<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 24, 1999
CELEBRITY, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1289223 0-20802
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number Identification No.)
4520 Old Troup Highway
Tyler, Texas 75711
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(903) 561-3981
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On April 22, 1999, the Registrant executed the necessary documents to
sell to Crest Properties, Ltd., a Texas limited partnership ("Crest")(an entity
controlled by Robert H. Patterson, Jr., President and Chief Executive Officer of
the Registrant, as described more fully below), (i) a parcel of land and two
buildings owned by Registrant and located at 4520 Old Troup Highway, Tyler,
Texas (the "Texas Property") and (ii) a parcel of land and a building owned by
the Registrant and located at 3200 Centre Park Boulevard, Winston-Salem, North
Carolina (the "North Carolina Property", and together with the Texas Property,
the "Properties") (the "Sale Transaction"). The aggregate price for the two
parcels of $7,500,000 was determined by negotiation between the Registrant and
Crest. The price was paid by Crest with (a) $4,444,444 borrowed from Merrill
Lynch Business Financial Services, Inc. ("MLBFS"), (b) $2,000,000 in cash and
(c) a promissory note for the balance (net of partial month rents and Crest's
expenses for the transaction equaling, in the
<PAGE> 2
aggregate, approximately $19,000) in the original principal amount of
$1,036,215.91 (the "Promissory Note") executed by Crest, made payable to the
Registrant, and secured by second liens on the Properties.
The Registrant, certain of the Registrant's subsidiaries, RHP
Management, LLC, a Texas limited liability company and the general partner of
Crest ("RHP Management"), Robert H. Patterson, Jr., individually, RHP Real
Estate, Ltd., a Texas limited partnership and a limited partner of Crest
("RHPREL"), and the Residuary Trust Created Under the Last Will and Testament of
Robert H. Patterson, Sr., Deceased, the other limited partner of Crest (the
"Trust"), have each guaranteed Crest's loan from MLBFS. Robert H. Patterson,
Jr., President and Chief Executive Officer of the Registrant, controls RHP
Management and RHPREL, and is a beneficiary of the Trust. In connection with the
Sales Transaction and the subsequent leasebacks described below, and in
consideration for Mr. Patterson's personal guarantee of Crest's loan from MLBFS,
the Registrant issued to RHP Management a warrant to purchase 75,000 shares of
common stock, par value $.01 per share, of the Registrant ("Common Stock"), at
an exercise price of $3.00 per share (the "Warrant"). The Warrant expires April
14, 2004. The Registrant has also paid Crest a closing fee of $150,000 (the
"Closing Fee") in connection with the consummation of the Sales Transaction and
the subsequent leasebacks described below.
The Sales Transaction was fully funded on May 24, 1999. The Texas
Property was leased back to the Registrant. The North Carolina Property was
leased to The Cluett Corporation, a wholly-owned subsidiary of the Registrant
("Cluett"). Cluett's obligations under the lease are guaranteed by the
Registrant. The initial term of the leases is 25 years. The initial monthly rent
under the leases will be $46,646 for the Texas Property and $28,354 for the
North Carolina Property. The rent under each lease will be adjusted at the
beginning of the fourth lease year and every three years thereafter commensurate
with increases in the Consumer Price Index ("CPI") over the prior three-year
period. If there is no increase in the CPI, the rent will remain the same as in
the immediately preceding period. Under each lease, the lessee will be
responsible for all costs of operating and maintaining the leased premises,
including the payment of taxes, insurance and all other maintenance expenses,
except for Crest's debt service and income taxes. The terms and conditions of
the sale/leaseback (including the Warrant and the Closing Fee described above)
were substantially similar to the terms and conditions of a proposed
sale/leaseback that the Registrant negotiated from June through October 1998
with an unrelated third party (the "Proposed Third Party Transaction"). The
terms and conditions of the sale/leaseback with Crest were reviewed by an
independent real estate appraisal and consulting firm, which provided a fairness
opinion with respect to such terms and conditions to the Board of Directors of
the Registrant, wherein such firm concluded that the terms and conditions of the
sale/leaseback are fair, from a financial point of view, to the Registrant.
After reviewing such opinion and a comparison of the terms and conditions of the
Proposed Third Party Transaction with the terms and conditions of the
sale/leaseback with Crest, the terms and conditions of the sale/leaseback with
Crest were unanimously approved by the independent members of the Board of
Directors of the Registrant.
- 2 -
<PAGE> 3
Approximately $1,077,000 of the consideration received by the
Registrant in connection with the Sale Transaction was paid to RHP Management to
repay in full all amounts that had previously been loaned to the Registrant by
RHP Management, plus all accrued interest on such amounts. Subsequent to the
Sale Transaction, RHPREL, the Trust and the Registrant entered into an Agreement
for Purchase and Sale of Promissory Note, dated May 28, 1999 (the "Note Purchase
Agreement"), pursuant to which RHPREL and the Trust each agreed to purchase a
50% interest in the Promissory Note from the Registrant. The aggregate purchase
price for the Promissory Note was its original principal amount of
$1,036,215.91, plus accrued interest. The transactions contemplated by the Note
Purchase Agreement were consummated May 28, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses being acquired
None
(b) Pro forma financial information.
None
(c) Exhibits.
See Exhibit Index on page following Signatures.
- 3 -
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant as duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CELEBRITY, INC.
Date: June 4, 1999 By: /s/ LYNN SKILLEN
--------------------------------------
Lynn Skillen, Vice President - Finance
and Chief Financial Officer
- 4 -
<PAGE> 5
EXHIBIT INDEX
Celebrity, Inc.
Current Report on Form 8-K
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1 Lease Agreement, dated April 22, 1999, between the Registrant, as
lessee, and Crest Properties, Ltd., as lessor, relating to property at
4520 Old Troup Highway, Tyler, Texas
2 Lease Agreement, dated April 22, 1999, between The Cluett
Corporation, as lessee, and Crest Properties, Ltd., as lessor,
and relating to property at 3200 Centre-Park Boulevard,
Winston-Salem, North Carolina
3 Agreement for Purchase and Sale of Promissory Note, dated May 28,
1999, by and among the Registrant, RHP Real Estate, Ltd. and The
Residuary Trust Created Under the Last Will and Testament of
Robert H. Patterson, Sr., Deceased
4 Warrant, dated as of April 22, 1999, executed by the Registrant in
favor of RHP Management, LLC, regarding the purchase of 75,000
shares of common stock of the Registrant
</TABLE>
<PAGE> 1
EXHIBIT 1
LEASE AGREEMENT
THIS LEASE AGREEMENT dated this 22 day of April, 1999, made by and
between CREST PROPERTIES, LTD., a Texas limited partnership (hereinafter called
"Lessor"), and CELEBRITY, INC., a Texas corporation (hereinafter called
"Lessee");
WITNESSETH:
Lessor, in consideration of the rent to be paid and the covenants and
agreements to be performed by Lessee, as hereinafter set forth, does hereby
LEASE, DEMISE and LET unto Lessee, and Lessee hereby takes and accepts, the real
property described in Exhibit A attached hereto and made a part hereof, together
with (a) all buildings and other improvements now or hereafter located or
erected thereon (b) all fixtures and other property affixed to said buildings
and other improvements; (c) all of Lessor's interest in and to all easements and
other rights as may be necessary for ingress and egress and maintenance of said
property; and (d) all and singular the rights and appurtenances pertaining to
the foregoing property; (all of said property hereinafter called the "Leased
Property") for the term hereinafter set forth.
The Leased Property is leased by Lessor to Lessee and is accepted and
is to be used and possessed by Lessee upon and subject to (a) all covenants,
conditions, easements, reservations, rights-of-way and other matters recorded in
the land records in the county and state in which the Leased Property is
located; (b) any state of facts which an accurate survey or physical inspection
thereof might show or of which Lessee has actual knowledge; (c) all zoning
regulations, restrictions, rules and ordinances, building restrictions and other
laws and regulations now in effect or hereafter adopted by any Governmental
Authority (as herein defined) having jurisdiction; (d) the condition of the
Leased Property as of the commencement of the Term, without representation or
warranty by Lessor, and (e) the following terms, provisions, covenants,
agreements and conditions:
1. Deeds of Trust.
(a) The interest of Lessor in the Leased Property is subject to a Deed
of Trust, Security Agreement, Financing Statement and Assignment of Rents in
favor of Harry M. Roberts, Jr., Trustee, and all amendments thereto and all
renewals, extensions, substitutions, modifications, consolidations and
replacements thereof (hereinafter collectively called the "First Lien Deed of
Trust"), securing the payment of a promissory note (hereinafter called the
"First Lien Note") in the original principal amount of $4,444,444.09 from Lessor
to Merrill Lynch Business Financial Services, Inc., (the holder of the debt
secured by the Deed of Trust hereinafter called the "First Lien Noteholder").
The priority of the First Lien Deed of Trust with respect to the leasehold
estate hereunder and the relative rights and obligations of the First Lien
Noteholder, Lessor and Lessee with respect to this Lease and the Leased Property
may be set forth in an Agreement (hereinafter called the "Attornment Agreement")
by and among said parties. Except as otherwise set forth in any Attornment
Agreement, the First Lien Noteholder shall not be liable
<PAGE> 2
for any act, omission or default of Lessor, subject to any offset, claims or
defenses which Lessee may have against Lessor, or bound by any amendment, waiver
or termination of this Lease, unless consented to by the First Lien Noteholder
in writing. If because of Lessor's default Lessee has the right to terminate
this Lease, Lessee shall not do so (except as otherwise set forth in the
Attornment Agreement) unless Lessee first notifies the First Lien Noteholder in
writing thereof and the First Lien Noteholder fails to initiate promptly and
thereafter use reasonable efforts to cure Lessor's default. If, in connection
with any financing by Lessor of any portion of the Leased Property, the First
Lien Noteholder requires modifications to this Lease, Lessee shall not
unreasonably withhold, delay or condition Lessee's consent to such
modifications, so long as such modifications do not increase the rents owed
hereunder, reduce or extend the Term, reduce or increase the area of the Leased
Property, or materially adversely affect Lessee's rights and obligations
hereunder.
(b) The interest of Lessor in the Leased Property is also subject to a
Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing in
favor of Harry M. Roberts, Jr., Trustee, and all amendments thereto and all
renewals, extensions, substitutions, modifications, consolidations and
replacements thereof (hereinafter collectively called the "Second Lien Deed of
Trust"), securing the payment of a promissory note (hereinafter called the
"Second Lien Note") in the original principal amount of $1,036,215.91 from
Lessor to Celebrity, Inc. (the holder of the debt secured by the Second Lien
Deed of Trust hereinafter called the "Second Lien Noteholder"). The First Lien
Deed of Trust and the Second Lien Deed of Trust are hereinafter collectively
called the "Deeds of Trust" and the First Lien Noteholder and the Second Lien
Noteholder are hereinafter collectively called the "Noteholders".
(c) Notwithstanding anything in this Lease to the contrary, Lessee
agrees to timely perform and satisfy the covenants and obligations of Lessor as
Grantor under the Deeds of Trust insofar as such covenants and obligations
relate to the Leased Property; provided, Lessee shall not be obligated to pay
the First Lien Note or the Second Lien Note. To the extent that the covenants
and obligations of the Deeds of Trust conflict with corresponding or similar
covenants and obligations of Lessee under this Lease, Lessee shall observe,
perform and comply with whichever covenants and obligations are the most
burdensome.
2. Term.
This Lease shall be for a term of twenty five (25) years (herein called
the "Term") commencing on April 22, 1999 (hereinafter called the "Commencement
Date") and ending at midnight on April 22, 2024, unless sooner terminated as
provided in this Lease.
- 2 -
<PAGE> 3
3. Rent.
(a) Lessee covenants and agrees to pay to Lessor as rent (herein called
"Rent") for the Leased Property the sum of Five Hundred Fifty Nine Thousand
Seven Hundred Fifty Six Dollars ($559,756) per annum (herein called the "Basic
Rent"), subject to adjustment as provided below, payable in equal monthly
installments in advance on the first day of each month (herein called the "Rent
Payment Date") during the Term of this Lease. Should this Lease commence on a
day other than the first day of a calendar month or terminate on a day other
than the last day of a calendar month, the Rent for such partial month shall be
prorated. The first monthly installment of Rent shall be paid contemporaneously
with the execution of this Lease.
(b) All Rent shall be paid by Lessee to Lessor at Lessor's address as
provided in Section 39 hereof, or to such other person and/or at such other
address as Lessor may direct by notice to Lessee, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts or, at the option of Lessor or the First
Lien Noteholder, by electronic funds transfer of immediately available funds to
a financial institution directed by Lessor or the First Lien Noteholder, as the
case may be.
(c) It is the purpose and intent of Lessor and Lessee that the Rent
shall be absolutely net to Lessor. Lessee shall pay the Rent, without notice or
demand, and without abatement, deduction or setoff, except as herein
specifically provided.
(d) If any installment of Rent is not paid when due, a Late Charge
(hereinafter so called) of five cents ($.05) per dollar so overdue may be
charged by Lessor to defray Lessor's administrative expense incident to the
handling of such overdue payments. Each Late Charge shall be payable on demand.
If any installment of Rent is not paid on or before ten (10) days after the due
date, from and after said tenth day after the due date such Rent, together with
any applicable Late Charge, shall bear interest at the rate of twelve percent
(12%) per annum. Notwithstanding the foregoing, Lessee shall not be required to
pay any Late Charge or interest described in this Section 3(d) with respect to
any overdue payment of Rent if Lessee is not overdue on any payment of Rent on
more than two (2) occasions by more than five (5) days in any twelve (12) month
period.
4. Adjustment of Rent.
(a) Basic Rent shall be subject to adjustment in the manner hereinafter
set forth for increases during the applicable three (3) year period described
below and during each three (3) year period thereafter, in each case, in the
index known as the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, United States City
Average, All Items, (1982-84'100) (hereinafter called the "CPI") or the
successor index thereto that most closely approximates the CPI. If the CPI shall
be discontinued with no successor or comparable successor index, Lessor and
Lessee shall attempt to agree upon a substitute index or formula, but if they
are unable to so agree, then the matter shall be determined
- 3 -
<PAGE> 4
by arbitration in accordance with the rules of the American Arbitration
Association then prevailing in Dallas, Texas. Any decision or award resulting
from such arbitration shall be final and binding upon Lessor and Lessee and
judgment thereon may be entered in any court of competent jurisdiction.
(b) Basic Rent shall not be adjusted to reflect changes in the CPI
until the third (3rd) anniversary of the Rent Payment Date on which the first
full monthly installment of Basic Rent shall be due and payable (hereinafter
called the "First Full Rent Payment Date"). As of the third (3rd) anniversary of
the First Full Rent Payment Date, Basic Rent shall be increased by an amount
equal to the CPI Increase Amount to reflect increases in the CPI during the
immediately preceding three (3) years. Thereafter, on the sixth (6th), ninth
(9th), twelfth (12th), fifteenth (15th), eighteenth (18th), twenty-first (21st)
and twenty-fourth (24th) anniversaries of the First Full Rent Payment Date,
Basic Rent shall be adjusted to reflect increases in the CPI during the most
recent three (3) year period immediately preceding each of the foregoing dates
(each such date, including the third (3rd) anniversary of the First Full Rent
Payment Date, being hereinafter referred to as the "Basic Rent Adjustment
Date").
(c) On the Basic Rent Adjustment Date which is the third (3rd)
anniversary of the First Full Rent Payment Date, if the CPI determined in clause
(i) below (hereinafter called the "Ending CPI") exceeds the Beginning CPI (as
defined in this Section 4(c)), the Initial Base Rent shall be multiplied by a
fraction, the numerator of which shall be the difference between (i) the CPI for
the most recent calendar month (hereinafter called the "Prior Month") ending
prior to a Basic Rent Adjustment Date (for purposes of this Section 4(c), such
Basic Rent Adjustment Date shall mean the third (3rd) anniversary of the First
Full Rent Payment Date) for which the CPI has been published on or before the
forty-fifth (45th) day preceding such Basic Rent Adjustment Date and (ii) the
Beginning CPI, and the denominator of which shall be the Beginning CPI. The
product of such multiplication described in the immediately preceding sentence
is referenced to herein as the "CPI Increase Amount", and the CPI Increase
Amount shall thereafter be included in Basic Rent as set forth in the definition
of Basic Rent. The "Beginning CPI" shall mean the monthly CPI for the calendar
month corresponding to the Prior Month, but occurring three (3) years earlier.
If the Ending CPI is the same or less than the Beginning CPI, no adjustment to
Basic Rent shall be made.
(d) As of each Basic Rent Adjustment Date after the third (3rd)
anniversary of the First Full Rent Payment Date when Ending CPI exceeds the
Beginning CPI, the Basic Rent in effect immediately prior to the applicable
Basic Rent Adjustment Date shall be multiplied by a fraction, the numerator of
which shall be the difference between (i) the Ending CPI for the Prior Month
ending prior to such Basic Rent Adjustment Date for which the CPI has been
published on or before the forty-fifth (45th) day preceding such Basic Rent
Adjustment Date and (ii) the Beginning CPI, and the denominator of which shall
be the Beginning CPI. The product of such multiplication described in the
immediately preceding sentence shall be added to the Basic Rent
- 4 -
<PAGE> 5
in effect immediately prior to such Basic Rent Adjustment Date. If the Ending
CPI is the same or less than the Beginning CPI, no adjustment to Basic Rent
shall be made.
(e) Effective as of a given Basic Rent Adjustment Date, Basic Rent
payable under this Lease until the next succeeding Basic Rent Adjustment Date
shall be the Basic Rent in effect after the adjustment provided for as of such
Basic Rent Adjustment Date.
(f) Notice of the new Basic Rent shall be delivered to Lessee on or
before the thirtieth (30th) day preceding each Basic Rent Adjustment Date. The
calculations establishing such new Basic Rent shall be included in such notice
and shall be conclusive.
5. Nonterminability.
(a) Except as expressly provided herein, this Lease will not terminate,
nor will Lessee have any right to terminate this Lease, nor will Lessee be
entitled to any abatement or reduction of Rent hereunder, nor will the
obligations of Lessee under this Lease be affected, by reason of (i) any
Casualty (as hereinafter defined) or theft with respect to the Leased Property
or any part thereof from whatever cause, (ii) any Taking (as hereinafter
defined) of the Leased Property or any part thereof, (iii) the prohibition,
limitation or restriction of Lessee's use, occupancy or enjoyment of all or any
part of the Leased Property, or any interference with such use, occupancy or
enjoyment, (iv) any eviction by superior title or otherwise, or any other defect
in, or encumbrance on, Lessor's title to the Leased Property or any part
thereof, (v) Lessee's acquisition or ownership of the Leased Property or any
part thereof, (vi) any default on the part of Lessor under this Lease, or under
any other agreement to which Lessor and Lessee may be parties, (vii) the failure
of Lessor to deliver possession of the Leased Property or any part thereof on
the commencement of the Term, or the impossibility of performance by Lessor,
Lessee or both, (viii) any action of any Government Authority (as hereinafter
defined), (ix) any breach by Lessor of any express or implied warranty contained
in this Lease or created by law, (x) any merger, consolidation or sale of all or
substantially all of the assets of Lessee, or (xi) any other cause whether
similar or dissimilar to the foregoing, any present or future law or change in
law to the contrary notwithstanding. It is the intention of the parties hereto
that the obligations of Lessee hereunder will be separate and independent
covenants and agreements, that the Rent and all other sums payable by Lessee
hereunder will continue to be payable in all events and that the obligations of
Lessee hereunder will continue unaffected, unless the requirement to pay or
perform the same will have been terminated pursuant to an express provision of
this Lease.
(b) Lessee shall remain obligated under this Lease in accordance with
its terms, and shall not take any action to terminate, rescind or avoid this
Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution or winding-up or other
proceeding affecting Lessor or its successor in interest, and (ii) any action
- 5 -
<PAGE> 6
with respect to this Lease which may be taken by any trustee or receiver of
Lessor or its successor in interest or by any court in any such proceeding.
(c) Lessee hereby agrees, to the extent permitted by law, not to plead,
claim or take advantage of any law, now or hereafter in effect, providing for
any right (i) to quit, terminate or surrender this Lease or the Leased Property
or any part thereof, (ii) to any abatement, suspension, deferment or reduction
of the Rent or any other sums payable by Lessee hereunder, except as expressly
provided herein. If any law providing for any of the foregoing is now or
hereafter in force, of which Lessee might take advantage notwithstanding the
foregoing agreement and waiver, and such law is hereafter or thereafter repealed
or otherwise ceases to be in force, such law will not then or thereafter be
deemed to preclude or limit the enforceability of the foregoing agreement and
waiver.
6. No Reduction of Rent.
Notwithstanding any other provision of this Lease, (a) if for any
reason any Rent or any other sums payable to Lessor by Lessee hereunder (in this
Section called the "Rentals") shall be diminished or subject to diminution to
attachment, claim, lien, levy, process or other cause or will be subject to
withholding or diminution at the source by reason of any income or other taxes,
assessments, expenses, indebtedness, obligations or liabilities of any character
incurred by or against any person or by reason of any claims, demands, charges
or liens of any nature incurred by any person or against the Rentals, or (b) if
the payment of the Rentals when due and payable will be delayed, prevented or
adversely affected, or (c) if the use or application of the Rentals by the First
Lien Noteholder pursuant to any provision of the First Lien Deed of Trust will
be delayed or prevented or the right of the First Lien Noteholder so to use or
apply the same will be adversely affected, or (d) if the First Lien Noteholder
reasonably refuses so to use or apply the Rentals because of its determination
that liability might be incurred if such use or application were to be made, or
(e) if the First Lien Noteholder will be subject to any liability or obligation
to refund or pay over the Rentals, then at the request of the First Lien
Noteholder, Lessee will pay promptly as additional rent, and take any action and
incur any expense that may be necessary for the proper application of, sums of
money sufficient fully to pay and discharge the Rentals and to eliminate or
nullify the cause of such attachment, claim, lien, levy, order, process,
withholding or diminution and to eliminate or prevent any delay or obstacle in
the payment of the Rentals when due and payable and in the use or application
thereof by the First Lien Noteholder, and to protect the right of the First Lien
Noteholder to use or apply the Rentals and will pay and indemnify the First Lien
Noteholder against any liability which may arise from so using or applying the
Rentals, and against any liability or obligation to repay, or any loss in
repaying, any monies received from Lessee. It is the intention of the parties
that the Rent will be received and enjoyed by Lessor or the First Lien
Noteholder, as the case may be, as an absolute net sum, and will be available in
full for application to the payment of principal of, and premium and interest
on, indebtedness secured by the First Lien Deed of Trust when due.
- 6 -
<PAGE> 7
7. Liability of Lessor.
Lessor shall not be liable, EXCEPT IN THE EVENT OF GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT BUT NOT ITS NEGLIGENCE, to Lessee or any of its agents,
employees, licensees, servants or invitees for any injury or damage to person or
property due to the condition or design or any defect in the Leased Property or
its mechanical systems and equipment which may exist or occur, and Lessee, with
respect to itself and its agents, employees, licensees, servants and invitees,
hereby expressly assumes all risks of injury or damage to person or property,
either proximate or remote, by reason of the condition of the Leased Property.
- 7 -
<PAGE> 8
8. Real Estate Taxes.
(a) Lessee shall pay, discharge or otherwise satisfy, at least twenty
(20) days prior to any applicable delinquency date, all taxes, assessments,
water and sewer charges and other governmental levies against the Leased
Property or any part thereof, whether ordinary or extra ordinary, foreseen or
unforeseen, together with any interest or penalties thereon (all of which are
herein called "Impositions"). Lessee may pay any Imposition in installments, if
payment may be so made without penalty, except that on the termination of this
Lease any Imposition which Lessee has elected to pay in installments shall be
paid in full by Lessee prior to the expiration of the Term. All impositions for
the tax year in which this Lease commences shall be paid by Lessee. All
Impositions for the tax year in which this Lease shall terminate shall be
apportioned between Lessee and Lessor as of the expiration date hereof, provided
Lessee shall not be entitled to receive any such apportionment upon the
termination hereof if Lessee shall be in default in the performance of any of
Lessee's covenants, agreements and undertakings to be performed by it hereunder.
(b) Lessee shall furnish to Lessor, within ten (10) days after the date
any amount is paid by Lessee as provided in this section, copies of official
receipts of the appropriate taxing authority or other proof reasonably
satisfactory to Lessor evidencing payment of Impositions.
(c) Nothing contained in this Lease shall require Lessee to pay any
franchise, corporate, estate, inheritance, succession, capital levy or transfer
tax of Lessor or any income, profits or revenue tax or any other tax,
assessment, charge or levy upon the Rent payable by Lessee under this Lease;
provided, however, that if at any time during the Term of this Lease, under the
laws of the State of Texas or any political subdivision thereof, a tax on rents
is assessed against Lessor or the Rent, as a substitution in whole or in part
for or in addition to ad valorem or real property taxes assessed by such State
or political subdivision on the Leased Property or any part thereof, such tax
shall be deemed to be included within the amount which Lessee is required to pay
under this section; and provided, further, that in no event shall Lessee be
obligated to pay for any year any greater amount by way of such substitute or
additional tax than would have been payable by Lessor by way of such substitute
or additional tax had the Rent upon which such tax was imposed been the sole
taxable income of Lessor for the year in question.
(d) Notwithstanding the foregoing, Lessee shall not be required to pay,
discharge or remove any Imposition so long as Lessee shall contest the amount or
validity of such Imposition by appropriate proceeding which shall operate to
prevent or stay the collection of the Imposition so contested and if Lessee
shall have deposited with Lessor the amount so contested and unpaid, together
with a sum to cover all interest and penalties in connection therewith and all
charges that may be assessed or become a charge against the Leased Property in
such proceeding. During such contest, Lessor shall have no right to pay the
Imposition contested except as provided herein. Upon the termination of such
proceeding, Lessee shall deliver to Lessor proof of the
- 8 -
<PAGE> 9
amount of the Imposition as finally determined and thereupon Lessor shall, out
of the sum so deposited with it by Lessee, pay such Imposition and shall refund
any balance to Lessee. If the sum deposited with Lessor is insufficient to pay
the full amount of such Imposition and the interest, penalties and other
charges, Lessee shall forthwith pay any deficiency. If during such proceeding
Lessor shall deem the sums deposited with it insufficient, Lessee shall upon
demand deposit with Lessor such additional sums as Lessor may reasonably request
and upon failure of Lessee so to do, the amount theretofore deposited may be
applied by Lessor to the payment, removal and discharge of such Imposition, and
the interest and penalties in connection therewith and any costs, fees or other
liability accruing in any such proceedings, and the balance, if any, shall be
returned to Lessee. Lessee shall give Lessor written notice of any such contest
and Lessor, at Lessee's sole expense, shall join in any such proceeding if any
law, rule or regulation at the time in effect shall so require. Any proceeding
for contesting the validity or amount of any Imposition, or to recover any
Imposition paid by Lessee, may be brought by Lessee in the name of Lessor or in
the name of Lessee, or both, as Lessee may deem advisable. Lessor shall not be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings and Lessee will indemnify and save Lessor
harmless from any such costs and expenses.
(e) If Lessee shall default in the payment of any Imposition required
to be paid hereunder by Lessee, Lessor shall have the right (but not the
obligation) to pay the same together with any penalties and interest, in which
event the amount so paid by Lessor shall be paid by Lessee to Lessor upon
demand.
- 9 -
<PAGE> 10
9. Insurance.
(a) Lessee at its sole cost and expense shall keep the Leased Property
insured throughout the Term of this Lease against loss or damage by fire and
such other risks as may be included in the broadest form of extended coverage
insurance from time to time available in amounts sufficient to prevent Lessor or
Lessee from becoming a co-insurer within the terms of the applicable policies,
and in any event, in an amount not less than one hundred percent (100%) of the
then full insurable value. The term "full insurable value" shall mean the actual
replacement cost, exclusive of costs of excavations, foundations and footings,
but without deduction for depreciation. Such full insurance value shall be
determined from time to time (but not more frequently than once in any 24
calendar months) at the request of Lessor by an appraiser, engineer, architect
or contractor designated by Lessee and approved in writing by Lessor (such
approval not to be unreasonably withheld), all at the sole expense of Lessee. No
omission on the part of Lessor to request any such determination shall relieve
Lessee of any of its obligations under this Section. Lessee, at its sole cost
and expense, shall also maintain business interruption insurance in an amount
satisfactory to Lessor and such other insurance against other insurable hazards
which from time to time are insured against in the case of property which is
similar to the Leased Property, due regard being or to be given to the height
and type of the buildings thereon, their construction, use and occupancy.
(b) Lessee shall, at its sole cost and expense, procure and maintain
throughout the Term of this Lease Commercial General Liability insurance against
claims for personal injury or death and property damage occurring in or upon or
resulting from the Leased Property, in standard form and with such insurance
company or companies as may be acceptable to Lessor, such insurance to afford
immediate protection, to the limit of not less than $1,000,000 in respect of any
one accident or occurrence, and to the limit of not less than $1,000,000 for
property damage, with not more than $20,000 deductible. Such Commercial General
Liability insurance shall include Blanket Contractual Liability coverage which
insures contractual liability under the indemnification of Lessor by Lessee set
forth in this Lease (but such coverage or the amount thereof shall in no way
limit such indemnification). Lessee shall maintain with respect to each policy
or agreement evidencing such Commercial General Liability insurance such
endorsements as may be required by Lessor and shall at all times deliver and
maintain with Lessor a certificate with respect to such insurance in form
satisfactory to Lessor.
(c) All insurance provided for in this Lease shall be effected under
enforceable policies issued by insurers of recognized responsibility licensed to
do business in the State of Texas and approved by Lessor, such approval not to
be unreasonably withheld. Upon the execution of this Lease, and thereafter not
less than fifteen (15) days prior to the expiration dates of the expiring
policies theretofore furnished pursuant to this Section, certificates of
insurance or certified copies of the policies bearing notations evidencing
payment of the premiums, or
- 10 -
<PAGE> 11
accompanied by other evidence satisfactory to Lessor of such payment, shall be
delivered by Lessee to Lessor.
(d) Lessor and the Noteholders shall be named as a loss payee on any
property insurance policy obtained pursuant to subsection (a) above and any such
policy must have a maximum 90% coinsurance clause if 100% insurance is not
obtained. Lessor and the Noteholders shall be named as an additional insured
with respect to the Commercial General Liability insurance policy obtained
pursuant to subsection (b) above.
(e) Each such policy provided for in this Section shall contain an
agreement by the insurer that such policy shall not be canceled without at least
thirty (30) days prior written notice to Lessor and an agreement that any loss
otherwise payable thereunder shall be payable notwithstanding any act of
negligence of Lessor or Lessee which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
the occupation or use of the Leased Property for purposes more hazardous than
permitted by the terms of such policy, (ii) any foreclosure or other action or
proceeding taken pursuant to any provision of any mortgage upon the happening of
an event of default thereunder or (iii) any change in title or ownership of the
Leased Property.
(f) Premiums on all insurance policies in force at the termination of
this Lease shall be apportioned between Lessor and Lessee as of the date of such
termination, or, at the option of Lessor, such insurance shall be canceled and
Lessee shall receive all premium refunds.
(g) Lessee may provide any insurance required by this Lease in the form
of a blanket policy, provided that Lessee shall furnish satisfactory proof that
such blanket policy complies in all respects with the provisions of this Lease,
and that the coverage thereunder is at least equal to the coverage which would
have been provided under a separate policy covering only the Leased Property.
(h) Lessor shall not be required to prosecute any claim against or
contest any settlement proposed by any insurer provided that Lessee may at its
expense prosecute any such claim or contest any such settlement. In such event,
Lessee may bring such prosecution or contest in the name of Lessor, Lessee or
both, and Lessor will join therein at Lessee's written request upon the receipt
by Lessor of an indemnity from Lessee against all costs, liabilities and
expenses in connection with such prosecution or contest.
(i) If Lessee shall default in the obtaining or maintaining of any
insurance required hereunder, Lessor shall have the right (but not the
obligation) to take whatever action is necessary and to pay all appropriate
premiums to obtain or maintain such insurance, in which event any amount paid
for premiums by Lessor shall be paid by Lessee to Lessor upon demand.
- 11 -
<PAGE> 12
10. Alterations, Maintenance and Repairs by Lessee.
(a) Lessor shall not be required to furnish any services or facilities
or make any repairs to, or in any way maintain, the Leased Property during the
Term of this Lease, and Lessee hereby assumes full and sole responsibility for
the condition, operation, repair, replacement, maintenance and management of the
Leased Property during the Term hereof.
