<PAGE>
As submitted for review by the Securities and Exchange Commission on November
19, 1997
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DISCOVERY ZONE, INC.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7990 36-3877601
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
565 TAXTER ROAD
FIFTH FLOOR
ELMSFORD, NEW YORK 10523
(914) 345-4500
ATTENTION: ANDREW M. SMITH, ESQ.
(Registrant's Address)
------------------------
COPIES TO:
STEPHEN T. GIOVE, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
13 1/2% Senior Secured Notes due
2002............................... $85,000,000 100% $85,000,000 $25,757.58
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee, pursuant to Rule 457 under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- --------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
Item 1 Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.................... Facing Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover Page
Item 2 Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover Page; "Available Information";
Outside Back Cover Page
Item 3 Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................. "Summary"; "Risk Factors"; "Selected Historical
Financial Data"; "Financial Statements"
Item 4 Terms of the Transaction.......................... "Summary"; "The Exchange Offer"; "Description of
Exchange Notes"; "Certain U.S. Federal Income Tax
Considerations"
Item 5 Pro Forma Financial Information................... "Selected Historical Financial Data"
Item 6 Material Contracts with the Company Being
Acquired.......................................... Not applicable
Item 7 Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters..... Not applicable
Item 8 Interests of Named Experts and Counsel............ "Legal Matters"
Item 9 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Not applicable
Item 10 Information with Respect to S-3 Companies......... Not applicable
Item 11 Incorporation of Certain Information by
Reference......................................... Not applicable
Item 12 Information with Respect to S-2 or S-3
Registrants....................................... Not applicable
Item 13 Incorporation of Certain Information by
Reference......................................... Not applicable
Item 14 Information with Respect to Registrants Other Than
S-2 or S-3 Registrants............................ "Summary"; "Selected Historical Financial Data";
"Management's Discussion and Analysis of Financial
Condition and Results of Operations"; "Business";
"Certain U.S. Federal Income Tax Considerations";
"Financial Statements"
Item 15 Information with Respect to S-3 Companies......... Not applicable
Item 16 Information with Respect to S-2 or S-3
Companies......................................... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- --------- -------------------------------------------------- --------------------------------------------------
<S> <C> <C>
Item 17 Information with Respect to Companies Other Than
S-2 or S-3 Companies.............................. "Summary"; "Selected Historical Financial Data";
"Management's Discussion and Analysis of Financial
Condition and Results of Operations"; "Business";
"Certain U.S. Federal Income Tax Considerations";
"Financial Statements"
Item 18 Information if Proxies, Consents or Authorizations
Are to Be Solicited............................... Not applicable
Item 19 Information if Proxies, Consents or Authorizations
Are Not to Be Solicited in an Exchange Offer...... "Exchange Offer"; "Management"; "Principal
Stockholders"
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1997
OFFER TO EXCHANGE
13 1/2% SENIOR SECURED NOTES DUE 2002
FOR ALL OUTSTANDING
13 1/2% SENIOR SECURED NOTES DUE 2002
($85,000,000 PRINCIPAL AMOUNT OUTSTANDING)
OF
DISCOVERY ZONE, INC.
(INCORPORATED IN THE STATE OF DELAWARE)
------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED
------------------------
Discovery Zone, Inc., a Delaware corporation ("DZ" or the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal, to exchange $85,000,000
aggregate principal amount of its 13 1/2% Senior Secured Notes due 2002 (the
"Exchange Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement (as
defined herein) of which this Prospectus constitutes a part, for $85,000,000
aggregate principal amount of the outstanding 13 1/2% Senior Secured Notes due
2002 (the "Private Notes") of the Company (the "Exchange Offer"). The Exchange
Notes and the Private Notes are collectively referred to herein as the "Notes."
The Company will accept for exchange any and all Private Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be , 1997 unless the Exchange Offer
is extended (the "Expiration Date"). In the event that the Exchange Offer is
extended, it will remain in effect for a maximum of 90 business days, including
all extensions. Tenders of Private Notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Private Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Company and to the terms and provisions of the Registration
Rights Agreement (as defined herein). See "The Exchange Offer." The Company has
agreed to pay the expenses of the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
The Exchange Notes will be obligations of the Company entitled to the
benefits of the Indenture (as defined herein). The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Private Notes, except that the Exchange Notes, having been registered under
the Securities Act, will not contain terms with respect to transfer
restrictions. In addition, following the completion of the Exchange Offer, none
of the Notes will be entitled to the benefits of the Registration Rights
Agreement relating to contingent increases in the interest rates provided for
pursuant thereto. See "The Exchange Offer."
SEE "RISK FACTORS" COMMENCING ON PAGE 19 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED PRIOR TO AN INVESTMENT IN THE EXCHANGE
NOTES.
The Exchange Notes will mature on August 1, 2002. Interest on the Exchange
Notes is payable in cash quarterly in arrears on each February 1, May 1, August
1 and November 1, commencing February 1, 1998, and shall accrue at a rate of
13 1/2% per annum from the last Interest Payment Date (as defined herein) on
which interest was paid on the Private Notes so surrendered. Interest on the
Private Notes has accrued from July 22, 1997 also at a rate of 13 1/2% per
annum. Interest on each Private Note accepted for exchange will cease to accrue
upon issuance of a corresponding Exchange Note. A portion of the net proceeds of
the offering of the Private Notes was used to fund the Escrowed Interest Account
(as defined herein) from which the Company shall pay the scheduled interest
payments on the Exchange Notes through August 1, 1999.
The Exchange Notes will be redeemable, at the option of the Company, in
whole or in part, at any time on or after August 1, 1999, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, prior to August 1, 1999, the Company may redeem up
to 35% of the original principal amount of the Exchange Notes with the proceeds
of one or more offerings (each, a "Primary Offering") of Capital Stock (other
than Disqualified Stock) (each as defined herein) at 115% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase; PROVIDED, HOWEVER, that any such Primary Offering results in net
proceeds to the Company of at least $20.0 million. Upon a Change of Control (as
defined herein), the Company is required to offer to repurchase all of the then
outstanding Exchange Notes at 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date of repurchase.
The Exchange Notes will be senior secured indebtedness of the Company and
will rank senior in right of payment to all subordinated indebtedness of the
Company and pari passu in right of payment with all unsubordinated indebtedness
of the Company. The Exchange Notes will be unconditionally guaranteed by each of
the Company's current and future Subsidiaries (as defined herein) other than
Block Party and the Limited Investment Subsidiaries (each as defined herein) and
will be initially secured by a first priority security interest in certain
assets of the Company (including cash, accounts receivable, inventory,
equipment, general intangibles, intellectual property rights and certain other
fixed assets (except real estate leasehold interests existing prior to the
offering of the Private Notes and certain real property, fixtures and leasehold
improvements)) and by a pledge of the capital stock of all current and future
Subsidiaries. The Exchange Notes will also be secured by a first priority
mortgage lien on certain leasehold interests acquired by the Company in new
store properties after the offering of the Private Notes (subject to certain
conditions) and by a subordinate lien on certain of the Company's real property
and improvements thereon. The Company will be permitted under certain
circumstances to enter into a new credit facility (in a principal amount not to
exceed $10.0 million), in which case the first priority security interest in
certain collateral securing the Exchange Notes will be subordinated to a lien
securing such credit facility.
The exchange of the Private Notes for the Exchange Notes will be made
pursuant to the Exchange Offer and in accordance with the Indenture.
The Private Notes were initially represented by one or more global Private
Notes (the "Old Global Note") in registered form, registered in the name of Cede
& Co., as nominee for The Depositary Trust Company (the "DTC"), as depositary.
The Private Notes sold to Institutional Accredited Investors who are
2
<PAGE>
not Qualified Institutional Buyers (as defined in Rule 144A of the Securities
Act) were issued in certificated, fully registered form without interest coupons
and were registered in the name of such Institutional Accredited Investors or
their nominees. The Exchange Notes exchanged for Private Notes will be
represented, respectively, by one or more global Exchange Notes (the "New Global
Note") in registered form, registered in the name of a nominee of DTC. Except in
limited circumstances, Exchange Notes in certificated form will not be issued in
exchange for beneficial interests in a New Global Note. See "Description of
Exchange Notes -- New Certificated Notes."
Based on no-action letters issued by the staff of the Commission to third
parties, the Company believes the Exchange Notes issued pursuant to the Exchange
Offer in exchange for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than (i) a broker-dealer that
purchased such Private Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an "affiliate" of the Company within the meaning of Rule 405 of
the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act; PROVIDED that the holder acquires
such Exchange Notes in the ordinary course of its business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. In the event that the Company's belief is inaccurate,
holders of Exchange Notes who transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities Act and without exemption from
registration thereunder may incur liability under the Securities Act. The
Company does not assume or indemnify holders against such liability, although
the Company does not believe that any such liability should exist.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that, by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. For a period of 180 days after the Expiration Date, or
such shorter period which will terminate when such broker-dealers have completed
all resales subject to applicable prospectus delivery requirements, the Company
has agreed that it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Company believes that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.
The Private Notes have been designated eligible for trading in the Private
Initial Offerings, Resales and Trading through Automated Linkages ("PORTAL")
Market of the National Association of Securities Dealers (the "NASD"). The
Company does not intend to apply for listing of the Exchange Notes on any
securities exchange or to seek approval through any automated quotation system.
There can be no assurance regarding the future development of a market for the
Exchange Notes, or the ability of holders of the Exchange Notes to sell their
Exchange Notes or the price at which such holders may be able to sell their
Exchange Notes. If such a market were to develop, the Exchange Notes could trade
at prices that may be higher or lower than the initial public offering price
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. See "Risk Factors --
Absence of Public Market."
Holders of Private Notes whose Private Notes are not tendered and accepted
in the Exchange Offer will continue to hold such Private Notes and will be
entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indenture. Following consummation of
the Exchange Offer, the holders of Private Notes will continue to be subject to
existing restrictions upon
3
<PAGE>
transfer thereof and the Company will have no further obligation to such holders
to provide for the registration under the Securities Act of the Private Notes
held by them.
The Company will not receive any proceeds from, and has agreed to bear all
registration expenses of, the Exchange Offer. No dealer-manager is being used in
connection with the Exchange Offer. See "The Exchange Offer -- Resale of the
Exchange Notes."
THE COMPANY IS NOT ASKING FOR A PROXY AND THE HOLDERS OF THE PRIVATE NOTES
ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY EXCHANGE MADE PURSUANT HERETO SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
OR THAT THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION
STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS
TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN
EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT
THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT
IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
4
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (including all amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Exchange Notes offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference.
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith is required to file reports and other
information with the Commission. The Registration Statement (with exhibits), as
well as such reports and other information, when so filed, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048; and at
500 West Madison Street, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
website on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
------------------------
REFERENCES MADE IN THIS PROSPECTUS TO "DISCOVERY ZONE, INC.," "DZ" AND THE
COMPANY'S LOGO, REFER TO REGISTERED TRADEMARKS AND SERVICE MARKS OWNED BY THE
COMPANY. REFERENCES MADE IN THIS PROSPECTUS TO "PEPSI-COLA COMPANY" AND "PEPSI"
REFER TO REGISTERED TRADEMARKS OF THE PEPSI-COLA COMPANY. REFERENCES MADE IN
THIS PROSPECTUS TO "PIZZA HUT, INC." AND "PIZZA HUT" REFER TO REGISTERED
TRADEMARKS AND SERVICE MARKS OF TRICON GLOBAL RESTAURANTS, INC. REFERENCES MADE
TO "PLAYORENA" AND "GYMBOREE" REFER TO THE REGISTERED TRADEMARKS AND SERVICE
MARKS OF EDUPLAY CORPORATION AND THE GYMBOREE CORPORATION, RESPECTIVELY.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN
THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE
"COMPANY" OR "DZ" MEAN, COLLECTIVELY, DISCOVERY ZONE, INC. AND ITS CONSOLIDATED
SUBSIDIARIES. REFERENCES TO ANY HISTORICAL FISCAL YEAR REFER TO THE TWELVE
MONTHS ENDING ON DECEMBER 31 OF SUCH YEAR. THIS PROSPECTUS CONTAINS FORWARD
LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THOSE FORWARD
LOOKING STATEMENTS AS A RESULT OF NUMEROUS FACTORS, INCLUDING THOSE SET FORTH
UNDER RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company is the leading owner and operator of pay-for-play children's
entertainment centers ("FunCenters") in North America, with a national network
of 206 FunCenters in 39 states, Canada and Puerto Rico targeted at children ages
two to 12. The Company also operates two Block Party entertainment centers,
which target adult customers (the "Block Party Stores"). The Company emerged
from protection under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") on
July 29, 1997 (the "Effective Date") and, in connection therewith, was acquired
by an affiliate of Wellspring Associates L.L.C. (together with its affiliates,
"Wellspring").
The Company's FunCenters are designed to offer children a unique
entertainment experience while meeting their parents' needs for value and
convenience. FunCenters are generally located in strip shopping centers and, to
a lesser extent, in shopping malls, and currently include the following
features: (i) "soft play" zones consisting of a series of tubes, slides, ball
bins, climbing mountains, air and water trampolines, obstacle courses, ramps and
other devices for crawling, jumping, running, swinging and climbing, all of
which have been designed and constructed with an emphasis on safety; (ii) "game
zones" consisting of games that award tickets redeemable for prizes; (iii) food
and beverage operations; and (iv) party rooms for birthdays and other group
events. The Company believes it is well positioned to capitalize on a variety of
favorable demographics in its customer base, including projected growth over the
next fifteen years in the population of children under the age of 13, which
management expects will lead to increased spending on children's leisure
activities. Management estimates that in 1996 DZ hosted approximately 21 million
visits by children and adults in the 206 FunCenters.
NEW OWNERSHIP AND MANAGEMENT
Wellspring is a private investment firm focused on identifying, acquiring
and turning around underperforming companies. Wellspring has recruited a new
senior management team at DZ led by Scott W. Bernstein, who joined Wellspring in
June 1996 as an industry consultant and became President and Chief Executive
Officer of the Company in December 1996. Mr. Bernstein has extensive experience
in the family entertainment business, having served as a senior executive at
Time Warner, Inc. and Six Flags Theme Parks Inc., most recently as President of
Six Flags' Northeast operations, where he led a turnaround of the Six Flags
Great Adventure theme park in New Jersey. In addition to Mr. Bernstein, the
Company has hired several other senior managers with backgrounds in the
entertainment industry and consumer marketing.
Wellspring and the new management team believe that the Company has not
historically fulfilled its potential. The Company was established in 1989 and,
in order to capitalize on significant market demand for its FunCenter concept,
expanded from 28 locations in 1991 to 336 locations by the end of 1995. As a
result of the Company's leading market position, widespread consumer acceptance
of the FunCenter concept and strong industry growth dynamics, the Company
achieved a peak equity market capitalization of approximately $1.3 billion in
September 1993. However, in its rush to accelerate revenue growth, the Company
incurred substantial indebtedness, entered into many above-market leases, opened
and acquired
6
<PAGE>
stores that diverted sales from existing sites, acquired stores without
demonstrated market penetration and failed to update its product. The Company's
rapid expansion resulted in a loss of control over costs and quality at the
store and corporate levels, which diminished the level of customer service,
reduced store operating margins and caused selling, general and administrative
expenses to increase dramatically.
Wellspring and the new management team developed a new business strategy
which is reflected in the turnaround plan described below (the "Turnaround
Plan"). The Turnaround Plan seeks to: (i) restore the Company's core business
through continued expense reductions; (ii) revitalize and reposition the DZ
brand name through new in-store programs and additional entertainment
activities, combined with a refocused marketing strategy; and (iii) manage the
Company's growth through controlled development of new FunCenters.
BUSINESS STRATEGY AND TURNAROUND PLAN
The Company has begun to implement the Turnaround Plan, which is designed to
reduce costs, enhance core product offerings and reposition the Company from an
operator of indoor playgrounds to the leading national provider of high quality
children's indoor entertainment. Management believes that these initiatives will
increase attendance, in-store spending and operating cash flow. The Company's
business strategy is being implemented in the following three phases:
PHASE 1--RESTORE CORE BUSINESS. The Company has implemented a broad cost
reduction program that includes four key components: (i) the closing of
unprofitable FunCenters during the reorganization under Chapter 11; (ii) the
elimination of excessive selling, general and administrative expenses; (iii)
the implementation of a variety of financial and quality controls designed
to significantly improve operating margins at the FunCenter level; and (iv)
the establishment of a broad-based incentive compensation plan at the store
and regional management levels tied to EBITDA (as defined herein) at the
store level and service quality measures.
PHASE 2--IMPROVE PRODUCT AND REPOSITION/RELAUNCH DZ BRAND. To increase
attendance and in-store spending, management is currently implementing
programs designed to upgrade and expand the range of core entertainment
products offered at FunCenters and to reposition and relaunch the DZ brand
through a comprehensive new marketing strategy. These goals are expected to
be accomplished primarily through: (i) adding a variety of new entertainment
activities and attractions; (ii) improving the quality and consistency of
the Company's existing core soft-play products, food and beverage operations
and game zones; (iii) increasing the appeal of the Company's food operations
through conversion to the widely recognized Pizza Hut brand; (iv)
developing, both internally and through strategic alliances with content
providers, periodic theme-based entertainment experiences to complement the
Company's entertainment activities; and (v) introducing interactive
parent-child play programs for preschoolers during the off-peak weekday
period.
The Company has already taken a number of steps to improve the quality
and variety of its product offerings and revitalize the brand:
- An important part of the Company's Turnaround Plan is to renovate
substantially all of its FunCenters, to broaden their entertainment
offerings and upgrade their facilities. The Company expects to have
approximately 75% of the FunCenters renovated by the end of the first
quarter of 1998, including the addition of designated areas for laser tag,
arts and crafts, stage events and promotional activities.
- In April and June 1997, the Company entered into marketing and product
agreements with Pizza Hut, Inc. ("Pizza Hut") and the Pepsi-Cola Company
("Pepsi"), respectively, to provide joint promotions and increase the
appeal and quality of its food service. Approximately 80% of its
FunCenters are expected to be converted to permit the sale of Pizza Hut
menu items by the end of 1997.
7
<PAGE>
- Due to DZ's national market presence and the strength of its brand name,
the Company believes that it is well positioned to act as a platform for
future promotional and product "tie-ins" with children's entertainment and
consumer product companies. The Company believes such alliances will
provide significant competitive advantages in the form of marketing
support and theme-based promotions to periodically refresh its product
offerings and stimulate repeat customer visits on a cost-effective basis.
In keeping with this strategy, the Company has begun negotiations with a
number of possible promotional partners, including toy, television, film,
media and consumer product companies and, to date, has entered into
arrangements with Hasbro, Sony Entertainment, New Line Cinema, the Hearst
Corporation, Worldwide Wrestling Federation and the Nabisco Foods Group
for a variety of promotional programs and activities.
- As part of its strategy to develop its weekday business, the Company
entered into an agreement in April 1997 with a co-creator of the Gymboree
program and the creators of Playorena to develop a structured toddler play
program for DZ to better utilize its facilities during off-peak weekday
periods. Twenty-five FunCenters began offering these new weekday programs
in September 1997 and twenty-five additional FunCenters are expected to
begin offering these programs in January 1998.
PHASE 3--GROWTH. Upon the restoration of DZ's core business and the
repositioning of its brand, management expects to commence a controlled
expansion program to develop new FunCenter locations.
PLAN OF REORGANIZATION AND EXIT FINANCING
In November 1996, the Company and Wellspring filed a Joint Plan of
Reorganization (the "Plan") with the U.S. Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") which set forth a plan for repaying or
otherwise compensating the Company's creditors in order of relative seniority of
their respective claims while seeking to maintain the Company as a going
concern. On July 18, 1997, the Plan was approved by the requisite number of
creditors in each class and confirmed by the Bankruptcy Court. The Plan became
effective and the Company emerged from bankruptcy on the Effective Date.
The Plan provided, among other things, for (i) the payment in full of
certain administrative claims against the Company (those claims which arose
after the Petition Date), (ii) conversion of substantially all of the Company's
pre-petition liabilities subject to compromise (excluding taxes payable, lease
assumption payments and certain other pre-petition liabilities permitted under
the Plan) to equity interests in the Company, and (iii) cancellation of all of
the pre-petition equity interests in the Company, all as more fully described in
the Plan.
In connection with its emergence from bankruptcy, the Company raised $100
million by issuing $15 million of convertible redeemable preferred stock (the
"Convertible Preferred Stock") and $85 million aggregate principal amount of the
Private Notes with warrants (the "Unit Warrants") to purchase 805,154 shares of
Common Stock (the "Warrant Shares"), resulting in $93.8 million of net proceeds
to the Company after deducting related offering costs. The proceeds were used to
repay the Company's debtor in possession credit facilities and certain
bankruptcy administrative claims and reorganization costs incurred in connection
with the Company's emergence from bankruptcy, fund the Escrowed Interest Account
for the Private Notes and provide working capital for the Company's ongoing
operations and renovation program.
8
<PAGE>
SUMMARY OF TERMS OF EXCHANGE OFFER
On July 22, 1997, the Company issued $85 million principal amount of Private
Notes pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Exchange Offer relates to the exchange of $85 million aggregate
principal amount of Exchange Notes for an equal aggregate principal amount of
Private Notes. The Exchange Notes will be obligations of the Company entitled to
the benefits of the Indenture relating to the Private Notes. The form and terms
of the Exchange Notes are the same as the form and terms of the Private Notes,
except that the Exchange Notes, having been registered under the Securities Act,
(i) will not contain terms with respect to transfer restrictions and (ii) will
not bear legends restricting their transfer. In addition, following completion
of the Exchange Offer, none of the Exchange Notes will be entitled to the
benefits of the Registration Rights Agreement (as defined herein) relating to
certain contingent increases in the interest rates provided pursuant thereto.
See "The Exchange Offer."
<TABLE>
<S> <C>
THE EXCHANGE OFFER.............. Pursuant to the Exchange Offer, up to $85 million
aggregate principal amount of Exchange Notes will be
issued in exchange for up to $85 million principal amount
of Private Notes validly tendered pursuant to the Exchange
Offer. As of the date hereof, $85 million in aggregate
principal amount of Private Notes are outstanding. The
Company will issue the Exchange Notes to tendering holders
of Private Notes on or promptly after the Expiration Date.
The terms of the Exchange Notes and the Private Notes are
identical, except that the Exchange Notes have been
registered under the Securities Act and, therefore, will
not bear legends restricting their transfer.
RESALE OF THE EXCHANGE NOTES.... Based on an interpretation by the Commission's staff set
forth in interpretive letters issued to third parties
unrelated to the Company, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer
generally will be freely transferable by the holders
thereof without registration or any prospectus delivery
requirement under the Securities Act. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer."
EXPIRATION DATE................. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1997, unless the Exchange Offer is
extended, in which case the term "Expiration Date" means
the latest date and time to which the Exchange Offer is
extended. See "The Exchange Offer-- Expiration Date;
Extensions; Amendments." The Company will accept for
exchange any and all Private Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. If any tendered
Private Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events
set forth herein, such unaccepted Private Notes will be
returned, without expense, to the tendering Holder thereof
as promptly as practicable after the Expiration Date.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND THE PRIVATE NOTES... The Exchange Notes will bear interest from November 1,
1997, the last Interest Payment Date upon which interest
was paid on the Private Notes so surrendered. Holders who
exchange their Private Notes for Exchange Notes will
receive the same interest payment on February 1, 1998 (the
first interest payment date with respect to the Private
Notes and the Exchange Notes) that they would have
received had they not accepted the Exchange Offer. See
"The Exchange Offer--Interest on the Exchange Notes."
TERMINATION OF THE EXCHANGE
OFFER......................... The Company may terminate the Exchange Offer if it
determines that its ability to proceed with the Exchange
Offer could be materially impaired due to any injunction,
order or decree by any court or governmental agency, any
new law, statute, rule or regulation or any interpretation
of the staff of the Commission of any existing law,
statute, rule or regulation, or the failure to obtain any
necessary approvals of governmental agencies or Holders of
the Private Notes. The Company does not expect any of the
foregoing conditions to occur, although there can be no
assurance that such conditions will not occur. Holders of
Private Notes will have certain rights against the Company
under the Registration Rights Agreement should the Company
fail to consummate the Exchange Offer. See "The Exchange
Offer--Termination."
PROCEDURES FOR TENDERING PRIVATE
NOTES......................... Each Holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a copy thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
copy, together with any corresponding certificate or
certificates representing the Private Notes to be
exchanged (if in certificated form) and any other required
documentation, to State Street Bank and Trust Company, as
Exchange Agent, at the address set forth herein and
therein.
Persons holding Private Notes through the Depository Trust
Company ("DTC") and wishing to accept the Exchange Offer
must do so pursuant to the DTC's Automated Tender Offer
Program ("ATOP"), by which each tendering participant will
agree to be bound by the Letter of Transmittal.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
By executing or agreeing to be bound by the Letter of
Transmittal, each Holder will represent to the Company
that, among other things, (i) the Exchange Notes acquired
pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the Holder
of the Private Notes, (ii) neither the Holder nor any such
other person has or intends to have an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes, (iii) neither the
Holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company, or if it is such an affiliate, that it will
comply with the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable to it, and (iv) if such Holder is a
broker-dealer, that it acquired the Private Notes as a
result of market making activities or other trading
activities. Pursuant to the Registration Rights Agreement,
the Company is required to file a registration statement
for an offering to be made on a continuous basis pursuant
to Rule 415 under the Securities Act in respect of the
Private Notes of any Holder that is not eligible to
participate in the Exchange Offer or does not receive
freely tradeable Exchange Notes in the Exchange Offer and
so requests that it wishes to have its Private Notes
registered under the Securities Act. See "The Exchange
Offer--Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any owner of a beneficial interest in an Old Global Note
holding through a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender in the
Exchange Offer should contact such entity through which it
holds such beneficial interest promptly and instruct such
entity to tender on his behalf.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Private Notes who wish to tender their Private
Notes and whose Private Notes are not immediately
available or who cannot deliver their Private Notes (or
who cannot complete the procedure for book-entry transfer
on a timely basis) and a properly completed Letter of
Transmittal or any other documents required by the Letter
of Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Private Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer-- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............... Tenders of Private Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date, unless previously
accepted for exchange. See "The Exchange Offer--Withdrawal
of Tenders."
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
ACCEPTANCE OF PRIVATE NOTES AND
DELIVERY OF EXCHANGE NOTES.... Subject to certain conditions (as summarized above in
"Termination of the Exchange Offer" and described more
fully under" The Exchange Offer--Termination"), the
Company will accept for exchange any and all Private Notes
which are properly tendered in the Exchange Offer and not
withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Expiration
Date."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ The exchange pursuant to the Exchange Offer should not be
a taxable event for U.S. federal income tax purposes. See
"Certain U.S. Federal Income Tax Considerations."
EXCHANGE AGENT.................. State Street Bank and Trust Company, the Trustee under the
Indenture, is serving as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer. The mailing
address of the Exchange Agent is: State Street Bank and
Trust Company, P.O. Box 778, Attention: Corporate
Trust/Transfer Unit, Boston, Massachusetts 02102. Hand
deliveries should be delivered to State Street Bank and
Trust Company, Two International Place, 4th Floor, Boston,
Massachusetts 02110, Attention: Corporate Trust
Department/Transfer Unit. For information with respect to
the Exchange Offer, the telephone number for the Exchange
Agent is (617) 664-5326 and the facsimile number for the
Exchange Agent is (617) 664-5371.
CONSEQUENCES OF FAILURE TO
EXCHANGE...................... Private Notes that are not tendered or that are not
properly tendered will, following the completion of the
Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. The Company will have
no further obligation to provide for the registration
under the Securities Act of such Private Notes and such
Private Notes will, following consummation of the Exchange
Offer, bear interest at the same rate as the Exchange
Notes. The liquidity of the market for a Holder's Private
Notes could be adversely affected upon completion of the
Exchange Offer if such Holder does not participate in the
Exchange Offer. See "Risk Factors--Failure to Exchange
Private Notes."
</TABLE>
12
<PAGE>
SUMMARY OF CERTAIN TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
SECURITIES OFFERED................ $85,000,000 of 13 1/2% Senior Notes due 2002.
USE OF PROCEEDS................... The Company will not receive any proceeds from the
issuance of the Exchange Notes pursuant to the Exchange
Offer. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will
receive in exchange Private Notes in like principal
amount, the term and form of which are identical in all
material respects to the Exchange Notes. The Private
Notes surrendered in exchange for Exchange Notes will be
retired and cancelled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not
increase the indebtedness of the Company. See "Plan of
Reorganization" and "Use of Proceeds."
MATURITY.......................... August 1, 2002.
INTEREST RATE AND PAYMENT DATES... The Exchange Notes will bear interest at a rate of
13 1/2% per annum, payable quarterly in cash in arrears
on each February 1, May 1, August 1 and November 1
commencing February 1, 1998. In addition to stated
interest, for U.S. federal income tax purposes,
purchasers of the Exchange Notes will be required to
include amounts attributable to original issue discount,
if any, in their gross income in advance of receipt of
cash payment to which such income is attributable. For a
discussion of the U.S. federal income tax treatment of
the Exchange Notes under the original issue discount
rules, see Certain U.S. Federal Income Tax
Considerations.
ESCROWED INTEREST ACCOUNT......... As security for the scheduled interest payments on the
Exchange Notes through August 1, 1999, a portion of the
net proceeds from the offering of the Private Notes in
an amount of approximately $21.6 million (subject to
reduction in the event of a redemption of the Exchange
Notes pursuant to a Primary Offering) was invested in
U.S. Treasury securities and placed in the Escrowed
Interest Account and is being held by the Trustee for
the ratable benefit of the holders of the Exchange
Notes, subject to the terms and conditions of the
Indenture and the Escrow and Security Agreement (each as
defined herein). See Description of Exchange Notes --
Escrowed Interest Account.
GUARANTEES........................ The Exchange Notes will be jointly and severally
guaranteed on an unconditional senior secured basis by
all present and future Subsidiaries (as defined herein)
of the Company (other than Block Party and the Limited
Investment Subsidiaries (each, as defined herein)).
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
OPTIONAL REDEMPTION............... The Exchange Notes will be redeemable, at the option of
the Company, in whole or in part, at any time on or
after August 1, 1999, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of
redemption. In addition, at any time prior to August 1,
1999, the Company may redeem up to 35% of the original
principal amount of the Exchange Notes with the proceeds
of one or more Primary Offerings at 115% of the
aggregate principal amount thereof, together with
accrued and unpaid interest to the redemption date. See
Description of Exchange Notes -- Optional Redemption.
SECURITY.......................... The Exchange Notes will be initially secured by a first
priority security interest in certain assets of the
Company (including cash, accounts receivable, inventory,
equipment, general intangibles, intellectual property
rights and certain other fixed assets (except for real
estate, leasehold interests existing prior to the
Effective Date and certain real property, fixtures and
leasehold improvements)), by a pledge of the capital
stock of all current and future Subsidiaries and by a
subordinate lien on certain of the Company's real
property and improvements thereon. The Company has
agreed to use its commercially reasonable efforts to
obtain a first priority mortgage lien in favor of the
Collateral Agent (as defined herein) on all leasehold
interests in new store locations acquired after the
Effective Date. The Company will be permitted under
certain circumstances to enter into a new credit
facility (in a principal amount not to exceed $10.0
million), in which case the first priority security
interest in certain collateral securing the Exchange
Notes will be subordinated to a lien securing such
credit facility. See Description of Exchange Notes --
Security and Intercreditor Agreement.
RANKING........................... The Exchange Notes will be senior secured indebtedness
of the Company, will rank PARI PASSU in right of payment
with all unsubordinated indebtedness of the Company and
will be senior in right of payment to all subordinated
indebtedness of the Company. On September 30, 1997, the
Company had $88.3 million of long-term debt (including
current portion) outstanding, of which $83.3 million was
secured indebtedness (including the Private Notes). See
Risk Factors -- Substantial Leverage and Ability to
Service Debt.
CHANGE OF CONTROL................. Upon a Change of Control (as defined herein), the
Company will be required to make an offer to repurchase
all outstanding Exchange Notes at a purchase price equal
to 101% of the principal amount thereof, together with
accrued and unpaid interest to the date of repurchase.
See Description of Exchange Notes -- Repurchase upon
Change of Control.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
FORM OF EXCHANGE NOTES............ Exchange Notes will be represented by one or more
permanent global Notes in definitive, fully registered
form without interest coupons, each deposited with the
Trustee as custodian for, and registered in the name of
Cede & Co., as nominee of, the DTC. Beneficial interests
in such global Notes will be shown on, and transfers
thereof will be effected only through, the book-entry
records maintained by the DTC and its direct and
indirect participants, including Euroclear and Cedel
Bank. See Description of the Exchange Notes -- New
Global Notes.
CERTAIN COVENANTS................. The indenture governing the Exchange Notes (the
Indenture) restricts the ability to, among other things,
incur additional indebtedness, create liens, engage in
sale-leaseback transactions, pay dividends or make
distributions in respect of its capital stock, make
investments or certain other restricted payments, sell
assets, issue or sell stock, enter into transactions
with stockholders or affiliates or effect a
consolidation or merger. The Company is also required to
maintain key man life insurance and to use its
commercially reasonable efforts to obtain leasehold
mortgages on all new store locations. These limitations
are, however, subject to important qualifications and
exceptions. See Description of Exchange Notes -- Certain
Covenants.
</TABLE>
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a discussion of
certain information that should be considered in evaluating the Company, its
business and the Exchange Notes.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following summary of certain historical financial data of the Company
for each of the years in the three-year period ended December 31, 1996 and
historical balance sheet data as of December 31, 1996 have been derived from the
historical audited consolidated financial statements of the Company. The
consolidated financial data as of and for the nine months ended September 30,
1996, the seven months ended July 31, 1997 and the two months ended September
30, 1997 have been derived from unaudited consolidated financial statements of
the Company and, in the opinion of the Company's management, have been prepared
on a basis consistent with the audited financial statements and include all
adjustments that are considered by management to be necessary for a fair
presentation of such financial information. Historical data and interim results
are not necessarily indicative of future results, and interim data are not
necessarily indicative of results for a full year. In accordance with Fresh
Start Accounting under generally accepted accounting principles ("GAAP"), the
Company restated its balance sheet accounts to reflect an estimated fair market
value upon its emergence from bankruptcy. As a result, the Company does not
believe that its historical results of operations are necessarily indicative of
its results of operations as an ongoing entity after the Effective Date. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Changes in Method of Accounting." The information set forth below
should be read in conjunction with the discussion under "Selected Historical
Financial Data" and "Management's Discussion and Analysis of Financial Condition
<TABLE>
<CAPTION>
and Results of Operations."
<S> <C> <C> <C> <C> <C> <C>
(PREDECESSOR COMPANY)
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(SUCCESOR
NINE SEVEN COMPANY)
MONTHS MONTHS TWO MONTHS
ENDED ENDED ENDED
SEPTEMBER JULY 31, SEPTEMBER
30, 1997 30,
1996 ----------- 1997
------------ ------------
STATEMENT OF OPERATIONS DATA:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenue........................ $ 180,573 $ 259,490 $ 181,725 $ 147,848 $ 82,537 $ 19,914
Cost of goods sold................... 36,858 50,227 34,276 27,059 14,136 3,057
Store operating expenses(1)(2)....... 97,631 185,587 140,486 112,741 60,192 16,879
Selling, general and administrative
expenses(2)........................ 36,451 58,201 40,779 33,230 10,235 3,872
Depreciation and amortization........ 16,183 31,972 21,876 16,204 11,920 3,981
Operating loss before restructuring
costs and other charges............ (6,550) (66,497) (55,692) (41,386) (13,946) (7,875)
Operating loss....................... (20,574) (438,657) (55,692) (41,386) (13,946) (7,875)
Extraordinary item-gain on discharge
of debt............................ -- -- -- -- 332,165 --
Net income (loss) applicable to
common shareholders................ (24,897) (449,245) (83,834) (58,365) 302,256 (9,784)
--------- --------- --------- ------------ ----------- ------------
--------- --------- --------- ------------ ----------- ------------
Per common and common equivalent
share:
Loss before income tax and
cumulative effect of change in
method of accounting and
extraordinary item............... $ (0.41) $ (8.06) $ (1.45) $ (1.01) $ (0.52) $ (2.45)
Cumulative effect of change in
accounting method................ (0.12) -- -- -- -- --
Extraordinary item-gain on
discharge of debt................ -- -- -- -- 5.76 --
--------- --------- --------- ------------ ----------- ------------
Net income (loss).................. $ (0.53) $ (8.06) $ (1.45) $ (1.01) $ 5.24 $ (2.45)
--------- --------- --------- ------------ ----------- ------------
--------- --------- --------- ------------ ----------- ------------
Weighted average number of common and
common equivalent shares
outstanding........................ 46,797 55,706 57,691 57,698 57,705 4,000
--------- --------- --------- ------------ ----------- ------------
--------- --------- --------- ------------ ----------- ------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY)
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(SUCCESOR
NINE SEVEN COMPANY)
MONTHS MONTHS TWO MONTHS
ENDED ENDED ENDED
SEPTEMBER JULY 31, SEPTEMBER
30, 1997 30,
1996 ----------- 1997
------------ ------------
OTHER DATA:
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
EBITDA before reorganization,
restructuring and other
charges(3)......................... $ 9,633 $ (34,525) $ (33,816) $ (25,182) $ (2,026) $ (3,894)
EBITDA(3)............................ (4,391) (406,685) (55,101) (37,618) (14,191) (3,894)
Capital expenditures................. 119,134 51,732 2,672 1,717 567 218
STORE DATA:
Company-owned stores at
period-end(4)...................... 318 321 212 232 210 208
Franchised stores at period-end(5)... 29 15 7 7 -- --
--------- --------- --------- ------------ ----------- ------------
Total stores at period-end........... 347 336 219 239 210 208
OPERATING RATIO:
EBITDA/total interest expense(6)..... -- -- -- -- -- --
Ratio of earnings to fixed
charges(7)......................... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (SUCCESSOR COMPANY)
AS OF AS OF
DECEMBER 31, SEPTEMBER 30, 1997
1996(8)(9)(10) ACTUAL (8)(9)(10)
--------------------- -----------------------
<S> <C> <C>
BALANCE SHEET DATA:
(DOLLARS IN THOUSANDS)
Cash and cash equivalents (unrestricted)......................... $ 3,326 $ 30,240
Restricted cash and investments.................................. -- 21,706
Total assets..................................................... 125,786 190,171
Long-term debt, including current portion........................ 350,072 88,298
Redeemable Convertible Preferred Stock(11)....................... -- 13,839
Total stockholders' equity (deficit) (excluding Redeemable
Convertible Preferred Stock)................................... (263,572) 60,394
</TABLE>
- ------------------------
(1) Excludes depreciation and amortization and certain unallocated expenses.
(2) Net of $22.2 million, $13.6 million and $200,000 of capitalized costs
related to the Company's expansion for the years 1994, 1995 and 1996,
respectively, and $0.0 million, $0.0 million and $0.2 million for the nine
months ended September 30, 1996, the seven months ended July 31, 1997 and
the two months ended September 30, 1997, respectively.
(3) EBITDA represents net earnings (losses) before interest, income taxes,
depreciation and amortization, other income and expense, including minority
interest, extraordinary item and change in accounting method. EBITDA is
presented here to provide additional information about the Company's
operations. EBITDA is not a measure of financial performance under GAAP and
should not be considered as an alternative to (i) net income (loss) as a
measure of performance (or any other measure of performance under GAAP) or
(ii) cash flows from operating, investing or financing activities as an
indicator of cash flows or as a measure of liquidity.
(4) Includes the Block Party Stores.
(5) The Company currently receives no royalties from its franchised stores and
rejected or terminated its arrangements with all franchisees on or prior to
the Effective Date.
(6) EBITDA was insufficient to cover the full amount of total interest expense
by $9.5 million, $418.9 million and 61.4 million in each of 1994, 1995 and
1996, respectively, and $34.4 million, $14.0 million and $11.2 million for
the nine months ended September 30, 1996, the seven months ended July 31,
1996 and the two months ended September 30, 1997, respectively. Total
interest expense does not include all fixed expenses of the Company. See
Note 12 to the Financial Statements.
(7) For purposes of this item, "fixed charges" represent interest, the interest
element of rental expense, capitalized interest and amortization of debt
issuance costs, and "earnings" represent income (loss) before income taxes,
discontinued operations, extraordinary items, cumulative effect of change in
accounting principles and fixed charges. Earnings were insufficient to cover
17
<PAGE>
Fixed Charges by $28.9 million, $26.0 million, $83.8 million, $58.4 million
and $9.7 million in each of 1994, 1995 and 1996, the nine months ended
September 30, 1996 and the two months ended September 30, 1997.
(8) Includes certain claims and other liabilities totaling $344.1 million as of
December 31, 1996 in connection with the Plan of Reorganization. See "Plan
of Reorganization."
(9) The balance sheet as of September 30, 1997 gives effect to the offering of
the Private Notes and the Plan of Reorganization, including application of
Fresh Start Accounting under GAAP. Fresh Start Accounting requires a
restatement of the Company's balance sheet accounts to reflect the estimated
fair market value of the Company on a going concern basis following the
reorganization upon its emergence from bankruptcy. See "Plan of
Reorganization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Changes in Method of Accounting."
(10) Under GAAP, $7.1 million of the proceeds of the offering of the Private
Notes were allocated to the Unit Warrants and $77.9 million of the proceeds
were allocated to the Private Notes.
(11) Reflects 1,000 shares of Convertible Preferred Stock of the Company.
18
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE EXCHANGE NOTES DISCUSSED HEREIN INVOLVES A HIGH DEGREE
OF RISK AND THUS IS NOT APPROPRIATE FOR INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD GIVE CAREFUL CONSIDERATION
TO THE SPECIFIC FACTORS SET FORTH BELOW AND THE OTHER INFORMATION SET FORTH
HEREIN, BEFORE PURCHASING THE EXCHANGE NOTES OFFERED HEREBY. CERTAIN INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING INFORMATION RELATING TO THE COMPANY'S
EXPECTED OPERATIONS, ITS STRATEGY FOR MARKETING AND INVESTING IN STORE
FACILITIES AND RELATED FINANCING ACTIVITIES, CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF NUMEROUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THE FACTORS DISCUSSED
IN "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
As a result of the Private Note offering, the Company has indebtedness that
is substantial in relation to stockholders' equity. As of September 30, 1997,
the Company had an aggregate of $88.3 million of long-term debt (including
current portion), of which $83.3 million was secured indebtedness (including the
Private Notes).
The Company's high degree of leverage could have important consequences to
the holders of the Exchange Notes, including the following: (i) the Company's
ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate or other purposes may be
impaired in the future; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for other
purposes; (iii) the Company may be substantially more leveraged than certain of
its competitors, which may place the Company at a competitive disadvantage; and
(iv) the Company's ability to adjust rapidly to changing market conditions may
be hindered and could make the Company more vulnerable to losses and possible
defaults on outstanding indebtedness in the event of a downturn in general
economic conditions or its business.
The Company's ability to make scheduled payments of principal and interest
or to refinance its obligations with respect to its indebtedness will depend on
its financial and operating performance, which, in turn, will be subject to
prevailing economic conditions and to certain financial, business and other
factors beyond its control. For 1995 and 1996 and the first seven months of
1997, the Company had negative EBITDA of $406.7 million, $55.1 million and $14.1
million, respectively. For the first two months ended September 30, 1997, the
Company had negative EBITDA of $4.0 million. The Company historically has
experienced negative EBITDA during the last quarter of the year. If the
Company's cash flow and capital resources are insufficient to fund its debt
service obligations, the Company may be forced to reduce or delay planned
expansion and capital expenditures, sell assets, obtain additional equity
capital or restructure its indebtedness. There can be no assurance that the
Company's operating results, cash flow and capital resources will be sufficient
for payment of its indebtedness in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
SUCCESSFUL EXECUTION OF TURNAROUND PLAN
The Company is currently in the process of implementing its Turnaround Plan,
which consists of a number of cost-cutting and revenue enhancing initiatives. If
the implementation of the Turnaround Plan is not successful and the Company is
unable to generate sufficient operating funds to pay the interest on the
Exchange Notes, there can be no assurance that alternative sources of financing
would be available to the Company or, if available, that such financing would be
on commercially reasonable terms. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "Business--Business
Strategy and Turnaround Plan."
19
<PAGE>
NONCOMPARABILITY OF FINANCIAL INFORMATION
Information reflecting the results of operations and financial condition of
the Company since the Effective Date is not comparable to prior periods due to:
(i) store closings undertaken during the Company's reorganization; (ii) the
replacement of the management team and the restructuring of the Company's store
operations and general and administrative activities; (iii) the Company's
bankruptcy case, including the costs and expenses relating thereto, and the
impact of the restructuring or extinguishment of certain interests and
liabilities; and (iv) the application of Fresh Start Accounting, pursuant to
which the Company's assets have been stated at "reorganization value," which is
defined as the value of the entity (before considering liabilities) on a
going-concern basis following the reorganization and approximates the amount a
willing buyer would pay for the assets of the Company immediately after the
reorganization. Accordingly, there is only limited financial and operating
history of the Company for a potential investor to evaluate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SECURITY FOR THE EXCHANGE NOTES
The Exchange Notes will be initially secured by a first priority security
interest in certain assets of the Company (including cash, accounts receivable,
inventory, equipment, general intangibles, intellectual property rights and
certain other fixed assets (except for real estate leasehold interests existing
prior to the Effective Date and certain real property, fixtures and leasehold
improvements)), by a pledge of the capital stock of all present and future
Subsidiaries and by a subordinate lien on certain of the Company's real property
and improvements thereon. The Company has agreed to use its commercially
reasonable efforts to obtain in favor of the Collateral Agent a first priority
mortgage lien on all leasehold interests in new store locations acquired after
the Effective Date. While the Company has agreed to use its best efforts to
grant to the holders of Exchange Notes valid, first priority security interests
in each class of collateral identified above that is included in the security
package granted under the Indenture, the granting of certain of such security
interests may require the cooperation of third parties in order to be perfected,
or may not be susceptible of perfection for legal or other logistical reasons.
Accordingly, investors in of the Exchange Notes should not assume that valid
first priority security interests will be obtained with respect to all or
substantially all of the identified classes of collateral that are entitled to
such security interests. In the event of a default on the Exchange Notes, the
proceeds from the sale of the collateral securing the Exchange Notes will likely
be insufficient to satisfy in full the Company's obligations under the Exchange
Notes. The amount to be received upon such a sale would be dependent upon
numerous factors including the condition, age and useful life of the collateral
at the time of such sale, as well as the timing and the manner of such sale. A
significant portion of the Company's assets consist of leasehold improvements,
and most of the Company's assets are located on leaseholds. Because leasehold
improvements may be deemed to be a part of either the real property covered by
the lease (which real property is not owned by the Company) or the Company's
real estate leasehold interests (which interests are not included in the
collateral available for the Exchange Notes), there can be no assurances as to
whether or to what extent such improvements would be available as collateral
security for the Exchange Notes. Moreover, the ability of the Collateral Agent
to obtain possession of collateral located on leaseholds may be subject to
conflicting claims of landlords. Given the intangible nature of certain of the
collateral, any sale of collateral separately from the Company as a whole may
not be feasible. Additionally, the inclusion of the Company's fixtures in the
collateral securing the Exchange Notes will be limited by the extent to which
such fixtures (a) are deemed not to be personal property and (b) any applicable
state laws that require that the Collateral Agent make certain filings in
applicable real estate land records for the purpose of perfecting security
interests in fixtures.
Except during the continuance of a Default or Event of Default, the
Collateral Agent (as defined herein) is required under certain circumstances to
release its liens on property or assets proposed to be sold by the Company,
which may further reduce the sufficiency of the collateral securing the Exchange
Notes. In the event the Company enters into an Eligible Credit Facility, the
security interest with respect to
20
<PAGE>
the Exchange Notes would become subordinated to the security interest with
respect to such credit facility. See "Description of Exchange Notes --
Security."
EFFECT OF BANKRUPTCY UPON EXERCISE OF REMEDIES
The right of the Collateral Agent to repossess and dispose of the collateral
upon the occurrence of an Event of Default is likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy proceeding were to be
commenced by or against the Company prior to the Collateral Agent having
repossessed and disposed of the collateral. Under the Bankruptcy Code, a secured
creditor such as the Collateral Agent is prohibited from repossessing its
security from a debtor in a bankruptcy case or from disposing of security
repossessed from such debtor without bankruptcy court approval. Moreover, the
Bankruptcy Code permits the debtor to continue to retain and to use collateral
even though debtor is in default under the applicable debt instruments; PROVIDED
that secured creditors are given "adequate protection" as such term is
interpreted by the relevant bankruptcy court.
RESTRICTIVE DEBT COVENANTS
The Indenture contains a number of covenants which will impose significant
operating and financial restrictions on the Company and its subsidiaries. Such
restrictions affect, and in many respects significantly limit or prohibit, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, pay dividends, repay other indebtedness prior to stated
maturities or amend other debt instruments, create liens on assets, make
investments or acquisitions, engage in mergers or consolidations, make capital
expenditures, or engage in certain transactions with subsidiaries and affiliates
and otherwise restrict corporate activities. These restrictions could limit the
ability of the Company and its subsidiaries to effect future financings, make
needed capital expenditures, withstand a future downturn in the Company's
business or the economy in general, or otherwise conduct necessary corporate
activities. A failure by the Company or its subsidiaries to comply with these
restrictions could lead to a default under the Indenture and the Exchange Notes,
notwithstanding the ability of the Company to meet its debt service obligations.
Upon the occurrence of an Event of Default, the holders of the Exchange Notes
could elect to declare all such indebtedness, together with accrued and unpaid
interest thereon, to be due and payable, and there can be no assurance that the
Company and its subsidiaries would be able to make such payments or borrow
sufficient funds from alternative sources to make such payments. Even if
additional financing could be obtained, there can be no assurance that it would
be available on commercially reasonable terms. See "Description of Exchange
Notes."
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
In the event of a Change of Control, the Company must offer to purchase the
Exchange Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase. See
"Description of Exchange Notes--Repurchase upon Change of Control" and
"--Certain Definitions." In the event that the Company is required to make an
offer to purchase the Exchange Notes upon the occurrence of a Change of Control,
there can be no assurance that it would have sufficient funds available to
purchase any Exchange Notes tendered, and the Company would likely be required
to refinance the Exchange Notes. There can be no assurance that the Company
would be able to accomplish such refinancing or, if such refinancing were to
occur, that it would be accomplished on commercially reasonable terms.
DEPENDENCE ON KEY PERSONNEL
The Company's success is highly dependent upon Scott W. Bernstein, the
President and Chief Executive Officer, as well as certain other members of
senior management. Although each of Mr. Bernstein and the Company's two Senior
Vice Presidents is subject to an employment agreement, the
21
<PAGE>
loss of the services of any such individuals could have a material adverse
effect upon the implementation of the Turnaround Plan and on the Company in
general.
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's executive officers and directors (and their respective
affiliates) (collectively, the "Principal Stockholders") beneficially own 67.9%
of the Common Stock (after giving effect to Stock Options granted under the
Stock Incentive Plan, the Convertible Preferred Stock and the Ten Year
Warrants). See "Principal Stockholders." The Principal Stockholders, if voting
together, have sufficient voting power to elect a majority of the Company's
directors, exercise control over the business, policies and affairs of the
Company and, in general, determine the outcome of any corporate transaction or
other matters submitted to the stockholders for approval, such as any proposed
amendment to the certificate of incorporation of the Company, the authorization
of additional shares of capital stock, and any merger, consolidation, sale of
all or substantially all of the assets of the Company, and could prevent or
cause a Change of Control of the Company, all of which may adversely affect the
Company and the holders of the Exchange Notes.
SEASONALITY
The Company's FunCenters typically experience seasonal fluctuations in their
revenues, with generally higher revenues occurring in the first quarter of the
year due to the fact that many of the Company's facilities are located in cold
weather regions where children are unable to play outside during this time of
year. In 1996, the Company's FunCenters generated 32% of their revenue in the
first quarter versus 23%, 24% and 21% in the second, third and fourth quarters,
respectively. These fluctuations in revenues are primarily influenced by the
school year and the weather.
INDUSTRY CONDITIONS/COMPETITION
The Company competes against a wide variety of concepts vying for family
leisure time and entertainment spending. These competing concepts encompass a
broad spectrum of entertainment opportunities, including family entertainment
centers, theme parks, movie theaters and other in-home and out-of-home
entertainment activities. In particular, the Company competes in the
pay-for-play children's entertainment center industry by targeting its
activities and programming to children ages two to twelve. This industry is
affected by general and local economic conditions, demographic trends and
consumer tastes over which the Company has no control. Consumer tastes, in
particular, are subject to rapid changes which could result in the Company's
activities falling out of favor with its target customers, requiring it to
invest in new equipment for FunCenters. The Company's future revenues will
depend to a significant extent upon its ability to respond to changes in
consumer tastes. The performance of individual FunCenters may be affected by a
variety of factors such as the location of competing facilities, increased labor
and employee benefit costs and the availability of experienced management and
hourly employees.
Competitive market conditions, including the emergence of significant new
competitors, could materially adversely affect the Company's ability to improve
its results of operations. Such new competitors, which may include The Walt
Disney Company (which has a family entertainment concept in one location and has
announced plans to open additional store locations), and certain existing
competitors have or may have longer operating histories, substantially greater
name recognition and more extensive financial, technical, marketing, sales and
distribution resources. There can be no assurance that the Company will be able
to compete successfully against existing and future competitors or that
competitive pressures faced by the Company will not materially adversely affect
its business, operating results and financial condition, its ability to pay
interest and principal on the Exchange Notes and the value of the Warrants (as
defined herein) and the Warrant Shares.
22
<PAGE>
FRAUDULENT CONVEYANCE
If a court, in a lawsuit brought by an unpaid creditor of the Company or a
representative of creditors, such as a trustee in bankruptcy, or the Company as
a debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring debt, including the Exchange Notes,
and that, at the time of such incurrence, the Company: (i) was insolvent; (ii)
was rendered insolvent by reason of such incurrence; (iii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital; or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court could void the Company's obligations under the Exchange Notes,
subordinate the Exchange Notes to other indebtedness of the Company or take
other action detrimental to the holders of the Exchange Notes.
The measure of insolvency for these purposes would vary depending upon the
law of the jurisdiction being applied. Generally, however, a company would be
considered insolvent for these purposes if the sum of such company's liabilities
(including a fair estimate of the likely amount payable in respect of contingent
liabilities) were greater than the fair saleable value of all such company's
property, or if the present fair saleable value of such company's assets were
less than the amount that would be required to pay its probable liability on its
existing debts as they become absolute and matured. Moreover, regardless of
solvency or the adequacy of consideration, a court could void the Company's
obligations under the Exchange Notes, subordinate the Exchange Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Exchange Notes if such court determined that the incurrence of debt,
including the Private Notes, was made with the actual intent to hinder, delay or
defraud creditors.
The Company believes that the indebtedness represented by the Private Notes
was incurred for proper purposes and in good faith without any intent to hinder,
delay or defraud creditors, that the Company received reasonably equivalent
value or fair consideration for incurring such indebtedness, that the Company,
after giving effect to the issuance of the Private Notes and the use of proceeds
therefrom, continues to be solvent under the applicable standards that it has
and will have sufficient capital for carrying on its businesses and will be able
to pay its debts as they mature. The exchange of the Private Notes for the
Exchange Notes does not represent any additional indebtedness for the Company.
FRAUDULENT TRANSFER CONSIDERATIONS RELATING TO SUBSIDIARY GUARANTEES
The obligations of any Subsidiary Guarantor (as defined herein) under its
Subsidiary Guarantee and the grant by any Subsidiary Guarantor of a security
interest under the Collateral Agreements (as defined herein) may be subject to
review under applicable fraudulent conveyance statutes in the event of the
bankruptcy or other financial difficulty of any such Subsidiary Guarantor. Under
such laws, if a court in a lawsuit by an unpaid creditor or representative of
creditors of any such person, such as a trustee in bankruptcy of any such person
as debtor in possession, were to find that at the time such person incurred its
obligations under its guarantee or pledged its assets, it: (i) received less
than fair consideration or reasonably equivalent value therefor; and (ii)
either, (a) was insolvent, (b) was rendered insolvent by such guarantee or
pledge, (c) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital, or (d) intended to
incur or believed that it would incur debts beyond its ability to pay such debts
as they matured, such court could void such obligations under its guarantee
and/or the security interest in its assets and direct the return of any amounts
paid with respect thereto. Moreover, regardless of the factors identified in the
foregoing clauses (i) and (ii), a court could take such action if it found that
the guarantee was entered into or the security interest granted with actual
intent to hinder, delay, or defraud creditors. The measure of insolvency for
purposes of the foregoing will vary depending on the law of the jurisdiction
being applied. Generally, however, an entity would be considered insolvent if
the sum of its debts (including contingent or unliquidated debts) were greater
than all of its property at a fair valuation or if the present fair salable
value of its assets is less than the amount
23
<PAGE>
that would be required to pay its probable liability on its existing debts as
they become absolute and matured.
ABSENCE OF PUBLIC MARKET
The NASD has designated the Private Notes as securities eligible for trading
in the PORTAL market of the NASD. However, the Exchange Notes are new securities
for which there is currently no active trading market. The Company does not
intend to list the Exchange Notes on any national securities exchange or to seek
the admission thereof to trading in the Nasdaq National Market System, and there
can be no assurance as to the development of any market or liquidity of any
market that may develop for the Exchange Notes. If a market for the Exchange
Notes develops, the price of such Exchange Notes may fluctuate and liquidity may
be limited. If a market for the Exchange Notes does not develop purchasers may
be unable to resell such Exchange Notes for an extended period of time, if at
all. Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the Exchange Notes. There can be no assurance that, if a market for
the Exchange Notes were to develop, such market would not be subject to similar
disruptions.
LIMITATION ON USE OF NET OPERATING LOSSES AND BUILT-IN LOSSES
The Company was required to reduce its Net Operating Losses ("NOL") as a
result of the cancellation of indebtedness pursuant to the confirmation of the
Plan.
Under the Internal Revenue Code of 1986, as amended (the "Code"), the
utilization of NOLs against future taxable income is subject to limitation if a
company is treated as having experienced "ownership change" as defined in the
Code (the "Section 382 limitation"). Moreover, if an ownership change has
occurred, the ability to use recognized "built-in losses" to offset other income
may also be subject to the Section 382 limitation. The Section 382 limitation
applies to the recognition of any portion of a company's built-in loss (defined
as the excess of such company's tax basis in its assets over the fair market
value of such assets as of the time of the ownership change) during the
five-year period after the change in control that results from, among other
things, the sale or exchange of the company's built-in loss assets. This built-
in loss change of control limitation also limits a company's ability to take
depreciation or amortization charges with respect to its built-in loss assets.
As a result of its reorganization under Chapter 11, the Company is treated
as having experienced an ownership change. Thus, after emerging from Chapter 11,
the Company's ability to offset income in each post-reorganization taxable year
by its then remaining NOLs and built-in losses (including depreciation and
amortization deductions of any portion of the Company's basis in assets with
built-in losses) will be limited to an amount not to exceed the aggregate value
of the Company's common stock immediately before such change in control (taking
into account in such calculation, however, any increase in value resulting from
any surrender or cancellation of creditors' claims in connection with the Plan)
multiplied by the long-term tax-exempt rate published monthly by the Internal
Revenue Service.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Private Notes were issued with original issue discount for U.S. federal
income tax purposes. The Exchange Notes should be treated as a continuation of
the Private Notes. Consequently, Holders of the Exchange Notes generally will be
required to include amounts in gross income for U.S. federal income tax purposes
in advance of receipt of the cash payments to which the income is attributable.
See "Certain U.S. Federal Income Tax Considerations" for a more detailed
discussion of the U.S. federal income tax consequences for the Company and the
beneficial owners resulting from the Exchange Offer.
24
<PAGE>
FAILURE TO EXCHANGE PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer who holds Private
Notes acquired for its own account as a result of market making or other trading
activities and who receives Exchange Notes for its own account in exchange for
such Private Notes pursuant to the Exchange Offer, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security results in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
In the event the Exchange Offer is consummated, the Company will not be
required to register any Private Notes not tendered and accepted in the Exchange
Offer. In such event, holders of Private Notes seeking liquidity in their
investment would have to rely on exemptions to the registration requirements
under the securities laws, including the Securities Act. Following the Exchange
Offer, none of the Private Notes will be entitled to the contingent increase in
interest rate provided (in the event of a failure to consummate the Exchange
Offer in accordance with the terms of the Registration Rights Agreement)
pursuant to the Private Notes.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local laws and
regulations affecting operations, including those relating to the use of video
and arcade games, the preparation and sale of food and beverages and those
relating to building and zoning requirements. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Difficulties or failures in obtaining required licenses or other
regulatory approvals could delay or prevent the opening of a new FunCenter, and
the suspension of, or inability to renew, a license or permit could interrupt
operations at an existing FunCenter.
