i) the
Affected
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Area, or (ii) if the Affected Area constitutes more than twenty-five percent
(25%) of the Premises, the entire Premises. Termination of the Lease with
respect to the Affected Area shall be effective upon the expiration of the
Termination Cure Period, in which case this Lease shall be amended to reflect
that the Affected Area is no longer a part of the Premises and the Rent payable
hereunder by Tenant shall be adjusted accordingly. Termination of the remainder
of the Premises hereunder shall be effective upon the latter of the date
specified in the Services Termination Notice or the date of Tenant's actual
vacation of the Premises; provided, however, that such termination shall in no
event be later than two (2) years after the date of delivery of the Services
Termination Notice. Notwithstanding the foregoing, the Termination Cure Period
shall be extended (for a period not to exceed an additional one hundred eighty
(180) days) by one day for each day that Landlord's cure of the Abatement Event
is delayed by an event described in Section 29 below, if Landlord offers to
provide (by no later than thirty (30) days prior to the expiration of the
original Termination Cure Period) suitable temporary replacement space
reasonably acceptable to Tenant in the Project and if such replacement space is
delivered to Tenant prior to the end of the original Termination Cure Period.
11.6 Tenant's Right to Manage the Building. Notwithstanding the provisions
-------------------------------------
of Paragraph 11.1 above, as long as Tenant occupies one hundred percent (100%)
of the Rentable Area of the Building, Tenant shall have the right to
professionally manage the Building itself pursuant to the terms of this
Paragraph 11.6, provided that Landlord shall still be required to perform its
obligations under this Lease which are unrelated to the management of the
Building. In doing so, Tenant shall be responsible for providing or contracting
for the provision of only those services which affect the interior of the
Building and Tenant's usage thereof, and which do not impact the exterior of the
Building or the use or operation of portions of the Project other than the
Building. All janitorial, trash removal, maintenance, HVAC, elevator, plumbing,
electrical and internal security services provided or contracted for by Tenant
hereunder shall be performed in a materially consistent manner with the
specifications set forth on Exhibit "G" hereto. At any time during which Tenant
manages the Building pursuant to this Paragraph, Tenant may establish operating
hours which are different from the "Normal Hours" specified in Paragraph 1 of
Exhibit "G" attached hereto.
12. ASSIGNMENT AND SUBLETTING.
12.1 Right to Assign or Sublease. Landlord and Tenant recognize and
---------------------------
specifically agree that this Paragraph 12 is an economic provision, like Rent,
and that the Landlord's right to recapture the Premises and/or share in any
profits due to an assignment or sublease, was granted by Tenant to Landlord in
consideration of certain other economic concessions granted by Landlord to
Tenant. Only upon Landlord's prior written consent, which consent shall not be
unreasonably withheld, delayed or conditioned and shall be granted only under
the circumstances as provided in this Paragraph 12, Tenant may assign its
interest in this Lease or in the Premises, or sublease all or any part of the
Premises, or allow any other person or entity to occupy or use all or any part
of the Premises. Any purported assignment or sublease without Landlord's prior
written consent shall be voidable at the election of Landlord, and shall
constitute an Event of Default (as defined in Paragraph 17.1 below). No consent
to one assignment or sublease shall constitute a waiver of the provisions of
this Paragraph 12, with
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respect to another assignment or sublease.
12.2 Procedure For Assignment or Sublease. Tenant shall provide written
------------------------------------
notice to Landlord of: (i) Tenant's intent to assign this Lease or sublease all
or any part of the Premises, (ii) the name of the proposed assignee or
sublessee, (iii) evidence reasonably satisfactory to Landlord that such proposed
assignee or sublessee is comparable in reputation, stature and financial
condition to the other tenants then leasing comparable space in the Building,
and (iv) the terms of the proposed assignment or sublease. Landlord shall,
within twenty (20) days of receipt of such notice and of any additional
information requested by Landlord concerning the proposed assignee's or
sublessee's financial responsibility, elect one or more of the following:
(a) Consent to such proposed assignment or sublease;
(b) Refuse such consent, which refusal may be on any reasonable
grounds (including without limitation those specified in Paragraph 12.3 below);
or
(c) Elect to terminate the Lease in the event of an assignment, or in
the case of a sublease, terminate this Lease as to the portion of the Premises
proposed to be sublet for the proposed term of the sublease; provided, however,
that the rights specified in this Paragraph 12.2(c) shall not be available to
Landlord with respect to any requested assignment or sublease of (i) any portion
of the Building or the "Option A Space" identified in Section 35.1 below,
regardless of the length of Tenant's occupancy thereof, or (ii) any other
portion of the Premises which Tenant has occupied for more than ten (10) years.
Landlord's failure to so elect within such twenty (20) day period shall be
deemed to constitute Landlord's consent to the proposed transfer.
12.3 Grounds for Landlord's Refusal. The parties hereby agree that it
------------------------------
shall be reasonable under this Lease and under any applicable law for Landlord
to withhold consent to any proposed assignment or sublease where one or more of
the following apply, without limitation as to other reasonable grounds for
withholding consent:
(a) The proposed assignee or subtenant is of a character or reputation
or engaged in a business which is not consistent with the quality of the
Building or Project;
(b) The proposed assignee or subtenant intends to use the Premises for
purposes which are not permitted under this Lease;
(c) Tenant marketed the Premises to the proposed assignee or subtenant
at a rental rate which was less than ninety (90%) of the rent which at the time
was being quoted by Landlord for comparable office space in the Project;
provided, however, that nothing in this Paragraph shall prohibit Tenant from
offering or agreeing to assign or sublease any part of the Premises at such a
rental rate, or from disseminating information in good faith to a prospective
transferee where such information
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contains such an offer or proposal, and nothing in this Paragraph shall give
Landlord a right to disapprove the proposed assignment or sublease due to such
offer, proposal or agreement. Instead, it is merely the intent of this Paragraph
to give Landlord the right to disapprove a proposed assignment or sublessee in
cases where Tenant advertises the Premises to the general public at a rental
---------------------
rate which is less than ninety percent (90%) of the rent which is at that time
being advertised by Landlord to the general public for comparable office space
in the Project.
(d) The proposed assignee or sublessee does not have reasonable
financial worth and/or financial stability in light of the responsibilities
involved under the Lease on the date consent is requested.
12.4 Conditions Regarding Consent to Sublease and Assignment.
-------------------------------------------------------
(a) In the event that Landlord shall consent to an assignment or
sublease under the provisions of this Paragraph 12, Tenant shall pay, within
thirty (30) days after written request by Landlord, Landlord's actual processing
costs and actual reasonable attorneys' fees incurred in giving such consent, not
to exceed One Thousand Dollars ($1,000.00) per each floor (or portion thereof)
to which the assignment or sublease pertains.
(b) Except as provided by Paragraph 12.8 below, notwithstanding any
permitted assignment or sublease, Tenant shall at all times remain directly,
primarily and fully responsible and liable for all payments owed by Tenant under
the Lease and for compliance with all obligations under the terms, provisions
and covenants of the Lease.
(c) If for any proposed assignment or sublease (other than to an
affiliated entity pursuant to Paragraph 12.6 below), Tenant receives money or
other consideration, either initially or over the term of the assignment or
sublease, in excess of the Base Rent required by this Lease, or, in the case of
the sublease of a portion of the Premises, in excess of such Base Rent fairly
allocable to such portion, after appropriate adjustments to assure that all
other payments called for hereunder are taken into account, Tenant shall pay to
Landlord as additional Rent, fifty percent (50%) of the excess of each such
payment of money or other consideration received by Tenant within thirty (30)
days of its receipt. In the event the sublessee or assignee makes such payment
directly to Landlord, Landlord shall refund fifty percent (50%) of the amount to
Tenant. In calculating the amount of any such excess, Tenant shall first be
entitled to deduct from the total consideration received by it in connection
with such assignment or sublease all costs reasonably incurred by Tenant in
connection with the assignment or subleasing, including without limitation (i)
the amount of any Base Rent and Additional Rent paid by Tenant to Landlord with
respect to the subject space during the period commencing on the latter of (A)
the date Tenant contracts with a reputable broker to market the subject space
and (B) the date Tenant vacates the subject space, until the commencement of the
term of the transfer (provided, however, that the total amount deductible by
Tenant hereunder shall not exceed six (6) months of such Base Rent and
Additional Rent), and (ii) reasonable advertising costs, commissions, legal
fees, and construction costs paid by Tenant in connection therewith.
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(d) The form of any proposed sublease or assignment agreement must be
reasonably satisfactory to Landlord, must comply with all applicable provisions
of this Lease concerning assignment and subletting, and must evidence the
agreement of the proposed assignee or sublessee to faithfully perform all of
Tenant's duties and obligations under this Lease.
(e) Without limiting the generality of the foregoing paragraph, the
form of any proposed sublease or assignment must contain a provision requiring
Landlord, Tenant and the subtenant or assignee to hold the terms of this Lease
and the assignment or sublease in strict confidence, and to not make any private
disclosure, public announcement or other communication with respect thereto
without the prior consent of the other parties, subject only to the right of the
parties to (i) make reasonable disclosures to their attorneys, accountants and
business advisors in connection with the assignment or sublease, (ii) disclose
any information required by law, and (iii) disclose any information necessary in
connection with the issuance of the parties' (or their affiliates') financial
statements.
12.5 Duration of Landlord's Consent. If Landlord consents to any proposed
------------------------------
assignment or sublease pursuant to the terms of this Paragraph 12, Tenant may
within six (6) months after Landlord's consent, but not later than the
expiration of said six-month period, enter into such assignment or sublease upon
substantially the same terms and conditions as those to which Landlord
consented, provided that if there are any material changes in those terms and
conditions (i) such that Landlord would initially have been entitled to refuse
its consent to such assignment or sublease under this Paragraph 12, or (ii)
which would cause the proposed assignment or sublease to be materially different
from the terms upon which Landlord's consent was based, then Tenant shall again
submit the request for consent to Landlord for its approval and other action
under this Paragraph 12.
12.6 Assignment to Affiliates. Notwithstanding anything to the contrary
------------------------
contained in this Paragraph 12, Landlord's consent shall not be required for an
assignment or subletting of all or a portion of the Premises to any of the
following, provided that Tenant notifies Landlord of any such assignment or
sublease prior to the effective date thereof and promptly supplies Landlord with
any documents or information requested by Landlord regarding such assignment or
sublease or such assignee or sublessee, and further provided that such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease: (i) any entity which is controlled by, controls, or is under
common control with Tenant; (ii) any purchaser of substantially all of Tenant's
assets or stock; (iii) any entity resulting from a consolidation or merger with
Tenant; or (iv) any attorney retained by Tenant under an "of counsel"
arrangement. "Control," as used in this Paragraph 12.6, shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity, or ownership of any sort,
whether through the ownership of voting securities, by contract or otherwise.
12.7 Landlord's Right to Assign. Landlord shall have the right from time
--------------------------
to time to sell, encumber, convey, transfer, and/or assign any of its rights and
obligations under the Lease.
12.8 Release of Tenant. Notwithstanding the provisions of Paragraph
-----------------
12.4(c) above,
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Landlord shall release Tenant from liability under the Lease for obligations
accruing after any assignment to which Landlord specifically consents in writing
of Tenants interest in the if, prior to Landlord's consent to the assignment,
Tenant provides Landlord with financial statements certified by an independent
certified public accountant in accordance with generally accepted accounting
principals that are consistently applied which demonstrate to Landlord's
satisfaction that (a) the assignee has a tangible net worth of One Hundred
Twenty-Five Million Dollars ($125,000,000.00), increased in proportion to any
increases in the Index between the date of this Lease to the date of Landlord's
consent to the assignment, and (b) the assignee has adequate cash flow to meet
its obligations to pay Rent under this Lease. If the assignment pertains only to
a portion of the Premises, then the release given hereby shall pertain only to
obligations relative to said assigned portion.
12.9 Landlord's Recognition of Transfers Upon Lease Termination. Tenant
----------------------------------------------------------
may request, as part of its notice under Paragraph 12.1 above, that a subtenant
of at least one full floor of the Building receive a recognition agreement (the
"Recognition Agreement") from Landlord which provides that in the event this
Lease is terminated, Landlord shall recognize the sublease (the "Transfer") as a
direct lease between Landlord and such subtenant, provided that Landlord shall
only execute a Recognition Agreement with such subtenant under the following
conditions (which conditions must be reflected in the Recognition Agreement):
(i) Landlord shall not be bound by any terms or conditions of the Transfer which
are inconsistent with the terms and conditions of this Lease; provided, however,
the economic terms of such Transfer may be more favorable to Landlord than those
set forth in this Lease; (ii) Landlord shall not be liable for any act or
omission of Tenant; (iii) Landlord shall not be subject to any offsets or
defenses which the subtenant might have as to Tenant or to any claims for
damages against Tenant; (iv) Landlord shall not be required or obligated to
credit the subtenant with any Base Rent, Additional Rent or other Rent paid by
the subtenant to Tenant; (v) Landlord shall be responsible for performance of
only those covenants and obligations of Tenant pursuant to the Transfer accruing
after the termination of this Lease; (vi) the subtenant shall agree, upon
termination of this Lease, to make full and complete attornment to Landlord, as
lessor, pursuant to a written agreement executed by Landlord and the subtenant,
so as to establish direct privity of contract between Landlord and the subtenant
with the same force and effect as though the Transfer was originally made
directly between Landlord and the subtenant; (vii) to the extent that certain
rights granted to Tenant hereunder are specifically conditioned upon the lease
or occupancy by Tenant of all or specified portions of the Building or Premises
(including without limitation building top signage rights and the right to
manage the Building), the subtenant shall be entitled to exercise those rights
only to the extent that the sublease grants the subtenant the right to use the
corresponding percentage of the Building or Premises; (viii) the subtenant shall
not have the release rights set forth in Paragraph 12.8 above, or the self-
insurance rights set forth in Paragraph 14.3(b) below; (ix) the bond
requirements set forth in Paragraph 9 above shall apply to all Alterations or
Repairs, regardless of the cost thereof; and (x) if Landlord enters into more
than one Recognition Agreement which results in the separate subtenants
thereunder having conflicting option rights or rights of first refusal under
this Lease, Landlord shall have the right to equitably allocate said rights
among the subtenants. Upon Landlord's written request given any time after the
termination of this Lease, the subtenant shall execute a new lease for the space
subject to the applicable Transfer upon the same terms and conditions as set
forth in the Recognition Agreement.
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13. SUBSTITUTED PREMISES.
Landlord shall have no right to substitute the Premises for any other
office space in the Project or elsewhere.
14. INDEMNIFICATION; INSURANCE.
14.1 Tenant's Indemnification of Landlord. Tenant shall at its sole cost
------------------------------------
and expense defend, protect, indemnify, and hold Landlord and Landlord's agents,
contractors, licensees, employees, directors, officers, partners, lenders,
trustees and invitees (collectively, the "Landlord's Employees") harmless from
and against any and all "Claims" (defined below) arising out of or in connection
with the use of the Premises or the Building by Tenant, by any of Tenant's
Employees, or by any member of the "Tenant's Group" (defined in Paragraph 14.2
below), the conduct of Tenant's business, any activity, work or things done,
permitted or allowed by Tenant in or about the Premises or the Building, the
nonobservance or nonperformance by Tenant of any of its obligations under the
terms of this Lease (including without limitation obligations to comply with
Legal Requirements), or any wilful misconduct or negligent act or omission of
Tenant or Tenant's Employees; provided, however, that the terms of the foregoing
indemnity shall not apply to the negligence or willful misconduct of Landlord or
Landlord's Employees or to claims to the extent such claims are covered by
insurance carried (or required to be carried) by Landlord pursuant to the terms
of this Lease. As used herein, the term "Claims" means any and all actions,
agreements, attorneys' fees, causes of action, claims, contracts, costs,
covenants, damages, debts, demands, expenses, judgments, lawsuits, liabilities,
liens, losses, obligations, orders, and rights. Should Landlord be named as a
defendant in any suit involving a Claim for which Tenant is obligated to defend
Landlord under this Paragraph 14.1, Tenant shall pay to Landlord Landlord's
costs and expenses incurred in such suit, including without limitation, its
actual professional fees such as appraisers', accountants' and attorneys' fees.
The provisions of this Paragraph 12.1 shall survive the expiration or sooner
termination of this Lease.
14.2 Landlord's Indemnification of Tenant. Landlord shall at its sole cost
------------------------------------
and expense defend, protect, indemnify, and hold Tenant's and Tenant's parent,
subsidiary and affiliated companies, including but not limited to their
respective directors, officers, agents, servants, employees and independent
contractors (collectively, the "Tenant's Group"), harmless from and against any
and all Claims arising out of or in connection with Landlord's use, ownership or
management of the Building or Project, including without limitation: (i) any
default by Landlord in the observance or performance of any of the terms,
covenants or conditions of this Lease on Landlord's part to be observed or
performed; (ii) the use or occupancy of the Building or the Project by Landlord
or any of Landlord's Employees; (iii) the condition of the Building or the
Project, to the extent that maintenance or repair of such condition is the
responsibility of Landlord hereunder; or (iv) any acts, omissions or negligence
of Landlord or Landlord's Employees in, on or about the Building or the Project,
either prior to, during, or after the expiration of the Term. Notwithstanding
the foregoing, the terms of the indemnification agreement contained in this
Paragraph 14.2 shall not apply to the negligence or willful misconduct of
Tenant, Tenant's Employees or the Tenant's Group, or to claims to the extent
such claims are covered by insurance carried (or required to be carried) by
Tenant pursuant to the terms of this Lease. Should
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Tenant be named as a defendant in any suit involving a Claim for which Landlord
is obligated to defend Tenant under this Paragraph 14.2, Landlord shall pay to
Tenant Tenant's costs and expenses incurred in such suit, including without
limitation, its actual professional fees such as appraisers', accountants' and
attorneys' fees. The provisions of this Paragraph 12.2 shall survive the
expiration or sooner termination of this Lease.
14.3 Tenant's Insurance. Tenant shall have the following insurance
------------------
obligations:
(a) Tenant shall obtain at its sole cost and expense and keep in
full force a policy of Combined Single Limit Bodily Injury and Property Damage
Insurance protecting Landlord and Tenant and Landlord's managing agent and any
lessors and mortgagees (whose names shall have been furnished to Tenant) against
any liability arising out of Tenant's or Tenant's Employees' use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be primary for any such risk and shall be in an amount not less than Two
Million Dollars ($2,000,000.00) per occurrence. The policy shall contain cross-
liability endorsements, and shall insure performance by Tenant of the foregoing
indemnity provision of the Lease. The policy shall provide for notice of
renewal to Landlord not less than thirty (30) days prior to expiration, and
shall provide for notice to Landlord of cancellation thirty (30) days prior to
said cancellation. The limits of said insurance shall not, however, limit the
liability of Tenant under Paragraph 14.1 above. Notwithstanding the foregoing,
Tenant shall have the right to self-insure against the liability to be covered
by the policy referenced in this Paragraph 14.3(a), so long as Tenant maintains
a net worth of at least One Hundred Twenty-Five Million Dollars
($125,000,000.00), as shown on Tenant's annual report to its shareholders and
Tenant's Form 10Q statement filed quarterly with the Securities and Exchange
Commission;
(b) Tenant shall maintain, at Tenant's sole cost and expense, on all
Tenant's Personal Property, the Tenant Improvements and Tenant's Extra
Improvements, a policy of All Risk insurance inclusive of standard fire and
extended coverage insurance, naming Landlord and Tenant as their interests may
appear, with vandalism and malicious mischief endorsements, to the extent of one
hundred percent (100%) of the full replacement value (as Landlord and Tenant may
reasonably determine from time to time) of Tenant's Personal Property, the
Tenant Improvements and Tenant's Extra Improvements. Landlord shall not be
required to carry insurance of any kind on Tenant's Personal Property, the
Tenant Improvements or Tenant's Extra Improvements, and Landlord shall not be
obligated to repair any damage thereto or replace the same. Notwithstanding the
foregoing, Tenant shall have the right to self-insure Tenant's Personal
Property, the Tenant Improvements and the Tenant's Extra Improvements, so long
as Tenant maintains a net worth of at least One Hundred Twenty-Five Million
Dollars ($125,000,000.00), as shown on Tenant's annual report to its
shareholders and Tenant's Form 10Q statement filed quarterly with the Securities
and Exchange Commission. The right of Tenant to self-insure set forth herein
shall be personal to the original Tenant named herein and may not be assigned or
exercised by any assignee or sublessee;
(c) Tenant shall maintain Workers' Compensation and Employer's
Liability insurance as required by law;
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(d) Tenant shall, at its sole cost and expense, maintain any other
types and amounts of insurance as Landlord, its mortgagees, or the trust deed
beneficiaries of Landlord or the ground or underlying lessors of the Land and/or
the Building may reasonably require from time to time in form, in amounts and
for insurance risks against which a prudent Landlord of a Comparable Building
would require; and
(e) Tenant shall provide Landlord, prior to the date on which
Landlord delivers possession of the Premises (or any portion thereof) to Tenant
and thereafter as Landlord may reasonably request, certificates issued by the
insurance company which is providing coverage, evidencing compliance with the
above insurance requirements.
14.4 Landlord's Insurance.
--------------------
(a) From and after the date hereof until expiration of the Term,
Landlord shall maintain Commercial General Liability Insurance or the equivalent
against claims of bodily injury, personal injury or property damage arising out
of Landlord's operations, assumed liabilities, contractual liabilities, or use
of the Building, Common Areas, and Project and the Parking Facilities (as
defined in Section 31.1 below) located on the Project. Such coverages shall be
in such amounts, from such companies, and on such terms and conditions, as
Landlord may from time to time reasonably determine; provided, however, that the
coverage amounts (including deductible amounts) carried by Landlord in
connection with the Building, shall, at a minimum, be comparable to the coverage
and amount of insurance carried by the landlords of Comparable Buildings. The
minimum limits of policies of insurance required of Landlord under this Lease
shall in no event limit the liability of Landlord under this Lease, except as
otherwise provided in this Lease. At no additional cost to Tenant, Tenant and
its designated affiliates will be named as additional insureds on any and all
policies of liability insurance obtained with respect to the Building, the
Common Areas and the Parking Facilities.
(b) Landlord shall have the right to maintain loss of rent insurance
in such amounts as will reimburse Landlord for any Rent which is to be abated
hereunder or otherwise commonly insured against by prudent landlords of
Comparable Buildings.
14.5 Insurance Policy Requirements. Each policy of insurance which either
-----------------------------
party is required to carry hereunder shall be issued by an insurance company
having a rating of not less than A-VII in Best's Insurance Guide or which is
otherwise reasonably acceptable to the parties and, if required by applicable
law, licensed to do business in the State of California. To the extent that
Landlord or Tenant is named as an additional insured on any such policy, the
policy shall provide that it cannot be cancelled without thirty (30) days'
notice to said additional insured. Either party shall have the right to examine
any insurance policy and/or certificates thereof maintained by the other party
hereunder at the Building's management office (with respect to those maintained
by Landlord) or the Premises (with respect to those maintained by Tenant) upon
at least five (5) business days prior notice to the Building's management office
or the Premises, as applicable. In the event that any of the policies of
insurance carried under this Paragraph shall be cancelled by the provider
thereof, the primary insured shall forward a copy of the cancellation notice to
the other party within two (2) business days of the primary
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insured's receipt of such notice, and the primary insured shall thereafter
immediately obtain substitute insurance.
14.6 Assumption of Risk. Tenant, as a material part of the consideration
------------------
to Landlord, hereby assumes all risk of damage to Tenant's Personal Property or
injury to persons in and upon the Premises or the Building from any cause
(except for damage or injury caused by the gross negligence or willful
misconduct of Landlord) and Tenant hereby waives all such claims against
Landlord. Landlord and Landlord's Employees shall not be liable for any damage
to any of Tenant's Personal Property entrusted to Landlord or Landlord's
Employees, nor for loss or damage to any of Tenant's Personal Property by theft,
water leakage or otherwise. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building. Landlord hereby
assumes all risk of damage to the Base Building from any cause (except for
damage or injury caused by the gross negligence or willful misconduct of Tenant)
and Landlord hereby waives all such claims against Tenant.
14.7 Allocation of Insured Risks/Subrogation. Landlord and Tenant release
---------------------------------------
each other from any claims and demands of whatever nature for damage, loss or
injury to the Premises or the Building, or to the other's property in, on or
about the Premises or the Building, that are caused by or result from risks or
perils insured against under any insurance policies required by the Lease to be
carried by Landlord and/or Tenant and in force at the time of any such damage,
loss or injury. Landlord and Tenant shall cause each insurance policy obtained
by them or either of them to provide that the insurance company waives all right
of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by any policy and shall provide each other
with evidence of such appropriate endorsements. Neither Landlord nor Tenant
shall be liable to the other for any damage caused by fire or any of the risks
insured against under any insurance policy required by the Lease.
15. DAMAGE OR DESTRUCTION.
15.1 Loss Covered By Insurance. If, at any time prior to the expiration
-------------------------
earlier termination of the Lease, the Premises or the Building or the Project
are wholly or partially damaged or destroyed by a casualty, which casualty
renders the Premises totally or partially inaccessible or unusable by Tenant in
the ordinary conduct of it's business, and the cost of restoring the damage or
destruction does not exceed $500,000 above the aggregate insurance proceeds
available to Landlord, then:
(a) If all repairs to such Premises or Building or Project can, in
the judgment of a contractor mutually acceptable to Landlord and Tenant, be
completed within eighteen (18) months following the date of notice to Landlord
of such damage or destruction without the payment of overtime or other premiums,
Landlord shall, at Landlord's expense, repair the same (including the Common
Areas), and shall return the Premises to Tenant in a condition at least equal to
that originally delivered by Landlord to Tenant hereunder (i.e. Landlord shall
repair and deliver the Base Building to Tenant but shall not be responsible to
repair or rebuild the Tenant Improvements or any other improvements shown on the
final working drawings submitted by Tenant to Landlord pursuant to the
Construction Agreement attached hereto as Exhibit "D"), and this Lease shall
remain in full force and
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effect and a proportionate reduction of Base Rent shall be allowed Tenant for
such portion of the Premises as shall be rendered inaccessible to or unusable by
Tenant during the period of time that such portion is inaccessible or unusable;
provided, however, that if the Premises are damaged such that the remaining
portion thereof is not sufficient to allow Tenant to conduct its business
therefrom, Landlord shall allow Tenant a total abatement of Rent during the time
and to the extent the Premises are unfit for occupancy for the purposes
permitted under this Lease and not occupied by Tenant as a result of the subject
damage. There shall be no proportionate reduction of Base Rent by reason of less
than fifty percent (50%) of the Premises being unusable or inaccessible for a
period equal to five (5) consecutive business days or less.
(b) If all such repairs cannot, as certified by a contractor
mutually acceptable to Landlord and Tenant, be completed within eighteen (18)
months following the date of notice to Landlord of such damage or destruction
without the payment of overtime or other premiums, Landlord may, at Landlord's
sole and absolute option, upon written notice to Tenant given within thirty (30)
days after notice to Landlord of the occurrence of such damage or destruction,
elect to repair such damage or destruction at Landlord's expense, and in such
event, this Lease shall continue in full force and effect but the Base Rent
shall be proportionately reduced as hereinabove provided in Paragraph 15.1(a)
above. If Landlord does not elect to make such repairs, then either party may,
upon written notice to the other, terminate this Lease. At any time, from time
to time, after the date occurring thirty (30) days after the date of the damage,
Tenant may request that Landlord inform Tenant of Landlord's reasonable opinion
of the date of completion of the repairs and Landlord shall respond to such
request within twelve (12) business days.
(c) If any repairs which Landlord elects or is required to make under
this Paragraph 15.1 have not been completed within eighteen (18) months (subject
to extension for the events described in Paragraph 29 below), then Tenant may
terminate this Lease upon thirty (30) days' written notice to Landlord;
provided, however, that if such repairs are completed and (with respect to
repairs to the Premises) delivered to Tenant by the end of said thirty (30) day
period, the termination shall have no effect and this Lease shall continue in
full force.
15.2 Loss Not Covered By Insurance. If, at any time prior to the
-----------------------------
expiration or earlier termination of this Lease, the Premises or the Building or
the Project are totally or partially damaged or destroyed by a casualty, and the
dollar amount of the loss to Landlord which is not fully covered by insurance
maintained by Landlord or for Landlord's benefit is greater than or equal to
Five Hundred Thousand Dollars ($500,000.00), which casualty renders the Premises
inaccessible or unusable to Tenant in the ordinary course of its business,
Landlord may, at Landlord's option, upon written notice to Tenant within thirty
(30) days after notice to Landlord of the occurrence of such damage or
destruction, elect to repair or restore such damage or destruction, or Landlord
may elect to terminate this Lease. If Landlord elects to repair or restore such
damage or destruction, this Lease shall continue in full force and effect but
the Base Rent shall be proportionately reduced as provided in Paragraph 15.1(a)
above. If Landlord does not elect by notice to Tenant to repair such damage, or
if the damage cannot, as certified by a contractor mutually acceptable to
Landlord and Tenant, be completed within eighteen (18) months following the date
of notice to Landlord of such damage or destruction without
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the payment of overtime or other premiums, then either party may, upon written
notice to the other, terminate this Lease; provided, however, that if Landlord
elects to terminate the Lease because the dollar amount of the loss to Landlord
which is not fully covered by said insurance exceeds Five Hundred Thousand
Dollars ($500,000.00), then Tenant may prevent such termination by agreeing,
within thirty (30) days after Landlord's delivery of its termination notice, to
pay (in advance of repairs) the amount of such loss which exceeds Five Hundred
Thousand Dollars ($500,000.00). If any repairs which Landlord elects or is
required to make under this Paragraph 15.2 have not been completed within
eighteen (18) months (subject to extension for the events described in Paragraph
29 below), then Tenant may terminate this Lease upon thirty (30) days' written
notice to Landlord; provided, however, that if such repairs are completed and
(with respect to repairs to the Premises) delivered to Tenant by the end of said
thirty (30) day period, the termination shall have no effect and this Lease
shall continue in full force.
15.3 Loss Caused by Tenant or Tenant's Employees. If the Premises or the
-------------------------------------------
Building or the Project are wholly or partially damaged or destroyed as a result
of the willful misconduct or negligence of Tenant or Tenant's Employees, and
Landlord elects to undertake to repair or restore all such damage or
destruction, then (a) this Lease shall continue in full force and effect without
any abatement or reduction in Base Rent or other payments owed by Tenant (except
to the extent Landlord receives proceeds of loss of rent insurance), and (b)
with respect to insured damage, Tenant shall be responsible for the payment of
the deductible and that portion not covered by insurance.
15.4 Destruction During Final 18 Months. In the event that the Premises,
----------------------------------
the Building or the Project is destroyed or damaged to any substantial extent
during the last eighteen (18) months of the Lease Term, and Tenant has not
previously or within sixty (60) days after the date of the casualty exercised an
available option to extend the Lease Term pursuant to Paragraph 34 of this
Lease, then notwithstanding anything contained in this Paragraph 15, either
Landlord or Tenant shall have the option to terminate this Lease by giving
written notice to the other party of the exercise of such option within sixty
(60) days after such damage or destruction, in which event this Lease shall
cease and terminate as of the date of such notice. Tenant shall pay the Rent,
properly apportioned up to such date of damage, and both parties hereto shall
thereafter be freed and discharged of all further obligations hereunder, except
as provided for in provisions of this Lease which by their terms survive the
expiration or earlier termination of the Lease Term.
15.5 Destruction of Tenant's Personal Property, Tenant Improvements or
-----------------------------------------------------------------
Tenant's Extra Improvements. In the event of any damage to or destruction of
- ---------------------------
the Premises or the Building or the Project, under no circumstances shall
Landlord be required to repair any injury, or damage to, or make any repairs to
or replacements of, Tenant's Personal Property, the Tenant Improvements, or
Tenant's Extra Improvements. Landlord shall have no responsibility for any
property placed or kept in or on the Premises or the building or the Project by
Tenant or Tenant's Employees.
15.6 Exclusive Remedy. This Paragraph 15 shall be Tenant's sole and
----------------
exclusive remedy in the event of damage or destruction to the Premises or the
Building or the Project, and Tenant, as a material inducement to Landlord to
enter into this Lease, irrevocably waives and releases Tenant's
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rights under California Civil Code Sections 1932 and 1933. No damages,
compensation or claim shall be payable by Landlord for any inconvenience,
interruption or cessation of Tenant's business, or for any annoyance, arising
from any damage to or destruction of all or any portion of the Premises or the
Building or the Project.
16. EMINENT DOMAIN.
16.1 Permanent Taking - When Lease Can Be Terminated. If the whole of the
-----------------------------------------------
Premises, or so much of the Premises as to render the balance unusable by
Tenant, shall be taken under the power of eminent domain, or if any such taking
substantially impairs access to the Premises, then (a) in the case of total
taking, the Lease shall automatically terminate as of the date of final judgment
in such condemnation, or as of the date possession is taken by the condemning
authority, whichever is earlier, and (b) in the case of partial taking, Tenant
shall have he option to terminate this Lease upon one hundred eighty (180) days'
notice, provided such notice is given no later than thirty days after the date
of such taking. A sale by Landlord under threat of condemnation shall
constitute a "taking" for the purpose of this Paragraph 16. Landlord shall be
entitled to the entire award or payment in connection with the taking of the
Building and the leasehold estate, except that (i) Tenant shall have the right
to file any separate claim available to Tenant for any taking of Tenant's
Personal Property, for interruption of or damage to Tenant's business, or for
Tenant's unamortized cost of the Tenant Improvements paid for by Tenant, so long
as such claim is separately payable to Tenant, and (ii) Tenant shall be entitled
to receive fifty percent (50%) of the "Bonus Value" of the leasehold estate in
connection with this Lease, which Bonus Value shall be equal to the sum paid by
the condemning authority as the award for compensation for taking the leasehold
created by this Lease. All Rent shall be apportioned as of the date of such
termination, or the date of such taking, as appropriate. If any part of the
Premises shall be taken, and this Lease shall not be so terminated, the Rent
shall be proportionately abated.
16.2 Permanent Taking - When Lease Cannot Be Terminated. In the event of a
--------------------------------------------------
partial taking which does not result in a termination of the Lease, Base Rent
shall be proportionately reduced based on the portion of the Premises rendered
unusable, and Landlord shall restore the Premises or the Building to the extent
of available condemnation proceeds.
16.3 Temporary Taking. No temporary taking of the Premises or any part of
----------------
the Premises and/or of Tenant's rights to the Premises or under this Lease shall
terminate this Lease or give Tenant any right to any abatement of any payments
owed to Landlord pursuant to this Lease; any award made to Tenant by reason of
such temporary taking shall belong entirely to Tenant.
16.4 Exclusive Remedy. This Paragraph 16 shall be Tenant's sole and
----------------
exclusive remedy in the event of a taking or condemnation. Tenant hereby waives
the benefit of California Civil Procedure Code Section 1265.130.
16.5 Release Upon Termination. Upon termination of the Lease pursuant to
------------------------
this Paragraph 16, Tenant and Landlord hereby agree to release each other from
any and all obligations and liabilities with respect to the Lease except such
obligations and liabilities which arise or accrue prior to such
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termination.
17. DEFAULTS.
17.1 Default by Tenant. Each of the following shall be an "Event of
-----------------
Default" by Tenant and a material breach of the Lease:
(a) Tenant shall fail to make any payment owed by Tenant under the
Lease, as and when due, and where such failure is not cured within five (5)
business days after written notice to Tenant. Such five (5) business day notice
shall be in lieu of, and not in addition to, any notice required under Section
1161 of the California Code of Civil Procedure.
(b) Tenant shall fail to observe, keep or perform any of the terms,
covenants, agreements or conditions under the Lease that Tenant is obligated to
observe or perform, other than that described in Paragraph 17.1(a) above, for a
period of thirty (30) days after notice to Tenant of said failure; provided
however, that if the nature of Tenant's default is such that more than thirty
(30) days are reasonably required for its cure, then Tenant shall not be deemed
to be in default under the Lease if Tenant shall commence the cure of such
default so specified within said thirty (30) day period and diligently
prosecutes the same to completion. Such thirty (30) day notice shall be in lieu
of, and not in addition to any notice required under Section 1161 of the
California Code of Civil Procedure.
17.2 Default by Landlord. Landlord shall not be in default in the
-------------------
performance of any obligation required to be performed under this Lease unless
Landlord has failed to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days is required for its performance, Landlord shall
not be deemed in default if Landlord shall commence such performance within
thirty (30) days and thereafter diligently pursues the same to completion.
Tenant shall have no rights as a result of any default by Landlord until Tenant
gives thirty (30) days written notice to any person who has a recorded interest
pertaining to the Building, specifying the nature of Landlord's default. Such
person shall then have the right to cure such default, and Landlord shall not be
deemed in default if such person cures such default within thirty (30) days
after receipt of notice of the default, or within such longer period of time as
may reasonably be necessary to cure the default. If Landlord or such person
does not cure the default, Tenant may exercise such rights or remedies or shall
be provided or permitted by law to recover any damages proximately caused by
such default. Notwithstanding anything to the contrary in the Lease, Landlord's
liability to Tenant for damages resulting from Landlord's breach of any
provision or provisions of the Lease shall not exceed the value of Landlord's
equity interest in the Project. Neither Landlord nor Landlord's Employees shall
have any personal liability for any matter in connection with this Lease or its
obligation as Landlord of the Premises. Tenant shall not institute, seek or
enforce any personal or deficiency judgment against Landlord or Landlord's
Employees, and none of their property shall be available to satisfy any judgment
hereunder. Except as specifically set froth in this Lease, Tenant hereby waives
and relinquishes any right which Tenant may have to terminate this Lease or
withhold any payment owed by Tenant under the Lease, on account of any damage,
condemnation, destruction
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or state of disrepair of the Premises (including, without limiting the
generality of the foregoing, those rights under California Civil Code Sections
1932, 1933, 1941, 1941.1 and 1942).
18. LANDLORD'S REMEDIES AND RIGHTS.
18.1 Termination of Lease. Upon an Event of Default by Tenant, the
--------------------
Landlord shall have the right, in addition to all other rights available to
Landlord under this Lease or now or later permitted at law or in equity, to
terminate this Lease by providing Tenant with a notice of termination. Upon
termination, Landlord may recover any damages proximately caused by Tenant's
failure to perform under the Lease, or which are likely in the ordinary course
of business to be incurred, including any amount expended or to be expended by
Landlord in and effort to mitigate damages, as well as any other damages to
which Landlord is entitled to recover under any statute now or later in effect.
Landlord's damages include the worth, at the time of any award, of the amount by
which the unpaid Rent for the balance of the Term after the time of the award
exceeds the amount of the rental loss that the Tenant proves could be reasonably
avoided. The worth at the time of award shall be determined by discounting such
amount at one percent (1%) more than the discount rate of the Federal Reserve
Bank in San Francisco in effect at the time of the award. Other damages to
which Landlord is entitled shall earn interest at the Interest Rate. Without
limiting the generality of the foregoing, Landlord shall have all of the
remedies available under California Civil Code Section 1951.2.
18.2 Right of Re-Entry. Except as prohibited by California law, upon an
-----------------
Event of Default by Tenant, Landlord shall also have the right, with or without
terminating this Lease, to re-enter the Premises and remove all persons and
Tenant's Personal Property from the Premises, such property being removed and
stored in a public warehouse or elsewhere at Tenant's sole cost and expense. No
removal by Landlord of any persons or property in the Premises shall constitute
an election to terminate this Lease. Such an election to terminate may only be
made by Landlord in writing, or decreed by a court of competent jurisdiction.
Landlord's right of entry shall include the right to remodel the Premises and
re-let the Premises. All costs incurred in such re-entry and re-letting shall
be paid solely by Tenant. Rents collected by Landlord from any other tenant
which occupies the Premises shall be offset against the amounts owed to Landlord
by Tenant. Tenant shall be responsible for any amounts not recovered by
Landlord from any other tenant. Any payments made by Tenant shall be credited
to the amounts owed by Tenant in the sole order and discretion of Landlord,
irrespective of any designation or request by Tenant. No re-entry by Landlord
shall prevent Landlord from later terminating the Lease by written notice.
18.3 Waiver of Redemption. Tenant hereby waives, for itself and all
--------------------
persons claiming by, under, and through Tenant, all rights and privileges which
it might have under any present or future law to redeem the Premises or to
continue the Lease after being dispossessed or ejected from the Premises.
18.4 Right to Perform. If Tenant is in default, beyond the expiration of
----------------
any applicable cure period, of any covenant, condition or agreement to be
performed by Tenant under the Lease, Landlord may perform such covenant or
condition at its sole option, after an additional notice to Tenant. All costs
incurred by Landlord in so performing shall immediately be reimbursed to
Landlord by Tenant,
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together with interest at the Interest Rate computed from the due date. Any
performance by Landlord of Tenant's obligations shall not waive or cure such
default. Landlord may perform Tenant's defaulted obligations at Tenant's sole
cost and expense without notice in the case of any emergency. All reasonable out
of pocket costs and expenses incurred by Landlord, including reasonable
attorneys' fees (whether or not legal proceedings are instituted), in collecting
Rent or enforcing the obligations of Tenant under the Lease shall be paid by
Tenant to Landlord upon demand.
18.5 Civil Code ' 1951.4 Remedy. Landlord has the remedy described in
--------------------------
California Civil Code Section 1951.4 (lessor may continue lease in effect after
lessee's breach and abandonment and recover rent as it becomes due, if lessee
has right to sublet or assign, subject only to reasonable limitations).
18.6 Remedies Not Exclusive. The rights and remedies of Landlord set forth
----------------------
herein are not exclusive, and Landlord may exercise any other right or remedy
available to it under this Lease, at law or in equity.
19. ATTORNEYS' FEES.
If either Landlord or Tenant commences or engages in, or threatens to
commence or engage in, any action or litigation or arbitration against the other
party arising out of or in connection with the Lease, the Premises, the Building
or the Project, including but not limited to, any action for recovery of any
payment owed by either party under the Lease, or to recover possession of the
Premises, or for damages for breach of the Lease, the prevailing party shall be
entitled to have and recover from the losing party reasonable attorneys' fees
and other costs incurred in connection with and preparation for such action.
20. SUBORDINATION.
20.1 Subordination of Lease. The Lease and the rights granted to Tenant by
----------------------
the Lease are and shall be subject and subordinate at all times to: (a) all
ground or underlying leases affecting all or any part of the Project as of the
date of this Lease, and all amendments, renewals, modifications, supplements and
extensions of such leases, and (b) all deeds of trust or mortgages affecting or
encumbering all or any part of the Project and/or any ground or underlying
leasehold estate as of the date of this Lease; provided however, that if
Landlord elects at any time to have Tenant's interest in the Lease be or become
superior, senior or prior to any such instrument, then upon receipt by Tenant of
written notice of such election, Tenant shall within ten (10) business days
after Landlord's request, execute all necessary subordination instruments or
other documents confirming the subordination of such mortgage, deed of trust,
ground or underlying lease to the Lease. Tenant agrees, upon request, to
subordinate Tenant's leasehold interest and estate in this Lease to the interest
of the mortgagee, beneficiary or ground lessor under any mortgage, deed of trust
or ground lease which may become a lien against the Premises, the Building or
the Project, provided that the trustee, beneficiary or ground lessor executes
and delivers to Tenant a recordable Subordination, Non-Disturbance and
Attornment Agreement in the form substantially as attached hereto in Exhibit
"I".
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20.2 Attornment by Tenant. In the event of the cancellation or termination
--------------------
of any or all ground or underlying leases affecting all or any part of the
Project in accordance with its terms or by the surrender thereof, whether
voluntary, involuntary or by operation of law, or by summary proceedings, or in
the event of any foreclosure of any or all mortgages or deeds of trust
encumbering the Project by trustee's sale, voluntary agreement, deed in lieu of
foreclosure, or by the commencement of any judicial action seeking foreclosure,
Tenant, at the request of the then Landlord under the Lease, shall attorn to and
recognize: (a) the ground or underlying lessor, under the ground or underlying
lease being terminated or cancelled, or (b) the beneficiary or purchaser at the
foreclosure sale, as Tenant's Landlord under the Lease, and Tenant agrees to
execute and deliver at any time upon request of such ground or underlying
lessor, beneficiary, purchaser, or their successors, any instrument to further
evidence such attornment. Tenant hereby waives its right, if any, to elect to
terminate the Lease or to surrender possession of the Premises in the event of
any such ground or underlying lease cancellation or termination or mortgage or
deed of trust foreclosure.
20.3 Existing Mortgage. If, as of the date of execution of this Lease,
-----------------
there is any mortgage, deed of trust, ground lease or other similar encumbrance
affecting the Premises, Landlord agrees to obtain from the mortgagee,
beneficiary or ground lessor and deliver to Tenant a recordable Subordination,
Non-Disturbance and Attornment Agreement in the form attached hereto as Exhibit
"I".
21. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with the Building rules and
regulations (the "Rules"), a copy of which is attached to this Lease as Exhibit
"F", and all reasonable modifications and additions to the Rules from time to
time put into effect by Landlord. Landlord agrees that the Rules and
Regulations shall not be changed or revised or enforced in any discriminatory or
unreasonable manner by Landlord, nor enforced or changed by Landlord in such a
way as to interfere with the purposes permitted under Paragraph 6.1 above. In
the event any other tenant or occupant of the Project fails to comply with the
Rules and Regulations, and such noncompliance unreasonably interferes with
Tenant's use of the Premises, Landlord shall use reasonable efforts to make such
other tenants and/or occupants comply with the Rules and Regulations.
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22. HOLDING OVER.
22.1 Surrender of Possession. Tenant shall surrender possession of the
-----------------------
Premises immediately upon the expiration or earlier termination of the Lease.
If Tenant shall continue to occupy or possess the Premises after such expiration
or termination without the consent of Landlord, then Tenant shall be a tenant at
will, but if Landlord has consented to such holdover in writing, Tenant shall be
a tenant from month-to-month. All the terms, provisions and conditions of the
Lease shall apply to the month-to-month tenancy except those terms, provisions
and conditions pertaining to the Term, and except that the Base Rent shall be
immediately adjusted upward upon the expiration or earlier termination of the
Lease to equal the greater of (a) the then prevailing monthly rental rate for
similar commercial space, as determined by Landlord, or (b) one hundred twenty-
five percent (125%) of the Base Rent for the Premises in effect under this Lease
on the day immediately prior to the date of the expiration or earlier
termination of the Lease. The month-to-month tenancy may be terminated by
Landlord or Tenant upon thirty (30) days prior notice to the nonterminating
party. In the event that Tenant fails to surrender the Premises upon such
expiration or earlier termination, then Tenant shall indemnify and hold Landlord
harmless against all losses or liability resulting from or arising out of
Tenant's failure to surrender the Premises, including, but not limited to, any
amounts required to be paid to or damages incurred due to the loss of any tenant
or prospective tenant who was to have occupied the Premises after said
termination or expiration and any related attorneys' fees and brokerage
commissions, provided that Landlord notifies Tenant of such tenant or
prospective tenant.
22.2 Payment of Money After Termination. No payment of money by Tenant to
----------------------------------
Landlord after the termination of the Lease by Landlord, or after the giving of
any notice of termination to Tenant by Landlord which Landlord is entitled to
give Tenant under the Lease, shall reinstate, continue or extend the Term of the
Lease or shall affect any such notice given to Tenant prior to the payment of
such money, it being agreed that after the service of such notice or the
commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease, and otherwise exercise its rights and remedies. The making of
any such payments by Tenant shall not waive such notice, or in any manner affect
any pending suit or judgment obtained.
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23. INSPECTIONS AND ACCESS.
Landlord may enter the Premises at all reasonable hours upon reasonable
notice to Tenant and in compliance with all other terms of this Lease, in order
to: (i) inspect the Premises; (ii) show the Premises to prospective purchasers,
mortgagees, or tenants, ground or underlying lessors, or during the last twelve
(12) months of the initial Lease Term (or Option Term, as applicable) to
prospective tenants; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises or the Building if necessary to comply with
current building codes or other applicable laws, or for structural alterations,
repairs or improvements to the Building. Notwithstanding anything to the
contrary contained in this Paragraph 23, Landlord may enter the Premises at any
time to: (a) perform services required of Landlord; (b) take possession due to
any breach of this Lease in the manner provided herein; and (c) perform any
covenants of Tenant which Tenant fails to perform. Landlord may make any such
entries without the abatement of Rent (except as otherwise provided herein) and
may take such reasonable steps as required to accomplish the stated purposes.
If Tenant shall not be personally present to open and permit an entry into the
Premises at any time when such entry by Landlord is necessary or permitted under
the Lease, Landlord may enter by means of a master key without liability to
Tenant except for any failure to exercise due care for Tenant's Personal
Property, and without affecting the Lease.
24. NAME OF BUILDING AND PROJECT.
Except as permitted in connection with Tenant's signage rights pursuant to
Paragraph 40 below, if Tenant uses any name, insignia, or logotype of the
Building or the Project for any purpose or uses any picture of the Building or
the Project in its advertising, stationery or any other manner, Tenant shall
also specify therein that the Building is located in the City of Commerce.
Landlord expressly reserves the right, in Landlord's sole and absolute
discretion, at any time to change the name, insignia, logotype, or street
address of the Building or the Project without in any manner being liable to
Tenant. Nothing in this Paragraph 24 shall give Landlord the right to remove or
alter or signs except to the extent authorized by Paragraph 40 below.
25. SURRENDER OF LEASE.
The voluntary or other surrender of the Lease by Tenant, or a mutual
cancellation of the Lease, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of Tenant's interest in
any or all such subleases or subtenancies.
26. WAIVER.
The waiver by Landlord or Tenant of any term, covenant, agreement or
condition contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other term, covenant, agreement,
condition or provision of this Lease, nor shall any custom or practice which may
develop between the parties in the administration of the Lease be construed to
waive or lessen the
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right of Landlord or Tenant to insist upon the performance by the other in
strict accordance with all of the terms, covenants, agreements, conditions, and
provisions of the Lease. The subsequent acceptance by Landlord of any payment
owed by Tenant to Landlord under the Lease, or the payment of Rent by Tenant,
shall not be deemed to be a waiver of any preceding breach by Tenant of any
term, covenant, agreement, condition or provision of the Lease, other than the
failure of Tenant to make the specific payment so accepted by Landlord,
regardless of Landlord's or Tenant's knowledge of such preceding breach at the
time of the making or acceptance of such payment.
27. SALE BY LANDLORD.
In the event Landlord shall sell, assign, convey or transfer all or a part
of its interest in the Project or any part of the Project, Tenant agrees to
attorn to such transferee, assignee or new owner, and upon consummation of such
sale, conveyance or transfer, provided and to the extent that the transferee has
agreed to assume liability, Landlord shall automatically be freed and relieved
from all liability and obligations accruing or to be performed from and after
the date of such sale, transfer, or conveyance. In the event of such sale,
assignment, transfer or conveyance, Landlord shall transfer to such transferee,
assignee or new owner of the Project the balance of the Security Deposit, if
any, remaining after lawful deductions and in accordance with California Civil
Code Section 1950.7, after notice to Tenant, and Landlord shall thereupon be
relieved of all liability with respect to the Security Deposit.
28. NO LIGHT AND AIR EASEMENT.
Any diminution or shutting off of light or air by any structure which may
be erected on lands adjacent to or in the vicinity of the Project shall not
affect the Lease, abate any payment owed by Tenant under the Lease or otherwise
impose any liability on Landlord.
29. FORCE MAJEURE.
Except with respect to the obligations imposed with regard to Rent and
other charges to be paid by Tenant pursuant to this Lease, the parties hereto
shall not be chargeable with, liable for, or responsible to the other party for
anything or in any amount for any failure to perform or delay caused by: fire;
earthquake; explosion; flood; hurricane; the elements; acts of God or the public
enemy; actions, restrictions, limitations or interference of governmental
authorities or agents; war; invasion; insurrection; rebellion; riots; strikes or
lockouts; inability to obtain necessary materials, goods, equipment, services,
utilities or labor; or any other cause which is beyond the reasonable control of
such party; and any such failure or delay due to said causes or any of them
shall not be deemed a breach of or default in the performance of the Lease by
such party. Notwithstanding the foregoing, this Paragraph 29 shall not extend
any time period set forth in Paragraphs 3.7, 11 or 15.1 above.
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30. ESTOPPEL CERTIFICATES.
Tenant shall, at any time and from time to time upon request of Landlord,
within thirty (30) days following notice of such request from Landlord, execute,
acknowledge and deliver to Landlord in recordable form, a certificate (the
"Estoppel Certificate") in writing in the form of the attached Exhibit "J" or in
such other form as Landlord or any of its lenders, prospective purchasers,
lienholders or assignees may deem reasonably appropriate. Failure by Tenant to
deliver the Estoppel Certificate within this ten (10) day period shall be deemed
to conclusively establish that this Lease is in full force and effect and has
not been modified except as may be represented by Landlord. Tenant's failure to
deliver the Estoppel Certificate within ten (10) business days after notice from
Landlord that the same is due shall, at the option of Landlord, constitute an
Event of Default. Landlord hereby agrees to provide to Tenant an estoppel
certificate signed by Landlord, containing the same types of information, and
within the same period of time, as set forth above, with such changes as are
reasonably necessary to reflect that the estoppel certificate is being granted
and signed by Landlord to Tenant, rather than from Tenant to Landlord or a
lender of Landlord.
31. PARKING FACILITIES.
31.1 Parking Attributable to the Building. Landlord shall maintain and
------------------------------------
operate, or cause to be maintained and operated, automobile parking facilities
(the "Parking Facilities") in, adjacent to or within a reasonable distance from
the Building. Tenant's privileges during such time with respect to the Parking
Facilities shall be in accordance with the provisions of the attached Exhibit
"K". Tenant shall not be required to pay a parking charge in connection with
the use of such parking spaces. One third (a) of the parking spaces to be
provided to Tenant hereunder shall be located as shown on Exhibit "L". Ten (10)
of the remaining spaces shall be located immediately adjacent to the eastern
entrance to the Building as shown on said Exhibit "L" and shall, at Tenant's
option, be designated for the use of Tenant's visitors or employees.
31.2 Parking Attributable to Expansion Space. With respect to any space in
---------------------------------------
the Project, other than in the Building, leased by Tenant pursuant to any option
or right of first refusal contained herein, or otherwise leased by Tenant
(collectively, the "Expansion Space"), Landlord shall provide Tenant, at no
additional charge and throughout the Term of the lease of said Expansion Space,
with the use of unreserved parking spaces in the Parking Facilities at the rate
of four (4) spaces for each one thousand (1,000) square feet of Rentable Area
contained within the Expansion Space.
32. SECURITY SERVICES.
32.1 Landlord's Right to Furnish Security Services. Landlord shall
---------------------------------------------
provide, throughout the Term of this Lease, at least one (1) roving security
guard patrolling the Project twenty-four (24) hours a day, seven (7) days a
week. The cost thereof shall be included as an Operating Expense hereunder.
Landlord may furnish additional security services for the Premises and/or the
Building and/or the Project as it deems appropriate in its sole and absolute
discretion. In the event Landlord does furnish or contract to furnish any such
security services, Tenant shall nevertheless have sole responsibility for
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the protection of itself, Tenant's Employees and all property of Tenant and
Tenant's Employees located in, on or about the Premises, the Building or the
Project, and the provisions of Paragraph 14.6 above shall nevertheless continue
in full force and effect.
32.2 Tenant's Right to Install Security System. If Tenant wishes to
-----------------------------------------
establish or install any automated and/or non-automated security system in, on
or about the Premises, Tenant shall first notify Landlord of Tenant's plan for
any such system, and Landlord shall have the right to review and approve or
disapprove said plan in Landlord's reasonable discretion. If Landlord approves
any such plan and Tenant establishes or installs any automated and/or non-
automated security system in, on or about the Premises and should such system
materially and adversely affect the Premises or the Project, or have a material
and adverse effect on other tenants respectively, Landlord shall subsequently
have the right to enter upon the Premises to review Tenant's security system
from time to time and request Tenant to make changes which are reasonable under
the circumstances in personnel and/or equipment. Tenant shall make said
reasonably requested changes within a reasonable period of time thereafter.
33. NOTICES.
All notices, requests, consents, approvals, payments in connection with the
Lease, or communications that either party desires or is required or permitted
to give or make to the other party under the Lease shall only be deemed to have
been given, made and delivered, when received, if personally served, or when
mailed, if deposited in the United States mail, certified or registered mail,
postage prepaid, and addressed to the parties as specified in Item 13 of the
Lease Summary or to such other address or addresses as either Landlord or Tenant
may from time to time designate to the other by written notice in accordance
herewith.
34. OPTIONS TO EXTEND LEASE TERM.
34.1 Options to Extend. Landlord hereby grants Tenant options ("Options")
-----------------
to further extend the term of the Lease for three (3) additional five-year
periods commencing on the fifteenth (15th), twentieth (20th) and twenty-fifth
(25th) anniversaries of the Commencement Date ("Option Periods"). All of the
terms and provisions of the Lease shall apply to Tenant's use and occupancy of
the Premises during the Option Periods, except that the Base Rent during the
Option Periods shall be as set forth in Paragraph 34.2 below. Tenant may
exercise an Option only by written notice to Landlord delivered not less than
nine (9) months and not more than twelve (12) months prior to the commencement
of the corresponding Option Period. Within ten (10) business days after
Tenant's request therefor (but not sooner than the first day on which Tenant may
exercise any Option), Landlord and Tenant shall each disclose to the other their
respective good faith estimates of the amount of Base Rent which, pursuant to
Paragraph 34.2 below, would be charged to Tenant during the Option Period in
question. If the term of this Lease is not extended for any Option Period, then
Tenant shall have no right to exercise any subsequent Option or to occupy the
Premises during any subsequent Option Period. Tenant may not exercise any
Option at any time in which Tenant is in default under the Lease.
34.2 Base Rent During Option Periods. The Base Rent during each Option
-------------------------------
Period shall
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equal the greater of (i) ninety-five percent (95%) of the average Base Rent at
which Landlord offers to lease comparable office space within the Project to
third parties at the time of Tenant's exercise of the corresponding Option, or
(ii) ninety-five percent (95%) of the current Base Rent. If no such comparable
office space is being offered at the time of such exercise, then Landlord and
Tenant shall use the average base rent then being offered to tenants by
landlords of the Comparable Buildings (as defined in Paragraph 4.5(l) above). If
it is necessary to examine comparable office buildings in order to determine
base rent under this Paragraph 34.2 and the parties are unable to agree upon
what constitutes "Comparable Buildings", then upon the request of either party,
Base Rent for the Option Period in question shall be determined by "baseball"
arbitration pursuant to Paragraph 34.3 below, provided that the Base Rent shall
not be less than ninety-five percent (95%) of the Base Rent then being paid by
Tenant to Landlord for the Premises. In any event, the determination of the
average base rent being offered by Landlord or other landlords shall take into
account, on a net present value basis, all economic lease concessions,
improvement allowances, moving allowances, construction time, in-lieu brokerage
commissions, free rent and all other concessions being offered by Landlord or
such other landlords so that Tenant will receive all of the same benefits that a
prospective tenant would receive.
34.3 Determination of Base Rent by Arbitration. If arbitration of the Base
-----------------------------------------
Rent during any Option Period is requested pursuant to Paragraph 34.2 above,
then Landlord and Tenant shall, within five (5) days after such request, agree
upon one appraiser who shall, by profession, be a real estate broker or
attorney, to determine the Base Rent. If Landlord and Tenant are unable to
agree upon an appraiser, Landlord and Tenant shall each select one appraiser,
who shall select a third appraiser, and the third appraiser alone shall decide
the issue. Landlord and Tenant shall each pay one half of the appraiser's
appraisal fee; if each party selects an appraiser who in turn selects a third
appraiser, Landlord and Tenant shall each pay the entire fee of its own
appraiser, and shall each pay one half of the fee of the third appraiser. All
such appraisers shall have at least five (5) years experience in commercial real
estate appraisal in the county in which the Premises are located. Within five
(5) days thereafter, Landlord and Tenant shall each give notice (the
"Determination Notice") to the other and to the appraiser setting forth the
submitting party's determination (based on the criteria specified in Paragraph
34.2 above) of the Base Rent for the Option Period. The arbitrator shall
conduct such hearings and investigations as the arbitrator shall deem
appropriate and shall, within thirty (30) days after having been appointed,
choose on of the determinations set forth in either Landlord's or Tenant's
Determination Notice, and that choice shall be final and binding on Landlord and
Tenant. The arbitrator shall not have the power to add to, modify, or change
any provision of this Lease. The arbitrator's role, and the scope of his or her
decision, shall be limited to a determination of Base Rent as set forth herein.
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35. OPTIONS TO LEASE ADDITIONAL SPACE.
35.1 Space in 400 Citadel Drive (Option A). Landlord hereby grants Tenant
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the option ("Option A") to lease up to approximately seven thousand (7,000)
contiguous rentable square feet on the ground floor of Building F of the
Project, located at 400 Citadel Drive (the "Option A Space"). Option A may be
exercised only by written notice from Tenant to Landlord delivered no later than
June 1, 1998. Tenant shall designate the approximate number of square feet to
be included in the Option A Space. The exact location and configuration of the
Option A Space shall be mutually determined by Landlord and Tenant. Landlord
shall deliver the Option A Space to Tenant within six (6) months after Tenant's
exercise of Option A. Tenant shall accept the Option A Space in its "as is"
condition as of the date on which Tenant exercises Option A; provided, however,
that Option Space A and all Building Systems serving said space shall be in good
condition and in good working order and in compliance with all applicable codes
and laws as of the delivery date. Base Rent per rentable square foot of the
Option A Space shall equal Base Rent for the Premises. Upon Landlord's delivery
of the Option A Space to Tenant in the condition required herein, the Option A
Space shall be deemed part of the Premises, and Tenant's use of the Option A
Space shall be subject to all of the terms and conditions of this Lease
(including without limitation rental adjustments made pursuant to Paragraph 4
above), except that Tenant shall not be entitled to any free or abated rent in
connection with the Option A Space. Tenant's lease of the Option A Space shall
terminate concurrently with the termination of its lease of the Premises
hereunder.
35.2 Space in 500 Citadel Drive (Option B). Landlord hereby grants Tenant
-------------------------------------
the option ("Option B") to lease up to approximately thirteen thousand five
hundred (13,500) contiguous rentable square feet on the ground floor of Building
D of the Project, located at 500 Citadel Drive (the "Option B Space"). Option B
may be exercised only by written notice from Tenant to Landlord delivered no
later than December 31, 1999. Tenant shall designate the approximate number of
square feet to be included in the Option B Space. The exact location and
configuration of the Option B Space shall be mutually determined by Landlord and
Tenant. Landlord shall deliver the Option B Space to Tenant within six (6)
months after Tenant's exercise of Option B. Tenant shall accept the Option B
Space in its "as is" condition as of the date on which Tenant exercises Option
B; provided, however, that Option Space B and all Building Systems serving said
space shall be in good condition and in good working order and in compliance
with all applicable codes and laws as of the delivery date. If Option B is
exercised prior to January 1, 1999, Base Rent per rentable square foot of the
Option B Space shall equal Base Rent for the Premises; if Option B is exercised
after January 1, 1999, Base Rent per rentable square foot of the Option B Space
shall equal Sixty-Three Cents ($0.63) per month. Upon Landlord's delivery of
the Option B Space to Tenant in the conditions required herein, the Option A
Space shall be deemed part of the Premises, and Tenant's use of the Option B
Space shall be subject to all of the terms and conditions of this Lease
(including without limitation rental adjustments made pursuant to Paragraph 4
above), except that Tenant shall not be entitled to any free or abated rent in
connection with the Option B Space. Tenant's lease of the Option B Space shall
terminate concurrently with the termination of its lease of the Premises
hereunder.
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36. RIGHT OF FIRST REFUSAL TO LEASE ADDITIONAL SPACE.
36.1 Right of First Refusal. Subject to rights previously granted to
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existing tenants of the Project as described in Paragraph 36.4 below, Tenant
shall have the continuing right of first refusal ("Right of First Refusal")
during the Term of this Lease (including all Option Periods) to lease the
following space (collectively, the "Right of First Refusal Space") at such times
and on such economic conditions as Landlord offers the Right of First Refusal
Space to third parties: (a) any additional office space within the Project that
is contiguous to any portion of the Premises then leased by Tenant hereunder;
and (b) any office space within the Project containing four thousand (4,000) or
more contiguous square feet.
36.2 Method of Offer and Exercise. Prior to accepting any offer of, or
----------------------------
making any commitment to, any third party for the lease of any Right of First
Refusal Space, Landlord shall offer to lease that space to Tenant on the same
economic terms and conditions (that is, for the same Base Rent and with the same
economic lease concessions, improvement allowances, moving allowances, free rent
and all other similar concessions) as set forth in the third party offer or
commitment. Tenant shall have seven (7) business days after Landlord's offer to
exercise (by written notice to Landlord) Tenant's Right of First Refusal. If
Tenant elects not to so exercise its Right of First Refusal, and thereafter (but
prior to execution of the third party lease) the economic terms of the third
party offer are changed in the tenant's favor by more than five percent (5%),
then Landlord shall re-offer the Right of First Refusal Space to Tenant on such
changed terms, and Tenant shall have three (3) business days to exercise (by
written notice to Landlord) Tenant's Right of First Refusal.
36.3 Effect of Exercise. Upon Tenant's exercise of its Right of First
------------------
Refusal, it shall enter into an amendment of this Lease which shall provide that
(a) the Right of First Refusal Space shall be deemed part of the Premises, (b)
the Base Rent and other economic provisions applicable to the Right of First
Refusal Space shall be as set forth in this Lease, and (c) all other provisions
of this Lease which do not conflict with said economic provisions shall apply to
the Right of First Refusal Space.
36.4 Superior Rights of Existing Tenants. Notwithstanding the foregoing,
-----------------------------------
Tenant acknowledges that it has previously granted rights of first refusal
and/or first offer to other tenants of the Project on certain other office space
within the Project, as follows: (a) State Compensation Insurance Fund has a
right of first offer to any space on the first floor of Building F (400 Citadel
Drive); (b) Le Roy Crandall & Associates also has a right of first offer to any
space on the first floor of Building F (400 Citadel Drive), as well as a right
of first offer on third floor space in Building D (500 Citadel Drive); (c)
Barbosa, Garcia & Barnes has a right of first refusal on third floor space in
Building D (500 Citadel Drive); and (d) Concept 7 has a right of first refusal
on third floor space in Building D (500 Citadel Drive). Tenant's Right of First
Refusal shall be subject to all such rights, and shall be further subject to the
rights of any existing tenant of any Right of First Refusal Space to extend or
renew its lease; the exercise of any such right, or the extension or renewal of
any such lease, shall not be deemed a violation of Tenant's Right of First
Refusal.
37. FIRST RIGHT TO NEGOTIATE FOR PURCHASE OF BUILDING OR BUILDINGS.
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During the first ten (10) years of the Term of this Lease, Tenant shall
have a one-time right to negotiate ("First Right to Negotiate") for the purchase
of the Building on the terms set forth in this Paragraph 37. If, at any time
prior to the expiration of said ten (10) year period, Landlord desires to sell
either the Building separate from the remainder of the Project, or the office
buildings contained in the Project (including the Building) separate from the
retail and hotel buildings contained in the Project, then Landlord shall so
notify Tenant in writing. During the ninety (90) day period following
Landlord's delivery of said notice, Tenant shall have the exclusive right to
negotiate with landlord for the purchase of the Building or office building
component of the Project. Landlord agrees to negotiate in good faith with
Tenant during said period. If Tenant purchases the Building or the office
building component of the Project pursuant to this Paragraph 37, no real estate
brokerage fee shall be payable by Landlord. Landlord's merger, affiliation or
joint venture with one or more entities in connection with the ownership or
operation of the Project or any portion thereof shall not be deemed a sale for
the purpose of allowing Tenant to exercise its First Right to Negotiate
hereunder. Furthermore, Tenant's First Right to Negotiate shall not apply to
any sale by Landlord of the office component of the Project together with either
or both the retail and/or hotel components of the Project.
38. TENANT'S RIGHT TO TERMINATE THE LEASE.
Subject to the terms and provisions of this Paragraph 38, Tenant shall have
two (2) one-time rights to terminate this Lease. The first such right shall be
exercised only by written notice delivered to Landlord no later than the fourth
(4th) anniversary of the Commencement Date, and said termination shall be
effective at the end of the fifth (5th) year of the Term of this Lease. The
second such right shall be exercised only by written notice delivered to
Landlord no later than the ninth (9th) anniversary of the Commencement Date, and
said termination shall be effective at the end of the tenth (10th) year of the
Term of this Lease. In order for either such termination notice to be
effective, Tenant must also deliver to Landlord, within fifteen (15) days after
Tenant's delivery of the notice, a termination fee equal to the unamortized cost
(without interest) of all leasing commissions paid by Landlord in connection
with this Lease.
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39. TENANT'S RIGHT TO TERMINATE LEASE OF FULL FLOOR OR OPTION A SPACE.
Subject to the terms and provisions of this Paragraph 39, Tenant shall have
the one-time right to terminate its lease of either one full floor of the
Building (or any other building) leased by Tenant hereunder, or to terminate its
lease of the Option A Space, effective at the end of the fifth (5th) year of the
Lease Term. Such notice shall be exercised by written notice to Landlord
specifying the portion of the Premises which is subject to the termination,
which notice must be delivered to Landlord not later than nine (9) months prior
to said effective date. In order for such termination notice to be effective,
Tenant must also deliver to Landlord, within fifteen (15) days after Tenant's
delivery of the notice, a termination fee equal to the unamortized cost (without
interest) of the pro-rata portion (attributable to the released portion of the
Premises) of all leasing commissions paid by Landlord in connection with this
Lease. If the termination notice pertains to the Option A Space, all of
Tenant's signage rights relative to that space and the building in which that
space is located shall terminate concurrent with the termination of the lease of
the Option A Space.
40. SIGNAGE.
40.1 Building-Top Signage. Tenant shall have the exclusive right, at its
--------------------
sole cost and expense, to install up to four signs identifying Tenant (with the
identical name at all times) on the parapet at the top of the exterior of the
Building, or within ten feet of the top of the exterior wall of the Building. A
maximum of one such sign may be located on each side of the Building.
40.2 Monument Signage. Subject to the existing rights of certain other
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tenants of the Project as discussed below, Tenant shall have the right, at its
sole cost and expense, to the exclusive use of the first tenant monument sign
immediately adjacent to the main entry of the Project. Notwithstanding the
foregoing, Tenant acknowledges that Barbosa, Garcia & Barnes, Consumer Credit
Counselors of Los Angeles, Le Roy Crandall & Associates, Lee & Associates, State
Compensation Insurance Fund, and Transportation Displays Incorporated ("TDI")
all have the right to monument signage which are superior to the rights of
Tenant granted hereby. Tenant further acknowledges that the monument sign which
is to be used by Tenant hereunder is currently being used by TDI pursuant to its
lease. Landlord shall use its best efforts to persuade TDI to relinquish its
rights to use said monument, but Landlord makes no representation or warranty
that TDI will agree to do so. If TDI refuses to relinquish its rights to said
monument, Landlord will use its best efforts to provide Tenant with alternate
monument signage on another of the existing monuments in the Project.
Landlord's inability to provide Tenant with the use of monument sign
contemplated herein due to TDI's refusal to relinquish its rights to that
monument sign shall not be deemed a default by Landlord and shall not entitle
Tenant to any offset rights, rent abatement, termination rights or other
compensation or remedies.
40.3 Eyebrow Signage. Tenant shall have the right, at its sole cost and
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expense, to install one "eyebrow" sign on the exterior of the Building (or on
the exterior of Building F (400 Citadel Drive) if Tenant exercises Option A), in
a location mutually acceptable to Landlord and Tenant.
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40.4 Interior Signage. Subject to Landlord's prior written approval, in
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its sole discretion, and provided all signs are in keeping with the quality,
design and style of the other buildings in the Project, Tenant, at its sole cost
and expense, may install identification signage anywhere in the Premises
including in the elevator lobbies of the Premises, provided that such signs must
not be visible from the exterior of the Building.
40.5 Exterior Directional Signage. Subject to Landlord's prior written
----------------------------
approval (which shall not be unreasonably withheld), Tenant shall have the right
(at Tenant's expense) to cause Landlord to install reasonable directional
signage (in amounts and at locations determined by the mutual agreement of
Landlord and Tenant) at ground level in the Project indicating the location of
the Premises.
40.6 Landlord's Approval. The graphics, materials, color, design,
-------------------
lettering, lighting, size, specifications, manner of affixing, and location
(collectively, the "Sign Specifications") of all signs to be installed by Tenant
pursuant to this Paragraph 40 shall be subject to the prior written approval of
Landlord, which approval shall not be unreasonably withheld if the Sign
Specifications (a) are reasonably consistent with other exterior signs in the
Project, (b) comply with law as required by Paragraph 40.7 below, and (c) are
not prohibited under the Retail/Office Ground Lease affecting the portion of the
Land upon which the Building is located. Any signs, insignias, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord in writing may be removed without notice by
Landlord at the sole expense of Tenant. Except as specifically provided in this
Paragraph 40, Tenant may not install any signs: on the exterior or roof of the
Building; on the exterior, interior or roof of any other building in the
Project; or in any of the common areas of the Project. Any signs, window
coverings, or blinds (even if the same are located behind the Landlord approved
window coverings for the Building), or other items visible from the exterior of
the Premises are subject to the prior approval of Landlord, which approval shall
not be unreasonably withheld.
40.7 Compliance with Law. No sign, insignia, notice, logo, picture, name
-------------------
or advertisement shall be attached or affixed to the exterior of the Premises in
violation of any law, ordinance, regulation, rule or requirement of any
governmental entity having jurisdiction over the Premises.
40.8 Maintenance and Repair of Exterior Signs. Landlord shall have the
----------------------------------------
right to maintain all of Tenant's signs on the exterior of the Premises, and to
pass the cost thereof to Tenant as an Operating Expense. At Landlord's option,
Landlord may require Tenant, upon written notice to Tenant, to maintain, repair
or replace any or all such signage as Landlord deems necessary, all at Tenant's
expense.
40.9 Removal of Signs. Upon the termination of this Lease, Tenant shall
----------------
remove all signs and repair any damage caused by the installation, maintenance
or removal of such signs. Furthermore, if Tenant exercises its right to
relinquish the use of Option Space A, Tenant shall remove the eyebrow sign
referenced in Paragraph 40.3 above and any other signs installed in Option Space
A by or on behalf of Tenant, and shall repair any damage caused by the
installation, maintenance or removal thereof. All such removal and repair shall
be done at Tenant's sole expense.
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40.10 Transferability of Signage Rights. The building-top, monument and
---------------------------------
directional signage rights granted to Tenant pursuant to Paragraphs 40.1, 40.2
and 40.5 above may be transferred by the originally named Tenant hereunder only
to a transferee which concurrently takes an assignment or sublease from Tenant
of at least one full floor of the Building (provided, however, that such rights
may not be assigned to more than one transferree). The eyebrow signage rights
granted to Tenant pursuant to Paragraph 40.3 above may be transferred by the
originally named Tenant hereunder only to a transferee which concurrently takes
an assignment or sublease from Tenant of either one hundred percent (100%) of
the Option A Space (if that sign is installed on Building F) or one full floor
of the Building (if that sign is installed on the Building); provided, however,
that such rights may not be assigned to more than one transferree. The interior
signage rights with respect to each floor of the Building granted to Tenant
pursuant to Paragraph 40.4 above may be transferred by the originally named
Tenant hereunder only to a transferee which concurrently takes an assignment or
sublease from Tenant of one hundred percent (100%) of the corresponding floor.
No transferee of any signage rights granted herein shall have the right to
install a sign bearing a name which (a) relates to an entity which is of a
character or reputation, or is associated with a political orientation or
faction, which would be materially detrimental to or materially inconsistent
with the quality, reputation or character of the Project, or (b) violates any
exclusive use or exclusive signage rights of any other tenant of the Project,
provided that Landlord notifies Tenant of any such exclusive rights prior to the
request of Tenant (or any transferee hereunder) to change the name on any sign
installed under this Lease.
41. USE OF APPURTENANT BUILDING COMPONENTS.
Tenant shall have the right to use shafts, risers or conduits within the
Building (including without limitation those connecting the interior of the
Building to the roof), and similar components of the Building, for the
installation and maintenance of conduits, cables, ducts, flues, pipes and other
devices for communications, data processing devices, supplementary HVAC and
other facilities consistent with Tenant's permitted use of the Premises, subject
in all cases to Landlords prior written consent. Such written consent shall not
be unreasonably withheld.
42. BROKERAGE COMMISSIONS.
The real estate brokerage commission owing by Landlord to Investment
Development Services, Inc. and CB Commercial Real Estate shall be limited to the
aggregate amount of Two Hundred Thirty-Four Thousand Eight Hundred Sixty-Eight
Dollars ($234,868.00). The real estate brokerage commission owing by Landlord
to Trammell Crow Company shall be One Hundred Seventy-Nine Thousand Sixteen
Dollars ($179,016.00). In calculating commissions owed by Landlord hereunder,
Tenant's Operating Expense Adjustment shall (for purposes of this Paragraph
only) be deemed to be Fifty-Eight Cents ($0.58) per rentable square foot per
month for the Term of this Lease. Fifty percent (50%) of each said commission
shall be paid upon Tenant's commencement of construction of tenant improvements
hereunder, and the remainder shall be paid when Tenant is required to commence
(and actually commences) paying Base Rent under this Lease. In addition, fifty
percent (50%) of the corresponding real estate brokerage commission payable to
the real estate brokers identified in Item 10 of the Lease Summary (the
"Brokers") in connection with any options or rights of first refusal exercised
by Tenant (excluding the First Right to Negotiate) shall be payable upon
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Tenant's commencement of construction of tenant improvements to such expansion
space, and the remainder shall be payable when Tenant commences conducting
business therefrom. Landlord and Tenant hereby warrant to each other that they
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the Brokers, and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, and costs and expenses (including
without limitation reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of the
indemnifying party's dealings with any real estate broker or agent other than
the Brokers.