(b) Throughout the Term of this Lease, Lessee shall, at Lessee's sole
cost and expense, maintain the Leased Property in at least as good repair and
appearance as delivered and in compliance with all applicable laws, rules,
ordinances, orders and regulations of federal, state, county, municipal and
other governmental entities having jurisdiction and any agency, department,
commission, board, bureau or instrumentality thereof (herein collectively called
"Governmental Authority") and all applicable rules, orders and regulations of
the insurance underwriting board having or claiming jurisdiction and all
insurance companies insuring all or any part of the Leased Property and all
applicable restrictive covenants and deed restrictions (all of the foregoing
herein collectively called "Legal Requirements"). Lessee shall, at Lessee's sole
cost and expense, diligently and promptly make or cause to be made all necessary
repairs and replacements to the Leased Property to maintain and comply as
provided above, interior and exterior, structural and nonstructural, ordinary
and extraordinary and foreseen and unforeseen. The completed work of
maintenance, repair or replacement shall be in quality, class and value at least
equal to that which existed on the Commencement Date. If Lessee shall default in
making such repairs and/or replacements, Lessor may, but shall not be required
to, on ten (10) days' prior written notice, enter the Leased Property and make
such repairs and/or replacements for Lessee's account and the expense thereof
shall be paid by Lessee to Lessor on demand.
(c) Lessee shall not make or allow to be made any alterations,
improvements or additions in or to the Leased Property without first obtaining
the written consent of Lessor; except that Lessor's approval shall not be
required for alterations, improvements or additions in or to the Leased Property
having a construction cost not exceeding $50,000 and not (i) involving a lien or
security interest on property included or to be included in the Leased Property,
(ii) having an effect on the roof, exterior walls, structure and/or exterior
appearance of any building within the Leased Property, or (iii) involving the
expenditure of insurance proceeds or a condemnation award. All alterations,
additions and improvements made to or fixtures or other improvements placed in
or upon the Leased Property by either party (i) shall be deemed a part of the
Leased Property and the property of Lessor at the time same are placed in or
upon the Leased Property, without compensation to Lessee and (ii) shall be
completed in compliance with all applicable Legal Requirements and requirements
of the Deeds of Trust. Notwithstanding the foregoing, Lessee shall have the
right at all times during the term of this Lease to install machinery and trade
fixtures (hereinafter collectively called "Trade Fixtures") in the Leased
Property, provided that Lessee complies with all Legal Requirements.
- 12 -
<PAGE> 13
(d) Lessee will not permit any mechanic's lien or liens to be placed
upon the Leased Property during the Term hereof caused by or resulting from any
work performed, materials furnished or obligation incurred by or at the request
of Lessee and nothing in this Lease contained shall be deemed or construed in
any way as constituting the consent or request of Lessor, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
specific improvement, alteration or repair of or to the Leased Property or any
part thereof, nor as giving Lessee any right, power or authority to contract for
or permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any mechanic's or other liens against the
interest of Lessor in the Leased Property. In the case of the filing of any
mechanic's lien on the interest of Lessor or Lessee in the Leased Property,
Lessee shall cause the same to be discharged of record, by payment or bonding,
within one hundred twenty (120) days after the filing of same. If Lessee shall
fail to discharge such mechanic's lien within such period, then, in addition to
any other right or remedy of Lessor, Lessor may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by procuring
the discharge of such lien by bonding. Any amount paid by Lessor for any of the
aforesaid purposes, or for the satisfaction of any other mechanic's lien, not
caused or claimed to be caused by Lessor, and all reasonable legal and other
expenses of Lessor, including reasonable counsel fees, in defending any such
action or in or about procuring the discharge of such mechanic's lien, with all
necessary disbursements in connection therewith, shall be paid by Lessee to
Lessor on demand.
(e) Lessee shall indemnify and hold Lessor harmless from and against
any and all loss, damage, cost or expense (including reasonable attorneys' fees)
incurred or expended by Lessor in connection with any repairs, maintenance,
removals, replacements, alterations, additions or improvements by Lessee to the
Leased Property.
11. Utilities and Services.
Lessor shall not be required to furnish to Lessee any utilities or
services of any kind, including, but not limited to, water, steam, heat, gas,
hot water, electricity, light, power or air conditioning. Lessee agrees to pay
all charges for any of the foregoing prior to delinquency. All utilities serving
the Leased Property shall be in the name of Lessee. Lessor shall not be liable
for any interruption in the supply of any utilities.
- 13 -
<PAGE> 14
12. Use of Leased Property.
Lessee shall use the Leased Property solely as a warehouse, office and
fabrication facility in connection with the conduct of Lessee's business of
importing, selling and distributing artificial plants and flowers, and for no
other purpose, in accordance with the provisions of this Lease. Lessee shall not
use the Leased Property nor permit the Leased Property to be used for any
unlawful business, use or purpose nor for any business, use or purpose deemed
disreputable or extra hazardous nor for any purpose or in any manner which is in
violation of any present or future Legal Requirement. Lessee shall at its own
expense obtain any and all governmental licenses and permits necessary for its
use of the Leased Property. Lessee agrees to use and maintain the Leased
Property in a clean, careful, safe and proper manner. Lessee will not in any
manner deface or injure the Leased Property or any part thereof or overload the
floors on the Leased Property. Lessee agrees to pay Lessor on demand for any
damage to the Leased Property caused by any negligence or willful act or any
misuse or abuse (whether or not any such misuse or abuse results from negligence
or willful act) by Lessee or any of its agents, employees, licensees, or
invitees or any other person not prohibited, expressly or impliedly, by Lessee
from entering upon the Leased Property. Lessee agrees not to commit waste or
suffer or permit waste to be committed or to allow or permit any nuisance on or
in the Leased Property. Lessee will not use the Leased Property for lodging or
sleeping purposes or for any immoral or illegal purposes. Lessee shall not use
the Leased Property or allow or permit same to be used in any way or for any
purpose that Lessor may deem to be extra hazardous on account of the possibility
of fire or other casualty or which will increase the rate of fire or other
insurance for the Leased Property or its contents or in respect of the operation
of the Leased Property or which may render the Leased Property uninsurable at
normal rates by responsible insurance carriers authorized to do business in the
State of Texas or which may render void or voidable any insurance on the Leased
Property. Lessee shall have the right to erect signs on the exterior walls of
any building forming a part of the Leased Property, securely attached to and
parallel to said walls, subject to applicable laws and deed restrictions. Lessee
shall not erect any signs other than customary trade signs identifying its
business, and shall not erect any signs on the roof or paint or otherwise deface
the exterior walls of said building. Lessee shall remove all signs at the
termination of this Lease, and shall repair any damage and close any holes
caused by such removal.
13. Compliance with Laws.
Lessee, at its sole expense, shall comply with all laws, orders and
regulations of all Governmental Authorities and with any direction of any public
officer pursuant to law which shall impose any duty upon Lessor or Lessee with
respect to the Leased Property. Lessee shall comply with the requirements of
policies of fire and extended coverage at any time in force with respect to the
Leased Property. Without diminishing the obligation of Lessee, if Lessee shall
at any time fail to comply as promptly as reasonably possible with any law,
ordinance, rule or regulation concerning or affecting the Leased Property, or
the use and occupation thereof, Lessor, after ten (10) days written notice to
Lessee, may so comply and the reasonable costs and expenses of Lessor in such
compliance shall be paid by Lessee to Lessor on demand.
- 14 -
<PAGE> 15
14. Environmental.
Lessee will not cause or permit the Leased Property or Lessee to be in
violation of, or do anything or permit anything to be done which will subject
the Leased Property to any remedial obligations or liability under, any
applicable laws pertaining to health, safety or the environment (such applicable
laws as they now exist or are hereafter enacted and/or amended hereinafter
sometimes collectively called "Applicable Environmental Laws"), including
without limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, (hereinafter called ACERCLA") and the Resource
Conservation and Recovery Act of 1976, (hereinafter called ARCRA"), assuming
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Leased Property and
Lessee, and Lessee will promptly notify Lessor in writing of any existing,
pending or, to the best knowledge of Lessee, threatened investigation or inquiry
by any governmental authority in connection with any Applicable Environmental
Laws. Lessee shall obtain any permits, licenses or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures and
equipment forming a part of the Leased Property by reason of any Applicable
Environmental Laws. Lessee shall take all steps necessary to determine that no
hazardous substances or solid wastes are being disposed of or otherwise released
on or to the Leased Property. Lessee will not cause or permit the disposal or
other release of any hazardous substance or solid waste on or to the Leased
Property and covenants and agrees to keep or cause the Leased Property to be
kept free of any hazardous substance or solid waste and to remove the same (or
if removal is prohibited by law, to take whatever action is required by law)
promptly upon discovery at its sole expense. Without limitation of Lessor's
rights to declare an Event of Default hereunder and to exercise all remedies
available by reason thereof, in the event Lessee fails to comply with or perform
any of the foregoing covenants and obligations, Lessor may (without any
obligation, express or implied) remove any hazardous substance or solid waste
from the Leased Property (or if removal is prohibited by law, take whatever
action is required by law) and the cost of the removal or such other action
shall be paid by Lessee to Lessor on demand. Lessee grants to Lessor and its
agents, employees, contractors and consultants access to the Leased Property and
the license (which is coupled with an interest and irrevocable while this Lease
is in effect) to remove the hazardous substance or solid waste (or if removal is
prohibited by law, to take whatever action is required by law). Upon Lessor's
reasonable request, at any time and from time to time during the existence of
this Lease, Lessee will provide at Lessee's sole expense an inspection or audit
of the Leased Property from an engineering or consulting firm approved by Lessor
indicating the presence or absence of hazardous substances and solid wastes on
the Leased Property. If Lessee fails to provide same after thirty (30) days'
notice, Lessor may order same, and Lessee grants to Lessor and its agents,
employees, contractors and consultants access to the Leased Property and a
license (which is coupled with an interest and irrevocable while this Lease is
in effect) to perform inspections and tests. The cost of such inspections and
tests shall be paid by Lessee to Lessor on demand. As used in this lease, the
term "release" shall have the meaning specified in CERCLA, the terms "solid
waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA,
and the term "hazardous substance" shall mean: (i)
- 15 -
<PAGE> 16
any "hazardous substance" as defined in CERCLA and regulations promulgated
thereunder; (ii) any "hazardous waste" as defined in RCRA and regulations
promulgated thereunder; (iii) any petroleum, including crude oil or any fraction
thereof which is not otherwise specifically listed or designated as a hazardous
substance under the definition of hazardous substance in CERCLA as well as
natural gas, natural gas liquids, liquified natural gas, or synthetic gas usable
for fuel (or mixtures of natural gas and such synthetic gas), and other
petroleum products and by-products; (iv) formaldehyde, urea, polychlorinated
biphenyls, radon, and "source", "special nuclear" and "by-product" material as
defined in the Atomic Energy Act of 1985, 42 U.S.C. Sections 3011 et seq.; (v)
any material defined as hazardous or toxic under any statute or regulation of
the State of Texas or any agency thereof; and (vi) any other material or
substance which is toxic, ignitable, reactive or corrosive and which is
regulated by any Applicable Environmental Law; provided, (i) all such terms
shall be deemed to include all similar terms used in any Applicable
Environmental Laws or regulations thereunder (including by way of example, but
not limitation, pollutant, contaminant, toxic substance, discharge and
migration), and (ii) to the extent that any Applicable Environmental Laws or
regulations thereunder are amended so as to broaden the meaning of "hazardous
substance," "release," "solid waste," or "disposal" (or "disposed"), or any
similar terms, or otherwise establish a meaning for any such terms which is
broader than that specified above, such broader meaning shall apply.
15. Asbestos.
Lessee covenants and agrees that it will not install in the Leased
Property, nor permit to be installed in the Leased Property, asbestos, material
containing asbestos which is or may become friable or material containing
asbestos deemed hazardous by Applicable Environmental Law, and that, if any such
asbestos or material containing asbestos exists in or on the Leased Property,
whether installed by Lessee or others, Lessee will remove the same (or if
removal is prohibited by law, will take whatever action is required by law,
including without limitation implementing any required operation and maintenance
program) promptly upon discovery at its sole expense. Without limitation of
Lessor's rights to declare an Event of Default hereunder and to exercise all
remedies available by reason thereof, in the event Lessee fails to comply with
or perform any of the foregoing covenants and obligations, Lessor may (without
any obligation, express or implied) remove such asbestos or material containing
asbestos (or if removal is prohibited by law, take whatever action is required
by law including without limitation implementing any required operation and
maintenance program) and the cost of removal or such other action shall be paid
by Lessee to Lessor on demand. Lessee grants to Lessor and its agents,
employees, contractors and consultants access to the Leased Property and a
license (which is coupled with an interest and irrevocable while this Lease is
in effect) to remove such asbestos or materials containing asbestos (or if
removal is prohibited by law, take whatever action is required by law, including
without limitation implementing any required operation and maintenance program).
Upon Lessor's reasonable request, at any time and from time to time during the
- 16 -
<PAGE> 17
existence of this Lease, Lessee shall provide at Lessee's sole expense an
inspection or audit of the Leased Property from an engineering or consulting
firm approved by Lessor, indicating the presence or absence of asbestos or
material containing asbestos on the Leased Property. If Lessee fails to provide
same after thirty (30) days' notice, Lessor may order same, and Lessee grants to
Lessor and its agents, employees, contractors and consultants access to the
Leased Property and a license (which is coupled with an interest and irrevocable
while this Lease is in effect) to perform inspections and tests. The cost of
such inspections and tests shall be paid by Lessee to Lessor on demand.
16. Indemnification Regarding Environmental Matters.
Lessee agrees to indemnify and hold harmless Lessor (for purposes of
this Section, the term "Lessor" shall include the directors, officers, partners,
employees and agents of Lessor and any persons or entities owned or controlled
by, owning or controlling, or under common control or affiliated with Lessor)
from and against, and to reimburse Lessor with respect to, any and all claims,
demands, losses, damages (including consequential damages), liabilities, causes
of action, judgments, penalties, costs and expenses (including attorneys' fees
and court costs) of any and every kind or character, known or unknown, fixed or
contingent, imposed on, asserted against or incurred or paid by Lessor at any
time and from time to time by reason of, in connection with or arising out of
(a) the failure of Lessee to perform any obligation herein required to be
performed by Lessee regarding asbestos, material containing asbestos or
Applicable Environmental Laws, (b) any violation on or before the Release Date
(as hereinafter defined) of any Applicable Environmental Law in effect on or
before the Release Date, (c) the removal of hazardous substances or solid wastes
from the Leased Property (or if removal is prohibited by law, the taking of
whatever action is required by law), (d) the removal of asbestos or material
containing asbestos from the Leased Property (or if removal is prohibited by
law, the taking of whatever action is required by law including without
limitation the implementation of any required operation and maintenance
program), (e) any act, omission, event or circumstance existing or occurring on
or prior to the Release Date (including without limitation the presence on the
Leased Property or release from the Leased Property of hazardous substances or
solid wastes disposed of or otherwise released on or prior to the Release Date),
resulting from or in connection with the ownership, construction, occupancy,
operation, use and/or maintenance of the Leased Property, regardless of whether
the act, omission, event or circumstance constituted a violation of any
Applicable Environmental Law at the time of its existence or occurrence, and (f)
any and all claims or proceedings (whether brought by private party or
governmental agency) for bodily injury, property damage, abatement or
remediation, environmental damage or impairment or any other injury or damage
resulting from or relating to any hazardous substance or solid waste located
upon or migrating into, from or through the Leased Property (whether or not any
or all of the foregoing was caused by Lessor, Lessee, Lessee's subtenant, a
prior owner of the Leased Property or its tenant or subtenant, or any third
party, and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of such
- 17 -
<PAGE> 18
substance or waste or the mere presence of such substance or waste on the Leased
Property). WITHOUT LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH
INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LOSSES, DAMAGES (INCLUDING
CONSEQUENTIAL DAMAGES), LIABILITIES, CAUSES OF ACTION, JUDGMENTS, PENALTIES,
COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) WHICH IN WHOLE OR
IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY OR ANY STRICT LIABILITY. However, such indemnities shall not
apply to any indemnified party to the extent the subject of the indemnification
is caused by or arises out of the gross negligence or willful misconduct of such
indemnified party. The "Release Date" as used herein shall mean the expiration
of the Term of this Lease whether as provided in Section 2 hereof or as sooner
terminated as provided in this Lease and the full and complete surrender of the
Leased Property by Lessee to Lessor; provided, if either of the foregoing events
is challenged, in bankruptcy proceedings or otherwise, the Release Date shall be
deemed not to have occurred until such challenge is rejected, dismissed or
withdrawn with prejudice. The foregoing indemnities shall not terminate upon the
Release Date or upon the termination of this Lease but will survive the Release
Date and termination of this Lease. Any amount to be paid under this Section by
Lessee to Lessor shall be paid by Lessee to Lessor on demand. Nothing in this
Section, elsewhere in this Lease or in any other document evidencing or relating
to this Lease of the Leased Property shall limit or impair any rights or
remedies of Lessor against Lessee or any third party under Applicable
Environmental Laws, including without limitation any rights of contribution or
indemnification available thereunder.
17. Fire or Other Casualty Loss.
(a) In the event all or any portion of the Leased Property is damaged
or destroyed by fire or other casualty (herein collectively called "Casualty"),
Lessee shall give immediate notice thereof to Lessor and the Noteholders and
thereafter will promptly deliver to Lessor and the Noteholders all
correspondence and documents provided by or delivered to Lessee in connection
therewith. Lessee will promptly and diligently prosecute the adjustments of all
claims with respect to a Casualty provided that (i) no adjustment or settlement
in excess of $100,000 in connection with any Casualty may be made by Lessee
without the prior written approval of Lessor and (ii) Lessor may, at any time
any Event of Default has occurred and is continuing, adjust and settle the
Casualty after notice to Lessee.
(b) If during the Term of this Lease the Leased Property is
substantially damaged or destroyed by a Casualty so that the Leased Property
will, in the good faith judgment of Lessee's Board of Directors, be uneconomic
for restoration or rebuilding for Lessee's continued use thereof by Lessee as a
warehouse, office and fabrication facility, then at Lessee's option, in lieu of
rebuilding, replacing or repairing the Leased Property, Lessee will, within
forty-five (45) days after the occurrence of such Casualty, deliver a Purchase
Offer (as hereinafter defined) with
- 18 -
<PAGE> 19
respect to the Leased Property, at a purchase price therefor determined in
accordance with Schedule I, specifying a Termination Date (as hereinafter
defined) occurring on any Rent Payment Date not less than sixty (60) days nor
more than one hundred twenty (120) days after the delivery of such Purchase
Offer. Such Purchase Offer will be accompanied by Lessee's Certificate (as
hereinafter defined) stating that in the judgment of the Board of Directors (or
an authorized committee thereof) of Lessee, the Leased Property is unsuitable
for Lessee's continued use and occupancy as a warehouse office and fabrication
facility by reason of such Casualty. If the conditions set forth in the first
sentence of this subsection (b) are fulfilled and Lessee fails to commence to
rebuild, replace or repair the Leased Property within sixty (60) days of the
occurrence of such Casualty, and Lessee fails to deliver a Purchase Offer within
the forty-five (45) day period described above, Lessee will be conclusively
deemed to have made such Purchase Offer and, in the absence of a written
Purchase Offer by Lessee, the Termination Date will be deemed to be the fourth
Rent Payment Date after such Purchase Offer is deemed to have been made, but
nothing in this sentence will release Lessee of its obligation to actually
deliver such Purchase Offer.
(c) If during the Term of this Lease there occurs a Casualty affecting
a portion of the Leased Property which is not sufficient to require that Lessee
give a Purchase Offer as provided in subsection (b) above, then this Lease shall
continue in full force and effect notwithstanding such Casualty. In the event of
any lesser Casualty as described in this subsection (c), (i) Lessor shall be
entitled to the entire net proceeds for such Casualty, subject to application to
rebuilding as provided below, (ii) the Rent to be paid by Lessee hereunder shall
not be reduced or abated, (iii) Lessee shall not be entitled to terminate this
Lease or to violate any of its provisions; and (iv) Lessee shall promptly, at
Lessee's sole cost and expense and regardless of whether the Casualty proceeds
shall be sufficient for the purpose, restore, repair, replace and rebuild the
Leased Property into a complete architectural unit in a condition suitable for
use as a warehouse, office and fabrication facility, with Casualty proceeds paid
out by Lessor as provided in the following sentence. Lessor will make the
Casualty proceeds available to Lessee for such repair, restoration, replacement
and rebuilding but only against certificates that Lessee delivers to Lessor from
time to time as such work or repair progresses, but not more often than once in
any thirty (30) day period, each such certificate to be dated currently and
signed by an authorized officer of Lessee and by the independent architect or
other expert, if any, supervising such repairs, describing in reasonable detail
the work or repair for which Lessee is requesting payment and the cost incurred
by Lessee in connection therewith and a certificate, signed by an officer of
Lessee, stating that Lessee has not theretofore received payment from any source
for such work and that no Event of Default hereunder is then continuing under
this Lease, together with evidence of the payment of all amounts for which
certificates were previously furnished. Notwithstanding anything in the
proceeding sentence to the contrary, Lessee will not be required to submit the
certificates described above in order to receive all of the net proceeds for
such Casualty provided that (i) the Casualty proceeds do not exceed $100,000 and
(ii) no Event of Default has occurred hereunder and is continuing. Any Casualty
proceeds remaining after such repairs have been completed will
- 19 -
<PAGE> 20
be paid to Lessee. If the cost of any repairs required to be made by Lessee
pursuant to this subsection will exceed the amount of the Casualty proceeds, the
deficiency will be paid by Lessee.
18. Waiver of Subrogation.
Each party hereto hereby waives any and every claim which arises or may
arise in its favor and against the other party hereto during the Term of this
Lease or any extension or renewal thereof for any and all loss of, or damage to,
any of its property (EVEN IF SUCH LOSS OR DAMAGE IS CAUSED BY DEFAULT,
NEGLIGENCE OR OTHER TORTIOUS CONDUCT, ACT OR OMISSIONS OF THE RELEASED PARTY OR
THE RELEASED PARTY'S DIRECTORS, EMPLOYEES, AGENTS OR ADVISEES AND/OR THE
RELEASED PARTY IS STRICTLY LIABLE FOR SUCH LOSS OR DAMAGE) which loss or damage
is covered by valid and collectible fire and extended coverage insurance
policies, to the extent that such loss or damage is recovered under said
insurance policies. Said waivers shall be in addition to, and not in limitation
or derogation of, any other waiver or release contained in this Lease with
respect to any loss or damage to property of the parties hereto. Inasmuch as the
above mutual waivers will preclude the assignment of any aforesaid claim by way
of subrogation (or otherwise) to any insurance company (or any other person),
each party hereto hereby agrees immediately to give to each insurance company
which has issued to it policies of fire and extended coverage insurance written
notice of the terms of said mutual waivers, and to have said insurance policies
properly endorsed, if necessary, to prevent the invalidation of said insurance
coverages by reason of said waivers.
19. Condemnation.
(a) If during the Term of this Lease there shall be taken for any
public or quasi-public use under any governmental law, ordinance or regulation
or by right of eminent domain or by private purchase in lieu thereof (herein
collectively called a "Taking") the entire Leased Property or any substantial
portion of the Leased Property which is sufficient, in the good faith judgment
of Lessee's Board of Directors, to render the remaining portion thereof
uneconomic for restoration for continued use thereof by Lessee as a warehouse,
office and fabrication facility, then at Lessee's option, in lieu of rebuilding,
replacing or repairing the Leased Property, Lessee will, within forty-five (45)
days after any such Taking, deliver a Purchase Offer with respect to the Leased
Property, at a purchase price therefor determined in accordance with Schedule I,
specifying a Termination Date occurring on a Rent Payment Date that is not less
than sixty (60) days nor more than one hundred and twenty (120) days after the
delivery of such Purchase Offer. The Purchase Offer will be accompanied by
Lessee's Certificate stating either (i) that the entire Leased Property has been
the subject of a Taking or (ii) that in the judgment of the Board of Directors
(or an authorized committee thereof) of Lessee, the portion of the Leased
Property thus taken is sufficient to render the remaining portion thereof
uneconomic for restoration for
- 20 -
<PAGE> 21
continued use thereof by Lessee as a warehouse, office and fabrication facility.
If the conditions set forth in the first sentence of this subsection (a) are
fulfilled and Lessee fails to commence to rebuild, replace or repair the Leased
Property within sixty (60) days of the occurrence of such Taking, and Lessee
fails to deliver a Purchase Offer within the forty-five (45) day period
described above, Lessee will be conclusively deemed to have made such Purchase
Offer and in the absence of a written Purchase Offer by Lessee, the Termination
Date will be deemed to be the fourth Rent Payment Date after such Purchase Offer
is deemed to have been made, but nothing in this sentence will relieve Lessee of
its obligation to actually deliver such Purchase Offer.
(b) If during the Term of this Lease there shall be a Taking of a
portion of the Leased Property which is not sufficient to require that Lessee
give a Purchase Offer as provided in subsection (a) above, then this Lease shall
continue in full force and effect notwithstanding such Taking. In the event of
any lesser Taking as described in this subsection (b), (i) Lessor shall be
entitled to the entire net award for such Taking (whether paid by way of
damages, rent or otherwise), subject to application to rebuilding as provided
below, (ii) the Rent to be paid by Lessee hereunder shall not be reduced or
abated, (iii) Lessee shall not be entitled to terminate this Lease or to violate
any of its provisions; and (iv) Lessee shall promptly, at Lessee's sole cost and
expense and regardless of whether the condemnation proceeds shall be sufficient
for the purpose, restore, repair, replace and rebuild the Leased Property into a
complete architectural unit in a condition suitable for use as a warehouse,
office and fabrication facility, with condemnation proceeds paid out by Lessor
as provided in the following sentence. Lessor will make the condemnation
proceeds available to Lessee for such repair, restoration, replacement and
rebuilding but only against certificates that Lessee delivers to Lessor from
time to time as such work or repair progresses, but not more often than once in
any thirty (30) day period, each such certificate to be dated currently and
signed by an authorized officer of Lessee and by the independent architect or
other expert, if any, supervising such repairs, describing in reasonable detail
the work or repair for which Lessee is requesting payment and the cost incurred
by Lessee in connection therewith and a certificate, signed by an officer of
Lessee, stating that Lessee has not theretofore received payment from any source
for such work and that no Event of Default hereunder is then continuing under
this Lease, together with evidence of the payment of all amounts for which
certificates were previously furnished. Notwithstanding anything in the
proceeding sentence to the contrary, Lessee will not be required to submit the
certificates described above in order to receive the net proceeds of such Taking
provided that (i) the condemnation proceeds do not exceed $100,000 and (ii) no
Event of Default has occurred hereunder and is continuing. Any condemnation
proceeds remaining after such repairs have been completed will be paid to
Lessee. If the cost of any repairs required to be made by Lessee pursuant to
this subsection will exceed the amount of the condemnation proceeds, the
deficiency will be paid by Lessee.
(c) If the use or occupancy of the Leased Property shall be temporarily
requisitioned by any governmental authority, civil or military, then this Lease
shall continue in full effect
- 21 -
<PAGE> 22
notwithstanding such requisition, without abatement or reduction of Rent, Lessee
shall not be required to give a Purchase Offer, and Lessee shall be entitled to
receive the entire net award payable by reason of such temporary requisition
(whether paid by way of damages, rent or otherwise) unless the period of
governmental occupancy extends beyond the end of the Term of this Lease, in
which case the award, to the extent that it represents Rent, shall be
apportioned between Lessor and Lessee as of the date of the end of the Term of
this Lease.
(d) The party receiving any notice of the kinds specified below shall
promptly give the other party and the Noteholders notice of the receipt,
contents and date of the notice received:
(i) Notice from any governmental entity or agency of any
intended taking of all or any part of the Leased Property by power of
condemnation;
(ii) Service of any legal process relating to condemnation of
the Leased Property;
(iii) Notice in connection with any proceedings or
negotiations with respect to such a condemnation; or
(iv) Notice of intent or willingness to make or negotiate a
private purchase, sale or transfer in lieu of condemnation.
(e) Lessee will promptly file and diligently prosecute the adjustment
of all awards with respect to a Taking, provided that (i) no adjustment or
settlement in excess of $100,000 in connection with any Taking may be made by
Lessee without the prior written approval of Lessor and (ii) Lessor may, at any
time any Event of Default has occurred and is continuing, adjust and settle all
Takings, with notice to Lessee. Lessor and Lessee each agrees to execute and
deliver to the other any instruments that may be required to effectuate or
facilitate the provisions of this Lease relating to a Taking.
20. Procedure After Purchase Offer.
(a) Lessor will within thirty (30) days prior to the Termination Date
(or deemed Termination Date) set forth in any Purchase Offer (or deemed Purchase
Offer) either accept or reject such Purchase Offer, provided that Lessee has
complied with the terms of Section 17(b) or Section 19(a) hereof, as applicable.
If Lessor so rejects such Purchase Offer, this Lease will terminate with respect
to the Leased Property on such Termination Date (except with respect to
obligations and liabilities of Lessee under this Lease, actual or contingent,
which have arisen on or prior to such Termination Date or which are expressly
stated to survive the termination of this Lease), upon payment by Lessee of the
Rent and all other sums then due and payable hereunder to and including the
Termination Date without offset or deduction for any reason.
- 22 -
<PAGE> 23
(b) If Lessor will not have rejected any Purchase Offer within thirty
(30) days prior to the Termination Date (or deemed Termination Date) set forth
in any Purchase Offer (or deemed Purchase Offer), then, provided that Lessee has
complied with the terms of Section 17(b) or Section 19(a) hereof, as applicable,
Lessor will be conclusively presumed to have accepted such Purchase Offer.
(c) If any Leased Property or any part thereof will be purchased by
Lessee pursuant to any provision of this Lease, Lessor need not transfer and
convey to Lessee or its designee any better title thereto than existed on the
date of the commencement of this Lease, and Lessee will accept such title. The
Deeds of Trust and all loan documents evidencing, securing or relating to the
indebtedness secured by the Deeds of Trust shall be released contemporaneously
with such conveyance and transfer.
(d) On the date fixed for the purchase of the Leased Property, Lessee
will pay to Lessor, at such place and to such person as Lessor may designate in
writing, by electronic funds transfer of immediately available funds (i) the
purchase price therefor, and (ii) all installments of Rent and all other sums
then due under this Lease and unpaid to and including the purchase date without
offset or deduction for any reason, and Lessor will deliver to Lessee (i) a
special warranty deed conveying title to the Leased Property (or, in the case of
a Purchase Offer delivered pursuant to Section 19(a) hereof, the remaining
portion of the Leased Property, if any) of at least the character described in
subsection (c) above, and (ii) such other instruments as will be necessary to
transfer to Lessee any other property then required to be transferred by Lessor
pursuant to this Lease (including, in the case of a Purchase Offer delivered
pursuant to Section 19(a), all of Lessor's right, title and interest in and to
the Net Award with respect to such Leased Property, whether or not such Net
Award will have been received by Lessor). Lessee will pay all charges incident
to such conveyance and transfer, including counsel fees incurred by Lessor,
escrow fees, recording fees, title insurance premiums and all applicable
federal, state and local taxes (other than any income or franchise taxes levied
upon or assessed against Lessor) which may be incurred or imposed by reason of
such conveyance and transfer.
(e) Upon the completion of such purchase, but not prior thereto
(whether or not any delay in the completion of, or the failure to complete, such
purchase will be the fault of Lessor), this Lease and all obligations hereunder
(including the obligations to pay Rent) will terminate with respect to the
Leased Property, except with respect to obligations and liabilities of Lessee,
actual or contingent, under this Lease which arose on or prior to such date of
purchase.
(f) The provisions of this Lease governing Purchase Offers, including,
without limitation, the provisions of this Section 20, will apply to any
Purchase Offer deemed to have been given by Lessee pursuant to the provisions of
Section 17(b) or Section 19(a) hereof with the
- 23 -
<PAGE> 24
same effect as if such Purchase Offer had been expressly made by Lessee pursuant
to the terms hereof.