25
<PAGE>
THE EXCHANGE OFFER
This summary of certain provisions of the Registration Rights Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Rights Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and is available from the Company upon request.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Company sold the Private Notes to Jefferies & Company, Inc. (the
"Initial Purchaser") on July 22, 1997 (the "Issue Date") pursuant to the terms
of the Purchase Agreement dated July 15, 1997 between the Initial Purchaser and
the Company (the "Purchase Agreement"). The Initial Purchaser subsequently
resold the Private Notes to "qualified institutional buyers" in reliance on Rule
144A under the Securities Act and to a limited number of institutional
"accredited investors" (as defined in Rule 501(A)(1), (2), (3) or (7) under the
Securities Act). In connection with the offering of the Private Notes, the
Company and the Initial Purchaser entered into a Registration Rights Agreement
dated as of July 22, 1997 (the "Registration Rights Agreement").
The Company agreed with the Initial Purchaser pursuant to the Registration
Rights Agreement, for the benefit of the Holders, that it would use its best
efforts, at its cost, after the Issue Date to file and cause to become effective
a registration statement with respect to a proposed offer (the "Exchange Offer
Registration Statement") to exchange the Private Notes for an issue of notes
with terms identical in all material respects to the Private Notes (except that
the Exchange Notes will not contain terms with respect to transfer
restrictions). As soon as practicable after such registration statement is
declared effective, the Company intends to offer the Exchange Notes in return
for surrender of the Private Notes. Such offer will remain open for not less
than 30 calendar days after the date notice of the Exchange Offer is mailed to
holders of the Private Notes. For each of the Private Notes surrendered to the
Company under the Exchange Offer, the Holder will receive Exchange Notes of
equal principal amount. Interest on each Exchange Note shall accrue from the
last Interest Payment Date on which interest was paid on the Private Notes so
surrendered. In the event that applicable interpretations of the staff of the
Commission do not permit such an Exchange Offer, or under certain other
circumstances set forth in the Registration Rights Agreement, the Company shall,
at its cost, use its best efforts to cause to become effective a shelf
registration statement (the "Shelf Registration Statement") with respect to
resales of the Private Notes and to keep such registration statement effective
until the expiration of the time period referred to in Rule 144(k) under the
Securities Act, as in effect from time to time. The Company shall, in the event
of such a shelf registration, provide to each Holder copies of the prospectus,
notify each Holder when a registration statement for the Private Notes has
become effective and take certain other actions as are required to permit
resales of the Private Notes. A Holder that sells its Private Notes pursuant to
a Shelf Registration Statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification obligations).
In the event that neither the Exchange Offer Registration Statement nor the
Shelf Registration Statement has been filed on or prior to the 120th day after
the Issue Date, then commencing on the day after the 120th day after the Issue
Date, additional interest shall accrue on the Private Notes over and above any
stated interest at a rate of 0.25% per annum of the principal amount of such
Private Notes for the first 90 days commencing on the 120th day after the Issue
Date, such additional interest rate increasing by an additional 0.25% per annum
at the beginning of each subsequent 90-day period. If neither the Exchange Offer
Registration Statement nor the Shelf Registration Statement is declared
effective on or prior to the 180th day after the Issue Date, then commencing on
the 180th day after the Issue Date, additional interest shall accrue on the
Private Notes over and above any stated interest at a rate of 0.25%
26
<PAGE>
per annum of the principal amount of such Private Notes for the first 90 days
immediately following the 120th day after the Issue Date, such additional
interest rate increasing by an additional 0.25% per annum at the beginning of
each subsequent 90-day period. If (A) the Company has not exchanged Exchange
Notes for all Private Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 210th day after the Issue Date, (B) if
applicable, a Shelf Registration Statement has been declared effective and such
Shelf Registration Statement ceases to be effective at any time prior to the
date which is 36 months after the Issue Date and is not declared effective again
within 5 business days, (C) pending the announcement of a material corporate
transaction, the Company issues a written notice that a Shelf Registration
Statement or Exchange Offer Registration Statement is unusable and the aggregate
number of days in any 365-day period for which all such notices issued or
required to be issued, have been, or were required to be, in effect exceeds 120
days in the aggregate or 30 days consecutively, in the case of a Shelf
Registration Statement, or 15 days in the aggregate in the case of an Exchange
Offer Registration Statement, then additional interest shall accrue on the
Private Notes over and above any stated interest at a rate of 0.25% per annum of
the principal amount of such Private Notes for the first 90 days commencing on
the (x) 210th day after the date hereof, in the case of (A) above, (y) the day
such Shelf Registration Statement ceases to be effective without being declared
effective again within 5 business days in the case of (B) above, or (z) the day
the Exchange Offer Registration Statement or Shelf Registration Statement ceased
to be usable in case of clause (C) above, such additional interest rate
increasing by an additional 0.25% per annum at the beginning of each such
subsequent 90-day period; PROVIDED, HOWEVER, that the additional interest rate
on the Private Notes may not exceed at any one time in the aggregate 1.00% per
annum; and PROVIDED, FURTHER, that (1) upon the filing of the Exchange Offer
Registration Statement or Shelf Registration Statement (in the case of (i)
above), (2) upon the effectiveness of the Exchange Offer Registration Statement
or Shelf Registration Statement (in the case of (ii) above), or (3) upon the
exchange of Exchange Notes for all Private Notes tendered (in the case of (iii)
(A) above), or upon effectiveness of a Shelf Registration Statement which had
ceased to remain effective (in the case of (iii) (B) above), additional interest
on the Private Notes as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
If the Company effects the Exchange Offer Registration Statement, it will be
entitled to close the Exchange Offer Registration Statement 30 calendar days
after the commencement thereof; PROVIDED that it has accepted all Private Notes
theretofore validly surrendered in accordance with the terms of the Exchange
Offer Registration Statement. Private Notes not tendered in the Exchange Offer
Registration Statement will bear interest at the rate set forth on the cover
page of the Offering Circular dated July 15, 1997 and be subject to all of the
terms and conditions specified in the Indenture and to the transfer restrictions
described therein under the caption "Notice to Investors."
Following the completion of the Exchange Offer, Holders of the Private Notes
not tendered will not have any further registration rights and those Private
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a Holder's Private Notes could be
adversely affected upon completion of the Exchange Offer if such Holder does not
participate in the Exchange Offer. See "Risk Factors -- Failure to Exchange
Private Notes."
Each Holder participating in the Exchange Offer Registration Statement shall
be required to represent to the Company that at the time of the consummation of
the Exchange Offer Registration Statement (i) any Exchange Notes received by
such Holder will be acquired in the ordinary course of its business, (ii) such
Holder will have no arrangements or understanding with any person to participate
in the distribution of the Private Notes or Exchange Notes within the meaning of
the Securities Act, (iii) such Holder is not an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company, or if it is an affiliate, such Holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes and (v) if such Holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Private
Notes that
27
<PAGE>
were acquired as a result of market-making activities or other trading
activities and that it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes.
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer without further
registration under the Securities Act; PROVIDED that, in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act is delivered upon resale by such
broker-dealers in connection with resales of the Exchange Notes. The Company has
agreed, for a period of 180 days after the consummation of the Exchange Offer,
to make available a prospectus meeting the requirements of the Securities Act to
any such broker-dealer for use in connection with any resale of any Exchange
Note acquired in the Exchange Offer. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement, including certain
indemnification obligations. Any Holder who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes cannot rely
on this interpretation by the Commission's staff and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered Holders of Private Notes as of , 1997
(the "Record Date"). The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as agent
for the tendering Holders for the purpose of receiving Exchange Notes from the
Company and delivering Exchange Notes to such Holders.
If any tendered Private Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein, such
unaccepted Private Notes will be returned, without expense, to the tendering
Holder thereof as promptly as practicable after the Expiration Date.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. In the event that the Exchange
Offer is extended, it will remain in effect for a maximum of 30 business days,
including all extensions.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
Holders of Private Notes an announcement thereof, each prior to 5:00 p.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right, in its sole discretion, (i) to delay
acceptance of any Private Notes, to extend the Exchange Offer or to terminate
the Exchange Offer and to refuse to accept Private Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral
28
<PAGE>
or written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner. Any such delay
in acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the Holders of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no, and as required by the Securities
Act, obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to the Dow Jones News
Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue from November 1, 1997, the last
Interest Payment Date on which interest was paid on the Private Notes so
surrendered. Holders who exchange their Private Notes for Exchange Notes will
receive the same interest payment on February 1, 1998 (the first interest
payment date with respect to the Exchange Notes assuming the Expiration Date is
not extended beyond such date) that they would have received had they not
accepted the Exchange Offer.
PROCEDURES FOR TENDERING
Only a Holder of Private Notes may tender its Private Notes in the Exchange
Offer, except as set forth in the following two paragraphs. To tender in the
Exchange Offer, a Holder must complete, sign and date the Letter of Transmittal,
or a copy thereof, have the signatures thereof guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal
or such copy, together with any corresponding certificate or certificates
representing the Private Notes (unless such tender is being effected pursuant to
the procedure for book-entry transfer described below) and any other required
documents, to the Exchange Agent, prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Private Notes by causing DTC
to transfer such Private Notes into the Exchange Agent's account in accordance
with the DTC's procedure for such transfer. Although delivery of Private Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the DTC, the Letter of Transmittal (or copy thereof) with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or confirmed by the Exchange Agent at its addresses set forth
herein under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
If delivery of the Private Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at the DTC, the Letter of Transmittal
need not be manually executed; PROVIDED, HOWEVER, that tenders of Private Notes
must be effected in accordance with the procedures mandated by ATOP. To tender
Private Notes through ATOP, the electronic instructions sent to DTC and
transmitted by DTC to the Exchange Agent must contain the character by which the
participant acknowledges its receipt of and agrees to be bound by the Letter of
Transmittal.
The tender by a Holder of Private Notes will constitute an agreement between
such Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such Holders.
29
<PAGE>
The method of delivery of Private Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the Holders. Instead of delivery by mail, it is recommended that Holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Private Notes
should be sent to the Company.
Any owner of a beneficial interest in an Old Global Note holding through a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender in the Exchange Offer should contact such entity through which it
holds such beneficial interest promptly and instruct such entity to tender on
his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution") unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered Holder who has not
completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" of the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
Holder listed therein, such Private Notes must be endorsed or accompanied by
appropriate bond powers which authorize such person to tender the Private Notes
on behalf of the registered Holder, in either case signed as the name of the
registered Holder or Holders appears on the Private Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with this Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Private Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Private Notes not property tendered or any Private Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the absolute right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Private Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Private Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering Holder unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Private Notes that remain outstanding subsequent
to the Expiration Date, or, as set forth under "-- Termination," to terminate
the Exchange Offer and (b) to the extent permitted by applicable law, purchase
Private Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
30
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available, or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, or cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent received from such
Eligible Institution a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of Private Notes, the
certificate number or numbers, if any, of such Holder's Private Notes and
the principal amount of such Private Notes tendered, stating that the tender
is being made thereby, and guaranteeing that, within five business days
after the Expiration Date, the Letter of Transmittal (or copy thereof),
together with the certificate(s) representing the Private Notes to be
tendered in prior form for transfer and any other documents required by the
letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or copy
thereof), together with the certificate(s) representing all physically
tendered Private Notes in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the DTC of Private
Notes delivered electronically) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written,
facsimile or electronic ATOP (for DTC participants) transmission notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date and prior
to acceptance for exchange thereof by the Company. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Private Notes to be
withdrawn (the "Depositor"), (ii) identify the Private Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Private Notes), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Private Notes were
tendered (including any required signature guarantee) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the
Private Notes to register the transfer of such Private Notes into the name of
the Depositor withdrawing the tender and (iv) specify the name in which any such
Private Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly rendered. Any Private Notes that have
been tendered for exchange but are not accepted for exchange will be returned to
the Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Private Notes may be rendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time prior to the
Expiration Date.
31
<PAGE>
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Private
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Private Notes if
(i) any injunction, order or decree shall have been issued by any court or by or
before any governmental agency with respect to the Exchange Offer, which, in the
Company's judgment, would materially impair the Company's ability to proceed
with the Exchange Offer, or (ii) any law, statute, rule or regulation is
proposed, adopted or enacted, or any existing law, statute, rule or regulation
is interpreted by the staff of the Commission in a manner which, in the
Company's sole judgment, might materially impair the Company's ability to
proceed with the Exchange Offer, or (iii) any governmental approval or approval
by Holders has not been obtained, which approval the Company shall, in its
reasonable judgment, deem necessary for the consummation of the Exchange Offer
as contemplated hereby.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Private Notes and return
any Private Notes that have been tendered to the Holders thereof, (ii) extend
the Exchange Offer and retain all Private Notes tendered prior to the Expiration
Date of the Exchange Offer, subject to the rights of such Holders of tendered
Private Notes to withdraw their tendered Private Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Private Notes that have not been withdrawn. If such waiver constitutes
a material change in the Exchange Offer, the Company will disclose such change
by means of a supplement to this Prospectus that will be distributed to each
registered Holder, and the Company will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver and
the manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such period.
Holders of Private Notes will have certain rights against the Company under
the Registration Rights Agreement should the Company fail to consummate the
Exchange Offer.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. Questions and requests
for assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal should be directed to the Company addressed as follows:
Discovery Zone, Inc.
565 Taxter Road, Fifth Floor
Elmsford, New York 10523
Telephone: (914) 345-4500
Attention: Andrew M. Smith
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and their affiliates in person, by
facsimile, telegraph, telephone or telecopier.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable
32
<PAGE>
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Private Notes and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Private Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered Holder of the
Private Notes tendered, or if tendered Private Notes are registered in the name
of any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Private Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule 144
of the Securities Act. Accordingly, such Private Notes may be resold only (i) to
the Company or any subsidiary thereof, (ii) inside the United States to a
qualified institutional buyer in compliance with Rule 144A, (iii) inside the
United States to an institutional accredited investor that, prior to such
transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of the
Private Notes (the form of which letter can be obtained from the Trustee) and,
if such transfer is in respect of an aggregate principal amount of Private Notes
at the time of transfer of less than $100,000, an opinion of counsel acceptable
to the Company that such transfer is in compliance with the Securities Act, (iv)
outside the United States in compliance with Rule 904 under the Securities Act,
(v) pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (vi) pursuant to an effective registration
statement under the Securities Act. The liquidity of the Private Notes could be
adversely affected by the Exchange Offer. Following the consummation of the
Exchange Offer, holders of the Private Notes will have no further registration
rights under the Registration Rights Agreement and will not be entitled to the
contingent increase in the interest rate provided for in the Private Notes.
ACCOUNTING TREATMENT
The Exchange Notes would be recorded at the same carrying value as the
Private Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the consummation of the Exchange Offer. The costs
of the Exchange Offer and the unamortized expenses related to the issuance of
the Private Notes will be amortized over the term of the Exchange Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer. In consideration for issuing the Exchange
Notes as contemplated in this Prospectus, the Company will receive in exchange
Private Notes in like principal amount, the term and form of which are identical
in all material respects to the Exchange Notes. The Private Notes surrendered in
exchange for Exchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, issuance of the Exchange Notes will not increase the
indebtedness of the Company.
33
<PAGE>
COMPANY BACKGROUND
PRE-CHAPTER 11 REORGANIZATION
Discovery Zone, Inc. was founded in 1989 and grew from 28 locations in 1991
to a peak of 347 locations in 1994, achieving much of its growth through the
acquisition of certain of its franchisees and other businesses.
In 1994 the Company acquired, among other businesses: (i) the 48-store Leaps
and Bounds, Inc. ("Leaps and Bounds"), a wholly owned subsidiary of McDonald's
Corporation ("McDonald's"); (ii) the Blockbuster Children's Amusement
Corporation, the Tumble For Fun Limited Partnership and Blockbuster Children's
Amusement Canada Corporation which, together, operated 60 franchised locations;
and (iii) Semborg Corp., a company that developed robotics and interactive
technology. In 1995, the Company acquired two Block Party Stores and certain
related leases from Blockbuster Entertainment Group ("Blockbuster"). The Company
acquired no businesses during 1996 or in the first nine months of 1997.
The Company financed its growth, including the acquisitions described above,
primarily through the issuance of debt securities, including an offering of
4.75% Liquid Yield Option Notes (the "LYONs") for net proceeds of $111 million
and the incurrence of a $175 million five-year revolving credit facility in
December 1994. In addition, the Company raised net proceeds of $55 million in
June 1993 through an initial public offering of its common stock. Just prior to
such offering, Blockbuster acquired 19.9% of the Company's common stock
(subsequently increased to 49.9% through the exercise of stock options). In
September 1994, Blockbuster merged into Viacom Inc. ("Viacom"), which thereby
succeeded to Blockbuster's ownership interest in the Company.
The Company's rapid expansion resulted in a loss of control over costs and
quality at the store and corporate levels, which diminished customer service,
reduced store operating margins and caused selling, general and administrative
expenses to increase dramatically. This negatively affected the Company's
overall profitability and led to a series of defaults under the Company's
revolving credit facility in late 1995 and early 1996.
On January 12, 1996, the Company received an interim working capital loan
from one of its lenders of up to $10.0 million, guaranteed by Viacom, to finance
the Company's working capital needs. Upon maturity on February 6, 1996, the
Company did not repay when due outstanding principal of $7.5 million and accrued
interest on such loan, which amount was paid by Viacom pursuant to its
guarantee.
On March 25, 1996, Discovery Zone, Inc. and all of its domestic subsidiaries
(collectively, for the period during which the Company was under Chapter 11, the
"Discovery Zone Group") filed voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court. After its Chapter 11 filing, the
Company entered into a debtor in possession credit facility (as amended, the
"DIP Facility") to provide working capital during its reorganization. The DIP
Facility was secured by substantially all of the Company's assets, provided
borrowing capacity of up to $30.0 million and required the Company to maintain
certain financial ratios. On June 6, 1997 the Discovery Zone Group and Birch
Holdings, L.L.C. ("Birch Holdings") entered into a supplemental DIP facility
(the "Supplemental DIP Facility" and, together with the DIP Facility, the "DIP
Facilities") which provided additional borrowing capacity of up to $5.0 million.
The Company repaid all indebtedness under the DIP Facilities on the Effective
Date.
Under Bankruptcy Court supervision, the Discovery Zone Group continued to
manage and operate its businesses as debtor in possession and developed the Plan
to restructure its financial affairs, including assuming or rejecting executory
contracts and leases.
EMERGENCE FROM CHAPTER 11
In November 1996, the Company and Wellspring filed the Plan with the
Bankruptcy Court which set forth a plan for repaying or otherwise compensating
the Company's creditors in order of relative seniority
34
<PAGE>
of their respective claims while seeking to maintain the Company as a going
concern. On July 18, 1997, the Plan was approved by the requisite number of
creditors in each class and confirmed by the Bankruptcy Court. The Plan became
effective and the Company emerged from bankruptcy on the Effective Date.
The Plan provided, among other things, for (i) the payment in full of
certain administrative claims against the Company (those claims which arose
after the Petition Date), (ii) conversion of substantially all of the Company's
pre-petition liabilities subject to compromise (excluding taxes payable, lease
assumption payments and certain other pre-petition liabilities permitted under
the Plan) to equity interests in the Company, and (iii) cancellation of all of
the pre-petition equity interests in the Company, all as more fully described in
the Plan.
The net proceeds of the issuance of the Convertible Preferred Stock and the
offering of the Private Notes were approximately $93.8 million. Such proceeds,
together with the proceeds from the issuance and sale by the Company of the
Convertible Preferred Stock, were used (i) to fund the Escrowed Interest Account
from which the Company will pay the scheduled interest payments on the Notes
through August 1, 1999, (ii) to repay the DIP Facilities and certain other
bankruptcy-related claims and expenses, and (iii) to finance capital
expenditures and general corporate purposes.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of the Company for each of
the years in the three-year period ended December 31, 1996 and historical
balance sheet data as of December 31, 1996 have been taken or derived from the
historical audited consolidated financial statements of the Company. The
consolidated financial data as of and for the nine months ended September 30,
1996, the seven months ended July 31, 1997 and the two months ended September
30, 1997 have been derived from unaudited consolidated financial statements of
the Company and, in the opinion of the Company's management, have been prepared
on a basis consistent with the audited financial statements and include all
adjustments that are considered by management to be necessary for a fair
presentation of such financial information. Historical data and interim results
are not 4necessarily indicative of future results, and interim data are not
necessarily indicative of results for a full year. In accordance with Fresh
Start Accounting under GAAP, the Company restated its balance sheet accounts to
reflect an estimated fair market value upon its emergence from bankruptcy. As a
result, the Company does not believe that its historical results of operations
are necessarily indicative of its results of operations as an ongoing entity
after the Effective Date. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Changes in Method of Accounting." The
information set forth below should be read in conjunction with the discussion
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (SUCCESSOR
NINE SEVEN COMPANY)
MONTHS MONTHS TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
---------------------------------- SEPTEMBER 30, JULY 31, SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
---------- ---------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Total revenue...................................... $ 180,573 $ 259,490 $ 181,725 $ 147,848 $ 82,537 $ 19,914
Cost of goods sold................................. 36,858 50,227 34,276 27,059 14,136 3,057
Store operating expenses(1)(2)..................... 97,631 185,587 140,486 112,741 60,192 16,879
Selling, general and administrative expenses(2).... 36,451 58,201 40,779 33,230 10,235 3,872
Depreciation and amortization...................... 16,183 31,972 21,876 16,204 11,920 3,981
---------- ---------- ---------- ------------- ----------- -------------
Operating loss before restructuring and other
charges.......................................... (6,550) (66,497) (55,692) (41,386) (13,946) (7,875)
Restructuring and other charges.................... 14,024 372,160 -- -- -- --
---------- ---------- ---------- ------------- ----------- -------------
Operating loss..................................... (20,574) (438,657) (55,692) (41,386) (13,946) (7,875)
Interest expense................................... (5,137) (12,226) (6,277) (4,978) (3,957) (2,468)
Other income (expense), net........................ 2,331 476 (580) 435 159 598
Minority interest.................................. 256 5,162 -- -- -- --
Reorganization costs............................... -- -- (21,285) (12,436) (12,165) --
---------- ---------- ---------- ------------- ----------- -------------
Loss before income tax and cumulative effect of
change in accounting method, extraordinary item
and accretion of Preferred Stock................. (23,124) (445,245) (83,834) (58,365) (29,909) (9,745)
Income tax provision (benefit)..................... (4,000) 4,000 -- -- -- --
Cumulative effect of change in accounting method... 5,773 -- -- -- -- --
Extraordinary item-gain on discharge of debt....... -- -- -- -- 332,165 --
Accretion of convertible redeemable preferred stock
to redemption value.............................. -- -- -- -- -- (39)
---------- ---------- ---------- ------------- ----------- -------------
Net income (loss) applicable to common
shareholders..................................... $ (24,897) $ (449,245) $ (83,834) $ (58,365) $ 302,256 $ (9,784)
---------- ---------- ---------- ------------- ----------- -------------
---------- ---------- ---------- ------------- ----------- -------------
Per common and common equivalent share:
Loss before income tax and cumulative effect of
change in method of accounting and
extraordinary item............................. $ (0.41) $ (8.06) $ (1.45) $ (1.01) $ (0.52) $ (2.45)
Cumulative effect of change in accounting
method......................................... (0.12) -- -- -- -- --
Extraordinary item--gain on discharge of debt.... -- -- -- -- 5.76 --
---------- ---------- ---------- ------------- ----------- -------------
Net income (loss)................................ $ (0.53) $ (8.06) $ (1.45) $ (1.01) $ 5.24 $ (2.45)
---------- ---------- ---------- ------------- ----------- -------------
---------- ---------- ---------- ------------- ----------- -------------
Weighted average number of common and common
equivalent shares outstanding.................... 46,797 55,706 57,691 57,698 57,705 4,000
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (SUCCESSOR
NINE SEVEN COMPANY)
MONTHS MONTHS TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
---------------------------------- SEPTEMBER 30, JULY 31, SEPTEMBER 30,
1994 1995 1996 1996 1997 1997
---------- ---------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
(DOLLAR IN THOUSANDS)
EBITDA before reorganization, restructuring and
other charges(3)................................. $ 9,633 $ (34,525) $ (33,816) $ (25,182) $ (2,026) $ (3,894)
EBITDA(3).......................................... (4,391) (406,685) (55,101) (37,618) (14,191) (3,894)
Capital expenditures............................... 119,134 51,732 2,672 1,717 567 218
STORE DATA:
Company owned stores at period-end(4).............. 318 321 212 232 210 208
Franchised stores at period-end(5)................. 29 15 7 7 -- --
---------- ---------- ---------- ------------- ----------- -------------
Total stores at period-end......................... 347 336 219 239 210 208
OPERATING RATIO:
EBITDA/total interest expense(6)................... -- -- -- -- -- --
Ratio of earnings to fixed charges(7).............. -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
(PREDECESSOR (SUCCESSOR
COMPANY) COMPANY)
AS OF AS OF
DECEMBER 31, 1996 SEPTEMBER 30, 1997
(8)(9)(10) ACTUAL(8)(9)(10)
----------------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
(DOLLARS IN THOUSANDS)
Cash and cash equivalents (unrestricted)............................................... $ 3,326 $ 30,240
Restricted cash and investments........................................................ -- 21,706
Total assets........................................................................... 125,786 190,171
Long-term debt, including current portion.............................................. 350,072 88,298
Redeemable Convertible Preferred Stock(11)............................................. -- 13,839
Total stockholders' equity (deficit) (excluding Redeemable Convertible Preferred
Stock)............................................................................... (263,572) 60,394
</TABLE>
- ------------------------
(1) Excludes depreciation and amortization and certain unallocated expenses.
(2) Net of $22.2 million, $13.6 million and $200,000 of capitalized costs
related to the Company's expansion for the years 1994, 1995 and 1996,
respectively, and $0.0 million, $0.0 million and $0.2 million for the nine
months ended September 30, 1996, the seven months ended July 31, 1997 and
the two months ended September 30, 1997, respectively.
(3) EBITDA represents net earnings (losses) before interest, income taxes,
depreciation and amortization, other income and expense, including minority
interest, extraordinary item and change in accounting method. EBITDA is
presented here to provide additional information about the Company's
operations. EBITDA is not a measure of financial performance under GAAP and
should not be considered as an alternative to (i) net income (loss) as a
measure of performance (or any other measure of performance under GAAP) or
(ii) cash flows from operating, investing or financing activities as an
indicator of cash flows or as a measure of liquidity.
(4) Includes the Block Party Stores.
(5) The Company currently receives no royalties from its franchised stores and
rejected or terminated its arrangements with all franchisees on or prior to
the Effective Date.
(6) EBITDA was insufficient to cover the full amount of total interest expense
by $9.5 million, $418.9 million and $61.4 million in each of 1994, 1995 and
1996, respectively, and $34.4 million, $14.0 million and $11.2 million for
the nine months ended September 30, 1996, the seven months ended July 31,
1997 and the two months ended September 30, 1997, respectively. Total
interest expense does not include all fixed expenses of the Company. See
Note 12 to the Financial Statements.
(7) For purposes of this item, "fixed charges" represent interest, the interest
element of rental expense, capitalized interest and amortization of debt
issuance costs, and "earnings" represent income (loss) before income taxes,
discontinued operations, extraordinary items, cumulative effect of change in
37
<PAGE>
accounting principles and fixed charges. Earnings were insufficient to cover
Fixed Charges by $28.9 million, $25.9 million, $83.8 million, $58.4 million
and $9.7 million in each of 1994, 1995 and 1996, the nine months ended
September 30, 1996 and the two months ended September 30, 1997.
(8) Includes certain claims and other liabilities totaling $344.1 million as of
December 31, 1996, which were restricted or extinguished in connection with
the Plan of Reorganization. See "Plan of Reorganization."
(9) The balance sheet as of September 30, 1997 gives effect to the offering of
the Private Notes and the Plan of Reorganization, including application of
Fresh Start Accounting under GAAP. Fresh Start Accounting requires a
restatement of the Company's balance sheet accounts to reflect the estimated
fair market value of the Company on a going concern basis following the
reorganization upon its emergence from bankruptcy. See "Plan of
Reorganization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Changes in Method of Accounting."
(10) Under GAAP, $7.1 million of the proceeds of the offering of the Private
Notes were allocated to the Unit Warrants and $77.9 million of the proceeds
were allocated to the Private Notes.
(11) Reflects 1,000 shares of Convertible Preferred Stock of the Company.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS RELATES TO THE COMPANY'S HISTORICAL
FINANCIAL RESULTS OF OPERATIONS AND FINANCIAL CONDITION, WITHOUT GIVING PRO
FORMA EFFECT TO THE RESTRUCTURING OF THE COMPANY WHICH OCCURRED IN CONNECTION
WITH THE PLAN OF REORGANIZATION AND THE IMPLEMENTATION OF THE TURNAROUND PLAN,
EXCEPT TO THE EXTENT THAT SUCH RESTRUCTURING HAD OCCURRED PRIOR TO THE END OF
THE PERIODS DISCUSSED. AS A RESULT, MANAGEMENT DOES NOT BELIEVE THAT RESULTS OF
OPERATIONS IN FUTURE PERIODS WILL BE COMPARABLE TO PRIOR PERIODS. THIS
DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED
HISTORICAL FINANCIAL DATA" AND THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS
AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company is the leading owner and operator of pay-for-play children's
entertainment centers in North America, with a national network of 206
FunCenters in 39 states, Puerto Rico and Canada targeted at children ages two to
12 and two Block Party Stores which target adult customers. The Company was
established in 1989 and grew from 28 FunCenters in 1991 to 336 company-owned and
franchised FunCenters by the end of 1995, primarily as a result of acquisitions
of competitors and construction of new FunCenters financed with bank debt and
public offerings of debt and equity securities. This rapid expansion resulted in
a loss of control over costs and quality at both the store and corporate levels
which diminished customer service, reduced store operating margins and caused
selling, general and administrative expenses to increase dramatically.
The Company generates revenue primarily from the operation of 206
FunCenters. FunCenter revenues are derived from: (i) admission charges; (ii)
food and beverage sales; (iii) redemption game and other concession revenue; and
(iv) birthday party fees. The Company's revenues are subject to significant
quarterly variations based upon several factors, including seasonal changes in
weather, holidays and the school calendar. The Company experienced negative
comparable store sales while operating in Chapter 11 and this trend has
continued since the Effective Date. Among other factors, comparable store
revenues declined because (i) the Company shortened FunCenter operating hours by
approximately 18% to curtail operations during unprofitable time periods, (ii)
the Company reduced its marketing expenditures (see below) and (iii) the Company
did not update its product offering during the Company's reorganization in
bankruptcy.
The Company believes that growth in its revenues will eventually result from
enhanced entertainment value provided by new product offerings, improvement in
food and beverage offerings, increased utilization of FunCenters during weekdays
and other off-peak times and, to a lesser extent, from the construction or
acquisition of new FunCenters. The Company expects to renovate approximately 75%
of its FunCenters by March 31, 1998, convert approximately 80% of its FunCenters
to permit the sale of Pizza Hut menu items and relaunch the brand during the
first quarter of 1998. See "Business -- Business Strategy and Turnaround Plan."
Management expects that as a result of these efforts, revenues will increase on
a comparable store basis.
The Company's operating expenses at the store level consist primarily of
food and beverage costs, the cost of game merchandise, labor costs, occupancy
and maintenance expense. As a substantial portion of store operating expenses,
including occupancy costs, facility maintenance and core staffing requirements
are fixed, the Company has a high degree of operating leverage. The Company has
reduced its rent expense through renegotiation of certain store leases and has
generated additional annual cost savings at the store level through cost
management measures and improved financial controls implemented in connection
with Phase 1 of the Turnaround Plan. See "Business -- Business Strategy and
Turnaround Plan."
The Company's selling, general and administrative expenses include salaries,
bankruptcy-related costs, corporate and regional management expenses and other
administrative, promotional and advertising
39
<PAGE>
expenses. In connection with the Turnaround Plan, the Company expects to reduce
its annual selling, general and administrative expenses in 1997 to a level which
is approximately $20 million less than in 1996. See "Business -- Business
Strategy and Turnaround Plan -- Phase 1." Interest expense (including
contractual interest on the Pre-petition Indebtedness (as defined below)) has
declined substantially during the seven months ended July 31, 1997 from prior
years as a result of the discharge or restructuring of substantially all of the
Pre-petition Indebtedness in connection with the Plan of Reorganization. See
"Plan of Reorganization."
The Company accrued substantial restructuring costs, including costs related
to the relocation of the Company's headquarters, the termination of certain
managers and employees and the rejection of certain store leases. A portion of
these restructuring costs were discharged in connection with the Plan of
Reorganization and other amounts were repaid with the proceeds of the offering
of the Private Notes and the Convertible Preferred Stock. See "Plan of
Reorganization."
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996.
Upon emergence from its Chapter 11 proceeding, the Company adopted fresh
start accounting. See "Changes in Method of Accounting." Thus the Company's
balance sheets and statements of income and cash flows after the Effective Date
reflect a new reporting Company (the "Successor Company") and are not comparable
to periods prior to the Effective Date (the "Predecessor Company").
The nine months ended September 30, 1997 include the results of the
Predecessor Company for the seven months ended July 31, 1997 and the Successor
Company for the two months ended September 30, 1997. The principal differences
between these periods relate to reporting changes regarding the Company's
capital structure and indebtedness and the revaluation of the Company's
long-term assets, which primarily affect depreciation and amortization expense
and interest expense in the Company's results of operations.
REVENUE. Total revenue was $102.4 million versus $147.8 million during the
nine months ended September 30, 1997 and 1996, respectively. The decline during
the 1997 period as compared to the 1996 period was attributable to a reduction
in the number of FunCenters in operation and a reduction in average sales per
FunCenter. The decrease in average sales per FunCenter was primarily due to
disruptions in the business associated with the Company's bankruptcy filing,
reduced and ineffective marketing programs and a lack of new attractions at the
FunCenters.
COST OF GOODS SOLD. Costs of goods sold which consists primarily of the
cost of food, redemption merchandise and other product sales, was $17.2 million
in the nine months ended September 30, 1997 as compared with $27.0 million in
the nine months ended September 30, 1996. As a percentage of revenue, costs of
goods sold declined from 18.3% in the 1996 period to 16.8% in the 1997 period.
This reduction was primarily attributable to simplified product offerings and
better cost management during the 1997 period.
STORE OPERATING EXPENSES. Store operating expenses, which consist primarily
of compensation and benefits for FunCenter operating personnel, occupancy
expenses and facility repair and maintenance expenses were $77.1 million in the
nine months ended September 30, 1997 as compared with $112.8 million in the nine
months ended September 30, 1996. As a percentage of total revenues, store
operating expenses declined from 81.8% in the 1996 period to 76.3% in the 1997
period. The decline as a percentage of revenue is due to the implementation of
labor planning, lower rent from renegotiated leases, reductions in central
reservation expenses and other cost savings generated through Phase I of the
Company's Turnaround Plan.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $14.1 million versus $33.2 million in the nine
months ended September 30, 1997 and 1996, respectively. As
40
<PAGE>
a percentage of revenue, selling, general and administrative expenses declined
from 22.5% in the 1996 period to 13.7% in the 1997 period. The decrease reflects
the reduction in corporate staff, and related expenses and lower marketing
expenses, combined with a general reduction in spending due to a reduction in
the number of FunCenters, as implemented in Phase 1 of the Company's Turnaround
Plan. See "Business -- Business Strategy and Turnaround Plan."
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $15.9 million for the nine months ended September 30, 1997 as
compared with $16.2 million for the nine months ended September 30, 1996. The
decline resulted primarily from a reduction in the number of FunCenters in
operation, offset by an increase during the two months ended September 30, 1997,
attributable to an increase in the Company's plant and equipment as a result of
adopting Fresh Start Accounting for the Successor Company.
INTEREST EXPENSE. Interest expense consisted primarily of accrued interest
on (i) the outstanding LYONS, the Company's subordinated convertible debt and
borrowings under the Company's Pre-petition credit facility (collectively, the
"Pre-petition Indebtedness") through March 25, 1996, (ii) borrowings under the
DIP Facilities, and (iii) after the Effective Date, borrowings under the Private
Notes, the McDonald's Notes and the Pre-petition Taxes Payable obligations, and
was $6.4 million for the nine months ended September 30, 1997 as compared with
$5 million for the nine months ended September 30, 1996. These amounts do not
reflect interest on the Pre-petition Indebtedness which was suspended during the
Company's reorganization under Chapter 11. Had these payments not been
suspended, interest expense would have been $15.6 million and $13.0 million for
the 1997 and 1996 periods, respectively.
REORGANIZATION COSTS. Reorganization costs of $12.2 million versus $12.4
million were incurred by the Company during its reorganization under Chapter 11
for the nine months ended September 30, 1997 and 1996, respectively, including
$7.1 million and $3.2 million incurred for professional fees in the 1996 and
1997 periods, respectively. The remainder was primarily attributable to losses
on asset disposals associated with the closing of FunCenters.
EXTRAORDINARY ITEM. In July 1997, the Company recognized an extraordinary
gain of $332.2 million resulting from the cancellation of indebtedness pursuant
to the Plan.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994.
REVENUE. Total revenue was $181.7 million, $259.5 million and $180.6
million in 1996, 1995 and 1994, respectively. The decrease of 30% in 1996 from
1995 resulted primarily from the decrease in the number of FunCenters in
operation and a reduction in average sales per FunCenter. The decrease in
average sales per FunCenter was primarily due to disruptions in the business
associated with the Company's bankruptcy filing, reduced and ineffective
marketing programs in 1996 as compared to 1995, and a lack of new attractions at
the FunCenters. The increase of 44% in total revenue from 1994 to 1995 resulted
primarily from the increased number of FunCenters in operation during 1995.
COST OF GOODS SOLD. Cost of goods sold, which consists primarily of the
cost of food, redemption merchandise and other product sales and the cost of
equipment sold to franchisees, was $34.3 million, $50.2 million and $36.9
million in 1996, 1995 and 1994, respectively. As a percentage of total revenues,
cost of goods sold was 19%, 19% and 20% in 1996, 1995 and 1994, respectively.
STORE OPERATING EXPENSE. Store operating expense, which consists primarily
of compensation and benefits for FunCenter operating personnel, occupancy
expenses and facility repair and maintenance expenses, were $140.5 million,
$185.6 million and $97.6 million in 1996, 1995 and 1994, respectively. As a
percentage of total revenues, store operating expenses were 77%, 72% and 54% in
1996, 1995 and 1994, respectively. The increases as a percentage of total
revenue for the periods presented were due largely to the Company's signing of
above market leases and reduced oversight of store expenses in connection with
41
<PAGE>
the Company's aggressive expansion program. In addition, the Company experienced
lower than anticipated revenue, particularly in 1996, due to disruptions in the
business related to the Company's bankruptcy filing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense were $40.8 million, $58.2 million and $36.5 million in
1996, 1995 and 1994, respectively. As a percentage of total revenues, selling,
general and administrative expenses were 22%, 22% and 20% in 1996, 1995 and
1994, respectively. The decrease of 30% in 1996 from 1995 reflects the reduction
in corporate staff, the elimination of regional offices and a general reduction
in spending due to the reduction in the number of FunCenters. See "Business
- --Business Strategy and Turnaround Plan -- Phase 1." The increase of 59% in 1994
from 1995 reflects the increase in overhead expenses associated with the
Company's expansion programs.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense was $21.9 million, $32.0 million and $16.2 million in 1996, 1995 and
1994, respectively. These changes resulted primarily from the overall changes in
the number of Company-owned stores and in property and equipment subject to
depreciation, which, in turn, resulted from the decrease in the number of
FunCenters in 1996. In addition, the Company recorded increased goodwill
amortization in 1995 related to goodwill recorded in connection with the
acquisitions of businesses during 1994 and 1995. The carrying values of such
goodwill was written off at the end of 1995, as described below, resulting in no
goodwill amortization in 1996.
INTEREST EXPENSE. Interest expense, which primarily consisted of accrued
interest on the outstanding LYONs, the Company's subordinated convertible debt,
and borrowings under the Company's pre-petition credit facility, was $6.3
million, $12.2 million and $5.1 million in 1996, 1995 and 1994, respectively.
The decrease of 48% in 1996 from 1995 resulted primarily from a suspension of
interest payments under the Company's indebtedness obligations during the
Company's reorganization under Chapter 11. Had these payments not been
suspended, interest expense for 1996 would have been approximately $18.2
million. The increase in 1995 from 1994 was primarily the result of an increase
in the average indebtedness under the Company's pre-petition revolving credit
facility.
OTHER INCOME (EXPENSE), NET. The Company recorded other income (expense),
including minority interest, net, of ($600,000), $5.6 million and $2.6 million
in 1996, 1995 and 1994, respectively. The decline in other income, net, is
primarily attributable to a decrease in interest income associated with lower
amounts of funds available for investment.
RESTRUCTURING AND OTHER CHARGES. In 1995, the Company incurred
restructuring and other charges of $372.2 million, resulting primarily from a
write-down of $306.2 million of intangibles, leasehold improvements and
equipment in accordance with the implementation of SFAS No. 121. See "-- Changes
in Method of Accounting." In 1995, the Company also recognized other charges
relating to the reduction in the carrying values of certain assets. Such
reductions were not materially different from the charges that would have
resulted from the application of SFAS No. 121. Those charges, which totalled
approximately $44.0 million, resulted primarily from the write-down of certain
entertainment facility equipment and, to a lesser extent, from the write-down of
property and equipment related to a relocation of the Company's headquarters.
Additionally, because of an inability to terminate certain previously closed
FunCenter leases on favorable terms, the Company recognized other charges of
approximately $10.6 million related to the provision of additional lease
commitment reserves. In connection with a change in management and relocation of
its corporate headquarters, the Company also incurred certain restructuring
costs, including employee termination benefits of approximately $7.9 million and
facility lease termination costs of approximately $3.5 million. In connection
with the Company's termination of approximately 300 management and
administrative employees, the Company incurred an expense of $6.6 million in
1995. During 1994, the Company recognized other charges of $14.0 million
relating to a writedown of property and equipment and a provision of lease
commitment reserves resulting from the elimination of certain duplicative
facilities.
42
<PAGE>
REORGANIZATION COSTS. Reorganization costs of $21.3 million incurred by the
Company in 1996 resulted from the Company's reorganization under Chapter 11.
These costs included $7.1 million for professional fees and $8.9 million for
losses on asset disposals.
EXTRAORDINARY ITEMS -- CHANGE IN METHOD OF ACCOUNTING. In 1994, the Company
changed its method of accounting for certain pre-opening store costs.
Previously, the Company capitalized all pre-opening costs, which included
salaries and other direct costs of opening FunCenters, and amortized these costs
over periods of up to two years. As a result of the acquisitions made in 1994,
the Company changed its method of accounting to expense pre-opening costs when a
FunCenter opens. See "-- Changes in Method of Accounting."
LIQUIDITY AND CAPITAL RESOURCES
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food products and other
supplies. Therefore, the Company's business has not required significant working
capital to operate. The Company requires cash primarily to finance capital
expenditures to maintain and upgrade existing stores and to fund working capital
needs. Following completion of certain programs to improve operating cash flow
under its Turnaround Plan, the Company will also need cash to build new stores.
Historically, the Company has met these liquidity requirements primarily through
external financings, including through the issuance of debt and equity
securities and borrowings under revolving credit facilities, as well as through
cash flow generated by operating activities. In connection with the Plan of
Reorganization, substantially all of the Company's pre-petition debt facilities
and other obligations to creditors were restructured, repaid or eliminated. See
"Plan of Reorganization."
For the two months ended September 30, 1997 and the seven months ended July
31, 1997, the Company used cash of $12.1 million and $6.9 million, respectively,
from operations before reorganization expenses. In 1995, the Company's
operations used approximately $59.1 million of cash, which decreased in 1996 to
a net cash use of $36.2 million before reorganization costs. This decrease can
be attributed primarily to the Company's net losses and changes in working
capital. The reduction in cash used by operations during the 1997 periods is
primarily attributable to Phase 1 of the Company's Turnaround Plan and the
payment of certain reorganization and transaction costs. See "Business --
Business Strategy and Turnaround Plan."
In 1995, the Company made capital expenditures of approximately $51.7
million related to the purchase of fixed assets for FunCenters, acquisitions of
new FunCenters and the normal replacement of older equipment and property.
During the Company's reorganization under Chapter 11, capital expenditures
contracted significantly. As a result, 1996 capital expenditures declined to
$2.7 million, related primarily to capital charges incurred in connection with
the closing of certain underperforming FunCenters. The Company expects to use
cash going forward primarily to finance capital expenditures and meet its
limited working capital requirements. The Company expects to make between $15
million and $20 million in capital expenditures during the fourth quarter of
1997 and in 1998 in connection with its capital improvement program under the
Turnaround Plan. Should operating cash flow of existing FunCenters increase as a
result of the Turnaround Plan, the Company also expects to use cash to build new
FunCenters. See "Business -- Turnaround Plan."
In connection with the Plan of Reorganization, a limited number of
pre-petition obligations were restructured as obligations of the Company,
including certain pre-petition tax claims, the McDonald's Note and the
McDonald's Rent Deferral Secured Notes. See "Description of Certain
Indebtedness."
While the Company's Private Notes contain restrictions on additional
indebtedness, the Company is permitted to have outstanding up to $10 million of
senior secured indebtedness and up to $5 million of new indebtedness arising
from sale and leaseback transactions, capital lease obligations or purchase
money obligations.
43
<PAGE>
On September 30, 1997, the Company had an unrestricted cash balance of
approximately $30.2 million. The Company also had $21.7 million in cash and
investments in the Escrowed Interest Account on September 30, 1997, which amount
is dedicated to making scheduled payments of interest on the Private Notes and
the Exchange Notes through August 1, 1999. The Company believes that its
existing capital resources will provide sufficient funds to finance the
Company's operations in the ordinary course and to fund its capital expenditures
and debt service requirements. See "Business -- Business Strategy and Turnaround
Plan."
SEASONALITY
The Company's FunCenters typically experience seasonal fluctuations in their
revenues, with generally higher revenues occurring in the first quarter of the
year due to the fact that many of the Company's facilities are located in cold
weather regions where children are unable to play outside during this time of
year. In 1996, the Company's FunCenters generated 32% of their revenue in the
first quarter versus 23%, 24% and 21% in the second, third and fourth quarters,
respectively. These fluctuations in revenues are primarily influenced by the
school year and the weather.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No.
109"), issued in February 1992. This standard requires, among other things, the
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial reporting and income tax
reporting bases for assets and liabilities, and net operating loss and tax
credit carryforwards for tax purposes. A valuation allowance must be established
for deferred tax assets if it is "more likely than not" that all or a portion of
the deferred tax assets will not be realized. At December 31, 1996, the
Company's deferred tax valuation allowance was equal to its net deferred tax
assets because, in management's judgment, it is "more likely than not" that all
of the net deferred tax assets will not be realized.
The Company was required to reduce its NOL as a result of the cancellation
of indebtedness pursuant to the confirmation of the Plan. As a result of its
reorganization under Chapter 11, the Company is treated as having experienced an
ownership change. Thus, after emerging from Chapter 11, the Company's ability to
offset income in each post-reorganization taxable year by its then remaining
NOLs and built-in losses (including depreciation and amortization deductions of
any portion of the Company's basis in assets with built-in-losses) will be
limited to an amount not to exceed the aggregate value of the Company's common
stock immediately before the change in control (taking into account in such
calculation, however, any increase in value resulting from any surrender or
cancellation of creditors' claims in connection with the Plan of Reorganization)
multiplied by the long-term tax-exempt rate published monthly by the Internal
Revenue Service.
CHANGES IN METHOD OF ACCOUNTING
The effects of the Company's reorganization under Chapter 11 have been
accounted for in the Company's financial statements using the principles
required by the American Institute of Certified Public Accountants' Statement of
Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("Fresh Start Accounting"). Pursuant to such principles, the
Company's assets and liabilities have been restated at "reorganization value,"
which is defined as the value of the entity before considering liabilities on a
going-concern basis following the reorganization and approximates the amount a
willing buyer would pay for the assets of the Company immediately after the
reorganization. The reorganization value for the Company has been determined by
reference to liabilities remaining after the Effective Date plus the estimated
value of total stockholders' equity of the outstanding shares of the Common
Stock. The reorganization value of the Company has been allocated to the assets
of the Company in conformity with the procedures specified by Accounting
Principles Board Opinion No. 16, Business
44
<PAGE>
Combinations, for transactions reported on the basis of the purchase method of
accounting. In this allocation, identifiable assets have been valued at
estimated fair values, and excess reorganization value has been recorded as
"reorganization value in excess of amounts allocated to identifiable assets" (a
long-term intangible asset similar to "goodwill").
In 1995, the Company adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121"), which was issued in March 1995. This
Statement requires that long-lived assets and certain identifiable intangibles
be held and used by an entity and be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In addition, this Statement requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
their carrying amount or fair value less cost to sell.
In the third quarter of 1994, the Company changed its method of accounting
for certain pre-opening costs. Previously, the Company capitalized all
pre-opening costs, which included salaries and other direct costs of opening a
facility, and amortized those costs over periods of up to two years. As a result
of the acquisitions of Leaps and Bounds and the Blockbuster Entities, and the
considerable growth of the Company during 1994, the Company now expenses
pre-opening costs when a facility opens.
45
<PAGE>
BUSINESS
OVERVIEW
The Company is the leading owner and operator of pay-for-play children's
entertainment centers in North America, with a national network of 206
FunCenters in 39 states, Canada and Puerto Rico, targeted at children ages two
to 12. The Company also operates two Block Party Stores. The Company emerged
from protection under Chapter 11 on the Effective Date and, in connection
therewith, was acquired by an affiliate of Wellspring Associates L.L.C.
The Company's FunCenters are designed to offer children a unique
entertainment experience while meeting their parents' needs for value and
convenience. FunCenters are generally located in strip shopping centers and, to
a lesser extent, in shopping malls, and currently include the following
features: (i) "soft play" zones consisting of a series of tubes, slides, ball
bins, climbing mountains, air and water trampolines, obstacle courses, ramps and
other devices for crawling, jumping, running, swinging and climbing, all of
which have been designed and constructed with an emphasis on safety; (ii) "game
zones" consisting of games that award tickets redeemable for prizes; (iii) food
and beverage operations; and (iv) party rooms for birthdays and other group
events. The Company believes it is well positioned to capitalize on a variety of
favorable demographics in its customer base, including projected growth over the
next fifteen years in the population of children under the age of 13, which
management expects will lead to increased spending on children's leisure
activities. Management estimates that in 1996 DZ hosted over 21 million visits
by children and adults in the 206 FunCenters.
NEW OWNERSHIP AND MANAGEMENT
Wellspring is a private investment firm focused on indentifying, acquiring
and turning around underperforming companies. Scott W. Bernstein was hired by
Wellspring in June of 1996 as an industry consultant to assist with formulation
of the Plan of Reorganization and became President and Chief Executive Officer
of the Company in December 1996. He has extensive experience in the family
entertainment business, having served as a senior executive at Time Warner and
Six Flags, including: Senior Vice President of Time Warner Enterprises, a
strategic and business development unit of Time Warner; Senior Vice President
and chief administrative and legal officer of the Six Flags theme park chain;
and, most recently, President of Six Flags' Northeast operations, where he led a
turnaround of the Six Flags Great Adventure theme park in New Jersey.
Wellspring and Mr. Bernstein have recruited two new senior managers to the
Company, Sharon Rothstein and Robert Rooney. Ms. Rothstein joined the Company
March 24, 1997 as Senior Vice President of Marketing and Entertainment. Ms.
Rothstein is a marketing executive with thirteen years experience in the
consumer packaged goods business, most recently serving as Vice President, New
Business for the National Biscuit Company ("Nabisco"). In this capacity, Ms.
Rothstein was responsible for developing new long-term business strategies in
addition to overseeing all licensing and future marketing efforts. Her
accomplishments at Nabisco included the development of the Oreo and Kids
revitalization plan, the planning of the "Breakfast Snacks" initiative and the
launch of the Snackwell brand, for which she was awarded Advertising Age's Top
100 Marketers award.
Mr. Rooney joined the Company in December 1996 and was elected Senior Vice
President -- Chief Financial and Administrative Officer in February 1997. He has
11 years' experience as a senior finance executive, having most recently served
as Senior Vice President and Chief Financial Officer of Victory Capital LLC, a
venture capital group (formerly known as Forschner Enterprises, Inc.) and as
Managing Director and Chief Financial Officer of The Signature Group, a merchant
banking group specializing in restructuring over-leveraged real estate. Mr.
Rooney also served as Senior Vice President, Chief Financial Officer and
Treasurer of Imagine Films Entertainment, Inc., a publicly-held film and
television production company, from December 1986 through December 1989, and
prior to that time had nine years of audit experience at Ernst & Young.
46
<PAGE>
INDUSTRY OVERVIEW
DEMOGRAPHICS
There are more than 54 million children under the age of 13, with
approximately 35 million children between the ages of five and 13. "Baby Boomer"
families (parents born between 1946 and 1965) are expected to contribute to an
increase in DZ's target market over the next four years; by the year 2000, there
are expected to be approximately 55 million children under the age of 13,
including approximately 36 million between the age of five and 13.
U.S. POPULATION BY AGE GROUP
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNDER 5 5-13 TOTAL UNDER 13
----------- --------- ---------------
<S> <C> <C> <C>
1995 19,591 34,384 53,975
2000 18,987 36,043 55,030
2005 19,127 35,850 54,977
2010 20,012 35,605 55,617
</TABLE>
- ------------------------
Source: Mid-range of U.S. Bureau of the Census estimates.
Management believes that the Baby Boomer parents of these children are
entering their peak earning years, which it expects to lead to increased
spending on children over the next decade.
COMPETITION
The Company competes against a wide variety of concepts vying for family
leisure time and entertainment spending. These competing concepts encompass a
broad spectrum of entertainment opportunities, including family entertainment
centers, theme parks, movie theaters and other in-home and out-of-out of home
entertainment activities. DZ is part of the children's entertainment center
segment of the industry, which includes admissions-based, or pay-for-play,
recreational and soft play centers that target children ages two to 12. The
pay-for-play children's entertainment center industry is highly fragmented and
consists largely of local "mom and pop" stores, small regional chains and local
non-profit organizations that provide pay-for-play indoor soft play facilities.
The Company believes that it pioneered this concept when it built its first
FunCenter in 1989. While several national competitors, such as Leaps and Bounds,
subsequently emerged, the Company purchased many such competitors in an attempt
to consolidate the market. The Company's future revenues will depend to a
significant extent upon its ability to respond to changes in consumer tastes.
The performance of individual FunCenters may be affected by a variety of local
factors such as the location of competing facilities, labor and employee benefit
costs and the availability of experienced management and hourly employees.
New competitors may include The Walt Disney Company (which has a family
entertainment concept in one location and has announced plans to open additional
store locations). DZ also competes to some extent against certain children's
themed restaurant chains, which provide ancillary entertainment offerings and
merchandise in addition to food and do not charge admission fees. Such
competitors include ShowBiz Pizza Time, Inc., the operator and franchiser of
approximately 300 "Chuck E. Cheese" restaurants in the United States, and, to a
lesser extent, certain McDonald's franchisees, which operate indoor playgrounds
at a number of locations. These restaurants differ from DZ in that they do not
charge for admission and are focused on food as their primary attraction and
source of revenue. Certain of these competitors have longer operating histories,
substantially greater name recognition and/or more extensive financial,
technical, marketing, sales and distribution resources.
47
<PAGE>
To a more limited extent, the Company competes against indoor/outdoor family
entertainment centers, theme parks and other themed restaurant chains. Such
entertainment centers offer an entertainment experience centered around
attractions such as miniature golf, water rides, go-carts and video arcade
games. Theme parks provide a variety of thrill rides, redemption games and other
entertainment attractions. Such facilities generally require more travel and
have higher prices than FunCenters. Themed restaurants have grown in popularity
in recent years and include chains such as Planet Hollywood and Rainforest Cafe.
The generally older and/or broader age group focus of each of these concepts and
the differing nature of their product offerings limit the extent to which they
compete against the Company.
BUSINESS STRATEGY AND TURNAROUND PLAN
BUSINESS STRATEGY
The Company believes that it has significant potential to enhance
profitability and increase attendance by executing a business strategy that
exploits favorable industry demographics and positive Company attributes that
were not capitalized on by prior management.
FAVORABLE DEMOGRAPHICS. Management expects that favorable demographics
relating to the Company's target customer base should positively impact the
Company's business over the next fifteen years. There are currently more than 54
million children under the age of 13, a number projected to increase by the year
2000 as "Baby Boomer" families contribute to an increase in DZ's target market.
In addition, the Company believes that there is a continuing trend toward
increased spending on leisure activities, especially spending on children.
STRONG BRAND RECOGNITION AND CONTINUED POPULARITY OF THE DZ CONCEPT. DZ
remains a highly recognized brand name with significant market appeal, with
approximately 21 million visits in 1996 at the Company's 206 remaining
FunCenters. As more fully described herein, a survey by the Gallup Organization
of consumers in the Company's target demographic groups revealed that the
Company's total brand awareness is 95%. In addition, a survey by Kids Research
Unlimited in 1996 revealed that 56% of children surveyed between ages five and
11 preferred playing at DZ as compared to playing video games (32%) and watching
television (12%). This survey also revealed that DZ remains the children's
"favorite indoor play place" and the preferred site for their next birthday
party, in each case among directly competing indoor play concepts. See "Business
- -- Market Research."
LEADING NATIONAL PRESENCE IN A HIGHLY FRAGMENTED MARKET. Due to the
fragmented nature of the pay-for-play children's entertainment industry and the
strength of the DZ brand name, the Company believes that it is uniquely
positioned to become a cross-promotional platform for strategic alliances with
children's entertainment and consumer product companies.
SIGNIFICANT OPERATING LEVERAGE AND OPPORTUNITIES FOR PROFIT
IMPROVEMENT. Because the Company's cost structure includes a high proportion of
fixed costs (such as rent, utilities and core staffing requirements) relative to
variable costs, each incremental customer visit contributes disproportionately
to a FunCenter's operating profit. As more fully described below, the Company
believes that it has identified a number of opportunities to increase attendance
and take advantage of the operating leverage inherent in the business.
48
<PAGE>
TURNAROUND PLAN
The Company has begun to implement the Turnaround Plan, which is designed to
reduce costs, enhance core product offerings and reposition the Company from an
operator of indoor playgrounds to the leading national provider of high quality
children's indoor entertainment. This is expected to be accomplished primarily
through:
- reducing costs at the store, regional and corporate levels;
- improving the quality and consistency of the Company's existing
core soft-play products, game zone products and its food and
beverage operations;
- adding a variety of entertainment activities and new attractions
and renovating the FunCenters;
- developing, both internally and through strategic partnerships with
content providers, periodic story-line based entertainment
experiences which complement the Company's traditional
entertainment activities; and
- introducing interactive parent-child play programs for the off-peak
weekday period.
Management believes that these strategic initiatives will serve to increase
attendance, in-store spending and operating cash flow. By virtue of the national
prominence of the DZ brand name, its leading market share position and its
national network of FunCenters, management believes that the Company is well
positioned within its industry to successfully implement this strategy and
profitably expand a revised and rejuvenated DZ concept.
The Company's business strategy is being implemented in three phases: "Phase
1 -- Restore Core Business," "Phase 2 -- Improve Product and Reposition/Relaunch
DZ Brand" and "Phase 3 -- Growth." Key elements of each phase of the Turnaround
Plan are as follows:
PHASE 1 -- RESTORE CORE BUSINESS. The Company has implemented a broad
cost-reduction program to rationalize its expenses relative to revenues and
to increase efficiency. The four key components of this program are:
- CLOSE UNDERPERFORMING FUNCENTERS. In connection with the
Company's reorganization, the Company has closed or sold 130
underperforming stores that were largely unprofitable and were unlikely
to contribute to the Company's profitability. Most of these locations had
above-market rents, were in markets that already had one or more
profitable FunCenters or were poorly located.
- REDUCE OVERHEAD EXPENSES. New management has implemented a
variety of cost reduction initiatives to reduce annual selling, general
and administrative expenses, including: (i) a substantial reduction in
the Company's corporate and regional management; (ii) a reduction in
expenditures for corporate support functions; and (iii) elimination of
expenses related to certain discontinued operations.
- INCREASE FUNCENTER OPERATING MARGINS. The Company has initiated
programs which it believes will result in significant annual cost
savings, based on changes in labor planning, food and beverage
operations, birthday party reservations and renegotiated store lease
terms.
PHASE 2 -- IMPROVE PRODUCT AND REPOSITION/RELAUNCH DZ BRAND. Management
is currently implementing the following programs designed to increase
attendance and in-store spending:
- IMPLEMENT MANAGEMENT INCENTIVE PLANS. Historically, the
Company's FunCenter and regional managers operated without goals,
accountability or incentive-based compensation plans. To support the
Turnaround Plan and to create a stronger sense of ownership and
accountability,
49
<PAGE>
management has established an incentive-based compensation plan tied to
EBITDA and service quality measures.
- UPGRADE AND EXPAND PRODUCTS. The Company plans to selectively
undertake initiatives to improve and supplement existing products,
enhance food and beverage offerings through the introduction of branded
products and upgrade and broaden the appeal of its games. The Company
expects to invest approximately $15 million to $20 million by the end of
1998 to add new attractions, improve the appearance of its FunCenters,
enhance the quality and consistency of its core soft-play and games
products, add periodic theme-based attractions and promotional activities
to enhance the entertainment experience of its customers and expand
weekday programming.