43. ANTENNA.
43.1 License to Install and Operate Antenna. Landlord hereby grants to
--------------------------------------
Tenant a license (the "Antenna License"), during the Term of this Lease, to
install, operate, maintain and use a satellite dish, microwave antenna, or other
transmission or receiver device ("Antenna") within an area of approximately five
hundred (500) square feet on the rooftop of the Building in a location to be
selected by Landlord and reasonably acceptable to Tenant ("License Area"). The
installation of the Antenna shall be done at Tenant's expense by Landlord or by
contractors or subcontractors mutually approved by Landlord and Tenant. The
Antenna and all related hardware shall be purchased or leased by Tenant at its
expense. The Antenna License is expressly conditional upon the payment by
Tenant of all Rent due and payable under this Lease and upon compliance by
Tenant with all of the other terms and provisions of this Lease. Upon the
expiration or termination of the Term of this Lease, the Antenna License shall
also thereupon automatically terminate. Upon termination of the Antenna
License, Tenant shall, at Tenant's sole cost and expense, within ten (10)
business days thereafter, remove the Antenna and all personal property of Tenant
incidental thereto, repair all damage to the Building resulting from such
removal, and shall restore such portion of the Building rooftop affected by the
Antenna to its condition immediately prior to installation of the Antenna.
43.2 Permitted Use of Antenna. The purpose of the Antenna License is to
------------------------
permit Tenant, at its sole expense, to install, operate, use, maintain and
remove the Antenna, provided that the installation, operation, repair, use and
removal of the Antenna complies with the following requirements:
(a) The installation, operation, use, repair, maintenance and removal
of the Antenna shall satisfy all federal, state and local licensing requirements
and be in compliance with (i) all applicable laws, ordinances and regulations,
including without limitation any required conditional use permits applicable to
the Building and/or the Antenna, and (ii) any and all covenants, conditions and
restrictions encumbering the Land and/or the Building during the Term of this
Lease. The installation (including the installation of any vertical cable
risers, wires, power sources and all related equipment and materials),
operation, use, repair, maintenance and removal of the Antenna shall not
interfere with or affect in any way the telecommunications or other systems of
the Building or Project now installed or those of any existing tenant or
occupant.
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(b) The Antenna may not protrude above a height equal to the highest
point of the Building structure, except to the extent necessary to facilitate
transmission of signals, but in all events only if Tenant is in strict
compliance with this Paragraph 43 and only if the installed Antenna is not
visible above a siteline reasonably designated by Landlord.
(c) The Antenna must be mounted at a location to be reasonably and
mutually determined by Landlord and Tenant, which location shall permit the
transmission of the appropriate signals. In no event shall the License Area,
the Antenna or any wires or cables appurtenant to the Antenna be located or
installed so as to in any way interfere with or adversely affect the Building's
mechanical, electrical, life-safety, structural, engineering, window washing,
maintenance or other systems or functions.
(d) The Antenna must be properly secured and installed so as not to be
affected by high winds or other elements.
(e) The Antenna must be properly grounded.
(f) The design, color, size, manner of affixing, and aesthetics of the
Antenna must be reasonably acceptable to Landlord and must be approved by
Landlord in writing prior to installation.
(g) The weight of the Antenna shall not exceed the load limits of the
Building.
(h) Tenant shall reimburse Landlord for any actual, out of pocket,
reasonable costs or expenses (including any management fees or administrative
costs permitted under this Lease) incurred by Landlord in connection with the
installation, maintenance, repair or removal of the Antenna within thirty (30)
days after demand therefor by Landlord, including, without limitation, any cost
or expense incurred by Landlord in (i) repairing any damage to the Building
resulting from the installation, use, maintenance or repair of the Antenna and
(ii) repairing any damage to the Building suffered in connection with the
removal of the Antenna or otherwise restoring the area of the rooftop of the
Building affected thereby to its original condition.
(i) Should Tenant's use of the Antenna interfere with other
telecommunications systems of the Building or Project or those of any other
tenant of the Project existing as of the date of the installation of the
Antenna, Tenant shall, at its sole cost and expense, immediately make such
adjustments to the Antenna or its related equipment as may be reasonably
required by Landlord to eliminate such interference.
43.3 Access. Upon reasonable prior written notice to Landlord, Tenant (or
------
its contractors and subcontractors approved by Landlord) shall be permitted
reasonable and adequate access to the rooftop of the Building for the
installation, operation, repair and maintenance of the Antenna during the term
of the Antenna License.
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43.4 License Not Assignable Separate from Lease. The Antenna License
------------------------------------------
granted herein may not be transferred, assigned or conveyed in any manner
whatsoever except in connection with Tenant's assignment or subletting of not
less than one full floor of the Building; provided, however, that the Antenna
License may not be assigned to more than one assignee or sublessee.
44. HELIPORT.
Landlord consents to Tenant's construction and use of a heliport either on
the roof of the Building or in the reserved parking area allocated for Tenant,
provided that (a) Tenant first obtains all permits and approvals necessary for
said construction and use from all governmental entities having jurisdiction
thereover, (b) construction and use of a heliport on the roof of the Building
would not exceed the Building's load limits, and (c) the construction thereof is
conducted in accordance with the Construction Agreement attached hereto as
Exhibit "D". Tenant shall have the exclusive right to use said heliport during
the Term of this Lease, with the exception of any rights of Landlord or any
other governmental entity pursuant to Landlord's or such other entity's police
powers.
45. TITLE INSURANCE.
Upon the execution of this Lease (and following the recordation of the
short form memorandum of this Lease identified in Paragraph 48.12 below if
required by the title company issuing the policy required by this Paragraph 45),
Landlord shall provide Tenant with a leasehold policy of title insurance with
policy limits equal to the sum of (a) the present value of the total Base Rent
payable by Tenant hereunder, and (b) the estimated value of the initial tenant
improvements to be constructed by Tenant in the Premises. Tenant shall
cooperate with Landlord to provide such information and execute such documents
(including without limitation a short form memorandum of this Lease in form and
content selected by Landlord) necessary to cause such policy to be issued.
46. FINANCIAL INCENTIVES TO TENANT.
46.1 Loan. Landlord shall cause its Community Development Commission to
----
make an interest free loan to Tenant in the original principal amount of Two
Hundred Thousand Dollars ($200,000.00). The proceeds of said loan shall be
disbursed to Tenant upon Tenant's commencement of business upon the Premises.
The proceeds of said loan shall be used by Tenant solely to defer the expenses
of relocating to the Premises, and for no other purpose. If, prior to the
expiration of the initial term of the Lease, Tenant terminates the Lease or
vacates more than fifty percent (50%) of the Premises, then a percentage of the
principal balance equal to the remaining percentage of the initial Term of the
Lease shall become due and payable; in that event, Tenant shall have the option
of repaying the amount due (a) in one lump-sum payment not later than thirty
(30) days after the effective date of the termination or vacation, or (b) in
equal monthly installments of principal and interest (at the rate of ten percent
(10%) per annum) amortized over the remaining life (or, where the repayment
obligation is triggered by the termination of the Lease, amortized over what
would have been the remaining life) of the initial Term of the Lease. If no
such termination or vacation occurs prior to the expiration of the initial Term
of the Lease, then the entire balance of the loan shall be forgiven. Tenant
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shall execute a promissory note, loan agreement and any other documents
evidencing Tenant's obligations regarding the loan upon Landlord's request; all
such documents shall be prepared by Landlord and shall be reasonably acceptable
to Landlord and Tenant in form and content.
46.2 Fee Waiver/Reimbursement. Commencing upon the execution of this
------------------------
Lease, and continuing until the expiration or earlier termination of this Lease,
Landlord or its designee shall reimburse to Tenant, or cause the City of
Commerce to waive, all building permit and related fees for Tenant's warehouse
and office projects within the City limits of the City of Commerce; provided,
however, that the total amount of fees to be reimbursed and/or waived pursuant
to this Paragraph 46.2 shall in no event exceed Two Hundred Thousand Dollars
($200,000.00).
47. TENANT'S FINANCIAL INFORMATION.
Tenant has provided Landlord with full and complete copies of (a) Tenant's
annual report to its shareholders for each of its three (3) most recent fiscal
years, and (b) Tenant's most recent Form 10Q as filed with the Securities and
Exchange Commission.
48. MISCELLANEOUS.
48.1 Authorization to Sign Lease. If Tenant is a corporation, each
---------------------------
individual executing the Lease on behalf of Tenant represents and warrants that
he/she is duly authorized to execute and deliver the Lease on behalf of Tenant
in accordance with Tenant's bylaws or a duly adopted resolution of Tenant's
Board of Directors, and that the Lease is binding upon Tenant in accordance with
its terms. Tenant shall, concurrently with its execution of the Lease, deliver
to Landlord upon its request a certified copy of such bylaws or the resolution
of its Board of Directors authorizing the execution of the Lease. If Tenant is
a partnership or trust, each individual executing the Lease on behalf of Tenant
represents and warrants that he/she is duly authorized to execute and deliver
the Lease on behalf of Tenant in accordance with the terms of the partnership or
trust agreement, respectively, and that the Lease is binding upon Tenant in
accordance with its terms. Tenant shall, concurrently with its execution of the
Lease, deliver to Landlord upon its request such certificates or written
assurances from the partnership or trust as Landlord may request authorizing the
execution of the Lease.
48.2 Entire Agreement. The Lease contains the entire agreement between the
----------------
parties respecting the Premises and all other matters covered or mentioned in
the Lease. The Lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
48.3 Severability. The illegality, invalidity or unenforceability of any
------------
term, condition, or provision of the Lease shall in no way impair or invalidate
any other term, condition or provision of the Lease, and all such other terms,
conditions and provisions shall remain in full force and effect.
48.4 Covenants and Conditions. All provisions, whether covenants or
------------------------
conditions, on the part of Tenant shall be deemed to be both covenants and
conditions.
64
<PAGE>
48.5 Gender and Headings. The words "Landlord" and "Tenant" as used herein
-------------------
shall include the plural as well as the singular and, when appropriate, shall
refer to action taken by or on behalf of the Landlord or Tenant by their
respective employees, agents, or authorized representatives. Words in masculine
gender include the feminine and neuter and vice versa. If there is more than
one Tenant, the obligations hereunder imposed upon Tenant shall be joint and
several. The paragraph headings of the Lease are not a part of the Lease and
shall have no effect upon the construction or interpretation of any part hereof.
48.6 Successors and Assigns. Subject to the provisions of Paragraphs 12
----------------------
and 27 above, and except as otherwise provided to the contrary in this Lease,
the terms, conditions and agreements of this Lease shall apply to and bind the
heirs, successors, legal representatives and permitted assigns of the parties
hereto.
48.7 Governing Law. The Lease shall be governed by and construed pursuant
-------------
to the laws of the State of California.
48.8 Exhibits. Exhibits "A", "B", "C", "D", "E", "F", "G," "H," "I", "J",
--------
"K", "L" and "M", and any riders attached to the Lease, are hereby incorporated
by this reference and made a part of the Lease. In the event of variation or
discrepancy, the duplicate original hereof (including Exhibits, if any) held by
Landlord shall control.
48.9 Modification For Lender. Intentionally Omitted.
-----------------------
48.10 Transportation System Management Program. Tenant hereby covenants
----------------------------------------
and agrees, at its sole cost and expense, to participate in and cooperate with
the requirements of any and all governmentally required transportation system
management programs adopted for the Project.
48.11 Quiet Enjoyment. Landlord agrees that if Tenant shall perform all
---------------
of the covenants and agreements herein required to be performed by Tenant,
Tenant shall, subject to the terms of this Lease and the rights of any
mortgagees, at all times during the continuance of this Lease have the peaceable
and quiet enjoyment and possession of the Premises.
This Lease is subject and subordinate to: (i) the ground lease and all of
its terms, covenants, provisions and conditions, including as the same are
interpreted or construed in any judgment or arbitration ruling between Landlord
and Ground Lessor, and (ii) all other matters that are of record in the Official
Records of Los Angeles County, California.
48.12 Memorandum of Lease. Landlord and Tenant agree that in no event and
-------------------
under no circumstances shall this Lease be recorded by Tenant. Landlord and
Tenant agree that a short form memorandum of this Lease, in substantially the
form attached hereto as Exhibit "M", shall be executed concurrent with the
execution of this Lease and recorded as soon thereafter as possible in the
Official Records of Los Angeles County, California.
65
<PAGE>
48.13 Time is of the Essence. Subject to the provisions of Paragraph 29
----------------------
above, time shall be of the essence of the Lease and of each of the provisions
hereof.
48.14 Cumulative Remedies. No remedy or election provided, allowed or
-------------------
given by any provision of the Lease shall be deemed exclusive unless so
indicated, but shall, whenever possible, be cumulative with all other remedies
in law or equity.
48.15 Nondiscrimination and Nonsegregation. Tenant herein covenants by
------------------------------------
and for itself, its administrators, successors and assigns, and all persons
claiming under or through it, and this Lease is made and accepted upon and
subject to the following conditions: that there shall be no unlawful
discrimination against or segregation of any person or group of persons, on
account of age, race, color, creed, religion, sex, sexual orientation, handicap,
marital status, national origin, or ancestry, in the leasing, subleasing,
transferring, use, occupancy, tenure, or enjoyment of the Premises herein
leased, nor shall Tenant itself, or any person claiming under or through it,
establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use, or
occupancy, of tenants, lessees, subtenants, or vendees in the Premises and
improvements herein leased.
48.16 Survival. The terms, covenants, and provisions of Paragraphs 6.4,
--------
9, 14.1, 14.4 and 22.1 shall survive the expiration or earlier termination of
the Lease.
48.17 Confidentiality. This Lease and the terms, covenants, obligations,
---------------
and conditions contained in this Lease shall remain strictly confidential.
Landlord and Tenant agree to keep such terms, covenants, obligations and
conditions strictly confidential and not to disclose such matters to any other
landlord, tenant, prospective tenant, or broker; provided, however, that Tenant
may (i) disclose such information to the extent reasonably necessary in
connection with financing arrangements or assignments of Tenant's interests in
the Premises so long as Tenant takes reasonable steps to ensure that the
applicable lender or assignee keeps such information confidential, (ii) disclose
such information as required by law or in connection with the issuance of
financial statements of Tenant and/or the Tenant's Affiliates, and (iii) provide
a copy of this Lease to a non-party solely in conjunction with Tenant's
reasonable and good faith effort to secure an assignee or sublessee for the
Premises. Notwithstanding the foregoing, Landlord may make such disclosures
pertaining to this Lease as are required by law or as Landlord in good faith
deems necessary or proper in the performance of its duties and the enforcement
of its rights hereunder.
48.18 Reasonableness and Good Faith. Except for determinations expressly
-----------------------------
described as being in the "sole" or "absolute" discretion of the applicable
party, neither Landlord nor Tenant shall unreasonably withhold or delay any
consent, approval or other determination provided for hereunder, and
determinations subject to sole or absolute discretion shall not be unreasonably
delayed. In the event that either Landlord or Tenant disagrees with any
determination made by the other hereunder (other than a determination in the
sole or absolute discretion of the determining party) and reasonably requests
the reasons for such determination, the determining party shall furnish its
reasons in writing and in reasonable detail within five (5) business days
following such request. Furthermore, in addition
66
<PAGE>
to the foregoing, whenever the Lease grants Landlord or Tenant the right to take
action, exercise discretion, establish rules and regulations, make allocations
or other determinations, or otherwise exercise rights or fulfill obligations,
Landlord and Tenant shall act reasonably and in good faith and take no action
which might result in the frustration of the reasonable expectations of a
sophisticated landlord and sophisticated tenant concerning the benefits to be
enjoyed under this Lease.
48.19 Minimization of Interference. Except as otherwise provided under
----------------------------
this Lease, (a) Landlord shall exercise its rights and perform its obligations
hereunder, and otherwise operate the Building, in such a way as to reasonably
minimize any resulting interference with Tenant's use of the Premises, and (b)
Tenant shall exercise its rights and perform its obligations hereunder, and
otherwise operate the Premises, in such a way as to reasonably minimize any
resulting interference with the operation of the Building and Project.
48.20 Waiver of Consequential Damages. Except as otherwise specified in
-------------------------------
this Lease, neither party shall be liable under any circumstances for injury to,
damage to or interference with the other party's business, including but not
limited to loss of title to the Building or any portion thereof, loss of
profits, loss of rents or other revenues (excluding payments thereof which
Tenant is otherwise obligated to make under this Lease), loss of business
opportunity, loss of goodwill or loss of use, in each case however occurring.
67
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written, acknowledged that each party has carefully read each and
every provision of the Lease, that each party has freely entered into the Lease
of its own free will and volition, and that the terms, conditions and provisions
of the Lease are commercially reasonable as of the date first above written.
LANDLORD
COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
California corporation
By: /s/ Hugo A. Argumedo
--------------------
Name: Hugo A. Argumedo
----------------
Title: Chairman
--------
TENANT
SMART & FINAL STORES CORPORATION,
a California corporation
By: /s/ Robert J. Emmons
--------------------
Name: Robert J. Emmons
Title: President & CEO
----------------
By: /s/ Donald G. Alvarado
----------------------
Name: Donald G. Alvarado
------------------
Title: Sr. Vice President
------------------
68
<PAGE>
EXHIBIT "A"
SITE PLAN OF PROJECT
A-1
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION OF PROJECT
----------------------------
The land on which the Project is located is legally described as follows:
Parcel A - Retail (Outlet Mall) Site
- ------------------------------------
PARCEL 1:
A PORTION OF PARCEL 1 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES 16
THROUGH 18 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE SOUTHWESTERLY LINE OF SAID PARCEL l, WHICH BEARS
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 417.09 FEET THERE ALONG FROM THE
SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG SAID SOUTHWESTERLY LINE, BEING
THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, NORTH 43 DEGREES 16 MINUTES 10 SECONDS
WEST 904.75 FEET TO THE BEGINNING OF A CURVE CONCAVE EASTERLY AND HAVING A
RADIUS OF 27.00 FEET; THENCE NORTHWESTERLY, NORTHERLY AND NORTHEASTERLY ALONG
SAID CURVE, 42.41 FEET THROUGH A CENTRAL ANGLE OF 90 DEGREES 00 MINUTES 00
SECONDS TO THE NORTHWESTERLY LINE OF SAID PARCEL l, BEING THE SOUTHEASTERLY LINE
OF HOEFNER AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE ALONG SAID LINE, NORTH 46
DEGREES 43 MINUTES 50 SECONDS EAST 801.40 FEET TO A LINE PARALLEL WITH AND 30.00
FEET SOUTHWESTERLY OF THE NORTHEASTERLY LINE OF SAID PARCEL 1; THENCE ALONG SAID
PARALLEL LINE, SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 495.71 FEET; THENCE
SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 345.83 FEET; THENCE SOUTH 43 DEGREES
16 MINUTES 10 SECONDS EAST 222.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 80.40 FEET; THENCE SOUTH 43 DEGREES 6 MINUTES 10 SECONDS EAST
214.04 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 402.17 FEET TO
THE POINT OF BEGINNING.
EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.
ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.
SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
B-1
<PAGE>
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".
SAID LAND IS ALSO SHOWN AS PARCEL 1 AND A PORTION OF PARCEL 3 OF PARCEL MAP NO.
21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL 2:
NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.
Parcel B - Undeveloped Building Site
- ------------------------------------
PARCEL 1:
A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT THE INTERSECTION OF THE NORTHWESTERLY LINE OF SAID PARCEL 1, BEING
THE SOUTHEASTERLY LINE OF HOEFNER AVENUE, AS SHOWN ON SAID PARCEL MAP AND A LINE
PARALLEL WITH AND 30.00 FEET SOUTHWESTERLY OF THE NORTHEASTERLY LINE OF SAID
PARCEL 1; THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL 1, NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 30.00 FEET TO THE NORTHERLY CORNER OF SAID PARCEL 1;
THENCE ALONG THE NORTHEASTERLY LINE OF SAID PARCEL 1, SOUTH 43 DEGREES 16
MINUTES 10 SECONDS EAST 1278.34 FEET TO ANGLE POINT THEREIN; THENCE CONTINUING
ALONG SAID NORTHEASTERLY LINE AND THE NORTHEASTERLY LINE OF SAID PARCEL 2, SOUTH
33 DEGREES 44 MINUTES 30 SECONDS EAST 120.83 FEET TO AN ANGLE POINT THEREIN;
THENCE CONTINUING ALONG THE NORTHEASTERLY LINE OF SAID PARCEL 2, SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 379.84 FEET TO THE EASTERLY CORNER OF SAID
PARCEL 2; THENCE ALONG THE SOUTHEASTERLY LINE OF SAID PARCEL 2, SOUTH 46 DEGREES
43 MINUTES 50 SECONDS WEST 136.00 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 613.01 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST
30.67 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 178.08 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 40.00 FEET; THENCE NORTH 43
DEGREES 16 MINUTES 10 SECONDS WEST 109.00 FEET; THENCE NORTH 46 DEGREES 43
MINUTES 50 SECONDS EAST 40.00 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 177.54 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
30.67 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 204.00 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 126.00 FEET; THENCE NORTH 43
DEGREES 16 MINUTES 10 SECONDS WEST 495.71 FEET TO THE POINT OF BEGINNING.
EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.
ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING
B-2
<PAGE>
UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE SUBSURFACE
THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A CORPORATION, ITS
SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND USE OF BUILDINGS
AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR INTERFERING WITH
THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF AS HEREINABOVE
SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS, AS RESERVED BY
UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED RECORDED AUGUST 26,
1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.
SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".
SAID LAND IS ALSO SHOWN AS PARCEL 2 AND A PORTION OF PARCEL 3 OF PARCEL MAP NO.
21208, AS PER MAP FILED IN BOOK 242 PAGES l9, 20 AND 21 OF PARCEL MAPS, IN THE
OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL 2:
NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.
Parcel C - Existing Office Building Sites (Including Site of the "Building")
- ----------------------------------------------------------------------------
PARCEL 1:
A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN SOUTHWESTERLY LINE OF PARCEL 1 OF SAID PARCEL MAP NO.
13483, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, AS SHOWN ON SAID MAP AND
WHICH POINT BEARS NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 12.00 FEET ALONG
SAID SOUTHWESTERLY LINE FROM THE SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG
SAID SOUTHWESTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 405.09
FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 402.17 FEET; THENCE
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 214.04 FEET; THENCE NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 80.40 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 222.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
219.83 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 204.00 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 177.54 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10
SECONDS EAST 109.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 178.08 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 613.01 FEET TO THE SOUTHEASTERLY LINE OF SAID
PARCEL 2; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 64.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST
66.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 181.12 FEET TO
THE NORTHEASTERLY LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE
ALONG LAST SAID NORTHEASTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST
43.50 FEET TO THE NORTHERLY
B-3
<PAGE>
CORNER OF SAID GASPAR AVENUE; THENCE ALONG THE NORTHWESTERLY LINE OF SAID GASPAR
AVENUE, SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 34.05 FEET; THENCE NORTH 44
DEGREES 49 MINUTES 06 SECONDS WEST 430.66 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 180.30 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 32.50 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST
231.29 FEET TO THE POINT OF BEGINNING.
EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.
ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.
SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT."
SAID LAND IS ALSO SHOWN AS A PORTION OF PARCEL 3 AND PORTION OF PARCEL 4 OF
PARCEL MAP NO. 21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
PARCEL 2:
NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.
Parcel D - Hotel Site
- ---------------------
PARCEL 1:
A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 18 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHEASTERLY TERMINUS OF THAT CERTAIN COURSE IN THE
SOUTHWESTERLY LINE OF SAID PARCEL 2, SHOWN AS "NORTH 38 DEGREES 16 MINUTES 10
SECONDS WEST 192.41 FEET" ON SAID PARCEL MAP; THENCE ALONG SAID SOUTHWESTERLY
LINE, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, NORTH 38 DEGREES 16
MINUTES
B-4
<PAGE>
10 SECONDS WEST 192.41 FEET; THENCE CONTINUING ALONG SAID LINE, NORTH 43 DEGREES
16 MINUTES 10 SECONDS WEST 241.97 FEET; THENCE LEAVING SAID LINE, NORTH 46
DEGREES 43 MINUTES 50 SECONDS EAST 231.29 FEET; THENCE SOUTH 43 DEGREES 16
MINUTES 10 SECONDS EAST 32.50 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50
SECONDS EAST 180.30 FEET; THENCE SOUTH 44 DEGREES 49 MINUTES 06 SECONDS EAST
430.66 FEET TO THE SOUTHEASTERLY LINE OF SAID PARCEL 2, BEING THE NORTHWESTERLY
LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE ALONG SAID LINE,
SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 413.10 FEET TO THE BEGINNING OF A
CURVE CONCAVE NORTHERLY AND HAVING A RADIUS OF 27.00 FEET; THENCE SOUTHERLY AND
WESTERLY ALONG SAID CURVE, 44.77 FEET THROUGH A CENTRAL ANGLE OF 95 DEGREES 00
MINUTES 00 SECONDS TO THE POINT OF BEGINNING.
EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.
ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER WITHOUT
ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.
SAID LAND IS ALSO SHOWN ON PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6 TO 10
INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY,
WHICH MAP CONTAINS THE FOLLOWING RECITAL: "THIS MAP IS FOR FINANCING PURPOSES
ONLY AND IS NOT TO BE USED FOR DEVELOPMENT".
SAID LAND IS SHOWN AS PORTION OF PARCEL 4 OF PARCEL MAP NO. 21208, IN THE CITY
OF COMMERCE, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN
BOOR 242 PAGES 19, 20 AND 21 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY
RECORDER OF SAID COUNTY.
PARCEL 2:
NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET, ALL PUBLIC STREETS; FOR THE
PASSAGE OF VEHICLES, PARKING, AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH l, 1990 AS INSTRUMENT NO.
90-330359.
B-5
<PAGE>
EXHIBIT "C"
FLOOR PLANS OF PREMISES
-----------------------
C-1
<PAGE>
EXHIBIT "D"
CONSTRUCTION AGREEMENT
----------------------
This Construction Agreement (the "Agreement") is being entered into as of
this ___ day of April, 1998, by and between Commerce Citadel Development
Authority, a California corporation ("Landlord") and Smart & Final Stores
Corporation, a California corporation ("Tenant"), in connection with the
execution of the Lease between Landlord and Tenant dated April ___, 1998 (the
"Lease"), who hereby agree as follows:
SECTION 1. BASE BUILDING.
-------------
Pursuant to the terms of the Lease, Landlord shall deliver to Tenant
the following items (sometimes collectively referred to herein as the "Base
Building"): (i) the base, shell and core of the Building; (ii) all base building
systems, including without limitation heating, ventilation and air conditioning
("HVAC"), mechanical (including without limitation elevators), electrical,
plumbing and telephone (collectively, the "Building Systems"); (iii) the curtain
wall; (iv) the structural components of the Building; and the exterior roof of
the Building. Delivery of the Base Building shall be made in its current, "as-
is" condition; provided, however, that notwithstanding the "as-is" nature of
Landlord's delivery of the Base Building, Landlord agrees that it shall promptly
improve the Base Building, at Landlord's expense, as necessary to remedy any
defects which are disclosed to Landlord by Tenant in a written notice delivered
not later than thirty (30) days after the earlier of (a) the date on which
Tenant discovers the defect, or (b) Landlord's delivery to Tenant of the portion
of the Premises in which the defect is located. Moreover, Landlord covenants
that upon Landlord's delivery to Tenant of the Base Building, each component
thereof identified above shall be in good working order and shall comply with
all applicable laws, and Landlord shall at its expense make any improvements
necessary to cause said covenant to be true (regardless of the date on which
Tenant notifies Landlord of the need for such improvement). Tenant acknowledges
that portions of the Premises are now or have previously been occupied by other
tenants, and that upon delivery to Tenant the Premises may, in Landlord's
discretion, include some or all tenant improvements previously installed in
connection with such occupancy.
SECTION 2. CONSTRUCTION DRAWINGS.
---------------------
2.1 Selection of Architect. Tenant shall retain, and Landlord hereby
----------------------
approves, Wirt Design Group, or any other architect/space planner designated by
Tenant and reasonably approved by Landlord (the "Architect") to prepare the
"Construction Drawings" (as defined in Section 2.2 below), which approval shall
be granted or denied by Landlord within five (5) business days after Tenant has
submitted the proposed Architect to Landlord. Any engineering consultants
("Engineers") to be used by Tenant in connection with the Construction Drawings
shall be subject to the reasonable approval of Landlord, which approval shall be
granted or denied by Landlord within five (5) business days after Tenant has
submitted the proposed Engineers to Landlord.
D-1
<PAGE>
2.2 Preparation of Construction Drawings. The plans and drawings to
------------------------------------
be prepared by Architect and the Engineers hereunder shall be known collectively
as the "Construction Drawings." All additions or modifications to the Premises
disclosed on the Construction Drawings shall be referred to herein as the
"Tenant Improvements". All Construction Drawings shall comply with the drawing
format and specifications determined by Landlord, and shall be subject to
Landlord's approval. Tenant and Architect shall verify, in the field, the
dimensions and conditions as shown on the relevant portions of any Base Building
plans, and Tenant and Architect shall be solely responsible for the same, and
Landlord shall have no responsibility in connection therewith. Landlord's
review of the Construction Drawings as set forth in this Section 2.2 shall be
for its sole purpose and shall not obligate Landlord to review (or imply that
Landlord has reviewed) the same for quality, design, building code compliance or
other like matters. Accordingly, notwithstanding that any Construction Drawings
are reviewed by Landlord or its space planner, architect, engineers and
consultants, and notwithstanding any advice or assistance which may be rendered
to Tenant by Landlord or Landlord's space planner, architect, engineers, and
consultants, Landlord shall have no liability whatsoever in connection therewith
and shall not be responsible for any omissions or errors contained in the
Construction Drawings. Without limiting the generality of the foregoing, the
floor plans which are part of the Construction Drawings shall show any item
reasonably requested by Landlord (including without limitation any dimensions,
locations, types, weights, specifications, special requirements, or colors
thereof).
2.3 Final Working Drawings. Tenant, the Architect and the Engineers
----------------------
shall complete the architectural, engineering, structural, mechanical,
electrical and plumbing drawings for the Premises in a form which is complete to
allow subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval. The Final Working Drawings may be submitted
in one or more stages at one or more times, provided that Tenant shall
ultimately supply Landlord with four (4) completed copies signed by Tenant of
such Final Working Drawings. Landlord shall, within three (3) business days
after Landlord receives the Final Working Drawings, either (a) approve the Final
Working Drawings, (b) approve the Final Working Drawings subject to specified
conditions to be satisfied by Tenant prior to submitting the Approved Working
Drawings for permits as set forth in Section 2.4, below, or (c) disapprove the
Final Working Drawings and return them to Tenant with requested revisions;
provided, however, that Landlord shall only be entitled to conditionally approve
pursuant to item (b) above or disapprove pursuant to item (c) above the Final
Working Drawings if they materially deviate from the Construction Drawings, or
for any of the following reasons: (i) an adverse effect on the structural
integrity of the Building; (ii) non-compliance with applicable laws; (iii) an
adverse effect on the systems and equipment of the Building; or (iv) an adverse
effect on the exterior appearance of the Building (individually or collectively,
a "Design Problem"). If Landlord disapproves the Final Working Drawings, Tenant
may resubmit the Final Working Drawings to Landlord at any time, and Landlord
shall approve or disapprove of the resubmitted Final Working Drawings within two
(2) business days after Landlord receives such resubmitted Final Working
Drawings.
2.4 Permits. The Final Working Drawings shall be approved by
-------
Landlord (the "Approved Working Drawings") prior to the commencement of the
construction of the Tenant Improvements. Architect shall submit the Approved
Working Drawings to the appropriate municipal
D-2
<PAGE>
authorities for all applicable building permits necessary to allow the
"Contractor," as that term is defined in Section 3.1, below, to commence and
fully complete the construction of the Tenant Improvements. Landlord shall be
responsible for obtaining any building permits for the Premises necessary to
construct the Tenant Improvements pursuant to the Approved Working Drawings, and
Tenant shall be responsible for obtaining any building permits necessary
relative to any "Tenant Change" (as defined in Section 2.5 below) and any
certificate of occupancy for the Premises. Each party shall cooperate with the
other in executing permit applications and performing other ministerial acts
reasonably necessary to enable the party charged with obtaining any such permit
or certificate of occupancy to do so. Landlord shall use its best efforts (at no
additional cost to Landlord) to cause the City of Commerce to expedite
processing of all permit applications relative to construction of the Tenant
Improvements.
2.5 Change Orders. In the event Tenant desires to change the
-------------
Approved Working Drawings, Tenant shall deliver notice (the "Drawing Change
Notice") of the same to Landlord, setting forth in detail the changes (the
"Tenant Change") Tenant desires to make to the Approved Working Drawings.
Landlord shall, within two (2) business days of receipt of the Drawing Change
Notice, either (i) approve the Tenant Change, or (ii) disapprove the Tenant
Change and deliver a notice to Tenant specifying in detail the reasons for
Landlord's disapproval; provided, however, that Landlord may only disapprove of
the Tenant Change if the Tenant Change contains a Design Problem or materially
deviates from the Approved Working Drawings. Any additional costs which arise
in connection with such Tenant Change shall be paid by Tenant.
SECTION 3. CONSTRUCTION OF THE TENANT IMPROVEMENTS.
---------------------------------------
3.1 The Contractor. Tenant shall retain a licensed general
--------------
contractor (the "Contractor") as contractor for the construction of the Tenant
Improvements. The Contractor shall be selected by Tenant, but subject to
Landlord's approval, which approval shall not be unreasonably withheld or
conditioned, and which approval or refusal shall be granted or denied within
three (3) business days after Tenant has submitted the name of the proposed
Contractor.
3.2 Tenant's Agents. All subcontractors, laborers, materialmen, and
---------------
suppliers used by Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "Tenant's Agents")
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed, and which approval or refusal shall be granted
or denied within three (3) business days after Tenant has submitted the names
thereof to Landlord.
3.3 Landlord's General Conditions for Tenant's Agents and Tenant
------------------------------------------------------------
Improvement Work. Tenant's and Tenant's Agent's construction of the Tenant
- ----------------
Improvements shall comply with the following: (i) the Tenant Improvements shall
be constructed in strict accordance with the Approved Working Drawings; (ii)
Tenant's Agents shall submit schedules of all work relating to the Tenant
Improvements to Contractor and Landlord, and Contractor shall, within five (5)
business days of receipt thereof, inform Landlord and Tenant's Agents of any
changes which are necessary thereto, and Tenant's Agents shall adhere to such
corrected schedule; and (iii) Tenant shall abide by all reasonable
B-3
<PAGE>
rules made by Landlord's Building manager with respect to the use of freight,
loading dock and service elevators, storage of materials, coordination of work
with the contractors of other tenants, and any other matter in connection with
this Construction Agreement, including, without limitation, the construction of
the Tenant Improvements.
3.4 Indemnity. Tenant's Indemnity of Landlord and assumption of
---------
risks set forth in Sections 14.1 and 14.6 of the Lease shall also apply with
respect to any and all costs, losses, damages, injuries and liabilities related
in any way to any act or omission of Tenant or Tenant's Agents, or anyone
directly or indirectly employed by any of them, or in connection with Tenant's
non-payment of any amount arising out of the Tenant Improvements and/or Tenant's
disapproval of all or any portion of any request for payment. Such indemnity by
Tenant shall also apply with respect to any and all costs, losses, damages,
injuries and liabilities (except for those caused by Landlord's negligence or
willful misconduct or by the negligence or willful misconduct of Landlord's
Employees, as that term is defined in Paragraph 14.1 of the Lease) related in
any way to Landlord's performance of any ministerial acts reasonably necessary
(i) to permit Tenant to complete the Tenant Improvements, and (ii) to enable
Tenant to obtain any building permit or certificate of occupancy for the
Premises.
3.5 Guarantees and Warranties. Each of Tenant's Agents shall
-------------------------
guarantee to Tenant and for the benefit of Landlord that the portion of the
Tenant Improvements for which it is responsible shall be free from any defects
in workmanship and materials for a period of not less than one (1) year from the
date of completion thereof. Each of Tenant's Agents shall be responsible for
the replacement or repair, without additional charge, of all work done or
furnished in accordance with its contract that shall become defective within one
(1) year after the later to occur of (i) completion of the work performed by
such contractor or subcontractors and (ii) the Commencement Date of the Lease.
The correction of such work shall include, without additional charge, all
additional expenses and damages incurred in connection with such removal or
replacement of all or any part of the Tenant Improvements, and/or the Building
and/or common areas that may be damaged or disturbed thereby. All such
warranties or guarantees as to materials or workmanship of or with respect to
the Tenant Improvements shall be contained in the construction contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either. Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such right of direct enforcement.
3.6 Governmental Compliance. The Tenant Improvements shall comply in
-----------------------
all respects with the following: (i) all state, federal, county and city laws,
codes, ordinances and regulations, as each may apply according to the rulings of
the controlling public official, agent or other person; (ii) applicable
standards of the American Insurance Association (formerly, the National Board of
Fire Underwriters) and the National Electrical Code; (iii) building material
manufacturer's specifications; and (iv) applicable provisions of California's
Title 24 requirements.
3.7 Inspection by Landlord. Subject to Section 48.19 of the Lease,
----------------------
Landlord shall have the right to inspect the Tenant Improvements at all times,
provided, however, that Landlord's
D-4
<PAGE>
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Landlord shall
have the right to disapprove of the Tenant Improvements based only on Design
Problems or on material deviations from the Approved Working Drawings. Should
Landlord disapprove any portion of the Tenant Improvements, Landlord shall
notify Tenant in writing of such disapproval and shall specify the items
disapproved. Any defects or deviations from the Approved Working Drawings in,
and/or disapproval by Landlord of, the Tenant Improvements shall be rectified by
Tenant at no expense to Landlord, provided however, that in the event Landlord
determines that a defect or deviation exists or disapproves of any matter in
connection with any portion of the Tenant Improvements and such defect,
deviation or matter might adversely affect the mechanical, electrical, plumbing,
heating, ventilating and air-conditioning or life-safety systems of the
Building, the structure or exterior appearance of the Building or any other
tenant's use of such other tenant's leased premises, and where the defect,
deviation or other disapproved matter is not corrected within thirty (30) days
after Landlord's delivery to Tenant of written notice thereof (or, if the nature
of the defect, deviation or other disapproved matter is such that more than 30
days is reasonably necessary for its cure, where Tenant fails to commence to
cure the same within said 30 day period or fails to thereafter diligently
continue such cure process until complete), then upon notice to Tenant Landlord
may take such action as Landlord deems necessary, at Tenant's expense and
without incurring any liability on Landlord's part, to correct any such defect,
deviation and/or matter, including, without limitation, causing the cessation of
performance of the construction of the Tenant Improvements until such time as
the defect, deviation and/or matter is correct to Landlord's satisfaction.
3.8 Meetings. Commencing upon the execution of this Lease, Tenant
--------
shall use commercially reasonable efforts to hold weekly meetings at a
reasonable time with the Architect and the Contractor regarding the progress of
the preparation of Construction Drawings and the construction of the Tenant
Improvements, which meetings shall be held at a location designated by Landlord,
and Landlord and/or its agents shall receive prior notice of, and shall have the
right to attend, all such meetings, and, upon Landlord's request, certain of
Tenant's Agents shall attend such meetings. In addition, minutes shall be taken
at all such meetings, a copy of which minutes shall be promptly delivered to
Landlord.
3.9 Notice of Completion; Copy of Record Set of Plans. Within ten
-------------------------------------------------
(10) days after completion of construction of the Tenant Improvements, Tenant
shall cause a Notice of Completion to be recorded in the office of the Recorder
of the County of Los Angeles in accordance with Section 3093 of the Civil Code
of the State of California or any successor statute, and shall furnish a copy
thereof to Landlord upon such recordation. If Tenant fails to do so, Landlord
may execute and file the same on behalf of Tenant as Tenant's agent for such
purpose, at Tenant's sole cost and expense. At the conclusion of construction,
Tenant shall cause the Architect and Contractor to (i) update the Approved
Working Drawings as necessary to reflect all changes made to the Approved
Working Drawings during the course of construction, (ii) certify to the best of
their knowledge that the "record-set" of mylar as-built drawings are true and
correct, which certification shall survive the expiration or termination of the
Lease, and (iii) deliver to Landlord two (2) sets of copies of such record set
of
D-5
<PAGE>
drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises. At the conclusion of construction, Tenant shall also
deliver to Landlord a copy of all warranties, guarantees, and operating manuals
and information relating to the Tenant Improvements, equipment, and systems in
the Premises.
SECTION 4. CONSTRUCTION INSURANCE.
----------------------
4.1 General Coverages. All of Tenant's Agents shall carry worker's
-----------------
compensation insurance covering all of their respective employees, and shall
also carry public liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in Sections 7.3(a) and 14 of the Lease.
4.2 Special Coverages. Tenant shall carry "Builder's All Risk"
-----------------
insurance in an amount approved by Landlord covering the construction of the
Tenant Improvements, and such other insurance as Landlord may require, it being
understood and agreed that the Tenant Improvements shall be insured by Tenant
pursuant to Section 14.3(b) of the Lease immediately upon completion thereof.
Such insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord including, but not
limited to, the requirement that all of Tenant's Agents shall carry excess
liability and Products and Completed Operation Coverage insurance, each in
amounts not less than $1,000,000 per incident, $2,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth in
Section 14 of the Lease.
4.3 General Terms. Certificates for all insurance carried pursuant
-------------
to this Section 4 shall be delivered to Landlord before the commencement of
construction of the Tenant Improvements and before the Contractor's equipment is
moved onto the site. All such policies of insurance must contain a provision
that the company writing said policy will give Landlord thirty (30) days' prior
written notice of any cancellation or lapse of the effective date or any
reduction in the amounts of such insurance. In the event that the Tenant
Improvements are damaged by any cause (other than Landlord's or Landlord's
Employees' negligence or willful misconduct) during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant's Agents shall maintain all of the foregoing insurance
coverage in force until the Tenant Improvements are fully completed and accepted
by Landlord, except for any Products and Completed Operation Coverage insurance
required by Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Section 4 shall insure Landlord and Tenant, as their
interests may appear, as well as Contractor and Tenant's Agents. All insurance,
except Workers' Compensation, maintained by Tenant's Agents shall preclude
subrogation claims by the insurer against anyone insured thereunder. Such
insurance shall provide that it is primary insurance as respects the Landlord
and that any other insurance maintained by Landlord is excess and
noncontributing with the insurance required hereunder. The requirements for the
foregoing insurance shall not derogate from the provisions for indemnification
of Landlord by Tenant under Section 4 of this Construction Agreement.
SECTION 5. MISCELLANEOUS.
-------------
D-6
<PAGE>
5.1 Tenant's Representative. Tenant has designated Steve Zick as its
-----------------------
sole representative with respect to the matters set forth in this Agreement,
who, until further notice to Landlord, shall have full authority and
responsibility to act on behalf of the Tenant as required in this Agreement.
5.2 Landlord's Representative. Landlord has designated Justin
-------------------------
McCarthy as its sole representative with respect to the matters set forth in
this Agreement, who, until further notice to Tenant, shall have full authority
and responsibility to act on behalf of the Landlord as required in this
Agreement.
5.3 Time of the Essence in This Agreement. Unless otherwise
-------------------------------------
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. In all instances where Tenant is required to approve or deliver
an item, if no written notice of approval is given or the item is not delivered
within the stated time period, at the end of such period the item shall
automatically be deemed disapproved by Tenant.
5.4 Miscellaneous Charges. During the period of construction of the
---------------------
Tenant Improvements and Tenant's move into the Premises (to the extent that
those activities are conducted prior to the Commencement Date), Tenant or
Tenant's agents shall not be charged for, directly or indirectly, Landlord's
supervision and/or overhead, parking, restrooms, elevator usage, hoists, access
to loading docks, freight elevator usage, or security.
5.5 Clean-Up. Prior to the delivery of the Premises to Tenant for
--------
the commencement of the construction of the Tenant Improvements, Landlord shall
deliver the Premises to Tenant in the condition required by Section 1 hereof.
Following Tenant's move into the Premises, Tenant shall reasonably clean the
Premises, including the removal of all rubbish and debris.
5.6 Staging Area Storage Space. During the period commencing on the
--------------------------
date of this Lease and prior to the Lease Commencement Date, Tenant shall have
the right, without the obligation to pay rent, to use the empty space in the
Building for the purposes of storing and staging Tenant's property. With
respect to this free storage space, Tenant shall provide all insurance and any
necessary fencing or other protective facilities. Tenant shall hold Landlord
harmless and indemnify Landlord from and against any and all loss, liability or
cost arising out of or in connection with use of this storage space by Tenant,
except to the extent caused by the negligence or willful misconduct of Landlord.
Tenant shall be obligated to remove all of the stored materials and its fencing
and other facilities within thirty (30) days after written notice from Landlord
that such staging area is needed by Landlord for construction of another
tenant's premises.
D-7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"LANDLORD"
COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
California corporation
By: _________________________________________
Name: _______________________________________
Title: ______________________________________
"TENANT"
SMART & FINAL STORES CORPORATION,
a California corporation
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
D-8
<PAGE>
EXHIBIT "E"
NOTICE OF COMMENCEMENT DATE
---------------------------
Date: ____________
To: ____________________
Re: Lease dated _____, 19_____ between Commerce Citadel Development Authority,
Landlord, and Smart & Final Stores Corporation, Tenant, concerning Suite
_____located at _____.
Gentlemen:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the subject Lease, and that there is
no deficiency in construction, and that the Rentable Area of the Premises is
_____.
2. That the Tenant has possession of the subject Premises and acknowledges
that under the provisions of the subject Lease, the Term of said Lease commenced
as of _____ for a term of _____ (_____) months, ending on _____.
3. That in accordance with the subject Lease, Base Rent commenced to accrue
on _____.
4. If the Commencement Date of the subject Lease is other than the first
day of the month, the first billing will contain a pro rata adjustment. Each
billing thereafter shall be for the full amount of the monthly installment as
provided for in said Lease.
E-1
<PAGE>
5. Rent is due and payable in advance on the first day of each and every
month during the Term of said Lease. Your rent checks should be made payable to
_____ at _____.
"LANDLORD"
COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
California corporation
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
AGREED AND ACCEPTED:
"TENANT"
SMART & FINAL STORES CORPORATION,
a California corporation
By: ____________________________________
Name: _________________________________
Its: ___________________________________
E-2
<PAGE>
EXHIBIT "F"
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, exits, passages, parking areas, courts,
elevators, vestibules, stairways, corridors, terraces, lobbies or halls shall
not be obstructed or used for any purpose other than ingress and egress. The
halls, passages, entrances, exits, elevators and stairways are not for the use
of the general public, and Landlord shall retain the right to control and
prevent access thereto of all persons whose presence, in the judgment of
Landlord, is deemed to be prejudicial to the safety, character, reputation and
interests of the Building and its tenants. No Tenant or any of Tenant's
Employees shall go up on the roof of the Building.
2. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window of the Premises other than
Landlord's standard window covering without Landlord's prior written consent.
All electric ceiling fixtures hung in offices or spaces along the perimeter of
the Building must be fluorescent, of a quality, type, design and bulb color
approved by Landlord. Neither the interior nor exterior of any windows shall be
coated or otherwise sunscreened without the prior written consent of Landlord.
3. No signs, picture, placard, advertisement, notice, lettering,
direction or handbill shall be exhibited, distributed, painted, installed,
displayed, inscribed, placed or affixed by any Tenant on any part of the
exterior of Premises or the interior of the Premises which is visible from the
exterior of the Premises, the Building or the Project without the prior written
consent of Landlord. In the event of the violation of the foregoing by Tenant,
Landlord may remove the same without any liability, and may charge the expense
incurred in such removal to Tenant. Interior signs on doors shall be inscribed,
painted or affixed for Tenant by Landlord at Tenant's sole cost and expense, and
shall be of a size, color and style acceptable to Landlord. Nothing may be
placed on the exterior of corridor walls or corridor doors other than Landlord's
building standard sign on the corridor door, applied and installed by Landlord.
4. The Building directory will be provided exclusively for the
display of the name and location of tenants of the Building and Landlord
reserves the right to exclude any other names therefrom. Any additional name(s)
which Tenant shall desire to have placed on the Building directory must first be
approved by Landlord and paid for by Tenant.
5. Subject to Paragraph 7 of the Lease, (i) Tenant shall not drill
into, or in any way deface any part of the Premises or Building, and (ii) no
boring, cutting or stringing of wires or laying of linoleum or other similar
floor coverings shall be permitted.
6. No bicycles, vehicles, birds or animals of any kind shall be
brought into or kept in or about the Premises or the Building, and, subject to
the terms of Paragraph 6 of the Lease, no cooking shall be done or permitted by
Tenant on the Premises, except that the preparation of coffee, tea, hot
chocolate and similar items for Tenant and Tenant's Employees shall be
permitted; provided,
F-1
<PAGE>
however, that the power required shall not exceed that amount which can be
provided by a 30-amp circuit. Tenant shall not cause or permit any unusual or
objectionable odors to be produced or to permeate the Premises or the Building.
7. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the use of
the Premises for general office purposes. No Tenant shall occupy or permit any
portion of the Premises to be occupied as an office for a public stenographer or
typist or for the manufacture or sale of liquor, narcotics, or tobacco in any
form, or as a medical office, or as a barber or manicure shop, or as an
employment bureau, or as a travel agency, without the prior written consent of
Landlord. Tenant shall not sell or permit the sale of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise in or on the
Premises. Tenant shall not engage or pay any employees on the Premises except
those actually working for Tenant on the Premises nor shall Tenant advertise for
laborers giving an address at the Premises. The Premises shall not be used for
lodging or sleeping or for any illegal purposes.
8. Tenant shall not make or permit to be made, any unseemly noises
which disturb other occupants of the Building, whether by the use of any musical
instrument, radio, television, phonograph, screening room, loud, unusual or
disruptive noise, or in any other way. Tenant shall not use, keep or permit to
be used any foul or noxious gas or substance in, on or about the Premises.
9. Subject to Paragraph 6.4(a) of the Lease, Tenant or any of
Tenant's Employees shall not at any time bring or keep within the Premises or
the Building any flammable, combustible or explosive fluid, chemical substance,
or material. Electric spaceheaters shall not be used at any time by Tenant.
10. No new or additional locks or bolts of any kind shall be placed
upon any of the doors by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof without the prior written consent of Landlord. If
Landlord consents to such a lock change, Tenant must furnish Landlord with a
key. Tenant must, upon the termination of its tenancy, give, return, and
restore to Landlord all keys of stores, offices, vaults, and toilet rooms,
either furnished to, or otherwise procured by Tenant, and in the event at any
time of any loss of keys so furnished, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such changes.
11. Furniture, freight, packages, equipment, safes, bulky matter or
supplies of any description shall be moved in or out of the Building only after
the Building manager has been furnished with prior notice and given his/her
approval and only during such hours and in such manner as may be prescribed by
the Landlord from time to time. The scheduling and manner of all tenant move-
ins and move-outs shall be subject to the discretion and approval of Landlord,
and said move-ins and move-outs shall only take place after 6:00 P.M. on
weekdays, on weekends, or at such other times as Landlord may designate.
Landlord shall have the right to approve or disapprove the movers or moving
company employed by Tenant, and Tenant shall cause said movers to use only the
loading facilities and elevators designated by Landlord. Notwithstanding the
foregoing, the provisions of this Paragraph 11
F-2
<PAGE>
shall not apply during any period when Tenant is managing the Building pursuant
to Paragraph 11.6 of the Lease.
12. In the event Tenant's movers damage the elevator or any other
part of the Premises or Building, Tenant shall immediately pay to Landlord the
amount required to repair said damage. The moving of safes or other fixtures or
bulky or heavy matter of any kind must be done under Landlord's (or its Building
manager's) supervision, or in a manner approved by Landlord (or it's Building
manager), in order to ensure that elevator and floor load capacities of the
Building are not exceeded. The person employed by any Tenant to move said items
must be reasonably acceptable to Landlord, but such persons shall not be deemed
to be agents or servants of Landlord or it's Building manager. The Landlord
reserves the right to inspect all safes, freight or other bulky or heavy
articles to be brought into the Building and to exclude from the Building all
safes, freight or other bulky or heavy articles which would exceed the elevator
or floor load capacities of the Building. Landlord reserves the right to
determine the location and position of all safes, freight, furniture or bulky or
heavy matter brought onto the Premises, which must be placed upon supports
approved by Landlord to distribute the weight.
13. No furniture shall be placed in front of the Building, or in any
lobby or corridor or balcony, without the prior written consent of Landlord;
provided, however, that Tenant shall have the right to place furniture in the
first floor lobby of the Building in connection with Tenant's use of the lobby
as a reception area. Landlord shall have the right to remove all non-permitted
furniture, without notice to Tenant, and at the sole cost and expense of Tenant.
14. Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's sole opinion, tends to impair the reputation of the
Building or its desirability as an office building and, upon written notice from
Landlord, Tenant shall immediately refrain from or discontinue such advertising.
15. Landlord reserves the right to exclude from the Building between
the hours of 5:00 P.M. and 9:00 A.M., Monday through Friday, and at all hours on
Saturday, Sunday, and state and federal holidays, all persons who are not
authorized by Tenant. Such authorization shall be in accordance with procedures
established by Landlord in its sole and absolute discretion. Tenant shall be
responsible for all persons for whom it causes to be present in the Building and
shall be liable to Landlord for all acts of such persons. In the case of
invasion, riot, public excitement, act of God, or other circumstance rendering
such action advisable in Landlord's opinion, Landlord reserves the right to
prevent access of all persons, including Tenant, to the Building during the
continuance of the same by such actions as Landlord may deem appropriate,
including the closing and locking of doors.
16. Any persons employed by Tenant to do any work in or about the
Premises shall, while in the Building and outside of the Premises, be subject to
and under the control and direction of the superintendent of the Building (but
shall not be deemed to be an agent or servant of said superintendent or of the
Landlord), and Tenant shall be responsible for all acts of such persons.
F-3
<PAGE>
17. All doors opening onto public corridors shall be kept closed,
except when in use for ingress and egress. All doors leading to equipment and
utility rooms shall be kept closed.
18. Canvassing, soliciting and peddling in or about the Building are
prohibited and Tenant shall cooperate to prevent the same.
19. All office equipment of any electrical nature shall be placed by
Tenant in the Premises in settings and locations approved by Landlord, to absorb
or prevent any vibration, noise and annoyance.
20. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the prior written consent of Landlord.
21. Tenant shall faithfully observe and comply (consistent with the
level of observation and compliance therewith by the other tenants of the
Project) with the terms of any and all covenants, conditions and restrictions
recorded against the Project, provided Landlord provides Tenant with notice of
the same.
22. Restrooms and other water fixtures shall not be used for any
purpose other than that which the same are intended, and any damage resulting to
the same from misuse on the part of Tenant or Tenant's Employees shall be paid
for by Tenant. Tenant shall be responsible for causing all water faucets, water
apparatus and utilities to be shut off before Tenant or Tenant's Employees leave
the Premises each day and Tenant shall be liable for any waste or damage
sustained by other tenants or occupants of the Building or Landlord as a result
of Tenant's failure to perform said duty.
23. In the event the Building or the Premises is or later becomes
equipped with an electronic access control device, Tenant shall pay Landlord the
sum of ten dollars ($10.00) for each identification key or card issued to Tenant
as a deposit against the return of the identification key or card to Landlord.
24. For all purposes of this Exhibit "E", the term "Tenant" shall be
defined to include and encompass Tenant's employees, agents and contractors.
25. Landlord may amend, rescind, or add additional rules and
regulations from time to time in accordance with Paragraph 21 of the Lease.
Tenant shall comply with all such amended or additional rules, except to the
extent that they directly conflict with rights granted to Tenant by the attached
Lease.
F-4
<PAGE>
EXHIBIT "G"
STANDARDS FOR UTILITIES AND SERVICES
------------------------------------
The furnishing of building services and utilities to Tenant shall be
accomplished in accordance with and subject to the terms and conditions set
forth in this Exhibit "G" and elsewhere in the Lease. Landlord reserves the
right to adopt from time to time such reasonable modifications and additions
hereto as Landlord may deem appropriate; provided, however, that no such
modifications or additions shall alter the times during which such services and
utilities are provided or materially reduce the types or quality of said
utilities and services.
1. Subject to the full performance by Tenant of all of Tenant's obligations
under the Lease, Landlord shall, on Monday through Friday, from 7:00 A.M. to
6:00 P.M., and on Saturday, from 9:00 A.M. to 1:00 P.M., excepting state and
federal holidays ("Normal Hours"), provide the following standard building
services and utilities:
(a) Provide automatic elevator facilities on Monday through Friday,
7:00 A.M. to 6:00 P.M. only, and have one automatic elevator available at all
other times (if the Building is passenger elevator equipped). Specifications
and related data pertaining to the elevators serving the Building are set forth
at "Attachment 1" to this Exhibit "G".
(b) Provide to the Premises, during Normal Hours, heating, ventilation,
and air conditioning ("HVAC") when, in the judgment of Landlord or Tenant, it
may be required for the comfortable occupancy of the Premises for general office
purposes (subject, however, to any governmental act, proclamation or
regulation). The extent of HVAC services which Landlord is obligated to provide
shall be limited as set forth in the Lease, in this Exhibit "G", and in Exhibit
"H" to the Lease.
(c) Provide to the Premises electric current for routine lighting and
the operation of general office machines such as typewriters, dictating
equipment, desk model adding machines, photocopy machines and "small" computers
incidental to the conduct of normal general office business, which use 110/220-
volt electric power, not to exceed the reasonable capacity of Building Standard
office lighting and receptacles, and not in excess of limits imposed by any
governmental authority. Electrical capacity specifications for the Building are
set forth at "Attachment 2" to this Exhibit "G".
(d) Provide at all times reasonably necessary amounts of water for
restrooms furnished by Landlord.
(e) Provide janitorial services to the Premises each evening, Sunday
through Thursday (except state and federal holidays), provided the Premises are
used exclusively in accordance with Paragraph 6 of the Lease, and are kept
reasonably in order by Tenant. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish, to the extent that the same exceeds the
refuse and rubbish usually attendant upon the use of the Premises for general
office purposes. Said janitorial
G-1
<PAGE>
services shall be performed at Landlord's direction without interference by
Tenant or Tenant's Employees. Janitorial standards for the Building are set
forth at Sections III through IX of "Attachment 3" to this Exhibit "G".
2. Landlord shall have the exclusive right to replace, and shall replace in
a timely fashion, electric light bulbs, tubes and ballasts in the Premises
throughout the Term. The Landlord may, at Landlord's sole discretion, adopt a
system of relamping and reballasting periodically on a group basis in accordance
with good practice.
3. No electrical equipment, air conditioning or heating units, or plumbing
additions shall be installed, nor shall any changes to the Building's HVAC,
electrical or plumbing systems be made which would possibly adversely affect the
Building or such systems without prior written consent of Landlord, which
consent shall be subject to Landlord's reasonable discretion. Landlord reserves
the right to reasonably designate and/or approve the contractor to be used by
Tenant. Any permitted installations shall be made under Landlord's supervision.
Tenant shall pay any additional cost on account of any increased support to the
floor load or additional equipment required for such installations, and such
installations shall otherwise be made in accordance with Paragraph 7.3 of the
Lease.
4. Tenant shall not, without the prior written consent of Landlord, use any
apparatus, machine or device in the Premises, which will increase the amount of
electricity used in the Premises beyond the Building's electrical capacity.
5. Tenant shall separately arrange with the applicable local public
authorities, utility companies and telephone companies, as the case may be, for
the furnishing of, and payment of, all telephone services as may be required by
Tenant in the use of the Premises; provided, however, that Tenant shall neither
bear the cost of nor be responsible for installation of the telephone wiring
stubbed to the telephone room. Tenant shall directly pay for such telephone
services, including the establishment and connection thereof, at the rates
charged for such services by said authority, telephone company or utility, and
the failure of Tenant to obtain or to continue to receive such services for any
reason whatsoever shall not relieve Tenant of any of its obligations under the
Lease nor constitute a breach of the Lease by Landlord.
6. Tenant agrees to cooperate fully at all times with Landlord to assure,
and to abide by all reasonable regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the Building's HVAC,
electrical, security (if any), and/or plumbing systems.
G-2
<PAGE>
EXHIBIT "H"
HVAC SPECIFICATIONS
-------------------
H-1
<PAGE>
EXHIBIT "I"
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-------------------------------------------------------
I-1
<PAGE>
EXHIBIT "J"
ESTOPPEL CERTIFICATE
--------------------
DATE:______________
Gentlemen:
The undersigned hereby certifies as follows:
1. Smart & Final Stores Corporation, as "Tenant," and Commerce Citadel
Development Authority, as "Landlord," entered into a written lease dated _____,
19_____, ("Lease"), in which Landlord leased to Tenant and Tenant leased from
Landlord, certain "Premises" described in said Lease and located in the City of
Commerce, County of Los Angeles, State of California.
2. The Lease is in full force and effect and has not been amended,
modified, supplemented or assigned by Tenant except by written agreement(s)
dated, _____, 19_____. The Lease represents the entire agreement between
Landlord and Tenant.
3. Tenant has accepted the Premises and presently occupies them, and is
paying rent on a current basis. Tenant has no setoffs, claims, or defenses to
the enforcement of the Lease.
4. As of the date of this certificate, Tenant is not in default in the
performance of any of its obligations under the Lease, and has not committed any
breach of the Lease, and no notice of default has been given to Tenant.
5. As of the date of this certificate, Landlord is not in default in the
performance of any of its obligations under the Lease, and has not committed any
breach of the Lease, and no notice of default has been given to Landlord.
6. Base Rent (as defined in the Lease) in the amount of $________ was
payable from _____, 19_____. No Base Rent has been paid by Tenant in advance
under the Lease except for a payment that becomes due on _____, 19_____. The
amount of the Operating Expense Adjustment (as defined in the Lease) currently
payable by Tenant is $_____ per month and Tenant has paid such amounts up to and
including _____. A Security Deposit in the amount of $_____ was deposited with
Landlord on _____, 19_____.
7. Tenant has no claim against Landlord for any other security deposit,
prepaid fee or charge or prepaid rent except as provided in Paragraph 6 of this
certificate.
8. Tenant is executing and delivering this certificate with the
understanding that either a potential buyer is contemplating acquiring all or a
part of the Project or a potential lender or ground lessor is contemplating
providing financing or a ground lease which affects the Building and/or the
Project and that said buyer, lender or ground lessor will be entering into said
transaction in material
J-1
<PAGE>
reliance on this certificate.
"TENANT"
SMART & FINAL STORES CORPORATION,
a California corporation
By: _____________________________________
Name: ___________________________________
Its: ____________________________________
J-2
<PAGE>
EXHIBIT "K"
PARKING FACILITIES
------------------
Provided the Lease remains in effect, Tenant and Tenant's designated
employees shall be entitled during the Term upon reasonable prior notice to
Landlord, to (a) acquire monthly parking licenses, privileges or leases (without
charge) for automobiles to reflect a parking ratio of six (6) cars per one
thousand (1,000) rentable square feet of the Premises (with respect to the
Building) and a parking ratio of four (4) cars per one thousand (1,000) rentable
square feet of the Premises (with respect to other portions of the Project; and
(b) park said automobiles in the Parking Facilities without charge. In each
case, Tenant (or its designated employee) shall enter into parking licenses or
lease agreements (without charge) or other arrangements then in use by Landlord
(or Landlord's operator) with respect to such monthly parking.
Tenant shall comply with parking rules and regulations and all
modifications additions thereto from time to time reasonably established by
Landlord (or Landlord's operator), in their reasonable discretion, including any
sticker or other identification system established by Landlord (or Landlord's
operator). Landlord (and/or Landlord's operator) shall not be responsible to
Tenant for the non-performance of any of said rules and regulations by any other
parker. The rules and regulations for the Parking Facilities are as follows:
RULES AND REGULATIONS
1. Tenant shall have the right to use the Parking Facilities twenty-four
(24) hours per day, seven (7) days per week.
2. Automobiles must be parked entirely within the stall lines on the
pavement.
3. All directional signs and arrows must be observed.
4. The speed limit shall be 5 miles per hour.
5. Parking is prohibited in areas not striped for parking.
6. Parking stickers or any other device or form of identification supplied
by Landlord (or its operator) shall remain the property of Landlord (or its
operator). Such parking identification device must be displayed as requested
and may not be mutilated in any manner. The serial number of the parking
identification device may not be obliterated. Devices are not transferable or
assignable and any device in the possession of an unauthorized holder will be
void. There will be a deposit of $10.00 required for each parking card and a
replacement charge to Tenant or person designated by Tenant, of $10.00 for loss
of any parking card which amounts can be adjusted from time to time by Landlord
at its discretion.
K-1
<PAGE>
7. Tenant, at Tenant's sole cost and expense, may validate visitor parking
by such method or methods as Landlord may approve or establish, at a validation
rate from time to time established by Landlord.
8. Landlord (and its operator) may refuse to permit any person who
violates the within rules to park in the parking area, and any violation of the
rules shall subject the automobile to removal from the parking area at the
parker's expense. In either of said events, Landlord (or its operator) shall
refund a pro rata portion of the current monthly parking rate, and the sticker,
or any other form of identification supplied by Landlord (or its operator).
9. Parking area managers or attendants are not authorized to make or allow
any exceptions to these rules and regulations.
10. Every parker is required to park and lock his/her own automobile. All
responsibility for any loss or damage to automobiles or any personal property
therein is assumed by the parker.
11. Loss or theft of parking identification devices from automobiles must
be reported to the parking area manager immediately, and a lost or stolen report
must be filed by the parker at that time.
12. The Parking Facilities are for the sole purpose of parking one (1)
automobile per space. Washing, waxing, cleaning or servicing of any vehicle by
the parker, or his/her agents is prohibited except by persons expressly
authorized to do so in advance by Landlord.
13. Landlord (and its operator) reserves the right to refuse the issuance
of monthly stickers or other parking identification devices to any tenant and/or
its employees who refuse to comply with the above rules and all posted and
unposted city, state or federal ordinances, laws or agreements.
14. Tenant agrees to acquaint all employees with these rules.
K-2
<PAGE>
EXHIBIT "L"
LOCATION OF PARKING SPACES
--------------------------
L-1
<PAGE>
EXHIBIT "M"
MEMORANDUM OF LEASE
-------------------
M-1
<PAGE>
Recording Requested
By And When Recorded
Return To:
Commerce Citadel Development Authority
c/o City of Commerce
City Hall
2535 Commerce Way
Commerce, California 90040
Attn: Justin McCarthy
Director of Community Development
_________________________________________________________________ (Space above
this line for Recorder's Use)
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE is made and entered into as of April ___, 1998, by
and between Commerce Citadel Development Authority, a California corporation
("Landlord") and Smart & Final Stores Corporation, a California corporation
("Tenant").
1. LEASE. On the terms and conditions set forth in an unrecorded
-----
document dated April ___, 1998 entitled "The Citadel Office Lease", which terms
and conditions are incorporated herein by reference, and in consideration of the
rent and covenants therein provided, Landlord does hereby lease to Tenant, and
Tenant hereby rents and accepts from Landlord, certain improved real property
located at 600 Citadel Drive in the City of Commerce, County of Los Angeles,
State of California, within the property of Landlord which is described in
Exhibit "A" attached hereto and incorporated herein by this reference.
2. TERM OF LEASE. The initial term of the Lease is fifteen (15) years
-------------
from and after the first day of the month in which the Lease commences. The
commencement date of the Lease is approximately four (4) months after Landlord
delivers possession of the leased premises to Tenant, subject to adjustment for
certain circumstances as specifically provided in the Lease.
3. OPTIONS TO EXTEND TERM. The Lease grants Tenant options to further
----------------------
extend the term of the Lease for three (3) additional periods of five (5) years
each.
M-2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Memorandum
of Lease on the day and year first above written.
ALANDLORD@
COMMERCE CITADEL DEVELOPMENT AUTHORITY, a
California corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
ATENANT@
SMART & FINAL STORES CORPORATION,
a California corporation
By: _____________________________________
Name: ___________________________________
Title: __________________________________
By: _____________________________________
Name: ___________________________________
Title: __________________________________
M-3
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On __________________, before me, __________________________, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:____________________ [place seal here]
STATE OF CALIFORNIA )
) ss.
COUNTY OF LOS ANGELES )
On __________________, before me, __________________________, personally
appeared _______________________________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their authorized signature(s) on the instrument the person(s),
or the entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature:____________________ [place seal here]
M-4
<PAGE>
EXHIBIT "A" TO MEMORANDUM OF LEASE
LEGAL DESCRIPTION OF LANDLORD'S PROPERTY
UPON WHICH LEASED PREMISES ARE LOCATED
PARCEL 1:
A PORTION OF PARCELS 1 AND 2 OF PARCEL MAP NO. 13483, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 132 PAGES
16 THROUGH 28 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY, DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN SOUTHWESTERLY LINE OF PARCEL 1 OF SAID PARCEL MAP NO.
13483, BEING THE NORTHEASTERLY LINE OF TELEGRAPH ROAD, AS SHOWN ON SAID MAP AND
WHICH POINT BEARS NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 12.00 FEET ALONG
SAID SOUTHWESTERLY LINE FROM THE SOUTHERLY CORNER OF SAID PARCEL 1; THENCE ALONG
SAID SOUTHWESTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 405.09
FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 402.17 FEET; THENCE
NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST 214.04 FEET; THENCE NORTH 46 DEGREES
43 MINUTES 50 SECONDS EAST 80.40 FEET; THENCE NORTH 43 DEGREES 16 MINUTES 10
SECONDS WEST 222.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
219.83 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 204.00 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 177.54 FEET; THENCE SOUTH 46 DEGREES 43
MINUTES 50 SECONDS WEST 40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10
SECONDS EAST 109.00 FEET; THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST
40.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST 178.08 FEET;
THENCE NORTH 46 DEGREES 43 MINUTES 50 SECONDS EAST 30.67 FEET; THENCE SOUTH 43
DEGREES 16 MINUTES 10 SECONDS EAST 613.01 FEET TO THE SOUTHEASTERLY LINE OF SAID
PARCEL 2; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 64.00 FEET; THENCE SOUTH 43 DEGREES 16 MINUTES 10 SECONDS EAST
66.00 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 181.12 FEET TO
THE NORTHEASTERLY LINE OF GASPAR AVENUE, AS SHOWN ON SAID PARCEL MAP; THENCE
ALONG LAST SAID NORTHEASTERLY LINE, NORTH 43 DEGREES 16 MINUTES 10 SECONDS WEST
43.50 FEET TO THE NORTHERLY CORNER OF SAID GASPAR AVENUE; THENCE ALONG THE
NORTHWESTERLY LINE OF SAID GASPAR AVENUE, SOUTH 46 DEGREES 43 MINUTES 50 SECONDS
WEST 34.05 FEET; THENCE NORTH 44 DEGREES 49 MINUTES 06 SECONDS WEST 430.66 FEET;
THENCE SOUTH 46 DEGREES 43 MINUTES 50 SECONDS WEST 180.30 FEET; THENCE NORTH 43
DEGREES 16
M-5
<PAGE>
MINUTES 10 SECONDS WEST 32.50 FEET; THENCE SOUTH 46 DEGREES 43 MINUTES 50
SECONDS WEST 231.29 FEET TO THE POINT OF BEGINNING.
EXCEPT THEREFROM ALL MINERALS AND MINERAL RIGHTS OF EVERY KIND AND CHARACTER
THEN KNOWN TO EXIST OR THEREAFTER DISCOVERED, INCLUDING COAL, OIL AND GAS RIGHTS
THERETO, EXCEPT IN THE DEED DATED MARCH 26, 1945, EXECUTED BY LAS VEGAS LAND AND
WATER COMPANY, FILED FOR RECORD APRIL 6, 1945 IN BOOK 21841 PAGE 206, OFFICIAL
RECORDS.
ALSO EXCEPT THEREFROM ALL MINERALS AND ALL MINERAL RIGHTS OF EVERY KIND AND
CHARACTER NOW KNOWN TO EXIST OR HEREAFTER DISCOVERED, INCLUDING, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING COAL, OIL AND GAS AND RIGHTS THERETO,
TOGETHER WITH THE SOLE, EXCLUSIVE AND PERPETUAL RIGHT TO EXPLORE FOR, REMOVE AND
DISPOSE OF SAID MINERALS BY ANY MEANS OR METHOD SUITABLE TO UNION PACIFIC
RAILROAD COMPANY, A CORPORATION, ITS SUCCESSORS AND ASSIGNS, BUT HOWEVER,
WITHOUT ENTERING UPON OR USING THE SURFACE OF THE LANDS HEREBY CONVEYED, OR THE
SUBSURFACE THEREOF SO FAR AS REQUIRED BY UNITED STATES RUBBER COMPANY, A
CORPORATION, ITS SUCCESSORS OR ASSIGNS, IN AND FOR THE ERECTION, MAINTENANCE AND
USE OF BUILDINGS AND STRUCTURES FOR ANY LAWFUL PURPOSE AND WITHOUT DAMAGING OR
INTERFERING WITH THE USE OF THE SURFACE OF SAID LANDS, OR THE SUBSURFACE THEREOF
AS HEREINABOVE SPECIFIED, OR ANY BUILDING OR STRUCTURES ON OR WITHIN SAID LANDS,
AS RESERVED BY UNION PACIFIC RAILROAD COMPANY, A UTAH CORPORATION, IN DEED
RECORDED AUGUST 26, 1958 IN BOOK D-196 PAGE 783, OFFICIAL RECORDS.
SAID PARCELS ARE ALSO SHOWN AS PARCEL MAP NO. 15050, IN THE CITY OF COMMERCE,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 165 PAGES 6
TO 10 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID
COUNTY, WHICH MAP CONTAINS THE FOLLOWING RECITALS: "THIS MAP IS FOR FINANCING
PURPOSES ONLY AND IS NOT TO BE USED FOR DEVELOPMENT."
SAID LAND IS ALSO SHOWN AS A PORTION OF PARCEL 3 AND PORTION OF PARCEL 4 OF
PARCEL MAP NO. 21208, AS PER MAP FILED IN BOOK 242 PAGES 19, 20 AND 21 OF PARCEL
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
M-6
<PAGE>
PARCEL 2:
NON-EXCLUSIVE EASEMENTS ON, OVER AND ACROSS THE PRIVATE STREET SYSTEM FOR
INGRESS, EGRESS AND REGRESS TO AND FROM ITS PARCEL; FOR ACCESS TO AND FROM
TELEGRAPH ROAD, HOEFNER ROAD AND GASPAR STREET (ALL PUBLIC STREETS), AND FOR THE
PASSAGE OF VEHICLES, PARKING AND FOR THE PASSAGE AND ACCOMMODATION OF
PEDESTRIANS, AS DISCLOSED BY A DOCUMENT ENTITLED "DECLARATION ESTABLISHING
EASEMENTS AND MAINTENANCE OBLIGATIONS", RECORDED MARCH 1, 1990 AS INSTRUMENT NO.
90-330359.
M-7
<PAGE>
PARTICIPATION AGREEMENT
AMONG
SMART & FINAL INC.
AS LESSEE,
SMART & FINAL STORES CORPORATION
AS SUBLESSEE AND CONSTRUCTION AGENT,
SMART & FINAL REALTY TRUST 1998
AS LESSOR,
WILMINGTON TRUST COMPANY
AS TRUSTEE,
CREDIT LYONNAIS LEASING CORP.