21. Financial Statements and Reports. Lessee will furnish to the
Noteholders and to Lessor for so long as this Lease is in effect:
(a) within ninety five (95) days after the end of each fiscal year of
Lessee, a copy of the annual audited consolidated balance sheet of Lessee and
its subsidiaries as of the end of such fiscal year and of the related
consolidated statements of income and retained earnings and statements of cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, accompanied by an unqualified audit
opinion given by an independent certified public accounting firm of recognized
national standing selected by Lessee, which opinion will state that such audit
was conducted in accordance with generally accepted auditing standards,
consistently applied, and, accordingly, included such tests of accounting
records and such other auditing procedures as were considered necessary under
the circumstances. All such financial statements will be prepared in accordance
with GAAP, consistently applied, except for changes in application of GAAP in
which Lessee's accountants concur, and will fairly present the consolidated
financial position of Lessee and its subsidiaries for the respective periods
indicated and the results of their operations and cash flows for such period;
(b) within fifty (50) days after the end of each of the first three (3)
quarters of each fiscal year of Lessee, a copy of: (i) the unaudited
consolidated balance sheet of Lessee and its subsidiaries as of the end of each
such quarter and figures, set forth in side by side comparative form, as of the
end of Lessee's previous fiscal year, and (ii) the related consolidated
statements of income and retained earnings and cash flows for such quarter and
for the portion of Lessee's fiscal year ended at the end of such quarter and
figures, set forth in comparative form, for the corresponding periods. All such
financial statements will be prepared in accordance with GAAP, consistently
applied, except for changes in application of GAAP in which Lessee's accountants
concur, and will fairly present (subject to year-end audit and adjustment) the
consolidated financial position of Lessee and its subsidiaries for the
respective periods indicated and the results of their operations and cash flows
for such period, and will be accompanied by a certificate of the Chief Financial
Officer, President or a Vice President of Lessee to that effect;
(c) upon request by Lessor, within thirty (30) days after the end of
each full calendar month except on months which are the last month of a fiscal
year or quarter, during the Term, a copy of: (i) the unaudited consolidated
balance sheet of Lessee and its subsidiaries as of the end of the calendar month
then ended and figures, set forth in side by side comparative form, as of the
end of the immediately preceding month, and (ii) the related consolidated
statements of income and retained earnings and cash flows for such calendar
month then ended and for the portion of Lessee's fiscal year ended at the end of
such calendar month and figures, set forth in
- 24 -
<PAGE> 25
comparative form, for the corresponding periods of Lessee's previous fiscal
year. All such financial statements will be prepared in accordance with GAAP,
consistently applied, except for changes in application of GAAP in which
Lessee's accountants concur, and will fairly present (subject to year-end audit
and adjustment) the consolidated financial position of Lessee and its
subsidiaries for the respective periods indicated and the results of their
operations and cash flows for such period;
(d) from time to time, such other information concerning Lessee as may
be reasonably requested by Lessor or the Noteholders;
(e) accompanying all financial statements specified in this Section 21
(other than with respect to those described in (c) above), the certificate of
the Chief Financial Officer, President or a Vice President of Lessee (i) stating
that no Default or Event of Default has occurred and is continuing, (ii) stating
that no Default or Event of Default has occurred since the delivery of the
immediately preceding certificate of Lessee delivered pursuant to this Section
21, (iii) stating that the Lease is unmodified and in full force and effect, or
if there has been any modification, that the Lease is in full force as modified,
and setting forth such modifications, (iv) if any Default or Event of Default
has occurred, specifying the nature and the period of existence thereof and what
action Lessee has taken or is taking with respect thereto, (v) stating that
there are no defenses, set-offs or counterclaims with respect to payment of
Basic Rent or any other sums payable by Lessee hereunder and the performance by
Lessee of all of the obligations hereunder or, if there are any such defenses,
set-offs or counterclaims, specifying the nature and status thereof, and (vi)
containing a computation (in reasonable detail) demonstrating compliance with
Section 22 hereof; and
(f) prompt notice of the occurrence of any Default or Event of Default
under this Lease.
- 25 -
<PAGE> 26
22. Additional Covenants of Lessee.
(a) Lessee will at all times maintain Minimum Tangible Net Worth of at
least $7,000,000. For purposes hereof, the term "Minimum Tangible Net Worth"
shall mean Lessee's total shareholder's equity as shown on Lessee's regular
financial statements prepared in a manner consistent with the terms hereof, less
the net balance of goodwill or other intangible assets.
(b) Lessee will not consolidate or merge with any other Person, or
sell, lease or transfer all or a substantial portion of its assets (on a
consolidated basis), or convey, sell, lease, assign, transfer, pledge or
otherwise dispose of (whether voluntarily or by operation of law) assets which
account for a substantial portion of its revenues or earnings (on a consolidated
basis) to any other Person, unless:
(i) such Person is an entity organized under the laws of the
United States of America or any State thereof;
(ii) such Person is qualified to do business in the State in
which the Leased Property is located;
(iii) such Person assumes by written instrument in form and
substance satisfactory to the First Lien Noteholder all of Lessee's obligations
and liabilities hereunder and under all of the other Operative Agreements to
which Lessee is a party and delivers to the First Lien Noteholder such opinions,
certificates and instruments relating to such assumption as the First Lien
Noteholder may reasonably request; and
(iv) if after giving effect to such consolidation, merger or
sale and assumption (x) no Default would exist, and (y) Lessee would be in
compliance with the requirements of clause (a) of this Section 22, determined,
in each case, as of the date of and after giving effect to such consolidation,
merger or sale and assumption.
(c) Lessee will not dissolve or terminate or permit the dissolution or
termination of its existence (whether voluntary or by operation of law).
(d) Lessee will not liquidate or wind up or permit the liquidation or
winding up of its business (whether voluntarily or by operation of law).
(e) Lessee will permit Lessor and the Noteholders (or such persons as
any such party may designate) to visit and inspect the Leased Property and to
examine the records and books of account of Lessee and to discuss the affairs,
finances and accounts of Lessee with its officers and independent accountants,
all at such times and as often as any such party may reasonably request
- 26 -
<PAGE> 27
with reasonable prior written notice. In addition, Lessee will permit the
Noteholders or any proposed Noteholder (or such persons as any such party may
designate) to visit and reasonably inspect the Leased Property in connection
with any financing or refinancing by Lessor.
23. Limitation on Liability of Lessor.
Lessor (for purposes of this Section, the term "Lessor" shall include
the directors, officers, partners, employees and agents of Lessor and any
persons or entities owned or controlled by, owning or controlling, or under
common control or affiliated with Lessor) shall not be liable to Lessee or to
Lessee's employees, agents, licensees, or visitors, or to any other person
whomsoever, for (i) any accident, injury or damage which shall happen in or
about the Leased Property unless caused by or resulting from the gross
negligence (BUT NOT THE NEGLIGENCE) or willful misconduct of Lessor or Lessor's
agents, servants or employees; (ii) any injury or damage to person or property
due to the Leased Property or any part thereof becoming out of repair or by
defect in or failure of pipes or wiring, or by the backing up of drains or by
the bursting or leaking of pipes, faucets and plumbing fixtures or by gas,
water, steam, electricity or oil leaking, escaping or flowing into the Leased
Property, WHETHER OR NOT CAUSED BY THE NEGLIGENCE OF LESSOR, or (iii) any loss
or damage that may be occasioned by or through the acts or omissions of any
other person whatsoever, excepting only the willful misconduct or gross
negligence (BUT NOT THE NEGLIGENCE) of duly authorized employees and agents of
Lessor, or (iv) for any loss or damage to any property or person occasioned by
theft, fire, act of God, public enemy, injunction, riot, insurrection, war,
court order, requisition or order of governmental authority, or any other matter
beyond the control of Lessor. Lessee agrees that all personal property upon the
Leased Property shall be at the risk of Lessee only, and that Lessor shall not
be liable for any damage thereto or theft thereof.
24. Payment of Expenses and Indemnification of Lessor.
Lessee shall pay all expenses and reimburse Lessor for any
expenditures, including reasonable attorney's fees and legal expenses, incurred
or expended in connection with (i) the breach by Lessee of any of its covenants
in this Lease, (ii) Lessor's exercise of any of its rights and remedies
hereunder, or (iii) any amendments to this Lease requested by Lessee or any
approval of Lessor required hereunder. Lessee agrees to indemnify and hold
harmless Lessor (for purposes of this Section, the term "Lessor" shall include
the directors, officers, partners, employees and agents of Lessor and any
persons or entities owned or controlled by, owning or controlling, or under
common control or affiliated with Lessor) from and against, and to reimburse
Lessor with respect to, all claims, demands, losses, damages (including
consequential damages), liabilities, causes of action, judgments, penalties,
costs and expenses (including, without limitation, reasonable attorney's fees
and court costs) of every kind and character,
known or unknown, fixed or contingent, imposed on, asserted against or incurred
or paid by Lessor at any time and from time to time by reason of, in connection
with or arising out of (i) the
- 27 -
<PAGE> 28
breach by Lessee of any of its covenants under this Lease; (ii) any accident,
injury or damage which shall happen in or about the Leased Property unless
caused by or resulting from the gross negligence (BUT NOT THE NEGLIGENCE) or
willful misconduct of Lessor; (iii) failure to comply with any requirements of
any governmental authority; and (iv) any mechanic's lien, deed of trust,
mortgage and security agreement or other security instrument filed against the
Leased Property, any fixtures attached thereto or any materials used in the
construction or alteration thereof. If any action or proceeding is brought
against Lessor by reason of any such occurrences, Lessee, upon written notice
from Lessor, will at Lessee's expense resist or defend any such action or
proceeding by counsel approved in writing by Lessor, such approval not to be
withheld unreasonably. WITHOUT LIMITATION, IT IS THE INTENTION OF LESSEE AND
LESSEE AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED
PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF
ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION,
REASONABLE ATTORNEY'S FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY OR ANY STRICT
LIABILITY. However, such indemnities shall not apply to any indemnified party to
the extent the subject of the indemnification is caused by or arises out of the
gross negligence or willful misconduct of such indemnified party. The foregoing
indemnities shall not terminate upon termination of this Lease but will survive
the termination of this Lease. Any amount to be paid under this section by
Lessee to Lessor shall be paid by Lessee to Lessor upon demand.
25. Assignment and Subletting.
(a) Lessee shall not, without the prior written consent of Lessor,
assign or in any manner transfer this Lease or any estate or interest therein or
permit any assignment of this Lease or any estate or interest therein by
operation of law or sublet the Leased Property or any part thereof or grant any
license, concession or other right of occupancy of any portion of the Leased
Property; except that, Lessee shall have the right, without the necessity of
obtaining the consent of Lessor, (i) to assign the leasehold estate under this
Lease to any parent, subsidiary or affiliate of Lessee; (ii) to sublet the
Leased Property to any parent, subsidiary or affiliate of Lessee; and (iii) to
sublet up to 80% of the rentable square feet of the Leased Property to any
Person. Consent by Lessor to one or more assignments or sublettings shall not
operate as a waiver of Lessor's rights as to any subsequent assignments and
sublettings. Notwithstanding any assignment or subletting, Lessee and any
guarantor of Lessee's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of the Rent herein specified and
for compliance with all of Lessee's other obligations under this Lease. If an
Event of Default should occur and be continuing while the Leased Property or any
part thereof is then assigned or sublet, Lessor, in addition to any other
remedies herein provided or provided by law, may at its option collect directly
from such assignee(s) or sublessee(s) all rents becoming due to Lessee under
such assignment(s) or sublease(s) and apply such rent against any sums due to
Lessor by
- 28 -
<PAGE> 29
Lessee hereunder and Lessee hereby authorizes and directs any such
assignee or sublessee to make such payments of rent direct to Lessor upon
receipt of notice from Lessor. No direct collection by Lessor from any such
assignee or sublessee shall be construed to constitute a novation or a release
of Lessee or any guarantor of Lessee from the further performance of its
obligations hereunder. Receipt by Lessor of rent from any assignee, sublessee or
occupant of the Leased Property shall not be deemed a waiver of the covenant in
this Lease contained against assignment and subletting or a release of Lessee
under this Lease. The receipt by Lessor to any such assignee or sublessee
obligated to make payments of rent shall be a full and complete release,
discharge and acquittance to such assignee or sublessee to the extent of any
such amount of rent so paid to Lessor. Lessor is authorized and empowered, on
behalf of Lessee, to endorse the name of Lessee upon any check, draft or other
instrument payable to Lessee evidencing payment of rent or proceeds therefrom in
accordance with the terms hereof.
(b) Lessor shall have the right to transfer, assign and convey, in
whole or in part, the Leased Property and any and all of its rights under this
Lease, and in the event Lessor assigns its rights under this Lease, Lessor shall
thereby be released from any further obligations hereunder, and Lessee agrees to
look solely to such successor in interest of the Lessor for performance of such
obligations.
26. No Liens.
Lessee will not, without the prior written consent of Lessor, create,
place or permit to be created or placed, or through any act or failure to act,
acquiesce in the placing of, or allow to remain, any voluntary or involuntary
lien, whether statutory, constitutional or contractual, including, without
limitation, any deed of trust, mortgage, security interest, conditional sale or
other title retention document or judgment lien, against or covering the
leasehold estate in the Leased Property, or any part thereof, and should any of
the foregoing become attached hereafter in any manner to any part of the
leasehold estate in the Leased Property without the prior written consent of
Lessor, Lessee will cause the same to be promptly discharged and released.
Notwithstanding the foregoing, mechanic's liens shall not be covered by this
Section 26, but shall be covered by Section 10.
27. Taxes on Lessee's Property.
Lessee shall be liable for all taxes levied or assessed against
furniture, equipment, Trade Fixtures or other personal property placed by Lessee
in the Leased Property. If any such taxes for which Lessee is liable are levied
or assessed against Lessor and Lessor elects to pay the same or if the assessed
value of Lessor's property is increased by inclusion of furniture, equipment,
Trade Fixtures or other personal property placed by Lessee in the Leased
Property and Lessor elects to pay the taxes based on such increase, Lessee shall
pay to Lessor upon demand that part of such taxes for which Lessee is liable
hereunder.
- 29 -
<PAGE> 30
28. Lessor's Right of Access.
Lessor and its representatives shall have the right, exercisable
without notice and without liability to Lessee for damage or injury to property,
persons or business and without effecting an eviction, constructive or actual,
or disturbance of Lessee's use or possession or giving rise to any claim for
set-off or abatement of rent, to enter upon the Leased Property at any
reasonable time for the purpose of (a) making inspections, (b) performing any
work which Lessor elects to undertake (but without any obligation to do so) made
necessary by reason of Lessee's default under the terms of this Lease, (c)
showing the Leased Property to prospective purchasers or lenders, or (d) during
the last twelve (12) months of the Term hereof, showing the Leased Property to
prospective tenants at reasonable hours and, if it is vacated, to prepare it for
reoccupancy and also to retain at all times, and to use in appropriate
instances, keys to all doors within and into the Leased Property. No locks shall
be changed or added without the prior written consent of Lessor. Lessor and its
authorized agents shall have the right, within the final twelve (12) month
period of the Term of this Lease, to erect on or about the Leased Property a
customary sign advertising the Leased Property for lease and shall have the
right, at any time during the Term of this Lease to erect on or about the Leased
Property a customary sign advertising the Leased Property for sale.
29. Surrender Upon Termination.
Lessee shall, at the expiration or earlier termination of the Term of
this Lease, surrender to Lessor the Leased Property free of liens and
subtenancies and in good condition and repair, reasonable wear and tear excepted
and shall deliver to Lessor all keys to the Leased Property, and, if such
possession is not immediately surrendered, Lessor may forthwith enter upon and
take possession of the Leased Property and expel or remove Lessee and any other
person who may be occupying said premises, or any part thereof, by force, if
necessary, without having any civil or criminal liability therefor. All Trade
Fixtures and other personal property owned by Lessee which are located on the
Leased Property may be removed by Lessee at the termination of this Lease. All
such removals shall be accomplished in a good and workmanlike manner so as not
to damage the Leased Property or the primary structure or structural qualities
of the Leased Property or the plumbing, electrical lines or other utilities. All
such Trade Fixtures and other personal property not promptly removed after such
termination shall thereupon be conclusively presumed to have been abandoned by
Lessee and Lessor may, at its option, take over the possession of such property
and either (i) declare same to be the property of Lessor by written notice
thereof to Lessee or (ii) at the sole cost and expense of Lessee remove the same
or any part thereof in any manner that Lessor shall choose and store the same
without incurring liability to Lessee or any other person.
- 30 -
<PAGE> 31
30. Holding Over by Lessee.
Should Lessee continue to hold the Leased Property after the expiration
of the Term or sooner termination of this Lease, such holding over shall
constitute and be construed as a tenancy from month to month only at 150% of the
Rent provided herein, which rental shall be due and payable in advance on the
first day of each calendar month; subject, however, to all of the terms,
provisions, covenants and agreements on the part of Lessee hereunder. No
payments of money by Lessee to Lessor after the termination of this Lease shall
reinstate the Term of this Lease and no such reinstatement after the termination
hereof shall be valid unless and until the same shall be reduced to writing and
signed by both Lessor and Lessee. Lessee shall be liable to Lessor for all
damage which Lessor shall suffer by reason of any holding over by Lessee and
Lessee shall indemnify Lessor against all claims made by any other tenant or
prospective tenant against Lessor resulting from delay by Lessor in delivering
possession of the Leased Property to such other tenant or prospective tenant.
- 31 -
<PAGE> 32
31. Events of Default.
The following events shall be deemed to be events of default (herein
called "Events of Default") by Lessee under this Lease:
(a) Lessee shall fail to pay any installment of the Rent hereby
reserved or any other amount payable by Lessee to Lessor hereunder and such
failure shall continue for a period of ten (10) days after receipt by Lessee of
written notice of such failure; provided that, if at the time such failure
occurs, Lessor has sent Lessee the written notice provided for herein at least
two times during the preceding twelve month period, no notice shall be required
and such failure shall be an event of default five (5) days after the due date.
(b) Lessee shall fail to comply with any term, provision or covenant of
this Lease, other than the payment of Rent or any other amount payable by Lessee
to Lessor hereunder, and shall not cure such failure within thirty (30) days
after written notice thereof from Lessor to Lessee; provided that, if Lessee
shall within such thirty (30) day period commence action to cure such failure
but is unable, by reason of the nature of the performance required, to cure same
within such period, and if Lessee continues such action thereafter diligently
and without unnecessary delays, Lessee shall not be in default hereunder until
the expiration of a period of time as may be reasonably necessary to cure such
failure, provided further that in any event Lessee shall be in default hereunder
if such failure is not cured on or before ninety (90) days after receipt by
Lessee of the above described written demand for performance.
(c) Any representation of Lessee contained herein or otherwise made by
Lessee to Lessor in connection with this Lease is false or misleading in any
material respect.
(d) Lessee becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due.
(e) Lessee is generally not paying its debts as such debts become due.
(f) A receiver, trustee or custodian is appointed for, or takes
possession of, all or substantially all of the assets of Lessee or any of the
Leased Property, either in a proceeding brought by Lessee or in a proceeding
brought against Lessee and such appointment is not discharged or such possession
is not terminated within one hundred fifty (150) days after the effective date
thereof or Lessee consents to or acquiesces in such appointment or possession.
(g) Lessor files a petition for relief under the Federal Bankruptcy
Code or any other present or future federal or state insolvency, bankruptcy or
similar law (all of the foregoing hereinafter collectively called "applicable
Bankruptcy Law") or an involuntary petition for relief
- 32 -
<PAGE> 33
is filed against Lessee under any applicable Bankruptcy Law and such petition is
not dismissed within one hundred fifty (150) days after the filing thereof, or
an order for relief naming Lessee is entered under any applicable Bankruptcy
Law, or any composition, rearrangement, extension, reorganization or other
relief of debtors now or hereafter existing is requested or consented to by
Lessor.
(h) Lessee fails to have discharged within a period of ninety (90) days
any attachment, sequestration or similar writ levied upon any property of
Lessee.
(i) Lessee fails to pay within ninety (90) days any final money
judgment against Lessee.
(j) Any of the events referred to in subheadings (d), (e), (f), (g),
(h) or (i) shall occur with respect to any joint venturer or general partner of
Lessee or any guarantor of the obligations of Lessee under this Lease.
(k) Lessee abandons all or any portion of the Leased Property.
32. Remedies Upon Default.
(a) If an Event of Default shall have occurred, Lessor shall have the
right at its election, then or at any time thereafter while such Event of
Default shall continue, to pursue any one or more of the following remedies:
(i) Lessor may terminate this Lease by giving written notice
thereof to Lessee, in which event Lessee shall immediately surrender
the Leased Property with all improvements thereon to Lessor and if
Lessee fails so to do, Lessor may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the Leased Property and expel or remove
Lessee and any other person who may be occupying said property, or any
part thereof, by force, if necessary, without having any civil or
criminal liability therefor, and Lessee hereby agrees to pay to Lessor
on demand the amount of all loss and damage which Lessor may suffer by
reason of such termination, whether through inability to relet the
Leased Property on satisfactory terms or otherwise, specifically
including, but not limited to the following:
(A) accrued Rent to the date of termination and Late
Charges, plus interest thereon at the rate established under
subsection 2(d) hereof from the date due through the date paid
or date of any judgment or award by any court of competent
jurisdiction, brokers' fees and commissions, attorneys' fees,
moving allowances and any other costs incurred by Lessor in
connection with making or
- 33 -
<PAGE> 34
executing this Lease, the cost of recovering the Leased
Property and the costs of reletting the Leased Property
(including, without limitation, advertising costs, brokerage
fees, leasing commissions, reasonable attorneys' fees and
costs of renovating, repairing and altering the Leased
Property for a new tenant);
(B) the present value of the Rent (discounted at a
rate of interest equal to six percent [6%] per annum [the
"Discount Rate"]) that would have been payable under this
Lease for the balance of the Lease Term but for such
termination, reduced by the reasonable fair market rental
value of the Leased Property for such balance of the Lease
Term (determined from the present value of the actual Rent,
discounted at the Discount Rate, received and to be received
from Lessor's reletting of the Leased Property or, if the
Leased Property is not relet, the rent, discounted at the
Discount Rate, that would be received from a comparable lease
and comparable tenant for a comparable term and taking into
account among other things, the condition of the Leased
Property, market conditions and the period of time the Leased
Property may reasonably remain vacant before Lessor is able to
re-lease the same to a suitable replacement tenant, it being
agreed that Lessor shall have no obligation to relet or
attempt to relet the Leased Property);
(C) any increase in insurance premiums caused by the
vacancy of the Leased Property; and
(D) any other amount necessary to compensate Lessor
for its damages.
If such termination is caused by the failure to pay Rent and/or the
abandonment of any substantial portion of the Leased Property, Lessor
may elect, by sending written notice thereof to Lessee, to receive
liquidated damages in an amount equal to the Rent payable hereunder for
the month during which this Lease is terminated times the lesser of (A)
eighteen (18) or (B) the number of full calendar months remaining in the
Term at the time of such termination. If Lessor so elects, such
liquidated damages shall be in lieu of the payment of loss and damage
Lessor may suffer by reason of such termination as provided above but
which shall not be in lieu of or reduce in any way any amount (including
accrued Rent) or damages due to breach of covenant (whether or not
liquidated) payable by Lessee to Lessor which accrued prior to the
termination of this Lease. Nothing contained in this Lease shall limit
or prejudice the right of Lessor to prove for and obtain in proceedings
for bankruptcy or insolvency by reason of the termination of this Lease,
an amount equal to the maximum allowed by any statute or rule of law in
effect at the time when, and governing the proceedings in which, the
damages are to be proved, whether or not the amount be greater, equal
to, or less than the amount of the loss or damages referred to above.
- 34 -
<PAGE> 35
(ii) Lessor may terminate Lessee's right of possession of the
Leased Property but not terminate this Lease and in such event may enter
upon and take possession of the Leased Property and expel or remove
Lessee or any other person who may be occupying said premises, or any
part thereof, by force, if necessary, without being liable for
prosecution or any claim for damages therefor; and in such event, Lessor
shall use reasonable efforts to relet the Leased Property, in the name
of Lessee or Lessor or otherwise, for such term or terms (which may be
greater or less than the period which would otherwise have constituted
the balance of the term of this Lease) and on such conditions (which may
include concessions or free rent) and for such uses as Lessor in its
absolute discretion may determine and Lessor may collect and receive any
rents payable by reason of such reletting. Lessee agrees to pay to
Lessor on demand all reasonable expenses necessary to relet the Leased
Property which shall include the cost of renovating, repairing and
altering the Leased Property for a new lessee or lessees, advertisements
and brokerage fees, and Lessee further agrees to pay to Lessor on demand
any deficiency that may arise by reason of such reletting. Lessor shall
not be responsible or liable for any failure to collect any rent due
upon any such reletting. If Lessor terminates Lessee's possession of the
Leased Property pursuant to this subsection (ii), (A) Lessor shall have
no obligation whatsoever to tender to Lessee a key for new locks
installed in the Leased Property, and (B) Lessee shall have no further
right to possession of the Leased Property. No such re-entry or taking
of possession of the Leased Property by Lessor shall be construed as an
election on Lessor's part to terminate this Lease unless a written
notice of such termination is given to Lessee in accordance with the
terms of this Lease. No repossession of or re-entering on the Leased
Property or any part thereof pursuant to this subsection or otherwise
and no reletting of the Leased Property or any part thereof pursuant to
this subsection shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive such repossession or re-entering.
In the event of any such repossession or re-entering on the Leased
Property or any part thereof by reason of the occurrence of an event of
default, Lessee will pay to Lessor the Rent required to be paid by
Lessee.
(iii) Enter upon the Leased Property, by force if necessary,
without having any civil or criminal liability therefor, and, with or
without such entry upon the Leased Property, do whatever Lessee is
obligated to do under the terms of this Lease, and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in
thus effecting compliance with Lessee's obligations under this Lease.
Lessee further agrees that Lessor shall not be liable for any damages
resulting to Lessee from such action, whether caused by the negligence
of Lessor or otherwise.
(b) No right or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity or by statute.
The failure of Lessor to insist at any time upon the strict performance
- 35 -
<PAGE> 36
of any covenant or agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. The waiver of or redress for any violation of any term,
covenant, agreement or condition contained in this Lease shall not prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. No express waiver shall
affect any condition other than the one specified in such waiver and that one
only for the time and in the manner specifically stated. A receipt by Lessor of
any Rent or any other amount payable hereunder with knowledge of the breach of
any covenant or agreement contained in this Lease shall not be deemed a waiver
of such breach, and no waiver by Lessor of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Lessor. In
addition to other remedies provided in this Lease, Lessor shall be entitled, to
the extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the covenants,
agreements, conditions or provisions of this Lease, or to a decree compelling
performance of any of the covenants, agreements, conditions or provisions of
this Lease, or to any other remedy allowed to Lessor at law or in equity.
(c) With respect to the provisions of the laws of the State of Texas or
of this Lease which require that Lessor use reasonable efforts to relet the
Leased Property, it is understood and agreed that the following shall apply in
determining whether such efforts by Lessor to relet are reasonable:
(i) Lessor may decline to incur out-of-pocket costs to relet
the Leased Property, other than customary leasing commissions and legal
fees for the negotiation of a lease with a new lessee;
(ii) Lessor may decline to relet the Leased Property at rental
rates below then prevailing market rental rates;
(iii) Lessor may decline to relet the Leased Property to a
prospective lessee, the nature of whose business may have an adverse
impact upon the first class manner in which the Leased Property is
operated or with the high reputation of the Leased Property even though
in each of said circumstances such prospective lessee may have a good
credit rating;
(iv) Before reletting the Leased Property to a prospective
lessee, Lessor may require the prospective lessee to demonstrate the
same or better financial capacity as that of Lessee; and
(v) Listing the Leased Property with a broker in a manner
consistent with subsections (i) through (iv) above shall constitute
prima facie evidence of reasonable efforts on the part of Lessor to
relet the Leased Property.
- 36 -
<PAGE> 37
33. Waiver by Lessee.
Lessee hereby waives and surrenders for itself and all claiming by,
through and under it, including creditors of all kinds, (i) any right and
privilege which it or any of them may have under any present or future
constitution, statute or rule of law to redeem the Leased Property or to have a
continuance of this Lease for the term hereby demised after termination of
Lessee's right of occupancy by order or judgment of any court or by any legal
process or writ, or under the terms of this Lease, or after the termination of
the Term of this Lease as herein provided, and (ii) the benefits of any present
or future constitution, statute or rule of law which exempts property from
liability for debt or for distress for rent, and (iii) the provisions of any law
relating to notice and/or delay in levy of execution in case of eviction of a
tenant for nonpayment of rent.
34. Representations by Lessor.
Lessor hereby represents and warrants that (a) Lessor is duly organized
and legally existing under the laws of the State of Texas; (b) this Lease
constitutes the legal, valid and binding obligations of Lessor enforceable in
accordance with its terms; and (c) the execution and delivery of, and
performance under this Lease are within Lessor's power and authority without the
joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of Lessor's
charter, by-laws or other corporate papers, or of any indenture, agreement or
undertaking to which Lessor is a party or by which it is bound.
35. Representations by Lessee.
Lessee hereby represents and warrants that (a) Lessee is duly
incorporated and legally existing under the laws of the State of Texas; (b) this
Lease constitutes the legal, valid and binding obligations of Lessee enforceable
in accordance with its terms; and (c) the execution and delivery of, and
performance under this Lease are within Lessee's power and authority without the
joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of Lessee's
charter, by-laws or other corporate papers, or of any indenture, agreement or
undertaking to which Lessee is a party or by which it is bound.
36. Estoppel Certificates.
(a) Lessee agrees at any time and from time to time, upon not less than
fifteen (15) days prior written notice by Lessor, to execute, acknowledge and
deliver, without charge, to Lessor, or to any person designated by Lessor, a
statement in writing certifying that this Lease is unmodified (or if there have
been modifications, identifying the same by the date thereof and
- 37 -
<PAGE> 38
specifying the nature thereof), that Lessee has not received any notice of
default or notice of termination of this Lease (or if Lessee has received such a
notice, that it has been revoked, if such be the case), that to the knowledge of
Lessee no Event of Default exists hereunder (or if any such Event of Default
does exist, specifying the same and stating that the same has been cured, if
such be the case), that Lessee to its knowledge has no claims or offsets against
Lessor hereunder (or if Lessee has any such claims, specifying the same), and
the dates to which the Rent and the other sums and charges payable by Lessee
hereunder have been paid.
(b) Lessor agrees at any time and from time to time, upon not less than
fifteen (15) days prior written notice by Lessee, to execute, acknowledge and
deliver, without charge, to Lessee, or to any person designated by Lessee, a
statement in writing stating that this Lease is unmodified (or if there be
modifications, identifying the same by the date thereof and specifying the
nature thereof), that no notice of default or notice of termination of this
Lease has been served on Lessee (or if Lessor has served such notice, that the
same has been revoked, if such be the case), that to Lessor's knowledge no Event
of Default exists under this Lease (or if any such Event of Default does exist,
specifying the same), and the date to which the Rent has been paid by Lessee.
37. Memorandum of Lease.
Neither Lessor nor Lessee shall file this Lease for record in the
Office of the County Clerk of Smith County, Texas, or in any other public place
without the written consent of the other. In lieu thereof, Lessor and Lessee
agree to execute in recordable form a memorandum of this Lease and to file such
memorandum for record in the Office of the County Clerk of said County and to
share equally all costs and expenses of recording said memorandum.
38. Attorneys' Fees.
Should either Lessor or Lessee institute any action or proceeding in
court to enforce any provision hereof or for damages by reason of any alleged
breach of any provision of this Lease or for any other judicial remedy, the
prevailing party shall be entitled to receive from the losing party all court
costs and reasonable attorneys' fees incurred in connection with such
proceeding.
39. Notices.
Any notice or communication required or permitted hereunder shall be
given in writing, sent by (a) personal delivery, or (b) expedited delivery
service with proof of delivery, or (c) United States Mail, postage prepaid,
registered or certified mail, or (d) telecopy, addressed as follows:
- 38 -
<PAGE> 39
To Lessor: 4520 Old Troup Highway
Tyler, Texas 95711
Telecopy Number: 403/509-3631
To Lessee: 4520 Old Troup Highway
Tyler, Texas 95711
Telecopy Number: 403/509-3631
or to such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
either at the time of personal delivery or, in the case of delivery service or
mail, as of the date of first attempted delivery at the address and in the
manner provided herein, or in the case of telecopy, upon receipt.