During the fourth quarter of 1997, the Company began a FunCenter
renovation program, pursuant to which the Company expects to renovate
substantially all of its FunCenters, broaden their entertainment
offerings, upgrade their facilities and give them a "new look" consistent
with its brand repositioning (see below). The Company expects to have
approximately 75% of the FunCenters renovated by the end of the first
quarter of 1998, including the addition of designated areas for laser
tag, arts and crafts, stage events and promotional activities.
In April and June 1997, the Company entered into marketing and
product agreements with Pizza Hut and Pepsi to provide joint promotions
and increase the appeal and quality of its food service. Approximately
80% of the FunCenters are expected to be converted to permit the sale of
Pizza Hut menu items by the end of 1997.
- IMPLEMENT NEW MARKETING STRATEGY. Management has developed a
new marketing strategy based on the following key components:
-- REPOSITION/RELAUNCH "NEW DZ" BRAND. Building on its new and
revamped product offerings, the Company intends to launch the "New
DZ" brand through a new advertising campaign.
-- REORIENT MARKETING TO REGIONAL/LOCAL FOCUS. The Company has
begun to reorient its marketing efforts to focus on local and
regional marketing and advertising programs with a national
"overlay." To complement this focus, management plans to establish
cross-promotional alliances with local and regional businesses, such
as supermarkets, convenience stores and malls, as well as national
retailers.
-- FORM STRATEGIC MARKETING PARTNERSHIPS. Management intends to
establish strategic marketing and product relationships with
children's entertainment and consumer product companies such as its
relationships with Pepsi and Pizza Hut to take advantage of joint
marketing and cross-promotional opportunities.
Due to DZ's national market presence and the strength of its brand
name, the Company believes that it is well positioned to act as a
platform for future promotional and product "tie-ins" with children's
entertainment and consumer product companies. The Company believes such
alliances will provide significant competitive advantages in the form of
marketing support and theme-based promotions to periodically refresh its
product offerings and stimulate repeat customer visits on a
cost-effective basis.
In keeping with this strategy, the Company has begun negotiations
with a number of possible promotional partners, including toy,
television, film, media and consumer product companies and, to date, has
entered into arrangements with Hasbro, Sony Entertainment, New Line
Cinema, the Hearst Corporation, Worldwide Wrestling Federation and the
Nabisco Foods Group, for a variety of promotional programs and
activities.
50
<PAGE>
- INTRODUCE WEEKDAY PROGRAMS. The Company intends to increase
revenue by better utilizing DZ's facilities during weekdays. The Company
has developed interactive parent-child play programs for preschoolers,
which include tumbling, climbing, exercising and singing. These products
are being offered under the "Discovery Zone University" and "DZU" brand
names.
Twenty-five FunCenters began offering these new weekday programs in
September 1997 and twenty-five additional FunCenters are expected to
begin offering these programs in January 1998. In the future, the Company
expects to consider expanding these programs to include after school
programs for older children.
PHASE 3 -- GROWTH. Upon the restoration of DZ's core business and the
repositioning of its brand image, management expects to commence a
controlled expansion program to develop new FunCenters.
CURRENT FUNCENTER OPERATIONS
The current FunCenters are indoor pay-for-play entertainment centers for
children. In keeping with its philosophy of attracting younger children, patrons
must be 12 years of age or younger, and be accompanied by an adult, to be
admitted to a FunCenter. Adults are not permitted entry without a child.
Discovery Zone encourages the participation of parents and other accompanying
adults, and the play equipment is constructed to allow them to play along with
their children.
A typical FunCenter is approximately 12,000 to 17,000 square feet and
contains the following special features:
- A play zone which averages approximately 3,500-4,000 square feet,
referred to as the "Mega Zone," composed of a series of tubes,
slides, ball bins, climbing mountains, air and water trampolines,
obstacle courses, ramps, stairs and other devices for crawling,
jumping, running, swinging and climbing.
- A separate "Mini Zone" for toddlers which averages approximately
1,000-1,500 square feet and contains many of the same features as
the Mega Zone, but on a smaller scale. Access to the Mini Zone is
limited to children under a certain height, which provides younger
and smaller children their own, less boisterous play area.
- An open play area, referred to as the "Starter Zone," with a
mini-ball bin, colorful cushions and toys for infants and very
small toddlers.
- Food and beverage operations which, in most cases, feature a
selection of Pizza Hut menu items and Pepsi beverage products.
- A game zone, featuring activities and games for which children are
awarded tickets for successful play. These tickets can be redeemed
for a variety of small toys and prizes. FunCenters typically do not
have conventional video game machines, distinguishing them from
most other child-oriented entertainment facilities.
- Several party rooms, which can be reserved for birthdays or other
group events. FunCenters offer a variety of packages that combine a
celebration in the party room, including cake and other food and
beverage services, with access to the Mega and Mini Zones and
tokens for use in the game zone for each child attending the party.
- A redemption counter where awards for games, as well as Discovery
Zone apparel, toys and other products are sold.
DZ currently targets children 12-years old and younger, with the highest
concentration of visitors being one to eight years old. The FunCenters are
designed and constructed with an emphasis on safety and security. Each customer
is given a name tag for identification purposes and to promote interaction with
51
<PAGE>
FunCenter staff. At each FunCenter, an identification bracelet is also attached
to each child and matched at the exit with an identical bracelet given to the
accompanying adult. In addition, the entrance and exit at FunCenters are
strategically positioned and monitored for security purposes. At all FunCenters,
play area equipment is equipped with protective cushions and padding, and
"coaches" are available to assist children through play activities. All
FunCenters prohibit smoking and maintain a high standard of cleanliness.
FunCenters charge a general admission fee for each child, with prices
currently ranging from $4.99 to $7.99, depending on location. The Company also
offers discounted admission fees for groups and birthday parties. Adults
accompanying children are admitted without charge. Typical hours of operation
for FunCenters are 11:00 a.m. to 7:00 p.m., Sunday to Thursday, and 10:00 a.m.
to 9:00 p.m. on Friday and Saturday. DZ generates most of its weekly revenue on
weekends.
PROPERTIES
The Company currently operates 206 FunCenters in 39 states, Canada and
Puerto Rico. The Company also operates two Block Party stores. Pursuant to the
Plan, the Company terminated the franchise agreements related to seven
franchised FunCenters. These stores continue to operate using the Company's
trademarks pending completion of alternative operating arrangements with the
franchisees. Approximately 80% of the Company's FunCenters are located adjacent
to, or are part of, major shopping centers or strip shopping centers with large
parking capacity. The following chart shows a breakdown of DZ's FunCenters by
location:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION FUNCENTERS
- ----------------------------------------- ---------------
<S> <C>
Alabama.................................. 4
Arizona.................................. 1
California............................... 20
Colorado................................. 4
Connecticut.............................. 2
Delaware................................. 1
Florida.................................. 11
Georgia.................................. 6
Hawaii................................... 1
Idaho.................................... 1
Illinois................................. 6
Indiana.................................. 8
Iowa..................................... 1
Kansas................................... 2
Kentucky................................. 2
Louisiana................................ 4
Maryland................................. 6
Massachusetts............................ 8
Michigan................................. 5
Minnesota................................ 2
Mississippi.............................. 1
Missouri................................. 5
Nevada................................... 1
<CAPTION>
NUMBER OF
LOCATION FUNCENTERS
- ----------------------------------------- ---------------
<S> <C>
New Jersey............................... 9
New Mexico............................... 1
New York................................. 16
North Carolina........................... 2
Ohio..................................... 10
Oklahoma................................. 3
Oregon................................... 2
Pennsylvania............................. 10
Rhode Island............................. 1
South Carolina........................... 2
Tennessee................................ 4
Texas.................................... 20
Utah..................................... 1
Virginia................................. 8
Washington............................... 2
Wisconsin................................ 5
---
Total United States...................... 198
Canada................................... 5
Puerto Rico.............................. 3
---
Total.................................... 206
---
---
The Block Party Stores are located in
Indiana and New Mexico.
</TABLE>
52
<PAGE>
Fourteen of the sites on which the FunCenters operate are owned by the
Company and are subject to mortgages and security interests held by McDonald's
(the McDonald's Rent Deferral Secured Notes and the McDonald's Note). See
"Description of Certain Indebtedness." The Company currently leases all but one
of the remaining sites of the FunCenters. The Company believes that it could
find alternative space at competitive market rates if it were unable to renew
the lease on any of the sites of the Company-owned FunCenters. If the Company
deems it advantageous to do so, it may from time to time in the future purchase
real estate for sites for the construction of new FunCenters. The Company
currently holds four parcels of undeveloped land which it intends to sell, of
which three secure the McDonald's Note and McDonald's Rent Deferral Secured
Notes.
The Company currently subleases approximately 30,000 square feet of office
space from Blockbuster (the "Blockbuster Space") at an annual cost of
approximately $600,000. A division of Blockbuster currently occupies
approximately 7,500 square feet of this space, thereby mitigating a portion of
the Company's cost. Blockbuster has informed the Company that it plans to
relocate and will terminate its lease no later than June 30, 1998. Pursuant to
an agreement with Viacom and Blockbuster, Blockbuster has agreed to allow the
Company to remain in such space on a month-to-month basis through June 30, 1998.
The Company plans to move from the Blockbuster Space in December 1997.
The Company entered into a lease, commencing October 1, 1997, for
approximately 10,000 square feet of office space in the Plantation, Florida area
to house its finance, purchasing, MIS and other administrative functions. On
October 31, 1997, the Company entered into a sublease for approximately 6,500
square feet of office space for its executive offices in Elmsford, New York.
The Company's executive offices are located at 565 Taxter Road, Fifth Floor,
Elmsford, New York 10523 and its telephone number is (914) 345-4500.
TRADEMARKS AND SERVICE MARKS
The names "Discovery Zone," "DZ" and the Company's logo are registered
trademarks and service marks in the United States for a variety of goods and
services offered at the FunCenters. The Company has registered and/or is in the
process of registering its names and/or logo in the following foreign countries:
Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Italy, Japan,
Mexico, South Korea, Spain and the United Kingdom. The Company considers these
intellectual property rights material to its business and actively defends and
enforces them.
LITIGATION
Substantially all of the claims against the Company relating to pre-petition
causes of action were discharged on the Effective Date. See "Plan of
Reorganization."
The Company is involved in litigation from time to time in the ordinary
course of its business. In the opinion of the Company, any liability that may be
incurred upon the resolution of certain claims and lawsuits in which the Company
is involved at this time will not, in the aggregate, exceed the limits of the
Company's insurance policies or otherwise have a material adverse effect upon
the financial condition or results of operations of the Company.
INSURANCE
The Company carries customary insurance coverages, including primary
commercial liability insurance with limits of $1 million per occurrence and $2
million in the aggregate, and umbrella and excess policies aggregating $100
million per occurrence, which policies are available after the Company has paid
or become legally obligated to pay $250,000 per claim. The Company believes that
it carries adequate insurance coverage for its business activities. However,
there can be no assurance that such coverage will prove to be adequate or will
continue to be available to the Company, and, in the event that such coverage
53
<PAGE>
proves to be inadequate, such event may have a material adverse effect on the
financial condition or results of operations of the Company. Claims paid to date
have been within amounts accrued by the Company using historical data based on
prior experience. When the Company's aggregate indemnity and expense amounts in
any policy year exceed an aggregate of $2.5 million, the Company's trailing
self-insured retention is reduced to $10,000 per occurrence.
REGULATION
The Company is subject to various federal, state and local laws and
regulations affecting operations, including those relating to the use of video
and arcade games, the preparation and sale of food and beverages and those
relating to building and zoning requirements. The Company is also subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working and safety conditions and citizenship
requirements. Difficulties or failures in obtaining required licenses or other
regulatory approvals could delay or prevent the opening of a new FunCenter, and
the suspension of, or inability to renew, a license or permit could interrupt
operations at an existing FunCenter.
EMPLOYEES
At September 30, 1997, the Company had approximately 5,950 full and
part-time employees, including those employed at its corporate headquarters,
regional offices and Company-owned FunCenters. A typical Discovery Zone
FunCenter has a staff of between 20 and 40 employees, including managers,
counter attendants, coaches, party hosts and a reservationist, most of whom are
part-time. The Company's employees are not represented by any labor union or
covered by a collective bargaining agreement. The Company believes its
relationship with its employees to be good.
54
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the executive
officers and directors of the Company and the positions they hold.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Scott W. Bernstein................................... 37 Chief Executive Officer, President and Director
Sharon L. Rothstein.................................. 40 Senior Vice President, Marketing and Entertainment
Robert G. Rooney..................................... 40 Senior Vice President, Chief Financial and
Administrative Officer
Martin S. Davis...................................... 70 Director
Greg S. Feldman...................................... 41 Director
Douglas W. Rotatori.................................. 37 Director
L.G. Schafran........................................ 59 Director
Christopher R. Smith................................. 33 Director
Paul D. Kurnit....................................... 49 Director
</TABLE>
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a brief description of the business experience of the
executive officers and directors of the Company.
MR. BERNSTEIN has been Chief Executive Officer and President of the Company
since December 1996 and was elected as a director on the Effective Date. From
June 1996 until December 1996, Mr. Bernstein served as a consultant for
Wellspring. From August 1994 until June 1996, Mr. Bernstein served as President
of the Northeast operations of Six Flags Theme Parks Inc. ("Six Flags"), which
included Six Flags Great Adventure and Six Flags Wild Safari Animal Park. From
April 1992 until August 1994, Mr. Bernstein served in the following roles: (i)
Senior Vice President of Time Warner Enterprises, a strategic business
development unit of Time Warner Inc.; (ii) Senior Vice President and General
Counsel of Six Flags; and (iii) Senior Vice President, chief administrative and
legal officer of Six Flags.
MS. ROTHSTEIN has been Senior Vice President, Marketing and Entertainment of
the Company since March 24, 1997. From April 1996 until March 1997, she was Vice
President -- New Business at Nabisco. From 1987 until April 1996, she held
several positions at Nabisco, including Senior Director -- New Business,
Director -- Business Marketing, Product Manager -- Ritz, Product Manager -- New
Products and Product Manager -- Snack Crackers.
MR. ROONEY has been Senior Vice President, Chief Financial and
Administrative Officer of the Company since February 1, 1997. From March 1994
until September 1996, Mr. Rooney served as Chief Financial Officer of Forschner
Enterprises, a venture capital group, and from September 1992 to February 1994,
Mr. Rooney served as a director and consultant on behalf of various investors
and investment funds affiliated with Forschner Enterprises. From 1989 through
1992, Mr. Rooney served as Managing Director and Chief Financial Officer of The
Signature Group, a merchant banking group specializing in troubled real estate.
From 1986 through 1989, he served as Senior Vice President, Chief Financial
Officer and Treasurer of Imagine Entertainment, Inc., a publicly held film and
television production company. Mr. Rooney is a certified public accountant.
MR. DAVIS was elected as a director of the Company on the Effective Date.
Mr. Davis has been a managing partner of Wellspring Associates L.L.C. since
January 1995. Prior to founding Wellspring, Mr. Davis served as Chairman and
Chief Executive Officer of Gulf + Western Industries, Inc. and its successor
company, Paramount Communications, Inc., from 1983 to 1994. Mr. Davis is a
member of the
55
<PAGE>
Board of Directors of Lionel L.L.C., National Amusements, Inc., the parent
company of Viacom Inc., the Western NIS Enterprise Fund (U.S. Government funded)
and SLM International, Inc.
MR. FELDMAN was elected as a director of the Company on the Effective Date.
Mr. Feldman has been a managing partner of Wellspring since its inception in
January 1995. From September 1990 until January 1995, he was a vice president in
charge of acquisitions at Exor America Inc. (formerly IFINT-USA Inc.), the U.S.
investment arm of the Agnelli Group. From September 1988 until September 1990,
Mr. Feldman was vice president and co-founder of Clegg Industries, Inc., an
investment firm. Mr. Feldman is a member of the Board of Directors of Lionel
L.L.C. and Chartwell Re Corporation.
MR. ROTATORI was elected as a director of the Company on the Effective Date.
Mr. Rotatori has been a principal of Wellspring since September 1995. From 1991
until 1995, Mr. Rotatori was an Associate Director in the investment banking
department of Bear, Stearns & Co. Inc. Mr. Rotatori is a member of the Board of
Directors of SLM International, Inc.
MR. SCHAFRAN was elected as a director of the Company on the Effective Date.
Mr. Schafran has been a managing general partner of L.G. Schafran & Associates,
a real estate and development firm, since 1984. Mr. Schafran is a member of the
Board of Directors of several companies, including Comsat Corporation, Publicker
Industries Inc., Capsure Holdings Corporation, Sassco Corp., Leslie Faye Inc.
and Glasstech, Inc., Chairman of the Executive Group of The Dart Group
Corporation, Chairman of the Board of Directors of Delta-Omega Technologies,
Inc. and a trustee of National Income Realty Trust.
MR. SMITH was elected as a director of the Company on the Effective Date.
Mr. Smith joined Wafra Investment Advisory Group, Inc. ("Wafra") in 1992, where
he is a Vice President. From 1990 until 1992, Mr. Smith served as a Vice
President of Kouri Capital Group, Inc., a merchant bank providing, among other
things, privatization advisory services. Prior to joining Kouri Capital Group,
Mr. Smith served as Assistant Vice President of Direct Equity Investment at
Lambert Brussels Capital Corporation and, before that, as a Corporate Loan
Officer at First Union National Bank.
MR. KURNIT was appointed as director in accordance with the terms of the
Plan of Reorganization as representative of the committee of pre-petition
unsecured creditors of the Company. He will serve for a term of three years from
the Effective Date. Mr. Kurnit's appointment was approved by the Bankruptcy
Court at the confirmation hearing. Mr. Kurnit is President of Griffin Bacal Inc.
("Griffin Bacal").
LIMITATIONS ON LIABILITY; INDEMNIFICATION
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to it or its stockholders for monetary damages to
the fullest extent permitted by the General Corporation Law of the State of
Delaware (the "DGCL"). In accordance with the DGCL, the Certificate of
Incorporation does not eliminate or limit the liability of a director for acts
or omissions that involve intentional misconduct by a director or a knowing
violation of law by a director for voting or assenting to an unlawful
distribution, or for any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. The DGCL does not affect the availability of equitable
remedies such as an injunction or rescission based upon a director's breach of
his duty of care. Any amendment to these provisions of the DGCL will
automatically be incorporated by reference into the Certificate of Incorporation
and the By-laws, without any vote on the part of its stockholders, unless
otherwise required.
COMMITTEES OF THE BOARD OF DIRECTORS
None.
56
<PAGE>
COMPENSATION OF DIRECTORS
The Company expects to reimburse directors for their expenses incurred in
connection with attending meetings of the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table and discussion summarize the compensation earned by the
Company's Chief Executive Officer, President and Director and the other most
highly compensated executive officers of the Company who earned more than
$100,000 in salary and bonuses (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during each of the last
three years ended December 31, 1996. Mr. Bernstein became the Company's Chief
Executive Officer on December 5, 1996. See " -- Employment Agreements."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- --------------------------------------------------------------------------------------------------------------------------------
(E)
(A) ALL OTHER
NAME AND COMPEN-
PRINCIPAL (B) (C) (D) SATION(1)
POSITION YEAR SALARY ($) BONUS ($) ($)
- ------------------------------------------------------------------------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Scott W. Bernstein, Chief..................................................... 1996 30,204 -- --
Executive Officer, President 1995 -- -- --
and Director(2) 1994 -- -- --
Donna Moore, President and.................................................... 1996 412,500 -- 2,699
Chief Executive Officer 1995 119,370 150,000 26,224
1994 -- -- --
Cynthia Cook, Vice President,................................................. 1996 98,077 9,500 80,655
Concept Development 1995 45,676 -- 36,883
1994 -- -- --
Stanley Gerasimczyk, Vice President,.......................................... 1996 135,000 25,000 --
Operations 1995 28,558 6,210 --
1994 -- -- --
David Barclay, Vice President,................................................ 1996 135,508 5,000 --
Legal(3) 1995 50,157 22,470 --
1994 -- -- --
</TABLE>
- ------------------------
(1) "Other Compensation" paid by the Company was related to relocation or
severance compensation.
(2) Mr. Bernstein was hired on December 6, 1996. The amount set forth above
represents payments made to Mr. Bernstein for the period December 6 through
December 31, 1996.
(3) $22,470 of Mr. Barclay's bonus was paid by BlockBuster Entertainment Group
pursuant to a Management Services Agreement with the Company.
OPTION AND SAR GRANTS IN FISCAL YEAR 1996
The Company granted no options, restricted stock awards, stock appreciation
rights or other long-term incentive payments in 1994, 1995 or 1996.
57
<PAGE>
OPTION AND SAR EXERCISES IN FISCAL 1996 AND YEAR-END OPTION AND SAR VALUES
In 1996, there were no exercises of options or SARs issued by the Company.
EMPLOYMENT AGREEMENTS
On July 21, 1997, the Company entered into an employment agreement with Mr.
Bernstein providing for his employment as Chief Executive Officer, President and
Director. The agreement with Mr. Bernstein expires on January 1, 2001. The
agreement provides for a base salary of $440,000 per year, with annual increases
of $40,000 beginning January 1, 1998. In addition, the agreement provides an
annual bonus, equal to 2.0% of EBITDA, with a minimum guaranteed amount for 1997
of $200,000, and provides for the reimbursement of certain other business
related expenses.
On August 1, 1997, the Company entered into an employment agreement with Ms.
Rothstein providing for her employment as Senior Vice President, Marketing and
Entertainment. The agreement with Ms. Rothstein expires on December 31, 2000.
The agreement provides for a base salary of $185,000 per year (plus performance
bonuses based on the achievement of mutually determined objectives).
On August 1, 1997, the Company entered into an employment agreement with Mr.
Rooney providing for his employment as Senior Vice President, Chief Financial
Officer and Administrative Officer. The agreement with Mr. Rooney expires on
December 31, 2000. The agreement provides for a base salary of $185,000 per year
(plus performance bonuses based on the achievement of mutually determined
objectives).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not currently have a compensation
committee. The Company's Board of Directors as a whole is responsible for
determining executive compensation matters. Mr. Bernstein serves on the
Company's Board of Directors as Chief Executive Officer and as President of the
Company.
STOCK INCENTIVE PLAN
The Company did not grant options to purchase shares of the Company's Common
Stock to any of the Named Executive Officers in 1996. All of the Company's
option plans and equity securities in existence prior to the Effective Date were
cancelled pursuant to the Plan of Reorganization. The Company adopted the 1997
Stock Incentive Plan in connection with the Plan of Reorganization. Pursuant to
their respective employment agreements, the Company granted to Mr. Bernstein,
Ms. Rothstein and Mr. Rooney to purchase 357,845 shares, 89,500 shares, and
89,500 shares, respectively, of the Company's Common Stock at an exercise price
of $11.88 per share. One third of such options vest on January 1, 1998, 1999 and
2000, respectively, and such options vest in their entirety upon the incurrence
of a "Change of Control." The Board of Directors of the Company may amend or
modify the Stock Incentive Plan at its discretion in accordance with the
Company's Certificate of Incorporation and By-laws. The Stock Incentive Plan
terminates ten years after the Effective Date. Shares of Common Stock subject to
the Stock Incentive Plan represent up to a maximum of 10% of the outstanding
shares of Common Stock after giving effect to the issuance of the Ten Year
Warrants and the Unit Warrants. The Company has reserved 715,692 shares of
Common Stock for issuance under this Stock Option Plan. See "Principal
Stockholders."
The Stock Incentive Plan is administered by the compensation committee (the
"Committee") of the Board of Directors and provides for the grant to eligible
officers and employees of "Incentive Stock Options" or "NonQualified Stock
Options" (together, the "Stock Options"), or both, to purchase shares of the
Company's Common Stock at no less than its fair market value at the date of
grant, in any such case subject to the discretion of the Committee. Pursuant to
the Stock Incentive Plan, the Committee may also grant Stock Appreciation
Rights. The Committee will fix the term of each Stock Option; provided that no
58
<PAGE>
Incentive Stock Option will be exercisable more than ten years after the date of
grant. Stock Options may be exercised, in whole or in part, at any time during
the option term by giving written notice of exercise to the Company and, for a
limited time, upon the death, disability or retirement of the optionee. No Stock
Option will be transferable by the optionee other than by will, by the laws of
descent and distribution, or, in the case of a NonQualified Stock Option, as
permitted under the applicable option agreement. The Company may cash out a
portion of the shares of Common Stock upon exercise of the Stock Options. The
Stock Incentive Plan allows the optionee to demand cash for its option upon a
Change of Control (as defined therein) of the Company.
The Stock Incentive Plan also provides for grants of Restricted Stock (as
defined therein). The Committee may designate an award of Restricted Stock (an
"Award") which vests upon the attainment of certain specified performance goals
set by the Committee. Prior to the latter of expiration of the applicable
restricted period and attainment of such performance goals, a participant may
not sell, assign, transfer, pledge or otherwise encumber shares of Restricted
Stock other than to pledge the Restricted Stock as security for a loan to
provide funds to pay the exercise price for the Stock Options. Holders of
Restricted Stock will have all of the rights of a stockholder of the Common
Stock. Any Restricted Stock must be forfeited upon termination of employment.
The Stock Incentive Plan also provides for grants of Performance Units (as
defined therein). The Committee may designate an award of Performance Units and
may condition any settlement thereof upon attainment of specified performance
goals. Performance Units may not be sold, assigned, transferred, pledged or
otherwise encumbered during the award cycle. Upon achievement of such
performance goals, the Committee will deliver to the participant either shares
of Common Stock equal to the number of Performance Units or cash equal to the
fair market value of such number of shares of Common Stock.
LONG-TERM INCENTIVE PLAN ("LTIP") AWARDS
The Company made no LTIP Awards in 1996.
PENSION PLAN
The Company had no pension plan in place in 1996.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of shares of Common Stock on September 30, 1997, by: (i) each
stockholder known by the Company to beneficially own more than 5% of the
outstanding Common Stock; (ii) each of the Named Executive Officers; (iii) each
of the Company's directors; and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES OF
BENEFICIALLY PERCENT
OWNED BENEFICIALLY
BENEFICIAL OWNER COMMON STOCK (1) OWNED (2)
- ---------------------------------------------------------------------------------- ----------------- -------------
<S> <C> <C>
Birch Holdings L.L.C. (3)......................................................... 2,229,622 55.7%
Martin S. Davis (3)............................................................... 2,229,622 55.7
Greg S. Feldman (3)............................................................... -- --
Douglas W. Rotatori (3)........................................................... -- --
Balfour Investors Incorporated (3)................................................ 607,154 13.9
L.G. Schafran (3)................................................................. -- --
Wafra Investment Advisory Group, Inc. (4)......................................... 1,191,626 23.0
Christopher R. Smith (5).......................................................... -- --
Paul D. Kurnit (6)................................................................ 48,931 1.2
Scott W. Bernstein (7)............................................................ 119,282 2.9
Directors and executive officers as a group (3)(5)(6)(8).......................... 3,649,129 67.9
</TABLE>
- ------------------------
(1) In computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding.
(2) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of Common Stock subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of November 19, 1997 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Birch Acquisition L.L.C., an affiliate of Wellspring ("Birch Acquisition"),
beneficially owns approximately 98% of the economic interest and has voting
power over 100% of Birch Holdings. The remaining 2% of the economic interest
of Birch Holdings is held by affiliates of Balfour Investors Incorporated
("Balfour"). A separate affiliate of Balfour beneficially owns approximately
5% of the Common Stock (the "Balfour Shares") and is required to vote such
shares in the same manner as Birch Holdings under an arrangement between
Balfour and Birch Acquisition. Birch Acquisition is co-managed by Mr. Davis
and Greg S. Feldman. In his capacity as managing member of Birch
Acquisition, Mr. Davis exercises voting and dispositive power over the
shares of Common Stock held by Birch Acquisition. Birch Holdings and Mr.
Davis disclaim beneficial ownership of the Balfour Shares and neither Birch
Holdings nor Mr. Davis have dispositive power over the Balfour Shares. L.G.
Schafran, a director of the Company nominated by Balfour, disclaims voting
and dispositive power over the shares of Common Stock beneficially owned by
Balfour, and Mr. Feldman and Douglas W. Rotatori disclaim voting and
dispositive power over the shares of Common Stock beneficially owned by
Birch Acquisition.
(4) Wafra owns the Convertible Preferred Stock which, by its terms, is
immediately convertible into 18.5% of the fully diluted shares of Common
Stock (after giving effect to the issuance of the Unit Warrants and the Ten
Year Warrants, but before giving effect to the Stock Options expected to be
granted under the Stock Incentive Plan).
60
<PAGE>
(5) Christopher R. Smith, a director of the Company nominated by Wafra,
disclaims voting and dispositive power over the shares of Common Stock
beneficially owned by Wafra.
(6) Paul D. Kurnit is the director of the Company nominated by certain classes
of pre-petition creditors of the Company pursuant to the Plan of
Reorganization, including Griffin Bacal, a pre-petition creditor of the
Company of which Mr. Kurnit is an officer. Mr. Kurnit, individually, is the
beneficial owner of less than 5.0% of the outstanding Common Stock. See
"Description of Capital Stock."
(7) Represents the vested portion of stock options granted to Mr. Bernstein. The
Company's Board of Directors has granted Stock Options to Mr. Bernstein with
respect to 357,845 shares of Common Stock, one-third of which will vest and
be exercisable within 60 days of the date hereof. See "Management -- Stock
Incentive Plan."
(8) The Company's Board of Directors has granted Stock Options to Scott W.
Bernstein and other executive officers with respect to, in the aggregate,
178,999 shares of Common Stock pursuant to the Stock Incentive Plan, one
third of which will vest and be exercisable within 60 days of the date
hereof. See "Management -- Stock Incentive Plan."
61
<PAGE>
CERTAIN TRANSACTIONS WITH AFFILIATES
As required under the Plan, the Company reimbursed Wellspring $1.1 million
in connection with out-of-pocket expenses incurred in connection with its joint
sponsorship of the Plan. In addition, an officer of Griffin Bacal, the Company's
advertising agency, serves as a director of the Successor Company. The Company
paid $7.0 million to Griffin Bacal, for media and creative services during the
nine months ended September 30, 1997.
62
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Exchange Notes and the Registration Rights
Agreement are subject to all such terms, and holders of the Exchange Notes are
referred to the Indenture, the Registration Rights Agreement and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture and the Registration Rights Agreement does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Indenture and the Registration Rights Agreement, including the
definitions contained therein. Copies of the proposed forms of Indenture and
Registration Rights Agreement are available from the Company upon request. The
definitions of certain terms used in the following summary are set forth below
under "Certain Definitions."
The Exchange Notes will be senior secured indebtedness of the Company and
will rank senior in right of payment to all present and future subordinated
indebtedness of the Company and PARI PASSU in right of payment with all present
and future unsubordinated indebtedness of the Company (subject to a prior lien
securing an Eligible Credit Facility which may be entered into in the future).
As of September 30, 1997, the Company had $88.3 million of long-term
indebtedness (including current portion) outstanding, of which $83.3 million was
secured indebtedness.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable at the office or agency of the Company in the Borough of Manhattan, the
City of New York (which initially will be the corporate trust office of the
Trustee at State Street Bank and Trust Company, N.A., 61 Broadway, 15th Floor,
New York, New York 10006, Attention: Corporate Trust Department); PROVIDED that,
at the option of the Company, payment of interest may be made by check mailed to
the address of the holder of the Exchange Notes as such address appears in the
security register.
The Exchange Notes will be issued only in registered form, without coupons,
in denominations of $1,000 and integral multiples thereof.
SECURITY
Pursuant to the terms of the Collateral Agreements (as defined), all of the
obligations under the Exchange Notes and the Indenture will be secured initially
by a first priority lien and security interest in certain assets of the Company
(including cash, accounts receivable, inventory, equipment, general intangibles,
intellectual property rights and certain other fixed assets (except real estate
leasehold interests existing on the Issue Date and certain real property,
fixtures and leasehold improvements)) and by a pledge of the capital stock of
all present and future Subsidiaries. The Exchange Notes will also be secured by
a lien on certain Company-owned real estate parcels and improvements thereon
that will be subordinated to a first mortgage lien in favor of McDonald's
Corporation. See "Description of Certain Indebtedness -- McDonald's Note." The
Company will also be required under the Indenture to use its commercially
reasonable efforts to deliver Mortgages (as hereinafter defined), in form and
substance satisfactory to the Trustee and its counsel, for purposes of securing
a first priority mortgage lien in leasehold interests of the Company acquired
after the Issue Date.
The Company will be permitted under certain circumstances to enter into an
Eligible Credit Facility, in which case the first priority security interest
securing the Exchange Notes will be subordinated to a lien securing such credit
facility. See "Description of Exchange Notes -- Intercreditor Agreement."
Upon an Event of Default, the proceeds from the sale of collateral securing
the Exchange Notes will likely be insufficient to satisfy the Company's
obligations under the Exchange Notes. No appraisals of any of the collateral
have been prepared in connection with the Exchange Offer. Moreover, the amount
to be
63
<PAGE>
received upon such a sale would be dependent upon numerous factors, including
the condition, age and useful life of the collateral at the time of such sale,
as well as the timing and manner of such sale. By its nature, all or some of the
collateral will be illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the collateral, if saleable, can be
sold in a short period of time.
A significant portion of the Company's assets consists of leasehold
improvements, and most of the Company's assets are located on leaseholds.
Because leasehold improvements may be deemed to be a part of either the real
property covered by the lease (which real property is not owned by the Company)
or the Company's real estate leasehold interests (which interests are not
included in the collateral available for the Notes), there can be no assurances
as to whether or to what extent such assets would be available as collateral
security for the Exchange Notes. Moreover, the ability of the Collateral Agent
to obtain possession of collateral located on leaseholds may be subject to
conflicting claims of landlords. The Company believes, however, that the
realizable value of such leasehold interests upon a liquidation of the Company
would not be material.
To the extent third parties hold Permitted Liens (as defined herein), such
third parties may have rights and remedies with respect to the property subject
to such Liens that, if exercised, could adversely affect the value of the
collateral. Given the intangible nature of certain of the collateral, any such
sale of such collateral separately from the Company as a whole may not be
feasible. Additionally, the inclusion of the Company's fixtures in the
collateral securing the Exchange Notes will be limited by the extent to which
such fixtures (a) are deemed not to be personal property, and (b) any applicable
state laws would, for purposes of perfecting security interests with respect
thereto, require that the Collateral Agent effectuate certain filings in
applicable real estate land records. The ability of the Company to grant a first
priority security interest in certain collateral may be limited by legal or
other logistical considerations. The ability of the holders of Exchange Notes to
realize upon the collateral may be limited by the terms of an intercreditor
agreement relating to an Eligible Credit Facility and may be subject to certain
bankruptcy law limitations in the event of a bankruptcy. See "-- Certain
Bankruptcy Limitations."
The Company is permitted to form new Subsidiaries and to transfer all or a
portion of the collateral to one or more of its Subsidiaries; PROVIDED that the
Company's rights to transfer collateral to Block Party and Limited Investment
Subsidiaries (as defined) will be restricted, and each of the Company's
Subsidiaries (other than Block Party and Limited Investment Subsidiaries) will
be required to execute a guarantee of the Company's obligations under the
Exchange Notes and the Indenture and a security agreement granting to the
Collateral Agent a security interest in substantially all of the assets of such
Subsidiary (other than real estate leasehold interests and certain real
property, fixtures and leasehold improvements). See "-- Certain Covenants --
Subsidiary Guarantees."
Subject to the restrictions on incurring Indebtedness and Liens set forth
herein, the Company and its Subsidiaries will have the right to grant (and
suffer to exist) Purchase Money Liens against fixed assets of the Company or
such Subsidiaries and to acquire any such assets subject to Purchase Money
Liens. The Collateral Agent's Liens are intended to be, and shall be, at all
times automatically subordinate in priority to all such Purchase Money Liens.
The collateral release provisions of the Indenture permit the release of
collateral without substitution of collateral of equal value under certain
circumstances, including assets sales made in compliance with the Indenture. The
Net Cash Proceeds of such Asset Sales may be required to be utilized to make an
offer to purchase a portion of the Exchange Notes.
Notwithstanding anything herein to the contrary, neither the Company nor any
of its Subsidiaries (other than Block Party and Limited Investment Subsidiaries)
will encumber any asset or property of the Company or such Subsidiaries or
suffer to exist any Lien thereon, other than as expressly permitted herein.
64
<PAGE>
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture, the Eligible Credit
Facility, the Collateral Agreements and the Intercreditor Agreement (as defined
herein), the Company will be entitled to receive all cash dividends, interest
and other payments made upon or with respect to the capital stock of any
Subsidiary and to exercise any voting, consensual rights and other rights
pertaining to such collateral pledged by it. Upon the occurrence and during the
continuance of an Event of Default, (a) all rights of the Company to exercise
such voting, consensual rights, or other rights shall cease upon notice from the
Trustee, and all such rights shall become vested in the Collateral Agent, which,
to the extent permitted by law, shall have the sole right to exercise such
voting, consensual rights or other rights, (b) all rights of the Company to
receive all cash dividends, interest and other payments made upon or with
respect to the collateral shall cease, and such cash dividends, interest and
other payments shall be paid to the Collateral Agent, and (c) the Collateral
Agent may sell the collateral or any part thereof in accordance with and subject
to the terms of the Collateral Agreements; PROVIDED, HOWEVER, that while
Indebtedness is outstanding under an Eligible Credit Facility, rights of the
holders of the Exchange Notes and the Collateral Agent will be subordinate to
the Liens of the Eligible Credit Facility and subject to the terms of the
Intercreditor Agreement. All funds distributed under the Collateral Agreements
and received by the Collateral Agent for the ratable benefit of the holders of
the Exchange Notes shall be distributed by the Collateral Agent in accordance
with the provisions of the Indenture.
Upon the full and final payment and performance of all obligations of the
Company under the Indenture and the Exchange Notes, the Collateral Agreements
shall terminate and the pledged collateral shall be released.
ESCROWED INTEREST ACCOUNT
In order to secure the Company's obligations under the Exchange Notes, the
Company deposited in the Escrowed Interest Account held by the Trustee pursuant
to the terms and conditions of the Indenture and the Escrow Agreement (as
defined) certain Pledged Securities (as defined) acquired by the Company from a
portion of the net proceeds of the Private Notes in an amount equal to
approximately $21.6 million. The Escrow Funds which remain subject to the Escrow
Agreement have been invested in Pledged Securities held in the Escrowed Interest
Account.
Immediately prior to any of the scheduled Interest Payment Dates through
August 1, 1999, the Company may either, (i) deposit with the Trustee from funds
otherwise available to the Company cash sufficient to pay the interest scheduled
to be paid on such date, or (ii) direct the Trustee to release from the Escrowed
Interest Account proceeds sufficient to pay interest then due on the Notes. In
the event the Company exercises the former option, the Company may direct the
Trustee to release a like amount of proceeds from the Escrowed Interest Account
for the benefit of the Company. In the event that the Company optionally redeems
Exchange Notes with the net proceeds of a Primary Offering, the Company may
direct the Trustee to release from the Escrowed Interest Account an amount of
proceeds which bears the same proportion to the aggregate value of the Escrowed
Interest Account immediately prior to the release of such proceeds as the
aggregate principal amount of the Exchange Notes so redeemed by the Company
bears to the aggregate principal amount of Exchange Notes outstanding
immediately prior to such redemption. The amount of proceeds that may be
released by the Trustee to the Company in connection with any such optional
redemption shall be net of any costs, fees and expenses (such as breakage fees)
incurred to permit such release.
Interest earned on the Pledged Securities will be added to the Escrowed
Interest Account. The Pledged Securities and Escrowed Interest Account will also
secure the repayment of the principal amount and premium, if any, on the
Exchange Notes.
65
<PAGE>
Under the Escrow Agreement, after making the scheduled interest payments on
the Exchange Notes through August 1, 1999, all of the remaining Pledged
Securities, if any, will be released from the Escrowed Interest Account and paid
to the Company.
INTERCREDITOR AGREEMENT
The Company will be permitted under certain circumstances to enter into an
Eligible Credit Facility (as defined) with a Lender (as defined); PROVIDED that
(i) entering into the Eligible Credit Facility is not prohibited by the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Preferred
Stock" covenant of the Indenture and (ii) the security interests and liens upon
any property or assets of the Company securing Indebtedness under the Eligible
Credit Facility are Permitted Liens (as defined hereinafter), in each case, as
evidenced to the Trustee in an officers' certificate of the Company delivered to
the Trustee.
The Trustee will be authorized to enter into an intercreditor agreement with
the Lender providing the Eligible Credit Facility (an "Intercreditor
Agreement"). The Intercreditor Agreement will provide, among other things, that
(i) such Lender's security interest in certain of the assets of the Company
shall be senior to the Collateral Agent's security interest in such assets, (ii)
during any insolvency proceedings, the Lender and the Collateral Agent will
coordinate their efforts to give effect to the relative priority of their
security interests in such properties and assets, and (iii) following an Event
of Default (as defined hereinafter), all decisions with respect to such
properties and assets, including the time and method of any disposition thereof,
will be made in accordance with the terms of such Intercreditor Agreement, in
each case, subject to the terms and provisions of the Indenture and the
Collateral Agreements. The Intercreditor Agreement will also provide that the
Trustee and the Lender will provide notices to each other with respect to
acceleration of the Exchange Notes or the Indebtedness outstanding under the
Eligible Credit Facility, as the case may be.
If the Exchange Notes become due and payable prior to the stated maturity
thereof for any reason or are not paid in full at the stated maturity thereof at
a time during which Indebtedness is outstanding under an Eligible Credit
Facility, the Collateral Agent will not have the right to foreclose upon the
collateral that is subject to the Eligible Credit Facility unless the Lender
forecloses upon such collateral. Thereafter, the Collateral Agent has the right
to foreclose upon such collateral, which may be in instructions from the holders
of a majority of the principal amount of Exchange Notes then outstanding or, in
the absence of such instructions, in such manner as the Collateral Agent deems
appropriate in its sole and absolute discretion. Proceeds from the sale of
collateral that is subject to the Eligible Credit Facility will first be applied
to repay Indebtedness outstanding under the Eligible Credit Facility, if any,
and thereafter paid to the Trustee. The proceeds received by the Trustee will be
applied by the Trustee first to pay the expenses of any foreclosure and fees and
other amounts then payable to the Trustee under the Indenture and, thereafter,
to pay all amounts owing to the holders of the Exchange Notes (with any
remaining proceeds to be payable to the Company or as may otherwise be required
by law).
GUARANTEE
The full and prompt payment of the Company's payment obligations under the
Exchange Notes and the Indenture will be guaranteed, jointly and severally, by
all present and future Subsidiaries (other than Block Party and Limited
Investment Subsidiaries (collectively, the "Subsidiary Guarantors"). Each
Subsidiary Guarantor will fully and unconditionally guarantee on a senior
secured basis (secured initially by certain of such Subsidiary Guarantor's
assets, including cash, accounts receivable, inventory, equipment, general
intangibles, intellectual property rights and certain other fixed assets (except
real estate leasehold interests existing on the Issue Date and certain real
property, fixtures and leasehold improvements of such Subsidiary) (the
"Subsidiary Guarantee"), jointly and severally, to each Holder and the Trustee,
the full and prompt performance of the Company's obligations under the Indenture
and the Exchange Notes, including the payment of principal of and interest on
the Exchange Notes. The Subsidiary Guarantee of
66
<PAGE>
each Subsidiary Guarantor will rank PARI PASSU in right of payment to all
existing and future unsubordinated Indebtedness of such Subsidiary Guarantor.
The Company will be permitted under certain circumstances to enter into an
Eligible Credit Facility in which case the first priority security interest in
certain collateral securing the Notes will be subordinated to a lien securing
such credit facility. The obligations of each Subsidiary Guarantor are limited
to the maximum amount which, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, will result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. The net worth of any Subsidiary Guarantor
for such purpose shall include any claim of such Subsidiary Guarantor against
the Company for reimbursement and any claim against any other Subsidiary
Guarantor for contribution. Each Subsidiary Guarantor may consolidate with or
merge into or sell its assets to the Company or another Subsidiary Guarantor
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "-- Certain Covenants -- Mergers, Consolidations and
Sale of Assets" and "-- Asset Sales." In the event all of the Capital Stock of a
Subsidiary Guarantor is sold (including by way of merger or consolidation) by
the Company and the sale complies with the provisions set forth in "-- Certain
Covenants -- Asset Sales," the Subsidiary Guarantee with respect to such
Subsidiary Guarantor will be released.
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes are limited in aggregate principal amount to $85.0
million and will mature on August 1, 2002. Interest will be payable on the
Exchange Notes in cash at the rate of 13 1/2% per annum, quarterly in arrears,
on each August 1, November 1, February 1 and May 1, commencing on February 1,
1998, to holders of record on the immediately preceding July 15, October 15,
January 15 and April 15. Cash interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Interest on the Exchange Notes
will increase if the Company fails to fulfill its obligations under the
Registration Rights Agreement. See "Exchange Offer; Purpose and Effect of the
Exchange Offer." The Exchange Notes will be payable both as to principal and
interest at the office or agency of the Company, or, at the option of the
Company, payment of interest may be made by check mailed to the holders of the
Exchange Notes at their respective addresses set forth in the register of
holders of Exchange Notes. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose.
OPTIONAL REDEMPTION
The Exchange Notes are not entitled to any mandatory redemption or sinking
fund payments. Except as described below, the Exchange Notes are not redeemable
at the Company's option prior to August 1, 1999. Thereafter, the Exchange Notes
will be subject to redemption at the option of the Company, in whole or in part,
upon not less than 15 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below, plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve month period beginning on August 1, of the years
indicated below through but not including the Maturity Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
1999.............................................................................. 113.000%
2000.............................................................................. 108.667%
2001.............................................................................. 104.333%
</TABLE>
Notwithstanding the foregoing, prior to August 1, 1999, the Company may
redeem up to 35% of the original principal amount of the Exchange Notes at a
redemption price equal to 115% of the principal
67
<PAGE>
amount thereof on the redemption date, plus accrued interest thereon to the
redemption date, with the net proceeds of a Primary Offering; PROVIDED that (i)
such offering results in net proceeds to the Company of at least $20 million,
and (ii) such redemption shall occur within 30 days of the date of the closing
of such offering. Nothing in the Indenture, including the restrictions on
optional redemptions, limits the Company's right to make open market or
privately negotiated purchases of the Exchange Notes from time to time on or
after the first anniversary of the date hereof.
If fewer than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the national securities exchange, if any, on
which the Exchange Notes are listed, or, if the Exchange Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee deems to be
fair and appropriate; PROVIDED that Exchange Notes of $1,000 or less may not be
redeemed in part. Notice of redemption will be mailed by first class mail at
least 15 days but not more than 60 days before the redemption date to each
holder to be redeemed at such holder's registered address. If any Exchange Note
is to be redeemed in part only, the notice of redemption that relates to such
Exchange Note will state the portion of the principal amount thereof to be
redeemed. A new Exchange Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Exchange Note. On and after the date of redemption,
interest will cease to accrue on the Private Notes or portions of Exchange Notes
called for redemption.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
notify the Trustee in writing thereof and to offer to repurchase all or any part
(equal to $1,000 of principal at maturity or an integral multiple thereof) of
each holder's Exchange Notes pursuant to the offer described below (the "Change
of Control Offer") at a purchase price equal to 101% of the principal amount
thereof on the date of purchase, plus accrued interest thereon, if any, through
the date of purchase (the "Change of Control Payment"). Within 40 days following
any Change of Control, the Company shall mail a notice to each holder stating:
(1) that the Change of Control Offer is being made pursuant to the covenant
entitled "Limitation on Change of Control" in the Indenture and that all
Exchange Notes tendered will be accepted for payment; (2) the purchase price and
the purchase date, which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Exchange Note not tendered will continue to accrue interest; (4) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Exchange Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest on and after the Change of Control Payment Date;
(5) that holders electing to have any Exchange Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Exchange Notes, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Exchange Notes completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day preceding the
Change of Control Payment Date; (6) that holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the principal amount of Exchange Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such
Exchange Notes purchased; and (7) that holders whose Exchange Notes are being
purchased only in part will be issued new Exchange Notes equal in principal
amount to the unpurchased portion of the Exchange Notes surrendered; PROVIDED
that each Exchange Note purchased and each new Exchange Note issued shall be in
a principal amount of $1,000 or an integral multiple thereof. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Exchange
Notes in connection with a Change of Control. To the extent that the provisions
of any securities laws or regulations conflict with the "Limitation on Change of
Control" covenant of the Indenture, the Company shall comply with the applicable
securities laws and
68
<PAGE>
regulations and shall not be deemed to have breached its obligations under the
"Limitation on Change of Control" covenant of the Indenture by virtue thereof.
On or before the Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment Exchange Notes or portions thereof
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the amount of the Exchange Notes or portions
thereof tendered to the Company. The Paying Agent shall promptly mail to each
holder of the Exchange Notes so accepted payment in an amount equal to the
purchase price for such Exchange Notes, and the Trustee shall promptly
authenticate and mail to each holder a new Exchange Note equal in principal
amount to the unpurchased portion of the Exchange Notes surrendered, if any, to
the Change of Control Payment Date; PROVIDED that each such new Exchange Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases. The Company's
failure to comply with the covenant described above, including failure to pay
the repurchase price, will be an Event of Default under the Indenture.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the collateral
upon the occurrence of an Event of Default is likely to be significantly
impaired by applicable bankruptcy law if a bankruptcy proceeding were to be
commenced by or against the Company or any of its Subsidiaries prior to the
Collateral Agent having repossessed and disposed of the collateral. Under the
Bankruptcy Code, a secured creditor such as the Collateral Agent is prohibited
from repossessing its security from a debtor in a bankruptcy case or from
disposing of security repossessed from such debtor without bankruptcy court
approval. Moreover, the Bankruptcy Code permits the debtor to continue to retain
and to use collateral even though the debtor is in default under the applicable
debt instruments; PROVIDED that secured creditors are given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay of repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Exchange Notes could be delayed following commencement of a
bankruptcy case, whether or when the Collateral Agent could repossess or dispose
of the collateral or whether or to what extent holders of the Exchange Notes
would be compensated for any delay in payment or loss of value of the collateral
through the requirement of "adequate protection."
CERTAIN COVENANTS
RESTRICTED PAYMENTS. The Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly-Owned Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any Subsidiary or other Affiliate of the Company (other than
any such Equity Interests owned by the Company or any Wholly-Owned Subsidiary of
the Company); (iii) voluntarily purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is PARI PASSU with or subordinated to
the Exchange Notes; or (iv) make any Restricted Investment (all such payments
and other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments") unless, at the time of such Restricted
Payment:
69
<PAGE>
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction, on a pro forma
basis as if such transaction had occurred at the beginning of the applicable
four-quarter period, the Company would be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant entitled "-- Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" below; and
(c) the amount of such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Subsidiaries after the date of the Indenture, is less than the sum of (x)
25% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first quarter next
succeeding the quarter ended June 30, 1998 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, 100% of such deficit), plus (y)
100% of the aggregate net cash proceeds received by the Company from the
issuance or sale of Equity Interests of the Company (other than Equity
Interests sold to a Subsidiary of the Company and other than Disqualified
Stock) since the date of the Indenture, plus (z) 100% of the Net Cash
Proceeds received by the Company from the issuance or sale, other than to a
Subsidiary of the Company, of any debt security of the Company that has been
converted into Equity Interests of the Company (other than Disqualified
Stock) since the date of the Indenture. For purposes of this clause (c) the
amount of any Restricted Payment paid in property other than cash shall be
the fair market value of such property as determined reasonably and in good
faith by the Board of Directors of the Company.
If no Default or Event of Default shall have occurred and be continuing, the
foregoing provisions will not prohibit: (i) the payment of any dividend within
60 days after the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Indebtedness or
Equity Interests of the Company in exchange for, or solely out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); (iii) the redemption, repurchase or payoff of Purchase Money
Obligations; (iv) the redemption, repurchase or payoff of any Indebtedness with
proceeds of any Refinancing Indebtedness permitted to be incurred under "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; (v)
the repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any officer or employee of the Company
or its Subsidiaries; PROVIDED, HOWEVER, that the aggregate amount of all such
repurchases, redemptions and other acquisitions and retirements under this
clause (v) on or after the date of the Indenture shall not exceed $1 million;
(vi) the voluntary purchase, redemption, defeasance or other acquisition or
retirement of all or any portion of the Indebtedness represented by the McDonald
Note with the Net Cash Proceeds of an Asset Sale that (A) is permitted under the
restriction on "Asset Sales" below and (B) relates solely to collateral for the
McDonald Note in the form of undeveloped real estate not used or, in the
reasonable judgment of the Board of Directors, useful in the Company's business;
(vii) the purchase, redemption, defeasance or other acquisition or retirement of
Unit Warrants required by the terms of the Unit Warrant Agreement described
below under "Description of Capital Stock -- Warrants"; (viii) distributions
required under the Plan of Reorganization but only in the manner and to the
extent contemplated thereby; and (ix) payments or distributions to dissenting
stockholders (it being understood that such dissenting stockholders shall not
include any Class 14 Interests (as defined in the Plan of Reorganization))
required by applicable law pursuant to or in connection with a consolidation,
merger or Asset Sale that complies with all applicable provisions of the
Indenture.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon
70
<PAGE>
which the calculations required by the "Restricted Payments" covenant were
computed, which calculations may be based upon the Company's latest available
quarterly financial statements.
INCURRENCE OF ADDITIONAL INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. The
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guaranty or otherwise become directly
or indirectly liable with respect to (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness), and the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of Preferred Stock; PROVIDED, HOWEVER, that the Company may incur
Indebtedness or issue shares of Disqualified Stock, if (i) no Default or Event
of Default shall have occurred and be continuing or would occur as a consequence
thereof and (ii) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least equal
to 3.0:1, determined on a pro forma basis as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
ASSET SALES. The Company will not, and will not permit any of its
Subsidiaries to, consummate an Asset Sale unless: (i) the Company or the
applicable Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale in an amount at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors); (ii) at least 85% of the consideration received
by the Company or the Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the time of such
disposition; and (iii) upon the consummation of an Asset Sale, the Company
either (A) shall apply, or cause such Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 180 days of such Asset Sale either (1) to
repay any Indebtedness secured by the assets involved in such Asset Sale
together with a concomitant permanent reduction in the amount of such
Indebtedness (including a permanent reduction in the committed amounts therefor
in the case of any revolving credit facility so repaid), (2) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Company and its Subsidiaries as existing on the
Effective Date or in businesses reasonably related thereto ("Replacement
Assets"), or (3) a combination of repayment and investment permitted by the
foregoing clauses (iii)(A)(1) and (iii)(A)(2) or (B) shall (1) within 150 days
of such Asset Sale enter into a definitive written agreement committing it,
subject to no material conditions other than conditions customary in such
agreements, to make an investment in Replacement Assets within 270 days of such
Asset Sale and (2) apply, or cause such Subsidiary to apply, the Net Cash
Proceeds relating to such Asset Sale within 270 days of such Asset Sale to an
investment in Replacement Assets. On (i) the 181st day after an Asset Sale, or
(ii) such earlier date as the Board of Directors of the Company or of such
Subsidiary determines to apply the Net Cash Proceeds relating to such Asset Sale
as set forth in clauses (iii)(A)(1), (iii)(A)(2) and (iii)(A)(3) of the
immediately preceding sentence, or (iii) if a definitive written agreement
relating to an investment in Replacement Assets was entered into within 150 days
of such Asset Sale, on the 271st day after such Asset Sale or such earlier date
on which such definitive written agreement is for any reason terminated (each, a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which has not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A) or (iii)(B) of the immediately preceding sentence
(each a "Net Proceeds Offer Amount") shall be applied by the Company or such
Subsidiary to make an offer to purchase (the "Net Proceeds Offer"), on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days
following the applicable Net Proceeds Offer Trigger Date, from all holders of
Notes on a PRO RATA basis that amount of Exchange Notes equal to the Net
Proceeds Offer Amount at a price equal to 100% of the aggregate principal amount
of the Exchange Notes to be purchased, plus accrued and unpaid interest thereon,
if any, to the date of purchase; PROVIDED, HOWEVER, that if at any time any
non-cash consideration received by the Company or any Subsidiary of the Company,
as the case may be, in connection with any Asset Sale is converted into or sold
or otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then
71
<PAGE>
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder, and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $5
million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "-- Merger, Consolidation or Sale of
Assets" below, the successor corporation shall be deemed to have sold the
properties and assets of the Company and its Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Subject to the deferral of the Net Proceeds Offer Trigger Date, each notice
of a Net Proceeds Offer will be mailed to the record holders of Exchange Notes
as shown on the register of holders within 25 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, holders may elect to tender their Exchange Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent holders
properly tender Exchange Notes in an amount exceeding the aggregate Net Proceeds
Offer Amount, Exchange Notes of tendering holders will be purchased on a PRO
RATA basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
"Limitation on Asset Sale" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Limitation on Asset Sales" provisions
of the Indenture by virtue thereof.
LIMITATIONS ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The
Company will not cause or permit any of its Subsidiaries to issue or sell any
Capital Stock (other than to the Company or to a Wholly-Owned Subsidiary of the
Company) or permit any Person (other than the Company or a Wholly-Owned
Subsidiary of the Company) to own or hold any Capital Stock of any Subsidiary of
the Company or any Lien or security interest therein; PROVIDED, HOWEVER, such
covenant shall not prohibit the disposition (by sale, merger or otherwise) of
all of the Capital Stock of a Subsidiary of the Company; PROVIDED any Net Cash
Proceeds therefrom are applied in accordance with the covenants described under
"-- Asset Sales."
LIENS. The Indenture will provide that neither the Company nor any of its
Subsidiaries may, directly or indirectly, incur any Lien, except Permitted
Liens, against or upon any property or assets now owned or hereafter acquired by
the Company or any of its Subsidiaries, or any income or profits therefrom, or
assign or convey any right to receive income or profits therefrom.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrances or restrictions on the ability of any such
Subsidiary to (a) pay dividends or make any other distributions to the Company
or any of its Subsidiaries (A) on such Subsidiary's Capital Stock or (B) with
respect to any other interest or participation in, or measured by, its profits,
or pay any Indebtedness owed to the Company or any of its Subsidiaries or (b)
make loans or advances to the Company or any of its Subsidiaries or (c) transfer
any of its properties or assets to the
72
<PAGE>
Company or any of its Subsidiaries, except for such encumbrances or restrictions
existing under or by reasons of (1) applicable law; (2) the Indenture and
Exchange Notes; (3) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of any Subsidiary of the Company; (4)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; or (5) an agreement governing
Indebtedness incurred to refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2) or (4) above; PROVIDED,
HOWEVER, that the provisions relating to such encumbrance or restriction
contained in any such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2) or (4).
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
(whether or not the Company is the surviving corporation), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets to, another corporation, Person or entity unless: (i) the
Company is the surviving corporation, or the entity or the person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the obligations
of the Company under the Collateral Agreements, the Registration Rights
Agreement, the Unit Warrant Agreement, the Intercreditor Agreement and all
obligations of the Company under the Exchange Notes and the Indenture, pursuant
to a supplemental indenture in a form reasonably satisfactory to the Trustee;
(iii) immediately after such transaction (including giving effect to any
Indebtedness and Acquired Debt incurred or expected to be incurred in connection
with or in respect of such transaction and to any assumption required by clause
(ii) above) no Default or Event of Default exists; (iv) the Company or any
corporation formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made (A) will have Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving PRO FORMA effect thereto as if such transaction had
occurred at the beginning of the applicable four quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Indenture and
will have a Fixed Charge Coverage Ratio, determined on a PRO FORMA basis,
greater than or equal to the Fixed Charge Coverage Ratio of the Company
immediately prior to the transaction; and (v) the Company or the entity or
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made shall have delivered to the Trustee an officer's certificate and an
opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and any
supplemental indenture required in connection with such transaction comply with
the applicable provisions of the Indenture and that all conditions precedent in
the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
73
<PAGE>
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes, the Collateral Agreements, the
Registration Rights Agreement and the Unit Warrant Agreement with the same
effect as if such surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Subsidiary Guarantee is to be released in accordance with the terms of the
Guarantee and the Indenture in connection with any transaction made in
compliance with the provisions of "-- Asset Sales") will not, and the Company
will not cause or permit any Subsidiary Guarantor to, consolidate with or merge
with or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of its assets, other than the Company or any
other Subsidiary Guarantors unless: (i) the entity formed by or surviving any
such consolidation or merger (if other than the Subsidiary Guarantor), or to
which such disposition shall have been made, is a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia; (ii) such entity assumes by supplemental indenture all of the
obligations of the Subsidiary Guarantor on the Subsidiary Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after giving
effect to such transaction and the use of any net proceeds therefrom on a pro
forma basis, the Company could satisfy the provisions of clause (iv) of the
first paragraph of this covenant. Any merger or consolidation of a Subsidiary
Guarantor with and into the Company (with the Company being the surviving
entity) or another Subsidiary Guarantor need only comply with clause (iv) of the
first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction or series of related transactions (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any services) with, or for the benefit of, any of its Affiliates
(each an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the next succeeding paragraph and (y) Affiliate Transactions on
terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions which
are similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $2 million shall be approved by a
majority of the disinterested members of the Board of Directors of the Company,
such approval to be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any such Subsidiary enters into an Affiliate
Transaction (or a series of related Affiliate Transactions which are similar or
part of a common plan) that involves an aggregate fair market value of more than
$5 million, the Company shall, prior to the consummation thereof, obtain a
favorable opinion as to the fairness of such transaction or series of related
transactions to the Company from a financial point of view from an Independent
Financial Advisor and deliver such opinion to the Trustee.