AS INVESTOR,
LENDERS PARTY HERETO
AS LENDERS
AND
CREDIT LYONNAIS LOS ANGELES BRANCH
AS AGENT
DATED AS OF MAY 20, 1998
<PAGE>
PARTICIPATION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS...................................................................... 2
ARTICLE II. INITIAL CLOSING; ADVANCES; GENERAL PROVISIONS................................... 2
Section 2.1. Initial Closing; Effectiveness of Agreement............................... 2
Section 2.2. Agreement to Acquire and Lease and Make Advances.......................... 2
Section 2.3. Participation by Lenders.................................................. 2
Section 2.4. Participation by Investor................................................. 2
Section 2.5. Advance Dates............................................................. 3
Section 2.6. Fees Payable by Lessee.................................................... 5
Section 2.7. Payments to Participants.................................................. 5
Section 2.8. Nature of Transaction..................................................... 6
Section 2.9. Computations.............................................................. 6
Section 2.10. Maturity Date Extension.................................................. 6
Section 2.11. Highest Lawful Rate...................................................... 7
Section 2.12. Commitment Reduction..................................................... 8
ARTICLE III. CONDITIONS TO ADVANCES AND COMPLETION.......................................... 9
Section 3.1. Conditions to All Advances................................................ 9
Section 3.2. Conditions to Acquisition of Site......................................... 11
Section 3.3. Conditions Precedent to Advances for Construction Costs................... 13
Section 3.4. Conditions to Substantial Completion...................................... 14
Section 3.5. Conditions Precedent to Final Advances.................................... 16
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................................. 17
Section 4.1. Representations and Warranties of Lessee Parties.......................... 17
Section 4.2. Representations and Warranties of each Lender............................. 24
Section 4.3. Representations and Warranties of Lessor.................................. 25
Section 4.4. Representations and Warranties of Agent................................... 27
Section 4.5. Representations and Warranties of Investor................................ 28
Section 4.6. Representations and Warranties of Trustee................................. 29
ARTICLE V. COVENANTS OF LESSEE PARTIES...................................................... 30
Section 5.1. Further Assurances........................................................ 30
Section 5.2. Basic Reporting Requirements of the Lessee and Sublessee.................. 30
Section 5.3. Inspection................................................................ 31
Section 5.4. Consolidation, Merger, Sale............................................... 31
Section 5.5. Consolidated Tangible Net Worth........................................... 31
Section 5.6. Consolidated Cash Flow Ratio.............................................. 32
Section 5.7. Payment Priority.......................................................... 32
Section 5.8. Restricted Payments....................................................... 32
Section 5.9. Subsidiary Ownership...................................................... 32
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 5.10. Insurance................................................................ 32
Section 5.11. Books and Records........................................................ 33
Section 5.12. Tax and Other Payments................................................... 33
Section 5.13. Environmental Matters.................................................... 33
Section 5.14. Notices.................................................................. 34
Section 5.15. Corporate Existence...................................................... 35
Section 5.16. Construction Matters; Changes............................................ 35
Section 5.17. Guaranty................................................................. 35
Section 5.18. Liens.................................................................... 35
Section 5.19. Change of Name or Address................................................ 35
Section 5.20. Securities............................................................... 36
Section 5.21. Interest Rates........................................................... 36
Section 5.22. Appraisals............................................................... 36
Section 5.23. Environmental Audits..................................................... 36
Section 5.24. Additional Compensation in Certain Circumstances......................... 36
Section 5.25. Demolition............................................................... 38
Section 5.26. Year 2000................................................................ 38
ARTICLE VI. OTHER COVENANTS AND AGREEMENTS.................................................. 38
Section 6.1. Agent under Operative Documents........................................... 38
Section 6.2. Covenants of Lessor and Participants...................................... 38
Section 6.3. Restrictions on and Effect of Transfer by any Participant................. 39
Section 6.4. Covenants and Agreements of Lenders....................................... 41
Section 6.5. Future Participants....................................................... 42
Section 6.6. Prepayment by Lessor...................................................... 42
Section 6.7. Foreclosure against Lessor................................................ 42
ARTICLE VII. INDEMNIFICATION................................................................ 42
Section 7.1. General Indemnification................................................... 42
Section 7.2. General Tax Indemnity..................................................... 44
Section 7.3. Withholding Tax Exemption................................................. 47
Section 7.4. Gross Up.................................................................. 48
ARTICLE VIII. THE AGENT..................................................................... 48
Section 8.1. Appointment of Agent...................................................... 48
Section 8.2. Reliance.................................................................. 49
Section 8.3. Refusal to Act............................................................ 49
Section 8.4. Compensation of Agency.................................................... 49
Section 8.5. Limitations............................................................... 49
Section 8.6. Number of Counterparts.................................................... 50
ARTICLE IX. MISCELLANEOUS................................................................... 50
Section 9.1. Survival of Agreements.................................................... 50
Section 9.2. No Broker, etc............................................................ 50
Section 9.3. Notices................................................................... 51
Section 9.4. Counterparts.............................................................. 51
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 9.5. Amendments................................................................ 51
Section 9.6. Headings, etc............................................................. 52
Section 9.7. Parties in Interest....................................................... 52
Section 9.8. GOVERNING LAW............................................................. 52
Section 9.9. Payment of Transaction Costs and Other Costs.............................. 52
Section 9.10. Severability............................................................. 53
Section 9.11. Limited Liability........................................................ 53
Section 9.12. Liabilities of Participants.............................................. 54
Section 9.13. Liabilities of Agent..................................................... 54
Section 9.14. Reproduction of Documents................................................ 54
Section 9.15. Consideration for Consents to Waivers and Amendments..................... 54
Section 9.16. Payment Directions....................................................... 55
Section 9.17. Action of and Notices under Loan Agreement............................... 55
Section 9.18. Submission to Jurisdiction; Waivers...................................... 55
Section 9.19. Final Agreement.......................................................... 56
Section 9.20. Confidentiality.......................................................... 56
</TABLE>
APPENDICES
----------
APPENDIX 1 Definitions
APPENDIX 2 Conditions Precedent to Document Closing Date
SCHEDULES
---------
SCHEDULE I Site Description
SCHEDULE II Investor and Lender Commitments
SCHEDULE III Addresses For Notice and Deliveries; Wire Instructions
SCHEDULE 3.2(a) Filings and Recordings
SCHEDULE 4.1(a) Jurisdiction
SCHEDULE 4.1(b) Governmental Actions
SCHEDULE 4.1(s) ERISA Plans
iii
<PAGE>
EXHIBITS
--------
EXHIBIT A Form of Lease and Memorandum of Lease and Agreement
EXHIBIT B Form of Sublease
EXHIBIT C Form of Loan Agreement and Notes
EXHIBIT D Form of Trust Agreement and Trust Certificates
EXHIBIT E Form of Advance Request
EXHIBIT F Form of Guaranty
EXHIBIT G Form of Investor's Letter
EXHIBIT H Form of Collateral Assignment of Construction Agency Agreement
EXHIBIT I Form of Collateral Assignment of Purchase Agreement
EXHIBIT J Form of Mortgage
EXHIBIT K-1 Form of Opinion of In-House Counsel to Lessee
EXHIBIT K-2 Form of Opinion of Counsel to Trust Company
EXHIBIT L Form of Officer's Certificates
EXHIBIT M Form of Assignment and Assumption by Participant
iv
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of May 20, 1998 (as amended,
supplemented or otherwise modified from time to time, this "Agreement"), is
among SMART & FINAL INC., as Lessee, SMART & FINAL STORES CORPORATION, as
Sublessee and Construction Agent, SMART & FINAL REALTY TRUST 1998, as Lessor,
WILMINGTON TRUST COMPANY, as Trustee, CREDIT LYONNAIS LEASING CORP., as
Investor, financial institutions party hereto from time to time, as Lenders, and
CREDIT LYONNAIS LOS ANGELES BRANCH, a branch duly licensed under the laws of the
State of California as a banking corporation organized and existing under the
laws of the Republic of France, as Agent for the benefit of itself and Lenders.
W I T N E S E T H:
WHEREAS, Lessor desires to have financing for the acquisition of the
Land Interest and the improvements thereon, for the acquisition and construction
of the New Facility to be constructed thereon, and Transactions Costs incurred
in connection therewith;
WHEREAS, pursuant to the terms hereof and the other Operative
Documents (i) Lessor shall purchase the Land Interest (as described on Schedule
--------
I) and the existing Facilities and other improvements thereon (collectively, the
- -
"Site") from Certified Grocers of California, Ltd., (ii) Construction Agent
shall cause the construction of the New Facility on the Site and shall apply
Advances from Lessor to pay the costs thereof, (iii) Lessee shall lease the Site
from Lessor for the Lease Term pursuant to the Lease in the form attached hereto
as Exhibit A, and (iv) Sublessee shall sublease the Site from Lessee pursuant to
---------
the Sublease in the form attached hereto as Exhibit B;
---------
WHEREAS, Lessor agrees to have Advances made for the purpose of
acquiring the Site, funding the construction of the New Facility and funding
Transaction Costs, pursuant to the terms and conditions hereof and the other
Operative Documents;
WHEREAS, Lessor wishes Investor to contribute Advances, and Investor
is willing to make contributions in Lessor, pursuant to the terms and conditions
hereof and the other Operative Documents; and
WHEREAS, Lessor wishes to obtain, and Lenders are willing to provide,
Advances, pursuant to the terms and conditions hereof, the Loan Agreement and in
the other Operative Documents.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1
<PAGE>
ARTICLE I.
DEFINITIONS
Unless the context shall otherwise require, capitalized terms defined
in Appendix 1 shall have the meanings assigned thereto for all purposes hereof.
----------
ARTICLE II.
INITIAL CLOSING; ADVANCES; GENERAL PROVISIONS
Section 2.1. Initial Closing; Effectiveness of Agreement. This Agreement
-------------------------------------------
shall become effective (the "Document Closing Date") as of the date above first
written, which is the date all the conditions precedent thereto set forth in
Appendix 2 hereto shall have been satisfied or waived as set forth therein.
- ----------
Section 2.2. Agreement to Acquire and Lease and Make Advances. As of the
------------------------------------------------
date hereof, (i) Lessor and Lessee shall enter into the Lease pursuant to which
Lessor shall lease the Site to Lessee, and (ii) Lessor and Construction Agent
shall enter into the Construction Agency Agreement pursuant to which Lessor
shall appoint Construction Agent to construct the New Facility on a portion of
the Site on the terms and conditions herein and therein. On Advance Dates,
pursuant to the terms and conditions set forth herein and the other Operative
Documents, Lessor shall cause Advances to be made for the purposes of (i)
acquiring the Site, (ii) funding costs of constructing the New Facility, and/or
(iii) funding Transaction Costs.
Section 2.3. Participation by Lenders. Subject to the terms and
------------------------
conditions of this Agreement and the other Operative Documents and in reliance
on the representations and warranties of each of the parties hereto contained
herein (or made pursuant hereto), on each Advance Date, Lenders shall finance
ninety-six percent (96%) of each Advance, by Lenders making secured Loans to
Lessor in an amount in immediately available funds on such Advance Date equal to
each such Lender's Commitment Percentage of each such Advance, and in the
aggregate not more than the amount of such Lender's Commitment as set forth on
Schedule II hereto. The aggregate of all Loans shall not exceed either
- -----------
ninety-six percent (96%) of the aggregate of all Advances or the total of all
Lenders' Commitment Amounts set forth in Schedule II. Pursuant to the
-----------
terms of the Loan Documents, Lenders shall receive interest accrued on the
outstanding Loans, on each Payment Date. The Loans shall be evidenced by Notes
issued to Lenders pursuant to the terms of the Loan Agreement (which shall be
substantially in the form of Exhibit C).
---------
Section 2.4. Participation by Investor. Subject to the terms and
-------------------------
conditions of this Agreement and the other Operative Documents and in reliance
on the representations and warranties of each of the parties hereto contained
herein (or made pursuant hereto), on each Advance Date, Investor shall make an
investment in Lessor (each, an "Investor Contribution") in an amount in
immediately available funds on such Advance Date equal to Investor's Commitment
Percentage of the Advance being made on such Advance Date as set forth in
Schedule II. The aggregate of all Investor Contributions shall not exceed four
- -----------
percent (4%) of all Advances or the total of Investor's Commitment Amount set
forth in Schedule II. In consideration of the Investor Contributions, Investor
-----------
shall be entitled to be paid the Yield on the Investor Contributions on
2
<PAGE>
each Payment Date. Each Investor Contribution shall be evidenced by one or more
Trust Certificates issued in accordance with the Trust Agreement (which shall be
substantially in the form of Exhibit D).
---------
Section 2.5. Advance Dates. (a) Notices and Advance. At least five (5)
------------- -------------------
Business Days prior to each Advance Date, Lessee or Construction Agent (in
connection with Advances made for construction costs) shall deliver to Lessor
and Agent an irrevocable written notice substantially in the form of Exhibit E
---------
(an "Advance Request"), setting forth, inter alia:
----- ----
(i) the proposed Advance Date;
(ii) the amount of the proposed Advance;
(iii) in the case of an Advance to fund any portion of the cost
of constructing the New Facility, a description of the work so funded and
the identity of the provider thereof;
(iv) in the case of an Advance to fund any Transaction Costs, a
description of such Transaction Costs; and
(v) wire transfer instructions for the disbursement of funds.
All documents and instruments required to be delivered on any Advance Date
(other than the Document Closing Date) shall be delivered at the offices of
Lessor and Agent set forth on Schedule III. On the scheduled Advance Date, and
------------
subject to the terms and conditions of this Agreement, and upon receipt of funds
by Lessor from Lenders and Investor sufficient therefor, Lessor shall deliver or
cause to be delivered the requested Advance. Subject to Section 3.5, each
-----------
Advance shall not be less than One Million Dollars ($1,000,000.00).
(b) Deemed Request. Notwithstanding the foregoing, during the
--------------
Construction Period, on each date which is one (1) Business Day prior to any
date on which a Participant is entitled to an interest payment or a payment on
account of Yield, if an Advance Request has not already been delivered pursuant
thereto, the Construction Agent shall be deemed to have requested that each
Participant make an Advance in an amount equal to the amount so due, due and
payable on such date to each such Participant solely for the purpose of paying
such amount, and no Advance Request shall be required.
(c) Commitment Limits. The amount of any Loan or Loans made by any
-----------------
Lender or any Investor Contribution or Contributions by Investor, with respect
to any Advance or the aggregate of all Advances, shall not exceed such
Participant's Commitment Percentage with respect to such Advance or the
aggregate Advances, respectively. The aggregate amount disbursed by each
Participant shall not exceed its respective Commitment Amount. The aggregate
amount disbursed by the Participants hereunder shall not exceed the aggregate
Commitment Amounts. As of the last day of the Commitment Period, the aggregate
Commitment Amounts shall be reduced to the aggregate Advances made and each
Participant's Commitment Amount shall be reduced pro rata based upon each such
Participant's Commitment Percentage. As of such date, Lessor shall deliver a
revised Schedule III to all parties hereto.
------------
3
<PAGE>
(d) Appraised Value Limitations. In no event shall the aggregate
---------------------------
amount disbursed by the Participants in respect of the Site exceed one hundred
ten percent (110%) of the appraised value of the Site on an "as completed" basis
on the Completion Date, as set forth in the Appraisal delivered pursuant to
Appendix 2 or Section 5.21.
- ---------- ------------
(e) Advance Dates. Prior to the termination of the Commitment Period
-------------
and subject to the other terms herein and the other Operative Documents, there
shall be no limit on the number of Advance Dates.
(f) Obligations Several. Other than with respect to Lessee, Sublessee
-------------------
and any other Lessee Party, the obligations of the parties hereto or elsewhere
in the Operative Documents shall be several and not joint; and no party shall be
liable or responsible for the acts or defaults of any other party hereunder or
under any other Operative Document. With respect to Lessee, Sublessee and any
other Lessee Party, each of their respective obligations shall be joint and
several.
(g) Termination of Commitment. Notwithstanding anything in this
-------------------------
Agreement to the contrary, no party hereto shall be obligated to make any
fundings pursuant to this Agreement after 5:00 P.M., New York time, on August
31, 1998 (for the initial Advance), and one year anniversary following the
Document Closing Date (for any subsequent Advances), and no Advance Date may
occur following such latter date.
(h) Postponement of Advance Date. In the event that any Participant
----------------------------
shall make the funding requested pursuant to any Advance Request and the
relevant Advance Date shall not have occurred on the date specified in such
Advance Request, Lessee shall pay Lessor damages equal to interest on the amount
funded by each Participant at the Assumed Interest Rate for the period from the
date of each such Participant's Loan or Investor Contribution to the date such
Loan or Investor Contribution is returned to such Participant or such Advance
Date shall have occurred. Such damages shall be due and payable by Lessee upon
the occurrence of such postponed Advance Date and such payment shall be an
additional condition precedent to such Advance Date; provided, however, that no
-------- -------
additional Advance Request shall be required to be given if an Advance Date is
postponed and thereafter timely consummated; and provided further that if such
-------- -------
Advance Date shall not have occurred by 3:00 p.m. (New York time) on the third
(3rd) Business Day following the funding by the Participants in respect thereof,
then all such damages shall be due and payable on such date, and Lessor (or
Agent on its behalf, as the case may be) shall refund to each Participant all
amounts funded by such Participant and all accrued interest allocable to such
Participant.
(i) Notes; Trust Certificates Notations. Each Participant is hereby
-----------------------------------
authorized to record the date and amount of each Advance made by such
Participant, each continuation thereof, the date and amount of each payment or
repayment of principal or Investor Contribution thereof (as the case may be) and
the length of each Interest Period with respect thereto, on a grid annexed to
and constituting a part of each Note or Trust Certificate held by such
Participant, and/or the records of Agent, and any such recordation shall
constitute prima facie evidence of the accuracy of the information so recorded
absent manifest error; provided, however, that the failure
-------- -------
4
<PAGE>
to make any such recordation or any error in such recordation shall not affect
the obligation of Lessor under any Note or Trust Certificate or the obligation
of Lessee to pay Rent.
(j) Construction Advances. Construction Agent shall establish and
---------------------
maintain at a depository institution satisfactory to Agent a deposit account
into which any Advances made in order to fund any portion of the cost of
constructing the Facility shall be directly paid.
(k) Interest and Yield on Advances; Interest Periods. Interest and
------------------------------------------------
Yield on each Advance shall be Base Rate or LIBO Rate, whichever is applicable,
plus the Applicable Margin for the period from the date of such Advance until
such Advance has been repaid in full. For any Advance in which the rate has not
been specified, the applicable rate shall be the Base Rate. Agent shall
determine each interest rate or Yield applicable to Advances and other amounts
due from time to time hereunder, all in accordance with the terms of this
Agreement and the other Operative Documents. Agent shall give prompt notice to
Lessor and Lenders of each rate of interest so determined, and its determination
thereof shall be conclusive, absent manifest error. No more than six (6)
Interest Periods shall be in effect at any time. For purposes of the preceding
sentence, Loans and Investor Contributions of different types having the same
Interest Period shall be deemed to have different Interest Periods.
Section 2.6. Fees Payable by Lessee. Lessee shall pay to Lessor, for the
----------------------
benefit of each Participant, a fully-earned, non-refundable Commitment Fee (the
"Commitment Fee") for the period (the "Commitment Period"), commencing on the
Document Closing Date and ending on the earlier of (i) the date of the final
Advance pursuant to Section 3.5, (ii) the date in which the aggregate Advances
-----------
made equal the aggregate Commitment Amounts, and (iii) the first anniversary of
the Document Closing Date, calculated using a rate per annum (based on a year of
360 days and actual days elapsed) equal to the Commitment Fee Factor for such
day divided by 360 and multiplied by the amount (not less than zero) equal to
the amount by which
(i) the amount of such Participant's Commitment (after taking
into account any reductions pursuant to Section 2.12) on each such day,
------------
exceeds
(ii) the aggregate funded amount of such Participant's Loans or
Investor Contribution, as applicable.
As used herein, the "Commitment Fee Factor" for a given day shall be
equal to the Applicable Margin then in effect. Any change in the Applicable
Margin shall become effective immediately. The Commitment Fee shall be due and
payable for the preceding quarter (x) on each Payment Date in the Commitment
Period, (y) on the date, if any, of each reduction of the amount of the
Commitment on the amount so reduced, and (z) on the first Business Day after the
end of the Commitment Period. From time to time upon receipt, Lessor will
promptly deliver to the Participants their pro rata portions of such Commitment
Fee in accordance with their respective Commitments.
Section 2.7. Payments to Participants. The parties hereto agree that any
------------------------
payment required to be made by Lessee to any Lenders, or by Lessor to any Lender
out of amounts paid by Lessee to Lessor, pursuant to any Operative Document may
be made directly to Agent on behalf
5
<PAGE>
of the applicable Lenders by Lessee in lieu of the corresponding payment
required to be made by Lessee to such Lenders, pursuant to any Operating
Document. A payment by Lessee to Agent shall be deemed to constitute the
required payment from Lessee to Lender or any Lenders, with respect thereto.
Section 2.8. Nature of Transaction. (a) It is the intent of the parties
---------------------
hereto that: (i) the transaction contemplated hereby constitutes an operating
lease from Lessor to Lessee for purposes of Lessee's financial reporting, (ii)
the transaction contemplated hereby preserves ownership in the Site to Lessee
for purposes of Federal and state tax and bankruptcy, (iii) Lessee, pursuant to
the Lease, grants a security interest or lien, as the case may be, in the Site
and the other Collateral to Lessor, (iv) for purposes of Federal and state tax,
the payment by Lessee of the portions of Basic Rent shall be treated as payments
of interest, and the payment by Lessee of any amounts in respect of the Lease
Balance shall be treated as repayments of principal, and (v) the Mortgage and
other Collateral Documents create a lien and security interest in the
Collateral, subject to certain limited exceptions. Nevertheless, Lessee
acknowledges and agrees that none of Lessor, Agent nor any Participant has
provided or will provide tax, accounting, regulatory or legal advice to Lessee
regarding the Overall Transaction or made any representations or warranties
concerning the tax, accounting, regulatory or legal characteristics of the
Operative Documents or the Overall Transaction and that Lessee has obtained and
relied upon such tax, accounting, regulatory and legal advice concerning the
Operative Documents and the Overall Transaction as it deems appropriate.
(b) Specifically, without limiting the generality of clause (a) above,
but understanding that the parties' characterization is not the sole determinant
of the issue, the parties hereto intend and agree that with respect to the
nature of the transactions evidenced by the Lease in the context of the exercise
of remedies under the Operative Documents, relating to and arising out of any
insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State thereof affecting Lessee, Lessor, Agent or any
Participant or any enforcement or collection actions, the transactions evidenced
by the Operative Documents are loans made by unrelated third parties to Lessee
secured by the Site and other Collateral.
Section 2.9. Computations. For all purposes under the Operative
------------
Documents, all computations of interest, Yield, Commitment Fees and other
accrued amounts (including the Overdue Rate) shall be made on the basis of
actual number of days elapsed in a 360-day year, except as otherwise
specifically provided in any Operative Document.
Section 2.10. Maturity Date Extension.
-----------------------
(a) Final Maturity Date Extension.
-----------------------------
(i) Pursuant to Section 6.1 of the Lease, so long as no Lease
Default or Lease Event of Default shall have occurred and be continuing at
the time Lessee delivers the Extension Request and at the commencement of
the applicable Extension Term, and such request is timely made pursuant to
Section 6.1 of the Lease, Lessee may request that Lessor, Agent and
Participants extend the Lease and the related financing by
6
<PAGE>
Participants for an Extension Term (such request by Lessee is herein called
the "Extension Request"). Lessor, Agent and Participants shall have up to
thirty (30) days prior to the then-existing Final Maturity Date to inform
Agent whether such Person, in its sole and absolute discretion, agrees to
such Extension Request. Failure of any such party to indicate its
acceptance or rejection by such time shall be deemed to constitute such
party's rejection thereof. If any of Lessor, Agent or any Participant
rejects such Extension Request, the date of the Final Maturity Date shall
not be extended or changed. Subject to the terms and conditions hereof and
the Lease, Lessee may make up to ten (10) of such Extension Requests.
(ii) If at any time after Lessee shall have made an Extension
Request and prior to the commencement of the Extension Term, a Lease
Default or Lease Event of Default shall have occurred, then Lessee's rights
under this Section shall automatically terminate and Lessee shall not be
entitled to the Extension Term.
(b) General. Lessee hereby agrees to pay all costs and expenses
-------
(including legal fees and expenses) incurred by Lessor, Agent and Participants
in connection with the provisions of this Section.
Section 2.11. Highest Lawful Rate. It is the intention of the parties
-------------------
hereto to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the obligations of (a) Lessee to Lessor and any other
Person under this Agreement and the other Operative Documents, (b) Lessor to
Participants and any other Person under this Agreement, the Notes and the other
Operative Documents and (c) either Lessee or Lessor or any other party under any
Operative Document, shall be subject to the limitation that payments of interest
or of other amounts constituting interest under Applicable Laws and Regulations
shall not be required to the extent that receipt thereof would be in excess of
the Highest Lawful Rate (as defined below), or otherwise contrary to provisions
of law applicable to the recipient limiting rates of interest which may be
charged or collected by the recipient. Accordingly, if the transactions or the
amount paid or otherwise agreed to be paid for the use, forbearance or detention
of money under this Agreement, the Lease, the Loan Documents and any other
Operative Document would exceed the Highest Lawful Rate or otherwise be usurious
under Applicable Laws and Regulations (including, without limitation, the
federal and state laws of the United States of America, or of any other
jurisdiction whose laws may be mandatorily applicable) with respect to the
recipient of any such amount then, in that event, notwithstanding anything to
the contrary in this Agreement, the Lease, the Loan Documents or any other
Operative Document it is agreed as follows as to the recipient of any such
amount:
(a) the provisions of this Section shall govern and control over any
other provision in this Agreement, the Lease, the Loan Documents and any other
Operative Document, and each provision set forth therein is hereby so limited;
(b) the aggregate of all consideration which constitutes interest
under Applicable Laws and Regulations that is contracted for, charged or
received under this Agreement, the Lease, the Loan Documents or any other
Operative Document shall under no circumstances exceed the maximum amount of
interest allowed by Applicable Laws and
7
<PAGE>
Regulations, excluding any conflicts law (or, if and to the extent required by
the Applicable Laws and Regulations), (such maximum lawful interest rate, if
any, herein called the "Highest Lawful Rate"), it being the intention of the
parties that the Applicable Laws and Regulations of the State of New York,
excluding any conflicts laws, shall govern the determination of the Highest
Lawful Rate. All amounts owed under this Agreement, the Lease, the Loan
Documents and any other Operative Document shall be held subject to reduction
with respect thereto and (i) the amount of interest which would otherwise be
payable to the recipient hereunder and under the Lease, the Loan Documents and
any other Operative Document shall be automatically reduced to the amount
allowed under Applicable Laws and Regulations and (ii) any unearned interest
paid in excess of the Highest Lawful Rate shall be credited to the payor by the
recipient (or, if such consideration shall have been paid in full, refunded to
the payee);
(c) all sums paid, or agreed to be paid for the use, forbearance and
detention of the money under this Agreement, the Lease, the Loan Documents or
any other Operative Document shall, to the extent permitted by Applicable Laws
and Regulations, be amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that the actual rate of
interest is uniform throughout the full term thereof;
(d) if at any time the interest, together with any other fees, late
charges and other sums payable pursuant to or in connection with this Agreement,
the Lease, the Loan Documents and any other Operative Document and deemed
interest under Applicable Laws and Regulations, exceeds that amount which would
have accrued at the Highest Lawful Rate, the amount of interest and any such
fees, charges and sums to accrue to the recipient of such interest, fees,
charges and sums pursuant to the Operative Documents shall be limited,
notwithstanding anything to the contrary in the Operative Documents to that
amount which would have accrued at the Highest Lawful Rate for the recipient,
but any subsequent reductions, as applicable, shall not reduce the interest to
accrue pursuant to the Operative Documents below the recipient's Highest Lawful
Rate until the total amount of interest payable to the recipient (including all
consideration which constitutes interest) equals the amount of interest which
would have been payable to the recipient (including all consideration which
constitutes interest), plus the amount of fees which would have been received
but for the effect of this Section.
Section 2.12. Commitment Reduction. At the option of Lessee, from time
--------------------
to time, exercisable by written notice to Agent, Lessee may request Investor and
Lenders to cancel the aggregate unused portion of the Participants' Commitments,
and Agent shall notify the Lenders of such request. The Participants shall each
cancel the unused portion of their respective Commitments, and Lessor shall
deliver a revised Schedule II to all Parties hereto subject to the
-----------
following provisions:
(i) Such notice from Lessee shall specify the aggregate amount
of such reduction for all Participants, which amount shall be One Million
Dollars ($1,000,000) or an integral multiple thereof;
(ii) Such notice shall specify the effective date of such
reduction, such effective date to be a date not earlier than five (5)
Business Days after the date of such notice;
8
<PAGE>
(iii) The remaining unused portion of the Commitments, after
giving effect to such reduction, shall be sufficient to fully fund the
remaining construction costs to be funded under this Agreement and the
other Operative Documents, and Lessee and Construction Agent shall so
certify in such notice; and
(iv) Any reduction of the unused portions of Commitments shall
be made pro rata among the Participants based upon the respective amounts
of the Commitments.
ARTICLE III.
CONDITIONS TO ADVANCES AND COMPLETION
Section 3.1. Conditions to All Advances. The obligation of each
--------------------------
Participant to perform its obligations on any Advance Date shall be subject to
the fulfillment to the reasonable satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to
Lessor and Agent or, where expressly provided below, the Required Lenders), or
the waiver in writing by, Lessor and Agent (at the direction of Required
Lenders) of the conditions precedent set forth in this Section (in addition to
the conditions precedent set forth in Section 3.2, 3.3 or 3.5, as applicable) on
-----------------------
or prior to such Advance Date (except that the obligation of any party hereto
shall not be subject to such party's own performance or compliance):
(a) Advance Request. Except with respect to Advances made pursuant to
---------------
Section 2.5(b), Lessee or Construction Agent shall have delivered an Advance
- --------------
Request conforming with the requirements of Section 2.5 in respect of the
-----------
proposed Advance Date.
(b) Performance. Each party to any Operative Document shall have
-----------
performed and complied with all agreements and conditions contained herein and
in any other Operative Document to which it is a party required to be performed
or complied with by it on or prior to such Advance Date. Without limiting the
foregoing, each Participant shall have funded the full amount to be funded by
such Participant on such Advance Date, as described in Article II.
----------
(c) Consents and Approvals. All material Governmental Actions and
----------------------
other approvals and consents required to be taken, given or obtained, as the
case may be, by or from any Government Authority or another Person, that are
necessary or, in the reasonable opinion of Lessor and Agent or counsel to Lessor
and Agent, advisable in connection with the execution, delivery and performance
of the Operative Documents, shall have been taken, given or obtained as the case
may be (subject to the provision of Section 4.1(o) that no required building or
--------------
use-related permit, approval or consent material to the use and operation of the
Site need be obtained prior to the date on which such permit, approval or
consent is or becomes necessary), shall be in full force and effect and the time
for appeal with respect to any thereof shall have expired (or, if an appeal
shall have been taken, the same shall have been dismissed) and shall not be
subject to any pending proceedings or appeals (administrative, judicial or
otherwise).
(d) Litigation. No action or proceeding shall have been instituted or
----------
threatened, nor shall any governmental action be instituted or threatened before
any Governmental
9
<PAGE>
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 Agreement or any transaction contemplated hereby
or by and other Operative Document or which is reasonably likely to have a
Material Adverse Effect.
(e) Representations and Warranties True; Absence of Defaults and
------------------------------------------------------------
Material Adverse Effect. Each representation and warranty of any Lessee Party
- -----------------------
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 Advance Date, except that
any such representation or warranty which is expressly made only as of a
specified date need be true only as of such date. No Lease Default and no Lease
Event of Default shall have occurred and be continuing. Since January 5, 1998,
no event which is reasonably likely to have a Material Adverse Effect shall have
occurred.
(f) Officer's Certificate of Lessor. On each Advance Date (except for
-------------------------------
Advance Dates solely as a result of Section 2.5(b)), Lessor and Agent shall have
--------------
received an Officer's Certificate of Lessor, dated such Advance Date, stating
that (a) each and every representation and warranty of Lessor contained in the
Operative Documents to which it is a party is true and correct in all material
respects on and as of such Advance Date as though made on and as of such Advance
Date, except to the extent such representations and warranties relate solely to
an earlier date, in which case such representations and warranties shall have
been true and correct in all material respects as of such earlier date, (b) it
has duly performed and complied with all agreements and conditions herein and in
any other Operative Document required to be performed or complied with by it on
or prior to such Advance Date and (c) each Operative Document to which it is a
party is in full force and effect with respect to it.
(g) Transaction Costs. Lessee shall have paid all Transaction Costs
-----------------
invoiced through such Advance Date or otherwise payable pursuant to the Fee
Letter to the parties to whom such Transaction Costs are payable (or shall have
requested payment thereof pursuant to the Advance Request). Payments shall be
made by wire transfer of immediately available funds, with such wire transfer
being made to the account specified on the Advance Request.
(h) Proceedings Satisfactory, Etc. All proceedings taken in
-----------------------------
connection with such Advance Date and all documents relating thereto shall be
reasonably satisfactory to Lessor and Agent and counsel to Lessor and Agent, and
Lessor and Agent and counsel to Lessor and Agent shall have received copies of
such documents as each may reasonably request in connection therewith, all in
form and substance reasonably satisfactory to Lessor and Agent and such counsel.
(i) Taxes. All taxes, charges, fees and costs, if any, payable in
-----
connection with the execution, delivery, recording and filing of the Operative
Documents and the transactions contemplated to be consummated on each Advance
Date shall have been paid in full, or arrangements for such payment shall have
been made to the satisfaction of Lessor and Agent.
(j) Post-Closing Environmental Compliance Activities. For any
------------------------------------------------
Advances to be made more than thirty (30) days after the completion of the
removal of all Facilities and Improvements existing at the Site as of the Site
Acquisition Date, and, in any event, for any Advances after September 30, 1998,
Lessor and Agent shall have received a report (the
10
<PAGE>
"Environmental Compliance Report"), in form and substance satisfactory to Lessor
and Agent, that confirms that the recommendations for additional investigation
and remedial work contained in the Giles Environmental Report have been
satisfied in accordance with applicable Environmental Laws and to the
satisfaction of Lessor and Agent.
(k) Demolition. With respect to Advances to be made one hundred
----------
eighty (180) days after the Document Closing Date, all Facilities and
Improvements at the Site as of the Site Acquisition Date shall have been
demolished and removed in compliance with all Applicable Laws and Regulations
and to the satisfaction of Lessor and Agent.
(l) Other. Lessee shall deliver or cause to be delivered such other
-----
documents, agreements, certificates or information as may be reasonably
requested by Agent, Lessor or any Participant.
Section 3.2. Conditions to Acquisition of Site. The obligation of each
---------------------------------
Participant to perform its obligations in connection with the acquisition of the
Site by Lessor (the "Site Acquisition Date") shall in each case be subject to
the fulfillment to the reasonable satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to
Lessor and Agent or, where expressly provided below, the Required Lenders), or
the waiver in writing by, Lessor and Agent (at the direction of Required
Lenders) of the conditions precedent set forth in this Section (in addition to
the conditions precedent set forth in Section 3.1) on or prior to such Advance
-----------
Date (except that the obligation of any party hereto shall not be subject to
such party's own performance or compliance):
(a) Filings and Recordings. All filings or recordings enumerated and
----------------------
described in Schedule 3.2(a) hereof, as well as all other filings and recordings
---------------
necessary or advisable, including precautionary financing statements, in the
opinion of Lessor and Agent or counsel to Lessor and Agent, to perfect the
rights, titles and interests of Lessor, the Participants and Agent intended to
be created by the Operative Documents shall have been made, or shall have been
arranged to be made promptly thereafter, in the appropriate places or offices,
including any recordings and filings necessary to create, perfect, preserve and
protect (i) Lessor's interest in the Land Interest, the Facilities and any other
property and interests included in the Collateral and the rights of Lessor,
Agent and Participants under the Operative Documents, and (ii) a first mortgage
lien on the Land Interest and Facilities included in the Collateral, subject in
both cases, to Permitted Exceptions. All recording and filing fees and taxes
with respect to any recordings or filings made pursuant to this Section shall
have been paid in full, and satisfactory evidence thereof shall have been
delivered to Lessor and Agent, or arrangements for such payment shall have been
made to the satisfaction of Lessor and Agent.
(b) Title Insurance. Lessor shall have received from the Title
---------------
Insurance Company its ALTA 1992 extended coverage owner's policy of title
insurance, acceptable in form and substance to Lessor and Agent and their
respective counsel (the "Lessor's Policy") (or a final hand-marked original
thereof signed by the Title Insurance Company containing all of the provisions
to be included in such policy by the Title Insurance Company, in which case
Lessor shall receive a clean, final original of such policy within thirty (30)
days), insuring that Lessor has good and marketable title to the Site, subject
to such exceptions to title as are reasonably
11
<PAGE>
acceptable to Agent, together with complete, legible copies of all encumbrances,
maps and surveys of record. Said Lessor's Policy shall contain a special
"alternative estates" endorsement (without priority) insuring the insured in the
event of a future recharacterization of the transaction as a loan. Lessee shall
have received from the Title Insurance Company its ALTA 1992 extended coverage
leasehold policy of title insurance, insuring the creation of the leasehold
estate and Lessee as the insured party thereunder, acceptable in form and
substance to Lessee (the "Lessee's Policy") (or a final hand-marked original
thereof signed by the Title Insurance Company containing all of the provisions
to be included in such policy by the Title Insurance Company, in which case
Lessee shall receive a clean, final original of such policy within (30) days),
insuring that Lessee has good and marketable title to a leasehold estate in the
Site, subject to exceptions to title as are reasonably acceptable to Lessee,
together with complete, legible copies of all encumbrances, maps and surveys of
record. Agent, for the benefit of itself and Lenders, shall have received from
the Title Insurance Company its ALTA 1992 form of loan policy of title insurance
(the "Loan Policy"; together with the Lessee's Policy and Lessor's Policy, the
"Title Policies"), acceptable in form and substance to Agent and the counsel
therefor, insuring Agent as the insured party thereunder and as a valid first
priority mortgage lien against the Site, subject to such exceptions to title as
are acceptable to Agent and the counsel therefor, together with complete,
legible copies of all encumbrances, maps and surveys of record. The Title
Policies shall be dated as of the Site Acquisition Date, shall be in an amount
satisfactory to Agent, Lessor and Lessee, and, to the extent permitted under
Applicable Laws and Regulations and to the extent applicable to each type of
policy, shall (x) contain affirmative endorsements as to mechanics' liens,
usury, doing business, zoning (with express parking coverage), easements and
rights-of-way, comprehensive coverage, encroachments, rights of access,
Subdivision Map Act, contiguity and survey matters, (y) delete the creditors'
rights exclusion and the general exceptions to coverage, and (z) contain such
other endorsements reasonably requested by Lessor, Lessee or Agent, as
applicable.
(c) Environmental Site Assessment. Prior to the Site Acquisition
-----------------------------
Date, Lessor and Agent shall have received the Giles Environmental Report. The
Giles Environmental Report, shall contain recommendations with respect to
additional investigation and remedial work that is necessary or desirable at the
Site and shall be in form and substance satisfactory to Lessor, Agent and each
Participant.
(d) Zoning. In the event that an ALTA 3.1 Zoning Endorsement (with
------
express parking coverage) was not obtained in connection with the Title Policies
for the Site, Lessor and Agent shall receive a copy of the applicable zoning
ordinance, special use permit or other Governmental Action covering the Site,
and such evidence as Lessor or Agent may require (including, without limitation,
the written certification of Lessee's certified professional engineer or
registered architect or any other person satisfactory to Lessor and Agent or a
zoning letter from the applicable Governmental Authority that the zoning of the
Site is satisfactory and compatible with the Facilities located or to be
constructed thereon).
(e) Purchase Agreement and Deed . Lessor and Agent shall have
----------------------------
received (i) a fully executed Purchase Agreement and related documents regarding
the acquisition of the Site, together with (x) an Officer's Certificate of
Lessee to the effect that such Purchase Agreement is complete and includes all
existing amendments, modifications and riders, and (y) a Purchase
12
<PAGE>
Agreement Assignment from Sublessee to Lessor, and a Collateral Assignment
thereof to Agent and (ii) a Deed conveying to Lessor the Site.
(f) Filings and Recordations. Lessor and Agent shall have received
------------------------
evidence satisfactory to it that each of the filings or recordings identified on
Schedule 3.2(a) shall have been or is being recorded with the appropriate
- ---------------
Governmental Authorities in the order in which such documents are listed on
Schedule 3.2(a), including the UCC Financing Statements with respect to the
- ---------------
Facilities being acquired or constructed.
(g) Insurance. Insurance complying with the provisions of the Lease
---------
and the Construction Agency Agreement shall be in full force and effect as
evidenced by certificates of insurance, broker's reports or insurance binders
delivered to Lessor and Agent, in form and substance reasonably satisfactory to
Lessor and Agent.
(h) FIRPTA Affidavit. Lessee shall have caused Seller to deliver to
----------------
Lessor and Agent either (i) a FIRPTA Affidavit in customary form or (ii) in the
case of the Seller is a "foreign person" as defined in Section 1445 of the Code,
evidence that a portion of the sales price to be paid to Seller has been
withheld, if so required, in accordance with the provisions of the Code and the
Regulations.
(i) No Event of Loss, Condemnation or Event of Taking. No Event of
-------------------------------------------------
Loss shall have occurred, and no action shall be pending or threatened by a
Governmental Authority to initiate a Condemnation or an Event of Taking.
(j) Good Standing. Lessee shall have delivered to Lessor and Agent a
-------------
certificate issued by the office of the Secretary of State of the State of
California, indicating that Lessee is a foreign corporation in good standing
under the laws of such jurisdiction.
(k) Outside Deadline. Notwithstanding anything to the contrary herein
----------------
or in any other Operative Document, the Site Acquisition Date shall not occur
after August 31, 1998.
Section 3.3. Conditions Precedent to Advances for Construction Costs.
-------------------------------------------------------
The obligation of each Participant to perform its obligations on any Advance
Date for the payment of costs of construction of the New Facility shall be
subject to the fulfillment to the reasonable satisfaction of (including, with
respect to writings, such writings being in form and substance reasonably
satisfactory to Lessor and Agent or, where expressly provided below, the
Required Lenders), or the waiver in writing by, Lessor and Agent (at the
direction of Required Lenders) of the conditions precedent set forth in this
Section (in addition to the conditions precedent set forth in Sections 3.1 and
----------------
3.2, as applicable) on or prior to such Advance Date (except that the obligation
- ---
of any party hereto shall not be subject to such party's own performance or
compliance):
(a) Building Plans and Architect's Agreement; Assignment. Lessor
----------------------------------------------------
and/or Agent shall have received, upon request, the first page of a copy of the
Plans and Specifications signed, and all other pages thereof initialed by as
Construction Agent and Construction Agent's general contractor (if any) and, a
copy of Construction Agent's agreement with the Architect, if any. Prior to the
first Advance under this Section with respect to the New Facility, Agent shall
13
<PAGE>
receive an assignment from Lessee and Sublessee in favor of Lessor of the
interest of Lessee and Sublessee in the Plans and Specifications and the
Architect's Agreement relating to the New Facility, in the form required by the
Construction Agency Agreement, and either (i) attached thereto is the
Architect's written consent to such assignment, in the form required by the
Construction Agency Agreement, or (ii) included in such assignment is a
certification of Lessee and Sublessee that the applicable Architect's Agreement
includes a provision in substance identical to such consent.
(b) Construction Contract; Assignment. Lessor and/or Agent shall have
---------------------------------
received, upon request, a copy of the general construction contract (if any) and
a copy of each Construction Document entered into by or on behalf of
Construction Agent or by Construction Agent's general contractor, as the case
may be. Prior to the first Advance under this Section with respect to the New
Facility, Agent shall receive an assignment from Lessee and Sublessee in favor
of Lessor of the general construction contract (if any) relating to the New
Facility and the Permits related thereto, in the form required by the
Construction Agency Agreement, and either (i) attached thereto is the
contractor's written consent to such assignment, in the form required by the
Construction Agency Agreement, or (ii) included in such assignment is a
certification of Lessee and Sublessee that the applicable Construction Documents
include a provision in substance identical to such consent.
(c) Budget; Schedule. The unused Commitments will be sufficient to
----------------
complete the New Facility and the New Facility can be completed pursuant to the
Construction Schedule delivered pursuant to Appendix 2 and prior to the one year
----------
anniversary following the Document Closing Date.
(d) Lien Waivers; Disbursement Endorsements. Agent shall have
---------------------------------------
received lien waivers, in form and substance reasonably satisfactory to Agent,
from each contractor, subcontractor, supplier and materialmen which Construction
Agent believes may receive total compensation for services rendered or materials
supplied in connection with the construction of the related improvements of Two
Hundred Fifty Thousand Dollars ($250,000) or more; each such lien waiver shall
evidence that such contractor, subcontractor, supplier or materialmen has been
paid in full for all work performed or materials supplied to the date of the
request for such Advance, other than work which is the subject of such request.
In addition, Agent shall have received a disbursement endorsement with respect
to such Advance from the Title Insurance Companies.
Section 3.4. Conditions to Substantial Completion. The Completion of the
------------------------------------
New Facility shall be deemed to have occurred upon the satisfaction of the
following conditions, and Lessee shall provide the following to the satisfaction
of (including, with respect to writings, such writings being in form and
substance reasonably satisfactory to Lessor and Agent or, where expressly
provided below, the Required Lenders), or the waiver in writing by, Lessor and
Agent (at the direction of Required Lenders), within thirty (30) days of
substantial completion of the New Facility and prior to the final Advance with
respect to the New Facility under Section 3.5:
-----------
(a) Architect's Certificate. Construction Agent shall have furnished
-----------------------
to Lessor and Agent, a certificate of the Architect substantially in a form
acceptable to Lessor and Agent
14
<PAGE>
dated at or about the Completion Date and stating that the New Facility has been
completed substantially in accordance with the Plans and Specifications and the
New Facility is ready for occupancy; (ii) the New Facility, as so completed,
complies in all material respects with all Applicable Laws and Regulations, and
certifying that attached thereto is a true and correct copy of the "as-built"
Plans and Specifications for the New Facility, and (iii) all licenses, permits
and approvals of any Governmental Authority affecting the Site, including a
final, unconditional certificate of occupancy, have been obtained from the
necessary Governmental Authorities; provided that the certificate of occupancy
--------
may be a temporary certificate of occupancy, in which event, Construction Agent
hereby covenants to (x) obtain a final, unconditional certificate of occupancy
within sixty (60) days after substantial completion of the New Facility and (y)
promptly (and in any event prior to disbursement of the final Advance pursuant
to Section 3.5) deliver to Lessor and Agent a true, correct and complete
-----------
copy of such final, unconditional certificate of occupancy, certified by
Construction Agent.
(b) Construction Agent's Certificate; As-Built Survey; Title Insurance
------------------------------------------------------------------
Endorsements. Construction Agent shall have furnished to Lessor and Agent true,
- ------------
correct and complete copies, certified by the Construction Agent, of the
following:
(i) an "as-built" ALTA survey of the Site, certified to Lessor,
Agent and Participants, showing the location of the New Facility, the
location of all points of access to the Site and the location of all
easements affecting the Site, and certifying that there are no
encroachments of the New Facility onto any easements affecting the Site or
onto any adjoining property and that all applicable setback requirements
and other restrictions have been complied with;
(ii) a date-down endorsement, dated not earlier than the date of
substantial completion of the New Facility, to the applicable Title
Insurance Policy (or, if not available under the applicable state law, then
such other evidence of the lack of recorded and unrecorded mechanics' liens
affecting (or inchoate rights thereto which could affect) the Site as
Lessor or Agent may request); and
(iii) in the event that the applicable Title Insurance Policy is
required to include an ALTA 3.0 zoning endorsement pursuant to the
provisions of Section 3.2(d), a ALTA 3.1 Zoning Endorsement (with express
--------------
parking coverage).
(c) Construction Completion. The construction of the New Facility
-----------------------
shall have been completed substantially in accordance with the Plans and
Specifications for the New Facility and all Applicable Laws and Regulations, and
the New Facility shall be ready for occupancy and operation. All fixtures and
other property contemplated under such Plans and Specifications to be
incorporated into or installed in the New Facility shall have been incorporated
or installed free and clear of all Liens, except for Permitted Liens.
(d) Construction Agent Certification. Construction Agent shall have
--------------------------------
furnished Lessor and Agent with a certification of Construction Agent to the
effect that:
15
<PAGE>
(i) The representations and warranties of Lessee with respect to
the Site set forth in Section 4.1(i) are true and correct in all material
--------------
respects as of the Completion. All amounts owing to third parties for the
construction of the New Facility have been paid in full (other than
contingent obligations for which Construction Agent has made adequate
reserves, including amounts funded to the Construction Agent pursuant to
Section 3.5(a)).
--------------
(ii) No changes or modifications were made to the related Plans
and Specifications after the Site Acquisition Date that materially and
adversely effect the value, utility or economic useful life of such Site.
(e) Searches. Lessor and Agent shall have received a report, as of a
--------
current date, prepared by a search company reasonably satisfactory to Lessor and
Agent, of judgment liens, tax liens and Uniform Commercial Code filings with
respect to Lessee and the Site filed of record with the applicable State filing
offices in the jurisdiction where such Site is located and the State in which
Lessee has its principal place of business.
Section 3.5. Conditions Precedent to Final Advances. The obligation of
--------------------------------------
each Participant to perform its obligations on any Advance Date for the payment
of the final disbursement of construction costs of the New Facility (following
the Completion of construction thereon and the expiration of the Construction
Period) shall be subject to the satisfaction of (including, with respect to
writings, such writings being in form and substance reasonably satisfactory to
Lessor and Agent or, where expressly provided below, the Required Lenders), or
the waiver in writing by, Lessor and Agent (at the direction of Required
Lenders) of the conditions precedent set forth in this Section (in addition to
the conditions precedent set forth in Sections 3.1 and 3.3, as applicable) on or
--------------------
prior to such Advance Date (except that the obligation of any party hereto shall
not be subject to such party's own performance or compliance):
(a) Funding of Punchlist Amount. Provided that no Lease Default or
---------------------------
Lease Event of Default shall have occurred and be continuing, within thirty (30)
days after Completion of the New Facility and prior to the termination date of
the Commitments as set forth in Section 2.5(g), Construction Agent may request
--------------
in writing that Lessor request that the Participants fund the remaining cost to
complete all "punchlist" items for the New Facility (the "Punchlist Amount"), in
which event, Agent, on behalf of Lessor, shall make such request of the
Participants. Such request shall include Construction Agent's certification of
the Punchlist Amount. In such event, the Participants shall make an Advance in
an amount equal to the lesser of (x) the Punchlist Amount and (y) the remaining
unfunded portion of the aggregate Commitments. Any Advance made under this
Section 3.5(a), not to exceed One Million Dollars ($1,000,000), shall be paid to
- --------------
Construction Agent. The amount of any Advance so funded to Construction Agent
shall be deemed advanced by Participants hereunder and under the other Operative
Documents as of the date so funded, and the Lease Balance shall be increased by
such amount on the date so funded by Participants. Construction Agent shall
cause all punchlist items to be completed within thirty (30) days after the
expiration of the Construction Period for the Facility. Advances so funded
shall be used by Construction Agent as needed, to fund the costs of construction
for which the Advance was made.
16
<PAGE>
(b) Repayments of Unused Advances. In the event any portion of an
-----------------------------
Advance funded pursuant to Section 3.5(a) is not used by Construction Agent to
--------------
pay the costs of construction in connection with which such Advance was made,
then Construction Agent shall have the obligation to cause any such excess funds
to be remitted to Lessor on the first Payment Date not less than one hundred
twenty (120) days after the expiration of the Construction Period, in which
event, Lessor shall apply such amounts to repayment of the Loans and Investor
Contribution pro rata, and the Lease Balance shall be adjusted accordingly.
(c) Lessee Certification. Upon completion of the punchlist items for
--------------------
the New Facility, Construction Agent shall furnish Lessor and Agent with a
certification of Construction Agent to the effect that:
(i) The representations and warranties with respect to the Site
set forth in Section 4.1(i) are true and correct as of the date of
--------------
completion of all such punchlist items. All amounts owing to third parties
for the construction of the New Facility have been paid in full (other than
contingent obligations for which Lessee or Construction Agent has made
adequate reserves).
(ii) No changes or modifications were made to the Plans and
Specifications after the date of the certification from Lessee specified in
Section 3.4(d) that have had a Material Adverse Effect on the value, use or
--------------
useful life of the Site.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of Lessee Parties. As of the
------------------------------------------------
date hereof, each Lessee Party makes the representations and warranties set
forth in this Section to each of the other parties hereto.
(a) Due Organization, etc. Each Lessee Party is a corporation duly
---------------------
organized, validly existing and in good standing under the laws of the State of
its incorporation, which states are identified on Schedule 4.1(a), and each
---------------
Lessee Party has full corporate power and authority to conduct its business as
presently and presently proposed to be conducted, to own or hold under lease its
properties, to enter into and perform its obligations under each of the
Operative Documents to which it is or is to be a party and each other agreement,
instrument and document to be executed and delivered by it in connection with or
as contemplated by the Operative Documents, and it is duly qualified as a
foreign corporation authorized to do business and is in good standing in every
jurisdiction in which its failure to be so qualified would have a Material
Adverse Effect, which jurisdictions are identified on Schedule 4.1(a).
---------------
(b) Authorization; No Conflict. The execution and delivery by each
--------------------------
Lessee Party of each of the Operative Documents to which it is or is to be a
party, and the performance by each Lessee Party of its obligations under such
Operative Documents, have been duly authorized by all necessary corporate action
on its part, and do not and will not: (i) contravene any Applicable Laws or
Regulations currently in effect applicable to or binding on it or the Site; (ii)
violate any provision of its charter or bylaws; (iii) result in a breach of or
constitute a default
17
<PAGE>
under any indenture, loan or credit agreement, or any other agreement or
instrument to which such Lessee Party is a party or by which such Lessee Party
or its properties may be bound or affected, which breaches or defaults may
likely have, individually or in the aggregate, a Material Adverse Effect; (iv)
result in, or require, the creation or imposition of any Lien of any nature upon
or with respect to any of the properties now owned or hereafter acquired by each
Lessee Party (other than the security interests created pursuant to the
Operative Documents); or (v) require any Governmental Action by any Governmental
Authority, except for (a) the filings and recordings listed on Schedule 3.2(a)
---------------
to perfect the rights of Lessor, the Participants and Agent intended to be
created by the Operative Documents, and (b) those Governmental Actions required
with respect to Lessee or any of its Affiliates listed on Schedule 4.1(b), each
---------------
of which have been duly effected and are, or on the initial Advance Date will
be, in full force and effect; and no Lessee Party is in default under or in
violation of its charter or bylaws.
(c) Enforceability, etc. Each Operative Document to which a Lessee
-------------------
Party is or is to be a party constitutes the legal, valid and binding obligation
of such Lessee Party, enforceable against such Lessee Party in accordance with
the terms thereof, except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and by general equitable principles.
(d) Litigation. There is no action, proceeding or investigation
----------
pending or, to any Lessee Party's knowledge, threatened which questions the
validity of the Operative Documents to which any Lessee Party is or is to be a
party or any action taken or to be taken pursuant to the Operative Documents to
which any Lessee Party is or is to be a party, and there is no action,
proceeding or investigation pending or, to any Lessee Party's knowledge,
threatened which, if adversely determined, may likely have a Material Adverse
Effect.
(e) Taxes. Lessee has filed or caused to be filed all United States
-----
Federal and all other material tax returns that are required to be filed by
Lessee Parties, and has paid or caused to be paid all taxes shown to be due and
payable on such returns or on any assessment received by any Lessee Party to the
extent that such taxes have become due and payable except to the extent that
taxes due, but unpaid, are being contested in good faith by a Lessee Party by
appropriate action or proceeding and, to the extent (if any) that such taxes are
not due and payable, a Lessee Party has established or caused to be established
reserves that are adequate for the payment thereof in accordance with GAAP.
(f) Rights in Respect of the Site. No Lessee Party is a party to any
-----------------------------
contract or agreement to sell any interest in the Site or any part thereof,
other than pursuant to or in accordance with this Agreement and the Lease.
(g) No Lease Default, Loss, etc. As of each Advance Date, no Lease
---------------------------
Default, Lease Event of Default, Event of Loss, Condemnation or Casualty has
occurred and is continuing; there is no action pending or, to the best of any
Lessee Party's knowledge, threatened by a Governmental Authority to initiate a
Condemnation; no condition exists that constitutes, or with the giving of notice
or lapse of time or both would constitute an event of default by any Lessee
Party under any material indenture, mortgage, chattel mortgage, deed of trust,
lease, conditional sales contract, loan or credit arrangement or other material
agreement or instrument to which
18
<PAGE>
such Lessee Party is a party or by which such Lessee Party or any of its
properties may be bound, which, individually or in the aggregate with all such
events of default, could have a Material Adverse Effect.
(h) Chief Executive Office of Lessee. The principal place of business
--------------------------------
and chief executive office, as such terms are used in Section 9-103(3) of the
UCC, of Lessee and Sublessee are each located at 4700 South Boyle Avenue, Los
Angeles, California 90058.
(i) Compliance With Law. Except as otherwise set forth in the
-------------------
Environmental Audit of the Site provided pursuant to Section 3.2(c) prior to
--------------
Lessor's acquisition of the Site, (i) Lessee has at all times complied and is in
material compliance with and will comply with all Applicable Laws and
Regulations, including all Environmental Laws, (ii) the Site and the intended
use thereof by Lessee Parties and the respective agents, assignees, employees,
invitees, lessees, licensees and tenants complies in all material respects with
all Applicable Laws and Regulations (including all zoning and land use laws and
Environmental Laws) and Insurance Requirements, except for any violations which
would not have, individually or in the aggregate, a Material Adverse Effect on
Lessee Party or the Site; and (iii) the existing Facilities on the Site do not
encroach in any material manner onto any adjoining land (except as permitted by
express written easements or as insured by appropriate title insurance). The
Plans and Specifications have been or will be prepared in accordance with
Applicable Laws and Regulations (including applicable Environmental Laws and
building, planning, zoning, subdivision and fire codes, laws, rules and
regulations), and the Facilities and the other improvements to be constructed on
the Site will not encroach in any manner onto any adjoining land (except as
permitted by express written easements or as insured by appropriate title
insurance). Except as otherwise set forth in the Environmental Audit, there are
no underground storage tanks at the Site, and no Lessee Party shall not cause or
permit any underground storage tanks to be constructed or located at the Site.
No Lessee Party will direct Lessor to acquire the Site, unless (x) the Site and
operation and condition thereof shall comply with all Applicable Laws and
Regulations, including all Environmental Laws, except for any violations which
would not have, individually or in the aggregate, a Material Adverse Effect on
any Lessee Party or the Site, and (y) no condition regarding Hazardous Materials
exists on or with respect to the Site, except as otherwise set forth in the
Environmental Audit.
(j) Governmental Regulation. No Lessee Party is an "investment
-----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended. No Lessee Party is
subject to regulation as a "holding company," an "affiliate" of a "holding
company," or a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended. In addition, no
Lessee Party is subject to regulation under the Federal Power Act, the
Interstate Commerce Act or any other federal or state statute or regulation
which may limit its ability to incur any obligations under the Operative
Documents to which it is party or which may otherwise render all or any portion
of such obligations unenforceable.
(k) Subjection to Government Regulation. None of Agent, Lessor nor
-----------------------------------
any Participant will become (i) solely by reason of entering into the Operative
Documents or consummation of the transactions contemplated thereby (other than
upon exercise of remedies
19
<PAGE>
under the Lease or upon the expiration thereof) subject to ongoing regulation of
its operations by any Governmental Authority having jurisdiction, or be required
to hold any license, permit or approval, solely by reason of any Lessee Party's
business activities or the nature of the Site; or (ii) except for regulation the
applicability of which depends upon the existence of facts in addition to the
ownership of, or the holding of any interest in, the Site or any interest
therein upon the exercise of remedies under the Lease or Sublease or upon the
expiration thereof, subject to ongoing regulation of its operations by any
Governmental Authority having jurisdiction, or be required to hold any license,
permit or approval, solely by reason of any Lessee Party's business activities
or the nature of the Site.
(l) Licenses, Registrations and Permits. All material licenses,
-----------------------------------
approvals, authorizations, consents, permits (including building, demolition and
environmental permits, licenses, approvals, authorizations and consents),
easements and rights-of-way, including proof and dedication, (collectively, the
"Permits") required for (x) the use, treatment, storage, transport, disposal or
disposition of any Hazardous Material on, at, under or from the Site during the
construction of the New Facility thereon, (y) construction of the New Facility
in accordance with the Plans and Specifications and the Construction Agency
Agreement, and (z) the use and occupancy of the Site and for the operation
thereof (including a certificate or certificates of occupancy for the Site or
other legally equivalent permission to occupy the Site) have either been
obtained from the appropriate Governmental Authorities having jurisdiction or
from private parties, as the case may be, or will be obtained from the
appropriate Governmental Authorities having jurisdiction or from private
parties, as the case may be, prior to commencing any such construction or use
and operation, as applicable, except for those which will not likely cause a
Material Adverse Effect. Lessee shall deliver to Agent, upon request, true,
correct and complete copies of all Permits issued prior to the date that this
representation is made or remade, as the case may be. Lessee, Construction
Agent and its contractors have assigned to Lessor all of their respective
interests in all such Permits, whether heretofore or hereafter issued.
(m) Nature, Condition and Use of Site. The Site consists of the Land
---------------------------------
Interest located at the location described in Schedule I, in the City of
----------
Commerce, California and the New Facility will be constructed pursuant to the
Construction Agency Agreement. No notices, complaints or orders of violation or
non-compliance or liability of any nature whatsoever have been issued or, to any
Lessee Party's knowledge, threatened by any Governmental Authority with respect
to the Site or any present or intended future use thereof, except for such
violations and instances of non-compliance as would not be expected to have,
individually or in the aggregate, a Material Adverse Effect on any Lessee Party
or the Site, and no Lessee Party is aware of any circumstances which could give
rise to the issuance of any such notices, complaints or orders. There are no
material defects to any Facility, including the plumbing, heating, air
conditioning and electrical systems thereof, and all water, sewer, electric,
gas, telephone and drainage facilities required to adequately service the
Facilities for their intended use will be available pursuant to adequate permits
(including any that may be required under applicable Environmental Laws).
(n) Utility Services. The Site has available all material utilities
----------------
necessary for use and operation of the Facilities thereon for their primary
intended purposes and means of access between the Facilities and public highways
for pedestrians and motor vehicles. All utilities serving the Site, or proposed
to serve the Site in accordance with the Plans and Specifications, are
20
<PAGE>
located in, and vehicular access to the Facilities on the Site are provided by,
either public rights-of-way abutting the Site or by Appurtenant Rights.
(o) Use and Operation of Site. All material agreements, easements and
-------------------------
other rights, public or private, which are necessary to permit the lawful use
and operation of the Site as Lessee Parties intend to use the Site under the
Lease and Sublease 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 (including certificates of occupancy)
have been obtained and are in full force and effect (or with respect to the New
Facility, will be obtained and be in full force and effect on or prior to the
completion thereof), and no Lessee Party has knowledge of any pending
modification or cancellation of any of the same; upon acquisition of the Site,
the use of the Site does not (and the intended use of the Site by any Lessee
Party under the Lease and Sublease will not) depend on any variance, special
exception or other approval, permit, license or consent of any Governmental
Authority that has not been obtained for its continuing legal use; and all
required building and use related permits, approvals, licenses and consents
material to the construction, use and operation of the Site will have been
issued and be in full force and effect on or prior to the date such permits,
approvals, licenses and consents are or become necessary; and all utilities
required for the operation of the Site, as any Lessee Party intends to use the
Site under the Lease and Sublease, will be available as of the Site Acquisition
Date or, with respect to the New Facility, on or prior to the date the New
Facility is to be completed.
(p) Securities Act. No Lessee Party nor anyone authorized to act on
--------------
its behalf has, directly or indirectly, in violation of Section 5 of the
Securities Act or any state securities laws, offered or sold any interest in the
Notes, the Trust Certificates, the Site, the Lease or the Sublease, or in any
security or lease the offering of which, for purposes of the Securities Act or
any state securities laws, would be deemed to be part of the same offering as
the offering of the aforementioned securities or leases, or solicited any offer
to acquire any of the aforementioned securities or leases.
(q) Title. No Lessee Party nor any of their respective Affiliates or
-----
affiliates has taken or caused to be taken any action which would have a
material adverse effect on Lessor's title to the Site from that indicated in the
Title Policies delivered pursuant to Appendix 2 or Section 3.2(b). No Lessee
---------- --------------
Party nor any of their respective Affiliates or affiliates has created,
consented to, incurred or suffered to exist any Lien upon any of the Site other
than Permitted Liens.
(r) Federal Reserve Regulations. Neither Lessee nor Construction
---------------------------
Agent, or any Affiliate thereof, will, directly or indirectly, use any of the
proceeds from the Advances or of the purchase by Lessor of the Site for the
purpose of purchasing or carrying any "margin security" or "margin stock" within
the meaning of Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System, respectively, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a margin
security or margin stock or for any other purpose which might cause any of the
transactions contemplated by this Agreement or any other Operative Document to
constitute a "purpose credit" within the meaning of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System, or for the
21
<PAGE>
purpose of purchasing or carrying any security, and neither Lessee nor
Construction Agent, or any Affiliate thereof, has taken or will otherwise take
or permit any action by Lessee or Construction Agent, or any Affiliates thereof,
in connection with any of the transactions contemplated by any of the Operative
Documents which would involve a violation of Regulation G, T, U, or X, or any
other regulation of the Board of Governors of the Federal Reserve System.
(s) ERISA.
-----
(i) The Annual Report (5500 Series Form), including all
attachments thereto, have been timely filed with the Internal Revenue
Service for each Plan (if any) relating to any Lessee Party and fairly
presents the funding status of such Plans. There has been no material
deterioration in any Plan's funding status since the date of such Annual
Report. As of Closing Date, Schedule 4.1(s) hereto sets forth a list of
---------------
all Plans and Multiemployer Plans relating to the Lessee Parties. No
Lessee Party has or will have any liability (contingent or otherwise) in
excess of One Million Dollars ($1,000,000.00) for or in connection with,
and none of their respective properties is subject to a Lien in connection
with, any Pension-Related Event. No Lessee Party nor any Controlled Group
Member has or will have any liability (contingent or otherwise) for or in
connection with, any Postretirement Benefits.
(ii) No Lessee Party, nor any Controlled Group Member, presently
maintains, participates in, or contributes to, a Plan (a) which is subject
to Title IV of ERISA, but is not a Multiemployer Plan, and for which the
difference between the Plan assets and the present value of accrued
benefits (based on the actuarial methods and assumptions included in the
most recent actuarial valuation reports, shall be deliveed to Lessor and
Agent upon request) would result in a Material Adverse Effect if the Plan
were to be terminated, (b) which is a Multiemployer Plan for which Lessee
or any Controlled Group Member has received notice that the plan is in
reorganization or insolvent, (c) for which material actions, lawsuits or
claims have been asserted, or (d) for which penalties or taxes have been
imposed under Sections 502(i) and 502(l) of ERISA or Section 4975 of the
Code. No Lessee Party nor any Controlled Group Member has in the immediate
six year period had a complete or partial withdrawal from any Multiemployer
Plan and the liability to which any Lessee Party or any Controlled Group
Member would become subject under ERISA were there to be a complete
withdrawal from all Multiemployer Plans to which any Lessee Party and its
Controlled Group Members contribute is not in excess of Five Hundred
Thousand Dollars ($500,000.00).
(iii) The execution and delivery of this Agreement, including
the issuance and sale of the Notes and the Trust Certificates and the
consummation of the transactions contemplated hereby and thereby under the
Operative Documents, will not involve any prohibited transactions, within
the meaning of Section 406 of ERISA or in connection with which a tax could
be imposed pursuant to Section 4975 of the Code. The representation by
Lessee Parties in the preceding sentence is made in reliance upon and
subject to the correctness of the representation by each of the Lenders in
Section 4.2(e) and the representation by Lessor in Section 4.3(i).
-------------- --------------
22
<PAGE>
(t) Financial Information. (i) Audited Financial Statements.
--------------------- ----------------------------
Lessee has heretofore furnished to Agent and each Participant the
consolidated balance sheet of Lessee and its Consolidated Subsidiaries
(including Lessee) as of January 4, 1998 and the related consolidated
statements of income, cash flows and changes in stockholders' equity for
the fiscal year then ended, as examined and reported on by Arthur Andersen
& Co., independent certified public accountants for Lessee, who delivered
an unqualified opinion in respect thereof. Such financial statements
(including the notes thereto), fairly present, in conformity with GAAP, the
consolidated financial position of Lessee and its Consolidated Subsidiaries
as of such date and their consolidated results of operations and changes in
financial position for such fiscal year.
(ii) Interim Financial Statements. Lessee has heretofore
----------------------------
furnished to Agent and each Participant interim consolidated balance sheets
of Lessee and its Consolidated Subsidiaries as of March 29, 1998 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the portion of Lessee's fiscal year ended at the
end of such quarter. Such financial statements fairly present, in
conformity with GAAP, the consolidated financial position of Lessee and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and changes in financial position for such fiscal quarter,
subject to normal year-end auditing adjustments and except that such
financial statements do not contain all of the footnote disclosures
required by GAAP.
(iii) Contingent Obligations. As of the Document Closing Date,
----------------------
none of the Lessee Parties has any Contingent Liability, contingent
liability or liability for taxes, long-term lease or unusual forward or
long-term commitment that is not reflected in the foregoing financial
statements or the notes thereto and which in any such case is material in
relation to the business, operations, properties, assets, condition
(financial or otherwise) or prospects of any of the Lessee Parties, other
than pursuant to the Operative Documents.
(iv) Material Adverse Effect. Since January 5, 1998, there has
-----------------------
been event or events which are reasonably likely to cause a Material
Adverse Effect.
(u) No Other Filings. Except for the filings and recordings listed in
----------------
Schedule 3.2(a) (which filings or recordings shall have been duly made on the
- ---------------
applicable Advance Date, or shall have been arranged to be made promptly
thereafter (including the payment of any fees or taxes relating to any of the
foregoing) in a manner satisfactory to Agent and Lessor), no other filings or
recordings are necessary to validly and effectively convey to Lessor, Agent and
Lenders such interests in the Site and the Collateral as contemplated by the
Operative Documents, in each case free and clear of all Liens, other than
Permitted Liens.
(v) Zoning. The Site complies in all material respects with all
------
applicable zoning and subdivision laws, ordinances, regulations and restrictive
covenants, and all requirements thereof necessary for the use, occupancy and
operation of the Site have been, or, with respect to the New Facility, upon
completion of the New Facility will be, satisfied in all
23
<PAGE>
material respects, and the current use and intended use under the Lease is a
conforming use in each case, except for violations which would not create a
Material Adverse Effect.
(w) Appraisal Data. The information provided by Lessee Parties and
--------------
their respective Affiliates to the Appraiser and forming the basis for the
conclusions set forth in each Appraisal was true and correct in all material
respects and did not omit any information known and available to any Lessee
Party necessary to make the information provided not materially misleading.
(x) Priority of Liens. (i) Upon proper recordation, the Mortgage
-----------------
will constitute a valid and perfected first lien on the Site in an amount not
less than the Lease Balance, subject only to the Memorandum of Lease and the
Permitted Exceptions, and (ii) upon proper filing, the Financing Statements will
perfect the Lessor's interest under the Lease to the extent the Lease is a
security agreement governed by Article 9 of the Uniform Commercial Code.
(y) Flood Zone. No portion of the Site is located in an area
----------
identified as a special flood hazard area by the Federal Emergency Management
Agency or other applicable Governmental Authority.
(z) Insurance Coverage. Lessee maintains insurance coverage for the
------------------
Site which meets the requirements of the Lease and the Construction Agency
Agreement, and all of such coverage is in full force and effect.
(aa) Disclosure. The information disclosed in writing by any Lessee
----------
Party or any of their respective Affiliates or affiliates (or any Person
authorized or employed by any such Person as agent or otherwise) to any of
Agent, Lessor or any Participant in connection with the negotiation of the
Operative Documents and the transactions contemplated thereby do not contain an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements herein or therein, in light of the circumstances under
which they were made, misleading. There is no particular fact of which any
Lessee Party or any of their respective Affiliates has knowledge that has not
been disclosed by any Lessee Party or any of their Affiliates (or by any Person
authorized or employed thereby as agent or otherwise) that may have a Material
Adverse Effect.
Section 4.2. Representations and Warranties of each Lender. Each Lender
---------------------------------------------
represents and warrants severally and only as to itself, to each of the other
parties hereto as follows:
(a) Due Organization, etc. It is duly organized and validly existing
---------------------
under the laws of the jurisdiction of its organization and has full corporate
power and authority to enter into and perform its obligations as Lender under
each Operative Document to which it is or is to be a party and each other
agreement, instrument and document to be executed and delivered by it on or
before each Advance Date in connection with or as contemplated by each such
Operative Document to which it is or is to be a party.
(b) Authorization; Enforceability, etc. This Agreement and each other
----------------------------------
Operative Document to which it is or is to be a party have been or will be, duly
authorized,
24
<PAGE>
executed and delivered by or on behalf of it and are, or upon execution and
delivery will be, legal, valid and binding obligations of it, 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.
(c) No Conflict. Neither the execution and delivery of the Operating
-----------
Documents, nor the consummation of the transactions contemplated thereby, nor
compliance by it with any of the terms and provisions thereof (i) requires any
approval of its stockholders, partners, members or other owners or approval or
consent of any trustee or holders of any of its indebtedness or obligations,
(ii) contravenes or will contravene any Applicable Laws and Regulations
currently in effect applicable to or binding on it (except no representation or
warranty is made as to any Applicable Laws and Regulations to which it or the
Site, directly or indirectly, may be subject because of the lines of business or
other activities of any Lessee Party) or (iii) results in any breach of or
constitutes any default under, any indenture, mortgage, chattel mortgage, deed
of trust, lease, conditional sales contract, loan or credit arrangement, other
material agreement or instrument, corporate charter, by-laws or other agreement
or instrument to which it is a party or by which it or its properties may be
bound or affected.
(d) Lessor Liens. The Site is free and clear of all Lessor Liens
------------
attributable to such Lender.
(e) ERISA. It is purchasing its interest in the Notes with assets
-----
that are not assets of any Plan (or its related trust) which is subject to Title
I of ERISA or Section 4975 of the Code.
(f) Investment in Notes. It is acquiring the Notes for its own
-------------------
account for investment and not with a view to any distribution (as such term is
used in Section 2(11) of the Securities Act) thereof, and if in the future it
should decide to dispose of its interest in the Notes, it understands that it
may do so only in compliance with the Securities Act and the rules and
regulations of the SEC thereunder and any applicable state securities laws.
Neither it nor anyone authorized to act on its behalf has taken or will take any
action which would subject the issuance or sale of any Note or any interest in
the Site, the Collateral, the Lease or the Sublease to the registration
requirements of Section 5 of the Securities Act or require the registration of
any Operative Document under the Trust Indenture Act of 1939, as amended. No
representation or warranty contained in this Section shall include or cover any
action or inaction of any Lessee Party or any Affiliate thereof, whether or not
purportedly on behalf of any Lender or any of its Affiliates. Subject to the
foregoing and subject to the other express provisions of this Agreement, it is
understood among the parties that the disposition of each Lender's property
shall be at all times within its control.
Section 4.3. Representations and Warranties of Lessor. Lessor hereby
----------------------------------------
represents and warrants to Lessee, Agent and Participants as set forth in this
Section.
(a) Chief Executive Office. Lessor's principal place of business and
----------------------
the place where the documents, accounts and records relating to the Overall
Transaction are kept is located
25
<PAGE>
at 1100 North Market Street, Rodney Square North, Wilmington, Delaware 19890-
0001, Attention: Corporate Trust Administration.
(b) Due Organization, etc. Lessor is a business trust duly organized
---------------------
and validly existing in good standing under the laws of jurisdiction of its
organization and has full trust power and authority to execute, deliver and
perform its obligations as Lessor under each Operative Document to which it is
or is to be a party and each other agreement, instrument and document to be
executed and delivered by it in connection with or as contemplated by each such
Operative Document to which it is or is to be a party.
(c) Authorization; Enforceability, etc. This Agreement and each other
----------------------------------
Operative Document to which Lessor is or is to be a party have been or will be,
duly authorized, executed and delivered by or on behalf of Lessor and are, or
upon execution and delivery will be, legal, valid and binding obligations of
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. Neither the execution and delivery thereof, nor the
-----------
consummation of the transactions contemplated thereby, nor compliance by it with
any of the terms and provisions thereof (i) requires any approval of its trustor
or settlor or approval or consent of any trustee or holders of any of its
indebtedness or obligations, (ii) contravenes or will contravene any Applicable
Laws and Regulations currently in effect applicable to or binding on it (except
no representation or warranty is made as to any Applicable Laws and Regulations
to which it or the Site, directly or indirectly, may be subject because of the
lines of business or other activities of any Lessee Party) or (iii) results in
any breach of or constitutes any default under, any indenture, mortgage, chattel
mortgage, deed of trust, lease, conditional sales contract, loan or credit
arrangement, other material agreement or instrument, corporate charter, by-laws
or other agreement or instrument to which it is a party or by which it or its
properties may be bound or affected.
(e) Lessor Liens. The Site is free and clear of all Lessor Liens
------------
attributable to Lessor.
(f) Litigation. There is no action, proceeding or investigation
----------
pending or, to Lessor's knowledge, threatened which questions the validity of
the Operative Documents to which Lessor is or is to be a party or any action
taken or to be taken pursuant to the Operative Documents to which Lessor is or
is to be a party, and there is no action, proceeding or investigation pending
or, to Lessor's knowledge, threatened which, if adversely determined, would have
a Material Adverse Effect.
(g) Use of Proceeds. The Advances shall be used solely in accordance
---------------
with the terms and provisions of the Operative Documents.
(h) Consents, etc. No authorization, consent, approval, license or
--------------
formal exemption from, nor any filing, declaration or registration with, any
Governmental Authority, is or will be required in connection with the execution
and delivery by Lessor of the Operative
26
<PAGE>
Documents to which it is a party or the performance by Lessor of its obligations
under the Operative Documents.
(i) ERISA. Lessor is purchasing its interest in the Site with assets
-----
that are not assets of any Plan (or its related trust) which is subject to Title
I of ERISA or Section 4975 of the Code.
Section 4.4. Representations and Warranties of Agent. Credit Lyonnais
---------------------------------------
Los Angeles Branch, in its capacity as Agent, hereby represents and warrants to
each of the other parties hereto as set forth in this Section.
(a) Organization and Authority. Agent is a branch duly licensed the
--------------------------
laws of the State of California of a banking corporation organized and existing
under the laws of the Republic of France and has the requisite power and
authority to enter into and perform its obligations under the Operative
Documents.
(b) Authorization; Binding Effect. The Operative Documents to which
-----------------------------
Agent is or will be a party have been or will be, on the date required to be
delivered hereby, duly authorized, executed and delivered by Agent, and this
Agreement is, and such other Operative Documents are, or, when so executed and
delivered by Agent will be, valid, legal and binding agreements of Agent,
enforceable against Agent in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity.
(c) Non-Contravention. Neither the execution and delivery by Agent of
-----------------
the Operative Documents to which it is or will be a party, either in its
individual capacity, as Agent, or both, nor compliance with the terms and
provisions thereof, conflicts with, results in a breach of, constitutes a
default under (with or without the giving of notice or lapse of time or both),
or violates any of the terms, conditions or provisions of: (i) the articles of
organization or by-laws of Agent; (ii) any bond, debenture, note, mortgage,
indenture, agreement, lease or other instrument to which Agent, either in its
individual capacity, as Agent, or both, is now a party or by which it or its
property, either in its individual capacity, as Agent, or both, is bound or
affected, where such conflict, breach, default or violation would be reasonably
likely to materially and adversely affect the ability of Agent, either in its
individual capacity, as Agent or both, to perform its obligations under any
Operative Document to which it is or will be a party, either in its individual
capacity, as Agent, or both; or (iii) any of the terms, conditions or provisions
of any law, rule, regulation, order, injunction or decree of any Governmental
Authority applicable to it in its individual capacity, as Agent, or both, where
such conflict, breach, default or violation would be reasonably likely to
materially and adversely affect the ability of Agent, either in its individual
capacity, as Agent or both, to perform its obligations under any Operative
Document to which it is or will be a party.
