<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 29, 1997
Commission File No. 0-21486
HARRY'S FARMERS MARKET, INC.
A Georgia Corporation
(IRS Employer Identification No. 58-2037452)
1180 Upper Hembree Road
Roswell, Georgia 30076
(404) 667-8878
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Class A Common Stock, no par value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Class A Common Stock of the registrant held by
nonaffiliates of the registrant on April 23, 1997 was approximately $18,810,100.
For the purposes of this response, officers, directors and holders of 10% or
more of the registrant's common stock are considered affiliates of the
registrant at that date.
The number of shares outstanding of the registrant's Class A Common Stock, no
par value, as of April 23, 1997: 4,118,056 shares. The number of shares
outstanding of the registrant's Class B Common Stock, no par value, as of April
23, 1997: 2,050,701 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 1997 are incorporated by reference in answer to
Part III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included in
Part I, Item 1.
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PART I
ITEM 1. BUSINESS.
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Harry's Farmers Market, Inc. ("Harry's" or the "Company") owns and operates
concept megastores and convenience stores specializing in perishable food
products -- fresh fruits and vegetables; fresh meats, poultry and seafood; fresh
bakery goods; freshly made ready-to-eat, ready-to-heat and ready-to-cook
prepared foods; and deli, cheese and dairy products. Harry's stores also
feature lines of specialty, hard-to-find and gourmet nonperishable food products
that are complementary to the fresh food offerings. In addition, the Company's
stores carry kitchen-oriented housewares, floral items, grocery items, natural
health and beauty aids, and a full line of imported and domestic wines and
beers. The Company's bakery and prepared foods departments are fully-integrated
food manufacturing operations. The Company presently owns and operates three
megastores and two Harry's In A Hurry convenience stores, all in the Atlanta,
Georgia, metropolitan area. The Company has entered into a lease to open a third
Hurry's In A Hurry during the late summer of 1997 also in the Atlanta, Georgia,
metropolitan area.
HARRY'S MEGASTORES
Harry's megastores are presently located in Alpharetta, Georgia; Gwinnett
County, Georgia and Cobb County, Georgia. Each megastore is within 30 miles of
downtown Atlanta. The Alpharetta store, which opened in 1988, is housed in a
132,500 square foot facility with approximately 95,000 square feet devoted to
retailing and retailing support. The Alpharetta facility also houses the
Company's receiving, inspection and distribution operations, prepared foods
manufacturing plant and corporate offices. The Gwinnett County store, which
opened in 1991 and was expanded in 1994, is a 95,000 square foot facility
devoted entirely to retailing and retailing support. During the later part of
fiscal 1996, the Company utilized the expanded square footage to add a full line
of perishable and nonperishable ethnic foods. The Cobb County store, which
opened in October 1993, is a 100,000 square foot facility, also entirely devoted
to retailing and retailing support.
Harry's stores utilize an open warehouse format with high ceilings and fully
stocked bins, cases and shelves. The store layout directs customers through
each department, maximizing buyer exposure to the full range of Harry's
products. Shopping aisles are two to three times wider than those of the
typical grocery store to accommodate a higher traffic volume. Fresh food work
spaces (produce preparation and meat and seafood cutting areas) are incorporated
onto the selling floor to enhance the open market atmosphere and animation,
although such areas are restricted from customer traffic flow. Each store has
approximately 30 check-out stations.
HARRY'S IN A HURRY STORES
To increase the retail outlets for Harry's manufactured products (bakery and
prepared food items), the Company operates two strategically located specialty
stores under the name "Harry's In A Hurry." A 3,700 square foot Harry's In A
Hurry opened in the Buckhead area of Atlanta in June 1993. A second 7,200
square foot Harry's In A Hurry opened in March 1994 approximately four miles
from the first Harry's In A Hurry. These stores carry a full range of Harry's
bakery goods and prepared food items, a limited line of fresh food products and
selected complementary foods.
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The Harry's In A Hurry stores are located in more densely populated areas nearer
to the city center to provide more convenient, quick stop shopping for those
customers less inclined to visit the suburban megastores. In addition, the
Company plans to open a 9,000 square foot Harry's In A Hurry in Cobb County,
Georgia during the late summer of 1997.
HARRY'S PRODUCTS AND DEPARTMENTS
Harry's megastores are operationally divided into category-managed
departments, each of which is supervised by an experienced manager. Each
department operates independently and has its own procedures and methods for
purchasing, receiving, storage and handling and merchandising. The bakery and
prepared foods departments are fully integrated food manufacturing operations.
Substantial processing and food preparation are likewise involved in the
delicatessen, seafood, and meat and poultry departments. Fresh produce is the
largest department of Harry's megastores, generating between 25 to 35 percent of
the total revenue. Meat, seafood, staples and wine and beer are the next
largest departments. No other department makes up more than eight percent of
any megastore's sales. The following is an overview of the major departments.
Perishable Products
Fresh Fruits and Vegetables. Harry's offers approximately 1,000 varieties of
fresh produce items during the year. In addition to the traditional selection
of domestically grown fruits and vegetables, Harry's offers exotic products from
around the world, a full line of organically grown produce and produce
particular to ethnic cuisines.
Most fresh produce offered at Harry's is purchased directly from growers
through a network of field buyers, some of whom are full-time employees of the
Company and the remainder are independent buying brokers. Most of Harry's
produce is domestically grown, primarily in Georgia, California, Arizona,
Florida, Washington, Texas and the East Coast, with the bulk of the remainder
being purchased from South American growers during off-growing season in the
northern hemisphere. Small amounts of products are also purchased from European
and Middle Eastern countries. A minimal amount of produce is also grown under
contract for Harry's.
More than 50 percent of the produce offered at Harry's is transported from the
grower to the Company's receiving facility located at the Alpharetta megastore
under special arrangements with a single contract carrier, for whom Harry's
represented a majority of revenues for such carrier's most recent fiscal year.
Produce is picked up at the point of origin in, where appropriate, refrigerated
and temperature-monitored trucks. Transportation requirements usually are
communicated to the carrier within hours of the purchase commitment.
Incoming shipments are immediately off-loaded and directed to inspection
stations where trained produce inspectors sample and test incoming pallets for
quality and freshness. Shipments or lots which do not meet Harry's rigorous
quality standards are immediately rejected. In addition, incoming produce is
regularly sampled and tested by Nutriclean, an independent food testing
laboratory, for compliance with federal standards regarding toxic contamination
and pesticide and herbicide residues.
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After inspection, the fresh produce is moved to storage in one of six separate
temperature-controlled environments appropriate for maintaining freshness of the
various products. The produce is also separated where there is a risk of cross-
contamination by taste or smell. Produce is transported to the stores as needed
in temperature-controlled trucks.
Fresh produce is displayed on the sales floor on movable bins/racks, with
temperature-sensitive items kept on beds of crushed ice. Floor display
quantities are intentionally limited and controlled so that temperature-
sensitive items turn three to four times per day. The produce displays are
continuously replenished from the temperature-controlled storage coolers and
hand-culled to remove bruised or damaged items. At the end of each selling day,
the movable produce racks are returned to the appropriate temperature-controlled
storage environment. To further ensure freshness, the entire selling floor is
maintained at temperatures substantially below normal room temperature.
Fresh Meats and Poultry. Harry's meat department carries a full range of
beef, pork, veal, lamb, chicken, turkey and other poultry items. Harry's stores
feature Coleman(R) Natural Beef (Colorado grain-fed beef which utilizes no
antibiotics, growth stimulants or other additives) and Perdue(R) grain-fed
chicken. Harry's also regularly offers exotic meats and poultry such as
beefalo, venison, duck, goose, quail, free range chicken and capon, as well as a
variety of fresh processed meats such as sausage and ground beef. All meat and
poultry is purchased and sold fresh, except immediately before major holidays,
when demand upon the production facilities of Harry's suppliers requires fresh-
frozen shipments. Harry's maintains a strict "sell by" date policy on all cut
meat and poultry, and ground meat must be sold the day it is ground.
Meat is purchased by an experienced in-house buyer; delivered in refrigerated
trucks by Harry's independent contract carrier; and received, inspected and
stored at the Company's Alpharetta megastore which is presently being used as
the central Distribution Center. Beef, pork, lamb and veal are purchased in
vacuum-packed primal cuts; lamb is also purchased in whole carcasses; and
chicken and other poultry products are purchased both as whole birds and in
prepackaged, precut pieces. Both full-service and self-service (precut and
packaged) meat cases are available in each megastore. Each megastore has its
own meat-cutting room, and all machinery is cleaned and sanitized twice each
day. Meat service cases are cleared and cleaned nightly. Separate processing
areas are maintained for beef, pork and chicken to avoid cross-contamination,
and all meat and poultry cases are checked hourly for proper temperature.
Fresh Fish and Seafood. Harry's carries one of the most extensive selections
of fresh fish and seafood in the country. Each megastore typically carries
between 200 and 250 seafood items, including whole and filleted fish (over 100
species); crustacea such as shrimp, lobster, crab and crayfish; and mollusks
such as oysters, clams, scallops, mussels, squid and octopus. Lobster, blue
crab, shellfish and crayfish are often offered live.
Seafood is purchased by the Company's in-house buyer from a variety of sources
including independent growers, producers, importers, packers, processors and
distributors. The Company regularly purchases seafood from over 40 suppliers.
Fish is purchased whole and processed where appropriate (head-off, scaled,
filleted, de-boned) in the store. Harry's seafood department also makes daily
fresh sushi, seafood dim sum and a variety of marinated seafood items.
Generally, seafood requires the greatest degree of care to maintain freshness
and quality, and temperature control and handling are the most important aspects
of preserving quality.
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Seafood is centrally received at the Company's Alpharetta store, where it is
extensively inspected by an experienced staff of seafood inspectors who examine
it for conformity to species specification, the presence of any foreign
materials and apparent freshness (eyes clear, no odor, no gill discoloration or
trauma). Shipments are then sampled and tested by lot for bacteriological and
chemical contamination.
Harry's seafood department is certified by the United States Department of
Commerce to inspect and grade its own seafood. The Company currently has 24
HACCP (Hazard Assessment Critical Control Point) certified personnel who are
responsible for the grading and inspection.
Bakery. Harry's bakery department offers approximately 200 items which are
fresh baked daily at the Company's bakery facility. The baking facility is
fully equipped with state-of-the-art industrial baking equipment. Bakery
products currently include approximately 60 different breads, 15 different types
of hand-rolled bagels, more than a dozen varieties of cookies, 10 kinds of
muffins and 35 different cakes, pies and desserts. Bakery items include
traditional recipes from around the world, as well as recipes developed
exclusively by Harry's.
More than 90 percent of the Company's manufactured bakery products are
produced fresh daily and removed from the shelves if not sold on the day made.
All bakery dough is made from scratch-blended ingredients (not from mixes) and
hand or machine shaped before being baked in commercial ovens.
Prepared Foods. Harry's manufactures and sells a broad range of ready-to-eat,
ready-to-heat and ready-to-cook fresh prepared foods. This line of
approximately 300 products includes fresh pasta, ready-to-heat pizzas, pasta
sauces, fresh casseroles, lasagna, filled pastas, quiches and a line of
refrigerated (not frozen) microwaveable meals marketed under the name "Harry's
Hungry In A Hurry Meals(TM)."
Prepared foods facilities which serve more than two retail outlets with meat
or poultry products are subject to approval and inspection by the United States
Department of Agriculture ("USDA") as a food manufacturing facility. On June
27, 1993, the Company obtained approval and opened its USDA food manufacturing
facility located within the same building as the Alpharetta megastore. During
fiscal 1997, the Company had a USDA compliance inspection record of 99.5%.
All of Harry's prepared foods are made fresh in the Company's USDA-approved
food manufacturing facility. Harry's kitchens make approximately 30 varieties
of prepared salad items (such as potato and pasta salads). Recipes are
developed in-house by Harry's product development staff. They are then
extensively documented for commercial production (including step-by-step
production instructions and quality control procedures) and tested for customer
acceptance.
Deli, Cheese and Dairy. Harry's carries more than 85 varieties of
delicatessen meats, and features the quality Boar's Head(R) brand. The deli
also prepares fresh rotisserie chicken, barbecue, roast beef, knishes and baked
hams. In addition, Harry's offers more than 300 varieties of cheeses from
around the world which are purchased in bulk from distributors and importers and
directly from cheese processors. The Company believes that its stores offer one
of the largest selections of cheeses in the southeastern United States. Harry's
also offers a broad range of dairy items such as milk, yogurt, cottage cheese,
ice cream and butter.
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Nonperishable Products
Staples, Housewares and Health and Beauty Aids. Harry's offers a selection of
nonperishable food products generally consisting of hard-to-find and gourmet
items, natural products and foods useful in the preparation of ethnic cuisines
that are complementary to its fresh food offerings. Harry's also carries a full
line of gourmet coffees.
A limited line of quality kitchen-oriented housewares is also offered at
Harry's, including food processing equipment, gourmet utensils and gadgets.
Harry's stores also feature more than 500 health and beauty aid items, primarily
natural products and products marketed to the environmentally sensitive
consumer. Additionally, Harry's stores feature a broad selection of blooming,
in-pot and fresh cut flowers and decorative plants which are purchased directly
from growers both domestically and abroad.
Wine and Beer. Harry's megastores offer a selection of more than 1,500
different foreign and domestic wines (including vintages) and more than 150
brands of domestic and imported beers, with Harry's In A Hurry stores offering a
smaller selection.
The following table indicates sales (rounded to the nearest thousand) and
percentage of total revenues contributed by perishable and nonperishable
products for each of the last three fiscal years:
<TABLE>
<CAPTION>
MAJOR PRODUCT CATEGORY FISCAL 1997 SALES % FISCAL 1996 SALES % FISCAL 1995 SALES %
<S> <C> <C> <C> <C> <C> <C>
Perishables(1) $113,838,000 81% $117,530,000 81% $116,521,000 81%
Staples and Nonperishables(2) 26,324,000 19 28,408,000 19 27,293,000 19
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</TABLE>
(1) Includes fresh fruits, vegetables, meats and poultry, fish and seafood,
bakery and fresh prepared food items, cheeses, deli items, dairy products,
flowers and coffee.
(2) Includes nonperishable food items, wine and beer, housewares, health and
beauty aids and other complementary nonperishables.
MARKETING AND ADVERTISING
While the Company participates in some traditional campaign-style media,
including print, billboard and broadcast, it spends less on traditional
advertising than is normative in the supermarket industry. In management's
opinion, non-traditional methods such as community involvement, promotional
events, local event sponsorship, newcomer programs and alliances with area
schools maintain and improve customer counts and sales volumes without the
expense typically associated with large media campaigns. Harry's employs in-
store promotional activities, such as product sampling, cooking demonstrations,
educational materials and signage. During fiscal 1998, the Company plans to
expand its marketing initiatives to more fully take advantage of current
programs and to optimize vendor and community relationships.
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EMPLOYEES AND EMPLOYEE TRAINING
The Company currently employs 1,160 people, of whom 88 percent are full-time
employees. Approximately 185 employees are salaried, with the remainder being
paid on an hourly basis. The Company believes that it devotes more time and
expense to the training and education of its employees, both in the operations
process and in product information, than does the typical food retailer.
Accordingly, the Company stresses the importance of maintaining and retaining a
greater portion of its workforce as full-time employees. The Company has
devised, documented and implemented formal training procedures in areas such as
equipment operation, product handling and sanitation and product information.
None of the Company's employees are represented by a union and the Company
believes its employee relations are satisfactory.
COMPETITION
The Company competes in the Atlanta metropolitan market area with traditional
grocery stores and supermarkets, other farmer's market format retailers,
specialty food shops such as butchers, bakeries, produce stands and seafood
shops, and home meal replacement retailers. Competition for the consumer's food
dollar is generally intense and has increased in recent years with the entrance
of more regional chains in the Company's market area. General food retailers
such as grocers and supermarkets compete primarily on the basis of promotional
pricing, convenience to the customer of location and one-stop shopping, and, to
a lesser extent, product selection and quality. Farmer's markets and specialty
food shops compete primarily on the basis of quality and selection of products
and, to a lesser extent, price. Club stores compete primarily on the basis of
price. Harry's competitive strategy is to be unmatched in the freshness and
quality of its products and unequaled in the selection and overall pricing and
value of its products. The Company's Harry's In A Hurry stores compete
favorably, in management's opinion, with both convenience outlets, restaurants
and traditional supermarkets.
GOVERNMENT REGULATION
The distribution and sale of meat, poultry and dairy products and fresh
produce are regulated and subject to inspection by the USDA under, among others,
the Federal Meat Inspection Act and the Federal Poultry Products Inspection Act
and by various state agencies under applicable state legislation. The USDA has
delegated its inspection responsibility to the states for fresh produce and
dairy products and for meat and poultry processing and handling facilities which
do not serve more than two retail outlets. Meat or poultry processing
facilities which serve more than two retail outlets are subject to direct
inspection and approval by the USDA.
The Company's seafood operations participate voluntarily in the United States
Department of Commerce self-inspection and rating program (HACCP), which
subjects it to standard specification and inspection by that agency.
Participation in the voluntary program permits the Company to label its fresh
seafood with the governmentally approved "Grade A" stamp. The Company currently
has approximately 24 HACCP (Hazard Assessment Critical Control Point) certified
personnel who are responsible for grading and inspection.
In May 1994, all preparers of packaged foods were required to comply with the
federal Nutrition Labeling and Education Act, which requires that the labeling
of all manufactured food items must display specific nutritional content
information. Compliance with such act requires the Company to conduct extensive
testing of its prepared food items to determine the nutritional
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content and requires exact portion control of prepared food items. The Company
complies with all regulations under this act. Additionally, the Company
voluntarily complies with nonmandatory consumer information regulations under
this act, which provide for in-store posting of generic information on the
nutritional content of selected fruits and vegetables, meat, poultry and
seafood.
The Company's relationship with its fresh food suppliers with respect to the
grading and commercial acceptance of product shipments is governed by the
federal Produce and Agricultural Commodities Act, which specifies standards for
sale, shipment, inspection and rejection of agricultural products. The Company
is also subject to regulation by state authorities for accuracy of its weighing
and measuring devices.
Management believes that the Company is currently in substantial compliance
with all applicable government regulations.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Position with Company
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Harry A. Blazer Chairman, President and Chief Executive Officer
Terry L. Ransom Executive Vice President and Chief Administrative Officer
Harold C. Weissman Treasurer and Chief Financial Officer
John L. Latham Corporate Secretary and General Counsel
_______________
HARRY A. BLAZER, age 46, is the founder of the Company and served as the sole
General Partner of the predecessor to the Company and as Chief Executive Officer
from its inception in 1987. Upon the Company's incorporation in 1993, Mr.
Blazer was named a director and President and Chief Executive Officer. In June
1994, Mr. Blazer was elected to the additional office of Chairman. From 1979 to
1987, Mr. Blazer was employed at DeKalb Farmer's Market in Atlanta and served as
its General Manager from 1983 until he left to form the Company.
TERRY L. RANSOM, age 50, has extensive knowledge of information systems
integration and management. Prior to working for the Company, from October 1987
to June 1995 Mr. Ransom was employed as Director of Hospital Information
Services for the Scottish Rite Children's Medical Center in Atlanta, Georgia.
In addition to extensive information systems and management consulting
experience, Mr. Ransom has had more than ten years experience in various
positions with AT&T including nearly three years experience as national manager
for implementing and supporting information systems projects for AT&T's Overseas
Accounting Department. He also has experience launching new business ventures
in a variety of industries.
HAROLD C. WEISSMAN, age 43, is a native of Atlanta, Georgia. Mr. Weissman
graduated in 1976 from the University of Georgia with a B.B.A. in Accounting.
Mr. Weissman acquired an
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extensive background in bank auditing while employed with Grant Thornton, L.L.P.
and ten years of experience as controller for various manufacturing firms. Mr.
Weissman joined the Company in 1990 spending nearly one year in operations
before becoming Director of Accounting in 1991. Mr. Weissman was appointed
Treasurer in 1995 and Chief Financial Officer in 1996.
JOHN L. LATHAM, age 42, was appointed Secretary and General Counsel for the
Company in September 1995. From 1992 until 1996, Mr. Latham was a partner
in the firm of Nelson Mullins Riley & Scarborough, L.L.P. In August 1996 Mr.
Latham joined as a partner to the firm Alston & Bird LLP which now serves as
general counsel for the company.
ITEM 2. PROPERTIES.
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Each of the Company's three present megastore sites is owned by the Company.
The 132,500 square foot Alpharetta site houses the Alpharetta megastore, which
has 95,000 square feet devoted to retailing and retailing support, the Company's
corporate offices, receiving, inspection, distribution operations and the
prepared foods manufacturing plant. The Gwinnett County site and the Cobb
County site each house megastores, utilizing 95,000 square feet and 100,000
square feet, respectively. The Gwinnett megastore was expanded in 1994 to its
current size. Both the Gwinnett and Cobb megastores are devoted entirely to
retailing and retailing support.
The 151,000 square foot Company-owned Distribution facility located
approximately two miles from the Alpharetta store houses the Company's baking
operation, which utilizes approximately 55,000 square feet of the facility. The
remaining square footage, which previously housed the Company's receiving,
inspection, and distribution operations, which was relocated to the Alpharetta
megastore during 1995 and 1996, is presently being offered for lease.
The Company leases each of the two Harry's In A Hurry locations in Atlanta.
The first Harry's In A Hurry contains 3,700 square feet, is located on Peachtree
Road in the Buckhead area of Atlanta and is leased through 2002. The second
Harry's In A Hurry location, which is leased with options through 2019, contains
7,200 square feet and also is located in the Buckhead area of Atlanta,
approximately four miles north of the first location. The third Harry's In A
Hurry location will be approximately 9,000 square feet. The site is to be
located on Cobb Parkway in the Marietta area of Atlanta and is leased through
2007 with options through 2017.
ITEM 3. LEGAL PROCEEDINGS.
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There are no (i) material legal proceedings to which the Company is a party
or to which its properties are subject; (ii) material proceedings known to the
Company to be contemplated by any governmental authority; (iii) material
proceedings known to the Company, pending or contemplated, in which any
director, officer or affiliate or any principal security holder of the Company,
or any associate of any of the foregoing is a party or has an interest adverse
to the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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No matters were submitted to a vote of security holders of the Company during
the fourth quarter ended January 29, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------ ---------------------------------------------------------------------
The Company's Class A Common Stock is traded on the NASDAQ National Market
under the symbol "HARY". There is no established public trading market for the
Company's Class B common Stock. The following tables set forth, by fiscal
quarter, the high and low sales prices of the Class A Common Stock reported by
the NASDAQ National Market for the two most recent fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 29, 1997 HIGH SALE LOW SALE
- --------------------------------------- --------- --------
<S> <C> <C>
First Quarter ended May 1, 1996 $3 7/8 $2 1/2
Second Quarter ended July 31, 1996 6 1/4 2 3/8
Third Quarter ended October 30, 1996 5 1/8 3 1/4
Fourth Quarter ended January 29, 1997 4 2 1/4
FISCAL YEAR ENDED JANUARY 31, 1996 HIGH SALE LOW SALE
- --------------------------------------- --------- --------
First Quarter ended May 3, 1995 $10 $8
Second Quarter ended August 2, 1995 8 7
Third Quarter ended November 1, 1995 4 3/4 2 7/8
Fourth Quarter ended January 31, 1996 3 1/4 2 5/8
</TABLE>
On April 23, 1997, the closing sales price for the Class A Common Stock as
reported by the NASDAQ National Market was $4.625 per share. The Company had
864 record holders and approximately 7,000 beneficial holders of its Class A
Common Stock as of April 23, 1997, and two record and beneficial holders of its
Class B Common Stock. The Company has not declared or paid any cash dividend on
either class of its Common Stock. The policy of the Board of Directors of the
Company is to retain future earnings for use in operations and, if available,
for the expansion and development of the Company's business. The Company's
primary credit facility prohibits the payment of dividends without the consent
of the lenders. Future dividend policy and the payment of dividends, if any,
will be determined by the Board of Directors in light of circumstances then
existing, including the Company's earnings, financial condition, contractual
restrictions and other factors deemed relevant by the Board.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, JANUARY 31,
1997 1996 1995 1994 1993
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Statement of Operations Information: (in thousands, except per share data)
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $140,162 $145,938 $143,814 $116,717 $98,870
Cost of goods sold 104,363 109,845 109,364 88,796 72,586
-------- -------- -------- -------- -------
Gross profits 35,799 36,093 34,450 27,921 26,284
Operating expenses 36,002 43,677 38,301 32,570 24,379
-------- -------- -------- -------- -------
Operating profit (loss) (203) (7,584) (3,851) (4,649) 1,905
Interest expense (2,600) (3,198) (3,032) (840) (1,072)
Other income 1,321 906 159 656 877
-------- -------- -------- -------- -------
Earnings (loss) before income taxes (1,482) (9,876) (6,724) (4,833) 1,710
Income taxes/1/ -0- -0- -0- -0- 660
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Net earnings (loss) (1,482) (9,876) (6,724) (4,833) 1050
Provision for Accretion of Warrants (229) (229) (19) -0- -0-
-------- -------- -------- -------- -------
Net earnings (loss) applicable to
common shareholders $ (1,711) $(10,105) $ (6,743 $ (4,833) $ 1,050
======== ======== ======== ======== =======
Net earnings (loss) per share/2/ $(0.28) $(1.64) $(1.09) $(0.86) $.25
======== ======== ======== ======== =======
Weighted average shares outstanding/2/ 6,168 6,167 6,164 5,595 4,200
AS OF
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JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, JANUARY 31,
1997 1996 1995 1994 1993
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BALANCE SHEET INFORMATION:
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Working capital (deficit) $ 4,009 $ (110) $ 3,456 $ (4,312) $ 214
Property and equipment, net 45,817 49,380 59,145 65,157 23,246
Total assets 60,428 66,963 76,102 78,870 30,553
Long-Term obligations, net of
current maturities 26,225 28,789 30,502 29,073 11,173
Notes payable to partners net
of current maturities -- -- -- -- 1,500
Limited partner capital contribution -- -- -- -- 2,500
Partnership equity -- -- -- -- 8,400
Redeemable convertible preferred stock 10,352 10,124 9,895 -- -
Stockholders' equity 16,330 17,666 27,756 33,880 -
</TABLE>
- -------------
1 Income taxes and net earnings for 1993 pro forma assuming the Company's
predecessor partnership had been a corporation.
2 Earnings per share and weighted average shares for 1993 are pro forma based
on the weighted average number of shares that would have been outstanding
had the partners been shareholders.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS.
-------------
GENERAL
The Company opened its first megastore, with an initial size of 63,000 square
feet, in July 1988 in Alpharetta, Georgia. In May 1991, the Company expanded
this facility to 132,500 square feet (approximately 95,000 square feet of
retailing space). In October 1991, the Company opened a 60,000 square foot
megastore in Gwinnett County, Georgia. In 1994, the Company expanded this
facility to 95,000 square feet. In October 1993, the Company opened its third
megastore, a 100,000 square foot facility located in Cobb County, Georgia. In
June 1993, the Company opened its first Harry's In A Hurry store, a 3,700 square
foot convenience store, and in March 1994, the Company opened its second Harry's
In A Hurry store, a 7,200 square foot convenience store. A fourth megastore was
opened in May 1995 in Clayton County, Georgia but was subsequently closed in
November 1995 due to insufficient sales volume to cover operating expenses of
the store. Currently, the Company has three megastores and two convenience
stores in the metropolitan Atlanta area. The Company plans to open its third
Harry's In A Hurry store in Cobb County, Georgia during the late summer of 1997.
Such store will be approximately 9,000 square feet. Net sales have increased
from $98.9 million in fiscal 1993 to $140.2 million in fiscal 1997.
In fiscal 1994, the Company invested approximately $17.6 million in fixed
assets associated with manufacturing, distribution and corporate infrastructure
in anticipation of retail and manufacturing growth. The Company invested
approximately $10.8 million of such amount for the purchase and equipping of a
151,000 square foot production/warehouse facility of which approximately 55,000
square feet is currently utilized for bakery production. Approximately 40,000
square feet was used for non-perishables distribution until fiscal 1997 and
approximately 56,000 square feet was utilized for produce inspection and
distribution, as well as meat, cheese, deli, and dairy distribution until fiscal
1996; however, the Company has since relocated such operations to the Company's
Alpharetta megastore location and is currently seeking to lease such space. In
addition, the Company invested approximately $3.0 million for building and
equipping a USDA-approved prepared foods facility. These support facilities
are currently operating at an estimated 35% to 40% of capacity. In addition,
the Company also invested approximately $3.5 million in corporate infrastructure
which included corporate offices at the Alpharetta megastore and upgrades to the
Company's computer systems.
The increased costs associated with the start-up of these support facilities
and the inability of the Company to operate the manufacturing and distribution
facility at their optimum capacity resulted in the Company incurring losses in
fiscal 1994 and 1995. The loss in fiscal 1994 was primarily attributable to an
8.1% increase in the fourth quarter cost of goods sold compared to the previous
nine months. The increase in cost of goods sold was largely due to increased
manufacturing cost (specifically payroll, depreciation and other fixed
manufacturing costs) associated with start-up of the manufacturing facility. Due
to insufficient funds to open new stores, the Company was unable to operate the
facilities at their optimum capacity. The operation of these facilities at below
their optimum capacity increased costs as a percentage of sales in 1995 and
resulted in a loss for fiscal 1995. It was during fiscal 1995 that management
also decided not to open a store in Nashville, Tennessee. The Company decided
to sell the 17 acres previously
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<PAGE>
purchased for such facility in order to raise additional cash and concentrate on
the existing stores in the Atlanta market.
In the fourth quarter of fiscal 1995, the Company received $10.3 million, net
of expenses, from a private placement of redeemable convertible preferred stock.
Concurrent with the closing of such transaction, the Company restructured its
bank credit facilities. The restructured credit facilities consisted of a $26.7
million term loan facility and a working capital line of credit (the
restructured line of credit was originally $9.0 million but to decrease expenses
was voluntarily reduced in September 1995 to $5.0 million).
The proceeds from the financing and the additional credit available under the
bank credit facility were used to construct the Clayton County megastore. The
Clayton County megastore was opened to improve the utilization of the Company's
manufacturing and distribution facilities while keeping the cannibalization of
the Company's other stores to a minimum. After six months of operations and
despite good execution by the store's management and a high level of advertising
and other types of sale promotions, the Clayton County megastore was unable to
generate sales volume sufficient to cover its operating expenses, which resulted
in the store operating at a significant loss. The Company concluded that the
Clayton County megastore's performance would not improve in the foreseeable
future and that the losses would continue. To reduce the burden on the Company's
financial resources and to redirect management's attention to more profitable
parts of the Company's business, the Clayton County megastore was closed in
November 1995.
The closing of the Clayton County megastore combined with other factors
resulted in the Company having a loss for fiscal 1996. In order to reverse this
trend of losses as well as a decline in same store sales, the Company had taken
several actions. These actions included a reduction in the number of people
employed in the Company's general and administrative areas, consolidating the
produce inspection and distribution as well as meat, deli and dairy distribution
to the Alpharetta store, introduction of new prepared food items, an expanded
home replacement meal program, a hot bread program, new merchandising
initiatives, better operational performance at store level through higher
employee morale, a more cohesive management team and a focused effort to reduce
waste at the Company's manufacturing facilities and in its stores. During
fiscal 1996, the Company introduced nearly 50 new prepared food products which
were more new products than in all of the last two years while at the same time
continuing to improve quality. The Company also has a newly designed label to
be used for bakery and prepared food items, new product signage and a totally
new packaging system to ensure an even fresher, more tamper resistant and more
cost efficient product. The Company has been actively pursuing several
significant outside contracts for the bakery and prepared foods manufacturing
facilities. Despite these efforts, a number of external factors exist which are
outside of management's control and could negatively impact the Company's
operations. These factors include, but are not limited to, competition,
availability of merchandise, weather and the metropolitan Atlanta economy.
Fiscal 1997 consisted of maintaining and improving many of the initiatives
implemented during fiscal 1996. Improving the merchandising efforts as well as
controlling the manufacturing expenses was a high priority for fiscal 1997. The
Company has been focusing on new management information systems in an effort to
gain more timely information to affect quicker decision making. In addition,
during fiscal 1997, the Company attempted to utilize the excess capacity of its
manufacturing facilities by producing goods for sale to third-party retailers.
The Company also spent the summer of fiscal 1997 supplying many events related
to the Olympic games in the Atlanta metropolitan area.
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<PAGE>
On January 31, 1997, the Company entered into a series of agreements with
Progressive Food Concepts, Inc. ("PFCI"), a new company formed for the purpose
of consummating such transaction. PFCI has agreed to invest in the Company in
the form of (i) a $12 million refinancing loan, which was funded on January 31,
1997, and is exchangeable for shares of the Company's series B convertible
preferred stock, convertible into an aggregate of 3,000,000 shares of the
Company's Class A common stock, no par value ("Class A Common Stock"), and (ii)
a commitment to loan up to an additional $8 million in a development loan, which
is exchangeable for shares of series B convertible preferred stock of the
Company, convertible into an aggregate of 2,000,000 shares of Class A Common
Stock. PFCI also purchased a warrant for $1.0 million to purchase up to an
additional 2,000,000 shares of Class A Common Stock (the "Warrant") at exercise
prices ranging from $4.00 to $5.50. In addition, in exchange for $1.5 million
and a 2.5% equity interest in PFCI, PFCI acquired the beneficial interest in,
and a royalty-free license to use, all of the Company's intellectual property
rights outside the States of Georgia and Alabama. Finally, the Company entered
into a $0.5 million, five-year mutual consulting arrangement with PFCI. Harry's
intends to immediately focus its attention on refining its business model
through testing and experimentation and could incur losses associated with such
activities. See "-- Liquidity and Capital Resources."
The statements which are not historical facts contained in this Annual Report
on Form 10-K are forward looking statements that involve risks and
uncertainties, including, but not limited to, the effect of weather, the effect
of economic conditions, the impact of competitive products, services, pricing
capacity and supply constraints or difficulties, the impact of advertising and
promotional activities and the effect of the Company's accounting policies.
The Company's fiscal year ends on the Wednesday nearest January 31. Fiscal
1997 ended on January 29, 1997, fiscal 1996 ended on January 31, 1996, and
fiscal 1995 ended on February 1, 1995.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
the listed items included in the Company's consolidated statements of operation:
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<PAGE>
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 31, FEBRUARY 2,
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 74.5 75.3 76.0
----- ----- -----
Gross profit 25.5 24.7 24.0
Operating expenses
Direct store expenses 15.4 15.8 15.4
Selling, general and administrative 7.8 8.1 7.9
expenses
Depreciation and other amortization 2.4 2.6 2.8
Amortization of pre-opening expenses 0.0 0.3 0.6
Provision for Store Closing 0.0 3.1 0.0
----- ----- -----
Loss from Operations (0.1) (5.2) (2.7)
Other income (expense)
Interest expense (1.9) (2.2) (2.1)
Other income 1.0 0.6 0.1
Income taxes 0.0 0.0 0.0
----- ----- -----
Net (loss) (1.0)% (6.8)% (4.7)%
===== ===== =====
</TABLE>
Comparison of Fiscal 1997 to Fiscal 1996
- ----------------------------------------
Net sales in fiscal 1997 decreased 4.0% to $140.2 million from $146.0 million
in fiscal 1996. This decrease is primarily the result of the inclusion in
fiscal 1996 of approximately $8.7 million of revenues associated with the
opening of the Clayton County megastore in May 1995 and was subsequently closed
in November 1995. However, the 1997 fiscal year included approximately $1.2
million of business related to the 1996 Olympic and Paralympic Games in the
Atlanta metropolitan area. Comparable store sales increased 0.8% for the year.
This increase can be attributed to improved marketing and merchandising efforts
partially offset from extreme weather conditions during the first Quarter of
fiscal 1997, as well as growing competition in the Atlanta area.
Gross profit as a percentage of net sales in fiscal 1997 increased to 25.5 %
in fiscal 1997 from 24.7% in fiscal 1996. This increase resulted mainly from
improvements in operational efficiencies, in particular, manufacturing,
distribution and procurement. Despite the continued under-utilization of
manufacturing and distribution facilities, continued improvement has occurred.
However, due to the inclusion of revenues from the Clayton County megastore in
fiscal 1996, gross profit decreased to approximately $35.8 million in fiscal
1997 from approximately $36.1 million in fiscal 1996. Gross profit during
fiscal 1997 was enhanced by approximately $0.3 million as a result of
adjustments to workers' compensation expense (the "Workers' Compensation
Adjustments"), due to the Company's better than expected claim experience in
workers' compensation. In addition, gross profit during fiscal 1996 was
adversely affected due to above normal waste and promotional pricing associated
with the opening and closing of the Clayton County megastore.
Direct store expenses decreased to approximately $21.6 million or 15.4% as a
percentage of net sales in fiscal 1997 from approximately $23.1 million or 15.8%
for fiscal 1996. This was primarily due to a reduction in fiscal 1997 of
approximately $1.4 million of labor and labor related expenses as a result of
the closing of the Clayton County megastore, which occurred during fiscal
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<PAGE>
1996. In addition, fiscal 1997 direct store expenses were reduced by $0.2
million as a result of the Workers' Compensation Adjustments.
Selling, general and administrative expenses in fiscal 1997 decreased to
approximately $10.9 million or 7.8% as a percentage of net sales from
approximately $11.8 million or 8.1% for fiscal 1996. The decrease is primarily
attributable to lower labor and labor related expenses. In addition, selling,
general and administrative expenses for fiscal 1997 contains a favorable
adjustment of approximately $0.1 million due to the Workers' Compensation
Adjustments.
Depreciation and amortization, which includes depreciation and amortization
for the stores and the corporate facilities but not manufacturing (which is
included in cost of goods sold) declined to approximately $3.5 million or 2.4%
as a percentage of net sales from approximately $3.8 million or 2.6% in fiscal
1996. This reduction resulted from the physical transfer and reclassification
of assets and depreciation expense from stores to other property and equipment
which has been taken out of service and is not currently being depreciated and
from certain other assets becoming fully depreciated prior to or during fiscal
1997. Fiscal 1996 also included approximately $0.4 million or 0.3% of net sales
of pre-opening expenses for the Clayton County megastore.
Due to reasons set forth above, the Company in fiscal 1997 had an operating
loss of approximately $0.2 million or (0.1)% of net sales as compared to an
operating loss in fiscal 1996 of approximately $7.6 million or (5.2)%.
Interest expense decreased to approximately $2.6 million or 1.9% of net sales
in fiscal 1997 from approximately $3.2 million or 2.2% in fiscal 1996. This
decrease is primarily attributable to the reduction in long term obligations
from proceeds received from the sale of: (i) the Clayton County megastore, (ii)
one outparcel at the Gwinnett County megastore and (iii) the sale of the
Nashville, Tennessee property. In addition, in December 1996, the Company
refinanced it bakery/distribution facility at a lower interest rate over a loan
period of 15 years. The Company believes that this will also reduce interest
expense in future months.
Other income in fiscal 1997 increased to approximately $1.3 million or 1.0%
of net sales from approximately $0.9 million or 0.6% in fiscal 1996. The major
component of the increase is a gain on the sales of the Gwinnett County
outparcel and the Nashville, Tennessee property. Included in other income is
rental income received from the shopping center the Company owns in Cobb County,
Georgia, at which the Cobb County megastore is a major component. Rent received
during fiscal 1997 and 1996 exceeded $850,000 and $825,000 respectively, which
amounts are net of the Cobb County megastore rent. The shopping center is
approximately 97% occupied at this time.
In fiscal 1997 the Company owed no income taxes as the Company incurred a net
loss. The Company has net operating loss carry forwards of approximately $22.3
million which may be applied against future earnings. Should the Company
experience a change of ownership in accordance with Section 382 of the Internal
Revenue Code of 1986, as amended, the extent that the Company may apply such
loss carry forwards may be limited.
As a result of the above, the Company's operations generated a net loss for
fiscal 1997 of approximately $1.7 million or ($0.28) per common share and common
equivalent share compared with a net loss of approximately $10.1 million, or
($1.64) per common share and common equivalent share. Fiscal 1996 includes a
provision of approximately $4.6 million or (3.1)% of net
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<PAGE>
sales for closing the Clayton County megastore, or ($0.75) per common share and
common equivalent share.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net sales in fiscal 1996 increased 1.5% to $146.0 million from $143.8 million
in fiscal 1995. This is primarily attributable to the revenue generated by the
Clayton County megastore from the time it opened on May 17, 1995 until its
closing on November 5, 1995. Comparable store sales declined 4.5% for the year.
This decline can be attributed to several factors: poorly executed ordering to
minimize out-of-stocks in the early part of the fiscal year, growing competition
in the Atlanta area, extreme weather conditions towards the end of the year and
the discontinuance of in store promotions and demonstrations.
Gross profit as a percentage of sales in fiscal 1996 increased to 24.7% of
sales in fiscal 1996 from 24.0% in fiscal 1995. The improvement was
attributable primarily to operational efficiencies, in particular,
manufacturing, distribution and procurement. Despite the continued
underutilization of manufacturing and distribution facilities, continued
improvement has occurred.
Direct store expenses increased as a percentage of net sales to 15.8% in
fiscal 1996 from 15.4% in fiscal 1995. The increase was primarily attributable
to higher labor costs resulting from the start up of the Clayton County
megastore.
Selling, general and administrative expenses in fiscal 1996 increased as a
percentage of sales to 8.1% from 7.9% in fiscal 1995. The increase is primarily
attributable to severance expenses and legal fees associated with Company's
restructuring of management. This restructuring was undertaken after Harry A.
Blazer, the chairman, founder and majority voting shareholder of the Company,
took action by consent in accordance with applicable Georgia law in September
1995, to remove four (4) previous directors and elect three (3) new directors.
Mr. Blazer took this action as a result of differences of opinion with the
removed directors in the management philosophies regarding the Company's
operations. The increase in selling, general and administrative expenses also
reflects intensified sales promotion and marketing efforts designed to generate
additional sales volume in the Clayton County megastore during its time open
between May 1995 and November 1995 as well as additional advertising after the
close of the Clayton County megastore to offset the impact of negative publicity
on the remaining megastores and Harry's In A Hurry stores.
Depreciation and other amortization, which includes depreciation and
amortization for the stores and the corporate facilities but not manufacturing
facilities (which are included in cost of goods sold) declined as a percentage
of sales to 2.6% in fiscal 1996 from 2.8% in fiscal 1995. This decline resulted
from certain assets becoming fully depreciated prior to or during fiscal 1996.
Amortization of pre-opening expenses during fiscal 1996 decreased to 0.3% of
sales from 0.6% of sales in fiscal 1995. The decrease in preopening expenses is
largely due to the opening of only one megastore in fiscal 1996 compared to the
opening of a megastore and a Harry's In A Hurry in fiscal 1995.
During the fiscal year 1996, the Company incurred a non-cash loss of $4.6
million or 3.1% of sales due to the closing of the Clayton County megastore. The
loss consisted of $4.2 million to write down property and equipment to its net
realizable value and $0.4 million for labor and other
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<PAGE>
costs associated with the closing of the store and transferring equipment to
other facilities. In January 1996, the Company sold the Clayton County property
for $4.4 million and used the net proceeds to decrease long term debt.
Interest expense increased in fiscal 1996 to 2.2% of sales from 2.1% of sales
in fiscal 1995 as a result of the Company having greater borrowings outstanding
in support of operations and from the funds used for capital expansion to open
the Clayton County megastore.
Other income increased in fiscal 1996 to $906,000 or 0.6% of sales from
$159,000 or 0.1% of sales in fiscal 1995. Included in Other income is rental
income received from the shopping center the Company owns. The Company's Cobb
County megastore is a major component of the shopping center. Rent received
during fiscal 1996 and 1995 exceeded $825,000 and $625,000, respectively. These
amounts are net of the Cobb County megastore rent. The shopping center is
approximately 97% occupied at this time. The increase in Other income is
attributable primarily to increased rental income received during fiscal 1996.
Other income in fiscal 1995 was offset by a $505,000 write down of the Company's
Nashville property to reflect market value.
Income taxes in fiscal 1996 were zero as the Company incurred a net loss.
The Company has net operating loss carry forwards of approximately $21.0 million
which may be applied against future earnings.
As a result of the above, the Company's operations generated a net loss for
fiscal 1996 of $10.1 million, or ($1.64) per share, compared with a net loss of
$6.7 million, or ($1.09) per share, for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided or (used) net cash of
approximately $2.0 million, ($1.2) million and $2.1 million in fiscal 1997, 1996
and 1995, respectively.
Cash provided or (used) by investing activities in fiscal 1997, 1996 and 1995
was approximately $4.0 million, $0.2 million and ($3.1) million, respectively.
Investing activities consisted mainly of capital expenditures for property and
equipment relating to stores and distribution and manufacturing facilities.
During fiscal 1996 and 1995, the Company constructed the Clayton County
megastore which was subsequently closed and sold. During fiscal 1997, the
Company sold the Nashville property and an outparcel at the Gwinnett County
location. Total capital expenditures net of proceeds from the sale of property
and equipment in fiscal 1997, 1996 and 1995, were $4.0 million, $0.2 million and
($3.3) million, respectively.
Cash provided or (used) by financing activities in fiscal 1997, 1996 and 1995
was approximately ($5.7) million, ($0.3) million and $2.7 million. At the end of
fiscal 1996, the Company was fully drawn on the credit facility and had no
additional lines of credit. At the end of fiscal 1997, the Company had $500,000
available on its line of credit which was restricted for the sole use of opening
the third Harry's In A Hurry store. In fiscal 1997 financing activities
consisted mainly of principal payments under the Company's long-term
obligations. In fiscal 1996 financing activities consisted mainly of principal
payments under the Company's long-term obligations offset by borrowings under
the Company's line of credit.
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<PAGE>
The Company's working capital position in 1997 and 1996 was $4.0 million and
($0.1) million respectively. The increase in working capital in fiscal 1997 is
due largely to a mortgage note ("the Mortgage Loan") on the Company's
distribution center and baking facility being reduced first by a principal
payment of approximately $0.5 million and the due date being extended from June
30, 1996 until December 31, 1997, and second a refinancing occurring on December
31, 1996 with a different mortgage lender for a lower interest rate and a 15
year term. As a result of these two events, current maturities of notes payable
has decreased by approximately $3.2 million since fiscal 1996 year end. In
addition, the Company believes that these events will contribute to a reduction
of interest expense in future months.
To increase liquidity and to concentrate on the existing stores in Atlanta,
the Company decided in 1995 to sell a 17 acre tract of land in Nashville,
Tennessee ("the Nashville Property"). The Nashville Property was originally
purchased in October 1993 to construct a megastore. The Company completed the
sale of the Nashville property in June 1996. The net proceeds from such sale of
$4.3 million have been used to reduce the Company's long term obligations. In
addition the Company received approximately $0.2 million in impact fees from the
purchaser of the Nashville property.
