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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 29, 1996
Commission file number: 1-11756
PILLOWTEX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2147728
(State of incorporation) (IRS Employer Identification No.)
4111 Mint Way
Dallas, Texas
75237
(Address of principal executive offices)
(Zip Code)
(214) 333-3225
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at August 5, 1996
Common Stock, $0.01 par value 10,617,722
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<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information Page No.
Item 1. Interim Financial Statements:
Consolidated Balance Sheets as of
June 29, 1996 and December 30, 1995 3
Consolidated Statements of Earnings for the three months
ended June 29, 1996 and July 1, 1995 4
Consolidated Statements of Earnings for the six months
ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows for the six months
ended June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
Item 4. Submission of Matter to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Index to Exhibits 13
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, 1996 and December 30, 1995
(Dollars in thousands, except par value)
(Audited, except as noted)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . $ 11 411
Receivables:
Trade, less allowance for doubtful accounts of
$1,926 and $2,195 in 1996 and 1995, respectively. . . 53,275 71,684
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5,275 2,284
Inventories . . . . . . . . . . . . . . . . . . . . . . . 142,505 107,404
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . 2,390 1,644
Deferred income taxes . . . . . . . . . . . . . . . . . . 2,457 2,419
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . 205,913 185,846
Property, plant and equipment, less accum. depreciation
of $38,576 and $33,411 in 1996 and 1995, respectively . . 80,140 84,567
Intangible assets, at cost, less accum. amortization of
$3,144 and $2,500 in 1996 and 1995, respectively. . . . . 50,714 51,779
Other assets . . . . . . . . . . . . . . . . . . . . . . . 2,365 2,518
---------- ----------
$ 339,132 324,710
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 35,950 42,090
Accrued expenses. . . . . . . . . . . . . . . . . . . . . 17,488 21,137
Current portion of long-term debt . . . . . . . . . . . . 11,467 11,916
Income taxes payable. . . . . . . . . . . . . . . . . . . 467 575
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . 65,372 75,718
Long-term debt, net of current portion . . . . . . . . . . 176,207 153,472
Deferred income taxes. . . . . . . . . . . . . . . . . . . 8,129 7,530
Shareholders' equity:
Preferred stock, $0.01 par value; authorized 20,000,000
shares; none issued and outstanding. . . . . . . . . . . - -
Common stock, $0.01 par value; authorized 30,000,000
shares; 10,617,722 shares issued and outstanding . . . . 106 106
Additional paid-in capital. . . . . . . . . . . . . . . . 58,427 58,427
Retained earnings . . . . . . . . . . . . . . . . . . . . 31,036 29,666
Currency translation adjustment . . . . . . . . . . . . . (145) (209)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . 89,424 87,990
---------- ----------
$ 339,132 324,710
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 29, 1996 and July 1, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 91,185 90,788
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 75,570 74,662
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 15,615 16,126
Selling, general and administrative expenses . . . . . . . 9,942 9,978
---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . 5,673 6,148
Interest expense . . . . . . . . . . . . . . . . . . . . . 3,217 4,338
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . 2,456 1,810
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 965 722
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 1,491 1,088
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .14 .10
========== ==========
Weighted average common shares and common share equivalents
outstanding. . . . . . . . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 29, 1996 and July 1, 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 191,979 185,528
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 160,796 152,948
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . 31,183 32,580
Selling, general and administrative expenses . . . . . . . 20,556 20,549
---------- ----------
Earnings from operations . . . . . . . . . . . . . . . . 10,627 12,031
Interest expense . . . . . . . . . . . . . . . . . . . . . 6,615 8,274
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . 4,012 3,757
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,580 1,507
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 2,432 2,250
========== ==========
Net earnings per common share and common
share equivalent . . . . . . . . . . . . . . . . . . . . $ .23 .21
========== ==========
Weighted average common shares and common share equivalents
outstanding. . . . . . . . . . . . . . . . . . . . . . . 10,618 10,618
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 29, 1996 and July 1, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . $ 2,432 2,250
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization . . . . . . . . . . . . . 6,253 5,798
Deferred income taxes . . . . . . . . . . . . . . . . . 560 409
Provision for doubtful accounts . . . . . . . . . . . . (212) 208
Loss on disposal of property, plant and equipment . . . 5 2
Changes in assets and liabilities:
Trade receivables . . . . . . . . . . . . . . . . . . 18,592 19,237
Inventories . . . . . . . . . . . . . . . . . . . . . (35,102) (40,786)
Accounts payable. . . . . . . . . . . . . . . . . . . (1,788) (7,933)
Accrued expenses. . . . . . . . . . . . . . . . . . . (3,528) (266)
Other assets and liabilities. . . . . . . . . . . . . (3,712) (2,101)
---------- ----------
Net cash used in operating activities. . . . . . . . (16,500) (23,182)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment . . . 16 33
Purchases of property, plant and equipment. . . . . . . . (1,368) (6,124)
Payments for businesses purchased . . . . . . . . . . . . (112) (1,670)
---------- ----------
Net cash used in investing activities. . . . . . . . (1,464) (7,761)
---------- ----------
Cash flows from financing activities:
Net borrowings on revolving credit loans. . . . . . . . . 38,100 20,550
Increase (decrease) in checks not yet presented for
payment. . . . . . . . . . . . . . . . . . . . . . . . . (4,006) 11,855
Principal payments on long-term debt. . . . . . . . . . . (15,469) (925)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . (1,062) -
Debt issuance costs . . . . . . . . . . . . . . . . . . . - (317)
---------- ----------
Net cash provided by financing activities. . . . . . 17,563 31,163
---------- ----------
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 1 4
---------- ----------
Net change in cash and cash equivalents. . . . . . . . . . (400) 224
Cash and cash equivalents at beginning of period . . . . . 411 571
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . $ 11 795
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $ 7,961 7,446
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,124 2,621
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PILLOWTEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal, recurring adjustments and accruals, which
are, in the opinion of management, necessary for fair presentation of the
results of operations and financial position. Certain reclassifications have
been made to conform prior year financial statements to the current period
classifications. The consolidated financial statements should be read in
conjunction with the financial statements included in the Company's annual
report on Form 10-K filed with the Securities and Exchange Commission on March
29, 1996 for the fiscal year ended December 30, 1995.
(2) INVENTORIES
Inventories consisted of the following at June 29, 1996 and December 30,
1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Finished goods . . . . . . . . . . . . . . . . . . . $ 67,797 37,670
Work-in-process. . . . . . . . . . . . . . . . . . . 37,083 35,980
Raw materials. . . . . . . . . . . . . . . . . . . . 35,608 31,851
Supplies . . . . . . . . . . . . . . . . . . . . . . 2,017 1,903
---------- ----------
$ 142,505 107,404
========== ==========
</TABLE>
(3) EARNINGS PER COMMON SHARE
Earnings per share and common share equivalent are based on the weighted
average number of common shares outstanding and equivalent shares from dilutive
stock options, if any. As of June 29, 1996 and July 1, 1995, there were stock
options outstanding for 539,615 and 363,941 common shares, respectively. Stock
options are excluded from the calculations since they have no material dilutive
effect on per share data.
(4) ACQUISITIONS
In the first and second quarters of 1996 and fiscal year ended December 30,
1995, the Company made payments related to acquisitions completed in 1994.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 30, 1995.
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended June 29, 1996 increased
$397,000 to $91,185,000 compared to $90,788,000 for the three months ended July
1, 1995. Net sales for the six months ended June 29, 1996 increased $6,451,000
or 3.5% to $191,979,000 compared to $185,528,000 for the same period in 1995.
These increases reflect strong bed pillow, mattress pad and fashion bedding
sales. Blanket sales lagged behind the first half of 1995. Management believes
this shortfall was due primarily to the timing of orders.
GROSS PROFIT. The gross profit percentage for the second quarter ended June
29, 1996 decreased to 17.1% from 17.8% for the second quarter of 1995. For the
six months ended June 29, 1996, the gross profit percentage fell to 16.2% from
17.6% in 1995. The decline was due to several factors including a shift in
blanket sales mix towards lower average margin products and reduced productivity
being experienced at the Company's Newton, N.C. cotton yarn spinning facility.
SG&A. Selling, general and administrative ("SG&A") expenses for the three
months ended June 29, 1996 decreased slightly both in dollars, to $9,942,000
from $9,978,000 for the same period in 1995, and as a percentage of sales, to
10.9% in the second quarter of 1996 from 11.0% for the same period in 1995. For
the six months ended June 29, 1996, SG&A expenses remain virtually flat at
$20,556,000 as compared to $20,549,000 for the six months ended July 1, 1995,
while as a percentage of sales SG&A expenses decreased to 10.7% from 11.1% in
the respective periods. This percentage decrease reflects the continuing focus
of the Company on containing these expenses.
INTEREST. Interest expense for the second quarter of 1996 fell by $1,121,000
or 25.8% to $3,217,000 from $4,338,000 for the same period in 1995. Interest
expense for the six months ended June 29, 1996 decreased by $1,659,000 or 20.1%
to $6,615,000 from $8,274,000 for the six months ended July 1, 1995. Interest
expense fell due to lower borrowings and decreased average interest rates.
NET EARNINGS. Net earnings for the three months ended June 29, 1996
increased $403,000 or 37.0% to $1,491,000 or $.14 per share, compared to net
earnings of $1,088,000, or $.10 per share in 1995. As a percentage of sales,
net earnings for the three months ended June 29, 1996 increased to 1.6% from
1.2% for the same period in 1995. Net earnings for the six months ended June
29, 1996 increased $182,000 or 8.1% to $2,432,000 or $.23 per share, from
$2,250,000 or $.21 per share in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 29, 1996, the outstanding principle balance under the Company's
$150,000,000 secured revolving credit facility was $103,700,000, with
$12,272,000 committed to outstanding letters of credit, and $34,028,000
available for other needs. Availability under the revolving credit facility is
regulated by a borrowing base determined by reference to the Company's accounts
receivable and inventory. The outstanding balance under the Company's
$90,000,000 term loan was $72,900,000. The Company believes that cash flow
generated from operations and funds available under the credit facilities will
be sufficient to satisfy working capital and financing needs, as well as
dividend payments, for the foreseeable future.
On June 26, 1996, the Company paid a dividend of $.05 per share to
shareholders of record on June 12, 1996.
The increase in borrowings in the second quarter of 1996 over the first
quarter was due to seasonal expansion of blanket inventories and to changes in
the timing of blanket orders by retailers for the fall selling season.
Inventories of core Pillowtex products, including pillows, mattress pads, down
comforters, comforter covers and other bedding, declined significantly during
the first six months of 1996 as a result of beneficial changes in quota
regulations and better inventory management.
GOVERNMENT REGULATIONS
As of July 1, 1996, quota restrictions on down comforter shells imported from
China were eliminated, allowing the Company to import shells on an unlimited and
as needed basis. The Company also believes that "rules of origin" marking
regulations currently under final consideration by the Treasury Department
relating to natural fill products will not have a significant impact on the
manufacture or marketing of these products.
FORWARD-LOOKING INFORMATION
Statements contained in this Form 10-Q for the quarter ended June 29, 1996
that are not historical facts, including, but not limited to, statements found
in this Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, are forward-looking statements and involve a number or
risks and uncertainties. The actual results of the future events described in
such forward-looking statements in this Form 10-Q could differ materially from
those stated in such forward-looking statements. Among the factors that could
cause actual results to differ materially are: adverse retail industry
conditions, industry competition and other competitive factors, government
regulation and possible future litigation, loss of material customers,
seasonality of business, the termination of key license agreements, as well as
the risks and uncertainties discussed in this Form 10-Q.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matter to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 29, 1996.
The following proposals were voted upon and approved at the Annual Meeting:
(1) Election of Directors
For Three-Year Terms Expiring in 1999:
Votes Votes
Cast For Withheld
Paul G. Gillease 7,961,378 302,557
Scott E. Shimizu 7,961,238 302,697
There were no abstentions or broker non-votes with respect to this proposal.
Charles M. Hansen, Jr., Jeffrey D. Cordes, Christopher N. Baker, Mary R.
Silverthorne, William B. Madden and M. Joseph McHugh continue as directors of
the Company.
(2) Amendments to the Company's 1993 Stock Option Plan to permit the issuance
of stock appreciation rights and to include employees of all subsidiaries
subject to federal taxation as corporations.
Votes Votes Votes
Cast For Against Abstaining
7,922,598 331,935 9,401
There were broker non-votes with respect to this proposal.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Form of Equipment Leasing Agreement between BTM Financial &
Leasing Corporation B-4 and Beacon Manufacturing Company, Manetta
Home Fashions, Inc. and Tennessee Woolen Mills, Inc. dated as of
June 14, 1996 (without exhibits).
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) PILLOWTEX CORPORATION
BY (SIGNATURE) /s/ Jeffrey D. Cordes
(NAME AND TITLE) Jeffrey D. Cordes, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
(DATE) August 9, 1996
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- -----------------------------
<S> <C> <C>
10 Form of Equipment Leasing Agreement
between BTM Financial & Leasing
Corporation B-4 and Beacon Manufacturing
Company, Manetta Home Fashions, Inc. and
Tennessee Woolen Mills, Inc. dated as of
June 14, 1996 (without exhibits). . . . . Filed herewith electronically
27 Financial Data Schedule . . . . . . . . Filed herewith electronically
</TABLE>
EQUIPMENT LEASING AGREEMENT
EQUIPMENT LEASING AGREEMENT dated as of June 14, 1996 (herein, as amended
and supplemented from time to time, called "this Lease"), between BTM Financial
& Leasing Corporation B-4, a Massachusetts corporation (herein called "Lessor"),
having its principal place of business at 125 Summer Street, Boston,
Massachusetts 02110, and Beacon Manufacturing Company, a North Carolina
corporation (herein called "Lessee"), having its principal place of business at
202 Whitson Avenue, Swannanoa, North Carolina 28778.
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereto agree as follows:
1. Definitions. Unless the context otherwise requires, the following
terms shall have the following meanings for all purposes of this Lease and shall
be equally applicable to both the singular and the plural forms of the terms
herein defined:
"Acceptance Date" for each Item of Equipment means the date on which
Lessee has unconditionally accepted such Item for lease hereunder, as evidenced
by Lessee's execution and delivery of a Lease Supplement for such Item dated
such date.
"Acquisition Cost" of each Item of Equipment means an amount equal to
the sum of (i) the total cost paid by Lessor for such Item, plus (ii) all sales
and excise taxes paid by Lessor on or with respect to the acquisition of such
Item, plus (iii) all costs and expenses approved and paid by Lessor in
connection with the delivery and installation of such Item.