(d) Consents, etc. No authorization, consent, approval, license or
-------------
formal exemption from, nor any filing, declaration or registration with, any
Governmental Authority, is or will be required in connection with the execution
and delivery by Agent of the Operative
27
<PAGE>
Documents to which it is a party or the performance by Agent of its obligations
under such Operative Documents.
Section 4.5. Representations and Warranties of Investor. Investor
------------------------------------------
represents and warrants severally and only as to itself, to each of the other
parties hereto as follows:
(a) Due Organization, etc. It is duly organized and validly existing
---------------------
under the laws of the jurisdiction of its organization and has full corporate
power and authority to enter into and perform its obligations as Investor under
each Operative Document to which it is or is to be a party and each other
agreement, instrument and document to be executed and delivered by it on or
before each Advance Date in connection with or as contemplated by each such
Operative Document to which it is or is to be a party.
(b) Authorization; Enforceability, etc. This Agreement and each other
----------------------------------
Operative Document to which it is or is to be a party have been or will be, duly
authorized, executed and delivered by or on behalf of it and are, or upon
execution and delivery will be, legal, valid and binding obligations of it,
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.
(c) No Conflict. Neither the execution and delivery of the Operating
-----------
Documents, nor the consummation of the transactions contemplated thereby, nor
compliance by it with any of the terms and provisions thereof (i) requires any
approval of its stockholders or approval or consent of any trustee or holders of
any of its indebtedness or obligations, (ii) contravenes or will contravene any
Applicable Laws and Regulations currently in effect applicable to or binding on
it (except no representation or warranty is made as to any Applicable Laws and
Regulations to which it or the Site, directly or indirectly, may be subject
because of the lines of business or other activities of any Lessee Party) or
(iii) results in any breach of or constitutes any default under, any indenture,
mortgage, chattel mortgage, deed of trust, lease, conditional sales contract,
loan or credit arrangement, other material agreement or instrument, corporate
charter, by-laws or other agreement or instrument to which it is a party or by
which it or its properties may be bound or affected.
(d) Lessor Liens. The Site is free and clear of all Lessor Liens
------------
attributable to Investor.
(e) ERISA. It is purchasing its interest in the Trust Certificates
-----
with assets that are not assets of any Plan (or its related trust) which is
subject to Title I of ERISA or Section 4975 of the Code.
(f) Investment in Trust Certificates. It is acquiring the Trust
--------------------------------
Certificates for its own account for investment and not with a view to any
distribution (as such term is used in Section 2(11) of the Securities Act)
thereof, and if in the future it should decide to dispose of its interest in the
Trust Certificates, it understands that it may do so only in compliance with the
Securities Act and the rules and regulations of the SEC thereunder and any
applicable state securities laws. Neither it nor anyone authorized to act on
its behalf has taken or will take any
28
<PAGE>
action which would subject the issuance or sale of any Trust Certificate or any
interest in the Site, the Collateral, the Lease or the Sublease to the
registration requirements of Section 5 of the Securities Act or require the
registration of any Operative Document under the Trust Indenture Act of 1939, as
amended. No representation or warranty contained in this Section shall include
or cover any action or inaction of any Lessee Party or any Affiliate thereof,
whether or not purportedly on behalf of Investor or any of its Affiliates.
Subject to the foregoing and subject to the other express provisions of this
Agreement, it is understood among the parties that the disposition of Investor's
property shall be at all times within its control.
Section 4.6. Representations and Warranties of Trustee. Trustee hereby
-----------------------------------------
represents and warrants to the other parties hereto as set forth in this
Section.
(a) Organization and Authority. Trustee is a Delaware corporation
--------------------------
duly organized and validly existing in good standing under the laws of the State
of its incorporation and has the requisite corporate power and authority to
enter into and perform its obligations under the Operative Documents.
(b) Authorization; Binding Effect. The Operative Documents to which
-----------------------------
Trustee is or will be a party have been or will be, on the date required to be
delivered hereby, duly authorized, executed and delivered by Trustee, and this
Participation Agreement is, and such other Operative Documents are, or, when so
executed and delivered by Trustee will be, valid, legal and binding agreements
of Trustee, enforceable against Trustee in accordance with their respective
terms, excepts as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity.
(c) Non-Contravention. Neither the execution and delivery by Trustee
-----------------
of the Operative Documents to which it is or will be a party, nor compliance
with the terms and provisions thereof, conflicts with, results in a breach of,
constitutes a default under (with or without the giving of notice or lapse of
time or both), or violates any of the terms, conditions or provisions of: (i)
the articles of organization or by-laws of Trustee; (ii) any bond, debenture,
note, mortgage, indenture, agreement, lease or other instrument to which Trustee
is now a party or by which it or its property is bound or affected, where such
conflict, breach, default or violation would be reasonably likely to materially
and adversely affect the ability of Trustee to perform its obligations under any
Operative Document to which it is or will be a party; or (iii) any of the terms,
conditions or provisions of any law, rule, regulation, order, injunction or
decree of any Governmental Authority applicable to Trustee, where such conflict,
breach, default or violation would be reasonably likely to materially and
adversely affect the ability of Trustee to perform its obligations under any
Operative document to which it is or will be a party.
(d) Consents, etc. No authorization, consent, approval, license or
--------------
formal exemption from, nor any filing, declaration or registration with, any
Governmental Authority, is or will be required in connection with the execution
and delivery by Trustee of the Operative Documents to which it is a party or the
performance by Trustee of its obligations under such Operative Documents.
29
<PAGE>
ARTICLE V.
COVENANTS OF LESSEE PARTIES
Section 5.1. Further Assurances. Each Lessee Party, at its own
------------------
cost and expense, will cause to be promptly and duly taken, executed,
acknowledged and delivered all such further acts, documents and assurances as
any Participant, Lessor or Agent reasonably may request from time to time in
order to carry out more effectively the intent and purposes of this Agreement
and the other Operative Documents and the Overall Transaction. Each Lessee
Party, at its own cost and expense, will cause all financing statements
(including precautionary financing statements), fixture filings and other
documents, to be recorded or filed at such places and times in such manner, and
will take all such other actions or cause such actions to be taken, as may be
necessary or as may be reasonably requested by any Participant, Lessor or Agent
in order to establish, preserve, protect and perfect the title of Lessor to the
Site and Lessor's and Participants' rights under this Agreement and the other
Operative Documents and to perfect, preserve and protect the first and prior
Lien on the Collateral. Without limiting the foregoing, Lessee shall furnish to
Lessor and Agent, by the ninetieth (90th) day (but not earlier than the one
hundred eightieth (180th) day) prior to the fifth (5th) anniversary of the
Document Closing Date, and every fifth (5th) anniversary thereafter, an opinion
of counsel with respect to the continued perfection of the security interests
created pursuant to the Operative Documents. Lessee will maintain or cause to be
maintained in full force and effect all Permits. Upon any transfer of the Site,
whether pursuant to any provision of the Operative Documents (including Article
VI of the Lease) or after the occurrence of a Lease Event of Default or
otherwise, Lessee, at its own cost and expense, will cause to be promptly and
duly taken, executed, acknowledged and delivered all such further acts,
documents and assurances as any Participant, Lessor or Agent reasonably may
request from time to time in order to cause the Permits to be transferred or
reissued in the name of the Person acquiring the Site.
Section 5.2. Basic Reporting Requirements of the Lessee and Sublessee.
--------------------------------------------------------
Each of Lessee and the Sublessee hereby agree to the Lessor, Agent
and the Participants that each shall furnish, insofar as each of them is
concerned:
(a) Annual Financial Statements. As soon as available and in any
---------------------------
event within ninety (90) days after the end of each fiscal year of Lessee, an
unqualified audit report certified by Arthur Andersen & Co., or such other
independent certified public accountants reasonably acceptable to Investor and
Agent, prepared in accordance with generally accepted accounting principles on a
consolidated basis for Lessee and its Subsidiaries, including balance sheets as
of the end of such period, related profit and loss statement, statements of
changes in stockholders equity, and a statement of cash flows.
(b) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within sixty (60) days after the end of each of the first three quarters
of each fiscal year of Lessee a consolidated unaudited balance sheet as of the
close of such period and a consolidated profit and loss statement for the period
from the beginning of such fiscal year to the end of such quarter.
(c) Compliance Certificate. Simultaneously with the delivery of each
----------------------
set of financial statements required to be delivered pursuant to Sections 5.2(a)
---------------
and (b) hereof, a
- -------
30
<PAGE>
certificate of the chief financial officer of Lessee (i) setting forth in
reasonable detail the calculations required to establish whether Lessee was in
compliance with the requirements of Sections 5.5 and 5.6 hereof, and (ii)
--------------------
stating whether there exists on the date of such certificate, or has existed
since the date of the previous such certificate, any Lease Default or Lease
Event of Default and, if so, setting forth the details thereof and the action
which Lessee took, is taking or proposes to take with respect thereto.
(d) ERISA. Within two weeks after any Lessee Party has become subject
-----
to or has obtained knowledge of any of the following, a revised Schedule 4.1(s),
---------------
setting forth all additional Plans and Multiemployer Plans, and all information
available to Lessee with respect to direct, indirect or potential withdrawal
liability as a result of any Multiemployer Plan, or any liability for
Postretirement Plans, of any Lessee Party or any Controlled Group Member.
(e) Lease Defaults. Within three (3) days after any Responsible
--------------
Officer of Lessee or Sublessee, as the case may be, obtains knowledge of any
Lease Default or Lease Event of Default, a certificate of Responsible Officer.
Section 5.3. Inspection. Each of Lessee and the Sublessee shall
----------
permit, such Persons as Lessor, Agent or any Participant may designate to
examine Lessee's or Sublessee's, as the case may be, books and records relating
to the site and take copies and extracts therefrom and to discuss generally the
affairs of Lessee or Sublessee, as the case may be, with its officers, employees
and independent accountants upon advance notice at such times and as often as
Lessor, Agent or any Participant may reasonably request. Lessee and Sublessee
hereby authorizes such officers, employees and independent accountants so to
discuss with Lessor, Agent or any Participant the affairs of such Person.
Section 5.4. Consolidation, Merger, Sale.
---------------------------
(a) Lessee shall not consolidate or merge into another Person or sell
substantially all of its assets to another Person, unless, in the case of a
merger or consolidation, after giving effect to the transaction: (i) no Lease
Default or Lease Event of Default shall have occurred and be continuing or would
occur as a result of such transaction; and (ii) the surviving corporation shall
be Lessee.
(b) Sublessee shall not consolidate or merge into another Person or
sell substantially all of its assets to another Person, or take any action to
liquidate, wind up or dissolve it corporate existence (or suffer any liquidation
or dissolution), unless (i) Lessee or Sublessee remains the surviving entity
after such transaction; (ii) the Tangible Net Worth of Sublessee immediately
after such event is no less than Fifteen Million Dollars ($15,000,000); and
(iii) Lessee and Sublessee shall remain in compliance with the covenants set
forth herein and no Lease Default or Lease Event of Default shall have occurred
and be continuing or would occur as a result of such transaction.
Section 5.5. Consolidated Tangible Net Worth. Lessee and Sublessee
-------------------------------
shall not at any time permit the Consolidation
Tangible Net Worth of Lessee at any time to be less than One Hundred Thirty-Five
Million Dollars ($135,000,000) plus fifty percent (50%) of the net income
31
<PAGE>
earned in those fiscal quarters for which net income is positive, and which end
after January 4, 1998; provided that, if Lessee enters into a financing
--------
agreement after the date hereof containing a similar or comparable covenant with
a higher minimum, such higher minimum shall thereafter apply for the purposes of
this Section.
Section 5.6. Consolidated Cash Flow Ratio. Lessee and Sublessee shall
----------------------------
not at any time permit the Consolidated Cash Flow Ratio, as of the last day of
the following fiscal quarters of Lessee and determined with respect to the four
(4) fiscal quarters of Lessee then ended, to be greater than the ratio set forth
opposite such period:
Period Maximum
------ -------
Ratio
-----
1st Quarter 5.00 to 1
1998
2nd Quarter 5.00 to 1
1998
3rd Quarter 5.00 to 1
1998
4th Quarter 4.50 to 1
1998
Thereafter 4.25 to 1
Section 5.7. Payment Priority. Lessee shall ensure that, at all times,
----------------
all obligations and liabilities of Lessee under the Lease and all obligations
and liabilities of Sublessee under the Sublease will rank in right of payment
either pari passu or senior to all other Indebtedness of Lessee or Sublessee, as
the case may be.
Section 5.8. Restricted Payments. Neither Lessee nor any of its
-------------------
Subsidiaries will declare or make any Restricted Payment; provided that Lessee
--------
and any Subsidiary may declare and distribute dividends, if no Lease Event of
Default shall have occurred and be continuing or would occur as a result of such
transaction.
Section 5.9. Subsidiary Ownership. Lessee shall continue to own one
--------------------
hundred percent (100%) of the equity of each Significant Subsidiary and shall
not convey, pledge or otherwise transfer any ownership interest in therein.
Section 5.10. Insurance. Lessee and Sublessee shall maintain the
---------
property and liability insurance required by the Lease and the Construction
Agency Agreement, respectively.
32
<PAGE>
Section 5.11. Books and Records. Lessee and Sublessee shall keep proper
-----------------
books of records and accounts in which full, true and correct entries in
conformity with U.S. generally accepted accounting principles consistently
applied and all applicable laws shall be complied with in its dealings and
transactions in relation to its business activities.
Section 5.12. Tax and Other Payments. Lessee, Sublessee and their
----------------------
Subsidiaries each will pay and discharge promptly when due:
(1) all taxes, assessments and governmental charges and levies
imposed upon it, its income or profits or any of its properties, before the
same shall become delinquent; and
(2) all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other similar Persons for labor, materials,
supplies and rentals that, if unpaid, might by law become a Lien (other
than a Permitted Lien) upon any of its property;
provided, however, that no amount due with respect to clause (1) or clause (2)
- -------- -------
above need be paid while the same is being contested in good faith by
appropriate proceedings diligently conducted so long as (i) adequate reserves
shall have been established and maintained in accordance with generally accepted
accounting principles with respect thereto, (ii) title of Lessee or any
Subsidiary, as the case may be, to the particular property shall not be
materially adversely affected thereby. Lessee and its Subsidiaries each will
file within the period prescribed by applicable law and regulations ( including
any extensions legally provided for the validly obtained) all federal, state and
local tax returns and all other tax reports as required by Applicable Law and
Regulation.
Section 5.13. Environmental Matters. Lessee and Sublessee shall:
---------------------
(1) comply with, and undertake all efforts to cause compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and cause all tenants and subtenants to
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.
(2) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws (including not limited to the additional investigation and
remedial work referred to in Section 3.2(c) hereof) and promptly comply in all
material respects with all lawful orders and directives of all governmental
authorities regarding Environmental Laws.
(3) not permit the installation of any underground storage tanks at
the Site.
(4) cause as promptly as possible (i) the additional investigation and
remediation recommended in the Giles Environmental Report delivered pursuant to
Appendix II and Section 3.1(j) to be performed and (ii) the Environmental
- ----------- --------------
Compliance Report to be delivered on a timely basis.
33
<PAGE>
(5) defend, indemnify and hold harmless each indemnitee from and
against any and all claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature, known or unknown,
contingent or otherwise, arising out of, or in any way relating to the asserted
or established violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations (including, without limitation,
disposal activities) of the Lessee, Sublessee or any of their subsidiaries or
any property owned or leased at any time by Sublessee or any of its
Subsidiaries, or any orders, requirements or demands of governmental authorities
related to such operation or property, including, without limitation attorney's
and consultant's fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
are found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the party seeking indemnification therefor. The agreements in this Section
shall survive repayment of Notes, the Trust Certificate and the payment of all
other obligations, and are in addition to, and not in limitation of, the other
terms hereof.
Section 5.14. Notices. Lessee Parties shall promptly give notice to
-------
Lessor of:
(1) any (i) default or event of default under any contractual
obligation of Lessee or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between Lessee or any of
its Subsidiaries and any Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be, could have a Material
Adverse Effect;
(2) any litigation or proceeding affecting Lessee or any of its
Subsidiaries in which the amount involved is Five Million Dollars ($5,000,000)
or more and in which there is no acknowledgment by any insurance company with
respect to coverage therefor;
(3) the following events, as soon as possible and in the event within
fifteen (15) days after Lessee knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to make
any required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination of, any Multiemployer
Plan or (ii) the institution of proceedings or the taking of any other action by
the PBGC or Lessee or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or other termination of, any Plan;
(4) any development or event which could have a Material Adverse
Effect;
(6) the following events, as soon as possible and in any event within
fifteen (15) days after Lessee knows or has reason to know thereof: (i) any
condition, circumstance, occurrence or event that would result in a material
liability under Environmental Laws or would result in the imposition of any Lien
or other restriction on the title, ownership or transferability of the site of
any Collateral; and (ii) any proposed action to be taken by Lessee or any
Subsidiary that would subject Lessee or any Subsidiary to any material
additional or different requirements or liabilities under Environmental law; and
each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Lessee to take with respect thereto.
34
<PAGE>
(7) written notice of the intent by any Governmental Authority to (x)
take an action which would constitute a Condemnation or an Event of Taking, (y)
investigate the Site for a material violation of any Applicable Laws and
Regulations on or at the Site, including any Environmental Law, under which
liability may be imposed upon Lessor, any Participant or Agent or under which
liability having a Material Adverse Effect may be imposed on Lessee or (z)
investigate the Site (other than routine fire, life-safety and similar
inspections) for any violation of Applicable Laws and Regulations under which
criminal liability may be imposed upon Lessor, any Party or Agent or under which
liability having a Material Adverse Effect may be imposed on any Lessee.
Section 5.15. Corporate Existence. Subject to Section 5.2, each Lessee
------------------- -----------
Party shall at all times maintain its existence as a corporation in good
standing under the laws of the jurisdiction in which it is organized and shall
preserve and keep in full force and effect its franchises material to its
business.
Section 5.16. Construction Matters; Changes.
-----------------------------
(a) Construction Agent may execute, without any consent of the
Participants, any change order, modification or addition to the Facility prior
to its completion, so long as there is no Lease Default or Lease Event of
Default, and such change order, modification or addition does not materially and
adversely affect the value, utility or economic useful life of the New Facility,
as built, in accordance with the Plans and Specifications delivered by Lessee in
connection with the initial Advance in respect of the construction of the New
Facility and so long as each such change order, modification or addition does
not exceed Five Hundred Thousand Dollars ($500,000.00) individually and One
Million Dollars ($1,000,000.00) in the aggregate.
(b) In the event that at any time or from time to time, there is
unavailable sufficient unfunded Commitment allocated to the Site to fully pay
for the completion of construction of the New Facility, Construction Agent shall
contribute its own funds to pay costs of such construction prior to making any
further request for any Advance to pay for such construction until the remaining
unfunded Commitment allocated to the Site (after giving effect to all reasonably
anticipated Transaction Costs) is sufficient to fully pay for the completion of
such construction without further contributions from Lessee.
Section 5.17. Guaranty. Concurrently with the execution and delivery of
--------
this Agreement, each Lessee Party shall execute and deliver the Guaranty (which
shall be substantially in the form attached hereto as Exhibit F), pursuant to
---------
which each Lessee Party guaranty payment of all amounts funded by Lenders.
Section 5.18. Liens. No Lessee Party shall not incur, suffer or permit to
-----
exist any Lien on the Site or its other assets, other than Permitted Liens.
Section 5.19. Change of Name or Address. Each Lessee Party shall provide
-------------------------
Lessor and Agent thirty (30) days prior written notice of any change in name,
identity or corporate structure or the address of the chief executive office and
principal place of business or the office where records concerning accounts or
the Site are kept for any Lessee Party.
35
<PAGE>
Section 5.20. Securities. No Lessee Party shall not, nor shall it permit
----------
anyone authorized to act on its behalf to, take any action which would subject
the issuance or sale of the Notes, the Trust Certificates, the Site, the Lease,
or the Sublease or in any security or lease the offering of which, for purposes
of the Securities Act or any state securities laws, would be deemed to be part
of the same offering as the offering of the aforementioned securities or leases,
to the registration requirements of Section 5 of the Securities Act or any state
securities laws, or require the registration of any of the Operative Documents
under the Trust Indenture Act of 1939, amended.
Section 5.21. Interest Rates. With respect to each determination of an
--------------
interest rate or Yield, Lessee agrees to be bound by the terms of the Loan
Agreement.
Section 5.22. Appraisals. Each Lessee Party shall cooperate with any
----------
Appraiser preparing an Appraisal at the request of Lessor, Agent or any
Participant. Lessee will pay all costs of the Appraisal required to be delivered
pursuant to Appendix I, this Section, the Appraisal Procedure set forth in the
----------
Lease, or any Appraisal which Lessor, Agent or any Participant may from time to
time require a Lease Default or Lease Event of Default. Without limiting the
foregoing, not less than thirty (30) days after the Document Closing Date,
Lessor and Agent shall have received a Appraisal which will establish (by the
use of appraisal methods satisfactory to Agent) (i) the Fair Market Sales Value
of the Site as of the Site Acquisition Date, and (ii) the Fair Market Sales
Value of the Site "as completed" as contemplated by the Operative Documents and
the Plans and Specifications as of the end of the Construction Period.
Section 5.23. Environmental Audits. Lessee will deliver to Lessor, Agent
--------------------
and each Participant upon the request of any such Persons an Environmental
Audit, which Environmental Audits shall be paid for by Lessee (i) if such
request was made during a Lease Default or Lease Event of Default, or (ii) if
delivered pursuant to Appendix II or Article III. The Environmental Audit to be
----------- -----------
delivered pursuant to Section 3.1(j) following the demolition of certain
--------------
existing Facilities, shall be delivered no later than one hundred twenty days
(120) days after the Document Closing Date, and shall be in form and substance
satisfactory to Lessor, Agent and Participants. If Lessee shall fail to so
deliver any such Environmental Audit, Lessor, Agent or any Participant may
obtain such an Environmental Audit and Lessee will pay all costs and expenses
thereof.
Section 5.24. Additional Compensation in Certain Circumstances.
------------------------------------------------
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
-----------------------------------------------------------------
Capital Adequacy Requirements, Expenses, Etc. If any Applicable Laws and
- --------------------------------------------
Regulations or guideline or interpretation or application thereof by any
Governmental Authority charged with the interpretation or administration thereof
or compliance with any request or directive of any Governmental Authority
(whether or not having the force of Applicable Laws and Regulations) now
existing or hereafter adopted:
(i) subjects Lessor or any Participant to any tax or changes the
basis of taxation with respect to this Agreement, the Lease, the Sublease,
the Notes, the Trust Certificates, any other Operative Documents, the
Loans, the Investor Contribution, or payments by any Lessee Party of Basic
Rent, Supplemental Rent, the Lease Balance,
36
<PAGE>
principal, interest, commitment fee or other amounts due from any such
party hereunder or under the Lease, or Sublease or other Operative
Documents (except for taxes on the overall net income or overall gross
receipts of any Participant or Lessor imposed by the jurisdictions
(federal, state and local) in which such Participant's or Lessor's
principal office is located),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend
credit extended by, assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Participant (other
than requirements expressly included herein in the determination of the
LIBO Rate hereunder),
(iii) imposes, modifies or deems applicable any capital adequacy
or similar requirement (a) against assets (funded or contingent) of, or
credits or commitments to extend credit extended by, any Participant, or
(b) otherwise applicable to the obligations of any Participant under this
Agreement, the Lease or any of the other Operative Documents, or
(iv) imposes upon any Participant any other condition or expense
with respect to this Agreement, the Lease, the Notes, the Trust
Certificates, or any of the other Operative Documents or its making,
maintenance or funding of any Loan or Investor Contribution or any security
therefor, and the result of any of the foregoing is to increase the cost
to, reduce the income receivable by, or impose any expense (including loss
of margin) upon any Participant, or, in the case of clause (iii) hereof,
any Person controlling a Participant, with respect to this Agreement, the
Notes, the Trust Certificates or the issuance, making, maintenance or
funding of any Loan or Investor Contribution (or, in the case of any
capital adequacy or similar requirement, to have the effect of reducing the
rate of return on such Participant's or such controlling Person's capital,
taking into consideration such Participant or such controlling Person's
policies with respect to capital adequacy), such Participant may from time
to time notify Lessor, Agent and Lessee of the amount determined in good
faith (using any averaging and attribution methods) by such Participant
(which determination shall be conclusive) to be necessary to compensate for
such increase, reduction or imposition. Such amount shall be due and
payable by Lessee to such Participant thirty (30) days after such notice is
given, together with an amount equal to interest on such amount from the
date two (2) Business Days after the date demanded until such due date at
the Base Rate plus the Applicable Margin (calculated on the basis of a year
of 360 days and actual days elapsed). A certificate by such Participant as
to the amount due and payable under this Section from time to time and the
method of calculating such amount shall be conclusive.
(b) Funding Breakage. If any payment with respect to a LIBO Rate
----------------
Advance is made on any day other than the last day of the Interest Period
applicable to such Advance or if Lessee fails to borrow any LIBO Rate Advance or
convert to LIBO Rate Advance, after notice has been given with respect thereto,
Lessee shall reimburse each Participant on demand for any resulting loss or
expense incurred by such Participant, including, without limitation, any loss
incurred in obtaining, liquidating or employing deposits for third parties;
provided that such
- --------
37
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Participant shall have delivered to Lessee a certificate as to the amount of
such loss, which certificate shall be conclusive in the absence of manifest
error.
Section 5.25. Demolition. All Facilities and other Improvements on or
----------
part of the Site as of the Site Acquisition Date shall be demolished and
removed, in compliance with all Applicable Laws and Regulations and to the
satisfaction of Lessor and Agent, within one hundred eighty (180) days of the
Document Closing Date. Lessee shall provide written notice to Lessee and Agent
when such demolition and removal has been completed.
Section 5.26. Year 2000. Each Lessee Party shall take all actions
---------
necessary to assure that its material software, hardware, firmware, equipment,
goods and systems (including embedded systems) are able to effectively process
data including dates prior to, on and after January 1, 2000. At the request of
the Agent or any Lender, each Lessee Party shall provide the Agent or such
Lender, as the case may be, with assurance acceptable to the Agent or such
Lender, as the case may be, of such Lessee Party's year 2000 capability.
ARTICLE VI.
OTHER COVENANTS AND AGREEMENTS
Section 6.1. Agent under Operative Documents. For purposes of Operative
-------------------------------
Documents, the parties hereto agree that Agent shall be the agent of Lenders,
with Agent's duties and obligations being subject to the limitations, and Agent
being entitled to the rights, set forth in Article VIII hereof and Article VII
of the Loan Agreement.
Section 6.2. Covenants of Lessor and Participants.
------------------------------------
(a) Discharge of Liens. Lessor covenants that it will not create or
------------------
permit to exist at any time, and will, at its own cost and expense, promptly
(and in any event, within ninety (90) days) take such action as may be necessary
duly to discharge, or to cause to be discharged, all Lessor Liens attributable
to it unrelated to the transactions contemplated by the Operative Documents.
Notwithstanding the foregoing, Lessor shall not be required to so discharge any
such Lessor Lien while the same is being contested in good faith by appropriate
proceedings diligently prosecuted so long as such proceedings shall not involve
any meaningful danger of the impairment of the Lien of the Mortgage or of the
sale, forfeiture or loss of, and shall not interfere with the use or disposition
of, any part of the Site or the Lease or title thereto or any interest therein
or the payment of Rent; provided, however, that Lessor shall discharge or bond
-------- -------
over any such Lessor Lien attributable to it unrelated to the transactions
contemplated by the Operative Documents, whether or not subject to contest as
provided above, upon the purchase of the Site by Lessee pursuant to the Lease.
(b) Change of Principal Place of Business. Lessor shall give prompt
-------------------------------------
notice to Lessee, Investor and Agent, if Lessor's principal place of business or
chief executive office, or the office where the records concerning the accounts
or contract rights relating to the Site or the Overall Transaction are kept,
shall cease to be located 1100 North Market Street, Rodney Square
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North, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration or if it shall change its name or identity.
(c) Certain Operative Documents Agreement. As between Lessor and
-------------------------------------
Lessee, Lessor and each Participant hereby agree that, so long as the Lease is
in effect and no Lease Default or Lease Event of Default exists, Lessor shall
not consent to or permit any amendment of the terms and provisions of the Loan
Agreement, the Mortgage or any Note, the Trust Agreement or any Trust
Certificates, if any such amendment or action would have the materially
affecting the obligations or rights of Lessee, in each case, without the prior
written consent of Lessee.
(d) Depreciation. From the date hereof unless and until Lessor's
------------
interest in the Site is unencumbered by the Lease, neither Lessor nor any
Participant shall claim any federal or state tax attributes or benefits
(including depreciation) relating to the Site, unless required to do so by an
appropriate taxing authority or after a clearly applicable change in Applicable
Laws and Regulations or as a protective response to a proposed adjustment by a
Governmental Authority.
(e) Transfer by Lessor. Lessor shall not transfer its interest in the
------------------
Site (other than a transfer pursuant to the provisions of the Operative
Documents) without the consent of Agent and Participants and, so long as no
Lease Default or Lease Event of Default shall have occurred and be continuing,
Lessee, each such consent not to be unreasonably withheld. The foregoing
limitation shall not be applicable to the transfer of any stock or other
ownership interests in Lessor, nor of any assets of Lessor other than its rights
in the Site.
(f) No Voluntary Bankruptcy. Lessor shall not (i) commence any case,
-----------------------
proceeding or existing or future law of any jurisdiction (domestic or foreign)
relating to bankruptcy, insolvency, reorganization, arrangement, winding up,
liquidation, dissolution, composition or other relief with respect to it or its
debts, or (ii) seek appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial benefit of its creditors.
(g) Plan Matters. Lessor will not adopt any Plan or amend any Plan to
------------
increase the benefits payable thereunder if such adoption or amendment would
materially increase Lessor's liability under the Plans. Lessor will make the
maximum allowable contribution to each Plan with respect to each year of such
Plan and will not change the interest or earnings assumptions used by the
actuary of each Plan to value the assets and liabilities of such Plan. Lessor
will not terminate any Plan and will not withdraw or transfer any assets of any
Plan to Lessor or for the benefit of Lessor.
Section 6.3. Restrictions on and Effect of Transfer by any Participant.
---------------------------------------------------------
No Participant shall assign, convey or otherwise transfer (including pursuant to
a participation) all or any portion of its right, title or interest in, to or
under any of the Operative Documents, any Note or any Trust Certificate, unless
the provisions of this Section are satisfied. With respect to any assignment,
conveyance or other transfer, other than a participation, the conditions set
forth in clauses (a) through (g) of this Section are applicable. With respect to
any participation, the conditions set forth in Section 6.4 shall be applicable.
-----------
39
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(a) Required Notice and Effective Date. Any Participant desiring to
----------------------------------
effect a transfer of its interest shall give written notice of each such
proposed transfer to Lessee, Lessor and Agent at least ten (10) Business Days
prior to such proposed transfer, setting forth the name of such proposed
transferee, the percentage or interest to be retained by such Participant, if
any, and the date on which such transfer is proposed to become effective. All
reasonable out-of-pocket costs incurred by Agent and Lessor in connection with
any such disposition by a Participant under this Section shall be borne by such
Participant. In the event of a transfer under this Section, any expenses
incurred by the transferee in connection with its review of the Operative
Documents and its investigation of the transactions contemplated thereby shall
be borne by such transferee or the relevant Participant, as they may determine,
but shall not be considered costs and expenses which Lessee is obligated to pay
or reimburse under Section 9.9.
-----------
(b) Required Consent; Securities Laws. No Lender may make any such
---------------------------------
assignment, conveyance or transfer unless Agent and, so long as there is no
Lease Default or Lease Event of Default, Lessee shall have consented to the
transfer and the transferee, such consents not to be unreasonably withheld. No
Participant may make any such assignment, conveyance or transfer unless the
applicable Participant and transferee shall have complied with all applicable
securities laws with respect to such transfer.
(c) Employee Benefit Plans. No Participant may make any such
----------------------
assignment, conveyance or transfer (including pursuant to a participation) to or
in connection with any arrangement or understanding in any way involving any
employee benefit plan (or its related trust), as defined in Section 3(3) of
ERISA, or with the assets of any such plan (or its related trust), as defined in
Section 4975(e)(1) of the Code (other than a governmental plan, as defined in
Section 3(32) of ERISA).
(d) Representations and Warranties. Notwithstanding anything to the
------------------------------
contrary set forth above, no Participant may assign, convey or transfer its
interest to any Person, unless such Person shall have delivered to Lessor, Agent
and Lessee a certificate confirming the accuracy of the representations and
warranties set forth in Section 4.2 or 4.5, as applicable, with respect to such
------------------
Person (other than as such representation or warranty relates to the execution
and delivery of Operative Documents).
(e) Amounts. Any assignment of Notes shall be in a face principal
-------
amount which is equal to or greater than Five Million Dollars ($5,000,000) or
the entire amount of the Note being transferred.
(f) Assumption of Obligations. Upon satisfaction of all applicable
-------------------------
conditions set forth in this Section and the consummation of the transfer (other
than a participation), the obligations of the transferring Participant under the
Operative Documents shall be proportionately released and reduced to the extent
of such transfer. Upon any such transfer as above provided, the transferee
shall be deemed to be bound by all obligations (whether or not yet accrued)
under, and to have become a party to, all Operative Documents to which its
transferor was a party, shall be deemed the pertinent "Lender," "Investor," or
"Participant," as applicable, for all purposes of the Operative Documents and
shall be deemed to have made that portion of the payments pursuant to this
Agreement previously made or deemed to have been made by the transferor
40
<PAGE>
represented by the interest being conveyed; and each reference herein and in the
other Operative Documents to the pertinent "Lender," "Investor," or
"Participant," as applicable, shall thereafter be deemed a reference to the
transferee, to the extent of such transfer, for all purposes. Upon any such
transfer, Agent (with respect to a transfer by a Lender) or Investor shall
deliver to Lessor, Lessee and Agent or Investor, new Schedules II and III to
--------------------
this Participation Agreement, revised to reflect the relevant information for
such new Participant and the Commitment of such new Participant (and the revised
Commitment amounts and percentages of the transferor Participant if it shall not
have transferred its entire interest).
(g) Documentation; Agent's Fee. Each such transfer (including,
--------------------------
without limitation, a participation) shall be subject to the requirement that
(i) the transferee (or participant, as applicable) shall have executed and
delivered to Agent (if the transfer is of a Loan), Investor (if the transfer is
of Investor Contribution), Lessee and Lessor a letter in substantially the form
of the Investor's Letter attached hereto as Exhibit G, and (ii) the applicable
---------
Participant and transferee shall have executed and delivered such other
documents, certificates and opinions of counsel which Lessee or (if the transfer
is of a Loan) Agent shall reasonably request to confirm the satisfaction of the
conditions of this Section. If the transfer is of a Loan, the applicable Lender
or transferee shall pay to Agent for each transfer: (i) a fee of $3,000, and
(ii) the reasonable fees and expenses of counsel to Agent. The obligations of
the applicable Lender and the transferee under the immediately preceding
sentence shall be joint and several.
(h) Effect. From and after any transfer of its Notes or Trust
------
Certificates in accordance with this Section (other than a participation), the
transferring Participant shall be released, to the extent assumed by the
transferee, from its liability and obligations hereunder and under the other
Operative Documents relating to the Site to which such transferor is a party in
respect of obligations to be performed on or after the date of such transfer.
Upon any transfer by a Participant as above provided, any such transferee shall
be deemed a "Participant" for all purposes of such documents and each reference
herein to a Participant shall thereafter be deemed a reference to such
transferee for all purposes, except as the context may otherwise require.
Notwithstanding any transfer as provided in this Section, the transferor shall
be entitled to all benefits accrued and all rights vested prior to such
transfer, including rights to indemnification under this Agreement or any other
Operative Document.
Section 6.4. Covenants and Agreements of Lenders.
-----------------------------------
(a) Participations. Each Participant covenants and agrees that it
--------------
will not grant participations in its Notes or Trust Certificates to any Person
(a "Loan/Equity Participant") unless the conditions of clauses (a) through (g)
of Section 6.3 shall have been satisfied. In the event of any such sale by a
-----------
Participant of a participating interest to a Loan/Equity Participant, such
Participant's obligations under this Agreement and under the other Operative
Documents shall remain unchanged, such Participant shall remain solely
responsible for the performance thereof, such Participant shall remain the
holder of its Note or Trust Certificates, as applicable, for all purposes under
this Agreement and under the other Operative Documents, and Lessor, Agent,
Investor and, except as set forth in Section 6.4(b), Lessee shall continue to
--------------
deal solely and directly with such Participant in connection with such
Participant's rights and obligations under this Agreement and under the other
Operative Documents. Notwithstanding any such participation,
41
<PAGE>
no Loan/Equity Participant shall have any right to vote with respect to the
transactions contemplated by the Operative Documents other than with respect to
changes in principal or stated amount of any Note or Trust Certificate in which
such Loan/Equity Participant has a participation, the interest rate payable
under such Note (or Yield under the Trust Certificate, if applicable) and the
stated maturity date of any applicable Note.
(b) Transferee Indemnities. Each Loan/Equity Participant shall be
----------------------
entitled to the benefits of Sections 2.11 and 2.12 of the Loan Agreement with
----------------------
respect to its Notes or Trust Certificates (as if Investor were a Lender
thereunder), as applicable, or participation in the Loans or Investor
Contribution, as applicable, outstanding from time to time; provided, that no
--------
Loan/Equity Participant shall be entitled to receive any greater amount pursuant
to such Sections than the transferor Participant would have been entitled to
receive in respect of the amount of the Notes or Trust Certificates, as
applicable, or participation transferred by such transferor to such transferee
had no such transfer or participation occurred.
Section 6.5. Future Participants. Each Participant, by its acceptance of
-------------------
its Notes or Trust Certificates, as applicable, shall be deemed to be bound by
and, upon compliance with the requirements of Section 6.3, will be entitled to
-----------
all of the benefits of the provisions of this Agreement.
Section 6.6. Prepayment by Lessor. Except as expressly permitted by the
--------------------
Operative Documents, each Lender acknowledges and agrees that Lessor may not
voluntarily prepay the Notes, or any part thereof, without the written consent
of Lessee; provided, however, that Lessor may prepay, or cause to be prepaid,
-------- -------
all or any portion of the Notes at any time during the continuance of a Lease
Event of Default.
Section 6.7. Foreclosure against Lessor. If Lessor's interest in the Site
--------------------------
is foreclosed by reason of a Loan Event of Default while no Lease Event of
Default shall have occurred and be continuing, Lessee shall not be responsible
for any costs or expenses incurred by Agent in connection with such foreclosure
or as a result thereof.
ARTICLE VII.
INDEMNIFICATION
Section 7.1. General Indemnification. Each Lessee Party, whether or not
-----------------------
any of the transactions contemplated hereby shall be consummated hereby assumes
liability for, and agrees to indemnify, protect, defend, save and keep harmless
on an after-tax basis (in accordance with Section 7.4) each Indemnitee from and
-----------
against any and all Claims that may be imposed on, incurred by or asserted
against such Indemnitee (whether because of action or omission, negligent or
otherwise, by such Indemnitee or otherwise), 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 the Document Closing Date or after
the Lease Termination Date, in any way relating to or arising out of (a) any of
the Operative Documents or any of the transactions contemplated thereby or any
investigation, litigation or proceeding in connection therewith, and any
amendment, modification or waiver in respect thereof; or (b) the Site or any
part thereof or interest therein; or (c) personal injury, death or property
damage relating to the Property,
42
<PAGE>
including Claims based on strict liability in tort; or (d) the acquisition,
mortgaging, design, construction, preparation, installation, inspection,
delivery, non-delivery, acceptance, rejection, purchase, ownership, possession,
rental, lease, sublease, repossession, maintenance, repair, alteration,
modification, addition or substitution, storage, transfer or title, redelivery,
use, financing, refinancing, operation, condition, sale (including any sale
pursuant to Section 6.2 of the Lease or any sale pursuant to Article XVIII of
the Lease), return or other disposition of all or any part of any interest in
the Site 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, including, without
limitation: (i) Claims or penalties arising from any violation of law, including
Applicable Laws and Regulations, or in tort (strict liability or otherwise),
(ii) loss of or damage to the environment (including investigation costs, clean-
up costs, response costs, remediation and removal costs, costs of corrective
action, costs of financial assurance, and all other damages, costs, fees and
expenses, fines and penalties, including 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, (iii) latent or other defects,
whether or not discoverable by any Lessee Party or any Indemnitee, (iv) any
Claims resulting from the existence or Release of any Hazardous Materials at or
from the Site and (v) any Claim for patent, trademark, tradename or copyright
infringement; provided that the matters in this Section shall be without
--------
duplication of any matter for which indemnification is provided pursuant to the
Environmental Indemnity; (e) the offer, issuance, sale or delivery of the Notes
or the Trust Certificates; (f) the breach or alleged breach by any Lessee Party
of any representation or warranty, covenant or agreement made by it or deemed
made by it in any Operative Document; (g) 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 other agreement entered into or assumed
by any Lessee Party in connection with the Site (including, in each case,
matters based on or arising from the negligence of any Indemnitee).
No Lessee Party shall be required to indemnify under this Section for
(1) as to an Indemnitee, any Claim to the extent resulting from the willful
misconduct or gross negligence of such Indemnitee to the extent resulting from
the breach of representations, warranties or covenants of such Indemnitee, as
determined by a court of competent jurisdiction in a final, binding,
nonapplicable order, or (2) any Claims in respect of Taxes (such Claims to be
subject to Section 7.2), other than a payment necessary to make payments under
-----------
this Section on an after-tax basis; provided, that this clause (2) does not
--------
apply to any taxes or penalties included in Claims against which the Indemnitee
is provided an indemnification under clause (g) of this Section, and (3) as to
an Indemnitee, any Claim resulting from Lessor Liens which such Indemnitee is
responsible for discharging under the Operative Documents. In the event that
the indemnification provided for herein is prohibited by Applicable Laws and
Regulations, the Lessee Parties will contribute to a Claim to the maximum extent
permitted by law.
Each Lessee Party shall be entitled to control, and shall assume full
responsibility for the defense of any Claim; provided, however, that Lessor,
-------- -------
Trustee, Trust Company, Agent, each Lender and Investor named in such Claim may
each retain separate counsel at the expense of each Lessee Party, in the event
of and to the extent of a conflict or a potential conflict and shall give notice
to each Lessee Party of the retention of such separate counsel. Lessee Party
and each
43
<PAGE>
Indemnitee Person agree to give each other prompt written notice of any Claim
hereby indemnified against but the giving of any such notice by an Indemnitee
shall not be a condition to each Lessee Party's obligations under this Section,
except to the extent failure to give such notice materially prejudices each
Lessee Party's rights hereunder. Other than in the event of a conflict or a
potential conflict, each Lessee Party shall not be liable for the fees and
expenses of separate counsel retained by any Indemnitee. After an Indemnitee has
been fully indemnified for a Claim pursuant to this Section, and so long as no
Event of Default under the Lease shall have occurred and be continuing, each
Lessee Party shall be subrogated to any right of such Indemnitee with respect to
such Claim. None of the Indemnitees shall settle a Claim without the consent of
each Lessee Party, which consent shall not be unreasonably withheld or delayed.
Section 7.2. General Tax Indemnity.
---------------------
(a) Tax Indemnity. Each Lessee Party shall pay, defend and, on
-------------
written demand, indemnify and hold each Indemnitee harmless (on an after-tax
basis in accordance with Section 7.4) from and against, any and all Taxes,
-----------
howsoever imposed, on or with respect to any Indemnitee, the Site or any portion
thereof, any Operative Document or any Lessee Party or any other sublessee or
user of the Site by any Governmental Authority in connection with or in any way
relating to (i) the acquisition, mortgaging, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
purchase, ownership, possession, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing, operation,
condition, sale, return or other application or disposition of all or any part
of the Site 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 the Site 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, the Trust Certificate, or any other Operative Documents,
(iv) the Site or any part thereof or any interest therein, (v) all or any of the
Operative Documents, any other documents contemplated thereby and any amendments
and supplements thereto, and (vi) otherwise with respect to or in connection
with the transactions contemplated by the Operative Documents; provided,
--------
however, that the indemnification obligation of this Section shall not apply to
- -------
(i) Taxes which are based upon or measured by the Indemnitee's net income
(including taxes based on minimum taxes or capital gains), or which are
expressly in substitution for, or relieve Indemnitee from, any actual Tax based
upon or measured by Indemnitee's net income; (ii) any Tax or imposition to the
extent, but only to such extent, it relates to any act, event or omission that
occurs after the termination of the Lease and the discharge of all of Lessee's
obligations under the Operative Documents which were matured at the time of such
termination (but not any Tax or imposition that relates to any period prior to
the discharge of all of Lessee's obligations under the Operative Documents which
were matured at the time of such termination) unless such termination is the
result of a Lease Event of or the Site has been transferred to Lessee; (iii)
any interest or penalties imposed on an Indemnitee as a result of the failure of
such Indemnitee to comply with its obligations set forth in Section 7.2(d),
--------------
unless such failure results from the failure of Lessee to comply with its
obligations set forth in Section 7.2(d); (iv) any Taxes which are imposed on an
------
Indemnitee as a result of a breach of a covenant or representation by such
Indemnitee in any Operative Document (unless caused by a Lessee Party's breach
of its representation, warranties or covenants) or is a result of the gross
44
<PAGE>
negligence or willful misconduct of such Indemnitee itself (as opposed to gross
negligence or willful misconduct imputed to such Indemnitee), but not Taxes
imposed as a result of ordinary negligence of such Indemnitee; (v) Taxes based
upon the voluntary transfer, assignment or disposition by Agent, Lessor or any
Participant of any interest in any of the Site (other than a transfer pursuant
to the exercise of remedies under the Operative Documents, transfers pursuant to
the exercise of the Sale Option or Purchase Option, a transfer to Lessee or
otherwise pursuant to the Lease) or any involuntary transfer of any interest in
any of the Site resulting from the bankruptcy or insolvency of the Agent, Lessor
or any Participant (other than in connection with the existence of a Lease Event
of Default); (vi) any gift, inheritance, franchise or estate Taxes; (vii) taxes
and impositions that are imposed by any state or local jurisdiction or taxing
authority within any state or local jurisdiction and that are based upon or
measured by the net income or net receipts (including any minimum taxes,
withholding taxes or taxes on or measured by capital, net worth, excess profits
or items of tax preference or taxes that are capital stock, franchise or doing
business taxes); (viii) any Tax or imposition for so long as, but only for so
long as, it is being contested in accordance with the provisions of this
Agreement; (ix) any Taxes or impositions that are enacted or adopted by their
express terms as a substitute for any Tax that would not have been indemnified
against pursuant to the terms of Section 7.2(a) of this Agreement; (x) any Taxes
--------------
or impositions to the extent that such Taxes are actually reimbursed to the
Lessor by another Person other than an Affiliate of the Lessor; (xi) in the
event of a voluntary transfer, assignment or disposition, or any involuntary
transfer of any interest in any of the Site resulting from the bankruptcy or
insolvency of Lessor (other than in connection with the existence of a Lease
Event of Default), any Tax or imposition imposed on a direct or indirect
transferee, successor or assign of the Lessor to the extent of the excess of
such Taxes over the amount of such Taxes that would have been imposed had there
not been a transfer by the original Lessor of an interest arising under the
Operative Documents, unless a Lease Event of Default shall have occurred and be
continuing; and (xii) any Taxes or impositions imposed on the Lessor that are a
result of the Lessor not being considered a "United States person" as defined in
Section 7701(a)(30) of the Code. Notwithstanding the proviso of the preceding
sentence, Lessee Parties shall pay or reimburse, and indemnify and hold
harmless, any Indemnitee which is not incorporated under the laws of the United
States, or a state thereof, and which has complied with Section 7.3, from any
-----------
deduction or withholding of any United States Federal, state or local income
tax. All indemnities contained in this Section are expressly made for the
benefit of, and shall be enforceable by, each Indemnitee.
(b) Contests. Lessee Parties shall pay on or before the time or times
--------
prescribed by law any Taxes (except any Taxes excluded by the proviso to Section
-------
7.2(a)); provided, however, that no Lessee Party shall be under an obligation to
- ------ -------- -------
pay any such Tax so long as the payment of such Tax is not delinquent or is
being contested by a Permitted Contest. If any claim or claims is or are made
against any Indemnitee for any Tax which is subject to indemnification as
provided in Section 7.2(a), Indemnitee shall as soon as practicable, but in no
--------------
event more than twenty (20) days after receipt of formal written notice of the
Tax or proposed Tax, notify Lessee and if, in the reasonable opinion of Lessee
and (in the case of any Tax which may reasonably be expected in the aggregate to
exceed Fifty Thousand Dollars ($50,000)) tax counsel acceptable to the
Indemnitee, there exists a basis to contest such Tax which satisfies the
requirements of ABA Formal Opinion 85-352 (and if the provisos of the definition
of "Permitted Contest" continues to be satisfied and so long as no Lease Event
of Default exists), Lessee at its
45
<PAGE>
expense may, to the extent permitted by Applicable Laws and Regulations, contest
such Tax, and subsequently may appeal any adverse determination, in the
appropriate administrative and legal forums; provided that in all other
circumstances, upon notice from Lessee to such Indemnitee that there exists a
basis to contest any such Tax which satisfies the requirements of ABA Formal
Opinion 85-352 (as supported by an opinion of tax counsel to Lessee acceptable
to the Indemnitee), the Indemnitee, at Lessee's expense, shall contest any such
Tax. Lessee shall pay all expenses incurred by the Indemnitee in contesting any
such Tax (including all reasonable attorneys' and accountants' fees, including
the allocated costs of internal counsel), upon demand by the Indemnitee. Lessee
shall have the right to participate in the conduct of any proceedings controlled
by the Indemnitee to the extent that such participation by such Person does not
interfere with the Indemnitee's control of such contest and Lessee shall in all
events be kept informed, to the extent practicable, of material developments
relative to such proceedings. The Indemnitee shall have the right to participate
in the conduct of any proceedings controlled by Lessee and the Indemnitee shall
in all events be kept informed, to the extent practicable, of material
developments relative to such proceedings.
The Indemnitees agree that a contested claim for which Lessee would be
required to make a reimbursement payment hereunder will not be settled or
compromised without Lessee's prior written consent (which consent shall neither
be unreasonably delayed nor withheld), unless the provisos of the definition of
"Permitted Contest" would not continue to be satisfied. Indemnitee shall
endeavor to settle or compromise any such contested claim in accordance with
written instructions received from Lessee, provided that: (x) Lessee on or
before the date the Indemnitee executes a settlement or compromise pays the
contested Tax to the extent agreed upon or makes an indemnification payment to
the Indemnitee in an amount acceptable to the Indemnitee; and (y) the settlement
or compromise does not, in the reasonable opinion of the Indemnitee materially
adversely affect the right of such Lessor to receive Rent or the Lease Balance
or any other payment pursuant to the Operative Documents, or involve a material
risk of sale, forfeiture or loss of any Site or any interest therein or any
matter described in the provisos to the definition of "Permitted Contest." The
failure of an Indemnitee to timely contest a claim against it for any Tax which
is subject to indemnification under Section 7.2(a) and for which it has an
--------------
obligation to Lessee to contest under this Section in the manner required by
Applicable Laws and Regulations where Lessee has timely requested that such
Indemnitee contest such claim shall relieve Lessee of its obligations to such
Indemnitee under Section 7.2(a) with respect to such claim to the extent such
--------------
failure results in the loss of an effective contest. If Applicable Laws and
Regulations require the payment of a contested Tax as a condition to, or
regardless of, its being contested, and Lessee chooses to contest such Tax or to
direct the Indemnitee to contest such Tax in accordance with this Section, then
Lessee shall provide the Indemnitee with the funds to pay such Tax, such
provision of funds to be deemed a non-interest bearing loan by Lessee to the
Indemnitee to be repaid by any recovery of such Tax from such contest and any
remaining unpaid amount not recovered to offset Lessee's obligation to indemnify
the Indemnitee for such Tax. Lessee shall indemnify the Indemnitee on a
grossed-up basis (in accordance with Section 7.4) for and against any adverse
-----------
tax consequences of such interest-free loan. In the event that the Indemnitee
receives a refund (or like adjustment) in respect of any Tax for which the
Indemnitee has been reimbursed by Lessee, the Indemnitee shall immediately remit
the amount of such refund (or like adjustment) to Lessee, net of all costs and
expenses incurred by such Indemnitee.
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(c) Payments. Any Tax indemnifiable under Section 7.2(a) shall be
-------- --------------
paid directly 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 an Indemnitee
pursuant to Section 7.2(a) shall be paid within twenty (20) days after receipt
--------------
of a written demand therefor from such 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
-------
7.2(a) directly to the Indemnitee entitled thereto or Lessee, as the case may
- ------
be, shall be made 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
Participation Agreement. Upon the request of any Indemnitee with respect to a
Tax that Lessee is required to pay, Lessee shall furnish to such Indemnitee the
original or a certified copy of a receipt for Lessee's payment of such Tax or
such other evidence of payment as is reasonably acceptable to such Indemnitee.
Taxes imposed with respect to the Property for a billing period during which the
Lease expires or terminates (provided that the Lessee surrenders possession of
the Property to Lessor) shall be adjusted and prorated on a daily basis between
the Lessee and the Lessor, whether or not such Imposition is imposed before or
after such expiration or termination and each party shall pay or reimburse the
other for each party's pro rata share thereof. At Lessee's request, the amount
of any indemnification payment by Lessee pursuant to subsection (a) shall be
verified and certified by an independent public accounting firm mutually
acceptable to Lessee and the Indemnitee. The fees and expenses of such
independent public accounting firm shall be paid by Lessee unless such
verification shall result in an adjustment in Lessee's favor of seven and one-
half percent (7 1/2%) or more of the payment as computed by the Indemnitee, in
which case such fee shall be paid by the Indemnitee. In no event shall Lessee
have the right to review the Indemnitee's tax returns or receive any other
confidential information from the Indemnitee in connection with such
verification. Any information provided to such accountants by any Person shall
be and remain the exclusive property of such Person and shall be deemed by the
parties to be (and the accountants will confirm in writing that they will treat
such information as) the private, proprietary and confidential property of such
Person, and no Person other than such Person and the accountants shall be
entitled thereto and all such materials shall be returned to such Person. Such
accounting firm shall be requested to make its determination within thirty (30)
days of Lessee's request for verifications and the computations of the
accounting firm shall be final, binding and conclusive upon Lessee and the
Indemnitee. 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 Participation Agreement and that matters of interpretation of this
Participation Agreement are not within the scope of the independent accounting
firm's responsibilities.
Section 7.3. Withholding Tax Exemption. On or before the first date on
-------------------------
which any payment is due under any Note or Trust Certificate for the account of
any Participant not incorporated under the laws of the United States or a state
thereof , such Participant agrees that it will have delivered to each of Lessee,
Participant and Agent (i) two valid, duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Lender is entitled to receive payments under the Operative Documents without
deduction or withholding of any United States federal income taxes and (ii) a
valid, duly completed Internal
47
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Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding tax. Each
Participant which so delivers a Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms, further undertakes to deliver to each of Lessee and
Agent two additional copies of such form on or before the date that such form
expires (currently, three successive calendar years for Form 1001 and one
calendar year for Form 4224) or becomes obsolete or after the occurrence of any
event requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by Lessee or Agent, in each case certifying that such Participant is
entitled to receive payments under the Operative Documents without deduction or
withholding of any United States Federal income taxes, unless any change in
treaty, law or regulation has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises Lessee, Lessor and Agent that it
is not capable of receiving payments without any withholding of United States
Federal income tax.
Section 7.4. Gross Up. If an Indemnitee shall not be entitled to a
--------
corresponding and equal deduction with respect to any payment or Tax that a
Lessee Party is required to pay or reimburse under any other provision of this
Article (each such payment or reimbursement being an "original payment") and
which original payment constitutes income to such Indemnitee, then such Lessee
Party shall pay to such Indemnitee on demand the amount of such original payment
on a grossed-up basis such that, after subtracting all Taxes imposed on such
Indemnitee with respect to such original payment by such Lessee Party (including
any Taxes otherwise excluded by Section 7.2(b) and assuming for this purpose
--------------
that such Indemnitee was subject to taxation at the highest Federal marginal
rates applicable to widely held corporations for the year in which such income
is taxable and at an assumed state and local income tax rate of nine and one-
half (9 1/2%), such payments shall be equal to the original payment to be
received or paid (net of any credits, deductions or other tax benefits then
actually recognized that arise from the payment by such Indemnitee of any
amount, including taxes, for which the payment to be received is made).
ARTICLE VIII.
THE AGENT
Section 8.1. Appointment of Agent.
--------------------
(a) Pursuant to the Loan Agreement, each Lender has irrevocably
appointed and authorized Agent to act as its agent under the Loan Agreement and
other Operative Documents.
(b) Agent shall not have any duty or obligation to manage, control,
use, operate, store, lease, sell, dispose of or otherwise deal with the Site,
any other Collateral or the Lease, or to otherwise take or refrain from taking
any action under, or in connection with, this Agreement or any related document
to which Agent is a party, except as expressly provided by the terms hereof, and
no implied duties of any kind shall be read into any Operative Document against
Agent. The permissive right of Agent to take actions enumerated in this
Agreement or any other Operative Document shall never be construed as a duty,
unless Agent is instructed or
48
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directed to exercise, perform or enforce one or more rights of Lenders by the
Required Lenders, unless all Lenders are required with respect to any particular
matters, as set forth in any of the Operating Documents (provided that Agent has
--------
received indemnification reasonably satisfactory to it). No provision of the
Operative Documents shall require Agent to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its
obligations under the Operative Documents, or in the exercise of any of its
rights or powers thereunder. It is understood and agreed that the duties of
Agent are ministerial in nature.
(c) Except as specifically provided in the Operative Documents, Agent
is acting hereunder solely as agent and, except as specifically provided herein,
is not responsible to any person in its individual capacity.
(d) Agent may accept deposits from, lend money to and otherwise deal
with any Lessee Party or any of their respective Affiliates with the same rights
as it would have if it were not the named Agent hereunder.
Section 8.2. Reliance. Agent may rely upon, and shall not be bound or
--------
obligated to make any investigation into the facts or matters stated in, any
certificate, notice or other communication (including any communication by
telephone, facsimile, telex, telegram or cable) reasonably believed by it to be
genuine and correct and to have been made, signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Agent with due care
(including any expert selected by Agent to aid Agent in any calculations
required in connection with its duties under the Operative Documents).
Section 8.3. Refusal to Act. Except for notices and actions expressly
--------------
required of Agent under the Operative Documents, Agent shall in all cases be
fully justified in failing or refusing to act, unless (a) it is indemnified to
its reasonable satisfaction against any and all liability and reasonable expense
which may be incurred by it by reason of taking or continuing to take any such
action and (b) it is reasonably satisfied that such action is not contrary to
any Operative Document or to any applicable law.
Section 8.4. Compensation of Agency. Lessee shall pay Agent (i) the Fees
----------------------
pursuant to Section 2.6 hereof and (ii) Agent's reasonable fees, costs and
expenses for the performance of Agent's obligations hereunder, as may be further
provided for herein.
Section 8.5. Limitations. It is expressly understood and agreed by and
-----------
among the parties hereto that, except as otherwise provided herein or in the
other Operative Documents: (a) this Participation Agreement and the other
Operative Documents to which Agent is a party are executed by Agent, not in its
individual capacity (except with respect to the representations and covenants of
Agent in Section 4.4), but solely as Agent under the Operative Documents in the
-----------
exercise of the power and authority conferred and vested in it as such Agent;
(b) each and all of the undertakings and agreements herein made on the part of
Agent are each and every one of them made and intended not as personal
undertakings and agreements by Agent, or for the purpose or with the intention
of binding Agent personally, but are made intended for the purpose of binding
only the interests of Lenders in the Site and Collateral, unless expressly
provided
49
<PAGE>
otherwise; (c) actions to be taken by Agent pursuant to its obligations under
the Operative Documents may, in certain circumstances, be taken by Agent only
upon specific authority of Lenders or Required Lenders; (d) nothing contained in
the Operative Documents shall be construed as creating any liability on Agent,
individually or personally, or any incorporator or any past, present or future
subscriber to the capital stock of, or stockholder, officer or director,
employee or agent of, Agent to perform any covenants either express or implied
contained herein, all such liability, if any, being expressly waived by the
other parties hereto and by any Person claiming by, through or under them; and
(e) so far as Agent, individually or personally, is concerned, the other parties
hereto and any Person claiming by, through or under them shall look solely to
the Collateral and Lessee for the performance of any obligation under any of the
instruments referred to herein; provided, however, that nothing in this Section
-------- -------
shall be construed to limit in scope or substance the general corporate
liability of Agent in respect of its gross negligence or willful misconduct or
those representations, warranties and covenants of Agent in its individual
capacity set forth herein or in any of the other agreements contemplated hereby,
as determined in a final nonappeal decision by a court with competent
jurisdiction.
Section 8.6. Number of Counterparts. Whenever Agent is to have received
----------------------
any document, agreement or opinion pursuant to the Agreement or any other
Operative Document, such condition shall require that Agent has received
sufficient counterpart originals for Agent to distribute to Agent and each
Lender, unless otherwise specifically approved by Agent.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. Survival of Agreements. 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 and the termination or expiration of
this Agreement and any of the Operative Documents, including the termination of
the Lease with respect to the Site, the transfer of the interest in the Site to
or by Lessor as provided herein or in any other Operative Documents (and shall
not be merged into the Deed or any other conveyance or transfer document), any
disposition of any interest of Lessor in the Site, the purchase and sale of the
Note or the Trust Certificates, payment therefor and any disposition thereof and
shall be and continue in effect, notwithstanding any investigation made by any
party hereto or to any of the other Operative Documents and the fact that any
such party may waive compliance with any of the other terms, provisions or
conditions of any of the Operative Documents.
Section 9.2. No Broker, etc. Except for Agent and certain of its
--------------
affiliates (the fees and expenses of which shall be payable by Lessee in
accordance with the provisions of this Agreement), each of the parties hereto
represents to the others that it has not retained or employed any broker, finder
or financial advisor to act on its behalf in connection with this Agreement, nor
has it authorized any broker, finder or financial adviser retained or employed
by any other Person so to act, nor has it incurred any fees or commissions to
which Lessor or any other Participant might be subjected by virtue of its
entering into the transactions contemplated by this Agreement. Any party who is
in breach of this representation shall indemnify and hold the
50
<PAGE>
other parties harmless from and against any liability arising out of such breach
of this representation.
Section 9.3. Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be made in writing and shall be deemed to have been given (i) in
the case of notice by letter, the earlier of when delivered to the addressee by
hand or courier if delivered on a Business Day and, if not delivered on a
Business Day, the first Business Day thereafter, or on the third Business Day
after depositing the same in the mails, registered or certified mail, postage
prepaid, return receipt requested, and (ii) in the case of notice by facsimile
or bank wire, when receipt is confirmed if delivered on a Business Day and, if
not delivered on a Business Day, the first Business Day thereafter. In each
case, notices shall be addressed as provided on Schedule III hereto, or to such
------------
other address as any of the parties hereto may designate by written notice.
Copies of all notices given by facsimile or bank wire shall be contemporaneously
sent by overnight courier or U.S. Mail.
Section 9.4. Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same agreement.
Section 9.5. Amendments. Except as otherwise specifically provided in
----------
any Operative Document, neither this Agreement nor any of the other Operative
Documents nor any of the terms hereof or thereof may be terminated, amended,
supplemented, waived or modified orally, but only by an instrument in writing
signed by the party against which the enforcement of the termination, amendment,
supplement, waiver or modification shall be sought; and no such termination,
amendment, supplement, waiver or modification shall be effective unless a signed
copy thereof shall have been delivered to Lessor, Agent and Lessee. Lessor,
Agent and Lessee may amend, supplement, waive or modify this Agreement or any
other Operative Document (i) to correct any mistake without the consent of the
Required Lenders, or (ii) for any other purpose with the written consent of the
Required Lenders; provided, that without the prior written consent of each
--------
Participant, none of Agent, Lessor and Lessee shall:
(a) modify any of the provisions of this Section, change the
definition of "Required Lenders" or modify or waive any provision of any
Operative Document requiring action by any of the foregoing;
(b) modify, amend, waive or supplement any of the provisions of
Articles VI, XIII, XVI and XVII of the Lease, as well as Section 3.4 of the
Construction Agency Agreement;
(c) reduce, modify, amend or waive any indemnities in favor of any
Participant;
(d) reduce the amount or change the time of payment of Rent, Lease
Balance or the Commitment Fees or other fees;
(e) consent to any assignment of the Lease releasing Lessee from its
obligations to pay Rent or the Lease Balance or changing the absolute and
unconditional character of such obligations;
51
<PAGE>
(f) permit the creation of any Lien on the Site or any part thereof
(except as contemplated by the Operative Documents, including, without
limitation, Permitted Liens), or deprive any Lender of the benefit of the
security interest and lien secured by the Site;
(g) release any Collateral (except as otherwise specifically provided
in any Operative Document) or release any Guarantor from the obligations under
the Guarantor or terminate the Guaranty;
(h) increase the amount or extend the expiration date of any
Participant's Commitment;
(i) without the written consent of Investor, reduce the amount or
change time of payment of Investor Contribution or Yield; and
(j) without the written consent of each Lender, reduce the amount or
change time of payment of Loans or interest thereon.
Section 9.6. Headings, etc. The Table of Contents and headings of the
-------------
various Articles and Sections of this Agreement are for convenience of reference
only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
Section 9.7. Parties in Interest. Except as expressly provided herein,
-------------------
none of the provisions of this Agreement is intended for the benefit of any
Person, except the parties hereto, their successors and permitted assigns.
Section 9.8. GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED IN, AND
-------------
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF
SUCH STATE.
Section 9.9. Payment of Transaction Costs and Other Costs. Lessee shall:
--------------------------------------------
(a) Transaction Expenses. On the Document Closing Date, pay, or cause
--------------------
to be paid, all fees, expenses and disbursements of counsel of each of Lessor,
Trustee, Agent, and Investor in connection with the transactions contemplated by
the Operative Agreements and incurred in connection with such Document Closing
Date, including all Transaction Costs, and all other expenses in connection with
such Document Closing Date, including all expenses relating to all Appraisals,
Environmental Audits and Title Policies, and fees, taxes and expenses for the
recording, registration and filing of documents. Fees, expenses, and
disbursements payable by Lessee on Document Closing Date may be paid by using
the proceeds of the Loans or the Investor Contribution. The continuing expenses
and disbursements (including counsel fees and expenses) of Lessor and Agent
shall be paid by Lessee on demand.
(b) Brokers' Fees and Stamp Taxes. Pay or cause to be paid brokers'
-----------------------------
fees and any and all stamp, transfer and other similar taxes, fees and excises,
if any, including any interest and penalties, which are payable in connection
with the transactions contemplated by this Agreement and the other Operative
Agreements.
52
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(c) Trustee Fees and Expenses. Pay or cause to be paid the initial
-------------------------
and annual Trustee's fee and all expenses of the Trustee and any necessary co-
trustees (including reasonable counsel fees and expenses) or any successor owner
trustee, for acting as trustee under the Trust Agreement.
(d) Amendments, Waivers, Consents. Pay or cause to be paid all
-----------------------------
reasonable costs and expenses incurred by each Lessee Party, Agent, Investor,
Trustee or Lessor in entering into any future amendments or supplements with
respect to any of the Operative Agreements, whether or not such amendments or
supplements are ultimately entered into, or giving or withholding of waivers of
consents hereto or thereto, which have been requested by any Lessee Party.
(e) Loan Agreement and Related Obligations. Pay, before the due date
--------------------------------------
thereof, all costs, fees, indemnities, expenses and other amounts (other than
principal and interest on the Loans, but including breakage costs and interest
on overdue amounts pursuant to the Loan Agreement or otherwise) required to be
paid by Lessor under any Operative Agreement.
(f) Investor Obligations. Pay Investor promptly after receipt of
--------------------
notice therefor any additional amounts payable to the Investor in respect of the
Investor Contribution under Article II of the Loan Agreement (it being agreed
that Investor is, for purposes of this agreement, a beneficiary of the
provisions of Article II of the Loan Agreement).
(g) Overdue Rate. If all or a portion of the Yield, the Investor
------------
Contribution or any other amount owed to Investor shall not be paid when due,
such overdue amount shall bear interest, payable on demand, at a rate per annum
equal to the applicable Overdue Rate, from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
(h) Default Workout. Pay or cause to be paid all costs and expenses
---------------
(including reasonable legal fees and expenses) incurred by all other parties
hereto in connection with: (i) any Event of Loss or termination of the Lease or
any other Operative Document; (ii) the negotiation and documentation of any
restructuring or "workout," whether or not consummated, of any Operative
Document; (iii) the enforcement of the rights or remedies under the Operative
Documents; (iv) any transfer by Agent or a Participant of any interest in the
Operative Documents during the continuance of a Lease Event of Default.
Section 9.10. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 9.11. Limited Liability. The parties hereto agree that Trustee
-----------------
and Trust Company shall have no personal liability whatsoever to Lessee,
Lenders, Agent or any of their respective successors and assigns for any Claim
based on or in respect of this Agreement or any of the other Operative Documents
or arising in any way from the transactions contemplated hereby or thereby;
provided, however, that Trustee and Trust Company shall be personally liable:
- -------- -------
53
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(a) for its own willful misconduct or gross negligence, (b) for liabilities that
may result from the incorrectness of any representation or warranty expressly
made by it in Section 4.6 or (c) for any Tax based on or measured by any fees,
-----------
commission or compensation received by it for actions contemplated by the
Operative Documents. It is understood and agreed that, except as provided in the
preceding proviso: (i) Trustee and Trust Company shall have no personal
liability under any of the Operative Documents as a result of acting pursuant to
and consistent with any of the Operative Document; (ii) all obligations of
Trustee and Trust Company to Lessee, Lenders, Agent or any of their respective
successors and assigns are solely nonrecourse obligations, except to the extent
that it has received payment from others; (iii) all such personal liability of
Trustee and Trust Company is expressly waived and released as a condition of,
and as consideration for, the execution and delivery of the Operative Documents
by Trustee and Trust Company; and (iv) this Agreement (except as provided in
Section 4.6) is executed and delivered by Trustee and Trust Company solely in
- -----------
the exercise of the powers expressly conferred upon each of them under the
Operative Documents.
Section 9.12. Liabilities of Participants. No Participant shall have any
---------------------------
obligation to any other Participant or to Lessee, Sublessee, Lessor or Agent
with respect to the transactions contemplated by the Operative Documents, except
those obligations of such Participant expressly set forth in the Operative
Documents or except as set forth in the instruments delivered in connection
therewith, and no Participant 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.
Section 9.13. Liabilities of Agent. Agent shall have no duty, liability
--------------------
or obligation to any party to this Agreement with respect to the transactions
contemplated hereby, except those duties, liabilities, or obligations expressly
set forth in this Agreement or the Loan Agreement, and any such duty, liability
or obligation of Agent shall be as expressly limited by this Agreement or the
Loan Agreement, as the case may be.
Section 9.14. Reproduction of Documents. This Agreement, all documents
-------------------------
constituting Schedules or Exhibits hereto, and all documents relating hereto
received by a party hereto, including, without limitation: (a) consents, waivers
and modifications that may hereafter be executed; (b) documents received in
connection with the receipt and/or acquisition of the Site; and (c) financial
statements, certificates, and other information previously or hereafter
furnished may be reproduced by the party receiving the same by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process. Each of the parties hereto agrees and stipulates that, to the extent
permitted by law, any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by such
party in the regular course of business) and that, to the extent permitted by
law, any enlargement, facsimile, or further reproduction of such reproduction
shall likewise be admissible in evidence.
Section 9.15. Consideration for Consents to Waivers and Amendments.
----------------------------------------------------
Lessee hereby agrees that it will not, and that it will not permit any of its
Affiliates to, offer or give any consideration or benefit of any kind whatsoever
to any Participant in connection with, in exchange for, or as an inducement to,
such Participant's consent to any waiver in respect of, any
54
<PAGE>
modification or amendment of, any supplement to, or any other consent or
approval under, any Operative Document, unless such consideration or benefit is
offered ratably to all Participants.
Section 9.16. Payment Directions. It is understood and agreed that during
------------------
the Lease Term, for administrative convenience and notwithstanding the terms and
provisions of the Operative Documents, Lessee will pay all amounts due Lessor
under the Lease and this Agreement, on behalf of Lessor, to or at the direction
of Agent (which direction may change from time to time, so long as such
direction does not require Lessee to make any payment due on any date to more
than one Person) for application in accordance with the terms of Article III of
the Loan Agreement and the other Operative Documents.
Section 9.17. Action of and Notices under Loan Agreement. Notwithstanding
------------------------------------------
anything to the contrary in the Loan Agreement, Lenders, Agent, Lessor, Lessee
and Construction Agent hereby agree that any notice or demand to be delivered to
Lessor pursuant to the Loan Agreement and any action to be taken by Lessor under
the Loan Agreement (including under Section 26(d) thereof) shall, so long as no
Lease Default or Lease Event of Default is continuing, be delivered directly to
or taken by Lessee, with a copy to or notice to Lessor; provided that, during
--------
the Construction Period, so long as no Construction Agency Even of Default is
continuing, or would occur upon the passing of time or the giving of notice,
Construction Agent may give Advance Requests.
Section 9.18. Submission to Jurisdiction; Waivers. EACH PARTY HERETO
-----------------------------------
IRREVOCABLY AND UNCONDITIONALLY:
(a) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT OR OMISSION, OR EVENT OCCURRING IN CONNECTION
HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE BOROUGH OF
MANHATTAN, STATE OF NEW YORK, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO
THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT, TO THE EXTENT THAT ANY SUCH
COURT HAS OR IS ABLE TO OBTAIN PERSONAL JURISDICTION OVER THE PARTY AGAINST
WHICH SUCH PARTY IS SEEKING TO BRING RELATED LITIGATION, IT WILL NOT BRING ANY
RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF ANY INVESTOR, AGENT OR LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY
OTHER FORUM);
(b) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING
OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM
THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND
WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION BROUGHT IN
ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY;
55
<PAGE>
(c) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID, TO SUCH PARTY'S ADDRESS FOR NOTICES DESCRIBED IN SCHEDULE III
------------
HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW); AND
(d) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION.
Section 9.19. Final Agreement. THIS AGREEMENT, TOGETHER WITH THE LEASE,
---------------
LOAN DOCUMENTS, THE OTHER OPERATIVE DOCUMENTS AND OTHER DOCUMENTS EXECUTED IN
CONNECTION HEREWITH OR THEREWITH REPRESENT THE ENTIRE FINAL AGREEMENT BETWEEN
THE PARTIES HERETO WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND
CANNOT BE MODIFIED, SUPPLEMENTED, AMENDED, RESCINDED OR CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO.
THIS SUPERCEDES ANY ORAL AGREEMENTS BETWEEN THE PARTIES HERETO.
Section 9.20. Confidentiality. Except as may be required by law, except
---------------
as contemplated by any of the Operative Documents and except as may be necessary
in connection with the enforcement of the Operative Documents following a Lease
Default or Lease Event of Default, each of Lessor, Investor, Agent and each
Lender agrees to use its best efforts not to disclose the existence of the
transactions contemplated hereby, the Operative Documents or any of the parties
thereto or to permit any data or information which is clearly marked
"confidential" and which relates to Lessee or the business of Lessee, other than
any data or information which is otherwise publicly available or which is
received by any such party in a capacity in which such party is not bound by any
restriction of a nature similar to that imposed by this Section, which data or
information Lessor, Investor, Agent or such Lender possesses due to such party's
relation to the transactions contemplated hereby, to be out of such party's
possession or the contents thereof to be divulged to any other Person; provided,
--------
however, that such data or information may be disclosed to the attorneys or
- -------
accountants of Lessor, Investor, Agent or such Lender and to any Person
empowered by law to examine the records of the Lessor, Investor, Agent or such
Lender, which potential assignee shall have, in each case, agreed with such
party for the benefit of the Lessee to comply with the terms of this Section.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written and to be delivered in New
York, New York.
SMART & FINAL INC.,
as Lessee
By: /s/ Richard Phegley
-------------------
Name: Richard Phegley
Title: Vice President and Treasurer
SMART & FINAL STORES CORPORATION,
as Sublessee
By: /s/ Richard Phegley
-------------------
Name: Richard Phegley
Title: Vice President and Treasurer
SMART & FINAL REALTY TRUST 1998,
as Lessor
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By: /s/ James P. Lawler
-------------------
Name: James P. Lawler
Title: Vice President
CREDIT LYONNAIS LEASING CORP.,
as Investor
By: /s/ L.M. Wertheim
-----------------
Title: L. M. Wertheim
Name: Vice President and Secretary
CREDIT LYONNAIS LOS ANGELES BRANCH, as Agent
By: /s/ Dianne M. Scott
-------------------
Name: Dianne M. Scott
Title: Vice President and Manager
57
<PAGE>
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Lender
By: /s/ Dianne M. Scott
-------------------
Name: Dianne M. Scott
Title: Vice President and Manager
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND," NEW YORK BRANCH,
as Lender
By: /s/ Dana W. Hemenway
--------------------
Name: Dana W. Hemenway
Title: Vice President
By: /s/ W. Pieter C. Kodde
----------------------
Name: W. Pieter C. Kodde
Title: Vice President
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ James P. Lawler
-------------------
Name: James P. Lawler
Title: Vice President
58
<PAGE>
PARTICIPATION AGREEMENT
APPENDIX 1
DEFINITIONS APPENDIX
In the Participation Agreement and each other Operative Document,
unless the context otherwise requires:
(a) any term defined below by reference to another instrument or
document shall continue to have the meaning ascribed thereto whether or not such
other instrument or document remains in effect;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) a reference to a part, clause, section, article, exhibit or
schedule is a reference to a part, clause, section and article of, and exhibit
and schedule to, such Operative Document;
(e) a reference to any statute, regulation, proclamation, ordinance or
law includes all statutes, regulations, proclamations, ordinances or laws
amending, supplementing, supplanting, varying, consolidating or replacing them,
and a reference to a statute includes all regulations, proclamations and
ordinances issued or otherwise applicable under that statute;
(f) a reference to a party to a document includes that party's
successors and permitted assigns; and
(g) references to "including" means including without limiting the
generality of any description preceding such term and for purposes hereof the
rule of ejusdem generis shall not be applicable to limit a general statement
followed by or referable to an enumeration of specific matters to matters
similar to those specifically mentioned.