Pursuant to a Secured Loan Agreement (the "Loan Agreement") dated as of
January 31, 1997, the Company has received a commitment from PFCI for certain
loans in an aggregate principal amount not to exceed $20 million outstanding.
The aggregate amount includes a term loan to the Company in the principal amount
of $12 million ("Refinancing Loan"), which loan was funded on January 31, 1997
and used by the Company to repay certain indebtedness, and an $8 million
development loan (the "Development Loan" and, together with the Refinancing
Loan, the "Loans") to be used by the Company for general corporate purposes and
to fund development costs relating to the development of a business model for
the improvement of the Company's business and facilities as contemplated by the
Consulting Agreement, as defined below. Such Loans shall accrue interest at a
rate of 5% per annum for a period of five years from January 31, 1997 and at the
"reference rate," as set by the Bank of America, Illinois, plus 1%, thereafter.
The Loans are subordinated in right of payment to certain indebtedness of the
Company and are secured by a second priority lien on substantially all of the
assets of the Company and its subsidiaries.
Pursuant to a Transaction Agreement (the "Transaction Agreement"), dated as
of January 31, 1997, PFCI has paid to the Company $1,000,000 in exchange for the
issuance of the Warrant. The Warrant, which expires on January 31, 2001, is
exercisable at prices ranging from $4.00 to $5.50 per share, subject to
adjustment in certain circumstances.
Pursuant to the Transaction Agreement, the Company agreed that at any time
the Company desires to seek additional financing (whether debt or equity
financing), the Company will negotiate in good faith with PFCI for a period of
20 days with regard to any portion of the entire amount (at the option of PFCI)
of such financing prior to negotiating with any other entity with regard
thereto.
As of January 31, 1997, the Company transferred to a newly organized business
trust (the "Trust") certain federal and state registered and unregistered
trademarks, trademark applications, registered and unregistered service marks,
service mark applications, trade names, trade name rights, copyrights, trade
secrets and know-how and other proprietary information of the Company (the
"Intellectual Property"). The Trust issued to the Company two ownership
certificates, one of which entitles the holder thereof to beneficial ownership
of the Intellectual Property in the States of Georgia and Alabama and one of
which (the "Worldwide Certificate") entitles the holder thereof to
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<PAGE>
beneficial ownership of the Intellectual Property throughout the rest of the
world. Neither the Company nor either certificate holder is entitled to any
continuing royalties or other fees associated with the use of the Intellectual
Property by the other party. The Trust also granted to the Company and PFCI
licenses to use the Intellectual Property in their respective territories.
The Company then sold the Worldwide Certificate to PFCI for $1,500,000 in
cash and 712.3746 shares of the common stock, par value $0.1 per share, of PFCI
("PFCI Common Stock"), representing 2.5% of the PFCI Common Stock on a fully
diluted basis, taking into account (i) all shares of outstanding PFCI Common
Stock, (ii) all shares of PFCI Common Stock issuable upon the exchange or
conversion of outstanding debt, stock or other securities of PFCI and (iii) all
shares of PFCI Common Stock issuable upon the exercise of outstanding options
(other than unvested employee options), warrants or similar rights to acquire
PFCI Common Stock. The Company also received certain anti-dilution rights with
respect to the issuance in the future of additional PFCI Common Stock. PFCI,
which was formed for the purpose of engaging in the herein described
transactions with the Company, has been funded with a $17 million loan from
Boston Chicken, Inc., convertible into shares of PFCI Common Stock, and equity
and equity commitments from management and private investors. Harry A. Blazer
has been elected a director of PFCI.
The Company, Harry A. Blazer and PFCI have entered into a five year
Consulting Services Agreement (the "Consulting Agreement"), pursuant to which
the Company has agreed to provide, for the period ending on January 31, 2002,
certain consulting services and access to personnel, information and facilities
of the Company for the purpose of developing a business model based on the
current businesses (and certain businesses related to the current businesses) of
the Company, including the creation of new organizational, systems, human
resources, accounting and financial structures and models. A portion of the
expenses of such development by the Company will be funded by the Company
through the Development Loan. In addition, PFCI has agreed to make available
its general business know-how and the information and know-how it acquires under
the Consulting Agreement to the Company during the term of the Consulting
Agreement. PFCI paid the Company on January 31, 1997 a consulting services fee
of $500,000 under the Consulting Agreement.
In connection with the above-described transactions, the Company used
$13,016,086.48 of proceeds, $12,000,000 of which was funded by the Refinancing
Loan advanced under the Loan Agreement and the remainder of which was funded by
monies that the Company received for the sale of the Worldwide Certificate to
PFCI and in exchange for the Warrant issued under the Transaction Agreement, to
repay in full all of the obligations owing under the Amended and Restated Credit
Agreement (as amended, the "Senior Credit Agreement") to NationsBank, N.A.
(South), formerly known as NationsBank of Georgia, National Association
("NationsBank"). In addition, the Company and other related parties consummated
the following transactions: (i) NationsBank assigned to Creditanstalt-
Bankverein ("Creditanstalt") all of its revolving commitment and its interest in
the revolving loans advanced under the Senior Credit Agreement; (ii) NationsBank
resigned as agent under the Senior Credit Agreement; (iii) Creditanstalt was
appointed successor agent; and (iv) NationsBank transferred to Creditanstalt all
of its warrants to purchase shares of Class A Common Stock, of which
Creditanstalt retained 72,000 warrants (having an exercise price of $3.00 per
share) and surrendered to the Company for cancellation 144,000 warrants.
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<PAGE>
Further, the Company and Creditanstalt amended the Senior Credit Agreement
to, among other things: (i) provide for the consummation of the transactions set
forth in the Transaction Agreement, including without limitation, the commitment
of the Loans and the grant of the Option under the Secured Loan Agreement, the
issuance of the Warrants under the Transaction Agreement, the sale of the
Worldwide Certificate, and all other transactions contemplated therein and
thereby; and (ii) amend certain provisions thereof, including certain negative
covenants and certain financial covenants. In addition, the Company and
Creditanstalt agreed to reduce the exercise price of warrants to purchase 48,000
shares of Class A Common Stock from $6.00 to $3.00. As a result of these
transactions, Creditanstalt now holds warrants to purchase an aggregate of
216,000 shares of Class A Common Stock, all at an exercise price of $3.00 per
share.
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on the availability of internally
generated funds and the continued availability of and compliance with its credit
facilities. Management believes that internally generated funds and its
available credit facilities, as restructured, will provide the Company with
sufficient sources of funds to satisfy its anticipated cash requirements in
fiscal 1998. However, if there is a significant reduction of internally
generated funds, the Company may require funds from outside financing sources.
In such event, there can be no assurance that the Company would be able to
obtain such funding as and when required or on acceptable terms.
SEASONALITY
The Company's sales mix varies seasonally as the availability of fresh
product dictates and the Company generally experiences substantially increased
sales volume in the days immediately preceding major holidays. In addition, the
Company realizes increased sales during its second quarter due to greater
availability and demand for produce.
EFFECTS OF INFLATION
The Company generally has been able to pass on increased costs attributable
to inflation through appropriate increases in selling prices of its products
and, accordingly, has not experienced any material adverse effect from
inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
The following financial statements are filed with this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets -- Fiscal Years Ended, January 29, 1997 and
January 31, 1996
Consolidated Statements of Operations -- Fiscal Years Ended, January 29,
1997, January 31,1996, and February 1, 1995
-20-
<PAGE>
Consolidated Statement of Changes in Equity -- Fiscal Years Ended,
January 29, 1997, January 31, 1996, and February 1, 1995
Consolidated Statements of Cash Flows -- Fiscal Years Ended, January 29,
1997, January 31, 1996, and February 1, 1995
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
There has been no occurrence requiring a response to this item.
PART III
Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Stockholders to be held on June 18, 1997 (the "Proxy Statement").
The Company will, within 120 days of the end of its fiscal year, file with the
Securities and Exchange Commission a definitive proxy statement pursuant to
Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------- --------------------------------------------------
The information responsive to this item is incorporated by reference from the
sections entitled "Election of Directors" and "Compliance with Section 16(a) of
the Securities Exchange Act of 1934" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
- ------- ----------------------
The information responsive to this item is incorporated by reference from the
section entitled "Executive Compensation" contained in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- --------------------------------------------------------------
The information responsive to this item is incorporated by reference from the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
-21-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ------- ----------------------------------------------
The information responsive to this item is incorporated by reference from the
sections entitled "Certain Relationships and Related Transactions" and
"Compensation Committee Interlocks and Insider Participation" contained in the
Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- ------- ---------------------------------------------------------------
(a) 1. Financial Statements and Auditors' Report.
-----------------------------------------
The following financial statements and auditors' report have been filed as
Item 8 in Part II of this report:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets --Fiscal Years Ended, January 29, 1997 and
January 31, 1996
Consolidated Statements of Operations -- Fiscal Years Ended, January 29,
1997, January 31, 1996, and February 1, 1995
Consolidated Statement of Changes in Equity -- Fiscal Years Ended,
January 29, 1997, January 31, 1996, and February 1, 1995
Consolidated Statements of Cash Flows -- Fiscal Years Ended, January 29,
1997, January 31, 1996, and February 1, 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
-----------------------------
The following supporting financial statement schedule is filed with this
report:
Schedule II - Consolidated Schedule of Valuation and Qualifying
Accounts
All other schedules are omitted as the required information is inapplicable,
or the information is presented in the consolidated financial statements or
related notes.
3. Exhibits.
--------
The following exhibits are filed with or incorporated by reference into this
report. The exhibits which are denominated by an asterisk (*) were previously
filed as part of and are hereby incorporated by reference from either: (i) the
Company's Form S-1 Registration Statement under the Securities Act of 1933,
Registration No. 33-60452,("Form S-1"), (ii) the Company's Annual Report on Form
10-K for the fiscal year ended February 2, 1994 ("1993 Form 10-K"), (iii) the
-22-
<PAGE>
Company's Quarterly Report on Form 10-Q for the quarter ended August 3, 1994
("8/3/94 10-Q"), (iv) the Company's Quarterly Report on Form 10-Q for the
quarter ended November 2, 1994 ("11/2/94 10-Q"), (v) the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on January
30, 1995 ("1/30/95 8-K"), (vi) the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1995 ("1995 Form 10-K"), (vii) the Company's
Quarterly Report on Form 10-Q for the quarter ended August 2, 1995 ("8/2/95 10-
Q"), (viii) the Company's Quarterly Report on Form 10-Q for the quarter ended
November 1, 1995 ("11/1/95 10-Q"), (ix) the Company's Annual Report on Form 10-K
for the year ended January 31, 1996 (the "1996 Form 10-K") and (x) the Company's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
February 18, 1997 ("2/18/97 8-K") . Unless otherwise indicated, exhibit numbers
correspond to exhibit numbers in the referenced document.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
*2.1 Transfer, Assignment and Assumption Agreement, dated March 31, 1993,
between Harry's Farmers Market, Ltd. (the "Partnership") and Harry's
Farmers Market, Inc. (Form S-1, Exhibit 10.1)
*3(I) Articles of Incorporation of HFM, Inc. (Form S-1 Exhibit 3.1)
*3(I).1 Articles of Amendment to Articles of Incorporation of the Company
(Form S-1 Exhibit 3.2)
*3(I).2 Articles of Amendment to Articles of Incorporation of the Registrant
(1/30/95 8-K)
*3(I).3 Articles of Amendment to Articles of Incorporation of the Company
regarding Series AA Preferred Stock (2/18/97 8-K)
*3(I).3 Articles of Amendment to Articles of Incorporation of the Company
regarding Series B Preferred Stock (2/18/97 8-K)
*3(ii) By-Laws of HFM, Inc. (Form S-1 Exhibit 3.3)
*4 Specimen Certificate of Class A Common Stock (Form S-1)
*4.2 Specimen Certificate of Series A Redeemable Preferred Stock
(1/30/95 8-K)
*4.3 Share and Warrant Purchase Agreement dated December 30, 1994, among
the Registrant and Robert Fleming Nominees Ltd., AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L. P. and Theodore H. Ashford (1/30/95 8-K)
*4.4 Stockholders Agreement dated December 30, 1994, among the Registrant,
Harry A. Blazer and Robert Fleming Nominees, Ltd. (1/30/95 8-K)
-23-
<PAGE>
*4.4.1 Amended and Restated Stockholders Agreement dated as of January 31,
1997 by and among the Company, Harry A. Blazer and Robert Fleming
Nominees, Ltd. (2/18/97 8-K)
*4.5 Investors' Agreement dated December 30, 1994, by and among the
Registrant, AXA Equity & Law Life Assurance Society, Orbis Pension
Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H. Ashford
(1/30/95 8-K)
*4.5.1 Amended and Restated Investors' Agreement dated as of January 31, 1997
by and among the Company, Harry A. Blazer and AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L.P. and Theodore H. Ashford (2/18/97 8-K)
*4.6 Registration Rights Agreement dated December 30, 1994, between the
Registrant and Robert Fleming Nominees Ltd. (1/30/95 8-K)
*4.6.1 Amendment to Registration Rights Agreement dated as of January 31,
1997 between the Company and Robert Fleming Nominees Ltd. (2/18/97)
*4.7 Registration Rights Agreement dated December 30, 1994, between the
Registrant and AXA Equity & Law Life Assurance Society, Orbis Pension
Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H. Ashford
(1/30/95 8-K)
*4.7 Amendment to Registration Rights Agreement dated as of January 31,
1997 between the Company and AXA Equity & Law Life Assurance Society,
Orbis Pension Trustees Ltd., Ashford Capital Partners, L.P. and
Theodore H. Ashford (2/18/97 8-K)
*4.8 Form of Warrant Certificates issued to Robert Fleming Nominees Ltd.
(300,000 shares), AXA Equity & Law Life Assurance Society (56,250
Shares), Orbis Pension Trustees Ltd. (37,500 shares), Ashford Capital
Partners, L.P. (15,000 shares) and Theodore H. Ashford (3,750 shares)
(1/30/95 8-K)
*4.8.1 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Robert Fleming Nominees Ltd. (2/18/97 8-K)
*4.8.2 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and AXA Equity & Law Life Assurance Society (2/18/97 8-K)
*4.8.3 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Orbis Pension Trustees Ltd. (2/18/97 8-K)
*4.8.4 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Ashford Capital Partners, L.P. (2/18/97 8-K)
*4.8.5 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Theodore H. Ashford (2/18/97 8-K)
-24-
<PAGE>
*4.9 Form of Performance Warrant Certificates issued to Robert Fleming
Nominees Ltd. (44,444 shares), AXA Equity & Law Life Assurance Society
(8,333 shares), Orbis Pension Trustees Ltd. (5,556 shares), Ashford
Capital Partners, L.P. (2,222 shares) and Theodore H. Ashford (556
shares) (1/30/95 8-K)
*4.10 Bank Warrant Certificate issued to NationsBank (1/30/95 8-K)
*4.11 Bank Warrant Certificate issued to Creditanstalt-Bankverein (1/30/95
8-K)
*4.11.1 Amendment to Bank Warrant Certificate issued to Creditanstalt-
Bankverein (2/18/97 8-K)
*4.12 Preferred Stock Exchange Agreement dated January 31, 1997 among the
Company and Robert Fleming Nominees Ltd., AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L.P. and Theodore H. Ashford (2/18/97 8-K)
*4.13 Registration Rights Agreement dated as of January 31, 1997 by and
between the Company and HFMI Acquisition Corporation ("PFCI") (2/18/97
8-K)
*4.14 Warrant certificate issued on January 31, 1997 to PFCI (2/18/97 8-K)
*10.2 Harry's Farmers Market, Inc. 1993 Management Incentive Plan (Form S-1)
*10.3 Harry's Farmers Market, Inc. 1993 Outside Directors' Incentive Plan
(Form S-1)
*10.4 Harry's Farmers Market, Inc. Employee Stock Purchase Plan (Form S-1)
*10.6 Master Lease Agreement dated September 5, 1991, between the
Partnership and SouthTrust Bank of Alabama, N.A., as amended April 1,
1993 (Form S-1)
*10.6.2 Third Amendment to Master Lease Agreement dated as of June 8,1994,
among the Registrant, Harry A. Blazer and SouthTrust Bank of Alabama,
N. A. (8/3/94 10-Q)
*10.6.3 Waiver dated April 17, 1995, of certain conditions of default under
Master Lease Agreement dated September 5, 1991 (as amended) (1995 Form
10-K).
*10.9 Lease Agreement dated July 1, 1992, between the Partnership and James
B. Cumming (Form S-1)
*10.11 Master Equipment Lease Agreement dated June 30, 1991, between the
Partnership and Sun Financial Group, Inc. (Form S-1)
*10.13 Lease Agreement dated October 1, 1991, between Marthasville Trading
Company, Inc. and Thomas Trucking Co., Inc. (Form S-1)
-25-
<PAGE>
*10.14 Agreement to Dissolve and Liquidate Harry's Farmers Market, Ltd.
(L.P.), dated March 30, 1993 (Form S-1)
*10.15 Real Estate Note in the amount of $3,325,000 payable by the
Partnership to Citicorp Real Estate, Inc. (Form S-1)
*10.15.1 Waiver dated December 12, 1994, of certain conditions of default
under Real Estate Note dated March 18, 1993 (11/2/94 10-Q)
*10.16 Amended and Restated Credit Agreement dated as of December 30, 1994,
among the Registrant, Marthasville Trading Company, Karalea, Inc.,
NationsBank of Georgia, National Association ("NationsBank"), as
Agent, NationsBank and Creditanstalt-Bankverein, as Lenders (1/30/95
8-K)
*10.16(a) Amendment Number One and Waiver Agreement dated April 27, 1995,
relating to Amended and Restated Credit Agreement dated December 30,
1994, among the Registrant, Marthasville Trading Company, Karalea,
Inc., NationsBank, Creditanstalt-Bankverein and NationsBank, as Agent
(1995 Form 10-K)
*10.16.1 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $3,600,000 payable to the order of
Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.2 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $5,400,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.4 Term Loan Note of the Registrant dated December 30, 1994, in the
original principal amount of $16,017,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.5 Warrant Agreement dated December 30, 1994, among the Registrant,
NationsBank and Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.6 Marthasville Trading Company Amended and Restated Guaranty dated
December 30, 1994 (1/30/95 8-K)
*10.16.7 Karalea, Inc. Amended and Restated Guaranty dated December 30, 1994
(1/30/95 8-K)
*10.16.8 Harry's Farmers Market, Inc. Amended and Restated Security Agreement
dated December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.9 Marthasville Trading Company Amended and Restated Security Agreement
dated December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.10 Karalea, Inc. Amended and Restated Security Agreement dated December
30, 1994, in favor of NationsBank (1/30/95 8-K)
-26-
<PAGE>
*10.16.11 Trademark Collateral Assignment and Security Agreement dated
December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.12 Interpretation dated May 22, 1995 of the Amended and Restated Credit
Agreement dated as of December 30, 1994 (8/2/95 10-Q)
*10.16.13 Waiver dated May 30, 1995 of certain prohibitions on the incurrence
of indebtedness under the Amended and Restated Credit Agreement dated
as of December 30, 1994 (11/1/95 10-Q)
*10.16.14 Waiver dated July 14, 1995 regarding the Company's failure to meet
minimum inventory days on hand under the Amended and Restated Credit
Agreement dated as of December 30, 1994 (11/1/95 10-Q)
*10.16.15 Waiver dated September 6, 1995 relating to Harry A Blazer's
relinquishing of the title and responsibilities of Chief Executive
Officer under the Amended and Restated Credit Agreement dated as of
December 30, 1994 (11/1/95 10-Q)
*10.16.16 Second Amendment dated September 15, 1995 relating to the Amended
and Restated Credit Agreement dated as of December 30, 1994 (11/1/95
10-Q)
*10.16.17 Forbearance Agreement, dated December 14, 1995, by and among the
Company, NationsBank of Georgia, National Association and
Creditanstalt-Bankverein (11/1/95 10-Q)
*10.16.18 Sixth Amendment, Waiver and Forbearance Agreement dated May 8,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein (1996 10-K)
10.16.19 Seventh Amendment, Waiver and Forbearance Agreement dated July 25,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein
10.16.20 Eighth Amendment, Waiver and Forbearance Agreement dated December 31,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein
*10.16.21 Ninth Amendment to Loan Agreement dated January 31, 1997 between the
Company, NationsBank, N.A. and Creditanstalt-Bankverein (2/28/97 8-K)
*10.21 Lease Agreement dated September 16, 1993, between the Registrant and
Metropolitan Life Insurance Company (1993 Form 10-K)
*10.22 Agreement for the Sale and Purchase of Property dated April 9, 1993,
between Karalea, Inc. and MM Mooring #1 Corp., as amended by the
First Amendment to Agreement for the Sale and Purchase of Property
dated May 14, 1993, and the Second Amendment to Agreement for the
Sale and Purchase of Property dated May 28, 1993 (1993 Form 10-K)
-27-
<PAGE>
*10.23 Agreement for the Sale of Property dated July 14, 1993, between the
Registrant and Liberty Place Associates, Ltd., as amended by the
First Amendment to Purchase Agreement dated September 10, 1993, and
the Second Amendment to Agreement for the Sale of Property dated
September 20, 1993 (1993 Form 10-K)
*10.24 Contract for Sale dated July 12, 1993, between the Registrant and J.
C. Penney Properties, Inc., as amended by the First Amendment to
Contract dated August 23, 1993 (1993 Form 10-K)
*10.26 Agreement for Sale of Real Estate dated April 19, 1995, between the
Registrant and Trammell Crow SE, Inc. (1995 Form 10-K)
10.27 Lease Agreement dated effective March 17, 1997, between U.S.41 & I285
Company and the Registrant
*10.28 Transaction Agreement dated as of January 31, 1997 among PFCI and the
Company (2/18/97 8-K)
*10.29 Secured Loan Agreement dated as of January 31, 1997 between PFCI and
the Company (2/18/97 8-K)
*10.30 Acquisition Agreement dated January 31, 1997 between the Company and
PFCI (2/18/97 8-K)
*10.31 Trust Agreement dated as of January 30, 1997 between and among
Wilmington Trust Company, PFCI and the Company (2/18/97 8-K)
*10.32 PFCI License Agreement dated as of January 31, 1997 between HFMI Trust
and PFCI (2/18/97 8-K)
*10.33 HFMI License Agreement dated as of January 31, 1997 between HFMI Trust
and the Company (2/18/97 8-K)
*10.34 Transfer Agreement dated as of January 31, 1997 between and among the
Company, HFMI Trust and PFCI (2/18/97 8-K)
*10.35 Trust Certificate dated January 30, 1997 issued to HFMI Trust
regarding the Georgia Class Interests (2/18/97 8-K)
*10.36 Trust Certificate dated January 30, 1997 issued to HFMI Trust
regarding the Worldwide Class Interests (2/18/97 8-K)
*10.37 Administration and Servicing Agreement dated as of January 31, 1997
between HFMI Trust, PFCI and the Company (2/18/97 8-K)
-28-
<PAGE>
*10.38 Assignment of Intellectual Property dated January 31, 1997, by and
between the Company and HFMI Trust (2/18/97 8-K)
*10.39 Consulting Services Agreement dated as of January 31, 1997 between
PFCI, the Company and Harry A. Blazer (2/18/97 8-K)
*21 Subsidiaries of the Registrant (1993 Form 10-K)
23 Consent of Grant Thornton, LLP
27 Financial Data Schedule
-29-
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Harry's Farmers Market, Inc.
We have audited the accompanying consolidated balance sheets of Harry's
Farmers Market, Inc. and Subsidiaries as of January 29, 1997 and January 31,
1996, and the related consolidated statements of operations, changes in equity,
and cash flows for each of the three years in the period ended January 29, 1997.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Harry's
Farmers Market, Inc. and Subsidiaries as of January 29, 1997 and January 31,
1996, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended January 29, 1997, in
conformity with generally accepted accounting principles.
We have also audited Schedule II of Harry's Farmers Market, Inc. and
Subsidiaries, for each of the three years in the period ended January 29, 1997.
In our opinion, this schedule presents fairly, in all materials respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
- ----------------------
Atlanta, Georgia
April 2, 1997
F-1
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
---------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,325,495 $ 1,041,556
Trade accounts receivable, net of an allowance for
doubtful accounts of $25,000 in 1997 and 1996 254,043 131,653
Inventories 9,109,823 7,894,596
Prepaid expenses 585,273 1,032,344
Other current assets 255,881 174,028
------------ ------------
Total current assets 11,530,515 10,274,177
PROPERTY AND EQUIPMENT
Buildings 34,528,368 34,328,704
Equipment 23,721,031 22,560,506
Vehicles 102,331 560,397
Construction in progress - 23,985
------------ ------------
58,351,730 57,473,592
Accumulated depreciation (20,565,244) (16,614,546)
------------ ------------
37,786,486 40,859,046
Land 8,030,158 8,521,103
------------ ------------
45,816,644 49,380,149
OTHER ASSETS
Other property and equipment 1,902,616 6,197,466
Deposits on equipment 485,641 454,274
Loan costs, net of accumulated amortization of
$422,911 in 1997 and $264,211 in 1996 371,646 326,087
Other 321,348 330,915
------------ ------------
3,081,251 7,308,742
------------ ------------
$ 60,428,410 $ 66,963,068
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
--------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 576,013 $ 3,791,950
Accounts payable - trade 5,786,855 4,903,920
Accrued payroll and payroll taxes payable 546,238 611,677
Sales taxes payable 81,336 238,172
Other accrued liabilities 531,032 838,564
------------ ------------
Total current liabilities 7,521,474 10,384,283
LONG-TERM OBLIGATIONS, net of current maturities 26,224,552 28,789,202
REDEEMABLE PREFERRED STOCK,
authorized 3,000,000 Series A shares, issued and
outstanding 1,222,221 Series A shares in 1997 and
1996, respectively 10,352,468 10,123,928
STOCKHOLDERS' EQUITY
Common stock:
Class A, 22,000,000 shares authorized;
issued and outstanding, 4,117,873 shares
in 1997 and 4,095,410 in 1996 34,622,606 34,578,303
Class B, 3,000,000 shares authorized;
issued and outstanding, 2,050,701 in 1997
and 2,071,301 in 1996 3,936,337 3,975,889
Additional paid-in capital 513,221 371,555
Accumulated deficit (22,742,248) (21,260,092)
------------ ------------
Total stockholders' equity 16,329,916 17,665,655
------------ ------------
$60,428,410 $66,963,068
=========== ===========
</TABLE>
F-3
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended
<TABLE>
<CAPTION>
January 29, January 31, February 1,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $140,162,273 $145,938,219 $143,813,803
Cost of goods sold 104,362,838 109,844,988 109,363,817
------------ ------------ ------------
Gross profit 35,799,435 36,093,231 34,449,986
Operating expenses
Direct store expenses 21,644,509 23,076,763 22,088,355
Selling, general and
administrative expenses 10,916,774 11,797,273 11,447,975
Depreciation and other
amortization 3,441,254 3,774,980 3,948,395
Amortization of
pre-opening expenses - 427,703 816,097
Provision for store
closing - 4,600,000 -
------------ ------------ ------------
36,002,537 43,676,719 38,300,822
------------ ------------ ------------
Operating loss (203,102) (7,583,488) (3,850,836)
Other (income) expense
Interest expense 2,599,552 3,198,083 3,032,688
Reduction in market
value of other property
and equipment - - 505,039
Other income (1,320,498) (905,520) (664,313)
------------ ------------ ------------
1,279,054 2,292,563 2,873,414
------------ ------------ ------------
NET LOSS (1,482,156) (9,876,051) (6,724,250)
Provision for accretion of
warrants 228,540 228,540 19,045
------------ ------------ ------------
Loss applicable to
common shareholders $ (1,710,696) $(10,104,591) $ (6,743,295)
============ ============ ============
Loss per common share $ (0.28) $ (1.64) $ (1.09)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Years ended January 29, 1997, January 31, 1996, and February 1, 1995
<TABLE>
<CAPTION>
Common Common Additional
stock stock paid-in Accumulated Total
Class A Class B capital deficit equity
----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, February 2, 1994 $34,405,814 $4,133,988 $ - $ (4,659,791) $33,880,011
Conversion of 80,100 Class B
shares to Class A shares 153,879 (153,879) - - -
Issuance of warrants (Notes C and E) - - 619,140 - 619,140
Accretion of warrant value - - (19,045) - (19,045)
Net loss - - - (6,724,250) (6,724,250)
----------- ---------- ---------- ------------ ------------
Balance, February 1, 1995 34,559,693 3,980,109 600,095 (11,384,041) 27,755,856
Issuance of 2,710 shares of Class A
stock for employee stock purchase
plan 14,390 - - - 14,390
Conversion of 500 shares of Class B
shares to Class A shares 4,220 (4,220) - - -
Accretion of warrant value - - (228,540) - (228,540)
Net loss - - - (9,876,051) (9,876,051)
----------- ---------- ---------- ------------ ------------
Balance, January 31, 1996 34,578,303 3,975,889 371,555 (21,260,092) 17,665,655
Issuance of 1,863 shares of Class A
stock for employee stock purchase
plan 4,751 - - - 4,751
Conversion of 20,600 shares of Class B
shares to Class A shares 39,552 (39,552) - - -
Repricing of existing warrants and
issuance of new warrants - - 370,206 - 370,206
Accretion of warrant value - - (228,540) - (228,540)
Net loss - - - (1,482,156) (1,482,156)
----------- ---------- ---------- ------------ ------------
Balance, January 29, 1997 $34,622,606 $3,936,337 $ 513,221 $(22,742,248) $16,329,916
=========== ========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
<TABLE>
<CAPTION>
January 29, January 31, February 1,
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Cash received from
customers $ 139,788,795 $ 145,964,426 $ 143,753,453
Cash paid for purchases
and operating expenses (134,860,053) (144,223,497) (139,200,742)
Interest paid, net of
capitalized interest of
$0 in 1997, $87,600 in
1996 and $29,700 in 1995 (2,913,833) (2,956,091) (2,865,854)
Income taxes refunded - - 414,000
Interest received 9,679 23,005 18,361
------------- ------------- -------------
Net cash provided
(used) by
operating activities 2,024,588 (1,192,157) 2,119,218
------------- ------------- -------------
Cash flows from investing
activities:
Capital expenditures, including
capitalized interest (1,414,716) (4,543,506) (3,604,937)
Increase in notes
receivable - (11,662) -
Proceeds from sale of
property and equipment 5,414,212 4,779,630 345,001
Payments on notes
receivable 8,975 14,260 137,351
------------- ------------- -------------
Net cash provided
(used) by
investing activities 4,008,471 238,722 (3,122,585)
------------- ------------- -------------
Cash flows from financing
activities:
Proceeds from issuance of
long-term
debt, net of costs - - 31,941,732
Line of credit 510,000 4,990,000 (4,523,899)
Principal payments on
long-term obligations (6,263,871) (5,163,706) (31,350,544)
Decrease in construction
line of credit - (142,241) (3,672,846)
Proceeds from employee
stock purchases 4,751 14,390 -
Proceeds from issuance of
redeemable
preferred stock, net of
costs - - 10,257,619
------------- ------------- -------------
Net cash provided
(used) by
financing activities (5,749,120) (301,557) 2,652,062
------------- ------------- -------------
Net increase (decrease) in
cash 283,939 (1,254,992) 1,648,695
Cash at beginning of year 1,041,556 2,296,548 647,853
------------- ------------- -------------
Cash at end of year $ 1,325,495 $ 1,041,556 $ 2,296,548
============= ============= =============
Supplemental Schedule of Noncash Investing and Financing Activities:
- -------------------------------------------------------------------
Capital leases $ 203,737 $ 1,585,973 $ 108,711
============= ============= =============
</TABLE>
F-6
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended
<TABLE>
<CAPTION>
January 29, January 31, February 1,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Reconciliation of Net Loss to Cash
Provided (Used) by Operating Activities:
Net loss $(1,482,156) $(9,876,051) $(6,724,250)
Adjustments to reconcile net loss to cash
provided (used) by operations:
Depreciation and amortization 4,862,195 5,671,322 6,111,875
Loss on store closing, net of costs
paid of $504,849 in 1996 - 4,095,151 -
(Gain) loss on sale of property and equipment (456,542) (23,870) 17,344
Decrease (increase) in trade accounts receivable (122,390) 26,207 (60,350)
Increase in other receivables (90,828) (163,700) -
Increase in pre-opening expenses - (380,449) (47,253)
Decrease in income taxes receivable - - 414,000
Decrease (increase) in inventories (1,215,227) (423,171) 988,775
Decrease (increase) in prepaid expenses 447,071 577,935 (469,555)
Decrease (increase) in deposits on equipment (31,369) (9,352) 1,304,379
Decrease (increase) in other assets (226,539) 132,844 (610,826)
Increase in trade accounts payable 882,935 65,271 445,138
Increase (decrease) in accrued liabilities (542,562) (884,294) 749,941
----------- ----------- -----------
$ 2,024,588 $(1,192,157) $ 2,119,218
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 29, 1997 and January 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Harry's Farmers Market, Inc. (the Company) is a corporation formed pursuant to
the laws of the State of Georgia. The Company is a retailer in the Atlanta,
Georgia metropolitan area for fresh fruits and produce, seafood, poultry and
meat, dairy products, baked goods, beer and wine and other assorted grocery
items.
1. Principles of Consolidation
---------------------------
The financial statements include the accounts of Harry's Farmers Market, Inc.,
and its three wholly-owned subsidiaries, Karalea, Inc., Marthasville Trading
Company, Inc., and Roman Properties, Inc. All material intercompany balances
and transactions have been eliminated in consolidation.
2. Inventories
-----------
Inventories consist primarily of grocery items and are stated at the lower of
cost or market. Cost is determined under the first-in, first-out (FIFO)
valuation method.
3. Pre-opening Expenses
--------------------
Significant expenses incurred in bringing new or expanded facilities into
operation are recorded as deferred charges and amortized to operations over a
six month period after the facility is placed in service. These costs include
labor (set-up, training, security, etc.), rent, utilities and other significant
costs incurred before the opening of the new facility.
4. Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis. The
estimated lives used in determining depreciation are: buildings, 31-39 years;
equipment and vehicles, 3 to 10 years. The portion of depreciation expense
attributed to product cost is included with cost of goods sold in the
statements of operations. This depreciation expense amounted to $1,431,501,
$1,399,921, and $1,347,383 at January 29, 1997, January 31, 1996 and February
1, 1995, respectively.
5. Loan Costs
----------
Costs of obtaining financing are being amortized over the term of the related
loans.
F-8
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. Advertising Expense
-------------------
All advertising costs are expensed in the period incurred. Advertising expense
for the years ended January 29, 1997, January 31, 1996 and February 1, 1995 was
approximately $1,088,000, $881,000 and $446,000, respectively.
7. Income Taxes
------------
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for
deferred tax assets when it is more likely than not that the asset will not be
realized.
8. Stock Based Compensation
------------------------
The Company's stock option plans are accounted for under the intrinsic value
method in which compensation expense is recognized for the amount, if any, that
the fair value of the underlying common stock exceeds the exercise price at the
date of grant.
9. Fiscal Year
-----------
The Company is on a 52/53 week fiscal year ending on the Wednesday nearest
January 31. Fiscal years 1997, 1996 and 1995 included 52 weeks.
10. Earnings Per Share
------------------
Loss per share is based upon the weighted average number of common and common
equivalent shares outstanding. Weighted average shares entering into the
computation are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 6,168,264
1996 6,166,711
1995 6,164,001
</TABLE>
F-9
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
11. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
12. Reclassifications
-----------------
Certain items in the prior years have been reclassified to conform with the
current year presentation.
NOTE B - OTHER PROPERTY AND EQUIPMENT
Other property and equipment includes the following at estimated net realizable
value:
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
----------- -----------
<S> <C> <C>
Land held for sale $ - $4,297,000
Equipment not in service 1,902,616 1,900,466
---------- ----------
$1,902,616 $6,197,466
========== ==========
</TABLE>
The equipment taken out of service was removed from a store which was closed
during fiscal 1996 (see Note H).
NOTE C - LONG-TERM OBLIGATIONS
Notes Payable
--------------
The Company has a working capital line of credit agreement with a bank
providing a maximum of $6,000,000 at January 29, 1997. The average short-term
borrowings under this line for the years ended January 29, 1997 and January 31,
1996 were $4,530,000 and $3,511,000, respectively. The weighted average
interest rate during these periods was 8.75% and 8.2%, respectively. The
maximum borrowings outstanding at any month end during the periods totaled
$5,500,000 and $4,439,104, respectively. In December 1994, the Company
restructured its commercial bank credit facilities to obtain a $26,695,000 term
loan.
F-10
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE C - LONG-TERM OBLIGATIONS - Continued
Notes Payable - Continued
--------------------------
In connection with the restructuring of the bank credit facilities in fiscal
1995, the Company issued its lenders 240,000 warrants to purchase 240,000 Class
A common stock at $10 per share. The value of these warrants was recorded as a
discount on debt and is being amortized to interest expense over the term of
the loans. During fiscal 1997, the Company again restructured its bank credit
facilities. In connection with this restructuring, the Company repriced the
warrants to $3 per share and issued an additional 120,000 warrants to purchase
120,000 Class A common stock at $6 per share. The value of these warrants was
recorded as a discount on debt and is being amortized to interest expense over
the term of the loans.
Notes payable at year end consisted of:
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
----------- -----------
<S> <C> <C>
Term note payable to a bank, bearing interest at
LIBOR rate plus 3.5% or prime rate plus 1.50%
(effective rate of 9.06% at January 29, 1997),
due and payable October 1, 1998. This term note is
collateralized by substantially all of the assets
of the Company. $17,378,513 $22,277,979
Line of credit agreement to a bank that allows
borrowing up to $ 6,000,000 bearing interest
at LIBOR plus 2.5% or prime plus .5% which
matures October 1, 1998. The average
outstanding short-term borrowings during fiscal
1997 were $4,530,000 . The weighted average
interest rate during the period was 8.75 %. The
maximum borrowings outstanding at any month end
the Company. 5,500,000 4,990,000
Mortgage note payable, bearing interest at
8.5%; interest and principal paid monthly with
full payment due January 10, 2012, collateralized
by land, buildings and improvements with a net
book value of $8,054,000. 2,700,000 3,196,043
</TABLE>
F-11
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE C - LONG-TERM OBLIGATIONS - Continued
Notes Payable - Continued
--------------------------
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
----------- -----------
<S> <C> <C>
Note payable to a bank, bearing interest at a
variable rate not to exceed 11.9%, payable in
360 monthly installments of principal plus
interest with a final payment due in October,
2022. The note payable is collateralized by
certain real estate held by the Company with
a net book value of $122,178. 68,067 218,932
Note payable to a bank, bearing interest at 9.25%,
payable in monthly principal and interest installments
of $28,096 commencing July 15, 1994, with the final
payment due June 15, 1997, collateralized by certain
equipment with a net book value of $440,144. 137,286 446,046
Capital lease obligations 1,329,346 1,528,864
Other 74,197 92,434
Discount on debt (386,844) (169,146)
---------- ---------
26,800,565 32,581,152
Less current maturities (576,013) (3,791,950)
----------- ----------
$26,224,552 $28,789,202
=========== ===========
</TABLE>
Future maturities of notes payable as of January 29, 1997, were as follows:
Years ending:
1998 244,131
1999 22,993,664
2000 124,193
2001 134,033
2002 144,743
Thereafter 2,217,299
-----------
25,858,063
Capital lease obligations 1,329,346
Discount on debt (386,844)
-----------
$26,800,565
===========
F-12
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE C - LONG-TERM OBLIGATIONS - Continued
Notes Payable - Continued
--------------------------
The bank loan agreements included various covenants. At January 31, 1997, in
connection with the subsequent event discussed in Note L these covenants were
restructured to include a specified interest coverage and a minimum tangible
net worth. As of January 29, 1997, the Company was in compliance with all
covenants.
Capital Lease Obligations
-------------------------
The Company leases certain equipment under agreements which are classified as
capital leases. Most equipment leases have purchase options at the end of
the original lease term. The effective interest rate on these leases range
from 9.5% to 12.7%. Property and equipment includes the following amounts for
leases that have been capitalized:
<TABLE>
<CAPTION>
January 29, January 31,
1997 1996
------------ ------------
<S> <C> <C>
Equipment 1,813,664 $1,687,721
Accumulated depreciation (552,723) (200,308)
---------- ----------
$1,260,941 $1,487,413
========== ==========
</TABLE>
Future minimum payments of capital leases as of January 29, 1997, were as
follows:
<TABLE>
<CAPTION>
Years ending
<S> <C>
1998 $ 463,415
1999 440,623
2000 352,904
2001 188,268
2002 249,876
Thereafter -
----------
Total minimum lease payments 1,695,086
Less amount representing interest (365,740)
----------
Present value of net minimum lease payments $1,329,346
==========
</TABLE>
F-13
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE D - COMMITMENTS AND CONTINGENCIES
Operating Leases
----------------
The Company leases certain facilities and equipment under agreements classified
as operating leases. Total rental expense under all operating lease
arrangements was approximately $3,027,000, $2,927,000 and $2,884,000 for the
years ended January 29, 1997, January 31, 1996 and February 1, 1995,
respectively. Terms of the equipment leases range from four to five years and
include an option to terminate at the end of two or three years. At the end of
the maximum term, the Company has the option to continue renting the equipment
or purchase the equipment at fair market value. Following is a summary of
approximate future minimum lease payments due under operating lease agreements
as of January 29, 1997:
<TABLE>
<CAPTION>
Fiscal year ending
<S> <C>
1998 $2,805,000
1999 2,155,000
2000 893,000
2001 647,000
2002 631,000
Thereafter 511,000
----------
$ 7,642,000
===========
</TABLE>
Claims and Litigation
---------------------
The Company is involved in various claims and litigation which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
NOTE E - REDEEMABLE PREFERRED STOCK
During fiscal 1995, the Company issued 1,222,221 shares of Series A redeemable,
convertible preferred stock with a stated value of $9 per share. The preferred
stock is mandatorily redeemable on December 1, 1999 at its stated value (total
redemption value of $11,000,000). At any time prior to redemption, each share
of preferred stock is convertible into one share of Class A common stock at the
option of the holder. Subsequent to year end, the Series A preferred shares
were exchanged by the shareholders for an equal number of the Company's newly
issued Series AA preferred stock (see Note L).
In connection with the issuance of the preferred stock, the Company issued
412,500 transferable warrants to purchase 412,500 shares of Class A common
stock at $10 per share. These warrants expire in December 2001. Subsequent to
year end, these warrants were repriced at $4 per share (see Note L).
F-14
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE E - REDEEMABLE PREFERRED STOCK - Continued
The Company also issued transferable warrants to purchase an additional 61,111
shares of Class A common stock. These warrants are not exercisable until June
15, 1998 and expire in December 2001. These warrants are subject to repurchase
by the Company for a nominal purchase price prior to the exercise date upon the
occurrence of certain events.
The preferred stock and warrants were recorded at their relative fair values,
net of issuance costs. The excess of redemption value over the carrying value
of the preferred stock is being accreted by periodic charges to paid-in capital
over the life of the issue.
NOTE F - CONCENTRATION OF CREDIT RISK
The Company operates retail grocery stores in the metropolitan Atlanta area.
The Company also sells to a limited number of commercial entities and carries
trade accounts receivable for these customers. Management continually monitors
these receivables to minimize the risk of loss.
NOTE G - EMPLOYEE BENEFIT PLANS
Stock Option Plans
------------------
The Company's board of directors has approved stock option plans which cover up
to 675,000 shares of common stock. The plans provide for the expiration of
options five to ten years from the date of grant and require the exercise price
of the options granted to be at least equal to 100% of market value on the date
granted. Stock option transactions for each of the three years in the period
ended January 29, 1997 are summarized below:
<TABLE>
<CAPTION>
January 29, 1997 January 31, 1996 February 1, 1995
------------------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 170,500 $13.64 262,750 $14.53 102,500 $17.57
Granted 400,500 5.33 135,500 8.69 230,250 13.25
Exercised - - - - - -
Forfeited (186,800) 12.97 (227,750) 11.74 (70,000) 14.88
-------- ------ -------- ------ ------- ------
Outstanding, end of year 384,200 $ 5.30 170,500 $13.64 262,750 $14.53
======== ====== ======== ====== ======= ======
</TABLE>
F-15
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE G - EMPLOYEE BENEFIT PLANS - Continued
Stock Option Plans - Continued
------------------------------
The following table summarizes information about stock options outstanding at
January 29, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------- --------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Price January 29, 1997 Life (Years) Price January 29, 1997 Price
- ---------- ---------------- -------------------- -------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
$3.00 90,000 4.1 $3.00 60,000 $3.00
$6.00 294,200 9.0 6.00 89,312 6.00
------- --- ----- ------- -----
384,200 7.9 $5.30 149,312 $4.79
======= === ===== ======= =====
</TABLE>
The Company uses the intrinsic value method in accounting for its stock option
plans. In applying this method, no compensation cost has been recognized in
the accompanying financial statements. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards under those plans, the Company's net loss and loss per share would
have resulted in the pro forma amounts indicated below:
<TABLE>
<CAPTION>
January 29, 1997 January 31,1996
---------------- ---------------
<S> <C> <C> <C>
Net loss As reported (1,710,696) (10,104,591)
Pro forma (2,051,799) (10.104,591)
Net loss per
common share As reported (0.28) (1.64)
Pro forma (0.33) (1.64)
</TABLE>
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes options-
pricing model with the following weighted-average assumptions used for grants
in the year ended January 29, 1997; expected volatility of 65%, risk-free
interest rates of 5.3%-5.8%; and expected lives of 5 - 10 years.
Health Care Plan
----------------
The Company established a partially self-insured plan in November 1993 to
provide health, life and dental benefits to employees who elect participation.
The plan was terminated during fiscal 1995 and replaced by a fully insured
plan. Expenses for these plans charged to operations for the years ended
January 29, 1997, January 31, 1996, and February 1, 1995, totaled $1,014,329
and $958,825 and $1,112,507, respectively.
F-16
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE G - EMPLOYEE BENEFIT PLANS - Continued
Qualified Retirement Plan
-------------------------
The Company has a qualified retirement plan whereby all employees meeting
eligibility requirements based on number of hours worked and length of service
may elect to make tax-deferred contributions under Internal Revenue Section
401(k). The Company's contribution is determined at the discretion of the
board of directors. There was no contribution by the Company during the years
ended January 29, 1997, January 31, 1996 and February 1, 1995.
Stock Purchase Plan
-------------------
The Company has an employee stock purchase plan which covers up to 300,000
shares of common stock whereby all employees meeting eligibility requirements
based on number of hours worked and length of service may elect to make tax-
deferred contributions which are used to purchase shares of the Company's
common stock. The purchase price for shares is 85% of the fair market value of
common stock at the end of the purchasing cycle. Employees purchased 1,863 and
2,710 shares under this plan during fiscal 1997 and 1996, respectively.