The restrictions set forth in the preceding paragraph shall not apply to:
(i) reasonable fees and compensation paid to, and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management; (ii) transactions exclusively between or among the Company
and any of its Wholly-Owned Subsidiaries or exclusively between or among such
Wholly-Owned Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; and (iii) Restricted Payments not prohibited by the
Indenture.
SUBSIDIARY GUARANTEES. Each Subsidiary Guarantor shall: (i) execute and
deliver to the Collateral Agent a supplemental indenture in a form reasonably
satisfactory to the Collateral Agent pursuant to which such Subsidiary Guarantor
shall unconditionally guarantee on a senior secured basis (secured initially by
certain of such Subsidiary Guarantor's assets, including cash, accounts
receivable, inventory, equipment, general intangibles, intellectual property
rights and certain other fixed assets (except real
74
<PAGE>
property, real estate leasehold interests, certain fixtures and leasehold
improvements) all of the Company's obligations under the Exchange Notes and the
Indenture; (ii) take all necessary action to cause the Lien on such collateral
in favor of the Collateral Agent to remain in full force and effect at all
times; (iii) deliver to the Collateral Agent an opinion of counsel that such
supplemental indenture and any other documents required to comply with clause
(ii) above have been duly authorized, executed and delivered by such Subsidiary
Guarantor, and the supplemental indenture and each such other document
constitutes a legal, valid, binding and enforceable obligation of such
Subsidiary Guarantor; and (iv) take such further action and execute and deliver
such other documents specified in the Indenture or otherwise reasonably
requested by the Collateral Agent to effectuate the foregoing. The Company may
transfer, in any one transaction or a series of related transactions, any
collateral to any Subsidiary Guarantor if such transferee Subsidiary Guarantor
shall have complied with the requirements of clauses (i) through (iv) above;
provided that the guarantee referred to in clause (i) above shall be secured by,
in addition to any collateral existing in such Subsidiary Guarantor, the
collateral so transferred.
IMPAIRMENT OF SECURITY INTEREST. Subject to the Intercreditor Agreement,
neither the Company nor any of its Subsidiaries will take or omit to take any
action which would adversely affect or impair the Security Interests in favor of
the Trustee, on behalf of itself and the holders of the Exchange Notes, with
respect to the Collateral, the Subsidiary Collateral, the Pledged Collateral or
the Pledged Subsidiary Collateral. Neither the Company nor any of its
Subsidiaries shall grant to any Person, or permit any Person to retain (other
than the Trustee), any interest whatsoever in the Collateral, the Subsidiary
Collateral, the Pledged Collateral or the Pledged Subsidiary Collateral other
than Liens on certain of the Collateral securing an Eligible Credit Facility and
Permitted Liens. Neither the Company nor any of its Subsidiaries will enter into
any agreement that requires the proceeds received from any sale of Collateral,
the Subsidiary Collateral, the Pledged Collateral or the Pledged Subsidiary
Collateral to be applied to repay, redeem, defease or otherwise acquire or
retire any Indebtedness of any Person, other than as permitted by the Indenture,
the Exchange Notes, the Intercreditor Agreement and the Collateral Agreements.
CONDUCT OF BUSINESS. Neither the Company nor any of its Subsidiaries will
engage in any businesses other than the business of operating family
entertainment centers or any activity related or ancillary thereto.
REPORTS. So long as any Notes are outstanding, the Company will furnish to
the holders of Exchange Notes all quarterly and annual financial information and
other reports filed with the Commission pursuant to the Exchange Act. From and
after the date of effectiveness of any registration statement filed with the
Commission with respect to the Notes, the Company will file with the Commission
such Forms 10-Q and 10-K and any other information required to be filed by it.
The Company will provide a copy of the Registration Rights Agreement and the
Unit Warrant Agreement to prospective holders of Exchange Notes upon request.
KEY MAN LIFE INSURANCE. The Company shall, not later than 60 days after the
Issue Date and for so long as the Exchange Notes are outstanding, maintain life
insurance upon the life of Scott W. Bernstein, the Company's Chief Executive
Officer, and any successor chief executive officer of the Company or other
senior executive officer of the Company performing similar functions, with the
death benefit thereunder payable to the Company in an amount not less than $10.0
million. The Company shall at all times retain all the incidents of ownership of
such insurance and shall not borrow upon or otherwise impair its right to
receive the proceeds of such insurance.
LEASEHOLD MORTGAGES AND FILINGS. The Company and each of its Subsidiaries
shall use commercially reasonable efforts to deliver Mortgages substantially in
the form attached to the Indenture with respect to the Company's leasehold
interests in the premises (the "Leased Premises") occupied by the Company
pursuant to leases of new store properties entered into after the Issue Date
(collectively, the "Leases," and individually, a "Lease"). Prior to the
effective date of any Lease, the Company and such Subsidiaries shall provide to
the Trustee all of the items described in the "Real Estate Mortgages and
Filings" covenant of
75
<PAGE>
the Indenture and in addition shall provide an agreement substantially in the
form attached to the Indenture and executed by the lessor of the Lease, whereby
the lessor consents to the Mortgage. The Company and such Subsidiaries shall
perform all of their obligations required hereunder at their sole cost and
expense.
RATING OF EXCHANGE NOTES. The Company shall cooperate with the Initial
Purchaser at any time and from time to time for a period of 18 months after the
Issue Date to obtain a rating for the Exchange Notes from at least one
nationally recognized rating agency and to keep a rating with respect to the
Exchange Notes continuously in effect through the Maturity Date.
PAYMENTS FOR CONSENT. Neither the Company nor any of the Company's
Subsidiaries (including, for this purpose only, Block Party and all Permitted
Investment Subsidiaries) shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any holder
of any Exchange Notes for, or as inducement to, any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Exchange Notes unless
such consideration is offered to be paid or agreed to be paid to all holders of
Exchange Notes then outstanding that consent, waive or agree to amend any of
such terms or provisions in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) for any Interest Payment Date occurring on or prior to August 1,
1999, the Company fails to pay interest on any Exchange Notes when the same
become due and payable, and for any Interest Payment Date occurring after August
1, 1999, the Company fails to pay interest on any Exchange Notes when the same
becomes due and payable and the Default continues for a period of 10 days; (ii)
default by the Company in payment of principal (or premium, if any) on any
Exchange Notes at maturity, upon redemption, by acceleration or otherwise
(including the failure to make a payment to purchase Exchange Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer); (iii) failure by
the Company or any of its Subsidiaries (in each case, to the extent a party to
the Collateral Agreements) to comply with any of its other agreements or
covenants in, or provisions of, the Indenture, the Exchange Notes, or any of the
Collateral Agreements (to the extent such default of the Company, directly or
indirectly, adversely affects (or with respect to any such Subsidiary,
materially adversely affects) the Security Interests in the Collateral or the
rights and benefits of the holders under the Indenture or the Exchange Notes),
which default continues for a period of 30 days after the Company has received
written notice specifying the default; (iv) default under (after giving effect
to any applicable grace periods or any extension of any maturity date) any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of the Company or any of its
Subsidiaries (the payment of which is guaranteed by the Company or any
Subsidiary) whether such Indebtedness now exists, or is created after the date
of the Indenture, if (a) either (A) such default results from the failure to pay
principal of or interest on such Indebtedness or (B) as a result of such default
the maturity of such Indebtedness may be accelerated, and (b) the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness with respect to which a default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which may be so accelerated, exceeds $2 million in the
aggregate, and the Default continues for a period of ten days after the Company
has received written notice specifying the default; (v) failure by the Company
or any of its Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability in writing)
aggregating in excess of $2.0 million which judgments are not stayed within 60
days after their entry; (vi) certain events of bankruptcy or insolvency with
respect to the Company, any Subsidiary Guarantor or any of the Company's
Subsidiaries; and (vii) any Subsidiary Guarantee for any reason ceases to be in
full force and effect or becomes or is declared to be null and void,
unenforceable or invalid or any Subsidiary Guarantor denies its obligations
under its Subsidiary Guarantee.
76
<PAGE>
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Exchange Notes may
by written notice declare all the Exchange Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, all outstanding
Exchange Notes will become immediately due and payable without further action or
notice. Holders may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Exchange Notes may direct the
Trustee in its exercise of any trustee power. The Trustee may withhold from
holders of the Exchange Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding, by written notice to the Trustee, may on behalf of the
holders of all the Exchange Notes (a) waive any existing Default or Event of
Default and its consequences under the Indenture except a continuing Default or
Event of Default in the payment of interest on, or the principal of, the
Exchange Notes, or (b) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default (except nonpayment of principal or interest that has become
due solely because of the acceleration) have been cured or waived.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Subsidiary Guarantor, as such, shall have any
liability for any obligations of the Company or any Subsidiary Guarantor under
the Exchange Notes, the Indenture, the Unit Warrant Agreement, the Registration
Rights Agreement or any Collateral Agreement or for any claim based on, in
respect of, or by reason of, such obligations or their creations. Each holder by
accepting a Exchange Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Exchange Notes. Such
waiver may not be effective to waive certain liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Exchange Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Exchange Notes, except for (i) the rights of holders to receive payments in
respect of the principal of, premium, if any, and interest on the Exchange Notes
when such payments are due, (ii) the Company's obligations with respect to the
Exchange Notes concerning issuing temporary Exchange Notes, registration of
Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Exchange Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders, cash in U.S. dollars, non-callable U.S. government obligations, or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of,
77
<PAGE>
premium, if any, and interest on the Exchange Notes of the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party to or by which the Company or any of its
Subsidiaries is a party or by which it or any of its property or assets is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (vii) the Company shall have delivered to the Trustee an
officer's certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain customary conditions precedent are
satisfied.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company shall have the right to remain in possession and retain exclusive
control of the collateral securing the Exchange Notes (other than as set forth
in the Collateral Agreements), to freely operate the collateral and to collect,
invest and dispose of any income therefrom.
RELEASE OF COLLATERAL. Upon compliance by the Company with the conditions
set forth below in respect of any release of items of collateral, and upon
delivery by the Company to the Collateral Agent of an opinion of counsel to the
effect that such conditions have been met, the Collateral Agent will release the
Released Interests (as hereinafter defined) from the Lien of the Collateral
Agreements and reconvey the Released Interests to the Company.
ASSET SALE RELEASE. The Company has the right to obtain a release of items
of collateral (the "Released Interests") subject to an Asset Sale upon
compliance with the condition that the Company deliver to the Collateral Agent
the following:
(a) A notice from the Company requesting the release of Released
Interests: (i) describing the proposed Released Interests; (ii) specifying
the value of such Released Interests on a date within 60 days of such notice
(the "Valuation Date"); (iii) stating that the purchase price received is at
least equal to the fair market value of the Released Interests; (iv) stating
that the release of such Released Interests would not be expected to
interfere with the Collateral Agent's ability to realize the value of the
remaining collateral and will not impair the maintenance and operation of
the remaining
78
<PAGE>
collateral; and (v) certifying that such Asset Sale complies with the terms
and conditions of the Indenture with respect thereto;
(b) An Officers' Certificate of the Company stating that: (i) such Asset
Sale covers only the Released Interests and complies with the terms and
conditions of the Indenture with respect to Asset Sales; (ii) all Net Cash
Proceeds from the sale of any of the Released Interests will be applied
pursuant to the provisions of the Indenture in respect of Asset Sales; (iii)
there is no Default or Event of Default in effect or continuing on the date
thereof, the Valuation Date or the date of such Asset Sale; (iv) the release
of the collateral will not result in a Default or Event of Default under the
Indenture; and (v) all conditions precedent in the Indenture relating to the
release in question have been or will be complied with; and
(c) The Net Cash Proceeds and other non-cash consideration from the
Asset Sale required to be delivered to the Collateral Agent pursuant to the
Indenture.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Exchange Note
selected for redemption in whole or in part pursuant to the Indenture, except
the unredeemed portion of any Note being redeemed in part. Also, the Company is
not required to transfer or exchange any Exchange Note commencing at the opening
of business 15 days before the day of any selection of Exchange Notes to be
redeemed and ending at the close of business on such day of selection. The
registered holder of a Exchange Note will be treated as the owner of such
Exchange Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the Indenture or the
Exchange Notes may be amended or supplemented with the consent of the holders of
at least a majority in principal amount of the Exchange Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Exchange Notes) and any existing Default or Event of Default or compliance
with any provision of the Indenture or the Exchange Notes may be waived with the
consent of the holders of a majority in principal amount of the then outstanding
Exchange Notes (including consents obtained in connection with a tender offer or
exchange offer for Exchange Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting holder of the
Exchange Notes): (i) reduce the principal amount of Exchange Notes whose holders
must consent to an amendment, supplement or waiver; (ii) reduce the principal
of, or the premium on, or change the fixed maturity of any Exchange Note or
alter the provisions with respect to the redemption of the Exchange Notes or
alter the provisions with respect to repurchases or redemptions of the Exchange
Notes with Net Cash Proceeds from Asset Sales or upon a Change of Control; (iii)
reduce the rate of or change the time for payment of interest, including default
interest, on any Exchange Note; (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on any Exchange Note
(other than a Default in the payment of an amount due as a result of an
acceleration, where such acceleration is rescinded pursuant to the Indenture);
(v) make any Exchange Note payable in money other than that stated in the
Exchange Notes; (vi) make any change in the provisions of the Indenture relating
to waivers of past Defaults or the rights of holders of Exchange Notes to
receive payments of principal of or interest on the Exchange Notes; (vii) waive
a redemption payment with respect to any Exchange Note; or (viii) modify or
change any provision of the Indenture affecting the ranking of the Exchange
Notes in a manner which adversely affects the holders of Exchange Notes.
79
<PAGE>
Notwithstanding the foregoing, without the consent of any holder of the
Exchange Notes, the Company may amend or supplement the Indenture or the
Exchange Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes, to provide for the assumption of the Company's obligations to
holders of the Exchange Notes in the case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the holders
of the Exchange Notes or that does not adversely affect the legal right under
the Indenture of any such holder, or to comply with the requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of the Exchange Notes, unless such holder shall
have offered to the Trustee an indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Discovery Zone, Inc., 565 Taxter Road, Fifth Floor,
Elmsford, New York 10523, Attention: General Counsel.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definitions are provided.
"ACQUIRED DEBT" means, with respect to any specified Person, Indebtedness of
any other Person existing at the time such other Person merged with or into or
became a Subsidiary of such specified Person, excluding Indebtedness incurred in
connection with, or in contemplation of, such other Person merging with or into
or becoming a Subsidiary of such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any specified Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management of policies of such specified Person,
whether through the ownership of voting securities, by agreement or otherwise;
PROVIDED, HOWEVER, that beneficial ownership of 10% or more of the aggregate
voting power of the voting securities of a Person shall be deemed to be control.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by
80
<PAGE>
the Company or any of its Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Wholly-Owned Subsidiary
of the Company of (a) any Capital Stock of any Subsidiary of the Company; or (b)
any other property or assets of the Company or any Subsidiary of the Company
other than in the ordinary course of business; PROVIDED, HOWEVER, that Asset
Sales shall not include (i) a transaction or series of related transactions for
which the Company or its Subsidiaries receive aggregate consideration of less
than $500,000 and (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "Merger, Consolidation or Sale of Assets."
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"BLOCK PARTY" means a Subsidiary of the Company to be formed prior to the
Effective Date that will be the owner of certain family entertainment centers.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
delivered to the Trustee and certified by the secretary or an assistant
secretary of such Person to have been duly adopted by the Board of Directors of
such Person and to be in full force and effect on the date of such
certification.
"CAPITAL LEASE OBLIGATION" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP and, for purposes of this definition, the
amount of such obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and any and all warrants, options and rights with respect
thereto, including, without limitation, each class of common stock and preferred
stock, partnership interests and other indicia of ownership of such Person.
"CASH EQUIVALENTS" means: (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America; (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof; (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof;
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii); (v) money market accounts with any bank having capital surplus and
undivided profits aggregating at least $500 million; (vi) readily marketable
direct obligations issued by any state of the United States of America or any
political subdivision thereof having one of the two highest rating categories
obtainable from either Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group; and (vii) money market funds investing only in U.S. Government
Obligations.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(i) the Permitted Holder ceases to be the direct or indirect beneficial
owner (as defined below) of Voting Stock of the Company representing an
amount of such Voting Stock greater than the amount beneficially owned by
any other Person or Group (as defined below);
(ii) the Permitted Holder ceases to be the direct or indirect beneficial
owner of interests or participations in, or measured by the profits of, the
Company representing an amount of such interests or participations greater
than the amount beneficially owned by any other Person or Group;
81
<PAGE>
(iii) any sale, lease, exchange or other transfer (in one transaction or
in a series of related transactions) of all or substantially all of the
assets of the Company to any Person or Group, together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) that is not beneficially owned or controlled, directly or
indirectly, by the Permitted Holder; or
(iv) the Permitted Holder ceases to have the right or ability, by voting
power, control, contract or otherwise, to control a majority of the Board of
Directors of the Company.
The terms "beneficially own," "beneficial owner" and "Group" shall have the
meanings ascribed to such terms in Sections 13(d) and 14(d) of the Exchange Act;
PROVIDED, HOWEVER, that, for the purposes of this definition of "Change of
Control" only, any Person or Group other than the Permitted Holder shall be
deemed to be the current beneficial owner of any shares of Voting Stock of the
Company, or any interests or participations in, or measured by the profits of,
the Company, that are issuable upon the exercise of any option, warrant or
similar right, or upon the conversion of any convertible security, in either
case owned by such Person or Group without regard to whether such option,
warrant or convertible security is currently exercisable or convertible or will
become convertible or exercisable within 60 days if the exercise or conversion
price thereof at the time of grant was lower than the fair market value of the
underlying security at the time of grant.
"COLLATERAL" shall have the meaning assigned to such term in the Security
Agreement.
"COLLATERAL AGENT" shall have the meaning assigned to such term in the
Security Agreement.
"COLLATERAL AGREEMENTS" means, collectively, the Escrow Agreement, the
Pledge Agreement, the Subsidiary Pledge Agreements, the Security Agreement, the
Subsidiary Security Agreements, the Trademark Assignment, in each case, as the
same may be in force from time to time.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (without
duplication) (a) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing Consolidated Net Income), (b) provision for taxes based on
income or profits to the extent such provision for taxes was included in
computing Consolidated Net Income, (c) consolidated interest expense of such
Person for such period, whether paid or accrued (including deferred financing
costs, non-cash interest payments and the interest component of capital lease
obligations), to the extent such expense was deducted in computing Consolidated
Net Income, (d) accretion of deferred rent expense under the McDonald's Rent
Deferral Secured Notes, to the extent such expense was deducted in computing
Consolidated Net Income, and (e) depreciation and amortization (including
amortization of goodwill and other intangibles) for such period to the extent
such depreciation or amortization were deducted in computing Consolidated Net
Income, in each case, on a consolidated basis and determined in accordance with
GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that: (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent Person
or a Wholly-Owned Subsidiary thereof; (ii) the Net Income of any Person that is
a Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock
having ordinary voting power for the election of directors or other governing
body of such Subsidiary is owned by the referent Person directly or indirectly
through one or more Subsidiaries) shall be included
82
<PAGE>
only to the extent of the amount of dividends or distributions paid to the
referent Person or a Wholly-Owned Subsidiary thereof; (iii) for the purpose of
determining whether the Company may make a Restricted Payment under clause (c)
of the "Restricted Payments" covenant only, the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the sum of (i)
the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (a) any cash received by such Person upon issuance of such preferred
stock and (b) the fair market value of any non-cash consideration received by
such Person upon issuance of such preferred stock PROVIDED that such value has
been determined in good faith by a nationally recognized investment bank, less
(x) all write-ups, subsequent to the date of the Indenture, in the book value of
assets owned by such Person or a consolidated Subsidiary of such Person, other
than (a) write-ups resulting from foreign currency translations and (b)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except such amounts arising
from the issuance of the Exchange Notes), all of the foregoing determined in
accordance with GAAP.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"DEFAULT" means any event known to the Company or which should have been
known to the Company after due inquiry that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.
"DEPOSITORY" means The Depository Trust Company (or DTC), its nominees and
successors.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"ELIGIBLE CREDIT FACILITY" means a credit facility (and any permitted
refinancing or replacement thereof) between the Company and a Lender, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time as permitted herein,
which credit facility (and any permitted refinancing or replacement thereof) (i)
has terms and conditions (including with respect to applicable interest rates
and fees) customary for similar facilities extended to borrowers comparable to
the Company, (ii) does not permit the Company to incur Indebtedness thereunder
at any time outstanding in excess of $10.0 million in principal amount, and
(iii) may be secured by certain assets of the Company, subject to the terms and
conditions of an Intercreditor Agreement.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"ESCROW AGREEMENT" means the Escrow and Security Agreement, dated as of even
date herewith, between the Company and the Trustee, substantially in the form
attached to the Indenture, as amended and supplemented from time to time in
accordance with its terms.
83
<PAGE>
"ESCROW FUNDS" means approximately $21.4 million of net proceeds from the
sale of Private Notes deposited in the Escrowed Interest Account pursuant to the
terms of the Escrow Agreement to, among other things, pay interest on the
Exchange Notes that accrues and is unpaid from the Issue Date through and
including the Interest Payment Date on August 1, 1999.
"ESCROWED INTEREST ACCOUNT" means one or more accounts established with the
Trustee pursuant to the terms of the Escrow Agreement for the deposit of the
Escrow Funds and the Pledged Securities.
"EXCHANGE OFFER" means the offer that may be made by the Company, pursuant
to the Registration Rights Agreement, to exchange for any and all of the Private
Notes a like aggregate principal amount of Exchange Notes.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems Preferred Stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the event for which the calculation of the Fixed Charge Coverage Ratio is
made, then the Fixed Charge Coverage Ratio (both the numerator and the
denominator therein) shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance or redemption of Preferred Stock, as if the same
had occurred at the beginning of the applicable period; PROVIDED that pro forma
effect shall be given to repayments, repurchases or redemptions of Indebtedness
or Preferred Stock only to the extent such Indebtedness or Preferred Stock is
permanently retired (and, in the case of the Exchange Notes, surrendered to the
Trustee for cancellation). For purposes of making the computation referred to
above, in the event that acquisitions, divestitures, mergers or consolidations
have been made by the Company or any of its Subsidiaries subsequent to the
commencement of the four-quarter period over which the Fixed Charge Coverage
Ratio is being calculated, but prior to the event for which the calculation of
the Fixed Charge Ratio is being made, then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such acquisitions, divestitures,
mergers and consolidations as if such transactions had occurred at the beginning
of the applicable period.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) consolidated interest expense of such Person for such period, whether paid
or accrued, to the extent such expense was deducted in computing Consolidated
Net Income (including amortization of non-cash interest payments and the
interest component of capital leases but excluding amortization of deferred
financing fees) and (b) the product of (i) all dividend payments, whether paid
in cash, assets, securities or otherwise, in the case of a Person that is a
Subsidiary of the Company, on any series of preferred stock of such Person, and
all dividend payments in respect of any series of preferred stock of the
Company, whether paid in cash, assets, securities or otherwise (other than
dividends payable in additional shares of the preferred stock on which such
dividends are paid), times (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture.
"HOLDER" OR "HOLDER" means the Person in whose name a Exchange Note is
registered on the Registrar's books.
84
<PAGE>
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases) or representing any Interest Swap Obligations, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing Indebtedness (other than Interest Swap Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, and also includes, to the extent not otherwise included,
the guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, by such
Person in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any of the
items which would be included within this definition.
"INDEPENDENT FINANCIAL ADVISOR" means an investment banking firm (i) which
does not, and whose directors, officers and employees or Affiliates do not, have
a direct or indirect financial interest in the Company or any of its
Subsidiaries and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"INTERCREDITOR AGREEMENT" means an agreement between the Trustee and a
Lender, substantially in the form attached to the Indenture, to be entered into
after the Issue Date, if the Company and such Lender enter into an Eligible
Credit Facility.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreement.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of loans (including
direct or indirect guarantees), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities and all other items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"ISSUE DATE" means the date of original issuance of the Private Notes under
the Indenture.
"LENDER" means a Person that is not an Affiliate of the Company and is a
lender in an Eligible Credit Facility.
"LIEN" means, with respect to any asset, mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction, excluding true
lease and consignment filings).
"LIMITED INVESTMENT SUBSIDIARY" means, with respect to the Company or any
Subsidiary of the Company, any corporation, partnership, joint venture,
association or other business entity in which the Company or any Subsidiary of
the Company (i) has at any time made an Investment permitted by clause (viii) of
the definition of Permitted Investment and (ii) has not at any time made any
other Investment.
"MATURITY DATE" means August 1, 2002.
85
<PAGE>
"MORTGAGES" means the mortgages, deeds of trust, deeds to secure debt or
other similar documents securing liens on the Premises and/or the Leased
Premises, as well as the other collateral secured by and described in the
mortgages, deeds of trust, deeds to secure debt or other similar documents.
"NET CASH PROCEEDS" means, with the respect to any Asset Sale, the proceeds
in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale and (d)
appropriate amounts to be provided by the Company or any Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provisions for taxes on such extraordinary gain (but not loss).
"OBLIGATIONS" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFICER" means, with respect to any Person, the chief executive officer,
the president, any vice president, the chief financial officer, the treasurer,
the controller, or the secretary of such Person, or any other officer designated
by the Board of Directors to serve in a similar capacity.
"PERMITTED HOLDER" means Birch Acquisition L.L.C. so long as such entity is
directly or indirectly controlled by Martin S. Davis or, in the event of his
death, by Greg S. Feldman.
"PERMITTED INDEBTEDNESS" means each of the following:
(a) Indebtedness incurred by the Company or its Subsidiaries in
connection with or arising out of Sale and Leaseback Transactions, Capital
Lease Obligations or Purchase Money Obligations; PROVIDED that the aggregate
principal amount at any one time outstanding of all such Sale and Leaseback
Transactions, Capital Lease Obligations and Purchase Money Obligations does
not exceed $5 million;
(b) Indebtedness of the Company represented by the Notes (whether
incurred on the Issue Date or in connection with the Exchange Offer);
(c) Indebtedness owed by the Company to any of its Wholly-Owned
Subsidiaries for so long as such Indebtedness is held by a Wholly-Owned
Subsidiary of the Company, in each case subject to no Lien; PROVIDED that
(i) any such Indebtedness of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under the
Indenture and the Exchange Notes and (ii) if as of any date any Person other
than a Wholly-Owned Subsidiary of the Company owns or holds any such
Indebtedness or any such Person holds a Lien in respect of such
Indebtedness, such date shall be deemed the date of incurrence of
Indebtedness not constituting Permitted Indebtedness of the Company;
(d) Indebtedness of a Wholly-Owned Subsidiary of the Company to the
Company or to a Wholly-Owned Subsidiary of the Company for so long as such
Indebtedness is held by the Company
86
<PAGE>
or a Wholly-Owned Subsidiary of the Company and, if such Indebtedness from
the Company to any Subsidiary exceeds $500,000 in aggregate principal
amount, evidenced by a written promissory note or other instrument in form
and substance reasonably satisfactory to the Trustee, in each case subject
to no Lien held by a Person other than the Company or a Wholly-Owned
Subsidiary of the Company; PROVIDED that if, as of any date any Person other
than the Company or a Wholly-Owned Subsidiary of the Company owns or holds
such Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the date of incurrence of Indebtedness not constituting
Permitted Indebtedness by the issuer of such Indebtedness;
(e) the incurrence by the Company and its Subsidiaries of Indebtedness
issued in exchange for, or the proceeds of which are contemporaneously used
to extend, refinance, renew, replace, or refund (collectively, "Refinance")
Permitted Indebtedness referred to in clauses (a), (b) and (c) above and
outstanding Indebtedness incurred in accordance with the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant (other than pursuant
to this definition of Permitted Indebtedness except to the extent provided
in clauses (a), (b) and (c) thereof) (the "Refinancing Indebtedness");
PROVIDED, HOWEVER, that (i) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of Indebtedness so
refinanced (plus the amount of reasonable expenses incurred in connection
therewith); (ii) the Refinancing Indebtedness shall rank in right of payment
no more senior (and at least as subordinated) to the Notes than did the
Indebtedness being refinanced; (iii) if the Indebtedness being refinanced is
Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company; (iv) such Refinancing Indebtedness shall
have a Weighted Average Life longer, and a stated maturity which is later
than, that of the Indebtedness being refinanced; and (v) the Indebtedness so
refinanced is permanently retired (and, in case of the Notes, surrendered to
the Trustee for cancellation);
(f) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Subsidiaries and Interest Swap Obligations of any
Subsidiary covering Indebtedness of such Subsidiary; PROVIDED, HOWEVER, that
such Interest Swap Obligations are entered into to protect the Company and
its Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(g) Indebtedness of the Company outstanding on the Issue Date pursuant
to the McDonald's Note, the McDonald's Rent Deferral Secured Notes
(including Indebtedness resulting from future rent deferrals to the extent
and in the manner contemplated by the McDonald's Rent Deferral Secured Notes
as in effect on the Issue Date) and the Pre-petition Tax Payables, as
reduced by the amount of any prepayments permitted by the Indenture or
scheduled amortization payments when actually paid or by any permanent
reductions thereof; and
(h) other Indebtedness of the Company in an aggregate amount not to
exceed $10 million at any one time outstanding, which Indebtedness may
include Indebtedness evidenced by an Eligible Credit Facility.
"PERMITTED INVESTMENTS" means: (i) Investments by the Company or any of its
Subsidiaries in any Person that is or will become immediately after such
Investment a Wholly-Owned Subsidiary of the Company or that will merge or
consolidate into the Company or a Wholly-Owned Subsidiary of the Company, (ii)
Investments in the Company by any Subsidiary of the Company; PROVIDED that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Exchange Notes
and the Indenture; (iii) investments in cash and Cash Equivalents; (iv) Interest
Swap Obligations entered into in the ordinary course of the Company's or its
Subsidiaries' businesses and otherwise in compliance with the Indenture; (v)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon
87
<PAGE>
the bankruptcy or insolvency of such trade creditors or customers solely in
exchange for a claim against any such trade creditor or customer; (vi)
Investments in the Exchange Notes; (vii) Investments made by the Company or its
Subsidiaries as a result of an Asset Sale made in compliance with the "Asset
Sales" covenant; and (viii) other Investments in joint ventures, corporations,
limited liability companies or partnerships formed by the Company, which joint
ventures, corporations, limited liability companies or partnerships engage in
businesses which are the same as, or similar or related to, the business of the
Company as contemplated by this Prospectus; PROVIDED, HOWEVER, that the amount
which may be invested pursuant to this clause (viii) shall not exceed, in the
twelve-month period commencing on the Issue Date, $500,000 and in any successive
twelve-month period commencing on the Issue Date thereafter, $500,000 plus any
cumulative, unutilized portion of such amounts which could have been invested
pursuant to this clause (viii) during any of the prior twelve-month periods.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company or
any of its Subsidiaries;
(vi) any interest or title of a lessor under any Capital Lease
Obligation; PROVIDED that such Liens do not extend to any property or assets
which are not leased property subject to such Capital Lease Obligation;
(vii) Purchase Money Liens of the Company or any Subsidiary of the
Company acquired in the ordinary course of business; PROVIDED, HOWEVER, that
(A) the related Purchase Money Obligation shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of the
Company or any Subsidiary of the Company other than the property and assets
so acquired and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumbered documents and other property relating to
such letters of credit and products and proceeds thereof;
(ix) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
88
<PAGE>
(x) Liens securing Interest Swap Obligations, which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xi) Liens securing Acquired Debt incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; PROVIDED
that (A) such Liens secured such Acquired Debt at the time of and prior to
the incurrence of such Acquired Debt by the Company or a Subsidiary of the
Company and were not granted in connection with, or in anticipation of, the
incurrence of such Indebtedness by the Company or a Subsidiary of the
Company and (B) such Liens do not extend to or cover any property or assets
of the Company or of any of its Subsidiaries other than the property or
assets that secured the Acquired Debt prior to the time such Indebtedness
became Acquired Debt of the Company or a Subsidiary of the Company and are
no more favorable to the lienholders than those securing the Acquired Debt
prior to the incurrence of such Acquired Debt by the Company or a Subsidiary
of the Company;
(xii) Liens existing on the Issue Date but only to the extent such Liens
are in effect on the Issue Date;
(xiii) Liens securing Indebtedness of the Company under an Eligible Credit
Facility;
(xiv) Liens in favor of the Company or a Wholly-Owned Subsidiary of the
Company on assets of any Subsidiary of the Company; and
(xv) Liens securing Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien permitted under
the Indenture and which has been incurred in accordance with the provisions
of the Indenture; PROVIDED, HOWEVER, that such Liens (a) are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness being
refinanced and (b) do not extend to or cover any property or assets of the
Company or any of its Subsidiaries not securing the Indebtedness so
refinanced.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLAN OF REORGANIZATION" or "PLAN" means the Third Amended Joint Plan of
Reorganization of Discovery Zone, Inc., dated March 11, 1997, as amended.
"PLEDGE AGREEMENT" means the Pledge Agreement, dated as of even date
herewith, between the Company and the Trustee, substantially in the form
attached to the Indenture, as amended or supplemented from time to time in
accordance with its terms.
"PLEDGED COLLATERAL" shall have the meaning assigned to such term in the
Pledge Agreement.
"PLEDGED SECURITIES" means the U.S. Government Obligations to be purchased
by the Company and held in the Escrowed Interest Account in accordance with the
Escrow Agreement.
"PLEDGED SUBSIDIARY COLLATERAL" shall have the meaning ascribed to such term
in the Subsidiary Pledge Agreements.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock of
such Person or its Subsidiaries in respect of which a holder thereof is entitled
to receive payment upon dissolution or otherwise before any payment may be made
with respect to any other Capital Stock of such Person or its Subsidiaries.
"PRIMARY OFFERING" means an underwritten public offering of Qualified
Capital Stock of the Company pursuant to a registration statement filed with and
declared effective by the Commission pursuant to the Securities Act (other than
a registration statement on Form S-8 or otherwise relating to equity securities
89
<PAGE>
under any employee benefit plans) or pursuant to an exemption from the
registration requirements thereof.
"PURCHASE AGREEMENT" means the Purchase Agreement relating to the purchase
and sale of the Private Notes, entered into among the Company and the Initial
Purchaser.
"PURCHASE MONEY LIENS" means (i) Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture and (ii) Liens to
secure Refinancing Indebtedness incurred solely to refinance Purchase Money
Obligations, PROVIDED that such Refinancing Indebtedness is incurred no later
than six (6) months after the satisfaction of such Purchase Money Obligations
and such Lien extends to or covers only the asset or property securing the
Purchase Money Obligations being refinanced.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or incurred to
finance, the cost of acquiring any assets (including Purchase Money Obligations
of any other Person at the time such other Person is merged with or into or is
otherwise acquired by the Company or any of its Wholly-Owned Subsidiaries);
PROVIDED that (i) the principal amount of such Indebtedness does not exceed 100%
of such cost, (ii) any Lien securing such Indebtedness does not extend to or
cover any other asset or property other than the asset or property being so
acquired and (iii) such Indebtedness is incurred, and any Liens with respect
thereto are granted, within 90 days of the acquisition of such property or
asset.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the meaning specified in
Rule 144A under the Securities Act.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of even date herewith, between the Company and the Initial Purchaser,
as the same may be amended or modified from time to time in accordance with the
terms thereof.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RULE 144A" means Rule 144A under the Securities Act.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party providing for the leasing
to the Company or a Subsidiary of the Company of any property, whether owned by
the Company or any Subsidiary of the Company at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement, dated as of even date
herewith, between the Company and the Trustee, as amended or supplemented from
time to time in accordance with its terms, substantially in the form attached to
the Indenture.
"SECURITY INTERESTS" means the Liens on the Collateral created by the
Indenture and the Collateral Agreements in favor of the Collateral Agent for the
benefit of the Collateral Agent and the Holders.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a "significant
subsidiary" as defined in Article One, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of
90
<PAGE>
that Person or a combination thereof; PROVIDED, HOWEVER, that the term
Subsidiary shall not include Block Party or any Limited Investment Subsidiary.
"SUBSIDIARY COLLATERAL" shall have the meaning assigned to such term in the
Subsidiary Security Agreements.
"SUBSIDIARY GUARANTEES" means, individually, the guarantee and,
collectively, the guarantees given by the Subsidiary Guarantors pursuant hereto
or pursuant to supplemental indentures executed by Subsidiaries formed after the
Issue Date pursuant to which such Subsidiaries agree to be bound by the terms of
the Indenture.
"SUBSIDIARY GUARANTOR" means each of Discovery Zone Limited, Discovery Zone
(Puerto Rico), Inc. and all future Subsidiaries of the Company other than (a)
any Limited Investment Subsidiary or (b) Block Party.
"SUBSIDIARY PLEDGE AGREEMENTS" means the Subsidiary Pledge Agreements to be
entered into between the Subsidiary Guarantors and the Trustee, substantially in
the form attached to the Indenture, as amended or supplemented from time to time
in accordance with its terms.
"SUBSIDIARY SECURITY AGREEMENTS" means, individually, the subsidiary
security agreement and, collectively, the subsidiary security agreements
executed by each Subsidiary Guarantor in favor of the Trustee on the Issue Date
and after the Issue Date in accordance with the Indenture, pursuant to which
such Subsidiary Guarantor grants a security interest in and lien on its
properties and assets as collateral security for the debts, liabilities and
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee, as the
same may be amended or modified from time to time in accordance with its terms.
"TRADEMARK ASSIGNMENT" means the Collateral Assignment of Trademarks
(Security Agreement), dated as of even date herewith, by the Company in favor of
the Trustee, substantially in the form attached to the Indenture, as amended and
supplemented from time to time in accordance with its terms.
"TRUST OFFICER" means any officer of the Trustee assigned by the Trustee to
administer the Indenture, or in the case of a successor trustee, an officer
assigned to the department, division or group performing the corporation trust
work of such successor and assigned to administer the Indenture.
"UNIT WARRANT AGREEMENT" means the Unit Warrant Agreement, dated as of even
date herewith, between the Company and the Trustee, as Warrant Agent, pursuant
to which the Unit Warrants are issued, as amended and supplemented from time to
time in accordance with its terms.
"UNIT WARRANTS" means the warrants to purchase shares of the Company's
common stock, par value $0.01 per share, issued by the Company contemporaneously
with the Private Notes pursuant to the terms and conditions of the Unit Warrant
Agreement.
"U.S. GOVERNMENT OBLIGATIONS" means non-callable direct obligations of, and
non-callable obligations guaranteed by, the United States of America for the
payment of which the full faith and credit of the United States of America is
pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"VOTING STOCK" means, with respect to any Person, one or more classes of the
Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"WEIGHTED AVERAGE LIFE" means, as of the date of determination, with respect
to any Indebtedness, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of
91
<PAGE>
determination to the date of each successive scheduled principal payment of such
Indebtedness multiplied by the amount of such principal payment by (ii) the sum
of all such principal payments.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any Subsidiary
of such Person of which all the voting Capital Stock (other than directors'
qualifying shares) is owned by such Person or any Wholly-Owned Subsidiary of
such Person.
SAME-DAY SETTLEMENT AND PAYMENT
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Exchange
Notes are expected to be eligible to trade in the Depository's Same-Day Funds
Settlement System, and any permitted secondary market trading activity in the
Exchange Notes will therefore be required by the Depository to be settled in
immediately available funds. No assurance can be given as to the effect, if any,
of such settlement arrangements on trading activity in the Exchange Notes.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company agreed, for the
benefit of the Holders, that it would use its best efforts, at its cost, to
consummate this Exchange Offer. In satisfaction of this obligation, the Company
is hereby offering the Exchange Notes in return for surrender of the Private
Notes. It is intended by the Company that the Exchange Offer will satisfy these
registration rights, which will terminate upon the consummation of the Exchange
Offer. For each Private Note surrendered to the Company pursuant to the Exchange
Offer, the Holder will receive a Exchange Note of equal principal amount at
maturity. Interest on each Exchange Note shall be calculated and paid in the
same manner as interest on the Private Notes so surrendered and exchanged
therefor.
BOOK-ENTRY DELIVERY AND FORM
Exchange Notes issued in exchange for the Private Notes currently
represented by one or more fully registered global notes will be represented by
one or more fully registered global notes (collectively, the "New Global Note"),
and will be deposited upon issuance with the Depository or an agent of the
Depository and registered in the name of the Depository or a nominee of the
Depository (the "New Global Note Registered Owner"). Except as set forth below,
the New Global Note may be transferred, in whole and not in part, only to
another nominee of the Depository or to a successor of the Depository or its
nominee.
As described below under "-- Certificated Exchange Notes," owners of
beneficial interests in a New Global Note may receive physical deliver of
certificated Exchange Notes only in the limited circumstances described therein.
The Exchange Notes are not issuable in bearer form.
The Depository has advised the Company that the Depository is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in the accounts of its Participants. The
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants or Indirect
Participants may beneficially own securities held by or on behalf of the
Depository only through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of such persons held by
or on behalf of the Depository are recorded on the records of the Participants
and Indirect Participants.
92
<PAGE>
The Depository has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the New Global Note, the Depository will
credit the accounts of its Participants with portions of the principal amount of
the New Global Note representing the Exchange Notes issued in exchange for the
Private Notes that each such Participant has instructed the Depository to
surrender for exchange and (ii) ownership of such interests in the New Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depository (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the New Global Note).
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Exchange Notes, including the New Global Note, are
registered as the owners thereof for the purpose of receiving payments in
respect of the principal of and premium, if any, and interest on any Exchange
Notes and for any and all other purposes whatsoever. Payments on any Exchange
Notes registered in the name of the New Global Note Registered Owner will be
payable by the Trustee to the New Global Note Registered Owner in its capacity
as the registered holder under the Indenture. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of the Depository's records or
the records of any Participant or Indirect Participant relating to or payments
made on account of beneficial ownership interests in the New Global Note, or for
maintaining, supervising or reviewing any of the Depository's records or records
of any Participant or Indirect Participant relating to the beneficial ownership
interests in the New Global Note or (ii) any other matter relating to the
actions and practices of the Depository or any of its Participants or Indirect
Participants. The Depository has advised the Company that its current practice,
upon receipt of any payment in respect of securities such as the Exchange Notes
(including principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security as shown on the records of the Depository unless the
Depository has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of the Depository,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by the Depository or any of its Participants or Indirect
Participants in identifying the beneficial owners of the Exchange Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from the New Global Note Registered Owner for all
purposes.
CERTIFICATED EXCHANGE NOTES
If (i) the Company notifies the Trustee in writing that the DTC is no longer
willing or able to act as a depository and the Company does not appoint a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Exchange Notes in
definitive form under the Indenture, then, upon surrender by the relevant New
Global Registered Owner of its New Global Note, Certificated Exchange Notes in
such form will be issued to each person that such New Global Registered Owner
and the DTC identify as the beneficial owner of the related Notes. In addition,
subject to certain conditions, any person having a beneficial interest in the
New Global Note may, upon request to the Trustee, exchange such beneficial
interest for Exchange Notes in the form of Certificated Exchange Notes. Upon any
such issuance, the Trustee is required to register such Certificated Exchange
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof) in fully registered form.
None of the Company nor Trustee shall be liable for any delay by the related
New Global Registered Owner or the DTC in identifying the beneficial owners of
the related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from such New Global Registered
Owner or of the DTC for all purposes (including with respect to the registration
and delivery, and the principal amount of the Exchange Notes to be issued).
93
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's amended and restated Certificate of Incorporation and By-laws
authorize capital stock consisting of 10,000,000 shares of Common Stock, par
value $.01 per share, and 4,000,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"). The following summaries of certain provisions
of the Common Stock, Preferred Stock and warrants exercisable into shares of
Common Stock do not purport to be complete and are subject to, and qualified by,
the provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and By-laws, and to the
applicable provisions of the General Corporation Law of the State of Delaware
(the "DGCL").
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of Directors as
shares of one or more classes or series. Subject to the provisions of the
Certificate of Incorporation and certain limitations prescribed by the DGCL, the
Board of Directors is expressly authorized to adopt resolutions to fix the
voting rights, if any, designations, powers, preferences and the relative,
participation, optional or other rights, if any, and the qualifications,
limitations or restrictions of any unissued series of Preferred Stock, to fix
the number of shares constituting such series, and to increase or decrease the
number of shares of any such series (but not below the number of shares thereof
then outstanding), in each case without any further action or vote by the
stockholders. Although the Company has no present plans to issue any shares of
Preferred Stock, the issuance of shares of Preferred Stock, or the issuance of
rights to purchase such shares could have the effect of delaying, deferring or
preventing a change of control of the Company or an unsolicited acquisition
proposal.
CONVERTIBLE PREFERRED STOCK
The Company issued an aggregate of 1,000 shares of Series A Convertible
Redeemable Preferred Stock (the "Convertible Preferred Stock").
CONVERSION
The Convertible Preferred Stock shall be convertible into 1,191,626 shares
of Common Stock at any time at the option of the holders of Convertible
Preferred Stock, subject to adjustment under certain circumstances.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution, or winding-up of the Company, the holders
of Convertible Preferred Stock, before any distribution to the holders of
securities junior in right of payment to the Convertible Preferred Stock, are
entitled to be paid out of the assets of the Company available for distribution
to its stockholders an amount equal to the aggregate stated value of shares of
Convertible Preferred Stock then outstanding (the "Liquidation Preference"),
based on an aggregate initial stated value of $15.0 million. If the assets of
the Company available for distribution to the holders of Convertible Preferred
Stock are holders of outstanding shares of Convertible Preferred Stock, then the
holders of Convertible Preferred Stock shall share ratably in such distribution
of assets.
DIVIDENDS
The holders of Convertible Preferred Stock are not entitled to any dividends
or other distributions payable in respect of the shares of Convertible Preferred
Stock. No dividends or distributions shall be made by the Company on the Common
Stock or other securities junior in right of payment to the Convertible
Preferred Stock without the written consent of all of the holders of Convertible
Preferred
94
<PAGE>
Stock, and then only if holders of Convertible Preferred Stock receive a pro
rata share of any and all such dividends or distributions as if such shares of
Convertible Preferred Stock had been fully converted into shares of Common
Stock.
REDEMPTION OPTION
The Convertible Preferred Stock is redeemable at the option of the holders
thereof: (i) upon the earlier to occur of a merger, sale of substantially all of
the assets or Common Stock of the Company or other Change of Control; or (ii)
upon 180 days' prior written notice (the "Redemption Notice") from any holder of
Convertible Preferred Stock at any time 62 months after the offering of the
Private Notes, in each case, at a price equal to the greater of (A) an amount
equal to the Liquidation Preference; and (B) if there is no established market
for the Common Stock on a national securities exchange or other nationally
recognized automated quotation system, the fully converted value of the
Convertible Preferred Stock based on the appraised value of the Company as
determined by a qualified independent appraiser (selected by the Company and
acceptable to the holders of Convertible Preferred Stock) as of the date that is
90 days after the date of delivery of the Redemption Notice and assuming that
the Company had consummated an initial public offering of Common Stock in which
Wafra had participated on the date of such Redemption Notice.
VOTING RIGHTS AND BOARD REPRESENTATION
Holders of Convertible Preferred Stock have voting rights with respect to
any and all matters presented to the Company's stockholders for their action or
consideration commensurate with the percentage of Common Stock into which such
shares of Convertible Preferred Stock are convertible, as if such shares of
Convertible Preferred Stock had been fully converted. Holders of the Convertible
Preferred Stock will vote together with holders of Common Stock as a single
class. In addition, pursuant to the terms of an agreement between the Company,
Birch and Wafra, the holders of Convertible Preferred Stock have the right to
nominate to the Board, and the Company and Birch shall take all action within
their respective powers, including (with respect to Birch), but not limited to,
the voting of all shares of Common Stock then held by Birch and entitled to
vote, required to cause the Board to consist of, such number of directors as
shall constitute the nearest whole number equal to the quotient obtained by
dividing (x) the number of shares of Common Stock beneficially owned by the
holders of the Convertible Preferred Stock by (y) the number of shares of Common
Stock then outstanding on a fully diluted basis (without giving effect to the
exercise of any options granted pursuant to the Stock Incentive Plan), but, in
any event, not less than one director for so long as the holders of the
Convertible Preferred Stock shall beneficially own at least 5% of the then
outstanding shares of Common Stock on a fully diluted basis (without giving
effect to the exercise of any options granted pursuant to the Stock Incentive
Plan).
OTHER RIGHTS
Holders of Convertible Preferred Stock are entitled to certain additional
rights, in each case as set forth in and subject to the certificate of
designations (the "Certificate of Designations") governing the powers,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions relating to the Convertible
Preferred Stock, including, but not limited to, the following: (i) the right to
approve Company transactions with affiliates of the Company; (ii) standard
anti-dilution protection upon the occurrence of certain events; (iii) preemptive
rights; (iv) the right to one demand that the Company register the Common Stock
issuable upon conversion of the Convertible Preferred Stock and use its best
efforts to cause a registration statement with respect thereto to become
effective; provided, further, that, if less than all the shares of such Common
Stock are sold in such offering, the holders of Convertible Preferred Stock
shall be entitled to one additional demand to register all of the remaining
shares of such Common Stock (unless such shares of Common Stock represent less
than 5% of the fully diluted number of shares of such Common Stock, in which
case the Company may elect to effect a shelf
95
<PAGE>
registration statement (which will remain effective for one year) in lieu of
such additional demand registration); and (v) all other applicable rights
granted to the holders of Unit Warrants and the Ten Year Warrants.
COMMON STOCK
There are approximately 1,000 holders of the 4,000,000 shares of Common
Stock outstanding. In addition, the Company has reserved (i) 715,692 shares of
Common Stock for issuance under the Stock Incentive Plan, (ii) 805,154 shares of
Common Stock for issuance upon exercise of the Warrant Shares, (iii) 444,444
shares of Common Stock for issuance upon exercise of the Ten Year Warrants and
(iv) 1,191,626 shares of Common Stock for issuance upon conversion of the
Convertible Preferred Stock. The holders of the Common Stock are entitled to one
vote for each share of Common Stock on all matters voted upon by stockholders,
including the election of directors. Subject to the rights of holders of any
then outstanding shares of Preferred Stock, holders of the Common Stock are
entitled to such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. The Company currently does
not pay any dividends on the Common Stock. Holders of the Common Stock are
entitled to share ratably in the net assets of the Company upon liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any shares of Preferred Stock then outstanding. The Common Stock has
no preemptive rights to purchase shares of capital stock of the Company, is not
subject to any redemption provisions and is not convertible into any other
securities of the Company. All outstanding shares of Common Stock are fully paid
and nonassessable. The Common Stock does not trade on any established public
trading market.
WARRANTS
GENERAL
In connection with the Plan of Reorganization, the Company issued
approximately 444,444 units, each consisting of nine shares of Common Stock and
one Ten Year Warrant, entitling the holder thereof to purchase one share of
Common Stock at an Exercise Price of $17.55. The Ten Year Warrants expire on
July 29, 2007. The Ten Year Warrants were issued in registered form pursuant to
a warrant agreement, as amended (the "Ten Year Warrant Agreement"), dated as of
the Effective Date, between the Company and the warrant agent named therein (the
"Warrant Agent"). In addition, the Company issued to purchasers approximately
85,000 units, each consisting of $1,000 principal amount of Private Notes and
one warrant (the "Unit Warrants" and, together with the Ten Year Warrants, the
"Warrants") to purchase 9.4724 shares of Common Stock. The Unit Warrants were
issued in registered form pursuant to a warrant agreement dated as of the July
22, 1997 (the "Unit Warrant Agreement" and together with the Ten Year Warrant
Agreement, the "Warrant Agreements"), between the Company and the Warrant Agent.
The following summary of certain provisions of the Warrant Agreements do not
purport to be complete and is qualified in its entirety by reference to the
Warrant Agreements including the definitions therein of certain terms.
The Warrants may be exercised by surrendering to the Warrant Agent the
definitive Warrant certificates evidencing such Warrants (or, if the Warrant
certificate has not been issued in respect of such Warrant, the related Note, if
applicable), with the accompanying form of election to purchase properly
completed and executed, together with payment of the Exercise Price. Payment of
the Exercise Price may be made in the form of cash or by certified or official
bank check payable to the order of the Company. Upon surrender of the Warrant
certificate (or Note, as the case may be) and payment of the Exercise Price, the
Warrant Agent will deliver or cause to be delivered to or upon the written order
of such holder, stock certificates representing the number of whole shares of
Common Stock or other securities or property to which such holder is entitled.
If less than all of the Warrants evidenced by a Warrant certificate are to be
exercised, a new Warrant certificate will be issued for the remaining number of
Warrants.
96
<PAGE>
No fractional shares of Common Stock will be issued upon exercise of the
Warrants. The Company shall pay to holders of the Warrants at the time of
exercise an amount in cash equal to the same fraction of the current market
price of a share of Common Stock less the Exercise Price. The holders of the
Warrants have no right to vote on matters submitted to the shareholders of the
Company, have no right to receive dividends and no right to receive notice of
any meeting of the shareholders, consent to any action of the stockholders,
receive notice of any other stockholders proceedings or any other rights as
shareholders of the Company. The holders of the Warrants are not entitled to
share in the assets of the Company in the event of liquidation, dissolution or
the winding up of the affairs of the Company.
ADJUSTMENTS
If the Company (i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock or other shares of its capital stock, (ii)
subdivides its outstanding shares of Common Stock into a greater number of
shares, (iii) combines its outstanding shares of Common Stock into a smaller
number of shares or (iv) issues by reclassification of its Common Stock any
shares of its capital stock, then the number of shares of Common Stock issuable
upon exercise of the Warrant immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company that such holder would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action.
If the Company distributes to all holders of its Common Stock any of its
assets (including but not limited to cash), securities (other than capital
stock), or any rights or Warrants to purchase securities (including but not
limited to Common Stock) of the Company, the Company will make the same
distribution to holders of the Warrants as though, immediately prior to the
record date with respect to such distribution, each such holder owned the number
of shares of Common Stock such holder could have purchased upon the exercise of
the Warrants held by such holder.
Subject to certain exceptions set forth in the Warrant Agreement, if the
Company issues (i) shares of Common Stock for a consideration per share less
than the current market price per share or (ii) any securities convertible into
or exchangeable for Common Stock for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities that is
less than the current market price per share of Common Stock on the date of
issuance of such securities, the Company shall offer to sell to each holder of
Warrants, at the same price and on the same terms offered to all other
prospective buyers (provided that the holders of Warrants shall not be required
to buy any other securities in order to buy such Common Stock or convertible
securities), a portion of such Common Stock or convertible securities that is
equal to such holder's portion of the Common Stock then outstanding if
immediately prior thereto all the Warrants had been exercised. Each such holder
may elect to buy all or any portion of the Common Stock or convertible
securities offered or may decline to purchase any.
Notwithstanding the foregoing, no adjustment or action need be made for (i)
a change solely in the par value or no par value of the Common Stock; provided
that the Company shall not increase the par value to exceed the Exercise Price,
(ii) the conversion or exchange (other than pursuant to a reclassification), in
any case on a share-for-share basis, of Common Stock for non-voting stock for
Common Stock, (iii) shares of Common Stock (or options to purchase such shares)
issued to employees of the Company or any of its Subsidiaries pursuant to the
stock option plans or similar plans of the Company, to the extent that shares of
Common Stock or other securities issued or granted under such plans are issued
or granted at a price, or with an exercise price, that is no less than the fair
market value of the Common Stock at the date of grant and such grant or
issuance, together with all previous grants and issuances under all such plans,
represent 10% of the fully diluted Common Stock at the time of such grant or
issuance, or (iv) the exercise of the Warrants.
97
<PAGE>
In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another corporation,
each Warrant will thereafter be exercisable for the right to receive the kind
and amount of shares of stock or other securities or property to which such
holder would have been entitled as a result of such consolidation, merger or
sale had the Warrants been exercised immediately prior thereto.
THE TEN YEAR WARRANTS
The Common Stock and Ten Year Warrants became separately transferable on the
Effective Date. Each Ten Year Warrant, when exercised, will entitle the holder
thereof to receive the number of shares of Common Stock set forth on such Ten
Year Warrant at an exercise price of $17.55 per share (the "Ten Year Exercise
Price"). The number of Warrant Shares and the Ten Year Exercise Price are
subject to adjustment in certain cases referred to below. The Ten Year Warrants
are exercisable at any time on or after the date of issuance and, unless
exercised, will automatically expire at 5:00 p.m. Eastern Standard Time on July
29, 2007. The Ten Year Warrants entitle the holders thereof to purchase an
aggregate of 444,444 shares of Common Stock.
THE UNIT WARRANTS
The Private Notes and Unit Warrants became separately transferable on the
date 45 days following the Effective Date. Each Unit Warrant, when exercised,
will entitle the holder thereof to receive the number of shares of Common Stock
set forth on such Unit Warrant at an exercise price of $.01 per share (the "Unit
Exercise Price"). The number of Warrant Shares and the Unit Exercise Price are
subject to adjustment in certain cases referred to below. The Unit Warrants are
exercisable at any time on or after the date of issuance and, unless exercised,
will automatically expire at 5:00 p.m. Eastern Standard Time on August 1, 2007.
The Unit Warrants entitle the holders thereof to purchase an aggregate of
805,154 shares of Common Stock. The Unit Warrants and the Warrant Shares have
not been registered under the Securities Act and are subject to certain transfer
restrictions.
TAG-ALONG RIGHTS
If at any time during the Tag Along Period (as defined below), Birch
Holdings, Birch Acquisition or certain related parties propose to sell, exchange
or otherwise dispose of or transfer shares of Common Stock held by it to any
Person, Birch Holdings or Birch Acquisition, as the case may be, and the Company
will notify each holder of Unit Warrants or Warrant Shares of the proposed sale,
exchange, disposition or transfer and, upon written notice to Birch Holdings or
Birch Acquisition, as the case may be, and the Company, the holders of Unit
Warrants and Warrant Shares shall have the right to sell, exchange, dispose of
or transfer, at the same price and upon the same terms and conditions (subject
to certain limitations) as such proposed sale, exchange, disposition or
transfer, the number of Warrant Shares owned by all such holders equal to (x)
the total number of shares of Common Stock proposed to be sold, exchanged,
disposed of or transferred by Birch Holdings or Birch Acquisition, as the case
may be, multiplied by (y) a fraction, the numerator of which is the aggregate
number of Warrant Shares which are then outstanding and which could then be
acquired upon exercise of Unit Warrants by all holders of Unit Warrants and the
denominator of which is the sum of (i) the total number of Warrant Shares which
are then outstanding and which could then be acquired upon exercise of Unit
Warrants by all holders of Unit Warrants, plus (ii) the total number of shares
of Common Stock then outstanding which were previously issued upon conversion of
Convertible Preferred Stock and which could then be acquired upon conversion of
Convertible Preferred Stock by all holders of Convertible Preferred Stock plus
(iii) the total number of shares of Common Stock then owned by Birch Holdings or
Birch Acquisition (or both Birch Holdings and Birch Acquisition if each of them
proposes to sell shares of Common Stock). The term "Tag Along Period" means the
period commencing on the Effective Date and ending on the date the Common Stock
is quoted
98
<PAGE>
for trading on any tier of the National Association of Securities
Dealers--Automated Quotation System or listed on a national securities exchange.
EXCHANGE RIGHTS OF HOLDERS
If either Birch Holdings or Birch Acquisition shall consummate a public or
private offering of shares of Common Stock or any security convertible into
Common Stock, the holders of the Unit Warrants or the Warrant Shares shall have
the right to convert the Unit Warrants or Warrant Shares into such number of
shares of Common Stock of Birch Holdings or Birch Acquisition LLC, as the case
may be, as have an equivalent fair market value to the fair market value of the
number of Warrant Shares outstanding or issuable upon the exercise of
outstanding Unit Warrants as of the date of such offering, as determined by an
Independent Financial Advisor.
REPURCHASE
If the Company merges or consolidates with or into, or sells all or
substantially all of its assets to, a Person that does not have publicly traded
common equity for which the Unit Warrants become exercisable and the
consideration for such transaction does not consist solely of cash, the Company
must offer to repurchase all Unit Warrants at the value (as determined by
Jefferies & Company, Inc.) of the Common Stock issuable upon exercise thereof,
less the Exercise Price.
REGISTRATION RIGHTS
Except under certain circumstances including, without limitation, an
underwriter's market cut-back and registration of shares to be offered pursuant
to an employee benefit plan, an exchange offer or certain merger transactions,
whenever the Company proposes to register any shares of its Common Stock under
the Securities Act, the Company will notify each holder of the Unit Warrants or
Warrant Shares of the proposed filing and if so requested by such holders, the
Company will use its best efforts to register Warrant Shares under the
Securities Act.
On or prior to 90 days (or, in certain circumstances up to 180 days) after
the effective date of a registration statement filed with the Commission in
connection with an initial public offering of the Common Stock, the Company is
required to use its best efforts to file a registration statement for the
benefit of the holders of Unit Warrants and covering resales of the Warrant
Shares and to keep such registration statement effective until the earlier of
either the tenth anniversary of the Effective Date or such time as all Unit
Warrants have been exercised.