"Acquisition Period" means the period specified as such on each
consecutively numbered Related Exhibit A now or hereafter attached hereto and
made a part hereof.
"Asset Group" means the particular asset group to which an Item of
Equipment is assigned as set forth on the Related Exhibit A for such Item.
"Assignee" shall have the meaning given to such term in Section 14(b)
hereof.
"Basic Rent" means the rent payable for each Item of Equipment during
(i) the Basic Term thereof pursuant to Section 7(b) hereof, and (ii) each
Renewal Term thereof pursuant to Section 29(a) hereof.
"Basic Term" for each Item of Equipment means the period consisting of
the number of months set forth for the type of Equipment and Asset Group to
which such Item relates on the Related Exhibit A for such Item.
"Basic Term Commencement Date" for each Item of Equipment means the
date specified as such on the Related Exhibit A for such Item.
"Business Day" means any day other than a day on which banking
institutions in the Commonwealth of Massachusetts or the State of North Carolina
or the State of Texas are authorized by law to close.
"Casualty Loss Value" of each Item of Equipment as of any Casualty
Loss Value Payment Date means an amount determined by multiplying the
Acquisition Cost of such Item of Equipment by the percentage set forth opposite
such Casualty Loss Value Payment Date on the Schedule of Casualty Loss Values
with respect to the Asset Group to which such Item relates attached to the
Related Exhibit A for such Item.
"Casualty Loss Value Payment Date" of each Item of Equipment shall
mean the Basic Term Commencement Date for such Item and the same day of each
month thereafter and shall be as set forth in the Schedule of Casualty Loss
Values attached to the Related Exhibit A for such Item.
"Code" means the Internal Revenue Code of 1986, as the same may be
amended from time to time, or any comparable successor law.
"Equipment" means the equipment of the type(s) described on each
consecutively numbered Related Exhibit A now or hereafter attached hereto and
made a part hereof and leased or to be leased by Lessor to Lessee hereunder or
ordered by Lessor for lease to Lessee hereunder, together with any and all
accessions, additions, improvements and replacements from time to time
incorporated or installed therein which are the property of Lessor pursuant to
the terms of this Lease.
"Event of Default" means any of the events referred to in Section 23
hereof.
"Event of Loss" with respect to any Item of Equipment means (i) the
loss of such Item of Equipment or any substantial part thereof, or (ii) the loss
of the use of such Item of Equipment due to theft or disappearance for a period
in excess of 45 days during the Term, or existing at the expiration or earlier
termination of the Term, or (iii) the destruction, damage beyond repair, or
rendition of such Item of Equipment or any substantial part thereof permanently
unfit for normal use for any reason whatsoever, or (iv) the condemnation,
confiscation, seizure, or requisition of use or title to such Item of Equipment
or any substantial part thereof by any governmental authority under the power of
eminent domain or otherwise.
"Guarantor" means any guarantor of Lessee's obligations hereunder.
"Guaranty" means any guaranty of Lessee's obligations hereunder
executed by a Guarantor.
"Interim Rent" means the rent payable for each Item of Equipment for
the Interim Term thereof pursuant to Section 7(a) hereof.
"Interim Term" for each Item of Equipment means the period commencing
on the Acceptance Date for such Item (unless the Acceptance Date is the Basic
Term Commencement Date, in which case there shall be no Interim Term for such
Item) and ending on the date immediately prior to the Basic Term Commencement
Date.
"Item of Equipment" or "Item" means a single unitary item of the
Equipment.
"Lease Supplement" means a Lease Supplement substantially in the form
attached hereto as Exhibit B, to be executed by Lessor and Lessee with respect
to each Item of Equipment as provided in Section 4 hereof, evidencing that such
Item is leased hereunder.
"Lien" means liens, mortgages, encumbrances, pledges, charges and
security interests of any kind.
"Manetta Home Fashions Lease" means the Equipment Leasing Agreement
dated as of June 14, 1996, between Lessor as lessor and Manetta Home Fashions,
Inc. as lessee.
"Maximum Acquisition Cost" means the amount specified as such on each
consecutively numbered Related Exhibit A now or hereafter attached hereto and
made a part hereof. With respect to Exhibit A-1 hereto, the aggregate
Acquisition Cost of all Items of Equipment leased under Exhibit A-1 to this
Lease, Exhibit A-1 to the Manetta Home Fashions Lease and Exhibit A-1 to the
Tennessee Woolen Mills Lease shall not exceed the Maximum Acquisition Cost set
forth on Exhibit A-1 hereto.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, trustee(s) of a trust,
unincorporated organization, or government or governmental authority, agency or
political subdivision thereof.
"Related Exhibit A" means, with respect to an Item of Equipment, the
particular numbered Exhibit A now or hereafter attached hereto and made a part
hereof to which such Item relates as specified in Section 4 hereof.
"Renewal Term" for each Item of Equipment means each period following
the end of the Basic Term for such Item with respect to which Lessee has the
option to renew this Lease pursuant to Section 29(a) hereof.
"Rent" means Interim Rent and Basic Rent.
"Rent Payment Date" for each Item of Equipment means (i) for the Basic
Term thereof, each date on which a payment of Basic Rent is due and payable for
such Item pursuant to Section 7(b) hereof, (ii) for the Interim Term thereof (if
any), the Basic Term Commencement Date for such Item, and (iii) for each Renewal
Term thereof, each date on which a payment of Basic Rent is due and payable for
such Item as provided in Section 29(a) hereof.
"Rental Period" for each Item of Equipment means (i) for the Interim
Term of such Item, the period from and inclusive of the Acceptance Date for such
Item to, but not inclusive of, the Basic Term Commencement Date for such Item,
(ii) for the Basic Term of such Item, each period for which a payment of Basic
Rent is to be made for such Item during the Basic Term thereof as set forth on
the Related Exhibit A for such Item (opposite the reference to Rental Periods
for Basic Term), and (iii) for each Renewal Term of such Item, each period for
which a payment of Basic Rent is to be made for such Item during such Renewal
Term as set forth on the Related Exhibit A for such Item (opposite the reference
to Rental Periods for Renewal Term).
"Supplemental Payments" means all amounts, liabilities and obligations
which Lessee assumes or agrees to pay hereunder to Lessor or others, including
payments of Casualty Loss Value and indemnities, but excluding Basic Rent and
Interim Rent.
"Tennessee Woolen Mills Lease" means the Equipment Leasing Agreement
dated as of June 14, 1996, between Lessor as lessor and Tennessee Woolen Mills,
Inc. as lessee.
"Term" means the full term of the Lease with respect to each Item of
Equipment, including the Interim Term (if any), the Basic Term, and each Renewal
Term.
The words "this Lease", "herein", "hereunder", "hereof" or other like words
mean and include this Equipment Leasing Agreement, each Related Exhibit A, each
Lease Supplement, and each amendment and supplement hereto and thereto.
2. Agreement for Lease of Equipment. Subject to, and upon all of the
terms and conditions of this Lease, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor each Item of Equipment for the Term
with respect to such Item. Provided that no Event of Default has occurred and
is continuing hereunder, Lessor agrees that it shall not interfere with Lessee's
quiet enjoyment and use of any Item of Equipment leased hereunder during the
Term thereof.
3. Conditions Precedent. Lessor shall have no obligation to purchase any
Item of Equipment and to lease the same to Lessee unless each of the following
conditions are fulfilled to the satisfaction of Lessor: (i) no event which is
(or with notice or lapse of time or both would become) an Event of Default or
Event of Loss has occurred and is continuing, nor has any information come to
Lessor's attention from which Lessor could reasonably and in good faith infer
that such event might occur; (ii) no material adverse change in the financial
condition of Lessee (or of any Guarantor) which, in Lessor's reasonable opinion,
would impair the ability of Lessee to pay and perform its obligations under this
Lease (or of any Guarantor to pay and perform such obligations) has occurred
since the date specified as the Financial Condition Reference Date on the
Related Exhibit A for such Item; (iii) such Item of Equipment is acceptable to
Lessor, and is free of all Liens, other than any Lien specifically excepted in
Section 15 hereof; (iv) the Acceptance Date for such Item of Equipment is a date
within the Acquisition Period specified on the Related Exhibit A for such Item
and Lessee has executed and delivered to Lessor the Related Exhibit A for such
Item; (v) the Acquisition Cost of such Item of Equipment, when added to the
total Acquisition Cost of all Equipment of the type to which such Item relates
and which has been leased hereunder or ordered by Lessor for lease hereunder,
will not be such an amount so as to cause the Maximum Acquisition Cost specified
on the Related Exhibit A for such Item to be exceeded; (vi) Lessor has received
an invoice for such Item of Equipment from the seller thereof, approved for
payment by Lessee, showing Lessor as the purchaser of such Item, or, if Lessee
is the seller of such Item, a bill of sale for such Item from Lessee to Lessor
in form and substance reasonably satisfactory to Lessor, together with evidence,
satisfactory to Lessor, of Lessee's payment to the original seller of such Item,
(vii) Lessor has received a Lease Supplement for such Item, duly executed by
Lessee, and dated the Acceptance Date for such Item; (viii) if such Item of
Equipment is subject to motor vehicle titling and registration laws, Lessor has
received a copy of the application for certificate of title therefor, as filed
with, and bearing the filing stamp of, the appropriate department of motor
vehicles or other appropriate state authority, and a copy of the manufacturer's
statement or certificate of origin therefor, reflecting Lessor or its nominee as
owner and whomever Lessor shall have designated (if any) as first lienholder;
(ix) all licenses, registrations, permits, consents and approvals required by
Federal, state or local laws or by any governmental body, agency or authority in
connection with Lessor's ownership of, and the delivery, acquisition,
installation, use and operation of, each Item of Equipment shall have been
obtained to the satisfaction of Lessor; and (x) Lessee shall have delivered to
Lessor valid and effective waivers, in recordable form, by the owners, landlords
and mortgagees of the real property upon which the Equipment or any Item of
Equipment is located or certificates of Lessee that it is the owner of such real
property or that such real property is not leased and/or mortgaged; and (xi)
Lessor shall have received such other documents, appraisals, opinions,
certificates and waivers relating to this Lease and the Equipment, in form and
substance satisfactory to Lessor, as Lessor may reasonably require.
4. Delivery, Acceptance and Leasing of Equipment. Lessor shall not be
liable to Lessee for any failure or delay in obtaining any Item of Equipment or
making delivery thereof. Forthwith upon delivery of each Item of Equipment to
Lessee, Lessee will inspect such Item, and unless Lessee gives Lessor prompt
written notice of any defect in or other proper objection to such Item, Lessee
shall promptly upon completion of such inspection execute and deliver to Lessor
a Lease Supplement for such Item, dated the Acceptance Date of such Item. The
execution by Lessor and Lessee of a Lease Supplement for an Item of Equipment
shall (a) evidence that such Item is leased under, and is subject to all of the
terms, provisions and conditions of, this Lease, and (b) constitute Lessee's
unconditional and irrevocable acceptance of such Item for all purposes of this
Lease, provided that the terms of this provision shall not be construed to
affect Lessee's rights pursuant to Section 21 to assert any claims against the
manufacturer or seller of any Item. An Item of Equipment shall be conclusively
deemed to relate to the particular numbered Exhibit A now or hereafter attached
hereto and made a part hereof on which is set forth (i) a description of such
Item or the type of Equipment to which such Item relates and (ii) the
Acquisition Period within which the Acceptance Date for such Item has occurred.
5. Term. The Interim Term (if any) for each Item of Equipment shall
commence on the Acceptance Date thereof, and, unless sooner terminated pursuant
to the provisions hereof, shall end on the date immediately prior to the Basic
Term Commencement Date thereof. The Basic Term for each Item of Equipment shall
commence on the Basic Term Commencement Date thereof and, unless this Lease is
sooner terminated with respect to such Item (or all Equipment) pursuant to the
provisions hereof, shall end on the date specified therefor in the Lease
Supplement for such Item. If not sooner terminated pursuant to the provisions
hereof, the Term for each Item of Equipment shall end on the last day of the
Basic Term thereof, or if this Lease is renewed pursuant to Section 29(a)
hereof, on the last day of the last Renewal Term thereof.
6. Return of Equipment.
(a) Upon the expiration or earlier termination of the Term with respect to
each Item of Equipment (unless Lessee has exercised its purchase option with
respect thereto pursuant to Section 29(b) hereof), Lessee will, at its expense,
surrender and deliver possession of each Item of Equipment to Lessor at the
location at which Lessee last used such Item. At the time of such return to
Lessor, each Item of Equipment (and each part or component thereof) shall (i) be
in good operating order, and in the repair and condition as when originally
delivered to Lessee, ordinary wear and tear from proper use thereof excepted,
(ii) be carefully packaged in shipping crates in a manner which would be
acceptable for shipping by an independent shipping company, (iii) be capable of
being immediately assembled and operated by a third party purchaser or third
party lessee without further inspection, repair, replacement, alterations or
improvements (excluding third party peculiar requirements for compatibility with
then existing third party products, equipment or facilities), and in accordance
and compliance with any and all statutes, laws, ordinances, rules and
regulations of any Federal, state or local governmental body, agency or
authority applicable to the use and operation of such Item of Equipment, and
(iv) be free and clear of all Liens, other than any Lien granted or placed
thereon by Lessor or any Assignee. If any Item of Equipment is originally
equipped with tires, such Item shall, in addition to satisfying the requirements
of the preceding sentence, be returned with all tires installed thereon, with
each tire having at least fifty percent (50%) or more tread remaining thereon.
In the event that Lessee returns any Item of Equipment prior to the end of the
Basic Term hereof for any reason whatsoever, Lessee shall pay a fee (the "Return
Fee") equal to, with respect to Items of Equipment in Asset Group A, thirty-five
(35%) of the Acquisition Cost of such Item of Equipment, and with respect to
Items of Equipment in Asset Group B, twenty-three (23%) of the Acquisition Cost
of such Item of Equipment. Lessor shall notify Lessee within sixty (60) days of
the return of any Item of Equipment to Lessor of any failure of such Item of
Equipment to be in the conditions required by this Section.
(b) Until each such Item of Equipment has been returned to Lessor in the
condition and as otherwise provided in this Section 6, Lessee shall continue to
pay Lessor, on the same dates on which Basic Rent for such Item was payable
during the Basic Term thereof (or, if the Term of such Item has been renewed
pursuant to Section 29(a), the most recent Renewal Term thereof), the same Basic
Rent for such Item that was payable on the last Rent Payment Date of the Basic
Term thereof (or, if the Term of such Item has been renewed pursuant to Section
29(a), the same Basic Rent that was payable on the last Rent Payment Date of the
most recent Renewal Term); provided, that during such holdover period, Lessee
shall use its best efforts to secure the return of the Equipment as required
under this Section 6. The provision for payment pursuant to this Section 6(b)
shall not be in abrogation of Lessor's right under this Section 6 to have such
Equipment returned to it hereunder.