NOTE H - PROVISION FOR STORE CLOSING
In November 1995, the Company closed its Clayton County megastore resulting in
a charge of $4,600,000 at January 31, 1996. The charge included the following:
Adjustment of property and equipment to
net realizable value $4,170,000
Labor and other costs to transfer equipment
to storage and close down the store 430,000
----------
$4,600,000
==========
F-17
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE I - INCOME TAXES
The Company's temporary differences result in a net deferred income tax asset
which is reduced to zero by a related valuation allowance summarized as
follows:
<TABLE>
<CAPTION>
Estimated deferred
income tax effect
-------------------------
January 29, January 31,
1997 1996
----------- -----------
<S> <C> <C>
Deferred income tax assets
Net operating loss carryforward $ 8,604,000 $ 8,247,000
Inventories 92,000 80,000
Allowance for decrease in market value of asset 300,000 496,000
Charitable contributions carryforward 62,000 -
Accrued liabilities not deductible until paid 60,000 9,000
Other 20,000 10,000
----------- -----------
Gross deferred tax assets 9,138,000 8,842,000
Deferred tax asset valuation allowance (8,055,000) (7,834,000)
----------- -----------
Net deferred tax asset 1,083,000 1,008,000
----------- -----------
Deferred income tax liabilities
Property and equipment (1,083,000) (1,008,000)
----------- -----------
Net deferred income tax $ - $ -
=========== ===========
</TABLE>
At January 29, 1997, the Company had net operating loss carryforwards of
approximately $22,348,000 available to reduce future taxable income which
expire as follows:
<TABLE>
<CAPTION>
Net
Fiscal Operating
Year Loss
-------- -----------
<S> <C>
2009 $ 5,829,000
2010 6,002,000
2011 8,885,000
2012 1,632,000
-----------
$22,348,000
===========
</TABLE>
F-18
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE I - INCOME TAXES - Continued
Reconciliations of statutory Federal tax rates to the effective tax rate for
the years ended January 29, 1997, January 31, 1996 and February 1, 1995 are as
follows:
<TABLE>
<CAPTION>
January 29, January 31, February 1,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax benefit at 34% (34)% (34)% (34)%
State taxes, net of Federal income tax effect (4) (4) (4)
Tax benefit of losses not recognized 38 38 38
---- ---- ----
Effective tax rate - % - % - %
==== ==== ====
</TABLE>
NOTE J - FINANCIAL INSTRUMENTS
The following items relate to the disclosure of the estimated fair value of the
Company's financial instrument assets and liabilities:
Cash
----
The carrying amount approximates fair value because of the short maturity of
those instruments.
Long-term Debt
--------------
The carrying amount of the Company's long-term debt approximates fair value,
because the debt has variable interest rates which reflect changes in the fair
value.
NOTE K - PLANS FOR FUTURE OPERATIONS AND FINANCING
Management believes that internally generated funds and its available credit
facilities will provide the Company with sufficient sources of funds to satisfy
its anticipated cash requirements in fiscal 1998. The Company is taking steps
to reduce its losses. For fiscal 1998, the Company will continue to implement
its plans for new merchandising initiatives, new prepared food products,
strengthened controls on product waste, improvements in manufacturing and
distribution efficiencies, and reductions in selling, general and
administrative costs.
F-19
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE L - SUBSEQUENT EVENT
On January 31, 1997, the Company entered into a series of agreements with
Progressive Food Concepts, Inc. (PFCI) pursuant to which PFCI loaned the
Company $12,000,000 which is exchangeable for shares of Series B convertible
preferred stock of the Company, convertible into 3,000,000 shares of the
Company's Class A common stock. The agreements also contain a commitment to
loan up to an additional $8,000,000, which will be exchangeable for shares of
convertible preferred stock of the Company convertible into an aggregate of
2,000,000 shares of Class A common stock. If not earlier paid or accelerated
for payment, the outstanding principal of both these loans become an amortized
term loan on January 31, 2002. Both loans may be prepaid at any time without
penalty or premium.
In addition, PFCI paid the Company $1,500,000 for the transfer of beneficial
interest in all intellectual property rights of the Company outside the States
of Georgia and Alabama, $1,000,000 for warrants to purchase 2,000,000 shares of
Class A common stock at exercise prices ranging from $4.00 to $5.50, and
$500,000 for a five year mutual consulting arrangement. Pursuant to the
transfer of intellectual property rights, the Company also received a 2.5%
interest in PFCI.
The Company used approximately $13,000,000 of the proceeds from the
transactions discussed above to pay off a portion of their term loan
outstanding at January 29, 1997. As a result of paying off part of the term
loan, 144,000 of the warrants to purchase 144,000 shares of Class A common
stock at $6 per share were canceled. The terms of the remaining portion of the
term loan and line of credit were also renegotiated and a new maturity date of
January 29, 2000 was established. In consideration for this transaction, the
Company reduced the strike price for 48,000 of the bank's outstanding warrants
from $6 to $3. These transactions resulted in one bank being replaced as the
Company's senior credit agent by another bank. The successor bank received
72,000 of the warrants previously owned by the predecessor bank. These warrants
have an exercise price of $3 per share. As a result of this transaction, the
successor bank has 216,000 warrants directly after the transaction to purchase
216,000 shares Class A common stock at $3 per share.
All of the outstanding Series A preferred shares were exchanged by the
shareholders for an equal number of the Company's newly issued Series AA
preferred stock, with a stated value of $9 per share. The Series AA preferred
stock is mandatorily redeemable on December 1, 2001 at the stated value (total
redemption value of $11,000,000). At any time prior to redemption, each share
of the series AA preferred stock is convertible into the number of shares of
Class A common stock obtained by dividing the aggregate liquidation preference
of the Series AA preferred stock by the applicable conversion price. The
initial conversion price is $6.50 per share and is subject to adjustment in
certain circumstances. In connection with the exchange of Series A preferred
shares for Series AA preferred shares, the Company reduced the strike price of
the warrants outstanding from $10 to $4. The Company also designated 500,000
preferred shares as Series B preferred stock. These Series B preferred stock
have a stated value of $40 with no shares issued and outstanding after the
transactions discussed above.
F-20
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE L - SUBSEQUENT EVENT - Continued
The pro forma balance sheet below shows the balance sheet as if the transaction
discussed above had occurred on January 29, 1997:
<TABLE>
<CAPTION>
Pro Forma
-----------
<S> <C>
ASSETS
Cash $ 2,870,607
Other current assets 10,205,020
-----------
Total current assets 13,075,627
Other assets 48,897,895
-----------
$61,973,522
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 7,621,474
Unearned consulting revenue 400,000
Long-term obligations 13,244,625
Convertible debt 11,434,805
Redeemable preferred stock 10,286,881
Common stock 38,658,943
Additional Paid in Capital 1,786,119
Accumulated deficit (21,459,325)
------------
Total stockholders' equity 18,985,737
------------
$61,973,522
============
</TABLE>
F-21
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
January 29, 1997 and January 31, 1996
NOTE M - NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The
new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption of this
new standard is not expected to have a material impact on the disclosure of
earnings per share in the financial statements.
F-22
<PAGE>
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
SCHEDULE II
CONSOLIDATED SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Balance
Beginning End of
For the year ended Description of Period Additions Deductions Period
- ------------------ ----------- ---------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
January 29, 1997 Allowance for doubtful
accounts receivable $ 25,000 - - 25,000
Valuation allowance -
Deferred tax asset 7,834,000 221,000 8,055,000
===================================================
January 31, 1996 Allowance for doubtful
accounts receivable $ 25,000 $ 0 $0 $ 25,000
Valuation allowance -
Deferred tax asset $3,546,000 $4,288,000 $0 $7,834,000
===================================================
February 1, 1995 Allowance for doubtful
accounts receivable $ 25,000 $ 0 $0 $ 25,000
Valuation allowance -
Deferred tax asset $ 819,000 $2,727,000 $0 $3,546,000
===================================================
</TABLE>
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HARRY'S FARMERS MARKET, INC.
By: /s/ Harry A. Blazer
-------------------
Dated: April 25, 1997 HARRY A. BLAZER
Chairman, President and Chief Executive
Officer (principal executive officer)
Dated: April 25, 1997 By: /s/ Harold C. Weissman
----------------------
HAROLD C. WEISSMAN
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
April 25, 1997 By: /s/ Harry A. Blazer
-------------------
HARRY A. BLAZER, Chairman, President,
Chief Executive Officer and Director
April 25, 1997 By: /s/ Terry L. Ransom
-------------------
TERRY L. RANSOM,
Executive Vice President, Chief Administrative
Officer and Director
April 25, 1997 By: /s/ Robert C. Glustrom
----------------------
ROBERT C. GLUSTROM, Director
April 25, 1997 By: /s/ John D. Branch
------------------
JOHN D. BRANCH, Director
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
*2.1 Transfer, Assignment and Assumption Agreement, dated March 31, 1993,
between Harry's Farmers Market, Ltd. (the "Partnership") and Harry's
Farmers Market, Inc. (Form S-1, Exhibit 10.1)
*3(I) Articles of Incorporation of HFM, Inc. (Form S-1 Exhibit 3.1)
*3(I).1 Articles of Amendment to Articles of Incorporation of the Company
(Form S-1 Exhibit 3.2)
*3(I).2 Articles of Amendment to Articles of Incorporation of the Registrant
(1/30/95 8-K)
*3(I).3 Articles of Amendment to Articles of Incorporation of the Company
regarding Series AA Preferred Stock (2/18/97 8-K)
*3(I).3 Articles of Amendment to Articles of Incorporation of the Company
regarding Series B Preferred Stock (2/18/97 8-K)
*3(ii) By-Laws of HFM, Inc. (Form S-1 Exhibit 3.3)
*4 Specimen Certificate of Class A Common Stock (Form S-1)
*4.2 Specimen Certificate of Series A Redeemable Preferred Stock
(1/30/95 8-K)
*4.3 Share and Warrant Purchase Agreement dated December 30, 1994, among
the Registrant and Robert Fleming Nominees Ltd., AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L. P. and Theodore H. Ashford (1/30/95 8-K)
*4.4 Stockholders Agreement dated December 30, 1994, among the Registrant,
Harry A. Blazer and Robert Fleming Nominees, Ltd. (1/30/95 8-K)
<PAGE>
*4.4.1 Amended and Restated Stockholders Agreement dated as of January 31,
1997 by and among the Company, Harry A. Blazer and Robert Fleming
Nominees, Ltd. (2/18/97 8-K)
*4.5 Investors' Agreement dated December 30, 1994, by and among the
Registrant, AXA Equity & Law Life Assurance Society, Orbis Pension
Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H. Ashford
(1/30/95 8-K)
*4.5.1 Amended and Restated Investors' Agreement dated as of January 31, 1997
by and among the Company, Harry A. Blazer and AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L.P. and Theodore H. Ashford (2/18/97 8-K)
*4.6 Registration Rights Agreement dated December 30, 1994, between the
Registrant and Robert Fleming Nominees Ltd. (1/30/95 8-K)
*4.6.1 Amendment to Registration Rights Agreement dated as of January 31,
1997 between the Company and Robert Fleming Nominees Ltd. (2/18/97)
*4.7 Registration Rights Agreement dated December 30, 1994, between the
Registrant and AXA Equity & Law Life Assurance Society, Orbis Pension
Trustees Ltd., Ashford Capital Partners, L.P. and Theodore H. Ashford
(1/30/95 8-K)
*4.7 Amendment to Registration Rights Agreement dated as of January 31,
1997 between the Company and AXA Equity & Law Life Assurance Society,
Orbis Pension Trustees Ltd., Ashford Capital Partners, L.P. and
Theodore H. Ashford (2/18/97 8-K)
*4.8 Form of Warrant Certificates issued to Robert Fleming Nominees Ltd.
(300,000 shares), AXA Equity & Law Life Assurance Society (56,250
Shares), Orbis Pension Trustees Ltd. (37,500 shares), Ashford Capital
Partners, L.P. (15,000 shares) and Theodore H. Ashford (3,750 shares)
(1/30/95 8-K)
*4.8.1 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Robert Fleming Nominees Ltd. (2/18/97 8-K)
*4.8.2 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and AXA Equity & Law Life Assurance Society (2/18/97 8-K)
*4.8.3 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Orbis Pension Trustees Ltd. (2/18/97 8-K)
*4.8.4 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Ashford Capital Partners, L.P. (2/18/97 8-K)
*4.8.5 Amendment to Warrant Certificate dated January 31, 1997 between the
Company and Theodore H. Ashford (2/18/97 8-K)
-2-
<PAGE>
*4.9 Form of Performance Warrant Certificates issued to Robert Fleming
Nominees Ltd. (44,444 shares), AXA Equity & Law Life Assurance Society
(8,333 shares), Orbis Pension Trustees Ltd. (5,556 shares), Ashford
Capital Partners, L.P. (2,222 shares) and Theodore H. Ashford (556
shares) (1/30/95 8-K)
*4.10 Bank Warrant Certificate issued to NationsBank (1/30/95 8-K)
*4.11 Bank Warrant Certificate issued to Creditanstalt-Bankverein (1/30/95
8-K)
*4.11.1 Amendment to Bank Warrant Certificate issued to Creditanstalt-
Bankverein (2/18/97 8-K)
*4.12 Preferred Stock Exchange Agreement dated January 31, 1997 among the
Company and Robert Fleming Nominees Ltd., AXA Equity & Law Life
Assurance Society, Orbis Pension Trustees Ltd., Ashford Capital
Partners, L.P. and Theodore H. Ashford (2/18/97 8-K)
*4.13 Registration Rights Agreement dated as of January 31, 1997 by and
between the Company and HFMI Acquisition Corporation ("PFCI") (2/18/97
8-K)
*4.14 Warrant certificate issued on January 31, 1997 to PFCI (2/18/97 8-K)
*10.2 Harry's Farmers Market, Inc. 1993 Management Incentive Plan (Form S-1)
*10.3 Harry's Farmers Market, Inc. 1993 Outside Directors' Incentive Plan
(Form S-1)
*10.4 Harry's Farmers Market, Inc. Employee Stock Purchase Plan (Form S-1)
*10.6 Master Lease Agreement dated September 5, 1991, between the
Partnership and SouthTrust Bank of Alabama, N.A., as amended April 1,
1993 (Form S-1)
*10.6.2 Third Amendment to Master Lease Agreement dated as of June 8,1994,
among the Registrant, Harry A. Blazer and SouthTrust Bank of Alabama,
N. A. (8/3/94 10-Q)
*10.6.3 Waiver dated April 17, 1995, of certain conditions of default under
Master Lease Agreement dated September 5, 1991 (as amended) (1995 Form
10-K).
*10.9 Lease Agreement dated July 1, 1992, between the Partnership and James
B. Cumming (Form S-1)
*10.11 Master Equipment Lease Agreement dated June 30, 1991, between the
Partnership and Sun Financial Group, Inc. (Form S-1)
*10.13 Lease Agreement dated October 1, 1991, between Marthasville Trading
Company, Inc. and Thomas Trucking Co., Inc. (Form S-1)
-3-
<PAGE>
*10.14 Agreement to Dissolve and Liquidate Harry's Farmers Market, Ltd.
(L.P.), dated March 30, 1993 (Form S-1)
*10.15 Real Estate Note in the amount of $3,325,000 payable by the
Partnership to Citicorp Real Estate, Inc. (Form S-1)
*10.15.1 Waiver dated December 12, 1994, of certain conditions of default
under Real Estate Note dated March 18, 1993 (11/2/94 10-Q)
*10.16 Amended and Restated Credit Agreement dated as of December 30, 1994,
among the Registrant, Marthasville Trading Company, Karalea, Inc.,
NationsBank of Georgia, National Association ("NationsBank"), as
Agent, NationsBank and Creditanstalt-Bankverein, as Lenders (1/30/95
8-K)
*10.16(a) Amendment Number One and Waiver Agreement dated April 27, 1995,
relating to Amended and Restated Credit Agreement dated December 30,
1994, among the Registrant, Marthasville Trading Company, Karalea,
Inc., NationsBank, Creditanstalt-Bankverein and NationsBank, as Agent
(1995 Form 10-K)
*10.16.1 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $3,600,000 payable to the order of
Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.2 Revolving Credit Note of the Registrant dated December 30, 1994, in
the original principal amount of $5,400,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.4 Term Loan Note of the Registrant dated December 30, 1994, in the
original principal amount of $16,017,000 payable to the order of
NationsBank (1/30/95 8-K)
*10.16.5 Warrant Agreement dated December 30, 1994, among the Registrant,
NationsBank and Creditanstalt-Bankverein (1/30/95 8-K)
*10.16.6 Marthasville Trading Company Amended and Restated Guaranty dated
December 30, 1994 (1/30/95 8-K)
*10.16.7 Karalea, Inc. Amended and Restated Guaranty dated December 30, 1994
(1/30/95 8-K)
*10.16.8 Harry's Farmers Market, Inc. Amended and Restated Security Agreement
dated December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.9 Marthasville Trading Company Amended and Restated Security Agreement
dated December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.10 Karalea, Inc. Amended and Restated Security Agreement dated December
30, 1994, in favor of NationsBank (1/30/95 8-K)
-4-
<PAGE>
*10.16.11 Trademark Collateral Assignment and Security Agreement dated
December 30, 1994, in favor of NationsBank (1/30/95 8-K)
*10.16.12 Interpretation dated May 22, 1995 of the Amended and Restated Credit
Agreement dated as of December 30, 1994 (8/2/95 10-Q)
*10.16.13 Waiver dated May 30, 1995 of certain prohibitions on the incurrence
of indebtedness under the Amended and Restated Credit Agreement dated
as of December 30, 1994 (11/1/95 10-Q)
*10.16.14 Waiver dated July 14, 1995 regarding the Company's failure to meet
minimum inventory days on hand under the Amended and Restated Credit
Agreement dated as of December 30, 1994 (11/1/95 10-Q)
*10.16.15 Waiver dated September 6, 1995 relating to Harry A Blazer's
relinquishing of the title and responsibilities of Chief Executive
Officer under the Amended and Restated Credit Agreement dated as of
December 30, 1994 (11/1/95 10-Q)
*10.16.16 Second Amendment dated September 15, 1995 relating to the Amended
and Restated Credit Agreement dated as of December 30, 1994 (11/1/95
10-Q)
*10.16.17 Forbearance Agreement, dated December 14, 1995, by and among the
Company, NationsBank of Georgia, National Association and
Creditanstalt-Bankverein (11/1/95 10-Q)
*10.16.18 Sixth Amendment, Waiver and Forbearance Agreement dated May 8,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein (1996 10-K)
10.16.19 Seventh Amendment, Waiver and Forbearance Agreement dated July 25,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein
10.16.20 Eighth Amendment, Waiver and Forbearance Agreement dated December 31,
1996, by and among the Company, NationsBank, N.A. (South) and
Creditanstalt-Bankverein
*10.16.21 Ninth Amendment to Loan Agreement dated January 31, 1997 between the
Company, NationsBank, N.A. and Creditanstalt-Bankverein (2/28/97 8-K)
*10.21 Lease Agreement dated September 16, 1993, between the Registrant and
Metropolitan Life Insurance Company (1993 Form 10-K)
*10.22 Agreement for the Sale and Purchase of Property dated April 9, 1993,
between Karalea, Inc. and MM Mooring #1 Corp., as amended by the
First Amendment to Agreement for the Sale and Purchase of Property
dated May 14, 1993, and the Second Amendment to Agreement for the
Sale and Purchase of Property dated May 28, 1993 (1993 Form 10-K)
-5-
<PAGE>
*10.23 Agreement for the Sale of Property dated July 14, 1993, between the
Registrant and Liberty Place Associates, Ltd., as amended by the
First Amendment to Purchase Agreement dated September 10, 1993, and
the Second Amendment to Agreement for the Sale of Property dated
September 20, 1993 (1993 Form 10-K)
*10.24 Contract for Sale dated July 12, 1993, between the Registrant and J.
C. Penney Properties, Inc., as amended by the First Amendment to
Contract dated August 23, 1993 (1993 Form 10-K)
*10.26 Agreement for Sale of Real Estate dated April 19, 1995, between the
Registrant and Trammell Crow SE, Inc. (1995 Form 10-K)
10.27 Lease Agreement dated effective March 17, 1997, between U.S.41 & I285
Company and the Registrant
*10.28 Transaction Agreement dated as of January 31, 1997 among PFCI and the
Company (2/18/97 8-K)
*10.29 Secured Loan Agreement dated as of January 31, 1997 between PFCI and
the Company (2/18/97 8-K)
*10.30 Acquisition Agreement dated January 31, 1997 between the Company and
PFCI (2/18/97 8-K)
*10.31 Trust Agreement dated as of January 30, 1997 between and among
Wilmington Trust Company, PFCI and the Company (2/18/97 8-K)
*10.32 PFCI License Agreement dated as of January 31, 1997 between HFMI Trust
and PFCI (2/18/97 8-K)
*10.33 HFMI License Agreement dated as of January 31, 1997 between HFMI Trust
and the Company (2/18/97 8-K)
*10.34 Transfer Agreement dated as of January 31, 1997 between and among the
Company, HFMI Trust and PFCI (2/18/97 8-K)
*10.35 Trust Certificate dated January 30, 1997 issued to HFMI Trust
regarding the Georgia Class Interests (2/18/97 8-K)
*10.36 Trust Certificate dated January 30, 1997 issued to HFMI Trust
regarding the Worldwide Class Interests (2/18/97 8-K)
*10.37 Administration and Servicing Agreement dated as of January 31, 1997
between HFMI Trust, PFCI and the Company (2/18/97 8-K)
-6-
<PAGE>
*10.38 Assignment of Intellectual Property dated January 31, 1997, by and
between the Company and HFMI Trust (2/18/97 8-K)
*10.39 Consulting Services Agreement dated as of January 31, 1997 between
PFCI, the Company and Harry A. Blazer (2/18/97 8-K)
*21 Subsidiaries of the Registrant (1993 Form 10-K)
23 Consent of Grant Thornton LLP
27 Financial Data Schedule
-7-
<PAGE>
EXHIBIT 10.16.19
SEVENTH AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
AND SECOND AMENDMENT TO
AMENDED AND RESTATED SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND SECOND
AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT, dated as of July 25, 1996,
is made by and among HARRY'S FARMERS MARKET, INC., a Georgia corporation (the
"Company"), NATIONSBANK, N.A. (SOUTH)(f/k/a NationsBank of Georgia, National
Association) and CREDITANSTALT-BANKVEREIN, New York Branch, a banking company
organized under the laws of Austria, (collectively the "Lenders") and
NATIONSBANK, N.A. (SOUTH) (f/k/a NationsBank of Georgia, National Association),
as Agent (the "Agent").
The Lenders, the Agent and the Company entered into the Amended and
Restated Credit Agreement dated as of December 30, 1994 (as amended, the "Credit
Agreement") pursuant to which the Lenders provided certain credit facilities to
the Company.
The Company will be entering into a certain Letter of Credit and
Reimbursement Agreement dated as of the date hereof (the "Reimbursement
Agreement") by and between the Company and NationsBank, pursuant to which
NationsBank will issue certain international documentary letters of credit to
the Company in an aggregate amount not to exceed $100,000.
The parties now desire to amend the Credit Agreement to (a) provide for the
issuance of the letters of credit pursuant to the Reimbursement Agreement;
(b) amend certain negative covenants and (c) amend the form of Compliance
Certificate required to be delivered by the Company pursuant to the terms of the
Credit Agreement.
In consideration of the agreements contained herein, the parties hereto
agree as follows:
Section 1. Amendment of Credit Agreement.
-----------------------------
(a) The Credit Agreement is hereby amended by deleting the definition of
"Wal-Mart Store" in Section 1.1 in its entirety.
(b) The Credit Agreement is hereby further amended by inserting in the
proper alphabetic order in Section 1.1 thereof, the following definitions:
"'Additional Letters of Credit' means those letters of credit issued
-----------------------------
from time to time by NationsBank for the account of the Company pursuant to
the terms of the Reimbursement Agreement.
-I-1-
<PAGE>
'Reimbursement Agreement' means that certain Letter of Credit and
------------------------
Reimbursement Agreement dated as of July 25, 1996 by and between the
Company and NationsBank, as the same may be amended from time to time in
accordance with its terms."
(c) The Credit Agreement is hereby further amended by deleting the
definition of "Credit Documents" from Section 1.1 and inserting in lieu thereof
the following:
"Credit Documents" shall mean, collectively, this Agreement, the
----------------
Notes, the Warrant Agreement, the Warrants, the Reimbursement Agreement and
the Security Documents."
(d) The Credit Agreement is hereby further amended by deleting the proviso
in the first sentence of Section 2.1 and inserting in lieu thereof the
following:
"provided, however, that in no event shall the sum of the aggregate
principal amount of all Revolving Credit Loans plus the stated amount of
all outstanding Additional Letters of Credit exceed the aggregate amount of
the Available Revolving Credit Commitment as in effect from time to time."
(e) The Credit Agreement is hereby further amended by deleting the
definition of "Available Revolving Credit Commitment" from Section 2.1 and
inserting in lieu thereof the following:
"'Available Revolving Credit Commitment' shall mean, on any date of
-------------------------------------
determination thereof, the aggregate Revolving Credit Commitments in effect
on such date minus (i) the aggregate outstanding principal amount of
-----
Revolving Credit Loans on such date; (ii) the undrawn stated amount of the
Letter of Credit; (iii) the undrawn stated amount of all Additional Letters
of Credit; and (iv) $100,000 to be available for any Payroll Deficit."
(f) The Credit Agreement is hereby further amended by deleting subsections
(b) and (c) from Section 2.16 and substituting in lieu thereof, the following:
(b) Subject to compliance with Section 8.6 hereof, the Company may use
the proceeds of Revolving Credit Loans in an aggregate amount not to exceed
$500,000 for the following expenses incurred in connection with the opening
of a Hurry Store (i) Capital Expenditures; (ii) expenses incurred in
connection with providing the initial inventory (net of payables incurred
in connection with the acquisition of such inventory) necessary to fully
stock a new Hurry Store and (iii) Pre-opening Expenses, subject to the
conditions of Section 5.4."
-I-2-
<PAGE>
(g) The Credit Agreement is hereby further amended by adding the following
at the end of the first paragraph of Section 2.9:
"For purposes of calculating this fee, until such time as each Lender has
purchased its portion of outstanding Additional Letters of Credit pursuant
to Section 3.9 hereof, the stated and undrawn portion of all outstanding
Additional Letters of Credit shall be considered amounts outstanding under
the Revolving Credit Commitment of NationsBank in its capacity as a Lender
hereunder and shall not be considered as amounts outstanding under the
Revolving Credit Commitment of any other Lender."
(h) The Credit Agreement is hereby further amended by adding the following
Section 3.9:
"3.9 PRO RATA TREATMENT OF ADDITIONAL LETTERS OF CREDIT
Upon the occurrence of an Event of Default:
(a) notwithstanding anything to the contrary contained herein, each
Lender shall automatically (and without the necessity of any action on the
part of the Agent or any of the Lenders) be deemed to purchase a portion of
the undrawn stated amount of all Additional Letters of Credit then
outstanding in an amount equal to its pro rata portion of the Commitments;
and
(b) any and all advances made pursuant to drafts presented pursuant to
the Additional Letters of Credit outstanding and unpaid at the time of such
Default or Event of Default (and without the necessity of any action on the
part of the Agent or any of the Lenders) shall be converted into Revolving
Loans, which Revolving Loans shall be Base Rate Loans."
(i) The Credit Agreement is hereby further amended by deleting subsections
(b)(iii) and (b)(iv) from Section 5.3.
(j) The Credit Agreement is hereby further amended by deleting subsections
(b) and (c) of Section 8.6 and substituting in lieu thereof, the following:
"(b) Other Capex. The Company may not incur any Capital Expenditures
-----------
other than as provided in paragraph (a) above without the prior written
consent of the Required Lenders, except that the Company may incur Capital
Expenditures for fixtures, signage and refrigeration equipment to be used
in connection with consignment sales of the Company's products
("Consignment Capital Expenditures") by third-party retail operations
("Consignors"); provided, however, that the Company may incur Consignment
Capital Expenditures at no more than 15 individual
-I-3-
<PAGE>
Consignor locations in an amount not to exceed $10,000 in the aggregate per
location.
(c) Further Limitations on Incurrence of Certain Capex. Neither the
---------------------------------------------------
Company nor any of its Subsidiaries shall make any Capital Expenditure
without first complying with Section 7.11. hereof."
(k) The Credit Agreement is hereby further amended by deleting Exhibit J
in its entirety and inserting in lieu thereof the Form of Compliance Certificate
as it appears on Schedule I attached hereto.
Section 2. Amendment to Security Agreement.
-------------------------------
(a) The Security Agreement is hereby amended by deleting the definition of
"Obligations" in Section 18 and inserting in lieu thereof the following:
"'Obligations' means (i) all loans, advances, debts, liabilities,
-----------
covenants, agreements, guarantees, duties and other obligations of the
Debtor owing to the Agent and the Lenders pursuant to the Credit Agreement
and the other Credit Documents, together with the reimbursement obligations
under the Letter of Credit and all obligations under the Warrants and the
Warrant Agreement; (ii) all obligations of the Debtor owing to NationsBank
resulting from a Payroll Deficit in an aggregate amount not to exceed
$100,000; (iii) all obligations of the Debtor owing to NationsBank arising
under the Reimbursement Agreement; and (iv) all renewals, modifications,
extensions and supplements to any of the foregoing."
(b) The Security Agreement is hereby further amended by inserting in the
proper alphabetic order in Section 18, the definition of "Reimbursement
Agreement" as defined in Section 1(b) hereof.
Section 3. Reaffirmation. The Company hereby reaffirms all
-------------
representations and warranties made by the Company to the Lenders and the Agent
in the Credit Agreement and the Security Agreement on and as of the date hereof
with the same force and effect as if such representations and warranties were
set forth in this Amendment in full.
Section 4. References to the Credit Agreement and the Other Credit
-------------------------------------------------------
Documents. Each reference to the Credit Agreement and any of the Credit
- ---------
Documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment, and as each may from time to time be further amended,
supplemented, restated or otherwise modified in the future by one or more other
written amendments or supplemental or modification agreements entered into
pursuant to the applicable provisions of the Credit Agreement.
-I-4-
<PAGE>
Section 5. References to the Security Agreement and the Other Credit
---------------------------------------------------------
Documents. Each reference to the Security Agreement and any of the Credit
- ---------
Documents shall be deemed to be a reference to the Security Agreement as amended
by this Amendment, and as each may from time to time be further amended,
supplemented, restated or otherwise modified in the future by one or more other
written amendments or supplemental or modification agreements entered into
pursuant to the applicable provisions of the Credit Documents.
Section 6. Condition Precedent. It is a condition precedent to the
-------------------
effectiveness of this Amendment that the Agent receive a fully-executed copy of
the Reimbursement Agreement, substantially in the form of Exhibit A hereto.
Section 7. Benefits. This Amendment shall be binding upon and shall
--------
insure to the benefit of the parties hereto and their respective successors and
assigns.
Section 8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 9. Effect. Except as expressly herein amended, the terms and
------
conditions of the Credit Agreement and the other Credit Documents shall remain
in full force and effect.
Section 10. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 11. Definitions. All terms defined in the Credit Agreement which
-----------
are used herein shall have the meanings defined in the Credit Agreement, unless
specifically defined otherwise herein.
[Signatures begin on following page]
-I-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set forth their hands in one or
more counterparts as of the 25th day of July, 1996.
HARRY'S FARMERS MARKET, INC.
By:_____________________________________
Authorized Officer
Attest:_________________________________
Name:______________________________
Title:_____________________________
[CORPORATE SEAL]
NATIONSBANK, N.A. (SOUTH), as a Lender and as Agent
By:_____________________________________
Name:______________________________
Title:_____________________________
CREDITANSTALT-BANKVEREIN, New York Branch, as a Lender
By:_____________________________________
Name:______________________________
Title:_____________________________
By:_____________________________________
Name:______________________________
Title:_____________________________
[Signatures continued on following page]
-I-6-
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF THE GUARANTORS
Each of Marthasville Trading Company and Karalea, Inc. (collectively, the
"Guarantors") hereby consents to the foregoing execution and delivery of this
Seventh Amendment to Amended and Restated Credit Agreement and Second Amendment
to Amended and Restated Security Agreement (the "Agreement"), and to the
performance by the Company and to its agreements and obligations thereunder and
all agreements and documents entered into in connection therewith. All
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Credit Agreement. Each of the Guarantors further affirms that neither
the Agreement nor the performance of the Credit Agreement and the other Credit
Documents as has been amended to date shall limit, restrict extinguish or
otherwise impair its liability to the Agent or the Lenders pursuant to its
respective Guaranty, whether such obligations are now existing or hereafter
arise. Each Guarantor acknowledges that all of the terms and conditions
contained in such Guarantor's respective Guaranty shall continue in full force
and effect.
Dated as of the 25th day of July, 1996.
MARTHASVILLE TRADING COMPANY
By:________________________________
Title:__________________________
KARALEA, INC.
By:________________________________
Title:__________________________
-I-7-
<PAGE>
SCHEDULE I
FORM OF COMPLIANCE CERTIFICATE
This certificate is furnished pursuant to Section 7.1(e)(ii) of that
certain Amended and Restated Credit Agreement dated as of December 30, 1994 (as
amended from time to time in accordance with its terms, the "Credit Agreement")
by and among Harry's Farmers Market, Inc. (the "Company"), the lenders named
therein (the "Lenders") and NationsBank, N.A. (South), formerly known as
NationsBank of Georgia, National Association, as agent (the "Agent"). This
certificate is made with respect to the Company's fiscal quarter ended _______,
19__ (the "Fiscal Quarter"). All capitalized terms used herein and not defined
herein have the respective meanings specified in the Credit Agreement.
The undersigned, being the chief financial officer of the Company, hereby
certifies to the Agent and the Lenders that on the date hereof:
I. SET FORTH BELOW ARE THE COMPUTATIONS NECESSARY TO DETERMINE THAT THE
COMPANY IS IN COMPLIANCE WITH SECTION 2.15 OF THE CREDIT AGREEMENT:
A. SECTION 2.15(A) SALE OF BRENTWOOD TENNESSEE PROPERTY. Complete the
----------------------------------------------------
following as applicable:
(1) The Disposition of the Brentwood Tennessee Property took place on
______________ (the "Disposition Date").
(2) The gross proceeds of such Disposition were $_____, and the Net
Available Proceeds therefrom less reasonable expenses for site preparation,
zoning and environmental impact fees were $_____.
(3) The greater of (x) 100% of the Net Available Proceeds described in
paragraph (2) above or (y) $4,300,000 were applied to prepayment of the Loans on
__________________.
B. SECTION 2.15 (B) CASUALTY EVENTS. Complete the following as
--------------------------------
appropriate:
(1) During the Fiscal Quarter, there have been ___ Casualty Event[s] which
resulted in gross proceeds of $_____.
(2) Of the foregoing, Net Available Proceeds were $_____.
(3) Of the foregoing Net Available Proceeds, $_____ were derived from
events in which the gross proceeds were less than $25,000, the Net Available
Proceeds of
-I-8-
<PAGE>
which were applied toward replacement, restoration or repair of the
damaged property within 90 days after the occurrence of such Casualty Event.
(4) After deducting the amount of Net Available Proceeds referred to in (3)
above from the total Net Available Proceeds referred to in (2) above, the
remaining Net Available Proceeds in the amount of $___________ were used to
prepay the Loans and reduce the Commitments on ________, 19__.
C. SECTION 2.15(C) SALE OF ASSETS. Complete the following as appropriate:
------------------------------
(1) Other than a Disposition of obsolete assets which results in Net
Available Proceeds in an amount less than $25,000 (in any single transaction but
in no event more than $500,000 in the aggregate prior to the Maturity Date) that
are applied toward the purchase of replacement assets within 90 days after such
Disposition, during the Fiscal Quarter, the following Dispositions of obsolete
assets were made:
<TABLE>
<CAPTION>
DESCRIPTION AND DATE OF TRANSACTION GROSS PROCEEDS RECEIVED
<S> <C>
A)
B)
C)
TOTAL
</TABLE>
(2) Of the foregoing, Net Available Proceeds were $_____.
(3) The Net Available Proceeds in the amount of $__________ were used
to prepay the Loans and reduce the Commitments promptly (and in any event within
five Business Days) following the receipt by the Company or any Subsidiary of
Net Available Proceeds in respect of any Disposition listed in (1) above
promptly (and in any event within five Business Days) following the receipt by
the Company or any Subsidiary of such Net Available Proceeds in respect of any
such Disposition as follows:
<TABLE>
<CAPTION>
DATE RECEIVED AND AMOUNT OF NET DATE AND AMOUNT OF PREPAYMENT
AVAILABLE PROCEEDS
<S> <C>
A)
B)
C)
D) TOTAL
</TABLE>
D. SECTION 2.15(D) INCURRENCE OF INDEBTEDNESS. During the Fiscal
------------------------------------------
Quarter, the Company or its Subsidiaries incurred Indebtedness for borrowed
money (other than Indebtedness permitted by Section 8.3 of the Credit Agreement)
as follows:
-I-9-
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION AND DATE OF NET AVAILABLE PROCEEDS OF INDEBTEDNESS INCURRED
INCURRENCE
<S> <C>
A)
B)
C)
</TABLE>
and prepayments of the Loans and reductions of the Commitments were made on the
dates set forth in the foregoing table and in the amounts of the Net Available
Proceeds set opposite such dates.
II SET FORTH BELOW ARE THE COMPUTATIONS NECESSARY TO DETERMINE THAT THE
COMPANY IS IN COMPLIANCE WITH THE SECTIONS CONTAINED IN ARTICLE 9 OF THE CREDIT
AGREEMENT:
A. SECTION 9.1 INDEBTEDNESS TO TANGIBLE NET WORTH RATIO. The following
----------------------------------------------------
amounts shall be determined for the period of four fiscal quarters ended as of
the end of the Fiscal Quarter.
<TABLE>
<C> <S> <C>
(1) Company's consolidated total assets $________________
(2) Company's consolidated total liabilities $________________
(3) Intangible items (as per definition of
Tangible Net Worth) $________________
(4) Tangible Net Worth of the Company $________________
((1) minus (2) minus (3))
(5) Indebtedness for borrowed money $________________
(6) Obligations to pay deferred purchase price $________________
of property or services (other than trade
accounts payable not for borrowed money
which are paid within 60 days)
(7) Indebtedness of others secured by a Lien $________________
on the Company or its Subsidiaries
(8) Reimbursement obligations in respect $________________
of letters of credit
(9) Capital Lease Obligations $________________
(10) Guarantees of the Indebtedness of others $________________
</TABLE>
-I-10-
<PAGE>
<TABLE>
<C> <S> <C>
(11) Obligations pursuant to Interest Rate $________________
Protection Agreements
(12) Indebtedness of the Company $________________
(the sum of items (5) through (11))
(13) Indebtedness to Tangible Net Worth Ratio ________________
((12) divided by (4))
(14) Required Indebtedness to Tangible Net _________________
Worth Ratio pursuant to Section 9.1
</TABLE>
B. SECTION 9.2 INDEBTEDNESS TO EBITDA RATIO. The following amounts
----------------------------------------
shall be determined for the period of four fiscal quarters ended as of the end
of the Fiscal Quarter.
<TABLE>
<C> <S> <C>
(1) Net income (loss) of the Company and its $_________________
Consolidated Subsidiaries
(2) Interest Expense of the Company and its $_________________
Consolidated Subsidiaries
(3) Income taxes $_________________
(4) Depreciation and amortization expense $_________________
(5) Extraordinary gain (loss) $_________________
(6) EBITDA (the sum of items (1) through $_________________
(4) minus (5))
(7) Indebtedness (item A(12) above) $_________________
(8) Indebtedness to EBITDA Ratio __________________
((7) divided by (6))
(9) Required Indebtedness to EBITDA Ratio __________________
pursuant to Section 9.2
</TABLE>
C. SECTION 9.3 FIXED CHARGE COVERAGE RATIO. The following amounts
---------------------------------------
shall be determined for the period of four fiscal quarters ended as of the end
of the Fiscal Quarter (one quarter in the case of the fourth quarter of the 1995
fiscal year).
<TABLE>
<C> <S> <C>
(1) EBITDA (B(6) above) $________________
</TABLE>
-I-11-
<PAGE>
<TABLE>
<C> <S> <C>
(2) Rental Expense with respect to $_________________
Operating Lease Obligations
(3) EBITDAR ((1) plus (2)) $_________________
(4) Scheduled payments of principal of
Indebtedness $_________________
(5) Interest Expense (less non-cash portion) $_________________
(6) Rental Expense $_________________
(7) Restricted Payments $_________________
(8) Restricted Purchases $_________________
(9) Fixed Charges (the sum of $_________________
items (4)-(8))
(10) Fixed Charge Coverage Ratio _________________
((3) divided by (9))
(11) Required Fixed Charge Coverage Ratio _________________
pursuant to Section 9.3
</TABLE>
D. SECTION 9.4 MAINTENANCE OF TANGIBLE NET WORTH. The following
---------------------------------------------
amounts shall be determined as of the end of the Fiscal Quarter for the periods
indicated.
<TABLE>
<C> <S> <C>
(1) Tangible Net Worth (item A(4) above) $_________________
(2) Net Available Proceeds of any Equity $_________________
Issuance (cumulative from Closing)
(3) Company's consolidated net income $_________________
(without regard to any net loss)
(4) 80% of (3) $_________________
(5) Target Tangible Net Worth
($24,750,000 plus (2) plus (4)) $_________________
(6) The amount by which the Tangible Net
Worth exceeds (is less than) Target Tangible
Net Worth $_________________
</TABLE>
-I-12-
<PAGE>
III SET FORTH BELOW ARE THE COMPUTATIONS NECESSARY TO DETERMINE THAT THE
COMPANY IS IN COMPLIANCE WITH CERTAIN SECTIONS OF ARTICLE 8 OF THE CREDIT
AGREEMENT:
A. SECTION 8.3 INDEBTEDNESS.
------------------------
(1) During the Fiscal Quarter, except for Indebtedness permitted pursuant
to Section 8.3(i), (ii) and (vi),the Company and/or its Subsidiaries created,
incurred, or suffered to exist the Indebtedness listed below by amount, date and
type:
<TABLE>
<CAPTION>
TYPE OF INDEBTEDNESS DATE INCURRED AMOUNT INCURRED AMOUNT OUTSTANDING
<S> <C> <C> <C>
A) Indebtedness under Interest Rate
Protection Agreements
B) Indebtedness incurred in connection
with Capital Expenditures permitted
pursuant to Section 8.6 of the
Credit Agreement (discussed below)
C) Any renewal or refinancing of
(a)-(b) above or any Indebtedness
existing on the Closing Date
</TABLE>
(2) There was no other Indebtedness incurred other than referred to in
(1).
(3) The purchase price of the assets acquired pursuant to (b) above as of
the date such Indebtedness was incurred was $__________, and the amount of
Indebtedness incurred was ___% of such purchase price.
(4) The aggregate amount of Indebtedness outstanding pursuant to (b) above
is $____________, which is less than $5,000,000.
(5) Any Indebtedness incurred pursuant to (c) above did not increase the
principal amount of such Indebtedness or shorten the maturity or average
maturity (if an installment obligation) of such Indebtedness.
B. SECTION 8.4 INVESTMENTS.
-----------------------
Neither the Company nor any of its Subsidiaries have made or have permitted
to remain outstanding any Investment except Permitted Investments. Neither the
Company nor its Subsidiaries own any capital stock of any Subsidiary other than
Permitted Subsidiaries.
-I-13-
<PAGE>
C. SECTION 8.5 RESTRICTED PAYMENTS AND RESTRICTED PURCHASES.
--------------------------------------------------------
During the Fiscal Quarter, the Company and its Subsidiaries made no (a)
distribution, dividend or any other payment on account of any capital stock or
other equity security of the Company or any of its Subsidiaries, other than
dividends or other distributions to the Company by any of its Subsidiaries (or
in the case in an indirect Subsidiary of the Company, to its parent that is also
a Subsidiary of the Company), (b) prepayment, redemption, or sinking fund in
respect of Indebtedness of the Company or any of its Subsidiaries, other than
Indebtedness arising under the Credit Agreement, or (c) payment on account of
the purchase, redemption or other acquisition or retirement for value (other
than in accordance with scheduled payments of principal) of (x) any shares of
capital stock or other equity securities of the Company or (y) any Indebtedness
of the Company or any of its Subsidiaries other than Indebtedness arising under
the Credit Agreement other than the following:
<TABLE>
<CAPTION>
DESCRIPTION OF PAYMENT AMOUNT OF PAYMENT OR DATE PAID OR PURCHASED
OR PURCHASE PURCHASE
<S> <C> <C>
A)
B)
C)
</TABLE>
D. SECTION 8.6(A) MAINTENANCE CAPITAL EXPENDITURES.
-----------------------------------------------
During the Fiscal Quarter the amount of Capital Expenditures incurred in
connection with the maintenance of the properties of the Company and its
Subsidiaries is $_____.
E. SECTION 8.6(B) OTHER CAPITAL EXPENDITURES.
-----------------------------------------
(1) Set forth below are all of the Consignment Capital Expenditures
incurred by the Company to date, together with the locations associated with
such Capital Expenditures, the date such Capital Expenditures were incurred and
the Consignor associated with such Capital Expenditures:
<TABLE>
<CAPTION>
TOTAL CAPITAL DATE(S) CAPITAL
EXPENDITURES FOR EXPENDITURES
LOCATION CONSIGNOR LOCATION INCURRED
-------- --------- ------------------- -------------------
<S> <C> <C> <C>
A)
B)
C)
</TABLE>
(2) The aggregate amount of Capital Expenditures incurred by the Company
other than for the maintenance of the properties of the Company and its
Subsidiaries as
-I-14-
<PAGE>
permitted by Section 8.6(a) and other than set forth in paragraph (1) above, are
set forth below, together with the date of the consent of the Required Lenders
for each such Capital Expenditure.
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES DATE OF CONSENT OF
INCURRED REQUIRED LENDERS
<S> <C> <C>
A)
</TABLE>
F. SECTION 8.8 ISSUANCE OF SECURITIES.
----------------------------------
(1) The Company has not issued options to purchase more than 475,000 shares
of its Class A Common Stock pursuant to the Company's 1993 Management Incentive
Plan.
(2) The Company has not issued more than 300,000 shares of its Class A
Common Stock to employees pursuant to its 1996 Employee Stock Purchase Plan.
(3) The Company has not issued more than 200,000 shares of its Class A
Common Stock to its outside directors pursuant to its 1996 Directors Stock
Option Plan.
(4) During the Fiscal Quarter, there were no Equity Issuances other than
those permitted by Section 8.8.
(5) During the Fiscal Quarter, the consideration for all Issuances of
securities other than Redeemable Stock was in cash.
IV. SET FORTH BELOW IS A LIST OF ALL LIENS WHICH SECURE INDEBTEDNESS IN
EXCESS OF $100,000.