Further, each of the parties to the Operative Documents and their
counsel have reviewed and revised the Operative Documents, or requested
revisions thereto, and the usual rule of construction that any ambiguities are
to be resolved against the drafting party shall be inapplicable in construing
and interpreting the Operative Documents.
"Additional Costs" mean (i) the amounts payable pursuant to Section
2.12 of the Loan Agreement, (ii) the amounts payable pursuant to Section 5.23 of
the Participation Agreement and (iii) the other amounts due and payable by the
Borrower under any Loan Document or by Lessor under the Trust Agreement, other
than principal and interest on the Notes, Yield or Investor Contribution.
A-1-1
<PAGE>
"Advance" means, as the context may require, each advance of a Loan by
a Lender and each corresponding advance of an Investor Contribution by Investor
to finance the acquisition of the Site, the construction of the New Facility
and/or the payment of Transaction Costs.
"Advance Date(s)" means each of the actual dates, on or prior to the
date on which the Commitments shall terminate as set forth in Section 2.5(g) of
the Participation Agreement, on which the transactions contemplated in Article
II of the Participation Agreement are completed (including the conversion or
continuation of any LIBO Rate Advance).
"Advance Request" has the meaning set forth in Section 2.5(a) of the
Participation Agreement.
"Affiliate" of a Person shall mean (a) any other Person which directly
or indirectly controls, is controlled by, or is under common control with, such
person, (b) any director or officer (or, in the case of a Person which is not a
corporation, any individual having analogous powers) of such person or of a
Person who is an Affiliate of such person within the meaning of the preceding
clause (a), and (c) for each individual who is an Affiliate of the such person
within the meaning of the foregoing clauses (a) or (b), any other individual
related to such Affiliate by consanguinity or adoption within the third degree.
For purposes of the preceding sentence, "control" of a Person means (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise and (b) in any case
shall include direct or indirect ownership (beneficially or of record) of, or
direct or indirect power to vote, five percent (5%) or more of the outstanding
shares of any class of capital stock of such Person (or in the case of a Person
that is not a corporation, five percent (5%) or more of any class of equity
interest). Notwithstanding the foregoing, neither Casino-Guichard Perrachon
S.A. nor Casino USA, Inc. shall be deemed an Affiliate of Lessee solely as a
result of their respective ownership interest, direct or indirectly,
beneficially or otherwise, of up to sixty five percent (65%) of Lessee,
individually or collectively. A Person who is otherwise unaffiliated with any
of the Lessee Parties and who has acquired or in the future acquires five
percent (5%) or more of any class of equity interest in any Lessee Party in the
open market shall not be deemed to be an Affiliate of such Lessee Party for
purposes of the Operative Documents.
"Agent" means Credit Lyonnais Los Angeles Branch, in its capacity as
administrative agent for the benefit of itself and Lenders under the Loan
Agreement.
"Alterations" has the meaning set forth in Section 9.2(a) of the
Lease.
"Applicable Laws and Regulations" mean all existing and future
applicable laws, rules, regulations (including Environmental Laws), statutes,
treaties, codes, ordinances, permits, certificates, orders and licenses of and
interpretations by, any Governmental Authority, Insurance Requirements 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 and those pertaining to the construction use or
occupancy of the Site) and any restrictive covenant or deed restriction or
easement of record affecting the Site.
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<PAGE>
"Applicable Margin" means:
(a) for any Interest Period occurring in whole or in part one hundred
eighty (180) days after the Document Closing Date, zero (0) basis points for
interest determined by reference to the Base Rate and sixty (60) basis points
for interest determined by reference to the LIBO Rate; and
(b) for any Interest Period occurring entirely after the date
specified in the immediately preceding clause (a), the Applicable Margin set
forth below; provided that during any Holdover Period, the Applicable Margin
--------
shall be increased by 50 basis points:
<TABLE>
<CAPTION>
==========================================================================================================================
CRITERIA I
Consolidated CRITERIA II Commitment Fee LIBO Interest Base Interest
Cash Flow Senior Unsecured Applicable Applicable Margin Applicable Margin
Level Ratio Debt Ratings (bps) (bps) (bps)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I greater than BB or Ba2 or 25 75 00
or equal to lower
4.75x
II greater than BB+ or Ba1 20 60 00
or equal to
4.25x
III greater than BBB- or Baa3 17.5 50 00
or equal to
3.5x
IV greater than BBB or Baa2 15 45 00
or equal to
3.00x
V less than BBB+ or Baa1 10 40 00
3.00x
==========================================================================================================================
</TABLE>
where the Applicable Margin will be determined based on the better of the
Lessee's Consolidated Cash Flow Ratio (Criteria I) or senior unsecured debt
ratings, if any (Criteria II). If the debt ratings of Standard & Poor's
Corporation and Moody's Investors Service, Inc. differ from each other by one
(1) level, the lowest Applicable Margin will apply. If ratings differ by more
than one (1) level, the level immediately above the lowest rating will apply.
"Appraisal" means any appraisal of the Site prepared by the Appraiser
and delivered to Lessor and Agent, which, in the judgment of Agent or its
counsel, complies with all of the provisions of the Financial Institutions
Reform Recovery and Enforcement Act of 1989, as amended, the rules and
regulations adopted pursuant thereto, and all other Applicable Laws and
Regulations.
"Appraisal Rights" has the meaning set forth in Section 6.4 of the
Lease.
"Appraiser" means CB Commercial Real Estate Group Inc., or such other
independent appraisal firm as Agent may select from time to time.
"Appurtenant Rights" mean (i) all agreements, easements, rights of way
or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land Interest or the Facilities, including the
A-1-3
<PAGE>
use of any streets, ways, alleys, vaults or strips of land adjoining, abutting,
adjacent or contiguous to any Land Interest and (ii) all permits, licenses and
rights, whether or not of record, appurtenant to the Land Interest.
"Architect" means a registered architect or certified professional
engineer for Construction Agent.
"Assignment Purchase Agreement" means the Assignment of Purchase
Agreement dated as of the date hereof, made by Sublessee to Lessor.
"Assumed Interest Rate" means, as of the date of any Loan or Investor
Contribution by a Participant, the LIBO Rate that would have been applicable for
purposes of calculating interest and Yield in the event that the Advance Date to
which such Advance relates had occurred on such date.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended.
"Base Rate" means, on any date, a fluctuating rate of interest per
annum equal to the higher of (x) the Federal Funds Rate most recently determined
by Agent, and (y) the interest rate per annum announced from time to time by
Credit Lyonnais New York Branch as its prime or base rate (which may be greater
or less than other interest rates charged by Credit Lyonnais New York Branch to
other borrowers and is not solely based or dependent upon the interest rate
which Credit Lyonnais New York Branch may charge any particular borrower or
class of borrower; if the aforesaid rate changes from time to time after the
Document Closing Date, it shall be automatically increased or decreased, as the
case may be, without notice to any Lessee Party, Lessor, or any Participant, or
any further action as of the effective time of each change), in either case.
"Basic Rent" means an amount payable on each Payment Date during the
Basic Term, any Extension Term, if applicable, and the Holdover Period, if
applicable, equal to the sum of (i) the aggregate amount of interest payable on
such Payment Date on the Notes, plus (ii) the aggregate amount of the Yield
payable on such Payment Date on the Investor Contribution (calculated in
accordance with the definition of "Yield" and in a manner consistent with the
calculation of the amounts under clause (i) on such Payment Date); provided,
--------
however, that upon the occurrence and during the continuance of a Loan Event of
- -------
Default under Sections 7.1(ii), (iii) and (iv) of the Loan Agreement while no
Lease Event of Default shall have occurred and be continuing, Basic Rent shall
be determined on the basis of calculations made as if the Loan Event of Default
shall not have occurred and the Loans shall not have been accelerated, whether
or not in fact the Loans shall have been accelerated or any other remedies shall
have been taken under the Loan Agreement or with respect to the Collateral.
"Basic Term" means (a) the period commencing upon the Site Acquisition
Date and ending on the day which is the fifth anniversary thereafter (and in no
event after May 15, 2003) or (b) such shorter period as may result from earlier
termination of the Lease as provided therein.
A-1-4
<PAGE>
"Basic Term Expiration Date" has the meaning set forth in Section 2.3
of the Lease.
"Board of Directors" means, with respect to a corporation, either the
board of directors or any duly authorized committee of that board of directors
which, pursuant to the by-laws of such corporation, has the same authority as
that board of directors as to the matter at issue.
"Borrower" means Lessor, as the borrower under the Loan Agreement.
"Business Day" shall mean (i) any day other than a Saturday, Sunday or
other day on which commercial banks in New York, New York or in Los Angeles,
California are authorized or required by law to close and (ii) with respect to
LIBO Advances, any day on which commercial banks are open for domestic and
international business (including, without limitation, dealings in Dollar
deposits) in London, England and in New York, New York.
"Casualty" means an event of damage or casualty relating to any
Facility which does not constitute an Event of Loss.
"Claims" mean liabilities, obligations, damages, losses, demands,
penalties, fines, claims, actions, suits, judgments, settlements, utility
charges, costs, fees, expenses and disbursements (including legal fees and
expenses and costs of investigation which, in the case of counsel or
investigators retained by an Indemnitee, shall be reasonable) of any kind and
nature whatsoever, that may at any time be imposed on, asserted against or
incurred by an Indemnitee as a result of, or arising out of, or in any way
related to or by reason of any of the Operative Documents, and, without in any
way limiting the generality of the foregoing, including any violation of any
Environmental Laws or any other law by any Borrower or Subsidiary of Borrower or
any Affiliate of any of them.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case as
in effect from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.
"Collateral" means the property from time to time subject to or
purported to be subject to the Liens of the Collateral Documents.
"Collateral Assignment of Construction Agency Agreement" means the
Collateral Assignment of Construction Agency Agreement, dated as of the date
hereof, from Lessor to Agent substantially in the form of Exhibit H to the
Participation Agreement, as the same may be amended, modified, restated or
supplemented from time to time in accordance with the terms of the Participation
Agreement, together with the Consent and Agreement of Construction Agent
attached thereto.
"Collateral Assignment of Construction Documents" means the Collateral
Assignment of Construction Documents, dated as of the date hereof, between
Lessor, Lessee and Construction Agent, substantially in the form of Exhibit A to
the Construction Agency
A-1-5
<PAGE>
Agreement, as the same may be amended, modified, restated or supplemented from
time to time in accordance with the terms of the Participation Agreement.
"Collateral Assignment of Purchase Agreement" means the Collateral
Assignment of Purchase Agreement from Lessor to Agent, in the form of Exhibit I
to the Participation Agreement, as the same may be amended, modified, restated
or supplemented from time to time in accordance with the terms of the
Participation Agreement.
"Collateral Documents" means the Mortgage, the Collateral Assignment
of Construction Documents, the Collateral Assignment of Construction Agency
Agreement, the Collateral Assignment of Purchase Agreement and such other
agreements, instruments or documents entered into in connection with the Loan
Documents in which a Lessee Party grants a lien or security interest to Agent or
any Lender.
"Commitment" means as to any Participant, its obligation to make
Investor Contributions or Loans, as the case may be, in an aggregate amount not
to exceed such Participant's Commitment Amount.
"Commitment Amount" means, as to any Participation at any particular
time, the maximum dollar commitment amount for such Participant, as shown on
Schedule II to the Participation Agreement.
"Commitment Fee" has the meaning specified in Section 2.6 of the
Participation Agreement.
"Commitment Percentage" means as to any Participant, at a particular
time, the percentage of the aggregate Commitments in effect at such time
represented by such Participant's Commitment, as such percentage is shown on
Schedule II to the Participation Agreement.
"Commitment Period" has the meaning set forth in Section 2.6 of the
Participation Agreement.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with Lessee within the meaning of
Section 4001 of ERISA or is part of a group which includes Lessee and which is
treated as a single employer under Section 414 of the Code.
"Completion" means, with respect to the New Facility, the fulfillment
of all of the conditions set forth in Section 3.4 of the Participation
Agreement.
"Completion Date" means, the date on which Completion for the New
Facility has occurred.
"Condemnation" means any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, occupancy or title to the Site or
any part thereof in, by or on account of any actual or threatened eminent domain
proceeding or other action by any Governmental Authority or other Person under
the power of eminent domain or otherwise or any
A-1-6
<PAGE>
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, occupancy or title is taken.
"Consolidated Cash Flow" shall mean, as to any Person, at any date and
for any period, the sum of net income (excluding, with respect to Lessor, pre-
tax special charges recorded in the fourth quarter of fiscal year 1997 in an
amount not to exceed $8.9 million, and non-cash unusual items and minority
interest in earnings), plus interest expense, income taxes, depreciation,
amortization and lease expense (to the extent deducted in determining net
income) for such period.
"Consolidated Cash Flow Ratio" means, for any Person, as at any date
and for any period, the ratio of (a) Consolidated Indebtedness for such Person
as at such date and for such period, and (b) Consolidated Cash Flow for such
Person as at such date and for such period.
"Consolidated Indebtedness" shall mean, as to any Person, for any
period and without duplication, the sum of (i) all obligations of such Person
for borrowed money, excluding obligations under synthetic leases to the extent
that operating lease expenses for such synthetic leases are included in the
calculation of (iv) thereafter, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (iii) all obligations of such
Person as lessee under capital leases, and (iv) the product of (1) eight and (2)
operating lease expense of such Person (determined in accordance with generally
accepted accounting principles) for the period in question.
"Consolidated Subsidiary" means, as to any Person at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in such Person's consolidated financial statements as of
such date.
"Consolidated Tangible Net Worth" shall mean, as to any Person at any
date, the following (determined on a consolidated basis, without duplication,
and in accordance with generally accepted accounting principles):
(a) the gross book value of assets (excluding goodwill, patents,
trademarks, tradenames, organization expense, treasury stock, unamortized debt
discount and expense, deferred charges and other like intangibles), minus
-----
(b) the sum of (i) reserves applicable to the assets referred to in
the foregoing clause (a), and (ii) all liabilities (including accrued and
deferred income taxes and subordinated Indebtedness).
"Construction Agency Agreement" means the Construction Agency
Agreement, dated as of the date hereof, between Lessor and Construction Agent,
as may be amended, modified, restated or supplemented from time to time in
accordance with the terms of the Participation Agreement.
"Construction Agency Event of Default" means a "Construction Agency
Event of Default" as defined in Section 5.1 of the Construction Agency
Agreement.
A-1-7
<PAGE>
"Construction Agent" means Sublessee, as construction agent under the
Construction Agency Agreement.
"Construction Commencement Date" has the meaning set forth in Section
2.3 of the Construction Agency Agreement.
"Construction Documents" has the meaning set forth in Section 2.5 of
the Construction Agency Agreement.
"Construction Period" means the period for construction of the New
Facility thereon pursuant to the Plans and Specifications and the terms of the
Operative Documents, commencing on the Construction Commencement Date and
concluding on the earlier of (i) the Completion Date, (ii) twelve (12) months
after the Site Acquisition Date, and (iii) the date the Construction Period is
otherwise terminated pursuant to Section 5.1 of the Construction Agency
Agreement.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person directly or indirectly guarantees, becomes surety for,
endorses, assumes, agrees to indemnify another Person (the "Deemed Obligor")
against, or otherwise remains liable (contingently or otherwise) for the
Indebtedness, obligation or liability (the "Assured Obligation") of the Deemed
Obligor. Contingent Liability shall be deemed to exist if a Person agrees,
becomes or remains liable (contingently or otherwise), directly or indirectly
(a) to purchase or assume, or to supply funds for the payment, purchase or
satisfaction of, an Assured Obligation, (b) to make any loan, advance, capital
contribution or other investment in, or to purchase or lease any property or
services from, a Deemed Obligor (i) to maintain the solvency of the Deemed
Obligor, (ii) to enable the Deemed Obligor to meet any other financial
condition, (iii) to enable the Deemed Obligor to satisfy any payment of
dividends or other distributions upon the shares of any other Person, or (iv) to
assure the holder of such Assured Obligation against loss, (c) to purchase or
lease property or services from the Deemed Obligor regardless of the non-
delivery of or failure to furnish of such property or services, or (d) in
respect of any other transaction the effect of which is to assure the payment or
performance (or payment of damages or other remedy in the event of nonpayment or
nonperformance) of any Assured Obligation.
"Controlled Group Member" means each trade or business (whether or not
incorporated) which, at any time, together with Lessee, Seller or any Subsidiary
of any thereof is treated as a single employer under Sections 4001(a)(14) or
4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the Code.
"Deed" means the Deed from the Seller to Lessor, conveying the Land
Interest and the Facilities and other improvements, if any, located on the Site,
in a form acceptable to Lessor and Agent.
"Designated Owner" has the meaning set forth in Section 12.1 of the
Lease.
"Document Closing Date" has the meaning set forth in Section 2.1 of
the Participation Agreement.
A-1-8
<PAGE>
"Dollar" and the symbol "$" shall mean lawful money of the United
States of America.
"Environmental Audit" means a Phase I environmental site assessment
(the scope and performance of which meets or exceeds ASTM Standard Practice
E1527-93 Standard Practice for Environmental Site Assessments: Phase I
Environmental Site Assessment Process) prepared by the Environmental Engineer of
the Site and such other assessments, investigations, studies or reports
(including, without limitation, a Phase II environmental site assessment)
requested by Lessor, Agent or any Participant, and shall include the Giles
Environmental Report.
"Environmental Compliance Report" has the meaning set forth in Section
3.1(j) of the Participation Agreement.
"Environmental Concern Materials" means (a) any flammable substance,
explosive, radioactive material, hazardous material, hazardous waste, toxic
substance, solid waste, pollutant, contaminant or any related material, raw
material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Law (including but not
limited to any "hazardous substance" as defined in CERCLA or any similar state
law), (b) any toxic chemical or other substance form or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline, diesel fuel,
motor oil, waste and used oil, heating oil and other petroleum products or
compounds, polychlorinated biphenyls, radon and urea formaldehyde.
"Environmental Engineer" means an environmental consulting firm, which
Construction Agent may from time to time select, subject to the approval of
Agent and Lessor.
"Environmental Indemnity" means an Environmental Indemnity Agreement
dated as of the date hereof by either (i) Lessee in favor of Lessor, or (ii)
Lessor in favor of Agent and Lenders, as the same may be amended, modified,
restated or supplemented from time to time in accordance with the terms of the
Participation Agreement.
"Environmental Laws" means any law, whether now existing or
subsequently enacted or amended, relating to (a) pollution or protection of the
environment, including natural resources, (b) exposure of Persons, including but
not limited to employees, to Environmental Concern Materials, (c) protection of
the public health or welfare from the effects of products, by-products, wastes,
emissions, discharges or releases of Environmental Concern Materials or (c)
regulation of the manufacture, use or introduction into commerce of
Environmental Concern Materials including their manufacture, formulation,
packaging, labeling, distribution, transportation, handling, storage or
disposal. Environmental Laws shall include, without limitation, 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
A-1-9
<PAGE>
similar federal, state and local environmental laws, ordinances, rules,
orders, statutes, decrees, judgments, injunctions, codes and regulations.
"Environmental Permits" means all permits, licenses, authorizations,
registrations, certificates and approvals of Governmental Authorities required
by Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"Euro-Dollar Reserve Percentage" means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor thereto), for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding Five Billion Dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference which the interest rate on
LIBOR Loans or Eurorate Loans is determined, or any category of extensions of
credit or other assets which includes loans by a non-United States office of any
Bank to United States residents).
"Event of Loss" means (x) the actual or constructive total loss of a
Facility or damage to a Facility to an extent rendering repair impractical or
uneconomical, in any case as determined by Agent, unless a Lease Default or
Lease Event of Default does not exist, in which case, as reasonably determined,
good faith, the Board of Directors of Lessee, such determination to be made
promptly after the occurrence of such event and to be evidenced by an Officer's
Certificate of Lessee delivered to Lessor and Agent, (y) damage to a Facility
which results in an insurance settlement on the basis of a total loss or a
constructive total loss (including title insurance proceeds) in respect of a
total loss of such Facility, or (z) an Event of Taking.
"Event of Taking" means (a) taking of title to the Site or the Land
Interest or (b) any condemnation (other than a requisition of temporary use) or
requisition of use for a period scheduled to last beyond the end of the Lease
Term, in either case resulting in (i) the loss of use or possession of
substantially all of the Site or (ii) the loss of use or possession of a
material portion of the Site, in either of clause (i) or clause (ii) as
determined by Agent, unless a Lease Default or Lease Event of Default does not
exist, as reasonably determined, in good faith, by the Board of Directors of
Lessee, such determination to be made promptly after the occurrence of such
event and to be evidenced by an Officer's Certificate delivered to Lessor and
Agent.
"Excluded Amounts" mean:
(a) all indemnity payments and expenses to which Lessor (or the
respective successors, assigns, agents, officers, directors or employees of
Lessor) is entitled pursuant to the Operative Documents;
(b) any amounts payable under any Operative Documents to reimburse
Lessor (or the respective successor, assigns, agents, officers, directors or
employees of Lessor) (including
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<PAGE>
the expenses of Lessor incurred in connection with any such payment) for
performing any of the obligations of Lessee under and as permitted by any
Operative Document;
(c) any insurance proceeds (or payments with respect to risks self-
insured or policy deductibles) under liability policies payable to Lessor (or
the respective successors, assigns, agents, officers, directors or employees of
Lessor);
(d) any insurance proceeds under policies maintained by Lessor and not
required to be maintained by Lessee under the Lease;
(e) any amount payable to Lessor pursuant to Section 9.9 of the
Participation Agreement;
(f) prior to completion of any foreclosure of the Mortgage or deed in
lieu thereof, any expense reimbursements to Lessor, Agent, any Participant or
Trustee; and
(g) any payments of interest on payments referred to in clauses (a)
through (f) above.
"Extension Request" has the meaning set forth in Section 2.10(a) of
the Participation Agreement.
"Extension Term" has the meaning set forth in Section 2.4 of the
Lease.
"Extension Term Commencement Date" has the meaning set forth in
Section 2.4 of the Lease.
"Facilities" mean all buildings, structures and fixtures located on
the Land Interest, but excluding the Land Interest.
"Fair Market Sales Value" means, as of the date of the determination,
the fair market sales value as determined by the an appraiser that would be
obtained in an arm's-length transaction between an informed and willing buyer
(other than a buyer currently in possession) and an informed and willing seller,
under no compulsion to buy or sell, and neither of which is related to any
Lessee Party, for the purchase of the Site. Such fair market sales value shall
be calculated as the value for the use of the Site, assuming, in the
determination of such fair market sales value, that the Site 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 9.2(b) of the
Lease, in which case this assumption shall not be made).
"Federal Funds Rate" means, for any day or period, as applicable, the
rate per annum (rounded upwards, if necessary to the nearest 1/100th of 1%) at
which Federal funds are offered to Credit Lyonnais in the interbank market to
Credit Lyonnais with respect to the Lease Balance, for such period as of 11:00
a.m., New York City time, on such day for such day or such period, as
applicable, plus .50%.
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<PAGE>
"Fee Letter" means that certain fee letter delivered on or before the
Document Closing Date pursuant to Appendix 2 of the Participation Agreement.
"Final Maturity Date" means the earlier of May 15, 2003 and the fifth
anniversary from the Document Closing Date, subject to any extensions pursuant
to Section 2.10 of the Participation Agreement.
"Final Rent Payment Date" has the meaning set forth in Section
18.1(iii)(B)(1) of the Lease.
"Fixtures" has the meaning set forth in the definition of "Site"
herein.
"Force Majeure" means acts of God, fire, windstorm, flood, explosion,
collapse of structures, riot, war, labor disputes, delays or restrictions by
governmental bodies (other than delays or restrictions resulting from any
Lessees Party's actions or failures to take reasonably foreseeable actions),
inability to obtain or use necessary materials or reasonable substitutes, or any
other cause beyond the reasonable control of Lessee, other than lack of funds;
provided, that in no event shall an event of Force Majeure be deemed to exist
- --------
for more than ninety (90) days.
"GAAP" means generally accepted accounting principles in the United
States, applied on a basis consistent with the principles used in preparing the
financial statements of Lessee and its Consolidated Subsidiaries as of March 29,
1998 and for the fiscal year ended most recently prior thereto.
"Giles Environmental Report" means an Environmental Audit prepared for
the Site by Giles Engineering Associates, Inc., as supplemented by a
recommendation letter dated as of May 18, 1998, together with a letter from
Giles Engineering Associates, Inc. stating that Lessor, Agent, and the
Participants may rely on the Giles Environmental Report in all respects, as if
the report and the letter were originally addressed to them.
"Governmental Action" means all applicable 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 Authority, or required by any
Applicable Laws and Regulations, and shall include, without limitation, all
citings, Environmental Permits and operating permits and licenses that are
required for the use, occupancy, zoning and operation of the Facilities.
"Governmental Authority" means any federal, state, county, municipal
or other local governmental authority or judicial or regulatory agency, board,
body or commission, instrumentality, court or quasi-governmental authority.
"Guarantors" means each of Lessee and Sublessee, in their capacities
as a Guarantor under the Guarantee, and any other guarantors that become party
thereto pursuant to the terms of the Operative Documents.
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<PAGE>
"Guaranty" means the Guaranty dated as of the date hereof entered into
by each Guarantor for the benefit of Agent and Lenders, as the same may be
amended, modified, restated or supplemented from time to time in accordance with
the terms of the Participation Agreement.
"Hazardous Material" means any substance, waste or material which is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic or otherwise hazardous by listing characteristic or definition under
any Environmental Law, including petroleum, crude oil or any fraction thereof,
petroleum derivatives, by-products and other hydrocarbons and is or becomes
regulated by any Authority, including any agency, department, commission, board
or instrumentality of the United States, the States in which any Site is located
or any political subdivision thereof and also including asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs") and radon gas.
"Holdover Period" means any period after the Lease Termination Date
until the earliest of (i) the sale of the Site pursuant to Section 6.8 of the
Lease, (ii) the reduction of the Lease Balance to zero and the payment by Lessee
of all Basic Rent, Supplemental Rent and all other amounts then due and payable
under the Operative Documents, and (iii) written notice by Agent terminating the
Holdover Period pursuant to Section 6.8 of the Lease.
"Highest Lawful Rate" has the meaning set forth in Section 2.11 of the
Participation Agreement.
"Improvements" has the meaning set forth in the definition of "Site"
herein.
"Indebtedness" of any Person at any date shall mean, without
duplication, (1) all obligations of such Person for borrowed money, (2) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (3) all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable arising in the
ordinary course of business, (4) all obligations of such Person as lessee under
capital or finance leases, (5) all obligations of such Person under take-or-pay
or similar contracts; (6) all obligations of such Person to reimburse or to
indemnify the issuer of a letter of credit or guarantee for drawings or payments
thereunder, (7) all Debt of other Persons secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person, and (8) all Debt of
others Guaranteed by such Person.
"Indemnitee" means Lessor, each Participant, Agent (in its individual
capacity and as Agent, Trust Company and Trustee and the respective affiliates,
successors, permitted assigns, permitted transferees, invitees, contractors,
servants, employees, officers, directors, shareholders, partners, participants,
representatives, attorneys and agents of each of the foregoing Persons;
provided, however, that in no event shall any Lessee Party be an Indemnitee.
- -------- -------
"Insolvency Event" means (a) a proceeding shall have been instituted
with respect to any Person (i) seeking to have an order for relief entered in
respect of such Person, or seeking a declaration or entailing a finding that
such Person is insolvent or a similar declaration or finding, or seeking
dissolution, winding-up, charter revocation or forfeiture, liquidation,
reorganization, arrangement, adjustment, composition or other similar relief
with respect to such Person, its
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<PAGE>
assets or its debts under any law, relating to bankruptcy, insolvency, relief of
debtors or protection of creditors, termination of legal entities or any other
similar law now or hereafter in effect, or (ii) seeking appointment of a
receiver, trustee, liquidator, assignee, sequestrator or other custodian for
such Person or for all or any substantial part of its property and such
proceeding shall result in the entry, making or grant of any such order for
relief declaration, finding, relief or appointment, or such proceeding shall
remain undismissed and unstayed for a period of thirty (30) consecutive days; or
(b) Any Person shall become insolvent; shall fail to pay, become
unable to pay, or state that it is or will be unable to pay, its debts as they
become due; shall voluntarily suspend transaction of its business; shall make a
general assignment for the benefit of creditors; shall institute (or fail to
controvert in a timely and appropriate manner) a proceeding described in (a)(i)
of this Definition, or (whether or not any such proceeding has been instituted)
shall consent to or acquiesce in any such order for relief, declaration, finding
or relief described therein; shall institute (or fail to controvert in a timely
and appropriate manner) a proceeding described in clause (a)(ii) above, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such appointment or to the taking of possession by any such
custodian of all or any substantial part of its property; shall dissolve, wind-
up, revoke or forfeit its charter (or other constituent documents) or liquidate
itself or any substantial part of its property; or shall take any in furtherance
of any of the foregoing.
"Inspecting Parties" have the meaning specified in Section 15.1 of the
Lease.
"Insurance Requirements" means all terms and conditions of any
insurance policy required by the Lease or the Construction Agent to be
maintained by Lessee or Construction Agent and all requirements of the issuer of
any such policies.
"Interest Period" means with respect to any Advance the successive
periods commencing on (and including) a Payment Date and ending on (but
excluding) the next succeeding Payment Date; provided, however, no Interest
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Period during the Lease Term may extend beyond the last Payment Date of the
Lease Term; and provided further, that for the initial Advance on the Document
-------- --------
Closing Date, which occurs on a date other than a Payment Date, the first
Interest Period for such portion of the Lease Balance shall be the period
commencing on (and including) the date of such Advance and ending on (but
excluding) the next succeeding Payment Date; and provided finally, that for any
-------- -------
Advance, other than the initial Advance on the Document Closing Date, which
occurs on a date other than a Payment Date, the first Interest Period for such
portion of the Lease Balance shall be the period commencing on (and including)
the date of such Advance and ending on (but excluding) the next succeeding
Payment Date and interest on the Notes and Yield for such Advance for such
initial period shall be determined by reference to the Base Rate.
"Investor" means Credit Lyonnais Leasing Corp., as Investor under the
Operating Documents, and any successor or assign thereto.
"Investor Contribution" has the meaning set forth in Section 2.4 of
the Participation Agreement.
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<PAGE>
"Land" has the meaning set forth in the definition of "Site" herein.
"Land Interest" means that certain real property to be acquired as
contemplated by the Operative Documents.
"Lease" means the Lease and Agreement dated as of the date hereof,
between Lessor and Lessee, in the form of Exhibit A to the Participation
Agreement, as may be amended, modified, restated or supplemented from time to
time in accordance with the terms of the Participation Agreement.
"Lease Balance" means, as of any date of determination, the sum of the
aggregate outstanding principal amount of the Notes plus the Investor
Contribution, less any amounts applied pursuant to the Operative Documents in
reduction thereof.
"Lease Default" means any event, condition or failure which, with
notice or lapse of time or both, would become a Lease Event of Default.
"Lease Event of Default" means any event condition or failure
designated as a "Lease Event of Default" in Article XVII of the Lease.
"Lease Term" has the meaning set forth in Section 2.3 of the Lease.
"Lease Termination Date" means (i) the expiration of the Lease Term,
or (ii) if earlier, the termination of Lessee's right to possession pursuant to
Section 18.1 of the Lease.
"Leasehold Estate" means Lessee's interest in the Site (including the
Facilities located thereon) subject to the Lease.
"Lenders" mean the holders of the Notes.
"Lessee" means Smart & Final Inc., a Delaware corporation.
"Lessee Party" means Lessee, Sublessee and any Affiliate thereof
(other than Investor, Lessor, or any Lender), that becomes or pursuant to the
terms hereof, party to any of the Operative Documents.
"Lessor" means Smart & Final Realty Trust 1998, a Delaware business
trust, and its successors and permitted assigns.
"Lessor Liens" means Liens on or against the Site or the Lease, or any
payment of Rent (a) which result from any act of, or any Claim against, Lessor,
Agent or any Participant, in either case, unrelated to the transactions
contemplated by the Operative Documents or (b) which result from any tax owed by
Lessor, Agent or any Participant, except any Tax for which a Lessee Party is
obligated to indemnify.
"LIBO Period" means for any Interest Period, either one (1), two (2)
or three (3) months, as specified by Lessee by irrevocable written notice to
Agent received by Agent not later
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<PAGE>
than three (3) Business Days prior to the commencement of such Interest Period,
and in the absence of such specification by Lessee, three (3) months; provided,
--------
that no LIBO Period during the Lease Term may extend beyond the last Payment
Date of the Lease Term.
"LIBOR" means with respect to any Interest Period, (i) the London
Interbank Offered rate for Dollar deposits for a period comparable to such
Interest Period, which rate appears on Telerate screen, page 3750, as of 11:00
a.m., London, England time, on the date that is two Business Days prior to the
first day of such Interest Period, or (ii) if such rate shall not be so
published on such day, then the arithmetic mean (rounded upward, if necessary,
to the nearest one thirty-second of one percent) of the London Interbank Offered
rates for Dollar deposits for a period comparable to such Interest Period
appearing on the Reuters screen LIBOR page on such day, or (iii) if neither
method set forth in the preceding clauses (i) and (ii) is available, such other
method for determination as the parties shall agree, or (iv) if such agreement
is not promptly reached, then a rate determined for such Interest Period
reasonably determined by Agent as the rate then being paid by first-class
banking organizations in the London, England interbank market for deposits in
Dollars of an amount equal to the amount of the Loan in question, with a
maturity identical to the relevant Interest Period.
"LIBO Rate" shall mean, for any Interest Period, a rate per annum
--- -----
equal to the quotient obtained (rounded upward, if necessary, to the next higher
1/100th of one percent) by dividing (1) the applicable LIBOR by (2) 1.00 minus
-----
the Euro-Dollar Reserve Percentage.
"LIBO Rate Loans" mean Loans made pursuant to the terms of this
Agreement which bears interest at a rate determined by reference to a LIBO Rate.
"LIBO Rate Advances" means Advances bearing interest or Yield, as
applicable, by reference to a LIBO Rate.
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any conditional sale or title retention
arrangement, and any assignment, deposit arrangement or lease intended as, or
having the effect of, security.
"Loans" has the meaning set forth in Section 2.1 of the Loan
Agreement.
"Loan Agreement" means the Loan Agreement dated as of the date hereof,
among Lessor, Agent and Lenders, in the form of Exhibit C to the Participation
Agreement, as the same may be amended, modified, restated or supplemented from
time to time in accordance with the terms of the Participation Agreement.
"Loan Default" means any event, condition or failure which, with
notice, passage of time or a determination by the Required Lenders, as
applicable, or any combination of the foregoing, would become a Loan Event of
Default.
"Loan Documents" mean the Loan Agreement, the Notes, the Mortgage,
Purchase Agreement, Assignment of Construction Documents, Assignment of
Construction Agency
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<PAGE>
Agreement, and all other documents, filings and instruments executed and
delivered in connection with each of the foregoing.
"Loan Event of Default" means any event, condition or failure
designated as a "Loan Event of Default" in Section 7.1 of the Loan Agreement.
"Loan/Equity Participant" has the meaning specified in Section 6.4(a)
of the Participation Agreement.
"Loss Bid" has the meaning set forth in Section 6.4(b) of the Lease.
"Loss Bid Notice" has the meaning set forth in Section 6.4(b) of the
Lease.
"Material Adverse Effect" means (a) a material adverse effect on the
business, operations, condition (financial or otherwise) or prospects of any
Lessee Party or Lessee and its Subsidiaries taken as a whole or (b) an adverse
effect on the legality, validity, binding effect, enforceability or
admissibility into evidence of any Operative Document, or the ability of Agent,
Lessor or any Participant to enforce any rights or remedies under or in
connection with the Operative Documents.
"Maximum Construction Period" means the period commencing on the
Document Closing Date and ending on the earliest of (i) the one (1) year
anniversary thereafter, (ii) the Completion Date, and (iii) an early termination
of the Construction Period pursuant to Section 5.1 of the Construction Agency
Agreement.
"Mortgage" means a Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing Statement from Lessor in favor of Agent,
substantially in the form of Exhibit J to the Participation Agreement, as the
same may be amended, modified, restated or supplemented from time to time in
accordance with the terms of the Participation Agreement.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA to which contributions have been made by the Consolidated Entities or any
ERISA Affiliate and which is covered by Title IV of ERISA.
"Net Condemnation Proceeds" mean all payments received from any
Governmental Authority relating to an Event of Taking after deducting the costs
incurred by Lessee, Lessor, Agent or any Participant in respect of the receipt
thereof.
"New Facility" means an approximately 455,000 square foot state-of-
the-art distribution warehouse to be built at the Site pursuant to the Plans and
Specifications and otherwise pursuant to the Operative Documents.
"Nonseverable" shall describe an Alteration or part of an Alteration
which cannot be readily removed from the Site without causing material damage to
or materially impairing the value or utility of the Site.
A-1-17
<PAGE>
"Notes" mean the notes issued by Borrower under the Loan Agreement and
denominated as such, substantially in the form of Exhibit A to the Loan
Agreement, and any and all Notes issued in replacement or exchange therefor in
accordance with the provisions thereof.
"Officer's Certificate" of a Person means a certificate signed by the
President, the Chief Financial Officer, any Executive Vice President, the
Comptroller or the Controller of such Person.
"Operative Documents" means the following documents:
(1) Participation Agreement,
(2) Lease,
(3) Construction Agency Agreement,
(4) Loan Agreement,
(5) Notes,
(6) Guaranty,
(7) Lessee Environmental Indemnity,
(8) Lessor Environmental Indemnity,
(9) Advance Requests,
(10) Trust Agreement,
(11) Trust Certificates,
(12) Sublease,
(13) Purchase Agreement Assignment,
(14) Assignment of Construction Documents,
(15) Deed of Trust,
(16) Memorandum of Lease,
(17) UCC Financing Statements naming each of Lessor and Lessee as
debtors,
(18) Collateral Assignment of Construction Agency Agreement and
related documents,
(19) Collateral Assignment of Purchase Agreement and related
documents,
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<PAGE>
(20) Collateral Assignment of Construction Documents and related
documents,
(21) Fee Letter to be delivered pursuant to Appendix 1 of the
Participation Agreement, and
all other agreements, instruments or other documents entered into by any of the
parties hereto in connection with the Overall Transaction and otherwise in
accordance with the terms of the Operative Documents, and copies of which have
been provided to Lessee, Lessor and Agent.
"Original Trust Agreement" means that Trust Agreement dated as of May
13, 1998, between Investor and Trustee, which has been superceded by the Trust
Agreement, which amended and restated the Original Trust Agreement.
"Overall Transaction" means all the transactions and activities
referred to in or contemplated by the Operative Documents.
"Overdue Rate" means the lesser of (a) the highest interest rate
permitted by applicable Laws and Regulations and (b) an interest rate per annum
equal to two percent (2.00%) above the then-current Base Rate.
"Participants" mean Lenders and Investor, collectively.
"Participation Agreement" means the Participation Agreement dated as
of the date hereof, among Lessee, Sublessee, Lessor, Participants, Trustee and
Agent, as the same may be amended, modified, restated or supplemented from time
to time in accordance with the terms of the Participation Agreement.
"Payment Dates" mean the last Business Day of any January, April, July
and October in each year, commencing July 31, 1998, and shall include, in any
event, the expiration date of the Lease and the Lease Termination Date;
provided, however, that in the event that any Payment Date shall occur on a date
- -------- -------
which is not a Business Day, such Payment Date shall be the next following
Business Day (unless such next following Business Day is the first Business Day
of another calendar month, in which case such Payment Date shall be the
immediately preceding Business Day).
"PBGC" means the Pension Benefit Guaranty Corporation established
under Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.
"Pension-Related Event" shall mean any of the following events or
conditions:
(a) Any action is taken by any Person (i) to terminate, or would
result in the termination of, a Plan, either pursuant to its terms or by
operation of law (including, without limitation, any amendment of a Plan which
would result in a termination under Section 4041(e) of ERISA), or (ii) to have a
trustee appointed for a Plan pursuant to Section 4042 of ERISA;
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<PAGE>
(b) PBGC notifies any Person of its determination that an event
described in Section 4042 of ERISA has occurred with respect to a Plan, that a
Plan should be terminated, or that a trustee should be appointed for a Plan;
(c) Any Reportable Event occurs with respect to a Plan;
(d) Any action occurs or is taken which could result in Lessee, or any
Subsidiary thereof or any Controlled Group Member becoming subject to liability
for a complete or partial withdrawal by any Person from a Multiemployer Plan
(including, without limitation, seller liability incurred under Section
4204(a)(2) of ERISA), or Lessee or any Subsidiary thereof or any other
Controlled Group Member receives from any Person a notice or demand for payment
on account of any such alleged or asserted liability; or
(e) (i) There occurs any failure to meet the minimum funding standard
under Section 302 of ERISA or Section 412 of the Code with respect to a Plan, or
any tax return is filed showing any tax payable under Section 4971(a) of the
Code with respect to any such failure, or Lessee or any Subsidiary thereof or
any other Controlled Group Member receives a notice of deficiency from the
Internal Revenue Service with respect to any alleged or asserted such failure,
or (ii) any request is made by any Person for a variance from the minimum
funding standard, or an extension of the period for amortizing unfunded
liabilities, with respect to a Plan.
"Permits" has the meaning set forth in Section 4.1(l) of the
Participation Agreement.
"Permitted Contest" means actions taken by a Person to contest in good
faith, by appropriate proceedings initiated timely and diligently prosecuted,
the legality, validity or applicability to the Site or any interest therein of
any Person of: (a) any law, regulation, rule, judgment, order, or other legal
provision or judicial or administrative requirements; (b) any term or condition
of, or any revocation or amendment of, or other proceeding relating to, any
authorization or other consent, approval or other action by any Governmental
Authority; or (c) any Lien or Tax; provided that the initiation and prosecution
--------
of such contest would not: (i) result in, or materially increase the risk of,
the imposition of any criminal liability on any Indemnitee; (ii) materially and
adversely affect the security interests created by the Operative Documents or
the right, title or interest of Agent, Lessor or any Participant in or to the
Site or the right of Lessor, Agent or any Participant to receive payment of the
principal of or interest on any Note, Investor Contribution of or Yield on the
Investor Contribution, Rent or the Lease Balance or any interest therein; or
(iii) materially and adversely affect the fair market value, utility or
remaining useful life of the Site or any interest therein or the continued
economic operation thereof; and provided further that in any event adequate
-------- -------
reserves in accordance with GAAP are maintained against any adverse
determination of such contest (with the determination of the adequacy of
reserves taking into account the availability of insurance from reputable
insurers).
"Permitted Exceptions" means the exceptions set forth in the Title
Policies.
"Permitted Investments" means (i) full faith and credit obligations of
the United States of America, or fully guaranteed as to interest and principal
by the full faith and credit of the
A-1-20
<PAGE>
United States of America, maturing in not more than one year from the date such
investment is made; (ii) certificates of deposit having a final maturity of not
more than one year after the date of issuance thereof, issued by either a Lender
or by any commercial bank incorporated under the laws of the United States of
America or any state thereof or the District of Columbia, which bank is a member
of the Federal Reserve System and has a combined capital and surplus of not less
than $500,000,000 and with a senior unsecured debt credit rating of at least "A"
by Moody's Investors Service, Inc. and "A" by Standard & Poor's Ratings Group;
(iii) commercial paper of companies, banks, trust companies or national banking
associations (in each case excluding Lessee and its Affiliates or affiliates)
incorporated or doing business under the laws of the United States or one of the
States thereof, in each case having a remaining term until maturity of not more
than 180 days from the date such investment is made and either issued by a
Lender or rated at least P-1 by Moody's Investors Service, Inc. or at least A-1
by Standard & Poor's Ratings Group; and (iv) repurchase agreements maturing
within one year with either a Lender or with any financial institution having
combined capital and surplus of not less than $500,000,000 with any of the
obligations described in clauses (i) through (iii) as collateral, so long as
title to the underlying obligations pass to Lessor and such underlying
securities shall be segregated in a custodial or trust account for the benefit
of Lessor.
"Permitted Liens" mean Lessor Liens, Permitted Exceptions and such
other Liens permitted pursuant to Section 6.08 of that certain Revolving Credit
Agreement, dated as of November 20, 1995, between Lessee, the lenders party
thereto and Credit Lyonnais Los Angeles Branch, as agent.
"Person" means an individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization or Governmental Authority.
"Plan" means any employee pension benefit plan within the meaning of
Section 3(2) of ERISA (other than a Multiemployer Plan) covered by Title IV of
ERISA by reason of Section 4021 of ERISA, of which Lessee, or any Subsidiary
thereof or any other Controlled Group Member is or has been within the preceding
five years a "contributing sponsor" within the meaning of Section 4001(a)(13) of
ERISA, or which is or has been within the preceding five years maintained for
employees of Lessee, or any Subsidiary thereof or any other Controlled Group
Member.
"Plans and Specifications" means, with respect to the Site, the plans
and specifications for the New Facility, as amended or supplemented from time to
time.
"Postretirement Benefits" means any liability to provide any
postretirement, medical, health or life insurance benefits to any employees or
former employees, other than liabilities required to be incurred pursuant to
Part VI, Title 1 of ERISA or Section 4980B of the Code.
"Proceeds" has the meaning specified in Section 6.4 of the Lease.
A-1-21
<PAGE>
"Prohibited Transaction" means a transaction that is prohibited under
Code Section 4975 or ERISA Section 406 and not exempt under Code Section 4975 or
ERISA Section 408.
"Project Cost" means the aggregate amount paid or advanced by Lessor
on each Advance Date with respect to the Land Interest and the Facility located
or being constructed thereon.
"Property" has the meaning set forth in the definition of "Site"
herein.
"Punchlist Amount" has the meaning specified in Section 3.5(a) of the
Participation Agreement.
"Purchase Agreement" means the Agreement to Sell and Purchase Real
Property and Escrow Instructions dated as of September 12, 1997, by and between
Seller and Sublessee and the First Amendment thereto dated as of April 6, 1998.
"Purchase Option" has the meaning specified in Section 6.2 of the
Lease.
"Purchase Option Exercise Amount" means, as of any date of
determination, the Termination Value.
"Real Estate Taxes" has the meaning set forth in Section 5.2 of the
Lease.
"Regulated Activity" means the use, Release, generation, treatment,
storage, recycling, transportation or disposal of Hazardous Material to the
extent such activities are regulated by any Authority.
"Regulations" mean 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 by means of burial, disposal, discharge,
emission, injection, spillage, leakage, seepage, leaching, dumping, pumping,
pouring, escaping, emptying, placement and the like.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Rent Installment Period" means with respect to the Lease, the period
commencing on (and including) the date of the Lease and ending on (but
excluding) the next succeeding Payment Date, and thereafter, successive periods
commencing on (and including) a Payment Date and ending on (but excluding) the
next succeeding Payment Date.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty (30) day notice
period is waived under applicable PBGC regulation.
A-1-22
<PAGE>
"Required Lenders" means, as of the date of the determination, Lenders
having at least 66 2/3% of the aggregate amount of Lenders' Commitment Amount,
or, if at any time all such Commitments have been terminated, at least 66 2/3%
of the aggregate principal amount of the Loans outstanding at such time.
"Residual Guaranty Amount" means the product obtained by multiplying
the Lease Balance by eighty-six percent (86%).
"Responsible Officer" of a Person means the President, the Chief
Financial Officer, any Executive Vice President and the Comptroller or
Controller of such Person.
"Restricted Payments" means (i) any dividend or other distribution on
any shares of Lessee's capital stock declared or authorized as such by the board
of directors of Lessee (except dividends payable solely in shares of its capital
stock), (ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of Lessee's common stock or (b) any option,
warrant or other right to acquire shares of Lessee's capital stock.
"Sale Option" has the meaning specified in Section 6.3 of the Lease.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933.
"Securities Exchange Act" means the Securities Exchange Act of 1934.
"Seller" means Certified Grocers of California, Ltd., a California
corporation.
"Shortfall Amount" has the meaning set forth in Section 6.4(c) of the
Lease.
"Significant Sublessees" shall mean each of Smart & Final Stores
Corporation and American Foodservice Distributors.
"Site" has the meaning set forth in the Recitals to the Participation
Agreement, and shall include, without limitation, all of the right, title and
interest of Seller of the Site (or following the Site Acquisition Date, all
right, title and interest of Lessor or Lessee) in and to the following:
(a) the real property described in Schedule I attached to the
Participation Agreement (the "Land"); all buildings, structures and other
improvements now or in the future located on the Land (the "Improvements"; the
Improvements and the Land are sometimes collectively referred to herein as the
"Property");
(b) all the estate, right, title, claim or demand whatsoever of such
Person, in possession or expectancy, in and to the Property or any part thereof;
(c) all right, title and interest of such Person in and to all of the
fixtures, furnishings and fittings of every kind and nature whatsoever, and all
appurtenances and additions thereto and substitutions or replacements thereof
(together with, in each case, attachments,
A-1-23
<PAGE>
components, parts and accessories) currently owned or subsequently acquired by
such Person and now or subsequently attached to, or contained in or used or
usable in any way in connection with any operation or letting of the Property
(all of the foregoing in this paragraph (c) being referred to as the
"Fixtures");
(d) all right, title and interest of such Person in and to all of the
fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind and nature
whatsoever, and all appurtenances and additions thereto and substitutions or
replacements thereof (together with, in each case, attachments, components,
parts and accessories) currently owned or subsequently acquired by such Person
and now or subsequently attached to, or contained in or used or usable in any
way in connection with any operation or letting of the Property, including but
without limiting the generality of the foregoing, all screens, awnings, shades,
blinds, curtains, draperies, artwork, carpets, rugs, storm doors and windows,
furniture and furnishings, heating, electrical, and mechanical equipment,
lighting, switchboards, plumbing, ventilating, air conditioning and air-cooling
apparatus, refrigerating, and incinerating equipment, escalators, refrigerators,
elevators, loading and unloading equipment and systems, stoves, ranges, laundry
equipment, cleaning systems (including window cleaning apparatus), telephones,
communication systems (including satellite dishes and antennae), televisions,
computers (excluding software), sprinkler systems and other fire prevention and
extinguishing apparatus and materials, security systems, motors, engines,
machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of
every kind and description (all of the foregoing in this paragraph (d) being
referred to as the "Equipment");
(e) all right, title and interest of such Person in and to all
substitutes and replacements of, and all additions and improvements to, the
Improvements and the Fixtures and Equipment, subsequently acquired by such
Person or constructed, assembled or placed by such Person on the Land,
immediately upon such acquisition, release, construction, assembling or
placement, including, without limitation, any and all building materials whether
stored at the Property or offsite, and, in each such case, without any further
mortgage, conveyance, assignment or other act by such Person;
(f) all right, title and interest of such Person in, to and under all
books and records relating to or used in connection with the operation of the
Property or the Fixtures or any part thereof; and all general intangibles
related to the operation of the Improvements now existing or hereafter arising;
(g) all right, title and interest of such Person in and to all
insurance policies (including title insurance policies) required to be
maintained pursuant to the Lease and the Construction Agency Agreement,
including the right to collect and receive such proceeds; and all awards and
other compensation, including the interest payable thereon and the right to
collect and receive the same, made to the present or any subsequent owner of the
Property for the taking by eminent domain, condemnation or otherwise, of all or
any part of the Property or any easement or other right therein; and
(h) all right, title and interest of such Person in and to (to the
extent assignable) (i) all consents, licenses, building permits, certificates of
occupancy and other
A-1-24
<PAGE>
governmental approvals relating to construction, completion, occupancy, use or
operation of the Property or any part thereof and (ii) all plans and
specifications relating to the Property.
"Site Acquisition Date" has the meaning specified in Section 3.2 of
the Participation Agreement.
"Sublease" means the Sublease, substantially in the form of Exhibit B
to the Participation Agreement, from Lessee in favor of Sublessee, as the same
may be amended, modified, restated or supplemented from time to time in
accordance with the terms of the Participation Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other subsidiaries of that Person or a combination thereof.
"Supplemental Rent" means any and all amounts, liabilities and
obligations, other than Basic Rent, which Lessee assumes or agrees or is
otherwise obligated or designated to pay under the Lease or any other Operative
Document (whether or not designated as Supplemental Rent) to Lessor, Agent, any
Participant, Trustee or any other Person, including amounts under Section 9.1 of
the Lease, Additional Costs and indemnities and damages for breach of any
covenants, representations, warranties or agreements.
"Tangible Net Worth" shall mean, as to any Person at any date, the
following (determined on a consolidated basis, without duplication, and in
accordance with generally accepted accounting principles):
(a) the gross book value of assets (excluding goodwill, patents,
trademarks, tradenames, organization expense, treasury stock, unamortized debt
discount and expense, deferred charges and other like intangibles), minus
-----
(b) the sum of (i) reserves applicable to the assets referred to in
the foregoing clause (a), and (ii) all liabilities (including accrued and
deferred income taxes and subordinated Indebtedness).
"Taxes" and "Tax" mean any and all fees (including documentation,
recording, license and registration fees), taxes (including income (whether net,
gross or adjusted gross), financial institutions, franchise, 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.
"Termination Value" means, as of any determination date, an amount
equal to the sum of (i) the aggregate outstanding principal of the Notes and the
accrued and unpaid interest thereon, (ii) the aggregate outstanding amount of
the Investor Contributions and all accrued amounts due on account of the Yield,
plus (iii) all other fees, expenses and amounts (including,
A-1-25
<PAGE>
without limitation, Supplemental Rent) due and owing by any Lessee Party under
any of the Operative Agreements.
"Title Insurance Company" means Old Republic Title Insurance Company
and its successors and assigns, or such other title insurance company as shall
be acceptable to Lessor and Agent.
"Title Policies" have the meaning specified in Section 3.2(b) of the
Participation Agreement.
"Transaction Costs" shall mean all transaction costs and expenses
incurred by Credit Lyonnais Los Angeles Branch as Agent, any Participant,
Trustee, any Lessee Party and Lessor in connection with the preparation,
negotiation, execution, delivery, performance and administration of the
Operative Documents and Agent's syndication of the Notes, in each case
including, without limitation, (a) the legal fees and expenses of counsel to
Agent of (b) fees and expenses of Lessee, (c) the expenses of Lessor, (d) all
appraisal fees and expenses, including the cost of an appraisal obtained by
Lessor with respect to the Facilities upon a Lease Default or Lease Event of
Default, (e) all costs and expenses of the preparation of the Environmental
Audits, (f) fees payable pursuant to the Fee Letter, and (g) all recording,
filing fees and expenses, including fees and expenses of the Title Insurance
Company.
"Trust" shall mean Lessor.
"Trust Agreement" shall mean the Amended and Restated Trust Agreement
dated as of the date hereof, between Investor and the Trustee, as amended,
supplemented and otherwise modified from time to time in accordance with the
terms thereof and of any other Operative Agreement.
"Trust Company" means Wilmington Trust Company, in its individual
capacity.
"Trustee" shall mean Wilmington Trust Company, not in its individual
capacity, but solely in its capacity as trustee under the Trust Agreement, and
any successor trustee under the Trust Agreement.
"Trust Estate" shall have the meaning set forth in the Trust
Agreement.
"Turnover Date" has the meaning set forth in Section 12.1 of the
Lease.
"UCC" means the Uniform Commercial Code of New York or any other
applicable jurisdiction.
"Yield" has the meaning set forth in the Fee Letter.
A-1-26
<PAGE>
PARTICIPATION AGREEMENT
APPENDIX 2
CONDITIONS PRECEDENT TO DOCUMENT CLOSING DATE
All documents and instruments required to be delivered on the Document
Closing Date shall be delivered at the offices of Latham & Watkins, 855 Third
Ave., New York, New York, or at such other location as may be determined by
Agent and Lessee. Each of the following conditions shall be satisfied, as
determined by Agent, Lessor and each Participant (other than conditions such
entity is required to fulfill) in their respective sole discretion, or waived
thereby in writing.
(a) Authorization, Execution and Delivery of Documents; No Default.
--------------------------------------------------------------
The Operative Documents shall have been duly authorized, executed and delivered
by each of the other parties thereto, shall (to the extent the form and
substance thereof shall not be prescribed hereby) be in form and substance
satisfactory to Lessor and Agent and each Participant and an executed
counterpart of each thereof shall have been delivered to Lessor and Agent. Each
Lender shall have received an original, duly executed Note registered in such
Lender's name. Investor shall have received an original, duly executed Trust
Certificate registered in Investor's name. Each of the Participation Agreement,
the Lease, the Sublease, the Trust Agreement, the Guaranty, the Loan Agreement,
the Notes, the Trust Certificates, the Mortgage and the other Operative
Documents shall be in full force and effect as to all other parties, and no
Lease Default or Lease Event of Default shall have occurred or be continuing.
(b) Litigation. No action or proceeding shall have been instituted or
----------
threatened nor shall any governmental action 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 Agreement or any transaction
contemplated hereby or by any other Operative Document or which is reasonably
likely, in the sole opinion of Agent, Lessor, or any Participant, to have a
Material Adverse Effect.
(c) Legality, etc. The transactions contemplated by the Operative
--------------
Documents shall not violate any Applicable Laws and Regulations and no change
shall have occurred or been proposed in Applicable Laws and Regulations that
would make it uneconomic or illegal for any party to any Operative Document to
participate in any of the transactions contemplated by the Operative Documents
or otherwise would prohibit the consummation of any transaction contemplated by
the Operative Documents or expand the duties, obligations and risks of Lessor,
Agent or any Participant.
(d) Governmental Approvals. All necessary or advisable Governmental
----------------------
Actions, in each case required by any Applicable Laws and Regulations, shall
have been obtained or made and be in full force and effect.
A-2-1
<PAGE>
(e) Requirements of Law. The transactions contemplated by the
-------------------
Operative Documents do not and will not violate in any Applicable Laws and
Regulations and do not and will not subject Lessor, Agent or any Participant to
any adverse regulatory prohibitions or constraints.
(f) Opinions. The following opinions, each dated the Document Closing
--------
Date, substantially in the form set forth in the Exhibit noted below, and
containing such other matters as the parties to whom they are addressed shall
reasonably request, shall have been addressed to each of Lessor, Agent and
Participants, and delivered to Lessor and Agent:
(i) the opinion of Donald G. Alvarado, Esq., general counsel for
Lessee (Exhibit K-1); and
(ii) the opinion of Richards, Layton & Finger, special counsel
for Trustee (Exhibit K-2).
(g) Lessee Parties Corporate Status and Proceedings. On or prior to
-----------------------------------------------
the Document Closing Date, Lessor and Agent shall have received:
(i) certificates of existence and good standing with respect to
each Lessee Party from (a) the Secretary of State of the State of each
such Lessee Party's incorporation, (b) the Secretary of State of the
State of each such Lessee Party's principal place of business, and
(c) the Secretary of State of the State of California, which is the
state in which the Site is located, each dated no earlier than the
tenth (10th) day prior to the Document Closing Date;
(ii) copies of each Lessee Party's certificate of incorporation,
certified by the Secretary of State of the State of its incorporation no
earlier than the tenth (10th) day prior to the Document Closing Date; and
(iii) with respect to each Lessee Party, Officer's Certificates
substantially in the form of Exhibit L, dated the Document Closing
---------
Date, with respect to such Person's governing documents, resolutions and
incumbent officers, representations and warranties, absence of defaults and
all consents, authorizations and filings required to consummate the Overall
Transactions.
(h) Representations and Warranties True; Absence of Defaults and
------------------------------------------------------------
Material Adverse Effect. Each representation and warranty of each Lessee Party
- -----------------------
contained herein or in any other Operative Document shall be true and correct in
all material respects as though made on and as of the Document Closing Date,
except that any such representation or warranty which is expressly made only as
of a specified date need be true only as of such date. No Lease Default or
Lease Event of Default shall have occurred and be continuing. Since January 5,
1998, no Material Adverse Effect shall have occurred.
(i) Trustee Officer's Certificate. Lessor and Agent shall have
-----------------------------
received a certificate of the Secretary or Assistant Secretary of the Trustee
attaching and certifying as to (i) the corporate authority for the execution,
delivery and performance by Trustee of each Operative
A-2-2
<PAGE>
Document to which it is or will be a party and (ii) the incumbency and signature
of persons authorized to execute and deliver such documents on behalf of
Trustee.
(j) Lessor Officer's Certificate. Agent shall have received (x) a
----------------------------
certificate of the Secretary or Assistant Secretary of Lessor attaching and
certifying as to (i) the corporate authority for the execution, delivery and
performance by Lessor of each Operative Document to which it is or will be a
party, (ii) its organizational documents, and (iii) the incumbency and signature
of persons authorized to execute and deliver such documents on behalf of Lessor
and (y) a good standing certificate from the appropriate Governmental Authority
as to Lessor's good standing.
(k) Filings and Recordings. All filings or recordings enumerated and
----------------------
described in Schedule 3.2(a) hereof, as well as all other filings and recordings
---------------
necessary or advisable, including precautionary financing statements, to perfect
the rights, titles and interests of Lessor, Participants and Agent intended to
be created by the Operative Documents shall have been made, or shall have been
arranged to be made promptly thereafter, in the appropriate places or offices.
All recording and filing fees and taxes with respect to any recordings or
filings made pursuant to this Agreement shall have been paid in full, and
satisfactory evidence thereof shall have been delivered to Lessor and Agent, or
arrangements for such payment shall have been made to the satisfaction of Lessor
and Agent.
(l) Lien Searches. Lessor and Agent shall have received the results
-------------
of a recent search by a Person of the Uniform Commercial Code, judgment and tax
lien filings which may have been filed in the State of California or the state
of incorporation of any Lessee Party with respect to personal property of any
Lessee Party.
(m) Survey. Lessor, Agent and the Title Company shall have received,
------
a survey of the Site, certified to Agent, the Lessor and the Title Company in a
manner reasonably satisfactory to them, dated as of a date within ninety (90)
days of the Document Closing Date, by an independent professionally licensed
land surveyor satisfactory to Lessor and Agent, which survey shall be made in
accordance with the Minimum Standard Detail Requirements for Land Title Surveys
jointly established and adopted by the American Land Title Association and the
American Congress on Surveying and Mapping in 1997, and, without limiting the
generality of the foregoing, there shall be surveyed and shown on such survey
the following: (i) the locations on the Site of all the buildings, structures
and other improvements, if any, and the established building setback lines; (ii)
the lines of streets abutting the Site; (iii) all access and other easements
appurtenant to the Site; (iv) all roadways, paths, driveways, easements,
encroachments and overhanging projections and similar encumbrances affecting the
Site, whether recorded, apparent from a physical inspection of the Site or
otherwise known to the surveyor; (v) any encroachments on any adjoining property
by the building, structures and improvements on the Site; and (vi) if the Site
is described as being on a filed map, a legend relating the survey to said map.
(n) Preliminary Title Insurance. Lessor and Agent shall have received
---------------------------
from the Title Insurance Company pro forma Title Policies.
A-2-3
<PAGE>
(o) Environmental Site Assessment. Prior to the Document Closing
-----------------------------
Date, Lessor and Agent shall have received the Giles Environmental Report. The
Giles Environmental Report shall contain recommendations with respect to
additional investigation and remedial work that is necessary or desirable at the
Site and shall be in form and substance satisfactory to Lessor, Agent and each
Participant.
(p) Appraisal. Not less than two (2) Business Days prior to the
---------
Document Closing Date, Lessor and Agent shall have received a preliminary
Appraisal which will establish (by the use of appraisal methods satisfactory to
Agent) (i) the Fair Market Sales Value of the Site as of the Site Acquisition
Date, and (ii) the Fair Market Sales Value of the Site "as completed" as
contemplated by the Operative Documents and the Plans and Specifications as of
the end of the Construction Period.
(q) Construction Schedule. Lessor and Agent shall have received a
---------------------
copy of the schedule prepared by or at the direction of the Construction Agent
showing the estimated timetable for completion of the new facility to be
constructed on the Site.
(r) Budget. Lessor and Agent shall have received a copy of the budget
------
with respect to the construction of the new facility to be constructed or
installed on the Site.
(s) Plans and Specifications. If requested, Lessor and Agent shall
------------------------
have received a copy of the Plans and Specifications with respect to the new
facility to be constructed or installed on the Site.
(t) No Event of Loss. No Event of Loss shall have occurred in respect
----------------
of the Site. No action shall be pending or threatened by any Governmental
Authority to initiate a Condemnation or an Event of Taking in respect of the
Site.
(u) Fee Letter, Fees. Agent and Investor shall have received from
----------------
Lessee (i) the Fee Letter, duly executed and delivered, and (ii) the fees to be
paid as of the Document Closing Date pursuant thereto.
A-2-4
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE II
INVESTOR AND LENDER COMMITMENTS
-------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
LENDERS PERCENTAGE
------------------
COMMITMENT OF AGGREGATE LENDERS'
---------- ---------------------
PARTICIPANT AMOUNT COMMITMENT PERCENTAGE COMMITMENT AMOUNT
----------- ------ --------------------- ------------------
(IN DOLLARS)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LENDERS
- -----------------------------------------------------------------------------------------------------------
Credit Lyonnais Los $18,800,000.00 62.67% 65.278%
Angeles Branch
- -----------------------------------------------------------------------------------------------------------
Cooperatieve Centrale $10,000,000.00 33.33% 34.722%
Raiffeisen-Boerenleenbank
B.A., "Rabobank
Nederland," New York
Branch
- -----------------------------------------------------------------------------------------------------------
LENDERS' SUBTOTAL $28,800,000.00 96.00% 100.00%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
INVESTOR
- ---------------------------------------------------------------------------
Credit Lyonnais Leasing $ 1,200,000.00 4.00%
Corp.
- ---------------------------------------------------------------------------
INVESTOR SUBTOTAL $ 1,200,000.00 4.00%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
TOTAL $30,000,000.00 100.00%
- ---------------------------------------------------------------------------
</TABLE>
II-1
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE III
NOTICE AND DELIVERY INFORMATION AND FUNDING OFFICES
---------------------------------------------------
Lessee and Sublessee: Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, California 90058
Attention: Martin A. Lynch
with a copy to: Donald G. Alvarado, Esq.
Telephone: (213) 589-9726
Facsimile: (213) 589-0415
Lessor: Smart & Final Realty Trust 1998
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Facsimile: (302) 651-8882
Agent: Credit Lyonnais Los Angeles Branch
(address for notices 515 South Flower Street
and deliveries) Los Angeles, California 90071
Attention: Rita Raychaudhuri
Telephone: (213) 362-5900
Facsimile: (213) 623-3437
Lenders: Credit Lyonnais Los Angeles Branch
(funding office) 515 South Flower Street
Los Angeles, California 90071
Attention: Rita Raychaudhuri
Telephone: (213) 362-5900
Facsimile: (213) 623-3437
III-1
<PAGE>
Cooperative Centrale
Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland," New York Branch
245 Park Avenue, 36th Floor
New York, New York 10167
Attention: Corporate Services
Telephone: (212) 916-7800
Facsimile: (212) 818-0233
with a copy to: Bradford F. Scott
Four Embarcadero Center, Suite 3200
San Francisco, CA 94111
Telephone: (415) 782-9809
Facsimile: (415) 986-8349
Investor: Credit Lyonnais Leasing Corp.
1301 Avenue of the Americas
New York, New York 10019
Attention: Leasing Administration
Telephone: (212) 261-7823
Facsimile: (212) 261-3448
Trustee: Wilmington Trust Company
1100 North Market Street
Rodney Square North
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telephone: (302) 651-1000
Facsimile: (302) 651-8882
III-2
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE I
Site Description
----------------
See attached.
I-1
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE 3.2(a)
FILINGS AND RECORDINGS
3.2(a)-1
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE 4.1(b)
GOVERNMENT ACTIONS
4.1(m)-1
<PAGE>
PARTICIPATION AGREEMENT
SCHEDULE 4.1(s)
ERISA PLANS
4.1(s)-1
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT G
FORM OF INVESTOR'S LETTER
-------------------------
[DATE]
Smart & Final Realty Trust 1998
4700 South Boyle Avenue
Los Angeles, CA 90058
Credit Lyonnais Los Angeles Branch, as Agent
[address]
Jane Orenstein, Esq.
Smart & Final Inc.
4700 South Boyle Avenue
Los Angeles, CA 90058
Ladies and Gentlemen:
Capitalized terms used in this letter and not otherwise defined
herein, unless the context otherwise requires, shall have the meanings assigned
thereto in Appendix 1 to that certain Participation Agreement (as amended, the
----------
"Participation Agreement") dated as of ___________, 1998, among Smart & Final
Inc., as Lessee, Smart & Final Realty Trust 1998, as Lessor, Credit Lyonnais
Leasing Corp., as Investor, the financial institutions party thereto from time
to time, as Lenders, Wilmington Trust Company, as Trustee, and Credit Lyonnais
Los Angeles Branch, not in its individual capacity except as expressly stated
therein, but solely as Agent for Lessor and Participants.
The undersigned has agreed to purchase: [check applicable box]
[ ] (1) the [Note] [Trust Certificate] numbered No. __, dated as of ________,
199_ and in an original amount of __________________ Dollars
($__________) from ___________,
G-1
<PAGE>
[ ] (2) a portion, in the amount of $___________, of the [Note] [Trust
Certificate] numbered No. __, dated as of ________, 199_ and in an
original amount of __________________ Dollars ($__________) from
_____________ (the "Current Holder"), or
[ ] (3) participation, in the amount of $___________, of the [Note] [Trust
Certificate] numbered No. __, dated as of ________, 199_ and in an
original amount of __________________ Dollars ($__________) from
______________,
and desires that Lessee and Agent consent to the purchase by the
undersigned of the afore-described interest and:
in the case of clause (1) above, Lessor, shall execute and deliver to the
undersigned a new [Note] [Trust Certificate] in the current amount of No.
__ in the name of the undersigned, or
in the case of clause (2) above, Lessor shall execute and deliver (i) to
the undersigned a new [Note] [Trust Certificate] in the amount of
$____________ in the name of the undersigned, and (ii) to the Current
Holder a new [Note] [Trust Certificate] in the amount of the excess of the
current amount of No __ over the amount specified in the immediately
preceding clause (i).
The undersigned hereby represents and warrants as of the date hereof
to the addressees hereof as follows:
(a) The transfer of the [Note] [Trust Certificate], or the portion
thereof or participation therein being purchased by the undersigned (the [Note]
[Trust Certificate] or such portion or participation, as applicable, is called
the "Interest"), to the undersigned is not to or in connection with any
arrangement or understanding in any way involving any employee benefit plan (or
its related trust), as defined in Section 3(3) of ERISA, or with the assets of
any such plan (or its related trust), as defined in Section 4975(e)(1) of the
Code (other than a governmental plan, as defined in Section 3(32) of ERISA);
(b) The Interest is being acquired by the undersigned for investment
and not with a view to the resale or distribution of such interest or any part
thereof, but without prejudice, however, to the right of the undersigned at all
times to sell or otherwise dispose of all or any part of such interest under a
registration available under the Securities Act of 1933, as amended, or under an
exemption from such registration available under such Act, it being understood
that the disposition by the undersigned of the Interest to be purchased by the
undersigned shall, at all times, remain entirely within its control;
(c) Neither the undersigned nor any Person authorized to act on its
behalf has directly or indirectly offered to sell the Interest or the related
[Note] [Trust Certificate] or any security similar thereto, to, or otherwise
approved or negotiated with respect thereto with, anyone
G-2
<PAGE>
other than Participants, and neither it nor any Person authorized to act on its
behalf will so offer or sell in violation of Section 5 of the Securities Act of
1933, as amended, or securities or blue sky law of any applicable jurisdiction;
(d) The representations and warranties set forth in Section [4.2]
[4.5] of the Participation Agreement are accurate with respect to the
undersigned (other than as such representations and warranties relate to the
execution and delivery of Operative Documents);
(e) The undersigned agrees to be bound by the provisions of Section
6.3 of the Participation Agreement in connection with its acquisition of the
Interest and any subsequent transfer thereof; and
(f) In the case of a purchase as described in clause (1) or clause (2)
above, such purchase is being made pursuant to the Assignment and Assumption in
the form of Exhibit M to the Participation Agreement. In the case of a purchase
of a participation as described in clause (3) above, such purchase is being made
pursuant to a participation agreement in the form satisfactory in form and
substance to the parties thereto and the Agent.
The undersigned acknowledges that by execution of this letter it shall
be bound by all obligations (whether or not accrued) under and, in the case of a
transfer of the [Note] [Trust Certificate] or a portion thereof as described in
clause (1) or (2) above, shall have become a party to, all Operative Documents
to which its transferor was a party.
The undersigned understands that neither the [Note] [Trust
Certificate] or the Interest has been or will be registered or qualified under
the Securities Act of 1933, as amended, or any securities or "blue sky" laws of
any jurisdiction and that none of Agent, Lessor, Lessee or any Participant has
an obligation to effect such registration or otherwise assist in the disposition
of the Note or Note Interest.
Very truly yours,
By:_____________________________
Name:________________________
Title:_______________________
G-3
<PAGE>
Consent to the acquisition of the aforementioned Interest by:
SMART & FINAL INC.
as Lessee
By:_______________________
Name:___________________
Title:__________________
CREDIT LYONNAIS LOS ANGELES BRANCH, not in its individual capacity,
but solely as Agent
By:_______________________
Name:___________________
Title:__________________
G-4
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT E
FORM OF ADVANCE REQUEST
-----------------------
ADVANCE REQUEST
TO: Credit Lyonnais Los Angeles Branch ("Agent") under the Participation
Agreement, dated as of ____________, 1998 (as amended, the
"Participation Agreement"), among Smart & Final Inc., as Lessee,
Smart & Final Stores Corporation, as Sublessee, Smart & Final Realty
1998, as Lessor, Credit Lyonnais Leasing Corp., as Investor, Lenders
party thereto and Agent (all capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the
Participation Agreement, unless the context otherwise requires).
FROM: [Smart & Final Inc.] [Smart & Final Stores Corporation]
DATE: _____________________________
REGARDING: Advance Request
---------------
[Smart & Final Inc.] [Smart & Final Stores Corporation] hereby
represents, warrants and certifies as follows:
1. This Advance Request is delivered pursuant to Section 2.5 of the
Participation Agreement.
2. Lessee hereby requests an Advance pursuant to the Participation
Agreement in the amount of $__________ [which amount shall not be less than One
Million Dollars ($1,000,000), except pursuant to Section 3.5 of the
Participation Agreement]].
3. The proposed Advance Date is ____________________.
4. The purposes of the Advance Request are detailed on Annex A, which
-------
is true, correct and complete.
5. The Construction Agent requests that the Loans and Investor
Contributions be made as [Base Rate] [LIBO Rate] Advances.
6. The Lessee requests that the disbursement of funds advanced in
connection with Transaction Costs be sent by wire transfer in accordance with
the payment instructions attached hereto as Annex B.
-------
E-1
<PAGE>
7. That (a) each and every representation and warranty of Lessee
Parties contained in the Operative Documents is true and correct in all material
respects on and as of such Advance Date as though made on and as of such Advance
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;
(b) no Lease Default and no Lease Event of Default has occurred and is
continuing; (c) each Operative Document to which any Lessee Party is a party is
in full force and effect with respect to it; and (d) each Lessee Party has duly
performed and complied with all covenants, agreements and conditions contained
herein or in any other Operative Document required to be performed or complied
with by it on or prior to such Advance Date.
8. [With respect to Advances for Construction Costs:] The unused
Commitments will be sufficient to complete the New Facility and the New Facility
can be completed pursuant to the Construction Schedule delivered pursuant to
Appendix 2 of the Participation Agreement and prior to the one year anniversary
following the Document Closing Date.
9. [With respect to Advances for Construction Costs:] Attached hereto
are lien waivers from each contractor, subcontractor, supplier and materialmen
which Construction Agent believes may receive total compensation for services
rendered or materials supplied in connection with the construction of the
related improvements of Two Hundred Fifty Thousand Dollars ($250,000) or more;
each such lien waiver evidences that such contractor, subcontractor, supplier or
materialmen has been paid in full for all work performed or materials supplied
to the date of this Advance Request, other than work which is the subject of
such request.
[SMART & FINAL INC.] [SMART & FINAL
STORES CORPORATION]
By:_________________________________
Name:____________________________
Title:___________________________
[Attachments:
Annex A - Information regarding Advance Request
Annex B - Wire transfer instructions for the disbursement of funds]
E-2
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT I
Form of Collateral Assignment of Purchase Agreement
---------------------------------------------------
See attached.
N-1
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT D
Form of Amended and Restated Trust Agreement
--------------------------------------------
AMENDED AND RESTATED TRUST AGREEMENT
This AMENDED AND RESTATED TRUST AGREEMENT (as amended, supplemented or
otherwise modified from time to time, this "Trust Agreement") is made and
---------------
entered into as of May 20, 1998, between CREDIT LYONNAIS LEASING CORP., a
Delaware corporation (together with its respective permitted successors and
assigns, the "Investor"), and WILMINGTON TRUST COMPANY, a Delaware banking
--------
corporation (in its individual capacity, the "Trust Company;" and in its
-------------
capacity as trustee hereunder, together with its permitted successors and
assigns hereunder, the "Trustee"). This Trust Agreement amends and restates
-------
that certain Trust Agreement (the "Original Trust Agreement") dated as of May
------------------------
13, 1998 between the Investor and the Trustee.