(c) The provisions of this Section 6 are of the essence of this Lease, and
upon application to any court of equity having jurisdiction in the premises,
Lessor shall be entitled to a decree against Lessee requiring specific
performance of the covenants of Lessee set forth in this Section 6.
7. Rent.
(a) Interim Rent. Lessee hereby agrees to pay Lessor Interim Rent
for each Item of Equipment as to which there is an Interim Term, payable on the
Rent Payment Date of the Interim Term for such Item, in the amount obtained by
multiplying (i) the Acquisition Cost of such Item by (ii) the percentage set
forth (opposite the Interim Rent Percentage reference by Asset Group) on the
Related Exhibit A for such Item, by (iii) the number of days from and including
the Acceptance Date for such Item through the end of the Interim Term for such
Item.
(b) Basic Rent. Lessee hereby agrees to pay Lessor Basic Rent for
each Item of Equipment during the Basic Term thereof at the times and on the
Rent Payment Dates set forth on the Related Exhibit A for such Item and in an
amount obtained by multiplying (i) the Acquisition Cost of such Item by (ii) the
percentage of Acquisition Cost set forth (opposite the Basic Rent Percentage
reference by Asset Group) on such Related Exhibit A.
(c) Supplemental Payments. Lessee also agrees to pay to Lessor, or
to whomsoever shall be entitled thereto as expressly provided herein, all
Supplemental Payments, promptly as the same shall become due and owing, and in
the event of any failure on the part of Lessee so to pay any such Supplemental
Payment hereunder Lessor shall have all rights, powers and remedies provided for
herein or by law or equity or otherwise in the case of nonpayment of Rent.
(d) Method of Payment. All payments of Rent and Supplemental
Payments required to be made by Lessee to Lessor shall be made in good funds.
If the date that any payment of Rent is due is other than a Business Day the
payment of Rent otherwise payable on such date shall be payable on the next
succeeding Business Day. In the event of any assignment to an Assignee pursuant
to Section 14(b) hereof, all payments which are assigned to such Assignee,
whether Rent, Supplemental Payments or otherwise, shall be paid in such manner
as shall be designated by Lessor or such Assignee. All payments of Rent
required to be made by Lessee to Lessor hereunder shall be paid to Lessor at its
address specified at the beginning of this Lease or at such other address as
Lessor may hereafter designate in writing to Lessee. Time is of the essence in
connection with the payment of Rent and Supplemental Payments.
8. Net Lease. This Lease is a net lease. Lessee acknowledges and agrees
that its obligations hereunder, including, without limitation, its obligations
to pay Rent for all Equipment leased hereunder and to pay all Supplemental
Payments payable hereunder, shall be unconditional and irrevocable under any and
all circumstances, shall not be subject to cancellation, termination,
modification or repudiation by Lessee, and shall be paid and performed by Lessee
without notice or demand and without any abatement, reduction, diminution,
setoff, defense, counterclaim or recoupment whatsoever, including, without
limitation, any abatement, reduction, diminution, setoff, defense, counterclaim
or recoupment due or alleged to be due to, or by reason of, any past, present or
future claims which Lessee may have against Lessor, any Assignee, any
manufacturer or supplier of the Equipment or any Item thereof, or any other
Person for any reason whatsoever, or any defect in the Equipment or any Item
thereof, or the condition, design, operation or fitness for use thereof, any
damage to, or any loss or destruction of, the Equipment or any Item thereof, or
any Liens or rights of others with respect to the Equipment or any Item thereof,
or any prohibition or interruption of or other restriction against Lessee's use,
operation or possession of the Equipment or any Item thereof, for any reason
whatsoever, or any interference with such use, operation or possession by any
Person or entity, or any default by Lessor in the performance of any of its
obligations herein contained, or any other indebtedness or liability, howsoever
and whenever arising, of Lessor, or of any Assignee, or of Lessee to any other
Person, or by reason of insolvency, bankruptcy or similar proceedings by or
against Lessor, any Assignee or Lessee, or for any other reason whatsoever,
whether similar or dissimilar to any of the foregoing, any present or future law
to the contrary notwithstanding; it being the intention of the parties hereto
that all Rent and Supplemental Payments payable by Lessee hereunder shall
continue to be payable in all events and in the manner and at the times herein
provided, without notice or demand, unless the obligation to pay the same shall
be terminated pursuant to the express provisions of this Lease.
9. Lessor's Title; Equipment to be and Remain Personal Property. Title
to the Equipment shall at all times remain in Lessor and at no time during the
Term shall title become vested in Lessee. This Lease is and is intended to be a
true lease and not a lease intended as security or a lease in the nature of a
security interest. Lessee shall acquire no right, title or interest in or to
the Equipment, except the right to use the same pursuant to the terms of this
Lease. It is the intention and understanding of both Lessor and Lessee, and
Lessee shall take all such actions as may be required to assure, that the
Equipment shall be and at all times remain personal property, notwithstanding
the manner in which the Equipment may be attached or affixed to realty. Lessee
shall obtain and record such instruments and take such steps as may be necessary
to prevent any Person from acquiring any rights in the Equipment by reason of
the Equipment being claimed or deemed to be real property. Upon request by
Lessor, Lessee shall obtain and deliver to Lessor valid and effective waivers,
in recordable form, by the owners, landlords and mortgagees of the real property
upon which the Equipment or any Item of Equipment is located or certificates of
Lessee that it is the owner of such real property or that such real property is
not leased and/or mortgaged; or in lieu of any such waiver, Lessee may provide
an opinion of independent counsel reasonably satisfactory to Lessor in a form
reasonably satisfactory to Lessor that no owner, landlord or mortgagee of the
real estate upon which an Item of Equipment is located may acquire an interest
in such Item superior to the interest of Lessor or any Assignee pursuant to the
laws of the jurisdiction in which such Item is located. Lessee shall cause each
Item of Equipment subject to motor vehicle titling and registration laws to be
titled in the name of Lessor, as owner, and, if permitted by applicable law, to
be registered in the name of Lessee, as lessee, and shall cause all certificates
of title to be promptly furnished to Lessor.
10. Use of Equipment; Compliance with Laws. Lessee agrees that the
Equipment will be used and operated solely in the conduct of its business and in
compliance with any and all insurance policy terms, conditions and provisions
and with all statutes, laws, ordinances, rules and regulations of any Federal,
state or local governmental body, agency or authority applicable to the use and
operation of the Equipment, including, without limitation, environmental, noise
and pollution laws (including notifications and reports). Lessee shall procure
and maintain in effect all licenses, registrations, certificates, permits,
approvals and consents required by Federal, state or local laws or by any
governmental body, agency or authority in connection with the ownership,
delivery, installation, use and operation of each Item of Equipment, including,
without limitation, those required by environmental, noise and pollution laws
(including notifications and reports), and including, in the case of any Item
subject to motor vehicle titling and registration laws, all titles,
registrations, registration plates, permits, licenses, and all renewals thereof.
The Equipment will at all times be and remain in the possession and control of
Lessee. Lessee shall notify Lessor of any change in its principal place of
business set forth above. Lessee shall not change the location of any Item of
Equipment as specified in the Lease Supplement with respect thereto without
delivering prior written notice to Lessor of the new location to which such Item
will be moved and receiving Lessor's prior written consent to such move which
consent shall not be unreasonably withheld. Other than as specifically
authorized by Lessor in writing, the Equipment shall in no event be used or
located outside of the continental limits of the United States. Lessee shall
use and operate the Equipment or cause it to be used and operated only by
personnel authorized by Lessee, and Lessee shall use every reasonable precaution
to prevent loss or damage to each Item of Equipment from fire and other hazards.
11. Maintenance and Repair of Equipment. Lessee agrees, at its own cost
and expense, to keep, repair, maintain and preserve the Equipment in good order
and operating condition, and in compliance with such maintenance and repair
standards and procedures as are set forth in the manufacturer's manuals
pertaining to the Equipment, and as otherwise may be required to enforce
warranty claims against each vendor and manufacturer of each Item of Equipment,
and in compliance with all requirements of law applicable to the maintenance and
condition of the Equipment, including, without limitation, environmental, noise
and pollution laws and regulations (including notifications and reports).
Lessee shall, at its own cost and expense, supply the necessary power and other
items required in the operation of the Equipment. Lessee hereby waives any
right now or hereafter conferred by law to make repairs on the Equipment at the
expense of Lessor.
12. Replacements; Alterations; Modifications. In case any Item of
Equipment (or any equipment, part or appliance therein) is required to be
altered, added to, replaced or modified in order to comply with any laws,
regulations, requirements or rules ("Required Alteration") pursuant to Sections
10 or 11 hereof, Lessee agrees to make such Required Alteration at its own
expense and the same shall immediately be and become the property of Lessor and
subject to the terms of this Lease. Lessee may make any optional alteration to
any Item of Equipment ("Optional Alteration") provided such Optional Alteration
does not impair the value, use or remaining useful life of such Item of
Equipment. In the event such Optional Alteration is readily removable without
causing material damage to the Item of Equipment, and is not a part, item of
equipment or appliance which replaces any part, item of equipment or appliance
originally incorporated or installed in or attached to such Item of Equipment on
the Acceptance Date therefor or any part, item of equipment or appliance in
replacement of or substitution for any such original part, item of equipment or
appliance, any such Optional Alteration shall be and remain the property of
Lessee. To the extent such Optional Alteration is not readily removable without
causing material damage to the Item of Equipment to which such Optional
Alteration has been made, or is a part, item of equipment or appliance which
replaces any part, item of equipment or appliance originally incorporated or
installed in or attached to such Item of Equipment on the Acceptance Date
therefor or any part, item of equipment or appliance in replacement of or
substitution for any such original part, item of equipment or appliance, the
same shall immediately be and become the property of Lessor and subject to the
terms of this Lease. Lessee agrees that, within 30 days after the close of any
calendar quarter in which Lessee has made any Required Alterations, Lessee will
give written notice thereof to Lessor describing, in reasonable detail, the
Required Alterations and specifying the cost thereof with respect to each Item
of Equipment and the date or dates when made. Any parts installed or
replacements made by Lessee upon any Item of Equipment pursuant to its
obligation to maintain and keep the Equipment in good order, operating condition
and repair under Section 11 hereof shall be considered accessions to such Item
of Equipment and title thereto shall be immediately vested in Lessor. Except as
required or permitted by the provisions of this Section 12, Lessee shall not
modify an Item of Equipment without the prior written authority and approval of
Lessor.
13. Identification Marks; Inspection. Lessee agrees, upon the request of
Lessor, at Lessee's sole cost and expense, to place markings on the Equipment by
stencil or by a metal tag or plate affixed thereto showing plainly, distinctly
and conspicuously Lessor's title and ownership thereto; provided, however, that
such identification markings are to be placed so as not to interfere with the
usefulness of such Item of Equipment. If during the Term any such
identification marking shall at any time be defaced or destroyed, Lessee shall
immediately cause such defaced or destroyed identification marking to be
restored or replaced. Lessee shall not allow the name of any Person to be
placed upon any Item of Equipment as a designation which might be interpreted as
indicating a claim of ownership thereto or a security interest therein by any
Person other than Lessor or any Assignee. Upon the request of Lessor and upon
reasonable notice and during Lessee's normal business hours, Lessee shall make
the Equipment available to Lessor for inspection at Lessee's facility
(including, without limitation, the use of photographic and video equipment) and
shall also make Lessee's records pertaining to the Equipment available to Lessor
for inspection.
14. Assignment and Subleasing.
(a) By Lessee. LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS
HEREUNDER AND ANY ATTEMPTED ASSIGNMENT, TRANSFER OR ENCUMBERING BY LESSEE SHALL
BE NULL AND VOID. LESSEE MAY, WITHOUT LESSOR'S CONSENT, SUBLEASE ANY ITEM OF
EQUIPMENT TO AN AFFILIATE OF LESSEE PROVIDED THAT (i) NO EVENT OF DEFAULT HAS
OCCURRED AND IS CONTINUING HEREUNDER, (ii) ANY SUCH SUBLEASE SHALL BE SUBJECT
AND SUBORDINATE IN ALL RESPECTS TO THIS LEASE AND THE RIGHTS OF LESSOR (AND ANY
ASSIGNEE) HEREUNDER, (iii) THE SUBLEASE TERM SHALL IN NO EVENT EXCEED THE THEN
REMAINING PORTION OF THE TERM OF SUCH ITEM OF EQUIPMENT, AND ANY RENEWAL TERM
THEREOF, (iv) LESSEE WILL PROVIDE LESSOR WITH THE NAME AND ADDRESS OF EACH SUCH
SUBLESSEE AND THE LOCATION OF EACH SUBLEASED ITEM OF EQUIPMENT, WHICH LOCATION
WILL NOT WITHOUT THE EXPRESS WRITTEN CONSENT OF LESSOR BE OUTSIDE OF THE
CONTINENTAL LIMITS OF THE UNITED STATES, AND (v) LESSEE SHALL, AND SHALL CAUSE
ANY SUCH SUBLESSEE TO, EXECUTE AND DELIVER SUCH INSTRUMENTS (INCLUDING SUBLEASE
AGREEMENTS AND UNIFORM COMMERCIAL CODE FINANCING STATEMENTS) AS MAY BE
REASONABLY REQUESTED BY LESSOR IN CONNECTION WITH ANY SUCH SUBLEASE, AND TO
PROVIDE COPIES OF EACH SUBLEASE AGREEMENT TO LESSOR UPON LESSOR'S WRITTEN
REQUEST. NO SUCH SUBLEASING BY LESSEE WILL REDUCE ANY OF THE OBLIGATIONS OF
LESSEE HEREUNDER OR THE RIGHTS OF LESSOR (AND ANY ASSIGNEE) HEREUNDER, AND ALL
OF THE OBLIGATIONS OF LESSEE HEREUNDER SHALL BE AND REMAIN PRIMARY AND SHALL
CONTINUE IN FULL FORCE AND EFFECT AS THE OBLIGATIONS OF A PRINCIPAL AND NOT OF A
GUARANTOR OR SURETY. ANY SUBLEASE SHALL, IF REQUESTED BY LESSOR (OR ANY
ASSIGNEE) BE ASSIGNED BY THE LESSEE (WITH SUCH ASSIGNMENT TO BE CONSENTED TO BY
THE SUBLESSEE THEREOF) TO LESSOR OR ANY SUCH ASSIGNEE.