RULE 144A INFORMATION REQUIREMENT
The Company has agreed that, for so long as any of the Unit Warrants or
Warrant Shares remain outstanding, it will make available to any prospective
purchaser of the Unit Warrants or Warrant Shares or beneficial owner of the Unit
Warrants or Warrant Shares in connection with any sale thereof the information
required to be delivered pursuant to Rule 144A(d)(A) under the Securities Act,
until such time as such Warrant Shares have been registered for resale under the
Securities Act.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any Unit Warrants are outstanding, the Company will furnish to the
holders of Unit Warrants all quarterly and annual financial information that
would be required to be contained in the filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants. In addition, whether or not
required by the rules and regulations of the Commission, after the date the
Company has an effective
99
<PAGE>
registration statement on file with the Commission and so long as any Unit
Warrants are outstanding, the Company will file a copy of all such financial and
other information with the Commission for public availability.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
CLASSIFICATION OF THE BOARD OF DIRECTORS AND RELATED PROVISIONS
The Company's Board of Directors consists of at least five members, of which
four were initially nominated by holders of claims in respect of the Company's
pre-petition Revolving Credit Facility and one was initially nominated by the
creditor's committee during the Company's reorganization under Chapter 11 of the
Bankruptcy Code. These directors have the right to remain in office until
successors are elected by holders of a plurality of the Common Stock of the
Company or until they are removed by the stockholders of the Company, in either
case in accordance with the Certificate of Incorporation and By-laws of the
Company; PROVIDED, HOWEVER, that the single director nominated by the creditors'
committee will serve for a term of at least three years from the Effective Date.
Subject to the rights of holders of any outstanding Preferred Stock, vacancies
on the Board of Directors may be filled only by the Board of Directors or the
Company's stockholders acting at an annual meeting.
INDEMNIFICATION
The Certificate of Incorporation and By-laws provide that the Company shall
advance expenses to and indemnify each director and officer of the Company to
the fullest extent permitted by law.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation provides that no director of the Company
shall be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is not permitted under the
DGCL. These provisions do not limit the liability of directors under federal
securities laws and do not affect the availability of equitable remedies such as
an injunction or rescission based upon a director's breach of his or her duty of
care.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15% or more of the outstanding voting shares of a
Delaware corporation. This provision prohibits certain business combinations
(defined broadly to include mergers, consolidations, sales or other dispositions
of assets having an aggregate value of 10% or more of the consolidated assets of
the corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock, unless: (i) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder acquired shares; (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation in the transaction
in which it became an interested stockholder; or (iii) the business combination
is approved by a majority of the board of directors and by the affirmative vote
of two-thirds of the outstanding voting stock owned by disinterested
stockholders at an annual or special meeting. A Delaware corporation, pursuant
to a provision in its certificate of incorporation or by-laws, may elect not to
be governed by Section 203 of the DGCL. The Company [did not] make such an
election, and, as a result, the Company is subject to the provisions of Section
203 of the DGCL.
100
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE FOLLOWING IS A DESCRIPTION OF CERTAIN INDEBTEDNESS OF THE COMPANY,
INCLUDING CERTAIN PRE-PETITION TAX CLAIMS, THE MCDONALD'S NOTE, THE MCDONALD'S
RENT DEFERRAL SECURED NOTES AND THE PRIVATE NOTES.
PRE-PETITION TAX CLAIMS
The pre-petition tax claims, which were restructured pursuant to the Plan of
Reorganization as "Pre-petition Tax Payables," have an estimated aggregate
principal amount of $5 million, subject to the final resolution of federal,
state and local tax audits for periods prior to March 25, 1996. The claims
originated as taxes assessed prior to the Company's filing under Chapter 11. The
Pre-petition Tax Payables have maturities of up to six years from the original
date of assessment and require principal payments in equal annual installments.
The majority of the Pre-petition Tax Payables accrue simple interest at 10% per
annum (payable with each annual principal installment) from the Effective Date.
A small portion of the Pre-petition Tax Payables accrue simple interest at 12%
per annum (payable with each annual principal installment) from the Effective
Date (the "Alternative Pre-petition Tax Payables"). Pre-petition tax claims held
by the United States Internal Revenue Service accrue interest in the manner
specified in Code Sections 6621 and 6622.
The first payment on the majority of the Pre-petition Tax Payables is
payable one year after the Effective Date or, if the pre-petition tax claim is
not "allowed" by the Bankruptcy Court within one year after the Effective Date,
as soon as practicable after such claim becomes allowed. The first payment on
the Alternative Pre-petition Tax Payables is payable on the Effective Date or,
if the pre-petition tax claim is not "allowed" by the Bankruptcy Court on the
Effective Date, as soon as practicable after such claim becomes allowed.
Interest will be due and payable on the date on which each annual installment of
principal is due. The Company may elect to prepay, without penalty, all or any
portion of any pre-petition tax claim.
MCDONALD'S NOTE
The McDonald's Secured Rejection Note (the "McDonald's Note") represents
restructured secured claims against the Company in an aggregate principal amount
of $4,416,238. This note is payable in six equal annual installments of $736,040
beginning on the first anniversary of the Effective Date and thereafter on the
five subsequent anniversaries of the Effective Date, and accrues simple interest
from the Effective Date on the unpaid balance at a 12% annual interest rate. The
McDonald's Note is secured by mortgages on fourteen Company-owned parcels of
real property.
The amount owing with respect to the McDonald's Note may be prepaid by the
Company in full or in part at any time without penalty. In the event that the
Company sells any property that is subject to a valid and enforceable mortgage
held by McDonald's, the proceeds of such sale must be immediately applied, to
the extent available, to repay the principal amount and any accrued and unpaid
interest on the McDonald's Note. The Company currently is holding three
properties for sale with an aggregate book value of $2.7 million.
The McDonald Note contains cross-defaults to any other debt issued, or
credit obtained, by the Company which has an aggregate principal amount equal to
or greater than $2.5 million. The Company will be in default on the McDonald's
Note in the event that McDonald's terminates any two subleases where McDonald's
is the sublessor as a result of the Company's breach of such subleases.
MCDONALD'S SECURED RENT DEFERRAL NOTES
McDonald's also holds the "McDonald's Secured Rent Deferral Notes," which
represent restructured rent deferrals which McDonald's granted to the Company
during the bankruptcy proceedings in an aggregate principal amount of $265,466
as of the Effective Date. After the Effective Date, the principal amount of each
McDonald's Secured Rent Deferral Note is scheduled to increase by an amount
equal to
101
<PAGE>
the rent deferral for each month between the Effective Date and the termination
of the sublease which gave rise to the McDonald's secured claim with respect to
such rent deferral. As with the McDonald's Note, the McDonald's Secured Rent
Deferral Notes are secured by mortgages on the same fourteen Company-owned
parcels of real property.
Each McDonald's Secured Rent Deferral Note will become due and payable on
the date on which the current term of the sublease giving rise to such
McDonald's Secured Rent Deferral Note expires, without giving effect to any
unexercised right to extend, or option to renew, such sublease.
Each McDonald's Secured Rent Deferral Note bears interest at a rate equal to
12%. Interest is payable upon maturity or acceleration of each McDonald's
Secured Rent Deferral Note. On each anniversary of the Effective Date, all
accrued interest not previously paid or capitalized will be capitalized and
added to the outstanding principal amount of each McDonald's Secured Rent
Deferral Note. These Notes expire between August 31, 2002 and December 31, 2004.
The scheduled rent deferrals on the McDonald's Secured Rent Deferral Notes
currently total $398,196 per year and, when combined with the principal balance
thereof at the Effective Date, total approximately $2,567,000 over the remaining
lease term.
The McDonald's Secured Rent Deferral Notes contain cross-defaults to any
other debt issued, or credit obtained, by the Company, the aggregate principal
amount of which is equal to or greater than $2.5 million. The Company will be in
default on the McDonald's Secured Rent Deferral Notes in the event that
McDonald's terminates any two subleases, where McDonalds is the sublessor, as a
result of the Company's breach of those subleases. In addition, the McDonald's
Secured Rent Deferral Notes contain certain other standard terms, conditions and
covenants as required by the Plan of Reorganization.
PRIVATE NOTES
On July 29, 1997, the Company received approximately $80.0 million of net
proceeds from the sale of $85.0 million aggregate principal amount of the
Company's Private Notes. For a description of the material terms of the Private
Notes, see "Description of the Exchange Notes."
102
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such broker-dealer as a
result of market-making or other trading activities. Each broker-dealer that
receives Exchange Notes for its own account in exchange for such Private Notes
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Company has
agreed that for a period of up to 180 days after the closing of the Exchange
Offer, it will make this Prospectus, as amended or supplemented, available to
any such broker-dealer that requests copies of this Prospectus in the Letter of
Transmittal for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealer or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions or through the writing of options on the Exchange Notes, or a
combination of such methods of resale, at market prices prevailing at the time
of resale or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer in exchange for Private Notes acquired by such broker-dealer as a result
of market-making or other trading activities and any broker-dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
103
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion, which was prepared by Shearman & Sterling, special
counsel to the Company, summarizes the material U.S. federal income tax
consequences of the exchange of the Private Notes for the Exchange Notes. The
discussion is based on provisions of the Code, its legislative history, judicial
authority, current administrative rulings and practice, and Treasury
Regulations. Legislative, judicial or administrative changes or interpretations
after the date hereof could alter or modify the validity of the statements and
conclusions set forth below. Any such changes or interpretations may be
retroactive and could adversely affect a holder of the Private Notes or the
Exchange Notes.
This discussion does not purport to deal with all aspects of U.S. federal
income taxation that might be relevant to particular Holders in light of their
personal investment or tax circumstances or status, nor does it discuss the U.S.
federal income tax consequences to certain types of Holders subject to special
treatment under the U.S. federal income tax laws, such as financial
institutions, insurance companies, dealers in securities or foreign currency,
tax-exempt organizations, foreign corporations or nonresident alien individuals,
or persons holding Private Notes or Exchange Notes that are a hedge against, or
that are hedged against, currency risk or that are part of a straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. Moreover, the effect of any applicable state, local or foreign tax laws
is not discussed.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. EACH HOLDER OF A
PRIVATE NOTE THAT IS PARTICIPATING IN THE EXCHANGE OFFER IS STRONGLY URGED TO
CONSULT WITH ITS OWN TAX ADVISORS TO DETERMINE THE IMPACT OF SUCH HOLDER'S
PARTICULAR TAX SITUATION ON THE ANTICIPATED TAX CONSEQUENCES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, OF THE EXCHANGE OF
THE PRIVATE NOTES FOR THE EXCHANGE NOTES PURSUANT TO THE EXCHANGE OFFER.
EXCHANGE OFFER
The exchange of the Private Notes by any Holder for the Exchange Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes because the Exchange Notes should not be considered
to differ materially in kind or in extent from the Private Notes. Rather, the
Exchange Notes received by any Holder should be treated as a continuation of the
Private Notes in the hands of such Holder. As a result, there should be no
federal income tax consequences to Holders exchanging the Private Notes for the
Exchange Notes pursuant to the Exchange Offer, and the federal income tax
consequences of holding and disposing of the Exchange Notes should be the same
as the federal income tax consequences of holding and disposing of the Private
Notes. In addition, a Holder's adjusted tax basis in the Exchange Notes will be
the same as its adjusted tax basis in the Private Notes exchanged therefor and
its holding period for the Private Notes will be included in its holding period
for the Exchange Notes. Further, the determination of gain on a sale or other
disposition of the Exchange Notes will be the same as for the Private Notes.
Moreover, the Holders must, among other things, continue to include original
issue discount on the Exchange Notes in gross income as interest as if the
exchange had not occurred.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Shearman & Sterling, 599 Lexington Avenue, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and for the year then ended, included in this Prospectus, have been audited by
Ernst & Young LLP, independent certified public
104
<PAGE>
accountants, as set forth in their report thereon appearing elsewhere herein
(which report contains an explanatory paragraph relating to the Company's
ability to continue as a going concern). Such consolidated financial statements
are included elsewhere herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Discovery Zone, Inc. as of December
31, 1995 and the year ended December 31, 1995, included in this Prospectus, have
been so included in reliance on the report (which contains an explanatory
paragraph relating the ability of Discovery Zone, Inc. to continue as a going
concern as described in Notes 2, 13 and 16 (this Note is not included in the
current financial statements) to the consolidated financial statements of
Discovery Zone, Inc. as of and for the year ended December 31, 1995) of Price
Waterhouse LLP, independent accountants, given authority of said firm as experts
in auditing and accounting. Such consolidated financial statements are included
elsewhere herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1994, and for the years ended December 31, 1994 and 1993, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent certified
public accountants, as stated in their report thereon appearing elsewhere
herein. Such consolidated financial statements are included elsewhere herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TWO MONTHS ENDED SEPTEMBER 30, 1997, SEVEN MONTHS ENDED JULY 31, 1997
AND NINE MONTHS ENDED SEPTEMBER 30, 1996
Unaudited Condensed Consolidated Statements of Operations................................................ F-2
Unaudited Condensed Consolidated Balance Sheets.......................................................... F-4
Unaudited Condensed Consolidated Statements of Cash Flows................................................ F-5
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-6
THREE YEARS ENDED DECEMBER 31, 1996
Report of Independent Certified Public Accountants for the year ended
December 31, 1996...................................................................................... F-14
Report of Independent Certified Public Accountants for the year ended
December 31, 1995...................................................................................... F-15
Report of Independent Public Accountants for the two years ended
December 31, 1994...................................................................................... F-16
Consolidated Statements of Operations for each of the three years in the period ended December 31,
1996................................................................................................... F-17
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-18
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
1995................................................................................................... F-19
Consolidated Statements of Equity (Deficit) for each of the three years in the period ended December 31,
1995................................................................................................... F-20
Notes to Consolidated Financial Statements............................................................... F-21
</TABLE>
F-1
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
--------------- ------------------------------
TWO MONTHS THREE MONTHS
ENDED ONE MONTH ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 JULY 31, 1997 1996
--------------- ------------- ---------------
<S> <C> <C> <C>
NET REVENUE................................. $ 19,914 $ 10,786 $ 39,788
COST OF GOODS SOLD.......................... 3,057 1,537 7,856
STORE OPERATING EXPENSES.................... 16,879 8,765 32,059
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE................................... 3,872 1,579 8,336
DEPRECIATION AND AMORTIZATION............... 3,981 1,705 5,572
------- ------------- ---------------
OPERATING LOSS.............................. (7,875) (2,800) (14,035)
OTHER INCOME (EXPENSES):
Interest expense (see Note 1)............. (2,468) (1,430) (497)
Interest income........................... 529 73 13
Other, net................................ 69 41 65
------- ------------- ---------------
Total other expense, net................ (1,870) (1,316) (419)
------- ------------- ---------------
LOSS BEFORE REORGANIZATION COSTS AND
EXTRAORDINARY ITEM........................ (9,745) (4,116) (14,454)
REORGANIZATION COSTS........................ -- (8,060) (4,310)
------- ------------- ---------------
LOSS BEFORE EXTRAORDINARY ITEM.............. (9,745) (12,176) (18,764)
EXTRAORDINARY ITEM-GAIN ON DISCHARGE OF
DEBT...................................... -- 332,165 --
------- ------------- ---------------
NET INCOME (LOSS)........................... (9,745) 319,989 (18,764)
ACCRETION OF CONVERTIBLE REDEEMABLE
PREFERRED STOCK TO REDEMPTION VALUE....... (39) -- --
------- ------------- ---------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS.............................. $ (9,784) $ 319,989 $ (18,764)
------- ------------- ---------------
------- ------------- ---------------
Per common and common equivalent share:
Loss before extraordinary item............ $ (2.45) $ (0.21) $ (0.33)
Extraordinary item-gain on discharge of
debt.................................... -- 5.76 --
------- ------------- ---------------
Net income (loss)......................... $ (2.45) $ 5.55 $ (0.33)
------- ------------- ---------------
------- ------------- ---------------
Weighted average number of common and common
equivalent shares outstanding............. 4,000 57,705 57,705
------- ------------- ---------------
------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
--------------- --------------------------------
TWO MONTHS NINE MONTHS
ENDED SEVEN MONTHS ENDED
SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 JULY 31, 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
NET REVENUE................................ $ 19,914 $ 82,537 $ 147,848
COST OF GOODS SOLD......................... 3,057 14,136 27,059
STORE OPERATING EXPENSES................... 16,879 60,192 112,741
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE.................................. 3,872 10,235 33,230
DEPRECIATION AND AMORTIZATION.............. 3,981 11,920 16,204
------- --------------- ---------------
OPERATING LOSS............................. (7,875) (13,946) (41,386)
OTHER INCOME (EXPENSES):
Interest expense (see Note 1)............ (2,468) (3,957) (4,978)
Interest income.......................... 529 86 53
Other, net............................... 69 73 382
------- --------------- ---------------
Total other expense, net............... (1,870) (3,798) (4,543)
------- --------------- ---------------
LOSS BEFORE REORGANIZATION COSTS AND
EXTRAORDINARY ITEM....................... (9,745) (17,744) (45,929)
REORGANIZATION COSTS....................... -- (12,165) (12,436)
------- --------------- ---------------
LOSS BEFORE EXTRAORDINARY ITEM............. (9,745) (29,909) (58,365)
EXTRAORDINARY ITEM-GAIN ON DISCHARGE OF
DEBT..................................... -- 332,165 --
------- --------------- ---------------
NET INCOME (LOSS).......................... (9,745) $ 302,256 $ (58,365)
ACCRETION OF CONVERTIBLE REDEEMABLE
PREFERRED STOCK TO REDEMPTION VALUE...... (39) -- --
------- --------------- ---------------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS............................. $ (9,784) $ 302,256 $ (58,365)
------- --------------- ---------------
------- --------------- ---------------
Per common and common equivalent share:
Loss before extraordinary item........... $ (2.45) $ (0.52) $ (1.01)
Extraordinary item-gain on discharge of
debt................................... -- 5.76 --
------- --------------- ---------------
Net income (loss)........................ $ (2.45) $ 5.24 $ (1.01)
------- --------------- ---------------
------- --------------- ---------------
Weighted average number of common and
common equivalent shares outstanding..... 4,000 57,705 57,698
------- --------------- ---------------
------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
--------------- --------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30,240 $ 3,326
Restricted cash and investments........................... 12,856 --
Receivables, net.......................................... 757 1,338
Inventories............................................... 1,132 2,038
Prepaid expenses and other current assets................. 7,513 2,784
--------------- --------------
TOTAL CURRENT ASSETS.................................... 52,498 9,486
RESTRICTED CASH AND INVESTMENTS............................. 8,850 --
PROPERTY AND EQUIPMENT, net................................. 118,853 110,381
LAND HELD FOR SALE.......................................... 3,635 3,635
OTHER ASSETS................................................ 6,335 2,284
--------------- --------------
TOTAL ASSETS............................................ $ 190,171 $ 125,786
--------------- --------------
--------------- --------------
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Accounts payable and accrued liabilities.................. $ 20,501 $ 15,321
Due to affiliate.......................................... -- 903
Accrued interest.......................................... 2,089 614
Current portion of long-term debt......................... 1,395 --
Debtor-in-possession credit facility...................... -- 22,448
--------------- --------------
TOTAL CURRENT LIABILITIES............................... 23,985 39,286
LONG-TERM DEBT.............................................. 86,903 4,666
OTHER LONG-TERM LIABILITIES................................. 5,050 498
LIABILITIES SUBJECT TO COMPROMISE........................... -- 344,908
CONVERTIBLE REDEEMABLE PREFERRED STOCK...................... 13,839 --
COMMITMENTS AND CONTINGENCIES
NON-REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER
EQUITY (DEFICIT):
Preferred Stock (Predecessor Company)- $.01 par value;
10,000,000 shares authorized, no shares outstanding..... -- --
Common Stock (Predecessor Company)- $.01 par value;
100,000,000 shares authorized, 57,705,470 shares issued
and 57,645,925 shares outstanding at December 31,
1996.................................................... -- 577
Common Stock (Successor Company)- $.01 par value;
10,000,000 shares authorized, 4,000,000 shares issued
and outstanding at September 30, 1997................... 40 --
Treasury stock (Predecessor Company)- 59,545 shares at
cost.................................................... -- (588)
Additional paid-in capital................................ 70,160 291,925
Cumulative translation adjustment......................... (22) 62
Accumulated deficit....................................... (9,784) (555,548)
--------------- --------------
TOTAL NON-REDEEMABLE PREFERRED STOCK, COMMON STOCK AND
OTHER EQUITY (DEFICIT)................................ 60,394 (263,572)
--------------- --------------
TOTAL LIABILITIES AND EQUITY (DEFICIT).................. $ 190,171 $ 125,786
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
DISCOVERY ZONE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
------------- ----------------------------
TWO MONTHS SEVEN MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, JULY 31, SEPTEMBER 30,
1997 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... $ (9,745) $ 302,256 $ (58,365)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities before reorganization costs:
Reorganization costs............................................. -- 12,165 12,436
Extraordinary item-gain on discharge of debt..................... -- (332,165) --
Accretion of preferred stock..................................... 39
Depreciation and amortization.................................... 3,981 11,920 16,204
Interest on subordinated convertible debt........................ -- -- 1,383
Loss on disposal of property and equipment....................... -- -- 1,010
Changes in operating assets and liabilities:
Receivables, net............................................... 139 442 724
Inventories.................................................... 182 724 2,433
Prepaid expenses and other assets.............................. (3,339) (962) (7,442)
Accounts payable and accrued liabilities....................... (3,293) 5,667 3,073
Net cash (used in) provided by operating activities before
reorganization costs............................................... (12,036) 47 (28,544)
Reorganization costs................................................. -- (12,165) (12,436)
Adjustments to reconcile reorganization costs to cash used by
reorganization costs:
Loss on asset disposals.......................................... -- -- 2,873
Write-off of deferred debt costs................................. -- -- 4,340
Accrued bankruptcy expenses...................................... -- -- --
Proceeds from sale of property and equipment..................... -- -- 1,753
------------- ------------- -------------
Net cash used by reorganization costs................................ -- (12,165) (3,470)
------------- ------------- -------------
Net cash used in operating activities................................ (12,036) (12,118) (32,014)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................. (262) (567) (1,717)
Proceeds from sale of property and equipment......................... -- 99 6,477
------------- ------------- -------------
Net cash (used in) provided by investing activities.................. (262) (468) 4,760
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from debtor-in-possession credit facilities............. $ -- $ -- $ 15,724
Net repayment of debtor-in-possession credit facilities.............. -- (22,448) --
Proceeds from short-term borrowings.................................. -- -- 7,500
Repayment of short-term borrowings................................... -- -- (7,500)
Advances from affiliate, net......................................... -- -- 10,730
Proceeds from the exercise of options and warrants................... -- -- 282
Proceeds from Senior Secured Notes with Warrants..................... -- 85,000 --
Proceeds from Redeemable Convertible Preferred Stock................. -- 13,800 --
Payment of financing costs........................................... -- (2,800) --
Escrow of restricted cash............................................ -- (21,754) --
------------- ------------- -------------
Net cash provided by financing activities............................ -- 51,798 26,736
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents................. (12,298) 39,212 (518)
Cash and cash equivalents, beginning of period....................... 42,538 3,326 5,949
------------- ------------- -------------
Cash and cash equivalents, end of period............................. $ 30,240 $ 42,538 $ 5,431
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................................... $ 291 $ 3,957 $ 633
------------- ------------- -------------
------------- ------------- -------------
Cash paid for professional fees in connection with Chapter 11
Proceeding......................................................... $ 143 $ 3,128 $ 2,419
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Discovery Zone, Inc. (the "Company") is the leading owner and operator of
pay-for-play children's entertainment centers ("FunCenters") in North America
with a national network of 206 FunCenters in 39 states, Puerto Rico and Canada.
The Company also operates two entertainment centers targeting adult customers,
under the "Block Party" name.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations. However, the Company
believes that the disclosures contained herein are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the Company's 1996
consolidated financial statements and notes thereto included in the Company's
registration statement on Form S-4.
Discovery Zone, Inc. and its nineteen domestic subsidiaries (collectively,
the "Group") emerged from bankruptcy on July 29, 1997. The Group had originally
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court") on March 25, 1996 (the
"Petition Date"). While under Chapter 11, certain claims against the Group at
the Petition Date were stayed while the Company continued its operations as a
Debtor-in-Possession. These claims are reflected in the Company's consolidated
balance sheet as Liabilities Subject to Compromise as of December 31, 1996. On
July 18, 1997, the Bankruptcy Court approved the Company's Joint Plan of
Reorganization with Birch Holdings LLC ("Birch"), which became effective on July
29, 1997 (the "Effective Date" or "Emergence Date").
As a result of the reorganization proceedings, the unaudited condensed
consolidated financial statements and notes thereto were subject to material
uncertainties, the outcome of which were not then determinable. The Company's
unaudited condensed consolidated financial statements for periods prior to the
Effective Date were prepared on a going concern basis and do not include any
adjustments for the effect of any changes which were made in connection with the
Company's recapitalization or operations resulting from a plan of
reorganization.
The unaudited condensed consolidated financial statements reflect accounting
principles and practices set forth in American Institute of Certified Public
Accountants Statement of Position ("SOP") 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code," which provides guidance for
financial reporting by entities that have filed voluntary petitions for relief
under, and have reorganized in accordance with, the Bankruptcy Code.
In accordance with SOP 90-7, the Company did not accrue interest on its
prepetition interest bearing obligations during bankruptcy as it was unlikely
such interest would be paid under the Plan. The amount of such unaccrued
contractual interest during the seven-month period ended July 31, 1997 and the
nine-month period ended September 30, 1996 was approximately $9,176,000 and
$7,963,000, respectively.
The preparation of consolidated 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 and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-6
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The financial statements reflect, in the opinion of management, all
adjustments, which are of a normal recurring nature, and those adjustments
required to adopt fresh-start reporting as described below which are necessary
to present fairly the Company's financial position and results of operations.
Capitalized terms have the meanings defined throughout the Notes to Condensed
Consolidated Financial Statements.
The Company's FunCenters typically experience seasonal fluctuations in their
revenues, with generally higher revenues occurring in the first quarter of the
year due to the fact that many of the Company's facilities are located in cold
weather regions where children are unable to play outside during this time of
the year. Operating results of interim periods are not necessarily indicative of
results that may be expected for the year ending December 31, 1997.
(2) JOINT PLAN OR REORGANIZATION AND EXIT FINANCING
In November 1996, the Company filed with the Bankruptcy Court a Joint Plan
of Reorganization (the "Plan") with Birch which set forth a plan for repaying or
otherwise compensating the Company's creditors in order of relative seniority of
their respective claims while seeking to maintain the Company as a going
concern. On July 18, 1997, the Plan was approved by the requisite number of
creditors in each class and confirmed by the Bankruptcy Court. The Plan became
effective on July 29, 1997 and the Company emerged from bankruptcy as of that
date.
The plan provided for (i) the payment in full of certain administrative
claims against the Company (those claims which arose after the Petition Date);
(ii) conversion of substantially all of the Company's liabilities subject to
compromise (excluding taxes payable, lease assumption payments and certain other
pre-petition liabilities permitted under the Plan) to an equity interest in the
Company, and (iii) cancellation of all of the prepetition equity interests in
the Company, all as more fully described in the Plan. Birch had purchased
certain of these prepetition claims from the original banks providing a credit
facility to the Company, resulting in ownership of 55.7% of the common stock of
the reorganized Company ("Common Stock").
Pursuant to the Plan, substantially all the Company's prepetition unsecured
liabilities were converted to equity in exchange for units consisting of nine
shares of Common Stock and a ten-year warrant to purchase one share of Common
Stock at a price of $17.55 (the "Ten Year Warrants"). Such unsecured creditors
will receive 4,000,000 shares of Common Stock and 444,444 shares of Common Stock
have been reserved for issuance in connection with the warrants. As a result of
the transactions which occurred on the Effective Date, indebtedness of
$332,165,000 was discharged, resulting in a gain, reflected as an extraordinary
item in the accompanying condensed consolidated statements of operations, of
approximately $332,165,000. This gain is not recognized for tax purposes to the
extent the Company was insolvent at the date of discharge. However, the
Company's net operating loss carryforwards were reduced by the amount of the
gain.
In connection with its emergence from bankruptcy, the Company raised $100
million through the issuance of $15 million of Convertible Redeemable Preferred
Stock ("Preferred Stock") and $85 million of 13.5% Senior Secured Notes with
Warrants, resulting in $93.8 million of net proceeds to the Company after
deducting related offering costs (the "Exit Financing"). The proceeds were used
to repay the Company's debtor-in-possession credit facilities (see Note 5) and
certain bankruptcy administrative claims and reorganization costs incurred in
connection with the Company's emergence from bankruptcy and to fund the Bond
Interest Escrow Account, which is reflected as Restricted Cash and Investments
in the accompanying condensed consolidated financial statements. The Senior
Secured Note holders also
F-7
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(2) JOINT PLAN OR REORGANIZATION AND EXIT FINANCING (CONTINUED)
received warrants (the "Warrants") to purchase 805,154 shares of Common Stock at
$.01 per share exercisable through August 1, 2007, which represent approximately
12.5% of the fully diluted shares of Common Stock after giving effect to the
exercise of the Warrants and the Ten Year Warrants and conversion of the
Preferred Stock. A portion of the proceeds from the Senior Secured Notes was
allocated to the Warrants (See Note 6).
The Preferred Stock is convertible at any time into 1,191,626 shares of
Common Stock at an effective conversion price of $12.59 per common share,
representing approximately 18.5% of the fully diluted shares of Common Stock
after giving effect to the exercise of the Warrants and the Ten Year Warrants.
The terms of the Preferred Stock include a liquidation preference, the right to
receive dividends, if paid, voting rights, Board of Directors representation and
redemption upon (i) the earlier to occur of a merger, the sale of substantially
all the Common Stock or assets of the Company or other change of control, or
(ii) 180 days prior written notice from any holder at any time 62 months after
the Effective Date.
As part of the Plan, a stock option plan was established. Pursuant to
certain executive employment contracts, options to purchase shares of Common
Stock have been granted to senior executives of the Company at an exercise price
of $11.88 per share. A total of 715,692 shares of Common Stock have been
reserved for issuance under the Company's stock option plan.
(3) FRESH START REPORTING
Upon emergence from its Chapter 11 proceedings, the Company adopted fresh
start reporting pursuant to the provisions of SOP 90-7. In accordance with SOP
90-7, assets and liabilities have been restated as of July 31, 1997 to reflect
the reorganization value of the Company, which approximates their fair value at
the Emergence Date. In addition, the accumulated deficit of the Company through
the Emergence Date has been eliminated and the debt and capital structure of the
Company has been recast pursuant to the provisions of the Plan. Thus, the
condensed consolidated balance sheet as of September 30, 1997 reflects a new
reporting entity (the "Successor Company") and is not comparable to prior
periods (the "Predecessor Company"). Furthermore, the accompanying condensed
consolidated statements of operations and cash flows of the Predecessor Company
reflect operations prior to the Company's emergence from bankruptcy and the
effect of adopting fresh-start reporting and are thus not comparable with the
results of operations and cash flows of the Successor Company.
The reorganization value of the Company's common equity of approximately
$70,200,000 was determined by the Company with the assistance of financial
advisors by reliance on various valuation methods, including discounted
projected cash flow analyses, price/earnings ratios, and other applicable ratios
and economic and industry information relevant to the operations of the Company,
and through negotiations with the various parties in interest. While the
estimated reorganization value of the Company has been preliminarily allocated
to specific asset categories pursuant to fresh-start reporting, the effects of
such are subject to further refinement or adjustment.
F-8
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(3) FRESH START REPORTING (CONTINUED)
The effects of the Plan, the Exit Financing, and fresh-start reporting on
the Company's condensed consolidated balance sheet at July 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
PRE- EXIT FRESH-START
EMERGENCE DISCHARGE OF FINANCING ADJUSTMENTS REORGANIZED
BALANCE SHEET DEBT (1) (2) (3) BALANCE SHEET
------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 1,712 $ (33,811) $ 74,637 $ 42,538
Restricted cash and investments............ 391 10,302 10,693
Receivables, net........................... 896 896
Inventories................................ 1,314 1,314
Prepaid expenses and other current
assets................................... 3,804 (569) 697 3,932
------------- ------------ ----------- ----------- -------------
TOTAL CURRENT ASSETS................... 8,117 (33,811) 84,370 697 59,373
RESTRICTED CASH AND INVESTMENTS.............. -- 11,061 11,061
PROPERTY AND EQUIPMENT, net.................. 98,929 23,591 122,520
LAND HELD FOR SALE........................... 3,635 3,635
OTHER ASSETS................................. 2,233 5,000 (704) 6,529
------------- ------------ ----------- ----------- -------------
TOTAL ASSETS........................... 112,914 (33,811) 100,431 23,584 $ 203,118
------------- ------------ ----------- ----------- -------------
------------- ------------ ----------- ----------- -------------
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Accounts payable........................... $ 7,095 $ 7,095
Accrued liabilities........................ 9,698 (1,368) 1,631 8,783 18,744
Current portion of long-term debt.......... 186 186
Debtor-in-possession credit facility....... 30,895 (30,895) --
------------- ------------ ----------- ----------- -------------
TOTAL CURRENT LIABILITIES.............. 47,874 (32,263) 1,631 8,783 26,025
LONG-TERM DEBT............................... 4,681 5,000 77,950 87,631
OTHER LONG-TERM LIABILITIES.................. 450 5,012 5,462
LIABILITIES SUBJECT TO COMPROMISE............ 344,070 (338,713) (5,357) --
CONVERTIBLE REDEEMABLE PREFERRED STOCK....... -- 13,800 13,800
COMMON STOCK AND OTHER EQUITY (DEFICIT):
Common Stock (Predecessor Company)......... 577 (577) --
Common Stock (Successor Company)........... -- 40 40
Treasury stock (Predecessor Company)....... (588) 588 --
Additional paid-in capital................. 291,925 7,050 (228,815) 70,160
Cumulative translation adjustment.......... 32 (32) --
Accumulated deficit........................ (576,107) 332,165 243,942 --
------------- ------------ ----------- ----------- -------------
TOTAL COMMON STOCK AND OTHER EQUITY
(DEFICIT)............................ (284,161) 332,165 (7,050) 15,146 70,200
------------- ------------ ----------- ----------- -------------
------------- ------------ ----------- ----------- -------------
TOTAL LIABILITIES AND EQUITY
(DEFICIT)............................ $ 112,914 $ (33,811) $ 100,431 $ 23,584 $ 203,118
------------- ------------ ----------- ----------- -------------
------------- ------------ ----------- ----------- -------------
</TABLE>
- ------------------------
(1) To record the discharge or reclassification of prepetition obligations
(liabilities subject to compromise) and debtor-in-possession credit
facilities pursuant to the Plan.
(FOOTNOTES CONTINUED ON NEXT PAGE)
F-9
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(3) FRESH START REPORTING (CONTINUED)
(2) To record the Exit Financing and related costs.
(3) To record assets and liabilities at their fair value pursuant to fresh-start
reporting and eliminate the existing accumulated deficit.
(4) DEBTOR-IN-POSSESSION CREDIT FACILITIES
At July 29, 1997, the Company had outstanding borrowings under its
debtor-in-possession credit facility with Perry Partners L.P. ("Perry Partners")
(the "Replacement Credit Facility") of $27,808,000. Those borrowings bore
interest at prime plus 3.5% (11.75% at July 29, 1997) payable monthly. The
Replacement Credit Facility also required payment of certain fees as defined in
the agreement as an amount to be determined such that Perry Partners earned an
internal rate of return, determined on an annualized basis, of 21% on all
borrowings (which return took into account all interest and fees). At the
Effective Date, additional fees and interest of $1,800,000 over interest accrued
at the stated rate were owed. Outstanding borrowings under the facility were
repaid upon the Company's emergence from bankruptcy with the proceeds of the
Exit Financing. (See Note 2).
In June and July 1997, the U.S. Bankruptcy Court issued orders permitting
the Company to borrow $5 million from Birch as permitted under the existing
Replacement Credit Facility. The facility bore interest at prime plus 3.5% and
required the payment of certain additional fees to Birch at such time as the
Company exited bankruptcy protection. The loan was unsecured; however,
borrowings under the loan agreement had superpriority administrative claim
status with respect to payment of administrative expenses under the Plan. The
Company borrowed $2.5 million under this facility which was repaid with interest
and fees of $82,000 upon emergence from bankruptcy with the proceeds from the
Exit Financing.
F-10
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
--------------- ---------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
13.5% Senior Secured Notes due 2002, net of unamortized
discount of $6,860 (1)..................................... $ 78,140 $ --
Secured Rejection Note (2).................................. 4,416 4,666
Secured Rent Deferral Notes (2)............................. 332 --
Prepetition Tax Claims (3).................................. 5,000 --
Other notes payable......................................... 410 --
--------------- ------
88,298 4,666
Less current portion........................................ (1,395) --
--------------- ------
Long-term debt.............................................. $ 86,903 $ 4,666
--------------- ------
--------------- ------
</TABLE>
- ------------------------
(1) In connection with its exit financing to emerge from bankruptcy, the Company
issued $85,000,000 of 13.5% Senior Secured Notes due August 1, 2002 (the
"Notes") and the Warrants. A value of approximately $7,050,000 was allocated
to the Warrants based upon their estimated fair value at the time of the
issuance, representing the original issue discount on the Notes. The Notes
are secured by substantially all the assets of the Company and interest is
payable quarterly beginning November 1, 1997. A separate interest escrow
account was established with the trustee to fund interest payments through
August 1, 1999. The interest escrow account balance totaled $21,706,000,
consisting of treasury securities and accrued interest thereon, at September
30, 1997.
The Notes contain restrictions on additional indebtedness and cross-default
provisions with other obligations of the Company. Among other things, the
Company is permitted to have outstanding up to $10 million of senior secured
indebtedness and up to $5 million of new indebtedness arising from sale and
leaseback transactions, capital lease obligations, or purchase money
obligations.
(2) In conjunction with its emergence from bankruptcy, the Company completed the
documentation of the notes and mortgages securing McDonald's Corporations'
("McDonald's") damage claims as approved by the Bankruptcy Court in November
1996 pursuant to the McDonald's Stipulation (see Note 7 to the annual
audited financial statements).
McDonald's claim for damages arising from rejected leases totaled
approximately $4,416,000 at the Emergence Date and is evidenced by a
six-year note payable requiring annual principal payments of approximately
$736,000 (the "Secured Rejection Note"). The Secured Rejection Note bears
interest at 12% payable annually.
The Company's obligations to repay certain rent deferrals granted by
McDonald's pursuant to the McDonald's Stipulation are evidenced by nine
notes due upon the expiration of each initial sublease term (the "Secured
Rent Deferral Notes"). The rent deferrals total currently $398,196 per year
and, when combined with the initial Emergence Date principal balance of
approximately $266,000, will
F-11
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(5) LONG-TERM DEBT (CONTINUED)
total approximately $2,567,000 over the next eight years. The notes bear
interest at 12% per annum payable at maturity and have maturity dates
ranging from August 31, 2002 to December 31, 2004.
The Secured Rejection Note and the Secured Rent Deferral Notes are secured
by first mortgages or deeds of trust on fourteen properties owned by the
Company including three undeveloped parcels of land with a book value of
$2,747,000 at September 30, 1997, which are included in Land Held for Sale
in the Company's Consolidated Balance Sheet. The notes contain certain
cross-default provisions including cross-defaults among themselves, with the
McDonald's subleases and with other indebtedness of the Company in excess of
$2.5 million.
(3) The prepetition tax claims (the "Tax Claims") represent taxes assessed prior
to the Company filing for bankruptcy and have an estimated aggregate
principal amount of $5 million. The Tax Claims have maturities of up to six
years from the original date of assessment and require payment of principal
amounts in equal annual installments. The majority of the Tax Claims accrue
simple interest at 10% per annum payable with each annual principal
installment. The remainder accrue interest at 12% per annum.
(6) EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common and common equivalent shares is calculated based
upon the weighted average number of common and common equivalent shares
outstanding during the periods presented. Common equivalents outstanding during
the period and common shares issuable upon assumed conversion of the Preferred
Stock have not been included in the computation of earnings (loss) per share as
their effect is antidilutive for all relevant periods presented. Shares of
Common Stock to be issued to unsecured creditors pursuant to the Plan have been
reflected as outstanding as of the Effective Date for purposes of calculating
the weighted average common and common equivalent shares outstanding in the
accompanying unaudited condensed consolidated statement of operations for the
two-month period ended September 30, 1997.
(7) LEGAL MATTERS
From time to time, the Company is a party to a number of lawsuits and other
legal matters, including claims relating to injuries which allegedly occurred at
the Company's facilities and to alleged employment discrimination. A portion of
these claims may be covered by insurance. Management has estimated the potential
liabilities resulting from such claims which arose subsequent to the Petition
Date and which are not covered by insurance to be approximately $2,790,000 at
September 30, 1997 and $1,849,000 at December 31, 1996. These amounts were
recorded in accrued liabilities and other long-term liabilities in the
accompanying condensed consolidated balance sheets. Because these amounts
represent estimates, it is reasonably possible that a change in these estimates
may occur in the future.
(8) RELATED PARTY TRANSACTIONS
On May 7, 1997, the Bankruptcy Court issued an order providing for the
settlement of all of Viacom Inc.'s ("Viacom") prepetition general unsecured
claims against the Group and all claims which the Group or any holders of claims
against the Group may hold against Viacom. Under the agreement and subsequent
Bankruptcy Court order, Viacom received no property for its prepetition
unsecured claims
F-12
<PAGE>
DISCOVERY ZONE, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
under the Plan. In exchange for this treatment, the Group (i) satisfied in full
a claim which Iwerks Studios, Inc. held against the Group, and which was
guaranteed by Blockbuster Entertainment Group ("Blockbuster"), an affiliate of
Viacom, in the amount of $61,500, (ii) assumed approximately thirty leases of
the Group, which were guaranteed by Viacom, and assign them to Blockbuster and
(iii) paid Viacom's postpetition administrative claims for expenses advanced by
Viacom on behalf of the Group of approximately $991,000 and obligations incurred
under the Management Services Agreement ("MSA") between the Company and Viacom
subject to any setoff paid on behalf of Viacom. In connection with this
settlement, the MSA was terminated.
As required under the Plan, the Company reimbursed Wellspring $1,078,000 for
its out-of-pocket expenses incurred in connection with sponsoring the Plan.
An officer of Griffin Bacal, Inc., the Company's advertising agency, serves
as a director of the Successor Company. The Company paid $7,021,000 to Griffin
Bacal for media and creative services during the nine months ended September 30,
1997.
(9) SUBSEQUENT EVENTS
During the fourth quarter of 1997, the Company began Phase One of its
capital plan to renovate its FunCenters, add new attractions, and broaden their
entertainment offerings, including the addition of designated areas for
lasertag, arts and crafts, stage events and promotional activities. The Company
estimates that approximately 75% of its FunCenters will be renovated pursuant to
this plan by March 31, 1998 at a cost of approximately $15 million. The Company
also expects to complete the conversion of its food service operations to offer
Pizza Hut products in approximately 80% of its FunCenters by year end.
Approximately $2,274,000 of prepaid expenses and other current assets represent
deposits or advances made in anticipation of these changes.
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Discovery Zone, Inc.
(Debtor-In-Possession)
We have audited the accompanying consolidated balance sheet of Discovery
Zone, Inc. and subsidiaries (Debtor-In-Possession) (the Company) as of December
31, 1996, and the related consolidated statements of operations, deficit and
cash flows for the year then ended. Our audit also included the financial
statement schedule for 1996 listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Discovery Zone, Inc. and subsidiaries (Debtor-In-Possession) at December 31,
1996, and the consolidated results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 1,
on March 25, 1996, the Company filed a petition for reorganization relief under
Chapter 11 of the United States Bankruptcy Code. The Company's recent history of
operating losses, together with the uncertainties inherent in the bankruptcy
process, raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are discussed in
Note 16. The Company's ability to continue as a going concern is dependent upon
acceptance of the plan of reorganization discussed in Note 16 by the United
States Bankruptcy Court and the Company's creditors, securing on-going
debtor-in-possession or additional exit financing, compliance with all debt
covenants under the existing debtor-in-possession financing, and the success of
future operations. The ultimate outcome of these matters is not presently
determinable. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
West Palm Beach, Florida
April 2, 1997
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Discovery Zone, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Discovery Zone, Inc. and its subsidiaries (the "Company") at
December 31, 1995 and the results of their operations and their cash flows for
the year then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Notes 2, 13 and 16
(this Note is not included in the current financial statements) to the financial
statements, the Company has suffered increasing operating cash flow losses, is
in default of certain indebtedness and has on March 25, 1996 filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code.
These events and circumstances raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 16 (this Note is not included in the current
financial statements). The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
As discussed in Note 3 to the financial statements, in 1995, the Company
adopted Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF".
PRICE WATERHOUSE LLP
Miami, Florida
April 13, 1996
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Discovery Zone, Inc.:
We have audited the accompanying consolidated statements of operations,
equity and cash flows of DISCOVERY ZONE, INC. (a Delaware corporation) AND
SUBSIDIARIES for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 statements of operations, equity and cash
flows. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations, and cash flows of Discovery
Zone, Inc. and Subsidiaries for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
As explained in Note 20 to the financial statements, effective January 1,
1994, the Company changed its method of accounting for preopening costs.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
March 21, 1995 (except with respect
to the Company's bankruptcy filing
discussed in Note 1 as to which
the date is March 25, 1996).
F-16
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---------- ----------- ----------
REVENUE:
Company location sales...................................................... $ 181,699 $ 257,839 $ 162,792
Franchise-related revenue................................................... 26 1,651 17,781
---------- ----------- ----------
Total revenue........................................................... 181,725 259,490 180,573
COST OF GOODS SOLD.......................................................... 34,276 50,227 36,858
STORE OPERATING EXPENSES.................................................... 140,486 185,587 97,631
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE................................. 40,779 58,201 36,451
DEPRECIATION AND AMORTIZATION............................................... 21,876 31,972 16,183
OTHER CHARGES............................................................... -- 360,803 14,024
RESTRUCTURING COSTS......................................................... -- 11,357 --
---------- ----------- ----------
OPERATING LOSS.............................................................. (55,692) (438,657) (20,574)
OTHER INCOME (EXPENSES):
Interest expense (contractual interest $18,177 in 1996)................... (6,277) (12,226) (5,137)
Interest income........................................................... -- 323 2,004
Minority interest......................................................... -- 5,162 256
Other, net................................................................ (580) 153 327
---------- ----------- ----------
Total other expense, net................................................ (6,857) (6,588) (2,550)
---------- ----------- ----------
LOSS BEFORE REORGANIZATION COSTS, INCOME TAX PROVISION (BENEFIT)AND
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING....................... (62,549) (445,245) (23,124)
REORGANIZATION COSTS:
Professional fees......................................................... (7,076) -- --
Loss on asset disposals................................................... (8,867) -- --
Other, net................................................................ (5,342) -- --
---------- ----------- ----------
Total reorganization costs.............................................. (21,285) -- --
---------- ----------- ----------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND CUMULATIVE EFFECT OF CHANGE
IN METHOD OF ACCOUNTING................................................... (83,834) (445,245) (23,124)
INCOME TAX PROVISION (BENEFIT).............................................. -- 4,000 (4,000)
---------- ----------- ----------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING............. (83,834) (449,245) (19,124)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN METHOD OF ACCOUNTING.......... -- -- 5,773
---------- ----------- ----------
NET LOSS.................................................................... $ (83,834) $ (449,245) $ (24,897)
---------- ----------- ----------
---------- ----------- ----------
Loss before cumulative effect of change in method of accounting per common
and common equivalent share............................................... $ (1.45) $ (8.06) $ (0.41)
Cumulative effect on prior years of change in method of accounting per
common and common equivalent share........................................ -- -- (0.12)
---------- ----------- ----------
Loss per common and common equivalent share................................. $ (1.45) $ (8.06) $ (0.53)
---------- ----------- ----------
---------- ----------- ----------
Weighted average common and common equivalent shares outstanding............ 57,691 55,706 46,797
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-17
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................. $ 3,326 $ 5,949
Receivables, net...................................................................... 1,338 1,600
Inventories........................................................................... 2,038 9,067
Deposits.............................................................................. 1,360 --
Prepaid expenses and current assets................................................... 1,424 1,191
----------- -----------
TOTAL CURRENT ASSETS.............................................................. 9,486 17,807
PROPERTY AND EQUIPMENT, net............................................................. 110,381 147,740
PROPERTY AND EQUIPMENT AWAITING DISPOSITION............................................. 3,635 1,564
OTHER ASSETS............................................................................ 2,284 4,460
----------- -----------
TOTAL ASSETS...................................................................... $ 125,786 $ 171,571
----------- -----------
----------- -----------
LIABILITIES AND DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE:
CURRENT LIABILITIES:
Accounts payable...................................................................... $ 7,518 $ 24,324
Due to affiliate...................................................................... 903 12,931
Accrued liabilities:
Duplicate facilities................................................................ -- 16,395
Other............................................................................... 8,417 27,838
Current portion of long-term obligations.............................................. -- 113,390
Debtor-in-possession credit facility.................................................. 22,448 --
----------- -----------
TOTAL CURRENT LIABILITIES......................................................... 39,286 194,878
LONG-TERM OBLIGATIONS, EXCLUDING CURRENT PORTION........................................ -- 14
DEFERRED RENT........................................................................... -- 14,865
OTHER LONG TERM LIABILITIES............................................................. 498 14,624
SUBORDINATED CONVERTIBLE DEBT........................................................... -- 127,259
MINORITY INTEREST IN SUBSIDIARIES....................................................... -- 104
NONCURRENT NOTE PAYABLE................................................................. 4,666 --
LIABILITIES SUBJECT TO COMPROMISE....................................................... 344,908 --
----------- -----------
TOTAL LIABILITIES................................................................. 389,358 351,744
COMMITMENTS AND CONTINGENCIES
DEFICIT:
Preferred stock--$.01 par value; 10,000,000 shares authorized, no shares outstanding.... -- --
Common Stock--$.01 par value; 100,000,000 shares authorized, 57,705,470 and 57,535,470
shares issued and 57,645,925 and 57,475,925 shares outstanding at December 1996 and
1995, respectively.................................................................... 577 575
Treasury stock--59,545 shares at cost................................................... (588) (588)
Warrants................................................................................ 99 99
Additional paid-in capital.............................................................. 291,826 291,546
Cumulative translation adjustment....................................................... 62 (91)
Accumulated deficit................................................................... (555,548) (471,714)
----------- -----------
TOTAL DEFICIT..................................................................... (263,572) (180,173)
----------- -----------
TOTAL LIABILITIES AND DEFICIT..................................................... $ 125,786 $ 171,571
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-18
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... $ (83,834) $(449,245) $ (24,897)
Adjustments to reconcile net loss to net cash used in operating activities before
reorganization costs:
Reorganization costs........................................................... 21,285 -- --
Depreciation and amortization.................................................. 21,876 31,972 16,183
Interest on subordinated convertible debt...................................... 1,383 5,863 5,667
Provision for bad debts........................................................ 1,093 2,149 --
Other charges.................................................................. -- 360,803 14,024
Restructuring costs............................................................ -- 11,357 --
Provision (benefit) for deferred taxes......................................... -- 4,000 (4,000)
Loss on asset disposals........................................................ 1,010 -- --
Cumulative effect of change in method of accounting............................ -- -- 5,773
Changes in operating assets and liabilities, net of effects from purchase
transactions:
Receivables.................................................................... (831) 6,463 (618)
Inventories.................................................................... 1,998 254 (3,950)
Prepaid expenses and other assets.............................................. (3,757) (3,830) (8,328)
Accounts payable............................................................... 8,792 (17,703) 4,740
Accrued liabilities............................................................ (5,193) (9,954) (7,259)
Other.......................................................................... -- (1,232) (1,816)
--------- --------- ---------
Net cash used in operating activities before reorganization costs................ (36,178) (59,103) (4,481)
Reorganization costs........................................................... (21,285) -- --
Adjustments to reconcile reorganization costs to cash used by reorganization
costs:
Loss on asset disposals........................................................ 8,867 -- --
Write-off of deferred debt costs............................................... 4,340 -- --
Accrued bankruptcy expenses.................................................... 2,615 -- --
Proceeds from sale of property and equipment................................... 1,753 -- --
--------- --------- ---------
Net cash used by reorganization costs............................................ (3,710) -- --
--------- --------- ---------
Net cash used in operating activities............................................ (39,888) (59,103) (4,481)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions and investments, net................................... -- (5,300) (4,727)
Expenditures for intangibles and other assets, net............................... -- (4,344) (1,401)
Minority interest in subsidiaries................................................ -- (3,186) 3,290
Purchases of property and equipment.............................................. (2,672) (51,732) (119,134)
Proceeds from sale of property and equipment..................................... 6,477 -- --
--------- --------- ---------
Net cash provided by (used in) investing activities.............................. 3,805 (64,562) (121,972)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock....................................................... $ -- $ (511) $ (663)
Proceeds from issuance of long-term obligations.................................. -- 626,200 18,000
Repayment of long-term obligations............................................... -- (544,411) (5,377)
Net proceeds from debtor-in-possession credit facilities......................... 22,448 -- --
Proceeds from short-term borrowings.............................................. 7,500 -- --
Repayment of short-term borrowings............................................... (7,500) -- --
Advances from affiliate, net..................................................... 10,730 11,028 1,903
Proceeds from the exercise of options and warrants............................... 282 29,423 2,299
--------- --------- ---------
Net cash provided by financing activities........................................ 33,460 121,729 16,162
--------- --------- ---------
Net decrease in cash and cash equivalents........................................ (2,623) (1,936) (110,291)
Cash and cash equivalents, beginning of year..................................... 5,949 7,885 118,176
--------- --------- ---------
Cash and cash equivalents, end of year........................................... $ 3,326 $ 5,949 $ 7,885
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest........................................................... $ 844 $ 3,021 $ 146
--------- --------- ---------
--------- --------- ---------
Cash paid for professional fees in connection with Chapter 11 Proceeding......... $ 5,461 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-19
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON TREASURY ADDITIONAL EARNINGS
---------------------- ---------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS DEFICIT)
--------- ----------- --------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994.......... 37,503,356 $ 375 -- $ -- $ 94,573 $ 715 $ 2,428
Stock issued in acquisitions...... 10,325,492 103 7,771 200 163,805 -- --
Stock issued on exercise of
nonqualified stock options...... 894,267 9 34,064 602 1,687 -- --
Treasury shares acquired.......... -- -- (46,893) (879) 217 -- --
Cumulative translation
adjustment...................... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- (24,897)
--------- ----- --------- ----- ----------- ----- ------------
Balance at December 31, 1994........ 48,723,115 487 (5,058) (77) 260,282 715 (22,469)
Stock issued in acquisitions...... 200,000 2 -- -- 1,311 -- --
Stock issued on exercise of
nonqualified stock options...... 1,377,855 14 -- -- 3,387 -- --
Stock issued on exercise of
warrants........................ 7,234,500 72 -- -- 26,566 (616) --
Treasury shares acquired.......... -- -- (54,487) (511) -- -- --
Cumulative translation
adjustment...................... -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- (449,245)
--------- ----- --------- ----- ----------- ----- ------------
Balance at December 31, 1995........ 57,535,470 575 (59,545) (588) 291,546 99 (471,714)
Stock issued on exercise of
nonqualified stock options...... 170,000 2 -- -- 280 -- --
Cumulative translation adjustment -- -- -- -- -- -- --
Net loss.......................... -- -- -- -- -- -- (83,834)
--------- ----- --------- ----- ----------- ----- ------------
Balance at December 31, 1996........ 57,705,470 $ 577 (59,545) $ (588) $ 291,826 $ 99 $ (555,548)
--------- ----- --------- ----- ----------- ----- ------------
--------- ----- --------- ----- ----------- ----- ------------
<CAPTION>
CUMULATIVE TOTAL
TRANSLATION EQUITY
ADJUSTMENT (DEFICIT)
------------- ---------
<S> <C> <C>
Balance at January 1, 1994.......... $ -- $ 98,091
Stock issued in acquisitions...... -- 164,108
Stock issued on exercise of
nonqualified stock options...... -- 2,298
Treasury shares acquired.......... -- (662)
Cumulative translation
adjustment...................... 25 25
Net loss.......................... -- (24,897)
----- ---------
Balance at December 31, 1994........ 25 238,963
Stock issued in acquisitions...... -- 1,313
Stock issued on exercise of
nonqualified stock options...... -- 3,401
Stock issued on exercise of
warrants........................ -- 26,022
Treasury shares acquired.......... -- (511)
Cumulative translation
adjustment...................... (116) (116)
Net loss.......................... -- (449,245)
----- ---------
Balance at December 31, 1995........ (91) (180,173)
Stock issued on exercise of
nonqualified stock options...... -- 282
Cumulative translation adjustment 153 153
Net loss.......................... -- (83,834)
----- ---------
Balance at December 31, 1996........ $ 62 $(263,572)
----- ---------
----- ---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-20
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position and results of operations of Discovery Zone, Inc. and its subsidiaries
(collectively, the "Company"). The Company's primary business is the operation
of children's indoor entertainment facilities principally in the United States.
All material intercompany accounts and transactions have been eliminated.
Discovery Zone, Inc. and its nineteen domestic subsidiaries (collectively,
the "Discovery Zone Group") filed voluntary petitions for relief under Chapter
11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on
March 25, 1996 (the "Petition Date"). The Company's subsidiary in Canada, which
had 1996 revenues of approximately $3,500,000 and assets of approximately
$2,200,000 at December 31, 1996, did not file for protection under Chapter 11 of
the Bankruptcy Code. As a result of reorganization proceedings, the consolidated
financial statements and notes thereto are subject to material uncertainties,
the outcome of which is presently not determinable. The Company's consolidated
financial statements are prepared on a going concern basis and do not include
any adjustments that might result from the outcome of these uncertainties or the
effect of any changes which may be made in connection with the Company's
capitalization or operations resulting from a plan of reorganization.
Additionally, the Company may sell additional assets or otherwise realize assets
and liquidate or settle liabilities and contingencies for amounts other than
those reflected on the consolidated financial statements and notes thereto. The
consolidated financial statements reflect accounting principles and practices
set forth in American Institute of Certified Public Accountants Statement of
Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code." SOP 90-7 provides guidance for financial reporting by
entities that have filed voluntary petitions for relief under, and anticipate
reorganizing in accordance with, the Bankruptcy Code. See Note 2, Bankruptcy
Matters.
The Company's recent history of operating losses, together with the
uncertainties inherent in the bankruptcy process, raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are discussed in Note 16. The Company's ability to
continue as a going concern is dependent upon acceptance of the plan of
reorganization discussed in Note 16 by the United States Bankruptcy Court and
the Company's creditors, securing on-going debtor-in-possession or additional
exit financing, compliance with all debt covenants under the existing debtor-in-
possession financing and the success of future operations.
The preparation of consolidated 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 and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
The financial statements reflect, in the opinion of management, all material
adjustments necessary to present fairly the Company's financial position and
results of operations.
The accompanying consolidated financial statements of the Company have been
restated to include the accounts and operations of certain business acquisitions
accounted for under the pooling of interests method of accounting, as more fully
described in Note 5, Business Combinations, Sales and Disposals. Additionally,
the Company changed its method of accounting for certain preopening costs as
more fully described in Note 20, Cumulative Effect of Change in Method of
Accounting.
F-21
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Certain amounts in the 1995 and 1994 consolidated financial statements have
been reclassified to conform with the presentation in the 1996 financial
statements.
(2) BANKRUPTCY MATTERS
On the Petition Date, each member of the Discovery Zone Group filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court. These cases are being jointly administered for procedural
purposes. None of the cases has been substantively consolidated. Under the
Bankruptcy Code, the members of the Discovery Zone Group will continue to manage
their respective affairs and operate their businesses as debtors-in-possession.
As a debtor-in-possession under the Bankruptcy Code, no member of the Discovery
Zone Group may engage in any transaction outside the ordinary course of business
without the approval of the Bankruptcy Court. The following discussion describes
certain aspects of the Bankruptcy Code and its application to Chapter 11 cases
of the Discovery Zone Group (the "Chapter 11 Cases"), but it is not intended to
be a complete summary.
Pursuant to Section 362 of the Bankruptcy Code, the commencement of the
Chapter 11 Cases created an automatic stay, applicable generally to creditors
and other parties in interest, of: (i) the commencement or continuation of a
judicial, administrative or other actions or proceedings against the Discovery
Zone Group that was or could have been commenced prior to the commencement of
the Chapter 11 Cases, (ii) the enforcement against the Discovery Zone Group or
their property of any judgments obtained prior to the commencement of the
Chapter 11 Cases, (iii) the taking of any action to obtain possession of
property of the Discovery Zone Group or to exercise control over such property,
(iv) the creation, perfection or enforcement of any lien against the property of
the bankruptcy estates of the Discovery Zone Group, (v) any act to create,
perfect or enforce against the property of the Discovery Zone Group any lien
that secures a claim against the Discovery Zone Group that arose prior to the
commencement of the Chapter 11 Cases, (vi) the taking of any action to collect,
assess or recover claims against the Discovery Zone Group that arose before the
commencement of the Chapter 11 Cases, (vii) the set off of any debt owing to the
Discovery Zone Group that arose prior to the commencement of the Chapter 11
Cases against any claim against the Discovery Zone Group, or (viii) the
commencement of the continuation of a proceeding before the United States Tax
Court concerning any member of the Discovery Zone Group. Any entity may apply to
the Bankruptcy Court, upon appropriate showing of cause, for relief from the
automatic stay to exercise the foregoing remedies.