<TABLE>
<CAPTION>
SECURED PARTY AMOUNT OF INDEBTEDNESS NATURE OF LIEN
<S> <C> <C>
A)
B)
C)
</TABLE>
IN WITNESS WHEREOF, this Certificate is duly executed and delivered this
__ day of ________, 199__.
-----------------------------
Chief Financial Officer
Harry's Farmers Markets, Inc.
-I-15-
<PAGE>
===============================================================================
EXHIBIT A
FORM OF
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
between
HARRY'S FARMERS MARKET, INC.
and
NATIONSBANK, N.A. (SOUTH)
Dated as of July 25, 1996
===============================================================================
-I-16-
<PAGE>
LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT dated as of July 25, 1996, by
and between HARRY'S FARMERS MARKET, INC., a Georgia corporation (the "Account
Party"), and NATIONSBANK, N.A. (SOUTH) (the "Issuer").
WHEREAS, the Account Party desires that certain documentary letters of
credit be issued for its account and the Issuer desires to issue such letters of
credit on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, in order to induce the
Issuer to issue such letter of credit and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS.
Section 1.1. Definitions.
-----------
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"this Agreement" means this Letter of Credit and Reimbursement Agreement.
--------------
"Beneficiary" means a third person or entity who makes a Drawing under a
-----------
Letter of Credit or to whom payment is to be made under a Letter of Credit,
including all transferees and assignees of the original stated beneficiary.
"Cash Collateral" shall mean lawful currency of the United States in
---------------
immediately available funds that is pledged by the Account Party to the Issuer
pursuant hereto, together with all interest, dividends and products and proceeds
thereof (and including all CD's purchased with any Cash Collateral).
"Closing Date" means July 25, 1996.
------------
"Commitment Amount" shall mean $100,000.
-----------------
"Credit Agreement" shall mean that certain Amended and Restated Credit
----------------
Agreement dated as of December 30, 1994 by and among the Account Party,
NationsBank, N.A. (South), formerly known as NationsBank of Georgia, National
Association and Creditanstalt-Bankverein as Lenders and NationsBank, N.A.
(South), formerly known as NationsBank of Georgia, National Association, as
Agent, as amended from time to time in accordance with its terms.
"Drawing" shall mean a drawing by a Beneficiary under a Letter of Credit.
-------
"Letter of Credit" shall mean a documentary letter of credit issued by the
----------------
Issuer for the account of the Account Party pursuant to this Agreement.
-I-17-
<PAGE>
"Stated Amount" shall mean the maximum amount available to be drawn by a
-------------
Beneficiary under a Letter of Credit from time to time.
"Stated Expiration Date" means the date set forth as such on the first page
----------------------
of the Letter of Credit
(b) Capitalized terms used herein and not defined herein are used with the
respective meanings given such terms in the Credit Agreement.
Section 1.2. General.
-------
Unless otherwise indicated, all accounting terms, ratios and measurements
shall be interpreted or determined in accordance with generally accepted
accounting principles. All terms defined in the UCC and not otherwise defined
herein are used herein as defined in the UCC. References in this Agreement to
"Sections", "Articles", "Exhibits" and "Schedules" are to sections, articles,
exhibits and schedules herein and hereto unless otherwise indicated. Wherever
from the context it appears appropriate, each term stated in either the singular
or plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. Unless otherwise indicated, all references to time are
references to Eastern Time.
ARTICLE 2. AMOUNT AND TERMS OF THE LETTERS OF CREDIT
Section 2.1. Issuance of the Letter of Credit.
--------------------------------
(a) Issuer Agrees to Issue. Subject to the terms and conditions of this
----------------------
Agreement, for the period from and including the date hereof to the Maturity
Date under and as defined by the Credit Agreement, the Issuer agrees to issue
and amend for the account of the Account Party one or more Letters of Credit in
favor of a Beneficiary up to a maximum aggregate Stated Amount at any one time
outstanding equal to the Commitment Amount.
(b) Terms of Letters of Credit. The amount, terms, conditions, form and
--------------------------
substance of each Letter of Credit issued hereunder shall be satisfactory to
each of the Issuer, the Account Party and the Beneficiary thereof. The original
expiration date of each Letter of Credit shall be not later than 90 days from
the date thereof; provided, however, in no event shall the expiration date of
any Letter of Credit be later than the Maturity Date.
(c) Notice Required. The Account Party shall give the Issuer written
---------------
notice (or telephonic notice subsequently confirmed in writing) at least three
business days prior to the requested date of issuance of a Letter of Credit.
Further, the Account Party shall also execute and deliver such customary letter
of credit application forms as requested from time to time by the Issuer. At
the request of the Account Party, the Issuer shall deliver a copy of any Letter
of Credit issued (or a copy of any Letter of Credit proposed to be issued)
hereunder.
(d) Purpose of Letters of Credit. The Letters of Credit to be issued
----------------------------
hereunder shall be for international documentary purposes only.
-I-18-
<PAGE>
Section 2.2. Reimbursement Obligation.
------------------------
(a) Notification, etc. The Issuer shall promptly notify the Account Party
------------------
of any Drawing under any Letter of Credit. The Account Party agrees to
reimburse the Issuer for each Drawing under a Letter of Credit in an amount
equal to the amount paid by the Issuer with respect to such Drawing not later
than 2:00 p.m. Eastern Time on the date of such payment by the Issuer.
(b) Interest Rate. If any Drawing is not reimbursed on or before 2:00 p.m.
-------------
Eastern Time on the date such Drawing is honored by the Issuer (whether by
direct payment by the Account Party or application of any Cash Collateral
pursuant to Section 5.4 hereof), interest shall accrue on the amount required to
be paid by the Account Party as set forth in paragraph (a) above at a rate per
annum equal to the sum of the Base Rate plus the Applicable Margin then in
effect under the Credit Agreement.
(c) Payments. All payments to be made by the Account Party hereunder shall
--------
be in the lawful currency of the United States and in immediately available
funds.
(d) Issuer Not Responsible. In determining whether to honor any Drawing
----------------------
under any Letter of Credit, the Issuer shall be responsible only to determine
that the documents and certificates required to be delivered under such Letter
of Credit have been delivered and that they comply on their face with the
requirements of such Letter of Credit. The Account Party otherwise assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit issued by
the Issuer by, the respective Beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, the Issuer shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effects of any document submitted by any party in connection with the
application for and issuance of or any Drawing honored under such Letters of
Credit even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) for the validity or
sufficiency of any instrument transferring or assigning or purporting to
transfer or assign any such Letter of Credit, or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the Beneficiary of
any such Letter of Credit to comply fully with conditions required in order to
draw upon such Letter of Credit; (iv) for errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex, telecopy or otherwise, whether or not they be in cipher; (v) for errors
in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a Drawing
under any such Letter of Credit, or of the proceeds thereof; (vii) for the
misapplication by the Beneficiary of any such Letter of Credit of the proceeds
of any drawing honored under such Letter of Credit; and (viii) for any
consequences arising from causes beyond the control of the Issuer. None of the
above shall affect, impair or prevent the vesting of any of the Issuer's rights
or powers hereunder. Any action taken or omitted to be taken by the Issuer
under or in connection with any Letter of Credit, if taken or omitted in the
absence of gross negligence or willful misconduct, shall not create liability
against the Issuer.
-I-19-
<PAGE>
Section 2.3. Letter of Credit Fees.
---------------------
In consideration of the issuance of Letters of Credit hereunder, the
Account Party hereby agrees to pay to the Issuer a fee equal to the then current
Applicable Margin for Revolving Credit Loans bearing interest at the Eurodollar
Rate on the face amount of any such Letter of Credit issued. Such fee is due
and payable in full on the date such Letter of Credit is issued. In addition,
the Account Party shall pay to the Issuer all out-of-pocket fees and
disbursements incurred by the Issuer in connection with the issuance of the
Letters of Credit and any administrative or issuance fees customarily charged by
the Issuer in connection with the issuance or administration of Letters of
Credit.
Section 2.4. Obligations Absolute.
--------------------
The obligations of the Account Party to reimburse the Issuer for Drawings
honored under Letters of Credit shall be unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of any Letter of Credit;
(b) the existence of any claim, set-off, defense or other right which the
Account Party or any Affiliate of the Account Party may have at any time against
a Beneficiary (or any persons or entities for whom any such Beneficiary may be
acting), the Issuer or any other person or entity, whether in connection with
this Agreement, the transactions contemplated herein or by the applicable Letter
of Credit or any unrelated transaction;
(c) any draft, demand, certificate or any other documents presented under
any Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(d) payment by the Issuer under any Letter of Credit against presentation
of a demand, draft or certificate or other document which does not comply with
the terms of such Letter of Credit provided, however, that the Account Party
shall have no obligation to reimburse the Issuer in the event of the Issuer's
willful misconduct or gross negligence in determining whether documents
presented under the Letter of Credit comply with the terms of such Letter of
Credit;
(e) any non-application or misapplication by the Beneficiary of the
proceeds of any Drawing under a Letter of Credit;
(f) the fact that an Event of Default shall have occurred and be
continuing; or
(g) any other act, omission to act, delay or circumstance whatsoever that
might, but for the provisions of this Section, constitute a legal or equitable
defense to or discharge of the Account Party's obligations hereunder. Nothing
in this Section shall
-I-20-
<PAGE>
abrogate any right which the Account Party may have to recover damages from the
Issuer under Section 2.5.
Section 2.5. Commercial Practices.
--------------------
The Account Party agrees that neither the Issuer nor any of its directors,
officers, employees or agents shall be liable or responsible for: (a) the use
which may be made of the Letter of Credit or for any acts or omissions of any
Beneficiary or transferee in connection therewith; (b) the validity, sufficiency
or genuineness of documents other than the Letter of Credit, or of any
endorsement thereon, even if such documents should in fact prove to be in any or
all respects invalid, insufficient, fraudulent or forged or any statement
therein prove to be untrue or inaccurate in any respect whatsoever; (c) payment
by the Issuer against presentation of documents which do not comply with the
terms of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit, except only that the Issuer shall be liable to the Account Party for
acts or events described in clauses (a) through (d) above, to the extent, but
only to the extent, of any direct, as opposed to consequential, damages suffered
by the Account Party which the Account Party proves were caused by (i) the
Issuer's willful misconduct or gross negligence in determining whether a drawing
made under the Letter of Credit complies with the terms and conditions therefor
stated in the Letter of Credit or (ii) the Issuer's willful failure to pay under
the Letter of Credit after presentation of a drawing by the beneficiary thereof
strictly complying with the terms and conditions of the Letter of Credit. The
Account Party understands and agrees that the Issuer may accept a drawing that
appears on its face to be in order, without responsibility for further
investigation. The determination of whether a drawing has been made under the
Letter of Credit prior to its expiration or whether a drawing made under the
Letter of Credit is in proper and sufficient form shall be made by the Issuer in
its sole discretion, which determination shall be conclusive and binding upon
the Account Party.
Section 2.6. Payments Net of Taxes, Etc.
--------------------------
All payments to the Issuer under this Agreement shall be made free and
clear of and without deduction, setoff or counterclaim of any kind whatsoever
and in such amounts as may be necessary in order for all such payments, after
deduction or withholding for or on account of any present or future taxes,
levies, imposts, deductions, duties or other charges or withholdings of
whatsoever nature imposed by any Person, except in the case of the Issuer, any
tax (or portion thereof) imposed on, or measured by, the net income of the
Issuer pursuant to Applicable Laws (such taxes, levies, imposts, deductions,
duties or other charges or withholdings collectively, the "Taxes"), to be not
less than the amounts otherwise specified to be paid under this Agreement. The
Account Party shall indemnify the Issuer against liability for all Taxes as and
when due and shall promptly (and in any event not later than thirty days after
payment thereof) furnish to the Issuer as the case may be, such certificates,
receipts and other documents as may be required (in the judgment of the Issuer)
to establish the payment of such Taxes and any tax credit to which the Issuer
may be entitled. The Account Party agrees to pay any present or future stamp,
recording or documentary taxes or any other excise or property taxes,
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<PAGE>
charges or similar levies which arise from any payment made hereunder or from
the execution or delivery or otherwise with respect to, this Agreement. The
obligations of the Account Party under this Section shall survive the
termination of this Agreement and the repayment of the Obligations.
SECTION 2.7. AGREEMENT REGARDING INTEREST AND CHARGES.
----------------------------------------
ALL CHARGES IMPOSED BY THE ISSUER ON THE ACCOUNT PARTY IN CONNECTION WITH
THIS AGREEMENT, INCLUDING ALL LETTER OF CREDIT COMMISSIONS, DEFAULT CHARGES,
LATE CHARGES, ATTORNEYS' FEES AND REIMBURSEMENT FOR COSTS AND EXPENSES PAID BY
THE ISSUER TO THIRD PARTIES OR FOR DAMAGES INCURRED BY THE ISSUER, ARE CHARGES
MADE TO COMPENSATE THE ISSUER FOR ADMINISTRATIVE SERVICES AND COSTS OR LOSSES
PERFORMED OR INCURRED, AND TO BE PERFORMED OR INCURRED, BY THE ISSUER IN
CONNECTION WITH THIS AGREEMENT AND THE RELATED DOCUMENTS AND SHALL UNDER NO
CIRCUMSTANCES BE DEEMED TO BE CHARGES FOR THE USE OF MONEY PURSUANT TO OFFICIAL
CODE OF GEORGIA ANNOTATED SECTIONS 7-4-2 OR 7-4-18. ALL CHARGES SHALL BE FULLY
EARNED AND NONREFUNDABLE WHEN DUE. In no event shall the amount of any interest
payable hereunder exceed the maximum rate of interest allowed by Applicable Law.
It is the express intent of the parties hereto that the Account Party not pay
and the Issuer not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may be lawfully paid by the Borrower under
Applicable Law.
Section 2.8. Evidence of Obligations.
-----------------------
The Issuer may maintain in accordance with its usual practice a record of
account evidencing the Indebtedness of the Account Party resulting from each
Drawing under any Letter of Credit. In any legal action or proceeding in
respect of this Agreement, the entries made in such record shall be conclusive
evidence, absent manifest error, of the existence and amounts of the Obligations
of the Account Party therein recorded. Failure of the Issuer to maintain any
such record shall not excuse the Account Party from any of its Obligations under
this Agreement.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.
Section 3.1. Representations and Warranties of the Account Party.
---------------------------------------------------
All representations and warranties made by the Account Party in Article 6
of the Credit Agreement, which are hereby incorporated herein by reference, are
true and correct on and as of the date hereof as if made on the date hereof.
Section 3.2. Survival of Representations and Warranties.
------------------------------------------
All representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of the date of any
Drawing under a Letter of Credit.
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<PAGE>
ARTICLE 4. COVENANTS.
Section 4.1. Covenants.
---------
Until the termination of this Agreement and the expiration or cancellation
of all Letters of Credit and the indefeasible satisfaction and payment in full
of all Obligations, the Account Party will comply with all covenants contained
in Articles 7, 8 and 9 of the Credit Agreement, which are hereby incorporated
herein by reference.
ARTICLE 5. DEFAULT.
Section 5.1. Events of Default.
-----------------
Each of the following events shall be considered an Event of Default
hereunder:
(a) The Account Party shall fail to pay any amount payable hereunder;
or
(b) The Account Party shall default in the performance of any other
obligation hereunder; or
(c) Any Event of Default under and as defined by the Credit Agreement shall
occur.
Section 5.2. Remedies.
--------
(a) Acceleration; Termination of Facility.
(i) Automatic. Upon the occurrence of an Event of Default specified
---------
in Sections 10.6 and 10.7 of the Credit Agreement an amount equal to the
Stated Amount of all Letters of Credit outstanding as of the date of the
occurrence of such Event of Default and all of the other obligations of the
Account Party hereunder shall become automatically due and payable by the
Account Party without presentment, demand, protest, or other notice of any
kind, all of which are expressly waived by the Account Party and (B) the
obligation of the Issuer to issue Letters of Credit hereunder shall
immediately and automatically terminate.
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<PAGE>
(ii) Optional. If any other Event of Default shall have occurred and
--------
be continuing, (A) the Issuer may declare that an amount equal to the
Stated Amount of all Letters of Credit outstanding as of the date of the
occurrence of such Event of Default and all of the other obligations of the
Account Party hereunder to be forthwith due and payable, whereupon the same
shall immediately become due and payable by the Account Party without
presentment, demand, protest or other notice of any kind, all of which are
expressly waived by the Account Party and (B) the Issuer may terminate its
obligation to issue Letters of Credit hereunder.
(b) The Issuer may immediately apply all Cash Collateral then held by the
Issuer to the obligations of the Account Party hereunder without further notice
or demand and may otherwise exercise all rights and remedies of a secured party
under the Uniform Commercial Code as in effect in the State of Georgia or other
applicable jurisdictions and/or may exercise all other rights and remedies it
may have under other applicable law.
(c) Effective upon the occurrence of an Event of Default, the Account Party
hereby constitutes and appoints the Issuer as the Account Party's true and
lawful attorney-in-fact to take any and all necessary and appropriate actions,
and to execute on behalf of the Account Party all necessary and appropriate
documents and instruments, in connection with the realization, collection and
enforcement of any Cash Collateral and other collateral security pledged by the
Account Party pursuant hereto. The power-of-attorney granted hereby is
irrevocable and coupled with an interest.
Section 5.3. Additional Rights.
-----------------
The rights and remedies of the Issuer under this Agreement shall be
cumulative and not exclusive of any rights or remedies which it would otherwise
have under applicable law. In exercising its rights and remedies, the Issuer
may be selective and no failure or delay by the Issuer in exercising any right
shall operate as a waiver of it, nor shall any single or partial exercise of any
power or right preclude its other or further exercise or any other power or
right.
Section 5.4. Cash Collateral Account.
-----------------------
(a) Account Party to Deliver Cash Collateral. At the Issuer's request, the
----------------------------------------
Account Party shall deliver to the Issuer Cash Collateral equal to 100 percent
of the aggregate stated amount of all Letters of Credit then outstanding
hereunder.
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<PAGE>
(b) Grant of Security in Cash Collateral. As security for the
------------------------------------
reimbursement and other obligations of the Account Party hereunder, the Account
Party hereby grants to the Issuer a security interest in and lien upon, and
hereby collaterally assigns to the Issuer, (i) all Cash Collateral now or
hereafter delivered to the Issuer hereunder, together with all CD's purchased by
the Issuer pursuant to paragraph (c) below, and any and all interest, dividends
and other cash and non-cash products and proceeds thereof, and (ii) all
Collateral granted to the Agent for the benefit of the Lenders in connection
with the Credit Agreement and all Credit Documents.
(c) Authorization of Purchase of CD's. The Account Party authorizes and
---------------------------------
directs the Issuer to purchase from time to time one or more negotiable
certificates of deposit issued by the Issuer having such maturities as the
Issuer shall determine (referred to herein as "CD's") with Cash Collateral from
time to time delivered by the Account Party to the Issuer hereunder. All
interest accruing on such CD's shall serve as additional collateral security for
the obligations of the Account Party hereunder; provided, however, that, so long
as no Event of Default hereunder has occurred, the Issuer shall pay to the
Account Party (on a quarterly basis) all interest that has accrued on such CD's.
All CD's purchased by the Issuer shall be in the possession of the Issuer and
shall be payable to the bearer thereof or to the Issuer (or its agent).
(d) Cash Collateral to Make Payment. If a Drawing under a Letter of Credit
-------------------------------
occurs on or prior to the expiration date thereof and whether or not an Event of
Default has occurred and is continuing, the Account Party authorizes the Issuer
to utilize the Cash Collateral either to make payment to the Beneficiary thereof
or to satisfy the Account Party's reimbursement obligation under Section 2.2.
hereof.
(e) Return of Cash Collateral. If all or a portion of a Letter of Credit
-------------------------
remains undrawn on the expiration date of such Letter of Credit, the Issuer
shall return to the Account Party an amount of Cash Collateral equal to the then
outstanding Stated Amount of such undrawn Letter of Credit within thirty days
after such expiration date.
(f) Sale of Cash Collateral, etc. The Account Party agrees that it will
----------------------------
not (i) sell or otherwise dispose of any interest in the Cash Collateral or
(ii) create or permit to exist any lien, security interest or other charge or
encumbrance upon or with respect to the Cash Collateral. The Issuer shall
exercise reasonable care in the custody and preservation of any Cash Collateral
and shall be deemed to have exercised such care if such funds are accorded
treatment substantially equivalent to that which the Issuer accords other funds
deposited with the Issuer, it being understood that the Issuer shall not have
any responsibility for taking any necessary steps to preserve rights against any
parties with respect to any funds held in the Cash Collateral. Further, the
Issuer shall have no duty or obligation to the Account Party to invest any Cash
Collateral other than in CD's or to guaranty to the Account Party a certain rate
of return with respect to any Cash Collateral in fact so invested. Further, the
Account Party authorizes the Issuer to liquidate any CD's prior to the maturity
date thereof for the purpose of satisfying the reimbursement obligations of the
Issuer hereunder. The Account Party acknowledges that such early
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<PAGE>
liquidation may result in a penalty under the terms of the CD's and a reduction
in the amount of interest that would otherwise be payable with respect to such
CD's. The Account Party acknowledges that the Issuer is not a fiduciary or
trustee of the Account Party or the Cash Collateral.
(g) Further Assurance. The Account Party agrees to execute and deliver
-----------------
such other documents and instruments as may be necessary or appropriate to
further evidence and perfect the Issuer's security interest in, and lien upon,
the Cash Collateral.
ARTICLE 6. MISCELLANEOUS
Section 6.1. Notices.
-------
Unless otherwise provided herein, notices and other communications provided for
or permitted hereunder shall be in writing and shall be mailed, telecopied or
delivered as provided in the Credit Agreement.
Section 6.2. Expenses.
--------
The Account Party will pay all out-of-pocket expenses of the Issuer in
connection with (a) the preparation, execution and delivery of this Agreement
whenever the same shall be executed and delivered, including the reasonable fees
and disbursements of Alston & Bird, counsel for the Issuer, and (b) the exercise
by the Issuer of any right or remedy granted to it under this Agreement,
including the reasonable fees and disbursements of counsel to the Issuer.
Section 6.3. Indemnification.
---------------
The Account Party shall and hereby agrees to indemnify, defend and hold
harmless the Issuer and its directors, officers, agents, employees and counsel
from and against any and all losses, claims, damages, liabilities, deficiencies,
judgments or expenses incurred by any of them (except to the extent that it is
finally judicially determined to have resulted from their own gross negligence
or willful misconduct) arising out of or by reason of any litigation,
investigations, claims or proceedings which arise out of or are in any way
related directly or indirectly to: (i) this Agreement or the transactions
contemplated thereby; (ii) the issuance of a Letter of Credit; (iii) the failure
of the Issuer to honor a Drawing under any Letter of Credit as a result of any
act or omission, whether rightful or wrongful, of any present or future de jure
or de facto governmental authority or agency; (iv) any actual or proposed use by
the Account Party or the Beneficiary of any Letter of Credit; or (v) the
Issuer's entering into this Agreement or any other agreements and documents
relating hereto or thereto, including, without limitation, amounts paid in
settlement, court costs and the fees and disbursements of counsel incurred in
connection with any such litigation, investigation, claim or proceeding or any
advice rendered in connection with any of the foregoing. If and to the extent
that the obligations of the Account Party hereunder are unenforceable for any
reason, the Account Party hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable law. The Account Party's obligations hereunder shall survive any
termination of this Agreement and the expiration of any Letter of Credit and the
payment in full of the obligations of the Account Party hereunder, and
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<PAGE>
are in addition to, and not in substitution of, any other of their obligations
set forth in this Agreement. All out-of-pocket fees and expenses of, and all
amounts paid to third-persons by, the Issuer shall be advanced by the Account
Party at the request of the Issuer notwithstanding any claim or assertion by the
Account Party that the Issuer is not entitled to indemnification hereunder upon
receipt of an undertaking by the Issuer that such Person will reimburse the
Account Party if it is actually and finally determined by a court of competent
jurisdiction that the Issuer is not so entitled to indemnification hereunder. No
action taken by legal counsel chosen by a person or entity entitled to
indemnification hereunder in defending against any such investigation,
litigation, suit, action or proceeding or requested remedial, removal or
response action shall vitiate or in any way impair the obligations and duties of
the Account Party hereunder to indemnify and hold harmless each person or
entity.
Section 6.4. Amendments.
----------
Except as otherwise expressly provided in this Agreement, any consent or
approval required or permitted by this Agreement to be given by the Issuer may
be given, and any term of this Agreement may be amended, and the performance or
observance by the Account Party of any terms of this Agreement or the
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Account Party and the written consent of
the Issuer. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon. No course of dealing or delay or
omission on the part of the Issuer in exercising any right shall operate as a
waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon
the Account Party shall entitle the Account Party to other or further notice or
demand in similar or other circumstances.
Section 6.5. Survival.
--------
Notwithstanding any termination of this Agreement, the indemnities to which
the Issuer and the other Indemnified Persons are entitled under the provisions
of Sections 6.2. and 6.3. and any other provision of this Agreement, shall
continue in full force and effect and shall protect the Issuer and the other
Indemnified Persons against events arising after such termination as well as
before.
Section 6.6. Titles and Captions.
-------------------
Titles and captions of Articles, Sections, subsections and clauses in this
Agreement are for convenience only, and neither limit nor amplify the provisions
of this Agreement.
Section 6.7. Severability of Provisions.
--------------------------
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
-I-27-
<PAGE>
Section 6.8. GOVERNING LAW.
-------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF GEORGIA.
Section 6.9. Assignment.
----------
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Account Party may not assign or transfer any of its rights under
this Agreement.
Section 6.10. Further Assurances.
------------------
The Account Party will, at any and all times, pass, execute and deliver all
such further documents, resolutions, assignments, recordings, filings, transfers
and assurances as may be necessary or desirable in the judgment of the Issuer
for the better assuring and confirming of all of the rights, revenues and other
funds pledged or assigned to or mortgaged for the payment of the Account Party's
obligations hereunder, or intended so to be. The Account Party hereby
authorizes and empowers the Issuer to sign on behalf of the Account Party as its
attorney-in-fact, and to file, any financing or continuation statement or any
amendments thereto with respect to any security pledged or assigned to the
Issuer in accordance with the Uniform Commercial Code or any applicable
jurisdiction.
Section 6.11. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and which shall constitute the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Letter of Credit
and Reimbursement Agreement to be duly executed and delivered under seal as of
the date first above written.
HARRY'S FARMERS MARKET, INC.
By:_____________________________________
Title:_______________________________
(CORPORATE SEAL)
NATIONSBANK, N.A. (SOUTH)
By:_____________________________________
Title:_______________________________
-I-29-
<PAGE>
EXHIBIT 10.16.20
EIGHTH AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of December 31, 1996, is made by and among HARRY'S FARMERS MARKET, INC., a
Georgia corporation (the "Company"), NATIONSBANK, N.A. (SOUTH) (f/k/a
NationsBank of Georgia, National Association) and CREDITANSTALT-BANKVEREIN, New
York Branch, a banking company organized under the laws of Austria,
(collectively the "Lenders") and NATIONSBANK, N.A. (SOUTH) (f/k/a NationsBank of
Georgia, National Association), as Agent (the "Agent").
The Lenders, the Agent and the Company entered into the Amended and
Restated Credit Agreement dated as of December 30, 1994 (as amended to date, the
"Credit Agreement") pursuant to which the Lenders provided certain credit
facilities to the Company.
The Company intends to refinance the outstanding indebtedness
represented by the Citicorp Note pursuant to the terms of that certain
Application/Contract dated on or about November 6, 1996 (the "Contract") by and
between the Company, as Applicant and Nationwide Life Insurance Company
("Nationwide") and as further evidenced by that certain Real Estate Note dated
as of December 27, 1996 (the "Real Estate Note") executed by RPI in favor of
Nationwide in the initial principal amount of $2,700,000. In connection with
the transactions contemplated by the Contract, certain property currently owned
by the Company securing the Citicorp Note will be transferred to Roman
Properties, Inc., a Georgia corporation and a newly created subsidiary of the
Company ("RPI") pursuant to the terms of that certain Quitclaim Deed dated as of
December 27, 1996 by and between the Company and RPI and that certain Bill of
Sale dated as of December 27, 1996 by and between the Company and RPI
(collectively, the "Bill of Sale"). The Company will lease the property
transferred to RPI pursuant to the terms of that certain Lease dated as of
December 27, 1996 (the "Lease") by and between the Company and RPI. The
obligations of the Company arising under the Contract and the Real Estate Note
will be secured pursuant to the terms of that certain Deed to Secure Debt and
Security Agreement dated December 27, 1996 (the "Deed to Secure Debt") executed
by RPI in favor of Nationwide. The transactions contemplated by the Contract,
including, but not limited to, the creation of RPI, the transfer of assets from
the Company to RPI pursuant to the Bill of Sale, the Real Estate Note, the Deed
to Secure Debt, the Loan Documents (as defined in the Real Estate Note) and the
Lease are collectively referred to herein as the "Refinancing".
The parties now desire (i) that the Lenders and the Agent waive the
Events of Default that may arise under the Credit Agreement as a result of the
Refinancing and (ii) to amend the Credit Agreement to amend certain covenants
and other provisions.
In consideration of the agreements contained herein, the parties
hereto agree as follows:
Section 1. Amendment of Credit Agreement.
-----------------------------
-A-1-
<PAGE>
(a) Section 1.1. Section 1.1 of the Credit Agreement is hereby amended
-----------
by adding the following definitions in the appropriate alphabetic order:
"'Bill of Sale' means collectively each of that certain Quitclaim Deed
dated as of December 27, 1996 by and between the Company and RPI and that
certain Bill of Sale dated as of December 27, 1996 by and between the
Company and RPI.
'Lease' means that certain Lease dated as of December 27, 1996 by and
between the Company and RPI, as the same may be amended, restated,
supplemented or otherwise modified from time to time in accordance with its
terms.
'Nationwide' means Nationwide Life Insurance Company.
'Nationwide Loan Agreement' means that certain Application/Contract
dated on or about November 6, 1996 by and between the Company and
Nationwide, together with that certain Real Estate Note, and each of the
Loan Documents (as defined in the Real Estate Note), as each may be
amended, restated supplemented or otherwise modified from time to time in
accordance with their respective terms.
'Real Estate Note' means that certain Real Estate Note dated December
27, 1996 executed by RPI in favor of Nationwide in the original principal amount
of $2,700,000, as the same may be amended, restated, supplemented or otherwise
modified from time to time in accordance with its terms.
'RPI' means Roman Properties, Inc., a Georgia corporation and a
Subsidiary of the Company."
(b) Section 2.16. The Credit Agreement is hereby further amended by
------------
deleting Section 2.16(a) in its entirety and substituting in lieu thereof the
following:
"2.16. USE OF PROCEEDS
(a) The proceeds of the Loans made on the Closing Date shall be used
to refinance the amounts advanced pursuant to the Existing Credit
Agreement, the Existing Loan Documents and the Existing Term Loan, and to
pay all related fees and expenses of the transactions contemplated in this
Agreement. In addition, such proceeds provided on the Closing Date,
together with the proceeds of the issuance of the Preferred Stock shall be
used to pay in full the Pattillo Construction Loan. Subject to subsection
(b) below, subsequent Revolving Credit Loans shall be utilized for working
capital and general corporate purposes of the Company and to pay drawings,
if any, paid on the Letter of Credit; provided however, that, in no event
shall the proceeds of any Revolving Credit Loan be used to pay any
principal amount owing by the Company on the indebtedness evidenced by the
Nationwide
-A-2-
<PAGE>
Loan Agreement or any extension, renewal or refinancing thereof,
without the prior written consent of the Required Lenders."
(c) Section 8.4. The Credit Agreement is hereby further amended by
-----------
deleting Section 8.4. in its entirety and substituting in lieu thereof the
following:
"8.4. INVESTMENTS
Make or permit to remain outstanding any Investments except (a)
Permitted Investments, (b) the ownership of the capital stock of Permitted
Subsidiaries by the Company or its Subsidiaries and (c) the ownership of
all of the shares of the outstanding capital stock of RPI by the Company."
(d) Section 8.7. The Credit Agreement is hereby further amended by
-----------
deleting Section 8.7. in its entirety and substituting in lieu thereof the
following:
"8.7. EXECUTION AND MODIFICATIONS OF CERTAIN DOCUMENTS
Amend its certificate of incorporation or by-laws in a manner adverse
to the Lenders; or amend, modify, cancel, terminate, waive any default
under or breach of, in any manner whatsoever, any Material Contract other
than in the ordinary course of business; or enter into any new agreement
that is inconsistent with the obligations of the Company or any Subsidiary
under any Credit Document. Notwithstanding the foregoing, the Company will
not amend the Stockholders' Agreement, the Lease or the Nationwide Loan
Agreement without the consent of the Required Lenders. Further, the
Company agrees that in no event shall the Company loan, owe, or in any way
transfer any sums to RPI other than the amounts owing under the Lease.
Further, the Company shall cause RPI to transfer to the Company immediately
upon the payment of rent under the Lease all amounts paid as rent under the
Lease which exceed the monthly payments of interest and principal owing to
Nationwide pursuant to the Real Estate Note."
(e) Section 8.15 The Credit Agreement is hereby further amended by adding
------------
the following Section 8.15.:
"8.15. AGREEMENTS REGARDING RPI
(a) Transfer any equipment, inventory, goods, accounts or any other
property or asset to RPI or otherwise permit RPI to own any property or
other assets other than the property described in the Bill of Sale.
(b) Permit RPI to incur any indebtedness or other contractual or other
obligation other than the indebtedness incurred pursuant to the Nationwide
Loan Agreement."
-A-3-
<PAGE>
(f) Section 8.16. The Credit Agreement is hereby further amended by adding
-------------
the following Section 8.16.:
"8.16. AGREEMENTS REGARDING THE LEASE
For purposes of the Credit Agreement and each of the other Credit
Documents, the parties hereby agree that the transaction contemplated by
the Lease shall be considered to be a transfer of a leasehold estate in
land and any sublease, assignment or other transfer of any interest of the
Company in such Lease shall be considered to be a Disposition.
Notwithstanding the terms of Section 8.1. hereof, (a) the Company may
sublease any portion of the property subject to the Lease (a "Sublease") as
long as concurrently with the creation of such Sublease, the Company
collaterally assigns such Sublease to the Agent for the benefit of the
Lenders on terms acceptable to the Agent and (b) the Company shall apply
the proceeds of all Subleases pursuant to the terms of Section 2.15 hereof
only during the continuation of an Event of Default and that absent such
Event of Default the Company may use the proceeds of such Subleases for
general corporate purposes."
Section 2. Consent and Waiver. Upon the satisfaction of each of the
------------------
conditions set forth in Section 6, the Lenders hereby consent to the Refinancing
and agree to waive any Events of Default arising as a result of the violation of
Sections 8.1(iii), 8.2, 8.3, 8.7, 8.10 or 8.12 of the Credit Agreement caused by
the Refinancing.
Section 3. Reaffirmation. The Company hereby reaffirms all
-------------
representations and warranties made by the Company to the Lenders and the Agent
in the Credit Agreement and the Security Agreement on and as of the date hereof
with the same force and effect as if such representations and warranties were
set forth in this Amendment in full.
Section 4. Representations. The Company further represents that:
---------------
(a) Authorization. The Company has the right and power, and has taken all
-------------
necessary action to authorize it, to execute and deliver this Amendment and to
perform the Credit Agreement, as amended by this Amendment, in accordance with
their respective terms. This Amendment has been duly executed and delivered by
the duly authorized officers of the Company, and each of this Amendment and the
Credit Agreement, as amended by this Amendment, is a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting generally the enforcement of
creditors' rights.
(b) Compliance of Loan Documents with Laws, etc. The execution and
-------------------------------------------
delivery of this Amendment, and the performance of the Credit Agreement, as
amended by this Amendment, in accordance with their respective terms and the
borrowings thereunder do not and will not, by the passage of time, the giving of
notice or otherwise: (i) require any approval from any Governmental Agency or
violate any applicable law relating to the Company; (ii) conflict with,
-A-4-
<PAGE>
result in a breach of or constitute a default under the articles of
incorporation or by-laws of the Company, or any indenture, agreement or other
instrument to which the Company is a party or by which it or any of its
properties may be bound; or (iii) result in or require the creation or
imposition of any Lien upon or with respect to any property now owned or
hereafter acquired by the Company other than in favor of the Agent.
(c) No Default. No Default or Event of Defaults exists as of the date
----------
hereof and, after giving effect to this Amendment and the Refinancing, no
Default or Event of Default will occur or exist.
Section 5. References to the Credit Agreement and the Other Credit
-------------------------------------------------------
Documents. Each reference to the Credit Agreement and any of the Credit
- ---------
Documents shall be deemed to be a reference to the Credit Agreement as amended
by this Amendment, and as each may from time to time be further amended,
supplemented, restated or otherwise modified in the future by one or more other
written amendments or supplemental or modification agreements entered into
pursuant to the applicable provisions of the Credit Agreement.
Section 6. Conditions Precedent. It is a condition precedent to the
--------------------
effectiveness of this Amendment that the Company deliver to the Agent each of
the following, each of which shall be satisfactory in form and substance to the
Agent:
(a) a fully-executed copy of this Amendment;
(b) a fully-executed copy of the Contract;
(c) a fully-executed copy of the Deed to Secure Debt;
(d) a fully-executed copy of the Lease;
(e) a fully-executed copy of the Bill of Sale and all documents entered
into in connection therewith;
(f) a Pledge Agreement executed by the Company in favor of the Agent for
the benefit of the Lenders in substantially the form of Exhibit A attached
hereto whereby the Company will pledge to the Agent for the benefit of the
Lenders all of the outstanding stock of RPI owned by the Company;
(g) an Intercreditor Agreement executed by Nationwide and acknowledged by
the Company and RPI in substantially the form of Exhibit C attached hereto;
(h) a Landlord Waiver executed by RPI in favor of the Agent for the benefit
of the Lenders in substantially the form of Exhibit B attached hereto;
(i) evidence that all obligations arising under the Citicorp Note are
indefeasibly paid in full and all liens securing such obligations have been
terminated;
-A-5-
<PAGE>
(j) a signed opinion of counsel to the Company and RPI in substantially the
form of Exhibit D attached hereto;
(k) a certificate executed by the chief executive officer and the chief
financial officer of the Borrower, stated that (a) on such date, and after
giving effect to the transactions contemplated by this Amendment and the
Refinancing, no Default or Event of Default has occurred and is continuing; (b)
no material adverse change in the financial condition or operations of the
business of the Company or any of its Subsidiaries or the projected cash flow of
the Company and its Subsidiaries has occurred; and (c) the representations and
warranties set forth in Sections 3 and 4 hereof are true and correct in all
material respects on and as of such date with the same effect as though made on
and as of such date;
(l) that certain Seventh Amendment to Amended and Restated Credit Agreement
and Second Amendment to Security Agreement dated as of July 25, 1996 by and
among the Company, the Lenders and the Agent shall be effective in all respects;
(m) copies of all consents, approvals, authorizations, registrations or
filings required to be made or obtained by the Borrower and its Subsidiaries in
connection with the execution and delivery of this Amendment, the Refinancing
and the consummation of the transactions contemplated hereby or thereby;
(n) a copy certified by the Secretary of the Company of all corporate or
other necessary action taken by the Company to authorize the execution, delivery
and performance of the transactions contemplated by this Amendment and the
Refinancing;
(o) a copy of the articles of incorporation (certified as of a recent date
by the Secretary of State of Georgia) and bylaws (certified by the Secretary of
the Company) of the Company as in effect on the date hereof;
(p) a certificate of incumbency and specimen signatures with respect to
each of the officers of the Company who are authorized to execute and deliver
all documents contemplated by this Amendment;
(q) a certificate evidencing the good standing of the Company in Georgia;
(r) a copy certified by the Secretary of RPI of all corporate or other
necessary action taken by the RPI to authorize the execution, delivery and
performance of the transactions contemplated by this Amendment and the
Refinancing;
(s) a copy of the articles of incorporation (certified as of a recent date
by the Secretary of State of Georgia) and bylaws (certified by the Secretary of
RPI) of RPI as in effect on the date hereof;
-A-6-
<PAGE>
(t) a certificate of incumbency and specimen signatures with respect to
each of the officers of RPI who are authorized to execute and deliver all
documents contemplated by this Amendment;
(u) a certificate evidencing the good standing of RPI in Georgia;
(v) a copy certified by the Secretary of each Guarantor of all corporate or
other necessary action taken by such Guarantor to authorize the execution,
delivery and performance of the transactions contemplated by this Amendment and
the Refinancing;
(w) a certificate of incumbency and specimen signatures with respect to
each of the officers of each Guarantor who are authorized to execute and deliver
all documents contemplated by this Amendment; and
(x) such other documents or instruments as a Lender or the Agent may
request.
Section 7. Acknowledgment. The Company hereby acknowledges and agrees
--------------
that RPI shall not be considered a Permitted Subsidiary under the Credit
Agreement or any of the Credit Documents.
Section 8. Benefits. This Amendment shall be binding upon and shall
--------
insure to the benefit of the parties hereto and their respective successors and
assigns.
Section 9. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 10. Effect. Except as expressly herein amended, the terms and
------
conditions of the Credit Agreement and the other Credit Documents shall remain
in full force and effect.
Section 11. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and shall be
binding upon all parties, their successors and assigns.
Section 12. Definitions. All terms defined in the Credit Agreement which
-----------
are used herein shall have the meanings defined in the Credit Agreement, unless
specifically defined otherwise herein.
[Signatures begin on following page]
-A-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set forth their hands in one or
more counterparts as of the ____ day of December, 1996.
HARRY'S FARMERS MARKET, INC.
By:___________________________________
Authorized Officer
Attest:_________________________________
Name:___________________________
Title:____________________________
[CORPORATE SEAL]
NATIONSBANK, N.A. (SOUTH), as a Lender and as Agent
By:____________________________________
Name:____________________________
Title:______________________________
CREDITANSTALT-BANKVEREIN, New York Branch, as a Lender
By:_____________________________________
Name:_____________________________
Title:_______________________________
By:_____________________________________
Name:_____________________________
Title:_______________________________
[Signatures continued on following page]
-A-8-
<PAGE>
ACKNOWLEDGMENT AND CONSENT OF THE GUARANTORS
Each of Marthasville Trading Company and Karalea, Inc. (collectively, the
"Guarantors") hereby consents to the foregoing execution and delivery of this
Eighth Amendment to Amended and Restated Credit Agreement (the "Agreement"), and
to the performance by the Company and to its agreements and obligations
thereunder and all agreements and documents entered into in connection
therewith. All capitalized terms not otherwise defined herein shall have the
meanings set forth in the Credit Agreement. Each of the Guarantors further
affirms that neither the Agreement nor the performance of the Credit Agreement
and the other Credit Documents as has been amended to date shall limit, restrict
extinguish or otherwise impair its liability to the Agent or the Lenders
pursuant to its respective Guaranty, whether such obligations are now existing
or hereafter arise. Each Guarantor acknowledges that all of the terms and
conditions contained in such Guarantor's respective Guaranty shall continue in
full force and effect.
Dated as of the _____ day of December, 1996.
MARTHASVILLE TRADING COMPANY
By:
---------------------------------
Title:
---------------------------
KARALEA, INC.
By:
--------------------------------
Title:
--------------------------
-A-9-
<PAGE>
EXHIBIT A
---------
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of December 31, 1996 by and between Harry's
Farmers Market, Inc., a Georgia corporation (the "Pledgor") and NationsBank,
N.A. (South), as Agent (the "Pledgee").
WHEREAS, pursuant to that certain Amended and Restated Credit Agreement
dated as of December 27, 1995 (as amended, supplemented, restated or otherwise
modified from time to time in accordance with its terms, the "Credit Agreement")
by and among the Pledgor, the Lenders named therein (the "Lenders") and the
Pledgee, the Lenders have made available to the Pledgor certain financial
accommodations; and
WHEREAS, the Pledgor desires to transfer certain property to Roman
Properties, Inc., a Georgia corporation ("RPI") in connection with the
transactions contemplated by that certain Eighth Amendment to Amended and
Restated Credit Agreement dated as of the date hereof (the "Amendment") by and
among the Pledgor, the Lenders and the Agent;
WHEREAS, it is a condition precedent to the effectiveness of the Amendment
that the Pledgor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. PLEDGE. The Pledgor hereby pledges, hypothecates, assigns,
------
transfers, sets over and delivers unto the Pledgee for the benefit of the
Lenders, and grants to the Pledgee for the benefit of the Lenders a security
interest in, all of the Pledgor's right, title and interest in, to and under the
following (collectively, the "Pledged Collateral"): (a) all of the common stock,
shares, equity interest and other securities (collectively, "Securities") of RPI
as more particularly described on Schedule 1 attached hereto; (b) any additional
Securities of RPI as may from time to time be issued to the Pledgor or otherwise
acquired by the Pledgor; (c) any cash or additional Securities or other property
at any time and from time to time receivable or otherwise distributable in
respect of, in exchange for, or in substitution of, any of the property referred
to in any of the immediately preceding clauses (a) and (b); and (d) any and all
products and proceeds of any of the foregoing, together with and all other
rights, titles, interests, powers, privileges and preferences pertaining to said
property.
SECTION 2. OBLIGATIONS SECURED. This Agreement is made, and the security
-------------------
interest created hereby is granted to the Pledgee for the benefit of the
Lenders, to secure the prompt performance and payment in full of the following
(collectively, the "Secured Obligations"): (a) all Obligations and (b) any
reasonable costs or expenses incurred by the Pledgee or Pledgee's counsel
-A-10-
<PAGE>
in connection with the realization of the security for which this Agreement
provides, including, without limitation, any reasonable costs or expenses of any
proceedings to which this Agreement may give rise.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Pledgor hereby represents
------------------------------
and warrants to the Pledgee and the Lenders as follows:
(a) Validly Issued, etc. All of the outstanding stock of RPI has been
--------------------
validly issued and are fully paid and nonassessable.
(b) Title and Liens. The Pledgor is, and will at all times continue to be,
---------------
the legal and beneficial owner of the Pledged Collateral and none of the Pledged
Collateral is subject to any Lien other than Permitted Liens. No financing
statement under the Uniform Commercial Code of any jurisdiction which names the
Pledgor as debtor or covers any of the Pledged Collateral, or any other notice
filed in the public records indicating the existence of a Lien thereon, has been
filed and is still effective in any state or other jurisdiction, other than
Uniform Commercial Code financing statements filed in favor of the Pledgee, and
the Pledgor has not signed any such financing statement or notice or any
security agreement authorizing the filing of any such financing statement or
notice, other than Uniform Commercial Code financing statements filed in favor
of the Pledgee.
(c) Authority, etc. The Pledgor (i) has the power and authority to pledge
--------------
the Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other than
the Lien created by this Agreement and Permitted Liens), however arising, of all
persons.
(d) No Approval. No consent or approval of any Governmental Agency or any
-----------
securities exchange was or is necessary to the validity of the pledge effected
hereby.