(b) By Lessor. Lessor may, at any time, without notice to, or the
consent of, Lessee sell, assign, transfer or grant a security interest in all or
any part of Lessor's rights, obligations, title or interest in, to and under the
Equipment or any Item(s) thereof, this Lease, any Lease Supplement and/or any
Rent and Supplemental Payments payable under this Lease or any Lease Supplement.
Lessor agrees that, with respect to each Asset Group, in the event that Lessor
makes a partial assignment of Lessor's rights, obligations, title or interest
hereunder, there shall be no more than four Assignees at any one time. Any
entity to whom any such sale, assignment, transfer or grant of security interest
is made is herein called an "Assignee" and any such sale, assignment, transfer
or grant of security interest is herein called an "assignment". An Assignee may
re-assign and/or grant a security interest in any of such rights, obligations,
title or interest assigned to such Assignee. Lessee agrees to execute related
acknowledgments and other documents that may be reasonably requested by Lessor
or an Assignee. Each Assignee shall have and may enforce all of the rights and
benefits of Lessor hereunder with respect to the Item(s) of Equipment and
related Lease Supplement(s) covered by the assignment, including, without
limitation, the provisions of Section 8 hereof and Lessee's representations and
warranties under Section 22 hereof. Lessee acknowledges that any such
assignment will not materially change its duties or materially increase its
burdens or risks hereunder. Each such assignment shall be subject to Lessee's
rights hereunder so long as no Event of Default has occurred and is continuing
hereunder. Lessee shall be under no obligation to any Assignee except upon
written notice of such assignment from Lessor or, in the case of a reassignment,
from the Assignee. Upon written notice to Lessee of an assignment, Lessee
agrees to pay the Rent and Supplemental Payments with respect to the Item(s) of
Equipment covered by such assignment to such Assignee in accordance with the
instructions specified in such notice without any abatement, defense, setoff,
counterclaim or recoupment whatsoever, and to otherwise comply with all notices,
directions and demands which may be given by Lessor or such Assignee with
respect to such Item(s), in accordance with the provisions of this Lease.
Notwithstanding any such assignment, all obligations of Lessor to Lessee under
this Lease shall be and remain enforceable by Lessee against Lessor and any
Assignee to whom an assignment has been made.
15. Liens. Lessee will not directly or indirectly create, incur, assume
or suffer to exist any Lien on or with respect to (i) the Equipment or any Item
thereof, Lessor's title thereto or any interest therein, or (ii) this Lease or
any of Lessor's interests hereunder, except any Lien granted or placed thereon
by Lessor or any Assignee pursuant to Section 14(b) hereof and except for any
materialmen's, mechanics', workmen's, repairmen's, employees' storage or other
like Liens arising in the ordinary course of business, which are not delinquent
or are being contested by Lessee in good faith by appropriate proceedings and
where, in Lessor's opinion (or in the opinion of any Assignee to whom the rights
with respect to the affected Equipment have been assigned pursuant to Section
14(b) hereof) there is no danger of the sale, forfeiture or loss of the
Equipment or any part or Item thereof. Lessee, at its own expense, will
promptly pay, satisfy and otherwise take such actions as may be necessary to
keep this Lease and the Equipment free and clear of, and to duly discharge or
eliminate or bond in a manner satisfactory to Lessor and each Assignee, any such
Lien not excepted above if the same shall arise at any time. Lessee will notify
Lessor and each Assignee in writing promptly upon becoming aware of any tax or
other Lien (other than any lien excepted above) that shall attach to the
Equipment or any Item of Equipment, and of the full particulars thereof.
16. Loss, Damage or Destruction.
(a) Risk of Loss, Damage or Destruction. Lessee hereby assumes all
risk of loss, damage, theft, taking, destruction, confiscation, requisition or
commandeering, partial or complete, of or to each Item of Equipment, however
caused or occasioned, such risk to be borne by Lessee with respect to each Item
of Equipment from the date of this Lease, and continuing until such Item of
Equipment has been returned to Lessor in accordance with the provisions of
Section 6 hereof or has been purchased by Lessee in accordance with the
provisions of Section 29(b) hereof. Lessee agrees that no occurrence specified
in the preceding sentence shall impair, in whole or in part, any obligation of
Lessee under this Lease, including, without limitation, the obligation to pay
Rent.
(b) Payment of Casualty Loss Value Upon an Event of Loss. If an
Event of Loss occurs with respect to an Item of Equipment during the Term
thereof, Lessee shall give Lessor prompt written notice thereof and shall pay to
Lessor on the Casualty Loss Value Payment Date next following the date of such
Event of Loss (or on the last day of the Term if there is no succeeding Casualty
Loss Value Payment Date) the sum of (i) all unpaid Interim Rent and Basic Rent
payable for such Item of Equipment for any Rental Period prior to the Rental
Period in which the Event of Loss has occurred, plus (ii) (x) if Basic Rent for
such Item of Equipment is payable in advance, the Casualty Loss Value of such
Item of Equipment determined as of the Casualty Loss Value Payment Date next
preceding or coincident with the date of such Event of Loss, plus the Basic Rent
payable for such Item for the Rental Period in which such Event of Loss has
occurred if such Basic Rent was not paid on the Rent Payment Date therefor, or
(y) if Basic Rent for such Item is payable in arrears, the Casualty Loss Value
of such Item of Equipment determined as of the Casualty Loss Value Payment Date
next following the date of such Event of Loss, plus the Basic Rent payable for
such Item of Equipment for the Rental Period in which such Event of Loss has
occurred if such Casualty Loss Value Payment Date for such Item is a Rent
Payment Date, plus (iii) all other Supplemental Payments due for such Item of
Equipment as of the date of payment of the amounts specified in the foregoing
clauses (i) and (ii). Any payments received at any time by Lessor or by Lessee
from any insurer or other party (except Lessee) as a result of the occurrence of
such Event of Loss will be applied in reduction of Lessee's obligation to pay
the foregoing amounts, if not already paid by Lessee, or, if already paid by
Lessee, will be applied to reimburse Lessee for its payment of such amount,
unless an Event of Default shall have occurred and be continuing. Upon payment
in full of such Casualty Loss Value, Basic Rent, Interim Rent (if applicable)
and Supplemental Payments, (A) the obligation of Lessee to pay Rent hereunder
with respect to such Item of Equipment shall terminate and the Term of such Item
shall terminate, and (B) Lessor shall transfer all of its right, title and
interest in such Item or Items of Equipment to Lessee without warranty or
recourse.
(c) Application of Payments Not Relating to an Event of Loss. Any
payments (including, without limitation, insurance proceeds) received at any
time by Lessor or Lessee from any governmental authority or other party with
respect to any loss or damage to any Item or Items of Equipment not constituting
an Event of Loss, will be applied directly in payment of repairs or for
replacement of property in accordance with the provisions of Section 11 and 12
hereof, if not already paid by Lessee, or if already paid by Lessee and no Event
of Default shall have occurred and be continuing, shall be applied to reimburse
Lessee for such payment, and any balance remaining after compliance with the
provisions of said Sections with respect to such loss or damage shall be
retained by Lessor.
17. Insurance. Lessee will cause to be carried and maintained, at its
sole expense, with respect to the Equipment at all times during the Term thereof
and until the Equipment has been returned to Lessor (a) physical damage
insurance (including theft and collision insurance in the case of all Items of
Equipment consisting of motor vehicles) insuring against all risks of physical
loss or damage to the Equipment, in an amount not less than the greater of the
Casualty Loss Value of the Equipment or the replacement value of the Equipment,
and (b) insurance against liability for bodily injury, death and property damage
resulting from the use and operation of the Equipment in an amount not less than
$5,000,000.00 per occurrence, or such higher amount as Lessor may, at any time
reasonably request, in each case with exclusions and deductibles acceptable to
Lessor and no greater than those applicable to insurance on similar equipment
owned by Lessee. Such insurance policy or policies will name Lessor and each
Assignee as the sole loss payees, as their interests may appear, on all policies
referred to in clause (a) of the preceding sentence, and will name Lessor and
each Assignee as additional insureds on all policies referred to in clause (b)
of the preceding sentence. Such policies will provide that the same may not be
invalidated against Lessor or any Assignee by reason of any violation of a
condition or breach of warranty of the policies or the application therefor by
Lessee, that the policies may be cancelled or materially altered or reduced in
coverage (except as otherwise permitted under the terms of this Lease) by the
insurer only after thirty (30) days' prior written notice to Lessor and each
Assignee, and that the insurer will give written notice to Lessor and each
Assignee in the event of nonpayment of premium by Lessee when due. The policies
of insurance required under this Section shall be valid and enforceable policies
issued by insurers of recognized responsibility acceptable to Lessor and each
Assignee and authorized to do an insurance business in the state in which each
Item of Equipment is located. In the event that any of such policies referred
to in clause (b) of the first sentence of this Section shall now or hereafter
provide coverage on a "claims-made" basis, Lessee shall continue to maintain
such policies in effect for a period of not less than three (3) years after the
expiration of the Term of the last Item of Equipment leased to Lessee hereunder.
Upon the execution of this Lease and thereafter not less than thirty (30) days
prior to the expiration dates of any expiring policies theretofore furnished
under this Section, certificates of the insurance coverage required by this
Section and, if reasonably requested by Lessor or any Assignee, copies of the
policies evidencing such insurance coverage, shall be delivered by Lessee to
Lessor and each other named loss payee and/or additional insured. A request
hereunder for a copy of any policy evidencing such insurance coverage shall be
deemed reasonable if (i) an Event of Loss occurs hereunder; or (ii) any claim is
made against Lessor or any Assignee for which Lessee may be responsible pursuant
to the terms of this Lease; or (iii) such request is made as a result of a
request made to Lessor or any Assignee for information which may be contained in
such policy by the representatives of any governmental or regulatory authority
having jurisdiction over Lessor, any Assignee, their Affiliates and their
activities, or by any internal or external auditors reviewing Lessor, any
Assignee, their Affiliates and their activities; or (iv) such request is made in
connection with or to enable Lessor or any Assignee to respond to or comply with
any law, ordinance or governmental order, regulation, rule, or policy, or any
order, decree, judgment, subpoena, notice of discovery or similar ruling or
pleading issued, filed, served or purported on its face to be issued, filed or
served by or under authority of any court, tribunal, arbitration board,
governmental agency, commission, authority or similar entity. Any certificate
of insurance issued with respect to a blanket policy covering other equipment
not subject to this Lease shall specifically describe the Equipment as being
included therein and covered thereby to the full extent of the coverages and
amounts required hereunder. If Lessee shall fail to cause the insurance
required under this Section to be carried and maintained, Lessor or any Assignee
may provide such insurance and Lessee shall reimburse Lessor or any such
Assignee, as the case may be, upon demand for the cost thereof as a Supplemental
Payment hereunder.
18. General Tax Indemnity. Lessee agrees to pay, defend and indemnify and
hold Lessor, each Assignee and their respective successors and assigns harmless
on an after-tax basis from, any and all Federal, state, local and foreign taxes,
fees, withholdings, levies, imposts, duties, assessments and charges of any kind
and nature whatsoever, together with any penalties, fines or interest thereon
(herein called "taxes or other impositions") howsoever imposed, whether levied
or imposed upon or asserted against Lessor, any Assignee, Lessee, the Equipment,
any Item of Equipment, or any part thereof, by any Federal, state or local
government or taxing authority in the United States, or by any taxing authority
or governmental subdivision of a foreign country, upon or with respect to (a)
the Equipment, or any Item of Equipment or any part thereof, (b) the
manufacture, construction, ordering, purchase, ownership, delivery, leasing,
subleasing, possession, use, maintenance, registration, re-registration,
titling, re-titling, licensing, documentation, return, repossession, sale or
other application or disposition of the Equipment, or any Item of Equipment or
any part thereof, (c) the rentals, receipts or earnings arising from the
Equipment or any Item of Equipment or any part thereof, or (d) this Lease, each
Lease Supplement, the Rent and/or Supplemental Payments payable by Lessee
hereunder; provided, however, that the foregoing indemnity shall not apply to
any taxes or other impositions based upon or measured solely by Lessor's or any
Assignee's net income, and which are imposed or levied by any Federal, state or
local taxing authority in the United States. Lessee will promptly notify Lessor
of all reports or returns required to be made with respect to any tax or other
imposition with respect to which Lessee is required to indemnify hereunder, and
will promptly provide Lessor with all information necessary for the making and
timely filing of such reports or returns by Lessor. If Lessor requests that any
such reports or returns be prepared and filed by Lessee, Lessee will prepare and
file the same if permitted by applicable law to file the same, and if not so
permitted, Lessee shall prepare such reports or returns for signature by Lessor,
and shall forward the same, together with immediately available funds for
payment of any tax or other imposition due, to Lessor, at least ten (10) days in
advance of the date such payment is to be made. Upon written request, Lessee
shall furnish Lessor with copies of all paid receipts or other appropriate
evidence of payment for all taxes or other impositions paid by Lessee pursuant
to this Section 18. All of the indemnities contained in this Section 18 shall
continue in full force and effect notwithstanding the expiration or earlier
termination of this Lease in whole or in part, including the expiration or
termination of the Term with respect to any Item (or all) of the Equipment, and
are expressly made for the benefit of, and shall be enforceable by, Lessor and
each Assignee.
19. Special Tax Indemnity.
(a) Tax Assumptions. In entering into this Lease and the
transactions contemplated hereby, Lessor has made the following tax assumptions
for each Item of Equipment (the "Tax Assumptions"): (i) Lessor will be entitled
to the benefit of depreciation deductions for Federal income tax purposes under
the Accelerated Cost Recovery System provided for in Section 168 of the Code and
depreciation deductions for state income tax purposes for Lessor's Home State
(hereinafter defined) based upon one hundred percent (100%) of the Acquisition
Cost of each such Item of Equipment, commencing in the calendar year in which
the Acceptance Date for each such Item of Equipment occurs, and on the basis
that each Item of Equipment shall have the applicable recovery period and
property classification, and that Lessor shall be entitled to use the method of
depreciation and depreciation convention, specified by Asset Group on the Tax
Schedule (hereinafter defined) attached to and made a part of the Related
Exhibit A for such Item (the "Depreciation Deduction"); (ii) with respect to
each Item of Equipment, Lessor will be entitled to the benefit of deductions for
Federal and Lessor's Home State income tax purposes for interest payable with
respect to any indebtedness incurred by Lessor in connection with any financing
by Lessor of any portion of the Acquisition Cost of such Item of Equipment (the
"Interest Deduction"); and (iii) for each year of the Term, with respect to each
Item of Equipment, including any year in which a Tax Loss (hereinafter defined)
occurs, Lessor will be subject to tax as follows: (a) for each such year up to
and including the year in which such Tax Loss occurs, at a composite Federal and
state corporate income tax rate that is equal to the highest marginal rate for
corporations provided for under the Code and the laws of Lessor's Home State
(the "Highest Composite Marginal Tax Rate") and that is actually in effect for
each such year, and (b) for each such year following the year in which such Tax
Loss occurs, at a composite Federal and state corporate income tax rate that is
equal to the Highest Composite Marginal Tax Rate actually in effect in the year
in which such Tax Loss occurs and which, under the provisions of the Code and
the laws of Lessor's Home State then in effect, is to be applicable to each such
following year. As used herein the term "Lessor's Home State" means the state
specified as such on any Tax Schedule, and the term "Tax Schedule" means the
schedule of tax assumptions attached to and made a part of each Related Exhibit
A.