As noted above, the members of the Discovery Zone Group are authorized to
manage their respective properties and operate their respective businesses
pursuant to Sections 1107 and 1108 of the Bankruptcy Code. During the course of
the Chapter 11 Cases, the Discovery Zone Group will be subject to the
jurisdiction and supervision of the Bankruptcy Court.
Under Section 1121 of the Bankruptcy Code, for 120 days following the
Petition Date, only the debtor-in-possession has the right to propose and file a
plan of reorganization with the Bankruptcy Court. If a debtor-in-possession
files a plan of reorganization during this 120-day exclusivity period, no other
party may file a plan of reorganization until 180 days following the Petition
Date, during which period the debtor-in-possession has the exclusive right to
solicit acceptances of the proposed plan. If a debtor-in-possession fails to
file a plan during the 120-day exclusivity period or such additional period as
may be ordered by the Bankruptcy Court or, after such plan has been filed, fails
to obtain acceptance of such plan from impaired classes of creditors and equity
security holders during the exclusive solicitation period, any party in
interest, including a creditors' committee, an equity security holders'
committee, a creditor or an
F-22
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) BANKRUPTCY MATTERS (CONTINUED)
equity security holder, may file a plan of reorganization for such debtor.
Additionally, if the Bankruptcy Court were to appoint a trustee, the exclusivity
period, if not previously terminated, would terminate.
After a plan of reorganization has been filed with the Bankruptcy Court, it
is sent, together with a disclosure statement approved by the Bankruptcy Court
following a hearing, to members of all classes of impaired creditors and equity
security holders for acceptance or rejection. Following acceptance or rejection
of any plan by impaired classes of creditors and equity security holders, the
Bankruptcy Court, after notice and a hearing, would consider whether to confirm
the plan. A joint plan of reorganization was mailed to creditors for approval on
March 26, 1997 (see Note 16).
Among other things, to confirm a plan, the Bankruptcy Court is required to
find: (i) with respect to each class of impaired creditors and equity security
holders, that each holder of a claim or interest of such class either (A) will,
pursuant to the plan, receive or retain property of a value, as of the effective
date of the plan, that is at least as much as such holder would have received in
a liquidation on such date of the members of the Discovery Zone Group or (B) has
accepted the plan, (ii) with respect to each class of claims or equity security
holders, that such class has accepted the plan or is not impaired under the
plan, and (iii) confirmation of the plan is not likely to be followed by the
liquidation or need for further financial reorganization of the Company or any
successor unless such liquidation or reorganization is proposed in the plan.
If any impaired class of creditors or equity security holders does not
accept a plan and assuming that all of the other requirements of Section 1129(a)
of the Bankruptcy Code are met, the proponent of the plan may invoke the
so-called "cramdown" provisions of Section 1129(b) of the Bankruptcy Code. Under
these provisions, the Bankruptcy Court may confirm a plan, notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity security
holders, if certain requirements of the Bankruptcy Code are met. These
requirements include that (i) the plan does not discriminate unfairly and (ii)
the plan is fair and equitable, with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan. As used in the
Bankruptcy Code, the phrases "discriminate" and "fair and equitable" have narrow
and specific meanings, and their use herein is qualified in its entirety by
reference to the Bankruptcy Code.
The Consolidated Financial Statements represent the financial activity of
Discovery Zone, Inc. (Debtor-in-Possession), including all members of the
Discovery Zone Group which filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code, as well as the Canadian subsidiary not seeking such
relief.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of ninety days or less to be cash and cash equivalents. Such investments are
valued at quoted market prices.
RECEIVABLES
The Company has recorded a reserve for uncollectible accounts of
approximately $974,000 and $2,185,000 at December 31, 1996 and 1995,
respectively. The Company believes that the carrying amount of accounts
receivable at December 31, 1996 and 1995 approximates the fair value at such
date.
F-23
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories, consisting primarily of equipment, facility operating supplies,
food and apparel items, are valued at the lower of cost (first in, first out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
expense is provided using the straight-line method over the lesser of the
estimated lives of the related assets or the lease term. Property and equipment
at December 31 consists of the following:
<TABLE>
<CAPTION>
LIFE (IN YEARS) 1996 1995
--------------- ---------- ----------
<S> <C> <C> <C>
Land...................................................................... -- $ 8,164 $ 16,325
Building and improvements................................................. 20-40 9,190 8,926
Equipment, furniture and fixtures......................................... 3-12 74,533 80,978
Leasehold improvements.................................................... 5-20 42,094 44,104
Computer equipment and software........................................... 3-5 7,705 8,539
---------- ----------
141,686 158,872
Less accumulated depreciation and amortization............................ (31,305) (11,132)
---------- ----------
Property and equipment, net............................................... $ 110,381 $ 147,740
---------- ----------
---------- ----------
</TABLE>
Depreciation and amortization expense related to property and equipment was
approximately $21,876,000, $28,466,000 and $14,846,000 in 1996, 1995 and 1994,
respectively. Additions to property and equipment are capitalized and include
costs to design, acquire and install property and equipment, costs incurred in
the location, development and construction of new facilities, major improvements
to existing property and direct incremental costs incurred in the development of
management information systems. As property and equipment is sold or retired,
the applicable cost and accumulated depreciation and amortization are eliminated
from the accounts and any gain or loss thereon is recorded.
In 1995, the Company elected early adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, this statement requires that long-lived assets and
certain identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Company completed its
review of property and other assets in accordance with SFAS No. 121 and adjusted
the carrying values of those assets in the fourth quarter of 1995. No further
adjustments were made in 1996. See Note 17, Other Charges for further
discussion.
Concurrent with the adoption of SFAS No. 121, the Company changed the useful
lives of its leasehold improvements to the lesser of the useful life or the term
of the lease, excluding renewal options, effective in the fourth quarter of
1995. Effective January 1, 1996, the Company reduced the period of depreciation
for certain equipment, furniture and fixtures from its useful life to the lesser
of its useful life or the term of leases for locations at which these items are
placed. This change is an accounting change in the estimate of the useful lives
of property and is accounted for on a prospective basis beginning January 1,
1996. The effect of this change was to increase 1996 depreciation expense by
approximately $6,096,000.
F-24
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT AWAITING DISPOSITION
Property and equipment awaiting disposition is stated at the lower of
depreciated cost or fair value less costs to sell. The classification of
property and equipment awaiting disposition is based upon management's decision
to dispose and represents undeveloped land held for sale at December 31, 1996
and indoor playground equipment, kitchen equipment, furniture and fixtures, and
leasehold improvements of duplicate facilities which have been closed or sold at
December 31, 1995. Early adoption of SFAS No. 121 had no cumulative effect on
property and equipment awaiting disposition at January 1, 1995.
INTANGIBLE ASSETS
Intangible assets consisted primarily of the cost of acquired business in
excess of the market value of net tangible and identifiable intangible assets
acquired and the cost of territory rights acquired. Territory rights include
amounts paid to former franchisees to reacquire development rights in market
areas previously granted to them under area development agreements. The
reacquisition of these territories gives the Company the exclusive right to
develop the markets with Company-owned facilities or grant development rights to
others, at its discretion. The cost in excess of the market value of net
tangible and identifiable intangibles and the cost of territory rights were
amortized on a straight-line basis over 40 years.
Subsequent to an acquisition, the Company periodically evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life or cost of acquired businesses in excess of the market
value of net tangible and identifiable intangible assets acquired may warrant
revision or that the remaining balance of such costs may not be recoverable. The
Company uses an estimate of the Company's undiscounted net income over the
remaining life of the costs of acquired businesses in excess of the market value
of net tangible and identifiable intangible assets acquired in measuring whether
the costs are recoverable. Certain events and circumstances occurred during 1995
that indicated that the carrying amounts of the cost of acquired businesses in
excess of the market value of net tangible and identifiable intangible assets
and the cost of territory rights acquired may not be recoverable. Accordingly,
the remaining carrying amounts relating to all of the Company's intangible
assets were written down to zero during the fourth quarter of 1995. See Note 17,
Other Charges, for a discussion of the events and circumstances resulting in
impairment losses recognized. The Company does not believe any impairment in the
costs of acquired businesses in excess of the market value of net tangible and
identifiable intangible assets occurred as of December 31, 1994 under the
Company's policy of evaluating the recoverability of these assets because
substantially all of the related acquisitions occurred in 1994.
Amortization expense related to intangible assets was approximately
$3,506,000 and $1,337,000 in 1995 and 1994, respectively.
See Note 20, Cumulative Effect of Change in Method of Accounting, for a
discussion of the Company's change in method of accounting for certain
preopening costs.
REVENUE RECOGNITION
Revenue from Company-owned facilities is recognized at the time of sale.
Revenue from franchisees is recognized when all material services or conditions
required under the Company's franchise agreement have been performed by the
Company.
F-25
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED INTEREST
Interest costs have been capitalized on facility expenditures during the
construction period in accordance with Statement of Financial Accounting
Standards No. 34, "Capitalization of Interest Costs". Interests costs
capitalized as an offset to interest expense were approximately $197,000 and
$953,000 in 1995 and 1994, respectively.
LOSS PER SHARE
Loss per share is calculated by dividing the net loss by the weighted
average number of shares outstanding during the period plus share equivalents,
when the share equivalents are not anti-dilutive. Share equivalents represent
options and warrants with an exercise price below fair market value for any of
the periods presented. See Note 16.
(4) LIABILITIES SUBJECT TO COMPROMISE
Under the Bankruptcy Code, certain claims against the Discovery Zone Group
arising prior to the Petition Date are automatically stayed while the members of
the Discovery Zone Group continue business operations as debtors-in-possession.
It is anticipated that these prepetition liabilities will be compromised under a
plan of reorganization and are separately classified in the consolidated balance
sheet as liabilities subject to compromise and include the following at December
31, 1996:
<TABLE>
<S> <C>
Accounts payable.................................................................. $ 27,213
Accrued liabilities............................................................... 27,446
Lease rejection claims (see Note 12).............................................. 18,767
Note payable to affiliate (see Notes 5 and 6)..................................... 13,215
Other amounts payable to affiliate (see Note 6)................................... 22,724
Priority tax claims............................................................... 5,000
Payable under credit agreement with banks (see Note 8)............................ 101,900
Subordinated convertible debt (see Note 9)........................................ 128,643
---------
Total liabilities subject to compromise........................................... $ 344,908
---------
---------
</TABLE>
Accrued liabilities includes amounts accrued for claims related to lawsuits
and other legal matters and represents management's best estimate of the allowed
amounts of those claims. See further discussion in Note 2, Bankruptcy Matters.
Additional claims may arise from the termination of contracts entered into
by any member of the Discovery Zone Group prior to the Petition Date and the
allowances or settlement of disputed claims. All such claims will be liabilities
subject to compromise and, consequently, the amounts included in the
consolidated balance sheet as liabilities subject to compromise may be subject
to further adjustments.
The Company has not accrued interest under the bank credit agreement (see
Note 8), its subordinated convertible debt (see Note 9) and its note payable to
affiliate (see Note 6) as it is unlikely such interest will be paid under the
Plan of Reorganization (see Note 16). The amount of contractual interest on such
obligations during the period from March 25, 1996 to December 31, 1996 which was
not accrued was approximately $11,900,000.
F-26
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) BUSINESS COMBINATIONS, SALES AND DISPOSALS
During 1993, the Company acquired 27 franchised Discovery Zone facilities
and all of the outstanding capital stock of I&S Consultants, Inc. ("I&S") and
VLT, Inc. ("VLT"), which together own an approximately 42,000 square foot family
entertainment center and restaurant known as "Enchanted Castle."
During 1994, the Company acquired several businesses and joint venture
interests for an aggregate of $4,727,000 in cash and 10,387,999 shares of common
stock, which included: (i) Leaps and Bounds, Inc. ("Leaps & Bounds"), a wholly
owned subsidiary of McDonald's Corporation ("McDonald's"), which owned 48
children's indoor entertainment and fitness facilities; (ii) Blockbuster
Children's Amusement Corporation, Tumble For Fun Limited Partnership and
Blockbuster Children's Amusement Canada Corporation (collectively, the
"Blockbuster Entities"), each a subsidiary of Blockbuster Entertainment
Corporation (prior to its merger with Viacom, Inc. ("Viacom") in September 1994,
"BEC") which owned 60 franchised Discovery Zone entertainment facilities; (iii)
Wright Entertainment Group, Inc. ("WEGI"), which owned three family
entertainment facilities; (iv) Jungle Junction, Inc. ("JJI") and Kids Playworld,
Inc. ("KPI"), each of which owned a children's indoor entertainment and fitness
facility; and (v) companies which owned nine additional franchised Discovery
Zone entertainment facilities. The Company also acquired a controlling interest
in Semborg Corp. ("Semborg"), a developer of interactive environments and
characters. See Note 6, Related Party Transactions, for further discussion of
transactions with Viacom.
The acquisitions of I&S, VLT, JJI and the businesses which operated 18
Discovery Zone facilities were accounted for under the pooling of interests
method of accounting and accordingly, the Company's consolidated financial
statements and notes thereto have been restated as if the companies had operated
as one entity since inception. Prior to such acquisition, the acquired Companies
utilized depreciation methods and lives which differed from those used by the
Company. Accordingly, the consolidated financial statements reflect adjustments
to conform the depreciation methods and lives to those used by the Company, as
well as certain straight-line rental adjustments. The amount of these
adjustments was not significant. In addition, certain eliminations, primarily
related to franchise fees and royalties and the sale of equipment to former
franchisees, have been reflected in these financial statements.
The acquisitions of Leaps & Bounds, the Blockbuster Entities, WEGI, Semborg,
KPI and the entities that operated 23 Discovery Zone entertainment facilities
were accounted for under the purchase method of accounting and are included in
the Company's consolidated financial statements from the dates of acquisition.
The purchase price in each of these acquisitions was allocated to the net
tangible and identifiable intangible assets acquired based on their estimated
fair market values. In each case, the cost of the intangible assets of such
business acquired was amortized over 40 years on a straight-line basis.
On May 24, 1995, the Company purchased from a subsidiary of Viacom
substantially all assets pertaining to the operation of two family entertainment
centers operating under the name "Block Party". The purchase price was
$13,215,000 and was paid through the issuance of a subordinated promissory note
having a ten-year term (the "BFF Note"). Interest on such note accrued at the
one-month London Interbank Offered Rate ("LIBOR") plus .75% and was payable
quarterly. The principal of the note was payable in varying annual amounts
beginning in the fourth year. Under the purchase agreement, the Company was
assigned certain real and personal property leases related to the operations of
the entertainment facilities and assumed all liabilities arising thereunder. See
Note 6, Related Party Transactions, for a further discussion of transactions
with Viacom.
During the year ended December 31, 1995, the Company also acquired
businesses that own and operate indoor recreational facilities for children for
an aggregate of $5,300,000 in cash and 200,000 shares
F-27
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) BUSINESS COMBINATIONS, SALES AND DISPOSALS (CONTINUED)
of common stock. All businesses acquired during the year ended December 31, 1995
were accounted for under the purchase method of accounting and are included in
the consolidated financial statements since the dates of acquisition.
On February 8, 1996, the Company sold all issued and outstanding stock of
two wholly owned subsidiaries I & S Consultants and VLT, Inc., which together
owned and operated The Enchanted Castle, a family entertainment facility located
in Lombard, Illinois for $2,800,000.
On March 8, 1996, the Company sold all issued and outstanding stock of its
Wright Entertainment Group subsidiary for $2,000,000.
During 1996, the Company closed 101 of its indoor entertainment facilities
resulting in a loss on asset disposals of $8,867,000. Proceeds from sale of
property and equipment at these locations totaled $1,753,000.
Revenue and net loss of the previously separate companies for the periods
before the pooling of interests business combination was consummated (after
reflecting the effect of intercompany eliminations) are as follows for the year
ended December 31, 1994:
<TABLE>
<S> <C>
Revenue:
Company......................................................... $ 179,825
Acquired businesses, net of eliminations........................ 748
---------
$ 180,573
---------
---------
Net loss:
Company......................................................... $ (25,034)
Acquired businesses, net of eliminations........................ 137
---------
$ (24,897)
---------
---------
</TABLE>
The Company's consolidated results of operations for the years ended
December 31, 1995 and 1994 prepared on an unaudited pro forma basis assuming
businesses acquired and accounted for as purchases in 1995 and 1994 had occurred
as of January 1, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Revenues as reported..................................................................... $ 259,490 $ 180,573
Revenue of purchased businesses for the period prior to acquisition, net of
eliminations........................................................................... 3,170 41,056
----------- ----------
Pro forma revenue........................................................................ $ 262,660 $ 221,629
----------- ----------
----------- ----------
Net loss as reported..................................................................... $ (449,245) $ (24,897)
Net loss of purchased businesses for period prior to acquisition......................... (238) (12,269)
Adjustment for interest and goodwill amortization........................................ (494) (2,171)
----------- ----------
Pro forma loss........................................................................... $ (449,977) $ (39,337)
----------- ----------
----------- ----------
Loss per share as reported............................................................... $ (8.06) $ (0.53)
Effect of purchased businesses prior to acquisition...................................... (0.01) (0.31)
----------- ----------
Pro forma loss per share................................................................. $ (8.07) $ (0.84)
----------- ----------
----------- ----------
</TABLE>
F-28
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) BUSINESS COMBINATIONS, SALES AND DISPOSALS (CONTINUED)
Business acquisitions and investments during the years ended December 31,
1995 and 1994 which included the use of cash were accounted for as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Property and equipment....................................................................... $ 1,276 $ 1,654
Intangibles.................................................................................. 31,657 2,982
Other assets................................................................................. 16 1,201
Working capital deficiency, excluding cash acquired.......................................... (956) (944)
Long-term obligations........................................................................ (13,215) (141)
Other noncurrent liabilities................................................................. (13,478) --
---------- ---------
$ 5,300 $ 4,752
---------- ---------
---------- ---------
</TABLE>
Business acquisitions during the years ended December 31, 1995 and 1994
which involved the issuance of the Company's common stock, $.01 par value
("Common Stock") were accounted for as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash...................................................................................... $ -- $ 25
Working capital deficiency, excluding cash acquired....................................... -- (22,130)
Property and equipment.................................................................... -- 102,819
Intangibles............................................................................... 1,313 97,443
Other assets.............................................................................. -- 675
Long-term obligations..................................................................... -- (1,855)
Other noncurrent liabilities.............................................................. -- (12,869)
---------- ----------
$ 1,313 $ 164,108
---------- ----------
---------- ----------
Common stock issuance allocated to:
Common stock.............................................................................. $ 2 $ 103
Treasury stock............................................................................ -- 200
Additional paid-in-capital................................................................ 1,311 163,805
---------- ----------
$ 1,313 $ 164,108
---------- ----------
---------- ----------
</TABLE>
(6) RELATED PARTY TRANSACTIONS
On September 2, 1994, the Company acquired the Blockbuster Entities from
Blockbuster Fun & Fitness Holding Corporation, an indirect wholly-owned
subsidiary of BEC, prior to BEC's merger with Viacom. The Company paid to BEC as
consideration for the acquisition 4,624,597 shares of Common Stock. At the time
of the acquisition, the Blockbuster Entities owned 60 franchised Discovery Zone
facilities and certain franchised territories in the United States and Canada.
Separately, on September 2, 1994, BEC, through its indirect wholly-owned
subsidiary, Blockbuster Discovery Investment, Inc., exercised its option to
purchase from the former partners of DKB Investments, L.P. (which was at the
time the largest stockholder of the Company, "DKB"), a number of shares of
Common Stock sufficient to increase BEC's indirect equity ownership in the
Company to 49.9%. Pursuant to the merger of BEC into Viacom, Viacom succeeded to
BEC's equity ownership interest in the Company. At the time of these
transactions, Donald F. Flynn, who was then Chairman of the Board and Chief
Executive Officer of the Company, was a
F-29
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
director of BEC, and H. Wayne Huizenga, who was then Chairman of the Board and
Chief Executive Officer of BEC, and John J. Melk, who was then a director of
BEC, were directors of the Company.
On May 24, 1995 (the "MSA Effective Date"), a Management Services Agreement
("MSA") between the Company and Viacom became effective providing for the
services of Viacom's division, Blockbuster Entertainment Group ("Blockbuster"),
in connection with the overall coordination and supervision of the business of
the Company and the day-to-day operations and business affairs of the Company.
Responsibility for management of the Company beyond the scope of Viacom's
services under the MSA was placed with a Special Committee of the Board of
Directors of the Company (the "Special Committee"), consisting of the
independent directors, Messrs. McGrath and Muething. On the MSA Effective Date,
all members of the Board of Directors except Steven R. Berrard and Donald F.
Flynn resigned (including H. Wayne Huizenga, George D. Johnson, Jr., James R.
Jorgensen, John T. McCarthy, John J. Melk, Peer Pedersen and Gerald F. Seegers).
The MSA has an initial term of five years and thereafter will be extended
automatically for one year renewal periods unless terminated by either party on
six months' prior notice. In payment for the management services to be provided
under the MSA, the Company is required to pay Viacom a quarterly fee equal to
the actual costs, fees, expenses and reimbursements of the services provided,
and a fair and reasonable allocation of overhead expenses incurred by Viacom in
providing such services, during the preceding calendar quarter. In addition, on
the MSA Effective Date, the Company issued to Viacom 157,821 Series A Warrants,
157,821 Series B Warrants, and 157,821 Series C Warrants. See Note 11, Warrants
and Options, for further discussion.
Also on the MSA Effective Date, the Company purchased from a subsidiary of
Viacom substantially all assets pertaining to the operations of two family
entertainment centers operating under the name "Block Party". As of December 31,
1995, the Board of Directors of the Company was composed of Steven R. Berrard,
Frank J. Biondi, Jr., Philippe P. Dauman, Donald F. Flynn, J. Brian McGrath,
John L. Muething and Sumner M. Redstone. Messrs. Biondi, Dauman, McGrath,
Muething and Redstone were elected to the Board on May 24, 1995, pursuant to the
MSA. As of December 31, 1995, Messrs. Berrard, Biondi, Dauman and Redstone were
officers and/or directors of Viacom, which owns approximately 49% of the
Company's outstanding Common Stock, and Messrs. Berrard, Biondi, Dauman,
McGrath, Muething and Redstone were directors of Spelling Entertainment Group
("Spelling"), an affiliate of Viacom. In connection with his resignation as the
Chief Executive Officer and a director of Viacom and as a director of Spelling,
Mr. Biondi resigned as a director of the Company on January 17, 1996. Mr. Flynn
resigned as Chairman of the Board of Directors of the Company on February 27,
1996. In connection with his resignation as the Chief Executive Officer of
Blockbuster and as a director of Viacom and Spelling, Mr. Berrard resigned as
the Chief Executive Officer and a director of the Company on March 19, 1996.
Messrs. Dauman and Redstone resigned as directors of the Company on March 24,
1996 and Mr. McGrath resigned as a director and as a member of the Special
Committee on March 27, 1996.
Donna R. Moore, then President and Chief Operating Officer of Discovery
Zone, Inc., and Adam D. Phillips, Senior Vice President and General Counsel of
Blockbuster, were appointed to the Board of Directors of the Company on March
24, 1996. Dr. James M. Rippe was appointed to the Board of Directors of the
Company on June 20, 1996. At March 31, 1997, Donna Moore, John Muething, Dr.
James Rippe and Adam Phillips were the Company's directors.
On January 12, 1996, Discovery Zone, Inc. received an interim working
capital loan of up to $10,000,000. This loan was guaranteed by Viacom and
matured on February 6, 1996. On February 6, 1996, the Company did not make its
scheduled repayment of the principal or accrued interest on the loan. The
F-30
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) RELATED PARTY TRANSACTIONS (CONTINUED)
outstanding principal on the loan was $7,500,000. On February 7, 1996, the
principal amount of $7,500,000 and accrued interest was paid to the lender by
Viacom. As a result of its performance as guarantor, Viacom is subrogated to the
lender's right to receive payments of such amounts from the Company.
In summary, at December 31, 1996 the Company has a prepetition amount due to
Blockbuster/ Viacom, excluding the principal amount of the BFF Note, for
approximately $22,725,000, relating primarily to $5,663,000 in reimbursements
for construction and other costs of certain subsidiaries of Blockbuster
previously incurred by Blockbuster, $6,998,000 in other operating costs paid by
Blockbuster on behalf of the Company, $7,527,000 in repayment of debt and
accrued interest thereon paid by Viacom on behalf of the Company, accrued
interest of $748,000 on the BFF Note and $1,789,000 due Blockbuster under the
MSA. Viacom's ability to receive such amounts will be determined during the
Discovery Zone's bankruptcy proceedings. Accordingly, these amounts are included
in liabilities subject to compromise. See Note 4, Liabilities Subject to
Compromise, for further discussion of these matters.
In 1996, the Company incurred $3,724,000 of other obligations to Blockbuster
under the MSA including obligations to reimburse Blockbuster for insurance and
other costs paid on behalf of the Company, of which $1,424,000 was incurred and
$521,000 was paid after March 25, 1996.
In settlement of all of Viacom's prepetition general unsecured claims
against the Discovery Zone Group and all claims which the Discovery Zone Group
or the holder of the claims against the Discovery Zone Group may hold against
Viacom, the Discovery Zone Group and Viacom have agreed, subject to Bankruptcy
Court approval, that Viacom's prepetition unsecured claims shall entitle Viacom
to receive no property under a plan of reorganization. In exchange for this
treatment, the Discovery Zone Group will (i) satisfy in full a claim which
Iwerks Studios, Inc. holds against the Discovery Zone Group, and which is
guaranteed by Blockbuster, in the amount of $61,500, (ii) assume thirty leases
of the Discovery Zone Group, which are guaranteed by Viacom, and assign them to
Blockbuster and (iii) pay Viacom's postpetition administrative claims for
expenses advanced by Viacom on behalf of the Discovery Zone Group of
approximately $903,000 and obligations incurred under the MSA subject to any
setoff paid on behalf of Viacom. In connection with this settlement, the MSA
will be terminated.
The Company currently subleases approximately 30,000 square feet of office
space from Blockbuster at an annual cost of approximately $600,000. A division
of Blockbuster currently occupies approximately 7,500 square feet of this space
thereby mitigating approximately $128,000 of the Company's cost. Blockbuster has
informed the Company that it is relocating and will be terminating its lease no
later than June 30, 1998.
The Company and a corporation owned by one of the Company's principal
stockholders were previously parties to a consulting arrangement, pursuant to
which the Company paid approximately $90,000 and $180,000 in 1995 and 1994,
respectively, for consulting and related services. In addition, the Company paid
to this corporation approximately $59,000 and $98,000 in 1995 and 1994,
respectively, for the use of its private airplanes. Agreements between the
Company and this corporation for consulting services and use of airplanes were
terminated as of July 1, 1995. This principal stockholder is also a director of
Psychemedics Corporation ("Psychemedics"), a provider of drug testing services.
The Company entered into an agreement with Psychemedics for certain drug testing
services and paid Psychemedics approximately $186,000, $468,000, and $358,000
during 1996, 1995 and 1994, respectively, for such services.
During 1994, the Company earned revenue of approximately $15,000,000 from
the Blockbuster Entities relating to equipment sales, franchise fees, royalties,
and franchise-related fees.
F-31
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) NOTE PAYABLE
In connection with the 1994 acquisition of Leaps & Bounds, the Company,
through a wholly owned subsidiary, received fee simple ownership of certain
parcels of real property. See Note 5, Business Combinations, Sales and
Disposals, for a discussion of the Leaps & Bounds acquisition. Each parcel of
real property is encumbered by a mortgage or deed of trust in favor of
McDonald's, which serves to secure certain indemnity obligations owed by the
Company to McDonald's. Notwithstanding the Company's bankruptcy proceedings, in
the event the Company does not discharge its indemnity obligations, McDonald's
may be permitted to foreclose on its mortgage or deed of trust and become the
owner of one or more of such parcels of real property.
By order dated November 15, 1996, the Discovery Zone Group was granted
authority by the Bankruptcy Court to enter into, and perform under, a
stipulation with McDonald's (the "McDonald's Stipulation") which provides for a
global resolution of issues relating to, among other things, the assumption and
rejection of leases of property where McDonald's is the sublessor and Leaps &
Bounds is the sublessee (the "L&B" Subleases"); rent deferrals which McDonald's
will grant to Leaps & Bounds in respect of certain assumed L&B Subleases; the
treatment of secured claims which McDonald's holds against Debtors arising from
the rejection and assumption of the L&B Subleases, as well as the future rent
deferrals to be granted in respect of certain of the L&B Subleases.
The McDonald's Stipulation provided that Leaps & Bounds assume L&B Subleases
with respect to 21 FunCenters (the "Assumption Locations") and to reject to the
L&B Subleases with respect to 17 FunCenters, which the Discovery Zone Group also
requested the Court's authority to close. The Discovery Zone Group, upon Leaps &
Bounds assuming the L&B Subleases for the Assumption Locations, cured all unpaid
rent and other charges under these subleases pursuant to section 365(b) of the
Bankruptcy Code, which cure payments total approximately $528,000. McDonald's
rejection claims related to the 17 closed Fun Centers totaled $4,666,000. The
McDonald's Stipulation provides that McDonald's will receive cash payments in
equal installments over six years beginning on the first anniversary of the
effective date of the confirmation of the reorganization plan with simple
interest from that date on the unpaid balance at the prime rate (or upon such
other terms determined by the Bankruptcy Court such that the note will have a
value, as of the effective date, equal to $4,666,000).
McDonald's also granted the Discovery Zone Group rent deferrals (the "Rent
Deferrals") under the L&B Subleases totaling $398,000 annually for nine
Assumption Locations representing a total rent deferral of approximately
$2,840,000 over the next eight years. Pursuant to the McDonald's Stipulation,
McDonald's will have an undisputed allowed administrative claim with respect to
Rent Deferrals which accrue prior to the effective date of the Discovery Zone
Group's Plan of Reorganization which claim is secured by real property owned by
Leaps & Bounds.
(8) LONG TERM OBLIGATIONS
The Company entered into a $175,000,000 credit agreement on December 22,
1994 (the "Credit Facility") with a consortium of banks. On September 15, 1995,
the Company became in default under the Credit Facility as a result of the
expiration of an amendment/waiver agreement entered into between the Company and
the lenders on June 30, 1995 which waived until September 15, 1995 certain
financial covenants contained in the credit agreement. As a result of the
expiration of the amendment/waiver agreement on September 15, 1995, the Company
became in default under certain financial covenants contained in the Credit
Facility and such default continued as of December 31, 1995. As such, the total
F-32
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) LONG TERM OBLIGATIONS (CONTINUED)
principal and interest related to such debt of $100,000,000 and $2,108,000,
respectively, at December 31, 1995 was classified as current liabilities on the
Company's balance sheet at December 31, 1995.
Another event of default occurred under the Credit Facility on the Petition
Date when the Discovery Zone Group filed voluntary petitions for relief under
the Bankruptcy Code in the Bankruptcy Court. Consequently, all unpaid principal
of, and accrued pre-petition interest on, amounts outstanding under the Credit
Facility became immediately due and payable. The payment of such debt and
accrued but unpaid interest thereon is prohibited during the pendency of the
Discovery Zone Group's bankruptcy cases other than pursuant to a court order. At
the Petition Date, these amounts totaling $101,900,000 were classified as
liabilities subject to compromise at December 31, 1996. Their ultimate outcome
will be determined during the bankruptcy proceedings. See Note 4, Liabilities
Subject to Compromise, for further discussion.
In connection with the Company's acquisition of substantially all assets
pertaining to the operation of two family entertainment centers operating under
the name "Block Party", the Company issued the BFF Note (see Note 5). At
December 31, 1995, the Company was in default under the BFF Note due to
nonpayment of interest, and as a result, the entire principal balance of, and
accrued interest on, such note was immediately due and payable. As such, these
amounts were classified as current liabilities on the Company's balance sheet as
of December 31, 1995. At December 31, 1995, the total principal and interest
related to such debt were $13,215,000 and $544,000, respectively. Another event
of default occurred as a result of the Discovery Zone Group's bankruptcy filing.
The entire principal balance of and accrued pre-petition interest on such note
were immediately due and payable. The payment of this amount is prohibited
during the pendency of the Discovery Zone Group's bankruptcy proceedings and is
included in Liabilities Subject to Compromise at December 31, 1996 (see Note 4).
The Company was required to pay a quarterly commitment fee of up to .5% on
the entire amount available under the Credit Facility. The payment of the
commitment fee is prohibited during the pendency of the Discovery Zone Group's
bankruptcy cases.
Long-term obligations at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Payable to banks under an unsecured credit agreement, interest at 7.49% at
December 31, 1995.............................................................. $ 100,000
Subordinated note payable to affiliate, interest at LIBOR plus .75% (6.38% at
December 31, 1995), due beginning in 1999...................................... 13,215
Capitalized lease obligations.................................................... 189
---------
Total obligations................................................................ 113,404
Less current portion............................................................. (113,390)
---------
$ 14
---------
---------
</TABLE>
(9) SUBORDINATED CONVERTIBLE DEBT
In October and November, 1993, the Company issued $293,250,000 aggregate
principal amount at maturity of Liquid Yield Option Notes "(LYONs"), a form of
subordinated convertible debt, due October 14, 2013. Net proceeds, after the
underwriting discount, amounted to approximately $111,000,000. No periodic
interest payments were required on the LYONs. Each LYON had an issued price of
$391.06 and had a principal amount due at maturity of $1,000 (representing a
yield to maturity of 4.75% per annum
F-33
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SUBORDINATED CONVERTIBLE DEBT (CONTINUED)
computed on a semi-annual bond equivalent basis). Each LYON was convertible into
13.485 shares of Common Stock, at the option of the holder, at any time on or
prior to maturity, was subordinated to all existing and future Senior
Indebtedness (as defined in the LYONs indenture agreement, "Indenture") of the
Company, and was redeemable on or after October 14, 1998, in whole or in part,
at the option of the Company, for cash in an amount equal to the issue price
plus accrued original issue discount to the date of redemption.
As a result of the Discovery Zone Group's bankruptcy filing, the Company is
currently in default under the Indenture governing the LYONs. Consequently, the
original issue price of the LYONs plus the accrued original issue discount of
the LYONs (the "Accreted Value") through the Petition Date is immediately due
and payable. The payment of such amount is prohibited during the pendency of the
Discovery Zone Group's bankruptcy case other than pursuant to a Bankruptcy Court
order. As of December 31, 1996, the Accreted Value was $128,643,000. At the
Petition Date this obligation became subject to compromise (see Note 4) and its
ultimate outcome will be determined during the bankruptcy proceedings.
(10) EQUITY (DEFICIT)
During the third quarter of 1995, the Company amended and restated its
certificate of incorporation and bylaws. As a result, the Company is authorized
to issue 100,000,000 shares of Common Stock and up to 10,000,000 shares of
preferred stock, $.01 par value ("Preferred Stock"). The Board of Directors may
issue such Preferred Stock at such time or times, in such series, with such
designations, preferences, special rights, limitations or restrictions thereof
as it may determine. The Board of Directors has designated a series of the
Preferred Stock as Series A Convertible Voting Participating Preferred Stock,
$.01 par value, 473,463 shares authorized, and none outstanding ("Series A
Preferred Stock"). Each share of Series A Preferred Stock will automatically
convert into 24 shares of Common Stock, subject to adjustments, immediately but
only following a sale of the Series A Preferred Stock, to a person unaffiliated
with Viacom. See Note 16.
(11) WARRANTS AND OPTIONS
Three warrants were issued to DKB during 1992. The first warrant ("Warrant
A") to acquire 48,000 general and 4,696,800 limited partner units in Discovery
Zone L.P. ("DZLP"), a Delaware limited partnership, at a price of approximately
$.95 per unit became exercisable in February 1993. This warrant was contributed
to the Company along with $4.5 million in exchange for 4,744,800 shares of
Common Stock in 1993. The second warrant ("Warrant B") to acquire 24,000 general
and 2,376,000 limited partner units in DZLP at a price of $2.50 per unit became
exercisable in May 1993 and will expire in May 1998. The third warrant ("Warrant
C") to acquire 60,000 general and 5,940,000 limited partner units in DZLP at a
price of approximately $4.165 per unit became exercisable in June 1994 and will
expire in June 1999. Warrants B and C allow the holder thereof to elect to
receive from the Company, in lieu of units of interest in DZLP, that number of
shares of Common Stock equal to the number of units of interest in DZLP such
holder would otherwise have been entitled to receive upon exercise of the
warrant. DKB and BEC have entered into an agreement pursuant to which each of
DKB and BEC agreed that if it exercises Warrant B or Warrant C, it will elect to
receive shares of Common Stock upon exercise.
On May 11, 1995, the Company received approximately $26,700,000 from the
Company's former Chairman and certain members of his family in connection with
the exercise of 2,067,000 and 5,167,500
F-34
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) WARRANTS AND OPTIONS (CONTINUED)
warrants of Warrants B and C, respectively, which were exchanged for an
aggregate of 7,234,500 shares of Common Stock. The Company used the proceeds
from exercise of these warrants to reduce debt.
On the MSA Effective Date (see Note 6, Related Party Transactions), the
Company issued to Viacom 157,821 Series A Warrants, 157,821 Series B Warrants
and 157,821 Series C Warrants. The Series A, Series B and Series C Warrants vest
on the first, second and third anniversaries of the MSA Effective Date,
respectively. All such vested warrants become exercisable on or after December
16, 1998, although such exercisability may be accelerated in certain
circumstances. Each warrant entitles Viacom to purchase one share of Series A
Preferred Stock of the Company. The exercise prices for the Series A, Series B
and Series C Warrants per share of the Common Stock into which the Series A
Preferred Stock is convertible are $10.375, $11.931 and $14.317, respectively.
In April 1993, the Company adopted a stock option plan (the "1993 Plan"),
whereby up to 6,000,000 shares of Common Stock may be granted to key employees,
consultants and directors of the Company. In addition, in July 1995, the Company
adopted the 1995 Long-Term Management Incentive Plan (the "1995 Plan") pursuant
to which up to 3,000,000 shares of Common Stock may be granted to certain key
employees and consultants of the Company. Options granted under the 1993 Plan
and the 1995 Plan are nonqualified and were granted at a price equal to the fair
market value at the date of grant. No options have been granted under the 1995
Plan.
In connection with the MSA, all shares available for future grant and all
options granted and outstanding relating to the Company's directors under the
1993 Plan were canceled if not exercised prior to the MSA Effective Date.
Additionally, the vesting of all non-director employee options outstanding at
the MSA Effective Date was accelerated to a date not later than November 24,
1995.
The following summarizes stock option transactions for the years ended
December 31 (see Note 16):
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Options outstanding at beginning of year................................... 2,924,802 3,805,191 3,783,171
Granted.................................................................... -- 794,861 1,589,676
Exercised.................................................................. (170,000) (1,377,855) (928,331)
Canceled................................................................... -- (297,395) (639,325)
---------- ----------- ----------
Options outstanding at end of year......................................... 2,754,802 2,924,802 3,805,191
---------- ----------- ----------
---------- ----------- ----------
Weighted average price of options outstanding at beginning of year......... $ 10.47 $ 7.92 $ 4.64
Weighted average price of options exercised................................ $ 1.66 $ 2.47 $ 2.48
Prices of options outstanding at end of year............................... $ 1.67 to $ 1.67 to $ 1.67 to
$ 24.63 $ 24.63 $ 24.63
Weighted average price of options outstanding at end of year............... $ 11.01 $ 10.47 $ 7.92
Vested options at end of year.............................................. 2,754,802 2,924,802 451,347
Options available for future grants at end of year......................... 129,351 129,351 1,083,351
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
In accordance with the Bankruptcy Code, the members of the Discovery Zone
Group can seek court approval for the rejection of pre-petition executory
contracts and real property leases. Any such rejection may give rise to a
pre-petition claim for damages pursuant to the Bankruptcy Code. In connection
with the
F-35
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
bankruptcy proceedings, the Discovery Zone Group rejected 91 real property
leases during 1996 and one lease through March 1997. Additional real property
leases and certain other executory contracts may be rejected in the future
subject to Bankruptcy Court approval.
Future minimum lease payments, where applicable, under noncancelable
operating leases entered into and not rejected prior to December 31, 1996, are
as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 26,349
1998.............................................................. 26,545
1999.............................................................. 25,072
2000.............................................................. 22,775
2001.............................................................. 21,088
Thereafter........................................................ 53,157
---------
$ 174,986
---------
---------
</TABLE>
Rental expense for operating leases during the years ended December 31,
1996, 1995 and 1994 amounted to approximately $41,137,000, $52,716,000 and
$28,379,000, respectively.
(13) LEGAL MATTERS
On November 28, 1994, Robert Kahn and Randy Stark, and on November 30, 1994,
Robert Friedman, and on March 27, 1995, Bernard Weisburgh, on behalf of
themselves and alleged classes of the Company's public stockholders, filed
actions in the United States District Court for the Northern District of
Illinois, against the Company and certain of the Company's former directors and
officers and Donald F. Flynn (such directors, officers and Donald F. Flynn are
collectively referred to herein as the "Individual Defendants"). Subsequently,
the three actions were consolidated. The consolidated amended complaint alleges,
among other things, that the Company and the Individual Defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder by
improperly capitalizing preopening expenses, by failing to timely make public
the anticipated costs to the Company of its acquisition of Leaps & Bounds and
the Blockbuster Entities and the change in the method of accounting for
preopening expenses, and by disseminating other releases and reports allegedly
omitting or misrepresenting certain related information. As a result of the
Discovery Zone Group's bankruptcy filing, the consolidated amended complaint was
dismissed without prejudice on March 27, 1996. On April 5, 1996, the plaintiffs
filed a motion to reinstate the litigation against the Company and Individual
Defendants. The motion was denied with respect to the Company.
From time to time, the Company is a party to a number of lawsuits and other
legal matters, including claims relating to injuries which allegedly occurred at
the Company's facilities and to alleged employment discrimination. A portion of
these claims may be covered by insurance. Management has estimated the potential
liabilities resulting from such claims which arose subsequent to March 25, 1996
and which are not covered by insurance to be approximately $1,849,000 at
December 31, 1996. This amount was recorded in accrued liabilities in the
accompanying consolidated financial statements. Because this amount represents
an estimate, it is reasonably possible that a change in this estimate may occur
in the future. As discussed in Note 4, additional liabilities for claims related
to legal matters are recorded in liabilities subject to compromise.
F-36
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) INCOME TAXES
The federal statutory tax rate is reconciled to the effective tax rate for
the years ended December 31 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate (benefit)................................................... (34.0)% (34.0)% (34.0)%
Tax-exempt income.................................................................. -- -- (1.5)%
Change in valuation allowance...................................................... 34.0% 35.0% 21.7%
--------- --------- ---------
Effective tax rate (benefit)....................................................... -- 1.0% (13.8)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax provision (benefit) for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current $ -- $ -- $ --
Deferred.............................................................................. -- 4,000 (4,000)
--------- --------- ---------
$ -- $ 4,000 $ (4,000)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The primary components that comprise the deferred tax assets and deferred
tax liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards........................................................ $ 170,000 $ 54,000
Difference between book and tax bases of acquired net assets............................ 18,500 18,500
Noncurrent asset revaluations........................................................... 86,500 125,900
Other assets............................................................................ 6,000 18,200
Other liabilities....................................................................... (19,500) (7,600)
----------- -----------
Net deferred tax asset before valuation allowance....................................... 261,500 209,000
Valuation allowance..................................................................... (261,500) (209,000)
----------- -----------
Net deferred tax asset.................................................................. $ -- $ --
----------- -----------
----------- -----------
</TABLE>
The valuation allowance increased approximately $52,500,000 and $164,800,000
in 1996 and 1995, respectively. The Company has net operating loss carryforwards
for federal tax purposes totaling approximately $458,650,000 which will expire
as follows: $41,750,000 in 2008, $70,700,000 in 2009, $62,200,000 in 2010 and
$184,000,000 in 2011. Due to an ownership change as defined by Section 382 of
the Internal Revenue Code, a portion of the Company's operating loss
carryforwards is subject to an annual limitation for the purpose of offsetting
future taxable income.
The federal income tax net operating loss carryforwards described above are
not binding on the Internal Revenue Service and may be subject to adjustments
which may be substantial in magnitude. Moreover, the net operating loss
carryforwards will likely be reduced, and/or their use significantly limited,
subsequent to the effective date of the Company's Plan of Reorganization (see
Note 16) resulting from the discharge of indebtedness and an ownership change as
defined under Section 382 of the Internal Revenue Code. In accordance with SOP
90-7, any realization of the benefit from tax net operating loss carryforwards
subsequent to the effective date of the Company's Plan of Reorganization will
result in an increase to equity.
F-37
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) INCOME TAXES (CONTINUED)
At December 31, 1996 and 1995, the Company's deferred tax valuation
allowance was equal to its net deferred tax assets because in management's
judgment, it is more likely than not that all of the net deferred tax asset will
not be realized.
The Company made no federal or state income tax payments in 1996, 1995 or
1994.
(15) DEBTOR-IN-POSSESSION CREDIT FACILITY
Pursuant to a final Order of the Bankruptcy Court dated May 20, 1996, the
Discovery Zone Group was authorized to enter into a Revolving Credit Agreement
dated April 30, 1996 (the "Revolving Credit Agreement") among Discovery Zone, as
borrower, the other members of the Discovery Zone Group, as guarantors, and
Madeleine LLC ("Madeleine"), as lender. Under the Revolving Credit Agreement,
Madeleine agreed to lend Discovery Zone up to the aggregate principal amount of
$17,000,000, inclusive of a $7,000,000 subfacility for the issuance of letters
of credit. Under the Revolving Credit Agreement, Madeleine was granted (i) super
priority administrative expense claim status over administrative expenses of the
Discovery Zone Group, (ii) first priority liens on and security interests in all
of the Discovery Zone Group's owned and subsequently acquired unencumbered
assets, (iii) liens on and security interests senior to any liens on or security
interests in all owned or subsequently acquired unencumbered assets, other than
collateral securing certain permitted liens, and (iv) junior liens on and
security interests in collateral for such permitted liens. The Revolving Credit
Agreement was amended by the First Amendment, dated as of May 28, 1996, which
changed certain of the financial covenants contained in the Revolving Credit
Agreement.
In August, the Discovery Zone Group requested that Madeleine make available
additional funds to insure the Discovery Zone Group sufficient liquidity to
timely satisfy their postpetition obligations during the months of September and
October, 1996. By motion dated August 16, 1996, the Discovery Zone Group
requested authority from the Bankruptcy Court to enter into a Second Amendment
to the Revolving Credit Agreement (the "Proposed Second Amendment"), which
provided for, among other things, an increase from $17,000,000 to $20,000,000 in
the aggregate principal amount of the loans available under the Revolving Credit
Agreement and an adjustment to certain of the financial covenants therein.
Both prior to and following the filing of the motion requesting authority to
enter into the Proposed Second Amendment, the Discovery Zone Group conducted
discussions with other prospective lenders regarding the provision of additional
financing. These negotiations resulted in a commitment from Perry Partners L.P.
("Perry Partners") to provide financing on substantially the same terms as the
Revolving Credit Agreement, as amended by the Proposed Second Amendment, but up
to the aggregate principal amount of $25,000,000. Because of this opportunity to
obtain additional credit, the Discovery Zone Group, with the consent of
Madeleine, withdrew the motion requesting authority to enter into the Proposed
Second Amendment at the hearing held on September 13, 1996.
By Order dated October 25, 1996, the Discovery Zone Group obtained authority
from the Bankruptcy Court to enter into a Replacement Revolving Credit Agreement
(the "Replacement Credit Agreement"), among Discovery Zone, as borrower, the
other members of the Discovery Zone Group, as guarantors, and Perry Partners, as
lender. Under the Replacement Credit Agreement, Perry Partners agreed to lend
Discovery Zone up to the aggregate principal amount of $25,000,000, inclusive of
a $7,000,000 subfacility for the issuance of letters of credit. Perry Partners
was granted (i) superpriority administrative expense claim status over
administrative expenses of the Discover Zone Group, (ii) first priority liens on
and
F-38
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) DEBTOR-IN-POSSESSION CREDIT FACILITY (CONTINUED)
security interests in all of the Discovery Zone Group's owned or subsequently
acquired unencumbered assets, (iii) liens on and security interests senior to
any liens on or security interests in all owned or subsequently acquired
encumbered assets, other than collateral for certain permitted liens, and (iv)
junior liens on and security interests in collateral for such permitted liens.
The Replacement Credit Agreement contains covenants similar to those
contained in the Revolving Credit Agreement, as amended by the Proposed Second
Amendment, including, among other things, the maintenance of certain financial
ratios, prohibition against the incurrence of certain additional indebtedness,
and prohibition against dividends. The Discovery Zone Group has used proceeds
made available under the Replacement Credit Agreement to repay in full all
outstanding obligations under the Revolving Credit Agreement, as amended by the
First Amendment, and the Revolving Credit Agreement, as amended, has terminated.
Approximately $16,250,000 of the $25,000,000 was used to satisfy all obligations
under the Revolving Credit Agreement.
During the fourth quarter of 1996, the Discovery Zone Group determined that
it would require an additional $5,000,000 in postpetition financing to satisfy
obligations which would become due and payable during the first quarter of 1997.
By motion dated December 27, 1996, the Discovery Zone Group requested authority
from the Bankruptcy Court to enter into a First Amendment to the Replacement
Credit Agreement (the "First Replacement Amendment") pursuant to which the
aggregate principal amount which may be advanced to the Discovery Zone Group by
Perry Partners would be increased from $25,000,000 to $30,000,000. By interim
order dated December 31, 1996, the amount which the Discovery Zone Group was
authorized to borrow from Perry Partners was increased from $25,000,000 to
$28,500,000. By final order dated March 4, 1997, this amount was increased to
$30,000,000.
At December 31, 1996, the Company had outstanding borrowings under the
Replacement Credit Facility of $22,448,000. Those borrowings bear interest at
prime plus 3.5% payable monthly (weighted average interest rate for 1996 and
interest rate at December 31, 1996, of 11.75%). However, the Replacement Credit
Facility also requires payment of certain fees as defined in the agreements plus
an amount to be determined such that Perry Partners earns an internal rate of
return, determined on an annualized basis, of 21% on all borrowings (which
return will take into account all interest and fees). This additional interest
of approximately $364,000 over fees and interest accrued at the stated rate is
included as a post petition liability in the accompanying consolidated balance
sheet at December 31, 1996, and is due and payable upon repayment of the loan.
(16) JOINT PLAN OF REORGANIZATION
In November 1996, the Company filed with the U.S. Bankruptcy Court a Joint
Plan of Reorganization (the "Plan") with Birch Holdings LLC ("Birch") which sets
forth a plan for repaying or otherwise compensating the Company's creditors in
order of relative seniority of their respective claims while seeking to maintain
the Company as a going concern. Specifically, the Plan provides for (i) the
payment in full of certain administrative claims against the Company (those
claims which arose after Petition Date); (ii) conversion of substantially all of
the Company's liabilities subject to compromise, excluding taxes payable, to an
equity interest in the Company, and (iii) cancellation of all of the prepetition
equity interests in the Company, all as more fully described in the Plan. Among
other things, the Plan is subject to approval by certain creditors, final
confirmation by the Bankruptcy Court and the raising of approximately $70
million of exit financing to effectuate the terms of the Plan.
F-39
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) JOINT PLAN OF REORGANIZATION (CONTINUED)
The disclosure statement describing the Plan was mailed to creditors on
March 26, 1997. If approved by the requisite number of creditors and confirmed
by the Bankruptcy Court, the holders of the prepetition payable under the bank
credit agreement will hold the majority of the outstanding new common shares of
the Company. Birch has purchased certain of these prepetition claims from the
original banks providing the credit facility. It is anticipated that Birch will
hold more than 50% of the reorganized Company's new common shares.
(17) OTHER CHARGES
Certain of the Company's FunCenters generated increasing operating cash flow
losses or marginal operating cash flows during 1995 and in the first quarter of
1996. These circumstances, in addition to the circumstances requiring the
Discovery Zone Group to file voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code, indicated that the carrying amounts related to these
FunCenters may not be recoverable. Accordingly, management reviewed the
intangibles, property and equipment related to these FunCenters for
recoverability in accordance with SFAS No. 121 and determined that certain
assets were impaired. For each FunCenter, the Company tested for impairment by
computing the sum of the estimated future operating cash flows (undiscounted and
without interest charges) and comparing that result to its carrying value. If
such sum was less than the carrying value of the FunCenter's assets, an
impairment condition was considered to exist and an impairment loss was
recognized. The impairment loss recognized was measured as the amount by which
the carrying amount exceeded the fair value of the FunCenter's assets.
The estimate of fair value was determined using the present values of each
FunCenter's estimated future operating cash flows. The Company recognized
impairment losses in the fourth quarter of 1995 of approximately $306,212,000
resulting primarily from the writedown of intangibles, leasehold improvements,
and equipment. Management's judgment is necessary to estimate future operating
cash flows. Accordingly, actual results could vary from such estimates.
In the second quarter of 1995, the Company recognized other charges relating
to the reduction in carrying values of certain assets that management believes
will not have continuing benefit under its new business plan. Such reduction
would not have been materially different from the charges that would have
resulted from the application of SFAS No. 121. These charges, which totaled
approximately $44,002,000, resulted primarily from the writedown of certain
entertainment facility equipment and, to a lesser extent, the writedown of
property and equipment related to the relocation of the Company's headquarters.
Additionally, in the second quarter of 1995, the Company recognized other
charges of approximately $10,589,000 related to the provision of additional
lease commitment reserves on certain previously closed entertainment facilities
because of the inability to terminate leases on favorable terms.
During the third quarter of 1994, the Company recognized other charges of
$14,024,000 relating to the writedown of property and equipment and the
provision of lease commitment reserves resulting from the elimination of certain
duplicate entertainment facilities.
F-40
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) RESTRUCTURING COSTS
In connection with the change in management effected by the MSA and the
relocation of its headquarters offices from Chicago, Illinois to Fort
Lauderdale, Florida, the Company recognized certain restructuring costs in the
second quarter of 1995. These restructuring costs consist of employee
termination benefits of approximately $7,903,000 and facility lease termination
costs of approximately $3,454,000. The Company expected, and accrued the cost
of, the termination of approximately 300 management and administrative employees
in this regard. At December 31, 1995, the majority of such employees had been
terminated and costs of approximately $6,579,000 had been paid and charged
against the accrued liability. The Company completed all material aspects of the
aforementioned restructuring by March 31, 1996.
(19) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements
of Operations by quarter for 1995:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ 81,903 $ 62,836 $ 62,375 $ 52,376 $ 259,490
Other charges................................... -- 54,591 -- 306,212 360,803
Restructuring costs............................. -- 11,357 -- -- 11,357
Operating income (loss)......................... 5,676 (91,437) (18,473) (334,423) (438,657)
Net income (loss)............................... 3,602 (98,115) (19,933) (334,799) (449,245)
Income (loss) per common and common equivalent
share......................................... $ 0.07 $ (1.85) $ (0.35) $ (5.83) $ (8.06)
</TABLE>
The sum of quarterly net income amounts, which assume full dilution where
applicable, may not equal the full year since the computations of the weighted
average number of common and common equivalent shares outstanding for each
quarter and the full year are made independently.
(20) CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING
In 1994, the Company changed its method of accounting for certain
pre-opening costs from one generally accepted accounting principle to another
generally accepted accounting principle. Previously, the Company capitalized all
pre-opening costs, which included salaries and other direct costs of opening a
facility and amortized these costs over periods of up to two years. As a result
of the acquisitions of Leaps and Bounds and the Blockbuster Entities, and the
considerable market penetration by the Company during 1994 in a majority of the
major domestic markets, the Company began expending pre-opening costs at the
time of facility opening.
(21) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
On July 18, 1997, the Company's Joint Plan of Reorganization with Birch was
approved by the creditors and confirmed by the Bankruptcy Court. The Plan became
effective on July 29, 1997 (the "Effective Date") and the Company emerged from
bankruptcy as of that date. The Plan provides for (i) the payment in full of
certain administrative claims against the Company (those claims which arose
after the Petition Date); (ii) conversion of substantially all of the Company's
liabilities subject to compromise (excluding taxes payable, lease assumption
payments and certain other pre-petition liabilities permitted under the Plan) to
an equity interest in the company, and (iii) cancellation of all of the
prepetition equity
F-41
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(21) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS (CONTINUED)
interests in the Company, all as more fully described in the Plan.l Birch had
purchased certain of these prepetition claims from the original banks providing
a credit facility to the Company, resulting in ownership of 55.7% of the common
stock of the reorganized Company (the "New Common Stock").
Pursuant to the Plan, substantially all the Company's prepetition unsecured
liabilities were converted to equity in exchange for units consisting of nine
shares of New Common Stock and a ten-year warrant to purchase one share of New
common Stock at a price of $17.55 (the "Ten Year Warrants"). Such unsecured
creditors will receive 4,000,000 shares of New Common Stock and 444,444 shares
of New Common Stock have been reserved for issuance in connection with the Ten
Year Warrants. As a result of the transactions which occurred on the Effective
Date, indebtedness of $332,165,000 was discharged, resulting in an extraordinary
gain of approximately $332,165,000.
In connection with its emergence from bankruptcy, the company raised $100
million through the issuance of $15 million of Convertible Redeemable Preferred
Stock ("Preferred Stock") and $85 million of 13.5% Senior Secured Notes with
Warrants, resulting in $93.8 million of net proceeds to the Company after
deducting related offering costs (the "Exit Financing"). The proceeds were used
to repay the Company's debtor-in-possession credit facilities and certain
bankruptcy administrative claims and reorganization costs incurred in connection
with the Company's emergence form bankruptcy. The Senior Secured Note holders
also received warrants (the "Warrants") to purchase 805,154 shares of New Common
Stock at $.01 per share exercisable through August 1, 2007, which represent
approximately 12.5% of the fully diluted shares of New Common Stock after giving
effect to the exercise of the Warrants and the Ten Year Warrants and conversion
of the Preferred Stock. The Preferred Stock is convertible at anytime into
1,191,626 shares of New common Stock at an effective conversion price of $12.59
per common share, representing approximately 18.5% of the fully diluted shares
of New Common Stock after giving effect to the exercise of the Warrants and the
Ten Year Warrants.
F-42
<PAGE>
DISCOVERY ZONE, INC. (DEBTOR-IN-POSSESSION)
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS AMOUNTS BALANCE AT
BEGINNING CHARGED TO WRITTEN END OF
DESCRIPTION OF YEAR EXPENSE OFF YEAR
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
1995.............................................................. $ 36 $ 2,149 $ -- $ 2,185
1996.............................................................. 2,185 1,093 2,304 974
RESERVE FOR OBSOLESCENCE
1995.............................................................. 259 766 -- 1,025
1996.............................................................. 1,025 -- 317 708
</TABLE>
Note: No amounts have been presented for the year ended December 31, 1994 since
these amounts were either immaterial to the consolidated financial
statements or disclosed in the footnotes thereto.
F-43
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
UNTIL , 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 5
Prospectus Summary............................. 6
Risk Factors................................... 19
The Exchange Offer............................. 26
Use of Proceeds................................ 33
Company Background............................. 34
Selected Historical Financial Data............. 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 39
Business....................................... 46
Management..................................... 55
Principal Stockholders......................... 60
Certain Transactions with Affiliates........... 62
Description of Exchange Notes.................. 63
Description of Capital Stock................... 94
Description of Certain Indebtedness............ 101
Plan of Distribution........................... 103
Certain U.S. Federal Income Tax
Considerations............................... 104
Legal Matters.................................. 104
Experts........................................ 104
Index to Financial Statements.................. F-1
</TABLE>
[DISCOVERY ZONE LOGO]
OFFER TO EXCHANGE
13 1/2% SENIOR SECURED NOTES DUE 2002
FOR ALL OUTSTANDING
13 1/2% SENIOR SECURED NOTES DUE 2002
($85,000,000 PRINCIPAL AMOUNT
OUTSTANDING)
OF
DISCOVERY ZONE, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eight Section 2(a) of the Registrant's Certificate of Incorporation,
as amended (the "Certificate of Incorporation"), provides that each person who
was or is made a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Registrant or is or was serving at the request of the
Registrant as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director or officer or in any other capacity while
serving as a director or officer, shall be indemnified and held harmless by the
Registrant to the fullest extent authorized by the General Corporation Law of
the State of Delaware against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement Income Security
Act of 1974) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; PROVIDED, HOWEVER, that the Registrant shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors.
Article Eight Section 2(c) of the Registrant's Certificate of Incorporation
provides that the right to indemnification conferred in Certificate of
Incorporation shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-law, agreement, vote of stockholders or disinterested
directors or otherwise.
Article Eight Section 2(d) of the Registrant's Certificate of Incorporation
further provides that the Registrant may maintain insurance, at its expense, to
protect itself and any director or officer of the Registrant or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Registrant would have the
power to indemnify such person against such expense, liability or loss under the
General Corporation Law of the State of Delaware.