40. NO REPRESENTATIONS OR WARRANTIES.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE OR IN
ANY EXHIBIT ATTACHED HERETO, IT IS UNDERSTOOD AND AGREED THAT THE LEASED
PROPERTY IS BEING LEASED HEREUNDER "AS IS" WITHOUT ANY REPRESENTATION OR
WARRANTY BY LESSOR EXCEPT AS EXPRESSLY SET FORTH HEREIN. LESSOR HAS NOT MADE AND
DOES NOT HEREBY MAKE (EXCEPT AS EXPRESSLY SET FORTH HEREIN) ANY REPRESENTATIONS
OR WARRANTIES OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, ITS CONDITION (INCLUDING WITHOUT LIMITATION ANY
REPRESENTATION OR WARRANTY REGARDING QUALITY OF CONSTRUCTION, WORKMANSHIP,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE), ITS COMPLIANCE WITH
ENVIRONMENTAL LAWS OR OTHER LAWS, INCOME TO BE DERIVED THEREFROM OR EXPENSES TO
BE INCURRED WITH RESPECT THERETO, THE OBLIGATIONS, RESPONSIBILITIES OR
LIABILITIES OF THE LESSEE THEREOF, OR ANY OTHER MATTER OR THING RELATING TO OR
AFFECTING THE LEASED PROPERTY, AND LESSEE ACKNOWLEDGES THAT LESSEE IS ENTERING
INTO THIS LEASE WITHOUT RELYING UPON ANY SUCH REPRESENTATION OR WARRANTY MADE BY
LESSOR OR BY ANY OTHER PERSON.
41. Interest on Lessee's Obligations.
Any amount payable by Lessee to Lessor hereunder, other than amounts
which are subject to the Late Charge and interest provided for in subsection
2(d) hereof, shall bear interest at the rate of twelve per cent (12%) per annum
from the date which is ten (10) days after demand for payment by Lessor until
paid.
- 39 -
<PAGE> 40
42. Quiet Enjoyment.
Provided Lessee pays the Rent payable hereunder as and when due and
payable and keeps and fulfills all of the terms, covenants, agreements and
conditions to be performed by Lessee hereunder, Lessee shall at all times during
the Term peaceably and quietly enjoy the Leased Property without any disturbance
from Lessor or from any other person claiming by, through or under Lessor,
subject to the terms, provisions, covenants, agreements and conditions of this
Lease.
43. Notice to Lessor.
In the event of any act or omission by Lessor which would give Lessee
the right to damages from Lessor or the right to terminate this Lease by reason
of a constructive or actual eviction from all or part of the Leased Property or
the breach of the implied warranty of suitability or otherwise, Lessee shall not
sue for such damages or exercise any such right to terminate until (i) it shall
have given written notice of such act or omission to Lessor, and (ii) a
reasonable period of time for remedying such act or omission shall have elapsed
following the giving of such notice, during which time Lessor, its agents or
employees, shall be entitled to enter upon the Leased Property and do therein
whatever may be necessary to remedy such act or omission. During the period
after the giving of such notice and during the remedying of such act or
omission, the Rent payable by Lessee for such period as provided in this Lease
shall be abated and apportioned only to the extent that any part of the Leased
Property shall be untenantable.
44. Entire Agreement.
This Lease sets forth the entire agreement between the parties and no
amendment or modification of this Lease shall be binding or valid unless
expressed in a writing executed by all of the parties hereto.
45. Severability.
Each and every covenant and agreement contained in this Lease is, and
shall be construed to be, a separate and independent covenant and agreement. If
any term or provision of this Lease or the application thereof to any person or
circumstances shall be to any extent invalid and unenforceable, the remainder of
this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby.
- 40 -
<PAGE> 41
46. No Merger.
There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in the Leased Property or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as well as the fee estate in the Leased
Property or any interest in such fee estate.
47. Force Majeure.
Whenever a period of time is herein prescribed for action to be taken
by Lessor or Lessee, such party shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the control of such party; provided, however, that
this Section shall not apply to Lessee's obligation to pay Rent.
48. Gender.
Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural and words in the plural number shall be held to include the
singular, unless the context otherwise requires.
49. No Other Rights.
No rights, easements or licenses are acquired by Lessee by implication
or otherwise except as expressly set forth in the provisions of this Lease.
50. Section Headings.
The Section headings contained in this Lease are for convenience only
and shall in no way enlarge or limit the scope or meaning of the various and
several Sections hereof.
51. Binding Effect.
All of the covenants, agreements, terms and conditions to be observed
and performed by the parties hereto shall be applicable to and binding upon
their respective successors and, to the extent assignment is permitted
hereunder, their respective assigns.
- 41 -
<PAGE> 42
52. Real Estate Commissions.
Each party hereto represents to the other that it has not authorized
any broker or finder to act on its behalf in connection with this Lease and that
it has not dealt with any broker or finder purporting to act on behalf of any
other party. Each party hereto agrees to indemnify and hold harmless the other
party from and against any and all claims, losses, damages, costs or expenses of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by such party or on its
behalf with any broker or finder in connection with this Lease or the
transaction contemplated hereby.
53. Second Lien Deed of Trust.
In the event of a default by Lessee in the payment of Rent under this
Lease, then, at the option of Lessor, either (a) the obligation of Lessor to
make payments under the Second Lien Note and to perform its obligations under
the Second Lien Deed of Trust will be suspended until such time as the default
in the payment of Rent is cured or (b) Lessor may offset against payments due on
the Second Lien Note any past due amounts owed by Lessee under this Lease.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the
date first above written
CREST PROPERTIES, LTD., a Texas limited
partnership
By: RHP Management, LLC, a Texas limited
liability company, a general partner
By: /s/ ROBERT H. PATTERSON, JR.
--------------------------------------
Name: Robert H. Patterson, Jr.
Title: President
LESSOR
CELEBRITY, INC., a Texas corporation
By: /s/ LYNN SKILLEN
-----------------------------------------
Name: Lynn Skillen
Title: Vice President - Finance,
Secretary and Treasurer
LESSEE
- 42 -
<PAGE> 43
SCHEDULE I
The purchase price under a Purchase Offer shall be the greater of (1),
(2) or (3) below:
(1) The current annual Rent then in effect divided by twelve
percent (12%).
(2) The Fair Market Value (herein so called) of the Leased
Property, determined as follows. If Lessor and Lessee agree on the fair
market value of the Leased Property, that value shall be the Fair
Market Value. If Lessor and Lessee cannot agree on the fair market
value of the Leased Property, the Fair Market Value shall be determined
by appraisal, using the following procedure. If either Lessor or Lessee
selects its appraiser and the other does not within twenty (20) days
after notice is sent to the other of the selection of the first
appraiser, the first appraiser shall act as the sole appraiser in
determining the Fair Market Value of the Leased Property. If within
such twenty (20) day period, a second appraiser is selected, the two
appraisers shall determine the Fair Market Value. If the two appraisers
cannot agree on the Fair Market Value within twenty (20) days after
selection of the second appraiser, and the higher appraisal submitted
by the two appraisers is less than five percent (5%) higher than the
lower appraisal submitted by the two appraisers, the two appraisals
shall be averaged and such average shall be the Fair Market Value. If
such higher appraisal is five percent (5%), or more, higher than such
lower appraisal, the two appraisers shall select a third appraiser
within thirty (30) days after selection of the second appraiser, and
the appraisals of all three appraisers shall be averaged and such
average shall be the Fair Market Value. If a third appraiser cannot be
agreed upon within such thirty (30) day period, the third appraiser
shall be selected by the Senior Judge of the United States District
Court for the Northern District of Texas. Each appraiser thus selected
must be a member of the American Institute of Real Estate Appraisers
and have no less than five (5) years' experience in appraising real
estate in the area where the Leased Property is located, and may not
(a) be an employee, former employee, affiliate or former affiliate of
Lessor or Lessee or (b) have been regularly employed or retained as a
consultant or agent of Lessor or Lessee during the preceding twelve
(12) months. No appraiser shall have any personal or financial interest
as would disqualify such appraiser from exercising an independent and
impartial judgment as to the value of the Leased Property. The decision
of the appraiser(s) shall be forever binding upon Lessor and Lessee and
their respective successors and assigns. The appraiser(s) shall deliver
a written report of such appraisal to Lessor and Lessee. The fee and
expenses of each appraiser making such appraisal shall be borne by the
party appointing such appraiser, with the fee and expenses of any third
appraiser being born equally by Lessor and Lessee.
- 43 -
<PAGE> 44
(3) The unpaid balance of the First Lien Note plus any
prepayment penalty due to the First Lien Noteholder thereunder.
- 44 -
<PAGE> 1
EXHIBIT 2
LEASE AGREEMENT
THIS LEASE AGREEMENT dated this 22 day of April, 1999, made by and
between CREST PROPERTIES, LTD., a Texas limited partnership (hereinafter called
"Lessor"), and THE CLUETT CORPORATION, a California corporation (hereinafter
called "Lessee");
W I T N E S S E T H:
Lessor, in consideration of the rent to be paid and the covenants and
agreements to be performed by Lessee, as hereinafter set forth, does hereby
LEASE, DEMISE and LET unto Lessee, and Lessee hereby takes and accepts, the real
property described in Exhibit A attached hereto and made a part hereof, together
with (a) all buildings and other improvements now or hereafter located or
erected thereon (b) all fixtures and other property affixed to said buildings
and other improvements; (c) all of Lessor's interest in and to all easements and
other rights as may be necessary for ingress and egress and maintenance of said
property; and (d) all and singular the rights and appurtenances pertaining to
the foregoing property; (all of said property hereinafter called the "Leased
Property") for the term hereinafter set forth.
The Leased Property is leased by Lessor to Lessee and is accepted and
is to be used and possessed by Lessee upon and subject to (a) all covenants,
conditions, easements, reservations, rights-of-way and other matters recorded in
the land records in the county and state in which the Leased Property is
located; (b) any state of facts which an accurate survey or physical inspection
thereof might show or of which Lessee has actual knowledge; (c) all zoning
regulations, restrictions, rules and ordinances, building restrictions and other
laws and regulations now in effect or hereafter adopted by any Governmental
Authority (as herein defined) having jurisdiction; (d) the condition of the
Leased Property as of the commencement of the Term, without representation or
warranty by Lessor, and (e) the following terms, provisions, covenants,
agreements and conditions:
1. Deeds of Trust.
(a) The interest of Lessor in the Leased Property is subject to a Deed
of Trust, Security Agreement, Financing Statement and Assignment of Rents in
favor of The Fidelity Company, Trustee, and all amendments thereto and all
renewals, extensions, substitutions, modifications, consolidations and
replacements thereof (hereinafter collectively called the "First Lien Deed of
Trust"), securing the payment of a promissory note (hereinafter called the
"First Lien Note") in the original principal amount of $4,444,444.09 from Lessor
to Merrill Lynch Business Financial Services, Inc., (the holder of the debt
secured by the Deed of Trust hereinafter called the "First Lien Noteholder").
The priority of the First Lien Deed of Trust with respect to the leasehold
estate hereunder and the relative rights and obligations of the First Lien
Noteholder,
- 1 -
<PAGE> 2
Lessor and Lessee with respect to this Lease and the Leased Property may be set
forth in an Agreement (hereinafter called the "Attornment Agreement") by and
among said parties. Except as otherwise set forth in any Attornment Agreement,
the First Lien Noteholder shall not be liable for any act, omission or default
of Lessor, subject to any offset, claims or defenses which Lessee may have
against Lessor, or bound by any amendment, waiver or termination of this Lease,
unless consented to by the First Lien Noteholder in writing. If because of
Lessor's default Lessee has the right to terminate this Lease, Lessee shall not
do so (except as otherwise set forth in any Attornment Agreement) unless Lessee
first notifies the First Lien Noteholder in writing thereof and the First Lien
Noteholder fails to initiate promptly and thereafter use reasonable efforts to
cure Lessor's default. If, in connection with any financing by Lessor of any
portion of the Leased Property, the First Lien Noteholder requires modifications
to this Lease, Lessee shall not unreasonably withhold, delay or condition
Lessee's consent to such modifications, so long as such modifications do not
increase the rents owed hereunder, reduce or extend the Term, reduce or increase
the area of the Leased Property, or materially adversely affect Lessee's rights
and obligations hereunder.
(b) The interest of Lessor in the Leased Property is also subject to a
Purchase Money Deed of Trust Deed of Trust, Security Agreement, Assignment of
Rents and Fixture Filing in favor of The Fidelity Company, Trustee, and all
amendments thereto and all renewals, extensions, substitutions, modifications,
consolidations and replacements thereof (hereinafter collectively called the
"Second Lien Deed of Trust"), securing the payment of a promissory note
(hereinafter called the "Second Lien Note") in the original principal amount of
$1,036,215.91 from Lessor to Celebrity, Inc. (the holder of the debt secured by
the Second Lien Deed of Trust hereinafter called the "Second Lien Noteholder").
The First Lien Deed of Trust and the Second Lien Deed of Trust are hereinafter
collectively called the "Deeds of Trust" and the First Lien Noteholder and the
Second Lien Noteholder are hereinafter collectively called the "Noteholders".
(c) Notwithstanding anything in this Lease to the contrary, Lessee
agrees to timely perform and satisfy the covenants and obligations of Lessor as
Grantor under the Deeds of Trust insofar as such covenants and obligations
relate to the Leased Property; provided, Lessee shall not be obligated to pay
the First Lien Note or the Second Lien Note. To the extent that the covenants
and obligations of the Deeds of Trust conflict with corresponding or similar
covenants and obligations of Lessee under this Lease, Lessee shall observe,
perform and comply with whichever covenants and obligations are the most
burdensome.
2. Term.
This Lease shall be for a term of twenty five (25) years (herein called
the "Term") commencing on April 22, 1999 (hereinafter called the "Commencement
Date") and ending at midnight on April 22, 2024, unless sooner terminated as
provided in this Lease.
- 2 -
<PAGE> 3
3. Rent.
(a) Lessee covenants and agrees to pay to Lessor as rent (herein called
"Rent") for the Leased Property the sum of Three Hundred Forty Thousand Two
Hundred Forty-Four Dollars ($340,244) per annum (herein called the "Basic
Rent"), subject to adjustment as provided below, payable in equal monthly
installments in advance on the first day of each month (herein called the "Rent
Payment Date") during the Term of this Lease. Should this Lease commence on a
day other than the first day of a calendar month or terminate on a day other
than the last day of a calendar month, the Rent for such partial month shall be
prorated. The first monthly installment of Rent shall be paid contemporaneously
with the execution of this Lease.
(b) All Rent shall be paid by Lessee to Lessor at Lessor's address as
provided in Section 38 hereof, or to such other person and/or at such other
address as Lessor may direct by notice to Lessee, in such coin or currency of
the United States of America as at the time of payment shall be legal tender for
the payment of public and private debts or, at the option of Lessor or the First
Lien Noteholder, by electronic funds transfer of immediately available funds to
a financial institution directed by Lessor or the First Lien Noteholder, as the
case may be.
(c) It is the purpose and intent of Lessor and Lessee that the Rent
shall be absolutely net to Lessor. Lessee shall pay the Rent, without notice or
demand, and without abatement, deduction or setoff, except as herein
specifically provided.
(d) If any installment of Rent is not paid when due, a Late Charge
(hereinafter so called) of five cents ($.05) per dollar so overdue may be
charged by Lessor to defray Lessor's administrative expense incident to the
handling of such overdue payments. Each Late Charge shall be payable on demand.
If any installment of Rent is not paid on or before ten (10) days after the due
date, from and after said tenth day after the due date such Rent, together with
any applicable Late Charge, shall bear interest at the rate of twelve percent
(12%) per annum. Notwithstanding the foregoing, Lessee shall not be required to
pay any Late Charge or interest described in this Section 3(d) with respect to
any overdue payment of Rent if Lessee is not overdue on any payment of Rent on
more than two (2) occasions by more than five (5) days in any twelve (12) month
period.
4. Adjustment of Rent.
(a) Basic Rent shall be subject to adjustment in the manner hereinafter
set forth for increases during the applicable three (3) year period described
below and during each three (3) year period thereafter, in each case, in the
index known as the United States Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, United States City
Average, All Items, (1982-84=100) (hereinafter called the "CPI") or the
successor index thereto that most closely approximates the CPI. If the CPI shall
be discontinued with no successor or comparable successor index, Lessor and
Lessee shall attempt to agree upon a substitute index or formula, but if they
are unable to so agree, then the matter shall be determined by arbitration in
accordance with the rules of the American Arbitration Association then
prevailing in Winston-Salem, North Carolina. Any decision or award resulting
from such
- 3 -
<PAGE> 4
arbitration shall be final and binding upon Lessor and Lessee and judgment
thereon may be entered in any court of competent jurisdiction.
(b) Basic Rent shall not be adjusted to reflect changes in the CPI
until the third (3rd) anniversary of the Rent Payment Date on which the first
full monthly installment of Basic Rent shall be due and payable (hereinafter
called the "First Full Rent Payment Date"). As of the third (3rd) anniversary of
the First Full Rent Payment Date, Basic Rent shall be increased by an amount
equal to the CPI Increase Amount to reflect increases in the CPI during the
immediately preceding three (3) years. Thereafter, on the sixth (6th), ninth
(9th), twelfth (12th), fifteenth (15th), eighteenth (18th), twenty-first (21st)
and twenty-fourth (24th) anniversaries of the First Full Rent Payment Date,
Basic Rent shall be adjusted to reflect increases in the CPI during the most
recent three (3) year period immediately preceding each of the foregoing dates
(each such date, including the third (3rd) anniversary of the First Full Rent
Payment Date, being hereinafter referred to as the "Basic Rent Adjustment
Date").
(c) On the Basic Rent Adjustment Date which is the third (3rd)
anniversary of the First Full Rent Payment Date, if the CPI determined in clause
(i) below (hereinafter called the "Ending CPI") exceeds the Beginning CPI (as
defined in this Section 4(c)), the Initial Base Rent shall be multiplied by a
fraction, the numerator of which shall be the difference between (i) the CPI for
the most recent calendar month (hereinafter called the "Prior Month") ending
prior to a Basic Rent Adjustment Date (for purposes of this Section 4(c), such
Basic Rent Adjustment Date shall mean the third (3rd) anniversary of the First
Full Rent Payment Date) for which the CPI has been published on or before the
forty-fifth (45th) day preceding such Basic Rent Adjustment Date and (ii) the
Beginning CPI, and the denominator of which shall be the Beginning CPI. The
product of such multiplication described in the immediately preceding sentence
is referenced to herein as the "CPI Increase Amount", and the CPI Increase
Amount shall thereafter be included in Basic Rent as set forth in the definition
of Basic Rent. The "Beginning CPI" shall mean the monthly CPI for the calendar
month corresponding to the Prior Month, but occurring three (3) years earlier.
If the Ending CPI is the same or less than the Beginning CPI, no adjustment to
Basic Rent shall be made.
(d) As of each Basic Rent Adjustment Date after the third (3rd)
anniversary of the First Full Rent Payment Date when Ending CPI exceeds the
Beginning CPI, the Basic Rent in effect immediately prior to the applicable
Basic Rent Adjustment Date shall be multiplied by a fraction, the numerator of
which shall be the difference between (i) the Ending CPI for the Prior Month
ending prior to such Basic Rent Adjustment Date for which the CPI has been
published on or before the forty-fifth (45th) day preceding such Basic Rent
Adjustment Date and (ii) the Beginning CPI, and the denominator of which shall
be the Beginning CPI. The product of such multiplication described in the
immediately preceding sentence shall be added to the Basic Rent in effect
immediately prior to such Basic Rent Adjustment Date. If the Ending CPI is the
same or less than the Beginning CPI, no adjustment to Basic Rent shall be made.
- 4-
<PAGE> 5
(e) Effective as of a given Basic Rent Adjustment Date, Basic Rent
payable under this Lease until the next succeeding Basic Rent Adjustment Date
shall be the Basic Rent in effect after the adjustment provided for as of such
Basic Rent Adjustment Date.
(f) Notice of the new Basic Rent shall be delivered to Lessee on or
before the thirtieth (30th) day preceding each Basic Rent Adjustment Date. The
calculations establishing such new Basic Rent shall be included in such notice
and shall be conclusive.
5. Nonterminability.
(a) Except as expressly provided herein, this Lease will not terminate,
nor will Lessee have any right to terminate this Lease, nor will Lessee be
entitled to any abatement or reduction of Rent hereunder, nor will the
obligations of Lessee under this Lease be affected, by reason of (i) any
Casualty (as hereinafter defined) or theft with respect to the Leased Property
or any part thereof from whatever cause, (ii) any Taking (as hereinafter
defined) of the Leased Property or any part thereof, (iii) the prohibition,
limitation or restriction of Lessee's use, occupancy or enjoyment of all or any
part of the Leased Property, or any interference with such use, occupancy or
enjoyment, (iv) any eviction by superior title or otherwise, or any other defect
in, or encumbrance on, Lessor's title to the Leased Property or any part
thereof, (v) Lessee's acquisition or ownership of the Leased Property or any
part thereof, (vi) any default on the part of Lessor under this Lease, or under
any other agreement to which Lessor and Lessee may be parties, (vii) the failure
of Lessor to deliver possession of the Leased Property or any part thereof on
the commencement of the Term, or the impossibility of performance by Lessor,
Lessee or both, (viii) any action of any Government Authority (as hereinafter
defined), (ix) any breach by Lessor of any express or implied warranty contained
in this Lease or created by law, (x) any merger, consolidation or sale of all or
substantially all of the assets of Lessee, or (xi) any other cause whether
similar or dissimilar to the foregoing, any present or future law or change in
law to the contrary notwithstanding. It is the intention of the parties hereto
that the obligations of Lessee hereunder will be separate and independent
covenants and agreements, that the Rent and all other sums payable by Lessee
hereunder will continue to be payable in all events and that the obligations of
Lessee hereunder will continue unaffected, unless the requirement to pay or
perform the same will have been terminated pursuant to an express provision of
this Lease.
(b) Lessee shall remain obligated under this Lease in accordance with
its terms, and shall not take any action to terminate, rescind or avoid this
Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution or winding-up or other
proceeding affecting Lessor or its successor in interest, and (ii) any action
with respect to this Lease which may be taken by any trustee or receiver of
Lessor or its successor in interest or by any court in any such proceeding.
(c) Lessee hereby agrees, to the extent permitted by law, not to plead,
claim or take advantage of any law, now or hereafter in effect, providing for
any right (i) to quit, terminate or surrender this Lease or the Leased Property
or any part thereof, (ii) to any abatement, suspension, deferment or reduction
of the Rent or any other sums payable by Lessee hereunder, except as
- 5 -
<PAGE> 6
expressly provided herein. If any law providing for any of the foregoing is now
or hereafter in force, of which Lessee might take advantage notwithstanding the
foregoing agreement and waiver, and such law is hereafter or thereafter repealed
or otherwise ceases to be in force, such law will not then or thereafter be
deemed to preclude or limit the enforceability of the foregoing agreement and
waiver.
6. No Reduction of Rent.
Notwithstanding any other provision of this Lease, (a) if for any
reason any Rent or any other sums payable to Lessor by Lessee hereunder (in this
Section called the "Rentals") shall be diminished or subject to diminution to
attachment, claim, lien, levy, process or other cause or will be subject to
withholding or diminution at the source by reason of any income or other taxes,
assessments, expenses, indebtedness, obligations or liabilities of any character
incurred by or against any person or by reason of any claims, demands, charges
or liens of any nature incurred by any person or against the Rentals, or (b) if
the payment of the Rentals when due and payable will be delayed, prevented or
adversely affected, or (c) if the use or application of the Rentals by the First
Lien Noteholder pursuant to any provision of the First Lien Deed of Trust will
be delayed or prevented or the right of the First Lien Noteholder so to use or
apply the same will be adversely affected, or (d) if the First Lien Noteholder
reasonably refuses so to use or apply the Rentals because of its determination
that liability might be incurred if such use or application were to be made, or
(e) if the First Lien Noteholder will be subject to any liability or obligation
to refund or pay over the Rentals, then at the request of the First Lien
Noteholder, Lessee will pay promptly as additional rent, and take any action and
incur any expense that may be necessary for the proper application of, sums of
money sufficient fully to pay and discharge the Rentals and to eliminate or
nullify the cause of such attachment, claim, lien, levy, order, process,
withholding or diminution and to eliminate or prevent any delay or obstacle in
the payment of the Rentals when due and payable and in the use or application
thereof by the First Lien Noteholder, and to protect the right of the First Lien
Noteholder to use or apply the Rentals and will pay and indemnify the First Lien
Noteholder against any liability which may arise from so using or applying the
Rentals, and against any liability or obligation to repay, or any loss in
repaying, any monies received from Lessee. It is the intention of the parties
that the Rent will be received and enjoyed by Lessor or the First Lien
Noteholder, as the case may be, as an absolute net sum, and will be available in
full for application to the payment of principal of, and premium and interest
on, indebtedness secured by the First Lien Deed of Trust when due.
7. Liability of Lessor.
Lessor shall not be liable, EXCEPT IN THE EVENT OF GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT BUT NOT ITS NEGLIGENCE, to Lessee or any of its agents,
employees, licensees, servants or invitees for any injury or damage to person or
property due to the condition or design or any defect in the Leased Property or
its mechanical systems and
- 6 -
<PAGE> 7
equipment which may exist or occur, and Lessee, with respect to itself and its
agents, employees, licensees, servants and invitees, hereby expressly assumes
all risks of injury or damage to person or property, either proximate or remote,
by reason of the condition of the Leased Property.
8. Real Estate Taxes.
(a) Lessee shall pay, discharge or otherwise satisfy, at least twenty
(20) days prior to any applicable delinquency date, all taxes, assessments,
water and sewer charges and other governmental levies against the Leased
Property or any part thereof, whether ordinary or extra ordinary, foreseen or
unforeseen, together with any interest or penalties thereon (all of which are
herein called "Impositions"). Lessee may pay any Imposition in installments, if
payment may be so made without penalty, except that on the termination of this
Lease any Imposition which Lessee has elected to pay in installments shall be
paid in full by Lessee prior to the expiration of the Term. All impositions for
the tax year in which this Lease commences shall be paid by Lessee. All
Impositions for the tax year in which this Lease shall terminate shall be
apportioned between Lessee and Lessor as of the expiration date hereof, provided
Lessee shall not be entitled to receive any such apportionment upon the
termination hereof if Lessee shall be in default in the performance of any of
Lessee's covenants, agreements and undertakings to be performed by it hereunder.
(b) Lessee shall furnish to Lessor, within ten (10) days after the date
any amount is paid by Lessee as provided in this section, copies of official
receipts of the appropriate taxing authority or other proof reasonably
satisfactory to Lessor evidencing payment of Impositions.
(c) Nothing contained in this Lease shall require Lessee to pay any
franchise, corporate, estate, inheritance, succession, capital levy or transfer
tax of Lessor or any income, profits or revenue tax or any other tax,
assessment, charge or levy upon the Rent payable by Lessee under this Lease;
provided, however, that if at any time during the Term of this Lease, under the
laws of the State of North Carolina or any political subdivision thereof, a tax
on rents is assessed against Lessor or the Rent, as a substitution in whole or
in part for or in addition to ad valorem or real property taxes assessed by such
State or political subdivision on the Leased Property or any part thereof, such
tax shall be deemed to be included within the amount which Lessee is required to
pay under this section; and provided, further, that in no event shall Lessee be
obligated to pay for any year any greater amount by way of such substitute or
additional tax than would have been payable by Lessor by way of such substitute
or additional tax had the Rent upon which such tax was imposed been the sole
taxable income of Lessor for the year in question.
(d) Notwithstanding the foregoing, Lessee shall not be required to pay,
discharge or remove any Imposition so long as Lessee shall contest the amount or
validity of such Imposition by appropriate proceeding which shall operate to
prevent or stay the collection of the Imposition so contested and if Lessee
shall have deposited with Lessor the amount so contested and unpaid, together
with a sum to cover all interest and penalties in connection therewith and all
charges that
- 7 -
<PAGE> 8
may be assessed or become a charge against the Leased Property in such
proceeding. During such contest, Lessor shall have no right to pay the
Imposition contested except as provided herein. Upon the termination of such
proceeding, Lessee shall deliver to Lessor proof of the amount of the Imposition
as finally determined and thereupon Lessor shall, out of the sum so deposited
with it by Lessee, pay such Imposition and shall refund any balance to Lessee.
If the sum deposited with Lessor is insufficient to pay the full amount of such
Imposition and the interest, penalties and other charges, Lessee shall forthwith
pay any deficiency. If during such proceeding Lessor shall deem the sums
deposited with it insufficient, Lessee shall upon demand deposit with Lessor
such additional sums as Lessor may reasonably request and upon failure of Lessee
so to do, the amount theretofore deposited may be applied by Lessor to the
payment, removal and discharge of such Imposition, and the interest and
penalties in connection therewith and any costs, fees or other liability
accruing in any such proceedings, and the balance, if any, shall be returned to
Lessee. Lessee shall give Lessor written notice of any such contest and Lessor,
at Lessee's sole expense, shall join in any such proceeding if any law, rule or
regulation at the time in effect shall so require. Any proceeding for contesting
the validity or amount of any Imposition, or to recover any Imposition paid by
Lessee, may be brought by Lessee in the name of Lessor or in the name of Lessee,
or both, as Lessee may deem advisable. Lessor shall not be subjected to any
liability for the payment of any costs or expenses in connection with any
proceedings and Lessee will indemnify and save Lessor harmless from any such
costs and expenses.
(e) If Lessee shall default in the payment of any Imposition required
to be paid hereunder by Lessee, Lessor shall have the right (but not the
obligation) to pay the same together with any penalties and interest, in which
event the amount so paid by Lessor shall be paid by Lessee to Lessor upon
demand.
9. Insurance.
(a) Lessee at its sole cost and expense shall keep the Leased Property
insured throughout the Term of this Lease against loss or damage by fire and
such other risks as may be included in the broadest form of extended coverage
insurance from time to time available in amounts sufficient to prevent Lessor or
Lessee from becoming a co-insurer within the terms of the applicable policies,
and in any event, in an amount not less than one hundred percent (100%) of the
then full insurable value. The term "full insurable value" shall mean the actual
replacement cost, exclusive of costs of excavations, foundations and footings,
but without deduction for depreciation. Such full insurance value shall be
determined from time to time (but not more frequently than once in any 24
calendar months) at the request of Lessor by an appraiser, engineer, architect
or contractor designated by Lessee and approved in writing by Lessor (such
approval not to be unreasonably withheld), all at the sole expense of Lessee. No
omission on the part of Lessor to request any such determination shall relieve
Lessee of any of its obligations under this Section. Lessee, at its sole cost
and expense, shall also maintain business interruption insurance in an amount
satisfactory to Lessor and such other insurance against other insurable hazards
which from time to time are insured against in the case of property which is
- 8 -
<PAGE> 9
similar to the Leased Property, due regard being or to be given to the height
and type of the buildings thereon, their construction, use and occupancy.
(b) Lessee shall, at its sole cost and expense, procure and maintain
throughout the Term of this Lease Commercial General Liability insurance against
claims for personal injury or death and property damage occurring in or upon or
resulting from the Leased Property, in standard form and with such insurance
company or companies as may be acceptable to Lessor, such insurance to afford
immediate protection, to the limit of not less than $1,000,000 in respect of any
one accident or occurrence, and to the limit of not less than $1,000,000 for
property damage, with not more than $20,000 deductible. Such Commercial General
Liability insurance shall include Blanket Contractual Liability coverage which
insures contractual liability under the indemnification of Lessor by Lessee set
forth in this Lease (but such coverage or the amount thereof shall in no way
limit such indemnification). Lessee shall maintain with respect to each policy
or agreement evidencing such Commercial General Liability insurance such
endorsements as may be required by Lessor and shall at all times deliver and
maintain with Lessor a certificate with respect to such insurance in form
satisfactory to Lessor.
(c) All insurance provided for in this Lease shall be effected under
enforceable policies issued by insurers of recognized responsibility licensed to
do business in the State of North Carolina and approved by Lessor, such approval
not to be unreasonably withheld. Upon the execution of this Lease, and
thereafter not less than fifteen (15) days prior to the expiration dates of the
expiring policies theretofore furnished pursuant to this Section, certificates
of insurance or certified copies of the policies bearing notations evidencing
payment of the premiums, or accompanied by other evidence satisfactory to Lessor
of such payment, shall be delivered by Lessee to Lessor.
(d) Lessor and the Noteholders shall be named as a loss payee on any
property insurance policy obtained pursuant to subsection (a) above and any such
policy must have a maximum 90% coinsurance clause if 100% insurance is not
obtained. Lessor and the Noteholders shall be named as an additional insured
with respect to the Commercial General Liability insurance policy obtained
pursuant to subsection (b) above.