(b) Lessee's Tax Representations and Warranties. Lessee represents
and warrants to Lessor that (i) at the time Lessor becomes the owner of each
Item of Equipment such Item will constitute tangible personal property; (ii) at
all times during the Term, with respect to each Item of Equipment, such Item
will not constitute property "used predominantly outside the United States" or
"tax-exempt use property" within the meaning of Sections 168(g)(1)(A) and
168(h)(1)(A), respectively, of the Code other than any Items of Equipment
specifically authorized by Lessor in writing to be used or located outside of
the continental limits of the United States; (iii) in determining the
Depreciation Deduction for each Item of Equipment, Lessor shall be entitled to
assume that each such Item shall have the applicable recovery period, property
classification and useful life specified by Asset Group on the Tax Schedule
attached to the Related Exhibit A for such Item; (iv) at the end of the Basic
Term with respect to each Item of Equipment, the fair market value of such Item
will be an amount equal to at least twenty percent (20%) of the Acquisition Cost
thereof, without including in such value any increase or decrease for inflation
or deflation during the Basic Term thereof, and after subtracting from such
value any cost to Lessor for removal and delivery of possession of such Item to
Lessor at the end of the Term thereof; and (v) each Item of Equipment will be
useful or usable by Lessor at the end of the Term thereof for purposes other
than continued leasing by or transfer to any member of the Lessee Group (as such
term is defined in Revenue Procedure 75-21, C.B. 1975-1, 715).
(c) Indemnity. (A) If, for any reason whatsoever, Lessor shall lose
the benefit of, or shall not have or shall lose the right to claim, or shall
suffer a disallowance or recapture of, or delay in claiming, all or any portion
of the Depreciation Deduction or (if Lessor finances any portion of its
Acquisition Cost) the Interest Deduction, with respect to any Item of Equipment,
or (B) if, for Federal, foreign, state or local income tax purposes, any item of
income, loss or deduction with respect to any Item of Equipment is treated as
derived from, or allocable to, sources outside the United States (whether or not
any foreign income taxes imposed as a result thereof may be credited against
Federal, state or local income taxes of Lessor), or (C) if there shall be
included in the gross income of Lessor for Federal, state or local income tax
purposes any amount on account of any addition, modification or improvement to
or in respect of any Item of Equipment made or paid for by Lessee (any such
loss, failure to have or loss of the right to claim, disallowance, recapture,
delay in claiming, treatment, or inclusion referred to in any of the foregoing
clauses (A) through (C) of this paragraph (c) being hereinafter called a "Tax
Loss"), then a Tax Loss shall be deemed to have occurred, and the Basic Rent for
such Item of Equipment shall, on the Rent Payment Date next following written
notice by Lessor to Lessee that a Tax Loss has occurred, and on each succeeding
Rent Payment Date, be increased by such amount which, after deduction of all
taxes required to be paid by Lessor in respect of the receipt or accrual of such
amount under the laws of the United States, any state or any political
subdivision thereof or any foreign taxing authority, will maintain Lessor's
after-tax yield and aggregate after-tax cash flows in respect of such Item of
Equipment at levels which are each not less than the levels of Lessor's
after-tax-yield and aggregate after-tax cash flows that would have been
applicable if such Tax Loss had not occurred, and Lessee shall pay to Lessor an
amount which, after the deduction of any additional taxes required to be paid by
Lessor in respect of the receipt or accrual of such amount, shall be equal to
the amount of any interest, penalty or additions to tax which may be imposed in
connection with such Tax Loss. In the event that the Term with respect to any
Item of Equipment is terminated prior to the time Lessee is obligated to make
the increased Basic Rent payments to Lessor with respect to such Item of
Equipment as set forth in the preceding sentence, then Lessee shall pay to
Lessor, within thirty (30) days from the date of such written notice by Lessor
to Lessee, in lieu of the increased Basic Rent payment or payments set forth in
the preceding sentence, such lump sum as shall (after deduction of all taxes
required to be paid by Lessor in respect of the receipt or accrual of such
payment under the laws of the United States, any state or any political
subdivision thereof or any foreign taxing authority) be necessary to maintain
Lessor's after-tax yield and aggregate after-tax cash flows in respect of such
Item of Equipment at levels which are each not less than the levels of Lessor's
after-tax yield and aggregate after-tax cash flows that would have been
applicable if such Tax Loss had not occurred, and Lessee shall also pay to
Lessor an amount which, after the deduction of any additional taxes required to
be paid by Lessor in respect of the receipt or accrual of such amount, shall be
equal to the amount of any interest, penalty or additions to tax which may be
imposed in connection with such Tax Loss. Lessor's after-tax yield and
aggregate after-tax cash flows shall be determined by taking into account (i)
the assumptions used by Lessor in originally calculating Rent and Casualty Loss
Value percentages and Special Termination Value percentages, including the Tax
Assumptions (as such Tax Assumptions may have been revised pursuant to the next
sentence hereof) and (ii) the Highest Composite Marginal Tax Rate actually in
effect during each year from the date of such original calculations to the date
of such Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax
Loss with respect to which Lessee is required to pay an indemnity hereunder, and
the full amount of such indemnity has been paid or provided for hereunder, the
Tax Assumptions, without further act of the parties hereto, shall thereupon be
and be deemed to be amended, if and to the extent appropriate, to reflect such
Tax Loss. In the event any indemnity payments shall be paid to Lessor under
this Section 19 with respect to any Item(s) of Equipment, the Casualty Loss
Values and Special Termination Values of such Item(s) of Equipment shall be
adjusted appropriately. The indemnification obligations of Lessee under this
Section 19 shall survive the expiration or termination of this Lease and the
Term of the Equipment.
(d) Exceptions to Indemnity. Lessee shall not be required to make
any indemnity payment to Lessor provided for in this Section 19 with respect to
an Item of Equipment, if Lessor shall have suffered a Tax Loss with respect to
such Item of Equipment solely as a result of the occurrence of (i) an Event of
Loss with respect to such Item of Equipment, if Lessee shall have paid to Lessor
all of the amounts payable under Section 16 hereof, and to the extent that such
payment compensates Lessor for such Tax Loss; or (ii) the failure of Lessor to
claim the Depreciation Deduction or (if Lessor finances any portion of its
Acquisition Cost) the Interest Deduction, as the case may be, in a timely and
proper manner, unless such failure is due to Lessee's failure to provide Lessor
with the information reasonably necessary to make such claim, or unless in the
reasonable opinion of Tax Counsel (hereinafter defined), there is no reasonable
basis for such claim; or (iii) the failure of Lessor to have sufficient income
to benefit from the Depreciation Deduction or (if Lessor finances any portion of
its Acquisition Cost) the Interest Deduction, as the case may be, after giving
effect to all permitted tax loss carry forwards and carry backs and all
permitted tax credit carry forwards and carry backs (but this exception shall
only apply if the Depreciation Deduction or Interest Deduction, as the case may
be, would be otherwise available to Lessor); or (iv) a voluntary transfer or
other voluntary disposition by Lessor of all or any part of its interest in such
Item of Equipment, other than (a) any such transfer or disposition pursuant to
Sections 16 or 24 hereof; or (v) the application of Section 168(d)(3) of the
Code, and (b) any assignment and/or grant of a security interest pursuant to the
provisions of Section 14(b) hereof.
(e) Contest. In the event a claim shall be made by any taxing
authority against Lessor that results or could result in the occurrence of a Tax
Loss, and if, in the opinion of independent tax counsel selected by Lessor and
reasonably acceptable to Lessee ("Tax Counsel") a reasonable basis for such
defense to such claim exists, Lessor shall, provided that no Event of Default
has occurred and is continuing, upon Lessee's written request and at the expense
of Lessee, contest such matter in such forum as Lessor shall select, considering
in good faith such request as Lessee may make concerning the most appropriate
forum in which to proceed. Lessor shall not be obligated to take any such legal
or other appropriate action unless it has received an opinion (the "Tax Counsel
Opinion") from Tax Counsel that a reasonable basis for such defense to such
claim exists and Lessee shall have indemnified Lessor for all costs and expenses
which may be incurred by Lessor in contesting such claim. Sole control of the
conduct of each contest shall reside in Lessor, but Lessor shall keep Lessee
reasonably advised as to the progress of any such contest, shall consult in good
faith with Lessee regarding the conduct of such contest, and shall permit Lessee
or its counsel to review and comment upon any written submittance to be made to
the administrative agency or court which is the forum for the contest. The
action to be taken may, in Lessor's sole discretion, be commenced prior to
making payment of any tax and interest and/or penalty attributable to such claim
(a "Tax Payment") or after making such Tax Payment and then suing for a refund.
If Lessor takes such action prior to making such Tax Payment, the indemnity
amounts payable under this Section 19 with respect to the Tax Loss need not be
paid by Lessee while such action is pending; provided that Lessee shall pay the
costs and expenses relating to such action when and as the same shall become
due. In such case, if the Final Determination (hereinafter defined) shall be
adverse to Lessor, the indemnity amounts payable under this Section 19 with
respect to the Tax Loss shall be computed by Lessor as of the date of such Final
Determination, Lessor shall notify Lessee in writing of such computation and
Lessee shall promptly make the indemnity payments required in accordance with
this Section 19. If Lessor determines to make such Tax Payments prior to
contesting the matter, and to then sue for a refund, Lessee will advance to
Lessor, as an interest-free loan and without any additional net-after-tax cost
to Lessor, an amount equal to the amount of such Tax Payment attributable to
such claim. If Lessor sues for a refund after making such Tax Payment, and if
the Final Determination shall be in favor of Lessor (i) no future payments shall
be due hereunder in respect of such matter (or an appropriate reduction shall be
made if the Final Determination is partly in favor of and partly adverse to
Lessor) other than any outstanding costs or expenses incurred by Lessor with
respect to such contest, and (ii) Lessor shall pay to Lessee an amount equal to
the amounts theretofore paid by Lessee to Lessor in respect of such Tax Payment
(or a proportionate part thereof if the Final Determination is partly in favor
of and partly adverse to Lessor) on or before the next succeeding Rent Payment
Date (or within thirty (30) days from such Final Determination, if there is no
succeeding Rent Payment Date), together with the amount of any penalty or
interest actually refunded to Lessor as a result of such Final Determination.
If Lessor sues for a refund after making such Tax Payment and if the Final
Determination of such contest shall be adverse to Lessor, the indemnity amounts
payable under this Section 19 with respect to the Tax Loss shall be computed by
Lessor as of the date of such Final Determination, Lessor shall notify Lessee in
writing of such computation and Lessee shall make the indemnity payments
required in accordance with this Section 19. "Final Determination", for the
purposes of this subsection (e), means a final decision of a court of competent
jurisdiction after all allowable appeals have been exhausted by either party to
the action, or a determination within the meaning of Section 1313(a) of the
Code. Notwithstanding the foregoing provisions of this subsection (e), (i)
Lessor shall not be obligated to appeal an adverse judicial determination which
was the subject of such a contest unless requested to do so in writing by Lessee
within 30 days of such adverse determination and unless Lessee shall have
indemnified Lessor for all costs and expenses which may be incurred by Lessor in
prosecuting such appeal; provided, however, that Lessor shall not be obligated
to appeal any adverse determination of a court at the trial level beyond the
next higher court having appellate jurisdiction or to appeal any adverse
determination to the United States Supreme Court; and (ii) Lessor in its sole
discretion (by written notice to Lessee) may unconditionally waive its rights to
the indemnity amounts payable under this Section 19 and refrain from contesting
any Tax Loss. If Lessor waives its rights with respect to any Tax Loss as
aforesaid, Lessee shall have no liability to Lessor under this Section 19 with
respect to such Tax Loss, it being understood that any such waiver shall be
without prejudice to Lessor's rights with respect to any other Tax Loss and
Lessor shall promptly pay Lessee all amounts theretofore paid or advanced by
Lessee in respect of such Tax Loss.
(f) Consolidated Tax Returns; Lessor's Assigns. For purposes of this
Section 19, the term "Lessor" will include the corporation constituting Lessor,
its successor(s) in interests, each Assignee and each of their respective
successors in interests and assigns and any Consolidated Group (hereinafter
defined) of which Lessor or any such Assignee or any of their respective
successors in interests or assigns is, or may become a member, and each member
of such Consolidated Group. As used in this subsection (f) the term
"Consolidated Group" means an affiliated group (within the meaning of Section
1504 of the Code) that files consolidated returns for Federal income tax
purposes and any group filing combined or consolidated returns pursuant to the
rules of any state taxing authority.