WITNESSETH:
----------
WHEREAS, pursuant to the Original Trust Agreement, the Investor formed
a business trust created pursuant to the Delaware Business Trust Act, 12 Del.C.
c.38 (as amended, the "Delaware Act"), for the purpose of vesting in the Trustee
------------
legal title to the Trust Estate (as hereafter defined) and responsibility for
the protection and conservation of the Trust Estate;
WHEREAS, the Trust Company was and continues to be willing to act as
trustee to such trust and to accept the trust so created, subject to the terms
and conditions of this Trust Agreement, and
WHEREAS, the Investor and the Trustee desire to amend and restate the
original Trust Agreement pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definitions.
-----------
For purposes of this Trust Agreement, capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in
Appendix 1 to the Participation Agreement, dated as of the date hereof, among
Smart & Final Realty Trust 1998, Smart & Final Inc., Smart & Final Stores
Corporation, Investor, the Agent, the Lenders and the Trustee, as amended,
supplemented or otherwise modified from time to time.
D-1
<PAGE>
ARTICLE II.
ORGANIZATION
2.1. Name. The name of the trust created by this Trust Agreement is
----
the "SMART & FINAL REALTY TRUST 1998" (the "Trust").
-----
2.2. Office. The office of the Trust shall be in care of the
------
Trustee, addressed to Corporate Trust Administration, 1100 North Market Square,
Rodney Square North, Wilmington, Delaware 19890-0001, or at such other address
as the Trustee may designate by notice to the Investor and the Agent.
2.3. Resident Trustee. The name of the resident Trustee of the Trust
----------------
in the State of Delaware is Wilmington Trust Company.
2.4. Purposes and Powers. The purpose of the Trust is to acquire the
-------------------
Site, cause the construction of the New Facility, borrow monies in connection
therewith, and lease the Site, and otherwise engage in such other activities in
connection with the Overall Transactions as are permitted hereby or are
incidental or ancillary thereto as the Trustee shall deem necessary, advisable,
or appropriate, all upon the terms and conditions set forth in this Trust
Agreement.
2.5. Appointment of the Trustee. Except as otherwise permitted by
--------------------------
this Trust Agreement, the number of Trustees shall be one (1). The Investor
hereby appoints Wilmington Trust Company as Trustee of the Trust to satisfy the
requirements of Section 3807 of the Delaware Act, effective as of the date
hereof, to have all the rights, powers and duties as set forth herein. The
Trustee acknowledges receipt in trust from the Investor as of the date hereof of
the initial Trust Property as described in Section 2.6 hereof. The Trustee filed
-----------
a Certificate of Trust on May 13, 1998, which is substantially in the form of
Exhibit A attached hereto (the "Certificate of Trust"), as required by Section
--------------------
3810(a) of the Delaware Act in the office of the Secretary of State of the State
of Delaware.
2.6. Transfer of Property to the Trust. The Investor hereby grants
---------------------------------
to the Trust the sum of One Dollar ($1.00) constituting the initial trust
property (the "Trust Property").
--------------
2.7. Representations and Warranties of the Investor. The Investor
----------------------------------------------
hereby represents and warrants to the Trustee as follows:
(a) Upon receipt of the Trust Property under this Trust Agreement, the
Trust will have good title to the Trust Property free and clear of any lien;
(b) The Trust is not, and will not be upon conveyance of the Trust
Property to the Trustee, an "Investment Company" or under the "control" of an
"Investment Company," as such terms are defined in the Investment Company Act of
1940, as amended; and
(c) This Trust Agreement has been duly and validly authorized,
executed and delivered by, and constitutes a valid and binding agreement of, the
Investor, enforceable in accordance with its terms, except to the extent such
enforceability may be limited by bankruptcy,
D-2
<PAGE>
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
ARTICLE III.
AUTHORITY TO EXECUTE AND PERFORM VARIOUS DOCUMENTS;
DECLARATION OF TRUST BY TRUST COMPANY
3.1. Authority to Execute and Perform Various Documents. The Investor
--------------------------------------------------
hereby authorizes and directs the Trustee: (i) to execute and deliver, in the
name and on behalf of the Trust, each Operative Document to which the Trust is a
party and any other agreements, instruments, certificates or documents related
to the Overall Transaction to which the Trust is a party, (ii) to take whatever
action shall be required to be taken by the Trustee or the Trust by the terms
of, and exercise the rights and perform the duties under, each of the documents,
agreements, instruments and certificates referred to in clause (i) above as set
forth in such documents, agreements and certificates, (iii) subject to the terms
of this Trust Agreement, to take such other action in connection with the
foregoing as the Investor may jointly from time to time direct, and (iv) execute
and file in the office of the Secretary of State of the State of Delaware (a)
the Certificate of Trust, (b) such amendments to such Certificate of Trust as
may, from time to time, be required under 3810(b) of the Delaware Act and (c) a
Certificate of Cancellation in the form required by Section 3810(d) of the
Delaware Act, upon termination of the Trust pursuant to Article VIII of this
------------
Trust Agreement.
3.2. Declaration of Trust by the Trust Company. The Trust Company
-----------------------------------------
hereby declares that it will hold all estate, right, title and interest of the
Trust in and to the Loans, the Site, the Operative Documents, the Investor
Contributions, and any other property contributed by the Investor, including,
without limitation, all amounts on account of Rent, Proceeds, Shortfall Amounts,
Residual Guaranty Amount, insurance proceeds and condemnation awards, indemnity
or other payments of any kind (collectively, the "Trust Estate"), as Trustee
------------
upon the trusts set forth herein and for the use and benefit of the Investor,
subject, however, to the provisions of the Participation Agreement, the Lease
Agreement, the Loan Agreement and the other Operative Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Delaware Act and that this Trust Agreement constitute the governing
instrument (as such term is defined in the Delaware Act) of the Trust.
ARTICLE IV.
DISTRIBUTIONS
4.1. Priority of Distributions. Subject to the terms and requirements
-------------------------
of the Operative Documents, all payments and amounts received by the Trust or by
the Trustee, on its behalf, shall be distributed forthwith upon receipt in the
following order of priority: first, so much of such payment or amount as shall
-----
be required to pay or reimburse the Trustee for any fees, compensation,
indemnification or expenses (including reasonable attorneys' fees and expenses)
not otherwise paid or reimbursed to the Trustee and as to which the Trustee is
entitled to be paid
D-3
<PAGE>
or reimbursed hereunder shall be retained by the Trustee and forthwith remitted
to the Trustee; second, so much of such payment or amount thereafter shall be
------
distributed promptly following receipt by the Trust or the Trustee to the
Lenders, the Agent, the Investor or other Persons to the extent specifically
provided in, pursuant to the terms of and in the priority set forth in the
Participation Agreement and the other Operative Documents; and third, the
-----
balance, if any, to the Investor.
4.2. Excluded Payments. Notwithstanding anything in this Article or
-----------------
elsewhere in this Trust Agreement to the contrary, any Excluded Amount received
at any time by the Trustee shall be distributed promptly to the Person entitled
to receive such Excluded Amount.
ARTICLE V.
DUTIES OF THE TRUSTEE
5.1. Notice of Certain Events. In the event an officer in the
------------------------
Corporate Trust Administration Department of the Trustee shall have knowledge
of, or received a copy of, any consent, waiver, amendment or modification, or
request therefor or any other action, with respect to any of the Operative
Documents, the Trustee shall give prompt written notice thereof, in no event
later than five (5) days after receipt or actual knowledge thereof, to the
Investor and any other Person identified in writing by the Investor to the
Trustee. Notwithstanding the foregoing, in the event the Trustee shall have
knowledge of any Lease Default, Lease Event of Default, Loan Agreement Default,
Loan Agreement Event of Default or Construction Agency Event of Default (or
event which, with the passing of time or the giving of notice, would become a
Construction Agency Event of Default), the Trustee shall give prompt telephonic
notice thereof followed by written confirmation to the Investor, the Agent, and
any other Person identified in writing by the Investor to the Trustee, unless
such Default or Event of Default no longer exists before the giving of such
notice. If the Trustee shall have given the Investor notice of any event and
shall not have received written instructions as above provided within thirty
(30) days after giving notice in accordance with Section 12.4 of such event to
------------
the Investor, the Trustee may, but shall be under no duty to, and shall have no
liability for its failure or refusal to, take or refrain from taking any action
with respect thereto, not inconsistent with the provisions of the Operative
Documents, as the Trustee shall deem advisable and in the best interests of the
Investor. For all purposes of this Trust Agreement, in the absence of actual
knowledge of an officer in the Corporate Trust Administration Department of the
Trustee, the Trustee shall be deemed not to have knowledge of any Default or
Event of Default unless the Trustee receives written notice thereof.
5.2. Action upon Instructions. Subject to the provisions of Section
------------------------ -------
5.3, upon the written instructions executed by the Investor, the Agent, the
- ---
Lessee (or, with respect to Advance Requests, during the Construction Period,
the Construction Agent) given in accordance with the Participation Agreement or
any other Operative Agreement, the Trustee will take or refrain from taking such
action or actions, not inconsistent with the provisions of the Operative
Documents, as may be specified in such instructions. If the Trustee is unable to
determine whether any such action or actions that it has been instructed to take
by the Investor, the Agent or the Lessee are not inconsistent with the
provisions of the Operative Documents, the Trustee shall give notice in
accordance with Section 12.4 of such proposed action or actions to the Investor,
------------
D-4
<PAGE>
the Agent and the Lessee and, unless (within ten (10) Business Days) any of such
parties advises the Trustee in writing that the proposed action or actions are
inconsistent with the provisions of the Operative Documents (including specific
reference to the particular provisions in question), the Trustee shall be
entitled to presume that the proposed action or actions are not inconsistent
with the provisions of the Operative Documents and the Trustee shall proceed in
accordance with such instructions. With respect to instruction which may be
given by Lessee, the Trustee and the Investor acknowledge that the Trustee is
required to take action and to refrain from taking action with regard to the
Loan Agreement as instructed by Lessee in accordance with Section 9.17 of the
Participation Agreement.
5.3. Indemnification. The Trustee shall not be required to take or
---------------
refrain from taking any action under this Trust Agreement or any other Operative
Document unless the Trustee shall have been indemnified by Lessee or, if the
Trustee reasonably believes such indemnity to be inadequate, by the Investor, in
manner and form reasonably satisfactory to the Trustee, against any liability,
fee, cost or expense (including reasonable attorneys' fees and expenses) that
may be incurred or charged in connection therewith, other than such as may
result from the willful misconduct, bad faith or gross negligence of the Trust
Company or the Trustee, or from the failure of the Trust Company or the Trustee
to use reasonable care in the receiving, handling and disbursing of funds; and,
if the Investor shall have directed the Trustee to take or refrain from taking
any action under any Operative Document, the Investor agrees to furnish such
indemnity by a written undertaking of indemnification and, in addition, to pay
the reasonable compensation of the Trustee (including the advancement and
payment of reasonable attorneys' fees and expenses) for the services performed
or to be performed by the Trustee pursuant to such direction. The Trustee shall
not be required to take any action under any Operative Document if the Trustee
shall reasonably determine, or shall have been advised by counsel, that such
action is likely to result in personal liability for which the Trustee or the
Trust Company has not been and will not be adequately indemnified or is contrary
to the terms hereof or of any Operative Document to which the Trustee is a party
or is otherwise contrary to law. The Trustee shall be under no liability with
respect to any action taken or omitted to be taken by the Trustee in accordance
with instructions of the Investor, the Agent or the Lessee pursuant to Section
-------
5.2.
- ---
5.4. No Duties as Specified in Trust Agreement or Instructions. The
---------------------------------------------------------
Trustee shall not have any duty or obligation to manage, control, use, make any
payment in respect of, register, record, insure, inspect, sell, dispose of or
otherwise deal with the Site, or any other part of the Trust Estate, or to
otherwise take or refrain from taking any action under or in connection with any
Operative Document to which the Trust is a party, except as expressly provided
by the terms of this Trust Agreement or in written instructions from the
Investor or the Lessee received pursuant to Section 5.1, 5.2 or 8.4; and no
-----------------------
implied duties or obligations shall be read into this Trust Agreement against
the Trustee. The Trustee shall have no duty or obligation to supervise or
monitor the performance of the Construction Agent pursuant to the Construction
Agency Agreement, which for all purposes shall be an independent contractor. The
Trust Company nevertheless agrees that it will, at its own cost and expense,
promptly take all action as may be necessary to discharge any Lessor's Liens
arising by, through or under the Trust Company on any part of the Trust Estate.
D-5
<PAGE>
5.5. No Action Except Under Specified Documents or Instructions. The
----------------------------------------------------------
Trustee agrees that it will not manage, control, use, sell, dispose of or
otherwise deal with the Site, or any other part of the Trust Estate, except (i)
as required by the terms of the Operative Documents, (ii) in accordance with the
powers granted to, or the authority conferred upon, it pursuant to this Trust
Agreement, or (iii) in accordance with the express terms hereof or with written
instructions from the Investor or the Lessee pursuant to Section 5.1, 5.2 or
-----------
8.4.
- ---
5.6. Absence of Duties. (a) Other than pursuant to the terms hereof,
-----------------
the Trustee shall not have any duty to (i) file, record or deposit any Operative
Document or any other document, or to maintain any such filing, recording or
deposit or to refile, rerecord or redeposit any such document, (ii) obtain
insurance on any Site, the Facilities (including the New Facility) or effect or
maintain any such insurance, other than to receive and forward to the Investor
any notices, policies, certificates or binders furnished to the Trustee pursuant
to the Lease, (iii) pay or discharge any Tax or any Lien owing with respect to
or assessed or levied against any part of the Trust Estate, except as provided
in the last sentence of Section 5.4, other than to forward notice of such Tax or
-----------
Lien received by the Trustee to the Agent, Lenders, the Investor and the Lessee,
(iv) confirm, verify, investigate or inquire into the failure to receive any
reports or financial statements of the Lessee, (v) inspect the Site at any time
or ascertain or inquire as to the performance or observance of any of the
covenants of the Lessee or any other Person under any Operative Document with
respect to the Site, or (vii) manage, control, use, sell, dispose of or
otherwise deal with the Site or any part thereof or any other part of the Trust
Estate, except as provided in Section 5.5.
-----------
(b) Except as contemplated by the Operative Documents or as otherwise
directed by Agent or the Investor, the Trustee shall not be required to take any
action in any jurisdiction other than the State of Delaware if the taking of
such action will: (i) require the consent or approval or authorization or order
of or the giving of notice to, or the registration with or the taking of any
action in respect of, any state or other governmental authority or agency of any
jurisdiction other than the State of Delaware; (ii) result in any fee, tax or
other governmental charge under the laws of any jurisdiction or any political
subdivisions thereof in existence on the date hereof (other than the State of
Delaware) becoming payable by the Trustee; or (iii) subject the Trustee to
personal jurisdiction in any jurisdiction other than the State of Delaware for
causes of action arising from acts unrelated to the consummation of the
transactions by the Trustee contemplated hereby.
(c) The Trustee, in the exercise or administration of the trusts and
powers hereunder, including its obligations under Section 5.2 hereof, may, at
-----------
the reasonable expense of the Lessee, employ agents, attorneys, accountants and
auditors and enter into agreements with any of them and the Trustee and the
Trust Company shall not be liable for the default or misconduct of any such
agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected by it in good faith.
D-6
<PAGE>
ARTICLE VI.
THE TRUSTEE
6.1. Acceptance of Trust and Duties. The Trust Company accepts the
------------------------------
Trust hereby created and agrees to perform the same, but only upon the terms of
this Trust Agreement. The Trustee agrees to receive, manage and disburse any
moneys constituting part of the Trust Estate actually received by it as Trustee
in accordance with the terms of this Trust Agreement. The Trust Company shall
not be answerable or accountable under any circumstances, except for (i) its own
willful misconduct, bad faith or gross negligence, (ii) the inaccuracy of any of
its representations or warranties contained in this Trust Agreement or in any of
the Operative Documents, (iii) its failure to perform obligations expressly
undertaken by it in the last sentence of Section 5.4 hereof and (iv) Taxes based
-----------
on or measured by any fees, commissions or compensation received by it for
acting as Trustee in connection with any of the transactions contemplated by the
Operative Documents.
6.2. Furnishing of Documents. The Trustee will furnish to the
-----------------------
Investor, and to such other Persons as the Investor shall direct in writing,
promptly upon receipt thereof, duplicates or copies of all reports, notices,
requests, demands, opinions, certificates, financial statements and any other
instruments or writings furnished to the Trustee or to the Trust under the
Operative Documents, unless by the express terms of any Operative Document a
copy of the same is required to be furnished by some other Person directly to
the Investor, or the Trustee has confirmed that the same has already been
furnished to the Investor.
6.3. No Representations or Warranties as to any Property or Operative
----------------------------------------------------------------
Documents. Neither the Trustee nor the Trust Company makes (i) ANY
- ---------
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE,
CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS FOR USE OF ANY PROPERTY
OR ANY OTHER REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO ANY PROPERTY
WHATSOEVER, except that the Trustee hereby represents, warrants and covenants to
the Investor that it will comply with the last sentence of Section 5.4, and (ii)
-----------
no representation or warranty as to the validity or enforceability of any
Operative Document or as to the correctness of any statement made by a Person
(other than the Trustee or the Trust Company) contained in any thereof, except
that each of the Trustee and the Trust Company represents, warrants and
covenants to the Investor that this Trust Agreement has been, and each of the
other Operative Documents which contemplates execution thereof by the Trustee on
behalf of the Trust has been or will be, executed and delivered by its officers
who are, or will be, duly authorized to execute and deliver documents on its
behalf and is enforceable against it in accordance with its terms except to the
extent such enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
6.4. Segregation of Moneys. Except as otherwise provided herein or in
---------------------
any of the Operative Documents, any moneys received by the Trustee hereunder
need not be segregated in any manner, except as may be required by law.
D-7
<PAGE>
6.5. Reliance; Advice of Counsel. Neither the Trustee nor the Trust
---------------------------
Company shall incur any liability to any Person in acting upon any signature,
instrument, notice, resolution, request, consent, order, certificate, report,
opinion, bond or other document or paper believed by it in good faith to be
genuine and signed by the proper party or parties. The Trust Company and the
Trustee may accept and rely upon a certified copy of a resolution of the board
of directors or other governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such body and that the
same is in full force and effect. As to any fact or matter the manner of
ascertainment of which is not specifically prescribed herein, the Trust Company
and the Trustee may for all purposes hereof rely on an Officer's Certificate of
the relevant party, as to such fact or matter, and such certificate shall
constitute full protection to the Trust Company and the Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon. In the
administration of the Trust, the Trustee may execute any of the trusts or powers
hereof and perform its powers and duties hereunder directly or through agents or
attorneys and may consult with counsel, accountants and other skilled Persons to
be selected and employed by it, and neither the Trust Company nor the Trustee
shall be liable for anything done, suffered or omitted in good faith by it in
accordance with the advice or opinion of any such counsel, accountants or other
skilled Persons.
6.6. Liability with Respect to Documents. Neither the Trust Company
-----------------------------------
nor the Trustee shall incur any liability to any Person for or in respect of the
recitals herein, the validity or sufficiency of this Trust Agreement (other than
against the Trustee or the Trust Company), the due execution hereof by the
Investor, the form, character, genuineness, sufficiency, value or validity of
the Site, or the validity or sufficiency of any of the Operative Documents.
Neither the Trust Company nor the Trustee shall assume or incur any liability,
duty or obligation to any Person or to the Investor, other than as expressly
provided for herein or in any of the other Operative Documents.
6.7. Not Acting in Individual Capacity. All Persons (other than the
---------------------------------
Investor to the extent provided herein) having any claim against the Trust
Company or the Trustee by reason of the transactions contemplated by the
Operative Documents shall look only to the Trust Estate (or a part thereof, as
the case may be) for payment or satisfaction thereof, except as specifically
provided in this Article.
6.8. Books and Records; Tax Returns. (a) The Trustee shall treat the
------------------------------
trust created hereby as a grantor trust for federal and state income tax
purposes.
(b) The Trustee shall file, or cause to be filed, an application with
the Internal Revenue Service for a taxpayer identification number with respect
to the Trust. The Investor shall prepare and file, or cause to be prepared and
filed, the Federal tax return, reports, state tax returns and other forms with
respect to the Taxes due and payable by the Trust in connection with the
transactions contemplated hereby or by the other Operative Documents. In the
event that the Investor shall request the Trustee to cause to be prepared such
tax returns, the Investor shall furnish to Trustee all such information as may
be required from the Investor in connection with the preparation of such tax
returns. The Trustee shall keep copies of all returns delivered to or filed by
it relating to the Trust.
D-8
<PAGE>
(c) The Investor shall sign on behalf of the Trust any and all tax
returns of the Trust.
(d) The Trustee, either in its trust or individual capacities, shall
be under no obligation to appear in, prosecute or defend any action, which in
its opinion may require it to incur any out-of-pocket expense or any liability,
unless it shall be furnished with such reasonable security and indemnity against
such expense or liability as it may require. The Trustee may, but shall be
under no duty to, undertake such action as it may deem necessary at any and all
times, without any further action by the Investor, to protect the Site and the
rights and interests of the Investor pursuant to the terms of this Trust
Agreement; provided that the Trust Company may obtain reimbursement for the
--------
reasonable out-of-pocket expenses and costs of such actions (including
reasonable attorneys fees and expenses), undertakings or proceedings from the
Lessee.
6.9. Tax Treatment. The Investor, by entering into this Trust
-------------
Agreement, agrees that it will file its own Federal, state and local income,
franchise and other tax returns in a manner that is consistent with the
treatment of the Trust as a grantor trust. The parties agree that, unless
otherwise required by final decision (i.e., one from which no appeal can be
taken or with respect to which the time for appeal has expired) of the
appropriate taxing authorities or court of competent jurisdiction, the Investor
shall file, or cause to be filed, annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a grantor trust
for such tax purposes.
ARTICLE VII.
INDEMNIFICATION OF THE TRUSTEE BY THE INVESTOR
7.1. The Investor to Indemnify the Trustee and the Trust Company. The
-----------------------------------------------------------
Investor agrees to assume liability for, and to indemnify and hold harmless the
Trustee and the Trust Company from and against, any and all obligations,
liabilities, losses, actions, suits, penalties, taxes (other than any taxes on,
based on or measured by the compensation received by the Trust Company for
acting as Trustee hereunder), claims, demands, costs and expenses (including
reasonable attorneys fees and expenses) of any nature whatsoever (collectively,
"Claims") which may be imposed on, incurred by or asserted at any time against
the Trust Company or the Trustee in any way relating to or arising out of the
Trust Estate, the Site, the administration of the Trust Estate or any action or
inaction of the Trustee or the Trust Company hereunder, under the Operative
Documents or any transaction contemplated thereby, or in any way relating to or
arising or alleged to arise out of (a) the financing, refinancing, purchase,
acceptance, rejection, ownership, design, construction, delivery, nondelivery,
leasing, subleasing, possession, use, operation, repair, modification,
transportation, condition, sale, return, repossession (whether by summary
proceedings or otherwise), or any other disposition of the Site or any part
thereof; (b) any latent or other defects whether or not discoverable; (c) a
violation of Environmental Laws, Environmental Claims or other loss of or damage
to the Site or the environment relating to the Site, the Lessee or the Investor;
(d) any breach by any the Investor of any of its representations or warranties
under the Operative Documents or failure by the Investor to perform or observe
any covenant or agreement to be performed by it under any of the Operative
Documents; and (e) personal injury, death or property damage, including Claims
based
D-9
<PAGE>
on strict liability in tort; except only that the Investor shall not be required
to indemnify the Trustee or the Trust Company for expenses arising or resulting
from any of the matters described in the last sentences of Sections 5.4 and 6.1
--------------------
and to the extent the matters arise from the gross negligence or willful
misconduct of the Trustee or the Trust Company. The indemnities contained in
this Section shall survive the resignation or removal of the Trustee and the
termination of this Trust Agreement.
7.2. Compensation and Expenses. The Trust Company shall receive from
-------------------------
Lessee as compensation for its services hereunder the fees set forth in a
separate fee agreement in the form attached hereto as Exhibit B. The Trust
---------
Company shall also be entitled to be reimbursed by the Lessee for its reasonable
expenses (including reasonable attorneys' fees) incurred in the performance of
its duties as Trustee hereunder and to be compensated reasonably for any
extraordinary services rendered hereunder at the request of the Investor.
7.3. Limitation. The Trustee and the Trust Company agree to first
----------
seek indemnification from the Lessee under the Participation Agreement, but the
Trust Company and the Trustee shall not be required to exhaust their remedies
against the Lessee (or any other liable Person) under the Operative Documents
before seeking to enforce their rights against the Investor under this Article.
ARTICLE VIII.
TERMINATION OF TRUST AGREEMENT
8.1. Termination of Trust Agreement. This Trust Agreement and the
------------------------------
Trust shall terminate and the Trust Estate shall, subject to the provisions of
the other Operative Documents and Article V hereof, be distributed to the
---------
Investor, and this Trust Agreement shall be of no further force or effect, upon
the earlier of (i) the written request of the Investor following the sale or
other final disposition by the Trustee or its agent of all property constituting
part of the Trust Estate and the final distribution by the Trustee or its agent
of all moneys or other property or proceeds constituting part of the Trust
Estate in accordance with the terms of Article V and (ii) the date that is
---------
thirty (30) years after the date hereof.
8.2. Termination at Option of the Investor. Notwithstanding Section
------------------------------------- -------
8.1, this Trust Agreement and the Trust shall terminate and the Trust Estate
- ---
shall be distributed to the Investor, and this Trust Agreement shall be of no
further force and effect, upon the election of the Investor by notice to the
Trustee, if such notice shall be accompanied by the written agreement of the
Investor assuming all the obligations of the Trustee and the Trust under or
contemplated by the Operative Documents and all other obligations of the Trustee
incurred by it as trustee hereunder; provided, that the Investor agrees for the
--------
express benefit of the Lessee, the Agent and the Lenders that, without the
consent of the Agent, no such election shall be effective until the Liens and
security interests of the Loan Documents shall have been released. Such written
agreement shall be reasonably satisfactory in form and substance to the Trustee
and shall release the Trustee from all further obligations of the Trustee
hereunder and under the agreements and other instruments mentioned in the
preceding sentence.
D-10
<PAGE>
8.3. Termination at Option of the Trustee. Notwithstanding any other
------------------------------------
section hereof, at any time that (i) Smart & Final Inc. shall not be the Lessee
under the Lease or (ii) six (6) months after the date the Lease shall no longer
be in full force and effect, the Trustee shall have the option, but shall have
no obligation, to: (a) terminate this Trust Agreement and the Trust and (b)
distribute and convey, or cause to be distributed and conveyed, the Trust Estate
to the Investor; provided, that the Trustee agrees for the express benefit of
--------
the Agent and the Lenders that, without the consent of the Agent, the exercise
of such option shall not be effective until the Liens and security interests of
the Loan Documents shall have been released. The exercise of such option by the
Trustee shall cause this Trust Agreement to be of no further force and effect
and shall release the Trustee from all further obligations of the Trustee
hereunder and under the agreements and other instruments mentioned in the
preceding sentence.
8.4. Actions by the Trustee upon Termination. Upon termination of
---------------------------------------
this Trust Agreement and the Trust pursuant to Section 8.1, 8.2 or 8.3, the
----------------------
Trustee shall file in the Office of the Secretary of State of the State of
Delaware a Certificate of Cancellation in the form required by Section 3810(d)
of the Delaware Act and take such action as may be necessary or as may be
requested in writing by the Investor to transfer the Trust Estate to the
Investor, including, without limitation, the execution, without representation
or recourse, of instruments of transfer or assignment with respect to any of the
Operative Documents to which the Trust is a party.
8.5. Bankruptcy of the Investor. In the event of the bankruptcy,
--------------------------
insolvency or other similar incapacity of the Investor, this Trust Agreement
shall terminate. Without the prior written consent of the Agent, the Investor
may not withdraw from the Trust or obtain possession of, or otherwise exercise
remedies with respect to, the Trust Estate or any portion thereof prior to the
satisfaction and discharge of the Liens and security interests of the Loan
Documents.
ARTICLE IX.
SUCCESSOR TRUSTEES, CO-TRUSTEES
AND SEPARATE TRUSTEES
9.1. Resignation of the Trustee; Appointment of Successor. (a) The
----------------------------------------------------
Trustee may resign at any time without cause by giving at least sixty (60) days'
prior written notice to the Investor, the Agent and the Lessee, such resignation
to be effective on the acceptance of appointment by a successor Trustee under
Section 9.1(b) which meets the standards set forth in Section 9.1(c). The
- -------------- --------------
Trustee may be removed at any time by the Investor with one (1) days' prior
written notice if the removal is for cause, or with thirty (30) days' prior
written notice if the removal is without cause, and, in either case, with a copy
concurrently delivered to the Agent and the Lessee. Any such removal shall be
effective upon the acceptance of appointment by a successor Trustee under
Section 9.1(b) which meets the standards set forth in Section 9.1(c). In case of
- -------------- --------------
the resignation or removal of the Trustee, the Investor may appoint a successor
Trustee by an instrument signed by the Investor. If a successor Trustee shall
not have been appointed within thirty (30) days after the giving of written
notice of such resignation or the delivery of the written instrument with
respect to such removal, the Trustee or the Investor may apply to any court of
competent jurisdiction to appoint a successor Trustee to act until such time, if
any, as a successor shall have been appointed and shall have accepted its
appointment as above provided. Any
D-11
<PAGE>
successor Trustee so appointed by such court shall immediately and without
further act be superseded by any successor Trustee appointed as above provided
within one year from the date of the appointment by such court.
(b) Any successor Trustee, however appointed, shall execute and
deliver to the predecessor Trustee an instrument accepting such appointment, and
thereupon such successor Trustee, without further act shall become vested with
all the estates, properties, rights, powers, duties and trusts of the
predecessor Trustee in the trusts hereunder with like effect as if originally
named a Trustee herein; but nevertheless, upon the written request of such
successor Trustee such predecessor Trustee shall execute and deliver an
instrument transferring to such successor Trustee, upon the trusts herein
expressed, all the estates, properties, rights, powers, duties and trusts of
such predecessor Trustee, and such predecessor Trustee shall duly assign,
transfer, deliver and pay over to successor Trustee all moneys or other property
then held by such predecessor Trustee upon the trusts herein expressed.
(c) Any successor Trustee, however appointed, shall be a bank or trust
company incorporated and doing business within the United States of America,
meeting the eligibility requirements of the Delaware Act, and having a combined
capital and surplus of at least One Hundred Million Dollars ($100,000,000), if
there be such an institution willing, able and legally qualified to perform the
duties of Trustee hereunder upon reasonable or customary terms.
(d) Any person into which the Trustee may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation to which substantially all of the corporate trust business of the
Trustee may be transferred, shall, subject to the terms of Section 9.1(c), be
--------------
the Trustee under this Trust Agreement without further act.
9.2. Co-Trustees and Separate Trustees. Whenever the Trustee or the
---------------------------------
Investor shall deem it necessary or prudent in order either to conform to any
law of any jurisdiction in which all or any part of the Trust Estate shall be
situated or to make any claim or bring any suit with respect to the Trust
Estate, the Notes or any Operative Document, or the Trustee or the Investor
shall be advised by counsel satisfactory to it that it is so necessary or
prudent, the Trustee and the Investor shall execute and deliver an agreement
supplemental hereto and all other instruments and agreements, and shall take all
other action, necessary or proper to appoint one or more Persons (and the
Trustee may appoint one or more of its officers) either as co-trustee or co-
trustees jointly with the Trustee of all or any part of the Trust Estate, or as
separate trustee or separate trustees of all or any part of the Trust Estate,
and to vest in such Persons, in such capacity, such title to the Trust Estate or
any part thereof and such rights or duties as may be necessary or desirable, all
for such period and under such terms and conditions as are satisfactory to the
Trustee and the Investor. In case any co-trustee or separate trustee shall die,
become incapable of acting, resign or be removed, the title to the Trust Estate
and all rights and duties of such co-trustee or separate trustee shall, so far
as permitted by law, vest in and be exercised by the Trustee, without the
appointment of a successor to such co-trustee or separate trustee.
9.3. Notice. At all times that a successor Trustee is appointed
------
pursuant to Section 9.1, a Trustee resigns pursuant to Section 9.1 or a co-
----------- -----------
trustee or separate trustee is
D-12
<PAGE>
appointed pursuant to Section 9.2, the Trustee shall give notice of such fact
-----------
within ten (10) days of its occurrence to the Lessee, the Agent and the
Investor.
9.4. Required Consents. Notwithstanding the provisions of Sections
----------------- --------
9.1 and 9.2 above, the Trustee shall not be removed and no successor Trustee,
- --- ---
co-trustee or separate trustee shall be appointed without the consent of the
Agent and the Lessee (which consent shall not reasonably be withheld) as long as
the Liens and security interest of the Loan Documents remain in full force and
effect.
ARTICLE X.
SUPPLEMENTS AND AMENDMENTS
10.1. Supplements and Amendments. Subject to Section 10.2 hereof, at
-------------------------- ------------
the written request of the Investor, this Trust Agreement shall be amended by a
written instrument signed by the Trustee and the Investor, but if in the opinion
of the Trustee, any instrument required to be so executed adversely affects any
right, duty or liability of, or immunity or indemnity in favor of, it or the
Trust Company under this Trust Agreement, any of the Operative Documents to
which it or the Trustee is a party, or would cause or result in any conflict
with or breach of any terms, conditions or provisions of, or default under, its
charter documents or by-laws or any document contemplated hereby to which it or
the Trust Company is a party, the Trustee may in its sole discretion decline to
execute such instrument, unless it shall have been provided an indemnity
satisfactory to it by the Investor.
10.2. Limitation on Amendments. The Trustee shall not, without the
------------------------
consent of the Agent, execute any amendment that might reasonably result in the
trusts created hereunder being terminated prior to the satisfaction and
discharge of the Liens and security interest of the Loan Documents and other
than in accordance with the terms of the Operative Documents. The provisions of
Section 8.5 and 11.6(a) may not be amended.
- -----------------------
ARTICLE XI.
THE CERTIFICATES
11.1. Form of Certificates. The ownership by the Investor of a
--------------------
beneficial interest in the Trust shall be evidenced by one or more Certificates.
Each Certificate shall be substantially in the form set forth in Exhibit C
---------
attached hereto.
11.2. Terms of Certificates. Each Certificate issued to the Investor
---------------------
shall be dated the date of its issuance and shall contain a statement by the
Trustee that the holder of such Certificate has ratably with the holders of the
other Certificates in accordance with their proportionate shares an undivided
beneficial interest in the Trust Estate and is entitled to receive, along with
the holders of the other Certificates, as provided herein a share of the Yield,
the Investor Contributions, any portion of Transactional Costs payable to the
Lessor and the Investor, and such other amounts as are described under the
Operative Documents as being paid on account of or in connection with the
Investor Contributions.
D-13
<PAGE>
11.3. Payment from Proceeds of Trust Estate Only. All amounts payable
------------------------------------------
by the Trust under the Certificates and under this Trust Agreement shall be paid
only from the income and the proceeds from the Trust Estate and only to the
extent that the Trustee shall have received sufficient income or proceeds from
the Trust Estate to make such payments in accordance with the terms hereof. Each
holder of a Certificate, by its acceptance of such Certificate, agrees that it
will look solely to the income and proceeds from the Trust Estate to the extent
available for distribution to such holder as herein provided and that the
Investor, any other holders of any Certificates, and the Trustee (in its
individual capacity or as Trustee) shall not be personally liable to any Person
for any amounts payable under the Certificates or this Trust Agreement or,
except as expressly provided in this Trust Agreement, for any liability under
this Trust Agreement.
11.4. Place and Manner of Payment. The amounts payable to the holders
---------------------------
of the Certificates pursuant to this Trust Agreement will be payable at the
Corporate Trust Administration office of the Trustee at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-0001, or at the office of
any successor Trustee hereunder, in funds of the type received by the Trustee.
Notwithstanding the foregoing or any provision in any Certificate to the
contrary, the Trustee will pay, if so requested by the holder of a Certificate
by written notice to the Trustee, all amounts payable by the Trust to such
holder or a nominee therefor by wire transfer to such holder at such account as
such holder shall have specified by notice, in any case without any presentment
or surrender of any Certificate.
11.5. Ownership of Certificates. The Trustee may deem and treat the
--------------------------
Person in whose name any Certificate shall have been registered by the Trustee
as the absolute owner and holder of such Certificate for the purpose of
receiving payment of all amounts payable by the Trustee with respect to such
Certificate and for all other purposes, and the Trustee shall not be affected by
any notice to the contrary.
11.6. Registrations of Transfers; Exchanges. (a) The Investor
-------------------------------------
acknowledges and agrees that Certificates may not be sold, assigned or otherwise
transferred, except in accordance with the terms of Section 6.3 of the
Participation Agreement.
(b) The Trustee shall maintain at its office a register for the
purpose of registering transfers and exchanges of Certificates. A holder of a
Certificate intending to transfer any or all of the Certificates held by such
holder to a new holder, or to exchange any or all of the Certificates held by it
for Certificates of different denominations, shall surrender such Certificate or
Certificates to the Trustee at its office at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, together with a written request
from the holder surrendering such Certificate or Certificates for the issuance
of a new Certificate or Certificates, specifying the denomination or
denominations of the same and, in the case of a surrender for transfer, the name
and address of the prospective holder or holders. Promptly upon receipt of such
documents by the Trustee, it will issue a new Certificate or Certificates, in
the same aggregate original face amount and dated the same date or dates as the
Certificate or Certificates surrendered, and in such denomination or
denominations and registered in such name or names as shall be specified in such
written request. The Trustee shall notify the Investor, the Agent and the Lessee
whenever it registers the transfer of a Certificate or Certificates, specifying
the name and address of the new holder or holders. The Trustee shall not be
required to register transfers or exchange any
D-14
<PAGE>
surrendered Certificate as above provided during the ten (10) day period
preceding the due date of any payment of Basic Rent under the Lease. Nothing
contained in this Section shall be deemed to permit the holder of a Certificate
to transfer such Certificate, except in accordance with the terms of this
Article and Section 6.3 of the Participation Agreement.
11.7. Mutilated, Lost or Stolen Certificates. If any Certificate
--------------------------------------
shall become mutilated, destroyed, lost or stolen, the Trustee shall, upon the
written request of the holder of such Certificate, execute and deliver in
replacement thereof a new Certificate, dated the same date as the Certificate so
mutilated, destroyed, lost or stolen. If the Certificate being replaced has
become mutilated, such Certificate shall be surrendered to the Trustee and
canceled. If the Certificate being replaced has been destroyed, lost or stolen,
the holder of such Certificate shall furnish to the Trustee (a) such security or
indemnity as may be required by the Trustee to save the Trustee harmless and (b)
evidence satisfactory to the Trustee of the destruction, loss or theft of such
Certificate and of the ownership thereof.
11.8. Payment of Taxes, Etc., on Issuance of New Certificates. Upon
-------------------------------------------------------
the issuance of a new Certificate or Certificates pursuant to Section 11.6 or
------------
11.7 hereof, the Trustee may require from the party requesting such new
- ----
Certificate or Certificates payment of a sum to reimburse the Trustee for, or to
provide funds for, the payment of any tax or other governmental charge in
connection therewith or any charges and expenses connected with such tax or
other governmental charge paid or payable by the Trustee.
ARTICLE XII.
MISCELLANEOUS
12.1. No Legal Title to Trust Estate in the Investor. The Investor
----------------------------------------------
shall not have legal title to any part of the Trust Estate; provided that the
--------
Investor has a beneficial interest in the Trust Estate. No transfer, by
operation of law or otherwise, of any right, title or interest of the Investor
in and to the Trust Estate or hereunder shall operate to terminate this Trust
Agreement or the trusts created hereby or entitle any successor or transferee to
an accounting or to the transfer to it of legal title to any part of the Trust
Estate.
12.2. Pledge or Sale of Site by the Trustee is Binding. Any sale,
------------------------------------------------
transfer, pledge, or other conveyance of any of the Property or any part thereof
by the Trustee on behalf of the Trust made pursuant to the terms of this Trust
Agreement or any other Operative Document shall bind the Investor and shall be
effective to sell, transfer and convey all right, title and interest of the
Trustee and the Investor in and to the Site or any part thereof. No purchaser or
other grantee shall be required to inquire as to the authorization, necessity,
expediency or regularity of such sale or conveyance or as to the application of
any sale or other proceeds with respect thereto by the Trustee. Nothing herein
shall be deemed to permit any sale, transfer or other conveyance of the Site or
any part thereof by the Trustee on behalf of the Trust, other than in accordance
with the terms of the Operative Documents.
12.3. Limitations on Rights of Others. Nothing in this Trust
-------------------------------
Agreement, whether express or implied, shall be construed to give to any Person,
other than the Trust Company, the
D-15
<PAGE>
Trustee, the Investor, the Lessee and the Agent, any legal or equitable right,
remedy or claim under or in respect of this Trust Agreement or any covenants,
conditions or provisions contained herein or in the Trust Estate. Without
limiting the generality of the foregoing, as provided in Section 3805 of the
Delaware Act, no creditor of the Investor shall have any right to obtain
possession of, or otherwise exercise legal or equitable remedies with respect
to, the Trust Estate.
12.4. Notices. Unless otherwise expressly specified or permitted by
-------
the terms hereof, all notices hereunder shall be given as provided in the
Participation Agreement.
12.5. Severability. Any provision of this Trust Agreement that may be
------------
determined by competent authority to 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.
12.6. Limitation on the Investor's Liability. No Investor shall have
--------------------------------------
any liability for the performance of this Trust Agreement, except as expressly
set forth herein.
12.7. Separate Counterparts. This Trust Agreement may be executed by
---------------------
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
12.8. Successors and Assigns. All covenants and agreements contained
----------------------
herein shall be binding upon, and inure to the benefit of, the Trust Company,
the Trustee and the Investor, and each of their respective permitted successors
and assigns, all as herein provided. Any request, notice, direction, consent,
waiver or other instrument or action by the Investor shall bind the successors
and assigns of the Investor. It is the intention of the parties hereto that the
trust created hereby constitutes a business trust formed pursuant to the
Delaware Act with the purpose of facilitating the transactions contemplated by
the Operative Documents.
12.9. Headings and Table of Contents. The headings and table of
------------------------------
contents of the various articles and sections herein are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
12.10. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE. THE TRUST
CREATED HEREBY SHALL BE DEEMED A DELAWARE BUSINESS TRUST FOR ALL PURPOSES OF THE
DELAWARE ACT.
12.11. Performance by the Investor. Any obligation of the Trustee
---------------------------
hereunder or under any Operative Document or other document contemplated herein
may be performed by the Investor and any such performance shall not be construed
as a revocation of the trusts created hereby.
12.12. No Implied Waiver. No term or provision of this Trust
-----------------
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing entered
D-16
<PAGE>
into as provided in Section 10.1; and any such waiver of the terms hereof shall
------------
be effective only in the specific instance and for the specific purpose given.
12.13. Termination of Lessee's Rights. Notwithstanding anything in
------------------------------
this Trust Agreement to the contrary, six (6) months after the date the Lease
shall no longer be in full force and effect, the Lessee shall have no further
rights hereunder and, from and after such date, all references to rights of the
Lessee under this Trust Agreement shall be deemed to be deleted.
12.14. Amended and Restated. This Trust Agreement amends and restates
--------------------
the Original Trust Agreement for all purposes.
D-17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the date and year first above written.
CREDIT LYONNAIS LEASING CORP.,
as Investor
By: /s/ L.M. Wertheim
-----------------------------------------
Name: L. M. Wertheim
Title: Vice President and Secretary
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ James P. Lawler
-----------------------------------------
Name: James P. Lawler
Title: Vice President
<PAGE>
TRUST AGREEMENT
EXHIBIT A
Form of Certificate of Trust of
-------------------------------
Smart & Final Realty Trust 1998
-------------------------------
THIS CERTIFICATE OF TRUST OF SMART & FINAL REALTY TRUST 1998 (the
"Trust") is being duly executed and filed by WILMINGTON TRUST COMPANY, a
- ------
Delaware banking corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del. Code, (S)3801 et seq.).
--------- -- ---
1. Name. The name of the business trust formed hereby is SMART &
----
FINAL REALTY TRUST 1998.
2. Delaware Trustee. The name and business address of the trustee of
----------------
the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
3. Effective Date. This Certificate of Trust shall be effective upon
--------------
filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY,
as Trustee
By:
------------------------------------
Name:
Title:
A-1
<PAGE>
TRUST AGREEMENT
EXHIBIT B
Fee Agreement
-------------
See attached.
B-1
<PAGE>
TRUST AGREEMENT
EXHIBIT C
Form of Trust Certificate
-------------------------
The interests represented by this Certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of unless (i) such interests are
duly registered under such Act or (ii) the proposed disposition thereof, may be
effected without violation of such Act or any of the rules and regulations
promulgated thereunder.
TRUST CERTIFICATE
SMART & FINAL REALTY TRUST 1998
Certificate No. ____ _________ ____, 1998
WILMINGTON TRUST COMPANY, as trustee (herein in such capacity called
the "Trustee") under the Amended and Restated Trust Agreement dated as of May
20, l998 (herein, as the same may from time to time be further amended, modified
or supplemented, called the "Trust Agreement," the defined terms therein being
used herein with the same meanings assigned therein) between Credit Lyonnais
Leasing Corp. (the "Investor") and the Trustee, hereby certifies as follows: (i)
this Certificate is the Certificate referred to in the Trust Agreement, which
Certificate has been or is to be issued by the Trustee pursuant to the Trust
Agreement; and (ii) Credit Lyonnais Leasing Corp., the holder of this
Certificate, is entitled to receive as provided in the Trust Agreement and the
other Operative Documents, the Yield, the Investor Contributions, a portion of
Transaction Costs payable to the Lessor and such other amounts as are described
under the Operative Documents as being paid on account of or in connection with
the Investor Contribution.
Except as otherwise expressly provided in the Trust Agreement, all
amounts payable by the Trust hereunder and under the Trust Agreement shall be
paid only from the income and proceeds from the Trust Estate and only to the
extent that the Trustee shall have sufficient income or proceeds from the Trust
Estate to make such payments in accordance with the terms of the Trust
Agreement, and the holder hereof, by its acceptance of this Certificate, agrees
that it will look solely to the income and proceeds from the Trust Estate to the
extent available for distribution to the holder hereof as provided in the Trust
Agreement and that neither the Investor nor the Trustee is personally liable to
the holder hereof for any amounts payable under this Certificate or the Trust
Agreement or, except as provided in the Trust Agreement, for any liability under
the Trust Agreement.
C-1
<PAGE>
The amounts payable to the holder hereof pursuant to the Trust
Agreement shall be payable at the principal office of the Trust at 1100 North
Market Street, Wilmington, Delaware 19890-0001 in funds of the type received by
the Trustee.
The holder hereof, by its acceptance of this Certificate, agrees not
to transfer this Certificate, except in accordance with the terms of the Trust
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Trust Certificate to
be executed in its corporate name by one of its authorized officers as of the
date first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:
-----------------------------------
Name:
Title:
C-3
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT A
Form of Lease and Agreement
---------------------------
LEASE AND AGREEMENT
THIS LEASE AND AGREEMENT dated as of _________, 1998 (as amended,
supplemented, or otherwise modified from time to time, this "Lease"), is between
-----
SMART & FINAL REALTY TRUST 1998, a Delaware business trust, as Lessor and as
mortgagee ("Lessor"), and SMART & FINAL INC., a Delaware corporation, as Lessee
------
and as mortgagor ("Lessee").
------
In consideration of the mutual agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, hereby
agree as follows:
ARTICLE I.
DEFINITIONS
For all purposes hereof, the capitalized terms used herein and not
otherwise defined shall have the meanings assigned thereto in Appendix 1 to that
certain Participation Agreement dated as of the date hereof, by and among
Lessee, Lessor, Investor, Trustee, the Lenders identified therein, and Agent (as
amended, supplemented, or otherwise modified from time to time, the
"Participation Agreement").
-----------------------
ARTICLE II.
LEASE OF SITE; LEASE TERM
Section 2.1. Acceptance and Lease of Site. Lessor, subject to the
----------------------------
satisfaction or waiver of the conditions set forth in Article III and Appendix 2
of the Participation Agreement, hereby agrees to accept delivery on the Site
Acquisition Date of the Land Interest together with the Facilities thereon to be
delivered on the Site Acquisition Date pursuant to the terms of the
Participation Agreement and simultaneously to lease the Land Interest together
with the Facilities thereon to Lessee hereunder, and Lessee, subject to the
satisfaction or waiver of the conditions set forth in Article III and Appendix 2
of the Participation Agreement, hereby agrees, expressly for the direct benefit
of Lessor, to lease commencing on the Site Acquisition Date from Lessor for the
Lease Term, the Land Interest together with the Facilities thereon to be
delivered on the Site Acquisition Date, and with respect to the New Facility to
be constructed thereon pursuant to the Construction Agency Agreement, such
Facility automatically (without further act) commencing on expiration or
termination of the Construction Period, or as otherwise provided in the
Construction Agency Agreement.
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<PAGE>
Section 2.2. Acceptance Procedure. Lessor hereby authorizes a
--------------------
Responsible Officer of Lessee, to be designated by Lessee, as the authorized
representative or representatives of Lessor to accept delivery of the Site.
Lessee hereby agrees that such acceptance of delivery by such authorized
representative or representatives and the due execution and delivery of this
Lease shall, without further act, constitute the irrevocable acceptance by
Lessee of the Site for all purposes of this Lease and the other Operative
Documents on the terms set forth therein and herein. The New Facility
constructed pursuant to the Construction Agency Agreement shall be deemed to be
included in the Leasehold Estate as of the date of expiration or termination of
the Construction Period applicable to such Facility, or as otherwise provided in
the Construction Agency Agreement.
Section 2.3. Lease Term. Unless earlier terminated, the term of this
----------
Lease shall consist of the Basic Term, commencing on and including the Site
Acquisition Date and ending on the date (the "Basic Term Expiration Date") which
--------------------------
is five years thereafter (but in no event after May 15, 2003), and the
Extension Terms, if exercised and effective (collectively, the "Lease Term");
----------
provided, that with respect to the New Facility to be constructed pursuant to
- --------
the Construction Agency Agreement, the commencement of the Basic Term shall be
the expiration or termination of the Construction Period and the end of the
Basic Term with respect to the New Facility shall be the Basic Term Expiration
Date.
Section 2.4. Lease Extension. Subject to the consent required pursuant to
---------------
Section 2.10 of the Participation Agreement, Lessee may elect to extend this
Lease for up to ten (10) two (2)-year extensions (each, an "Extension Term"),
--------------
commencing upon the expiration of the then Basic Term (the "Extension Term
--------------
Commencement Date") and ending on the date which is two (2) years thereafter,
- -----------------
as provided in Article VI.
ARTICLE III.
OTHER PROPERTY
Lessee may from time to time own or hold under lease from Persons
other than Lessor, furniture, equipment and other nonfixtures located on or
about the Site that is not subject to this Lease. Lessor shall from time to
time, upon the reasonable request, and at the cost and expense of Lessee, which
request shall be accompanied by such supporting information and documents as
Lessor may reasonably require, acknowledge in writing to Lessee or other Persons
that the particular items of furniture, equipment and other fixtures in question
are not part of the Leasehold Estate and that, subject to the rights of Lessor
under any other Operative Documents, Lessor does not own or have any other right
or interest in or to such furniture, equipment and other fixtures.
ARTICLE IV.
RENT
Section 4.1. Basic Rent. Lessee shall pay to Lessor the amounts of Basic
----------
Rent determined in accordance with the definition of "Basic Rent," with payments
on each Payment
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<PAGE>
Date, commencing as of the end of the Construction Period and ending on the last
day of the Lease Term.
Section 4.2. Supplemental Rent. Lessee shall pay to Lessor, or to
-----------------
whomever shall be entitled thereto as expressly provided herein or in any other
Operative Document (and Lessor hereby directs Lessee, on behalf of Lessor, to so
pay such other Person), any and all Supplemental Rent promptly as the same shall
become due and payable and, in the event of any failure on the part of Lessee to
pay any Supplemental Rent, Lessor 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. Lessee hereby reaffirms its obligation to pay as
Supplemental Rent (i) any and all Additional Costs, and (ii) any Transaction
Costs not paid by Lessor, as further described in Section 9.9 of the
Participation Agreement.
Section 4.3. Method and Amount of Payment. As long as any obligations
----------------------------
remain outstanding under the Loan Agreement, Basic Rent and Supplemental Rent
shall be paid to Lessor (or, in the case of Supplemental Rent, to such Person as
may be entitled thereto) on the due date therefor at such place as Lessor shall
specify in writing to Lessee at least two (2) Business Days prior to the due
date therefor. Agent, on behalf of Lessor, shall notify Lessee of the applicable
LIBO Rate or Base Rate, as applicable, promptly upon the determination thereof.
Each payment of Rent shall be made by Lessee prior to 11:00 a.m., New York City
time (and payments made after such time shall be deemed to have been made on the
next day) at the place of payment in funds consisting of lawful currency of the
United States of America which (in the case of any amount payable to Lessor,
Agent, any Participant or any Indemnitee) shall be immediately available on the
scheduled date when such payment shall be due, unless the scheduled date shall
not be a Business Day, in which case such payment shall be made on the next
succeeding Business Day (unless the result of such extension would be to carry
such payment into the next calendar month, in which event such payment shall be
made on the next preceding Business Day). Any amounts payable by Lessee to
Lessor hereunder shall be payable in accordance with Section 9.16 of the
Participation Agreement.
Section 4.4. Late Payment. If any Basic Rent shall not be paid when due
------------
(not taking into account any applicable grace period), Lessee shall pay to
Lessor (or as Lessor directs), or if any Supplemental Rent payable to or on
behalf or for the account of Lessor, Agent, any Participant or other Indemnitee
is not paid when due (not taking into account any applicable grace period),
Lessee shall pay to whomever shall be entitled thereto, in each case as
Supplemental Rent, interest at the Overdue Rate (to the maximum extent permitted
by law) on such overdue amount from and including the initial due date thereof
(not taking into account any applicable grace period) to but excluding the
Business Day of payment thereof at the Overdue Rate.
Section 4.5. Net Lease; No Setoff; Etc.. This Lease shall constitute a
--------------------------
net lease and, notwithstanding any other provision of this Lease, Basic Rent and
Supplemental Rent shall be paid without counterclaim, setoff, deduction or
defense of any kind and without abatement, suspension, deferment, diminution or
reduction of any kind, and Lessee's obligation to pay all such amounts
throughout the Lease Term is absolute and unconditional. The obligations and
liabilities of Lessee hereunder shall in no way be released, discharged or
otherwise affected for
A-3
<PAGE>
any reason, including, without limitation, to the maximum extent permitted by
law, as a result of or related to: (a) any defect in the condition,
merchantability, design, construction, quality or fitness for use of any portion
of the Site, or any failure of the Site to comply with all Applicable Laws and
Regulations, including any inability to occupy or use the Site by reason of such
non-compliance; (b) any damage to, abandonment, loss, contamination of or
Release from or destruction of or any requisition or taking of the Site or any
part thereof, including eviction; (c) any restriction, prevention or curtailment
of or interference with any use or any part thereof, including eviction; (d) any
defect in title to or rights to the Site or any Lien on such title or rights on
the Site; (e) any change, waiver, extension, indulgence or other action or
omission or breach in respect of any obligation or liability of or by Lessor,
Investor, Trustee, Agent or any Lender; (f) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceedings relating to any Lessee Party, Lessor, Investor, Trustee, Agent, any
Lender or any other Person, or any action taken with respect to this Lease by
any trustee or receiver of any Lessee Party, Lessor, Investor, Trustee, Agent,
any Lender or any other Person, or by any court, in any such proceeding; (g) any
claim that Lessee has or might have against any Person, including, without
limitation, Lessor, Investor, Trustee, Sublessee, Agent, or any Lender; (h) any
failure on the part of Lessor, Agent, any Participant or Trustee to perform or
comply with any of the terms of any Operative Document or of any other
agreement, whether or not related to the Overall Transaction; (i) any invalidity
or unenforceability or disaffirmance against or by Lessee of this Lease or any
provision hereof or any of the other Operative Documents or any provision of any
thereof; (j) the impossibility of performance by Lessee, Lessor or both; (k) any
action by any court, administrative agency or other Governmental Authority; (l)
any restriction, prevention or curtailment of or any interference with the
construction on, demolition of, or any use of Site or any part thereof; or (m)
any other occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not Lessee shall have notice or knowledge of any of the foregoing.
Except as specifically set forth in Article XIII of this Lease, this Lease shall
------------
be noncancellable by Lessee for any reason whatsoever, and Lessee, to the extent
permitted by Applicable Laws and Regulations, waives all rights now or hereafter
conferred by statute or otherwise to quit, terminate or surrender this Lease, or
to any diminution, abatement or reduction of Rent payable by Lessee hereunder.
If for any reason whatsoever this Lease shall be terminated in whole or in part
by operation of law or otherwise, except as expressly provided in Article XIII
------------
of this Lease, Lessee shall, unless prohibited by Applicable Laws and
Regulations, nonetheless pay to Lessor (or, in the case of Supplemental Rent, to
whomever shall be entitled thereto) an amount equal to each Rent payment at the
time and in the manner that such payment would have become due and payable under
the terms of this Lease if it had not been terminated in whole or in part, and
in such case, so long as such payments are made and no Lease Event of Default
shall have occurred and be continuing, Lessor will deem this Lease to have
remained in effect. Each payment of Rent made by Lessee hereunder shall be
final and, absent manifest error in the computation of the amount thereof,
Lessee shall not seek or have any right to recover all or any part of such
payment from Lessor, Agent, any Participant or any party to any agreements
related thereto for any reason whatsoever. Lessee assumes the sole
responsibility for the condition, use, operation, maintenance and management of
the Site, and Lessor shall have no responsibility in respect thereof and shall
have no liability for damage to the property of Lessee or any subtenant of
Lessee on any account or for any reason whatsoever, other than by reason of
Lessor's willful misconduct or gross negligence, in either case, as determined
by a final, binding and nonappealable court order.
A-4
<PAGE>
ARTICLE V.
UTILITY CHARGES; REAL
PROPERTY TAXES
Section 5.1. Utility Charges. Lessee shall pay or cause to be paid all
---------------
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Site during the
Lease Term. So long as no Lease Event of Default exists, Lessee shall be
entitled to receive any credit or refund with respect to any utility charge paid
by Lessee and, so long as no Lease Event of Default exists, the amount of any
credit or refund received by Lessor on account of any utility charges paid by
Lessee, net of the costs and expenses reasonably incurred by Lessor in obtaining
such credit or refund, shall be promptly paid over to Lessee. All charges for
utilities imposed with respect to the Site for a billing period during which
this Lease expires or terminates (except pursuant to Section 6.2, in which case
-----------
Lessee shall be solely responsible for all such charges) shall be adjusted and
prorated on a daily basis between Lessor and Lessee, and each party shall pay or
reimburse the other for each party's pro rata share thereof.
Section 5.2. Real Property Taxes. Lessee shall pay when due and shall be
-------------------
obligated for all real estate taxes and assessments assessed against the
Leasehold Estate or any part thereof. Such real estate taxes and assessments
shall be hereinafter referred to as "Real Estate Taxes." Real Estate Taxes
-----------------
shall also include any tax, assessment, charge or fee in substitution for or in
addition to such real estate taxes or assessments, but shall not include any
U.S. Federal income taxes imposed on the net income of Lessor, Agent or any
Participant or Taxes on or measured solely by net income (including franchise
taxes) imposed or assessed by any foreign, state or local Governmental
Authority. Lessee agrees to pay all such Real Estate Taxes on the Leasehold
Estate on or before the due date for payment of such Real Estate Taxes. Lessee
shall have the right to contest the amount or validity of the Real Estate Taxes
pursuant to the terms of the Participation Agreement. Lessee shall pay promptly
when due all personal property taxes assessed during the Lease Term upon the
Lessee's fixtures, furnishing, equipment and stock in trade or upon Lessee's
leasehold interest under this Lease Agreement or upon any other personal
property situated in or upon the Leasehold Estate.
ARTICLE VI.
EXTENSION OPTIONS; PURCHASE,
RETURN AND SALE OPTIONS
Section 6.1. Extension Options. Subject to the consent of Lessor, Agent
-----------------
and each Participant and the other terms set forth in Section 2.10 of the
Participation Agreement, Lessee shall have the right, at its option, to request
Lessor to extend the Lease, and Agent, Lessor and Participants to extend the
financing in connection therewith, for an Extension Term, commencing immediately
following the expiration of the Basic Term and any previous Extension Terms (up
to a total of ten (10) such terms), if applicable. In order to exercise such
option, Lessee shall give irrevocable written notice thereof to Lessor and Agent
no earlier than ninety (90) days and no later than seventy-five (75) days prior
to the second anniversary of the Document Closing Date, and no Lease Default or
Lease Event of Default shall have occurred and be continuing at the time
A-5
<PAGE>
of exercise and at the commencement of such Extension Term. If an Extension Term
is applicable, Lessee shall continue to pay Rent, including Basic Rent, during
the Extension Term on each Payment Date occurring during the Extension Term. All
of the provisions of this Lease shall remain in effect during each Extension
Term.
Section 6.2. Purchase Option. Lessee will have the right, at its option
---------------
and upon delivery of prior written notice (which notice shall be irrevocable) to
Lessor and Agent provided no later than twelve (12) months prior to expiration
of the Lease Term, to purchase the entire Site at a price equal to the Purchase
Option Exercise Amount (the "Purchase Option"). If Lessee shall have elected to
---------------
purchase the Site (or be required to purchase the Site pursuant to Section 6.4),
-----------
Lessor shall, upon discharge of the Lien of the Mortgage pursuant to the
provisions thereof and the payment in full of the Purchase Option Exercise
Amount in immediately available funds, transfer by quitclaim deed all of
Lessor's right, title and interest in and to the Site to Lessee or its designee,
without recourse or warranty (except as to the absence of Lessor Liens), and re-
assign to Construction Agent any Construction Documents previously assigned
thereby to Lessor. Lessee, at its option, may assign its right to exercise the
Purchase Option by written notice thereof to Agent and Lessor; provided that (i)
--------
Lessee shall be bound by any exercise of the Purchase Option by the assignee,
(ii) such assignee shall be bound by the provisions of this Article applicable
to the Purchase Option, and (iii) no such assignment shall release Lessee from
its obligations under this Article and, without limitation, Lessee shall remain
primarily liable to Lessor for the payment of all amounts due under this Article
in respect of the Purchase Option.
Section 6.3. Sale Option. If no Lease Default or Lease Event of Default
-----------
shall have occurred and be continuing, then Lessee may cause the entire Site to
be sold on the last day of the Lease Term for cash to a purchaser or purchasers
not affiliated in any way with Lessee (the "Sale Option"); provided that the
----------- --------
entire Site shall be sold to the same Person in the same transaction and subject
to the other terms of this Article. In the event Lessee timely elects the Sale
Option, or in the event Lessor elects to require Lessee to sell the Site as a
result of a Construction Risk Event pursuant to Section 5.4 of the Construction
Agency Agreement, on the last day of the Lease Term (or as otherwise provided in
Section 5.4 of the Construction Agency Agreement), Lessee will pay as
Supplemental Rent to Lessor the amounts determined in accordance with Section
-------
6.4, until the Lease Balance and all other amounts payable under the Operative
- ---
Documents have been paid in full.
Section 6.4. Conditions for Sale of the Site.
-------------------------------
(a) In the event that the Sale Option is applicable, Lessee shall
cause the entire Site to be sold in accordance with the procedures set forth in
this Section. In order to exercise the Sale Option, Lessee shall give notice of
its election of the Sale Option effective at the expiration of the Lease Term,
not later than twelve (12) months prior to such expiration, which notice shall
be irrevocable, and any failure of Lessee to so elect the Sale Option shall be
deemed an election of the Purchase Option pursuant to Section 6.2. Subject to
-----------
the preceding sentence, during the period commencing on the date twelve (12)
months prior to the scheduled end of the Lease Term, Lessee, on behalf of
Lessor, shall use best commercial efforts, as non-exclusive agent for Lessor
(until Lessor appoints a successor, in its sole discretion), to obtain the
highest cash bids
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<PAGE>
for the purchase of the Site and, in the event it receives any bid, Lessee
shall, within five (5) Business Days after receipt thereof and at least twenty
(20) Business Days prior to the Lease Termination Date, certify to Lessor and
Agent in writing the amount and terms of such bid, and the name and address of
the party or parties (who shall not be Lessee or any Affiliate or affiliate of
Lessee or any Person with whom Lessee has an understanding or arrangement
regarding the future use of the Site by Lessee or such Affiliate or affiliate,
but who may be Lessor, Agent, Investor or a Lender, any Affiliate thereof, or
any Person contacted by Lessor, Agent, Investor or a Lender) submitting such
bid. Lessee will keep Agent and Lessor promptly informed of the material terms
of any proposed bid. Lessee shall bear its own expenses and pay, as Supplemental
Rent, the reasonable expenses of Lessor, Agent and each Participant in
connection with any such bidding and sale process pursuant to this Section
including all costs and expenses incurred by any party (including a buyer or
potential buyer) to place the Site in the condition required by Section 9.1 and
------- ---
costs of repairs, Alterations or improvements desired by such buyer.
(b) In the event that Lessee contemplates accepting any bid which,
upon payment of all amounts under this Section, shall result in any portion of
the Lease Balance or any other amount due under the Operative Documents
remaining outstanding (a "Loss Bid"), Lessee shall notify Agent and Lessor in
--------
writing (a "Loss Bid Notice") of such fact and the calculation thereof prior to
---------------
accepting any such bid; and in the event of such bid, any Participant may submit
a bid to Lessee not later than thirty (30) days after the date of such notice
from Lessee. On or before the Lease Termination Date, so long as no Lease
Default or Lease Event of Default shall have occurred and be continuing, and
subject to the release of the security interest with respect to the Site under
the Mortgage: (i) Lessee shall transfer all of Lessee's right, title and
interest in the Site, or cause the Site to be transferred, to the bidder(s), if
any, which shall have submitted the highest bid therefor at least twenty (20)
(or, in the case of Lessor, Agent or a Participant, any Affiliate thereof or
Person contacted by Lessor, Agent or a Participant, five (5)) Business Days
prior to such Lease Termination Date, in the same manner and in the same
condition and otherwise in accordance with all the terms of this Lease; (ii)
subject to prior or concurrent payment by Lessee of all amounts due under clause
(iii) of this sentence, Lessor shall exercise such rights as it has to cause the
Site to be released from the Lien of the Mortgage and shall, without recourse or
warranty (except as to the absence of Lessor Liens), transfer by quitclaim deed
Lessor's right, title and interest in and to the Site for cash to such
bidder(s); and (iii) Lessee shall simultaneously pay or cause to be paid to
Lessor in immediately available funds an amount equal to the sum of (p) all
unpaid Basic Rent due on or prior to the Lease Termination Date, and all
Supplemental Rent due on or prior to such date and any other amounts due and
payable by Lessee to Lessor, Agent, Trustee, Trust Company, each Participant,
and each Indemnitee, plus (q) the gross sale proceeds of the Site sold by Lessor
(the "Proceeds"), plus (r) the Residual Guaranty Amount. To the extent the sum
--------
of the Proceeds plus the Residual Guaranty Amount shall exceed the Lease
Balance, upon receipt of the amounts described in clause (p) of the preceding
sentence, Lessor shall apply the amount of Proceeds equal to such excess to the
amount payable by Lessee under clause (r); provided that, to the extent that the
--------
Proceeds alone shall exceed the Lease Balance, upon receipt of the Proceeds and
the amounts described in clause (p) of the preceding sentence, Lessor shall pay
the amount of such excess to Lessee. Notwithstanding any provision herein to
the contrary, in the event Lessee's exercise of the Sale
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<PAGE>
Option would be pursuant to a bid set forth in a Lease Bid Notice, then, at the
option of Lessor and Agent, Lessee may instead be required to purchase the Site
pursuant to the Sale Option.
(c) If Lessee exercises the Sale Option and a Loss Bid Notice is to be
provided pursuant to Section 6.4(b), then as a condition to Lessee's right to
--------------
consummate the Sale Option pursuant to Sections 6.3 and 6.4, Lessee shall
--------------------
indemnify (without otherwise limiting other indemnities provided in the
Operative Documents), and pay to Lessor on the Lease Termination Date, and the
Lenders, an amount equal to the Shortfall Amount.
"Shortfall Amount" means the amount by which the Site was impaired by
----------------
any of the following, as determined by the Appraisal Procedure set forth in
clause (d), (but in any event shall not exceed the excess, if any, of (i) the
Termination Value over (ii) the sum of the Proceeds plus the Residual Guaranty
Amount):
(i) the existence of any Hazardous Materials, Environmental
Concern Materials or violations of Environmental Laws with respect to the
Site occurring or discovered after the date the Site becomes subject to the
Lease (regardless of the Person so discovering any of the foregoing), or
(ii) any restoration or rebuilding carried out by Lessee or any
failure of Lessee to complete any Alterations, restoration or rebuilding,
or
(iii) any easements or other actions described in Section 8.3
-----------
(i) through (viii), or
------------------
(iv) the failure of Lessor to have good and marketable title to
the Site free and clear of all Liens (including Permitted Liens (other than
Lessor Liens)) and exceptions to title caused by the acts or omissions of
Lessee or any Affiliate or affiliate or Sublessee, or
(v) greater than expected wear and tear during the Lease Term, or
(vi) failure to maintain the Facilities or the Site pursuant to
the terms of the Lease, or
(vii) any other cause or condition within the power of any
Lessee Party to control or affect, differing from ordinary wear and tear.
(d) For determining the Shortfall Amount, Lessor and Lessee shall use
the following procedure (the "Appraisal Procedure"). Lessor and Lessee shall
-------------------
endeavor to reach a mutual agreement as to such amount for a period of ten (10)
days from commencement of the Appraisal Procedure (which shall commence upon
notice by either party), and if they cannot agree within ten (10) days, then two
(2) qualified appraisers, one chosen by Lessee and one chosen by Lessor, shall
mutually agree thereupon, but if either party shall fail to choose an appraiser
within twenty (20) days after notice from the other party of the selection of
its appraiser, then the appraisal by such appointed appraiser shall be binding
on Lessee and Lessor. If the two (2)
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<PAGE>
appraisers cannot agree within twenty (20) days after both shall have been
appointed, then a third (3rd) appraiser shall be selected by the two (2)
appraisers or, failing agreement as to such third (3rd) appraiser within thirty
(30) days after both shall have been appointed, by the American Arbitration
Association. The decisions of the three (3) appraisers shall be given within
twenty (20) days of the appointment of the third (3rd) appraiser and the
decision of the appraiser most different from the average of the other two (2)
shall be discarded and such average shall be binding on Lessor and Lessee;
provided that if the highest appraisal and the lowest appraisal are equidistant
- --------
from the third appraisal, the third appraisal shall be binding on Lessor and
Lessee. The fees and expenses of all of the appraisers shall be paid by Lessee.
Section 6.5. Exercise of Options; Failure to Elect. In order to exercise
-------------------------------------
any of its purchase or sale options under this Lease, Lessee shall give
irrevocable written notice to Lessor not less than twelve (12) months prior to
the end of the then current Lease Term, that Lessee intends to exercise one of
the options provided in this Article and specifying such option. If Lessee shall
fail to deliver such written notice in the time required, Lessee shall be deemed
to have elected to exercise the Purchase Option pursuant to Section 6.2.
-----------
Lessee's election (or deemed election) of the Purchase Option will be
irrevocable at the time it is made (or deemed made). If Lessee has elected the
option to sell the Site under Section 6.3, such option shall be automatically
-----------
revoked and such election shall be deemed of no effect if, on or after the date
Lessee elects such option, there exists or occurs a Lease Default or Lease Event
of Default or Lessee shall fail in any manner fully to comply with this Article,
in which case Lessee shall be automatically deemed to have elected the Purchase
Option pursuant to Section 6.2.
-----------
Section 6.6. Return of Site. Unless the Site shall have been transferred
--------------
to Lessee pursuant to Section 6.2, Lessee shall, on the Lease Termination Date,
-----------
and at its own expense, transfer the Site (together with the reports described
in Section 9.4 relating thereto) to the independent purchaser thereof pursuant
-----------
to Section 6.3, free and clear of all Liens other than Permitted Exceptions and
-----------
Lessor Liens, in as good condition as they were on the Document Closing Date,
ordinary wear and tear excepted, and in compliance with all Applicable Laws and
Regulations and the other requirements of Article IX (and in any event without
(x) any asbestos installed or maintained in any part of the Site, (y) any
polychlorinated biphenyl (PCBs) in, on or used, stored or located at the Site,
and (z) any other Hazardous Materials). Lessee shall cooperate with the
independent purchaser of the Site in order to facilitate the ownership and
operation by such purchaser of the Site after the Lease Termination Date,
including providing all books, reports and records regarding the maintenance,
repair and ownership of the Site and all data and technical information relating
to the physical operation and maintenance of the Site, granting or assigning (to
the extent permitted by law) all licenses necessary for the operation and
maintenance of the Site and cooperating in seeking and obtaining all necessary
Governmental Action. Lessee shall have also paid the total cost for the
completion of all Alterations commenced prior to the Lease Termination Date. The
obligation of Lessee under this Article regarding the Purchase Option shall
survive the expiration or termination of this Lease, except if Lessee duly and
timely exercises the Sale Option and performs its obligations under Sections 6.3
------------
and 6.4. Unless Lessee shall have exercised or been deemed to have exercised its
- -------
option to purchase the Site, then after the date which is twelve (12) months
prior to the Lease Termination Date, Lessor shall at Lessee's expense be
entitled to perform such investigation, including obtaining reports of
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engineers and other experts as to the condition and state of repair and
maintenance required by this Section and as to the compliance with Environmental
Laws of the Site, as it deems appropriate. Lessee, at its sole cost and expense,
shall cause the repair or other remediation of any discrepancies between the
actual condition of the Site and the condition required under the Lease, such
repair or remediation to be completed not later than the expiration of this
Lease.
Section 6.7. Completion of Facilities. In the event that the New Facility
------------------------
becomes subject to this Lease prior to Completion thereof due to the termination
of the Construction Period applicable thereto under Section 5.1 of the
Participation Agreement, upon request, Lessee shall diligently pursue
construction of the New Facility in accordance with the construction-related
provisions of the Operative Documents (including those set forth in the
provisions of Article III of the Participation Agreement, notwithstanding that
the Participants shall not be obligated to make any Advances in respect of such
construction) and shall cause the Completion of such Facility not later than the
earlier to occur of (x) the date which is twelve (12) months after the Site
Acquisition Date and (y) the original expiration date of the Construction Period
for the New Facility, not taking into account the early termination of such
Construction Period.
Section 6.8. Failure of Lessee to Sell Site. If Lessee shall exercise (or
------------------------------
be required to exercise, pursuant to Section 5.4 of the Construction Agency
Agreement) the Sale Option and shall fail to arrange for the sale of all of the
Site on or before the Lease Termination Date in accordance with and subject to
the provisions of Sections 6.3 and 6.4, then Lessee and Lessor hereby agree as
--------------------
follows:
(a) On the Lease Termination Date, Lessee shall (i) pay to Lessor (on
behalf of the Participants) the Residual Guaranty Amount and (ii) Lessee will do
the following:
(1) at the option of Lessor and Agent, either (x) cancel the sale
of the Site for which Lessee has arranged a sale (in which case, the Site
will constitute an "unsold Site" under this Section or (y) sell the Site
for which Lessee has arranged a sale pursuant to the provisions of
Sections 6.3 and 6.4; and
--------------------
(2) in the event of clause 1(x) above, at the option of Lessor
and Agent, either (x) tender to Lessor possession of the unsold Site or (y)
continue to lease the unsold Site during a holdover period (the "Holdover
--------
Period") and in the case of such holdover, Lessee shall continue to market,
------
on a non-exclusive basis, the Site for sale on behalf of Lessor in
accordance with the provisions of the Lease. Such Holdover Period shall
expire on the earlier of (x) the sale of the Site, (y) the reduction of the
Lease Balance to zero and the payment by Lessee of all Basic Rent,
Supplemental Rent and all other amounts then due and payable under the
Operative Documents, and (z) written notice by Lessor and Agent of a date
specified for the termination of such Holdover Period with respect to the
Site. The Basic Rent payable by Lessee for the Site during any Holdover
Period shall be applied first to payment of the portion of Basic Rent, with
any excess being applied to reduce the Lease Balance. Any Proceeds from
the sale of the Site during the Holdover Period will be applied to reduce
the Lease Balance, with such application being allocated first to Lenders
in respect of the remaining amount of the Notes, and second to
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the Investor Contribution. If and when the Lease Balance shall be reduced
to zero and all other amounts due and payable under the Operative
Documents, (i) any further Proceeds from the sale of the Site shall be
remitted to Lessee for its own account, (ii) at the request of either
Lessor (or Agent on Lessor's behalf) or Lessee, Lessor will transfer to
Lessee or its designee, and Lessee will accept or cause its designee to
accept the transfer of the Site by quitclaim deed, and Lessee shall pay or
cause to be paid all costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses of counsel to the Participants) in
connection with such transfer.
Lessor and Agent shall not make the elections under clause (1)(y) and clause
(2)(x) above without receiving (x) the consent of all Lenders if after giving
effect to such sale and payment by Lessee of the Residual Guaranty Amount, any
portion of the principal of and accrued interest on the Notes will remain
outstanding, and (y) the consent of Investor if after giving effect to such sale
and payment by Lessee of the Residual Guaranty Amount, any portion of the
Investor Contribution or accrued Yield will remain outstanding.