(e) Each such policy provided for in this Section shall contain an
agreement by the insurer that such policy shall not be canceled without at least
thirty (30) days prior written notice to Lessor and an agreement that any loss
otherwise payable thereunder shall be payable notwithstanding any act of
negligence of Lessor or Lessee which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
the occupation or use of the Leased Property for purposes more hazardous than
permitted by the terms of such policy, (ii) any foreclosure or other action or
proceeding taken pursuant to any provision of any mortgage upon the happening of
an event of default thereunder or (iii) any change in title or ownership of the
Leased Property.
- 9 -
<PAGE> 10
(f) Premiums on all insurance policies in force at the termination of
this Lease shall be apportioned between Lessor and Lessee as of the date of such
termination, or, at the option of Lessor, such insurance shall be canceled and
Lessee shall receive all premium refunds.
(g) Lessee may provide any insurance required by this Lease in the form
of a blanket policy, provided that Lessee shall furnish satisfactory proof that
such blanket policy complies in all respects with the provisions of this Lease,
and that the coverage thereunder is at least equal to the coverage which would
have been provided under a separate policy covering only the Leased Property.
(h) Lessor shall not be required to prosecute any claim against or
contest any settlement proposed by any insurer provided that Lessee may at its
expense prosecute any such claim or contest any such settlement. In such event,
Lessee may bring such prosecution or contest in the name of Lessor, Lessee or
both, and Lessor will join therein at Lessee's written request upon the receipt
by Lessor of an indemnity from Lessee against all costs, liabilities and
expenses in connection with such prosecution or contest.
(i) If Lessee shall default in the obtaining or maintaining of any
insurance required hereunder, Lessor shall have the right (but not the
obligation) to take whatever action is necessary and to pay all appropriate
premiums to obtain or maintain such insurance, in which event any amount paid
for premiums by Lessor shall be paid by Lessee to Lessor upon demand.
10. Alterations, Maintenance and Repairs by Lessee.
(a) Lessor shall not be required to furnish any services or facilities
or make any repairs to, or in any way maintain, the Leased Property during the
Term of this Lease, and Lessee hereby assumes full and sole responsibility for
the condition, operation, repair, replacement, maintenance and management of the
Leased Property during the Term hereof.
(b) Throughout the Term of this Lease, Lessee shall, at Lessee's sole
cost and expense, maintain the Leased Property in at least as good repair and
appearance as delivered and in compliance with all applicable laws, rules,
ordinances, orders and regulations of federal, state, county, municipal and
other governmental entities having jurisdiction and any agency, department,
commission, board, bureau or instrumentality thereof (herein collectively called
"Governmental Authority") and all applicable rules, orders and regulations of
the insurance underwriting board having or claiming jurisdiction and all
insurance companies insuring all or any part of the Leased Property and all
applicable restrictive covenants and deed restrictions (all of the foregoing
herein collectively called "Legal Requirements"). Lessee shall, at Lessee's sole
cost and expense, diligently and promptly make or cause to be made all necessary
repairs and replacements to the Leased Property to maintain and comply as
provided above, interior and exterior, structural and nonstructural, ordinary
and extraordinary and foreseen and unforeseen. The completed work of
maintenance, repair or replacement shall be in quality, class and value at least
equal to that which existed on the Commencement Date. If Lessee shall default in
making such repairs and/or replacements, Lessor may, but shall not be required
to, on ten (10) days' prior written notice, enter the Leased Property and make
- 10 -
<PAGE> 11
such repairs and/or replacements for Lessee's account and the expense thereof
shall be paid by Lessee to Lessor on demand.
(c) Lessee shall not make or allow to be made any alterations,
improvements or additions in or to the Leased Property without first obtaining
the written consent of Lessor; except that Lessor's approval shall not be
required for alterations, improvements or additions in or to the Leased Property
having a construction cost not exceeding $50,000 and not (i) involving a lien or
security interest on property included or to be included in the Leased Property,
(ii) having an effect on the roof, exterior walls, structure and/or exterior
appearance of any building within the Leased Property, or (iii) involving the
expenditure of insurance proceeds or a condemnation award. All alterations,
additions and improvements made to or fixtures or other improvements placed in
or upon the Leased Property by either party (i) shall be deemed a part of the
Leased Property and the property of Lessor at the time same are placed in or
upon the Leased Property, without compensation to Lessee and (ii) shall be
completed in compliance with all applicable Legal Requirements and requirements
of the Deeds of Trust. Notwithstanding the foregoing, Lessee shall have the
right at all times during the term of this Lease to install machinery and trade
fixtures (hereinafter collectively called "Trade Fixtures") in the Leased
Property, provided that Lessee complies with all Legal Requirements.
(d) Lessee will not permit any mechanic's lien or liens to be placed
upon the Leased Property during the Term hereof caused by or resulting from any
work performed, materials furnished or obligation incurred by or at the request
of Lessee and nothing in this Lease contained shall be deemed or construed in
any way as constituting the consent or request of Lessor, express or implied, by
inference or otherwise, to any contractor, subcontractor, laborer or materialman
for the performance of any labor or the furnishing of any materials for any
specific improvement, alteration or repair of or to the Leased Property or any
part thereof, nor as giving Lessee any right, power or authority to contract for
or permit the rendering of any services or the furnishing of any materials that
would give rise to the filing of any mechanic's or other liens against the
interest of Lessor in the Leased Property. In the case of the filing of any
mechanic's lien on the interest of Lessor or Lessee in the Leased Property,
Lessee shall cause the same to be discharged of record, by payment or bonding,
within one hundred twenty (120) days after the filing of same. If Lessee shall
fail to discharge such mechanic's lien within such period, then, in addition to
any other right or remedy of Lessor, Lessor may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by procuring
the discharge of such lien by bonding. Any amount paid by Lessor for any of the
aforesaid purposes, or for the satisfaction of any other mechanic's lien, not
caused or claimed to be caused by Lessor, and all reasonable legal and other
expenses of Lessor, including reasonable counsel fees, in defending any such
action or in or about procuring the discharge of such mechanic's lien, with all
necessary disbursements in connection therewith, shall be paid by Lessee to
Lessor on demand.
(e) Lessee shall indemnify and hold Lessor harmless from and against
any and all loss, damage, cost or expense (including reasonable attorneys' fees)
incurred or expended by
- 11 -
<PAGE> 12
Lessor in connection with any repairs, maintenance, removals, replacements,
alterations, additions or improvements by Lessee to the Leased Property.
11. Utilities and Services.
Lessor shall not be required to furnish to Lessee any utilities or
services of any kind, including, but not limited to, water, steam, heat, gas,
hot water, electricity, light, power or air conditioning. Lessee agrees to pay
all charges for any of the foregoing prior to delinquency. All utilities serving
the Leased Property shall be in the name of Lessee. Lessor shall not be liable
for any interruption in the supply of any utilities.
12. Use of Leased Property.
Lessee shall use the Leased Property solely as a warehouse, office and
fabrication facility in connection with the conduct of Lessee's business of
importing, selling and distributing artificial plants and flowers, and for no
other purpose, in accordance with the provisions of this Lease. Lessee shall not
use the Leased Property nor permit the Leased Property to be used for any
unlawful business, use or purpose nor for any business, use or purpose deemed
disreputable or extra hazardous nor for any purpose or in any manner which is in
violation of any present or future Legal Requirement. Lessee shall at its own
expense obtain any and all governmental licenses and permits necessary for its
use of the Leased Property. Lessee agrees to use and maintain the Leased
Property in a clean, careful, safe and proper manner. Lessee will not in any
manner deface or injure the Leased Property or any part thereof or overload the
floors on the Leased Property. Lessee agrees to pay Lessor on demand for any
damage to the Leased Property caused by any negligence or willful act or any
misuse or abuse (whether or not any such misuse or abuse results from negligence
or willful act) by Lessee or any of its agents, employees, licensees, or
invitees or any other person not prohibited, expressly or impliedly, by Lessee
from entering upon the Leased Property. Lessee agrees not to commit waste or
suffer or permit waste to be committed or to allow or permit any nuisance on or
in the Leased Property. Lessee will not use the Leased Property for lodging or
sleeping purposes or for any immoral or illegal purposes. Lessee shall not use
the Leased Property or allow or permit same to be used in any way or for any
purpose that Lessor may deem to be extra hazardous on account of the possibility
of fire or other casualty or which will increase the rate of fire or other
insurance for the Leased Property or its contents or in respect of the operation
of the Leased Property or which may render the Leased Property uninsurable at
normal rates by responsible insurance carriers authorized to do business in the
State of North Carolina or which may render void or voidable any insurance on
the Leased Property. Lessee shall have the right to erect signs on the exterior
walls of any building forming a part of the Leased Property, securely attached
to and parallel to said walls, subject to applicable laws and deed restrictions.
Lessee shall not erect any signs other than customary trade signs identifying
its business, and shall not erect any signs on the roof or paint or otherwise
deface the exterior walls of said building. Lessee shall remove all signs at the
termination of this Lease, and shall repair any damage and close any holes
caused by such removal.
- 12 -
<PAGE> 13
13. Compliance with Laws.
Lessee, at its sole expense, shall comply with all laws, orders and
regulations of all Governmental Authorities and with any direction of any public
officer pursuant to law which shall impose any duty upon Lessor or Lessee with
respect to the Leased Property. Lessee shall comply with the requirements of
policies of fire and extended coverage at any time in force with respect to the
Leased Property. Without diminishing the obligation of Lessee, if Lessee shall
at any time fail to comply as promptly as reasonably possible with any law,
ordinance, rule or regulation concerning or affecting the Leased Property, or
the use and occupation thereof, Lessor, after ten (10) days written notice to
Lessee, may so comply and the reasonable costs and expenses of Lessor in such
compliance shall be paid by Lessee to Lessor on demand.
- 13 -
<PAGE> 14
14. Environmental.
Lessee will not cause or permit the Leased Property or Lessee to be in
violation of, or do anything or permit anything to be done which will subject
the Leased Property to any remedial obligations or liability under, any
applicable laws pertaining to health, safety or the environment (such applicable
laws as they now exist or are hereafter enacted and/or amended hereinafter
sometimes collectively called "Applicable Environmental Laws"), including
without limitation the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, (hereinafter called "CERCLA") and the Resource
Conservation and Recovery Act of 1976, (hereinafter called "RCRA"), assuming
disclosure to the applicable governmental authorities of all relevant facts,
conditions and circumstances, if any, pertaining to the Leased Property and
Lessee, and Lessee will promptly notify Lessor in writing of any existing,
pending or, to the best knowledge of Lessee, threatened investigation or inquiry
by any governmental authority in connection with any Applicable Environmental
Laws. Lessee shall obtain any permits, licenses or similar authorizations to
construct, occupy, operate or use any buildings, improvements, fixtures and
equipment forming a part of the Leased Property by reason of any Applicable
Environmental Laws. Lessee shall take all steps necessary to determine that no
hazardous substances or solid wastes are being disposed of or otherwise released
on or to the Leased Property. Lessee will not cause or permit the disposal or
other release of any hazardous substance or solid waste on or to the Leased
Property and covenants and agrees to keep or cause the Leased Property to be
kept free of any hazardous substance or solid waste and to remove the same (or
if removal is prohibited by law, to take whatever action is required by law)
promptly upon discovery at its sole expense. Without limitation of Lessor's
rights to declare an Event of Default hereunder and to exercise all remedies
available by reason thereof, in the event Lessee fails to comply with or perform
any of the foregoing covenants and obligations, Lessor may (without any
obligation, express or implied) remove any hazardous substance or solid waste
from the Leased Property (or if removal is prohibited by law, take whatever
action is required by law) and the cost of the removal or such other action
shall be paid by Lessee to Lessor on demand. Lessee grants to Lessor and its
agents, employees, contractors and consultants access to the Leased Property and
the license (which is coupled with an interest and irrevocable while this Lease
is in effect) to remove the hazardous substance or solid waste (or if removal is
prohibited by law, to take whatever action is required by law). Upon Lessor's
reasonable request, at any time and from time to time during the existence of
this Lease, Lessee will provide at Lessee's sole expense an inspection or audit
of the Leased Property from an engineering or consulting firm approved by Lessor
indicating the presence or absence of hazardous substances and solid wastes on
the Leased Property. If Lessee fails to provide same after thirty (30) days'
notice, Lessor may order same, and Lessee grants to Lessor and its agents,
employees, contractors and consultants access to the Leased Property and a
license (which is coupled with an interest and irrevocable while this Lease is
in effect) to perform inspections and tests. The cost of such inspections and
tests shall be paid by Lessee to Lessor on demand. As used in this lease, the
term "release" shall have the meaning specified in CERCLA, the terms "solid
waste" and "disposal" (or "disposed") shall have the meanings specified in RCRA,
and the term "hazardous substance" shall mean: (i) any "hazardous substance" as
defined in CERCLA and regulations promulgated thereunder; (ii) any "hazardous
waste" as defined in RCRA and regulations promulgated
- 14 -
<PAGE> 15
there under; (iii) any petroleum, including crude oil or any fraction thereof
which is not otherwise specifically listed or designated as a hazardous
substance under the definition of hazardous substance in CERCLA as well as
natural gas, natural gas liquids, liquified natural gas, or synthetic gas usable
for fuel (or mixtures of natural gas and such synthetic gas), and other
petroleum products and by-products; (iv) formaldehyde, urea, polychlorinated
biphenyls, radon, and "source", "special nuclear" and "by-product" material as
defined in the Atomic Energy Act of 1985, 42 U.S.C. Sections 3011 et seq.;
(v) any material defined as hazardous or toxic under any statute or regulation
of the State of North Carolina or any agency thereof; and (vi) any other
material or substance which is toxic, ignitable, reactive or corrosive and which
is regulated by any Applicable Environmental Law; provided, (i) all such terms
shall be deemed to include all similar terms used in any Applicable
Environmental Laws or regulations thereunder (including by way of example, but
not limitation, pollutant, contaminant, toxic substance, discharge and
migration), and (ii) to the extent that any Applicable Environmental Laws or
regulations thereunder are amended so as to broaden the meaning of "hazardous
substance," "release," "solid waste," or "disposal" (or "disposed"), or any
similar terms, or otherwise establish a meaning for any such terms which is
broader than that specified above, such broader meaning shall apply.
15. Asbestos.
Lessee covenants and agrees that it will not install in the Leased
Property, nor permit to be installed in the Leased Property, asbestos, material
containing asbestos which is or may become friable or material containing
asbestos deemed hazardous by Applicable Environmental Law, and that, if any such
asbestos or material containing asbestos exists in or on the Leased Property,
whether installed by Lessee or others, Lessee will remove the same (or if
removal is prohibited by law, will take whatever action is required by law,
including without limitation implementing any required operation and maintenance
program) promptly upon discovery at its sole expense. Without limitation of
Lessor's rights to declare an Event of Default hereunder and to exercise all
remedies available by reason thereof, in the event Lessee fails to comply with
or perform any of the foregoing covenants and obligations, Lessor may (without
any obligation, express or implied) remove such asbestos or material containing
asbestos (or if removal is prohibited by law, take whatever action is required
by law including without limitation implementing any required operation and
maintenance program) and the cost of removal or such other action shall be paid
by Lessee to Lessor on demand. Lessee grants to Lessor and its agents,
employees, contractors and consultants access to the Leased Property and a
license (which is coupled with an interest and irrevocable while this Lease is
in effect) to remove such asbestos or materials containing asbestos (or if
removal is prohibited by law, take whatever action is required by law, including
without limitation implementing any required operation and maintenance program).
Upon Lessor's reasonable request, at any time and from time to time during the
existence of this Lease, Lessee shall provide at Lessee's sole expense an
inspection or audit of the Leased Property from an engineering or consulting
firm approved by Lessor, indicating the presence or absence of asbestos or
material containing asbestos on the Leased Property. If Lessee fails to provide
same after thirty (30) days' notice, Lessor may order same, and Lessee
- 15 -
<PAGE> 16
grants to Lessor and its agents, employees, contractors and consultants access
to the Leased Property and a license (which is coupled with an interest and
irrevocable while this Lease is in effect) to perform inspections and tests. The
cost of such inspections and tests shall be paid by Lessee to Lessor on demand.
16. Indemnification Regarding Environmental Matters.
Lessee agrees to indemnify and hold harmless Lessor (for purposes of
this Section, the term "Lessor" shall include the directors, officers, partners,
employees and agents of Lessor and any persons or entities owned or controlled
by, owning or controlling, or under common control or affiliated with Lessor)
from and against, and to reimburse Lessor with respect to, any and all claims,
demands, losses, damages (including consequential damages), liabilities, causes
of action, judgments, penalties, costs and expenses (including attorneys' fees
and court costs) of any and every kind or character, known or unknown, fixed or
contingent, imposed on, asserted against or incurred or paid by Lessor at any
time and from time to time by reason of, in connection with or arising out of
(a) the failure of Lessee to perform any obligation herein required to be
performed by Lessee regarding asbestos, material containing asbestos or
Applicable Environmental Laws, (b) any violation on or before the Release Date
(as hereinafter defined) of any Applicable Environmental Law in effect on or
before the Release Date, (c) the removal of hazardous substances or solid wastes
from the Leased Property (or if removal is prohibited by law, the taking of
whatever action is required by law), (d) the removal of asbestos or material
containing asbestos from the Leased Property (or if removal is prohibited by
law, the taking of whatever action is required by law including without
limitation the implementation of any required operation and maintenance
program), (e) any act, omission, event or circumstance existing or occurring on
or prior to the Release Date (including without limitation the presence on the
Leased Property or release from the Leased Property of hazardous substances or
solid wastes disposed of or otherwise released on or prior to the Release Date),
resulting from or in connection with the ownership, construction, occupancy,
operation, use and/or maintenance of the Leased Property, regardless of whether
the act, omission, event or circumstance constituted a violation of any
Applicable Environmental Law at the time of its existence or occurrence, and (f)
any and all claims or proceedings (whether brought by private party or
governmental agency) for bodily injury, property damage, abatement or
remediation, environmental damage or impairment or any other injury or damage
resulting from or relating to any hazardous substance or solid waste located
upon or migrating into, from or through the Leased Property (whether or not any
or all of the foregoing was caused by Lessor, Lessee, Lessee's subtenant, a
prior owner of the Leased Property or its tenant or subtenant, or any third
party, and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of such substance or waste or
the mere presence of such substance or waste on the Leased Property). WITHOUT
LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH
RESPECT TO CLAIMS, DEMANDS, LOSSES, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES),
LIABILITIES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES
(INCLUDING ATTORNEYS' FEES AND COURT COSTS) WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE
- 16 -
<PAGE> 17
OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY OR ANY STRICT
LIABILITY. However, such indemnities shall not apply to any indemnified party to
the extent the subject of the indemnification is caused by or arises out of the
gross negligence or willful misconduct of such indemnified party. The "Release
Date" as used herein shall mean the expiration of the Term of this Lease whether
as provided in Section 2 hereof or as sooner terminated as provided in this
Lease and the full and complete surrender of the Leased Property by Lessee to
Lessor; provided, if either of the foregoing events is challenged, in bankruptcy
proceedings or otherwise, the Release Date shall be deemed not to have occurred
until such challenge is rejected, dismissed or withdrawn with prejudice. The
foregoing indemnities shall not terminate upon the Release Date or upon the
termination of this Lease but will survive the Release Date and termination of
this Lease. Any amount to be paid under this Section by Lessee to Lessor shall
be paid by Lessee to Lessor on demand. Nothing in this Section, elsewhere in
this Lease or in any other document evidencing or relating to this Lease of the
Leased Property shall limit or impair any rights or remedies of Lessor against
Lessee or any third party under Applicable Environmental Laws, including without
limitation any rights of contribution or indemnification available thereunder.
17. Fire or Other Casualty Loss.
(a) In the event all or any portion of the Leased Property is damaged
or destroyed by fire or other casualty (herein collectively called "Casualty"),
Lessee shall give immediate notice thereof to Lessor and the Noteholders and
thereafter will promptly deliver to Lessor and the Noteholders all
correspondence and documents provided by or delivered to Lessee in connection
therewith. Lessee will promptly and diligently prosecute the adjustments of all
claims with respect to a Casualty provided that (i) no adjustment or settlement
in excess of $100,000 in connection with any Casualty may be made by Lessee
without the prior written approval of Lessor and (ii) Lessor may, at any time
any Event of Default has occurred and is continuing, adjust and settle the
Casualty after notice to Lessee.
(b) If during the Term of this Lease the Leased Property is
substantially damaged or destroyed by a Casualty so that the Leased Property
will, in the good faith judgment of Lessee's Board of Directors, be uneconomic
for restoration or rebuilding for Lessee's continued use thereof by Lessee as a
warehouse, office and fabrication facility, then at Lessee's option, in lieu of
rebuilding, replacing or repairing the Leased Property, Lessee will, within
forty-five (45) days after the occurrence of such Casualty, deliver a Purchase
Offer (as hereinafter defined) with respect to the Leased Property, at a
purchase price therefor determined in accordance with Schedule I, specifying a
Termination Date (as hereinafter defined) occurring on any Rent Payment Date not
less than sixty (60) days nor more than one hundred twenty (120) days after the
delivery of such Purchase Offer. Such Purchase Offer will be accompanied by
Lessee's Certificate (as hereinafter defined) stating that in the judgment of
the Board of Directors (or an authorized committee thereof) of Lessee, the
Leased Property is unsuitable for Lessee's continued use and occupancy as a
warehouse office and fabrication facility by reason of such Casualty. If the
conditions set forth in the first sentence of this subsection (b) are fulfilled
and
- 17 -
<PAGE> 18
Lessee fails to commence to rebuild, replace or repair the Leased Property
within sixty (60) days of the occurrence of such Casualty, and Lessee fails to
deliver a Purchase Offer within the forty-five (45) day period described above,
Lessee will be conclusively deemed to have made such Purchase Offer and, in the
absence of a written Purchase Offer by Lessee, the Termination Date will be
deemed to be the fourth Rent Payment Date after such Purchase Offer is deemed to
have been made, but nothing in this sentence will release Lessee of its
obligation to actually deliver such Purchase Offer.
(c) If during the Term of this Lease there occurs a Casualty affecting
a portion of the Leased Property which is not sufficient to require that Lessee
give a Purchase Offer as provided in subsection (b) above, then this Lease shall
continue in full force and effect notwithstanding such Casualty. In the event of
any lesser Casualty as described in this subsection (c), (i) Lessor shall be
entitled to the entire net proceeds for such Casualty, subject to application to
rebuilding as provided below, (ii) the Rent to be paid by Lessee hereunder shall
not be reduced or abated, (iii) Lessee shall not be entitled to terminate this
Lease or to violate any of its provisions; and (iv) Lessee shall promptly, at
Lessee's sole cost and expense and regardless of whether the Casualty proceeds
shall be sufficient for the purpose, restore, repair, replace and rebuild the
Leased Property into a complete architectural unit in a condition suitable for
use as a warehouse, office and fabrication facility, with Casualty proceeds paid
out by Lessor as provided in the following sentence. Lessor will make the
Casualty proceeds available to Lessee for such repair, restoration, replacement
and rebuilding but only against certificates that Lessee delivers to Lessor from
time to time as such work or repair progresses, but not more often than once in
any thirty (30) day period, each such certificate to be dated currently and
signed by an authorized officer of Lessee and by the independent architect or
other expert, if any, supervising such repairs, describing in reasonable detail
the work or repair for which Lessee is requesting payment and the cost incurred
by Lessee in connection therewith and a certificate, signed by an officer of
Lessee, stating that Lessee has not theretofore received payment from any source
for such work and that no Event of Default hereunder is then continuing under
this Lease, together with evidence of the payment of all amounts for which
certificates were previously furnished. Notwithstanding anything in the
proceeding sentence to the contrary, Lessee will not be required to submit the
certificates described above in order to receive all of the net proceeds for
such Casualty provided that (i) the Casualty proceeds do not exceed $100,000 and
(ii) no Event of Default has occurred hereunder and is continuing. Any Casualty
proceeds remaining after such repairs have been completed will be paid to
Lessee. If the cost of any repairs required to be made by Lessee pursuant to
this subsection will exceed the amount of the Casualty proceeds, the deficiency
will be paid by Lessee.
18. Waiver of Subrogation.
Each party hereto hereby waives any and every claim which arises or may
arise in its favor and against the other party hereto during the Term of this
Lease or any extension or renewal thereof for any and all loss of, or damage to,
any of its property (EVEN IF SUCH LOSS OR DAMAGE IS CAUSED BY DEFAULT,
NEGLIGENCE OR OTHER TORTIOUS
- 18 -
<PAGE> 19
CONDUCT, ACT OR OMISSIONS OF THE RELEASED PARTY OR THE RELEASED PARTY'S
DIRECTORS, EMPLOYEES, AGENTS OR ADVISEES AND/OR THE RELEASED PARTY IS STRICTLY
LIABLE FOR SUCH LOSS OR DAMAGE) which loss or damage is covered by valid and
collectible fire and extended coverage insurance policies, to the extent that
such loss or damage is recovered under said insurance policies. Said waivers
shall be in addition to, and not in limitation or derogation of, any other
waiver or release contained in this Lease with respect to any loss or damage to
property of the parties hereto. Inasmuch as the above mutual waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to any insurance company (or any other person), each party hereto
hereby agrees immediately to give to each insurance company which has issued to
it policies of fire and extended coverage insurance written notice of the terms
of said mutual waivers, and to have said insurance policies properly endorsed,
if necessary, to prevent the invalidation of said insurance coverages by reason
of said waivers.
19. Condemnation.
(a) If during the Term of this Lease there shall be taken for any
public or quasi-public use under any governmental law, ordinance or regulation
or by right of eminent domain or by private purchase in lieu thereof (herein
collectively called a "Taking") the entire Leased Property or any substantial
portion of the Leased Property which is sufficient, in the good faith judgment
of Lessee's Board of Directors, to render the remaining portion thereof
uneconomic for restoration for continued use thereof by Lessee as a warehouse,
office and fabrication facility, then at Lessee's option, in lieu of rebuilding,
replacing or repairing the Leased Property, Lessee will, within forty-five (45)
days after any such Taking, deliver a Purchase Offer with respect to the Leased
Property, at a purchase price therefor determined in accordance with Schedule I,
specifying a Termination Date occurring on a Rent Payment Date that is not less
than sixty (60) days nor more than one hundred and twenty (120) days after the
delivery of such Purchase Offer. The Purchase Offer will be accompanied by
Lessee's Certificate stating either (i) that the entire Leased Property has been
the subject of a Taking or (ii) that in the judgment of the Board of Directors
(or an authorized committee thereof) of Lessee, the portion of the Leased
Property thus taken is sufficient to render the remaining portion thereof
uneconomic for restoration for continued use thereof by Lessee as a warehouse,
office and fabrication facility. If the conditions set forth in the first
sentence of this subsection (a) are fulfilled and Lessee fails to commence to
rebuild, replace or repair the Leased Property within sixty (60) days of the
occurrence of such Taking, and Lessee fails to deliver a Purchase Offer within
the forty-five (45) day period described above, Lessee will be conclusively
deemed to have made such Purchase Offer and in the absence of a written Purchase
Offer by Lessee, the Termination Date will be deemed to be the fourth Rent
Payment Date after such Purchase Offer is deemed to have been made, but nothing
in this sentence will relieve Lessee of its obligation to actually deliver such
Purchase Offer.
(b) If during the Term of this Lease there shall be a Taking of a
portion of the Leased Property which is not sufficient to require that Lessee
give a Purchase Offer as provided in subsection (a) above, then this Lease shall
continue in full force and effect notwithstanding such
- 19 -
<PAGE> 20
Taking. In the event of any lesser Taking as described in this subsection (b),
(i) Lessor shall be entitled to the entire net award for such Taking (whether
paid by way of damages, rent or otherwise), subject to application to rebuilding
as provided below, (ii) the Rent to be paid by Lessee hereunder shall not be
reduced or abated, (iii) Lessee shall not be entitled to terminate this Lease or
to violate any of its provisions; and (iv) Lessee shall promptly, at Lessee's
sole cost and expense and regardless of whether the condemnation proceeds shall
be sufficient for the purpose, restore, repair, replace and rebuild the Leased
Property into a complete architectural unit in a condition suitable for use as a
warehouse, office and fabrication facility, with condemnation proceeds paid out
by Lessor as provided in the following sentence. Lessor will make the
condemnation proceeds available to Lessee for such repair, restoration,
replacement and rebuilding but only against certificates that Lessee delivers to
Lessor from time to time as such work or repair progresses, but not more often
than once in any thirty (30) day period, each such certificate to be dated
currently and signed by an authorized officer of Lessee and by the independent
architect or other expert, if any, supervising such repairs, describing in
reasonable detail the work or repair for which Lessee is requesting payment and
the cost incurred by Lessee in connection therewith and a certificate, signed by
an officer of Lessee, stating that Lessee has not theretofore received payment
from any source for such work and that no Event of Default hereunder is then
continuing under this Lease, together with evidence of the payment of all
amounts for which certificates were previously furnished. Notwithstanding
anything in the proceeding sentence to the contrary, Lessee will not be required
to submit the certificates described above in order to receive the net proceeds
of such Taking provided that (i) the condemnation proceeds do not exceed
$100,000 and (ii) no Event of Default has occurred hereunder and is continuing.
Any condemnation proceeds remaining after such repairs have been completed will
be paid to Lessee. If the cost of any repairs required to be made by Lessee
pursuant to this subsection will exceed the amount of the condemnation proceeds,
the deficiency will be paid by Lessee.
(c) If the use or occupancy of the Leased Property shall be temporarily
requisitioned by any governmental authority, civil or military, then this Lease
shall continue in full effect notwithstanding such requisition, without
abatement or reduction of Rent, Lessee shall not be required to give a Purchase
Offer, and Lessee shall be entitled to receive the entire net award payable by
reason of such temporary requisition (whether paid by way of damages, rent or
otherwise) unless the period of governmental occupancy extends beyond the end of
the Term of this Lease, in which case the award, to the extent that it
represents Rent, shall be apportioned between Lessor and Lessee as of the date
of the end of the Term of this Lease.
(d) The party receiving any notice of the kinds specified below shall
promptly give the other party and the Noteholders notice of the receipt,
contents and date of the notice received:
(i) Notice from any governmental entity or agency of any
intended taking of all or any part of the Leased Property by power of
condemnation;
- 20 -
<PAGE> 21
(ii) Service of any legal process relating to condemnation of
the Leased Property;
(iii) Notice in connection with any proceedings or
negotiations with respect to such a condemnation; or
(iv) Notice of intent or willingness to make or negotiate a
private purchase, sale or transfer in lieu of condemnation.
(e) Lessee will promptly file and diligently prosecute the adjustment
of all awards with respect to a Taking, provided that (i) no adjustment or
settlement in excess of $100,000 in connection with any Taking may be made by
Lessee without the prior written approval of Lessor and (ii) Lessor may, at any
time any Event of Default has occurred and is continuing, adjust and settle all
Takings, with notice to Lessee. Lessor and Lessee each agrees to execute and
deliver to the other any instruments that may be required to effectuate or
facilitate the provisions of this Lease relating to a Taking.
20. Procedure After Purchase Offer.
(a) Lessor will within thirty (30) days prior to the Termination Date
(or deemed Termination Date) set forth in any Purchase Offer (or deemed Purchase
Offer) either accept or reject such Purchase Offer, provided that Lessee has
complied with the terms of Section 17(b) or Section 19(a) hereof, as applicable.
If Lessor so rejects such Purchase Offer, this Lease will terminate with respect
to the Leased Property on such Termination Date (except with respect to
obligations and liabilities of Lessee under this Lease, actual or contingent,
which have arisen on or prior to such Termination Date or which are expressly
stated to survive the termination of this Lease), upon payment by Lessee of the
Rent and all other sums then due and payable hereunder to and including the
Termination Date without offset or deduction for any reason.
(b) If Lessor will not have rejected any Purchase Offer within thirty
(30) days prior to the Termination Date (or deemed Termination Date) set forth
in any Purchase Offer (or deemed Purchase Offer), then, provided that Lessee has
complied with the terms of Section 17(b) or Section 19(a) hereof, as applicable,
Lessor will be conclusively presumed to have accepted such Purchase Offer.
(c) If any Leased Property or any part thereof will be purchased by
Lessee pursuant to any provision of this Lease, Lessor need not transfer and
convey to Lessee or its designee any better title thereto than existed on the
date of the commencement of this Lease, and Lessee will accept such title. The
Deeds of Trust and all loan documents evidencing, securing or relating to the
indebtedness secured by the Deeds of Trust shall be released contemporaneously
with such conveyance and transfer.