20. Indemnification. Lessee hereby assumes liability for, and does hereby
agree to indemnify, protect, save, defend, and hold harmless Lessor, each
Assignee and their respective officers, directors, stockholders, successors,
assigns, agents and servants (each such party being herein, for purposes of this
Section 20, called an "indemnified party") on an after-tax basis from and
against, any and all obligations, fees, liabilities, losses, damages, penalties,
claims, demands, actions, suits, judgments, costs and expenses, including legal
expenses, of every kind and nature whatsoever, imposed on, incurred by, or
asserted against any indemnified party, in any way relating to or arising out of
(a) the manufacture, construction, ordering, purchase, acceptance or rejection,
ownership, titling or retitling, registration or reregistration, delivery,
leasing, subleasing, re-leasing, possession, use, operation, storage, removal,
return, repossession, sale or other disposition of the Equipment or any Item of
Equipment, or any part thereof, including, without limitation, any of such as
may arise from (i) loss or damage to any property or death or injury to any
persons, (ii) patent or latent defects in the Equipment (whether or not
discoverable by Lessee or any indemnified party), (iii) any claims based on
strict liability in tort, and (iv) any claims based on patent, trademark,
tradename or copyright infringement, and (v) any claims based upon any
non-compliance with or violation of any environmental control, noise or
pollution laws or requirements, including without limitation, fines and
penalties arising from violations of or noncompliance with such requirements or
failure to report discharges, and costs of clean-up of any discharge; or (b) any
failure on the part of Lessee to perform or comply with any of the terms of this
Lease, or (c) any power of attorney issued to Lessee to license, relicense,
title, retitle, register or reregister Items of Equipment subject to motor
vehicle titling and registration laws, and any towing charges, parking tolls,
fines, parking and speeding tickets, odometer certifications and other civil and
criminal motor vehicle violations with respect to any such Item, and all
penalties and interest applicable thereto. Lessee shall give each indemnified
party prompt notice of any occurrence, event or condition known to Lessee as a
consequence of which any indemnified party may be entitled to indemnification
hereunder. Lessee shall forthwith upon demand of any such indemnified party
reimburse such indemnified party for amounts expended by it in connection with
any of the foregoing or pay such amounts directly. Lessee shall be subrogated
to an indemnified party's rights in any matter with respect to which Lessee has
actually reimbursed such indemnified party for amounts expended by it or has
actually paid such amounts directly pursuant to this Section 20. In case any
action, suit or proceeding is brought against any indemnified party in
connection with any claim indemnified against hereunder, such indemnified party
will, promptly after receipt of notice of the commencement of such action, suit
or proceeding, notify Lessee thereof, enclosing a copy of all papers served upon
such indemnified party, but failure to give such notice or to enclose such
papers shall not relieve Lessee from any liability hereunder. Lessee may, and
upon such indemnified party's request will, at Lessee's expense, resist and
defend such action, suit or proceeding, or cause the same to be resisted or
defended by counsel selected by Lessee and reasonably satisfactory to such
indemnified party and in the event of any failure by Lessee to do so, Lessee
shall pay all costs and expenses (including, without limitation, attorney's fees
and expenses) incurred by such indemnified party in connection with such action,
suit or proceeding. The provisions of this Section 20, and the obligations of
Lessee under this Section 20, shall apply from the date of the execution of this
Lease notwithstanding that the Term may not have commenced with respect to any
Item of Equipment, and shall survive and continue in full force and effect
notwithstanding the expiration or earlier termination of this Lease in whole or
in part, including the expiration or termination of the Term with respect to any
Item (or all) of the Equipment, and are expressly made for the benefit of, and
shall be enforceable by, each indemnified party.
21. NO WARRANTIES. LESSOR HEREBY LEASES THE EQUIPMENT TO LESSEE AS-IS AND
EXPRESSLY DISCLAIMS AND MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR
IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY, MERCHANTABILITY,
DURABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR ANY OTHER
MATTER CONCERNING, THE EQUIPMENT. LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY
CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR INFRINGEMENT) IT MIGHT
HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL
DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY LESSEE'S LOSS OF USE THEREOF
FOR ANY REASON WHATSOEVER, INCLUDING COMPLIANCE WITH ENVIRONMENTAL LAWS. So
long and only so long as an Event of Default shall not have occurred and be
continuing, and so long and only so long as the Equipment shall be subject to
this Lease and Lessee shall be entitled to possession of the Equipment
hereunder, Lessor authorizes Lessee, at Lessee's expense, to assert for Lessor's
account, all rights and powers of Lessor under any manufacturer's, vendor's or
dealer's warranty on the Equipment or any part thereof; provided, however, that
Lessee shall indemnify, protect, save, defend and hold harmless Lessor from and
against any and all claims, and all costs, expenses, damages, losses and
liabilities incurred or suffered by Lessor in connection therewith, as a result
of, or incident to, any action by Lessee pursuant to the foregoing
authorization.
22. Lessee's Representations and Warranties. Lessee hereby represents and
warrants that (a) Lessee is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation set forth above,
and is qualified to do business in, and is in good standing in, each state or
other jurisdiction in which the nature of its business makes such qualification
necessary if and to the extent that the failure to so qualify will have a
materially adverse effect on the performance by Lessee of its obligations
hereunder (including each state or other jurisdiction in which the Equipment or
any part thereof will be located); (b) Lessee has the corporate power and
authority to execute and perform this Lease and to lease the Equipment
hereunder, and has duly authorized the execution, delivery and performance of
this Lease; (c) the leasing of the Equipment from Lessor by Lessee, the
execution and delivery of this Lease, each Lease Supplement, and other related
instruments, documents and agreements, and the compliance by Lessee with the
terms hereof and thereof, and the payment and performance by Lessee of all of
its obligations hereunder and thereunder (i) have been duly and legally
authorized by appropriate corporate action taken by Lessee, (ii) are not in
contravention of, and will not result in a violation or breach of, any of the
terms of Lessee's Certificate of Incorporation (or equivalent document), its
By-Laws, or of any provisions relating to shares of the capital stock of Lessee,
and (iii) will not violate or constitute a breach of any provision of law, any
order of any court or other agency of government, or any indenture, agreement or
other instrument to which Lessee is a party, or by or under which Lessee or any
of Lessee's property is bound, or be in conflict with, result in a breach of, or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or instrument, or result in the creation or imposition of
any Lien upon any of Lessee's property or assets; (d) this Lease has been
executed by the duly authorized officer or officers of Lessee and delivered to
Lessor and constitutes, and when executed by the duly authorized officer or
officers of Lessee and delivered to Lessor each Lease Supplement and related
instruments, documents and agreements with respect to each Item of Equipment
will constitute, the legal, valid and binding obligations of Lessee, enforceable
in accordance with their terms subject to the limitations imposed by bankruptcy
and insolvency laws; (e) neither the execution and delivery of this Lease or any
Lease Supplement by Lessee, nor the payment and performance by Lessee of all of
its obligations hereunder and thereunder, requires the consent or approval of,
the giving of notice to, or the registration, filing or recording with, or the
taking of any other action in respect of, any Federal, state, local or foreign
government or governmental authority or agency or any other Person; (f) no
mortgage, deed of trust, or other Lien which now covers or affects, or which may
hereafter cover or affect, any property or interest therein of Lessee, now
attaches or hereafter will attach to the Equipment or any Item of the Equipment,
or in any manner affects or will affect adversely Lessor's right, title and
interest therein; (g) Lessee holds all licenses, certificates and permits from
governmental authorities necessary to use and operate the Equipment in
accordance with the provisions of this Lease; (h) there is no litigation or
other proceeding now pending or, to the best of Lessee's knowledge, threatened,
against or affecting Lessee, in any court or before any regulatory commission,
board or other administrative governmental agency which would directly or
indirectly adversely affect or impair the title of Lessor to the Equipment, or
which, if decided adversely to Lessee, would materially adversely affect the
business operations or financial condition of Lessee; and (i) all balance
sheets, statements of profit and loss and other financial data that have been
delivered to Lessor with respect to Lessee (x) are complete and correct in all
material respects, (y) accurately present the financial condition of Lessee on
the dates for which, and the results of its operations for the periods for
which, the same have been furnished, and (z) have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods covered thereby; and there has been no material adverse change in
the condition of Lessee, financial or otherwise, since the date of the most
recent financial statements delivered to Lessor with respect to Lessee.
23. Events of Default. Any of the following events shall constitute an
Event of Default:
(a) Lessee shall fail to make any payment of Interim Rent or Basic
Rent within five (5) days after the same is due and payable, or any Supplemental
Payment within ten (10) days after notice from Lessor that such amount is due;
provided, however, that with respect to payments of Interim Rent and Basic Rent,
a failure by Lessee to make any payment of Interim Rent or Basic Rent within
five (5) days after the same is due and payable shall not constitute an Event of
Default if upon receipt of written or telephonic notice from Lessor, which
written notice may be sent by overnight courier or by facsimile transmission,
Lessor receives the amount of such payment by wire transfer within twenty-four
hours of receipt by Lessee of such notice; and further provided, that if Lessee
fails to make any payment of Interim Rent or Basic Rent within five (5) days
after the same is due and payable more than two times during each twelve-month
period of the Term of this Lease, then the first proviso of this Section 23(a)
shall not apply and such third failure and any subsequent failure during such
twelve-month period shall constitute an Event of Default; or
(b) Lessee shall fail to observe or perform any of the covenants or
agreements of Lessee set forth in Sections 6, 14(a) or 17 hereof; or
(c) Lessee shall fail to perform or observe any other covenant,
condition, or agreement to be performed or observed by it under this Lease, or
in any agreement or certificate furnished to Lessor or any Assignee in
connection herewith, and such failure shall continue unremedied for thirty (30)
days after written notice to Lessee specifying such failure and demanding the
same to be remedied; or
(d) Lessee (or any Guarantor) shall be in default (i) under any
lease, loan agreement or other agreement, instrument or document heretofore, now
or hereafter entered into between Lessee (or any Guarantor) and Lessor, or
between Lessee (or any Guarantor) and any parent, subsidiary or affiliate of
Lessor, and such default shall have been declared by the party entitled to
declare the same, or (ii) under any promissory note heretofore, now or hereafter
executed by Lessee (or any Guarantor) and delivered to any party referred to in
clause (i) above evidencing a loan made by any such party to Lessee (or any
Guarantor), or (iii) in the payment or performance of any obligation of Lessee
(or of any Guarantor) to any Person (other than Lessor, or any parent,
subsidiary or affiliate of Lessor, and other than any Guarantor) in excess of
$1,000,000.00 (excluding any such non-payment or non-performance which is being
contested in good faith by Lessee or any Guarantor by appropriate proceedings
and the liability for which has not been reduced to judgment) relating to the
payment of borrowed money or the payment of rent or hire under any lease
agreement, and such obligation shall be declared to be due and payable or
otherwise accelerated prior to the maturity thereof; or an attachment or other
Lien shall be filed or levied against a substantial part of the property of
Lessee (or any Guarantor), and such judgment shall continue unstayed and in
effect, or such attachment or Lien shall continue undischarged or unbonded, for
a period of 30 days; or
(e) Lessee (or any Guarantor) shall become insolvent or make an
assignment for the benefit of creditors or consent to the appointment of a
trustee or receiver; or a trustee or a receiver shall be appointed for Lessee
(or for any Guarantor) or for a substantial part of its property without its
consent and shall not be dismissed for a period of 60 days; or any petition for
the relief, reorganization or arrangement of Lessee (or any Guarantor), or any
other petition in bankruptcy or for the liquidation, insolvency or dissolution
of Lessee (or any Guarantor), shall be filed by or against Lessee (or any
Guarantor) and, if filed against Lessee (or any Guarantor), shall be consented
to or be pending and not dismissed for a period of 60 days, or an order for
relief under any bankruptcy or insolvency law shall be entered by any court or
governmental authority of competent jurisdiction with respect to Lessee (or any
Guarantor); or any execution or writ or process shall be issued under any action
or proceeding against Lessee whereby any of the Equipment may be taken or
restrained; or Lessee's (or any Guarantor's) corporate existence shall cease; or
Lessee (or Guarantor) shall dispose of, pledge or otherwise encumber, all or
substantially all of its assets or property, or
(f) Lessee (or any Guarantor) shall (whether in one transaction or a
series of transactions), without Lessor's prior written consent, sell or
transfer all or substantially all of its assets or property, or consolidate or
merge with any other entity, or become the subject of, or engage in, a leveraged
buy-out or any other form of corporate reorganization; or
(g) any representation, warranty, statement or certification made by
Lessee under this Lease or in any Lease Supplement or in any document or
certificate furnished Lessor or any Assignee in connection herewith or pursuant
hereto (or made by any Guarantor under any Guaranty or other document or
certificate furnished to Lessor or any Assignee by any Guarantor), shall prove
to be untrue or incorrect in any material respect when made, or shall be
breached.
24. Remedies Upon Default. Upon the occurrence of any Event of Default
and at any time thereafter so long as the same shall be continuing, Lessor may
exercise one or more of the following remedies as Lessor in its sole discretion
shall elect:
(a) Lessor may terminate or cancel this Lease, without prejudice to
any other remedies of Lessor hereunder, with respect to all or any Item of
Equipment, and whether or not this Lease has been so terminated or cancelled,
may enter the premises of Lessee or any other party to take immediate possession
of the Equipment and remove all or any Item of Equipment by summary proceedings
or otherwise, or may cause Lessee, at Lessee's expense, to store, maintain,
surrender and deliver possession of the Equipment or such Item in the same
manner as provided in Section 6 hereof, all without liability to Lessor for or
by reason of such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or otherwise;
(b) Lessor may hold, keep idle or lease to others the Equipment or
any Item of Equipment, as Lessor in its sole discretion may determine, free and
clear of any rights of Lessee and without any duty to account to Lessee with
respect to such action or inaction or for any proceeds with respect thereto,
except that Lessee's obligation to pay Basic Rent for any Rental Periods
commencing after Lessee shall have been deprived of possession pursuant to this
Section 24 shall be reduced by the net proceeds, if any, received by Lessor from
leasing the Equipment or such Item to any Person other than Lessee for the same
Rental Periods or any portion thereof;
(c) Lessor may sell the Equipment or any Item of Equipment at public
or private sale as Lessor may determine, free and clear of any rights of Lessee,
and Lessee shall pay to Lessor, as liquidated damages for loss of a bargain and
not as a penalty (in lieu of the Basic Rent due for the Equipment or Item(s) so
sold for any Rental Period commencing after the date on which such sale occurs),
the sum of (i) all unpaid Interim Rent and Basic Rent payable for each Item of
Equipment for all Rental Periods through the date on which such sale occurs,
plus (ii) an amount equal to the excess, if any, of (x) the Casualty Loss Value
of the Item(s) of Equipment so sold, computed as of the Rent Payment Date
coincident with or next preceding the date of such sale, over (y) the net
proceeds of such sale, plus interest at the rate specified in Section 26 hereof
on the amount of such excess from the Rent Payment Date as of which such
Casualty Loss Value is computed until the date of actual payment, plus (iii) all
unpaid Supplemental Payments due with respect to each Item of Equipment so sold;
(d) whether or not Lessor shall have exercised, or shall thereafter
at any time exercise, any of its rights under subsection (a) or (b) above with
respect to any Item(s) of Equipment, Lessor, by written notice to Lessee
specifying a payment date, may demand that Lessee pay to Lessor, and Lessee
shall pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty (in lieu of the Basic Rent
due for any Item(s) of Equipment for any Rental Period commencing after the
payment date specified in such notice and in lieu of the exercise by Lessor of
its remedies under subsection (b) above in the case of a re-lease of such
Item(s) or under subsection (c) above with respect to a sale of such Item(s)),
the sum of (i) all unpaid Interim Rent and Basic Rent payable for such Item(s)
for all Rental Periods through the payment date specified in such notice, plus
(ii) all unpaid Supplemental Payments due with respect to such Item(s) as of the
payment date specified in such notice, plus (iii) whichever of the following
amounts Lessor, in its sole discretion, shall specify in such notice (together
with interest on such amount at the rate specified in Section 26 hereof from the
payment date specified in such notice to the date of actual payment): (x) an
amount, with respect to each such Item, equal to the Basic Rent payable for such
Item for the remainder of the then current Term, after discounting such Basic
Rent payment to present worth as of the payment date specified in such notice at
the Discount Rate (hereinafter defined), or (y) an amount, with respect to each
such Item, equal to the Casualty Loss Value of such Item computed as of the Rent
Payment Date coincident with or next preceding the payment date specified in
such notice; provided, however, that with respect to any such Item returned to
or repossessed by Lessor, the amount recoverable by Lessor pursuant to the
foregoing clause (x) shall be reduced (but not below zero) by an amount equal to
the fair market rental value of such Item for such remaining Term after
discounting such fair market rental value to present worth at the Discount Rate
as of the date on which Lessor has obtained possession of such Item, and the
amount recoverable by Lessor pursuant to the foregoing clause (y) shall be
reduced (but not below zero) by an amount equal to the fair market sales value
of such Item as of the date on which Lessor has obtained possession of such
Item; and
(e) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof or to
rescind this Lease.