(e) Outstanding Shares. The Securities pledged by the Pledgor hereunder
------------------
constitute 100% of the issued and outstanding stock of RPI.
SECTION 4. NO LIENS; NO SALE OF PLEDGED COLLATERAL. The Pledgor hereby
---------------------------------------
unconditionally covenants and agrees that it will not create, assume, incur or
permit or suffer to exist or to be created, assumed or incurred, any Lien on any
of the Pledged Collateral (or any interest therein), other than Permitted Liens,
and will not, without the prior written consent of the Pledgee, sell, lease,
assign, transfer or otherwise dispose of all or any portion of the Pledged
Collateral (or any interest therein).
SECTION 5. ADDITIONAL SHARES.
-----------------
(a) During the period this Agreement is in effect, the Pledgor shall not
permit RPI to issue any additional shares of capital stock or other equity
securities or interests to any Person other than the Pledgor. Further, the
Pledgor shall not permit RPI to amend or modify its articles
-A-11-
<PAGE>
or certificate of incorporation in a manner which would affect the voting,
liquidation, preference or other rights of a holder of the shares of stock
pledged hereunder.
(b) The Pledgor agrees that, until this Agreement has terminated in
accordance with its terms, any additional Securities of an Issuer at any time
issued to the Pledgor or otherwise acquired by the Pledgor shall be promptly
delivered or otherwise transferred to the Pledgee as additional Pledged
Collateral and shall be subject to the Lien of, and the terms and conditions of,
this Agreement.
SECTION 6. VOTING RIGHTS; DIVIDENDS, ETC.
------------------------------
(a) So long as no Event of Default shall have occurred and be continuing:
(i) the Pledgor shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged
Collateral or any part thereof for any purpose not inconsistent with the
terms and conditions of this Agreement or any agreement giving rise to or
otherwise relating to any of the Secured Obligations; provided, however,
that the Pledgor shall not exercise, or refrain from exercising, any such
right or power if any such action would have a materially adverse effect on
the value of such Pledged Collateral in the judgment of the Pledgee;
(ii) the Pledgor shall be entitled to retain and use any and all cash
dividends paid on the Pledged Collateral, but any and all stock and/or
liquidating dividends, other distributions in property, return of capital
or other distributions made on or in respect of Pledged Securities, whether
resulting from a subdivision, combination or reclassification of
outstanding Securities of an Issuer which are pledged hereunder or received
in exchange for Pledged Collateral or any part thereof or as a result of
any merger, consolidation, acquisition or other exchange of assets or on
the liquidation, whether voluntary or involuntary, of an Issuer, or
otherwise, shall be and become part of the Pledged Collateral pledged
hereunder and, if received by the Pledgor, shall forthwith be delivered to
the Pledgee to be held as collateral subject to the terms and conditions of
this Agreement.
The Pledgee agrees to execute and deliver to the Pledgor, or cause to be
executed and delivered to the Pledgor, as appropriate, at the sole cost and
expense of the Pledgor, all such proxies, powers of attorney, dividend orders
and other instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and/or consensual rights and powers
which Pledgor is entitled to exercise pursuant to clause (i) above and/or to
receive the dividends which Pledgor is authorized to retain pursuant to clause
(ii) above.
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of the Pledgor to exercise the voting and/or consensual rights and
powers which Pledgor is entitled to exercise pursuant to subsection (a)(i) above
and/or to receive the dividends which Pledgor is authorized to receive and
retain pursuant to subsection (a)(ii) above shall cease, and all such rights
thereupon shall become immediately vested in the Pledgee, which shall have, to
the extent permitted by law, the sole and exclusive right and authority to
exercise such voting and/or
-A-12-
<PAGE>
consensual rights and powers which the Pledgor shall otherwise be entitled to
exercise pursuant to subsection (a)(i) above and/or to receive and retain the
dividends which the Pledgor shall otherwise be authorized to retain pursuant to
subsection (a)(ii) above. Any and all money and other property paid over to or
received by the Pledgee pursuant to the provisions of this subsection (b) shall
be retained by the Pledgee as additional collateral hereunder and shall be
applied in accordance with the provisions of Section 8. If the Pledgor shall
receive any dividends or other property which it is not entitled to receive
under this Section, the Pledgor shall hold the same in trust for the Pledgee,
without commingling the same with other funds or property of or held by the
Pledgor, and shall promptly deliver the same to the Pledgee upon receipt by the
Pledgor in the identical form received, together with any necessary
endorsements.
SECTION 7. REMEDIES UPON DEFAULT.
---------------------
(a) In addition to any right or remedy that the Pledgee may have under the
Credit Agreement, the other Credit Documents or otherwise under applicable law,
if an Event of Default shall have occurred, the Pledgee may exercise any and all
the rights and remedies of a secured party under the UCC and may otherwise sell,
assign, transfer, endorse and deliver the whole or, from time to time, any part
of the Pledged Collateral at a public or private sale or on any securities
exchange, for cash, upon credit or for other property, for immediate or future
delivery, and for such price or prices and on such terms as the Pledgee in its
discretion shall deem appropriate. The Pledgee shall be authorized at any sale
(if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing the
Pledged Collateral for their own account in compliance with the Securities Act
and upon consummation of any such sale the Pledgee shall have the right to
assign, transfer, endorse and deliver to the purchaser or purchasers thereof the
Pledged Collateral so sold. Each purchaser at any sale of Pledged Collateral
shall take and hold the property sold absolutely free from any claim or right on
the part of the Pledgor, and the Pledgor hereby waives (to the fullest extent
permitted by applicable law) all rights of redemption, stay and/or appraisal
which the Pledgor now has or may at any time in the future have under any
applicable law now existing or hereafter enacted. The Pledgor agrees that, to
the extent notice of sale shall be required by applicable law, at least ten
days' prior written notice to the Pledgor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification, but notice given in any other reasonable manner or at
any other reasonable time shall constitute reasonable notification. Such
notice, in case of public sale, shall state the time and place for such sale,
and, in the case of sale on a securities exchange, shall state the exchange on
which such sale is to be made and the day on which the Pledged Collateral, or
portion thereof, will first be offered for sale at such exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Pledgee may fix and shall state in the notice
or publication (if any) of such sale. At any such sale, the Pledged Collateral,
or portion thereof to be sold, may be sold in one lot as an entirety or in
separate parcels, as the Pledgee may determine in its sole and absolute
discretion. The Pledgee shall not be obligated to make any sale of the Pledged
Collateral if it shall determine not to do so regardless of the fact that notice
of sale of the Pledged Collateral may have been given. The Pledgee may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further
-A-13-
<PAGE>
notice, be made at the time and place to which the same was so adjourned. In
case the sale of all or any part of the Pledged Collateral is made on credit or
for future delivery, the Pledged Collateral so sold may be retained by the
Pledgee until the sale price is paid by the purchaser or purchasers thereof, but
the Pledgee shall not incur any liability to the Pledgor in case any such
purchaser or purchasers shall fail to take up and pay for the Pledged Collateral
so sold and, in case of any such failure, such Pledged Collateral may be sold
again upon like notice. At any public sale made pursuant to this Agreement, each
of the Pledgee and the Lenders, to the extent permitted by applicable law, may
bid for or purchase, free from any right of redemption, stay and/or appraisal on
the part of the Pledgor (all said rights being also hereby waived and released
to the extent permitted by applicable law), any part of or all the Pledged
Collateral offered for sale and may make payment on account thereof by using any
claim then due and payable to the Pledgee or the Lenders from the Pledgor as a
credit against the purchase price, and the Pledgee and the Lenders may, upon
compliance with the terms of sale and to the extent permitted by applicable law,
hold, retain and dispose of such property without further accountability to the
Pledgor therefor. For purposes hereof, a written agreement to purchase all or
any part of the Pledged Collateral shall be treated as a sale thereof; the
Pledgee shall be free to carry out such sale pursuant to such agreement and the
Pledgor shall not be entitled to the return of any Pledged Collateral subject
thereto, notwithstanding the fact that after the Pledgee shall have entered into
such an agreement all Events of Default may have been remedied or the Secured
Obligations may have been paid in full as herein provided. The Pledgor hereby
waives any right to require any marshaling of assets and any similar right.
(b) In addition to exercising the power of sale herein conferred upon it,
the Pledgee shall also have the option to proceed by suit or suits at law or in
equity to foreclose this Agreement and sell the Pledged Collateral or any
portion thereof pursuant to judgment or decree of a court or courts having
competent jurisdiction.
(c) The rights and remedies of the Pledgee under this Agreement are
cumulative and not exclusive of any rights or remedies which it would otherwise
have.
SECTION 8. APPLICATION OF PROCEEDS OF SALE AND CASH. The proceeds of any
----------------------------------------
sale of the whole or any part of the Pledged Collateral, together with any other
moneys held by the Pledgee under the provisions of this Agreement, shall be
applied by the Pledgee in the following order:
(a) First: to the payment of all costs and expenses incurred in connection
with such sale or other realization, including reasonable attorneys' fees
incurred if the Pledgee endeavored to collect the Secured Obligations by or
through an attorney at law;
(b) Second: to the payment of the interest due upon any of the Secured
Obligations, in any order which the Lenders may elect;
(c) Third: to the payment of the principal due upon any of the Secured
Obligations in any order which the Lenders may elect; and
-A-14-
<PAGE>
(d) Fourth: the balance (if any) of such proceeds shall be paid to the
Pledgor or to whomsoever may be legally entitled thereto.
The Pledgor shall remain liable and will pay, on demand, any deficiency
remaining in respect of the Secured Obligations.
SECTION 9. PLEDGEE APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
----------------------------------
constitutes and appoints the Pledgee as the attorney-in-fact of the Pledgor with
full power of substitution either in the Pledgee's name or in the name of the
Pledgor to do any of the following: (a) to perform any obligation of the Pledgor
hereunder in the Pledgor's name or otherwise; (b) to ask for, demand, sue for,
collect, receive, receipt and give acquittance for any and all moneys due or to
become due under and by virtue of any Pledged Collateral; (c) to prepare,
execute, file, record or deliver notices, assignments, financing statements,
continuation statements, applications for registration or like papers to
perfect, preserve or release the Pledgee's security interest in the Pledged
Collateral or any of the documents, instruments, certificates and agreements
described in Section 10; (d) to verify facts concerning the Pledged Collateral
in its own name or a fictitious name; (e) to endorse checks, drafts, orders and
other instruments for the payment of money payable to the Pledgor, representing
any interest or dividend or other distribution payable in respect of the Pledged
Collateral or any part thereof or on account thereof and to give full discharge
for the same; (f) to exercise all rights, powers and remedies which the Pledgor
would have, but for this Agreement, under the Pledged Collateral; and (g) to
carry out the provisions of this Agreement and to take any action and execute
any instrument which the Pledgee may deem necessary or advisable to accomplish
the purposes hereof, and to do all acts and things and execute all documents in
the name of the Pledgor or otherwise, deemed by the Pledgee as necessary, proper
and convenient in connection with the preservation, perfection or enforcement of
its rights hereunder. Nothing herein contained shall be construed as requiring
or obligating the Pledgee to make any commitment or to make any inquiry as to
the nature or sufficiency of any payment received by it, or to present or file
any claim or notice, or to take any action with respect to the Pledged
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Pledgee or
omitted to be taken with respect to the Pledged Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of the Pledgor
or to any claim or action against the Pledgee. The power or attorney granted
herein is irrevocable and coupled with an interest.
SECTION 10. FURTHER ASSURANCES. The Pledgor shall, at its sole cost and
------------------
expense, take all action that may be necessary or desirable in the Pledgee's
sole discretion, so as at all times to maintain the validity, perfection,
enforceability and priority of the Pledgee's security interest in the Pledged
Collateral, or to enable the Pledgee to exercise or enforce its rights
hereunder, including without limitation executing and delivering financing
statements, pledges, designations, notices and assignments, in each case in form
and substance satisfactory to the Pledgee, relating to the creation, validity,
perfection, priority or continuation of the security interest granted hereunder.
The Pledgor agrees to take, and authorizes the Pledgee to take on the Pledgor's
behalf, any or all of the following actions with respect to any Pledged
Collateral as the Pledgee shall deem necessary to perfect the security interest
and pledge created hereby or to enable the Pledgee to enforce its rights and
remedies hereunder: (i) to register in the name of the Pledgee any Pledged
-A-15-
<PAGE>
Collateral in certificated or uncertificated form; (ii) to endorse in the name
of the Pledgee any Pledged Collateral issued in certificated form; and (iii) by
book entry or otherwise, identify as belonging to the Pledgee a quantity of
securities that constitutes all or part of the Pledged Collateral registered in
the name of the Pledgee. Notwithstanding the foregoing the Pledgor agrees that
Pledged Collateral which is not in certificated form or is otherwise in book-
entry form shall be held for the account of the Pledgee. The Pledgor hereby
authorizes the Pledgee to execute and file in all necessary and appropriate
jurisdictions (as determined by the Pledgee) one or more financing or
continuation statements (or any other document or instrument) in the name of the
Pledgor and to sign the Pledgor's name thereto. The Pledgor authorizes the
Pledgee to file any such financing statement, document or instrument without the
signature of the Pledgor to the extent permitted by applicable law. Any
property comprising part of the Pledged Collateral required to be delivered to
the Pledgee pursuant to this Pledge Agreement shall be accompanied by proper
instruments of assignment duly executed by the Pledgor and by such other
instruments or documents as the Pledgee may reasonably request.
SECTION 11. SECURITIES ACT. In view of the position of the Pledgor in
--------------
relation to the Pledged Collateral, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar applicable law hereafter enacted analogous
in purpose or effect (such Act and any such similar applicable law as from time
to time in effect being called the "Federal Securities Laws") with respect to
any disposition of the Pledged Collateral permitted hereunder. The Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Pledgee if the Pledgee were to attempt to
dispose of all or any part of the Pledged Collateral in accordance with the
terms hereof, and might also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Collateral could dispose of the same.
Similarly, there may be other legal restrictions or limitations affecting the
Pledgee in any attempt to dispose of all or part of the Pledged Collateral in
accordance with the terms hereof under applicable Blue Sky or other state
securities laws or similar applicable law analogous in purpose or effect. The
Pledgor recognizes that in light of the foregoing restrictions and limitations
the Pledgee may, with respect to any sale of the Pledged Collateral, limit the
purchasers to those who will agree, among other things, to acquire such Pledged
Collateral for their own account, for investment, and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that in
light of the foregoing restrictions and limitations, the Pledgee, in its sole
and absolute discretion, may, in accordance with applicable law, (a) proceed to
make such a sale whether or not a registration statement for the purpose of
registering such Pledged Collateral or part thereof shall have been filed under
the Federal Securities Laws and (b) approach and negotiate with a single
potential purchaser to effect such sale. The Pledgor acknowledges and agrees
that any such sale might result in prices and other terms less favorable to the
seller than if such sale were a public sale without such restrictions. In the
event of any such sale, the Pledgee shall incur no responsibility or liability
for selling all or any part of the Pledged Collateral in accordance with the
terms hereof at a price that the Pledgee, in its sole and absolute discretion,
may in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might have been realized if the
sale were deferred until after registration as aforesaid or if more than a
single purchaser were approached. The provisions of this Section will apply
notwithstanding the
-A-16-
<PAGE>
existence of public or private market upon which the quotations or sales prices
may exceed substantially the price at which the Pledgee sells.
SECTION 12. INDEMNIFICATION. The Pledgor agrees to indemnify and hold the
---------------
Pledgee and any corporation controlling, controlled by, or under common control
with, the Pledgee and any officer, attorney, director, shareholder, agent or
employee of the Pledgee or any such corporation (each an "Indemnified Person"),
harmless from and against any claim, loss, damage, action, cause of action,
liability, cost and expense or suit of any kind or nature whatsoever
(collectively, "Losses"), brought against or incurred by an Indemnified Person,
in any manner arising out of or, directly or indirectly, related to or connected
with this Agreement, including without limitation, the exercise by the Pledgee
of any of its rights and remedies under this Agreement or any other action taken
by the Pledgee pursuant to the terms of this Agreement; provided, however, the
Pledgor shall not be liable to an Indemnified Person for any Losses to the
extent that such Losses result from the gross negligence or willful misconduct
of such Indemnified Person. The Pledgor's obligations under this section shall
survive the termination of this Agreement and the payment in full of the Secured
Obligations.
SECTION 13. CONTINUING SECURITY INTEREST. This Agreement shall create a
----------------------------
continuing security interest in the Pledged Collateral and shall remain in full
force and effect until it terminates in accordance with its terms. The Pledgor
and the Pledgee hereby agree that the security interest created by this
Agreement in the Pledged Collateral shall not terminate and shall continue and
remain in full force and effect notwithstanding the transfer to the Pledgor or
any person designated by it of all or any portion of the Pledged Collateral.
SECTION 14. SECURITY INTEREST ABSOLUTE. All rights of the Pledgee
--------------------------
hereunder, the grant of a security interest in the Collateral and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement or any other Credit Document, any agreement with respect to any of the
Secured Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of the payment of, or in
any other term of, all or any of the Secured Obligations, or any other amendment
or waiver of or any consent to any departure from the Credit Agreement, any
other Credit Document, or any other agreement or instrument relating to any of
the foregoing, (c) any exchange, release or nonperfection of any other
collateral, or any release or amendment or waiver of or consent to or departure
from any guaranty, for all or any of the Secured Obligations or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Secured Obligations or in respect of
this Agreement (other than the indefeasible payment in full of all the Secured
Obligations).
SECTION 15. NO WAIVER. Neither the failure on the part of the Pledgee to
---------
exercise, nor the delay on its part in exercising any right, power or remedy
hereunder, nor any course of dealing between the Pledgee and the Pledgor shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power, or remedy hereunder preclude any other or the further
exercise thereof or the exercise of any other right, power or remedy.
-A-17-
<PAGE>
SECTION 16. NOTICES. Notices, requests and other communications required
-------
or permitted hereunder shall be given in accordance with the applicable terms of
the Credit Agreement or at such other address a party may specify to the other
party by like notice. All such notices and other communications shall be
effective as governed by the terms of the Credit Agreement.
SECTION 17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
SECTION 18. AMENDMENTS. No amendment or waiver of any provision of this
----------
Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 19. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be
-----------------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Pledgor shall not be permitted to assign
this Agreement or any interest herein or in the Pledged Collateral, or any part
thereof, or any cash or property held by the Pledgee as collateral under this
Agreement.
SECTION 20. TERMINATION. Upon indefeasible payment in full of all of the
-----------
Secured Obligations, this Agreement shall terminate. Upon termination of this
Agreement in accordance with its terms the Pledgee agrees to take such actions
as the Pledgor may reasonably request, and at the sole cost and expense of the
Pledgor, (a) to return the Pledged Collateral to the Pledgor, and (b) to
evidence the termination of this Agreement, including, without limitation, the
filing of any releases or any termination statements under the UCC.
SECTION 21. SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provisions shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provisions or the remaining provisions of this Agreement.
SECTION 22. HEADINGS. Section headings used herein are for convenience
--------
only and are not to affect the construction of or be taken into consideration in
interpreting this Agreement.
SECTION 23. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute but one agreement.
SECTION 24. DEFINITIONS. Terms not otherwise defined herein are used
-----------
herein with the respective meanings given to them in the Credit Agreement.
[Signatures on Next Page]
-A-18-
<PAGE>
IN WITNESS WHEREOF, the Pledgor has executed and delivered this Pledge
Agreement under seal as of this the date first written above.
HARRY'S FARMERS MARKET, INC.
By:
--------------------------------
Title:
--------------------------
Agreed to, accepted and acknowledged
as of the date first written above.
NATIONSBANK, N.A. (SOUTH),
AS AGENT
By:
--------------------------------
Title:
---------------------------
-A-19-
<PAGE>
SCHEDULE 1 TO PLEDGE AGREEMENT
PLEDGED SHARES
--------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Issuer No. of Securities Type of Securities Certificate Nos.
- ------ ----------------- ------------------ ----------------
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Roman Properties, Inc. 100 shares Common Stock 1
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
-A-20-
<PAGE>
EXHIBIT B
---------
FORM OF LANDLORD'S AGREEMENT
THIS LANDLORD'S AGREEMENT (this "Agreement") is made and entered into as of
the 31st day of December, 1996, by Roman Properties, Inc., a Georgia corporation
("Landlord") in favor of NationsBank, N.A. (South), as agent under the Credit
Agreement referred to below (the "Agent").
WHEREAS, Harry's Farmers Market, Inc. (the "Tenant"), currently owns
certain property, and the improvements thereon, located at 1075 Northfield
Court, Roswell, Georgia (the "Premises") and proposed to transfer them to the
Landlord pursuant to that certain Quitclaim Deed and Bill of Sale each dated as
of December 27, 1996 and thereafter lease the Premises from the Landlord
pursuant to a certain lease (the "Lease"), dated as of December 27, 1996,
between the Landlord, as lessor, and the Tenant; and
WHEREAS, Tenant has entered into a certain Amended and Restated Credit
Agreement dated as of December 27, 1995 (as may be amended, restated,
supplemented or modified from time to time in accordance with its terms the
"Credit Agreement"; capitalized terms used herein and not defined herein are
used herein with the respective meanings set forth in the Credit Agreement)
among the Tenant, the Lenders thereunder (the "Lenders") and Agent pursuant to
which Agent and the Lenders have made certain loans, advances and extensions of
credit to Tenant; and
WHEREAS, Tenant has secured the Loans, advances and extensions of credit
made to it under the Credit Agreement by granting to the Agent, for the benefit
of the Lenders under the Credit Agreement, liens on and security interests in
substantially all of the property of Tenant, including, without limitation, all
inventory, machinery and equipment of Tenant whether now owned or hereafter
acquired (the "Collateral"), portions of which Collateral are or may be located
on the Premises; and
NOW, THEREFORE, in order to induce the Agent and the Lenders thereunder to
enter consent to the transfer of the Premises from the Tenant to the Landlord,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Landlord hereby agrees as follows:
1. The Landlord hereby acknowledges and agrees that, the Agent's security
interest in the Collateral located on the Premises shall be superior to any
interest which Landlord may have therein, and Landlord will not assert against
any of the Collateral any statutory, contractual or possessory liens, including,
without limitation, rights of levy or distraint for rent, all of which it hereby
waives in favor of the Agent for the term of this Agreement.
-B-1-
<PAGE>
2. Landlord agrees that none of the Collateral shall be deemed to be a
fixture or a part of the Premises, notwithstanding its degree of attachment to
the Premises and shall be regarded as personal property at all times.
3. Landlord confirms: (i) Landlord is the landlord under the Lease; (ii)
to the best of Landlord's knowledge Tenant is the tenant under the Lease and,
Landlord has received no notice of any assignment of the Lease by Tenant to a
third party; (iii) the Lease is in full force and effect and has not been
amended, modified, or supplemented except as set forth in the Lease; (iv) to the
best of Landlord's knowledge Landlord has no defense, offset, claim or
counterclaim against Landlord's obligations under the Lease; and (v) no notice
of default has been given under or in connection with the Lease (other than as
to defaults that have been cured), and Landlord has no knowledge of any
occurrence that would constitute such a default.
4. Notwithstanding anything to the contrary in the Lease or under
applicable law, no termination, cancellation, surrender, restatement,
modification, change, supplement or amendment of the Lease by Tenant shall be
effective without Agent's prior written consent.
5. Tenant's grant of security to the Agent for the benefit of the Lenders
in the Collateral located on the Premises does not and shall not constitute a
default under the Lease. To the extent (if any) that the Lease requires
Landlord's consent, Landlord consents to such grant of security.
6. In the event Tenant defaults in its obligations under the Lease and
Landlord intends to exercise any of its remedies thereunder, including, but not
limited to, any right of termination, Landlord will notify the Agent at the
address and in the manner set forth herein and shall give the Agent the
opportunity to cure such default within the longer of (a) thirty (30) days from
its receipt of notice of such default and (b) the time given to the Tenant under
the Lease for the cure of such default. During the foregoing cure period(s),
Landlord shall accept cure of the Default by Agent. If any default is cured,
then Landlord shall rescind the notice of default.
7. If Tenant defaults in its obligations to the Agent under the Credit
Agreement (whether or not there exists a default under and as defined by the
Lease) and, as a result, the Agent desires to exercise its remedies with respect
to the Collateral, Landlord agrees to permit the Agent, at the Agent's option:
(a) to keep the Collateral on the Premises for a period of ninety (90)
days without charge, prorated on a daily basis, without becoming personally
obligated for any other obligations of Tenant;
(b) to enter into and take possession and control of the Premises for
the remaining term of the Lease, subject to the terms and conditions of the
Lease but without becoming personally obligated for any obligations of
Tenant thereunder other than an obligation for rent, payable at the end of
each month, at a rate equal to the rental under the Lease, as then in
effect, pro rated on a daily basis;
-B-2-
<PAGE>
(c) to assign or sublease all of Tenant's right, title and interest in
and to the Lease to any third party or parties who shall assume all of
Tenant's obligations under the Lease; and/or
(d) to enter onto the Premises, and to remove the Collateral from the
Premises, without charge, except for reasonable compensation for any damage
to the Premises caused by such removal;
and in any such event, Landlord agrees to cooperate with the Agent and not to
hinder the Agent's actions in enforcing their respective remedies with respect
to the Collateral.
8. If Tenant shall file or have filed against it a petition or assignment
in bankruptcy and pursuant to such bankruptcy filing Tenant disaffirms or
rejects the Lease, or if the Landlord terminates the Lease as a result of the
default of Tenant thereunder, Landlord agrees, upon the request of the Agent, to
enter into a new lease under the identical terms and conditions as in the Lease
for the term then remaining in the Lease with the Agent, or the designee of the
Agent.
9. If Landlord sends any notice of default under the Lease to Tenant,
Landlord shall either simultaneously therewith or within a reasonable time
thereafter send Agent a copy. Landlord shall promptly send Agent a copy of any
notice received by Landlord relating to any alleged breach or default under any
mortgage, deed of trust, security agreement or other instrument to which
Landlord is a party that may affect the Lease or the Premises.
10. Notices, requests and other communications required or permitted
hereunder shall be in writing and shall be made by personal delivery, facsimile
transmitter or certified or registered mail, return receipt requested, addressed
as follows:
(a) If to the Agent:
NationsBank, N.A. (South)
600 Peachtree Street
Atlanta, Georgia 30308
Attention: Ms. Nancy Goldman
Telephone: (404) 607-5539
Telecopy: (404) 607-6467
(b) If to the Landlord:
c/o Harry's Farmers Market, Inc.
1180 Upper Hembree Road
Roswell, Georgia 30076
Attention: Chief Financial Officer
Telecopy No. (770) 772-9067
or at such other address as the Agent or Landlord may specify by like notice.
-B-3-
<PAGE>
11. This Agreement may not be modified or terminated orally.
12. This Agreement shall bind and benefit Landlord's and Agent's heirs,
successors and assigns. In connection with any refinancing, replacement or
modification of the Credit Agreement (including any increase in the aggregate
principal amount of indebtedness) or pursuant to any other change in the Credit
Agreement or the security arrangements for the Credit Agreement, Agent may
assign this Agreement to any successor or other new lender (which lender may
include Agent) (the "New Lender"). This Agreement shall, without further action
by any party, be enforceable by New Lender. Although this paragraph is self-
executing, Landlord shall, on New Lender's request, execute and deliver a
written acknowledgment confirming the foregoing in form reasonably satisfactory
to New Lender.
13. This Agreement shall remain effective until Landlord shall have
received Agent's written certification that the Credit Agreement has been
terminated and all "Obligations" (as such terms is defined in the Credit
Agreement) to Agent have been irrevocably paid and satisfied in full.
14. Landlord acknowledges that Landlord's execution and delivery of this
Agreement constituted a material element of Agent's inducement to consent to the
transfer of the Premises from the Tenant to the Landlord.
[Signatures on following page]
-B-4-
<PAGE>
IN WITNESS WHEREOF, Landlord has set its hand and seal as of the day and
year first written above.
Signed, sealed and delivered as of the ROMAN PROPERTIES, INC.
____ day of December, 1996,
in the presence of:
- ---------------------------------------- By:
Unofficial Witness -----------------------------
Name:
---------------------------
Title:
--------------------------
- ----------------------------------------
Notary Public
My Commission Expires:
[NOTARIAL SEAL]
Consented and Agreed By Tenant
HARRY'S FARMERS MARKET, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-B-5-
<PAGE>
EXHIBIT C
---------
FORM OF INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT dated as of December 31, 1996 by and
among NATIONWIDE LIFE INSURANCE COMPANY ("Nationwide") and NATIONSBANK, N.A.
(SOUTH) ("NationsBank") and CREDITANSTALT-BANKVEREIN ("Creditanstalt",
Creditanstalt and NationsBank each referred to herein as a "Lender" and
collectively, the "Lenders") and NATIONSBANK, N.A. (SOUTH), as Agent for the
Lenders (the "Agent");
W I T N E S S E T H:
--------------------
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement dated as of December 30, 1994 (as amended from time to time, the
"Credit Agreement") by and among the Lenders, the Agent and Harry's Farmers
Market, Inc. (the "Company"), the Lenders have made available to the Company
certain financial accommodations on the terms and conditions set forth therein;
WHEREAS, to secure the obligations of the Company under the Credit
Agreement, the Company has granted to the Agent, on behalf of the Lenders, a
security interest in, and/or lien upon, among other things, the Lender
Collateral (as defined below);
WHEREAS, the Company intends to transfer certain property described on
Exhibit A hereof (the "Real Property") to Roman Properties, Inc., a Georgia
corporation and a wholly-owned subsidiary of the Company ("RPI");
WHEREAS, Nationwide intends to extend a loan to RPI pursuant to that
certain Real Estate Note dated as of the date hereof (the "Real Estate Note")
executed by the Company in favor of Nationwide in the original principal amount
of $2,700,000;
WHEREAS, to secure the obligations of the Company under the Real
Estate Note, the Company proposes to grant to Nationwide a security interest in,
and/or lien upon, the Nationwide Collateral (as defined below);
WHEREAS, the Company, the Lenders and the Agent intend to enter into
that certain Eighth Amendment to Amended and Restated Security Agreement dated
as of the date hereof (the "Amendment") to permit the transactions contemplated
by the Real Estate Note and for certain other purposes;
WHEREAS, it is a condition precedent to the grant by the Lenders of
their consent to transactions contemplated by the Real Estate Note that the
Lenders and the Agent enter into an intercreditor agreement with Nationwide in
form and substance satisfactory to the Lenders and the Agent;
-C-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
Section 1. Definitions. In addition to terms defined elsewhere
-----------
herein, the following terms shall have the following meanings:
"Acceleration Action" shall mean the taking of any action following
the occurrence of an Event of Default under the relevant agreement to collect
all or a portion of the Nationwide Obligations or the Lender Obligations, as the
case may be, including, but not limited to, declaring all or a portion of such
Obligations to be immediately due and payable, accelerating the maturity or
payment date of all or a portion of such Obligations, commencing legal
proceedings against the Company or RPI, as the case may be (including the filing
of an involuntary bankruptcy petition against the Company or RPI), repossessing,
taking possession of, foreclosing upon or otherwise exercising remedies against
the Nationwide Collateral or the Lender Collateral, as the case may be, directly
or otherwise exercising any rights or remedies under the Loan Documents (as
defined in the Real Estate Note) or the Credit Documents (as defined in the
Credit Agreement), as the case may be; provided, however, that the hiring or
seeking advice of counsel, the delivery of letters short of formal demands and
the like shall not constitute "Acceleration Actions".
"Agent Event of Default" shall mean the occurrence of any Event of
Default under and as defined by the Credit Documents (as defined in the Credit
Agreement).
"Agent Pledge Agreement" shall mean that certain Pledge Agreement
dated as of the date hereof executed by the Company in favor of the Agent, as
the same may be amended from time to time, pursuant to which the Company pledged
all of its shares of RPI to the Agent for the benefit of the Lenders.
"Applicable Law" shall mean all applicable provisions of
constitutions, statutes, rules, regulations and orders of all governmental
bodies and all orders and decrees of all courts and other tribunals.
"Credit Agreement" has the meaning set forth in the first "WHEREAS"
clause hereof and shall include such agreement as the same may be amended,
supplemented or modified from time to time.
"Equipment" means all equipment (other than a "vehicle" of a type for
which a certificate of title would be required within the meaning of O.C.G.A.
Section 40-3-20), machinery, office supplies, furniture and fixtures now owned
or hereafter acquired by Company used in Company's business operations or owned
by Company or in which Company has an interest and wherever located, together
with all replacements and substitutions therefor, and all accessions and parts
now or hereafter affixed thereto or used in connection therewith; provided,
however, Equipment shall not include any equipment or other personal property
leased by Company as lessee under any of the leases described in the Credit
Agreement and in no event shall the term Equipment or
-C-2-
<PAGE>
Collateral include any such leases or any of Company's rights thereunder. Some
or all of the Equipment may be or become fixtures on the Real Property.
"Inventory" means (a) all inventory of the Company and all goods
intended for sale or lease by the Company, or for display or demonstration; (b)
all work-in-process; (c) all raw materials and other materials and supplies of
every nature and description used or which might be used in connection with the
manufacture, packing, shipping, advertising, selling, leasing or furnishing of
such goods or otherwise used or consumed in the Company's business; and (d) all
documents relating to any of the foregoing.
"Lender Collateral" shall mean all of the Company's right, title and
interest in and to each of the following, wherever located and whether now or
hereafter existing, or now owned or hereafter acquired or arising:
(a) all Receivables;
(b) all Inventory;
(c) all Equipment;
(d) all general intangibles of the Company of every kind and nature
including, but not limited to, all contract rights, choses in action and causes
of action of the Company against any Person or property, all tax refunds owing
to the Company, all insurance policies of the Company and all rights of the
Company to receive monies thereunder and all licenses, franchises, trademarks,
trade names, trade secrets, patents, copyrights and any and all other
intellectual property of the Company;
(e) all rights of the Company as an unpaid vendor or lienor
(including, without limitation, stoppage in transit, replevin and reclamation)
with respect to any Inventory or other properties of the Company;
(f) all chattel paper, documents and instruments of the Company
including all documents of title and certificates of insurance;
(g) all books, records, files, computer programs, data processing
records, computer software, documents, correspondence and other information at
any time evidencing, describing or pertaining to or in any way related to any of
the foregoing or otherwise pertaining or relating to the business or operations
of the Company;
(h) any and all balances, credits, deposits, accounts, items and
monies of the Company now or hereafter with the Agent or any Lender or any
affiliate of the Agent or any Lender or deposited with the Agent or any Lender
or any financial institution selected by the Agent pursuant to any lock box,
deposit, escrow or other collection agreement or otherwise, and all property of
the Company of every kind and description now or hereafter in the possession or
control of the Agent or any Lender for any reason; and
-C-3-
<PAGE>
(i) any and all products and proceeds of any of the foregoing
(including, but not limited to, any claims to any items referred to in this
definition, and any claims of the Company against third parties for loss of,
damage to or destruction of, any or all of the Collateral or for proceeds
payable under, or unearned premiums with respect to, policies of insurance) in
whatever form, including, but not limited to, cash, instruments, general
intangibles, accounts, equipment, inventory, farm products, other goods,
documents and chattel paper and all proceeds of such proceeds.
"Lender Obligations" shall mean all of the indebtedness, interest,
charges and other obligations owing to the Agent and the Lenders by the Company
under the Credit Agreement and the other Credit Documents.
"Nationwide Collateral" shall mean:
(a) the Real Property;
(b) the Improvements as defined in the Nationwide Security Deed,
including, without limitation, any and all additions to, substitutions for or
replacement of such Improvements;
(c) all minerals, royalties, gas rights, water, water rights, water
stock, flowers, shrubs, lawn plants, crops, trees, timber and other emblements
now or hereafter located on, under or above any part of the Real Property;
(d) the Appurtenances as defined in the Nationwide Security Deed;
(e) the Rents as defined in the Nationwide Security Deed;
(f) any awards or payments, including interest thereon, and the right
to receive the same, as a result of (i) the exercise of the right of eminent
domain; (ii) the alteration of the grade of any street; or (iii) any other
injury to, taking of or decrease in the value of , the Property to the extent of
all amounts which may be secured by the Nationwide Security Deed at the date of
any such award or payment including but not limited to Reasonable Attorney's
Fees (as defined in the Nationwide Security Deed), costs and disbursements
incurred by Nationwide in connection with the collection of such award or
payment; and
(g) the Nationwide Fixtures and Personal Property.
"Nationwide Event of Default" shall mean the occurrence of any Event
of Default under the Nationwide Loan Documents.
"Nationwide Fixtures and Personal Property" means those Building
Systems as defined in Section 2 hereof.
-C-4-
<PAGE>
"Nationwide Non-Payment Event of Default" shall mean the occurrence of
any Event of Default under the Nationwide Loan Documents other than a Nationwide
Payment Event of Default.
"Nationwide Obligations" shall mean all of the indebtedness, interest,
charges and other obligations of the Company and RPI owing to Nationwide under
the Real Estate Note and the other Loan Documents (as defined in the Real Estate
Note).
"Nationwide Payment Event of Default" shall mean the occurrence of a
Monetary Default under and as defined in the Real Estate Note and the other Loan
Documents (as defined therein).
"Nationwide Security Deed" shall mean that certain Deed to Secure Debt
and Security Agreement dated as of the date hereof executed by RPI in favor of
Nationwide, as the same may be amended from time to time.
"Person" shall mean any individual, corporation, trustee, trust,
partnership, limited liability company, limited liability partnership or partner
or other person or entity.
"Receivables" means all accounts and any and all rights to the payment
of money or other forms of consideration of any kind (whether classified under
the Uniform Commercial Code as accounts, chattel paper, general intangibles, or
otherwise) for goods sold or leased or for services rendered including, but not
limited to, accounts receivable, proceeds of any letters of credit naming the
Company as beneficiary, all contract rights, notes, drafts, instruments,
documents, acceptances in favor of the Company, and all other debts, obligations
and liabilities in whatever form owing by any Person to the Company.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect in the State of Georgia, as the same may be amended from time to time.
Section 2. Acknowledgment of Respective Liens. The parties hereto
----------------------------------
acknowledge and agree that the Agent has no security interest, lien, encumbrance
or other claim to any Nationwide Collateral for itself or for the benefit of the
Lenders. More particularly, the Agent hereby agrees that notwithstanding
anything in the Credit Documents to the contrary, it has no security interest in
any furnaces, steam boilers, hot-water boilers, oil burners, pipes, radiators,
air-conditioning and sprinkler systems, carpets, rugs, shades, awnings, screens,
elevators located on the Real Property (collectively, the "Building Systems").
The parties hereto also agree that notwithstanding anything to the contrary
herein or in any of the Loan Documents, Nationwide has no security interest,
lien, encumbrance or other claim to any Lender Collateral, including, without
limitation any of the Inventory, any Equipment other than the Building Systems
of the Company (no matter how such Equipment may be affixed to the Real Property
and notwithstanding that such Equipment may constitute fixtures under Georgia
law), including without limitation, any ovens, ranges, shelving, coolers,
refrigerators, freezers, bakery or kitchen appliances, cabinets, furnishings
(including any equipment, other than Building Systems, ancillary to any of the
foregoing) or any of the other personal property of the Company located in or on
the Real Property.
-C-5-
<PAGE>
Section 3. Cure Rights. Nationwide shall furnish the Agent with a
-----------
copy of any notice provided to the Company or RPI of the occurrence of any
Nationwide Event of Default (a "Notice of Event of Default"), such notice to be
sent to the Agent contemporaneously with the sending of such Notice of Event of
Default to the Company or RPI, as the case may be.
(a) Nationwide Payment Events of Default. Upon receipt by the Agent
------------------------------------
of a Notice of Event of Default with respect to a Nationwide Payment Event of
Default, the Lenders shall have the opportunity (but not the obligation) to cure
any such Nationwide Event of Default by tendering to Nationwide, within 10 days
after receipt by the Agent of the relevant Notice of Event of Default, the
aggregate amount due with respect to, the Nationwide Obligations. Nationwide
agrees that it shall not take any Acceleration Actions with respect to the
Nationwide Obligations before the expiration of such 10-day period. In the
event the Lenders shall timely cure any such Nationwide Payment Event of Default
as provided in this Section 3(a), Nationwide shall be deemed to have forever
waived any Event of Default under the Loan Documents by reason of the occurrence
of such Nationwide Payment Event of Default, and Nationwide shall not take any
Acceleration Actions with respect to the Nationwide Obligations by reason of the
occurrence of such Nationwide Payment Event of Default. For purposes of this
Agreement, should the 10-day period referred to herein end on a holiday or any
other day that is not a business day, such 10-day period shall be deemed to end
at the end of the next business day.
(b) Nationwide Non-Payment Events of Default. Upon receipt by the
----------------------------------------
Agent of a Notice of Event of Default with respect to a Nationwide Non-Payment
Event of Default, the Lenders shall have the opportunity (but not the
obligation) to cure any such Nationwide Non-Payment Event of Default in any
manner such that the omitted performance, condition, or occurrence is completed
or substituted within 30 days after receipt by the Agent of a Notice of Non-
Payment Event of Default. If the Nationwide Non-Payment Event of Default is of
a nature which cannot reasonably be cured within a 30-day period, then such 30-
day period shall be extended to 60 days if the cure to such Nationwide Non-
Payment Event of Default has been commenced and is being diligently pursued.
Nationwide agrees that it shall not take any Acceleration Actions with respect
to the Nationwide Obligations before the expiration of such 30-day or 60-day
period, as the case may be. In the event the Lenders shall timely cure any
Nationwide Non-Payment Event of Default as provided in this Section 3(b),
Nationwide shall be deemed to have forever waived any Event of Default under the
Loan Documents by reason of the occurrence of such Nationwide Non-Payment Event
of Default and Nationwide shall not take any Acceleration Actions with respect
to the Nationwide Obligations by reason of the occurrence of such Nationwide
Non-Payment Event of Default.
Section 4. Right to Purchase Nationwide Obligations. The Lenders
----------------------------------------
shall have the opportunity (but not the obligation) at any time to purchase all
Nationwide Obligations by tendering to Nationwide the aggregate amount of all
principal of, and accrued interest on, and other fees or charges (including,
without limitation, any prepayment premium owing pursuant to the Real Estate
Note as if the Nationwide Obligations were being then pre-paid by RPI) with
respect to, such Nationwide Obligations. In such event, upon receipt of full
payment, Nationwide will endorse the Real Estate Note and assign the other
Nationwide Loan Documents to the Agent
-C-6-
<PAGE>
or its designee, without recourse, representation or warranty. Nationwide agrees
that it shall not take any Acceleration Actions with respect to the Nationwide
Obligations before the expiration of any applicable grace period provided in
Section 3 hereof.
Section 5. Lender Collateral as Personal Property. Notwithstanding
--------------------------------------
anything in any Credit Document or Loan Document to the contrary, Nationwide
hereby agrees that none of the Lender Collateral located on the Real Property
shall be deemed to be a fixture or a part of the Real Property, notwithstanding
the degree of attachment to such Real Property and such Lender Collateral shall
be regarded as personal property at all times.
Section 6. Agent's Rights of Entry upon an Agent Event of Default.
------------------------------------------------------
Upon the occurrence of an Agent Event of Default and, as a result, the Agent
desires to exercise its remedies with respect to the Lender Collateral,
Nationwide agrees to permit the Agent to enter onto the Real Property and to
remove any Lender Collateral from the Real Property, without charge. Nationwide
will agree to cooperate with Agent and agrees not to hinder the Agent in its
efforts to remove and foreclose upon the Lender Collateral. The Agent will
agree to reimburse Nationwide for all of its reasonable out-of-pocket costs and
expenses incurred in connection with such cooperation.
Section 7. Nationwide Election of Remedies. In the event the Lenders
-------------------------------
do not cure any Nationwide Event of Default as provided in Section 3 hereof
within the time periods described therein or do not purchase the Nationwide
Obligations as provided in Section 4 hereof within the applicable cure period,
nothing herein shall prohibit Nationwide from taking any Acceleration Actions
with respect to the Nationwide Obligations. Likewise, other than limitations
set forth in this Intercreditor Agreement, nothing herein shall be construed to
restrict the ability to Nationwide to enforce the Loan Documents.
Section 8. Limitation of Agent's and Lenders' Liability. Nationwide
--------------------------------------------
acknowledges and agrees that upon any Acceleration Action taken by the Agent
with respect to the Agent Pledge Agreement, neither the Agent nor any Lender
shall be liable in any manner for any Nationwide Obligation. Further, under no
circumstances shall the Lenders or the Agent be deemed to be parties to, to have
assumed any obligation under, or in any manner to be liable with respect to any
obligation arising under that certain (a) Principal's Indemnification and
Guaranty Agreement dated as of the date hereof executed by the Company in favor
of Nationwide; (b) Environmental Indemnity Agreement dated as of the date hereof
executed by RPI in favor of Nationwide; or (c) Accessibility Indemnity Agreement
dated as of the date hereof executed by RPI in favor of Nationwide. Nothing
conferred in this paragraph 8 will limit or impair the liability of RPI for any
Nationwide Obligation.
Section 9. Further Assurances; Assignments. Each party hereto agrees
-------------------------------
to execute and record such documents and instruments as are reasonably necessary
to evidence and/or carry out the agreements set forth herein. Further, each
party further agrees that, prior to any assignment or sale of a participation in
any of its interest in the Nationwide Obligations or the Lender Obligations, as
the case may be, , it shall have the proposed assignee or participant execute an
acknowledgment in favor of the Agent or Nationwide, as the case may be pursuant
to which such
-C-7-
<PAGE>
assignee or participant acknowledges the existence of this Agreement and the
agreements contemplated hereby and agrees to be bound hereby as if an original
signatory hereto.
Section 10. Turnover of Proceeds/Collateral. In the event any party
-------------------------------
hereto obtains, accepts, receives or retains any monies, collateral, assets or
properties of the Company, RPI or other Persons to which it is not entitled to
so obtain, accept, receive or retain pursuant to this Intercreditor Agreement,
such party shall hold such monies, collateral, assets or properties in trust for
the other party hereto and shall immediately deliver such monies, collateral,
assets or properties to such other party in the form received, together with
such endorsements as may be necessary or appropriate to so transfer such monies,
collateral, assets or properties to such other party.
Section 11. Successors and Assigns/Amendments. The terms and
---------------------------------
conditions hereof shall be binding upon, and inure to the benefit of, the
successors and assigns of the parties hereto. No amendment, modification or
waiver of any provision of this Intercreditor Agreement shall in any way be
effective unless the same shall be in writing and signed by the parties hereto.
Section 12. Notices. Nationwide hereby agrees to give the Agent
-------
written notice 10 days before amending or waiving any of the provisions of the
Loan Documents or taking a security interest, lien or encumbrance in any other
collateral as security for the Nationwide Obligations; provided, however, that
the Agent will have no right to consent to or approve of the same.