(b) On or after the Lease Termination Date, Lessor shall have the
right, but not the obligation, to sell the Site for such purchase price and upon
such terms as Lessor shall determine in its sole discretion. In the event that
Lessor shall so elect to sell the Site, Lessor shall notify each of Agent,
Investor, Lessee and Lenders thereof, and each shall have the right to submit a
bid and/or to cause any other Person to submit a bid to Lessor not later than
twenty (20) Business Days prior to the date Lessor desires to sell the Site (as
set forth in the aforementioned notice thereof); provided, however, that Lessor,
-------- -------
on behalf of Lessor, Agent and Participants, shall have the right, in its sole
discretion, from time to time, to defer such proposed sale date, in which event,
the rights of Lessee, Agent, Investor and each Lender to submit a bid and/or to
cause any other Person to submit a bid to Lessor shall be extended to the date
that is twenty (20) Business Days prior to the revised proposed sale date. At
no time shall Lessor be obligated to accept any bid for the sale of the Site
(whether such bid was obtained by Lessee, Lessor, Agent, Investor, any Lender or
otherwise) or to consummate any proposed sale.
(c) At any time and from time to time on or after the Lease
Termination Date, Lessor, on behalf of Lessor, Agent, Investor and Lenders,
shall have the right to withdraw from any sale deposit (other than the portion
thereof constituting the Residual Guaranty Amount) amounts to pay, or reimburse
itself for the payment of, expenses of Lessor, Agent and each Participant in
connection with any bidding and sale (or proposed sale, whether or not
consummated) described in clause (b). In the event that there are insufficient
funds remaining from the sale deposit to pay such expenses, Lessee shall pay
such expenses from time to time upon demand.
(d) Contemporaneously with the consummation of any sale of the Site by
Lessee or Lessor pursuant to this Section, (i) Lessee will transfer all of
Lessee's right, title and interest in the Site to be transferred to the
purchaser, (ii) subject to prior or concurrent payment by Lessee of all amounts
due under clause (iii) of this sentence and receipt by Lessor of Proceeds from
such sale, Lessor shall exercise such rights as it has to cause the Site to be
released from the Lien of the Mortgages and shall, without recourse or warranty
(except as to the absence of Lessor
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<PAGE>
Liens), transfer by quitclaim deed Lessor's right, title and interest in and to
the Site for cash to such purchaser; and (iii) Lessee shall simultaneously pay
or cause to be paid to Lessor, on behalf of Lessor, Agent, Participants, Trustee
and Trust Company, in immediately available funds an amount equal to all unpaid
Basic Rent and all Supplement Rent due on or prior thereto and any other amounts
due and payable by Lessee to Lessor, Agent, each Participant, Trustee and Trust
Company. Any Proceeds in excess of the sum of (x) the Lease Balance, plus (y)
all unpaid Basic Rent and all Supplemental Rent due on or prior thereto and any
other amounts due and payable by Lessee to Lessor, Agent, each Participant,
Trustee and Trust Company shall, so long as no Lease Default or Lease Event of
Default exists, be remitted to Lessee promptly after receipt.
(e) Until a sale of the Site by Lessee or Lessor pursuant to this
Section, Lessee shall be bound by all of the obligations and duties of Lessee
under this Lease, notwithstanding the occurrence of the Lease Termination Date.
(f) Lessor reserves all rights under this Lease and the other
Operative Documents arising out of Lessee's breach of any provisions of this
Lease (including Article VI), whether occurring prior to, on or after the Lease
----------
Termination Date, including Lessee's breach of any of its obligations under
Sections 6.3 and 6.4, including the right to sue Lessee for damages.
- --------------------
(g) To the greatest extent permitted by law, Lessee hereby
unconditionally and irrevocably waives, and releases Lessor, each Participant
and Agent from, any right to require Lessor, each Participant or Agent to sell
the Site at all or for any minimum purchase price or on any particular terms and
conditions, Lessee hereby agreeing that if Lessee shall elect, or be required to
elect, the Sale Option, its ability to sell the Site on or prior to the Lease
Termination Date and its right thereafter to submit a bid or to cause any other
Person to submit a bid pursuant to Section 6.8(b) in the event Lessor shall
--------------
elect to sell the Site, shall constitute full and complete protection of
Lessee's interest hereunder.
ARTICLE VII.
CONDITION AND USE OF SITE
Section 7.1. Waivers. LESSEE ACKNOWLEDGES AND AGREES THAT, ALTHOUGH
-------
LESSOR WILL OWN AND HOLD TITLE TO THE SITE, CONSTRUCTION AGENT IS SOLELY
RESPONSIBLE UNDER THE TERMS OF THE CONSTRUCTION AGENCY AGREEMENT FOR THE DESIGN,
DEVELOPMENT, BUDGETING, CHANGE ORDERS AND CONSTRUCTION OF THE FACILITIES AND ANY
ALTERATIONS. The Site is let by Lessor "AS IS" in their present or then
condition, as the case may be, subject to (a) any rights of any parties in
possession thereof, (b) the state of the title thereto existing at the time
Lessor acquired its interest in the Site, (c) any state of facts which an
accurate survey or physical inspection might show (including any survey
delivered on or prior to the Document Closing Date or the Completion Date), (d)
all Applicable Laws and Regulations, and (e) any violations of Applicable Laws
and Regulations which may exist at the commencement of the Lease Term. Lessee
has examined the Site and (insofar as Lessor is concerned) has found the same to
be satisfactory. NEITHER LESSOR, INVESTOR, AGENT NOR ANY LENDER HAS MADE OR
SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR
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WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO HAVE ANY LIABILITY
WHATSOEVER AS TO THE TITLE TO THE SITE OR TO THE VALUE, MERCHANTABILITY,
HABITABILITY, CONDITION, OR FITNESS FOR USE OF THE SITE, OR ANY PART THEREOF, OR
ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE SITE, OR ANY PART THEREOF, AND NEITHER LESSOR, INVESTOR, AGENT
NOR ANY LENDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN
OR THE FAILURE OF THE SITE, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE
LAWS AND REGULATIONS, except that Lessor hereby represents and warrants that the
Site is and shall be free of Lessor Liens. Lessee has been afforded full
opportunity to inspect the Site, is satisfied with the results of its
inspections 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
preceding sentence (other than Lessor Liens), as between Lessor, Investor, Agent
and the Lenders, on the one hand, and Lessee, on the other, are to be borne by
Lessee. The provisions of this Article 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 any of
Lessor, Investor, Agent or the Lenders, express or implied, with respect to the
Site (or any interest therein), that may arise pursuant to any law now or
hereafter in effect or otherwise.
ARTICLE VIII.
LIENS; EASEMENTS
Section 8.1. Liens. Lessee shall not directly or indirectly create,
-----
incur, assume or suffer to exist any Lien, defect, attachment, levy, title
retention agreement or claim upon the Site or Alteration, or with respect to the
Site, any Rent, the title thereto, or any interest therein, including all Liens
which arise out of the possession, use, occupancy or construction of the Site or
by reason of labor or materials furnished or claimed to have been furnished to
Lessee, or any of its contractors or agents or by reason of the financing of any
Alterations constructed by or for the benefit of Lessee and not financed by
Lessor, except in all cases Permitted Liens. With respect to all Liens other
than Permitted Liens, Lessee shall promptly, but not later than twenty (20) days
(or, in the case of non-consensual Liens, forty-five (45) days) after the filing
thereof, at its own expense, take such action as may be necessary duly to
discharge or eliminate or bond in a manner reasonably satisfactory to Lessor any
such Lien if the same shall arise at any time.
Section 8.2. No Lessor Consent or Liability. Nothing contained in this
------------------------------
Lease shall be construed as constituting the consent or request of the Lessor,
expressed or implied, to or for the performance by any contractor, mechanic,
laborer, materialman, supplier or vendor of any labor or services or for the
furnishing of any materials for any construction, alteration, addition, repair
or demolition of or to the Site or any part thereof. NOTICE IS HEREBY GIVEN THAT
NONE OF LESSOR, ANY PARTICIPANT NOR AGENT IS OR SHALL BE LIABLE FOR ANY LABOR,
SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE
HOLDING THE SITE OR ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO
MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR,
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<PAGE>
SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR,
INVESTOR, AGENT OR ANY LENDER IN AND TO THE SITE.
Section 8.3. Easements. Subject to Section 3.4 of the Construction
---------
Agency Agreement (which shall take precedence over these provisions during the
Construction Period) and notwithstanding the foregoing Section, at the request
of Lessee, Lessor shall, from time to time during the Lease Term and upon at
least fifteen (15) days prior written notice to Lessor and Agent from Lessee,
and receipt of the materials specified in the next succeeding sentence (as well
as the receipt of written instructions from Agent directing Lessor to take such
action as it deems appropriate), consent to and join in any (i) grant of
easements, licenses, rights of way, party wall rights and other rights in the
nature of easements, with or without consideration, (ii) release or termination
of easements, licenses, rights of way, party wall rights or other rights in the
nature of easements which are for the benefit of the Site or any portion
thereof, with or without consideration, (iii) dedication or transfer of portions
of the Site, not improved with a building, for road, highway or other public
purposes, with or without consideration, (iv) execution of petitions to have the
Site or any portion thereof annexed to any municipal corporation or utility
district, (v) execution of agreements for the use and maintenance of common
areas, for reciprocal rights of parking, ingress and egress and amendments to
any covenants and restrictions affecting the Site or any portion thereof, with
or without consideration, (vi) request to any Governmental Authority for
platting or subdivision or replatting or resubdivision approval with respect to
the Site or any portion thereof or any parcel of land of which the Site or any
portion thereof forms a part or a request for any variance from zoning, (vii)
creation of a governmental special benefit district for public improvements and
collection of special assessments in connection therewith, in lump sum or
installments, and (viii) execution and delivery of any instrument appropriate to
confirm or effect such grant, release, dedication, transfer request or such
other matter, document or proceeding. 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 Lessee,
and Lessee shall pay all out-of-pocket costs of Lessor, Agent and Participants
in connection therewith (including, without limitation, the fees of attorneys
(including allocated costs of internal counsel of Agent);
(b) Lessee shall have delivered to Lessor and Agent a certificate of a
Responsible Officer of Lessee stating that:
(1) such action will not cause the Site or any portion thereof to
fail to comply in any respect with the provisions of the Lease or any other
Operative Documents and in any material respect with all Applicable Laws
and Regulations (including, without limitation, all applicable zoning,
planning, building and subdivision ordinances, all applicable restrictive
covenants and all applicable architectural approval requirements);
(2) all governmental consents or approvals required prior to such
action have been obtained, and all filings required prior to such action
have been made;
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<PAGE>
(3) such action will not result in any material down-zoning of
the Site or any portion thereof or a material reduction in the maximum
density or development rights available to the Site under all Applicable
Laws and Regulations;
(4) this Lease and Lessee's obligations hereunder shall continue
in full force and effect, without abatement, suspension, deferment,
diminution, reduction, counterclaim, setoff, defense or deduction;
(5) such action will not materially reduce the Fair Market Sales
Value, utility, remaining economic useful life or residual value of the
Site or Lessor's interest therein; and
(6) such action will not impose or create any liability or
obligation on Lessor;
(c) all consideration received in connection with such action shall be
paid to Lessor; and
(d) no Lease Default or Lease Event of Default shall have occurred and
be continuing.
ARTICLE IX.
MAINTENANCE AND REPAIR; ALTERATIONS AND ADDITIONS
Section 9.1. Maintenance and Repair; Compliance With Law. Lessee, at its
-------------------------------------------
own expense, shall at all times (a) maintain the Site in good repair and
condition (which condition shall be no less than consistent with industry
standards for similar facilities), subject to ordinary wear and tear, and in
safe repair and condition (all whether involving interior or exterior,
structural or nonstructural, ordinary or extraordinary, and foreseen or
unforeseen circumstances); (b) except to the extent Section 9.5 shall apply,
-----------
maintain, manage and monitor the Site in accordance with all Applicable Laws and
Regulations, whether or not such maintenance requires structural modifications,
noncompliance with which (i) would have a material adverse effect on the Site,
Lessee's right to use the Site or Lessee's business or financial condition, (ii)
would cause any of the results enumerated in Section 9.5 hereof, (iii) would
-----------
materially adversely affect the Fair Market Sales Value, utility, remaining
economic useful life or residual value of the Site, or (iv) would materially
adversely affect Lessor's interest in the Site; (c) comply with the standards
imposed by any insurance required to be maintained hereunder which are in effect
at any time with respect to the Site or any part thereof; (d) maintain, manage
and monitor the Site in accordance with all applicable contracts, including
service contracts and insurance contracts; (e) conduct maintenance and repair
under the same programs and subject to the same standards as Lessee or its
Affiliates shall maintain and repair other facilities owned, leased or operated
by Lessee or its Affiliates; (f) cause the Site to continue to have at all times
the capacity and functional ability to be used for, on a continuing basis
(subject to normal interruption in the ordinary course of business for
maintenance, inspection and repair) and in commercial operation, the purposes
for which it was specifically designed; (g) maintain appropriate and customary
written environmental operations and maintenance plans (including, where
appropriate for asbestos-containing materials)
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<PAGE>
for the Site; and (h) procure, maintain and comply in all material respects with
all material licenses, permits, orders, approvals, consents and other
authorizations required for the construction, use, maintenance and operation of
the Site and for the use, operation, maintenance, repair and restoration of the
Facilities. Lessee waives any right that it may now have or hereafter acquire to
(x) require Lessor to maintain, repair, replace, alter, remove or rebuild all or
any part of the Site or (y) make repairs at the expense of Lessor pursuant to
any Applicable Laws and Regulations or other agreements.
Section 9.2. Alterations.
-----------
(a) At Lessee's own cost and expense, (i) Lessee shall make
alterations, renovations, improvements and additions to the Site or any part
thereof and substitutions and replacements therefor (collectively,
"Alterations"), so long as such Alterations are (a) made to repair or maintain
-----------
the Site in the condition required by Section 9.1; (b) necessary in order for
-----------
the Site to be in compliance with Applicable Laws and Regulations; or (c)
necessary or advisable to restore the Site to its condition existing prior to a
Casualty or Condemnation; and (ii) so long as no Lease Default or Lease Event of
Default has occurred and is continuing, Lessee may undertake Alterations so long
as such Alterations comply with Applicable Laws and Regulations and with Section
-------
9.1 and subsection (b) of this Section.
- ---
(b) The making of any Alterations must be in compliance with the
following requirements (provided that, in the case of any Alteration required by
--------
an emergency or by Applicable Laws and Regulations, Lessee shall (x) promptly
notify Lessor and Agent thereof, and (y) effect such Alteration in a manner to
avoid (or minimize if it is not possible to avoid) any violation of clause (4)
below):
(1) Lessee shall not make any Alterations in violation of the
terms of any restriction, easement, condition or covenant or other matter
affecting title to the Site.
(2) No Alterations shall be undertaken until Lessee shall have
procured and paid for, so far as the same may be required from time to
time, all permits and authorizations relating to such Alterations of all
municipal and other Governmental Authorities having jurisdiction over the
Site. Lessor, at Lessee's expense, shall join in the application for any
such permit or authorization and execute and deliver any document in
connection therewith, whenever such joinder is necessary or advisable.
(3) The Alterations shall be expeditiously completed in a good
and workmanlike manner and in compliance with all Applicable Laws and
Regulations then in effect and the standards imposed by any insurance
policies required to be maintained hereunder.
(4) All Alterations shall, when completed, be of such a character
as to not materially adversely affect the Fair Market Sales Value, utility,
remaining economic useful life or residual value of the Site from its Fair
Market Sales Value, utility, remaining economic useful life or residual
value immediately prior to the making thereof or, in the
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case of Alterations being made by virtue of a Casualty or Condemnation,
immediately prior to the occurrence of such Casualty or Condemnation.
(5) Lessee shall have made adequate arrangements for payment of
the cost of all Alterations when due so that the Site shall at all times be
free of Liens for labor and materials supplied or claimed to have been
supplied to the Site, other than Permitted Liens; provided, that Lessee
--------
shall have the right to contest the amount claimed by any such supplier of
labor or materials in accordance with the applicable provisions of Section
-------
9.5.
---
Section 9.3. Title to Alterations. Title to Alterations shall without
--------------------
further act vest in Lessor and shall be deemed to constitute a part of the Site
and be subject to this Lease in the following cases:
(a) such Alterations shall be in replacement of or in substitution for
a portion of the Facilities and/or the Site, or otherwise financed with
Advances;
(b) such Alterations shall be required to be made pursuant to the
terms of Section 9.1 or 9.2(a)(i) hereof; or
------------------------
(c) such Alterations shall be Nonseverable.
Lessee, at Lessor's request, shall execute and deliver any deeds,
bills of sale, assignments or other documents of conveyance reasonably necessary
to evidence the vesting of title in and to such Alterations to Lessor.
If such Alterations are not within any of the categories set forth in
Section 9.3(a) through (c), then title to such Alterations shall vest in Lessee
- --------------------------
and such Alterations shall not be deemed to be Alterations which are part of the
Site.
All Alterations to which Lessee shall have title may, so long as
removal thereof shall not result in the violation of any Applicable Laws and
Regulations and no Lease Default or Lease Event of Default is continuing, be
removed at any time by Lessee. Any such Alterations shall be removed by Lessee
at its expense if Lessor shall so request prior to the return of the Site to
Lessor or sale of the Site in accordance with the provisions of this Lease, and
Lessee shall at its expense repair any damage to the Site caused by the removal
of such Alterations. Lessor (or the purchaser of the Site) may purchase from
Lessee Alterations (if not already owned by Lessor) which Lessee notifies Lessor
that Lessee intends to remove from the Site prior to the return of the Site to
Lessor or sale of the Site, which purchase shall be at the Fair Market Sales
Value of such Alterations. Title to any Alterations shall vest in Lessor (or
the purchaser of the Site) if not removed from the Site by Lessee prior to the
return of the Site to Lessor or sale of the Site.
Section 9.4. Maintenance and Repair Reports. Lessee shall keep maintenance
------------------------------
and repair reports in sufficient detail, and as customary for owners of
commercial real estate, to indicate the nature and date of major work done.
Lessee shall prepare and maintain appropriate and customary written operations
and maintenance plans (including, where appropriate for
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asbestos-containing materials) for the Site. Such reports and plans shall be
kept on file by Lessee at its offices during the Lease Term, and shall be made
available to Lessor, Agent or any Participant upon reasonable request. Lessee
shall give notice to Lessor and Agent of any Condemnation or Casualty the cost
to repair which is reasonably expected by Lessee to exceed Five Hundred Thousand
Dollars ($500,000), promptly after Lessee has knowledge thereof.
Section 9.5. Permitted Contests. If, to the extent and for so long as (a)
------------------
a test, challenge, appeal or proceeding for review of any Applicable Laws and
Regulations or any Governmental Action relating to the Site or to the operation
or maintenance of any Facility shall be prosecuted diligently and in good faith
in appropriate proceedings by Lessee or (b) compliance with such Applicable Laws
and Regulations or such Governmental Action shall have been excused or exempted
by a valid nonconforming use permit, waiver, extension or forbearance, Lessee
shall not be required to comply with such Applicable Laws and Regulations or
such Governmental Action but, only if and so long as any such test, challenge,
appeal, proceeding or noncompliance shall not, in the reasonable opinion of
Lessor and Agent, involve (a) any meaningful risk of (1) foreclosure, forfeiture
or loss of any part of the Site, (2) criminal liability being imposed on Lessor,
Agent, any Participant or the Site or (3) the nonpayment of Rent or (b) any
substantial danger of (1) the sale of, or the creation of any Lien (other than a
Permitted Lien) on, any part of the Site, (2) material civil liability being
imposed on Lessor, Agent, any Participant or the Site, (3) the extension of the
ultimate imposition of such Applicable Laws and Regulations or such Governmental
Action beyond the last day of the Lease Term, or (4) enjoinment of, or
interference with, the use, possession or disposition of the Site in any
material respect. Lessee shall provide Lessor and Agent with notice of any
contest of the type described in clause (a) above in detail sufficient to enable
Lessor to ascertain whether such contest may have an effect of the type
described in clauses (a) and (b) above.
Lessor will not be required to join in any proceedings pursuant to
this Section, unless a provision of any Applicable Laws and Regulations
requires, or, in the good faith opinion of Lessee, it is helpful to Lessee that
such proceedings be brought by or in the name of Lessor and Lessor in good faith
believes that it will not incur liability as a result; and in that event Lessor
will join in the proceedings or permit them or any part thereof to be brought in
its name if and so long as no Lease Default or Lease Event of Default is
continuing and Lessee pays all related expenses.
ARTICLE X.
USE
The Site shall be used, during its Construction Period, in a manner
consistent with the Construction Agency Agreement, and thereafter, Lessee may
use the Site as an office building and distribution center and for related
ancillary purposes, or in such other manner reasonably acceptable to Lessor and
Agent in their sole discretion. Lessee shall not use the Site or any part
thereof for any purpose or in any manner that would materially adversely affect
the Fair Market Sales Value, utility, remaining useful life or residual value of
the Site or that would create a materially increased risk of environmental
liability or that would violate or conflict with, or constitute or result in a
violation or default under (a) any Applicable Laws and Regulations whether now
existing or hereafter in effect, foreseen or unforeseen, except to the extent
permitted
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by Section 9.5, (b) any insurance policies required by Article XI, or (c) any
----------- ----------
Operative Document. Lessee shall pay, or cause to be paid, all charges and costs
required in connection with the use of the Site as contemplated by this Lease
and the Construction Agency Agreement. Lessee shall not commit or permit any
waste of the Site or any part thereof.
ARTICLE XI.
INSURANCE
Section 11.1. Required Coverages. Lessee will keep insured all property
------------------
of a character usually insured by corporations engaged in the same or similar
business similarly situated against loss or damage of the kinds and in the
amounts customarily insured against by such corporations, and carry such other
insurance as is usually carried by such corporations; provided that, in any
--------
event, Lessee will maintain:
(a) Commercial General Liability Insurance. Combined single limit
--------------------------------------
insurance against claims for bodily injury, death or third-party property damage
occurring on, in or about the Site (including adjoining streets and sidewalks)
and any claims arising out of the ownership, operation, maintenance, condition
and use of the Site in the minimum amount of Fifty Million Dollars ($50,000,000)
per person and Fifty Million Dollars ($50,000,000) per occurrence and Ten
Million Dollars ($10,000,000) for property damage per occurrence; provided,
--------
however, that Lessee may provide for commercial general liability insurance
- -------
against such claims under an umbrella liability policy.
(b) Property Insurance. Insurance against all risks of direct physical
------------------
loss, including loss by fire, lightning, windstorm (if commercially reasonable
to obtain), hail, explosion, riot and civil commotion, aircraft and vehicles,
smoke, flood (if commercially reasonable to obtain), earthquake and other risks
which at the time are included under usual and customary extended coverage
endorsements in amounts sufficient to prevent the Lessor and the Lessee from
becoming a co-insurer of any loss, but in any event not less than the actual
replacement value of the buildings and improvements on the Site or the amount
sufficient to retire the Notes and pay in full the Investor Contribution, and
the payment of all accrued but unpaid Basic Rent, Lease Balance and all other
amounts (including, without limitation, all Supplemental Rent), fees and
expenses then due and payable by a Lessee Party under any of the Operative
Documents, whichever is greater; provided, however, that any deductible under
-------- -------
such insurance policies shall not be in excess of an amount acceptable to Lessor
and the Agent; and, provided further, that the Lessee may provide for property
-------- -------
insurance against such claims under a blanket property insurance policy of at
least One Hundred Million Dollars ($100,000,000) coverage per occurrence and One
Hundred Million Dollars ($100,000,000) aggregate per annum covering all premises
owned, leased or occupied by the Lessee including the Site; and provided,
--------
finally that earthquake coverage shall be in amount equal to the probable
- -------
maximum loss coverage as determined by a nationally recognized broker.
(c) Workers' Compensation Insurance. Lessee shall, in the
-------------------------------
construction of the New Facility (including in connection with any Alterations
thereof) and the operation of the Site,
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<PAGE>
comply with the applicable Workers' Compensation laws and protect Lessor, Agent
and the Participants against any liability under such laws.
(d) Builder's Risk Insurance. During the construction of any
------------------------
Alteration, Lessee shall also maintain, for the benefit of Lessor, all-risk
Builders' Risk Insurance in an amount equal to the greater of the replacement
value of the New Facility and Alteration and the then outstanding Termination
Value; provided, however, that any deductible amounts exceeding Twenty Five
-------- -------
Thousand Dollars ($25,000) under the policy be subject to the approval of the
Lessor and Agent; and provided, further that earthquake coverage shall be in the
-------- -------
amount equal to the probable maximum loss coverage as determined by a nationally
recognized broker.
(e) Flood Insurance. If the Site is located in a special flood hazard
---------------
area (as defined in National Flood Insurance Reform Act), Lessee shall maintain
flood insurance, for the benefit of Lessor, Agent and Participants, in an amount
at least equal to the then outstanding Termination Value. Prior to the date
hereof and from time to time upon Lessor's request, Lessee shall deliver to
Lessor evidence reasonably satisfactory to Lessor for the Site establishing
whether the Site is located in a special flood hazard area.
(f) Other Insurance. Such other insurance, including malpractice or
---------------
professional liability insurance, automobile liability (if applicable) and
business interruption insurance, in each case as is generally carried by owners
of similar properties in such amounts and against such risks as are then
customary for properties similar in use.
Such insurance shall be written by reputable insurance companies that
are financially sound and solvent and otherwise reasonably appropriate
considering the amount and type of insurance being provided by such companies.
Any insurance company selected by Lessee shall be rated in A.M. Best's Insurance
Guide or any successor thereto (or if there be none, an organization having a
similar national reputation) and shall have a general policyholder rating of "A-
" (or comparable rating for a rating by an organization other than A.M. Best)
and a financial rating of at least "X" (or comparable rating for a rating by an
organization other than A.M. Best) or be otherwise acceptable to the Lessor and
Agent. In the case of liability insurance maintained by Lessee, it shall name
Agent, together with Lessor, as additional insureds and, in the case of property
insurance maintained by Lessee, it shall name Agent, together with Lessor, as
mortgagees and loss payees. Lessee agrees that it will furnish Lessor and Agent
with certificates or, if requested by Lessor, copies of policies showing the
insurance required to be in effect hereunder. Each policy referred to in this
Section shall provide that: (i) it will not be canceled, materially modified or
its limits reduced, or allowed to lapse without renewal, except after not less
than thirty (30) days prior written notice to Agent and Lessor; (ii) the
interests of Agent and Lessor shall not be invalidated by any act or negligence
of or breach of warranty or representation by Lessee or any Person having an
interest in the Site or the Facility thereon; (iii) such insurance is primary
with respect to any other insurance carried by or available to Agent and Lessor;
(iv) the insurer shall waive any right of subrogation, setoff, counterclaim, or
other deduction, whether by attachment or otherwise, against Agent or Lessor;
and (v) such policy shall contain a cross-liability clause providing for
coverage of Agent and Lessor as if separate policies had been issued to each of
them. Lessee will notify Agent and Lessor promptly of any policy cancellation,
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<PAGE>
reduction in policy limits, modification or amendment. The term "Peril" shall
-----
mean, collectively, fire, lightning, flood, windstorm, hail, explosion, riot and
civil commotion, vandalism and malicious mischief, damage from aircraft,
vehicles and smoke and all other perils covered by the "all risk endorsement"
then in use in the State of California.
Section 11.2. Delivery of Insurance Certificates. On or before the
----------------------------------
Document Closing Date, Lessee shall deliver to Agent and Lessor certificates of
insurance satisfactory to Agent and Lessor evidencing the existence of all
insurance required to be maintained hereunder and setting forth the respective
coverages, limits of liability, carrier, policy number and period of coverage.
Thereafter, throughout the Lease Term, at the time each of Lessee's insurance
policies is renewed (but in no event less frequently than once each year),
Lessee shall deliver to Agent and Lessor certificates of insurance evidencing
that all insurance required by Section 11.1 to be maintained by Lessee with
------------
respect to the Site is in effect.
ARTICLE XII.
SUBLEASING
Section 12.1. Subletting. (a) Lessee may not sublease, in whole or in
----------
part, any of its right, title or interest in, to or under this Lease or any
portion of the Site to any Person at any time, and any such sublease shall be
void and of no force or effect; provided, however, that without the consent of
-------- -------
Lessor, Lessee may sublease the Site to Sublessee pursuant to the Sublease.
Regardless of Lessor's consent, no subletting shall release Lessee of Lessee's
obligation or alter the primary liability of Lessee to pay Rent hereunder
(including, without limitation, Basic Rent and Supplemental Rent) and to perform
all other obligations to be performed by Lessee hereunder. The acceptance of
Rent by Lessor or Agent from any other Person shall not be deemed to be a waiver
by Lessor of any provision hereof. Consent to one subletting of the Site shall
not be deemed consent to any subsequent or further subletting of the Site or any
other Site. Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said successor.
(b) Lessee hereby assigns to Lessor all of Lessee's right, title and
interest in and to the Sublease, now or hereafter in effect, including, but not
limited to, all rents and other sums payable to Lessee under such Sublease.
Lessor shall have no obligation to perform, and Lessee shall not by reason of
such assignment be relieved of its obligation to perform, any of Lessee's
covenants or agreements under this Lease or covenants or agreements of Lessee,
as sublessor, under the Sublease; provided that, upon the termination of this
--------
Lease or upon termination of Lessee's right to possess the Site following a
Lease Event of Default (the date of such termination shall be referred to herein
as the "Turnover Date") the following shall apply: (a) if Lessee acquires
-------------
ownership of the Site in accordance with the terms of this Lease or if Lessee's
right to possess the Site has been terminated following a Lease Event of Default
then, subject to the provisions of Article XVIII, Lessee shall continue to be
-------------
liable for all obligations under the Sublease; or (b) if Lessee does not acquire
ownership of the Site, (i) Lessee shall continue to be liable for any
obligations under the Sublease accruing or arising prior to the Turnover Date
and for any tenant improvement obligations arising or accruing prior to the
later of (x) the Turnover Date and (y) the scheduled termination date of the
Lease Term and (ii) if the
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<PAGE>
Sublease is not terminated in accordance with Section 12.2(b), Lessor (or any
------- -------
successor owner of the Site (the "Designated Owner")) shall assume and be liable
----------------
for, subject to the limitations on the liability of the Designated Owner set
forth in Section 12.2 and subject to the limitations on the liability of Lessee
set forth in Article XVIII, Lessee's obligations under the Sublease other than
-------------
those referred to in clause (i) above. Prior to the Turnover Date, Lessee shall
have the right to collect and enjoy all rents and other sums of money payable
under any Sublease and Lessee shall have the right to modify, extend, amend or
terminate any or all of the Sublease, so long as such modification, extension,
amendment or termination could not have a Material Adverse Effect or conflict
with or violate any of the Operative Documents.
Section 12.2. Sublease Subordination.
----------------------
(a) As of or prior to the Document Closing Date, Lessee shall deliver
to Lessor an executed copy of the Sublease. The Sublease shall contain the
following language:
"Sublessee hereunder agrees that this Sublease is subject and subordinate
to the lease under which the Lessee hereunder occupies the Property (the
"Lease," with the landlord under the Lease and its successors and assigns
------
in interest to the Property or this Sublease being hereinafter referred to
as the "Lessor") and in the event of the termination of the Lease or in the
------
event the Lessor terminates the Lessee's right of possession under the
Lease (the date on which either such termination becomes effective being
referred to herein as the "Turnover Date"), the Lessor shall have (i) the
-------------
right to terminate this Sublease and the Sublessee's right of possession
hereunder, or, in the alternative (at the Lessor's option), (ii) the right
to require the Sublessee hereunder to attorn to the Lessor; and in the case
of such required attornment election, the Sublessee hereunder will attorn
to the Lessor and pay the Lessor all of the rents and other monies required
to be paid by the Sublessee hereunder, and perform all of the terms,
covenants, conditions and obligations contained in this Sublease, and this
Sublease shall continue as a direct lease between the Sublessee hereunder
and the Lessor upon all of the terms and conditions hereof except that in
no event shall the Lessor have any obligation to perform any obligation of
the Lessee hereunder with respect to obligations of the Lessee hereunder
accruing prior to the Turnover Date and that any obligations of the Lessor
(or any successor Lessor) hereunder arising after the Turnover Date shall
be without recourse to Lessor (other than the interest of the Lessor in the
property demised by this Sublease).
(b) Following the Turnover Date, the Designated Owner shall have the
right to terminate the Sublease and Sublessee's right of possession thereunder
or, in the alternative (at the Designated Owner's option), the Designated Owner
may require the Sublessee to attorn to the Designated Owner; and in the case of
such required attornment, the rights (including, without limitation, the right
of possession) of Sublessee shall not be disturbed or affected by the Designated
Owner so long as no default by Sublessee exists under the terms of the Sublease
as would enable Lessee (as sublessor) to terminate the Sublease or would cause
termination of the Sublease or would entitle Lessee (as sublessor) to dispossess
Sublessee under the Sublease.
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<PAGE>
ARTICLE XIII.
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
Section 13.1. Event of Loss; Condemnation or Casualty.
---------------------------------------
(a) If an Event of Loss shall occur or a Casualty event as described
in the first sentence of Section 13.4, Lessee shall give Lessor and Agent prompt
------------
written notice of such occurrence and the date thereof and Lessee shall purchase
the Site affected thereby from Lessor on the next succeeding Payment Date after
the date such Event of Loss shall have occurred at a purchase price equal to the
sum of (a) the Lease Balance, plus (b) all accrued but unpaid Rent, plus (c) all
other sums due and payable by Lessee to Lessor, Investor, Agent or any Lender
with respect to such affected Site under any of the Operative Documents.
(b) Upon payment in full of all amounts payable pursuant to Section
-------
13.1(a) and the discharge of the Lien of the Mortgage pursuant thereto, (i) the
- -------
Lease Term shall end, and (ii) the obligations of Lessee hereunder (other than
any obligations expressed herein as surviving termination of this Lease) shall
terminate as of the date of such payment.
Section 13.2. Application of Payments Relating to an Event of Loss. All
----------------------------------------------------
Net Condemnation Proceeds and property insurance proceeds received at any time
by Lessor, Lessee, Investor or Agent from any Governmental Authority or other
Person with respect to any Event of Loss or Casualty described in the first
sentence of Section 13.4 shall be promptly remitted to Lessor and, after Lessee
has purchased the Site pursuant to Section 13.1(a), such amount shall be
---------------
applied against the purchase price payable by Lessee pursuant to Section
-------
13.1(a), and any such Net Condemnation Proceeds and property insurance proceeds
- -------
remaining thereafter shall, so long as no Lease Default or Lease Event of
Default exists, be paid over to, or retained by, Lessee, or as Lessee may
direct.
Section 13.3. Application of Certain Payments Relating to a Condemnation.
----------------------------------------------------------
In case of a requisition for temporary use of all or a portion of the Site which
is not an Event of Taking, this Lease shall remain in full force and effect,
without any abatement or reduction of Rent, and the proceeds received from any
Governmental Authority relating to a Condemnation for the Site shall, so long as
there is no Lease Default or Lease Event of Default, be paid to Lessee, except
that any portion of such proceeds that is awarded with respect to the time
period after the expiration or termination of the Lease Term (unless Lessee
shall have exercised an option to purchase the Site and no Lease Default or
Lease Event of Default shall have occurred and be continuing) shall be paid to
Lessor; provided, that if Lessee has paid the Lease Balance to Lessor, such
--------
proceeds (or the portion of such proceeds in excess of the portion thereof
applied to payment of the Lease Balance) shall, so long as there is no Lease
Default or Lease Event of Default, be paid over to Lessee.
Section 13.4. Casualty. Upon any Casualty with respect to the Site, the
--------
cost of repair of which would exceed Five Hundred Thousand Dollars ($500,000),
Lessee shall give to Lessor and Agent written notice thereof. If, after a
Casualty, (x) the Site cannot be repaired and/or rebuilt to the condition
required by Section 9.1, prior to the earlier of the Final Rent Payment Date or
-----------
one
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<PAGE>
(1) year after the Payment Date next following the Casualty event, or (y)
Lessee opts to not make such repairs, then Lessee shall acquire the Site
pursuant to Section 13.1. Otherwise, as soon as practicable after a Casualty,
------------
Lessee shall repair and rebuild the affected portions of the Site suffering such
Casualty (or cause such affected portions to be repaired and rebuilt) to the
condition required to be maintained by Section 9.1 hereof; provided that the
----------- --------
value and functional capability of such item as restored is at least equivalent
to the value and functional capability of such item as in effect immediately
prior to the occurrence of such Casualty. Such repairs shall be completed upon
the earlier of the dates set forth in clause (x) above. Except as provided in
Section 13.3, if any insurance proceeds received with respect to any Casualty
- ------------
shall be in excess of twenty-five percent (25%) of the then-outstanding Lease
Balance, the insurance proceeds received with respect to such Casualty shall be
paid over to or retained by Agent, to be distributed to Lessee upon completion
of such repairs and rebuilding of the affected portions of the Site in
accordance with the conditions set forth in this Section.
Section 13.5. Other Dispositions. Notwithstanding the foregoing provisions
------------------
of this Article, as long as a Lease Default or Lease 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 shall be paid to Agent (or to Lessor after the Loan Agreement shall have
been satisfied and discharged) as security for the obligations of Lessee under
this Lease, shall be invested by Agent (or Lessor) in accordance with Section
-------
21.18 in Permitted Investments and, if a Lease Event of Default is continuing,
- -----
may be applied to the obligations of Lessee hereunder, and, at such time
thereafter as no Lease Default or Lease Event of Default shall be continuing,
such amount and gain thereon shall be paid promptly to Lessee to the extent not
previously applied in accordance with the terms of this Lease.
Section 13.6. Negotiations. In the event any part of the Site becomes
------------
subject to condemnation or requisition proceedings, Lessee shall give notice
thereof to Lessor and Agent promptly after Lessee has knowledge thereof and, to
the extent permitted by any Applicable Laws and Regulations, Lessee shall
control the negotiations with the relevant Governmental Authority unless a Lease
Default or Lease Event of Default shall be continuing, in which case Lessor
shall control such negotiations; provided that in any event Lessor may
--------
participate, at Lessee's expense, in such negotiations; and provided no
--------
settlement will be made without Lessor's prior written consent. Lessee shall
give to Lessor and Agent such information, and copies of such documents, which
relate to such proceedings, or which relate to the settlement of amounts due
under insurance policies required by Article XI, as are reasonably requested by
----------
Lessor or Agent. If the proceedings relate to an Event of Taking, Lessee shall
act diligently in connection therewith.
Section 13.7. No Rent Abatement. Rent shall not abate hereunder by reason
-----------------
of any Casualty, any Event of Loss, any Event of Taking or any Condemnation of
the Site, and Lessee shall continue to perform and fulfill all of Lessee's
obligations, covenants and agreements hereunder notwithstanding such Casualty,
Event of Loss, Event of Taking or Condemnation until the Lease Termination Date.
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<PAGE>
ARTICLE XIV.
NON-INTERFERENCE
Section 14.1. Non-Interference. Lessor covenants that it will not
----------------
interfere in Lessee's or Sublessee's use of the Site in accordance with this
Lease during the Lease Term, so long as no Lease Default or Lease Event of
Default has occurred and is continuing; it being agreed that Lessee's remedies
for breach of the foregoing covenant shall be limited to a claim for damages or
the commencement of proceedings to enjoin such breach. Such right is independent
of and shall not affect Lessor's rights otherwise to initiate legal action to
enforce the obligations of Lessee under this Lease.
Section 14.2. Certain Duties and Responsibilities of Lessor. Lessor
---------------------------------------------
undertakes to perform such duties and only such duties as are specifically set
forth herein and in the other Operative Documents, and no implied covenants or
obligations shall be read into this Lease against Lessor, and Lessor agrees that
it shall not, nor shall it have a duty to, manage, control, use, sell, maintain,
insure, register, lease, operate, modify, dispose of or otherwise deal with the
Site in any manner whatsoever, except as required by the terms of the Operative
Documents and as otherwise provided herein; provided that during the continuance
--------
of a Lease Default or Lease Event of Default, Lessor shall have no obligation to
Lessee to perform any such duties.
ARTICLE XV.
INSPECTION AND REPORTS
Section 15.1. Inspection. Upon five (5) Business Days prior notice to
----------
Lessee, each of Agent, Investor, Lessor, any Lender and their respective
authorized representatives (the "Inspecting Parties") may inspect (a) the Site
------------------
and (b) the books and records of Lessee relating directly and primarily to the
Site and make copies and abstracts therefrom. If a Lease Event of Default or
Lease Default has occurred and is continuing, Lessee shall reimburse the
Inspecting Parties for the reasonable costs of such inspections, and all
inspections shall be at Lessee's risk. Lessee shall furnish to the Inspecting
Parties statements accurate in all material respects regarding the condition and
state of repair of the Site, all at such times and as often as may be reasonably
requested. No inspection shall unreasonably interfere with Lessee's operations
or the operations of any other occupant of the Site. 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 not
making any such inspection or inquiry. None of the Inspecting Parties shall
incur any liability or obligation by reason of making any such inspection or
inquiry unless and to the extent, so long as no Lease Default or Lease Event of
Default has occurred and is continuing at the time of inspection, such
Inspecting Party causes damage to the Site or any property of Lessee or any
other Person during the course of such inspection and such damage was a direct
result of such Inspecting Party's gross negligence or willful misconduct.
Section 15.2. Reports. To the extent permissible under Applicable Laws
-------
and Regulations, Lessee shall prepare and file in timely fashion, or, where
Lessor shall be required to file, Lessee shall prepare and make available to
Lessor and Agent within a reasonable time prior to
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<PAGE>
the date for filing and Lessor shall file, any reports with respect to the
condition or operation of the Site that shall be required to be filed with any
Governmental Authority.
ARTICLE XVI.
OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES
Section 16.1. Grant of Security Interest. Lessee hereby assigns, grants
--------------------------
and pledges to Lessor for the benefit of Agent and Lenders a security interest
in and Lien against all of Lessee's right, title and interest, whether now or
hereafter existing or acquired, in the Site (including the Facilities and
improvements thereon) and proceeds therefrom, to secure the payment and
performance of all obligations of Lessee now or hereafter existing under this
Lease or any other Operative Document. Lessee shall, at its expense, do any
further act and execute, acknowledge, deliver, file, register and record any
further documents which Lessor or any Lender may reasonably request in order to
protect Lessor's title to and their perfected Lien in the Site, subject to no
Liens other than Permitted Liens, and Lessor's rights and benefits under this
Lease. Lessee shall promptly and duly execute and deliver to Lessor such
documents and assurances and take such further actions as Lessor, Agent or any
Lender may from time to time reasonably request in order to carry out more
effectively the intent and purpose of this Lease and the other Operative
Documents, to establish and protect the rights and remedies created or intended
to be created in favor of Lessor and Agent hereunder and thereunder, and to
establish, perfect and maintain the right, title and interest of Lessor, Agent
and Lenders in and to the Site, subject to no Lien other than Permitted Liens,
or of such financing statements or fixture filings or other documents with
respect hereto as Lessor, Agent or any Lender may from time to time reasonably
request, and Lessee agrees to execute and deliver promptly such of the foregoing
financing statement and fixture filings or other documents as may require
execution by Lessee. To the extent permitted by Applicable Laws and Regulations,
Lessee hereby authorizes any such financing statement and fixture filings to be
filed without the necessity of the signature of Lessee. Upon Lessee's request,
Lessor shall at such time as all of the obligations of Lessee under this Lease
or any other Operative Documents have been indefeasibly paid or performed in
full (other than Lessee's contingent obligations, if any, under Article VII of
the Participation Agreement) execute and deliver termination statements and
other appropriate documentation reasonably requested by Lessee, all at Lessee's
expense, to evidence Lessor's release of its Lien against the Site, otherwise
without representation or warranty.
Section 16.2. Attorney-in-Fact. Lessee hereby irrevocably appoints
----------------
Lessor as Lessee's attorney-in-fact, with full authority in the place and
stead of Lessee and in the name of Lessee or otherwise, from time to time in
Lessor's discretion, upon the occurrence and during the continuance of a Lease
Event of Default, to take any action (including any action that Lessee is
entitled to take) and to execute any instrument which Lessor may deem necessary
or advisable to accomplish the purposes of this Lease (subject to any
limitations set forth in the Operative Documents), including, without
limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for money due and to become due under or in
connection with the Site;
A-26
<PAGE>
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with the foregoing clause (a);
(c) to file any claim or take any action or institute any proceedings
which Lessor may deem to be necessary or advisable for the collection thereof or
to enforce compliance with the terms and conditions of the Lease; and
(d) to perform any affirmative obligations of Lessee hereunder.
Lessee hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
ARTICLE XVII.
LEASE EVENTS OF DEFAULT
The occurrence of any one or more of the following events, 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, shall constitute a "Lease Event of Default":
----------------------
(a) Lessee shall fail to make any payment (i) of any Supplemental Rent
payable to Lessor, Agent or any Participant or Basic Rent when due and such
failure shall continue for a period of three (3) days, or (ii) of amounts
payable pursuant to the exercise of the Sale Option, or amounts payable pursuant
to Section 13.1, when due, or (iii) of Supplemental Rent payable to any Person
------------
other than Lessor, Agent or a Participant and such failure under this Lease
Agreement clause (iii) shall continue for a period of three (3) days after
notice to Lessee from any Person of such failure; provided that Lessee shall not
--------
be entitled to any three (3)-day grace or cure period under this clause (a) with
respect to any payment of the Lease Balance, Residual Guaranty Amount or any
Proceeds under Article VI;
----------
(b) any Lessee Party shall fail to make any payment of any other
amount payable hereunder or under any of the other Operative Documents and such
failure shall continue for a period of ten (10) days after such amount first
became due and payable (or in the case of any payment to any Person other than
Lessor, Agent or any Participant, such failure shall continue for a period of
ten (10) days after notice to Lessee from any Person of such failure);
(c) Lessee shall (i) fail to maintain insurance as required by Section
-------
11.1, or (ii) default in the performance or observance of any term, covenant,
- ----
condition or agreement on its part to be performed or observed under Section
5.2, 5.3, 5.4, 5.5, 5.7, 5.8, 5.11, 5.14 or 5.17 of the Participation Agreement;
(d) any representation or warranty by any Lessee Party in any
Operative Document or in any certificate or document (including any Advance
Request) delivered to Lessor, Agent or any Participant pursuant to any Operative
Document shall have been incorrect in any material respect when made;
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<PAGE>
(e) any Lessee Party shall fail in any material respect timely to
perform or observe any covenant, condition or agreement (not included in any
other clause of this Article) to be performed or observed by it hereunder or
under any other Operative Document and, (other than with respect to Construction
Agency Events of Default) if Lessor has provided Lessee with timely notice of
such Lease Default in accordance with the Operative Documents, such failure
shall continue for a period of ten (10) days after written notice is delivered
by Lessor thereof;
(f) (i) any Lessee Party shall generally fail to pay, or admit in
writing its inability to pay, its debts as they become due, or shall voluntarily
commence any case or proceeding or file any petition under any bankruptcy,
insolvency or similar law or seeking dissolution, liquidation or reorganization
or the appointment of a receiver, trustee, custodian or liquidator for itself or
a substantial portion of its property, assets or business or to effect a plan or
other arrangement with its creditors, or shall file any answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition filed against it in any bankruptcy, insolvency or similar case or
proceeding, or shall be adjudicated bankrupt, or shall make a general assignment
for the benefit of creditors, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator for itself or a
substantial portion of its property, assets or business, or (ii) corporate
action shall be taken by any Lessee Party for the purpose of effectuating any of
the foregoing;
(g) involuntary proceedings or an involuntary petition shall be
commenced or filed against any Lessee Party under any bankruptcy, insolvency or
similar law or seeking the dissolution, liquidation or reorganization of such
Lessee Party or the appointment of a receiver, trustee, custodian or liquidator
for any Lessee Party or of a substantial part of the property, assets or
business of any Lessee Party or, any writ, judgment, warrant of attachment,
execution or similar process shall be issued or levied against a substantial
part of the property, assets or business of any Lessee Party, and such
proceedings or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded, within thirty (30) days after commencement, filing or levy, as the
case may be;
(h) a judgment or judgments for the payment of money are entered by a
court or courts of competent jurisdiction against any Lessee Party, and such
judgment or judgments remain undischarged, unbonded, unstayed or unsatisfied for
a period (during which execution shall be effectively stayed) of sixty (60)
days; provided that the aggregate of all such judgments exceeds Five Million
--------
Dollars ($5,000,000) (excluding any insured parties);
(i) Lessee or any Guarantor shall directly or indirectly contest, or
threaten to contest, the validity of any Operative Document in any manner in any
court of competent jurisdiction or the Lien granted by this Lease or any
Mortgage;
(j) a default or event of default, the effect of which is to permit
the lender or lenders of any instrument, (including, without limitation, the
lenders under that certain Revolving Credit Agreement, dated as of November 20,
1995 among Lessee, the banks listed therein and Agent, as agent thereunder, as
amended), or a trustee or agent on behalf of such lender or lenders, to cause
the indebtedness evidenced by such instrument to become due prior to its stated
maturity
A-28
<PAGE>
shall occur under the provisions of any instrument evidencing indebtedness for
borrowed money of the Lessee or any Affiliate thereof (or under the provisions
of any agreement pursuant to which such instrument was issued) or any obligation
of the Lessee or any Affiliate thereof for the payment of such indebtedness
shall become or be declared to be due and payable prior to its stated maturity,
or shall not be paid when due;
(k) Any one or more Pension-Related Events referred to in subsection
(a)(ii), (b) or (e) of the definition of "Pension-Related Event" shall have
---------------------
occurred; or any one or more other Pension-Related Events shall have occurred
and Lessor and Agent shall determine in good faith (which determination shall be
conclusive) that such other Pension-Related Events, individually or in the
aggregate, could have a Material Adverse Effect; or
(l) the Guaranty shall no longer be in full force and effect.
ARTICLE XVIII.
ENFORCEMENT
Section 18.1. Remedies. Upon the occurrence of a Lease Event of Default,
--------
at Lessor's option and without limiting Lessor in the exercise of any other
right or remedy, Lessor may have on account of such default (including, without
limitation, the obligation of Lessee to purchase the Site as set forth below),
and without any further demand or notice, Lessor may cause the following to
occur:
(i) By notice to Lessee, Lessor may terminate Lessee's right to
possession of the Site. A notice given in connection with unlawful
detainer proceedings specifying a time within which to cure a default shall
terminate Lessee's right to possession if Lessee fails to cure the default
within the time specified in the notice.
(ii) Upon termination of Lessee's right to possession and without
further demand or notice, Lessee shall surrender possession and vacate the
Site and deliver possession thereof, and Lessor may re-enter the Site and
remove any persons not in lawful possession thereof.
(iii) Upon termination of Lessee's right to possession, this
Lease shall terminate and Lessor may declare to be immediately due and
payable, and Lessor shall be entitled to (x) recover from Lessee the
following amounts and (y) take the following actions:
(A) Lessee shall pay all accrued and unpaid Rent hereunder
(including, without limitation, Basic Rent and Supplemental Rent)
which had been earned at the time of termination;
(B) Lessor may elect any of the following: (1) Lessor may
demand, by written notice to the Lessee specifying a Payment Date (the
"Final Rent Payment Date") not earlier than five (5) days after the
-----------------------
date of such notice, that Lessee pay to Lessor, and Lessee shall pay
to Lessor, on the Final Rent
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<PAGE>
Payment Date (in lieu of Basic Rent due after the Final Rent Payment
Date), an amount equal to the sum of (a) the Lease Balance computed as
of the Final Rent Payment Date, plus (b) all accrued and unpaid Rent
due and unpaid to and including the Final Rent Payment Date, and upon
payment of such amount, and the amount of all other sums due and
payable by Lessee under this Lease and the other Operative Documents
(and interest at the Overdue Rate on the amounts payable under this
clause (B)(1) from the Final Rent Payment Date to the date of actual
payment), Lessor shall transfer by quitclaim deed to Lessee all of
Lessor's right, title and interest in and to the Site without recourse
or warranty, but free and clear of Lessor Liens; or
(2) Lessor may sell its interest in the Site, in which event
Lessee shall pay to Lessor an amount equal to the excess, if any, of
(x) all amounts due Lessor under clause (B)(1) above over (y) the net
sale proceeds received by Lessor from the foregoing sale (provided
--------
that, in calculating such net sale proceeds, all expenses and taxes
incurred by Lessor, Agent or any Participant in connection with such
sale, including, without limitation, legal fees, shall be deducted
from such sales proceeds);
(C) Any other amount necessary to compensate Lessor for all
actual damages caused by Lessee's failure to perform Lessee's
obligation under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to,
the costs and expenses (including without limitation, reasonable
attorneys' fees, advertising costs and brokers' commissions) of
recovering possession of the Site, removing persons or property
therefrom, placing the Site in good order, condition, and repair,
preparing and altering the Site for reletting, and all other costs and
expenses of reletting; and
(D) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
(iv) Lessor may enforce the Lien given hereunder pursuant to
Section 16.1 hereof, the Memorandum of Lease, the Uniform Commercial Code
------------
or any other law.
(v) If Lessee has breached this Lease and abandoned the Site,
this Lease shall continue in effect for so long as Lessor does not
terminate Lessee's right to possession, and Lessor may enforce all of
Lessor's rights and remedies under this Lease, including the right to
recover the Rent hereunder (including, without limitation, Basic Rent and
Supplemental Rent) as it becomes due under this Lease. Lessee's right to
possession shall not be deemed to have been terminated by Lessor except
pursuant to clause (i) above. The following do not constitute a
termination of Lessee's right to possession:
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<PAGE>
(A) Acts of maintenance or preservation or efforts to relet
the Site;
(B) The appointment of a receiver upon the initiative of
Lessor to protect Lessor's interest under this Lease;
(C) Reasonable withholding of consent to an assignment or
subletting, or terminating a subletting or assignment by Lessee.
(vi) In the event that Lessor elects to continue this Lease in
full force and effect, Lessor may enforce all its rights and remedies under
this Lease, including, but not limited to, the right to recover Rent
hereunder (including, without limitation, Basic Rent and Supplemental Rent)
as it becomes due. During the continuance of a Lease Event of Default,
Lessor may enter the Site in accordance with applicable law without
terminating this Lease and sublet all or any part of the Site for Lessee's
account to any Person, for such term (which may be a period beyond the
remaining Lease Term), at such rents and on such other terms and conditions
as are commercially reasonable. In the event of any such subletting, rents
received by Lessor from such subletting shall be applied (i) first, to the
payment of the reasonable costs incurred by Lessor in maintaining,
preserving, altering and preparing the Site for subletting and other costs
of subletting, including, but not limited to, brokers' commissions and
attorneys' fee; (ii) second, to the payment of Rent hereunder (including,
without limitation, Basic Rent and Supplemental Rent) then due and payable;
(iii) third, to the payment of future Rent hereunder (including, without
limitation, Basic Rent and Supplemental Rent) as the same may become due
and payable hereunder; (iv) fourth, to the payment of all other obligations
of Lessee hereunder, and (v) fifth, the balance, if any, shall be paid to
Lessee upon (but not before) expiration of the Lease Term. If the rents
received by Lessor from such subletting, after application as provided
above, are insufficient in any period to pay the Rent (including, without
limitation, Basic Rent and Supplemental Rent) due and payable hereunder for
such period, Lessee shall pay such deficiency to Lessor upon demand.
Notwithstanding any such subletting for Lessee's account without
termination, Lessor may at any time thereafter, by written notice to
Lessee, elect to terminate this Lease by virtue of a previous Lease Event
of Default.
(vii) Lessor may exercise any other right or remedy that may be
available to it under Applicable Laws and Regulations or in equity, or
proceed by appropriate court action (legal or equitable) to enforce the
terms or to recover damages for the breach hereof. Separate suits may be
brought to collect any such damages for any Rent Installment Period(s), and
such suits shall not in any manner prejudice Lessor's right to collect any
such damages for any subsequent Rent Installment 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.
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<PAGE>
(viii) Lessor may retain and apply against Lessor's damages all
sums which Lessor would, absent such Lease Event of Default, be required to
pay to, or turn over to, Lessee pursuant to the terms of this Lease.
(ix) Lessor may exercise the remedies described in Sections 11
and 12 of the Memorandum of Lease.
Section 18.2. Final Liquidated Damages.
------------------------
(a) LESSOR AND LESSEE AGREE AND ACKNOWLEDGE THAT IT WOULD BE
IMPRACTICAL AND EXTREMELY DIFFICULT TO ESTIMATE THE ACTUAL DAMAGES WHICH LESSOR
WOULD SUFFER IN THE EVENT THAT LESSEE DEFAULTS HEREUNDER AND DOES NOT OTHERWISE
PURCHASE THE SITE IN ACCORDANCE WITH THE TERMS OF THIS LEASE. THE PARTIES
HEREBY AGREE THAT A REASONABLE ESTIMATE OF THE TOTAL NET DETRIMENT THAT LESSOR
WOULD SUFFER IN THE EVENT OF LESSEE'S DEFAULT AND FAILURE TO PURCHASE THE SITE
IS AND SHALL BE AN AMOUNT EQUAL TO THE TERMINATION VALUE.
(b) Upon payment of the amount specified pursuant to the previous
clause, Lessee shall be entitled to receive from Lessor, at Lessee's request and
cost, an assignment of Lessor's right, title and interest in the Site, in
recordable form and otherwise in conformity with local custom and free and clear
of the Lien of the Mortgage. The Site shall be quitclaimed to Lessee (or
Lessee's designee) "AS IS" and in its then present physical condition. If any
statute or rule of law shall limit the amount of such final liquidated damages
to less than the amount agreed upon, Lessor shall be entitled to the maximum
amount allowable under such statute or rule of law; provided, that Lessee shall
--------
not be entitled to receive an assignment of Lessor's interest in the Site,
unless Lessee shall have paid in full the Termination Value.
Section 18.3. Proceeds; Deficiency. All payments received and amounts
--------------------
held or realized by Lessor at any time when a Lease Event of Default shall have
occurred and be continuing and after the Lease Balance shall have been
accelerated pursuant to this Article as well as all payments or amounts then
held or thereafter received by Lessor, except for rents received by Lessor from
subletting pursuant to Section 18.1(vi) and the proceeds of sale pursuant to
----------------
Section 11 of the Memorandum of Lease, shall be distributed forthwith upon
receipt by Lessor in the following order of priority:
first: so much of such payments or amounts as shall be required to
reimburse Lessor for any tax (other than any income tax payable on Basic
Rent or interest and on fees and other compensation of Lessor), expense or
other amount owed to Lessor in connection with the collection or
distribution of such payments or amounts to the extent not previously
reimbursed by Lessee (including, without limitation, the expenses of any
sale, taking or other proceeding, expenses in connection with realizing on
any of the Sites, reasonable attorneys' fees and expenses (including the
allocated costs of internal counsel), court costs and any other reasonable
expenditures incurred or reasonable expenditures or
A-32
<PAGE>
advances made by Lessor in the protection, exercise or enforcement of any
right, power or remedy upon such Lease Event of Default, whether pursuant
to Article XVII or otherwise) shall be so applied by Lessor;
------------
second: so much of such payments or amounts (except those specified
in clauses third and fourth below), which under the terms of this Lease and
the other Operative Documents have accrued, shall be so applied;
third: so much of such payments or amounts remaining as shall be
required to pay Agent (on behalf of itself and Lenders) in full the
aggregate unpaid Lease Balance and all Basic Rent, which is payable to
Agent and Lenders (including, to the extent permitted by applicable law,
interest on interest) shall be so applied (to be distributed by Agent
pursuant to the Loan Agreement);
fourth: so much of such payments or amounts remaining as shall be
required to pay Lessor in full the aggregate unpaid Lease Balance and all
Basic Rent which is payable to Investor (including, to the extent permitted
by applicable law, interest on interest) shall be so applied; and
fifth: so much of such payments or amounts as shall remain shall be
distributed to Lessee.
Section 18.4. Grant and Foreclosure on Lessee's Estate. The Memorandum
----------------------------------------
of Lease contains a provision by which Lessee grants to a trustee, in trust,
with power of sale, or grants a mortgage lien to Lessor in, all of Lessee's
right, title and interest in and to the Site, subject to the terms of the
Memorandum of Lease, and upon the occurrence of a Lease Event of Default,
granting Lessor the power and authority, after fulfillment of certain
conditions, to cause the mortgage trustee to sell, or foreclose its mortgage
lien against, the Site. The Memorandum of Lease, including such grant, are
incorporated herein by reference.
Section 18.5. Remedies Cumulative; No Waiver; Consents. To the extent
----------------------------------------
permitted by, and subject to the mandatory requirements of, Applicable Laws and
Regulations, 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 Lessee or be an acquiescence therein.
Lessor's consent to any request made by 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 Lease Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Lease
A-33
<PAGE>
Default or Lease Event of Default. To the extent permitted by Applicable Laws
and Regulations, Lessee hereby waives any rights now or hereafter conferred by
statute or otherwise that may require Lessor (i) to provide any notice to
Lessee, or (ii) to sell, lease or otherwise use the Site or part thereof in
mitigation of Lessor's damages, or (iii) to take any other action, upon the
occurrence of a Lease Event of Default, or that may otherwise limit or modify
any of Lessor's rights or remedies under this Article.
ARTICLE XIX.
RIGHT TO PERFORM FOR LESSEE
If Lessee shall fail to perform or comply with any of its agreements
contained herein, Lessor may, but shall not be obligated to, on five (5)
Business Days prior notice to Lessee (except in the event of an emergency, in
which case only one (1) Business Day's prior notice shall be required), 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 expenses of Lessor (including attorneys' fees and expenses)
incurred in connection with such payment or the performance of or compliance
with such agreement, as the case may be, together with interest thereon at the
Overdue Rate, shall be deemed Supplemental Rent, payable by Lessee to Lessor
upon demand; provided that in the case of an emergency, Lessee shall permit
--------
Lessor so to perform or comply on less than one Business Day's notice if Lessor
has determined in good faith that such emergency did not permit additional time.
ARTICLE XX.
LESSOR LIENS
In the event that Lessor shall be obligated to remove any Lessor Liens
from the Site and shall fail to do so, Lessee shall have a claim against Lessor
for such failure, but shall not have any right of offset.
ARTICLE XXI.
MISCELLANEOUS
Section 21.1. Binding Effect; Successors and Assigns; Survival. The terms
------------------------------------------------
and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor, Lessee, Agent and Participants shall be binding upon them
and their respective successors, legal representatives and assigns (including,
in the case of Lessor, any Person to whom Lessor may transfer the Site or any
interest therein in accordance with the provisions of the Deed of Trust or other
Operative Documents), and inure to their benefit and the benefit of their
respective permitted successors, legal representatives and assigns.
Section 21.2. 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
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<PAGE>
Laws and Regulations, Lessee hereby waives any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
Section 21.3. Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be in writing and shall be delivered and shall be deemed to have
been given in accordance with the Participation Agreement.
Section 21.4. Amendment; Complete Agreements. Neither this Lease nor any
------------------------------
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, but only by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification shall be sought and such other parties as required by Section 9.5
of the Participation Agreement. This Lease, together with the other Operative
Documents, is intended by the parties as a final expression of their 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.
Section 21.5. 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 21.6. Original Lease. The single executed original of this Lease
--------------
containing the receipt of Agent therefor on or following the signature page
thereof shall be the "original executed counterpart" of this Lease. To the
extent that this Lease 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 may be created through the transfer or possession of any
counterpart other than the "original executed counterpart."
Section 21.7. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL
-------------
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH
RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE IN WHICH THE APPLICABLE SITE IS LOCATED.
A-35
<PAGE>
Section 21.8. Discharge of Lessee's Obligations by its Affiliates. Lessor
---------------------------------------------------
agrees that performance of any of Lessee's obligations hereunder by one or more
of its Affiliates or affiliates or one or more sublessees of the Site or any
part thereof 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 Lessee, but no such performance shall excuse Lessee from any
obligation not performed by it or on its behalf under the Operative Documents.
Section 21.9. Liability of Lessor, Trustee and Trust Company Limited. The
------------------------------------------------------
parties hereto agree that none of Lessor, Trustee and Trust Company shall have
any personal liability whatsoever to Lessee or their respective successors and
assigns for any Claim based on or in respect of this Lease or any of the other
Operative Documents or arising in any way from the transactions contemplated
hereby or thereby; provided, however, that (i) Lessor shall be liable in its
-------- -------
individual capacity for Lessor Liens required to be removed by Lessor under
Section 6.2(a) of the Participation Agreement, and (ii) Lessor, Trustee and
Trust Company shall each be liable in their individual capacities for their own
willful misconduct or gross negligence as determined in a final and
nonappealable decision from a court of competent jurisdiction. It is understood
and agreed that, except as provided in the preceding proviso: (i) none of
Lessor, Trustee or Trust Company shall have any personal liability under any of
the Operative Documents; (ii) all obligations of Lessor to Lessee are solely
nonrecourse obligations, recourse being limited to its interest in the Site and
the Operative Documents (excluding Excluded Amounts); and (iii) all such
personal liability of each of Lessor, Trustee and Trust Company is expressly
waived and released as a condition of, and as consideration for, the execution
and delivery of the Operative Documents by each of Lessor, Trustee and Trust
Company.
Section 21.10. 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 letter or
letter of intent to purchase the Site or any part thereof or to purchase any
Note or Trust Certificate), 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) in the case of an estoppel
certificate to be given by Lessee, whether or not there is any existing default
by Lessee in the payment of Basic Rent or any other sum of money hereunder, and
whether or not there is any other existing Lease Default or Lease Event of
Default 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) in the case
of an estoppel certificate to be given by Lessee, whether or not, to the
knowledge of Lessee after due inquiry and investigation, there are any purported
setoffs, defenses or counterclaims against enforcement of the obligations to be
performed hereunder existing in favor of Lessee; 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. In addition,
Lessee, promptly, but in no event later than thirty (30) days after request by
any other party hereto, shall obtain and deliver to such other party or to any
prospective purchaser (if such prospective purchaser has signed a commitment
letter or letter of intent to purchase the Site or any part thereof or to
purchase any
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<PAGE>
Note or Trust Certificate), assignee, mortgagee or third party designated by
such other party, an estoppel certificate from Sublessee containing such items
as reasonably requested by the party requesting the same; provided that no such
--------
certificate may be requested unless the requesting party has a good faith reason
for such request.
Section 21.11. No Joint Venture. Any intention to create a joint venture
----------------
or partnership relation between Lessor and Lessee is hereby expressly
disclaimed.
Section 21.12. No Accord and Satisfaction. The acceptance by or on
--------------------------
behalf of Lessor of any sums from Lessee (whether as Basic Rent or otherwise) in
amounts which are less than the amounts due and payable by Lessee hereunder is
not intended, nor shall be construed, to constitute an accord and satisfaction
of any dispute between Lessor and Lessee regarding sums due and payable by
Lessee hereunder, unless the requisite consent has been obtained pursuant to the
terms of the Participation Agreement.
Section 21.13. No Merger. In no event shall the Leasehold Estate of
---------
Lessee hereunder, or the rights and interests of Agent, any lender or the holder
of any Notes secured by a Lien in this Lease, merge with any interests, estates
or rights of Lessor in or to the Site, it being understood that such Leasehold
Estate of Lessee hereunder, and the rights and interests of Agent, any Lender or
the holder of any Notes secured by a Lien in this Lease, shall be deemed to be
separate and distinct from Lessor's interests, estates and rights in or to the
Site, notwithstanding that any such interests, estates or rights shall at any
time or times be held by or vested in the same Person.
Section 21.14. Successor Lessor. Lessee agrees that, in the case of any
----------------
transfer of the Site to a successor Lessor in accordance with the provisions of
Section 6.3 of the Participation Agreement from time to time, such successor
Lessor shall, upon written notice by such successor Lessor to Lessee, succeed to
all the rights, powers and title of Lessor hereunder and shall be deemed to be
Lessor for all purposes hereof and without in any way altering the terms of this
Lease or Lessee's obligations hereunder. Such transfer to a successor Lessor
shall not exhaust the right to any further transfer to another successor Lessor
pursuant to said Section 6.3, but such right may be exercised repeatedly as long
as this Lease shall be in effect.
Section 21.15. Survival. The obligations of Lessee to be performed under
--------
this Lease prior to the Lease Termination Date and the obligations of Lessee
pursuant to Sections 4.1, 4.2, 4.4, 4.5, Article XVIII and Section 21.1, as well
--------------------------- ------------- ------------
as any indemnities under any of the Operative Documents, shall survive the
expiration or termination of this Lease. The extension of any applicable statute
of limitations by Lessor, Agent, any Participant, Lessee or any other Indemnitee
shall not affect such survival.
Section 21.16. Transfer of Site to Lessee or any other Person. Whenever
----------------------------------------------
pursuant to any provision of this Lease Lessor is required to transfer the Site
to Lessee or to any other Person, such transfer shall be made at Lessee's
expense (including, without limitation, all costs of conveyance, applicable
transfer taxes and recording fees without regard to local custom) by the
quitclaim transfer of all of Lessor's right, title and interest in and to the
Site on an "as is, where is,
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<PAGE>
with all faults" basis, free and clear of all Lessor Liens, but subject to the
Lien of the Loan Agreement if and to the extent it is attached, and otherwise
without recourse, representation or warranty of any kind, and together with the
due assumption by Lessee (or such third party) of, and due release of Lessor
from, all obligations relating to the Site or the Operative Documents. Any
provision in this Lease or other Operative Document to the contrary
notwithstanding, Lessor shall not be obligated to make any such transfer until
Lessor has received all Rent and other amounts due and owing hereunder.
Section 21.17. Enforcement of Certain Warranties.
---------------------------------
(a) Unless a Lease Default or Lease Event of Default shall have
occurred and be continuing, Lessor authorizes Lessee (directly or through
agents), at Lessee's expense, to assert, during the Lease Term, all of Lessor's
rights (if any) under any applicable warranty and any other claim that Lessee or
Lessor may have under the warranties provided to Lessor in connection with the
purchase, of the Site and Lessor agrees to cooperate, at Lessee's expense, with
Lessee and its agents in asserting such rights. So long as there is no Lease
Default or Lease Event of Default, any amount recovered by Lessee under any such
warranties shall be retained by Lessee.
(b) Notwithstanding the foregoing provisions of this Section, so long
as a Lease Default or Lease Event of Default shall have occurred and be
continuing, any amount that would otherwise be retained by Lessee pursuant to
Section 21.17(a) shall be paid to Lessor as security for the obligations of
- ----------------
Lessee under this Lease, and, if a Lease Event of Default is continuing, may be
applied to the obligations of Lessee hereunder, and, at such time thereafter as
no Lease Default or Lease Event of Default shall be continuing, such amount and
gain thereon shall be paid promptly to Lessee to the extent not previously
applied in accordance with the terms of this Lease.
Section 21.18. Investment of Security Funds. Any amounts not payable to
----------------------------
Lessee and paid to or retained by Lessor pursuant to any provision hereof solely
because a Lease Default or Lease Event of Default shall have occurred and be
continuing or because Lessee shall not have performed in full its obligations
under Article XIII shall be held by Lessor as security for the obligations of
------------
Lessee under this Lease and the other Operative Documents. At such time as no
Lease Default or Lease Event of Default, or failure to perform shall be
continuing, such amounts, net of any amounts previously applied to Lessee's
obligations hereunder or under any other Operative Documents, shall be paid to
Lessee. Any such amounts which are held pending payment to Lessee or application
hereunder shall be invested by Lessor (or Agent) as directed from time to time
in writing by Lessee (provided, however, that if a Lease Event of Default has
-------- -------
occurred and is continuing it will be directed by Lessor), and at the expense
and risk of Lessee, 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 from time to time in the same manner as the
principal invested. Lessee will promptly pay to Lessor on demand, the amount of
any loss realized as the result of any such investment (together with any fees,
commissions and other expenses, if any, incurred in
A-38
<PAGE>
connection with such investment), such amount to be held, paid and applied in
the same manner as other amounts subject to this Section.
Section 21.19. Recording of Memorandum of Lease. Concurrently with the
--------------------------------
execution and delivery of this Lease, Lessor and Lessee shall execute,
acknowledge and cause to be recorded a Memorandum of Lease substantially in the
form attached hereto as Exhibit A, in the official records of the County where
---------
the Site is located. Notwithstanding the execution, delivery and recording of
any such Memorandum of Lease, the terms, covenants and conditions of this Lease
shall control.
Section 21.20. Nature of Transaction.
---------------------
(a) It is the intent of the parties hereto that: (i) the transaction
contemplated hereby constitutes an operating lease from Lessor to Lessee for
purposes of Lessee's financial reporting, (ii) the transaction contemplated
hereby preserves ownership in the Site to Lessee for purposes of Federal and
state tax and bankruptcy purposes, (iii) Lessee, pursuant to the Lease, grants a
security interest or lien, as the case may be, in the Site and the other
Collateral to Lessor, (iv) for purposes of Federal and state tax and bankruptcy
purposes, the payment by Lessee of the portions of Basic Rent shall be treated
as payments of interest, and any other payments in respect of the Lease Balance
shall be treated as repayments of principal, and (v) the Collateral Documents
create a lien and security interest in the Site, subject to certain limited
exceptions. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
Agent or any Participant has provided or will provide tax, accounting or legal
advice to Lessee regarding the Overall Transaction or made any representations
or warranties concerning the tax, accounting or legal characteristics of the
Operative Documents and that Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Operative Documents as it deems
appropriate.
(b) Specifically, without limiting the generality of subsection (a) of
this Section, but understanding that the parties' characterization is not the
sole determinant of the issue, the parties hereto intend and agree that with
respect to the nature of the transactions evidenced by this Lease in the context
of the exercise of remedies under the Operative Documents, relating to and
arising out of any insolvency or receivership proceedings or a petition under
the United States bankruptcy laws or any other applicable insolvency laws or
statute of the United States of America or any State thereof affecting Lessee,
Lessor, Agent or any Participant or any enforcement or collection actions, the
transactions evidenced by the Operative Documents are loans made by unrelated
third party lenders to Lessee secured by the Site.
A-39
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Lease and
Agreement to be duly executed and delivered in New York, New York by their
respective officers thereunto duly authorized, as of the day and year first
above written.
SMART & FINAL REALTY TRUST 1998,
as Lessor
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By:
---------------------------------------
Name:
Title:
SMART & FINAL INC.,
as Lessee
By:
------------------------
Name:
Title:
RECEIPT FOR COUNTERPART NO. 1 ONLY
CREDIT LYONNAIS LOS ANGELES BRANCH,
as Agent
By:
------------------------
Name:
Title:
Acknowledged and agreed to
as of the date first above written:
SMART & FINAL STORES CORPORATION,
as Sublessee
By:
---------------------------
Name:
Title:
<PAGE>
LEASE AND AGREEMENT
SCHEDULE I
Description of Site
-------------------
See attached.
I-1
<PAGE>
LEASE AND AGREEMENT
EXHIBIT A
FORM OF MEMORANDUM OF LEASE AND AGREEMENT
-----------------------------------------
THIS MEMORANDUM OF LEASE AND AGREEMENT dated as of May __, 1998 (this
"Memorandum of Lease"), is entered into between SMART & FINAL REALTY TRUST 1998,
-------------------
a Delaware business trust, as lessor (the "Lessor"), and SMART & FINAL INC., a
------
Delaware corporation, as lessee (the "Lessee").
------
W I T N E S S E T H:
WHEREAS, Lessee and Lessor shall have heretofore entered into that
certain Lease and Agreement dated as of May 20, 1998 (as amended, supplemented,
or otherwise modified from time to time, the "Lease");
-----
WHEREAS, the Lease provides for the execution and delivery of a
Memorandum of Lease on the Site Acquisition Closing Date, substantially in the
form hereof, for the purpose of confirming the acceptance and lease of the Site,
all as required pursuant to the Lease; and
WHEREAS, unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed thereto in the Participation Agreement
dated as of May 20, 1998 (as amended, supplemented, or otherwise modified from
time to time, the "Participation Agreement"), among Lessee, Lessor, Smart &
-----------------------
Final Stores Corporation, as Sublessee, Wilmington Trust Company, as Trustee,
Credit Lyonnais Leasing Corp., as Investor, financial institutions party hereto
from time to time, as Lenders, and Credit Lyonnais Los Angeles Branch, as Agent.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. Delivery and Acceptance. Pursuant to the terms of the Lease,
-----------------------
Lessor hereby delivers and leases to, and confirms delivery and lease to,
Lessee, and Lessee hereby accepts delivery and leases, and confirms acceptance
of delivery and lease, from Lessor, under the Lease as hereby supplemented, of
the Site more particularly described on Schedule I attached hereto. The term
----------
"Site" includes, without limitation, all of the right, title and interest of
----
each of Lessor or Lessee in and to the following and any proceeds (including,
without limitation, insurance and condemnation proceeds) thereof:
(a) the real property described in Schedule I attached hereto (the
"Land"); all buildings, structures and other improvements now or in the future
-----
located on the Land (the "Improvements"; the Improvements and the Land are
------------
sometimes collectively referred to herein as the "Property");
--------
(b) all the estate, right, title, claim or demand whatsoever of such
Person, in possession or expectancy, in and to the Property or any part thereof;
1
<PAGE>
(c) all right, title and interest of such Person in and to all of the
fixtures, furnishings and fittings of every kind and nature whatsoever, and all
appurtenances and additions thereto and substitutions or replacements thereof
(together with, in each case, attachments, components, parts and accessories)
currently owned or subsequently acquired by such Person and now or subsequently
attached to, or contained in or used or usable in any way in connection with any
operation or letting of the Property (all of the foregoing in this paragraph (c)
being referred to as the "Fixtures");
--------
(d) all right, title and interest of such Person in and to all of the
fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind and nature
whatsoever, and all appurtenances and additions thereto and substitutions or
replacements thereof (together with, in each case, attachments, components,
parts and accessories) currently owned or subsequently acquired such Person and
now or subsequently attached to, or contained in or used or usable in any way in
connection with any operation or letting of the Property, including, but without
limiting the generality of the foregoing, all screens, awnings, shades, blinds,
curtains, draperies, artwork, carpets, rugs, storm doors and windows, furniture
and furnishings, heating, electrical, and mechanical equipment, lighting,
switchboards, plumbing, ventilating, air conditioning and air-cooling apparatus,
refrigerating, and incinerating equipment, escalators, refrigerators, elevators,
loading and unloading equipment and systems, stoves, ranges, laundry equipment,
cleaning systems (including window cleaning apparatus), telephones,
communication systems (including satellite dishes and antennae), televisions,
computers (excluding software), sprinkler systems and other fire prevention and
extinguishing apparatus and materials, security systems, motors, engines,
machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of
every kind and description (all of the foregoing in this paragraph (d) being
referred to as the "Equipment");
---------
(e) all right, title and interest of such Person in and to all
substitutes and replacements of, and all additions and improvements to, the
Improvements and the Fixtures and Equipment, subsequently acquired by such
Person or constructed, assembled or placed by such Person on the Land,
immediately upon such acquisition, release, construction, assembling or
placement, including, without limitation, any and all building materials whether
stored at the Property or offsite, and, in each such case, without any further
mortgage, conveyance, assignment or other act by such Person;
(f) all right, title and interest of such Person in, to and under all
books and records relating to or used in connection with the operation of the
Property or the Fixtures or any part thereof; and all general intangibles
related to the operation of the Improvements now existing or hereafter arising;
(g) all right, title and interest of such Person in and to all
insurance policies (including title insurance policies) required to be
maintained by such Person pursuant to Article XI of the Lease, including the
right to collect and receive such proceeds; and all awards and other
compensation, including the interest payable thereon and the right to collect
and receive the same, made to the present or any subsequent owner of the
Property for the taking by eminent domain, condemnation or otherwise, of all or
any part of the Property or any easement or other right therein; and
2
<PAGE>
(h) all right, title and interest of such Person in and to (to the
extent assignable) (i) all consents, licenses, building permits, certificates of
occupancy and other governmental approvals relating to construction, completion,
occupancy, use or operation of the Property or any part thereof and (ii) all
plans and specifications relating to the Property;
provided, however, that the Site shall exclude Equipment and Fixtures the
- -------- -------
acquisition of which were not financed with Advances.