In addition, Lessee shall be liable for all reasonable costs and expenses,
including attorney's fees, incurred by Lessor or any Assignee by reason of the
occurrence of any Event of Default or the exercise of Lessor's remedies with
respect thereto, including all costs and expenses incurred in connection with
the return of the Equipment in accordance with Section 6 hereof or in placing
the Equipment in the condition required by said Section. For the purpose of
subsection (d) above, the "fair market rental value" or the "fair market sales
value" of any Item of Equipment shall mean such value as has been determined by
an independent qualified appraiser selected by Lessor. Except as otherwise
expressly provided above, no remedy referred to in this Section 24 is intended
to be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity;
and the exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not constitute the exclusive election of such remedies and shall
not preclude the simultaneous or later exercise by Lessor of any or all of such
other remedies. No express or implied waiver by Lessor of any Event of Default
shall in any way be, or be construed to be, a waiver of any future or subsequent
Event of Default. To the extent permitted by applicable law, Lessee hereby
waives any rights now or hereafter conferred by statute or otherwise which may
require Lessor to sell, lease or otherwise use the Equipment in mitigation of
Lessor's damages as set forth in this Section 24 or which may otherwise limit or
modify any of Lessor's rights and remedies in this Section 24. As used herein,
the term "Discount Rate" means the discount rate of the Federal Reserve Bank of
Boston, Massachusetts, that is in effect on the payment date specified in any
notice given by Lessor to Lessee pursuant to subsection (d) of this Section 24.
25. Lessor's Right to Perform for Lessee. If Lessee fails to make any
Supplemental Payment required to be made by it hereunder or fails to perform or
comply with any of its agreements contained herein, Lessor may itself, after
notice to Lessee, make such payment or perform or comply with such agreement,
and the amount of such payment and the amount of the reasonable expenses of
Lessor incurred in connection with such payment or the performance of or
compliance with such agreement, as the case may be, together with interest
thereon at the rate specified in Section 26 hereof, shall, if not paid by Lessee
to Lessor on demand, be deemed a Supplemental Payment hereunder; provided,
however, that no such payment, performance or compliance by Lessor shall be
deemed to cure any Event of Default hereunder.
26. Late Charges. Lessee shall pay to Lessor, upon demand, to the extent
permitted by applicable law, interest on any installment of Basic Rent or
Interim Rent not paid when due, and on any Supplemental Payment or other amount
payable under this Lease which is not paid when due, for any period for which
any of the same is overdue (without regard to any grace period) at a rate equal
to the lesser of (a) eighteen percent (18%) per annum, or (b) the maximum rate
of interest permitted by law.
27. Further Assurances. Lessee will promptly and duly execute and deliver
to Lessor and any Assignee such other documents and assurances, including,
without limitation, such amendments to this Lease as may be reasonably required
by Lessor and by any Assignee, and Uniform Commercial Code financing statements
and continuation statements, and will take such further action as Lessor or any
Assignee may from time to time reasonably request in order to carry out more
effectively the intent and purposes of this Lease and to establish and protect
the rights and remedies created or intended to be created in favor of Lessor and
of any Assignee and their respective rights, title and interests in and to the
Equipment.
28. Notices. All notices provided for or required under the terms and
provisions hereof shall be in writing, and any such notice shall be deemed given
when personally delivered or when deposited in the United States mails, with
proper postage prepaid, for first class certified mail, return receipt
requested, addressed (i) if to Lessor or Lessee, at their respective addresses
as set forth herein or at such other address as either of them shall, from time
to time, designate in writing to the other, and (ii) if to any Assignee, to the
address of such Assignee as such Assignee shall designate in writing to Lessor
and Lessee.
29. Lessee's Renewal and Purchase Options.
(a)(1) Lessee's Renewal Option at End of Basic Term. If (i) no Event
of Default shall have occurred and be continuing and (ii) this Lease shall not
have been earlier terminated, Lessee shall be entitled, at its option, to renew
this Lease with respect to all, but not less than all, Items of Equipment then
subject to this Lease for an initial Renewal Term specified on the Related
Exhibit A by Asset Group for such Item. The Renewal Term with respect to each
such Item of Equipment will commence at the expiration of the Basic Term of such
Item. All of the provisions of this Lease shall be applicable during the
Renewal Term for each such Item of Equipment, except that, during the Renewal
Term, the Basic Rent Percentage shall be the weighted average of the Basic Rent
Percentages for each such Item of Equipment during the Basic Term with respect
to such Item of Equipment and shall be payable at the times and on the Rent
Payment Dates set forth on said Related Exhibit A. If Lessee intends not to
exercise said renewal option with respect to said Renewal Term, Lessee shall
give written notice to Lessor to such effect at least one hundred eighty (180)
days prior to the expiration of the Basic Term of the Item(s) of Equipment whose
Basic Term first expires hereunder, in which case (unless Lessor has otherwise
agreed in writing or Lessee has exercised its purchase option under Section
29(b) hereof) each such Item of Equipment shall be returned to Lessor in
accordance with the provisions of Section 6 hereof, including payment of the
Return Fee specified in such Section 6, and until each such Item has been so
returned and the Return Fee so paid, Lessee shall continue to pay Lessor the
Basic Rent for each such Item as specified in the next to last sentence of
Section 6 hereof. If Lessee fails to give such written notice to Lessor with
respect to said Renewal Term, it shall be conclusively presumed that Lessee has
elected to exercise said renewal option with respect to said Renewal Term.
(2) Lessee's Renewal Option at End of Initial Renewal Term. If
(i) no Event of Default shall have occurred and be continuing and (ii) this
Lease shall not have been earlier terminated, Lessee shall be entitled, at its
option upon written notice to Lessor, as hereinafter provided, to renew this
Lease with respect to all, but not less than all, Items of Equipment then
subject to this Lease for an additional Renewal Term of twelve (12) months. The
additional Renewal Term with respect to each such Item of Equipment will
commence at the expiration of the initial Renewal Term described in Section
29(a)(1) above. All of the provisions of this Lease shall be applicable during
such additional Renewal Term for each such Item of Equipment, except that,
during such additional Renewal Term, Basic Rent shall be the fair market rental
value thereof determined in accordance with Section 29(c) hereof and shall be
payable at the times and on the Rent Payment Dates set forth on said Related
Exhibit A. If Lessee intends to exercise said renewal option with respect to
said additional Renewal Term, Lessee shall give written notice to Lessor to such
effect at least one hundred eighty (180) days prior to the expiration of the
initial Renewal Term of the Item(s) of Equipment whose Basic Term first expires
hereunder. If Lessee fails to give such written notice to Lessor with respect
to said additional Renewal Term, it shall be conclusively presumed that Lessee
has elected not to exercise said renewal option with respect to said Renewal
Term, in which case (unless Lessor has otherwise agreed in writing or Lessee has
exercised its purchase option under Section 29(b) hereof) each such Item of
Equipment shall be returned to Lessor in accordance with the provisions of
Section 6 hereof and until each such Item has been so returned Lessee shall
continue to pay Lessor the Basic Rent for each such Item as specified in the
next to last sentence of Section 6 hereof.
(b)(1) Lessee's Purchase Option at End of Basic Term. If (i) no
Event of Default shall have occurred and be continuing, and (ii) this Lease
shall not have been earlier terminated, Lessee shall be entitled, at its option,
upon written notice to Lessor as hereinafter provided, to purchase all, but not
less than all, Items of Equipment then subject to this Lease (together with an
assignment of all Lessor's rights (if any) in all manufacturer's, vendor's or
dealer's warranties on the Equipment or any part thereof), on the date
immediately following the date of the expiration of the Basic Term of each such
Item of Equipment, for an amount, with respect to each Item of Equipment,
payable in immediately available funds, equal to the greater of (i) fair market
sales value thereof determined in accordance with subsection (c) hereof or (ii)
with respect to Items in Asset Group A, forty (40%) of the Acquisition Cost of
such Item of Equipment, or with respect to Items in Asset Group B, twenty-five
(25%) of the Acquisition Cost of such Item of Equipment, plus in either case (i)
or (ii) any applicable sales, excise or other taxes imposed as a result of such
sale (other than gross or net income taxes attributable to such sale). Lessor's
sale of each Item of Equipment shall be on an as-is, where-is basis, without any
representation by, or recourse or warranty to, Lessor. If Lessee intends to
exercise said purchase option, Lessee shall give written notice to Lessor to
such effect at least one hundred eighty (180) days prior to the expiration of
the Basic Term of the Item(s) of Equipment whose Basic Term first expires
hereunder.
(2) Lessee's Purchase Option at End of Any Renewal Term. If (i)
no Event of Default shall have occurred and be continuing, and (ii) this Lease
shall not have been earlier terminated, Lessee shall be entitled, at its option,
upon written notice to Lessor, as hereinafter provided, to purchase all, but not
less than all, Items of Equipment then subject to this Lease (together with an
assignment of all Lessor's rights (if any) in all manufacturer's, vendor's or
dealer's warranties on the Equipment or any part thereof), on the date
immediately following the date of the expiration of the Basic Term of each such
Item of Equipment or, as the case may be, the expiration of the then Renewal
Term of each such Item of Equipment, for an amount, with respect to each Item of
Equipment, payable in immediately available funds, equal to the fair market
sales value thereof determined in accordance with Section 29(c) hereof, plus any
applicable sales, excise or other taxes imposed as a result of such sale (other
than gross or net income taxes attributable to such sale). Lessor's sale of
each Item of Equipment shall be on an as-is, where-is basis, without any
representation by, or recourse or warranty to, Lessor. If Lessee intends to
exercise said purchase option, Lessee shall give written notice to Lessor to
such effect at least one hundred eighty (180) days prior to the expiration of
the Basic Term of the Item(s) of Equipment whose Basic Term first expires
hereunder, or, if Lessee has renewed this Lease pursuant to Section 29(a)
hereof, then at least one hundred eighty (180) days prior to the expiration of
the then current Renewal Term of the Item(s) of Equipment whose Basic Term first
expires hereunder.
(c) Determination of Fair Market Sales Value and Fair Market Rental
Value; Appraisal Procedure. If Lessee has elected to exercise its renewal
option, as provided in Section 29(a) hereof, or has elected to exercise its
purchase option, as provided in Section 29(b) hereof, then as soon as
practicable following Lessor's receipt of the written notice from Lessee of
Lessee's intent to exercise such option, Lessor and Lessee shall consult for the
purpose of determining the fair market rental value or fair market sales value,
as the case may be, of each Item of Equipment as of the end of the Basic Term
thereof, or, if this Lease has been renewed pursuant to Section 29(a) hereof,
then as of the end of the then current Renewal Term thereof, and any values
agreed upon in writing shall constitute such fair market rental value or fair
market sales value of each such Item of Equipment for the purposes of this
Section 29. If Lessor and Lessee have not agreed upon such fair market sales
value or fair market rental value, as the case may be, of any Item of Equipment
by the thirtieth (30th) day before the Basic Term or, if applicable, the then
current Renewal Term, of such Item expires, the same shall be determined at
Lessee's cost and expense by a qualified independent appraiser appointed by
Lessee and acceptable to Lessor in its reasonable judgment, and such
determination shall be conclusively binding on Lessor and Lessee. For all
purposes of this Section 29, fair market sales value and fair market rental
value shall be determined on the basis of, and shall equal in value, the amount
which would obtain in an arm's length transaction between an informed and
willing buyer-user or lessee (other than a lessee currently in possession and a
used equipment or scrap dealer) and an informed and willing seller or lessor
under no compulsion to sell or lease, and in such determination, costs of
removal from the location of current use shall not be a deduction from such
value, and it shall be assumed (whether or not the same be true) that the
Equipment has been maintained in accordance with the requirements of Section 11
hereof and would have been returned to Lessor in compliance with the
requirements of Section 6 hereof.
30. Financial Information. Lessee agrees to furnish Lessor (a) as soon as
available, and in any event within 120 days after the last day of each fiscal
year of Lessee, a copy of the consolidated balance sheet of Pillowtex
Corporation (or its successors and assigns) and its consolidated subsidiaries as
of the end of such fiscal year, and related consolidated statements of income
and retained earnings of Pillowtex Corporation (or its successors and assigns)
and its consolidated subsidiaries for such fiscal year, certified by an
independent certified public accounting firm of recognized standing, each on a
comparative basis with corresponding statements for the prior fiscal year, and a
copy of Pillowtex Corporation (or its successors and assigns)'s form 10-K, if
any, filed with the Securities and Exchange Commission for such fiscal year; (b)
within 45 days after the last day of each fiscal quarter of Pillowtex
Corporation (or its successors and assigns) (except the last such fiscal
quarter), a copy of the balance sheet as of the end of such quarter, and
statement of income and retained earnings covering the fiscal year to date of
Pillowtex Corporation (or its successors and assigns) and its consolidated
subsidiaries, each on a comparative basis with the corresponding period of the
prior year, all in reasonable detail and certified by the treasurer or principal
financial officer of Pillowtex Corporation (or its successors and assigns),
together with a copy of Lessee's form 10-Q, if any, filed with the Securities
and Exchange Commission for such quarterly period; (c) contemporaneously with
its transmittal to each stockholder of Pillowtex Corporation (or its successors
and assigns) and to the Securities and Exchange Commission, all such other
financial statements and reports as Lessee shall send to its stockholders and to
the Securities and Exchange Commission; (d) as soon as available to Lessee, the
notice of any adjustment resulting from any audit of the books and/or records of
Lessee by any taxing authority having jurisdiction over Lessee; and (e) such
additional financial information as Lessor may reasonably request concerning
Pillowtex Corporation (or its successors and assigns).