Section 13. Governing Laws. THIS INTERCREDITOR AGREEMENT SHALL BE
--------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
Section 14. Counterparts. This Intercreditor Agreement may be
------------
executed in any number of counterparts, each of which shall be deemed to be an
original and when taken together shall constitute one and the same agreement.
Section 15. Headings. The headings of the several sections and
--------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or constitution of any provision of this Agreement.
Section 16. Term of Agreement. This Agreement shall continue in full
-----------------
force and effect and shall not be revocable by any party hereto until the
earliest to occur of the following: (i) the parties hereto in writing mutually
agree to terminate this Agreement; (ii) the Lender Obligations are indefeasibly
fully paid and discharged and the Credit Agreement, the Security Documents (as
defined in the Credit Agreement) are terminated; or (iii) Nationwide Obligations
are indefeasibly fully paid and discharged and the Nationwide Loan Documents are
terminated.
Section 17. Third Party Beneficiaries. Nothing contained in this
-------------------------
Agreement shall be deemed to indicate that this Agreement has been entered into
for the benefit of any Person including the Company or RPI other than the
parties hereto, and no Person other than
-C-8-
<PAGE>
Nationwide, the Lenders and the Agent (or any assignee or participant of any of
the foregoing) shall be deemed beneficiaries of this Agreement.
Section 18. Amendment to Loan Documents or Credit Documents. Except
-----------------------------------------------
as provided in the next succeeding sentence, nothing herein prevents the parties
hereto from modifying or amending any such party's loan documents or other
agreements with Company or RPI. Nationwide hereby agrees that it will not
without the prior written consent of the Agent amend the Real Estate Note or any
Loan Document in any manner which would (i) grant to Nationwide a lien upon or
security interest in any Lender Collateral or otherwise include any Lender
Collateral as security for any of the Nationwide Obligations; (ii) cross-default
or cross-accelerate any of the Nationwide Obligations to any other agreement
other than an agreement between Nationwide and RPI; or (iii) include any
agreement, covenant or other obligation on the part of RPI or the Company such
that RPI or the Company must maintain certain financial ratios or other
financial standards. Nothing in this Agreement is intended to modify or amend
any of the Credit Documents or Loan Documents and none of the rights to modify
such documents as acknowledged in the first sentence of this Section 18 should
be construed to indicate any consent to Harry's or RPI by any of the parties
hereto to enter into any such amendment.
Section 19. Acknowledgment and Consent of Landlord's Agreement.
--------------------------------------------------
Nationwide hereby acknowledges and consents to RPI executing that certain
Landlord's Agreement dated as of the date hereof in favor of the Agent for the
benefit of the Lenders.
Section 20. Rights Not Cumulative. The rights of the parties hereto
---------------------
are cumulative and not exclusive of one another.
(Signatures to Intercreditor Agreement on next page)
-C-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Intercreditor
Agreement to be duly executed and delivered as of the date and year first
written above.
NATIONSBANK, N.A. (SOUTH), as a Lender and as
Agent
By:__________________________________________
Name:_____________________________________
Title:____________________________________
Address for Notices:
600 Peachtree Street
Atlanta, Georgia 30303
CREDITANSTALT-BANKVEREIN, as Lender
By:_________________________________________
Name:____________________________________
Title:___________________________________
Address for Notices:
Two Ravinia Drive, N.E.
Suite 1680
Atlanta, Georgia 30346
NATIONWIDE LIFE INSURANCE COMPANY
By:_________________________________________
Name:____________________________________
Title:___________________________________
Address for Notices:
One Nationwide Plaza
Columbus, Ohio 43215-2220
Attention: Real Estate Investments
-C-10-
<PAGE>
ACKNOWLEDGMENT
Each of the Company and RPI hereby consents to the foregoing
Intercreditor Agreement. Each of the Company and RPI further agrees that the
parties hereto may amend or modify this Intercreditor Agreement without the
consent of the Company or RPI. The parties to the Intercreditor Agreement will
give the Company notice of any amendment to the Intercreditor Agreement.
Further, the Company agrees that, in the event the Lenders elect to
cure any Nationwide Event of Default as provided in Section 3 hereof or purchase
the Nationwide Obligations pursuant to Section 4 hereof, any such amounts paid
by the Lenders to Nationwide shall be deemed to constitute a Revolving Loan
under the Credit Agreement, shall bear interest at the Default Rate (as set
forth in the Credit Agreement) and shall be payable upon demand of the Lenders.
Neither this Intercreditor Agreement nor any agreements or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as making either Nationwide and/or the Agent and/or the Lenders a
partner or joint venturer with the Company or RPI or as creating any similar
relationship or entity. The Company agrees that it will not make any contrary
assertion, contention, claim or counterclaim in any action, suit or other legal
proceeding involving the parties hereto.
Terms used in this Acknowledgment and not defined herein have the
meanings ascribed to them in the foregoing Intercreditor Agreement.
Acknowledged and Agreed as of the date first written above.
HARRY'S FARMERS MARKET, INC.
By:_______________________________________
Name:__________________________________
Title:_________________________________
ROMAN PROPERTIES, INC.
By:_______________________________________
Name:__________________________________
Title:_________________________________
-C-11-
<PAGE>
EXHIBIT D
---------
FORM OF OPINION OF COMPANY'S COUNSEL
December __, 1996
NationsBank, N.A. (South),
in its individual capacity and as Agent
NationsBank Plaza
600 Peachtree Street
21st Floor
Atlanta, Georgia 30308
Creditanstalt-Bankverein
Two Ravinia Drive
Suite 1680
Atlanta, Georgia 30346
Ladies and Gentlemen:
This opinion is furnished to you in connection with the entry into and
performance by Harry's Farmers Market, Inc. ("Harry's"), of that certain Eighth
Amendment to Amended and Restated Credit Agreement, dated as of the date hereof,
(the "Amendment"), by and among Harry's, NationsBank, N.A. (South), in its
individual capacity ("NationsBank"), and Creditanstalt-Bankverein
("Creditanstalt," and collectively with NationsBank, the "Lenders"), and
NationsBank, N.A. (South), in its capacity as Agent for the Lenders (the
"Agent"). We have acted as counsel to Harry's and its wholly-owned
subsidiaries, Karalea, Inc. ("Karalea"), Marthasville Trading Company
("Marthasville") and Roman Properties, Inc., a Georgia corporation ("RPI")
(Harry's, Karalea, Marthasville and RPI each sometimes referred to hereinafter
as a "Loan Party" and collectively as "Loan Parties") in connection with the
execution and delivery of the Amendment, and the consummation by the Loan
Parties of the transactions contemplated in the Transaction Documents (as
hereinafter defined). Capitalized terms used herein and not defined herein
shall have the meanings ascribed to such terms in the Amendment.
In the capacity described above, we are familiar with the articles of
incorporation and the bylaws of each Loan Party and we are further familiar with
the corporate proceedings of each Loan Party relating to the Transaction
Documents and the transactions contemplated therein. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents:
(a) the Amendment;
-D-1-
<PAGE>
(b) that certain Pledge Agreement dated as of the date hereof executed by
Harry's in favor of the Agent for the benefit of the Lenders (the "Pledge
Agreement");
(c) that certain Landlord's Agreement dated as of the date hereof executed by
RPI in favor of the Agent for the benefit of the Lenders;
(d) that certain Intercreditor Agreement by and among Nationwide Life
Insurance Company, the Agent and Harry's;
(e) a certificate of existence, dated December __, 1996, with respect to
Harry's issued by the Secretary of State of the State of Georgia; and
(f) a certificate of existence, dated December ___, 1996, with respect to RPI
issued by the Secretary of State of the State of Georgia.
Items (a) through (d) above are referred to collectively herein as the
"Amendment Documents."
Except as to the genuineness of the signatures of executive officers of the
Loan Parties on, and the authenticity of, the Amendment Documents, in our
examination of documents for purposes of rendering the opinions expressed
herein, we have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, and the conformity to originals and
the authenticity of all documents submitted to us as copies. We have also
conducted such investigations of law as we have deemed necessary to render the
opinions hereinafter set forth.
With your permission, in rendering the opinions set forth in this opinion
letter, we have assumed the following without any investigation or inquiry that
each of the Amendment Documents constitutes the binding obligation of the
parties thereto other than the Loan Parties, and each such party thereto has all
requisite power and authority to perform its obligations thereunder;
The opinions expressed herein are limited to the federal laws of the United
States and the laws of the State of Georgia.
Based on the foregoing and subject to the qualifications set forth herein, we
are of the opinion that:
1. Each Loan Party is a corporation duly organized, validly existing and in
good standing under the laws of the State of Georgia and has all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as and where such is now being conducted.
2. The execution, delivery and performance by each Loan Party of the Amendment
Documents to which it is a party are within its corporate powers, have been duly
authorized by all necessary corporate action, and do not (a) contravene any law,
rule or regulation of the State of
-D-2-
<PAGE>
Georgia, or of the United States, or, to the extent that we have knowledge
thereof, any order, writ, judgment, injunction, decree, determination or award
presently in effect which affects or binds it or any of its properties, (b)
conflict with or result in a breach of any of the provisions of its articles of
incorporation or bylaws, (c) conflict with or result in a breach of or default
under any of the material contracts to which such corporation is a party or by
which any of its respective properties may be bound, or (d) except as
contemplated by the Amendment Documents, result in the creation or imposition of
any lien, security interest or other charge or encumbrance upon any of its
properties.
3. To our knowledge there is no action, suit, arbitration proceeding,
investigation or inquiry pending before any court, arbiter or federal, state,
foreign, municipal or other governmental department, commission, board, bureau,
agency or instrumentality or threatened against any Loan Party or their
respective businesses or assets or which questions the validity of any Amendment
Documents or any action to be taken pursuant thereto.
4. No authorization, consent or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required to be
obtained or made by any Loan Party for the due execution, delivery and
performance by any of them of the Amendment Documents to which they are parties,
except such as have been duly obtained or made.
5. Each Amendment Document to which it is a party has been duly and validly
executed and delivered by each Loan Party and each such Amendment Document is an
enforceable obligation of such Loan Party.
6. The Pledge Agreement grants to the Agent a valid security interest in the
Pledged Collateral described in such Pledge Agreement.
7. The authorized capital stock of RPI consists of 10,000 shares of no par
common stock. All of the outstanding shares of capital stock of RPI are duly
authorized, validly issued and outstanding, fully paid and non-assessable.
There are no outstanding shares of preferred stock of RPI and there are no
outstanding options, warrants, subscriptions, rights, convertible securities or
other agreements or plans under which RPI may become obligated to issue, sell or
transfer shares of its capital stock or other securities.
The addressees hereof may rely on that certain Opinion of Nelson, Mullins,
Riley & Scarborough, L.L.P. dated as of the date hereof to Nationwide Life
Insurance Company as if the same were addressed to the addressees hereof.
This opinion letter has been delivered solely for the benefit of the Agent and
the Lenders in connection with the transactions contemplated by the Amendment
Documents and may not be relied upon by any other person or entity or for any
other purpose without our express prior written permission. We expressly
disclaim any duty to update this opinion letter in the future in the event there
are any changes in relevant fact or law that may change or otherwise affect any
of the opinions expressed herein.
-D-3-
<PAGE>
Very truly yours,
By:
---------------------------------
-D-4-
<PAGE>
EXHIBIT 10.27
LEASE AGREEMENT
between
U.S. 41 & I 285 COMPANY
as Landlord
and
HARRY'S FARMERS MARKETS, INC.
as Tenant
for premises located
in the
County of Cobb
State of Georgia
ATTORNEYS FOR LANDLORD:
ALTMAN, KRITZER & LEVICK
6400 Powers Ferry Road N.W.
Suite 224
Atlanta, Georgia 30339
Telephone: (404) 955-3555
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
Article I Certain Lease Provisions............. 1
Article II Certain Defined Terms................ 3
Article III Premises............................. 6
Article IV Term................................. 7
Article V Rent................................. 7
Article VI Construction......................... 8
Article VII Use and Operation.................... 9
Article VIII Indemnity and Insurance.............. 10
Article IX Fire and Other Casualties............ 12
Article X Repairs and Alterations.............. 14
Article XI Condemnation......................... 15
Article XII Common Areas......................... 15
Article XIII Assignment and Subletting............ 16
Article XIV Tenant's Additional Agreements....... 17
Article XV Percentage Rent and Security Deposit. 19
Article XVI Utilities............................ 20
Article XVII Additional Charges................... 20
Article XVIII Defaults and Remedies................ 22
Article XIX Surrender of Premises................ 23
Article XX Subordination........................ 24
Article XXI General Provisions................... 24
Exhibit A Site Plan
Exhibit B Legal Description
Exhibit C Description of Landlord's Work, Description of
Tenant's Work Procedure of Tenant's Drawings
Exhibit D Description of Tenant's Work
Exhibit E Sign Criteria
Exhibit F Procedure for Tenants Drawings
-2-
<PAGE>
LEASE
-----
THIS LEASE AGREEMENT, made this 6th day of February, 1997 by and
between U.S. 41 AND I 285 COMPANY, a New York general partnership, whose address
is c/o Mall Properties, Inc., 654 Madison Avenue, New York, New York 10021
(hereinafter referred to as the "Landlord") and HARRY'S FARMERS MARKETS, INC., a
Georgia corporation, having an office at 1180 Upper Hembree Road, Roswell,
Georgia 30076 (hereinafter referred to as the "Tenant").
W I T N E S S E T H:
-------------------
In consideration of the rents and covenants to be paid and performed
by Tenant, Landlord does hereby lease to Tenant, and Tenant does hereby hire
from Landlord, the premises hereinafter described, located in the County of
Cobb, State of Georgia, upon the terms and conditions hereinafter set forth:
ARTICLE I
---------
CERTAIN LEASE PROVISIONS
------------------------
(a) PREMISES: As shown on Exhibit A, containing approximately 29,967
square feet of Floor Area. The Premises is also known as 2939
Cobb Parkway under the present system of numbering streets in
Cobb County, Georgia. Except as hereinafter specifically
provided, the Premises is leased to Tenant pursuant to the terms
of this Lease in "AS IS", "WHERE IS" condition, and Tenant hereby
accepts the Premises on such terms.
(b) (i) TERM: Ten (10) years, together with two (2)-five (5) year
extension options (See Article IV).
(ii) COMMENCEMENT DATE: The date upon which Landlord delivers
possession of the Premises to Tenant in accordance with the
terms of this Lease.
(c) (i) FIXED MINIMUM RENT: The Fixed Minimum Rent shall be payable
in equal monthly installments in advance beginning on the
first day of the calendar month following the month in which
the Commencement Date occurs (unless the Commencement Date
falls on the first day of the month, in which case the Fixed
Minimum Rent shall be payable on such first day) and
continue thereafter for the entire term of the Lease. The
first month's rent shall include all rent which has accrued
from the Commencement Date. The Fixed Minimum Rent shall be
as follows:
Lease Year Monthly Rent Annual Rent Rent per s/f
---------- ------------ ----------- ------------
1 $10,416.67 $125,000.00 $ 4.17
2 $20,833.33 $250,000.00 $ 8.34
3 $25,000.00 $300,000.00 $10.01
4-5 $27,125.00 $325,500.00 $10.86
6-8 $28,958.33 $347,500.00 $11.60
9-10 $29,708.33 $356,500.00 $11.90
-3-
<PAGE>
Lease Year Monthly Rent Annual Rent Rent per s/f
-------------------- ------------ ----------- ------------
Extension Term 11-15 $33,125.00 $397,500.00 $13.26
16-20 $36,926.67 $443,120.00 $14.79
(ii) MERCHANTS' ASSOCIATION CHARGE: [Intentionally omitted].
(d) PERCENTAGE RENT RATE: One percent (1%) of Gross Sales in excess
of a Gross Sales of $8,500,000.00 in each Lease Year (See Article
15)
(e) TENANT'S PRO RATA SHARE: (See Section 2.1(n)).
(f) COMMON AREA CHARGE: Tenant's Pro Rata Share of the Common Area
Gross Costs. Landlord estimates, without any representation or
warranty but in good faith based on Landlord's experience with
the Shopping Center (as hereinafter defined), that Tenant's
Common Area Charge for the first Lease Year (it being understood
and agreed that the first six (6) months of the Term shall be
free of any Common Area Charge to Tenant) will be approximately
$1.00 per square foot. (See Section 12.3).
(g) TAX RENT: Tenant's Pro Rata Share of Taxes. Landlord estimates,
without any representation or warranty but in good faith based on
Landlord's experience with the Shopping Center, that Tenant's Pro
Rata Share of Taxes for the first Lease Year will be
approximately $1.04 per square foot. (See Section 17.2).
(h) INSURANCE CHARGE: Tenant's Pro Rata Share of the insurance
premiums. Landlord estimates, without any representation or
warranty but in good faith based on Landlord's experience with
the Shopping Center, that Tenant's Pro Rata Share of the
insurance premiums for the first Lease Year will be approximately
$0.05 per square foot. (See Section 17.3).
(i) (i) PERMITTED USES: For the operation of a typical retail
"Harry's In A Hurry" grocery and food store, including the
preparation (on or off the Premises), sale and consumption
of hot and cold prepared foods and beverages (provided
however that the sale of beer and wine shall be only for
off-premises consumption), and for such other incidental
items as are sold in Tenant's other metropolitan Atlanta,
Georgia (or the other outlying areas thereof) Harry's In A
Hurry stores, and for no other purpose. Notwithstanding the
foregoing, a portion of the Premises may be used for an
alternative purpose in connection with the operation of a
business by a Permitted Sublessee (as defined in Section
13.2) in accordance with Article XIII of this Lease.
(ii) OPERATION OF PREMISES to be similar to the operation of
other Harry's In A Hurry stores in the metropolitan Atlanta,
Georgia area.
(iii) TENANT'S STORE NAME: Harry's In A Hurry or such other trade
name as Tenant shall use for a majority of its stores in the
metropolitan Atlanta, Georgia area.
-4-
<PAGE>
(j) SECURITY DEPOSIT: Intentionally Omitted.
(k) This lease shall be governed exclusively by the provisions hereof
and by the laws of the State of Georgia.
(1) Definitions: The terms listed in Article II hereof, when used in
this Lease with the first letter or each word therein
capitalized, are defined terms and shall have the meanings set
forth in Article II (and only such meanings).
ARTICLE II
----------
CERTAIN DEFINED TERMS
---------------------
Section 2.1. The following terms are defined terms:
-----------
(a) "Common Areas" means the portions of the Shopping Center which
are, from time to time, designated and improved for common use by or for the
benefit of more than one (1) Occupant of the Shopping Center; including, without
limitation, (if and to the extent facilities therefor are provided by the
Landlord from time to time), the land and facilities utilized as parking lots;
all mall areas; access and perimeter roads; truck passageways and loading
platform therein; fire corridors, service corridors and stairways providing
access from store premises to such platforms and truck passageways; landscaped
areas; exterior walks, arcades, stairways and ramps; interior corridors,
elevators, stairs, arcades and balconies; directory equipment, underground storm
and sanitary sewers, utility lines and the like serving the Shopping Center,
wash rooms, comfort rooms, drinking fountains, toilets and other public
facilities; and bus stations, taxi stands, and the like; but excluding all
portions of the Shopping Center which are used or intended for use by one (1)
Occupant, except as provided above. Any portion of the Shopping Center so
included within Common Areas shall be excluded therefrom when designated by
Landlord for a non-common use, and any portion thereof not theretofore included
within Common Areas shall be included when so designated and improved for common
use.
(b) "Common Area Gross Costs" mean the following: All costs and
expenses of every kind or nature incurred by Landlord in the operation,
maintenance and repairing of all the Common Areas in a manner reasonable and
appropriate and for the best interests of the Shopping Center. Common Area
Gross Costs shall include, without limitation, the cost of such items as:
police, security and fire protection services, if provided; gardening and
landscaping; public liability, property damage, and sign insurance; repairs,
painting; decorating and redecorating the Common Areas; striping, sweeping,
lighting (including cost of electricity and maintenance and replacement of
fixtures and bulbs); regulating traffic; rubbish, garbage and other refuse
removal (except to the extent the cost for such service is paid directly by
tenant to the provider of such service); ice and snow removal; machinery,
equipment and supplies used in the operation and maintenance of the Common Areas
and facilities; replacement of paving, curbs and walkways, utility and drainage
fees, water charges; music program services, if any, and loudspeaker system, if
any, cost of personnel, to implement the operation, maintenance and repairs of
the Common Areas as provided above (including Workmen's Compensation Insurance
covering personnel); and fifteen percent (15%) of all Common Area Gross Costs to
cover Landlord's administrative and overhead costs.
Excluded from the Common Area Gross Costs payable by Tenant shall be
all executive salaries; interest in principal payments on mortgage debt and all
costs of financing or refinancing; ground rental payments; expenses of a capital
nature (provided however, that Landlord shall be entitled to the depreciation of
such capital expenses); alterations to the Premises or the premises of other
tenants of the Shopping Center for work furnished by Landlord without charge as
an inducement for a tenant to lease space (e.g., free rent, improvement
allowances); income or franchise taxes or other such taxes unless imposed in
lieu of property taxes imposed or measured by the income of Landlord
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<PAGE>
from the operation of the Shopping Center; costs associated with services or
amenities not available to substantially all tenants or provided to any tenant
to a materially greater extent or more favorable manner than generally provided
to Tenant; the costs to comply with current violations of existing laws to the
extent interpreted on the Commencement Date to apply to the Shopping Center,
including without limitation, ADA and environmental laws and all costs, fines or
penalties incurred due to violations by Landlord of any governmental rule or
authority; the cost of any work performed for service provided to the extent
fees are charged to one or more tenants or other compensation received, other
than Tenant's Pro Rata Share of Common Area Gross Costs; payment for rental
items, the cost of which would constitute a capital expenditure except where
used to reduce or offset operating expenses if such equipment were purchased;
legal expenses incurred in connection with tenant leases including, without
limitation, negotiations with prospective tenants and enforcing provisions of
this Lease or other leases in the Shopping Center; acquisition or construction
costs for sculptures, fountains, paintings and other objects of art located in
the Shopping Center; any fees and expenses paid to an agent which are related to
Landlord to the extent such fees or expenses are in excess of the customary
market amounts which would be paid in the absence of such a relationship;
expenditures for repairs or maintenance which are covered by warranties,
guarantees or service contracts to the extent such expenditures are actually
reimbursed to Landlord- any expenditure for which Landlord has been reimbursed
by third parties to the extent such expenditures are actually reimbursed to
Landlord; advertising, promotional and marketing expenses unless applicable to
all tenants of the Shopping Center; real estate brokerage and leasing
commissions; any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord; and Landlord's corporate overhead
not related to management of the Shopping Center.
(c) "Concessionaire" means any person(s), corporation or other entity,
who or which conducts any business in any portion of the Premises as undertenant
or subtenant of Tenant or under any concession or license from Tenant, or as a
subtenant of, or under any concession or license from, any such undertenant or
subtenant or person holding such concession or license, whether or not Tenant
was authorized under the provisions of this Lease to make or grant any such
lease, license or concession.
(d) "Department Store" means any building(s) or any improvement(s)
leased to a single tenant or owned by a single user comprising fifty thousand
(50,000) square feet or more of Gross Leasable Area.
(e) "Gross Leasable Area" means, with regard to any premises (whether
occupied by a tenant or not occupied by a tenant), the actual number of square
feet of floor space on all floors of the premises measured to the exterior faces
of exterior walls and to the center lines of interior walls dividing tenants'
premises.
(f) "Landlord" means only the owner or the mortgagee in possession for
the time being of the building in which the Premises are located or the holder
of a lease of both said building and the land thereunder so that in the event of
any sale of said building or an assignment of this Lease or any underlying lease
or a demise of both said building and land, Landlord shall be and hereby is
entirely released and discharged from any and all further liability and
obligations of Landlord hereunder, except any that may have theretofore accrued.
The Landlord represents and warrants that he has the lawful and legal right to
lease the premises covered in this Lease and to fulfill Landlord's agreements
and covenants hereunder, and Landlord reserves the right to add to or sever the
ownership of or title to the various sections or parcels comprising the Shopping
Center at any time.
Notwithstanding anything to the contrary provided in this Lease, it is
specifically understood and agreed, such agreement being a primary consideration
for the execution of this Lease by Landlord, that there shall be absolutely no
personal liability on the part of Landlord, its successors, assigns or any
mortgagee in possession (for the purposes of this paragraph collectively
referred to as "Landlord"), with respect to any of the terms, covenants and
conditions of this Lease, and that Tenant shall look solely to the
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equity of Landlord in the Shopping Center and all rents and insurance proceeds
actually received by Landlord for the satisfaction of each and every remedy of
Tenant in the event of any breach by Landlord of any of the terms, covenants and
conditions of this Lease to be performed by Landlord, such exculpation of
liability to be absolute and without any exception whatsoever.
(g) "Lease Year" means each twelve (12) month period beginning on the
Commencement Date and ending at 11:59 p.m. on the date prior to the anniversary
date of the Commencement Date, and each twelve (12) month period thereafter.
(h) "Movable Trade Fixtures" means equipment and furnishings affixed
to the Premises which are removable from the Premises without material damage
thereto, and does not include "built-in" systems such as plumbing, electrical,
heating, ventilation or air conditioning systems and equipment ("HVAC").
(i) "Occupant" means any person, corporation or other entity
(including, without limitation, the Tenant) who occupies any portion of or
conducts any business (whether or not a retail business) in the Shopping Center,
whether as a lessee or licensee, or a Concessionaire of a lessee or licensee, or
as a fee owner; provided, however, that Landlord shall be deemed not to be an
"Occupant", except to the extent, if any, that Landlord is then conducting a
retail business with the general public in the Shopping Center.
(j) "Premises" means the space described or referred to in Section 3.1
hereof, measured from the exterior faces of all exterior walls to the center
line of those walls separating the Premises from other premises, the Landlord
reserving to itself the use of the exterior walls, the roof, and the right to
install, maintain, use, and repair pipes, ducts, conduits, vents and wires
leading in, through, over or under the Premises, it being understood that
Landlord will use its commercially reasonable efforts to avoid unreasonable
interference with or disturbance of Tenant's decorations or operations within
the selling area of the Premises in connection with such installations by
Landlord made subsequent to completion of Tenant's Work. Notwithstanding the
description of the Premises as set forth in Section 3.1, and subject to the
limitations hereinafter set forth with respect to the Protected Area, Landlord
may at any time increase, reduce or change the number, dimensions or locations
of the walks, buildings and parking areas, as shown on Exhibit A, and reserves
the right to at any time make alterations or additions to, and to build
additional stories on the building in which the Premises are contained. No such
changes, or any of them, shall invalidate or affect this Lease, except that
Landlord and Tenant shall, on request by either, modify Exhibit A to such extent
as Landlord's architect certifies to be proper to reflect such changes.
(k) "Protected Area" means that portion of the Common Areas of the
Shopping Center as identified and cross-hatched on Exhibit A hereto. Throughout
the Term of this Lease, Landlord shall not construct any buildings, kiosks or
other vertical improvements within the Protected Area that adversely affect the
accessibility of the Premises or the visibility of the Premises from U.S.
Highway 41 (Cobb Parkway).
(1) "Quarter" means each of the following three-month periods within
any Lease Year; January 1-March 31; April 1-June 30; July 1-September 30; and
October 1-December 31; provided, however, that the first Quarter of the Term
shall start on the Commencement Date and the last Quarter of the Term shall end
on the last day of the Term.
(m) "Shopping Center" means the parcel(s) of land set forth and
described in Exhibit B, including (1) any other parcel(s) of land at any time
designated by Landlord to be added thereto (but only so long as any such
designation remains unrevoked) which are, or are to be, used for Shopping Center
or related purposes, including, but not limited to, expansion area, employee
parking, or the furnishing to the Shopping Center of any utility or other
service, for any office and/or professional building
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or for any other improvement appropriate or related to the operation or
functioning of the Shopping Center, together with all buildings on and
improvements to any such parcel(s) of land; (2) portions of the property
described in Exhibit B or added by Landlord under (1) above owned by parties
other than Landlord, which will be operated integrally with the property owned
or ground leased by Landlord by means of cross easement agreements, reciprocal
construction agreements and operating agreements ("RCOE Agreements"); and (3)
any plant or other facility, including, but not limited to, a sewage or garbage
disposal plant or similar facility serving the Shopping Center, even though it
is not located upon land which is a part of the Shopping Center, and the
facilities connecting any such plant or facility (whether or not so located) to
the remainder of the Shopping Center (but not including the land under or
through which any such connection passes, if not otherwise included within the
Shopping Center). Landlord shall have the right to exclude in its discretion,
any of the foregoing parcels, whether or not such parcels shall be used for
Shopping Center or related purposes.
The term "Shopping Center" also means, where used not solely to
designate the geographical location thereof, the operation and functioning
thereof primarily as a general shopping center for the sale of goods, wares,
merchandise, food and services at retail; together with such services and
facilities as are incident to or advisable in connection with the operation
thereof, including, but not limited to, medical, dental, and other service or
other offices. No road, way, street, easement, utility or facility otherwise
included within the Shopping Center shall be deemed for any purpose to be
partially or wholly excluded therefrom by reason of the fact that the same may
also serve or be used by the occupant of any other premises or the customers
thereof Any portion of the Shopping Center which is condemned or dedicated to
public use or ceded or conveyed to any governmental authority for street or
related purposes shall be thereafter excluded from the Shopping Center.
(n) "Stores" means any building or portion of a building (including
the Premises) located in the Shopping Center actually occupied by a tenant and
used for the sale of goods or services, excluding the Department Store.
(o) "Tenant's Pro Rata Share" is defined as a fraction, the numerator
of which is the Gross Leasable Area of the Premises and the denominator of which
is the Gross Leasable Area of the Stores; provided, however, that in no event
shall the Gross Leasable Area of the Premises be greater than fifty percent
(50%) of the Gross Leasable Area of the Stores.
(p) References to "Term" shall include the original and any extension
or renewal term(s), if any.
ARTICLE III
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PREMISES
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Section 3.1. (a) The Premises have an approximate total area as set
-----------
forth in subparagraph (a) of Article I and as outlined on Exhibit A and are
demised, subject and subordinate to all liens, encumbrances, easements, RCOE
Agreements, restrictions, covenants, underlying leases and zoning laws and
regulations now or hereafter affecting or governing the Shopping Center,
provided that the use of the Premises for the purposes set forth in Section 7.1
hereof shall not be prevented thereby and subject to that certain Security Deed
and Security Agreement from Landlord to Credit Lyonnais Caymen Island Branch,
dated August 26, 1994 and recorded in Deed Book 8451, Page 267, Cobb County,
Georgia records.
(b) Tenant hereby acknowledges that as of the date of execution of
this Lease, the Premises is currently occupied by an existing tenant operating
an A & P Food Store ("A & P"). The term of the existing lease for such A & P
Food Store expired by its terms on December 31, 1996; provided, however, that
the tenant thereunder has the right to continue to occupy the Premises subject
to termination on
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thirty (30) days prior written notice. Within ten (10) days following complete
execution of this Lease, Landlord agrees to provide notice of termination to A &
P and to use all reasonable and diligent efforts to recover possession of the
Premises within sixty (60) days thereafter. As such this Lease and Landlord's
obligations and liabilities hereunder shall be expressly subject to Landlord's
recovery of possession of the Premises as provided above. Tenant shall have the
right to terminate this Lease by written notice to Landlord if Landlord has not
recovered possession of the Premises and delivered the same to Tenant on or
before the date which is one hundred fifty (150) days following the date on
which Landlord delivers to A&P notice of termination of the A&P Lease (a copy of
such notice shall be provided to Tenant), it being agreed that, if Landlord is
unable, despite its reasonable and diligent efforts, to recover possession of
the Premises and deliver same to Tenant by such date, Tenant's sole remedy shall
be to terminate this Lease as provided above, and in no event shall Landlord be
liable to Tenant for any damages or other loss as a result thereof
Section 3.2. Notwithstanding anything contained herein to the
-----------
contrary, Tenant (which for the purposes of this Section 3.2 shall expressly
exclude any assigns or sublessees) shall have the right to use and operate an
"Outside Seating Area" to be located generally in the area identified on Exhibit
-------
"A" (with the exact location of such Outside Seating Area to be subject to
- ---
Landlord's prior written approval, not to be unreasonably withheld or delayed)
for the sole purpose of providing outdoor tables and seating for Tenant's
customers and patrons. The foregoing rights of Tenant to use the Outside
Seating Area shall be subject to the following covenants and conditions: (a)
Tenant shall be required to maintain, repair, and clean the Outdoor Seating Area
such that the same is always in a clean, neat and sightly condition; (b) in no
event shall the Outdoor Seating Area be used for the purpose of conducting
sales, displaying food or merchandise or storing food or merchandise; and (c)
Tenant shall be required to secure and police the Outside Seating Area. In the
event that Tenant is in breach of any of the foregoing covenants and conditions
and such breach is not cured within ten (10) days following written notice from
Landlord, Landlord shall have the right (in addition to its other rights and
remedies provided hereunder) to terminate Tenant's rights under this Section
3.2.
ARTICLE IV
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TERM
----
Section 4.1. The term of this Lease (hereinafter referred to as the
-----------
"Term") shall commence on the Commencement Date described in subparagraph
(b)(ii) of Article I and expire at Midnight on the last day of the calendar
month in which the tenth (10th) anniversary of the Commencement Date shall occur
Section 4.2. Tenant shall have the option to extend the Term of this
-----------
Lease (the "Extension Option") for two (2) five (5)-year periods (the "Extension
Terms") following expiration of the initial Term by giving notice of the
exercise of the Extension Option to Landlord at least nine (9) months prior to
the expiration of the initial Term of this Lease; provided. however, that (a)
Tenant shall not have the right to exercise either Extension Option if Tenant is
then in default beyond any applicable notice and opportunity to cure period
provided under this Lease, of any of the terms and conditions of this Lease at
the time of its exercise of either Extension Option, and (b) in the event Tenant
shall be in any default beyond any applicable notice and opportunity to cure
period provided under this Lease at any time following its exercise of the
Extension Option but prior to the expiration of the initial Term of this Lease,
such default shall be deemed to terminate the next arising Extension Option
granted herein. In the event that Tenant properly exercises either Extension
Option provided herein, the leasing of the Premises during the Extension Term
shall be upon the same terms and conditions contained in this Lease except that
(i) Tenant shall, after the exercise of both such Extension Options, have no
further extension or renewal rights hereunder, and (ii) the Fixed Minimum Rent
to be paid by Tenant during each Extension Term shall be adjusted as provided in
Article I(c)(i) of this Lease. If Tenant shall fail to timely provide notice to
Landlord to exercise either Extension Option
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as required above, Tenant shall be deemed to have elected not to extend the Term
and Tenant's Extension rights hereunder shall be of no further force or effect.
ARTICLE V
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-RENT
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Section 5.1. The rental reserved to Landlord during the Term, which
-----------
Tenant covenants and agrees to pay as herein provided, without prior demand
therefor and without any deduction or set-off whatsoever, shall consist of fixed
minimum rent, percentage rent and additional rent (hereinafter separately
referred to as "Fixed Minimum Rent" and "Additional Rent" and collectively
referred to as "Rent"). Notwithstanding the foregoing, in certain circumstances
as expressly provided and set forth in this Lease, Tenant is entitled to an
abatement of its Rent obligations hereunder.
Section 5.2. The Fixed Minimum Rent payable by Tenant annually shall
-----------
be as set forth in subparagraph (c)(i) of Article I, payable in twelve (12)
equal monthly installments in advance on the first day of each month during each
Lease Year. In the event that a payment of the Fixed Minimum Rent is delinquent
as provided in this Section 5.2 and not paid in full within fifteen (15) days
after the date due thereof, Tenant shall incur and pay an additional late fee of
$100.00. If the Commencement Date is other than the first day of a calendar
month, then the Rent for such fractional month shall be on a per diem basis
calculated on the basis of a thirty (30) day month. If, upon completion of the
construction and the Commencement Date of this Lease, the actual number of
square feet in the Premises is more or less than the number set forth in
subparagraph (a) of Article I, then the Fixed Minimum Rent described in this
section shall be increased or decreased by multiplying the Fixed Minimum Rent
set forth in subparagraph (c)(i) by a fraction, the numerator of which is the
actual number of square feet in the Premises and the denominator of which is the
number of square feet set forth in subparagraph (a) of Article 1.
Section 5.3. Notwithstanding anything contained in this Lease to the
-----------
contrary, no payment by Tenant or receipt by Landlord of an amount less than the
required payment set forth in this Lease, shall be considered as anything other
than a partial payment of the amount due. No endorsement or statement to the
contrary on any check shall be deemed on accord and satisfaction. Landlord may
accept a partial payment without prejudicing Landlord's right to recover the
balance of such payment which is still due, and without affecting any other
remedies available to Landlord.
ARTICLE VI
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CONSTRUCTION
------------
Section 6.1. The obligations of the parties and the procedure for
-----------
construction of the Premises, including the preparation, submission and final
approval of all plans and specifications, are set forth in Exhibit C attached
hereto and made a part hereof.
Section 6.2. Landlord shall, at its sole cost and expense, perform
-----------
the construction work with respect to the Premises in such manner as to comply
with its obligations, if any, and the requirements, if any, set forth in Exhibit
C hereof (hereinafter referred to as "Landlord's Work").
Section 6.3. Landlord shall diligently perform Landlord's Work, if
-----------
any, and shall make the Premises available to Tenant for the performance of
Tenant's obligations as set forth in Exhibit D (hereinafter referred to as
"Tenant's Work") after the performance of Landlord's Work, if any, has proceeded
to the point where Tenant's Work can be commenced without unreasonable
interference with the performance of Landlord's Work. Tenant will diligently
perform all of Tenant's Work in accordance with all of the terms and conditions
of Exhibit D and will open for business no later than the one hundred
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twentieth (120th) calendar day following the Commencement Date. Tenant agrees
that it will not encumber by conditional sales agreements, chattel mortgages or
any other security instrument, any work performed or materials installed by
Tenant, including, without limitation, the installation of Tenant's trade
fixtures without the prior written consent of Landlord. Tenant agrees, with
respect to any activities by Tenant within the Premises prior to the
Commencement Date, that it will comply with all reasonable procedures and
regulations prescribed by Landlord. Tenant agrees that title to all work
performed in the Premises and materials installed in the Premises by Tenant
shall immediately vest in Landlord, except that Tenant shall retain title to
Movable Trade Fixtures installed in the Premises by Tenant.
Section 6.4. Tenant shall in a timely manner furnish evidence
-----------
satisfactory to Landlord that all Tenant's Work and any other work contracted
for by Tenant in and about the Premises has been paid for, and with a written
certification of the actual cost of Tenant's Work excluding Tenant's Movable
Trade Fixtures, together with evidence of such cost as Landlord shall require.
At or prior to Tenant's opening for business at the Premises, Tenant shall, at
its sole cost and expense, obtain and deliver to Landlord a final certificate of
occupancy for the Premises.
Section 6.5. (a) Tenant, its contractor, subcontractor and
-----------
materialmen, hereby waive and release any and all liens, intention to file liens
and rights of liens with respect to the Premises or the Shopping Center now
existing or that may hereafter arise. Tenant shall, at its own cost and
expense, cause any liens filed against the Premises or the Shopping Center by
Tenant's contractor, subcontractor or materialmen, to be discharged of record
within twenty (20) days after Tenant's receipt of notice to Tenant of the filing
thereof. If Tenant fails to comply, Landlord shall have the right to discharge
any such liens by payment or otherwise, and Tenant shall reimburse Landlord
therefor and for all costs and expenses.
(b) Commencing with the date the Premises are made available to Tenant
for Tenant's Work as set forth in Section 6.3 hereof, Tenant shall obtain public
liability and property insurance in the amounts set forth in Section 8.2 hereof,
builder's risk insurance covering Landlord and any designee of Landlord
(completed value form, if available) and workmen's compensation insurance
affording applicable statutory coverage and containing statutory limits, all
such policies to comply with the requirements of Article VIII hereof Tenant
shall provide Landlord with certificate of insurance and a duplicate original of
all such policies.
(c) Tenant agrees that it will, on request from Landlord, comply with
any and all reasonable requirements of Landlord or any title company and the
requirements of any mortgagee of the Premises or the Shopping Center with
respect to the work performed or materials furnished by Tenant, or its agents,
contractors and subcontractors, in the Premises or the Shopping Center.
Section 6.6. Any access or possession by Tenant prior to the
-----------
Commencement Date shall, except for the payment of Rent, as hereinafter defined,
be on and subject to all the other terms, provisions, covenants and conditions
of this Lease.
Section 6.7. After Tenant opens the Premises for business, Tenant
-----------
shall have no right to cancel this Lease, seek a diminution of rent, sue for
damages, or assert any other contractual, legal or equitable remedy based either
on a claim that Landlord failed to deliver possession in accordance with the
terms of this Lease or based on a claim that the size, location, layout,
dimensions or construction of the building in which the Premises are located or
service areas (if any), sidewalks, parking or other common areas (if any), or
any other facilities to be furnished by Landlord, were not completed or
furnished in accordance with the terms of this Lease.
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<PAGE>
ARTICLE VII
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USE AND OPERATION
-----------------
Section 7.1. Subject to and in accordance with all rules,
-----------
regulations, laws, ordinances, statutes and requirements of all governmental
authorities and the Fire Insurance Rating Organization and Board of Fire
Insurance Underwriters, and any similar bodies having jurisdiction thereof, the
Premises are to be used by the Tenant solely for the retail uses set forth in
subparagraph (i) of Article I and for no other purpose.
Section 7.2. (a) Tenant covenants that it will open and continuously
-----------
operate its business from the Premises as a Harry's In A Hurry store, in a
manner generally consistent with the operation of its other retail stores in the
metropolitan Atlanta area; provided, however that a portion of the Premises may
be used for the operation of the business of the Permitted Sublessee as
expressly provided in this Lease. Throughout the Term of this Lease, Tenant's
use, occupancy and operation of the Premises shall be subject to all of the
terms, covenants and conditions of this Lease, and such use occupancy and
operation-shall be in a competent, dignified, energetic and consistent manner
therewith as will enhance the Shopping Center as a whole and its reputation as a
desirable place to shop.
(b) Tenant agrees that during the Term it will be open for business
from 10:00 A.M. to 8:00 P.M., Monday through Saturday, or longer.
(c) Tenant acknowledges that Landlord is executing this Lease in
reliance upon the covenants contained in this Section 7.2 and that such
covenants are a material element of consideration inducing Landlord to execute
this Lease.
(d) Notwithstanding anything contained in this Section 7.2 or
elsewhere in this Lease to the contrary in the event that at any time during the
Term Tenant shall cease or fail to operate its business from at least fifty
percent of the floor area of the Premises for a period of six (6) months or more
(excluding therefrom any temporary closure of the Premises due to casualty,
condemnation, repairs or alterations or any temporary closure due solely to the
actions of Landlord), Landlord shall have the right, at any time thereafter, to
terminate this Lease upon not less than thirty (30) days written notice to
Tenant, subject to the provisions of Section 13.2 of the Lease.
Section 7.3. Tenant covenants that Tenant or any affiliate (and if
-----------
Tenant is a corporation, its officers, directors, stockholders and any
affiliates) shall not directly or indirectly own, operate, manage or have any
interest in the profits of any Harry's In A Hurry store (unless in operation on
the date of this Lease) within a radius of two (2) miles from the center of the
Premises for the first five (5) Lease Years, and within a radius of one (1) mile
from the center of the Premises for the remainder of the Term of this Lease.
ARTICLE VIII
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INDEMNITY AND INSURANCE
-----------------------
Section 8.1. Tenant shall indemnify, defend, and hold harmless
-----------
Landlord and its agents, successors and assigns, from and against all injury,
loss, costs, expense, claims or damage (including attorneys' fees and
disbursements) to any person or property arising from, related to, or in
connection with the use, occupancy, construction, or repair of the Premises or
breach of this Lease by Tenant, or any assignee, sublessee or other party
claiming by, through or under Tenant or any assignee or sublessee. All property
of Tenant and Tenant's agents, employees, licensees, invitees, servants and
contractors in or about the Premises shall be kept and stored at Tenant's sole
risk and Tenant shall hold Landlord harmless from any claims arising out of
damage to, or loss of, the same. Notwithstanding the foregoing provisions of
this Section 8.1, no indemnification or agreement by Tenant to hold Landlord or
any other party harmless from loss, costs, damages or liabilities shall
indemnify or hold harmless, Landlord or any other party against any loss, cost,
damages or liabilities caused by or resulting directly from the negligence or
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willful misconduct of Landlord or its employees, agents or contractors, nor
shall any waiver of Tenant's rights or any lease of Landlord contained in this
Lease be deemed to release Landlord from responsibility for any such negligence
or willful misconduct.
Section 8.2. Throughout the term of this Lease, Tenant shall maintain
-----------
with responsible companies licensed to do business in the State of Georgia, and
which are rated by A.M. Best Company, Inc. as "A Class XII" or better, and which
are otherwise satisfactory to Landlord, insurance policies naming Landlord and
any mortgagee of Landlord as an additional insured, as their respective
interests may appear, and providing not less than the following protection:
(a) Comprehensive general liability insurance against all claims on
account of bodily injury and property damage for which Tenant may as a result of
its business in the Shopping Center or occupancy of its business in the Shopping
Center or occupancy of the Premises or status as Tenant hereunder, become
liable, with a combined single limit for property damage and bodily injury of
not less than $1,000,000 per occurrence and $2,000,000 in the aggregate and such
policies shall, with respect to any instance of property damage, include water
damage and sprinkler leakage legal liability in the same policy limits; and
excess or umbrella liability insurance, with limits of $5,000,000 in excess of
the comprehensive general liability limits set forth in this paragraph; and
which policies will further include by endorsement as part of the policy an
agreement indemnifying Landlord in accordance with the provisions of Section 8.1
hereof
(b) Steam boiler and machinery insurance with limits in an amount
equal to one (1) year's Fixed Minimum Rent and additional rent (including,
without limitations Percentage Rent) due under the Lease but in no event less
than $500,000.00 if there is a boiler or other similar equipment in the
Premises:
(c) Property insurance protecting against all perils listed in the so
called "special" or "all risk" form, and containing such other endorsements as
Landlord may from time to time reasonably require, covering all of Tenant's
stock in trade, fixtures, personal property of Tenant, and all installations and
improvements made by Tenant (including tenant's installations and improvements
made pursuant to Exhibit C) in, or, or about the Premises in an amount not less
than ninety percent (90%) of the then full insurable value (actual replacement
cost without deduction for physical depreciation), such value to be determined,
at Tenant's expense, at least once every two (2) years, but in any event in an
amount sufficient to prevent Landlord and Tenant from becoming co-insurers under
provisions of the applicable policy. Notwithstanding anything in the Lease to
the contrary, in no event shall Landlord be responsible for damage to Tenant's
stock in trade, fixtures or other personal property of Tenant located in or
about the Premises.