2. Warranty. Lessee hereby represents and warrants that no event
--------
which would constitute a Casualty or an Event of Taking and no notice of such
Casualty or Event of Taking has been given to Lessee or any of its Affiliates as
of the date hereof. Lessee hereby reaffirms each of the representations and
warranties set forth at Section 4.1 of the Participation Agreement as if made on
the date hereof (except to the extent any such representation and warranty
relates to an earlier date), including the Site is free and clear of all Liens
other than Permitted Liens.
3. Term. The term of this Memorandum of Lease shall commence on the
----
date hereof and end on the Lease Termination Date. The Basic Term shall end no
later than May 15, 2003.
4. Confirmation. Lessee hereby confirms its agreement, in accordance
------------
with the Lease as supplemented by this Memorandum of Lease, to pay Rent for the
benefit of Participants. Nothing herein shall reduce Lessee's obligation to make
all other payments required under the Lease, including those payments to be made
on the last day of the Lease Term pursuant to Article VI of the Lease.
5. Incorporation into Lease. This Memorandum of Lease shall be
------------------------
construed in connection with and as part of the Lease, and all terms, conditions
and covenants contained in the Lease, as supplemented by this Memorandum of
Lease, shall be and remain in full force and effect.
6. References. Any and all notices, requests, certificates and other
----------
instruments executed and delivered concurrently with or after the execution and
delivery of this Memorandum of Lease may refer to the "Lease Agreement, dated as
of May 20, 1998," or may identify the Lease in any other respect without making
specific reference to this Memorandum of Lease, but nevertheless all such
references shall be deemed to include this Memorandum of Lease, unless the
context shall otherwise require.
7. Recording. Lessor and Lessee agree that this Memorandum of Lease
---------
shall be recorded at Lessee's sole cost and expense as required under Section
21.19 of the Lease.
8. Counterparts. This Memorandum of Lease may be executed in any
------------
number of counterparts, each executed counterpart constituting an original but
all together one and the same instrument.
9. Nature of Transaction. (A) IT IS THE INTENT OF THE PARTIES HERETO
---------------------
THAT: (I) THE TRANSACTION CONTEMPLATED HEREBY CONSTITUTES
3
<PAGE>
AN OPERATING LEASE FROM LESSOR TO LESSEE FOR PURPOSES OF LESSEE'S FINANCIAL
REPORTING, (II) THE TRANSACTION CONTEMPLATED HEREBY PRESERVES OWNERSHIP IN THE
SITE TO LESSEE FOR PURPOSES OF FEDERAL AND STATE TAX AND BANKRUPTCY, (III)
LESSEE, PURSUANT TO THE LEASE, GRANTS A SECURITY INTEREST OR LIEN, AS THE CASE
MAY BE, IN THE SITE AND THE OTHER COLLATERAL TO LESSOR, (IV) FOR PURPOSES OF
FEDERAL AND STATE TAX, THE PAYMENT BY LESSEE OF BASIC RENT SHALL BE TREATED AS
PAYMENTS OF INTEREST, AND THE PAYMENT BY LESSEE OF ANY AMOUNTS IN RESPECT OF THE
LEASE BALANCE SHALL BE TREATED AS REPAYMENTS OF PRINCIPAL, AND (V) THE
COLLATERAL DOCUMENTS CREATE A LIEN AND SECURITY INTEREST IN THE COLLATERAL,
SUBJECT TO CERTAIN LIMITED EXCEPTIONS. NEVERTHELESS, LESSEE ACKNOWLEDGES AND
AGREES THAT NONE OF LESSOR, AGENT OR ANY PARTICIPANT HAS PROVIDED OR WILL
PROVIDE TAX, ACCOUNTING, REGULATORY OR LEGAL ADVICE TO LESSEE REGARDING THE
OVERALL TRANSACTION OR MADE ANY REPRESENTATIONS OR WARRANTIES CONCERNING THE
TAX, ACCOUNTING, REGULATORY OR LEGAL CHARACTERISTICS OF THE OPERATIVE DOCUMENTS
OR THE OVERALL TRANSACTION AND THAT LESSEE HAS OBTAINED AND RELIED UPON SUCH
TAX, ACCOUNTING, REGULATORY AND LEGAL ADVICE CONCERNING THE OPERATIVE DOCUMENTS
AND THE OVERALL TRANSACTION AS IT DEEMS APPROPRIATE.
(B) SPECIFICALLY, WITHOUT LIMITING THE GENERALITY OF CLAUSE (A) ABOVE,
BUT UNDERSTANDING THAT THE PARTIES' CHARACTERIZATION IS NOT THE SOLE DETERMINANT
OF THE ISSUE, THE PARTIES HERETO INTEND AND AGREE THAT WITH RESPECT TO THE
NATURE OF THE TRANSACTIONS EVIDENCED BY THE LEASE IN THE CONTEXT OF THE EXERCISE
OF REMEDIES UNDER THE OPERATIVE DOCUMENTS, RELATING TO AND ARISING OUT OF ANY
INSOLVENCY OR RECEIVERSHIP PROCEEDINGS OR A PETITION UNDER THE UNITED STATES
BANKRUPTCY LAWS OR ANY OTHER APPLICABLE INSOLVENCY LAWS OR STATUTE OF THE UNITED
STATES OF AMERICA OR ANY STATE THEREOF AFFECTING LESSEE, LESSOR, AGENT OR ANY
PARTICIPANT OR ANY ENFORCEMENT OR COLLECTION ACTIONS, THE TRANSACTIONS EVIDENCED
BY THE OPERATIVE DOCUMENTS ARE LOANS MADE BY UNRELATED THIRD PARTIES TO LESSEE
SECURED BY THE SITE AND OTHER COLLATERAL.
10. Grant and Foreclosure on Lessee's Estate. Lessee hereby grants to
----------------------------------------
Old Republic Title Company, as trustee (together with all successor trustees,
"Mortgage Trustee") for the benefit of Lessor, Agent, Lenders and Investor, IN
TRUST, WITH POWER OF SALE, all of Lessee's right, title and interest in and to
the Site and, upon the occurrence of a Lease Event of Default, Lessor shall have
the power and authority, after proper notice and lapse of such time as may be
required by law, to cause Mortgage Trustee to sell the Site by notifying
Mortgage Trustee of that election and depositing with Mortgage Trustee this
instrument and receipts and evidence of expenditures made and secured hereby as
Mortgage Trustee may reasonably require. Upon receipt of any such notice from
Lessor, Mortgage Trustee shall cause to be recorded, published and delivered to
Lessee such Notice of Default and Election to Sell as is then required by
applicable statutory authority and by this instrument, which notice shall set
forth, among other
4
<PAGE>
things, the nature of the breach(es) or default(s), the action(s) required to
effect a cure thereof and the time period within which that cure may be
effected. If no cure is effected within the statutory time limits following
recordation of the Notice of Default and Election to Sell and after Notice of
Sale has been given as required by the above-referenced statutes, Mortgage
Trustee may without further notice or demand sell and convey the Site in
accordance with the above-referenced statutes. The Site may be sold as a whole
or in separate lots, parcels or items and in such order as Lessor may direct, at
public auction to the highest bidder for cash in lawful money of the United
States payable at the time of sale. Lessee acknowledges that sales for cash or
on credit to a wholesaler, retailer or user of the Site, at a public or private
auction, are all commercially reasonable. Mortgage Trustee shall deliver to the
purchaser(s) a good and sufficient deed or deeds conveying the property so sold,
but without any covenant or warranty express or implied. The recitals in such
deed of any matter or fact shall be conclusive proof of the truthfulness
thereof. Any Person, including Lessee, Mortgage Trustee, Lessor, Agent or any
Participant, may purchase at any sale. After deducting all costs, fees and
expenses of Lessor and Mortgage Trustee, including costs of evidence of title in
connection with any sale, Lessor shall apply the proceeds of sale, in the
following order of priority, to payment of the following (collectively, the
"Obligations"): (i) first, all amounts expended by or for the account of Lessor
under the terms hereof and not then repaid, with accrued interest at the Overdue
Rate; and (ii) second, all other amounts then due and owing hereunder including,
without limitation, all Basic Rent, Supplemental Rent, the full amount of the
Lease Balance as of the date of sale as if this Lease had been terminated, and
all other amounts then payable by Lessee under the Lease and the other Operative
Documents (excluding however, the Lessee's Environmental Indemnity), with Lessor
having the right to apply the proceeds of sale to the amounts described above in
this clause (ii) in such order, proportion and priority as Lessor may elect in
its sole and absolute discretion. To the extent permitted by applicable
statutes, Mortgage Trustee may postpone the sale of all or any portion of the
Site by public announcement at the time and place of sale, and from time to time
thereafter may again postpone that sale by public announcement or subsequently
noticed sale, and without further notice may make such sale at the time fixed at
the last postponement or may, in its discretion, give a new notice of sale. A
sale of less than all of the Site or any defective or irregular sale made
hereunder shall not exhaust the power of sale provided for herein, and
subsequent sales may be made hereunder until all of the Obligations have been
satisfied or the entire Site sold, without defect or irregularity. No action of
Lessor, Mortgage Trustee, Agent or any Participant based upon the provisions
contained herein or contained in the applicable statutes, including, without
limitation, the giving of the Notice of Default and Election to Sell or the
Notice of Sale, shall constitute an election of remedies which would preclude
Lessor from pursuing judicial foreclosure before a completed sale pursuant to
the power of sale contained herein. Lessor shall have the right, with the
irrevocable consent of Lessee hereby given and evidenced by the execution of
this instrument, to obtain appointment of a receiver by any court of competent
jurisdiction without further notice to Lessee, which receiver shall be
authorized and empowered to enter upon and take possession of the Site,
including all personal property constituting a permanent part of the Site and
fixtures thereto used upon or in connection with the real property herein
conveyed (and any other personal property constituting a part of the Site which
Lessee acquired with the funds of any Participant), to let the Site, to receive
all the rents, issues and profits, if any, which may be due or become due in
respect to the leasing of the Site to another party and apply the rents after
payment of all necessary charges and expenses to reduction of the Obligations in
such order, proportion and priority as Lessor may elect. At the option of
Lessor, the receiver shall accomplish entry and
5
<PAGE>
taking possession of the Site by actual entry and possession or by notice to
Lessee. The receiver so appointed by a court of competent jurisdiction shall be
empowered to issue receiver's certificates for funds advanced by Lessor for the
purpose of protecting the value of the Site as security for the Obligations. The
amounts evidenced by receiver's certificates shall bear interest at the Overdue
Rate and may be added to the Obligations if Lessee or a junior lienholder
purchases the Site at the trustee's sale. Mortgage Trustee or any successor
acting hereunder may resign and thereupon be discharged of the trusts hereunder
upon thirty (30) days prior written notice to Lessor. Regardless of whether
Mortgage Trustee resigns, Lessor may, from time to time, substitute a successor
or successors to any Mortgage Trustee named herein or acting hereunder in
accordance with any statutory procedure for such substitution; or if Lessor, in
its sole and absolute discretion, so elects, and if permitted by law, Lessor may
substitute such successors or successors by recording, in the office of the
recorder of the county or counties where the Site is located, a document
executed by Lessor and containing the name of the original Lessee and Lessor
hereunder, the book and page where this instrument (or a memorandum hereof) is
recorded (and/or instrument number, as applicable) and the name of the new
Mortgage Trustee, which instrument shall be conclusive proof of proper
substitution of such successor Mortgage Trustee or Mortgage Trustees, who shall,
without conveyance from the predecessor Mortgage Trustee, succeed to the rights,
powers and duties hereunder. In addition to the foregoing, Lessor shall have
those rights and remedies identified in Paragraph B(1)(a)-(d) and (f)-(j) of the
Deed of Trust as if set forth herein, which rights and remedies are hereby
incorporated by reference; provided, however, that (i) all capitalized terms
-------- -------
therein shall have the meaning assigned to such terms set forth herein, (ii) all
references to "Trustor" and "Beneficiary" shall be deemed references to "Lessee"
and "Lessor," respectively, (iii) all references to "Loan Events of Default"
shall be deemed references to "Lease Events of Default," (iv) all references to
the "Loan Agreement," the "Notes" and/or the "Loan Documents" shall be deemed
references to the "Operative Documents," (v) all references to the "Deed of
Trust" shall be deemed references to this "Memorandum of Lease," and (v) the
reference to "Paragraph A.17" shall be deemed a reference to "the Lease." It is
--------------
acknowledged that A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT; A POWER
OF SALE MAY ALLOW LESSOR TO SELL THE SITE WITHOUT GOING TO COURT IN A
FORECLOSURE ACTION UPON DEFAULT BY LESSEE UNDER THIS INSTRUMENT.
11. Assignment of Leases and Rents. The hypothecation effected hereby
------------------------------
includes an encumbrance of the Lessee's rights, as sublandlord, in, to or under
any subleases from time to time affecting the Site (and to any other rights of
Lessee to any rents, issues or profits arising out of the Site). As a
consequence, the parties intend for the Lessor to enjoy all rights with respect
to such subleases, rents, issues and profits of an "assignee" under California
Civil Code Section 2938 (including the right to appointment of a receiver in
accordance with California Code of Civil Procedure 564).
12. Governing Law. THIS MEMORANDUM OF LEASE HAS BEEN DELIVERED IN,
-------------
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, EXCEPT THAT
6
<PAGE>
FORECLOSURE OF THE SITE SUBJECT TO THIS MEMORANDUM OF LEASE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF CALIFORNIA.
[Remainder of page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Memorandum of
Lease and Agreement to be duly executed and delivered on the day and year first
above written.
SMART & FINAL REALTY TRUST 1998,
a Delaware business trust, as Lessor
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By:
---------------------------
Name:
Title:
Address:
Attention:
SMART & FINAL INC.,
a Delaware corporation, as Lessee
By:
-----------------------------
Name Printed:
Title:
Address:
Attention:
<PAGE>
Form of Memorandum of Lease and Agreement
-----------------------------------------
SCHEDULE I
Description of Site
-------------------
See attached.
1
<PAGE>
PARTICIPATION AGREEMENT
EXHIBIT C
Form of Loan Agreement
----------------------
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (as amended, supplemented or otherwise modified from
time to time, this "Loan Agreement") dated as of May 20, 1998, is made by SMART
--------------
& FINAL REALTY TRUST 1998, a Delaware business trust ("Borrower"), the financial
--------
institutions party hereto from time to time and, which, as of the date hereof,
are listed on Schedule I, as lenders (collectively, "Lenders"), and CREDIT
-------
LYONNAIS LOS ANGELES BRANCH, a branch duly licensed under the laws of the State
of California of a banking corporation organized and existing under the laws of
the Republic of France, as Agent for itself and for Lenders (in such capacity,
"Agent").
- ------
W I T N E S S E T H:
WHEREAS, pursuant to the Participation Agreement, the Lease and the
Construction Agency Agreement, Borrower desires to purchase the Site from
Certified Grocers of California, Ltd., lease the Site to Lessee, and have
Sublessee serve as Construction Agent to construct the New Facility thereon,
utilizing Advances from Borrower to pay the costs thereof; and
WHEREAS, Borrower desires to borrow from Lenders a portion of the cost
to acquire the Site, construct the New Facility and to finance certain
Transaction Costs in connection therewith, pursuant to the terms and conditions
hereof and in the other Operative Documents;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Defined Terms. The capitalized terms used herein and not
otherwise defined shall have the meanings ascribed thereto in Appendix 1 to the
Participation Agreement dated as of the date hereof among Lessee, Borrower (in
such capacity, the "Lessor"), Investor, Sublessee, Trustee, Agent and Lenders.
------
C-1
<PAGE>
ARTICLE II.
AMOUNT AND TERMS OF COMMITMENTS;
REPAYMENT AND PREPAYMENT OF LOANS
Section 2.1. Commitment; Term. Subject to the terms and conditions hereof
----------------
and of the Participation Agreement, each Lender severally agrees to make loans
to Borrower ("Loans") on Advance Date in an aggregate principal amount not to
-----
exceed the amount of such Lender's Commitment. No Lender shall be obligated to
make any Loans after 5:00 P.M., New York time, on August 31, 1998 (for the
initial Loan), and one year anniversary following the Document Closing Date (for
any subsequent Loan). Any Loans borrowed and repaid may not be reborrowed.
Section 2.2. Notes. The Loans made by each Lender shall be evidenced by
-----
a promissory note of Borrower, substantially in the form of Exhibit A (each, a
"Note"), with appropriate insertions as to payee, date and principal amount,
----
payable to the order of such Lender and in the aggregate principal amount equal
to the lesser of (a) the initial Commitment Amount of such Lender and (b) the
aggregate outstanding principal amount of all Loans made by such Lender. Each
Note shall (i) be dated as of the Document Closing Date, (ii) be stated to
mature on the Final Maturity Date and (iii) bear interest on the unpaid
principal amount thereof from time to time outstanding at the applicable
interest rate per annum determined as provided in, and payable as specified in,
Section 2.6.
Section 2.3. Procedure for Borrowing. (a) Subject to the terms and
-----------------------
conditions of the Participation Agreement, this Loan Agreement and the other
operative Documents, Borrower shall borrow on each Advance Date upon receipt by
Agent from Borrower (or Lessee or Construction Agent, on behalf of Borrower,
pursuant to the terms of the Operative Documents) of (i) an Advance Request in
accordance with Section 2.5(a) of the Participation Agreement or (ii) during the
Construction Period, if no Advance Request was delivered, a deemed request by
the Construction Agent pursuant to Section 2.5(b) of the Participation Agreement
of an Advance equal to the interest payable to Lenders on the following Business
Day.
(b) Agent shall notify each Lender of Agent's receipt of the Advance
Request on the date of such receipt (if received by 11:00 a.m., New York time,
on a Business Day; otherwise the following Business Day) or the deemed request
pursuant to Section 2.3(a)(ii). Each Lender will make the amount of its pro rata
------------------
share of the borrowing available to Agent for the account of Borrower at the
office of Agent referred to in Section 8.2 prior to noon, New York time, on the
-----------
scheduled Advance Date in funds immediately available to Agent. The proceeds of
all such Loans will then be made available to Borrower pursuant to the terms of
the Participation Agreement.
Section 2.4. Lease Termination Payments. Borrower shall repay the Loans
--------------------------
as follows:
(a) on the Lease Termination Date, if Lessee shall have exercised and
consummated the purchase option set forth in Section 6.2 of the Lease, Borrower
shall pay an amount equal to the Purchase Option Exercise Price;
C-2
<PAGE>
(b) if Lessee shall have elected to sell the Site pursuant to Section
6.3 of the Lease, upon any sale pursuant to Section 6.4 of the Lease, Borrower
shall pay an amount equal to the sum of the Proceeds, the Residual Guaranty
Amount;
(c) if Lessee shall be required to purchase the Site pursuant to
Section 13.1 of the Lease, Borrower shall prepay a principal amount of the Loans
equal to ninety six percent (96%) of the Termination Value, and no amounts
(including payments of Termination Value) shall be distributed to Investor until
all amounts due and owing under the Loan Agreement have been paid in full in
cash;
(d) upon receipt of any amounts pursuant to Section 6.8(a) and (d) of
the Lease, Borrower shall pay the Loans, together with interest accrued thereon
to the date of payment and all other amounts then due and payable by Borrower
hereunder or under the other Operative Documents to Agent and Lenders; provided
--------
that the aggregate amount paid pursuant to this clause shall not exceed the sum
of (i) the Residual Guaranty Amount which Borrower shall receive pursuant to
Section 6.8(a) of the Lease, plus (ii) the proceeds from the sale of the Site
which Borrower shall receive pursuant to Section 6.8(d) of the Lease, plus (iii)
all other amounts due and payable by Lessee under the Lease pursuant to the
provisions of Section 6.8 thereof;
(e) if on any date Agent or Borrower shall receive any Shortfall
Amount pursuant to Section 6.4 of the Lease, such payment shall be applied to
the Loans on such date in accordance with Article IV; and
----------
(f) no principal amortization of the Loans shall be required prior to
maturity (whether by acceleration or otherwise), except as provided in this
Section.
Section 2.5. Method of Payment. Borrower shall make each payment under
-----------------
this Loan Agreement and the other Loan Documents not later than 11:00 a.m., New
York City time, on the day when due to Agent by wire transfer of immediately
available funds, identifying each payment in such manner and payable to such
account of Agent as provided in writing by Agent from time to time. Agent will
promptly thereafter distribute to each Lender its ratable share of each such
payment received by Agent at such place as has been provided to Agent in
writing, to be applied with and subject to the terms of this Loan Agreement.
Section 2.6. Interest Rate. (a) Each Note, and its related Loan, shall
-------------
bear interest for the Interest Period then applicable thereto on the unpaid
principal amount thereof at a rate per annum equal to, at either (i) the LIBO
Rate plus the Applicable Margin as determined by Agent for such Interest Period
or (ii) the Base Rate plus the Applicable Margin as determined by Agent for such
Interest Period.
(b) If all or a portion of the principal amount of or interest on the
Notes or other amounts payable hereunder shall not be paid when due (whether at
the stated maturity, by acceleration or otherwise), such overdue amount shall,
without limiting the rights of any Lender under Article VII, bear interest at
-----------
the Overdue Rate, in each case from the date first due until paid in full (as
well after as before judgment).
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(c) Interest on each Note shall be payable in arrears on each Payment
Date with respect to the interest accrued on such Note from and including the
immediately preceding Payment Date (or, in the case of the first Payment Date,
the applicable Advance Date) through but excluding the Payment Date on which
such payment of interest is payable.
(d) Borrower may convert all or any part of any outstanding Loan into
a Loan of a different type or continue any LIBO Rate Loan as a LIBO Rate Loan.
Borrower (or Lessee on its behalf pursuant to the terms of the Operative
Documents) by giving written notice to Agent not later than (a) in the case of
conversion into a Base Rate Loan, 11:00 a.m., New York City time, on the
Business Day before the proposed date of such conversion; provided, however,
-------- -------
that any such conversion may only be on the last day of an Interest Period with
respect thereto, and (b) in the case of a conversion into or continuation of a
LIBO Rate Loan, 11:00 a.m., New York City time, at least three (3) Business Days
prior to the proposed date of such conversion or continuation; provided,
--------
however, that no LIBO Rate Loan may be so converted or continued if a Loan
- -------
Default or Loan Event of Default exists. Each such notice shall be effective
upon receipt by Agent and shall specify the date and amount of such conversion
or continuation, the Loan to be so converted or continued, and the type of Loan
to be converted or continued into. Promptly upon receipt of such notice, Agent
shall advise each Lender thereof. Subject to the other terms hereof, such Loan
shall be so converted or continued on the requested date of conversion or
continuation. Each conversion or continuation shall be on a Business Day and,
after giving effect to any conversion or continuation, the aggregate principal
amount of each group of LIBO Rate Loans shall be at least One Million Dollars
($1,000,000) and an integral multiple of One Million Dollars ($1,000,000);
provided, however, that the aggregate principal amount of one group of Loans may
- -------- -------
be equal to the total remaining amount available for borrowings under this Loan
Agreement if, at the time of such borrowing, such amount was less than One
Million Dollars ($1,000,000). Notwithstanding the foregoing, in the event
Borrower fails to give any notice prior to the end of an Interest Period, all
LIBO Rate Loans shall automatically be converted to Base Rate Loans on the last
day of such then expiring Interest Period.
Section 2.7. Computation of Interest. (a) During such time as a LIBO
-----------------------
Rate applies to any of the Notes, interest in respect of such Notes shall be
calculated on the basis of a 360-day year for the actual days elapsed. For each
Interest Period in which a LIBO Rate is applicable, Agent shall as soon as
practicable, but in no event later than 11:00 a.m., New York City time, one (1)
Business Day prior to the effectiveness of such LIBO Rate, notify Borrower,
Lessee and each Participant of such LIBO Rate and the corresponding Yield. Any
change in the interest rate on the Loan resulting from a change in the
Applicable Margin shall become effective as of the opening of business on the
day on which such Applicable Margin changes as provided herein.
(b) During such time as the Base Rate applies to any of the Notes,
interest in respect of such Notes shall be calculated on the basis of a year
consisting of 360 days for the actual days elapsed. For each Interest Period in
which the Base Rate is applicable, Agent shall as soon as practicable, but in no
event later than 11:00 a.m., New York City time, one (1) Business Day prior to
the Payment Date for such Interest Period, notify Borrower, Lessee and each
Participant of the Base Rate or Base Rates applicable during such Interest
Period. Any change in the interest rate on the Loan resulting from a change in
the Base Rate or the Applicable Margin
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shall become effective as of the opening of business on the day on which the
Base Rate or the Applicable Margin shall so change.
(c) Each determination of an interest rate or Applicable Margin
pursuant to any provision of this Loan Agreement shall be conclusive and binding
on Borrower, Lessee and each Participant in the absence of manifest error.
Section 2.8. Basis for Determining Interest Rate Inadequate or Unfair.
--------------------------------------------------------
If on or prior to the first day of any Interest Period with respect to an
Advance which will bear interest based on the LIBO Rate for such Interest
Period:
(a) Agent is unable to determine the LIBO Rate for such Interest
Period in the manner contemplated by the definition of the term "LIBO Rate;" or
---------
(b) Lenders constituting Required Lenders advise Agent that the
interest rate determined pursuant to Section 2.6(a) for such Interest Period
--------------
will not adequately and fairly reflect the cost to such Lenders of funding their
LIBO Rate Loans for such Interest Period;
Agent shall forthwith give notice thereof to Borrower, Lessee and each
Participant, whereupon until Agent notifies Borrower that the circumstances
giving rise to such suspension no longer exist, the obligations of Lenders to
make LIBO Rate Loans or to continue or convert into LIBO Rate Loans shall be
suspended; provided, however, that in the case of Advances which bear interest
-------- -------
based on the LIBO Rate, unless Borrower notifies Agent at least two (2) Business
Days before the date of any such Advance for which an Advance Request has
previously been given that it elects not to borrow on such date, such Advance
shall be made as an Advance bearing interest at the Base Rate for the initial
and all future Interest Periods (except for any Interest Periods fully occurring
after Agent is thereafter able to determine the LIBO Rate, in the manner
contemplated by the definition of the term "LIBO Rate" or after Lenders
---------
constituting Required Lenders notify Agent of their rescission of the advice to
Agent under clause (b) of this Section).
Section 2.9. Pro Rata Treatment and Payments.
-------------------------------
(a) Except as otherwise set forth in Article IV, each payment
(including each prepayment) by Borrower on account of principal of and interest
on the Loans shall be made pro rata to Lenders according to the outstanding
principal amount of the Notes held by each Lender. All payments (including
prepayments) to be made by Borrower hereunder and under the Notes shall be made
without set-off or counterclaim and shall be made to Agent, for the account of
Lenders, at Agent's office referred to in Section 9.2, in lawful money of the
-----------
United States of America and in immediately available funds. Agent shall
distribute such payments to each Lender, promptly upon receipt in like funds as
received.
(b) Unless Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make its share of such borrowing
available to Agent, Agent may assume that such Lender is making such amount
available to a corresponding amount. If such amount is not made available to
Agent by the required time on the Advance Date thereof, such Lender shall pay to
Agent, on demand, such amount with interest thereon at a rate equal to
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the daily average Base Rate for the period until such Lender makes such amount
immediately available to Agent. A certificate of the Agent submitted to any
Lender with respect to any amounts owing under this Section shall be conclusive
in the absence of manifest error.
Section 2.10. Payment from Site Only. All payments to be made by
----------------------
Borrower in respect of the Loans and other obligations under any Loan Document
made only from the income and the proceeds from the Site and Borrower's interest
in the Operative Documents (excluding Excluded Amounts) and only to the extent
that Agent shall have received sufficient income or proceeds therefrom to make
such payments in accordance with the terms of Article IV. Each Lender agrees
----------
that it will look solely to the income and proceeds from the Site and Borrower's
interest in the Operative Documents (excluding Excluded Amounts) to the extent
available for distribution to such Lender as herein provided and that neither
Borrower nor Agent is or shall be personally liable to any Lender for any amount
payable hereunder or under any Note.
Section 2.11. Illegality. If the adoption after the date of this Loan
----------
Agreement of any applicable law, rule or regulation, or any change after the
date of this Loan Agreement therein, or any change after the date of this Loan
Agreement in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency made after the date of this Loan Agreement
shall make it unlawful or impossible for any Lender to make, maintain or fund
its LIBO Rate Loans, and such Lender shall so notify Borrower and Agent, Agent
shall forthwith give notice thereof to the other Lenders, whereupon until such
Lender notifies Borrower and Agent that the circumstances giving rise to such
suspension no longer exist, the obligation of such Lender to make LIBO Rate
Loans shall be suspended. If such Lender shall determine that it may not
lawfully continue to maintain and fund any of its outstanding LIBO Rate Loans to
maturity and shall so specify in such notice, such LIBO Rate Loans shall
automatically be converted to bear interest for the then current Interest Period
on the unpaid principal amount thereof at a rate per annum equal to the Base
Rate.
Section 2.12. Additional Compensation in Certain Circumstances.
------------------------------------------------
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
-----------------------------------------------------------------
Capital Adequacy Requirements, Expenses, etc. If any Applicable Laws and
- --------------------------------------------
Regulations or guideline or interpretation or application thereof by any
Governmental Authority charged with the interpretation or administration thereof
or compliance with any request or directive of any Governmental Authority
(whether or not having the force of Applicable Laws and Regulations) now
existing or hereafter adopted:
(i) subjects any Lender to any tax or changes the basis of taxation
with respect to this Agreement, the Notes, other Loan Documents, the Loans
or payments by Borrower or Lessee of principal, interest, commitment fee or
other amounts due from any such party hereunder or under the Notes, other
Loan Documents or the Participation Agreement (except for taxes on the
overall net income or overall gross receipts of such Lender imposed by the
jurisdictions (federal, state and local) in which such Lender's principal
office is located),
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(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend
credit extended by, assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Lender (other than
requirements expressly included herein in the determination of the LIBO
Rate hereunder),
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or
credits or commitments to extend credit extended by, any Lender, or (B)
otherwise applicable to the obligations of any Lender under this Loan
Agreement, the Notes, any other Loan Document or the Participation
Agreement, or
(iv) imposes upon any Lender any other condition or expense with
respect to this Loan Agreement, the Notes, any other Loan Document or the
Participation Agreement, or its making, maintenance or funding of any Loan
or any security therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Lender, or in the case of clause (iii) hereof, any Person controlling a Lender,
with respect to this Loan Agreement, the Notes, any other Loan Document or the
Participation Agreement, or the issuance, making, maintenance or funding of any
Loan (or, in the case of any capital adequacy or similar requirement, to have
the effect of reducing the rate of return on such Lender's or such controlling
Person's capital, taking into consideration such Lender's or such controlling
Person's policies with respect to capital adequacy), such Lender may from time
to time notify Agent, Borrower and Lessee of the amount determined in good faith
(using any averaging and attribution methods) by such Lender (which
determination shall be conclusive) to be necessary to compensate for such
increase, reduction or imposition. Such amount shall be due and payable by
Borrower to such Lender thirty (30) days after such notice is given, together
with an amount equal to interest on such amount from the date two (2) Business
Days after the date demanded until such due date at the Base Rate plus the
Applicable Margin (calculated on the basis of a year of 360 days and actual days
elapsed). A certificate by such Lender as to the amount due and payable under
this Section from time to time and the method of calculating such amount shall
be conclusive.
(b) Funding Losses. If any payment of principal with respect to a
--------------
LIBO Rate Loan is made on any day other than the last day of the Interest Period
applicable to such Loan, or if Borrower fails to borrow any LIBO Rate Loan or
convert to LIBO Rate Loan, after notice has been given to Agent in accordance
with Section 2.3 or 2.6, Borrower shall reimburse each Lender on demand for any
------------------
resulting loss or expense incurred by such Lender, including, without
limitation, any loss incurred in obtaining, liquidating or employing deposits
for third parties; provided that such Lender shall have delivered to Borrower a
--------
certificate as to the amount of such loss, which certificate shall be conclusive
in the absence of manifest error.
(c) Non-United States Persons. Each Lender that is not a United
-------------------------
States Person as such term is defined in (S) 7701(a)(30) of the Code (a "United
------
States Person") shall complete and deliver to Borrower, prior to the date on
- -------------
which the first payment to such Lender is due hereunder, a duly certified
Internal Revenue Service Form 1001 in duplicate claiming that it is
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<PAGE>
entitled to complete exemption from United States withholding tax under an
income tax treaty to which the United States is a party or a duly certified
Internal Revenue Service Form 4224 in duplicate claiming that the payments to be
received under this Loan Agreement are effectively connected with the conduct of
a trade or business of such Lender in the United States, as appropriate. Each
Lender further agrees to complete and deliver to Borrower from time to time any
successor or additional form or certificate required by the Internal Revenue
Service in order to secure complete exemption from United States withholding
tax. If for any reason during the term of this Loan Agreement, a Lender becomes
unable to submit the forms or certificate referred to above or the information
or representations contained therein is no longer accurate in any material
respect, such Lender shall notify Agent and Borrower in writing to that effect.
(d) Base Rate Loans Substituted for Affected LIBO Rate Loans. If (i)
--------------------------------------------------------
the obligation of any Lender to make LIBO Rate Loans has been suspended pursuant
to Section 2.11 or (ii) any Lender has demanded compensation under Section
------------ -------
2.12(b), and Borrower shall, by at least five (5) Business Days' prior notice to
- -------
such Lender through Agent, have elected that the provisions of this Section
shall apply to such Lender, then, unless and until such Lender notifies Borrower
that the circumstances giving rise to such suspension or demand for compensation
no longer apply:
(i) all Loans which would otherwise be made by such Lender as LIBO
Rate Loans shall be made instead as Loans bearing interest at the Base Rate
(on which interest shall be payable contemporaneously with the related LIBO
Rate Loans of the other Lenders), and
(ii) after each of its LIBO Rate Loans has been repaid, all payments
of principal which would otherwise be applied to repay such LIBO Rate Loans
shall be applied to repay its Loans bearing interest at the Base Rate
instead.
Section 2.13. Notice to Lessee. Notwithstanding anything to the
----------------
contrary contained herein, Lenders, Agent and Borrower hereby agree that they
shall give all notices to Lessee required to be provided to Lessee in accordance
with Section 9.17 of the Participation Agreement.
Section 2.14. Commitment Fees. Promptly after receipt from the Lessee of
---------------
payment of any Commitment Fees payable pursuant to the Participation Agreement,
Agent shall distribute such payment to Lenders pro rata according to their
respective Commitment Percentages.
Section 2.15. Taxes. (a) All payments made by Borrower under this Loan
-----
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on Agent or any Lender as a result of a
present or former connection between Agent or such lender and the jurisdiction
of the Governmental Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such connection arising
solely from Agent or such Lender having executed,
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<PAGE>
delivered or performed its obligations or received a payment under, or enforced,
this Agreement or any Note). If any such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
------------------
required to be withheld from any amounts payable to Agent or any Lender
hereunder, the amounts so payable to Agent or such Lender shall be increased to
the extent necessary to yield to Agent or such Lender (after payment of all Non-
Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement. Whenever any Non-Excluded
Taxes are payable by Borrower, as promptly as possible thereafter Borrower shall
send Agent for its own account or for the account of such Lender, as the case
may be, a certified copy of an original official receipt received by Borrower
showing payment thereof. If Borrower fails to pay any Non-Excluded Taxes when
due to the appropriate taxing authority or fails to remit to Agent the required
receipts or other required documentary evidence, Borrower shall indemnify Agent
and Lenders for any incremental taxes, interest or penalties that may become
payable by Agent or any Lender as a result of any such failure. The agreements
in this Section shall survive the termination of this Loan Agreement and the
payment of the Loans and all other amounts payable hereunder or under the other
Loan Documents.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
To induce Agent and Lenders to enter into this Agreement and to make
the Loans, Borrower hereby represents and warrants to Agent and each Lender that
the representations and warranties of Lessor set forth in Section 4.3 of the
Participation Agreement are true and correct.
ARTICLE IV.
RECEIPT, DISTRIBUTION AND APPLICATION OF RECEIPTS
Section 4.1. Rent Distribution. Except as otherwise provided in Section
----------------- -------
4.3, each payment of Basic Rent under the Lease, as well as any payment of
- ---
interest on overdue installments of Basic Rent under the Lease, and any other
monies paid over by Lessee or Borrower to Agent for such purpose, shall be
distributed as promptly as possible (it being understood that any payments of
Basic Rent received by Agent under the Lease on a timely basis and in accordance
with the provisions of the Lease shall be distributed on the date received in
the funds so received) in the following order of priority:
(a) first, to Lenders, an amount equal to the aggregate amount of the
payment of interest (as well as any interest on (to the extent permitted by
Applicable Laws and Regulations) overdue interest) then due shall be
distributed and paid to Lenders, such distributions under this clause first
being made without priority of one such Lender over any other, in the
proportion that the unpaid principal amount of the Notes held by each
Lender bears to the aggregate unpaid principal amount of the Notes;
(b) second, to Lenders, an amount equal to the aggregate amount of the
payment of principal then due shall be distributed and paid to Lenders,
such distributions under this clause second being made without priority of
one such Lender over any other,
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in the proportion that the unpaid principal amount of the Notes held by
each Lender bears to the aggregate unpaid principal amount of the Notes;
and
(c) third, the balance, if any, of such payment remaining thereafter
shall be distributed at Borrower's direction.
Section 4.2. Distribution of Mandatory Payments.
----------------------------------
(a) Except as otherwise provided in Section 4.2(b) and Section 4.3,
-------------- -----------
the amount of any payment received pursuant to Section 2.4 shall in each case be
-----------
distributed and paid in the following order of priority:
(i) first, to Lenders an amount equal to the aggregate unpaid
principal of, and accrued interest on, the Notes, together with the other
amounts required to be paid by Borrower pursuant to Section 2.4 (other than
-----------
Excluded Amounts) shall be distributed and paid to Lenders, the principal
portion of such distribution being equal to the product of (i) ninety six
percent (96%) multiplied by (ii) the portion of the Lease Balance so paid
by Lessee in connection with the applicable event described in Section 2.4,
-----------
such distributions under this clause first being made without priority of
one such Lender over any other, in the proportion that the unpaid principal
amount of the Notes held by each Lender bears to the aggregate unpaid
principal amount of the Notes; and
(ii) second, the balance, if any, of such payment remaining thereafter
shall be distributed at Borrower's direction.
(b) Except as otherwise provided in Section 4.3, any amounts received
-----------
directly or through Lessee from any insurer or from any Governmental Authority
in connection with an Event of Loss, to the extent that such amounts are not at
the time required to be paid to Lessee pursuant to the Lease, shall, except as
otherwise provided in the next sentence, be held and distributed on the Payment
Date referred to in Section 13.1(a) of the Lease in accordance with Section
-------
4.2(a).
- ------
Any portion of any such amount referred to in the preceding sentence which is
not required to be so paid to Lessee pursuant to the Lease solely because a
Lease Default or Lease Event of Default shall have occurred shall be held by
Agent as security for the obligations of Lessee under the Lease and the other
Operative Documents and invested in Permitted Investments and at such time as
there shall not be continuing any such Lease Default or Lease Event of Default,
such portion shall be paid to Lessee, unless Agent (as assignee of Borrower)
shall have theretofore declared the Lease to be in default pursuant to Article
XVII thereof, in which event such portion shall be distributed forthwith upon
such declaration in accordance with the provisions of Section 4.3.
-----------
Section 4.3. Distribution of Payments After Loan Event of Default.
----------------------------------------------------
Except as otherwise provided in Section 4.4(b), all payments received and
--------------
amounts realized by Agent after a Loan Event of Default shall have occurred and
be continuing shall be distributed forthwith by Agent in the following order of
priority:
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first, so much of such payments or amounts as shall be required to
reimburse Agent for any tax, expense or other loss incurred by Agent (to
the extent not previously reimbursed and to the extent incurred in
connection with its duties as Agent) and any unpaid ongoing fees of Agent
shall be distributed to Agent for its own account;
second, so much of such payments or amounts as shall be required to
reimburse the then existing or prior Lenders for payments made by them to
Agent pursuant to Section 8.7 (to the extent not previously reimbursed),
-----------
and to pay such then existing or prior Lenders the amounts payable to them
pursuant to any expense reimbursement provisions of the Operative Documents
shall be distributed to each such Lender, without priority of one over the
other, in accordance with the amount of such payment or payments payable to
each such Lender;
third, so much of such amount as shall be required to pay in full the
aggregate unpaid principal amount of the Notes and the accrued but unpaid
interest on the Notes to the date of distribution shall be distributed to
the Lenders holding Notes; and in the case the amount so to be distributed
shall be insufficient to pay in full as aforesaid, then, pro rata among
such Lenders, without priority of one such Lender over any other, in the
proportion that the unpaid principal amount of the Notes held by each
Lender bears to the aggregate unpaid principal amount of the Notes;
fourth, the balance, if any, of such payments or amounts remaining
thereafter shall be promptly distributed as directed by Borrower.
Section 4.4. Unidentified and Other Payments. (a) In the event that
-------------------------------
Lessee shall fail to identify the nature of any payment or Agent in its
reasonable judgment shall determine that the identification made by Lessee is
incorrect or inappropriate, the nature of such payment shall instead be
identified by Agent in its reasonable judgment and applied in the manner
specified herein.
(b) Except for any distributions to Borrower while a Loan Event of
Default not caused by a Lease Event of Default shall have occurred and be
continuing, any payment received by Agent for which provision as to the
application thereof is made in an Operative Document but not elsewhere in this
Article shall be distributed forthwith by Agent to the Person for the purpose
for which such payment was made in accordance with the terms of such Operative
Document.
Section 4.5. Distributions to Borrower. Notwithstanding anything in
-------------------------
this Loan Agreement to the contrary, Agent shall make payment of all amounts
from time to time distributable to Borrower pursuant to this Article directly to
Borrower, unless it shall have received written instructions from Borrower to
the contrary.
Section 4.6. Distribution of Excluded Amounts. Notwithstanding anything
--------------------------------
in this Loan Agreement to the contrary, all amounts constituting Excluded
Amounts received by Agent shall be paid by Agent to the Person or Persons
entitled thereto pursuant to the Operative Documents.
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Section 4.7. Supplemental Rent. Except as otherwise provided in Section
----------------- -------
4.3, the amounts, if any, from time to time received by Agent which constitute
- ---
payments of Supplemental Rent shall be paid to or upon the order of the Person
entitled thereto pursuant to the Operative Documents.
ARTICLE V.
CONDITIONS PRECEDENT
The agreement of each Lender to make Loans requested to be made by it on
any Advance Date is subject to the satisfaction on the Advance Date of the
conditions precedent set forth in Article III of the Participation Agreement.
ARTICLE VI.
AFFIRMATIVE COVENANTS OF BORROWER
Section 6.1. Performance by Borrower. Subject to Section 2.10, so long
----------------------- ------------
as any Note remains outstanding and unpaid or any other amount is owing to any
Lender hereunder, Borrower will promptly pay all amounts payable by it under
this Loan Agreement, the Notes and the other Loan Documents in accordance with
the terms hereof and thereof and shall duly perform each of its obligations
under this Loan Agreement, the Notes and the other Loan Documents.
Section 6.2. Waiver by Borrower. (a) To the extent permitted by
------------------
Applicable Laws and Regulations, Borrower is hereby deemed to have irrevocably
waived:
(i) the protection of any stay (automatic or otherwise) arising out of
or in connection with any proceedings for the reorganization or liquidation
of Borrower under the Bankruptcy Code or otherwise of the exercise by
Lenders or Agent of rights and remedies under the Operative Documents; and
(ii) any right that Borrower might otherwise have to enjoin, limit or
restrict the good faith exercise of such rights and remedies.
(b) To the extent permitted by Applicable Laws and Regulations,
Lenders and Agent are hereby expressly relieved from any obligation to comply
with any such stay which might otherwise affect their exercise at any time of
such rights and remedies.
Section 6.3. Year 2000. Borrower shall take all actions necessary to
---------
assure that Borrower's material software, hardware, firmware, equipment, goods
and systems (including embedded systems) are able to effectively process data
including dates prior to, on and after January 1, 2000. At the request of the
Agent or any Lender, the Borrower shall provide the Agent or such Lender, as the
case may be, with assurance acceptable to the Agent or such Lender, as the case
may be, of the Borrower's year 2000 capability.
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ARTICLE VII.
LOAN EVENTS OF DEFAULT; REMEDIES
Section 7.1. Loan Events of Default. Each of the following events shall
----------------------
constitute a "Loan Event 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 governmental authority) and each such Loan Event of
Default shall continue so long as, but only as long as, it shall not have been
remedied:
(i) Borrower shall fail to pay any principal of or interest on, any
Note when due and such failure shall continue for a period of five (5)
days; or
(ii) failure by Borrower in any material respect to timely perform any
other covenant or condition herein or in any other Operative Document to
which Borrower is a party and such failure shall continue unremedied for a
period of thirty (30) days; or
(iii) any representation or warranty by Borrower in any Operative
Document or in any certificate or document delivered thereunder shall have
been incorrect in a material respect when made and shall remain material
when discovered and if curable shall continue unremedied for a period of
thirty (30) days; or
(iv) the filing by Borrower of any petition for dissolution or
liquidation of Borrower; or the commencement by Borrower of a voluntary
case under any applicable bankruptcy, insolvency or other similar law for
the relief of debtors, foreign or domestic, now or hereafter in effect; or
Borrower shall have consented to the entry of an order for relief in an
involuntary case under any such law; or the failure of Borrower generally
to pay, or the admission by Borrower in writing that it is unable to pay,
its debts as such debts become due (within the meaning of the Bankruptcy
Code); or the failure by Borrower promptly to satisfy or discharge any
execution, garnishment or attachment of such consequence as will impair its
ability to carry out its obligations under the Operative Documents; or the
appointment of or taking possession by a receiver, custodian or trustee (or
other similar official) for Borrower or any substantial part of its
property; or a general assignment by Borrower for the benefit of creditors;
or the entry by Borrower into an agreement of composition with its
creditors; or Borrower shall have taken any corporate action in furtherance
of any of the foregoing; or the filing against Borrower of an involuntary
petition in bankruptcy which results in an order for relief being entered
or, notwithstanding that an order for relief has not been entered, the
petition is not dismissed within thirty (30) days of the date of the filing
of the petition; or the filing under any law relating to bankruptcy,
insolvency or relief of debtors of any petition against Borrower which
either (i) results in a finding or adjudication of insolvency of Borrower
or (ii) is not dismissed within thirty (30) days of the date of the filing
of such petition; or
(v) a Lease Event of Default shall occur and be continuing.
Section 7.2. Remedies.
--------
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<PAGE>
(a) Upon the occurrence of a Loan Event of Default hereunder, (i) if
such event is a Loan Event of Default specified in clause (iv) of Section 7.1,
-----------
automatically the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Loan Agreement, the Notes and the other Loan Documents
shall immediately become due and payable, and the Lenders' Commitments shall be
automatically terminated, and (ii) if such event is any other Loan Event of
Default, (x) with the consent of the Required Lenders, Agent may, or upon the
request of the Required Lenders, Agent shall, by notice of default to Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Loan Agreement, the Notes and the other Loan Documents
to be due and payable forthwith, whereupon the same shall immediately become due
and payable and (y) Agent shall, upon the request of the Required Lenders,
declare the Lenders' Commitments terminated, whereupon the Commitments will
terminate. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
(b) Upon the occurrence of any Loan Event of Default and at any time
thereafter so long as any Loan Event of Default shall be continuing, Agent may,
and upon the written instructions of the Required Lenders shall, exercise any or
all of the rights and powers and pursue any and all of the remedies available to
it hereunder and (subject to the terms thereof) under the other Loan Documents
and the Lease and shall have and may exercise any and all rights and remedies
available under the Uniform Commercial Code or any provision of law.
(c) Upon the occurrence of any Loan Event of Default and at any time
thereafter so long as any Loan Event of Default shall be continuing, Agent may
proceed to protect and enforce this Loan Agreement, the Notes, the other Loan
Documents and the Lease by suit or suits or proceedings in equity, at law or in
bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained or in execution or aid of any power herein granted,
or for foreclosure hereunder, or for the appointment of a receiver or receivers
for the Site or for the recovery of judgment for the indebtedness secured
thereby or for the enforcement of any other proper, legal or equitable remedy
available under Applicable Laws and Regulations.
(d) Borrower shall be liable for any and all accrued and unpaid
amounts due hereunder before, after or during the exercise of any of the
foregoing remedies, including all legal fees and other costs and expenses
incurred by Agent or any Lender by reason of the occurrence of any Loan Event of
Default or the exercise of remedies with respect thereto.
(e) Except as expressly provided above, no remedy under this Section
is intended to be exclusive, but each shall be cumulative and in addition to any
other remedy provided under this Section or under the other Operative Documents
or otherwise available at law or in equity. The exercise by Agent or any Lender
of any one or more of such remedies shall not preclude the simultaneous or later
exercise of any other remedy or remedies. No express or implied waiver by Agent
or any Lender of any Loan Event of Default shall in any way be, or be construed
to be, a waiver of any future or subsequent Loan Event of Default. The failure
or delay of Agent or any Lender in exercising any rights granted it hereunder
upon any occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or recurrence of any
such contingencies or similar contingencies and any single or
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partial exercise of any particular right by Agent or any Lender shall not
exhaust the same or constitute a waiver of any other right provided herein.
(f) No failure to exercise and no delay in exercising, on the part of
Agent or any Lender, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
(g) If there is a Loan Event of Default and no Lease Event of Default,
Agent shall not exercise remedies under the Collateral Documents against Lessee
or under the Guaranty against the Guarantors.
(h) If there is any transfer of Borrower's interest in the Site
pursuant to a Loan Event of Default where there is no Lease Event of Default,
any successor owner of the Site shall be subject to the consent of Lessee, not
to be unreasonably withheld.
ARTICLE VIII.
AGENT
Section 8.1. Appointment of Agent; No Duties. Each Lender hereby
-------------------------------
irrevocably (subject to Section 8.10) designates, authorizes and appoints Credit
------------
Lyonnais Los Angeles Branch as administrative agent of such Lender under this
Loan Agreement and each other Operative Document, and each such Lender
irrevocably authorizes Credit Lyonnais Los Angeles Branch, as the administrative
agent for such Lender, to take such action on its behalf under the provisions of
this Loan Agreement and each other Operative Document and to exercise such
powers and perform such duties as are expressly delegated to Agent by the terms
of this Loan Agreement and the other Operative Documents, together with such
other powers as are reasonably incidental thereto. Without limitation, each
Lender authorizes and directs Agent to, and Agent agrees for the benefit
thereof, that, on the Document Closing Date it will accept the Operative
Documents and thereafter, it will accept all documents to be delivered to Agent
on behalf of Lenders under the Operative Documents. Notwithstanding any
provision to the contrary elsewhere in this Loan Agreement or any other
Operative Document, Agent shall not have any duties or responsibilities except
those expressly set forth herein or therein, or any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Loan Agreement or otherwise
exist against Agent.
Section 8.2. Delegation of Duties. Agent may execute any of its duties
--------------------
under this Loan Agreement and the other Operative Documents by or through agents
or attorneys-in-fact, and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
Section 8.3. Exculpatory Provisions. Neither Agent nor any of its
----------------------
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action taken or omitted to be taken by it or such Person
under or in connection with this Loan Agreement or any other Operative Document
(except only for direct, as opposed to consequential, damages suffered by a
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<PAGE>
Person to the extent that such Person proves damages were caused by Agent's or
Agent's officers', directors', employees', agents', attorneys-in-fact's or
Affiliates' own gross negligence or willful misconduct as determined in a final,
nonappealable order made by a court of competent jurisdiction), or (ii) except
as expressly set forth in this Loan Agreement or any other Operative Document,
responsible in any manner to any of Lenders for any recitals, statements,
representations or warranties made by Borrower or any officer thereof contained
in this Loan Agreement or any other Operative Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by Agent under or in connection with, this Loan Agreement or any other Operative
Document, or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Loan Agreement or any other Operative Document, including
the Notes, or for any failure of Borrower to perform its obligations hereunder
or thereunder. Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Loan Agreement or any other
Operative Document, or to inspect the properties, books or records of Borrower.
Section 8.4. Reliance by Agent. Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex,
facsimile or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to Borrower), independent
accountants and other experts selected by Agent. Agent may deem and treat the
registered owner of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with Agent. Agent shall be fully justified in failing or refusing to take
any action under this Loan Agreement or any other Operative Document, unless it
shall first receive such advice or concurrence of the Required Lenders as it
deems appropriate and, if it so requests, it shall first be indemnified to its
satisfaction against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Loan Agreement, the Notes and any other Operative Documents in accordance with a
request of the Required Lenders, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all Lenders and all future
holders of the Notes and Borrower.
Section 8.5. Notice of Loan Default. Agent shall not be deemed to have
----------------------
knowledge or notice of the occurrence of any Loan Default or Loan Event of
Default hereunder (other than a Loan Event of Default described in Section
-------
7.1(i)) unless Agent has received notice from a Lender or Borrower referring to
- ------
this Loan Agreement, describing such Loan Default or Loan Event of Default and
stating that such notice is a "notice of default." In the event that Agent
receives such a notice, Agent shall give notice thereof to Lenders. Agent shall
take such action with respect to such Loan Default or Loan Event of Default as
shall be reasonably directed by the Required Lenders; provided that, unless and
--------
until Agent shall have received such directions, Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Loan Default or Loan Event of Default, as it shall deem advisable in the
best interests of Lenders.
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<PAGE>
Section 8.6. Non-Reliance on Agent and Other Lenders. Each Lender
---------------------------------------
expressly acknowledges that neither Agent nor any of its respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it, and that no act by Agent hereinafter taken,
including any review of the affairs of Borrower or Lessee, shall be deemed to
constitute any representation or warranty by Agent to any Lender. Each Lender
represents to Agent that it has, independently and without reliance upon Agent,
or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and
creditworthiness of Borrower and Lessee, the value of and title to any
collateral, and all applicable bank regulatory laws relating to the transactions
contemplated hereby and by the other Operative Documents and has made its own
decision to make its portion of the Loan hereunder and enter into this Loan
Agreement and the other Operative Documents to which it is a party as a Lender.
Each Lender also represents that it will, independently and without reliance
upon Agent, or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Loan
Agreement and the other Operative Documents to which it is a party as a Lender,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial and other condition and
creditworthiness of Borrower and Lessee. Except for notices, reports and other
documents expressly required to be furnished to Lenders by Agent hereunder,
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
financial and other condition or creditworthiness of Borrower, Agent or Lessee
which may come into the possession of Agent or any of its respective officers,
directors, employees, agents, attorneys-in-fact or Affiliates.
Section 8.7. Indemnification. Lenders severally and Borrower agree to
---------------
indemnify Agent in its capacity as such (to the extent not reimbursed by Lessee
within a reasonable period after demand has been made by Agent to Lessee for
those amounts owing by Lessee, and without limiting the obligation of Lessee to
do so), with respect to Lenders, ratably according to the respective principal
amounts of their Notes, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Notes) be imposed on,
incurred by or asserted against Agent in any way relating to or arising out of
this Loan Agreement or any other Operative Document, or any documents
contemplated by or referred to herein or therein or any action taken or omitted
by Agent under or in connection with any of the foregoing; provided that no
--------
Lender nor Borrower shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from Agent's gross negligence
or willful misconduct, which has been determined in a final, nonappealable order
of a court of competent jurisdiction. Whenever, at any time after Agent has
received from any Lender or Borrower such Lender's or Borrower's amounts owing
to Agent pursuant to this Section, Agent shall receive any reimbursement from
Lessee on account of such amounts, Agent shall distribute to such Lender or
Borrower its share thereof in like funds as received; provided, however, that in
-------- -------
the event that the receipt by Agent of such reimbursement is required by law or
court or administrative order to be returned, such Lender or Borrower shall
return to Agent any portion
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<PAGE>
thereof previously distributed by Agent to it in like funds as such
reimbursement is required to be returned by Agent.
Section 8.8. Agent in Its Individual Capacity. Agent and its respective
--------------------------------
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
business with Borrower or any Lessee Party as though Agent were not Agent
hereunder and without notice to or the consent of Lenders. It is understood and
acknowledged by each Lender that an Affiliate of Agent is Borrower and Agent or
an Affiliate of Agent may also separately be a Participant. It is further
understood and acknowledged by each Lender that, pursuant to the activities
referenced in this Section, Agent and/or its respective Affiliates may receive
information regarding Borrower or Lessee (including information that may be
subject to confidentiality obligations in favor of Borrower or Lessee) and
acknowledge that Agent shall be under no obligation to provide such information
to them. If Agent is one of Lenders, with respect to the portion of the Loan
made by it and any Note issued to it, Agent shall have the same rights and
powers under this Loan Agreement (if it is a Lender) and the other Operative
Documents as any Lender and may exercise the same as though it were not Agent,
and the terms "Lender" and "Lenders" shall include Agent in its individual
------ -------
capacity as a holder of Notes, if applicable. In addition, Borrower may exercise
its rights and powers under this Loan Agreement and the other Operative
Documents notwithstanding that Agent is an Affiliate of Borrower.
Section 8.9. Concerning the Collateral.
-------------------------
(a) Agent hereby declares that it will hold the Collateral for the
benefit of Lenders, subject to, and upon the terms and conditions of the Loan
Documents, for the sole use and benefit of Lenders.
(b) Upon discharge of the indebtedness secured by the Lien or security
interest provided for in the Collateral Documents, Agent shall execute and
deliver, at Lessee's cost and expense, such satisfaction of mortgage or
termination of security interest as may be required.
(c) In the event that the Required Lenders shall notify Agent that an
event of default under a security instrument has occurred, Agent shall take such
action with respect thereto as the Required Lenders may require by written
instructions, but Agent shall not be required to take any action not expressly
set forth in such written instructions.
(d) Agent shall not have any duty or obligation to manage, operate,
control, use, sell, dispose of or otherwise deal with the Site or any other part
of the Collateral or to otherwise take or refrain from taking any action under,
or in connection with, the Collateral Documents, except as expressly provided by
the terms of this Loan Agreement or as expressly provided in written
instructions from the Required Lenders received pursuant to the terms of Section
-------
8.9(c).
- ------
(e) Except in accordance with written instruction furnished pursuant
to Section 8.9(c), and without limiting the generality of Section 8.9(d), Agent
-------------- --------------
shall have no duty (i) to see to any recording, filing or depositing of any
security instrument or amendment thereof, (ii) to see to
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<PAGE>
any insurance on the Site or to effect or maintain any such insurance, (iii) to
see to the payment or discharge of any tax, assessment, or other governmental
charge or any Lien or encumbrance of any kind owing with respect to, assessed or
levied against, any part of the Collateral, (iv) to confirm or verify any
notices or reports of Borrower other than to furnish (to the extent not
otherwise furnished) Lenders with a copy of each notice or report furnished to
Agent by Borrower pursuant to a Collateral Document or (v) to inspect the Site
at any time or ascertain or inquire as to the performance or observance of
Borrower's covenants under any security instrument.
(f) In accepting the obligations hereby created, Agent acts solely as
Agent hereunder and not in its individual capacity, and all persons, other than
Lenders, having any claim against Agent by reason of the transactions
contemplated hereby shall look only to the Collateral for payment or
satisfaction thereof; provided that the foregoing shall not restrict or limit
--------
the right or ability of Agent to hold any Notes or Trust Certificates in its
individual capacity.
(g) If the agency created hereby is determined to be subject to any
law limiting the duration of obligations, this agency shall terminate, cease and
determine upon the earlier of: (i) the assignment, conveyance and transfer by
Agent to Lenders of any property then comprising the Collateral and (ii) twenty-
one years less one day after the death of the last survivor of all the
descendants living on the date of this Loan Agreement of the late Joseph P.
Kennedy, former United States Ambassador to the Court of St. James.
Section 8.10. Successor Agent. At any time following the expiration of
---------------
the period one hundred twenty (120) days after the Construction Period (or
earlier with the consent of the Required Lenders), Agent may resign as Agent
upon thirty (30) days' prior written notice to Borrower, Participants and Lessee
or Agent may be removed at any time for cause by thirty (30) days' prior written
notice from the Required Lenders to Agent, the other Participants and Lessee. If
Agent resigns herewith, the Required Lenders shall appoint from among Lenders a
successor Agent which successor Agent shall be approved by, so long as no Loan
Default or Loan Event of Default exists, Borrower and, so long as no Lease
Default or Lease Event of Default exists, Lessee (which approval shall not be
unreasonably withheld or delayed). If no successor Agent is appointed prior to
the effective date of the resignation of Agent, Agent may appoint, after
consulting with Participants, Borrower and Lessee, a successor Agent from among
Lenders. Upon the successor Agent's acceptance of its appointment as successor
Agent hereunder, such successor Agent shall succeed to all the rights, powers
and duties of the retiring Agent and the term "Agent" shall mean such successor
-----
Agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation herewith as Agent, the
provisions of this Article and Article VIII of the Participation Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent hereunder and under the other Operative Documents. If no successor
Agent has accepted appointment as Agent by the date which is thirty (30) days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall thereupon become effective and Lenders shall perform all of
the duties of Agent hereunder and under the other Operative Documents until such
time, if any, as the Required Lenders appoint a successor Agent as provided for
above.
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<PAGE>
Section 8.11. Separate Agent. Agent may, for the purpose of meeting any
--------------
legal requirements of any jurisdiction in which the Site or Collateral may be
located, appoint one or more individuals or corporations either to act as co-
agent jointly with Agent or to act as separate agent of all or any part of the
Collateral, and vest in such individuals or corporations, in such capacity, such
title to such Collateral or any part thereof, and such rights or duties as Agent
may consider necessary or desirable. Agent shall not be required to qualify to
do business in any jurisdiction where it is not now so qualified. Agent shall
execute, acknowledge and deliver all such instruments as may be required by any
such co-agent or separate agent more fully confirming such title, rights or
duties to such co-agent or separate agent. Upon the acceptance in writing of
such appointment by any such co-agent or separate agent, it, she or he shall be
vested with such interest in the Collateral or any part thereof, and with such
rights and duties, not inconsistent with the provisions of the Operative
Documents, as shall be specified in the instrument of appointment, jointly with
Agent (except insofar as local law makes it necessary for any such co-agent or
separate agent to act alone), subject to all terms of the Operative Documents.
Any co-agent or separate agent, to the fullest extent permitted by legal
requirements of the relevant jurisdiction, at any time, by an instrument in
writing, shall constitute Agent its attorney-in-fact and agent, with full power
and authority to do all acts and things and to exercise all discretion on its
behalf and in its name. If any co-agent or separate agent shall die, become
incapable of acting, resign or be removed, the interest in the Collateral or the
Site and all rights and duties of such co-agent or separate agent shall, so far
as permitted by law, vest in and be exercised by Agent, without the appointment
of a successor to such co-agent or separate agent.
Section 8.12. Compensation of Agency. Borrower shall pay Agent (i) the
----------------------
fees set forth in Section 2.6 of the Participation Agreement or in any other
Operative Document, and (ii) Agent's reasonable costs and expenses for the
performance of Agent's obligations under the Loan Documents and other Operative
Documents, as may be further provided for herein or therein.
Section 8.13. Easements. Agent agrees that in the event that Lessor
---------
shall take action described in, and in accordance with the provisions of,
Section 8.3 of the Lease or Section 3.4 of the Construction Agency Agreement, or
execute and deliver any documents in connection therewith, upon Lessee's
request, Agent (on behalf of Lenders) shall participate or join in such action
and execute and deliver such joinders, subordination agreements, releases or
other documents appropriate for the action being take.
ARTICLE IX.
MISCELLANEOUS
Section 9.1. Amendments and Waivers. Neither this Loan Agreement, any
----------------------
Note, the Mortgage, any other Loan Document nor any terms hereof or thereof may
be amended, supplemented or modified, except in accordance with the provisions
of the Participation Agreement.
Section 9.2. Notices. Unless otherwise specified herein, all notices,
-------
requests, demands or other communications to or upon the respective parties
hereto shall be delivered in accordance with, and shall be deemed to have been
given as provided in, Section 9.3 of the Participation
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Agreement; provided, that any notice, request, demand or other communication to
--------
or upon Agent or Lenders pursuant to Section 2.3 shall not be effective until
-----------
received.
Section 9.3. Successors and Assigns; Transfers and Participations. (a)
----------------------------------------------------
This Loan Agreement shall be binding upon and inure to the benefit of Borrower,
Lenders, Agent, all future holders of the Notes and their respective successors
and assigns.
(b) Any transfer by a Lender of its Notes or any sale by a Lender of
any participating interest in the Loans evidenced by its Notes shall comply with
Section 6.3 of the Participation Agreement. Any Lender transferring its Notes
shall pay, or cause the transferee to pay, the costs and expenses (including
reasonable counsel fees) incurred by Agent in connection with such transfer.
Section 9.4. Adjustments. If the holder of any Note (a "Benefited
----------- ---------
Lender") shall at any time receive any payment of all or part of its Note, or
- ------
interest thereon, or any amount payable pursuant to Section 2.12(b) with respect
---------------
thereto, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7.1(iv), or otherwise) in a greater proportion than any
---------------
such payment to and collateral received by any other holders of Notes in respect
of such other Lender's Notes, or interest thereon, or amount payable pursuant to
Section 2.12(b) with respect thereto, such Benefited Lender shall purchase for
- ---------------
cash from the other Lenders such portion of each such other Lender's Notes, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such Benefited Lender to
share the excess payment or benefits of such collateral or proceeds ratably with
each of such holders; provided, however, that if all or any portion of such
-------- -------
excess payment or benefits is thereafter recovered from such Benefited Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest. Borrower agrees that each
Lender purchasing a portion of another Lender's portion of the Loans pursuant to
this Section may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
Section 9.5. Counterparts. This Loan Agreement may be executed by one
------------
or more of the parties to this Loan Agreement on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Loan
Agreement signed by all the parties hereto shall be lodged with Borrower and
Agent.
Section 9.6. GOVERNING LAW. THIS LOAN AGREEMENT AND THE NOTES HAVE BEEN
-------------
DELIVERED IN, AND THIS LOAN AGREEMENT AND THE NOTES AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS LOAN AGREEMENT AND THE NOTES SHALL IN ALL
RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE.
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Section 9.7. No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of Agent or any Lender, any right, remedy,
power or privilege hereunder 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 hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
Section 9.8. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder, in the other Operative Documents
and in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Loan
Agreement and the Notes and the making of the Loans hereunder.
Section 9.9. Entire Agreement. This Loan Agreement sets forth the
----------------
entire agreement of the parties hereto with respect to its subject matter, and
supersedes all previous understandings, written or oral, with respect thereto.
Section 9.10. Severability. Any provision of this Loan Agreement or of
------------
the other Loan Documents which is prohibited, unenforceable or not authorized in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization without invalidating the
remaining provisions hereof or thereof or affecting the validity, enforceability
or legality of any such provision in any other jurisdiction.
Section 9.11. Limitations of Liability. Except in the case of the gross
------------------------
negligence or willful misconduct of Trustee or the Trust Company, as determined
in a final, nonappealable order by a court of competent jurisdiction, anything
in this Loan Agreement to the contrary notwithstanding, neither Agent nor any
Lender nor any other holder of Notes nor the successors or assigns of any of
said Persons, shall have any claim, remedy or right to proceed against Trustee
or the Trust Company, or any past, present or future settlor, owner, trustee,
officer, director, incorporator or partner thereof, whether by virtue of any
constitutional provision, statute or rule of law or by enforcement of any
penalty or assessment or otherwise, for the payment of any deficiency or any
other sum owing on account of the indebtedness evidenced by the Notes or for the
payment of any liability resulting from the breach of any representation,
agreement or warranty of any nature whatsoever in this Loan Agreement or any
other Operative Document, from any source other than the Collateral securing the
Notes, including the Rent, but excluding Excluded Amounts. Agent, Lenders and
any other holders of the Notes by acceptance of this Loan Agreement and the
Notes, waive and release any liability of Trustee and Trust Company, or any
past, present or future stockholder, subscriber of capital stock, officer,
director, incorporator or partner thereof for and on account of such
indebtedness or such liability, and Agent, Lenders and the holders of the Notes
agree to look solely to the Collateral securing the Notes, including the Rent,
but excluding Excluded Amounts, for the payment of said indebtedness or the
satisfaction of such liability; provided, however, that nothing herein contained
-------- -------
shall limit, restrict or impair the rights of Agent to accelerate the maturity
of the Notes upon a Loan Event of Default or, subject to the limitations
hereinabove described, to bring suit and obtain a judgment on the Notes or to
exercise all rights and remedies provided under this Loan Agreement or otherwise
C-22
<PAGE>
realize upon the Collateral securing the Notes, other than the pursuit of any
claim of personal liability.
Section 9.12. The Register; Disclosure; Pledges to Federal Reserve Banks.
----------------------------------------------------------
(a) Agent shall maintain at its address a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of Lenders, the Commitments of Lenders,
and the principal amount of the Loans owing to each Lender from time to time.
The entries in the Register shall be conclusive, in the absence of clearly
demonstrable error, and Borrower, Agent and Lenders may treat each Person whose
name is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Loan Agreement. The Register shall be available for
inspection by Borrower or any Lender at any reasonable time from time to time
upon reasonable prior notice.
(b) Nothing herein or in any other Operative Document shall prohibit
any Lender from pledging or assigning any Loan or Note to any Federal Reserve
Bank in accordance with applicable law.
Section 9.13. Submission or Jurisdiction; Waivers. EACH PARTY HERETO
-----------------------------------
IRREVOCABLY AND UNCONDITIONALLY:
(a) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT OR OMISSION, OR EVENT OCCURRING IN CONNECTION
HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY
------------------
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE BOROUGH OF
MANHATTAN, STATE OF NEW YORK, SUBMITS TO THE JURISDICTION OF SUCH COURTS, AND TO
THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT, TO THE EXTENT THAT ANY SUCH
COURT HAS OR IS ABLE TO OBTAIN PERSONAL JURISDICTION OVER THE PARTY AGAINST
WHICH SUCH PARTY IS SEEKING TO BRING RELATED LITIGATION, IT WILL NOT BRING ANY
RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF ANY INVESTOR, AGENT OR LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY
OTHER FORUM);
(b) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING
OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM
THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, AND
WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED LITIGATION BROUGHT IN
ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY;
(c) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID, TO SUCH PARTY'S ADDRESS FOR NOTICES DESCRIBED IN SCHEDULE II
HEREOF, AND CONSENTS
C-23
<PAGE>
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND
EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS
OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW); AND
(d) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY RELATED LITIGATION.
C-24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered in New York, New York, by their proper and
duly authorized officers as of the day and year first above written.
SMART & FINAL REALTY TRUST 1998,
as Borrower
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By: /s/ James P. Lawler
-----------------------------------------
Name: James P. Lawler
Title: Vice President
CREDIT LYONNAIS LOS ANGELES BRANCH, as Agent
By: /s/ Dianne M. Scott
-----------------------------------------
Name: Dianne M. Scott
Title: Vice President and Manager
CREDIT LYONNAIS LOS ANGELES BRANCH, as Lender
By: /s/ Dianne M. Scott
-----------------------------------------
Name: Dianne M. Scott
Title: Vice President and Manager
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND," NEW YORK BRANCH,
as Lender
By: /s/ Dana W. Hemenway
-----------------------------------------
Name: Dana W. Hemenway
Title: Vice President
By: /s/ W. Pieter C. Kodde
-----------------------------------------
Name: W. Pieter C. Kodde
Title: Vice President
<PAGE>
LOAN AGREEMENT
SCHEDULE I
LIST OF LENDERS
---------------
Credit Lyonnais Los Angeles Branch
515 South Flower Street
Suite 2200
Los Angeles, California 90071
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank Nederland," New York Branch
245 Park Avenue, 37th floor
New York, New York 10167
S-1
<PAGE>
LOAN AGREEMENT
EXHIBIT A
Form of Note
------------
NOTE
$[ ] New York, New York
Dated as of ___________, ____
FOR VALUE RECEIVED, the undersigned SMART & FINAL REALTY TRUST 1998, a
Delaware business trust, as borrower ("Borrower"), hereby unconditionally
promises to pay to the order of __________________, a ___________________
("Lender"), at the office of Credit Lyonnais Los Angeles Branch, located at 515
------
South Flower Street, Los Angeles, California 90071, in lawful money of the
United States of America in same day or immediately available funds to the
account designated by Lender from time to time in writing, the aggregate unpaid
principal amount of all Loans made by Lender to, or for the benefit of,
Borrower, as recorded either on the grid attached to this Note or in the records
of Lender (and such recordation shall constitute prima facie evidence of the
information so recorded; provided, however, that the failure to make any such
-------- -------
recordation shall not in any way affect Borrower's obligation to repay this
Note). The principal amount of each Loan evidenced hereby shall be payable on
or prior to the Final Maturity Date as provided in that certain Loan Agreement,
dated as of May 20, 1998, among Borrower, the various lenders named therein, and
Credit Lyonnais Los Angeles Branch, as Agent for itself and such lenders
("Agent") (as amended, supplemented or otherwise modified from time to time, the
-----
"Loan Agreement").
--------------
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from and including the date hereof until
maturity (whether by acceleration or otherwise) and, after maturity, until paid,
at the rates per annum and on the dates specified in the Loan Agreement.
Prepayments on this Note are subject to the provisions of Section 2.4 of
the Loan Agreement.
This Note is one of the Notes referred to in, and evidences indebtedness
incurred under, the Loan Agreement, to which reference is made for a statement
of the terms and conditions on which Borrower is required to make prepayments
and repayments of principal of the indebtedness evidenced by this Note and on
which such indebtedness may be declared to be immediately due and payable.
Capitalized terms used herein without definition shall have the meanings
provided in the Loan Agreement. This Note is secured and guaranteed pursuant to
the Loan Documents made by Borrower and Guarantors in favor of Agent referred to
in the Loan
A-1
<PAGE>
Agreement and reference is hereby made to the Loan Agreement and such Loan
Documents for statement of the terms and provisions of such security.
Anything to the contrary herein notwithstanding, Borrower's liability for
any sums due hereunder shall be limited in accordance with Section 9.11 of the
Loan Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest, and notice of dishonor, notice
of the existence, creation or nonpayment of all or any of the Loans and all
other notices whatsoever.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
SMART & FINAL REALTY TRUST 1998,
as Borrower
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By
--------------------------------------------
Name:
Title:
A-2
<PAGE>
GRID ATTACHED TO NOTE
DATED AS OF _________, ____ OF
SMART & FINAL REALTY TRUST 1998, AS BORROWER,
PAYABLE TO THE ORDER OF
__________________, AS LENDER
Loans made by Lender to Borrower and payments of principal of such Loans.
<TABLE>
<CAPTION>
Outstanding
Amount of Principal Notation
Date Loan Balance Made By
================================================================
<S> <C> <C> <C>
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
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================================================================
</TABLE>
A-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-3-1999
<PERIOD-START> JAN-5-1998
<PERIOD-END> JUN-21-1998
<CASH> 20,583
<SECURITIES> 0
<RECEIVABLES> 79,990
<ALLOWANCES> 3,807
<INVENTORY> 144,449
<CURRENT-ASSETS> 262,676
<PP&E> 287,594
<DEPRECIATION> 96,327
<TOTAL-ASSETS> 534,088
<CURRENT-LIABILITIES> 220,446
<BONDS> 93,129
0
0
<COMMON> 225
<OTHER-SE> 198,511
<TOTAL-LIABILITY-AND-EQUITY> 534,088
<SALES> 714,855
<TOTAL-REVENUES> 714,855
<CGS> 627,235
<TOTAL-COSTS> 627,235
<OTHER-EXPENSES> 82,876
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,566
<INCOME-PRETAX> 178
<INCOME-TAX> (27)
<INCOME-CONTINUING> 392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1090
<NET-INCOME> (698)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