- 21 -
<PAGE> 22
(d) On the date fixed for the purchase of the Leased Property, Lessee
will pay to Lessor, at such place and to such person as Lessor may designate in
writing, by electronic funds transfer of immediately available funds (i) the
purchase price therefor, and (ii) all installments of Rent and all other sums
then due under this Lease and unpaid to and including the purchase date without
offset or deduction for any reason, and Lessor will deliver to Lessee (i) a
special warranty deed conveying title to the Leased Property (or, in the case of
a Purchase Offer delivered pursuant to Section 19(a) hereof, the remaining
portion of the Leased Property, if any) of at least the character described in
subsection (c) above, and (ii) such other instruments as will be necessary to
transfer to Lessee any other property then required to be transferred by Lessor
pursuant to this Lease (including, in the case of a Purchase Offer delivered
pursuant to Section 19(a), all of Lessor's right, title and interest in and to
the Net Award with respect to such Leased Property, whether or not such Net
Award will have been received by Lessor). Lessee will pay all charges incident
to such conveyance and transfer, including counsel fees incurred by Lessor,
escrow fees, recording fees, title insurance premiums and all applicable
federal, state and local taxes (other than any income or franchise taxes levied
upon or assessed against Lessor) which may be incurred or imposed by reason of
such conveyance and transfer.
(e) Upon the completion of such purchase, but not prior thereto
(whether or not any delay in the completion of, or the failure to complete, such
purchase will be the fault of Lessor), this Lease and all obligations hereunder
(including the obligations to pay Rent) will terminate with respect to the
Leased Property, except with respect to obligations and liabilities of Lessee,
actual or contingent, under this Lease which arose on or prior to such date of
purchase.
(f) The provisions of this Lease governing Purchase Offers, including,
without limitation, the provisions of this Section 20, will apply to any
Purchase Offer deemed to have been given by Lessee pursuant to the provisions of
Section 17(b) or Section 19(a) hereof with the same effect as if such Purchase
Offer had been expressly made by Lessee pursuant to the terms hereof.
21. Financial Statements and Reports. Lessee will furnish to the
Noteholders and to Lessor for so long as this Lease is in effect:
(a) within ninety five (95) days after the end of each fiscal year of
Lessee, a copy of the annual audited consolidated balance sheet of Lessee and
its subsidiaries as of the end of such fiscal year and of the related
consolidated statements of income and retained earnings and statements of cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, accompanied by an unqualified audit
opinion given by an independent certified public accounting firm of recognized
national standing selected by Lessee, which opinion will state that such audit
was conducted in accordance with generally accepted auditing standards,
consistently applied, and, accordingly, included such tests of accounting
records and such other auditing procedures as were considered necessary under
the circumstances. All such financial statements will be prepared in accordance
with GAAP, consistently applied, except for changes in application of GAAP in
which Lessee's accountants
- 22 -
<PAGE> 23
concur, and will fairly present the consolidated financial position of Lessee
and its subsidiaries for the respective periods indicated and the results of
their operations and cash flows for such period;
(b) within fifty (50) days after the end of each of the first three (3)
quarters of each fiscal year of Lessee, a copy of: (i) the unaudited
consolidated balance sheet of Lessee and its subsidiaries as of the end of each
such quarter and figures, set forth in side by side comparative form, as of the
end of Lessee's previous fiscal year, and (ii) the related consolidated
statements of income and retained earnings and cash flows for such quarter and
for the portion of Lessee's fiscal year ended at the end of such quarter and
figures, set forth in comparative form, for the corresponding periods. All such
financial statements will be prepared in accordance with GAAP, consistently
applied, except for changes in application of GAAP in which Lessee's accountants
concur, and will fairly present (subject to year-end audit and adjustment) the
consolidated financial position of Lessee and its subsidiaries for the
respective periods indicated and the results of their operations and cash flows
for such period, and will be accompanied by a certificate of the Chief Financial
Officer, President or a Vice President of Lessee to that effect;
(c) upon request by Lessor, within thirty (30) days after the end of
each full calendar month except on months which are the last month of a fiscal
year or quarter, during the Term, a copy of: (i) the unaudited consolidated
balance sheet of Lessee and its subsidiaries as of the end of the calendar month
then ended and figures, set forth in side by side comparative form, as of the
end of the immediately preceding month, and (ii) the related consolidated
statements of income and retained earnings and cash flows for such calendar
month then ended and for the portion of Lessee's fiscal year ended at the end of
such calendar month and figures, set forth in comparative form, for the
corresponding periods of Lessee's previous fiscal year. All such financial
statements will be prepared in accordance with GAAP, consistently applied,
except for changes in application of GAAP in which Lessee's accountants concur,
and will fairly present (subject to year-end audit and adjustment) the
consolidated financial position of Lessee and its subsidiaries for the
respective periods indicated and the results of their operations and cash flows
for such period;
(d) from time to time, such other information concerning Lessee as may
be reasonably requested by Lessor or the Noteholders;
(e) accompanying all financial statements specified in this Section 21
(other than with respect to those described in (c) above), the certificate of
the Chief Financial Officer, President or a Vice President of Lessee (i) stating
that no Default or Event of Default has occurred and is continuing, (ii) stating
that no Default or Event of Default has occurred since the delivery of the
immediately preceding certificate of Lessee delivered pursuant to this Section
21, (iii) stating that the Lease is unmodified and in full force and effect, or
if there has been any modification, that the Lease is in full force as modified,
and setting forth such modifications, (iv) if any Default or Event of Default
has occurred, specifying the nature and the period of existence thereof and what
action Lessee has taken or is taking with respect thereto, and (v) stating that
there are no
- 23 -
<PAGE> 24
defenses, set-offs or counterclaims with respect to payment of Basic Rent or any
other sums payable by Lessee hereunder and the performance by Lessee of all of
the obligations hereunder or, if there are any such defenses, set-offs or
counterclaims, specifying the nature and status thereof; and
(f) prompt notice of the occurrence of any Default or Event of Default
under this Lease.
- 24 -
<PAGE> 25
22. Limitation on Liability of Lessor.
Lessor (for purposes of this Section, the term "Lessor" shall include
the directors, officers, partners, employees and agents of Lessor and any
persons or entities owned or controlled by, owning or controlling, or under
common control or affiliated with Lessor) shall not be liable to Lessee or to
Lessee's employees, agents, licensees, or visitors, or to any other person
whomsoever, for (i) any accident, injury or damage which shall happen in or
about the Leased Property unless caused by or resulting from the gross
negligence (BUT NOT THE NEGLIGENCE) or willful misconduct of Lessor or Lessor's
agents, servants or employees; (ii) any injury or damage to person or property
due to the Leased Property or any part thereof becoming out of repair or by
defect in or failure of pipes or wiring, or by the backing up of drains or by
the bursting or leaking of pipes, faucets and plumbing fixtures or by gas,
water, steam, electricity or oil leaking, escaping or flowing into the Leased
Property, WHETHER OR NOT CAUSED BY THE NEGLIGENCE OF LESSOR, or (iii) any loss
or damage that may be occasioned by or through the acts or omissions of any
other person whatsoever, excepting only the willful misconduct or gross
negligence (BUT NOT THE NEGLIGENCE) of duly authorized employees and agents of
Lessor, or (iv) for any loss or damage to any property or person occasioned by
theft, fire, act of God, public enemy, injunction, riot, insurrection, war,
court order, requisition or order of governmental authority, or any other matter
beyond the control of Lessor. Lessee agrees that all personal property upon the
Leased Property shall be at the risk of Lessee only, and that Lessor shall not
be liable for any damage thereto or theft thereof.
23. Payment of Expenses and Indemnification of Lessor.
Lessee shall pay all expenses and reimburse Lessor for any
expenditures, including reasonable attorney's fees and legal expenses, incurred
or expended in connection with (i) the breach by Lessee of any of its covenants
in this Lease, (ii) Lessor's exercise of any of its rights and remedies
hereunder, or (iii) any amendments to this Lease requested by Lessee or any
approval of Lessor required hereunder. Lessee agrees to indemnify and hold
harmless Lessor (for purposes of this Section, the term "Lessor" shall include
the directors, officers, partners, employees and agents of Lessor and any
persons or entities owned or controlled by, owning or controlling, or under
common control or affiliated with Lessor) from and against, and to reimburse
Lessor with respect to, all claims, demands, losses, damages (including
consequential damages), liabilities, causes of action, judgments, penalties,
costs and expenses (including, without limitation, reasonable attorney's fees
and court costs) of every kind and character, known or unknown, fixed or
contingent, imposed on, asserted against or incurred or paid by Lessor at any
time and from time to time by reason of, in connection with or arising out of
(i) the breach by Lessee of any of its covenants under this Lease; (ii) any
accident, injury or damage which shall happen in or about the Leased Property
unless caused by or resulting from the gross negligence (BUT NOT THE NEGLIGENCE)
or willful misconduct of Lessor; (iii) failure to comply with any requirements
of any governmental authority; and (iv) any mechanic's lien, deed of trust,
mortgage and security agreement or other security instrument filed against the
Leased Property, any fixtures attached thereto or any materials used in the
construction or alteration thereof. If any
- 25 -
<PAGE> 26
action or proceeding is brought against Lessor by reason of any such
occurrences, Lessee, upon written notice from Lessor, will at Lessee's expense
resist or defend any such action or proceeding by counsel approved in writing by
Lessor, such approval not to be withheld unreasonably. WITHOUT LIMITATION, IT IS
THE INTENTION OF LESSEE AND LESSEE AGREES THAT THE FOREGOING INDEMNITIES SHALL
APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES,
LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES
(INCLUDING WITHOUT LIMITATION, REASONABLE ATTORNEY'S FEES) WHICH IN WHOLE OR IN
PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY OR ANY STRICT LIABILITY. However, such indemnities shall not
apply to any indemnified party to the extent the subject of the indemnification
is caused by or arises out of the gross negligence or willful misconduct of such
indemnified party. The foregoing indemnities shall not terminate upon
termination of this Lease but will survive the termination of this Lease. Any
amount to be paid under this section by Lessee to Lessor shall be paid by Lessee
to Lessor upon demand.
24. Assignment and Subletting.
(a) Lessee shall not, without the prior written consent of Lessor,
assign or in any manner transfer this Lease or any estate or interest therein or
permit any assignment of this Lease or any estate or interest therein by
operation of law or sublet the Leased Property or any part thereof or grant any
license, concession or other right of occupancy of any portion of the Leased
Property; except that, Lessee shall have the right, without the necessity of
obtaining the consent of Lessor, (i) to assign the leasehold estate under this
Lease to any parent, subsidiary or affiliate of Lessee; (ii) to sublet the
Leased Property to any parent, subsidiary or affiliate of Lessee; and (iii) to
sublet up to 80% of the rentable square feet of the Leased Property to any
Person. Consent by Lessor to one or more assignments or sublettings shall not
operate as a waiver of Lessor's rights as to any subsequent assignments and
sublettings. Notwithstanding any assignment or subletting, Lessee and any
guarantor of Lessee's obligations under this Lease shall at all times remain
fully responsible and liable for the payment of the Rent herein specified and
for compliance with all of Lessee's other obligations under this Lease. If an
Event of Default should occur and be continuing while the Leased Property or any
part thereof is then assigned or sublet, Lessor, in addition to any other
remedies herein provided or provided by law, may at its option collect directly
from such assignee(s) or sublessee(s) all rents becoming due to Lessee under
such assignment(s) or sublease(s) and apply such rent against any sums due to
Lessor by Lessee hereunder and Lessee hereby authorizes and directs any such
assignee or sublessee to make such payments of rent direct to Lessor upon
receipt of notice from Lessor. No direct collection by Lessor from any such
assignee or sublessee shall be construed to constitute a novation or a release
of Lessee or any guarantor of Lessee from the further performance of its
obligations hereunder. Receipt by Lessor of rent from any assignee, sublessee or
occupant of the Leased Property shall not be deemed a waiver of the covenant in
this Lease contained against assignment and subletting or a release of Lessee
under this Lease. The receipt by Lessor to any such assignee or sublessee
obligated to make payments of rent shall be a full and complete
- 26 -
<PAGE> 27
release, discharge and acquittance to such assignee or sublessee to the extent
of any such amount of rent so paid to Lessor. Lessor is authorized and
empowered, on behalf of Lessee, to endorse the name of Lessee upon any check,
draft or other instrument payable to Lessee evidencing payment of rent or
proceeds therefrom in accordance with the terms hereof.
(b) Lessor shall have the right to transfer, assign and convey, in
whole or in part, the Leased Property and any and all of its rights under this
Lease, and in the event Lessor assigns its rights under this Lease, Lessor shall
thereby be released from any further obligations hereunder, and Lessee agrees to
look solely to such successor in interest of the Lessor for performance of such
obligations.
25. No Liens.
Lessee will not, without the prior written consent of Lessor, create,
place or permit to be created or placed, or through any act or failure to act,
acquiesce in the placing of, or allow to remain, any voluntary or involuntary
lien, whether statutory, constitutional or contractual, including, without
limitation, any deed of trust, mortgage, security interest, conditional sale or
other title retention document or judgment lien, against or covering the
leasehold estate in the Leased Property, or any part thereof, and should any of
the foregoing become attached hereafter in any manner to any part of the
leasehold estate in the Leased Property without the prior written consent of
Lessor, Lessee will cause the same to be promptly discharged and released.
Notwithstanding the foregoing, mechanic's liens shall not be covered by this
Section 25, but shall be covered by Section 10.
26. Taxes on Lessee's Property.
Lessee shall be liable for all taxes levied or assessed against
furniture, equipment, Trade Fixtures or other personal property placed by Lessee
in the Leased Property. If any such taxes for which Lessee is liable are levied
or assessed against Lessor and Lessor elects to pay the same or if the assessed
value of Lessor's property is increased by inclusion of furniture, equipment,
Trade Fixtures or other personal property placed by Lessee in the Leased
Property and Lessor elects to pay the taxes based on such increase, Lessee shall
pay to Lessor upon demand that part of such taxes for which Lessee is liable
hereunder.
27. Lessor's Right of Access.
Lessor and its representatives shall have the right, exercisable
without notice and without liability to Lessee for damage or injury to property,
persons or business and without effecting an eviction, constructive or actual,
or disturbance of Lessee's use or possession or giving rise to any claim for
set-off or abatement of rent, to enter upon the Leased Property at any
reasonable time for the purpose of (a) making inspections, (b) performing any
work which Lessor elects to undertake (but without any obligation to do so) made
necessary by reason of Lessee's default under the terms of this Lease, (c)
showing the Leased Property to prospective purchasers or
- 27 -
<PAGE> 28
lenders, or (d) during the last twelve (12) months of the Term hereof, showing
the Leased Property to prospective tenants at reasonable hours and, if it is
vacated, to prepare it for reoccupancy and also to retain at all times, and to
use in appropriate instances, keys to all doors within and into the Leased
Property. No locks shall be changed or added without the prior written consent
of Lessor. Lessor and its authorized agents shall have the right, within the
final twelve (12) month period of the Term of this Lease, to erect on or about
the Leased Property a customary sign advertising the Leased Property for lease
and shall have the right, at any time during the Term of this Lease to erect on
or about the Leased Property a customary sign advertising the Leased Property
for sale.
28. Surrender Upon Termination.
Lessee shall, at the expiration or earlier termination of the Term of
this Lease, surrender to Lessor the Leased Property free of liens and
subtenancies and in good condition and repair, reasonable wear and tear excepted
and shall deliver to Lessor all keys to the Leased Property, and, if such
possession is not immediately surrendered, Lessor may forthwith enter upon and
take possession of the Leased Property and expel or remove Lessee and any other
person who may be occupying said premises, or any part thereof, by force, if
necessary, without having any civil or criminal liability therefor. All Trade
Fixtures and other personal property owned by Lessee which are located on the
Leased Property may be removed by Lessee at the termination of this Lease. All
such removals shall be accomplished in a good and workmanlike manner so as not
to damage the Leased Property or the primary structure or structural qualities
of the Leased Property or the plumbing, electrical lines or other utilities. All
such Trade Fixtures and other personal property not promptly removed after such
termination shall thereupon be conclusively presumed to have been abandoned by
Lessee and Lessor may, at its option, take over the possession of such property
and either (i) declare same to be the property of Lessor by written notice
thereof to Lessee or (ii) at the sole cost and expense of Lessee remove the same
or any part thereof in any manner that Lessor shall choose and store the same
without incurring liability to Lessee or any other person.
- 28 -
<PAGE> 29
29. Holding Over by Lessee.
Should Lessee continue to hold the Leased Property after the expiration
of the Term or sooner termination of this Lease, such holding over shall
constitute and be construed as a tenancy from month to month only at 150% of the
Rent provided herein, which rental shall be due and payable in advance on the
first day of each calendar month; subject, however, to all of the terms,
provisions, covenants and agreements on the part of Lessee hereunder. No
payments of money by Lessee to Lessor after the termination of this Lease shall
reinstate the Term of this Lease and no such reinstatement after the termination
hereof shall be valid unless and until the same shall be reduced to writing and
signed by both Lessor and Lessee. Lessee shall be liable to Lessor for all
damage which Lessor shall suffer by reason of any holding over by Lessee and
Lessee shall indemnify Lessor against all claims made by any other tenant or
prospective tenant against Lessor resulting from delay by Lessor in delivering
possession of the Leased Property to such other tenant or prospective tenant.
- 29 -
<PAGE> 30
30. Events of Default.
The following events shall be deemed to be events of default (herein
called "Events of Default") by Lessee under this Lease:
(a) Lessee shall fail to pay any installment of the Rent hereby
reserved or any other amount payable by Lessee to Lessor hereunder and such
failure shall continue for a period of ten (10) days after receipt by Lessee of
written notice of such failure; provided that, if at the time such failure
occurs, Lessor has sent Lessee the written notice provided for herein at least
two times during the preceding twelve month period, no notice shall be required
and such failure shall be an event of default five (5) days after the due date.
(b) Lessee shall fail to comply with any term, provision or covenant of
this Lease, other than the payment of Rent or any other amount payable by Lessee
to Lessor hereunder, and shall not cure such failure within thirty (30) days
after written notice thereof from Lessor to Lessee; provided that, if Lessee
shall within such thirty (30) day period commence action to cure such failure
but is unable, by reason of the nature of the performance required, to cure same
within such period, and if Lessee continues such action thereafter diligently
and without unnecessary delays, Lessee shall not be in default hereunder until
the expiration of a period of time as may be reasonably necessary to cure such
failure, provided further that in any event Lessee shall be in default hereunder
if such failure is not cured on or before ninety (90) days after receipt by
Lessee of the above described written demand for performance.
(c) Any representation of Lessee contained herein or otherwise made by
Lessee to Lessor in connection with this Lease is false or misleading in any
material respect.
(d) Lessee becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts as they become due.
(e) Lessee is generally not paying its debts as such debts become due.
(f) A receiver, trustee or custodian is appointed for, or takes
possession of, all or substantially all of the assets of Lessee or any of the
Leased Property, either in a proceeding brought by Lessee or in a proceeding
brought against Lessee and such appointment is not discharged or such possession
is not terminated within one hundred fifty (150) days after the effective date
thereof or Lessee consents to or acquiesces in such appointment or possession.
(g) Lessee files a petition for relief under the Federal Bankruptcy
Code or any other present or future federal or state insolvency, bankruptcy or
similar law (all of the foregoing hereinafter collectively called "applicable
Bankruptcy Law") or an involuntary petition for relief is filed against Lessee
under any applicable Bankruptcy Law and such petition is not dismissed
- 30 -
<PAGE> 31
within one hundred fifty (150) days after the filing thereof, or an order for
relief naming Lessee is entered under any applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of debtors
now or hereafter existing is requested or consented to by Lessor.
(h) Lessee fails to have discharged within a period of ninety (90) days
any attachment, sequestration or similar writ levied upon any property of
Lessee.
(i) Lessee fails to pay within ninety (90) days any final money
judgment against Lessee.
(j) Any of the events referred to in subheadings (d), (e), (f), (g),
(h) or (i) shall occur with respect to any joint venturer or general partner of
Lessee or any guarantor of the obligations of Lessee under this Lease.
(k) Any guarantor of the obligations of Lessee under this Lease shall
fail to comply with any term, provision or covenant of the guaranty agreement
executed by such guarantor, other than the payment of any amount payable by such
guarantor thereunder, and shall not cure such failure within thirty (30) days
after written notice thereof from Lessor to Lessee and such guarantor; provided
that, if such guarantor shall within such thirty (30) day period commence action
to cure such failure but is unable, by reason of the nature of the performance
required, to cure same within such period, and if such guarantor continues such
action thereafter diligently and without unnecessary delays, Lessee shall not be
in default hereunder until the expiration of a period of time as may be
reasonably necessary for such guarantor to cure such failure, provided further
that in any event Lessee shall be in default hereunder if such failure is not
cured on or before ninety (90) days after receipt by Lessee and such guarantor
of the above described written demand for performance.
(l) Lessee abandons all or any portion of the Leased Property.
31. Remedies Upon Default.
(a) If an Event of Default shall have occurred, Lessor shall have the
right at its election, then or at any time thereafter while such Event of
Default shall continue, to pursue any one or more of the following remedies:
(i) Lessor may terminate this Lease by giving written notice
thereof to Lessee, in which event Lessee shall immediately surrender
the Leased Property with all improvements thereon to Lessor and if
Lessee fails so to do, Lessor may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the Leased Property and expel or remove
Lessee and any other person who may be occupying said property, or any
part thereof, by force, if
- 31 -
<PAGE> 32
necessary, without having any civil or criminal liability therefor, and
Lessee hereby agrees to pay to Lessor on demand the amount of all loss
and damage which Lessor may suffer by reason of such termination,
whether through inability to relet the Leased Property on satisfactory
terms or otherwise, specifically including, but not limited to the
following:
(A) accrued Rent to the date of termination and Late
Charges, plus interest thereon at the rate established under
subsection 2(d) hereof from the date due through the date paid
or date of any judgment or award by any court of competent
jurisdiction, brokers' fees and commissions, attorneys' fees,
moving allowances and any other costs incurred by Lessor in
connection with making or executing this Lease, the cost of
recovering the Leased Property and the costs of reletting the
Leased Property (including, without limitation, advertising
costs, brokerage fees, leasing commissions, reasonable
attorneys' fees and costs of renovating, repairing and
altering the Leased Property for a new tenant);
(B) the present value of the Rent (discounted at a
rate of interest equal to six percent [6%] per annum [the
"Discount Rate"]) that would have been payable under this
Lease for the balance of the Lease Term but for such
termination, reduced by the reasonable fair market rental
value of the Leased Property for such balance of the Lease
Term (determined from the present value of the actual Rent,
discounted at the Discount Rate, received and to be received
from Lessor's reletting of the Leased Property or, if the
Leased Property is not relet, the rent, discounted at the
Discount Rate, that would be received from a comparable lease
and comparable tenant for a comparable term and taking into
account among other things, the condition of the Leased
Property, market conditions and the period of time the Leased
Property may reasonably remain vacant before Lessor is able to
re-lease the same to a suitable replacement tenant, it being
agreed that Lessor shall have no obligation to relet or
attempt to relet the Leased Property);
(C) any increase in insurance premiums caused by the
vacancy of the Leased Property; and
(D) any other amount necessary to compensate Lessor
for its damages.
If such termination is caused by the failure to pay Rent and/or the
abandonment of any substantial portion of the Leased Property, Lessor
may elect, by sending written notice thereof to Lessee, to receive
liquidated damages in an amount equal to the Rent payable hereunder for
the month during which this Lease is terminated times the lesser of (A)
eighteen (18) or (B) the number of full calendar months remaining in
the Term at the time of such termination. If Lessor so elects, such
liquidated damages shall be in lieu of the
- 32 -
<PAGE> 33
payment of loss and damage Lessor may suffer by reason of such
termination as provided above but which shall not be in lieu of or
reduce in any way any amount (including accrued Rent) or damages due to
breach of covenant (whether or not liquidated) payable by Lessee to
Lessor which accrued prior to the termination of this Lease. Nothing
contained in this Lease shall limit or prejudice the right of Lessor to
prove for and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved,
whether or not the amount be greater, equal to, or less than the amount
of the loss or damages referred to above.
(ii) Lessor may terminate Lessee's right of possession of the
Leased Property but not terminate this Lease and in such event may
enter upon and take possession of the Leased Property and expel or
remove Lessee or any other person who may be occupying said premises,
or any part thereof, by force, if necessary, without being liable for
prosecution or any claim for damages therefor; and in such event,
Lessor shall use reasonable efforts to relet the Leased Property, in
the name of Lessee or Lessor or otherwise, for such term or terms
(which may be greater or less than the period which would otherwise
have constituted the balance of the term of this Lease) and on such
conditions (which may include concessions or free rent) and for such
uses as Lessor in its absolute discretion may determine and Lessor may
collect and receive any rents payable by reason of such reletting.
Lessee agrees to pay to Lessor on demand all reasonable expenses
necessary to relet the Leased Property which shall include the cost of
renovating, repairing and altering the Leased Property for a new lessee
or lessees, advertisements and brokerage fees, and Lessee further
agrees to pay to Lessor on demand any deficiency that may arise by
reason of such reletting. Lessor shall not be responsible or liable for
any failure to collect any rent due upon any such reletting. If Lessor
terminates Lessee's possession of the Leased Property pursuant to this
subsection (ii), (A) Lessor shall have no obligation whatsoever to
tender to Lessee a key for new locks installed in the Leased Property,
and (B) Lessee shall have no further right to possession of the Leased
Property. No such re-entry or taking of possession of the Leased
Property by Lessor shall be construed as an election on Lessor's part
to terminate this Lease unless a written notice of such termination is
given to Lessee in accordance with the terms of this Lease. No
repossession of or re-entering on the Leased Property or any part
thereof pursuant to this subsection or otherwise and no reletting of
the Leased Property or any part thereof pursuant to this subsection
shall relieve Lessee of its liabilities and obligations hereunder, all
of which shall survive such repossession or re-entering. In the event
of any such repossession or re-entering on the Leased Property or any
part thereof by reason of the occurrence of an event of default, Lessee
will pay to Lessor the Rent required to be paid by Lessee.
(iii) Enter upon the Leased Property, by force if necessary,
without having any civil or criminal liability therefor, and, with or
without such entry upon the Leased Property, do whatever Lessee is
obligated to do under the terms of this Lease, and Lessee
- 33 -
<PAGE> 34
agrees to reimburse Lessor on demand for any expenses which Lessor may
incur in thus effecting compliance with Lessee's obligations under this
Lease. Lessee further agrees that Lessor shall not be liable for any
damages resulting to Lessee from such action, whether caused by the
negligence of Lessor or otherwise.
(b) No right or remedy herein conferred upon or reserved to Lessor is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity or by statute.
The failure of Lessor to insist at any time upon the strict performance of any
covenant or agreement or to exercise any option, right, power or remedy
contained in this Lease shall not be construed as a waiver or a relinquishment
thereof for the future. The waiver of or redress for any violation of any term,
covenant, agreement or condition contained in this Lease shall not prevent a
subsequent act, which would have originally constituted a violation, from having
all the force and effect of an original violation. No express waiver shall
affect any condition other than the one specified in such waiver and that one
only for the time and in the manner specifically stated. A receipt by Lessor of
any Rent or any other amount payable hereunder with knowledge of the breach of
any covenant or agreement contained in this Lease shall not be deemed a waiver
of such breach, and no waiver by Lessor of any provision of this Lease shall be
deemed to have been made unless expressed in writing and signed by Lessor. In
addition to other remedies provided in this Lease, Lessor shall be entitled, to
the extent permitted by applicable law, to injunctive relief in case of the
violation, or attempted or threatened violation, of any of the covenants,
agreements, conditions or provisions of this Lease, or to a decree compelling
performance of any of the covenants, agreements, conditions or provisions of
this Lease, or to any other remedy allowed to Lessor at law or in equity.
(c) With respect to the provisions of the laws of the State of North
Carolina or of this Lease which require that Lessor use reasonable efforts to
relet the Leased Property, it is understood and agreed that the following shall
apply in determining whether such efforts by Lessor to relet are reasonable:
(i) Lessor may decline to incur out-of-pocket costs to relet
the Leased Property, other than customary leasing commissions and legal
fees for the negotiation of a lease with a new lessee;
(ii) Lessor may decline to relet the Leased Property at rental
rates below then prevailing market rental rates;
(iii) Lessor may decline to relet the Leased Property to a
prospective lessee, the nature of whose business may have an adverse
impact upon the first class manner in which the Leased Property is
operated or with the high reputation of the Leased Property even though
in each of said circumstances such prospective lessee may have a good
credit rating;
- 34 -
<PAGE> 35
(iv) Before reletting the Leased Property to a prospective
lessee, Lessor may require the prospective lessee to demonstrate the
same or better financial capacity as that of Lessee; and
(v) Listing the Leased Property with a broker in a manner
consistent with subsections (i) through (iv) above shall constitute
prima facie evidence of reasonable efforts on the part of Lessor to
relet the Leased Property.
32. Waiver by Lessee.
Lessee hereby waives and surrenders for itself and all claiming by,
through and under it, including creditors of all kinds, (i) any right and
privilege which it or any of them may have under any present or future
constitution, statute or rule of law to redeem the Leased Property or to have a
continuance of this Lease for the term hereby demised after termination of
Lessee's right of occupancy by order or judgment of any court or by any legal
process or writ, or under the terms of this Lease, or after the termination of
the Term of this Lease as herein provided, and (ii) the benefits of any present
or future constitution, statute or rule of law which exempts property from
liability for debt or for distress for rent, and (iii) the provisions of any law
relating to notice and/or delay in levy of execution in case of eviction of a
tenant for nonpayment of rent.
33. Representations by Lessor.
Lessor hereby represents and warrants that (a) Lessor is duly organized
and legally existing under the laws of the State of California; (b) this Lease
constitutes the legal, valid and binding obligations of Lessor enforceable in
accordance with its terms; and (c) the execution and delivery of, and
performance under this Lease are within Lessor's power and authority without the
joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of Lessor's
charter, by-laws or other corporate papers, or of any indenture, agreement or
undertaking to which Lessor is a party or by which it is bound.
34. Representations by Lessee.
Lessee hereby represents and warrants that (a) Lessee is duly
incorporated and legally existing under the laws of the State of California; (b)
this Lease constitutes the legal, valid and binding obligations of Lessee
enforceable in accordance with its terms; and (c) the execution and delivery of,
and performance under this Lease are within Lessee's power and authority without
the joinder or consent of any other party and have been duly authorized by all
requisite action and are not in contravention of law or the powers of Lessee's
charter, by-laws or other corporate papers, or of any indenture, agreement or
undertaking to which Lessee is a party or by which it is bound.
- 35 -
<PAGE> 36
35. Estoppel Certificates.
(a) Lessee agrees at any time and from time to time, upon not less than
fifteen (15) days prior written notice by Lessor, to execute, acknowledge and
deliver, without charge, to Lessor, or to any person designated by Lessor, a
statement in writing certifying that this Lease is unmodified (or if there have
been modifications, identifying the same by the date thereof and specifying the
nature thereof), that Lessee has not received any notice of default or notice of
termination of this Lease (or if Lessee has received such a notice, that it has
been revoked, if such be the case), that to the knowledge of Lessee no Event of
Default exists hereunder (or if any such Event of Default does exist, specifying
the same and stating that the same has been cured, if such be the case), that
Lessee to its knowledge has no claims or offsets against Lessor hereunder (or if
Lessee has any such claims, specifying the same), and the dates to which the
Rent and the other sums and charges payable by Lessee hereunder have been paid.
(b) Lessor agrees at any time and from time to time, upon not less than
fifteen (15) days prior written notice by Lessee, to execute, acknowledge and
deliver, without charge, to Lessee, or to any person designated by Lessee, a
statement in writing stating that this Lease is unmodified (or if there be
modifications, identifying the same by the date thereof and specifying the
nature thereof), that no notice of default or notice of termination of this
Lease has been served on Lessee (or if Lessor has served such notice, that the
same has been revoked, if such be the case), that to Lessor's knowledge no Event
of Default exists under this Lease (or if any such Event of Default does exist,
specifying the same), and the date to which the Rent has been paid by Lessee.
36. Memorandum of Lease.
Neither Lessor nor Lessee shall file this Lease for record in the
Office of the Register of Deeds of Forsyth County, North Carolina, or in any
other public place without the written consent of the other. In lieu thereof,
Lessor and Lessee agree to execute in recordable form a memorandum of this Lease
and to file such memorandum for record in the Office of the Register of Deeds of
said County and to share equally all costs and expenses of recording said
memorandum.