(d) If the nature of Tenant's business is such as to place any or all
of its employees under the coverage of local worker's compensation or similar
statutes, workers' compensation or similar insurance affording coverage in
compliance with any and all legal and governmental requirements;
(e) Such other reasonable amount of insurance against other insurable
hazards as from time to time are commonly insured against in the case of
premises similarly situated and similarly used; provided Landlord gives Tenant
reasonable notice of the type of required insurance.
Section 8.3. Tenant's policies of insurance described above shall
-----------
provide that, in the case of fire or other casualty affecting the Premises, any
loss shall be adjusted jointly with Landlord and Tenant. The insurance policies
or duly executed certificates thereof, together with satisfactory evidence that
the premium has been paid, shall be deposited with Landlord on or before the day
Tenant begins Tenant's Work and thereafter evidence of continuing insurance and
premium payment shall be given to Landlord not less than thirty (30) days prior
to the expiration date of each policy required to be in force hereunder. All
such policies shall provide that, in the event of a loss, any proceeds due
Landlord as an insured shall not be affected by reason of willful or negligent
acts or
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Tenant or Landlord or their respective employees, licensees, invitees or
permits. In addition, provided that Tenant is not then in default under this
Lease, the event of a casualty or loss, any proceeds from Tenant's "all risk"
insurance covering Tenant's property shall be made available to Tenant for the
performance of Tenant's Work. All insurance carried by Tenant shall be in form
reasonably satisfactory to Landlord and shall provide that the policy shall not
be subject to cancellation, termination or change except after at least thirty
(30) days prior written notice to the Landlord and to any mortgagee of Landlord
to whom a loss thereunder may be payable. If Tenant fails to maintain the
required insurance, Landlord may, but shall not be obligated to, obtain such
insurance, and Tenant shall pay Landlord the premium upon demand.
Section 8.4. If, as a result of Tenant's use or occupancy of any
-----------
portion of the Shopping Center, or from any vacancy of the Premises, Landlord is
charged any increase in premium on insurance carried by Landlord, Tenant shall
promptly pay on demand the amount of such increase or reimbursement and the
amount so paid shall not be considered an increase in Landlord's insurance
premiums for the purpose of Section 17.3. In determining whether increased
premiums are attributable to Tenant, a schedule or "make-up" rate of the
organization issuing the insurance companies shall be conclusive evidence of the
several items and charges which make up the insurance rates and premiums on the
Premises and the Shopping Center. Landlord agrees that as of the date of this
Lease, Tenant's proposed use of the Premises for the purposes specifically
permitted in Article I, Section (i)(1) of this Lease shall not increase
Landlord's insurance rates or cause Landlord's insurance to be canceled if
Tenant's use of the Premises for such permitted purpose is conducted in
accordance with all laws applicable thereto.
Section 8.5. Subject to and in consideration of Tenant's compliance
-----------
with its obligations under Section 17.3 hereof, Landlord shall keep the Premises
and the building of which they are a part insured against loss or damage by
fire, with the usual extended coverage endorsements, in amounts equal to at
least ninety percent (90%) of the insurable value thereof above foundations and
so as to prevent the application of co-insurance provisions. Such insurance
shall cover improvements in the Premises owned by Landlord to the extent that
the same are customarily insurable as part of the realty, but shall not include
the cost of restoration of Tenant's trade fixtures, furniture, furnishings or
decorative effects.
Section 8.6. Tenant agrees to use and occupy the Premises and to use
-----------
all other portions of the Shopping Center which it is permitted to use by the
terms of this Lease at its own risk, and hereby (for itself and all persons
claiming under, by or through Tenant) releases Landlord, its agents, servants,
contractors and employees, from all claims and demands of every kind resulting
from any accident, damage or injury occurring therein, except those claims
arising from the negligence or willful misconduct of Landlord, its servants,
agents, contractors and employees. Landlord shall have no responsibility or
liability for any loss of, or damage or injury to, fixtures, improvements,
Tenant's Work or other personal property of Tenant, or any of them from any
source whatsoever, except for liability arising from the negligence or willful
misconduct of Landlord, its agents, contractors and employees. Tenant agrees to
name Landlord as an additional insured in any insurance policy obtained by
Tenant in connection with the Premises or the Shopping Center and to furnish
Landlord with a duplicate original or certificate of such policy in accordance
with Section 8.4 hereof
Section 8.7. The parties hereby mutually waive any rights they may
-----------
have against each other to recover for loss or damage to property to the extent
that such loss or damage is covered by their respective insurance policies. In
addition, all insurance policies carried by either party covering the Premises,
including but not limited to contents, fire and casualty insurance, shall
expressly waive any right on the part of the insurer against the other party for
damage to or destruction of the Premises resulting from the acts, omissions or
negligence of the other party.
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ARTICLE IX
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FIRE AND OTHER CASUALTIES
-------------------------
Section 9.1. If the Premises should be damaged during the Term by
-----------
fire or any other casualty, Landlord shall (except as hereinafter provided)
repair the same.
Section 9.2. If, however, the Premises or the buildings comprising
-----------
the Stores should be damaged or destroyed:
(a) by fire or other casualty (i) to the extent of twenty-five
percent (25%) or more of the cost of replacement of either thereof, or
(ii) so that twenty-five percent (25%) or more of the Gross Leasable
Area contained in either thereof shall be rendered untenantable; or
(b) by any casualty other than those covered by standard fire and
extended coverage insurance policies; or
(c) the Premises shall be damaged in whole or in part during the
last two years of the Term or, if the Term is extended, during the
last two years of the Term as extended; or
(d) if Landlord's mortgagee shall require that the insurance
recovery arising from the damage or destruction be applied against the
principal balance due on such mortgage;
then, in any such event, Landlord may, at its option, either terminate this
Lease or elect to repair the Premises, and Landlord shall notify Tenant as to
its election within sixty (60) days after the settlement of the casualty loss
with the insurer, or the occurrence of the damage in the event of an uninsured
casualty. If Landlord elects to terminate this Lease, then the Term hereof
shall end at the end of the calendar month in which such election is made. If
Landlord does not elect to terminate this Lease, but Landlord has failed to
repair or restore the Premises within one hundred eighty (180) days following
Landlord's receipt of insurance proceeds therefor, subject to force majeure,
then Tenant shall have the right to terminate this Lease by written notice to
Landlord prior to Landlord's substantial completion of such repairs or
restoration. If neither Landlord nor Tenant elects to terminate this Lease as
provided above, then Landlord shall perform such repairs and rebuildings as set
forth in Section 9.3 hereof and Tenant shall perform such repairs and rebuilding
as set forth in Section 9.4 hereof, and the Term shall continue without
interruption and this Lease shall remain in full force and effect.
Section 9.3. Landlord's obligation to repair shall be limited to the
-----------
repair and replacement as necessary of all exterior components of the Premises
to substantially the same condition as existed on the Commencement Date to the
extent covered by the proceeds attributable to the Premises from Landlord's
insurance policies. All work to be performed by Landlord shall be done in such
manner that upon completion thereof, that portion of the Premises repaired or
rebuilt shall function substantially the same as prior to the date of the
casualty and shall contain substantially the same amount of Gross Leasable Area
as immediately prior to the damage or destruction.
Section 9.4. Tenant shall, at its own cost and expense (including the
-----------
use of any instance proceeds then available under Section 8.3 hereunder), repair
and restore the entire Premises to the extent not repaired by Landlord in
accordance with the provisions of Article VI hereof. Tenant agrees to commence
the performance of its work when notified by Landlord that the work to be
performed by Landlord has proceeded to the point where the work to be performed
by Tenant can in accordance with good construction practices, then be commenced,
and Tenant shall complete such work within the number of days as set forth in
Article I(b)(ii) hereof.
Section 9.5. All insurance proceeds payable with respect to the
-----------
Premises, excluding the proceeds payable to Tenant pursuant to Section 8.3
hereof, shall belong to
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and shall be payable to Landlord. If Landlord does not elect to terminate this
Lease as provided in this Article IX, Landlord shall, subject to the prior
rights of the holder of any mortgage which is a lien against the Premises or the
Shopping Center, disburse and apply any insurance recovery as follows: first, to
be applied against the cost to Landlord of restoration and rebuilding of
Landlord's Work; second, to be paid to Tenant to the extent of the cost of
Tenant's restoration of the Premises pursuant to Section 9.4 hereof, not
including furniture, furnishings and Movable Trade Fixtures, or repairs covered
by insurance maintained by Tenant; and third, the balance of any insurance
recovery shall belong to and be the exclusive property of Landlord. Landlord
shall retain a reputable, local independent insurance adjuster for the purpose
of apportioning the balance of Landlord's insurance recovery among affected
tenants in the event that Premises other than the Premises are damaged or
destroyed as a result of the insured casualty. The findings of the adjuster
shall be binding and conclusive upon all affected tenants. The cost of such
adjuster's services shall be charged and payable out of the balance of insurance
recovery. The aforesaid payment to Tenant shall be made after Tenant's
restoration of the Premises has been reasonably satisfactorily completed and
after Tenant has reasonably satisfied Landlord that such work will result in no
liens against the Premises or the Shopping Center.
Section 9.6. Commencing with the second Lease Year, and annually
-----------
thereafter, Tenant shall furnish Landlord with a written certification of the
replacement cost of Tenant's Work (as originally certified by Tenant pursuant to
Section 6.4 hereof) and the actual cost of any improvements to the Premises made
by Tenant not covered in any previous certification, which Landlord would be
obligated to insure under Section 8.5 hereof. In the event of Tenant's failure
to furnish such certification, Landlord shall be entitled to rely on the last
certification furnished to it by Tenant for the purposes of fulfilling its
obligation under Sections 8.5 and 9.5 hereof. Landlord shall have the right to
contest Tenant's certification and in the event the parties are unable to
resolve their differences, the matter shall be referred to Landlord's insurance
carrier whose decision shall be final and binding on both parties.
Section 9.7. During any period in which the Premises are damaged by
-----------
reason of any fire or other casualty, and there is substantial interference with
the operation of Tenant's business in the Premises, the Fixed Minimum Rent shall
abate on the basis of the degree of use of the Premises lost to Tenant as a
result of such casualty. In the event of partial damage to the Premises, the
abatement of Fixed Minimum Rent shall be based on the percentage of the Gross
Leasable Area of the Premises that is damaged or destroyed bears to the total
Gross Leasable Area of Premises. Any such abatement shall continue for the
period commencing with the date of casualty resulting in substantial
interference with the operation of Tenant's business in the Premises and ending
sixty (60) days after completion by Landlord of such repair work as Landlord is
required to perform under the provisions of this Article IX and the delivery of
the repaired Premises to Tenant.
ARTICLE X
---------
REPAIRS AND ALTERATIONS
-----------------------
Section 10.1. Landlord shall, upon notice from Tenant, and within a
------------
reasonable period of time, make all necessary structural repairs to the exterior
walls and shall keep in good order, condition and repair and replace, as
necessary, the exterior foundations, downspouts, gutters and roof of the
Premises and the plumbing and sewage system outside of the building in which the
Premises are located, provided the same serve the Premises (but excluding the
exterior and interior of all doors, windows, door bucks and door frames, plate
glass, store fronts and signs, and repairs required by any casualty except as
otherwise provided in Article IX hereof, and further excluding any damage caused
by any act, omission or negligence of Tenant, any subtenant or Concessionaire,
or their respective employees, agents, invitees, licensees or contractors).
There shall not be any allowance to Tenant or diminution or abatement of Rent,
or any liability on the part of Landlord, by reason of inconvenience, annoyance,
or injury to Tenant's business arising out of the actions of Landlord in making
any repairs, replacements or performance of
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maintenance work to the Premises or the building within which the same are
located pursuant to this Article X; provided, however, that Landlord agrees to
use reasonable efforts not to unreasonably interfere with Tenant's operations at
the Premises with regard to repairs performed by Landlord.
Section 10.2. Tenant shall, at its own cost and expense, keep and
------------
maintain the Premises in good order, condition and repair, including all
replacements, except for those matters within Landlord's obligation to repair,
as provided in Section 10.1 hereof.
Section 10.3. Tenant will purchase and install a heating, ventilation
------------
and air conditioning ("HVAC") system for the Premises, which system Tenant shall
have the right to install on the roof of the Building provided that Landlord
shall have the right to approve (a) the plans and specifications for such
installation, and (b) the contractor performing such work. Tenant shall obtain
and keep in full force and effect throughout the Term of this Lease a standard
maintenance agreement with a heating, ventilation and air-conditioning systems
repair company reasonably acceptable to Landlord on all HVAC equipment on the
Premises and provide a copy of said maintenance agreement to Landlord no later
than twenty (20) business days after the date Tenant takes possession of the
Premises. Tenant hereby acknowledges and accepts the obligations of
maintenance, repair and, if necessary, replacement of the HVAC system for the
Premises; provided, however, that during the last two (2) years of the final
term of this Lease, Tenant shall only be obligated to make reasonable repairs
to, but not to replace, the HVAC system for the Premises.
Section 10.4. Tenant shall be entitled to make alterations and
------------
modifications to the interior of the Premises at Tenant's expense; provided,
however, that in the event the anticipated cost for any such alterations and/or
modifications is equal to or greater than $250,000.00, Landlord's prior written
approval, which approval Landlord shall not unreasonably withhold or delay, to
such alterations and/or modifications is required. Tenant shall provide
Landlord with copies of all plans for any alterations or modifications to the
interior of the Premises. In the event the Tenant desires to make any
alterations or modifications to the exterior of the Premises, to any structural
portions or elements of the Premises or to any utility systems within the
Premises (including the HVAC), regardless of the cost, Tenant shall be required
to obtain Landlord's prior written approval to any such alterations or
modifications.
Section 10.5. If Tenant shall fail to make any of the repairs
------------
required by the provisions of Section 10.2 and 10.3 hereof, or to commence the
performance of any of its obligations thereunder within ten (10) days after
Tenant's receipt of written notice from Landlord, Landlord shall have the right
(but shall not be obligated) to make any such repairs, replacements or perform
maintenance work or any other work required of Tenant pursuant to Section 10.2
or 10.3 and charge the actual cost thereof to Tenant.
ARTICLE XI
----------
CONDEMNATION
------------
Section 11.1. If the fee of the whole or any part of the Premises
------------
shall be taken for any public or any quasi-public use under any statute or by
right of eminent domain, or by private purchase in lieu thereof, then this Lease
shall automatically terminate as of the date that title shall be so taken.
Section 11.2. All compensation awarded or paid upon a total or
------------
partial taking of the Premises including the value of the leasehold estate
created hereby shall belong to and be the property of Landlord without any
participation by Tenant; provided, however, that nothing contained herein shall
be construed to preclude Tenant, at its sole cost and expense, from
independently prosecuting any claim directly against the condemning authority in
such condemnation proceedings for (i) loss of business; and/or (ii) depreciation
to, damage to, and/or cost of removal of, and/or for the value of stock and/or
trade fixtures, furniture and other personal property belonging to Tenant, (iii)
any
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moving expenses incurred by Tenant as a result of such condemnation; (iv)
any costs incurred or paid by Tenant in connection with any alterations or
improvements made by Tenant to the Premises; (v) the value of any of Tenant's
personal property so taken; and (vi) any other separate claim which Tenant may
hereafter be permitted to make under applicable law; provided, however, that no
such claim shall diminish or otherwise adversely affect Landlord's award or the
awards of any and all ground and underlying lessors or mortgagees.
Section 11.3. In the event the Premises are partially (but not
------------
totally) taken or damaged by condemnation to the extent that the Gross Leasable
Area of the Premises is reduced by fifteen percent (15%) or more, Tenant shall
have the right to terminate this Lease by written notice to Landlord. If Tenant
elects not to so terminate this Lease or if such taking or damage to the
Premises is less than fifteen percent (15%) of the Gross Leasable Area of the
Premises, Landlord shall promptly prepare and restore the Premises at Landlord's
expense to at least as good a condition as it existed prior to such damage and
the Fixed Minimum Rent payable under this Lease shall be abated or equitably
reduced on the basis of the degree of use of the Premises lost to Tenant as a
result of such taking.
ARTICLE XII
-----------
COMMON AREAS
------------
Section 12.1. Landlord shall make available within or adjacent to the
------------
Shopping Center such Common Areas, which may in part consist of areas made
available by means of RCOE Agreements, as Landlord shall, from time to time,
deem to be appropriate for the Shopping Center, and Landlord shall operate and
maintain such Common Areas for their intended purposes. Tenant shall have the
non-exclusive right during the Term to use (for its intended purposes) the
Common Areas for itself, its employees, agents, customers, invitees and
licensees, subject, however, to the provisions of Section 12.2. Subject to
Landlord's limitations with respect to Tenant's Protected Area as provided in
Section 2.1(k) of this Lease, Landlord shall have the right, at any time and
from time to time, to change the size, location, elevation or nature of the
Common Areas, or any part thereof, including, without limitation, the right to
locate thereon kiosks, structures or other buildings of any type.
Section 12.2. (a) Subject to any RCOE Agreements, all Common Areas
------------
shall be subject to the exclusive control and management of Landlord, and,
subject to the provisions of Section 14.1(e) hereof, Landlord shall have the
right, at any time and from time to time, to establish, modify, amend and
enforce reasonable rules and regulations with respect to the Common Areas and
the use thereof Tenant agrees to abide by and conform with such rules and
regulations upon notice thereof, to cause its Concessionaires, invitees and
licensees and its and their employees and agents, so to abide and conform, and
Landlord agrees to use reasonable efforts to enforce all such rules and
regulations uniformly and nondiscriminatorily.
(b) Landlord shall have the right from time to time but not more often
than once per calendar year and not for a period exceeding one (1) day at a time
to close, if necessary, all or any portion of the Common Areas to such extent as
may in the reasonable opinion of Landlord's counsel be reasonably necessary to
prevent a dedication thereof or the accrual of any rights of any person or of
the public therein; to close temporarily all or any portion of the Common Areas
to discourage non-customer use, to use portions of the Common Areas while
engaged in making additional improvements or repairs or alterations to the
Shopping Center; to transfer, in whole or in part, any of Landlord's rights or
obligations under this Article to any other tenant(s), subtenant(s) or other
occupant(s) of the Shopping Center, or to such other party(ies) or designee(s)
as Landlord may from time to time determine; and to do and perform such other
acts (whether similar or dissimilar to the foregoing) in, to and with respect to
the Common Areas, as in the use of good business judgment, Landlord shall
determine to be appropriate for the Shopping Center.
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(c) Tenant agrees that it, its employees, agents and any
Concessionaire, will park its respective automobiles, trucks and other vehicles
only in such places designated by Landlord from time to time as the employee
parking area; such designation to be consistent with the employee parking area
designations of other tenants. Tenant further agrees to furnish Landlord with
the motor vehicle license numbers assigned to the vehicles of Tenant and any
Concessionaire, their respective officers, agents and employees, within twenty
(20) business days after taking possession of the Premises and shall thereafter
notify Landlord in writing of any changes or additions within twenty (20)
business days after any such change or addition occurs.
Section 12.3. In consideration of Landlord's agreement to operate and
------------
maintain the Common Areas, Tenant covenants and agrees, beginning on the one
hundred eightieth (180th) day after the Commencement Date, to pay a charge
(hereinafter referred to as a "Common Area Charge") for each calendar year,
consisting of Tenant's Pro Rata Share of Common Area Gross Costs (as both terms
are defined in Article II hereof, it being understood and agreed that the first
one hundred eighty (180) days of the Term shall be free of any Common Area
Charges to Tenant). Landlord shall notify Tenant from time to time of the
amount which Landlord estimates will be the amount of the Common Area Charge for
the upcoming calendar year- and Tenant shall pay such amount in equal monthly
installments in advance on or before the first day of each month. On or before
the March I immediately following the end of such calendar year, Landlord shall
submit to Tenant a statement showing the Common Area Charge to be paid by Tenant
with respect to the amount thereof theretofore paid by Tenant during such
calendar year, and the amount of the resulting balance due thereon, or
overpayment thereof, as the case may be. Appropriate adjustment shall thereupon
be made between the parties, on demand, on the basis of such statement. Each
statement shall be final and conclusive between the parties, their successors
and assigns, as to the matters set forth therein, if no objection is raised with
respect thereto within ninety (90) days after submission of each statement to
Tenant. Tenant shall have the right to examine Landlord's books and records at
the offices of Landlord during ordinary business hours not more than once in
each calendar year for the purpose of verifying the matters set forth in the
statement for the immediately preceding calendar year; provided that Landlord
shall promptly reimburse Tenant in cash for any overcharge and overpayment
revealed by such audit, and if such overcharge exceeds three percent (3%) of the
actual amount of Common Area Charges which would have been charged to Tenant,
Landlord shall also reimburse Tenant for the reasonable cost of Tenant's audit.
ARTICLE XIII
------------
ASSIGNMENT AND SUBLETTING
-------------------------
Section 13.1. Tenant shall not have the right at any time to mortgage
------------
or assign this Lease by operation of law or otherwise, or sublet the Premises or
any part thereof, or grant any concession or license, without the prior written
consent of Landlord. The sale or transfer of stock constituting a controlling
interest in Tenant shall likewise require Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed, except if Tenant is
a corporation the shares of which are traded on the New York, American; NASDAQ
or Over-The-Counter stock exchanges, then this Lease may be assigned by Tenant
in conjunction with the merger or sale of substantially all of the assets of
Tenant, or in conjunction with the sale of a substantial amount of the stock of
Tenant resulting in the effective change in control of Tenant. Consent to an
assignment of this Lease shall in no way be deemed to relieve Tenant of its
obligations under the terms of this Lease.
Section 13.2. Notwithstanding anything contained in this Article XIII
------------
to the contrary, subject to the limitations hereinafter provided, Tenant shall
have the right to sublease approximately 15,000 square feet of the Premises to a
"Permitted Sublessee" (as hereinafter defined). As used herein, a "Permitted
Sublessee" shall be a sublessee (a) whose use does not conflict with the then
primary use of any tenant of the Shopping
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Center; (b) whose use does not violate any exclusive use rights of any tenants
of the Shopping Center at the time of the sublease; (c) who has a financial
statement and tangible net worth of not less than $10,000,000 (as adjusted for
inflation based on the value of the dollar on January 1, 1997); and (d) has not
less than twelve (12) retail stores or units then currently operating in the
United States. In the event of any sublease to a Permitted Sublessee, any sales
from the portion of the Premises to be occupied by the Permitted Sublessee shall
be included within Tenant's Gross Sales for the purposes of determining Tenant's
Percentage Rent obligations under this Lease, and Tenant shall be required to
report the Gross Sales of the Permitted Sublessee in accordance with its
obligations under Article XV of this Lease.
In the event of any default of this Lease by Tenant, which default is
not cured by Tenant prior to the expiration of any applicable notice and
opportunity to cure period, then provided Landlord has received written notice
of the Permitted Sublessee and its address for the purpose of notices, prior to
the exercise by Landlord of any rights or remedies under this Lease, or at law
or in equity, Landlord shall promptly give the Permitted Sublessee written
notice that Tenant has so failed to cure a default under this Lease, and the
Permitted Sublessee shall have the one (1)-time right (but not the obligation),
within ten (10) days following receipt of such written notice to notify Landlord
in writing that the Permitted Sublessee elects to (i) assume the obligations of
"Tenant" under the Lease; (ii) cure all outstanding defaults of Tenant,
including without limitations the payment of all outstanding Rent (if any) due
from Tenant under the Lease; and (iii) enter into a new lease with Landlord that
is identical to this Lease other than the change in use of the Premises to
accommodate the Permitted Sublessee's use thereof within five (5) days following
the Permitted Sublessee's exercise of such right to lease the entire Premises;
provided, however, that such new lease shall be deemed a sublease of the
Premises from Tenant until such time as Landlord has recovered legal possession
of the Premises from Tenant and the original Lease between Landlord and Tenant
has been terminated.
Section 13.3. In the event that, subject to the terms of Sections
------------
13.1 and 13.2 above, Tenant shall assign this Lease or sublet any portion of the
Premises or request the consent of Landlord to any assignment or subletting, or
if Tenant shall request the consent of Landlord for any act that Tenant proposes
to do, then Tenant shall pay Landlord's reasonable attorneys' fees and
processing fees (such fees not to exceed $1,000.00 for each request for consent)
incurred in connection therewith.
ARTICLE XIV
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TENANT'S ADDITIONAL AGREEMENTS
------------------------------
Section 14.1. Tenant agrees at all times during the Term hereof, at
------------
its own cost and expense, to:
(a) keep the Premises in a neat and clean condition, and not suffer,
permit or commit any waste or nuisance with regard to the Premises, nor allow or
permit any noxious odor or fumes to emanate from the Premises;
(b) provide, at Tenant's sole cost and expense, for removal of rubbish
and trash from the Premises and in connection therewith to comply with
reasonable rules and regulations established by Landlord (if Landlord provides
for rubbish and trash removal then Tenant agrees to use the contractor
designated by Landlord, and pay for this service); Tenant's rubbish will be
confined in containers located within the Premises so as not to be visible to
members of the public; the method by which Tenant shall store and dispose of
rubbish and trash shall conform to the requirements of the local board of health
or applicable local governing body.
(c) promptly comply with all present and future laws and ordinances
and all rules and regulations of duly constituted governmental authority and the
Board of Fire Underwriters, and any other board or fire rating organization
exercising
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similar functions, affecting the Premises or the Shopping Center, and
the cleanliness, safety, use and occupation thereof-, and subject to the
provisions of Section 8.4 hereof, will not do, suffer or permit any act of
omission or commission to occur in or about the Premises which will increase the
insurance rate with respect to the Premises above the average rate applicable to
use of the Premises as a retail store premises (for the purpose of this Section,
any finding or schedule of the fire insurance rating organization or similar
body having jurisdiction shall be deemed to be conclusive);
(d) pay before delinquency (or timely file a legal contest to) any and
all taxes, assessments and public charges payable during the Term levied,
assessed or imposed upon Tenant's business or upon Tenant's fixtures, furniture,
appliances or personal property installed or located in the Premises, or which
constitute a lien upon any of the foregoing;
(e) obey and observe (and compel its officers, employees, contractors,
licensees, invitees, Concessionaires and all others doing business with it, to
observe and obey) any and all reasonable rules and regulations established by
Landlord at any time and from time to time during the Term for the government of
the conduct and operations of Tenant and for the promotion of the safety,
health, preservation of property and maintenance of good order within the
Shopping Center, so long as the same be not discriminatory with respect to
Tenant; but Landlord shall, except in case of emergency, give Tenant at least
fifteen (15) days' notice of the establishment thereof.
Section 14.2. Tenant agrees that it will not at any time during the
------------
Term hereof:
(a) conduct or permit in the Premises without Landlord's prior written
consent (i) any fire, bankruptcy, auction, or "going out of business" sale, or
(ii) the deliberate utilization of any unethical or unlawful method of business
operation;
(b) without the express written permission of Landlord, use, or permit
to be used, the sidewalk adjacent to, or other premises outside, the Premises
for the sale or display of any merchandise or for any other business, occupation
or undertaking, except as otherwise expressly provided in Section 3.2 of this
Lease;
(c) operate on the Premises or in any part of the Shopping Center any
coin (or token) operated vending machine or similar device for the sale of any
goods, wares, merchandise, food, beverages or services (including but not
limited to pay-lockers; pay-toilets; scales; amusement devices; but excluding
pay telephones and machines for the sale of beverages, foods, candy, cigarettes
or other commodities);
(d) use any loudspeakers, phonographs, or other devices of similar
nature in such manner as to be heard outside of the Premises.
Section 14.3. Tenant's sign(s) shall conform to the sign criteria set
------------
forth on Exhibit E attached hereto and made a part hereof and shall comply with
---------
all applicable statutes, laws, rules and regulations. Tenant shall have the
right at its sole cost and expense, to install its name sign with Tenant's
standard lettering on the three (3) external facades of the Premises, subject to
Landlord's prior written approval of such sign, such approval not to be
unreasonably withheld. Tenant shall have the right to install its panel in the
space on the existing Shopping Center pylon sign currently occupied by A & P.
The size and location of Tenant's sign panel on the Pylon Sign shall be the same
as A & P's, and such panel may only identify one (1) business operating in the
Premises. Tenant acknowledges that Landlord has the right to remove the Pylon
Sign and, and in the event Landlord elects to erect a new pylon sign to replace
the Pylon Sign, Tenant shall have the right to locate its panel on such new
pylon sign. Tenant shall have the right to install all signs within the
interior desired by Tenant so long as same comply with all applicable laws,
ordinances and codes.
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ARTICLE XV
----------
PERCENTAGE RENT
---------------
Section 15.1. (a) Tenant shall deliver to Landlord, within thirty (30)
------------
days after the end of each calendar month in each Lease Year of the Term, an
interim statement showing separately the amount of Gross Sales for the preceding
month. Simultaneously with delivery of the monthly interim statement for the
final month of each quarter in a calendar year, Tenant shall pay to Landlord as
the installment of Percentage Rent for such Lease Year Quarter the amount, if
any as set forth in subparagraph (d) of Article I for the Lease Year through the
Quarter in question, less the Minimum Rent actually paid by Tenant to Landlord
in such Lease Year. In each Lease Year Quarter, Tenant is to be credited with
the amount of Percentage Rent reported in prior Quarters of the subject Lease
Year, so that Tenant will only pay quarterly installments of Percentage Rent on
excess sales made during the immediately preceding Lease Year Quarter.
(b) Tenant shall deliver to Landlord within thirty (30) days after the
end of each Lease Year an annual statement showing Gross Sales for the Lease
Year in question and also showing the amounts, if any, excluded from Gross Sales
under the provisions of Section 15.2. On delivery of the annual statement,
Tenant shall pay to Landlord the amount due as the installment of Percentage
Rent for the last Quarter of such Lease Year. In the event that the annual
statement shows any change in Gross Sales from that which was previously
reported in the monthly interim statements for such Lease Year, then appropriate
adjustment of the total amount due as Percentage Rent for such Lease Year will
thereupon be made.
(c) Each interim statement shall be certified to be correct by a
principal executive officer of Tenant. Each annual statement shall be certified
to be correct by a principal executive officer or public accountant.
Section 15.2. The term "Gross Sales" as used herein shall mean the
------------
total amount in dollars of the actual sales price, whether for cash or on credit
or partly for cash and partly on credit, of all sales of merchandise and
services and all other receipts of business conducted in or from the Premises,
including all mail or telephone orders received or filled at the Premises, and
including all deposits not refunded to purchaser, orders taken, although said
orders may be filled elsewhere, and sales by any sub-lessee, concessionaire or
licensee in the Premises. There shall not be deducted from such aggregate of
monies received any income, excess of profit, franchise, or other taxes based
upon or measured by Tenant's income and no deduction shall be allowed for
uncollected or uncollectible credit accounts. Gross Sales shall not, however,
include any sums collected and paid out for any sales or excise tax imposed by
any duly constituted governmental authority, or money collected for charity, nor
shall it include the exchange of merchandise between the stores of Tenant, if
any, where such exchange of merchandise is made solely for the convenient
operation of the business of Tenant, nor the amount of returns to shippers or
manufacturers, nor the amount of any credit refund made upon any sale where the
merchandise sold, or some part thereof, is thereafter returned by the purchaser
and accepted by Tenant, nor sales of fixtures, which are not a part of Tenant's
stock in trade. Each and every sale made by a Concessionaire, sublessee or
assignee shall be deemed to be a sale made by Tenant for the purposes of this
Section; but nothing contained herein (or in any other Section of this Lease
which governs the conduct or operation of any Concessionaire, sublessee or
assignee or the use of any mechanical or other vending device) shall be deemed
to be a consent to the occupancy of any space in the Premises by a
Concessionaire, sublessee or assignee or to the use in, at or on the Premises of
any mechanical or other vending device, in violation of the provisions of this
Lease.
Section 15.3. (a) Tenant shall keep and maintain (and shall cause the
------------
Permitted Sublessee and any Concessionaire, sublessee or assignee to keep and
maintain) at all times during the Term in the Premises or at Tenant's principal
corporate office full, true and accurate books of account and records from which
Gross Sales for each Lease Fiscal Year can be determined (including, but not
limited to, all federal, state and local tax
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<PAGE>
returns of Tenant and each Concessionaire, sublessee or assignee; records of
daily bank deposits of the entire receipts from transactions in, at, on or from
the Premises; sales slips; daily dated cash register tapes; sales books;
duplicate bank deposit slips; and bank statements;) which shall be conveniently
segregated from other business matters of Tenant and each Concessionaire,
sublessee or assignee. Such records with respect to any Lease Year shall be so
kept and maintained for at least twenty-four (24) calendar months after the end
of such Lease Year.
(b) Landlord, by its servants, agents or employees, shall have the
right at any time during regular business hours, during each Lease Year, but not
more than once in any Lease Year (unless Tenant is delinquent in delivering to
Landlord the interim and annual statements pursuant to Sections 15.1 (a) and (b)
herein), and during the twenty-four (24) month period following each Lease Year,
to spot check, inspect, verify and audit all such books and records and all
other papers and files of Tenant and each Concessionaire, sublessee or assignee
relating to Gross Sales for such Lease Year. Tenant and each Concessionaire
shall, on request of Landlord, make all such books, records, papers and files
available for such examination.
(c) If an audit made after the end of any Lease Year by or on behalf
of Landlord shows that the amount of Gross Sales stated on Tenant's annual
statement for such Lease Fiscal Year was understated by an amount in excess of
one percent (1%) of Gross Sales, then Tenant shall pay to Landlord the
reasonable cost of such audit. Landlord's rights to have an audit made with
respect to any Lease Year shall expire at the end of the twenty-four (24) month
period following each Lease Year; but if at any time Landlord shall contend that
fraud may exist with respect to any of Tenant's reports with respect to Gross
Sales for any Lease Year, then the twenty-four (24) month inspection and audit
period shall be deemed to be extended until such contention of Landlord has been
finally determined and, during the extended period, Tenant shall keep all books,
records, papers and files relating to Gross Sales for the Lease Year or Years in
connection with which Landlord has raised contentions of fraud at the place or
places set forth in this Section 15.3 and shall make same available to Landlord
as provided in this Section 15.3 during the entire extended period.
ARTICLE XVI
-----------
UTILITIES
---------
Section 16.1. From and after the day on which Landlord delivers the
------------
Premises to Tenant for Tenant's Work, Tenant shall pay to the appropriate
utility provider all bills for water, gas, electricity, fuel, light, heat and
power furnished to or used by Tenant on or about the Premises, and all sewerage
disposal or sewerage service charges for the Premises. If any utilities are
provided to the Premises by Landlord and are payable by Tenant under the terms
of this Lease, such utilities shall be provided without mark-up at the same rate
at which Landlord purchases the same from the utilities supplier. If Tenant
does not pay the above bills, Landlord may after providing five (5) business
days' written notice and opportunity for Tenant to pay such bills, pay the same,
and such payment shall be additional rent for the Premises. Landlord may elect
to furnish one or more utility service to Tenant, and, in such event, Tenant
shall purchase such services from Landlord and shall pay, as additional rent,
the charges for such services by Landlord which, in no event, shall exceed the
rates which would be charged for the identical service furnished by the local
public utility company. After reasonable written notice to Tenant, Landlord may
discontinue furnishing any service, without obligation other than to connect the
Premises to the appropriate public utility.
ARTICLE XVII
------------
ADDITIONAL CHARGES
------------------
Section 17.1. It is the purpose and intent of Landlord and Tenant
------------
that the return to Landlord under this Lease shall be absolutely net to Landlord
so that the share of
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taxes, insurance premiums and Common Area Charges (Article XII) attributable to
the Premises shall be the obligation of Tenant rather than Landlord. To the
extent Tenant's share of taxes is payable to Landlord, Landlord, at Landlord's
election, shall be deemed to be the agent for remitting timely payment to the
appropriate taxing authorities, or Landlord may require Tenant to make its
payment of taxes directly to the appropriate taxing authorities or to such other
party as Landlord may designate from time to time.
Section 17.2. (a) Tenant covenants and agrees to pay to Landlord as
------------
additional rental hereunder, or such other party as Landlord shall designate by
written notice to Tenant, Tenant's Pro Rata Share (as defined in Article II
hereof) of all real property taxes (and/or income or other forms of taxes, to
the extent that such other taxes are levied in lieu of or in addition to or as
substitutes for real property taxes); taxes on rents and assessments, regular or
special, levied against the Premises and the Shopping Center, and all costs
reasonably incurred in any proceeding brought by Landlord to reduce taxes
(hereinafter referred to as "Taxes"). In any abatement of Taxes of the Shopping
Center which have been previously paid during the term Tenant shall receive a
pro rata share of such abatement. There shall be excluded from the foregoing
all Taxes attributable to those parcels in the Shopping Center (i) not owned or
ground leased by Landlord, or (ii) which are separately assessed for tax
purposes and which Taxes are separately paid by the tenants or occupants of such
parcels. During each Lease Year, other than the first Lease Year, Tenant shall
pay to Landlord or such other party in twelve (12) equal monthly installments on
the first day of each month thereof, Tenant's Pro Rata Share of estimated Taxes
for such Lease Year based on the total Taxes for the preceding Lease Year (or
the preceding twelve (12) months if the preceding Lease Year is less than twelve
(12) months).
During the first Lease Year Tenant shall pay as Tenant's Pro Rata
Share of Taxes on the first day of each month thereof a sum equal to an amount
estimated by Landlord to be Tenant's Pro Rata Share of the Taxes for the first
Lease Year divided by the number of months in such Lease Year. If the
Commencement Date is other than the first day of a calendar month, then the
installment of Taxes due for the first month shall be pro-rated on the basis of
a thirty (30) day month.
(b) The amount payable by Tenant for Taxes in each Lease Year,
including the first Lease Year, shall be subject to adjustment at such time
(during or subsequent to each Lease Year) as Landlord submits a statement to
Tenant following Landlord's having ascertained the actual amount of Taxes due
for each Lease Year. The adjustment, if requiring an additional payment, shall
be payable by Tenant within ten (10) days after submission of the aforementioned
statement by Landlord; if in favor of Tenant, the adjustment shall be credited
against the next accruing monthly installments of Taxes due from Tenant. If any
such statement of actual Taxes is submitted to Tenant during the Lease Year for
which such statement is applicable, then the monthly installments of Taxes
accruing during such Lease Year subsequent to submission of the statement shall
be adjusted, based on the actual amount of Taxes due for such Lease Year.
(c) Notwithstanding the provisions of subparagraphs (a) and (b) of
this Section 17.2, Landlord may require Tenant to pay Tenant's Pro Rata Share of
Taxes in lump sum payments or in other than monthly installments, if such
payment is required by the taxing authorities or by Landlord's mortgagee(s).
Section 17.3. In consideration of Landlord's agreement as contained in
------------
Section 8.5 hereof, Tenant covenants and agrees to pay to Landlord as Additional
Rent Tenant's Pro Rata Share (as defined in Article II) of all fire and extended
coverage, commercial general liability, loss of rent and any other insurance
premiums payable with respect to coverage of the Premises, the Common Areas and
other land and buildings in the Shopping Center which Landlord elects to
maintain. During each Lease Year Tenant's Pro Rata Share of insurance premiums
shall be paid in twelve (12) equal monthly installments on the first day of each
month thereof, except during the first Lease Year when such payments shall be
made in equal monthly installments corresponding to the number of months in such
Lease Year.
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<PAGE>
ARTICLE XVIII
-------------
DEFAULTS AND REMEDIES
---------------------
Section 18.1. If Tenant shall default (i) in the payment of any Rent,
------------
or any other sum or charge due to Landlord or any other party under this Lease
including, without limitation, Common Area Charges and Tenant's Pro Rata Share
of Taxes and insurance premiums, within five (5) days after Tenant's receipt of
written notice from Landlord to Tenant of non-receipt of any such payment; or
(ii) in the full, faithful and punctual performance of any other covenant,
agreement, provision or condition on the part of Tenant to be performed, for any
period of time in excess of five (5) days after the same is required to have
been performed under the provisions of this Lease, or (iii) except as otherwise
expressly provided herein, if the Premises become vacant or deserted or if any
execution or attachment shall be issued against Tenant or any of Tenant's
property, whereupon the Premises shall be taken or occupied, or attempt made to
do so, other than by Tenant; or (iv) if Tenant or any Guarantor or assignee of
this Lease shall make any assignment for the benefit of creditors or be
dissolved, voluntarily or involuntarily, or if a receiver or trustee of Tenant
or Guarantor or any assignee of this Lease and/or its property shall be
appointed in any proceedings and such appointment, if made in proceedings
instituted by Tenant, Guarantor or any assignee of this Lease, shall not be
vacated within ten (10) days after it has been made, or if made in proceedings
instituted by other than Tenant, Guarantor or any assignee of this Lease, shall
not be vacated within thirty (30) days after it has been made, then in any such
event, Tenant shall forthwith pay Landlord any Rent and other sums then due to
Landlord under this Lease plus all costs of collection including attorney's fees
of fifteen percent (15%) of the Rent and other sums then due hereunder, and, in
addition, Landlord shall have the right, at its option, without any further
demand or notice, to re-enter the premises and eject all persons therefrom,
using all necessary force so to do, and either:
(a) declare the Term under this Lease to be at an end, in which event
the Term shall expire, cease and so come to an end and Tenant shall immediately
pay Landlord, as liquidated damages, a sum equal to the amount, if any, by which
the then cash value of the total of the Rent reserved, and of the moneys, costs,
charges and expenses required to be paid by Tenant under the provisions of this
Lease, for the period which would otherwise have been the balance of the Term,
exceeds the then cash value of the fair and reasonable rental value of the
Premises for the same period, and in any such event, Tenant hereby waives the
service of any notice of intention to occupy or re-enter the Premises, or to
terminate the Term or to institute legal proceedings, or any other notice
otherwise required by law in order to afford to Landlord the remedies
hereinabove provided; or
(b) without declaring the Term under this Lease to be at an end, re-
let the Premises, or any part thereof, as the agent and for the account of
Tenant, upon such terms and conditions as Landlord may deem advisable, in which
event the rents (and other monies) received on such re-letting shall be applied
first to the reasonable expenses of such re-letting and collection, including
but not limited to, necessary renovation of the Premises, reasonable attorneys'
fees, disbursements related to said attorney's fees, any real estate commissions
actually paid, and thereafter toward payment of Rent and of all moneys, costs,
charges and expenses due or to become due to Landlord hereunder, and if a
sufficient sum shall not be thus realized to pay the total of all such expenses,
Rent, and other such amounts, Tenant shall pay Landlord any deficiency monthly
(notwithstanding that Landlord may have received sums in excess of the total of
such expenses, Rent and other such amounts in previous or subsequent months),
and Landlord may bring action(s) therefor as such monthly deficiencies shall
arise.
Any such re-entry shall be allowed by Tenant without let or hindrance
and Landlord shall not be liable in damages for any such re-entry or guilty of
trespass.
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<PAGE>
For the purposes of this Section, (i) the "fair and reasonable rental
value of the Premises" shall be determined on the basis of a tenant paying not
only a return to a landlord for the use and occupation of the Premises, but also
such monies, costs, charges and expenses as are required to be paid by Tenant
under the terms of this Lease, and (ii) the term "then cash value" means the
amount in question discounted to the date on which the Term comes to an end at
the rate of four percent (4%) per annum, convertible quarterly.
Section 18.2. In the event of a default by Tenant beyond any
------------
applicable notice and opportunity to cure period, in connection with either
Section 18.l(a) or 18.l(b) above, Landlord is authorized to re-enter, seize and
take possession of all furniture, equipment, inventory, and movable Trade
Fixtures without being deemed guilty in any manner of trespassing or conversion.
Landlord shall be permitted to sell the seized property at a public or private
sale on thirty (30) days notice to Tenant, as payment for sums owing under this
Lease.
Section 18.3. Any remedies specifically provided for in this Lease
------------
are in addition to and not exclusive of any other remedy available to Landlord.
Section 18.4. In the event of any breach of this Lease by Tenant,
------------
Landlord may (but shall not be obligated to) at any time, after ten (10) days'
written notice, except in emergency situations for which no notice shall be
required, cure such breach for the account and at the expense of Tenant. If
Landlord at any time so elects or is compelled by any other person to cure such
breach or is compelled to incur any other expense arising out of such breach by
Tenant (including, without limitation, reasonable attorneys' fees and
disbursements in instituting, prosecuting or defending any suits, actions or
proceedings to enforce Landlord's rights under this or any other Section of this
Lease or otherwise) the sum or sums so paid by Landlord, with all interest,
costs and damages, shall be paid by Tenant to Landlord within five (5) days
following written demand. Such expenses may be recovered in the same action or
proceeding forming the basis of default.
Section 18.5. Any payment required to be made by Tenant under any
------------
provision of this Lease (other than payments of Rent provided for in Article V)
not made by Tenant when and as due shall thereupon be deemed to be due and
payable by Tenant to Landlord on demand along with an additional late fee of
$100.00.
Section 18.6. Tenant hereby waives its right to plead any
------------
counterclaim or offset in any action or proceeding brought by Landlord against
Tenant for non-payment of rent or default hereunder. This shall not, however,
be construed as a waiver of Tenant's right to assert any claim in a separate
action brought by Tenant.
ARTICLE XIX
-----------
SURRENDER OF PREMISES
---------------------
Section 19.1. Tenant shall, on the last day of the Term, quit and
------------
surrender the Premises, broom clean, in good order, condition and repair, normal
wear and tear excepted, together with all alterations, additions, improvements,
equipment and fixtures which may have been made in, on, or to the Premises,
except Movable Trade Fixtures installed at the sole expense of Tenant. If
Landlord shall, during the period of thirty (30) days prior to the end of the
Term,, notify Tenant that Landlord desires to have Tenant remove from the
Premises any or all alterations, additions, improvements, equipment and fixtures
which were installed by Tenant therein after Tenant received notice that
Landlord reserved the right to require the improvements so installed to be
removed at the end of the Term, then Tenant shall do so at Tenant's sole cost
and expense, and Tenant shall repair any damages to the Premises caused by such
removal.
If the Premises be not surrendered at the end of the Term, then Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including without limitation, any claims
founded on such
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<PAGE>
delay made by any succeeding Occupant of the Premises or any
part thereof, and Tenant shall be liable to Landlord for legal fees, costs and
expenses incurred by Landlord in obtaining possession of the Premises.
ARTICLE XX
----------
SUBORDINATION
-------------
Section 20.1. This Lease, at the option of Landlord, shall be subject
------------
and subordinate to all ground or underlying leases or subleases, including,
without limitation, sale leaseback or leaseback leases to which Landlord is or
may become a party as tenant or subtenant thereunder and to all mortgages, deeds
of trust, deed to secure debt or conveyances for security purposes, which may
now or hereafter affect the real property of which the Premises form a part, and
to all renewals, replacements, modifications, consolidations and extensions of
any thereof.