31. Expenses. Lessee agrees, whether or not the transactions contemplated
by this Lease are consummated, to pay (or reimburse Lessor for the payment of)
lien searches, filing fees, and fees and expenses relating to the titling and
registration of any Item(s) of Equipment incurred by or on behalf of Lessor in
connection with the negotiation and documentation of this Lease, any Guaranty
and any other related instruments and documents.
32. Miscellaneous. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating or
diminishing Lessor's rights under the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, Lessee hereby waives any provision of law which
renders any provision of this Lease prohibited or unenforceable in any respect.
No term or provision of this Lease may be amended, altered, waived, discharged
or terminated orally, but may be amended, altered, waived, discharged or
terminated only by an instrument in writing signed by a duly authorized officer
of the party against which the enforcement of the amendment, alteration, waiver,
discharge or termination is sought. (Lessee's Initials) A waiver on
any one occasion shall not be construed as a waiver on a future occasion. All
of the covenants, conditions and obligations contained in this Lease shall be
binding upon and shall inure to the benefit of the respective successors and
assigns of Lessor and (subject to the restrictions of Section 14(a) hereof)
Lessee. If there is more than one Lessee named herein, the liability of each
Lessee shall be joint and several. This Lease, each Lease Supplement and each
related instrument, document, agreement and certificate, collectively constitute
the complete and exclusive statement of the terms of the agreement between
Lessor and Lessee with respect to the acquisition and leasing of the Equipment,
and cancel and supersede any and all prior oral or written understandings with
respect thereto.
33. Governing Law; Venue. Lessee agrees that at Lessor's sole election
any suit, action or proceeding brought by Lessor against Lessee in connection
with or arising out of this Lease may be brought in any federal or state court
located in the Commonwealth of Massachusetts, and Lessee waives personal service
of all process upon it and consents that service of process may be made by mail
or messenger directed to it at its address set forth above and that service so
made shall be deemed to be completed upon the earlier of actual receipt or
fifteen (15) days after the same shall have been posted to Lessee's said
address. Nothing herein contained shall affect Lessor's right to serve legal
process in any other manner permitted by law or to bring any suit, action or
proceeding against Lessee or its property in the courts of any other
jurisdiction. This Lease shall in all respects be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts, including all
matters of construction, validity and performance.
34. Termination for Burdensome Indemnity. If a Tax Loss (as defined in
Section 19(c) hereof) occurs as a result of an amendment, modification, repeal,
or other change of or to the Code or of or to the Regulations or of or to the
income tax laws of Lessor's Home State enacted or adopted after the date hereof
or as a result of a change in the interpretation of the Code or the Regulations
in a published ruling, revenue procedure or announcement by the Internal Revenue
Service after the date hereof or as a result of a change in the interpretations
of the income tax laws of Lessor's Home State in a published ruling or
announcement by the taxing authorities of Lessor's Home State (any such
amendment, modification, repeal or change being hereinafter called a "Tax Law
Change") and in Lessee's good faith determination, as evidenced by a certificate
of its President or chief financial officer to such effect (which certificate
shall set forth the basis and calculations upon which such determination has
been made and shall be delivered to Lessor together with Lessee's written notice
to Lessor hereinafter referred to), such Tax Law Change will require the payment
by Lessee of an increase in the Basic Rent payable by Lessee for the Equipment
in such aggregate amount as would create an undue economic burden on Lessee,
then, provided that no Event of Default shall have occurred and be continuing
hereunder, Lessee shall have the option on any Rent Payment Date occurring not
later than sixty (60) days following Lessee's receipt of written notice from
Lessor that a Tax Law Change has occurred (and which notice shall specify the
Tax Law Change that has occurred and the increase, as calculated by Lessor, in
the amount of Basic Rent as calculated by Lessor, that will become payable by
Lessee as a result of such Tax Law Change), and on at least thirty (30) days
prior written notice to Lessor, to terminate this Lease with respect to all, but
not less than all, of the Equipment then leased hereunder, such termination to
be effective on the Rent Payment Date specified in such written notice from
Lessee (such Rent Payment Date for purposes of this Section 34 being herein
called the "Termination Date") and upon payment of all of the amounts
hereinafter set forth. On the Termination Date Lessee shall purchase from
Lessor all, but not less than all, of the Items of Equipment then leased
hereunder for an amount equal to the sum of (i) the greater of (a) the aggregate
fair market sales value (as determined in Section 29(c) hereof) of such Items of
Equipment as of the Termination Date, or (b) the aggregate Special Termination
Value (hereinafter defined) of such Items of Equipment as of the Termination
Date, plus (ii) any applicable sales, excise or other taxes imposed as a result
of such purchase, plus (iii) all accrued and unpaid Interim Rent and Basic Rent
due and payable for such Items of Equipment for all prior Rent Payment Dates,
plus (iv) all Interim Rent, if any, and all Basic Rent, if any, that is due and
payable for such Items of Equipment on the Termination Date, plus (v) on an
after-tax basis, the amount of any interest, penalty or additions to tax payable
by Lessor in connection with the loss, failure to have or loss of the right to
claim, disallowance or recapture of any of Lessor's assumed tax benefits set
forth in Section 19(a) hereof with respect to such Items of Equipment resulting
from the occurrence of such Tax Law Change, and plus (vi) all other Supplemental
Payments then accrued and owing to Lessor with respect to such Items of
Equipment. Upon receipt by Lessor of all of the amounts payable to Lessor under
this Section 34, and upon compliance by Lessee with the provisions of this
Section 34, and provided that no Event of Default has occurred and is continuing
hereunder, Lessee shall no longer be liable for the payment to Lessor of any
indemnity or any increase in Basic Rent resulting from such Tax Law Change, the
obligations of Lessee to pay Rent under Section 7 hereof with respect to each
Item of Equipment then leased hereunder shall cease for any Rental Period
commencing on or after the Termination Date, and the Term with respect to each
such Item shall end effective as of the Termination Date. In the event that the
conditions set forth in the next preceding sentence have not been satisfied on
or by the Termination Date, then the provisions of this Section 34 (except for
Lessee's obligation to pay the fees and expenses of the appraiser) and Lessee's
rights hereunder shall be null and void. As used herein, the term "Special
Termination Value" means, with respect to any Item of Equipment as of any Rent
Payment Date during the Basic Term thereof, an amount determined by multiplying
the Acquisition Cost of such Item of Equipment by the percentage set forth
opposite such Rent Payment Date on the schedule of Special Termination Values
applicable to the type of Equipment to which such Item relates and attached
hereto and made a part hereof. All payments to be made under or pursuant to
this Section 34 shall be made in immediately available funds.
35. Merger, Consolidation.
(a) Notice and Offer to Purchase. In the event Lessee (or Guarantor)
intends to enter into a transaction that, if consummated, would be an Event of
Default under Section 23(f) of this Lease (such transaction herein referred to
as a "23(f) Transaction"), Lessee will give Lessor prompt (and, in any event, at
least 60 days' prior to the consummation of such transaction) written notice
thereof and shall describe in reasonable detail the facts and circumstances
giving rise thereto and Lessee shall irrevocably offer to purchase all, but not
less than all, of the Equipment for the purchase price specified in this Section
35 upon the terms and conditions set forth herein. Such offer shall be accepted
or rejected by the Lessor in its sole discretion, not later than thirty (30)
days following the Lessor's receipt of such financial and other information as
it shall reasonably request in connection with such 23(f) Transaction. In the
event of such acceptance the Lessor shall indicate that Lessor wishes Lessee to
purchase the Equipment and the date of such purchase, which shall be not earlier
than five (5) days following the date of such notice (the "Section 35
Termination Date").
(b) Purchase of Equipment. The purchase price of the Equipment subject to
the offer described in paragraph (a) hereof shall be in cash in an amount equal
to the sum of (i) the Casualty Loss Value of all Items of Equipment computed as
of the Rent Payment Date next preceding or coincident with the Section 35
Termination Date, plus (ii) all accrued and unpaid Rent due and payable for such
Items of Equipment for all prior Rent Payment Dates, plus (iii) all Rent, if
any, that is due and payable for such Items of Equipment on the Rent Payment
Date on or next preceding the Section 35 Termination Date, plus (iv) all other
amounts then accrued and owing to the Lessor under this Lease, plus (v) on an
after-tax basis, the amount of any interest, penalty or additions to tax payable
by Lessor in connection with the loss, failure to have or loss of the right to
claim, disallowance or recapture of any of Lessor's assumed tax benefits set
forth in Section 19(a) hereof with respect to such Items of Equipment resulting
from such purchase. Lessee's purchase of the Equipment shall be on an AS-IS,
WHERE IS basis, without recourse to, or warranty by, Lessor.
(c) Termination of Lease. Upon receipt by the Lessor of the purchase
price of the Equipment, then the obligation of the Lessee to pay Rent with
respect to the Equipment shall cease for any Rental Period commencing on or
after the Section 35 Termination Date, and the Term with respect to each such
Item shall end effective as of the date of such payment.
(d) Lessor's Nonacceptance. In the event that Lessor shall not accept
Lessee's offer to purchase the Equipment pursuant to this Section 35, then
provided that no Event of Default under the Lease and no event which, after
notice or lapse of time, or both, would become such an Event of Default, shall
have occurred and be continuing, Lessee (or Guarantor) may proceed with such
23(f) Transaction provided that if Lessee (or Guarantor) is not the surviving
corporation in such consolidation, merger, leveraged buy-out or corporate
reorganization, or in the event of a sale or transfer of all or substantially
all of its assets or property, then Lessee shall provide Lessor with an
assumption agreement, in form and substance reasonably satisfactory to Lessor,
from such surviving corporation or the buyer or transferee, as the case may be,
whereby such Person assumes the obligations of Lessee hereunder (or, if
applicable, the obligations of Guarantor under the Guaranty), and the
obligations of Lessee hereunder shall continue to the same effect as if a 23(f)
Transaction shall not have occurred, and provided all of the conditions
hereunder have been met, such 23(f) Transaction shall not constitute an Event of
Default hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be duly
executed by their duly authorized representatives as of the date first above
written.
BTM FINANCIAL & LEASING
CORPORATION B-4 (Lessor)
By:
Assistant Clerk Title:
(Corporate Seal)
BEACON MANUFACTURING COMPANY
Attest: (Lessee)
By:
Secretary Title:
(Corporate Seal)
COUNTERPART NO. OF SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS.
TO THE EXTENT IF ANY THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE
UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED
THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART
NO. 1.
<PAGE>
EXHIBIT A-1 TO EQUIPMENT LEASING AGREEMENT DATED AS OF
JUNE 14, 1996
Type of Equipment: Various new textile manufacturing equipment as more
particularly described on Attachment A hereto.
All Equipment is subject to review and approval of Lessor.
Maximum Acquisition Cost: $6,000,000 inclusive of any Equipment leased by
Lessor under Exhibit A-1 to the Manetta Home
Fashions Lease and Exhibit A-1 to the Tennessee
Woolen Mills Lease.
Acquisition Period: From June 14, 1996 to March 31, 1997 both dates
inclusive.
Number of Months in Basic Term: Asset Group A: 60 months
Asset Group B: 84 months
Basic Term Commencement Date: Fifteenth day of calendar month next following the
Acceptance Date of an Item of Equipment, or such
Acceptance Date if it is the fifteenth day of a
calendar month.
Basic Rent Percentage*: See Attachment B hereto.
Interim Rent Percentage*: The daily equivalent of the weighted average of
the Basic Rent Percentages applicable to such Item
of Equipment as adjusted pursuant to Attachment B
hereto.
Rental Periods for Basic Term: Each full month from the fifteenth day of the
month through the fourteenth of the following
month, both dates inclusive.
Rent Payment Dates for Basic Term: The fifteenth day of each calendar month
during the Basic Term. If Rent is
payable in arrears, the Basic Rent for
the last month of the Basic Term is
payable on the last day of the Term.
Periodicity of Basic Rent Payments During Basic Term: Monthly in arrears on
each Rent Payment Date.
Renewal Term(s): Asset Group A: Initial Renewal Term - 1
Renewal Term of three (3) years.
Additional Renewal Term 1
Renewal Term of twelve (12)months.
Asset Group B: Initial Renewal Term - 1
Renewal Term of two (2) years.
Additional Renewal Term 1
Renewal Term of twelve (12) months.
Rental Periods for Renewal Term(s): Each full month from the fifteenth day
of the month through the fourteenth of
the following month, both dates
inclusive.
Rent Payment Dates for Renewal Terms(s): The fifteenth day of each calendar
month during each Renewal Term. If
Rent is payable in arrears, the
Basic Rent for the last month of
each Renewal Term is payable on the
last day of the Term.
Periodicity of Basic Rent Payments During Renewal Term: Monthly in arrears on
each Rent Payment Date.
Financial Condition Reference Date: December 30, 1995.
* as a percentage of Acquisition Cost.
<PAGE>
BEACON MANUFACTURING COMPANY
(Lessee)
By:
Title:
Date:
BTM FINANCIAL & LEASING
(Lessor)
By:
Title:
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
page 3 and 4 of the Company's Form 10-Q for the six months ended June 29, 1996,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 55,201
<ALLOWANCES> 1,926
<INVENTORY> 142,505
<CURRENT-ASSETS> 205,913
<PP&E> 118,716
<DEPRECIATION> 38,576
<TOTAL-ASSETS> 339,132
<CURRENT-LIABILITIES> 65,372
<BONDS> 187,674
0
0
<COMMON> 106
<OTHER-SE> 89,318
<TOTAL-LIABILITY-AND-EQUITY> 339,132
<SALES> 191,979
<TOTAL-REVENUES> 191,979
<CGS> 160,796
<TOTAL-COSTS> 160,796
<OTHER-EXPENSES> 20,556
<LOSS-PROVISION> (212)
<INTEREST-EXPENSE> 6,615
<INCOME-PRETAX> 4,012
<INCOME-TAX> 1,580
<INCOME-CONTINUING> 2,432
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,432
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