37. Attorneys' Fees.
Should either Lessor or Lessee institute any action or proceeding in
court to enforce any provision hereof or for damages by reason of any alleged
breach of any provision of this Lease or for any other judicial remedy, the
prevailing party shall be entitled to receive from the losing party all court
costs and reasonable attorneys' fees incurred in connection with such
proceeding.
- 36 -
<PAGE> 37
38. Notices.
Any notice or communication required or permitted hereunder shall be
given in writing, sent by (a) personal delivery, or (b) expedited delivery
service with proof of delivery, or (c) United States Mail, postage prepaid,
registered or certified mail, or (d) telecopy, addressed as follows:
To Lessor: 804 Mallory Court
Tyler, Texas 75703
Telecopy Number: 903/509-3631
To Lessee: 4520 Old Troup Highway
Tyler, Texas 95711
Telecopy Number: 903/509-3631
or to such other address or to the attention of such other person as hereafter
shall be designated in writing by the applicable party sent in accordance
herewith. Any such notice or communication shall be deemed to have been given
either at the time of personal delivery or, in the case of delivery service or
mail, as of the date of first attempted delivery at the address and in the
manner provided herein, or in the case of telecopy, upon receipt.
39. NO REPRESENTATIONS OR WARRANTIES.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE OR IN
ANY EXHIBIT ATTACHED HERETO, IT IS UNDERSTOOD AND AGREED THAT THE LEASED
PROPERTY IS BEING LEASED HEREUNDER "AS IS" WITHOUT ANY REPRESENTATION OR
WARRANTY BY LESSOR EXCEPT AS EXPRESSLY SET FORTH HEREIN. LESSOR HAS NOT MADE AND
DOES NOT HEREBY MAKE (EXCEPT AS EXPRESSLY SET FORTH HEREIN) ANY REPRESENTATIONS
OR WARRANTIES OF ANY KIND OR CHARACTER WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE LEASED PROPERTY, ITS CONDITION (INCLUDING WITHOUT LIMITATION ANY
REPRESENTATION OR WARRANTY REGARDING QUALITY OF CONSTRUCTION, WORKMANSHIP,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE), ITS COMPLIANCE WITH
ENVIRONMENTAL LAWS OR OTHER LAWS, INCOME TO BE DERIVED THEREFROM OR EXPENSES TO
BE INCURRED WITH RESPECT THERETO, THE OBLIGATIONS, RESPONSIBILITIES OR
LIABILITIES OF THE LESSEE THEREOF, OR ANY OTHER MATTER OR THING RELATING TO OR
AFFECTING THE LEASED PROPERTY, AND LESSEE ACKNOWLEDGES THAT LESSEE IS ENTERING
INTO THIS LEASE WITHOUT RELYING UPON ANY SUCH REPRESENTATION OR WARRANTY MADE BY
LESSOR OR BY ANY OTHER PERSON.
- 37 -
<PAGE> 38
40. Interest on Lessee's Obligations.
Any amount payable by Lessee to Lessor hereunder, other than amounts
which are subject to the Late Charge and interest provided for in subsection
2(d) hereof, shall bear interest at the rate of twelve per cent (12%) per annum
from the date which is ten (10) days after demand for payment by Lessor until
paid.
41. Quiet Enjoyment.
Provided Lessee pays the Rent payable hereunder as and when due and
payable and keeps and fulfills all of the terms, covenants, agreements and
conditions to be performed by Lessee hereunder, Lessee shall at all times during
the Term peaceably and quietly enjoy the Leased Property without any disturbance
from Lessor or from any other person claiming by, through or under Lessor,
subject to the terms, provisions, covenants, agreements and conditions of this
Lease.
42. Notice to Lessor.
In the event of any act or omission by Lessor which would give Lessee
the right to damages from Lessor or the right to terminate this Lease by reason
of a constructive or actual eviction from all or part of the Leased Property or
the breach of the implied warranty of suitability or otherwise, Lessee shall not
sue for such damages or exercise any such right to terminate until (i) it shall
have given written notice of such act or omission to Lessor, and (ii) a
reasonable period of time for remedying such act or omission shall have elapsed
following the giving of such notice, during which time Lessor, its agents or
employees, shall be entitled to enter upon the Leased Property and do therein
whatever may be necessary to remedy such act or omission. During the period
after the giving of such notice and during the remedying of such act or
omission, the Rent payable by Lessee for such period as provided in this Lease
shall be abated and apportioned only to the extent that any part of the Leased
Property shall be untenantable.
43. Entire Agreement.
This Lease sets forth the entire agreement between the parties and no
amendment or modification of this Lease shall be binding or valid unless
expressed in a writing executed by all of the parties hereto.
- 38 -
<PAGE> 39
44. Severability.
Each and every covenant and agreement contained in this Lease is, and
shall be construed to be, a separate and independent covenant and agreement. If
any term or provision of this Lease or the application thereof to any person or
circumstances shall be to any extent invalid and unenforceable, the remainder of
this Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby.
45. No Merger.
There shall be no merger of this Lease or of the leasehold estate
hereby created with the fee estate in the Leased Property or any part thereof by
reason of the fact that the same person may acquire or hold, directly or
indirectly, this Lease or the leasehold estate hereby created or any interest in
this Lease or in such leasehold estate as well as the fee estate in the Leased
Property or any interest in such fee estate.
- 39 -
<PAGE> 40
46. Force Majeure.
Whenever a period of time is herein prescribed for action to be taken
by Lessor or Lessee, such party shall not be liable or responsible for, and
there shall be excluded from the computation for any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the control of such party; provided, however, that
this Section shall not apply to Lessee's obligation to pay Rent.
47. Gender.
Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural and words in the plural number shall be held to include the
singular, unless the context otherwise requires.
48. No Other Rights.
No rights, easements or licenses are acquired by Lessee by implication
or otherwise except as expressly set forth in the provisions of this Lease.
49. Section Headings.
The Section headings contained in this Lease are for convenience only
and shall in no way enlarge or limit the scope or meaning of the various and
several Sections hereof.
50. Binding Effect.
All of the covenants, agreements, terms and conditions to be observed
and performed by the parties hereto shall be applicable to and binding upon
their respective successors and, to the extent assignment is permitted
hereunder, their respective assigns.
51. Real Estate Commissions.
Each party hereto represents to the other that it has not authorized
any broker or finder to act on its behalf in connection with this Lease and that
it has not dealt with any broker or finder purporting to act on behalf of any
other party. Each party hereto agrees to indemnify and hold harmless the other
party from and against any and all claims, losses, damages, costs or expenses of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by such party or on its
behalf with any broker or finder in connection with this Lease or the
transaction contemplated hereby.
- 40 -
<PAGE> 41
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the
date first above written.
LESSOR:
CREST PROPERTIES, LTD., a Texas limited
partnership
By: RHP Management, LLC, a Texas limited
liability company, a general partner
By: /s/ ROBERT H. PATTERSON, JR.
---------------------------------------
Name: Robert H. Patterson, Jr.
Title: President
LESSEE:
THE CLUETT CORPORATION, a California
corporation
By: /s/ LYNN SKILLEN
-------------------------------------------
Name: Lynn Skillen
Title: Vice-President - Finance, Secretary
and Treasurer
- 41 -
<PAGE> 42
SCHEDULE I
The purchase price under a Purchase Offer shall be the greater of (1),
(2) or (3) below:
(1) The current annual Rent then in effect divided by twelve
percent (12%).
(2) The Fair Market Value (herein so called) of the Leased
Property, determined as follows. If Lessor and Lessee agree on the fair
market value of the Leased Property, that value shall be the Fair
Market Value. If Lessor and Lessee cannot agree on the fair market
value of the Leased Property, the Fair Market Value shall be determined
by appraisal, using the following procedure. If either Lessor or Lessee
selects its appraiser and the other does not within twenty (20) days
after notice is sent to the other of the selection of the first
appraiser, the first appraiser shall act as the sole appraiser in
determining the Fair Market Value of the Leased Property. If within
such twenty (20) day period, a second appraiser is selected, the two
appraisers shall determine the Fair Market Value. If the two appraisers
cannot agree on the Fair Market Value within twenty (20) days after
selection of the second appraiser, and the higher appraisal submitted
by the two appraisers is less than five percent (5%) higher than the
lower appraisal submitted by the two appraisers, the two appraisals
shall be averaged and such average shall be the Fair Market Value. If
such higher appraisal is five percent (5%), or more, higher than such
lower appraisal, the two appraisers shall select a third appraiser
within thirty (30) days after selection of the second appraiser, and
the appraisals of all three appraisers shall be averaged and such
average shall be the Fair Market Value. If a third appraiser cannot be
agreed upon within such thirty (30) day period, the third appraiser
shall be selected by the Senior Judge of the United States District
Court for the Northern District of Texas. Each appraiser thus selected
must be a member of the American Institute of Real Estate Appraisers
and have no less than five (5) years' experience in appraising real
estate in the area where the Leased Property is located, and may not
(a) be an employee, former employee, affiliate or former affiliate of
Lessor or Lessee or (b) have been regularly employed or retained as a
consultant or agent of Lessor or Lessee during the preceding twelve
(12) months. No appraiser shall have any personal or financial interest
as would disqualify such appraiser from exercising an independent and
impartial judgment as to the value of the Leased Property. The decision
of the appraiser(s) shall be forever binding upon Lessor and Lessee and
their respective successors and assigns. The appraiser(s) shall deliver
a written report of such appraisal to Lessor and Lessee. The fee and
expenses of each appraiser making such appraisal shall be borne by the
party appointing such appraiser, with the fee and expenses of any third
appraiser being born equally by Lessor and Lessee.
(3) The unpaid balance of the First Lien Note plus any
prepayment penalty due to the First Lien Noteholder thereunder.
- 42 -
<PAGE> 1
EXHIBIT 3
AGREEMENT FOR PURCHASE AND SALE OF
PROMISSORY NOTE
THIS AGREEMENT FOR PURCHASE AND SALE OF PROMISSORY NOTE
("Agreement") is made and entered into this 28th day of May, 1999, by and
between Celebrity, Inc., a Texas corporation ("Celebrity") and RHP Real Estate,
Ltd., a Texas limited partnership, and Nina Ruth Patterson Harris, in her
capacity as Trustee of the Residuary Trust Created Under the Last Will and
Testament of Robert H. Patterson, Sr., Deceased (collectively "Buyer").
WHEREAS, Celebrity is the owner and holder of a promissory note dated
April 22, 1999, executed by Crest Properties, Ltd., as Maker, payable to the
order of Celebrity, Inc. in the principal face amount of $1,036,215.91 (the
"Note"); and
WHEREAS, Celebrity desires to sell and assign the Note to Buyer on the
terms hereinafter set forth; and
WHEREAS, Buyer desires to purchase the Note from Celebrity on the terms
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises, Celebrity and
Buyer hereby represent, stipulate, covenant and agree as follows:
1. Agreement to Purchase and Sell; Purchase Price. Celebrity agrees to
sell and assign the Note to Buyer, and Buyer agrees to purchase the
Note from Celebrity, for a purchase price equal to the balance of
unpaid principal and unpaid accrued interest remaining due on the Note
on the date that the purchase and sale of the Note is consummated. The
purchase price shall be payable in cash.
2. Documents to be Delivered by Celebrity. Upon payment of the purchase
price, Celebrity shall (i) endorse the Note "Pay to the order of RHP
Real Estate, Ltd. and Nina Ruth Patterson Harris, Trustee of the
Residuary Trust Created Under the Last Will and Testament of Robert H.
Patterson, Sr., Deceased, without recourse"; (ii) deliver to Buyer the
original of the endorsed Note; and (iii) execute and deliver to Buyer
an Assignment (in form and substance satisfactory to Buyer) of all
liens and security interests securing payment of the Note including,
without limitation, the vendor's lien and the Deeds of Trust as defined
and described in the Note.
<PAGE> 2
3. Subordination Agreement. Buyer acknowledges, stipulates and agrees that
the Note is, and shall remain, subject to the terms and provisions of
that certain Subordination Agreement executed by Celebrity in favor of
Merrill Lynch Business Financial Services Inc., dated April 16, 1999, a
true, correct and complete copy of which is attached hereto and made a
part hereof. Upon purchase of the Note, Buyer shall succeed to, and
shall be bound by, the obligations of Celebrity under the terms of the
said Subordination Agreement.
4. Closing of Sale. Purchase and sale of the Note shall be consummated
within ten (10) days after Merrill Lynch Business Financial Services
Inc. consents in writing to the sale and assignment of the Note to
Buyer. If such consent is not received on or before May 28, 1999, then
this Agreement shall automatically terminate, whereupon neither
Celebrity nor Buyer shall thereafter have any rights or obligations
under this Agreement.
5. Representations and Warranties. As a material inducement to Buyer to
purchase the Note, Celebrity hereby represents and warrants to Buyer
that:
a. A true, correct and complete copy of the Note is attached
hereto and made a part hereof, and the Note has not been
modified or amended;
b. Celebrity is the sole legal and equitable owner and holder of
the Note;
c. No payments of principal or interest have been made on the
Note, and the unpaid principal balance of the Note is
$1,036,215.91;
d. The maker of the Note is not in default under the terms of the
Note or under the Deeds of Trust securing payment of the Note;
and
e. The Note is not subject to any liens, security interests,
claims or encumbrances, except for the Subordination Agreement
attached hereto.
Celebrity warrants that the foregoing representations and warranties
shall be true on the date that purchase and sale of the Note is
consummated. Except for the foregoing express representations and
warranties, sale of the Note shall be without recourse.
6. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the purchase and sale of the Note; there
are no verbal agreements between the parties; and this Agreement can be
amended only by signed written agreement of Celebrity and Buyer.
7. Governing Law. This Agreement and the rights and duties of the parties
hereunder shall be governed for all purposes by the laws of the State
of Texas and the laws of the United States applicable to transactions
wholly within the State of Texas.
8. Successors and Assigns. This Agreement shall be binding upon, and shall
inure to the benefit of, Celebrity, Buyer and their respective
successors and assigns.
<PAGE> 3
EXECUTED as of the month, day and year first stated above.
CELEBRITY, INC.
By: /s/ LYNN SKILLEN
-----------------------------------------
Lynn Skillen, Vice President
RHP REAL ESTATE, LTD., Acting By and
Through its General Partner,
RHP Management, LLC
By: /s/ ROBERT H. PATTERSON, JR..
-----------------------------------------
Robert H. Patterson, Jr., President
/s/ NINA RUTH PATTERSON HARRIS
- ---------------------------------------------
Nina Ruth Patterson Harris, in her capacity
As Trustee of the Residuary Trust created
Under the Last Will and Testament of
Robert H. Patterson, Sr., Deceased
<PAGE> 1
EXHIBIT 4
THE OFFERING AND SALE OF THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND THIS
WARRANT AND SUCH SHARES MUST BE HELD INDEFINITELY UNLESS THE OFFERING
AND SALE THEREOF ARE SUBSEQUENTLY REGISTERED UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR THIS WARRANT AND SUCH SHARES ARE
DISPOSED OF PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
WARRANT
Company: Celebrity, Inc.,
a Texas corporation
Number of Shares: 75,000, subject to adjustment as provided
herein
Class of Stock: Common Stock
Initial Exercise Price: $3.00 per share
Issued as of: April 22, 1999
Expiration Date: April 22, 2004
FOR VALUE RECEIVED, the adequacy and receipt of which are hereby
acknowledged, Celebrity, Inc., a Texas corporation, hereby certifies that RHP
MANAGEMENT, LLC, a Texas limited liability company, and its successors and
assigns, are entitled to purchase from the Company at any time and from time to
time on and after the date hereof until 12:00 midnight Texas local time on the
Expiration Date at an initial exercise price of Three Dollars ($3.00) per share
of Common Stock of Seventy-Five Thousand (75,000) fully paid and nonassessable
shares of Common Stock of the Company; on the terms and conditions hereinafter
set forth. The number of such shares of Common Stock and the Exercise Price are
subject to adjustment as provided in this Warrant.
1. Certain Definitions. As used in this Warrant, the following
terms have the following definitions:
"Additional Shares of Common Stock"means all shares of Common Stock
issued or issuable by the Company after the date of this Warrant, excluding an
amount not to exceed 5% of the Company's outstanding Common Stock on a fully
diluted basis (determined at the time the calculation is being made) issued
pursuant to the Celebrity, Inc. 1992 Stock Option Plan and the
<PAGE> 2
Celebrity, Inc. 1993 Stock Purchase Plan at a price per share less than the
Current Market Price or Exercise Price.
"Common Stock" means the Company's Common Stock, par value $0.01 per
share, and includes any common stock of the Company of any class or classes
resulting from any reclassification or reclassifications thereof which is not
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends and in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Company.
"Company" means Celebrity, Inc., a Texas corporation.
"Convertible Securities" means evidence of indebtedness, shares of
stock or other securities which are at any time directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
"Current Market Price" of a share of Common Stock or of any other
security as of a relevant date means: (i) the Fair Value thereof as determined
in accordance with clause (ii) of the definition of Fair Value with respect to
common stock or any other security that is not listed on a national securities
exchange or traded on the over-the-counter market or quoted on the Nasdaq
SmallCap Market, and (ii) the average of the daily closing prices for the ten
(10) trading days before such date (excluding any trades which are not bona fide
arm's length transactions) with respect to Common Stock or any other security
that is listed on a national securities exchange or traded on the
over-the-counter market or quoted on the Nasdaq SmallCap Market. The closing
price for each day shall be (i) the last sale price of shares of Common Stock or
such other security, regular way, on such date or, if no such sale takes place
on such date, the average of the closing bid and asked prices thereof on such
date, in each case as officially reported on the principal national securities
exchange on which the same are then listed or admitted to trading, or (ii) if no
shares of Common Stock or if no securities of the same class as such other
security are then listed or admitted to trading on any national securities
exchange, the average of the reported closing bid and asked prices thereof on
such date in the over-the-counter market as shown by the National Association of
Securities Dealers automated quotation system or, if no shares of Common Stock
or if no securities of the same class as such other security are then quoted in
such system, as published by the National Quotation Bureau, Incorporated or any
similar successor organization, and in either case as reported by any member
firm of the New York Stock Exchange selected by the Warrantholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Exchange Act shall include a reference to the
comparable section, if any, of any such successor Federal statute.
"Exercise Period" means the period commencing on the date hereof and
ending at 12:00 midnight Texas local time on the Expiration Date.
-2-
<PAGE> 3
"Exercise Price" means initially $3.00 per share, subject to adjustment
as provided in this Warrant.
"Expiration Date" means the April 22, 2004.
"Fair Value" means: (i) with respect to a share of Common Stock or any
other security, the Current Market Price thereof, and (ii) with respect to any
other property, assets, business or entity, an amount determined in accordance
with the following procedure: The Company and the holders of this Warrant (or
portion thereof) and Warrant Shares, as applicable, shall use their best efforts
to mutually agree to a determination of Fair Value within ten (10) days of the
date of the event requiring that such a determination be made. If the Company
and such holders are unable to reach agreement within said ten (10) day period,
the Company and such holders shall within ten (10) days of the expiration of the
ten (10) day period referred to above each retain a separate independent
investment banking firm (which firm shall not be the investment banking firm
regularly retained by the Company). If either the Company or such holders fails
to retain such an investment banking firm during such period, then the
independent investment banking firm retained by such holders or the Company, as
the case may be, acting alone, shall take the actions outlined below. Such firms
shall determine (within thirty (30) days of their being retained) the Fair Value
of the security, property, assets, business or entity, as the case may be, in
question and deliver their opinion in writing to the Company and to such
holders. If such firms cannot jointly make the determination, then, unless
otherwise directed by agreement of the Company and such holders, such firms, in
their sole discretion, shall choose another investment banking firm independent
of the Company and such holders, which firm shall make the determination and
render an opinion as promptly as practicable. In either case, the determination
so made shall be conclusive and binding on the Company and such holders. The
fees and expenses of any such determination made by any and all such independent
investment banking firms shall be paid by the Company. If there is more than one
holder of this Warrant (or portion thereof), and/or Warrant Shares entitled to a
determination of Fair Value in any particular instance, each action to be taken
by the holders of such Warrant and/or Warrant Shares under this Section shall be
taken by a majority in interest of such holders and the action taken by such
majority (including as to any mutual agreement with the Company with respect to
Fair Value and as to any selection of investment banking firms) shall be binding
upon all such holders. In the case of a determination of the Fair Value per
share of Common Stock, the Company and such holders shall not take into
consideration, and shall instruct all such investment banking firms not to take
into consideration, any premium for shares representing control of the Company,
any discount for any minority interest therein or any restrictions on transfer
under applicable federal and state securities laws or otherwise.
"Indemnified Party" and "Indemnifying Party" have the meanings set
forth in Section 11(e)(iii).
"Registrable Stock" means: (i) all Warrant Shares which are issuable to
the Warrantholders pursuant to this Warrant (or portion thereof), whether or not
this Warrant (or portion thereof) has in fact been exercised and whether or not
such Warrant Shares have in fact been issued, (ii) all Warrant Shares acquired
by the Warrantholders pursuant to this Warrant (or portion thereof), (iii)
-3-
<PAGE> 4
any shares of Common Stock, whether or not such shares of Common Stock have in
fact been issued, and stock or other securities of the Company issued upon
conversion of, in a stock split or reclassification of, or a stock dividend or
other distribution on, or in substitution or exchange for, or otherwise in
connection with, such Warrant Shares. For purposes of Section 11, a
Warrantholder of record shall be treated as the record holder of the related
Warrant Shares and other securities issuable pursuant to this Warrant.
Registrable Stock shall not include Warrant Shares or Common Stock that the
holder is entitled to sell without restriction under Rule 144(k) promulgated
under the Securities Act.
"Regulated Warrantholder" means any Warrantholder which is, or the
parent of which is, subject to the Bank Holding Company Act, or any successor
statute, or any other federal or state banking laws and regulations.
"Securities Act" means the Securities Act of 1933, as amended.
"Warrant(s)" means this Warrant and any warrants issued in exchange or
replacement of this Warrant or upon transfer hereof.
"Warrantholder(s)" means RHP Management, LLC and its successors and
assigns.
"Warrant Shares" means shares of Common Stock issuable to
Warrantholders pursuant to this Warrant (or portion thereof).
2. Exercise of Warrant. This Warrant (or portion thereof) may be
exercised, in whole or in part, at any time and from time to time during the
Exercise Period by written notice to the Company and upon payment to the Company
of the Exercise Price (subject to adjustment as provided herein) for the shares
of Common Stock in respect of which this Warrant is exercised.
3. Form of Payment of Exercise Price. Anything contained herein
to the contrary notwithstanding, at the option of the Warrantholders, the
Exercise Price may be paid in any one or a combination of the following forms:
(a) by wire transfer to the Company, (b) by the Warrantholder's check to the
Company, (c) by the cancellation of any indebtedness owed by the Company and/or
any subsidiaries of the Company to the Warrantholder, and/or (d) by the
surrender to the Company of this Warrant (or portion thereof), Warrant Shares,
Common Stock and/or other securities of the Company and/or any subsidiaries of
the Company having a Fair Value equal to the Exercise Price.
4. Cashless Exercise/Conversion. In lieu of exercising this
Warrant (or portion thereof) as specified in Sections 2 and 3 above, the
Warrantholders may from time to time at the Warrantholders' option convert this
Warrant, in whole or in part, into a number of shares of Common Stock of the
Company determined by dividing (A) the aggregate Fair Value of such shares or
other securities otherwise issuable upon exercise of this Warrant minus the
aggregate Exercise Price of such shares by (B) the Fair Value of one such share.
-4-
<PAGE> 5
5. Certificates for Warrant Shares; New Warrant. The Company
agrees that the Warrant Shares shall be deemed to have been issued to the
Warrantholders as the record owner of such Warrant Shares as of the close of
business on the date on which payment for such Warrant Shares has been made (or
deemed to be made by conversion) in accordance with the terms of this Warrant.
Certificates for the Warrant Shares shall be delivered to the Warrantholders
within a reasonable time, not exceeding five (5) days, after this Warrant has
been exercised or converted. A new Warrant representing the number of shares, if
any, with respect to which this Warrant remains exercisable also shall be issued
to the Warrantholders within such time so long as this Warrant has been
surrendered to the Company at the time of exercise.
6. Adjustment of Exercise Price, Number of Shares and Nature of
Securities Issuable Upon Exercise.
(a) Exercise Price: Adjustment of Number of Shares. The
Exercise Price shall be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Exercise Price, the Warrantholders shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, a number of shares determined by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(b) Adjustment of Exercise Price Upon Issuance of Common
Stock. If and whenever after the date hereof the Company shall issue or sell
Additional Shares of Common Stock without consideration or for a consideration
per share less than the Current Market Price or the Exercise Price then in
effect immediately prior to the issuance or sale of such shares, then the
Exercise Price in effect immediately prior to such issuance or sale of such
shares shall be reduced to a number which shall be calculated by dividing (A) an
amount equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the then existing Exercise
Price plus (2) the aggregate consideration, if any, received by the Company upon
such issue or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
No adjustment of the Exercise Price, however, shall be made in
an amount less than $.01 per share, but any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to $.01 per share or more.
The provisions of this Section 6(b) shall not apply to any
Additional Shares of Common Stock which are distributed to holders of Common
Stock pursuant to a stock split for which an adjustment is provided under
Section 6(f).
(c) Further Provisions for Adjustment of Exercise Price Upon
Issuance of Additional Shares of Common Stock and Convertible Securities. For
purposes of Section 6(b), the following provisions shall also be applicable:
-5-
<PAGE> 6
(i) In case at any time on or after the date hereof,
the Company shall declare any dividend, or authorize any other distribution,
upon any stock of the Company of any class, payable in Additional Shares of
Common Stock or by the issuance of Convertible Securities, such declaration or
distribution shall be deemed to have been issued or sold (as of the record date)
without consideration and shall thereby cause an adjustment in the Exercise
Price as required by Section 6(b).
(ii) (A) In case at any time on or after the date
hereof, the Company shall in any manner issue or sell any Convertible
Securities, whether or not the rights to exchange or convert thereunder are
immediately exercisable, there shall be determined the price per share for which
Additional Shares of Common Stock are issuable upon the conversion or exchange
thereof, such determination to be made by dividing (a) the total amount received
or receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof by (b) the maximum aggregate number of Additional Shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities for such
minimum aggregate amount of additional consideration; and such issue or sale
shall be deemed to be an issue or sale for cash (as of the date of issue or sale
of such Convertible Securities) of such maximum number of Additional Shares of
Common Stock at the price per share so determined, and shall thereby cause an
adjustment in the Exercise Price, if such an adjustment is required by Section
6(b).
(B) If such Convertible Securities shall by
their terms provide for an increase or increases, with the passage of time, in
the amount of additional consideration, if any, payable to the Company, or in
the rate of exchange upon the conversion or exchange thereof, the adjusted
Exercise Price shall, upon any such increase becoming effective, be increased to
such Exercise Price as would have been in effect had the adjustments made upon
the issuance of such Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of Common Stock theretofore actually delivered
upon the conversion or exchange of such Convertible Securities (and the total
consideration received upon issuance of such Convertible Securities and upon the
conversion or exchange thereof), (b) the issuance of all Common Stock, all
Convertible Securities and all rights and options to purchase Common Stock
issued after the issuance of such Convertible Securities (and the total
consideration received upon the issuance thereof and received or to be received
upon the conversion, exchange or exercise thereof), and (c) the original
issuance at the time of such change of any such Convertible Securities then
still outstanding (and the total consideration received upon the issuance
thereof and received or to be received upon the conversion or exchange thereof);
provided, however, that any such increase or increases shall not exceed, in the
aggregate, the amount of the original reduction of the Exercise Price
attributable to the Convertible Securities.
(C) If any rights of conversion or exchange
evidenced by such Convertible Securities shall expire without having been
exercised, the adjusted Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been in effect had an adjustment with respect to
such Convertible Securities been made on the basis that the only Additional
Shares of Common Stock issued or sold were those actually issued upon the
conversion or exchange of such
-6-
<PAGE> 7
Convertible Securities, and that they were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of such Convertible
Securities.
(iii) (A) In case at any time on or after the date
hereof, the Company shall in any manner grant or issue any rights or options to
subscribe for, purchase or otherwise acquire Additional Shares of Common Stock,
whether or not such rights or options are immediately exercisable, there shall
be determined the price per share for which Additional Shares of Common Stock
are issuable upon the exercise of such rights or options, such determination to
be made by dividing (a) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the exercise of such rights or options if the maximum number of
Additional Shares were issued pursuant to such rights or options for such
minimum aggregate amount of additional consideration, by (b) the maximum number
of Additional Shares of Common Stock of the Company issuable upon the exercise
of all such rights or options for such minimum aggregate amount of additional
consideration; and the granting of such rights or options shall be deemed to be
an issue or sale for cash (as of the date of the granting of such rights or
options) of such maximum number of Additional Shares of Common Stock at the
price per share so determined, and shall thereby cause an adjustment in the
Exercise Price, if such an adjustment is required by Section 6(b).
(B) If such rights or options shall by their
terms provide for an increase or increases, with passage of time, in the amount
of additional consideration payable to the Company upon the exercise thereof,
the adjusted Exercise Price shall, upon any such increases becoming effective,
be increased to such Exercise Price as would have been in effect had the
adjustments made upon the issuance of such rights or options been made upon the
basis of (a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such rights or options (and the total
consideration received upon the issuance of such rights or options and upon the
exercise thereof), (b) the issuance of all Common Stock, all rights and options
and all Convertible Securities issued after the issuance of such rights and
options (and the total consideration received upon the issuance thereof and
received or to be received upon the conversion, exchange or exercise thereof),
and (c) the original issuance at the time of such change of any such rights or
options then still outstanding (and the total consideration received upon the
issuance of the rights or options and received or to be received upon the
exercise thereof); provided, however, that any such increase or increases in the
Exercise Price shall not exceed, in the aggregate, the amount of the original
reduction of the Exercise Price attributable to the grant of such rights or
options.
(C) If any such rights or options shall expire
without having been exercised, the adjusted Exercise Price shall forthwith be
readjusted to such Exercise Price as would have been in effect had an adjustment
with respect to such rights or options been made on the basis that the only
Additional Shares of Common Stock so issued or sold were those actually issued
or sold upon the exercise of such rights or options and that they were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of such rights or options.
-7-
<PAGE> 8
(iv) (A) In case at any time on or after the date
hereof, the Company shall grant any rights or options to subscribe for, purchase
or otherwise acquire Convertible Securities, there shall be determined the price
per share for which Additional Shares of Common Stock are issuable upon the
exchange or conversion of such Convertible Securities if such rights or options
were exercised, such determination to be made by dividing (a) the total amount,
if any, received or receivable by the Company as consideration for the issuance
of such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of such rights
or options if the maximum number of Convertible Securities were issued pursuant
to such rights or options for such minimum aggregate amount of additional
consideration, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exchange or conversion of such Convertible
Securities if the maximum number of Additional Shares were issued pursuant to
such Convertible Securities for such minimum aggregate amount of additional
consideration, by (b) the maximum aggregate number of Additional Shares of
Common Stock issuable upon the exchange or conversion of the Convertible
Securities for such minimum aggregate amount of additional consideration; and
the issue or sale of such rights or options shall be deemed to be an issue or
sale for cash (as of the date of the granting of such rights or options) of such
maximum number of Additional Shares of Common Stock at the price per share so
determined, and thereby shall cause an adjustment in the Exercise Price, if such
an adjustment is required by Section 6(b).
(B) If such rights or options to subscribe for
or otherwise acquire Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of additional
consideration payable to the Company upon the exercise of such rights or options
or the exchange or conversion of such Convertible Securities, the adjusted
Exercise Price shall, forthwith upon any such increase becoming effective, be
increased to such Exercise Price as would have been in effect had the
adjustments made upon the issuances of such rights or options been made upon the
basis of (a) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exchange or conversion of such Convertible
Securities (and the total consideration received upon the issuance of such
Convertible Securities and received or to be received upon the conversion or
exchange thereof), (b) the issuance of all Common Stock and all rights, options
and Convertible Securities issued after the issuance of such rights and options
(and the total consideration received upon the issuance of such Convertible
Securities, rights and options and received or to be received upon the exercise,
conversion or exchange thereof) and (c) the original issuances at the time of
such change of any such rights, options and Convertible Securities issued upon
exercise of such rights or options which are then still outstanding (and the
total consideration received upon the issuance of such Convertible Securities,
rights and options and received or to be received upon the exercise of such
rights or options); provided, however, that any such increase or increases shall
not exceed, in the aggregate, the amount of the original reduction of the
Exercise Price attributable to the grant of such rights or options.