Section 20.2. Tenant, in confirmation of the subordination provided
------------
for in Section 20.1, shall execute and deliver promptly within fifteen (15) days
following receipt, any certificate or instrument which Landlord may at any time
request in connection herewith. In the event that Tenant shall fail to execute
and deliver such certificate or instrument within fifteen (15) days following
receipt of any written request for Tenant's execution thereof, then (a) Tenant
shall be in default of this Lease and, notwithstanding the terms of Section 18.1
of this Lease, shall have only five (5) days following written notice of such
default to cure same, and (b) notwithstanding any previous subordination of this
Lease, Landlord, or the landlord under any ground lease or the holder of any
mortgage, deed of trust, deed to secure debt or security instrument, shall have
the right, by written notice to Tenant, to subordinate such ground lease or
security instrument to this Lease for any period of time.
Section 20.3. At the option of the holder (or successor in interest)
------------
of any mortgage and/or deed of trust and/or ground or underlying lease, Tenant
shall attorn to and recognize as Tenant's Landlord hereunder such holder or
successor. Upon such attornment this Lease shall continue in full force and
effect as a direct lease between Tenant and such holder or successor except that
such holder or successor shall not be (i) liable for any previous act or
omission by Landlord under this Lease, (ii) subject to any off-set of rent which
shall thereunto have accrued to Tenant against Landlord, (iii) bound by any
previous modification of this Lease not expressly provided for herein, or (iv)
bound by any previous prepayment of Rent for a period greater than sixty (60)
days unless such modification or prepayment shall have been expressly approved
in writing by such holder or successor.
Section 20.4. Tenant recognizes and agrees that notwithstanding the
------------
subordination of this Lease to that certain Deed to Secure Debt and Security
Agreement as set forth in Section 3.1 hereof, the Mortgagee, its successors or
assigns, or other holders of said instrument may sell the property described
therein in the manner provided in Section 2.01(iv) thereof, and thereby at the
option of said Mortgagee, its successors or assigns or other holders of said
instrument, sell said property subject to this Lease. Landlord hereby covenants
and agrees that following Tenant's execution of this Lease and delivery to
Landlord of complete plans and specifications for Tenant's proposed work in the
Premises, Landlord will request a non-disturbance agreement from Landlord's
current mortgagee in favor of Tenant. Tenant hereby acknowledges and agrees
that Landlord shall not be under any obligation to obtain a non-disturbance
agreement in favor of Tenant, nor shall delivery of a non-disturbance agreement
be a condition to the obligations of Tenant hereunder. Tenant shall be
responsible for all third party costs and expenses incurred by Landlord in
connection with any non-disturbance agreement in favor of Tenant.
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ARTICLE XXI
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GENERAL PROVISIONS
------------------
Section 21.1. Tenant, on paying the Rent and observing, performing
------------
and keeping all of the provisions of this Lease on its part to be observed,
performed and kept, shall lawfully, peaceably and quietly have, hold and enjoy
the Premises during the Term without hindrance, ejection or molestation by any
person(s) lawfully claiming under Landlord, subject to the other terms and
provisions of this Lease.
Section 21.2. Landlord shall not be deemed, in any way or for any
------------
purpose, to have become, by the execution of this Lease or any action taken
hereunder, -a partner of Tenant in its business or otherwise or a joint venturer
or a member of any joint enterprise with Tenant.
Section 21.3. All payments required to be made by Tenant to Landlord
------------
under this Lease shall be paid in lawful money of the United States and shall be
paid and delivered to Landlord at Landlord's office, or at such other place as
Landlord may from time to time by notice to Tenant direct. In the event that
Tenant shall fail to timely make any payment required to be made by Tenant to
Landlord under this Lease, then, in addition to the amount past due, Tenant
shall be obligated to pay interest on such past due amount until payment in full
has been received by Landlord, such interest to accrue at the rate of four
percent (4%) plus the then current prime rate of interest as published by Chase
Manhattan Bank at its main office in New York, New York.
Section 21.4. If Tenant shall hold-over after the end of the Term,
------------
then such holding over shall be construed as a tenancy from month-to-month,
subject to all of the provisions, conditions and obligations of this Lease.
Section 21.5. Landlord and its designees shall have the right, upon
------------
twenty-four (24) hours notice (except in the event of emergency), to enter the
Premises during reasonable business hours (and in emergencies at all times), (i)
for any purpose connected with Landlord's rights or obligations under this
Lease; and (ii) for all other lawful purposes.
Section 21.6. The terms and provisions of this Lease shall be binding
------------
upon and inure to the benefit of Landlord, its successors and assigns, and the
person identified as Tenant, its heirs, administrators, executors,
representatives, successors and assigns. Nothing in this Section contained
shall be deemed to authorize or permit any assignment or other transfer, in
whole or in part, of the interest of Tenant in violation of any of the other
provisions of this Lease, but, notwithstanding anything contained herein, any
person occupying the Premises or any portion thereof as a result of any such
assignment or transfer so in violation of the provisions of Article XIII shall
be bound by all the obligations of Tenant hereunder but shall not be entitled to
any of the benefits of Tenant hereunder. Assignment of this Lease by Tenant
shall not relieve Tenant of its obligations hereunder.
Section 21.7. (a)Tenant agrees that at any time or from time to time,
------------
upon ten(10) days' prior request by Landlord, it will execute, acknowledge and
deliver to Landlord a statement in writing stating (1) that this Lease is
unmodified and in full force and effect (of if there have been modifications,
that the same is in full force and effect, with such modifications); (2) the
commencement and termination date thereof, (3) that all conditions to be
performed by Landlord under this Lease have been performed; (4) that there are
no expenses or offsets against the Landlord, or stating those claimed by Tenant;
(5) the date to which Rent and other charges have been paid in advance, if any;
and (6) such other matters requested by Landlord. Tenant's failure to deliver
the above-referenced statement to Landlord within ten (10) days of request by
Landlord shall be an event of default pursuant to Article XVIII of this Lease.
It is intended that any such statement may be relied upon by any prospective
purchaser of the fee or any leasehold, or the mortgagee, beneficiary or conveyee
of any security or interest, or any assignee of any thereof, under
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any mortgage, deed of trust or conveyance for security purposes now or hereafter
made with respect to the fee or any leasehold or other interest in the Premises.
(b) Tenant agrees within five (5) days after request therefor to
acknowledge in form satisfactory to Landlord's mortgagee, assignment of this
Lease to such mortgagee.
Section 21.8. Landlord and Tenant warrant that they have not had any
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dealings with any realtors, brokers or agents in connection with the negotiation
of this Lease other than Ruth Coan of The Shopping Center Group (the "Broker").
Landlord shall be responsible for any commission owed to the Broker in
connection with this Lease in accordance with the terms of a separate agreement
between Landlord and Broker. Landlord and Tenant each agree to hold the other
harmless from and against any and all liabilities and claims for commissions and
fees arising out of a breach of the foregoing warranties with respect to
brokerage commissions.
Section 21.9. If for any reason the Term shall not have commenced
------------
within five (5) years from the date hereof, then this Lease shall automatically
terminate and be of no further force and effect, and thereupon neither party
hereto shall have any further rights or obligation hereunder.
Section 21.10. Subject to the provisions of Section 5.5 of this Lease,
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Tenant agrees that it will not, nor will Tenant permit anyone acting by, through
or under Tenant, to bring Hazardous Materials (as defined in Section 5.5 hereof)
onto the Premises (except such items as are customarily utilized in Tenant's
business and in accordance with all applicable laws), and if Hazardous Materials
are brought onto the Premises by Tenant or anyone acting by, through or under
Tenant, Tenant shall promptly remove or remediate the same. Tenant shall
defend, indemnify and hold Landlord, its officers, partners, directors,
shareholders, employees or agents harmless from and against all claims, costs,
liabilities, judgments, damages, fines, penalties and expenses or loss
including, reasonable attorney's fees, consultant's fees and expert fees,
arising out of Hazardous Materials being brought onto the Premises by Tenant or
anyone acting by, through or under Tenant. Without limiting the generality of
the foregoing, this indemnification shall survive the expiration of this Lease
and does specifically cover costs incurred in connection with any investigation
of site conditions or any cleanup, remedial, removal or restoration work
required by any federal, state or local governmental agency or political
subdivision because of the presence or suspected presence of Hazardous Materials
in the soil, groundwater or soil vapor on or under the Premises as the result of
the acts of Tenant, its officers, agents or employees.
Section 21.11. All notices, statements, demands, requests, consents,
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approvals, authorizations, offers or agreements hereunder by either party to the
other shall be deemed to be given to the other party for the purposes of this
Lease only if in writing sent by (a) nationally recognized overnight air express
courier, (b) hand delivery, or (c) United States certified mail, return receipt
requested, postage prepaid, and addressed to the recipient at the address
appearing on the first page of this Lease. If so served or sent, any such
matter shall be deemed given for all purposes hereunder upon receipt (or
refusal) at the appropriate address. In the event of a postal strike or other
interference with the regular delivery of mail, notices may be served in person
or by telegram in lieu of certified mail.
Section 21.12. If at any time the term Tenant shall include more than
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one person, the obligations of all such persons hereunder shall be joint and
several.
Section 21.13. Each term and provision of this Lease to be performed
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by Landlord or Tenant shall be construed to be both a covenant and a condition.
Section 21.14. The failure of Landlord to insist in any one or more
-------------
cases upon the performance of any of the provisions, covenants, agreements or
conditions of this Lease or to exercise any option herein contained shall not be
construed as a waiver or
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a relinquishment for the future of any such provision, covenant, agreement,
condition or option. Receipt by Landlord of Rent or of any other payment or the
acceptance by Landlord of performance of anything required by this Lease to be
performed with knowledge of the breach of a covenant shall not be deemed a
waiver of such breach. No waiver of any provision, covenant, agreement or
condition of this Lease shall be deemed to have been made unless expressed in
writing and signed by the party against whom such waiver is charged.
Section 21.15. This Lease may not be changed orally, but only by an
-------------
agreement in writing signed by the party against whom enforcement of any change,
modification or discharge is sought.
Section 21.16. Tenant hereby waives any and all rights of redemption
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granted by or under any present or future laws in the event that Tenant is
evicted or dispossessed for any cause, or in the event of Landlord obtaining
possession of the Premises by reason of the violation by Tenant of any of the
provisions, covenants, agreements or conditions of this Lease, or otherwise.
Section 21.17. Intentionally deleted.
-------------
Section 21.18. The provisions of this Section shall be applicable if
-------------
there shall occur, during the Term of this Lease, or prior to the commencement
thereof, any (i) strike(s), lockout(s) or labor dispute(s); (ii) the inability
to obtain labor or materials, or reasonable substitutes therefor; (iii) acts of
God, weather conditions, governmental restrictions, regulations or controls,
enemy or hostile governmental action, civil commotion, fire or other casualty,
or other conditions similar to those enumerated in this item (iii) beyond the
reasonable control of the party obligated to perform; or (iv) delays due to the
act or omission of the other party. If Landlord or Tenant shall, as the result
of any of the above-described events, fail punctually to perform any obligation
on its part to be performed under this Lease, then such failure shall be excused
and not be a breach of this Lease by the party in question, but only to the
extent occasioned by such event. If any right or option of either party to take
any action under or with respect to this Lease is conditioned upon the same
being exercised within any prescribed period of time or at or before a named
date, then such prescribed period of time and such named date shall be deemed to
be extended or delayed, as the case may be, for a period equal to the period of
the delay occasioned by any above-described event. Notwithstanding anything
herein contained, however, (a) the provisions of this Section shall not be
applicable to Tenant's obligations to pay Rent or any other sums, monies, costs,
charges or expenses required to be paid by Tenant hereunder, (b) with respect to
Tenant's obligations under the provisions of Section 7.2, only the events
described in item (iii) of the first sentence of this Section shall be deemed to
be applicable for the purposes of this Section, and (c) the Commencement Date
shall be as set forth in Section 4.1 hereof
Section 21.19. As used in this Lease and when required by the context,
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each number (singular or plural) shall include all numbers, and each gender
shall include all genders. The captions and headings throughout this Lease are
for convenience of reference only and the words contained therein shall in no
way be held or deemed to define, limit, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision of, or the scope or
intent of, this Lease, nor in any way affect this Lease. Time is and shall be
of the essence of each term and provision of this Lease. The term "person" as
used herein means person, firm, association or corporation, as the case may be.
Section 21.20. There are no oral agreements between the parties hereto
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affecting this Lease, and this Lease supersedes and cancels any and all previous
negotiations, arrangements, agreements and understandings, if any, between the
parties hereto with respect to the subject matter thereof, and none thereof
shall be used to interpret or construe this Lease.
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Section 21.21. Tenant shall not record this Lease without the written
-------------
consent of Landlord. However, upon the request of Landlord or Tenant, the other
party shall join in the execution of a memorandum of this Lease (the
"Memorandum") for the purposes of recordation and either party may record same.
The Memorandum she describe the parties, the Premises and the Term, and any
special provisions, and shall incorporate this Lease by reference, but shall not
include provisions relating to amounts of Rent or other charges payable
hereunder, unless requested by Landlord. In lieu of recording a Memorandum of
Lease, Tenant shall record this Lease upon the request of Landlord or Landlord's
mortgagee.
Section 21.22. With respect to any provision of this Lease which
-------------
provides, in effect, that Landlord shall not unreasonably withhold or
unreasonably delay any consent or any approval, Tenant, in no event, shall be
entitled to make, nor shall Tenant make, any claim for, and Tenant hereby waives
any claim for money damages; nor shall Tenant claim any money damages by way of
set off, counterclaim or defense, based upon any claim or assertion by Tenant
that Landlord has unreasonably withheld or unreasonably delayed any consent or
approval; but Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, or for specific performance, injunction or declaratory
judgment.
Section 21.23. If any term or provision of this Lease or any portion
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of a term or provision hereof or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term or provision or portion thereof to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease and each portion thereof shall be valid and be enforced to the
fullest extent permitted by law.
Section 21.24. Tenant agrees that Tenant will not discriminate by
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segregation or otherwise against any person or persons because of race, creed,
color or national origin in furnishing or by refusing to furnish to such person
or persons the use of any facility, service, privilege, accommodation and
activity provided thereon.
Section 21.25. Notwithstanding the provisions contained in Section
-------------
18.1 or elsewhere in this Lease, in the event that any action or proceeding is
brought to enforce any term, covenant or condition of this Lease on the part of
Landlord or Tenant, the prevailing party in such litigation shall be entitled to
recover from the non-prevailing party reasonable attorneys' fees actually
incurred in such action or proceeding.
Section 21.26. Upon request by Tenant or any proposed equipment lessor
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or mortgagee of Tenant, Landlord hereby agrees to subordinate any statutory lien
or other rights Landlord may have in and to any specific personal property,
trade fixtures, inventory and equipment of Tenant from time to time located
within the Premises. In such event, Landlord hereby agrees to execute such
reasonable documentation as may be requested by such equipment lessor or
mortgagee.
(Signatures Beginning on Next Page)
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease under seal as of
the day and year first above written.
LANDLORD:
Signed, sealed and delivered in the U.S. 41 & I 285 COMPANY, a New York
presence of: general partnership
BY:____________________(SEAL)
__________________________ Morton L. Olshan
Witness Managing Partner
__________________________
Notary Public
My commission expires:
__________________________
TENANT:
Signed, sealed and delivered in the HARRY'S FARMERS MARKETS, INC.,
presence of: a Georgia corporation
__________________________ BY:_________________________
Witness Name:
Title:
__________________________ ATTEST:______________________
Notary Public Name:
Title:
My commission expires:
[CORPORATE SEAL]
__________________________
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EXHIBIT "A"
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EXHIBIT "B"
SHOPPING CENTER
Tract I
- -------
All that tract and parcel of land lying and being in Land Lot 947, 948, 979 and
980 of the 17th District, 2nd Section of Cobb County, Georgia and being more
particularly described as follows:
TO FIND THE TRUE POINT OF BEGINNING, commence at the intersection of the
easterly Right of Way of Akers Mill Road (50' right of way) with the northerly
Right of Way of U.S. Highway 41 (100' Right of Way); thence run northeasterly
along said Right of Way of Akers Mill Road 210.17' to a point; thence
S.80(degrees)06'40"E. 15.93' to the TRUE POINT OF BEGINNING; FROM SAID TRUE
POINT OF BEGINNING AS THUS ESTABLISHED, run thence N.29(degrees)34'45"E. along
Future Right of Way of Akers Mill Road 21.36' to a point; thence
N.28(degrees)00'45"E. along said Future Right of Way 142.76' to a point; thence
N.31(degrees)35'20"E. along said Future Right of Way 93.00' to a point; thence
N.33(degrees)39'55" E. along said Future Right of Way 87.68' to a point; thence
N.46(degrees)38'40"E. along said Future Right of Way 91.34' to a point- thence
N.49(degrees)33'35"E. along said Future Right of Way 114.96' to a point; thence
N.49(degrees)16'00"E. along said Future Right of Way 153.96' to a point; thence
N.49(degrees)26'25"E. along said Future Right of Way 64.22' to a point; thence
N.48(degrees)40'55"E. along said Future Right of Way 170.00' to a point; thence
N.48(degrees)03'20"E. along said Future Right of Way 16.28' to a point on the
Main Diversified Tract; thence S.41(degrees)56'40"E. along the Main Diversified
Tract 68.33' to a point; thence S.20(degrees)51'15"W. along the Main Diversified
Tract 255.00' to a point; thence S.69(degrees)08'45"E. along the Main
Diversified Tract 130.00' to a point; thence S.20(degrees)51'15"W. along the
Main Diversified Tract 452.00' to a point on the northerly line of the Cross
Access Easement; thence N.69(degrees)08'45"W. along the Cross Access Easement
113.00' to a point; thence S.65(degrees)42'09"W. along the Cross Access Easement
and Main Diversified Tract 61.03' to a point on Mall Outlet Parcel V; thence
N.69(degrees)08'45"W. along said Parcel V 100.00' to a point on Mall Outlet
Parcel V; thence N.80(degrees)51'30"W. along said Parcel V and Mall Outlet
Parcel VI 112.30' to a point, thence S.05(degrees)46'35" W. 38.31' along said
Parcel V to a point on the Standard Oil tract; thence N.80(degrees)06'40"W.
along Standard Oil tract 189.07' to the point of beginning. Mall Tract "A"
containing 6.29 acres.
Tract II
- --------
All that tract and parcel of land lying and being in Land Lots 948, 979 and 980
of the 17th District, 2nd Section of Cobb County, Georgia and being more
particularly described as follows:
Beginning at an iron pin located at the intersection of the northerly 150' right
of way of U.S. Highway 41 and the westerly edge of Land Lot 979 and running
thence northwesterly 114.64' along the arc of said right of way having a radius
of 1,507.395' and a chord bearing and distance of N.78(degrees)40'45"W. 114.64'
to a point; thence N.80(degrees)51'30"W. along the said right of way 58.05' to a
point on Mall Outlet Parcel V; thence N.04(degrees)08'30"E. along said Parcel V
184.64' to a point at the common comer of Mall Tract "A" and Parcel V; thence
N.65(degrees)42'09"E. along Mall Tract "A" 61.03' to a point on Mall Tract "A";
thence S.69(degrees)08'45"E. along Mall Tract "A" 113.00' to a point on Mall
Tract "A", thence N.20(degrees)51'15"E. along Mall Tract "A" 452.00' to a point
on Mall Tract "A"; thence N.69(degrees)08'45"W. along Mall Tract "A" 130.00' to
a point on Mall Tract "A"; thence N.20(degrees)51'15"E. along Mall Tract "A"
255.00' to a point on Mall Tract "A"; thence N.41(degrees)56'40"W. along Mall
Tract "A" 68.33' to a point on the 80' right of way of Akers Mill Road; thence
N.48(degrees)03'20"E. along said right of way 39.00' to a point on said right of
way; thence S.69(degrees)08'45"E. along Mall Tract "S" 460.23' to a point;
thence S.35(degrees)12'05"E. along Mall Tract "G" 53.72' to a point; thence
S.69(degrees)08'45"E. along Mall Tract "G" 55.72' to a point; thence
S.20(degrees)54'10" W. along Mall Tract "G" 529.00' to a point, thence
N.69(degrees)08'45"W. along Mall Tract "S" 236.36' to a point; thence
S.20(degrees)51'15"W. along Mall
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Tract "G" 244.85' to a point at the common comer of Mall Tract " G" and Parcel
IV; thence S. 20(degrees)51'15"W. along Parcel IV 150.00' to a point on the arc
of the right of way of U.S. Highway 4 1, having a: right of way of 150'; thence
northwesterly 84.68' along the arc of said right of way having a radius of
1507.395' and a chord bearing and distance of N.74(degrees)53'25"W. 84.67' to
the iron pin at the point of beginning. The Main Diversified Tract containing an
area of 7.97 acres.
Tract III
- ---------
All that tract and parcel of land lying and being in Land Lots 979 and 980 of
the 17th District, 2nd Section of Cobb County, Georgia and being more
particularly described as follows:
Beginning at a point lying on the northern line of Land Lot 979 being located
232.35' as measured along said Land Lot line northwesterly from the comer of
Land Lots 979, 980, 1013 and 1014 and running thence S.20(degrees)51'15" W.
along Mall Tract "C" 985.02' to a point at the comer of Mall Tract "C" and Mall
Outlet Parcel II; thence N.69(degrees)08'45"W. along Mall Outlet Parcel II and
III 252.39' to a point on Mall Outlet Parcel III; thence S.64(degrees)15'10"W.
along said Parcel III 50.00' to a point; thence S.04(degrees)15'10"W. along said
Parcel III 130.00' to a point on the northerly line of the 150' Right of Way of
U.S. Highway 41; thence northwesterly along the arc of said Right of Way 55.75'
to a point on said Right of Way at the Comer of the Theatre Pylon Sign tract;
thence N.04(degrees)15'10"E. along the Theatre Pylon Sigh tract and Mall Outlet
Parcel IV 157.77' to a point thence N.65(degrees)08'50"W. along said Parcel IV
169.20' to a point- thence N.69(degrees)08'45"W. along said Parcel IV 120.00' to
a point at the comer of said Parcel IV and the Diversified Tract; thence
N.20(degrees)51'15"E. along the Diversified Tract 244.85' to a point; thence
S.69(degrees)03'45" E. along the Diversified Tract 236.36' to a point; thence
N.20(degrees)54'18"E. 529.00' to a point; thence N.69(degrees)08'45" W. along
the Diversified Tract 55.72' to a point; thence N.35(degrees)12'05" W. along the
Diversified Tract 53.72' to a point; thence N.69(degrees)08'45"W. along the
Diversified Tract 460.23' to a point on the southeasterly side of the Future
Easement on Akers Mill Road; thence N.48(degrees)03'20"E. along said Future
Easement 47.09' to a point at the corner of said Future Easement and Mall Outlet
Parcel I; thence S.69(degrees)08'45"E. along said Parcel I 430.22' to a point at
the comer of said Parcel I and the property now or formerly owned by Mrs. Jane
Thornton Kennedy; thence S.35(degrees)12'05"E. along said Kennedy property
75.00' to an iron pin on the northern line of Land Lot 979; thence
S.89(degrees)52'30"E. along said Land Lot line 404.87' to a pin; thence
S.89(degrees)53'00"E. along said Land Lot line 74.75' to the point of beginning.
Mall Tract "B" containing an area of 10.44 acres.
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EXHIBIT "C"
-----------
DESCRIPTION OF LANDLORD'S WORK
1. Landlord has previously provided to Tenant a copy of that certain
environmental report prepared for Landlord by Cape Environmental Management,
Inc., dated December 13, 1996 (the "Environmental Audit") identifying any
hazardous materials and/or hazardous substances (collectively "Hazardous
Materials") located within the Premises. Tenant shall be responsible for the
removal of any such Hazardous Materials within the Premises as identified in the
Environmental Audit as provided in the paragraph entitled Hazardous Materials on
Exhibit "D" to this Lease.
2. Tenant recognizes that the Premises contains improvements described as
Landlord's Work installed by Landlord or the prior occupant or both. Tenant
represents that it has inspected the Premises and is not relying on any
representation of Landlord or the prior occupant, and that Landlord does not
represent or warrant the condition of the Premises or the improvements, and
Tenant shall accept delivery of possession of the Premises in its present "as
is" condition.
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EXHIBIT "D"
DESCRIPTION OF TENANTS WORK
GENERAL:
Tenant shall at its own cost and expense be responsible for the
construction necessary to complete, finish, and furnish the Premises. The work
shall be performed in compliance with requirements of applicable legal statutes,
governmental agencies and Fire Rating Inspection Bureau having jurisdiction in
addition to the details, instructions and time periods contained in the lease.
HAZARDOUS MATERIALS:
As part of the performance of Tenant's Work, Tenant shall cause all
asbestos containing materials identified in the Environmental Audit to be
removed and abated, in compliance with all applicable "Environmental Laws" (as
hereinafter defined). Landlord shall, by reimbursement to Tenant, be
responsible for the payment of up to Sixty Thousand and No/100 Dollars
($60,000.00) towards the removal of such asbestos containing materials, as
hereinafter provided. Upon the completion of the asbestos removal and abatement
from the Premises, Tenant shall submit to Landlord (a) a detailed invoice for
the work performed by the abatement contractor; (b) daily logs of the
Contractor's employees at the job site; (c) licensing certificates for such
employees; (d) daily air monitoring information; (e) disposal certificates; and
(f) such other information as may be reasonably requested by Landlord. Within
ten (10) days following Landlord's receipt of (a) through (f) above, Landlord
shall pay to Tenant the amount due as reflected on the invoice, up to a maximum
of $60,000.00. In the event that despite the good faith and diligent efforts of
Tenant and its abatement contractor, the abatement of asbestos from the Premises
takes more than thirty (30) days following the Commencement Date, Tenant shall
provide Landlord with written notice thereof, including the reasonably
anticipated number of additional days that will be necessary to complete the
abatement of asbestos. Thereafter, Landlord and Tenant shall in good faith
negotiate whether Tenant shall receive any abatement of Fixed Minimum Rent as a
result of the excess time required for Tenant to complete Tenant's Work.
As used herein, the term "Environmental Law" shall mean any current
federal, state or local statutory law, rule, or regulation pertaining to
protection of the environment, or environmental pollution by Hazardous
Materials, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) and the Resource
Conservation and Recovery Act of 1976.
D-1. WALLS AND WALL FINISHES:
All interior partitions, curtain walls, fascias and related work including
taping and spackling of all sheetrock surfaces, other than partitions
installed by Landlord.
D-2. DOORS:
All doors and hardware within the premises other than door(s) and hardware
installed by Landlord.
D-3. WALL AND FLOOR COVERING:
All floor coverings, base, wall finishes, painting and decorating.
D-4. TRADE FIXTURES:
All furniture, furnishing, trade fixtures and related items.
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D-5. FIXTURE CONNECTIONS:
Electrical and mechanical connection of all fixtures and equipment other
than HVAC equipment installed by Landlord.
D-6. METERS:
All meters and/or meter pits required for utility services shall be
furnished and installed by and at Tenant's expense in locations approved by
Project Architect.
D-7. ELECTRICAL SYSTEM:
Furnishing and installation of all electric wiring and complete
installation and distribution of all electrical items and related work
throughout the premises other than electrical work installed by Landlord.
D-8. HEATING, VENTILATING
AND AIR-CONDITIONING
(a) Tenant shall furnish and install at his expense all ventilating
equipment, other than such equipment installed by Landlord, which may
be required for or be incidental to the operation of his business
and/or occupancy of the premises.
(b) All HVAC equipment and items of ventilation, whether installed by
Landlord or tenant, shall be operated, maintained and serviced by
tenant at tenant's expense.
(c) Should tenant desire to modify HVAC systems installed by Landlord
Tenant shall obtain Landlord's written approval prior to commencing
any work.
(d) Discharge from all tenant installed exhaust fans and hoods located on
roof shall be directed so as not to infiltrate the intake air of any
other equipment or cause damage to roofing surfaces.
(e) Design, location and support of all tenant installed HVAC equipment
shall be subject to approval by Project Architect.
(f) All ductwork, hoods, fans and equipment for heating, cooling,
ventilating and cooking other than equipment installed by Landlord
shall be furnished and installed by Tenant in accordance with
standards and requirements of Southern Standard Building Code, at
Tenant's expense.
D-9. ROOF OPENINGS:
Location of all roof openings and penetrations, other than roof openings
installed by Landlord shall be subject to approval of Project Architect.
In order to prevent the voiding of any warranty of the roof and roof
elements, all roof work, including the cutting of openings, reinforcing
and/or modification of roof structure, curbs flashing and resurfacing of
roof surfaces to accommodate the installation of Tenant Work shall be done
by a Bonded Roofing Contractor, approved or designated by Landlord,
employed by Tenant at Tenant's expense in a manner which will not adversely
affect Landlord's roof construction and 20 years bondable type roofing.
D-10. PLUMBING:
All plumbing fixtures including water waste and vent piping and connections
to utility service taps other than plumbing work installed by Landlord.
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<PAGE>
D-11. GAS:
All gas piping required by Tenant for cooking or other purposes shall be
furnished and installed by and at Tenant's expense.
D-12. TELEPHONE SYSTEM:
Furnishing and installing telephone service from central distribution point
to premises or empty conduit installed by Landlord including all work and
equipment within premises.
D-13. FIRE PROTECTION SYSTEM:
1) Tenant shall be responsible for all fire protection work in the
premises including the maintenance and repair of sprinkler system
installed by Landlord.
2) Should Tenant desire to modify sprinkler system installed by Landlord
he shall obtain Landlord's written approval, which approval shall not
be unreasonably withheld or delayed, prior to commencing any work.
All modification work shall be performed at Tenant's expense.
3 Prior to commencing any modification work in premises Tenant shall
submit drawings of sprinkler system to Improved Risk Mutuals for
review and approval, which approval shall not be unreasonably withheld
or delayed, with a copy of drawings and correspondence to landlord.
Promptly following such approval, Tenant shall forward a copy of the
approved drawings to Landlord.
D-14. INCREASED UTILITY SERVICES:
Any change required by Tenant in pipe size, conduit, taps services, etc.
which are to be furnished for or to the premises in accordance with the
provisions of Exhibit "C" "Landlord's Work" shall, if approved by Landlord,
be performed by Landlord. Tenant shall reimburse Landlord for all costs
involved in planning and performing the work.
D-15. ADDITIONAL WORK BY TENANT
Tenant's Work shall include such other and further work, which may be
required to have ready the premises for Tenant's use and occupancy so that
the premises shall have the appearance of, and be, a first class service or
retail outlet.
D-16. OPTIONAL ADDITIONAL
WORK BY LANDLORD
Landlord shall have the right to perform at Tenant's expense any of
Tenant's Work within or applicable to premises which may affect the
structural components of the building, the roof, or the general utility
systems of the project. Landlord shall notify Tenant prior to commencement
of any such work and Tenant shall reimburse Landlord for all costs involved
in planning and performing the work.
D-17. GENERAL WORK REQUIREMENTS:
a) Construction shall comply with applicable statutes, ordinances,
regulations, laws and codes of the governing authorities and/or
agencies, including requirements of the State Fire Marshal and the
Fire Rating Inspection Bureau requirements for fire insurance.
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<PAGE>
b) All required building and other permits and fees shall be obtained and
paid for by Tenant or Tenant's contractor and posted as required
within the premises.
c) Performance and/or labor and material bonds shall be obtained by Tenant
from Tenant's contractors when required by Landlord.
d) Tenant's contractor shall be required to show evidence of possessing
good labor relations, and shall avoid labor disputes which will
interfere with other work on the Shopping Center.
e) Tenant's contractors shall be required to work in harmony with other
contractors at the Shopping Center. Tenant's Contractors shall
coordinate their work with the general project work.
f) All unloading of construction materials and equipment shall be confined
within pre-determined areas, then hand carried or wheeled to premises.
Damage to sidewalks, etc. by Tenant's contractors will be charged to
Tenant. All materials and equipment must be stored within the
premises.
g) Landlord's field representative shall be notified at least 48 hours
prior to contractor's intent to cut roof openings. Framing of
openings shall comply with Project Architect's drawings and/or
Tenant's drawings heretofore approved by Landlord. Openings shall be
protected with temporary weathertight covers.
h) Landlord shall have the right to order any Tenant or Tenant's
contractor who willfully violates the above requirements to cease
work, and to remove himself, his equipment and his employees from the
Landlord's property. Tenant's contractors must be approved by the
Landlord.
i) Upon completion of all work affecting the premises, an inspection
verifying compliance with drawings and lease exhibits will be made by
Landlord's representative. Copy of standard form check list will be
furnished to Tenant by Landlord for confirmation and verification of
completed work prior to inspection of premises by Landlord.
D-18. PRE-CONSTRUCTION
REQUIREMENTS:
Prior to commencement of any work in premises, Tenant or Tenant's
contractor shall furnish the following information to Landlord:
a) General contractor's name, business address, and phone number.
b) Names of all contractors, subcontractors, and materialmen.
c) Insurance certificates which shall include Landlord as named insured.
d) Copy of the building permit.
e) Copies of the drawings heretofore approved by Landlord's Architect.
f) Date for commencement of construction.
g) Brief construction schedule listing the major trades.
h) Evidence of contractor's insurance as provided in D-20 and D-21 of this
Lease.
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<PAGE>
D-19. UTILITY:
Utility costs or charges for any service to the Premises shall be the
responsibility of Tenant from the date Tenant takes possession of its Premises
to commence Tenant's Work.
A) 1. Landlord will provide prior to opening for business trash removal
service for Tenant generated rubbish from designated collection
points. Tenant is obligated to utilize this service and is
responsible for breaking down boxes and placing trash in containers.
2. The cost to Tenant for this service will be $60.00 or 40 per square
foot of Gross Leasable Area in the Premises, whichever is greater.
Payment is to be remitted to Landlord in advance on the first of the
month after this service is initiated.
3. Tenant shall not permit trash to accumulate within its area or arcade
adjacent to its space. Should this situation develop and Landlord be
forced to remove Tenant's trash, the charge will be increased. All
construction debris generated by Tenant's contractors shall be removed
on a weekly basis from the work areas and the site.
D-20. INSURANCE:
Tenant's Contractor shall carry such types of insurance in such amounts as
designated below and all policies including, without limitation, those
hereinafter specified shall name the Landlord, its Architect, Engineer and
General Contractor and such other parties designated from time to time by
Landlord as additional insureds. Certificates of insurance shall provide that
no change or cancellation of such insurance coverage shall be undertaken without
thirty (30) days' written notice to Landlord. Tenant shall maintain with
responsible companies, licensed to do business in the State of Georgia and
satisfactory to Landlord which are rated by A.M. Best Company, Inc. as "A Class
XII" or better and which are otherwise satisfactory to Landlord, insurance
policies naming Landlord and any mortgage of Landlord as additional named
insureds, as their respective interests may appear.
D-21. TENANT'S GENERAL CONTRACTORS AND SUBCONTRACTORS
REQUIRED MINIMUM COVERAGES AND LIMITS OF LIABILITY:
(a) Workman's Compensation, Employer's Liability Insurance with limits of
not less than $500,000.00 or as required by state law, whichever is
greater, and any insurance required by any Employee Benefit Act or
other statutes applicable where the work is to be performed as will
protect the Contractor and Subcontractors from any and all liability
under the aforementioned acts.
(b) Comprehensive General Liability Insurance (including Contractors
Protective Liability) with a combined single limit for property damage
and bodily injury of not less than $500,000.00 per occurrence. Such
coverage shall include, but not be limited to, contractual liability
coverage and products and completed operations coverage, which
coverage shall be kept in force for on less than three (3) years.
Such insurance shall provide for explosion, collapse, and underground
property damage coverage and shall insured Landlord, its Architect,
Engineer, and the General Contractor and/or Subcontractors and such
other parties designated from time to time by Landlord as additional
insureds, against any and all claims for personal injury, including
death resulting therefrom, and damage to the property of others caused
by accident and arising from its operations under the Contract and
whether such operations are performed by the General Contractor,
Subcontractors, or any of their Subcontractors, or by anyone directly
or indirectly employed by any of them.
-41-
<PAGE>
(c) Comprehensive Automobile Liability Insurance, including the ownership,
maintenance and operation of any automotive equipment owned, hired,
and non-owned, with a minimum combined single limit of $ 1,000,000 for
bodily injury and property damage. Such insurance shall insure
Landlord, its Architect, Engineer, and the General Contractor and/or
Subcontractors and such other parties designated from time to time by
Landlord as additional insureds, against any and all claims for bodily
injury, including death resulting therefrom and damage to the property
of others arising form his operations under the Contractor,
Subcontractors, or any of their Subcontractors, or by anyone directly
or indirectly employed by any of them.
(d) Excess or umbrella liability insurance, with limits in excess of the
limits for the coverages required in subparagraphs D-21 (a) through D-
21 (c) of $5,000,000.
D-22. TENANT'S PROTECTIVE LIABILITY INSURANCE:
(a) Tenant shall provide Owner's Protective Liability Insurance as will
insure Tenant, Landlord, its Architect, Engineer and such other
parties designated from time to time by Landlord as additional
insureds, against any and all liability to third parties for damage
because of bodily injury liability (or death resulting therefrom) and
property damage liability of others or a combination thereof which may
arise form work in the completion of the Premises, and any other
liability for damages which may arise from work in the completion of
the Premises, and any other liability for damages which the General
Contractor and/or Subcontractors are required to insure under any
provisions herein. Said insurance shall be provided with a minimum
combined single limit for property damage and bodily injury of not
less than $1,000,000 per occurrence and $2,000,000 in the aggregate.
D-23. TENANT'S BUILDERS RISK INSURANCE - COMPLETED VALUE
BUILDER'S RISK MATERIAL DAMAGE INSURANCE COVERAGE:
(a) Tenant shall provide "Special" or "All Risk" Builders Risk Coverage on
its work in the Premises as it relates to the building within which
the Premises are located and within a radius of 100 feet of the
Premises, naming Landlord, its Architect, Engineer, General Contractor
and/or Subcontractors and such other parties designated from time to
time by Landlord as additional insureds. The amount of coverage to be
provided hereunder shall, be written on a 100% replacement cost basis.
-42-
<PAGE>
EXHIBIT "E"
-----------
SIGN CRITERIA
GENERAL:
The installation of a sign and the costs incurred shall be the responsibility of
the Tenant. Sign construction is to be completed in compliance with the
instructions, limitations and criteria contained in this Exhibit.
E-1 It is intended that the signing of the stores in the Shopping Center shall
be developed in an imaginative and varied manner, and although previous and
current signing practices of the Tenant will be considered, they will not
govern signs to be installed in the Shopping Center.
E-2 Each Tenant will be required to identify its premises by a sign, such sign
to be lighted each day from dusk until 11:00 p.m.
E-3 Sign drawings shall clearly show graphic as well as construction and
attachment details. Full information regarding electrical requirements and
brightness in foot-lamberts is to also be included.
E-4 Six (6) copies of sign drawings shall accompany store design drawings.
E-5 The wording of signs shall be limited to Tenant's Trade Name only.
E-6 Tenant will be permitted three (3) signs only to be located on each facade
of Tenant's Storefront.
E-7 All signs shall have concealed attachment devices, clips, wiring,
transformers, lamps, tubes and ballast, with the cabinet of such sign(s)
matching the building color.
E-8 Sign letters or components shall not have exposed neon or other lamps. All
light source shall be internal and concealed. Sign letters or components
may be back-illuminated with lamps contained wholly within the depth of the
letter. Maximum brightness in any event shall not exceed 100 foot-
lamberts. Minimum brightness shall not be less than 75 foot-lamberts.
E-9 The height of sign letters or components shall not exceed 24", unless
otherwise approved by Landlord, such approval not to be unreasonably
withheld or delayed.
E-10 The extreme outer limits of sign letters, components, or insignia shall
fall within a rectangle the length of which shall not exceed 60% of the
linear distance of the front of the Premises. No part of such sign shall
be closer than 18" to the side lease lines of the Premises nor closer than
6" to the top and bottom of Tenant's sign area. No part of the sign shall
hang free of Tenant's sign area.
E-11 Tenant's storefront signs shall be mounted on the canopy fascia
immediately in front of Tenant's leased area, and each of Tenant's other
exterior signs shall be mounted in accordance with plans approved by
Landlord, such approval not to be unreasonably withheld or delayed.
E-12 Signs shall not project more than 5" beyond the Premises.
E-13 Signs shall be individual channel form letters internally illuminated with
a plexiglass face; the letters may also be backlet letters.
-43-
<PAGE>
EXHIBIT "F"
PROCEDURE FOR TENANTS DRAWINGS
GENERAL:
All prints, drawings information and other material to be furnished by
Tenant as called for hereinafter shall be addressed to Landlord, c/o Mall
Properties, Inc., 654 Madison Avenue, New York, New York 1002 1.
F-1. Intentionally Deleted,
---------------------
F-2. Landlord's Working Drawings:
----------------------------
A. Within 20 days from receipt of Landlord's drawings, Tenant shall
ascertain that the information shown thereon is in accordance with the
terms and conditions as described in Exhibit "C" (Landlord's Work) and
shall indicate its approval of such by returning one set of drawings
to Landlord bearing his signature and date.
Should Tenant construe any of the information shown on Landlord's drawings
as being contrary to the conditions of Exhibit "C" he shall indicate his
objection on the drawing and return one set to Landlord. As soon as
possible after the receipt of drawings from tenant, and if in agreement
with the objections so noted by Tenant, Landlord shall have the drawings
revised accordingly and shall resubmit two sets to Tenant for final
approval. Tenant shall return one set of revised drawings to Landlord
indicating its approval of such within 7 days from receipt of drawings.
F-3. Tenant's Working Drawings:
--------------------------
A. Within 35 days from receipt of "space layout drawings" Tenant shall
submit in accordance with the requirements of this Exhibit F, six (6)
complete sets of Working Drawings and Specifications to Landlord for
review and approval by Landlord and Project Architect, which approval
shall not be unreasonably withheld or delayed. Drawings shall show in
detail the design, character and finishing of the Premises. These
drawings shall contain the architectural design of the space, plans,
elevations, sections, materials, finishes, and color selections which
shall conform to the design criteria of the Development. The
submission shall include the following information drawn to the
minimum scales indicated.
a) Floor Plan 1/8" Scale
b) Overall Sections 1/8" Scale
c) Interior and Exterior Elevations 1/8" Scale
d) Sections of Partition Types 1/8" Scale
e) Details of Special Conditions 1/8" Scale
f) Door Schedule with Jamb
and Head Details 1-1/2" Scale
g) Electrical Plans, Schedule Detail
and Load Summaries 1/8" Scale
h) Sign Criteria, Detail and
related Structural Supports 1/4" Scale
i) Compliance with applicable construction codes and required fire
resistance rating of tenant's construction work. In general,
ceilings, partitions, column enclosures; fire stopping of
concealed spaces above ceilings, and protected assemblies of all
penetrations through
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<PAGE>
U.L. rated construction. Refer to Landlord's space layout
drawings for "Supplemental Tenant Information."
j) Proper dimensioning of Premises and all work to be installed.
k) Location of all mechanical equipment and exhaust fans by
dimensions from nearest column center lines.
1) Location and size of all required roof opening and penetrations by
dimensions from nearest column center lines, including details of
structural framing and curbing around all roof openings.
m) Plumbing fixture piping and riser diagrams including water heater
if provided.
n) Should Tenant elect to modify and/or be required to alter any of
Landlord's Work as shown on Landlord's drawings to suit his
physical layout or satisfy his operation and occupancy of the
premises then tenant shall incorporate such modifications on his
construction drawings, drawn to a suitable scale and submitted to
Landlord for review and approval.
F-4. Landlord shall return one set of Tenant's Working Drawings and
Specifications, as soon as possible, to the Tenant. The prints will either
be marked "Approved", "Disapproved" or "Approved based on Architect's
modifications". Working Drawings and Specifications that have been
approved based on Architect's modifications are to be corrected and
resubmitted for Landlord's final approval within seven (7) days of receipt
by Tenant. Tenant shall reimburse Landlord for all costs incurred by
Project Architect, to review Tenant's drawings and data, subsequent to the
second review. Approval of any instance(s) by Landlord or Landlord's
Project Architect shall not relieve Tenant of any of its construction
obligations under this Lease nor impose any liability upon Landlord or
Landlord's Architect for any deficiencies in the Working Drawings and
Specifications.
F-5. Promptly upon completion of all work with respect to the Premises, Tenant
shall forward to Landlord one (1) complete set of reproducible
transparencies reflecting construction of the Premises as actually built,
including transparencies of sprinkler layout and sign.
-45-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Harry's Farmers Market, Inc.
We have issued our reports dated April 2, 1997 accompanying the consolidated
financial statements and schedules included in the Annual Report on Harry's
Farmers Market, Inc. on Form 10-K for the year ended January 29, 1997. We hereby
consent to the incorporation by reference of said reports in the Registration
Statements of Harry's Farmers Market, Inc. on Forms S-8 (File No. 33-74348,
effective January 21, 1994, File No. 33-81118, effective July 1, 1994, File No.
33-81120, effective July 1, 1994, File No. 33-91924 effective May 4, 1995 and
File No. 333-10403, effective August 19, 1996).
GRANT THORNTON L.L.P.
Atlanta, Georgia
April 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FROM 10K FOR
PERIOD ENDED JANUARY 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JAN-29-1997 JAN-31-1996
<PERIOD-START> FEB-01-1996 FEB-02-1996
<PERIOD-END> JAN-29-1997 JAN-31-1996
<CASH> 1,325,495 1,041,556
<SECURITIES> 0 0
<RECEIVABLES> 279,043 156,653
<ALLOWANCES> 25,000 25,000
<INVENTORY> 9,109,823 7,894,596
<CURRENT-ASSETS> 11,530,515 10,274,177
<PP&E> 66,381,888 65,994,695
<DEPRECIATION> 20,565,244 16,614,546
<TOTAL-ASSETS> 60,428,410 66,963,068
<CURRENT-LIABILITIES> 7,521,474 10,384,283
<BONDS> 26,224,552<F1> 28,789,202<F1>
<COMMON> 38,558,943 38,554,192
10,352,468<F4> 10,123,928<F4>
0 0
<OTHER-SE> (22,229,027) (20,888,537)
<TOTAL-LIABILITY-AND-EQUITY> 60,428,410 66,963,068
<SALES> 140,162,273 145,938,219
<TOTAL-REVENUES> 140,162,273 145,938,219
<CGS> 104,362,838 109,844,988
<TOTAL-COSTS> 36,002,537 43,676,719
<OTHER-EXPENSES> 1,279,054 2,292,563
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,599,552<F2> 3,198,083<F2>
<INCOME-PRETAX> (1,482,156) (9,876,051)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,710,696)<F3> (10,104,591)<F3>
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,710,696) (10,104,581)
<EPS-PRIMARY> (0.28) (1.64)
<EPS-DILUTED> (0.28) (1.64)
<FN>
<F1>SHORT TERM PORTION INCLUDED IN CURRENT LIABILITIES
<F2>INCLUDED IN OTHER EXPENSES
<F3>LOSS NET OF ACCRETION OF WARRANTS
<F4>MANDATORILY REDEEMABLE FOR $11 MILLION
</FN>
</TABLE>