Section 145 of the Delaware General Corporation Law makes provision for the
indemnification of officers and directors in terms sufficiently broad to
indemnify officers and directors of the Company under certain circumstances from
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act.
See item 22 of this Registration Statement regarding the position of the
Securities and Exchange Commission on indemnification for liabilities arising
under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Index to Exhibits.
ITEM 22. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus will contain the
information called for by the
II-1
<PAGE>
applicable registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
2. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
3. The undersigned Registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim of indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
4. The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in White Plains, New York
on November 19, 1997.
<TABLE>
<S> <C> <C>
DISCOVERY ZONE, INC.
By: /s/ SCOTT W. BERNSTEIN
-----------------------------------------
Name: Scott W. Bernstein
Title: CHIEF EXECUTIVE OFFICER, PRESIDENT
AND DIRECTOR
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Scott W. Bernstein and Robert G. Rooney,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement and all amendments and
supplements to any prospectus relating thereto and any other documents and
instruments incidental thereto, and any registration statement filed pursuant to
Rule 462 under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming that each of said attorneys-in-fact and agents and/or
either of them, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on November 19, 1997.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/S/ SCOTT W. BERNSTEIN
- ------------------------------ Chief Executive Officer, November 19, 1997
Scott W. Bernstein President and Director
/S/ MARTIN S. DAVIS
- ------------------------------ Director November 19, 1997
Martin S. Davis
/S/ GREG S. FELDMAN
- ------------------------------ Director November 19, 1997
Greg S. Feldman
/S/ DOUGLAS W. ROTATORI
- ------------------------------ Director November 19, 1997
Douglas W. Rotatori
II-3
<PAGE>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
/S/ L.G. SCHAFRAN
- ------------------------------ Director November 19, 1997
L.G. Schafran
/S/ CHRISTOPHER R.
SMITH
- ------------------------------ Director November 19, 1997
Christopher R.
Smith
/S/ PAUL KURNIT
- ------------------------------ Director November 19, 1997
Paul Kurnit
/S/ ROBERT G. ROONEY Senior Vice President,
- ------------------------------ Chief Financial and November 19, 1997
Robert G. Rooney Administrative Officer
/S/ LEIGHTON J. WEISS
- ------------------------------ Vice President and November 19, 1997
Leighton J. Weiss Controller
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
<C> <S> <C>
1.1 Purchase Agreement, dated July 15, 1997, between the Registrant and Jefferies & Company, Inc., as
the initial Purchaser (the "Initial Purchaser").
2.1 The Third Amended Joint Plan of Reorganization of the Registrant, dated March 11, 1997
(incorporated by reference from the Current Report on Form 8-K of the Registrant, dated July 9,
1997).
2.2 Agreement and Plan of Merger, dated as of July 28, 1997, between Discovery Zone Children's
Amusement Corp. and the subsidiaries of the Registrant listed therein.
2.3 Agreement and Plan of Merger, dated as of July 29, 1997, between the Registrant and Discovery
Zone Children's Amusement Corporation.
3.1 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-laws of the Registrant.
4.1 Indenture, dated as of July 22, 1997, among Registrant, as issuer, Discovery Zone Limited,
Discovery Zone (Puerto Rico), Inc. and Discovery Zone Licensing, Inc., as guarantors (the
"Guarantors") and State Street Bank and Trust Company, as trustee (the "Trustee").
4.2 Form of Exchange Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement, dated as of July 22, 1997, between the Registrant and the Initial
Purchaser.
4.4 Warrant Agreement, dated as of July 22, 1997, between the Registrant and State Street Bank and
Trust Company, as warrant agent.
4.5 Escrow and Security Agreement, dated as of July 22, 1997, among the Registrant, as pledgor, the
Inital Purchaser Inc. and the Trustee, as collateral agent.
4.6 Pledge Agreement, dated as of July 22, 1997, between the Registrant and the Trustee, as
collateral agent.
4.7 Security Agreement, dated as of July 22, 1997, between the Registrant and the Trustee, as
collateral agent.
4.8 Subsidiary Pledge Agreement, dated as of July 22, 1997, between the Guarantors and the Trustee,
as collateral agent.
4.9 Subsidiary Security Agreement, dated as of July 22, 1997, between the Guarantors and the Trustee,
as collateral agent.
4.10 Collateral Assignment of Patents, Trademarks and Copyrights, dated as of July 22, 1997, among the
Registrant, as assignor, the Guarantors, as assignors and the Trustee, as assignee.
4.11 Assignment and License Agreement, dated as of July 29, 1997, among the Registrant, as assignor,
the Guarantors, as assignors, and DZ Party, Inc., as assignee.
4.12 Form of Intercreditor Agreement, dated as of July 22, 1997, between a lender and the Trustee, as
collateral agent.
4.13 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Hamilton County, Ohio.
4.14 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Cook County, Illinois.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
4.15 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Cobb County, Georgia.
<C> <S> <C>
4.16 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Franklin County, Ohio.
4.17 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Macomb County, Michigan.
4.18 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Anoka County, Minnesota.
4.19 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Philadelphia County, Pennsylvania.
4.20 The Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of
July 29, 1997, between the Company, as mortgagor and the Trustee, as mortgagee, related to
property located in Marion County, Indiana.
4.21 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson, as trustee and the
Trustee, as beneficiary, relating to property located in Dallas County, Texas.
4.22 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson, as trustee and the
Trustee, as beneficiary, relating to property located in Bexar County (San Antonio), Texas.
4.23 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson, as trustee and the
Trustee, as beneficiary, relating to property located in Tarrant County, Texas.
4.24 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson, as trustee and the
Trustee, as beneficiary, relating to property located in Bexar County (Leon Valley), Texas.
4.25 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson, as trustee and the
Trustee, as beneficiary, relating to property located in Fort Bend County, Texas.
4.26 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, Chicago Title Insurance Company, as
trustee and the Trustee, as beneficiary, relating to property located in Clark County,
Washington.
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
4.27 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, The Public Trustee of Arapahoe County,
Colorado, as trustee and the Trustee, as beneficiary, relating to property located in Arapahoe
County, Colorado.
<C> <S> <C>
4.28 The Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated
as of July 29, 1997, among the Registrant, as grantor, The Public Trustee of Douglas County,
Colorado, as trustee and the Trustee, as beneficiary, relating to property located in Douglas
County, Colorado.
*4.29 Open-end Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Amended
and Restated), dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's
Corporation, as mortgagee, relating to property located in Hamilton County, Ohio.
*4.30 Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's Corporation,
as mortgagee, relating to property located in Cook County, Illinois.
*4.31 Amended and Restated Deed to Secure Debt and Security Agreement, dated as of July 29, 1997, among
the Registrant, as mortgagor and McDonald's Corporation, as mortgagee, relating to property in
Cobb County, Georgia.
*4.32 Open-end Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Amended
and Restated), dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's
Corporation, as mortgagee, relating to property located in Franklin County, Ohio.
*4.33 Amended and Restated Mortgage, dated as of July 29, 1997, among the Registrant, as mortgagor and
McDonald's Corporation, as mortgagee, relating to property located in Macomb County, Michigan.
*4.34 Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's Corporation,
as mortgagee, relating to property located in Anoka County, Minnesota.
*4.35 Amended and Restated Open-end Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's
Corporation, as mortgagee, relating to property in Philadelphia County, Pennsylvania.
*4.36 Amended and Restated Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
Filing, dated as of July 29, 1997, among the Registrant, as mortgagor and McDonald's Corporation,
as mortgagee, relating to property in Marion County, Indiana.
*4.37 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson,
as trustee and McDonald's Corporation, as beneficiary, relating to property located in Bexar
County (San Antonio), Texas.
*4.38 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson,
as trustee and McDonald's Corporation, as beneficiary, relating to property located in Tarrant
County, Texas.
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
*4.39 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor, Kenneth W. Pearson,
as trustee and McDonald's Corporation, as beneficiary, relating to property located in Bexar
County (Leon Valley), Texas.
<C> <S> <C>
*4.40 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor (borrower),
McDonald's Corporation, as grantee (lender) and Chicago Title Insurance Company, as grantee
(trustee), relating to property located in Clark County, Washington.
*4.41 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor, The Public Trustee
of Arapahoe County, Colorado, as trustee and McDonald's Corporation, as beneficiary, relating to
property located in Arapahoe County, Colorado.
*4.42 Amended and Restated Deed of Trust, Assignment of Leases and Rents, Security Agreement and
Fixture Filing, dated as of July 29, 1997, among the Registrant, as grantor, The Public Trustee
of Douglas County, Colorado, as trustee and McDonald's Corporation, as beneficiary, relating to
property located in Douglas County, Colorado.
*4.43 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Hamilton
County, Ohio.
*4.44 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Cook County,
Illinois.
*4.45 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Cobb County,
Georgia.
*4.46 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Franklin
County, Ohio.
*4.47 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Macomb
County, Michigan.
*4.48 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Anoka County,
Minnesota.
*4.49 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Philadelphia
County, Pennsylvania.
*4.50 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Marion
County, Indiana.
*4.51 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Bexar County
(San Antonio), Texas.
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -----------
*4.52 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Tarrant
County, Texas.
<C> <S> <C>
*4.53 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Bexar County
(Leon Valley), Texas.
*4.54 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Clark County,
Washington.
*4.55 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Arapahoe
County, Colorado.
*4.56 Subordination Agreement, dated as of July 29, 1997, among the Registrant, the Trustee, for itself
and as collateral agent, and McDonald's Corporation, related to property located in Douglas
County, Colorado.
*5.1 Opinion and Consent of Shearman & Sterling regarding validity of the Exchange Notes.
*10.1 Employment Agreement, dated as of July 21, 1997, between the Registrant and Scott W. Bernstein.
*10.2 Employment Agreement, dated as of August 1, 1997, between the Registrant and Robert G. Rooney.
*10.3 Employment Agreement, dated as of August 1, 1997, between the Registrant and Sharon L. Rothstein.
12.1 Statements re computation of ratios.
16.1 Letter re change in certifying accountant (incorporated by reference from the Current Report on
Form 8-K of the Registrant, dated June 3, 1996).
21.1 List of Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, independent public accountants for the Registrant.
23.2 Consent of Price Waterhouse LLP, independent public accountants for the Registrant.
23.3 Consent of Arthur Andersen LLP, independent public accountants for the Registrant.
*23.4 Consent of Shearman & Sterling (included in exhibit 5.1).
24.1 Power of Attorney (included on signature page).
*25.1 Statement of Eligibility of the Trustee, on Form T-1.
*27.1 Financial Data Schedule.
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
</TABLE>
- ------------------------
* To be filed by Amendment.
v
<PAGE>
Exhibit 1.1
July 15, 1997
85,000 Units
Discovery Zone, Inc.
13 1/2% Senior Secured Notes due 2002
with Warrants to Purchase Shares of Common Stock
JEFFERIES & COMPANY, INC.
11100 Santa Monica Blvd., 10th Floor
Los Angeles, California 90025
Ladies and Gentlemen:
Discovery Zone, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with you (the "Initial Purchaser"), as set forth below.
Capitalized terms defined in the Indenture and not otherwise defined herein
shall have the meanings assigned to such terms in the Indenture.
1. ISSUANCE OF SECURITIES. Subject to the terms and conditions herein
contained, the Company shall issue and sell to the Initial Purchaser 85,000
Units (each a "Unit" and collectively, the "Units"), each consisting of $1,000
principal amount of its 13 1/2% Senior Secured Notes due 2002 (collectively, the
"Notes") and one warrant (collectively, the "Warrants") to purchase 9.4724
shares of the Company's common stock, par value $0.01 per share (the "Common
Stock"), at an exercise price of $0.01 per share, subject to adjustment. The
Notes are to be issued under an indenture (the "Indenture") to be dated as of
the Closing Date (as defined in Section 3 hereof) by and between the Company and
State Street Bank and Trust Company, as trustee (the "Trustee"). Pursuant to an
Escrow and Security Agreement (the "Escrow Agreement") to be entered into
effective as of the Closing Date among the Company and the Trustee for the
holders of the Notes, a portion of the proceeds from the sale of the Units will
be placed in an account (the "Escrowed Interest Account"), to be held and
invested by the Trustee in certain U.S. Government Obligations (the "Pledged
Securities") in accordance with the provisions of the Escrow Agreement.
Interest and other income, if any, earned on the Pledged Securities will be
added to and shall be deemed a part of the Escrowed Interest Account. Pursuant
to certain of the Collateral Agreements to be entered into by the Company and
the Trustee effective as of the Closing Date, the Company will grant and pledge
to the Trustee, for the equal and ratable benefit of the holders of the Notes, a
fully-perfected first priority security interest in certain collateral of the
Company, a pledge of all of the capital stock of the Company's current and
future Subsidiaries (the "Pledged
<PAGE>
Subsidiaries Stock") and a second priority security interest in certain
Company-owned real estate parcels and improvements thereon, subject to certain
conditions and obtaining certain third party consents, in each case to secure
the payment and performance of the obligations of the Company under the
Indenture and the Notes.
Additionally, all current and future Subsidiaries, jointly and severally,
shall fully and unconditionally guarantee, on a senior secured basis, to each
holder of Notes and the Trustee, the payment and performance of the Company's
obligations under the Indenture and the Notes (each such Subsidiary being
referred to herein as a "Subsidiary Guarantor" and each such guarantee being
referred to herein as a "Guarantee"). The Warrants are to be issued under a
warrant agreement of the Company to be dated as of the Closing Date (the
"Warrant Agreement") for the benefit of the holders of the certificates
evidencing the Warrants. The shares of Common Stock issuable upon exercise of
the Warrants are herein referred to as the "Warrant Shares." The Notes, the
Guarantees, the Warrants, the Warrant Shares and the Units are collectively
referred to herein as the "Securities."
The Units are being offered and sold to the Initial Purchaser without being
registered under the Securities Act of 1933, as amended (the "Act"), in reliance
on certain exemptions therefrom.
In connection with the offer and sale of the Units, the Company has
prepared a preliminary offering memorandum dated June 23, 1997 (the "Preliminary
Memorandum"), and a final offering memorandum dated July 15, 1997 (the "Final
Memorandum"), setting forth a description of the terms of the Units and the
Collateral Agreements, the terms of the offering of the Units, and a description
of the business of the Company. "Memorandum" means, as of any date or time
referred to in this Agreement, the most recent offering memorandum (whether the
Preliminary Offering Memorandum or the Final Offering Memorandum, or any
amendment or supplement to either such document), including exhibits thereto.
The Company understands from the Initial Purchaser that the Initial
Purchaser proposes to make an offering of the securities on the terms and in the
manner set forth herein and in the Final Memorandum as soon as the Initial
Purchaser deems advisable after this Agreement has been executed and delivered.
The Company also understands from the Initial Purchaser that, at such time, the
Initial Purchaser intends to make an offering of the Securities (i) to persons
in the United States whom the Initial Purchaser reasonably believes to be
qualified institutional buyers ("QIBs") as defined in Rule 144A under the Act,
as such rule may be amended from time to time ("Rule 144A"), (ii) in
transactions under Rule 144A to a limited number of persons whom the Initial
Purchaser reasonably believes (based upon written representations made by such
persons to the Initial Purchaser) to be institutional "accredited investors"
("Accredited Investors") as
-2-
<PAGE>
defined in Rule 501(a)(1), (2), (3) or (7) under the Act and (iii) outside the
United States in compliance with Regulation S under the Act.
The Initial Purchaser and its direct and indirect transferees of the Units
will be entitled to the benefits of a registration rights agreement,
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement"), pursuant to which the Company shall agree, among other things, (i)
to file a registration statement (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") registering under the Act
the Notes, the Exchange Notes or the Private Exchange Notes (the Exchange Notes,
together with the Private Exchange Notes, shall sometimes be referred to
hereinafter as the "New Notes") and (ii) to grant certain registration rights to
the holders of the Warrant Shares.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum, the Final Memorandum, nor any
amendment or supplement thereto, as of the date thereof and at all times
subsequent thereto up to the Closing Date, contained or contains any untrue
statement of a material fact, or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this Section 2(a) do not apply to statements or
omissions made in reliance upon and in conformity with information relating to
the Initial Purchaser and furnished to the Company in writing by the Initial
Purchaser or its counsel expressly for use in the Preliminary Memorandum or the
Final Memorandum or any amendment or supplement thereto.
(b) As of the Closing Date (assuming that on or prior to the Closing
Date the Bankruptcy Court (as defined below) shall have entered a Confirmation
Order (as defined below) with respect to the Approved Plan (as defined below),
such order shall have become a Final Order (as defined below) and such Approved
Plan shall have become Effective (as defined below), the Company will have the
authorized capitalization set forth in the Final Memorandum (except for the
grant of options to purchase up to 10% of the Company's fully diluted Common
Stock which may be granted subsequent to the date of the Final Memorandum
pursuant to the Stock Incentive Plan (as defined in the Final Memorandum)); all
of the outstanding shares of capital stock of the Company and its Subsidiaries
as of the Closing Date (assuming that on or prior to the Closing Date the
Confirmation Order has become a Final Order and the Approved Plan has become
Effective) will be duly authorized and validly issued, fully paid and
nonassessable and will not have been issued in violation of any preemptive or
similar rights; all of the outstanding shares of capital stock of each of the
Subsidiaries as of the Closing Date will be owned,
-3-
<PAGE>
directly or indirectly, by the Company, free and clear of all liens,
encumbrances, security interests, mortgages, pledges, charges, equities, claims
or restrictions on transferability (collectively, "Encumbrances") (other than
those imposed by the Act and the securities or "Blue Sky" laws of certain
jurisdictions) or voting; except as set forth in the Final Memorandum, as of the
Closing Date (except for the grant of options to purchase up to 10% of the
Company's fully diluted Common Stock which may be granted subsequent to the date
of the Final Memorandum pursuant to the Stock Incentive Plan (as defined in the
Final Memorandum) there will be no outstanding (i) options, warrants or other
rights to purchase from the Company or any of its Subsidiaries, (ii) agreements
or other obligations of the Company or any of its Subsidiaries to issue or (iii)
other rights to convert any obligation into or exchange any securities for, in
the case of each of clauses (i) through (iii), shares of capital stock or any
other Equity Interests of the Company or any of its Subsidiaries. Except as set
forth in the Final Memorandum, the Company does not have any Subsidiaries and
does not own, directly or indirectly, any shares of capital stock or any other
equity or long-term debt securities or have, directly or indirectly, any Equity
Interest in any firm, partnership, joint venture or other entity. For the
purposes of this Agreement, "Bankruptcy Court" shall mean the bankruptcy court
having jurisdiction over the Chapter 11 reorganization proceedings of the
Company and its subsidiaries; "Confirmation Order" shall mean an order duly
entered by the clerk of the Bankruptcy Court confirming a Plan of Reorganization
with respect to the Company (the "Approved Plan"); "Effective" means, with
respect to the Approved Plan, that all conditions to the effectiveness of the
Approved Plan other than consummation of the Exit Financing (as defined in the
Proposed Plan) have been satisfied, and that, upon consummation of the Exit
Financing, the Approved Plan will become effective in accordance with its terms;
"Final Order" means an order or judgment of the Bankruptcy Court the operation
or effect of which has not been reversed, stayed, modified or amended and as to
which the time to appeal or petition for certiorari, review or rehearing has
expired and as to which no appeal or petition for certiorari, review or
rehearing is pending or as to which any right to appeal or seek certiorari,
review or rehearing has been waived in writing in a manner effective to waive
such right (and the Company has delivered to the Initial Purchaser a certificate
of a senior officer of the Company certifying to such effect) or, if an appeal,
reargument, petition for certiorari or rehearing thereof has been sought, the
order or judgment of the Bankruptcy Court has not been stayed or has been
affirmed by the highest court to which the order was appealed or from which the
reargument or rehearing was sought, or certiorari has been denied, and the time
to take any further appeal or to seek certiorari or further reargument or
rehearing has expired.
(c) On the Closing Date (assuming that on or prior to such date the
Confirmation Order has become a Final Order and the
-4-
<PAGE>
Approved Plan has become Effective), each of the Company and its Subsidiaries
will be duly incorporated, validly existing and in good standing as a
corporation under the laws of its jurisdiction of incorporation, with all
requisite corporate power and authority to own its properties and conduct its
business as now conducted, and as described in the Final Memorandum; and each of
the Company and its Subsidiaries is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, result in a Material Adverse Effect. For the
purposes of this Agreement, a "Material Adverse Effect" shall mean a material
adverse effect on (i) the management, business, condition (financial or
otherwise), prospects or results of operations of the Company and its
Subsidiaries, taken as a whole, or (ii) the Company's ability to perform any of
its material obligations under any of the agreements, documents or instruments
contemplated to be entered into by the Company hereby or by the Final
Memorandum.
(d) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Notes. The Notes have
been duly and validly authorized by the Company and, when executed by the
Company and each Subsidiary Guarantor party thereto and authenticated by the
Trustee in accordance with the provisions of the Indenture, and, in the case of
the Notes, when delivered to and paid for by the Initial Purchaser in accordance
with the terms of this Agreement and the Indenture, will have been duly
executed, issued and delivered and will constitute valid and legally binding
obligations of the Company, entitled to the benefits of the Indenture, the
Collateral Agreements, the Intercreditor Agreement and the Registration Rights
Agreement (such agreements, together with all transactions and agreements
contemplated thereby, may sometimes hereinafter be referred to as the
"Transaction Documents"), and enforceable against the Company and its
Subsidiaries (including each Subsidiary Guarantor party thereto) in accordance
with their respective terms, except that the enforcement thereof may be subject
to (i) bankruptcy, insolvency, reorganization, receivership, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (whether
applied by a court of law or equity) and the discretion of the court before
which any proceeding therefore may be brought.
(e) The Company and each of its Subsidiaries has all requisite
corporate power and authority to execute, deliver and perform each of its
obligations under the Indenture, the Intercreditor Agreement and the Collateral
Agreements. The Indenture meets the requirements for qualification under the
Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture, the
Intercreditor Agreement and the Collateral Agreements have been duly and validly
authorized by the Company
-5-
<PAGE>
and each Subsidiary Guarantor party thereto and, when executed and delivered by
the Company, each such Subsidiary Guarantor and each of the other parties
thereto, will each constitute a valid and legally binding agreement of the
Company and the Subsidiary Guarantors, enforceable against the Company and each
Subsidiary Guarantor in accordance with its respective terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether applied by a court of law or equity) and
the discretion of the court before which any proceeding therefor may be brought
and (iii), in the case of the Collateral Agreements, federal or state securities
laws or principles of public policy affecting enforcement of rights to indemnity
or contribution.
(f) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement. The Registration Rights Agreement has been duly and validly
authorized by the Company and when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except that (A) the
enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
(ii) general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal or state securities laws or public policy considerations.
(g) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Warrant Agreement. The
Warrant Agreement has been duly and validly authorized by the Company and, when
executed and delivered by the Company, will constitute a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors rights generally, (ii) general principles of equity (whether applied
by a court of law or equity) and the discretion of the court before which any
proceeding therefor may be brought, and (iii) federal or state securities laws
or principles of public policy affecting enforcement of rights to indemnity or
contribution.
(h) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Warrants. The Warrants
have been duly and validly authorized by the Company and, when executed by the
Company and countersigned by the Warrant Agent in accordance with the
-6-
<PAGE>
provisions of the Warrant Agreement and when delivered to and paid for by the
Initial Purchaser in accordance with the terms of the Warrant Agreement and this
Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company, enforceable
against the Company in accordance with their terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally, (ii) general
principles of equity (whether applied by a court of law or equity) and the
discretion of the court before which any proceeding therefor may be brought and
(iii) federal or state securities laws or principles of public policy affecting
enforcement of rights to indemnity or contribution.
(i) The Warrant Shares, upon becoming available for issuance upon the
exercise of the Warrants in accordance with their terms, will have been duly and
validly authorized for issuance by the Company and, when issued in accordance
with the terms and conditions contained in the Warrants and the Warrant
Agreement, upon exercise of the Warrants the Warrant Shares will by duly
authorized, validly issued, fully paid and non-assessable, will conform to the
description thereof contained in the Final Memorandum, will not be subject to
any preemptive or similar rights and will be free of any Encumbrances. The
Warrant Shares, upon becoming available for issuance upon the exercise of the
Warrants in accordance with their terms, will have been duly reserved for
issuance in accordance with the terms of the Warrants and the Warrant Agreement,
as the case may be.
(j) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly authorized, executed and delivered by the Company. Except as set
forth in the Final Memorandum, no consent, approval, authorization or order of
any court or governmental agency or body, or third party (in each case, a
"Consent") is required for the performance of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
the entry of the Confirmation Order with respect to the Approved Plan, the
Approved Plan having become Effective, such other Consents as have been obtained
and other than such other Consents as may be required under the Act or state
securities or "Blue Sky" laws in connection with the purchase and resale of the
Securities by the Initial Purchaser. The Company is not (i) in violation of its
certificate of incorporation or bylaws, (ii) in breach or violation of any
statute, judgment, decree, order, rule or regulation applicable to it or any of
its properties or assets, except for any such breach or violation which would
not, individually or in the aggregate, have a Material Adverse Effect or (iii)
assuming, as of the date hereof, that on or prior to the date hereof, a plan of
reorganization in the form of the
-7-
<PAGE>
Company's proposed Third Amended Joint Plan of Reorganization (the "Proposed
Plan") has become Effective and assuming, as of the Closing Date, that on or
prior to the Closing Date the Confirmation Order has become a Final Order and
the Approved Plan has become Effective, in breach of or default under (nor has
any event occurred which, with notice or passage of time or both, would
constitute a breach of or default under) or in violation of any of the terms or
provisions of any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, permit, certificate, contract or other
agreement or instrument to which the Company is a party or to which the Company
or any of its properties or assets is subject, except for any such breach,
default, violation or event which would not, individually or in the aggregate,
have a Material Adverse Effect.
(k) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby, and the fulfillment of the terms hereof, will not conflict with or
constitute or result in a breach of or a default under (or an event which with
notice of passage of time or both would constitute a breach of or default under)
or violation of (i) any indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate, contract or
other agreement or instrument to which the Company is a party or to which the
Company or any of its properties or assets is subject other than any such
breaches, defaults, violations or events which would not, individually or in the
aggregate, have a Material Adverse Effect, (ii) the certificate of incorporation
or bylaws of the Company, or (iii) assuming compliance with the Act and all
applicable state securities or "Blue Sky" laws, any statute, judgment, decree,
order, rule or regulation applicable to the Company or any of its properties or
assets other than any such breaches, defaults, violations or events which would
not, individually or in the aggregate, have a Material Adverse Effect.
(l) The audited consolidated financial statements and related notes
of the Company included in the Final Memorandum present fairly in all material
respects the consolidated financial position of the Company and its
Subsidiaries, the consolidated results of operations and cash flows as of the
dates and for the periods to which they relate and have been prepared in
conformity with generally accepted accounting principles, consistently applied,
except as otherwise stated therein, and the unaudited consolidated financial
statements and related notes and schedules of the Company and its subsidiaries
included in the Final Memorandum, present fairly the consolidated financial
position of the Company and its subsidiaries as of the dates and for the periods
indicated, and the results of their operations and their cash flows for the
periods to which they relate, subject to year-end audit adjustments, and have
been prepared in accordance with the audited consolidated financial statements
of the Company and its subsidiaries and with generally accepted accounting
principles, consistently applied. The summary and
-8-
<PAGE>
selected consolidated historical financial data in the Final Memorandum present
fairly in all material respects the financial information shown therein and have
been prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein.
(m) The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Final Memorandum (x)
have been prepared in accordance with applicable requirements of Regulation S-X
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (y) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements, and (z) have been
properly computed on the bases described therein. The estimates and assumptions
used by the Company in the preparation of the pro forma financial statements and
other pro forma financial information (including the notes thereto) included in
the Final Memorandum are believed in good faith by the Company to be reasonable,
the adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein, and the Company believes that such
financial projections are reasonable and attainable based on the facts and
circumstances existing on the Closing Date and the assumptions stated therein.
(n) Each of Ernst & Young LLP, Price Waterhouse LLP and Arthur
Andersen LLP, which firms have audited certain of such financial statements as
set forth in their reports included in the Final Memorandum, is an independent
public accounting firm within the meaning of the Act.
(o) Except as described in the Final Memorandum, as of the date
hereof (assuming that on or prior to the date hereof the Proposed Plan has
become Effective), and as of the Closing Date (assuming that on or prior to the
Closing Date, the Confirmation Order has become a Final Order and the Approved
Plan has become Effective), there is not pending or, to the knowledge of the
Company threatened, any action, suit, proceeding, inquiry or investigation to
which the Company or any Subsidiary is a party, or to which any of the property
or assets of the Company or any Subsidiary are subject, before or brought by any
court or governmental agency or body which, if determined adversely to the
Company or such Subsidiary, would have, individually or in the aggregate, a
Material Adverse Effect or which seeks to restrain, enjoin, prevent the
consummation of or otherwise challenge the issuance or sale of the Units to be
sold hereunder or the consummation of the other transactions described in the
Final Memorandum.
(p) The Company owns or possesses adequate licenses or other rights
to use all trademarks, service marks, trade names and know-how necessary to
conduct the businesses as now conducted or as proposed to be conducted as
described in the Final Memorandum, and the consummation of the transactions
contemplated
-9-
<PAGE>
hereby and by the Proposed Plan (and, as of the Closing Date, the Approved Plan)
will not alter or impair any of such rights. No claims have been asserted, and
the Company has not received any notice of conflict with (or knows of any such
conflict with) asserted rights of others with respect to the use, validity or
the effectiveness of any trademarks, service marks, trade names or know-how
which, if such claim or assertion of conflict were the subject of an unfavorable
decision, ruling or finding would, individually or in the aggregate, have a
Material Adverse Effect.
(q) The Company and each of its Subsidiaries possesses all licenses,
permits, certificates, consents, orders, approvals and other authorizations
from, and has made all declarations and filings with, all federal, state, local
and foreign governmental authorities with jurisdiction, all self-regulatory
organizations and all courts and other tribunals, presently required or
necessary for the Company and each of its Subsidiaries to own or lease, as the
case may be, and to possess or operate its properties and to carry on its
business as now conducted or proposed to be conducted as set forth in the Final
Memorandum, except where the failure to obtain such licenses, permits,
certificates, consents, orders, approvals and other authorizations, or to make
all declarations and filings (collectively, "Permits"), would not, individually
or in the aggregate, have a Material Adverse Effect; and the Company has
fulfilled and performed all of its obligations with respect to such Permits
except obligations which the failure to fulfill or perform would not have a
Material Adverse Effect, and to the best of the Company's knowledge, no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof, or results in any material impairment of the
rights of the holder of any such Permit; and neither the Company nor any of its
Subsidiaries has received any notice of any proceeding relating to revocation or
modification of any such Permit, except as described in the Final Memorandum or
except where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.
(r) Since the respective dates as of which information is given in
the Final Memorandum, except as described therein or contemplated thereby, (i)
neither the Company nor any Subsidiary has incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) not in the ordinary course of
business and (ii) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock or otherwise.
(s) Each of the Company and its Subsidiaries has filed all necessary
federal, state and foreign income and franchise tax returns that are required to
be filed, except where the failure to so file such returns would not,
individually or in the aggregate, have a Material Adverse Effect, and, except as
set
-10-
<PAGE>
forth in the Final Memorandum, has paid all taxes, assessments, fees and other
charges (including, without limitation, withholding taxes, penalties and
interest) due or claimed to be due thereon that are due and payable; other than
tax deficiencies which (i) the Company or any Subsidiary is contesting in good
faith and for which the Company or such Subsidiary has provided adequate
reserves in accordance with generally accepted accounting principles or (ii) the
failure to pay would not have a Material Adverse Effect. As of the Closing Date
(assuming that on or prior to such date the Confirmation Order has become a
Final Order and the Approved Plan has become Effective), there is no tax
deficiency or actual or proposed tax assessment that has been asserted against
the Company or any Subsidiary that would have, individually or in the aggregate,
a Material Adverse Effect.
(t) None of the Company or any agent acting on its behalf has taken
or will take any action that could cause the transactions contemplated by this
Agreement (including, without limitation, any pledge of the capital stock of any
Subsidiary pursuant to the Pledge Agreement) or the sale of the Units to violate
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System,
in each case as in effect, or as the same may hereafter be in effect, on the
Closing Date.
(u) As of the date hereof (assuming that on or prior to the date
hereof, the Proposed Plan has become Effective) and as of the Closing Date
(assuming that on or prior to the Closing Date the Confirmation Order has become
a Final Order and the Approved Plan has become Effective), the Company and its
Subsidiaries have (a) good and marketable title to all real property and other
material assets (personal, tangible, intangible or mixed) described in the Final
Memorandum as owned by them, and, good and marketable title to all leasehold
estates in the real and personal property described in the Final Memorandum as
being leased by them, and such title will be free and clear of all Liens, with
such exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and (b) peaceful and undisturbed possession
under all leases to which it is a party as lessee or sublessee, except for such
defects in title or lack of possession that, in the aggregate, would not have a
Material Adverse Effect. Each of the Company and its Subsidiaries operates all
real and personal property leased by it under valid and enforceable leases and
has performed in all material respects the obligations required to be performed
by it with respect to each such lease except for such leases and obligations
which, in the aggregate, would not have a Material Adverse Effect. As to leases
with respect to which the Company or any of its Subsidiaries is the lessor, the
lessees and other parties under such leases are in compliance with all material
terms and conditions thereunder and such leases are in full force and effect
except for such leases which, it not in full force and effect, would not, in the
aggregate, have Material Adverse Effect. All tangible assets and properties of
the
-11-
<PAGE>
Company and its Subsidiaries are in good working order (subject to ordinary wear
and tear) and are adequate for the uses to which they are being put or would be
put in the ordinary course of business except for such assets and properties as
are not material, individually or in the aggregate, to the business, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole.
(v) There are no legal or governmental proceedings involving or, to
the Company's knowledge, affecting the Company or any Subsidiary or any of their
respective properties or assets which would be required to be described in a
prospectus pursuant to the Act that are not described in the Final Memorandum,
nor are there any material contracts or other documents which would be required
to be described in a prospectus pursuant to the Act that are not described in
the Final Memorandum.
(w) Except as described in the Final Memorandum, there are no
consensual encumbrances or restrictions on the ability of any Subsidiary of the
Company (x) to pay dividends or make any other distributions on such
Subsidiary's capital stock or to pay any indebtedness owed to the Company or any
other Subsidiary of the Company, (y) to make any loans or advances to, or
investments in, the Company or any other Subsidiary of the Company or (z) to
transfer any of its property or assets to the Company or any other Subsidiary of
the Company.
(x) Except as stated in the Final Memorandum, there are no
outstanding claims for services, either in the nature of a finder's fee,
financial advisory fee, origination fee or similar fee, with respect to the
transactions contemplated hereby.
(y) Except as described in the Final Memorandum, each of the Company
and its Subsidiaries is in compliance in all respects with all existing and
applicable domestic and foreign laws, rules or regulations relating to pollution
or protection of public or employee health or the environment ("Environmental
Law") and with the terms and conditions of any Permit, issued to the Company or
its Subsidiaries thereunder in connection with the ownership, operation or use
of its business, property and assets, except where the failure to be in such
compliance would not, individually or in the aggregate, have a Material Adverse
Effect; except as disclosed in the Final Memorandum, none of the Company or its
Subsidiaries is subject to any known liability, absolute or contingent, under
any Environmental Law except for any such liability which would not,
individually or in the aggregate, have a Material Adverse Effect; except as
disclosed in the Final Memorandum, there is no civil, criminal or administrative
action, suit, demand, hearing, notice of violation or deficiency, investigation,
proceeding or notice of potential responsibility or demand letter or request for
information pending or, to the knowledge of the Company threatened against the
Company or any Subsidiaries under any Environmental Law which, if determined
-12-
<PAGE>
adversely to the Company or any Subsidiary would, individually or in the
aggregate, result in a Material Adverse Effect.
(z) Except as disclosed in the Final Memorandum, each of the Company
or its Subsidiaries carries insurance (including self insurance) in such amounts
and covering such risks as is adequate for the conduct of its business and the
value of its properties and as shall be customary, in the good faith judgment of
the Company, for companies similarly situated within the industry of the
Company.
(aa) As of the Closing Date, (assuming that on or prior to such date
the Confirmation Order shall have become a Final Order and the Approved Plan has
become Effective), none of the Company or its Subsidiaries has any liability for
any prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing, 401(k) plan or
other plan which is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), to which the Company or any Subsidiary makes or ever
has made a contribution and in which any employee of the Company or any
Subsidiary is or has ever been a participant. With respect to such plans, the
Company and each Subsidiary is in compliance in all material respects with all
applicable provisions of ERISA. The execution and delivery of this Agreement by
the Company and the sale of the Units by the Company to the Initial Purchaser
will not involve any prohibited transaction (within the meaning of Section 406
of ERISA) of the Company.
(bb) The Company is not and, after giving effect to the offering and
sale of the Units, the Company will not be an "investment company" or a company
"controlled by" an "investment company" or "promoter" or "principal underwriter"
for an "investment company," as such terms are defined in the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder.
(cc) Except as disclosed in the Final Memorandum, no holder of
securities of the Company or any Subsidiary will be entitled to have such
securities registered under the registration statements required to be filed by
the Company pursuant to the Registration Rights Agreement.
(dd) As of the Closing Date, (assuming that on or prior to such date
the Confirmation Order has become a Final Order and the Approved Plan has become
Effective), and immediately after the consummation of the transactions
contemplated by this Agreement, the fair value and current fair saleable value
of the assets of the Company (on a consolidated basis) will exceed the sum of
its stated liabilities and identified contingent liabilities; the Company (on a
consolidated basis) will not be, as of the Closing Date, that (assuming on or
prior to such date the Confirmation Order has become a Final Order and the
Approved Plan has become Effective), and after giving effect to the
-13-
<PAGE>
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, (a) left with unreasonably small capital
with which to carry on its business as it is proposed to be conducted as
described in the Final Memorandum, (b) unable to pay its debts (contingent or
otherwise) as they mature or (c) otherwise insolvent.
(ee) Neither the Company nor any person acting on its behalf has
offered or sold the Units by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act or, with respect to
Securities sold outside the United States to non-U.S. persons (as defined in
Rule 902 under the Act), by means of any directed selling efforts within the
meaning of Rule 902 under the Act, and the Company, any affiliate of the Company
and any person acting on its or their behalf have complied with and will
implement the "offering restrictions" within the meaning of such Rule 902;
PROVIDED, that no representation is made in this subsection with respect to
actions by the Initial Purchaser.
(ff) Except as disclosed in the Final Memorandum, neither the Company
nor any other person acting on behalf of the Company (other than the Initial
Purchaser as to whom the Company makes no representation) has solicited offers
to buy or offered or sold or otherwise negotiated in respect of any security (as
defined in the Act) that is or could be integrated with the sale of the Units in
a manner that would require the registration under the Act of the Units or
Securities; and the Company will take reasonable precautions designed to insure
that any offer or sale, direct or indirect, in the United States or to any U.S.
person (as defined in Rule 902 under the Act) of any Units or Securities or any
substantially similar security issued by the Company, within six months
subsequent to the date on which the distribution of the Units has been
completed, is made under restrictions and other circumstances reasonably
designed not to affect the status of the offer and sale of the Units in the
United States and to U.S. persons contemplated by this Agreement as transactions
exempt from the registration requirements of the Act;
(gg) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes.
(hh) Assuming the accuracy of and compliance with the representations
and warranties of the Initial Purchaser in Section 8 hereof, it is not necessary
in connection with the offer, sale and delivery of the Units to the Initial
Purchaser in the manner contemplated by this Agreement to register any of the
Securities under the Act or to qualify the Indenture under the TIA.
-14-
<PAGE>
(ii) As of the Closing Date, (assuming that on or prior to such date,
the Confirmation Order has become a Final Order and the Approved Plan has become
Effective), no other securities of the Company are of the same class (within the
meaning of Rule 144A under the Act) as the Securities and listed on a national
securities exchange registered under Section 6 of the Exchange Act, or quoted in
a U.S. automated inter-dealer quotation system.
(jj) None of the Company or its Subsidiaries has taken, nor will any
of them take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Securities.
(kk) Upon (i) execution and delivery of the Collateral Agreements by
the Company, the Subsidiary Guarantors parties thereto and the Trustee, (ii) the
execution and filing of all appropriate forms as required under the Uniform
Commercial Code and (iii) in the case of (A) the Pledged Securities and (B) the
capital stock of the Subsidiary Guarantors (the "Pledged Subsidiaries Stock")
pledged to the Trustee pursuant to the Pledge Agreement, the delivery to and
possession by the Trustee of such Pledged Securities and Pledged Subsidiaries
Stock, duly endorsed for transfer in accordance with Article 8 of the Uniform
Commercial Code, the Collateral Agreements will create and constitute a valid
and enforceable first priority pledge of and perfected security interest in the
Collateral.
(ll) Neither the Company nor any of its Subsidiaries is a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
(mm) As of the Closing Date, the Approved Plan shall be substantially
identical to the Proposed Plan.
3. PURCHASE, SALE AND DELIVERY OF THE UNITS. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to
purchase from the Company, 85,000 Units at a purchase price of 100% of the
principal amount of Notes being issued and sold. One or more certificates in
definitive form for the Units that the Initial Purchaser has agreed to purchase
hereunder, and in such denomination or denominations and registered in such name
or names as the Initial Purchaser requests upon notice to the Company at least
24 hours prior to the Closing Date, shall be delivered by or on behalf of the
Company to the Initial Purchaser, against payment by or on behalf of the Initial
Purchaser of the purchase price therefor; PROVIDED, HOWEVER that if the Closing
Date occurs prior to the date on which the
-15-
<PAGE>
Approved Plan has become Effective, the Units shall be issued to, and the
consideration therefor shall be paid to, an escrow agent pursuant to an escrow
agreement in the form attached hereto as Exhibit B. Such delivery of and
payment for the Units shall be made at the offices of Shearman & Sterling at
10:00 a.m., New York City time, on the date the Confirmation Order becomes a
Final Order and the Approved Plan becomes Effective, or at such other place,
time or date as the Initial Purchaser, on the one hand, and the Company, on the
other hand, may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date"; PROVIDED, HOWEVER, that the latest
date upon which the Closing Date may occur shall be August 1, 1997 (the "Latest
Possible Closing Date"). With respect to Securities to be delivered in
definitive certificated form, the Company will make certificates for such
Securities available for checking and packaging by the Initial Purchaser at the
offices of Jefferies & Company, Inc. in New York, New York, or at such other
place as the Initial Purchaser may designate, on the business day next preceding
the Closing Date. Securities to be represented by one or more definitive global
Securities in book-entry form will be deposited on the Closing Date, by or on
behalf of the Company, with The Depository Trust Company ("DTC") or its
designated custodian, and registered in the name of Cede & Co.
4. OFFERING BY THE INITIAL PURCHASER. The Initial Purchaser proposes to
make an offering of the Units at the price and upon the terms set forth in the
Final Memorandum, as soon as practicable after this Agreement is entered into
and as in the judgment of the Initial Purchaser is advisable.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Initial Purchaser that:
(a) The Company shall not make any amendment or supplement to the
Final Memorandum of which the Initial Purchaser shall not previously have been
advised and furnished a copy for a reasonable period of time prior to the
proposed amendment or supplement and as to which the Initial Purchaser shall not
have given its consent. The Company shall promptly, upon the reasonable request
of the Initial Purchaser, make any amendments or supplements to the Preliminary
Memorandum or the Final Memorandum that may be necessary or advisable in
connection with the resale of the Securities by the Initial Purchaser.
(b) The Company shall use its best efforts, in cooperation with the
Initial Purchaser, to arrange for the qualification of the Units for offering
and sale under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may designate and shall continue such qualifications in effect
for as long as may be necessary to complete the resale of the Securities.
(c) If, at any time prior to the completion of the initial resale of
the Units by the Initial Purchaser to persons
-16-
<PAGE>
other than affiliates of the Initial Purchaser (as determined by the Initial
Purchaser), any event occurs as a result of which the Final Memorandum as then
amended or supplemented would include any untrue statement of a material fact,
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
for any other reason it is necessary at any time to amend or supplement the
Final Memorandum to comply with applicable law, the Company will promptly notify
the Initial Purchaser thereof and will prepare, at the expense of the Company,
an amendment or supplement to the Final Memorandum that corrects such statement
or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the Final
Memorandum or any amendment or supplement thereto as the Initial Purchaser or
such counsel may reasonably request.
(e) For so long as any of the Securities remain outstanding, the
Company will furnish to the Initial Purchaser copies of all reports and other
communications (financial or otherwise) furnished by the Company to the Trustee,
the Warrant Agent or the holders of the Securities and, as soon as available,
copies of any reports or financial statements furnished to or filed by the
Company with the Commission or any national securities exchange on which any
class of securities of the Company may be listed.
(f) Except as described in the Final Memorandum, none of the Company
or any of its affiliates will sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Act) which
could be integrated with the sale of the Units in a manner which would require
the registration of the Units under the Act.
(g) The Company will not solicit any offer to buy or offer to sell
the Units by means of any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Act.
(h) For so long as any of the Securities remain outstanding, the
Company will make available, upon request, to any seller or prospective
purchaser of such Securities, the information specified in Rule 144A(d)(4) under
the Act, unless the Company is then subject to Section 13 or 15(d) of the
Exchange Act.
(i) The Company will use its best efforts to (i) permit the Units and
the Securities to be designated PORTAL securities in accordance with the rules
and regulations adopted by the NASD relating to trading in the Private Offering,
Resales and Trading through Automated Linkages market (the "PORTAL
-17-
<PAGE>
Market") and (ii) permit the Units and Securities to be eligible under Rule 144A
for clearance and settlement through DTC.
(j) (i) During the period beginning from the date hereof and
continuing until the date 180 days after the Closing Date, except as
contemplated by the Final Memorandum, the Company will not offer, sell, contract
to sell or otherwise dispose of, except as provided hereunder, any securities
that are similar to the Units or the Securities, including but not limited to,
any securities that are convertible into or exchangeable for, or that represent
the right to receive, Common Stock or any such securities similar to the
Securities, and the Company shall not offer, sell, contract to sell or otherwise
dispose of securities of the Company after such 180 day period if such
transaction would cause the initial offer and sale by the Company and resale by
the Initial Purchaser of the Units not to be exempt from the registration
requirements of the Act, and (ii) the Company will use its best efforts to cause
each person who has entered into a Lock-up Agreement (as herein defined) to
comply therewith, will not grant any waivers or consents to noncompliance
therewith and will enforce its rights under each such agreement, in each case
unless and to the extent that it shall have obtained the Initial Purchaser's
prior written consent, which consent shall not be unreasonably withheld.
(k) During the two year period after the Closing Date (or such
shorter period as may be provided for in Rule 144(k) under the Act, as the same
may be in effect from time to time), the Company will not, and will not permit
any of its subsidiaries or other affiliates (as defined in Rule 144A under the
Act) controlled by it to, resell any of the Securities which constitute
"restricted securities" under Rule 144 that have been required by any of them,
except pursuant to an effective registration statement under the Act.
(l) The Company shall pay all stamp and other duties, if any, which
may be imposed by the United States or any political subdivision thereof or
taxing authority thereof or therein with respect to the issuance of the Units
and the Securities.
6. EXPENSES. The Company agrees to pay all costs and expenses incident
to the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including all costs and expenses incident to (i)
the printing, word processing or other production of documents with respect to
the transactions contemplated hereby, including any costs of printing the
Preliminary Memorandum and the Final Memorandum and any amendment or supplement
thereto, (ii) all arrangements relating to the delivery to the Initial Purchaser
of copies of the foregoing documents, (iii) the fees and disbursements of the
counsel, the accountants and any other experts or advisors retained by the
Company, (iv) the
-18-
<PAGE>
preparation, issuance and delivery to the Initial Purchaser of the Securities,
(v) the qualification for the Securities under state securities and "Blue Sky"
laws, including filing fees and fees and disbursements of counsel incurred by
the Initial Purchaser relating thereto, (vi) subject to the terms of the
Engagement Letter dated as of March 18, 1997 between the Company and the Initial
Purchaser (the "Engagement Letter"), the reasonable fees, disbursements and
charges of Anderson Kill & Olick, P.C., counsel to the Initial Purchaser,
incurred in connection with the transactions contemplated hereby, (vii) expenses
in connection with any meetings with prospective investors in the Securities,
(viii) fees and expenses of the Trustee, the Warrant Agent and the transfer
agent for the Common Stock including fees and expenses of their respective
counsel incurred by any of them, (ix) all expenses and listing fees incurred in
connection with the application for quotation of the Securities on the PORTAL
Market, and (x) any fees charged by investment rating agencies for the rating of
any of the Securities. If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Initial Purchaser
set forth in Section 7 hereof is not satisfied, because this Agreement is
terminated or because of any failure, refusal or inability on the part of the
Company to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than solely by reason of a default by the
Initial Purchaser on its obligations hereunder after all conditions hereunder
have been satisfied in accordance herewith, subject to the terms of the
Engagement Letter, the Company agrees to promptly reimburse the Initial
Purchaser upon demand for all out-of-pocket expenses (including reasonable fees,
disbursements and charges of Anderson Kill & Olick, P.C., counsel for the
Initial Purchaser) that shall have been incurred by the Initial Purchaser in
connection with the proposed purchase and sale of the Securities.
7. CONDITIONS OF THE INITIAL PURCHASER'S OBLIGATIONS. The obligation of
the Initial Purchaser to purchase and pay for the Securities shall, be subject
to the satisfaction or waiver of the following conditions on or prior to the
Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received
the opinion, dated as of the Closing Date and addressed to the Initial
Purchaser, of Shearman & Sterling, counsel for the Company, in form and
substance satisfactory to counsel for the Initial Purchaser, substantially to
the effect that:
(i) Each of the Company and Block Party, Inc., a corporation
wholly-owned by the Company, is duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Final
Memorandum.
-19-
<PAGE>
(ii) Except as set forth in the Final Memorandum, based solely
upon certificates by officers of the Company which such counsel has no
reason to believe are inaccurate and to the best of such counsel's
knowledge, (A) no options, warrants or other rights to purchase from the
Company any Equity Interests in the Company are outstanding, (B) no
agreements or other obligations of the Company to issue, or other rights
granted by the Company to cause the Company to convert, any obligation
into, or exchange any securities for, any Equity Interests in the Company
are outstanding and (C) the Company is not obligated to have any of its
securities registered under a registration statement filed by the Company
under the Act with respect to any of the Securities.
(iii) The Notes have been duly and validly authorized and
executed by the Company and, when duly authenticated by the Trustee in
accordance with the Indenture and when delivered by the Company and paid
for by the Initial Purchaser in accordance with the terms of this
Agreement, the Notes will constitute the valid and legally binding
obligations of the Company and each of the Subsidiary Guarantors,
enforceable in accordance with their terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency (including all laws
relating to fraudulent transfer), reorganization, receivership, moratorium,
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (whether applied by
a court of law or equity) and the discretion of the court before which any
proceeding therefor may be brought; and the holders of the Notes will be
entitled to the benefits of the Indenture.
(iv) The Company and Block Party, Inc. has all requisite
corporate power and authority to execute, deliver and perform its
obligations under the Indenture, the Notes, the Intercreditor Agreement and
the Collateral Agreements; the Indenture is in sufficient form for
qualification under the TIA; the Indenture, the Notes, the Intercreditor
Agreement and the Collateral Agreements have been duly and validly
authorized by the Company and each Subsidiary Guarantor party thereto; the
Indenture, the Notes and the Collateral Agreements have been executed and
delivered by the Company and each Subsidiary Guarantor party thereto, and,
assuming due authorization, execution and delivery by the Trustee, assuming
due authorization, execution and delivery by the Trustee, in the case of
any agreement to which the Trustee is a party, each constitutes (and, with
respect to the Intercreditor Agreement, upon the execution and delivery of
the Intercreditor Agreement, will constitute) a valid and legally binding
obligation of the Company and each Subsidiary Guarantor party thereto,
enforceable against the Company and each such Subsidiary Guarantor in
accordance with its terms, except that the
-20-
<PAGE>
enforcement thereof may be subject to (i) bankruptcy, insolvency (including
all laws relating to fraudulent transfer), reorganization, receivership,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally, (ii) general principles of
equity (whether applied by a court of law or equity) and the discretion of
the court before which any proceeding therefor may be brought and (iii), in
the case of the Collateral Agreements, federal or state securities laws or
principles of public policy affecting enforcement of rights to indemnity or
contribution.
(v) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Registration
Rights Agreement; the Registration Rights Agreement has been duly and
validly authorized, executed and delivered by the Company and constitutes a
valid and legally binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that (A) the enforcement
thereof may be subject to (i) bankruptcy, insolvency (including all laws
relating to fraudulent transfer), reorganization, receivership, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (ii) general principles of equity (whether applied by
a court of law or equity) and discretion of the court before which any
proceeding therefor may be brought and (B) any rights to indemnity or
contribution thereunder may be limited by federal or state securities laws
or public policy considerations.
(vi) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Warrant
Agreement. The Warrant Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency (including all laws relating to
fraudulent transfer), reorganization, receivership, moratorium, or other
similar laws now or hereafter in effect relating to creditors' rights
generally, (ii) general principles of equity (whether applied by a court of
law or equity) and the discretion of the court before which any proceeding
therefor may be brought and (iii) federal or state securities laws or
principles of public policy affecting enforcement of rights to indemnity or
contribution.
(vii) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Warrants. The
Warrants have been duly and validly authorized and executed by the Company
and, when
-21-
<PAGE>
duly countersigned by the Warrant Agent in accordance with the Warrant
Agreement and delivered and paid for by the Initial Purchaser, will have
been duly issued and delivered and will constitute valid and legally
binding obligations of the Company, entitled to the benefits of the Warrant
Agreement, and enforceable against the Company in accordance with their
terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency (including all laws relating to fraudulent
transfer), reorganization, receivership, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally, (ii)
general principles of equity (whether applied by a court of law or equity)
and the discretion of the court before which any proceeding therefor may be
brought and (iii) federal or state securities laws or principles of public
policy affecting enforcement of rights to indemnity or contribution.
(viii) When issued in accordance with the terms and conditions
contained in the Warrant Agreement, upon exercise of the Warrants, the
Warrant Shares will be duly authorized, validly issued, fully paid and
non-assessable and will not be subject to any preemptive or similar rights.
(ix) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by
the Company.
(x) The statements set forth in the Final Memorandum under the
captions "Description of Units", Description of Notes", "Description of
Warrants" and "Description of Capital Stock", insofar as such statements
purport to constitute a summary of the legal matters and documents referred
to therein, fairly summarize in all material respects the legal matters and
documents referred to therein.
(xi) To the knowledge of such counsel and except as set forth in
the Final Memorandum, no legal or governmental proceedings are pending or
threatened to which the Company or any of its Subsidiaries is a party or to
which the property or assets of the Company or any Subsidiary is subject
which, if determined adversely to the Company or the Subsidiary, would
result, individually or in the aggregate, in a Material Adverse Effect, or
which seeks to restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance or sale of the Securities to be sold hereunder or
the consummation of the other transactions described in the Final
Memorandum.
(xii) Assuming that the New Notes have been duly authorized by
all necessary corporate action of the Company,
-22-
<PAGE>
such New Notes when duly authenticated by the Trustee in accordance with
the Indenture and duly executed and delivered by the Company in accordance
with the terms of the Registration Rights Agreement and the Indenture, the
New Notes will constitute the valid and legally binding obligations of the
Company and the Subsidiary Guarantors, entitled to the benefits of the
Indenture and enforceable in accordance with their terms, except that the
enforcement thereof may be subject to (i) bankruptcy, insolvency (including
all laws relating to fraudulent transfer), reorganization, receivership,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (whether
applied by a court of law or equity) and the discretion of the court before
which any proceeding therefor may be brought.
(xiii) Except as set forth in the Final Memorandum, the execution
and delivery of this Agreement, the Indenture, the Collateral Agreements,
the Intercreditor Agreement, the Warrant Agreement and the Registration
Rights Agreement and the consummation of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and sale of
the Units to the Initial Purchaser) will not conflict with or constitute or
result in a material breach or violation of or a default under (or an event
which with notice or passage of time or both would constitute a material
default under) (i) any of the terms or provisions of (A) any indenture,
mortgage, deed of trust, loan agreement, note, or (B) based upon
certificates by officers of the Company with respect to materiality, any
material lease, license, franchise agreement, Permit, certificate, contract
or other agreement or instrument to which the Company or any Subsidiary is
a party, except, with respect to each of clauses (A) and (B) hereof, for
any such conflict, breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse Effect, (ii) the
certificate of incorporation or bylaws of the Company, or (iii) any
existing applicable Federal, New York or Delaware statute, law, rule or
regulation, which are normally applicable to corporations such as the
Company (other than the securities or blue sky laws of the various states,
as to which, in each case, we express no opinion), or any judgment, order
or decree of any court, governmental agency or body or arbitrator
applicable to the Company, its Subsidiaries or any of their respective
properties or assets, except for any such conflict, breach, violation,
default or event would not, individually or in the aggregate, have a
Material Adverse Effect.
(xiv) To the knowledge of such counsel, no consent, approval,
authorization or order of any domestic governmental authority is required
for the issuance and sale
-23-
<PAGE>
by the Company of the Units to the Initial Purchaser or the other
transactions contemplated hereby, except such as have previously been
obtained and such as may be required under applicable state securities or
Blue Sky laws, as to which such counsel need express no opinion pursuant to
this clause (xiv).
(xv) Based upon the representations, warranties and agreements of
the Company in Sections 1 and 5 of this Agreement and of the Initial
Purchaser in Section 8 of this Agreement, it is not necessary in connection
with the offer, sale and delivery of the Units to the Initial Purchaser
under this Agreement or in connection with the initial resale of such Units
by the Initial Purchaser in accordance with Section 4 of this Agreement to
register the Units under the Securities Act, it being understood that no
opinion is expressed as to any subsequent resale of any Unit. Prior to the
commencement of the Exchange Offer (as defined in the Registration Rights
Agreement) or the effectiveness of the Shelf Registration Statement (as
defined in the Registration Rights Agreement), the Indenture is not
required to be qualified under the TIA.
(xvi) Neither the consummation of the transactions contemplated
by this Agreement (including, without limitation, any pledge of the capital
stock of any Subsidiary pursuant to the Pledge Agreement) nor the sale,
issuance, execution or delivery of the Units will violate Regulation G, T,
U or X of the Board of Governors of the Federal Reserve System.
(xvii) The Security Agreement creates a valid security interest
for the benefit of the Trustee in all of the Company's right, title and
interest in the Collateral to the extent that a security interest therein
can be created under Article 9 of the UCC, and, to the extent provided in
Section 9-306 of the UCC, all proceeds thereof. Assuming that the
Financing Statements executed by the Company have been filed in the offices
listed in the Security Agreement, the security interests of the Trustee, in
the Collateral, will be perfected security interests to the extent such
security interests can be perfected solely by filing a financing statement
under the UCC.
(xviii) Assuming (a) the continued exclusive possession by the
Trustee pursuant to the Pledge Agreement of stock certificates representing
the capital stock of the Subsidiary Guarantors (the "Pledged Shares")
referred to in the Pledge Agreement, together with stock powers properly
executed in blank with respect thereto and (b) that the Trustee was without
notice of any adverse claim (as such term is used in Section 8-302 of the
UCC) with respect to the Pledged Shares, the Pledge Agreement, together
with the delivery of the certificates representing the Pledged Shares
-24-
<PAGE>
thereunder to Trustee, creates in Trustee's favor a perfected security
interest under the UCC in such Pledged Shares. Assuming the Trustee
acquired its interest in such Pledged Shares in good faith and without
notice of any adverse claims and that each such certificate is either in
bearer or registered form issued or endorsed in Agent's name or in blank,
Agent will acquire Agent's security interest in such Pledged Shares free of
adverse claims.
(xix) Each Subsidiary Security Agreement creates a valid security
interest for the benefit of the Trustee in all of the right, title and
interest of the Subsidiary that is a party to such Subsidiary Security
Agreement in such Subsidiary's Collateral to the extent that a security
interest therein can be created under Article 9 of the UCC, and, to the
extent provided in Section 9-306 of the UCC, all proceeds thereof.
Assuming that the Financing Statements executed by the Company and each
Subsidiary Guarantor have been filed in the offices listed in such
Subsidiary Security Agreement, the security interests of the Trustee, in
such Collateral, will be perfected security interests to the extent such
security interests can be perfected solely by filing a financing statement
under the UCC.
(xx) The Escrow Agreement creates a valid perfected security
interest for the benefit of the Collateral Agent in all of the Company's
right, title and interest in the Escrowed Interest Account, including,
without limitation, the Escrow Funds and the Pledged Securities, to the
extent that a security interest therein can be created under Article 8 of
the UCC. Assuming the Collateral Agent acquired its interest in the
Escrowed Interest Account, including, without limitation, the Escrow Funds
and the Pledged Securities, in good faith and without notice of any adverse
claims (as such term is used in Section 8-302 of the UCC), the Collateral
Agent will acquire its security interest in the Escrowed Interest Account,
including, without limitation, the Escrow Funds and the Pledged Securities,
free of adverse claims.