(C) If any such rights, options or rights of
conversion or exchange of such Convertible Securities shall expire without
having been exercised, exchanged or converted, the adjusted Exercise Price shall
forthwith be readjusted to such Exercise Price as would have been in effect had
an adjustment been made with respect to such rights, options or rights of
conversion
-8-
<PAGE> 9
or exchange of such Convertible Securities on the basis that the only Additional
Shares of Common Stock so issued or sold were those actually issued or sold upon
the exercise of such rights or options and exchange or conversion of such
Convertible Securities and that they were issued or sold for the consideration
actually received by the Company upon exercise of such rights and options and
exchange or conversion of such Convertible Securities, plus the consideration,
if any, actually received by the Company for the granting of such rights,
options or Convertible Securities.
(v) In any case where an adjustment has been made in the
Exercise Price upon the issuance of Convertible Securities or any rights or
options to purchase Convertible Securities or Additional Shares of Common Stock
pursuant to this Section 6(c), no further adjustment shall be made at the time
of the conversion of any such Convertible Securities or at the time of the
exercise of any such rights or options.
(vi) In case at any time on or after the issuance of this
Warrant any shares of Common Stock or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount of the consideration other
than cash payable to the Company shall be deemed to be the Fair Value of such
consideration. Whether or not the consideration so received is cash, the amount
thereof shall be determined after deducting therefrom any expenses incurred or
any underwriting commissions or concessions or discounts paid or allowed by the
Company in connection therewith.
(vii) In case at any time the Company shall fix a record date
of the holders of its Common Stock for the purpose of entitling them (a) to
receive a dividend or other distribution payable in Common Stock, Convertible
Securities or rights or options to purchase either thereof, or (b) to subscribe
for or purchase Common Stock, Convertible Securities or rights or options to
purchase either thereof, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed, pursuant to this Section
6(c), to have been issued or sold upon the declaration of such dividend or the
making of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company, and the disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this Section 6(c).
(d) Reorganization, Reclassification, Consolidation, Merger or Sale. If
any capital reorganization or reclassification of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive cash, stock, securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Warrantholders shall thereafter have the right to purchase and
receive upon the basis and upon the terms and conditions specified in this
Warrant upon exercise of this Warrant and in lieu of the shares of the Common
Stock of the
-9-
<PAGE> 10
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such cash, shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of such Common
Stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, and in any such case appropriate provision shall
be made with respect to the rights and interest of the Warrantholders to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any consolidation, merger or sale of all or substantially all of the assets of
the Company unless prior to or simultaneous with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation, merger or purchase of such assets shall assume, by written
instrument executed and mailed or delivered to the Warrantholders, the
obligation to deliver to such Warrantholders such cash (or cash equivalent),
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Warrantholders may be entitled to receive and containing the
express assumption of such successor corporation of the due and punctual
performance and observance of each provision of this Warrant to be performed and
observed by the Company and of all liabilities and obligations of the Company
hereunder.
In case any Additional Shares of Common Stock or Convertible
Securities or any rights or options to purchase any Additional Shares of Common
Stock or Convertible Securities shall be issued in connection with any merger of
another corporation into the Company, the amount of consideration therefor shall
be deemed to be the Fair Value of such portion of the assets of such merged
corporation as the Board of Directors of the Company shall in good faith
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities or rights or options, as the case may be, and the
Exercise Price shall be adjusted if such an adjustment is required in accordance
with Section 6(b).
(e) Company to Prevent Dilution. In case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 6, and which might
materially and adversely affect the exercise rights of the Warrantholders under
any provision of this Warrant, unless the adjustment necessary shall be agreed
upon by the Company and the Warrantholders, the Board of Directors of the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (who have not been employed by the Company within
the last five years), acceptable to the Warrantholders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 6, necessary with respect to the Exercise Price and the number of shares
purchasable upon exercise of the Warrants, so as to preserve, without dilution,
the exercise rights of the Warrantholders. Upon receipt of such opinion, such
Board of Directors shall forthwith make the adjustments described therein.
(f) Stock Splits and Reverse Splits. In case at any time the
Company shall subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise
-10-
<PAGE> 11
Price in effect immediately prior to such subdivision shall be proportionately
reduced and the number of shares of Common Stock purchasable pursuant to this
Warrant (or portion thereof) immediately prior to such subdivision shall be
proportionately increased, and conversely, in case at any time the Company shall
combine its outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of shares of Common Stock purchasable
upon the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced.
(g) Dissolution, Liquidation and Wind-Up. In case the Company
shall, at any time prior to the expiration of this Warrant, dissolve, liquidate
or wind up its affairs, the Warrantholders shall be entitled, upon the exercise
of this Warrant (or portion thereof), to receive, in lieu of the shares of
Common Stock of the Company which such Warrantholders would have been entitled
to receive, the same kind and amount of assets as would have been issued,
distributed or paid to such Warrantholders upon any such dissolution,
liquidation or winding up with respect to such shares of Common Stock of the
Company, had such Warrantholders been the holders of record of the Warrant
Shares receivable upon the exercise of this Warrant on the record date for the
determination of those persons entitled to receive any such liquidating
distribution. After any such dissolution, liquidation or winding up which shall
result in any cash distribution in excess of the Exercise Price provided for by
this Warrant, the Warrantholders may, at each such Warrantholder's option,
exercise the same without making payment of the Exercise Price, and in such case
the Company shall, upon the distribution to said Warrantholders, consider that
said Exercise Price has been paid in full to it and in making settlement to said
Warrantholders, shall deduct from the amount payable to such Warrantholders an
amount equal to such Exercise Price.
(h) Accountants' Certificate. In each case of an adjustment in
the number of shares of Common Stock or other stock, securities or property
receivable on the exercise of the Warrants, the Company at its expense shall
cause independent public accountants of recognized standing selected by the
Company and acceptable to the Warrantholders to compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based, including a statement of (a) the consideration received or to be
received by the Company for any Additional Shares of Common Stock, rights,
options or Convertible Securities issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock of each class outstanding or
deemed to be outstanding, (c) the adjusted Exercise Price and (d) the number of
shares issuable upon exercise of this Warrant. The Company will forthwith mail a
copy of each such certificate to each Warrantholder.
7. Special Agreements of the Company.
(a) Reservation of Shares. The Company covenants and agrees
that all Warrant Shares will, upon issuance in accordance with the terms of this
Warrant, be validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder, and from all taxes, liens and charges with
respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved, a
sufficient number of shares of
-11-
<PAGE> 12
Common Stock to provide for the exercise of the rights represented by this
Warrant. The Company hereby covenants and agrees to take all such action as may
be necessary to assure that the par value per share of the Common Stock is at
all times equal to or less than the Exercise Price.
(b) Avoidance of Certain Actions. The Company will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, issue or sale of securities or
otherwise, avoid or take any action which would have the effect of avoiding the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in carrying
out all of the provisions of this Warrant and in taking all of such action as
may be necessary or appropriate in order to protect the rights of the
Warrantholders against dilution or other impairment of their rights hereunder.
(c) Securing Governmental Approvals. If any shares of Common
Stock required to be reserved for the purposes of exercise of this Warrant
require registration with or approval of any governmental authority under any
federal law (other than the Securities Act) or under any state law before such
shares may be issued upon exercise of this Warrant, the Company will, at its
expense, as expeditiously as possible, cause such shares to be duly registered
or approved, as the case may be.
(d) Listing on Securities Exchanges; Registration. If, and so
long as, any class of the Company's Common Stock shall be listed on any national
securities exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing upon official notice of
issuance of all Warrant Shares and maintain the listing of Warrant Shares after
their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (or any similar statute then in
effect), and will maintain such listing of, any other securities that at any
time are issuable upon exercise of this Warrant if and at the time any
securities of the same class shall be listed on such national securities
exchange by the Company.
(e) Information Rights. So long as the Warrantholders hold
this Warrant and/or any of the Warrant Shares, the Company shall deliver to the
Warrantholders (i) promptly after mailing, copies of all communications to the
stockholders of the Company, (ii) within ninety-five (95) days after the end of
each fiscal year of the Company, the annual audited financial statements of the
Company certified by the independent public accountants of recognized standing,
and (iii) within fifty (50) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
(f) Restrictions on Public Sale by the Company. The Company
will not effect any public or private sale or distribution of its convertible
debt or equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the ten (10) day period prior to, and during the ninety
(90) day period beginning on, the closing date of each underwritten offering by
the Company made pursuant to a registration statement filed pursuant to Sections
11(a) or 11(b); and the Company shall cause each holder of its privately placed
convertible debt or equity
-12-
<PAGE> 13
securities issued by it at any time on or after the date of this Warrant to
agree not to effect any public sale or distribution of any such securities
during such period, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act.
(g) Preemptive Rights. In the event the Company offers to the
Company's stockholders the right to purchase any securities of the Company, then
all shares of Common Stock issuable pursuant to this Warrant (or portion
thereof) shall be deemed to be issued and outstanding and held by the
Warrantholders and the Warrantholders shall be entitled to participate in such
rights offering.
(h) Compliance with Law. The Company shall comply with all
applicable laws, rules and regulations of the United States and of all states,
municipalities and agencies and of any other jurisdiction applicable to the
Company and shall do all things necessary to preserve, renew and keep in full
force and effect and in good standing its corporate existence and authority
necessary to continue its business.
8. Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon exercise hereof, the Company
shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the Current Market Value of one share of Common Stock.
9. Notices of Stock Dividends, Subscriptions, Reclassifications,
Consolidations, Mergers, etc. If at any time: (i) the Company shall declare a
cash dividend (or an increase in the then existing dividend rate), or declare a
dividend on Common Stock payable otherwise than in cash out of its net earnings
after taxes for the prior fiscal year; or (ii) the Company shall authorize the
granting to the holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or (iii) there
shall be any capital reorganization, or reclassification, or redemption of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another corporation or firm;
or (iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then the Company shall give to the Warrantholders at
the addresses of such Warrantholders as shown on the books of the Company, at
least twenty (20) days prior to the applicable record date hereinafter
specified, a written notice summarizing such action or event and stating the
record date for any such dividend or rights (or, if a record date is not to be
selected, the date as of which the holders of Common Stock of record entitled to
such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
date as of which it is expected the holders of Common Stock of record shall be
entitled to effect any exchange of their shares of Common Stock for cash (or
cash equivalent), securities or other property deliverable upon any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Registered Holder; Transfer of this Warrant (or portion
thereof) or Warrant Shares.
-13-
<PAGE> 14
(a) Maintenance of Registration Books; Ownership of this
Warrant. The Company shall keep at its principal office a register in which the
Company shall provide for the registration, transfer and exchange of this
Warrant (or portion thereof). The Company shall not at any time, except upon the
dissolution, liquidation or winding-up of the Company, close such register so as
to result in preventing or delaying the exercise or transfer of this Warrant.
(b) Exchange and Replacement. This Warrant is exchangeable
upon surrender hereof by the registered holder to the Company at its principal
office for a new Warrant of like tenor and date representing in the aggregate
the right to purchase the number of shares purchasable hereunder, each such new
Warrant to represent the right to purchase such number of shares as shall be
designated by said registered holder at the time of surrender. This Warrant and
all rights hereunder are transferable in whole or in part upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and a new Warrant shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of the
transferee(s), upon surrender of this Warrant, duly endorsed, to said office of
the Company. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant, without
requiring the posting of any bond or the giving of any other security. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of a Warrant pursuant to this Section 10.
(c) Warrant and Warrant Shares Not Registered. The holder of
this Warrant, by accepting this Warrant, represents and acknowledges that the
offering and sale of this Warrant and the Warrant Shares are not being
registered under the Securities Act on the grounds that the offering and sale of
this Warrant and the offering and sale of such Warrant Shares are exempt from
registration under Section 4(2) of the Securities Act as not involving any
public offering.
11. Registration.
(a) Required Registration. Whenever the Company shall receive
a written request therefor from any holder or holders of at least 10% of the
Registrable Stock, the Company shall promptly prepare and file a registration
statement under the Securities Act covering the offering and sale of the
Registrable Stock which is the subject of such request and shall use its best
efforts to cause such registration statement to become effective as
expeditiously as possible. Upon the receipt of such request, the Company shall
promptly give written notice to all holders of Registrable Stock that such
registration is to be effected. The Company shall include in such registration
statement such Registrable Stock for which it has received written requests to
register such shares by the holders thereof within thirty (30) days after the
effectiveness of the Company's written notice to such other holders. Except as
hereinafter expressly provided, without the written consent of the holders of a
majority of the shares of Registrable Stock for which registration has been
requested pursuant to this Section, neither the Company nor any other holder of
securities of the Company may include securities in such registration.
-14-
<PAGE> 15
(b) Incidental Registration. Each time the Company shall
determine to file a registration statement under the Securities Act (other than
on Form S-8 or Form S-4) in connection with the proposed offer and sale for
money of any of its securities by it or by any of its security holders, the
Company will give written notice of its determination to all holders of
Registrable Stock. Upon the written request of a holder of any Registrable
Stock, the Company will cause all such Registrable Stock, the holders of which
have so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other disposition
by the prospective seller or sellers of the Registrable Stock to be so
registered in accordance with the terms of the proposed offering. If the
registration statement is to cover an underwritten distribution, the Company
shall use its best efforts to cause the Registrable Stock requested for
inclusion pursuant to this Section 11(b) to be included in the underwriting on
the same terms and conditions as the securities otherwise being sold through the
underwriters. If, in the good faith judgment of the managing underwriter of such
public offering, the inclusion of all of the Registrable Stock requested to be
registered would materially and adversely affect the successful marketing of the
other shares proposed to be offered, then the amount of the Registrable Stock to
be included in the offering shall be reduced and the Registrable Stock and the
other shares to be offered shall participate in such offering as follows: the
shares to be sold by the Company, the Registrable Stock to be included in such
offering and the other shares of Common Stock to be included in such offering
shall each be reduced pro rata in proportion to the number of shares of Common
Stock proposed to be included in such offering by each holder of such shares and
by the Company.
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Section 11(a) or 11(b) to effect the registration
of the offering and sale of Registrable Stock under the Securities Act, the
Company will, at its expense, as expeditiously as possible:
(i) In accordance with the Securities Act and the
rules and regulations of the Commission, prepare and file with the Commission a
registration statement on the form of registration statement appropriate with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective until the securities covered by such
registration statement have been sold, and prepare and file with the Commission
such amendments to such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration statement
effective and such registration statement and prospectus accurate and complete
until the securities covered by such registration statement have been sold;
(ii) If the offering is to be underwritten, in whole
or in part, enter into a written underwriting agreement with the holders of the
Registrable Stock participating in such offering and the underwriter in form and
substance reasonably satisfactory to the managing underwriter of the public
offering and the holders of the Registrable Stock participating in such
offering;
(iii) Furnish to the holders of securities
participating in such registration and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
-15-
<PAGE> 16
underwriters and holders may reasonably request in order to facilitate the
public offering of such securities;
(iv) Use its best efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders and
underwriters may reasonably request;
(v) Notify the holders participating in such
registration, promptly after it shall receive notice thereof, of the date and
time when such registration statement and each post-effective amendment thereto
has become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(vi) Notify such holders promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(vii) Prepare and file with the Commission, promptly
upon the request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel for such
holders, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Stock by such
holders;
(viii) Prepare and promptly file with the Commission,
and promptly notify such holders of the filing of, such amendments or
supplements to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event has occurred as the result of which any such prospectus or any other
prospectus as then in effect may include an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(ix) In case any of such holders or any underwriter
for any such holders is required to deliver a prospectus at a time when the
prospectus then in circulation is not in compliance with the Securities Act or
the rules and regulations of the Commission, prepare promptly upon request such
amendments or supplements to such registration statement and such prospectus as
may be necessary in order for such prospectus to comply with the requirements of
the Securities Act and such rules and regulations;
(x) Advise such holders, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
(xi) If requested by the managing underwriter or
underwriters or a holder of Registrable Stock being sold in connection with an
underwritten offering, immediately
-16-
<PAGE> 17
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters and the holders of a majority of the
Registrable Stock being sold agree should be included therein relating to the
plan of distribution with respect to such Registrable Stock, including
information with respect to the Registrable Stock being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Stock to be sold in such offering; and
make all required filings of such prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(xii) Cooperate with the selling holders of
Registrable Stock and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable Stock
to be sold and not bearing any restrictive legends; and enable such Registrable
Stock to be in such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale of
Registrable Securities to the underwriters;
(xiii) Prepare a prospectus supplement or
post-effective amendment to the registration statement or the related prospectus
or any document incorporated therein by reference or file any other required
documents so that, as thereafter delivered to the purchasers of the Registrable
Stock, the prospectus will not contain an untrue statement of material fact or
omit to state any material fact necessary to make the statements therein not
misleading;
(xiv) Enter into such agreements (including an
underwriting agreement) and take all such other actions in connection therewith
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(A) make such representations and warranties
to the holders of such Registrable Stock and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
primary underwritten offerings;
(B) If an underwriting agreement is entered
into, the same shall set forth in full the indemnification provisions and
procedures of Section 11(e) hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) The Company shall deliver such documents
and certificates as may be requested by the holders of the majority of the
Registrable Stock being sold and the managing underwriters, if any, to evidence
compliance with the terms of this Section 11(c) and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company.
The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent required
thereunder;
-17-
<PAGE> 18
(xv) Make available for inspection by a
representative of the holders of a majority of the Registrable Stock, any
underwriter participating in any disposition pursuant to a registration
statement, and any attorney or accountant retained by the sellers or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with the
preparation of the registration statement; provided, that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(xvi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to the Company's security holders, earning statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than forty-five (45)
days after the end of any twelve (12) month period (or ninety (90) days, if such
a period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Stock is sold to underwriters in an underwritten offering, or,
if not sold to underwriters in such an offering, (ii) beginning with the first
month of the Company's first fiscal quarter commencing after the effective date
of a registration statement;
(xvii) Not file any amendment or supplement to such
registration statement or prospectus to which a majority in interest of such
holders has objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the filing thereof; provided,
however, that the failure of such holders or their counsel to review or object
to any amendment or supplement to such registration statement or prospectus
shall not affect the rights of such holders or any controlling person or persons
thereof or any underwriter or underwriters therefor under Section 11(e) hereof;
and
(xviii) At the request of any such holder (i) furnish
to such holder on the effective date of the registration statement or, if such
registration includes an underwritten public offering, at the closing provided
for in the underwriting agreement, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, covering
such matters with respect to the registration statement, the prospectus and each
amendment or supplement thereto, proceedings under state and federal securities
laws, other matters relating to the Company, the securities being registered and
the offer and sale of such securities as are customarily the subject of opinions
of issuer's counsel provided to underwriters in underwritten public offerings,
and such opinion of counsel shall additionally cover such legal and factual
matters with respect to the registration as such requesting holder or holders
may reasonably request, and (ii) use its best effort to furnish to such holder
letters dated each such effective date and such closing date, from the
independent certified public accountants of the Company, addressed to the
underwriters, if any, and to the holder or holders making such request, stating
that they are independent certified public accountants within the meaning of the
Securities Act and dealing with such matters as the
-18-
<PAGE> 19
underwriters may request, or, if the offering is not underwritten, that in the
opinion of such accountants the financial statements and other financial data of
the Company included in the registration statement or the prospectus or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act, and additionally
covering such other financial matters, including information as to the period
ending immediately prior to the date of such letter with respect to the
registration statement and prospectus, as such requesting holder or holders may
reasonably request.
(d) Expenses of Registration. All expenses incident to the
Company's performance of or compliance with this Warrant, including, without
limitation, the following shall be borne by the Company, regardless of whether
the registration statement becomes effective:
(i) All registration and filing fees (including those
with respect to filings required to be made with the National Association of
Securities Dealers, Inc.);
(ii) Fees and expenses of compliance with all
securities or blue sky laws (including fees and disbursements of counsel for the
underwriters or selling holders in connection with blue sky qualifications of
the Registrable Stock and in determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registrable Stock being sold may designate);
(iii) Printing, messenger, telephone and delivery
expenses;
(iv) Fees and disbursements of counsel for the
Company and for the sellers of the Registrable Stock as hereinafter provided;
(v) Fees and disbursements of all independent
certified public accountants of the Company (including the expenses of any
special audit and "comfort" letters required by or incident to such
performance);
(vi) Fees and disbursements of underwriters
(excluding discounts, commissions or fees of underwriters, selling brokers,
dealer managers or similar securities industry professionals relating to the
distribution of the Registrable Stock and legal expenses of any person other
than the Company and the selling holders); and
(vii) Fees and expenses of other persons retained by
the Company.
The Company will, in any event, pay its
internal expenses (including without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities issued by the Company are then listed, rating agency fees and
the fees and expenses of any person, including special experts, retained by the
Company.
-19-
<PAGE> 20
In connection with the registration
statement required hereunder, the Company will reimburse the holders of
Registrable Stock, the offering and sale of which are being registered pursuant
to the registration statement for the reasonable fees and disbursements of not
more than one counsel (or more than one counsel if conflict exists among such
selling holders in the exercise of the reasonable judgment of counsel for the
selling holders and counsel for the Company) chosen by the holders of a majority
of such Registrable Stock.
(e) Indemnification.
(i) The Company hereby agrees to indemnify each of
the holders of Registrable Stock against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, preliminary or final prospectus, or other document
incident to any such registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and to reimburse the holders of Registrable Stock (including officers and
directors of the same and controlling persons) for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by
Warrantholders in an instrument duly executed by Warrantholders and stated to be
specifically for use therein.
(ii) The Warrantholders severally and not jointly
agree to indemnify the Company and its officers and directors and each person,
if any, who controls any thereof within the meaning of Section 15 of the
Securities Act and their respective successors against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance relating to securities purchased pursuant to this Warrant (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading and will reimburse
the Company and each other person indemnified pursuant to this subsection (ii)
for any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that this subsection (ii) shall apply only if (and only to
the extent that) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses to
inquiries) furnished to the Company by an instrument duly executed by
Warrantholders and stated to be specifically for use in such prospectus, or
other document (or related registration statement, notification or the like) or
any amendment or supplement thereto.
-20-
<PAGE> 21
(iii) Each party entitled to indemnification
hereunder (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party (at such Indemnifying Party's
expense) to assume the defense of any claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense at
such party's expense, and provided, further, that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 11(e) except to the
extent that the omission results in a failure of actual notice to the
Indemnifying Party and such Indemnifying Party is materially damaged solely as a
result of the failure to give notice. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(iv) If the indemnification provided for in this
Section 11(e) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any losses, claims, damages, liabilities, expenses or
actions in respect thereof referred to herein, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities, expenses or actions in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand, and the Indemnified Party on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities, expenses or actions as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the Indemnifying Party and the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
Indemnifying Party or the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Warrantholders agree that it would
not be just and equitable if contributions pursuant to this Section 11(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to above. The amount
paid or payable to an Indemnified Party as a result of the losses, claims,
damages, liabilities or actions in respect thereof, referred to above, shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the contribution provisions of this Section 11(e), in
no event shall the amount contributed by any seller of Registrable Stock exceed
the aggregate net offering proceeds received by such seller from the sale of
Registrable Stock to which such contribution or indemnification claim relates.
No person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
(v) The indemnification required by this Section
11(e) shall be made by periodic payments during the course of the investigation
or defense, as and when bills are received
-21-
<PAGE> 22
or expenses incurred. Anything contained herein to the contrary notwithstanding,
the maximum aggregate liability of any holder of Registrable Stock under this
Section 11(e) shall not exceed the amount of the net proceeds actually received
by such holder from the sale of its Registrable Stock pursuant to the
registration, qualification, notification or compliance in respect of which such
liability arose.
(f) Reporting Requirements Under Exchange Act. The Company
shall maintain the registration of its Common Stock under Section 12 of the
Exchange Act and shall keep effective such registration and shall timely file
such information, documents and reports as the Commission may require or
prescribe under Section 13 of the Exchange Act, or otherwise. From and after the
date hereof, the Company shall (whether or not it shall then be required to do
so) timely file such information, documents and reports as the Commission may
require or prescribe under Section 13 or 15(d) (whichever is applicable) of the
Exchange Act. The Company shall forthwith upon request furnish any holder of
Registrable Stock (i) a written statement by the Company that it has complied
with such reporting requirements, (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents
filed by the Company with the Commission as such holder may reasonably request
in availing itself of an exemption for the sale of Registrable Stock without
registration under the Securities Act. The Company acknowledges and agrees that
the purpose of the requirements contained in this Section 11(f) is to enable any
such holder to comply with the current public information requirement contained
in Rule 144 under the Securities Act should such holder ever wish to dispose of
any of the securities of the Company acquired by it without registration under
the Securities Act in reliance upon Rule 144 (or any other similar exemptive
provision). In addition, the Company shall take such other measures and file
such other information, documents and reports as shall hereafter be required by
the Commission as a condition to the availability of Rule 144 and Rule 144A
under the Securities Act (or any similar exemptive provision hereafter in
effect).
(g) Stockholder Information. The Company may require each
holder of Registrable Stock as to which any registration is to be effected
pursuant to this Section 11 to furnish the Company such information with respect
to such holder and the distribution of such Registrable Stock as shall be
required by law or by the Commission in connection therewith.
12. Representation and Warranties. The Company hereby represents
and warrants to and covenants with RHP Management, LLC, each Warrantholder, and
each holder of Warrant Shares that:
(a) Organization and Capitalization of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas. As of the date hereof, the authorized
capital of the Company consists of 25,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock, of which 1,544,166 shares of Common Stock
and no shares of Preferred Stock are issued and outstanding. The Company has,
and at all times during the Exercise Period will have, reserved for issuance
pursuant to this Warrant that number of shares of Common Stock that are issuable
pursuant to this Warrant. Except in respect of the Celebrity, Inc. 1992 Stock
Option Plan and the Celebrity, Inc. 1993 Stock Purchase Plan, no unissued shares
of Common Stock are reserved for any purpose other than for
-22-
<PAGE> 23
issuance upon the exercise of this Warrant (or portion thereof). Except as to
the Celebrity, Inc. 1992 Stock Option Plan, as of the date hereof, the Company
has not issued or agreed to issue any stock purchase rights, options,
convertible securities, warrants (other than this Warrant) or any other
securities or indebtedness convertible into shares of Common Stock, and there
are no preemptive rights in effect with respect to the issuance of any shares of
Common Stock. All the outstanding shares of Common Stock have been validly
issued without violation of any preemptive or similar rights, are fully paid and
nonassessable and have been issued in compliance with all federal and applicable
state securities laws.
(b) Authority. The Company has full corporate power and
authority to execute and deliver this Warrant, to issue the shares of Common
Stock issuable upon exercise of this Warrant, and to perform all of its
obligations hereunder, and the execution, delivery and performance hereof has
been duly authorized by all necessary corporate action on its part. This Warrant
has been duly executed on behalf of the Company and constitutes the legal, valid
and binding obligation of the Company enforceable in accordance with its terms.
(c) No Legal Bar. Neither the execution, delivery or
performance of this Warrant nor the issuance of the shares of Common Stock
issuable upon exercise of this Warrant will (a) conflict with or result in a
violation of the Articles of Incorporation or Bylaws of the Company, (b)
conflict with or result in a violation of any law, statute, regulation, order or
decree applicable to the Company or any affiliate, (c) require any consent or
authorization or filing with, or other act by or in respect of any governmental
authority or (d) result in a breach of, constitute a default under or constitute
an event creating rights of acceleration, termination or cancellation under any
mortgage, lease, contract, franchise, instrument or other agreement to which the
Company is a party or by which it is bound.
(d) Validity of Shares. When issued upon the exercise of this
Warrant as contemplated herein, the shares of Common Stock so issued will have
been validly issued and will be fully paid and nonassessable. On the date
hereof, the par value of the Common Stock is less than the Exercise Price per
share of Common Stock.
13. Continuing Validity. RHP Management, LLC and each holder of
Warrant Shares shall continue to be entitled to all rights to which a
Warrantholder is entitled pursuant to the provisions of this Warrant except such
rights as by their terms apply solely to a Warrantholder, notwithstanding the
fact that this Warrant has been exercised. The Company will, at any time upon
the request of RHP Management, LLC or a holder of the Warrant Shares,
acknowledge in writing, in form reasonably satisfactory to RHP Management, LLC
or such holder, the Company's continuing obligation to afford to RHP Management,
LLC or such holder all rights to which RHP Management, LLC or such holder shall
continue to be entitled in accordance with the provisions of this Warrant;
provided, however, that if RHP Management, LLC or such holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to RHP Management, LLC and such holder all such rights.
-23-
<PAGE> 24
14. Miscellaneous Provisions.
(a) Notice of Expiration. The Company shall give written
notice to the Warrantholders specifically advising them of the Expiration Date
and of their right to exercise this Warrant not more than one hundred eighty
(180) days and not less than ninety (90) days before the Expiration Date. If
such written notice is not so given, the Expiration Date shall automatically be
extended until ninety (90) days after the date that the Company gives the
Warrantholders such written notice.
(b) Governing Law. This Warrant shall be govern by and
construed and enforced in accordance with the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
(c) Notices. Unless otherwise provided in this Warrant, all
notices or demands by any party relating to this Warrant shall be in writing and
(except for financial statements and other informational documents which may be
sent by first-class mail, postage prepaid) shall be personally delivered or sent
by registered or certified mail (postage prepaid, return receipt requested),
overnight courier, or telefacsimile to the Warrantholders or holder of Warrant
Shares, as the case may be, at its address set forth below:
If to Company: CELEBRITY, INC.
4520 Old Troup Highway
Tyler, Texas 75711
Attn: Robert H. Patterson, Jr.
Fax No. 903-509-3631
with copies to: THOMPSON & KNIGHT, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attn: Fred W. Fulton, Esq.
Fax No. 214-969-1751
If to RHP Management, LLC: 4520 Old Troup Highway
Tyler, Texas 75711
Fax No. 903-509-3631
with copies to: POTTER, MINTON, ROBERTS, DAVIS & JONES
500 Plaza Tower
110 North College Street
Tyler, Texas 75702
Attn: James L. Hedrick
Fax No. 903-593-0846
-24-
<PAGE> 25
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other.
(d) Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the Company, RHP Management, LLC, the Warrantholders
and the holders of Warrant Shares and the successors, assigns and transferees of
the Company, RHP Management, LLC, the Warrantholders and the holders of Warrant
Shares.
(e) Attorneys' Fees. The Company agrees to pay, on demand, all
attorneys' fees (including attorneys' fees incurred pursuant to proceedings
arising under Bankruptcy Code) and all other costs and expenses which may be
incurred by RHP Management, LLC, the Warrantholders and the holders of Warrant
Shares in connection with any amendment to this Warrant and/or in connection
with the enforcement of this Warrant, whether or not suit is brought.
(f) Entire Agreement; Amendments and Waivers. This Warrant
sets forth the entire understanding of the parties with respect to the
transactions contemplated hereby. The failure of any party to seek redress for
the violation or to insist upon the strict performance of any term of this
Warrant shall not constitute a waiver of such term and such party shall be
entitled to enforce such term without regard to such forbearance. This Warrant
may be amended, the Company may take any action herein prohibited or omit to
take action herein required to be performed by it, and any breach of or
compliance with any covenant, agreement, warranty or representation may be
waived, only if the Company has obtained the written consent or written waiver
of the majority in interest of the Warrantholders, and then such consent or
waiver shall be effective only in the specific instance and for the specific
purpose for which given.
(g) Severability. If any term of this Warrant as applied to
any person or to any circumstance is prohibited, void, invalid or unenforceable
in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or invalidity without in any way affecting any
other term of this Warrant or affecting the validity or enforceability of this
Warrant or of such provision in any other jurisdiction.
(h) Headings. The headings in this Warrant are inserted only
for convenience of reference and shall not be used in the construction of any of
its terms.
-25-
<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers effective as of the date first set forth above.
CELEBRITY, INC.,
a Texas corporation
By: /s/ LYNN SKILLEN
------------------------------------
Name: Lynn Skillen
Title: Vice President-Finance and
Chief Financial Officer
ATTEST:
By: /s/ DAVID J. HUFFMAN
------------------------------
Name: David J. Huffman
Attest: Executive Vice President-Sales and Marketing
-26-