(xxi) Assuming the Collateral Agreements have been duly
authorized, executed and delivered by the Collateral Agent, the Mortgage is
a legal, valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms and creates a valid lien with
respect to the premises described therein subject only to Permitted Liens,
including, without limitation, the lien of the mortgage for the benefit of
McDonald's Corporation. In that regard, in the event of foreclosure of the
lien of the Mortgage, the Collateral Agent will be entitled to obtain a
deficiency judgment against the Company for the differences between the
total amount of the obligations secured by the Mortgage and the amount
realized upon foreclosure. The financing statements with respect to the
fixtures,
-25-
<PAGE>
attachments and other articles and personal property described in the
Mortgage are in appropriate form, pursuant to the Uniform Commercial Code
in effect in such State (the "UCC") will result in the perfection of the
security interests created by the Mortgage in the fixtures, attachments and
other articles and personal property described in the Mortgage, within the
meaning of the UCC without the necessity of any action by and Person with
respect thereto.
(xxii) Assuming that each Subsidiary Guarantor existing on the
Closing Date (i) is duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and (ii)
has all requisite corporate power and authority to execute, deliver and
perform its obligations under the Subsidiary Guarantee to which it is a
party, the Subsidiary Guarantee to which each existing Subsidiary Guarantor
is a party constitutes the valid and legally binding agreement of such
Subsidiary Guarantor, enforceable in accordance with its terms except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency
(including all laws relating to fraudulent transfer), reorganization,
receivership, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity (whether applied by a court of law or equity) and the discretion of
the court before which any proceeding therefor may be brought.
Such counsel shall also state that it has reviewed and participated in
discussions concerning the preparation of the Final Memorandum with certain
officers or employees of the Company, with its counsel and its auditors, and
with representatives of the Initial Purchaser and their counsel. The
limitations inherent in the independent verification of factual matters and in
the role of outside counsel are such, however, that such counsel will not assume
any responsibility for the accuracy, completeness or fairness of any of the
statements made in the Final Memorandum except as set forth in subparagraph (xi)
of this Section 7(a). Such counsel shall advise the Initial Purchaser that,
subject to the limitations set forth above, on the basis of the information such
counsel gained in the course of performing the services referred to above, (i)
no facts came to such counsel's attention which gave such counsel reason to
believe that the Final Memorandum (other than the financial statements and
related notes thereto and the other financial, statistical, and other accounting
data (including projections) contained in the Final Memorandum or omitted
therefrom, as to which such counsel expresses no view), as of its date or the
Closing Date, contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. In rendering such opinion, such counsel may (i) rely with respect
to
-26-
<PAGE>
matters of fact upon the representations and warranties of the Company and its
Subsidiaries set forth herein, upon certificates of officers of the Company and
its Subsidiaries and upon information obtained from public officials, (ii)
assume that all documents submitted to such counsel as originals are authentic,
that all copies submitted to such counsel conform to the originals thereof, and
that the signatures on all documents examined by such counsel are genuine, (iii)
state that such counsel's opinion is limited to the federal law of the United
States and the laws of the State of New York and the General Corporation Law of
the State of Delaware, (iv) if, on the Closing Date the Confirmation Order has
not become a Final Order and the Approved Plan has not become Effective, assume
for purposes of this opinion that the Confirmation Order has become a Final
Order and the Approved Plan has become Effective and (v) may make such other
assumptions and qualifications as may be reasonably acceptable to the Initial
Purchaser. The opinion of Shearman & Sterling described in this subsection (a)
shall be rendered at the request of the Company to, and may be relied upon
solely by, the Initial Purchaser and shall so state therein.
References to the Final Memorandum in this subsection (a) shall include any
amendment or supplement thereto prepared in accordance with the provisions of
this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received
the opinion, in form and substance satisfactory to the Initial Purchaser, dated
as of the Closing Date and addressed to the Initial Purchaser, of Anderson Kill
& Olick P.C., counsel for the Initial Purchaser, with respect to certain legal
matters relating to this Agreement and such other related matters as the Initial
Purchaser may require. In rendering such opinion, Anderson Kill & Olick P.C.
shall have received and may rely upon such certificates and other documents and
information as it may reasonably request to pass upon such matters.
(c) The Initial Purchaser shall have received from the Independent
Accountants a comfort letter dated the date hereof, in form and substance
satisfactory to the Initial Purchaser, to the effect set forth in Exhibit C
hereto.
(d) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date (except for the representations and warranties which were true and
correct as of a certain specified date which shall continue to be true and
correct as of such date); the statements of the Company's officers made pursuant
to any certificate delivered in accordance with the provisions hereof shall be
true and correct in all material respects on and as of the date made and on and
as of the Closing Date; the Company shall have complied in all material respects
with all agreements and satisfied all
-27-
<PAGE>
conditions to be performed or satisfied hereunder at or prior to the Closing
Date; and, except as described in the Final Memorandum (exclusive of any
amendment or supplement thereto after the date hereof), subsequent to the date
of the most recent financial statements in such Final Memorandum, there shall
have been no development that, singly or in the aggregate, is reasonably likely
to have a Material Adverse Effect.
(e) The sale of the Units hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(f) Subsequent to the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), other than as described in such Final Memorandum or contemplated
hereby, neither the Company nor any Subsidiary shall have incurred any
liabilities or obligations, direct or contingent not in the ordinary course of
business that are material to the Company and its Subsidiaries, taken as a
whole, or entered into any transactions not in the ordinary course of business
that are material to the business, condition (financial or other) or results of
operations or prospects of the Company, taken as a whole, and there shall not
have been any adverse change in the capital stock or long-term indebtedness of
the Company or any Subsidiary that is material to the business, condition
(financial or other) or results of operations or prospects of the Company and
the Subsidiaries, taken as a whole.
(g) Subsequent to the date of the most recent financial statements in
the Final Memorandum and except as stated therein (exclusive of any amendment or
supplement thereto after the date hereof), the conduct of the business and
operations of the Company shall not have been interfered with by strike, fire,
flood, hurricane, accident or other calamity (whether or not insured) or by any
court or governmental action, order or decree, and the properties of the Company
shall not have sustained any loss or damage (whether or not insured) as a result
of any such occurrence, except any such interference, loss or damage which would
not, individually or in the aggregate, have a Material Adverse Effect.
(h) The Initial Purchaser shall have received certificates of the
Company, dated the Closing Date, signed on behalf of the Company by the Chairman
of the Board, President or Chief Executive Officer and their Chief Financial
Officer, to the effect that:
(i) the representations and warranties of the Company and its
Subsidiaries contained in this Agreement are true and correct in all
material respects as of the date hereof and as of the Closing Date (except
for the representations and warranties which were true and correct as of a
certain specified date which shall continue to be true and correct as of
such date), and the Company and its
-28-
<PAGE>
Subsidiaries have performed all covenants and agreements and satisfied
hereunder all conditions on their part to be performed or satisfied
hereunder at or prior to the Closing Date;
(ii) at the Closing Date, since the date hereof or since the date
of the most recent financial statements in the Final Memorandum (exclusive
of any amendment or supplement thereto after the date hereof), no event or
events have occurred, no information has become known nor does any
condition exist that, individually or the aggregate, would have a Material
Adverse Effect;
(iii) since the date hereof or since the date of the most recent
financial statements in the Final Memorandum (exclusive of any amendment or
supplement thereto after the date hereof), other than as described in the
Final Memorandum or contemplated hereby, neither the Company nor any
Subsidiary has incurred any liabilities or obligations, direct or
contingent, not in the ordinary course of business, that are material to
the Company and its Subsidiaries, taken as a whole, or entered into any
transactions not in the ordinary course of business that are material to
the business, condition (financial or otherwise) or results of operations
or prospects of the Company and its Subsidiaries, taken as a whole, and
there has not been any change in the capital stock or long-term
indebtedness of the Company or any Subsidiary that is material to the
business, condition (financial or other) or results of operations or
prospects of the Company and its Subsidiaries, taken as a whole; and
(iv) the sale of the Units hereunder has not been enjoined
(temporarily or permanently).
(i) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by the Company and such agreement
shall be in full force and effect at all times from and after the Closing Date.
(j) On the Closing Date, the Initial Purchaser shall have received
an opinion of counsel, in form and substance satisfactory to the Initial
Purchaser, to the effect that each Subsidiary Guarantor existing on the Closing
Date (i) is duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Final Memorandum and (ii) has all requisite
corporate power and authority to execute, deliver and perform its obligations
under the Subsidiary Guarantee to which it is a party.
(k) The directors and executive officers of the Company who are
holders of outstanding shares of or securities
-29-
<PAGE>
exercisable or exchangeable for or convertible into shares of capital stock of
the Company and the principal holders of the Company's Series A Convertible
Preferred Stock shall have entered into a written agreement with the Initial
Purchaser in the form of Exhibit D hereto (each such agreement a "Lock-up
Agreement"), and executed originals of each Lock-up Agreement shall have been
delivered to you.
(l) The Company shall have entered into an employment agreement with
Scott W. Bernstein as chief executive officer for a term of no less than three
years, which agreement shall be effective on the Closing Date and otherwise on
terms and in a form reasonably satisfactory to the Initial Purchaser.
(m) On the Closing Date, the Company's issuance and sale of its Series
A Convertible Preferred Stock shall have been consummated in the manner set
forth in the Final Memorandum.
(n) On the Closing Date, no notice of appeal of the Confirmation
Order shall have been timely filed by a person or entity that had objected to
the Proposed Plan or the Approved Plan to the United States District Court for
the District of Delaware or to the bankruptcy appellate panel for the circuit in
which the District of Delaware is situated, which shall be pending as of the
Closing Date and either (i) seeks the nonconsummation of such Plan or any
portion of such Plan which is material to the effectiveness of such Plan as a
whole, or (ii) could reasonably be expected to have a Material Adverse Effect.
(o) Unless the parties have agreed in accordance with Section 3 above
that the Closing Date shall occur prior to the date on which the Approved Plan
has become Effective, the Approved Plan shall have become Effective and the
Confirmation Order shall have become a Final Order.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall each have received such further documents, opinions,
certificates, letters and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company and its subsidiaries as
they shall have heretofore reasonably requested from the Company and its
Subsidiaries.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provision
hereof only if they are reasonably satisfactory in all respects to the Initial
Purchaser and counsel for the Initial Purchaser. The Company shall furnish to
the Initial Purchaser such conformed copies of such documents, opinions,
certificates, letters, schedules and instruments in such quantities as the
Initial Purchaser shall reasonably request.
-30-
<PAGE>
8. REPRESENTATIONS AND WARRANTIES BY THE INITIAL PURCHASER. The Initial
Purchaser represents and warrants (as to itself only) that it is a QIB with such
knowledge and experience in financial and business matters as are necessary in
order to evaluate the merits and risks of an investment in the Units. The
Initial Purchaser agrees with the Company (as to itself only) that (a) it has
not and will not solicit offers for, or offer or sell, the Securities by any
form of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Act and the rules and regulations promulgated
thereunder, and (b) it has and will solicit offers for the Units only from, and
will offer and sell the Securities only to (A) in the case of offers inside the
United States, (i) persons whom the Initial Purchaser reasonably believes to be
QIBs or, if any such person is buying for one or more institutional accounts for
which such person is acting as fiduciary or agent, only when such person has
represented to the Initial Purchaser that each such account is a QIB, to whom
notice has been given that such sale or delivery is being made in reliance on
Rule 144A, and, in each case, in transactions under Rule 144A or (ii) a limited
number of other institutional investors reasonably believed by the Initial
Purchaser to be Accredited Investors that, prior to their purchase of the
Securities, deliver to the Initial Purchaser a letter containing the
representations and agreements set forth in Appendix A to the Final Memorandum
and (B) in the case of offers outside the United States, persons other than U.S.
persons ("foreign purchaser"), which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust); provided,
however, that, in the case of this clause (b), in purchasing such Securities,
such persons are deemed to have represented and agreed as provided under the
caption "Notice to Investors" contained in the Final Memorandum. The Initial
Purchaser acknowledges and agrees that, except as permitted by this Agreement,
it will not offer, sell or deliver any Units (a) as part of the distribution at
any time. The Initial Purchaser acknowledges and agrees that it will not offer,
sell or deliver any Securities in any jurisdiction outside of the United States,
its territories or possessions except under circumstances that will result in
compliance with the provisions of Regulation S under the Act and the applicable
laws of such jurisdiction.
9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless the Initial Purchaser, and each person, if any, who controls
the Initial Purchaser within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, against any losses, claims, damages or liabilities to which
the Initial Purchaser or such controlling person may become subject under the
Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon:
-31-
<PAGE>
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto;
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or
(iii) any breach by the Company or any of its Subsidiaries of their
respective representations, warranties and agreements set forth in
subsection (t), (ee), (ff), (gg), (hh), (ii), (jj) or (ll) of Section 2;
and, subject to the provisions hereof, will reimburse, as incurred, the Initial
Purchaser and each such controlling person for any legal or other expenses
reasonably incurred by the Initial Purchaser or such controlling person in
connection with investigating, defending against or appearing as a third-party
witness in connection with any such loss, claim, damage, liability or action in
respect thereof; provided, however, the Company will not be liable in any such
case to the extent (but only to the extent) that any such loss, claim, damage or
liability is finally judicially determined by a court of competent jurisdiction
in a final, unappealable judgment, to have resulted primarily from any untrue
statement or alleged untrue statement or omission or alleged omission made in
any Memorandum or any amendment or supplement thereto in reliance upon and in
conformity with written information concerning the Initial Purchaser furnished
to the Company by the Initial Purchaser specifically for use therein. This
indemnity agreement will be in addition to any liability that the Company may
otherwise have to the indemnifiable parties. The Company shall not be liable
under this Section 9 for any settlement of any claim or action effected without
its prior written consent, which shall not be unreasonably withheld; and
provided further, however, that this indemnity, as to the Preliminary
Memorandum, shall not inure to the benefit of the Initial Purchaser (or any
person controlling such Initial Purchaser) on account of any loss, claim, damage
or liability arising from the sale of Units to any person by such Initial
Purchaser if such Initial Purchaser failed to send or give a copy of the Final
Memorandum (as the same may be supplemented or amended) to such person at or
prior to the written confirmation of the sale of the Securities to such person,
and the untrue statement or alleged untrue statement or omission or alleged
omission of a material fact in such Preliminary Memorandum was corrected in the
Final Memorandum, unless such failure resulted from noncompliance by the Company
with Section 5(c).
(b) The Initial Purchaser agrees to indemnify and hold harmless each
of the Company, its directors, officers and each person, if any, who controls
the Company within the meaning of
-32-
<PAGE>
Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which the Company or any such director,
officer or controlling person may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) are finally judicially determined by a court of competent
jurisdiction in a final, unappealable judgment, to have resulted solely from (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendment or supplement thereto, (ii) the omission or
the alleged omission to state therein a material fact required to be stated in
any Memorandum or any amendment or supplement thereto or necessary to make the
statements therein not misleading, in each case to the extent, (but only to the
extent) that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information concerning such Initial Purchaser, furnished to the Company by the
Initial Purchaser specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred, any
legal or other expenses incurred by the Company or any such director, officer or
controlling person in connection with any such loss, claim, damage, liability or
action in respect thereof. This indemnity agreement will be in addition to any
liability that the Initial Purchaser may otherwise have to the indemnified
parties.
(c) As promptly as reasonably practical after receipt by an
indemnified party under this Section 9 of notice of the commencement of any
action for which such indemnified party is entitled to indemnification under
this Section 9, such indemnified party will, if a claim in respect thereof is to
be made against the indemnifying party under this Section 9, notify the
indemnifying party of the commencement thereof in writing; but the omission to
so notify the indemnifying party (i) will not relieve such indemnifying party
from any liability under paragraph (a) or (b) above unless and to the extent it
is not materially prejudiced as a result thereof and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraphs (a) and
(b) above. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may determine, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if (i) the use of counsel chosen
by the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have been advised by counsel that there may be one or
more legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the
-33-
<PAGE>
indemnifying party, or (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after receipt by the indemnifying
party of notice of the institution of such action, then, in each such case, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties at the expense of the indemnifying
party. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 9 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Initial Purchaser in the case of
paragraph (a) of this Section 9 or the Company in the case of paragraph (b) of
this Section 9, representing the indemnified parties under such paragraph (a) or
paragraph (b), as the case may be, who are parties to such action or actions) or
(ii) the indemnifying party has authorized in writing the employment of counsel
for the indemnified party at the expense of the indemnifying party. After such
notice from the indemnifying party to such indemnified party, the indemnifying
party will not be liable for the costs and expenses of any settlement of such
action effected by such indemnified party without the prior written consent of
the indemnifying party (which consent shall not be unreasonably withheld),
unless such indemnified party waived in writing its rights under this Section 9,
in which case the indemnified party may effect such a settlement without such
consent.
(d) No indemnifying party shall be liable under this Section 9 for
any settlement of any claim or action (or threatened claim or action) effected
without its written consent, which shall not be unreasonably withheld, but if a
claim or action settled with its written consent, or if there be a final
judgment for the plaintiff with respect to any such claim or action, each
indemnifying party jointly and severally agrees, subject to the exceptions and
limitation set forth above, to indemnify and hold harmless each indemnified
party from and against any and all losses, claims, damages or liabilities (and
legal and other expenses as set forth above) incurred by reason of such
settlement or judgment. No indemnifying party shall,
-34-
<PAGE>
without the prior written consent of the indemnified party, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which the indemnified party is or could have been a party, or indemnity could
have been sought hereunder by the indemnified party, unless such settlement (A)
includes an unconditional written release of the indemnified party, in form and
substance satisfactory to the indemnified party, from all liability on claims
that are the subject matter of such proceeding and (B) does not include any
statement as to an admission of fault, culpability or failure to act by or on
behalf of the indemnified party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 9 is unavailable to, or insufficient to
hold harmless, an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contributions, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Initial Purchaser on
the other shall be deemed to be in the same proportion as the total proceeds
from the offering (before deducting expenses) received by the Company bear to
the total discounts and commissions received by such Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand, or such Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omissions, and any other equitable considerations appropriate in the
circumstances.
(f) The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution determined pursuant to paragraph
(e) were determined by pro rata or per capita allocation or by any other method
of allocation that does not take into account the equitable considerations
referred to in the first sentence of the immediately preceding paragraph (e).
Notwithstanding any other provision of the immediately preceding paragraph (e),
the Initial Purchaser shall
-35-
<PAGE>
not be obligated to make contributions hereunder that in the aggregate exceed
the total discounts, commissions and other compensation received by such Initial
Purchaser under this Agreement, less the aggregate amount of any damages that
such Initial Purchaser has otherwise been required to pay by reason of the
untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of the immediately preceding paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of the Company, each officer of the Company
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
10. SURVIVAL CLAUSE. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and its
officers and the Initial Purchaser set forth in this Agreement or made by or on
behalf of them pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of the Company and its
Subsidiaries, any of their respective officers or directors, the Initial
Purchaser or any controlling person referred to in Section 9 hereof and shall
survive delivery of and payment for the Units. The respective agreements,
covenants, indemnities and other statements set forth in Sections 6, 9 and 14
hereof shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement.
11. TERMINATION. (a) This Agreement may be terminated in the sole
discretion of the Initial Purchaser by notice to the Company given prior to the
Closing Date in the event that the Company shall have failed, refused or been
unable to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder at or prior thereto or, if at or prior to the
Closing Date:
(i) the Company shall have sustained any loss or interference
with respect to its businesses or properties from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or from
any strike, labor dispute, slow down or work stoppage or any legal or
governmental proceeding, which loss or interference, in the sole judgment
of the Initial Purchaser, has had or has a Material Adverse Effect or there
shall have been, in the sole judgment of the Initial Purchaser, any event
or development involving or reasonably likely to cause or result in a
Material Adverse Effect (including without limitation a change in
management or control of the Company), except in each case as described in
the Final
-36-
<PAGE>
Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the NASDAQ National Market shall have
been suspended or minimum or maximum prices shall have been established on
any such exchange or market;
(iii)a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international calamity
or emergency, or (C) any material change in the financial markets of the
United States which, in the case of clause (A), (B) or (C) and in the sole
judgment of the Initial Purchaser, makes it impracticable or inadvisable to
proceed with the private offering or the delivery of the Units as
contemplated by the Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. INFORMATION SUPPLIED BY THE INITIAL PURCHASER. The statements set
forth in the last paragraph on the front cover page, the first and second
sentence of the third paragraph on page i (to the extent such statements relate
to the Initial Purchaser), and in the first, fourth and sixth paragraphs under
the heading "Plan of Distribution" in the Memorandum (to the extent such
statements relate to the Initial Purchaser) constitute the only information
furnished by the Initial Purchaser to the Company or its Subsidiaries for the
purposes of Sections 2(a) and 9 hereof.
13. NOTICES. All communications hereunder shall be in writing and, if
sent to the Initial Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to (i) Jefferies & Company, Inc., 650 Fifth Avenue, 15th
Floor, New York, New York 10019, Attention: Andrew R. Whittaker, Telecopy No.
(212) 903-2622; with a copy to Anderson Kill & Olick P.C., 1251 Avenue of the
Americas, New York, New York 10022 Attention: Ronald S. Brody, Esq. and if sent
to the Company, shall be mailed or delivered or telecopied and confirmed in
writing to it at 110 East Broward Boulevard, Fort Lauderdale, Florida 33301,
Attention: Chief Financial Officer, Telecopy No. (954) 627-2760; with a copy to
Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022, Attention:
Stephen T. Giove, Esq., Telecopy No. (212) 848-7179.
-37-
<PAGE>
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the United States mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier; and when
receipt is acknowledged by the addressed, if telecopied.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchaser, the Company and their respective successors
and legal representatives, and nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person except that (i) the indemnities
of the Company contained in Section 9 of this Agreement shall also be for the
benefit of any person or persons who control the Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Initial Purchaser contained in Section 9 of this Agreement
shall also be for the benefit of the directors of the Company their respective
officers and any person or persons who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Securities from the Initial Purchaser will be deemed a successor because of such
purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY THEREIN.
16. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among the Company and the
Initial Purchaser.
* * * * *
-38-
<PAGE>
Very truly yours,
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
-----------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and President
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above written.
JEFFERIES & COMPANY, INC.
By: /s/ Andrew R. Whittaker
--------------------------------
Name: Andrew R. Whittaker
Title: Executive Vice President
-39-
<PAGE>
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER, dated as of July 28, 1997 (this
"AGREEMENT") among Discovery Zone Children's Amusement Corp. (the "Company"), a
Delaware corporation and a wholly owned Subsidiary of Discovery Zone, Inc. (the
"Parent"), a Delaware corporation, the corporate subsidiaries of the Parent
listed on Schedule I hereto (collectively, the "CORPORATE SUBSIDIARIES") and the
partnership subsidiaries of the Parent listed on Schedule II hereto (the
"PARTNERSHIP SUBSIDIARIES" and, together with the Corporate Subsidiaries, the
"SUBSIDIARIES").
WHEREAS, on March 25, 1996, each of the Company, the Parent and the
Subsidiaries filed a petition for relief under Chapter 11 of Title 11, United
States Code, 11 U.S.C. Section 101, ET SEQ. (the "BANKRUPTCY CODE") in the
United States Bankruptcy Court for the District of Delaware (the "BANKRUPTCY
COURT").
WHEREAS, on July 18, 1997 the Bankruptcy Court entered the Order
Confirming Third Amended Joint Plan of Reorganization (the "Confirmation
Order"), a copy of which is attached hereto as Exhibit A.
WHEREAS, the Confirmation Order, INTER ALIA, confirmed the Third
Amended Plan of Reorganization Pursuant to 11 U.S.C. Section 1129 (the "PLAN")
and authorized that each of the Corporate Subsidiaries and the Partnership
Subsidiaries merge with and into the Company (the "MERGER"), on the terms and
subject to the conditions contained herein and in accordance with the General
Corporation Law of the State of Delaware, the Oregon Business Corporation Act,
the Massachusetts Business Corporation Law, the Connecticut Stock Corporation
Act, the Georgia Business Corporation Code, the Business Corporation Law of the
State of Missouri, the Business Corporation Law of the State of New York, the
Business Corporation Law of 1988 of the State of Pennsylvania, the Wisconsin
Business Corporation Law, the Illinois Business Corporation Act, the Washington
Business Corporation Act and the Delaware Limited Partnership Act (such
corporate statutes and the Delaware Limited Partnership Act being collectively
referred to herein as "APPLICABLE LAW"), and the Parent, as the sole stockholder
of each of the Corporate Subsidiaries, has approved by written consent the
Merger and this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the Company and each of the Subsidiaries
hereby agree as follows:
<PAGE>
2
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. At the Effective Time (as defined in
Section 1.2), each of the Subsidiaries shall be merged with and into the
Company, the separate corporate existence of each of the Subsidiaries shall
cease, and the Company shall continue as the surviving corporation (hereinafter
sometimes referred to as the "SURVIVING CORPORATION").
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective immediately upon the simultaneous filing of a Certificate of Merger or
Articles of Merger relating to the Merger or this Agreement, as appropriate,
with each of the Secretary of State of the State of Delaware, the Secretary of
State of the State of Oregon, the Secretary of State of the Commonwealth of
Massachusetts, the Secretary of State of the State of Connecticut, the Secretary
of State of the State of Georgia, the Secretary of State of the State of
Missouri, the Department of State of the State of New York, the Department of
State of the State of Pennsylvania, the Secretary of State of the State of
Wisconsin, the Secretary of State of the State of Illinois and the Secretary of
State of the State of Washington, in each case in such form as is required by,
and executed in accordance with, the relevant provisions of Applicable Law (the
time of such simultaneous filing being the "EFFECTIVE TIME").
SECTION 1.3. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in the relevant provisions of Applicable Law.
The title to any real estate vested by deed or otherwise in the Company and each
of the Subsidiaries shall not revert or be in any way impaired by reason of the
Merger, but shall be vested in the Surviving Corporation. The Surviving
Corporation shall continue to be governed by the laws of the State of Delaware.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all property (real, personal and mixed), claims, rights,
intellectual property rights, privileges, powers, franchises and every other
interest of the Company and each of the Subsidiaries shall vest in the Surviving
Corporation, and all debts, obligations, restrictions, disabilities and duties
of the Company and each of the Subsidiaries shall become debts, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 1.4. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Amended
and Restated Certificate of Incorporation of the Company, as in effect on the
Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law or such Amended and
Restated Certificate of Incorporation. The Amended and Restated By-laws of the
Company as in effect on the Effective Time, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by law, the
<PAGE>
3
Amended and Restated Certificate of Incorporation of the Surviving Corporation
or such Amended and Restated By-laws.
SECTION 1.5. DIRECTORS AND OFFICERS. The directors of the Company on
the Effective Date shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws of the Surviving Corporation, and
the officers of the Company on the Effective Date shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.6. CONVERSION OF SECURITIES. (A) (i) Each issued and
outstanding share of the Common Stock, $0.01 par value, of each of Beaverton
Fun Fitness, Inc., DZ of Georgia, Inc., DZ of Pennsylvania, Inc., DZ of
Wisconsin, Inc., Portland Fun Fitness, Inc., Vancouver Fun Fitness, Inc.,
DZGP, Inc., MetroZone, Inc. Leaps & Bounds, Inc., and Enchanted Castle II,
Inc., (ii) each issued and outstanding share of the Common Stock, no par
value, of each of DJM Management, Inc., DZ of Connecticut, Inc., DZ of
Massachusetts, Inc., DZ of New York, Inc. and Semborg Corp., (iii) each
issued and outstanding share of the Voting Stock, $1.00 par value, of DZ of
Missouri, Inc., (iv) each issued and outstanding share of the Non-Voting
Stock, $1.00 par value, of DZ of Missouri, Inc. and (v) each partnership
interest of each of Discovery Zone, L.P. and Tumble For Fun Limited
Partnership, shall, without any action on the part any party hereto, be
cancelled at the Effective Time and no payment shall be made with respect
thereto, (B) each issued and outstanding share of Common Stock, $0.001 par
value, of the Company shall remain outstanding following the Effective Time.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SUBSIDIARIES
SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF CORPORATE
SUBSIDIARIES. Each of the Corporate Subsidiaries represents and warrants that
(A) it is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, with all necessary
corporate power and authority to enter into and perform its obligations under
this Agreement and (B) this Agreement has been duly and validly authorized,
executed and delivered by such Corporate Subsidiary and is binding on and
enforceable against such Corporate Subsidiary in accordance with its terms.
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF PARTNERSHIP
SUBSIDIARIES. Each of the Partnership Subsidiaries represents and warrants that
(A) it is a partnership duly organized, validly existing and in good standing
under the laws of Delaware, with all necessary partnership power and authority
to enter into and perform its obligations under this Agreement and (B) this
Agreement has been duly and validly authorized, executed and
<PAGE>
4
delivered by such Partnership Subsidiary and is binding on and enforceable
against such Partnership Subsidiary in accordance with its terms.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants that (A) it is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with all necessary corporate power and authority to enter into and
perform its obligations under this Agreement and (B) this Agreement has been
duly and validly authorized, executed and delivered by the Company and is
binding on and enforceable against the Company in accordance with its terms.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The parties hereto each agree that all representations and warranties
contained herein shall not survive the Effective Time indefinitely.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.1. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and performed in that State, without regard to principles
of conflicts of law thereof.
SECTION 5.2. COUNTERPARTS. This Agreement may be executed in one or
more counterparts (including by facsimile transmission), and by different
parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written by their respective officers.
DISCOVERY ZONE CHILDREN'S
AMUSEMENT CORPORATION
By: /s/ Robert G. Rooney
------------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written by their respective officers.
DZ OF CONNECTICUT, INC.
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
ENCHANTED CASTLE II, INC.
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
LEAPS & BOUNDS, INC.
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZGP, INC.
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
7
METROZONE, INC.
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
TUMBLE FOR FUN LIMITED
PARTNERSHIP
By: Discovery Zone Children's
Amusement Corporation, its
general partner
By: /s/ Robert G. Rooney
--------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DISCOVERY ZONE, L.P.
By: DZGP, Inc., its general partner
By: /s/ Robert G. Rooney
---------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZ OF GEORGIA, INC.
By: /s/ Robert G. Rooney
---------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
8
SEMBORG CORP.
By: /s/ Robert G. Rooney
---------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DJM MANAGEMENT, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZ OF MASSACHUSETTS, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZ OF MISSOURI, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
9
DZ OF NEW YORK, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
PORTLAND FUN FITNESS, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
BEAVERTON FUN FITNESS, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZ OF PENNSYLVANIA, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
10
VANCOUVER FUN FITNESS, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
DZ OF WISCONSIN, INC.
By: /s/ Robert G. Rooney
----------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
11
SCHEDULE I
CORPORATION JURISDICTION OF INCORPORATION
Beaverton Fun Fitness, Inc. Oregon
DJM Management, Inc. Massachusetts
DZ of Connecticut, Inc. Connecticut
DZ of Georgia, Inc. Georgia
DZ of Massachusetts, Inc. Massachusetts
DZ of Missouri, Inc. Missouri
DZ of New York, Inc. New York
DZ of Pennsylvania, Inc. Pennsylvania
DZ of Wisconsin, Inc. Wisconsin
Portland Fun Fitness, Inc. Oregon
Semborg Corp. Illinois
Vancouver Fun Fitness, Inc. Washington
DZGP, Inc. Delaware
Leaps & Bounds, Inc. Delaware
MetroZone, Inc. Delaware
Enchanted Castle II, Inc. Delaware
<PAGE>
12
SCHEDULE II
PARTNERSHIP JURISDICTION OF ORGANIZATION
Discovery Zone, L.P. Delaware
Tumble for Fun Limited Partnership Delaware
<PAGE>
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER, dated as of July 29, 1997 (this
"AGREEMENT") by and between Discovery Zone, Inc. a Delaware corporation (the
"PARENT COMPANY"), and Discovery Zone Children's Amusement Corporation a
Delaware corporation and a wholly owned subsidiary of the Parent Company (the
"Operating Company" and together with the Parent Company, the "COMPANIES").
WHEREAS, on March 25, 1996, each of the Companies filed a petition for
relief under Chapter 11 of Title 11, United States Code, 11 U.S.C. Section 101,
ET SEQ. (the "BANKRUPTCY CODE") in the United States Bankruptcy Court for the
District of Delaware (the "BANKRUPTCY COURT").
WHEREAS, on July 18, 1997 the Bankruptcy Court entered the Order
Confirming Third Amended Joint Plan of Reorganization (the "Confirmation
Order"), a copy of which is attached hereto as Exhibit A.
WHEREAS, the Confirmation Order, INTER ALIA, confirmed the Third
Amended Plan of Reorganization Pursuant to 11 U.S.C. Section 1129 (the "PLAN")
and authorized the Parent Company merge with and into the Operating Company (the
"MERGER"), on the terms and subject to the conditions contained herein and in
accordance with the General Corporation Law of Delaware ("DGCL"), including but
not limited to Section 303 of the DGCL.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, and in order to set forth the terms and conditions of the Merger and the
mode of carrying the same into effect, the Companies hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. At the Effective Time (as defined in
Section 1.2), the Parent Company shall merge into the Operating Company, the
separate corporate existence of the Parent Company shall cease, and the
Operating Company shall continue as the surviving corporation (hereinafter
sometimes referred to as the "SURVIVING CORPORATION") which from the Effective
Time shall operate as the new parent/holding company.
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective immediately upon the simultaneous filing of a Certificate of Merger or
Articles of Merger relating to the Merger or this Agreement, as appropriate,
with the Secretary of State
<PAGE>
2
of Delaware, in each case in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL (the time of such
simultaneous filing being the "EFFECTIVE TIME").
SECTION 1.3. EFFECT OF THE MERGER. At the Effective Time, the effect
of the Merger shall be as provided in the relevant provisions of the DGCL. The
title to any real estate vested by deed or otherwise in the Companies shall not
revert or be in any way impaired by reason of the Merger, but shall be vested in
the Surviving Corporation. The Surviving Corporation shall continue to be
governed by the laws of Delaware. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all property (real,
personal and mixed), claims, rights, intellectual property rights, privileges,
powers, franchises and every other interest of the Companies shall vest in the
Surviving Corporation, and all debts, obligations, restrictions, disabilities
and duties of the Companies shall become debts, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
SECTION 1.4. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Amended
and Restated Certificate of Incorporation of the Parent Company, as in effect on
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law or such Amended and
Restated Certificate of Incorporation. The name of the Surviving Corporation
shall be Discovery Zone, Inc. as set forth in such Certificate of Incorporation.
The Amended and Restated By-laws of the Parent Company, as in effect on the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Amended and Restated Certificate of
Incorporation of the Surviving Corporation or such Amended and Restated By-laws.
SECTION 1.5. DIRECTORS AND OFFICERS. The directors of the Parent
Company on the Effective Date, shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of the Surviving
Corporation, and the officers of the Parent Company on the Effective Date shall
be the initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 1.6. CONVERSION OF SECURITIES. (a) each issued and
outstanding share of Common Stock, $0.01 par value of the Parent Company, shall
automatically, without further action by the Surviving Corporation, be converted
into one validly issued, fully paid and nonassessable share of Common Stock, par
value $0.001, of the Surviving Corporation; (b) each issued and outstanding
Warrant to purchase shares of Common Stock, with an expiration date of May 1,
2007 of the Parent Company, shall automatically, without further action by the
Surviving Corporation, be converted into one Warrant of the Surviving
Corporation with the same rights, designations and preferences; (c) each issued
and outstanding share of Series A Convertible Preferred Stock, par value $0.01
per share of the
<PAGE>
3
Parent Company shall automatically, without further action by the Surviving
Corporation, be converted into one share of same Series A Convertible
Preferred Stock of the Surviving Corporation; (d) each issued and
outstanding Unit consisting of 13 1/2% Senior Secured Notes due 2002 with
Warrants to purchase shares of Common Stock of the Parent Company shall
automatically, without further action by the Surviving Corporation, be
converted into one Unit with the same rights, designations and preferences of
the Surviving Corporation; (e) each issued and outstanding 13 1/2% Senior
Secured Note due 2002 of the Parent Company shall automatically, without
further action by the Surviving Corporation, be converted into one Note with
the same rights, designations and preferences of the Surviving Corporation;
(f) each issued and outstanding Warrant to purchase shares of Common Stock,
with an expiration date of August 1, 2007 of the Parent Company shall
automatically,without further action by the Surviving Corporation, be
converted into one Warrant of the Surviving Corporation; (g) each issued and
outstanding debt security representing tax obligations of the Parent Company
shall automatically, without further action by the Surviving Corporation, be
converted into one debt security of the Surviving Corporation with the same
rights, designations and preferences; (h) each issued and outstanding Note
held the McDonald's Corporation representing certain secured claims against
the Parent Company shall automatically, without further action by the
Surviving Corporation, be converted into one Note with the same rights,
designations and preferences of the Surviving Corporation; (i) each issued
and outstanding Note held by the McDonald's Corporation representing
restructuring of rent deferrals which McDonald's granted to the Parent
Company shall automatically, without further action by the Surviving
Corporation, be converted into one Note with the same rights, designations
and preferences of the Surviving Corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PARENT COMPANY
The Parent Company represents and warrants that (A) it is a
corporation duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with all necessary corporate
power and authority to enter into and perform its obligations under this
Agreement and (B) this Agreement has been duly and validly authorized, executed
and delivered by the Parent Company and is binding on and enforceable against
the Parent Company in accordance with its terms.
<PAGE>
4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE OPERATING COMPANY
The Operating Company represents and warrants that (A) it is a
corporation duly incorporated, validly existing and in good standing under the
laws of Delaware, with all necessary corporate power and authority to enter into
and perform its obligations under this Agreement and (B) this Agreement has been
duly and validly authorized, executed and delivered by the Operating Company and
is binding on and enforceable against the Operating Company in accordance with
its terms.
ARTICLE IV
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The parties hereto each agree that all representations and warranties
contained herein shall not survive the Effective Time indefinitely.
ARTICLE V
GENERAL PROVISIONS
SECTION 5.1. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of Delaware applicable to contracts
executed in and performed in that State, without regard to principles of
conflicts of law thereof.
SECTION 5.2. COUNTERPARTS. This Agreement may be executed in one or
more counterparts (including by facsimile transmission), and by different
parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written by their respective officers.
DISCOVERY ZONE, INC.
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Title: Senior Vice President/Chief
Financial and Administrative
Officer
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written by their respective officers.
DISCOVERY ZONE CHILDREN'S
AMUSEMENT CORPORATION
By: /s/ Robert G. Rooney
------------------------------
Name: Robert G. Rooney
Title: Vice President,
Secretary &
Treasurer
<PAGE>
EXHIBIT 3.1
State of Delaware
Secretary of State
Division of Corporations
Filed 05:00 PM 07/22/1997
971243558 - 2326008
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DISCOVERY ZONE, INC.
DISCOVERY ZONE, INC., a corporation organized and existing under the
laws of the State of Delaware (hereinafter referred to as the "Corporation"),
hereby certifies as follows:
(1) The name of the Corporation is Discovery Zone, Inc. The
original Certificate of Incorporation of the Corporation was filed
on February 16, 1993. The name under which the Corporation was
originally incorporated was also "Discovery Zone, Inc."
(2) This Amended and Restated Certificate of Incorporation
("Certificate") further amends and restates in its entirety the
Certificate of Incorporation of the Corporation.
(3) Pursuant to Sections 245 and 303 of the General
Corporation Law of the State of Delaware, the text of the
Certificate of Incorporation is hereby restated to read in its
entirety as follows:
ARTICLE I
The name of the Corporation is Discovery Zone, Inc.
ARTICLE II
The purpose of the Corporation's registered office in the State of
Delaware is The Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
SECTION 1. The Corporation shall be authorized to issue 14,000,000
shares of capital stock, of which 10,000,000 shares shall be shares of Common
Stock, $.01 par value ("Common Stock"), and 4,000,000 shares shall be shares of
Preferred Stock, $.01 par value ("Preferred Stock").
SECTION 2. Shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors (as defined below) is hereby
authorized to
<PAGE>
fix the voting rights, if any, designations, powers, preferences and the
relative, participation, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, of any unissued series of
Preferred Stock; and to fix the number of shares constituting such series, and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding).
SECTION 3. Except as otherwise provided by law or by the resolution
or resolutions adopted by the Board of Directors designating the rights, powers
and preferences of any series of Preferred Stock, the Common Stock shall have
the exclusive right to vote for the election of directors and for all other
purposes. Each share of Common Stock shall have one vote, and the Common Stock
shall vote together as a single class.
ARTICLE V
Unless and except to the extent that the By-Laws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
To the fullest extent permitted by the General Corporation Law of the
State of Delaware as the same exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this paragraph shall be prospective only and shall
not adversely affect any limitation, right or protection of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized and empowered to make, alter and repeal the By-Laws of the
Corporation by a majority vote at any regular or special meeting of the Board of
Directors or by written consent, subject to the power of the stockholders of the
Corporation to alter or repeal any By-Laws made by the Board of Directors.
ARTICLE VII
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article.
ARTICLE VIII
SECTION 1. Elimination of Certain Liability of Directors. A director
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is not
permitted under the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended.
-2-
<PAGE>
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the Corporation
existing hereunder with respect to any act or omission occurring prior to such
repeal or modification.
SECTION 2. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, to
the fullest extent permitted by law, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines,
amounts paid or to be paid in settlement, and excise taxes or penalties arising
under the Employee Retirement Income Security Act of 1974) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph (b) of
this Section 2, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Section
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the General Corporation Law
of the State of Delaware requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section or otherwise. The Corporation may, by action of the Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph (a)
of this Section 2 is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the
-3-
<PAGE>
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, By-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE IX
The Corporation will not issue nonvoting capital stock to the extent
prohibited by Section 1123(a)(6) of Title 11 of the United States Code (the
"Bankruptcy Code"); provided, however, that this Article IX (a) will have no
further force and effect beyond that required under Section 1123 of the
Bankruptcy Code, (b) will have such force and effect, if any, only for so long
as such Section is in effect and applicable to the Company, and (c) in all
events may be deemed or eliminated in accordance with applicable law as from
time to time in effect.
ARTICLE X
Restrictions with respect to transfers of shares of capital stock of
the Corporation may be contained in the By-Laws of the Corporation, in any
agreement among some or all of the stockholders of the Corporation or in the
terms of such shares or of any agreement or securities providing for the
issuance of such shares.
ARTICLE XI
Preemptive rights to acquire shares of capital stock of the
Corporation may be contained in the By-Laws of the Corporation and in any
agreement among some or all of the stockholders of the Corporation.
ARTICLE XII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and
-4-
<PAGE>
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
DISCOVERY ZONE, INC.
By /s/ Scott Bernstein
------------------------------
Scott Bernstein
Chief Executive Officer
and President
-5-
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "DISCOVERY ZONE, INC.", FILED IN THIS OFFICE ON THE TWENTY-SECOND
DAY OF JULY, A.D. 1997, AT 5:01 O'CLOCK P.M.
/s/ Edward J. Freel
--------------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8575869
DATE: 07-25-97
<PAGE>
State of Delaware
Secretary of State
Division of Corporations
Filed 05:01 PM 07/22/1997
971243611 - 2326008
CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK OF
DISCOVERY ZONE, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted by the Board of Directors (the "Board") of Discovery Zone, Inc., a
Delaware corporation (hereinafter called the "Corporation"), with the
preferences and rights set forth therein relating to dividends, conversion,
redemption, dissolution and distribution of assets of the Corporation having
been fixed by the Board pursuant to authority granted to it under Article IV,
Section 2 of the Corporation's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") add in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware:
RESOLVED: That, pursuant to authority conferred upon the Board by the
Certificate of Incorporation, the Board hereby authorizes the issuance of 1,000
shares of Series A Convertible Preferred Stock of the Corporation, and hereby
fixes the designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, of such shares, in addition to those set forth in the
Certificate of Incorporation of the Corporation, as follows:
l. DESIGNATION AND AMOUNT. The shares of such Series A shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such Series A shall be 1,000.
2. DIVIDENDS.
(a) No dividends will be paid on the Series A Preferred Stock.
(b) Notwithstanding the provisions of Section 2(a) above, for so
long as any shares of Series A Preferred Stock remain outstanding, the
Corporation shall not pay any dividend or other distribution, whether in cash or
other property, on any capital stock of the Corporation ranking on liquidation
junior in preference to the Series A Preferred Stock (collectively, the "Junior
Stock"), without the prior affirmative vote or written consent of (i) Wafra
Acquisition Fund 6, L.P. ("WAF-6"), for so long WAF-6 shall hold at least 1,000
shares of Series A Preferred Stock, and (ii) a majority of the holders of Series
A Preferred Stock at any time as WAF-6 shall hold less than 1,000 shares of
<PAGE>
Series A Preferred Stock; provided, that, if such vote or consent is given, (i)
with respect to dividends payable in cash, the holders of shares of Series A
Preferred Stock shall receive a pro rata share of any such dividend or other
distribution as if such shares of Series A Preferred Stock had been fully
converted into shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Corporation and (ii) with respect to dividends payable in shares
of capital stock of the Corporation, the Conversion Price (as defined in Section
5(b) below) shall be adjusted in accordance with the provisions of Section 6
below.
(c) Notwithstanding the provisions of Section 2(b) above, following
the consummation of a Qualified Initial Public Offering (as defined in the Stock
Purchase Agreement, dated as of July 21, 1997 (the "Stock Purchase Agreement"),
by and among the Corporation, Birch Holdings L.L.C. (together with Birch
Acquisition L.L.C. and each of their respective Related Parties, as such term is
defined in the Stock Purchase Agreement being collectively referred to herein as
"Birch") and WAF-6, the Corporation may declare a dividend or other distribution
in cash without the prior affirmative vote or written consent of either (i)
WAF-6, for so long as WAF-6 shall hold at least 1,000 shares of Series A
Preferred Stock, and (ii) a majority of the holders of shares of Series A
Preferred Stock, at any time as WAF-6 shall hold less than 1,000 shares of
Series A Preferred Stock, as the case may be; provided that the holders of
shares of Series A Preferred Stock shall receive a pro rata share of any such
dividend or other distribution as if such shares of Series A Preferred Stock had
been fully converted into shares of Common Stock.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Series A Preferred
Stock shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject to the payment
in full of all amounts required to be distributed to the holders of any other
series of Preferred Stock of the Corporation ranking on liquidation prior and in
preference to the Series A Preferred Stock (such Preferred Stock being referred
to hereinafter as "Senior Preferred Stock") upon such liquidation, dissolution
or winding up, but before any payment shall be made to the holders of Junior
Stock, an amount equal to $15,000 per share plus dividends, if any, thereon
declared but unpaid (subject to adjustment in the event of any stock dividend,
stock split, stock distribution or combination with respect to such shares). If
upon any such liquidation, dissolution or winding up of the Corporation, the
remaining assets of the Corporation available for the distribution to its
stockholders after payment in full of amounts required to be paid or distributed
to holders of Senior Preferred Stock shall be insufficient to pay the holders of
the Series A Preferred Stock the full amount to which they shall be
-2-
<PAGE>
entitled, the holders of Series A Preferred Stock and any class of stock ranking
on liquidation on a parity with the Series A Preferred Stock (the "Parity
Stock"), shall share ratably in any distribution of the remaining assets and
funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect to the shares held by the holders of Series A
Preferred Stock and the holders of Parity Stock upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of Senior Preferred Stock, the holders of Series A Preferred
Stock and the holders of Parity Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(c) The merger or consolidation of the Corporation into or with
another corporation, the merger or consolidation of any other corporation into
or with the Corporation, or the sale, conveyance, mortgage, pledge or lease of
all or substantially all the assets of the Corporation shall not be deemed to be
a liquidation, dissolution or winding up of the Corporation for purposes of this
Section 3.
4. VOTING.
(a) Each issued and outstanding share of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which each such share is convertible (as adjusted from time to time
pursuant to Section 6 hereof), at each meeting of stockholders of the
Corporation with respect to any and all matters presented to the stockholders of
the Corporation for their action or consideration. Except as provided by law,
by the provisions of paragraphs (b) and (c) of this Section 4 or by the
provisions establishing any other series of preferred stock of the Corporation,
the holders of Series A Preferred Stock and holders of any other outstanding
preferred stock of the Corporation shall vote together with the holders of
Common Stock as a single class.
(b) In addition to any other rights provided by law, the Corporation
shall not, without first obtaining the prior affirmative vote or written consent
of (i) WAF-6, for so long as WAF-6 shall hold at least 1,000 shares of Series A
Preferred Stock, or (ii) a majority of the holders of shares of Series A
Preferred Stock, at any time as WAF-6 shall hold less than 1,000 shares of
Series A Preferred Stock, as the case may be:
(i) Amend or repeal any provision of the Certificate of Incorporation
or the Corporation's By-Laws, if such action would alter or adversely
change the preferences,
-3-
<PAGE>
rights, privileges or powers of, or the restrictions provided for the
benefit of, the holders of Series A Preferred Stock or increase the number
of shares of Series A Preferred Stock authorized thereby; and
(ii) Enter into any transaction with Birch.
(c) The Corporation will not, and will not permit any of its
Subsidiaries (as defined in the Stock Purchase Agreement) to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any services) with, or for the
benefit of, any of its officers, directors or beneficial owners of more than 10%
of the Common Stock then outstanding (each such Person, an "Affiliate", and each
such transaction, an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted pursuant to this paragraph and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's length basis from
a Person that is not an Affiliate of the Company or such Subsidiary.
Notwithstanding the provisions of Section 4(a) above and other than all
transactions between the Corporation and Birch which shall be subject to the
provisions of Section 4(b)(ii) above, all Affiliate Transactions and each series
of related Affiliate Transactions which are similar or part of a common plan,
involving aggregate payments or other property with a fair market value in
excess of $2,000,000 shall be approved by a majority of the disinterested
members of the Board or the board of directors of such Subsidiary, as the case
may be; such approval to be evidenced by a resolution stating that such board of
directors has determined that such transaction complies with the foregoing
provisions which shall be delivered to WAF-6 for so long as WAF-6 shall hold any
shares of Series A Preferred Stock. If the Company or any Subsidiary shall
enter into an Affiliate Transaction (or a series of related Affiliate
Transactions which are similar or part of a common plan) that involves an
aggregate fair market value of more than $5,000,000, the Company or such
Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain
a favorable opinion as to the fairness of such transaction or series of related
transactions to the Company from a financial point of view from an Independent
Financial Advisor (as defined in the Indenture, dated as of July 22, 1997 (the
"Indenture"), by and among the Corporation, the Subsidiary Guarantors named
therein and State Street Bank and Trust Company, as Trustee, (as used in this
Certificate, all references to the Indenture refer to the Indenture as in effect
on the Closing Date (as defined in the Stock Purchase Agreement) and are without
regard to any subsequent amendment(s) thereto) and deliver such opinion to WAF-6
for so long as WAF-6 shall hold any shares of Series A Preferred Stock.
Notwithstanding the foregoing, the restrictions set forth in this Section 4(c)
shall not apply to (i) reasonable fees and expenses and compensation paid to,
and any indemnity provided on behalf of, officers,
-4-
<PAGE>
director, employees or consultants of the Corporation or any Subsidiary, as
determined in good faith by the Board or senior management of the Corporation,
and (ii) transactions exclusively between the Corporation and any wholly owned
Subsidiary or exclusively between or among any wholly owned Subsidiaries.
5. OPTIONAL CONVERSION. (a) Each share of Series A Preferred Stock
may be converted at any time, at the option of the holders of the Series A
Preferred Stock, in the manner hereinafter provided, into fully-paid and
nonassessable shares of Common Stock, provided, however, that on any redemption
of any Series A Preferred Stock or any liquidation of the Corporation, the right
of conversion shall terminate at the close of business on the full business day
next preceding the date fixed for such redemption or for the payment of any
amounts distributable on liquidation to the holders of the Series A Preferred
Stock.
(b) The initial conversion rate (the per share equivalent of (i)
18.5% of the then outstanding shares of Common Stock on a fully diluted basis,
divided by (ii) 1,000) for the Series A Preferred Stock shall be 1,191.6260
shares of Common Stock for each one share of Series A Preferred Stock
surrendered for conversion. The applicable conversion rate and Conversion Price
from time to time in effect is subject to adjustment as hereinafter provided.
For purposes of this Section 5, the term "fully diluted" shall give effect to
the exercise of all warrants, stock options and stock appreciation rights, in
respect of the Common Stock and other securities convertible into or
exchangeable for Common Stock (whether outstanding on the Issuance Date, granted
or reserved for granting or issuance), other than stock options or stock
appreciation rights in respect of Common Stock granted, reserved or available
for granting (the exercise of which would not result in dilution to WAF-6 in an
amount in excess of 10% as calculated on a fully diluted basis) under the
Corporation's 1997 Stock Incentive Plan (the "Stock Incentive Plan").
(c) The Corporation shall not issue fractions of shares of Common
Stock upon conversion of Series A Preferred Stock or scrip in lieu thereof. If
any fraction of a share of Common Stock would, except for the provisions of this
paragraph (b), be issuable upon conversion of any Series A Preferred Stock, the
Corporation shall in lieu thereof pay to the holders of the Series A Preferred
Stock an amount in cash equal to the current value of such fraction, calculated
to the nearest one-hundredth (1/100) of a share, to be computed (i) if the
Common Stock is listed on any national securities exchange on the basis of the
last sales price of the Common Stock on such exchange (or the quoted closing bid
price if there shall have been no sales) on the date of conversion, or (ii) if
the Common Stock shall not be listed, on the basis of the mean between the
closing bid and asked prices for the Common Stock on the date of conversion as
reported by Nasdaq, and if there are not such closing bid and asked prices, on
the basis of the Fair Market Value (as
-5-
<PAGE>
determined in Section 10 below) per share as determined in good faith after due
inquiry by the Board.
(d) Whenever the conversion rate shall be adjusted as provided in
Section 6 hereof, the Corporation shall forthwith file at each office designated
for the conversion of Series A Preferred Stock, a statement, signed by the
Chairman of the Board, the President, any Vice President or Treasurer of the
Corporation, showing in reasonable detail the facts requiring such adjustment
and the conversion rate that will be effective after such adjustment. Promptly
after delivery of such statement, the Corporation shall also cause a notice
setting forth any such adjustments to be sent by mail, first class, postage
prepaid, to each record holder of Series A Preferred Stock at his or its address
appearing on the stock register. If such notice relates to an adjustment
resulting from an event referred to in paragraph 6(g), such notice shall be
included as part of the notice required to be mailed and published under the
provisions of paragraph 6(g) hereof.
(e) ln order to exercise the conversion privilege, the holder of each
share of Series A Preferred Stock shall surrender the certificate representing
such share, duly endorsed or assigned to the Corporation, or in blank, at the
principal office of the transfer agent (or if no transfer agent shall be at the
time appointed, then to the Corporation at its principal office), and shall give
written notice to the Corporation at such office that they elect to convert the
share represented by such certificate, or a specified portion thereof. Unless
the shares issuable on conversion are to be issued in the same name as the name
in which such share of Series A Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
tax (or evidence reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid). The Corporation shall pay any issue and other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock upon conversion of the Series A Preferred Stock; provided, however, that
the Corporation shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue and delivery of any
shares or Common Stock issued and delivered upon conversion of the Series A
Preferred Stock to a person(s) with name(s) other than the name(s) in which the
Series A Preferred Stock is registered and the Corporation shall not be required
to issue or deliver such Common Stock unless or until the person(s) requesting
the issuance thereof shall have paid to the Corporation the amount of such tax
or shall have established to the satisfaction of the Corporation that such tax
has been paid. The date of receipt by the transfer agent or by the Corporation,
as the case may be, of the certificate(s) and notice shall be the conversion
date. As soon as practicable after receipt of such notice and the surrender of
-6-
<PAGE>
the certificate(s) for shares of Series A Preferred Stock as aforesaid, the
Corporation shall cause to be issued and delivered at such office to the holders
of the Series A Preferred Stock, as applicable, or on its written order,
certificate(s) for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
paragraph (b) of this Section 5 in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(f) The Corporation shall, at all times as any shares of Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purposes of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Series A Preferred Stock. Before taking any action
which would cause an adjustment reducing the Conversion Rate below the then
existing par value of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully-paid and nonassessable shares of such Common
Stock at such adjusted conversion rate.
(g) Upon any such conversion, no adjustment to the conversion rate
shall be made for accrued and unpaid dividends on the Series A Preferred Stock
surrendered for conversion or on the Common Stock so delivered.
(h) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices to vote, shall forthwith cease and terminate except only
the right of the holder thereof to receive shares of Common Stock in exchange
therefor and payment of any accrued and unpaid dividends thereon. Any shares of
Series A Preferred Stock so converted shall be retired and canceled and shall
not be reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the then authorized number of shares of
Series A Preferred Stock accordingly.
6. ANTI-DILUTION PROVISIONS.
The number and kind of shares issuable upon the conversion of shares
of Series A Preferred Stock shall be subject to adjustment from time to time as
follows:
(a) Stock Dividends. If, at any time after the Issuance Date, (i)
the Corporation shall pay a stock dividend or other distribution payable in
shares of capital stock of the Corporation or (ii) the number of shares of
Common Stock shall have been increased by a subdivision or split-up of shares
of
-7-
<PAGE>
Common Stock, then, on the date of the payment of such dividend or distribution
(retroactive to the record date) or immediately after the effective date of
subdivision or split-up, as the case may be, the number of shares of Common
Stock to be delivered upon conversion of shares of Series A Preferred Stock will
be increased so that the holders of shares of Series A Preferred Stock will be
entitled to received the number of shares of Common Stock that such holders
would have owned immediately following such action had such shares of Series A
Preferred Stock been converted immediately prior thereto or, in the case of a
stock dividend or other distribution payable in shares of capital stock of the
Corporation, prior to the record date for determination of shareholders entitled
thereto.
(b) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the Issuance Date shall have been decreased by a
combination of the outstanding shares of Common Stock, then, immediately after
the effective date of such combination, the number of shares of Common Stock to
be delivered upon conversion of each share of Series A Preferred Stock will be
decreased so that the holders of shares of Series A Preferred Stock thereafter
will be entitled to receive the number of shares of Common Stock that such
holders would have owned immediately following such action had such shares of
Series A Preferred Stock been converted immediately prior thereto.
(c) Reorganization, Etc. If any capital reorganization of the
Corporation, or any reclassification of the Common Stock, or any
consolidation of the Corporation with or merger of the Corporation with or
into any other person or any sale, lease or other transfer of all or
substantially all of the assets of the Corporation to any other person, shall
be effected in such a way that the holders of Common Stock shall be entitled
to receive stock, other securities or assets (whether such stock, other
securities or assets are issued or distributed by the Corporation or another
person) with respect to or in exchange for Common Stock, then, upon
conversion of each Share of Series A Preferred Stock, the holders of shares
of Series A Preferred Stock shall have the right to receive the kind and
amount of stock, other securities or assets receivable upon such
reorganization, reclassification, consolidation, merger or sale, lease or
other transfer by a holder of the number of shares of Common Stock that such
holders would have been entitled to receive upon conversion of such shares of
Series A Preferred Stock had such shares been converted immediately before
such reorganization, reclassification, consolidation, merger or sale, lease
or other transfer, subject to adjustments (as determined in good faith by the
Board) that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 6.
(d) Stock and Rights Offering at Less than Fair Market Value. (1)
If at any time after the Issuance Date, the Corporation shall (x) issue to
holders of Common Stock, (y) issue
-8-
<PAGE>
or sell or (z) fix a record date for the issuance to holders of its Common
Stock of (A) Common Stock or (B) rights, options or warrants entitling the
holders thereof to subscribe for or purchase Common Stock (or securities
convertible or exchangeable into or exercisable for Common Stock) (any of the
foregoing being referred to herein as "Convertible Securities"), in any such
case, at a price per share (or having a conversion, exchange or exercise
price per share) that is less than Fair Market Value (as determined below) on
the date of such issuance or such record date, then, immediately after the
date of such issuance or sale or on such record date, the number of shares of
Series A Preferred Stock shall be increased so that the holders of shares of
Series A Preferred Stock thereafter will be entitled to receive the number of
shares of Common Stock determined by multiplying the number of shares of
Common Stock such holders would have been entitled to receive immediately
before the date of such issuance or sale or such record date, had such
holders converted their shares of Series A Preferred Stock immediately prior
thereto by a fraction, the numerator of which will be the number of shares of
Common Stock outstanding on such date plus the number of additional shares of
Common Stock offered for subscription or purchase (or into which the
Convertible Securities so offered are initially convertible or exchangeable
or exercisable, as the case may be), and the denominator of which will be the
number of shares of Common Stock outstanding on such date plus the number of
shares of Common Stock that the aggregate offering price of the total number
of shares so offered for subscription or purchase (or the aggregate initial
conversion price, exchange price or exercise price of the Convertible
Securities, as the case may be, so offered) would purchase at such Fair
Market Value.
(2) If at any time after the Issuance Date, the Corporation shall
distribute to all holders of Common Stock any shares of capital stock of the
Corporation (other than Common Stock) or evidences of its indebtedness or assets
(excluding cash dividends or cash distributions paid from retained earnings of
the Corporation) or rights or warrants to subscribe for or purchase any of its
securities (excluding those referred to in Section 6(d)(1) above) (any of the
foregoing being referred to herein as "Securities"), then in each such case,
unless the Corporation elects to reserve shares or other units of such
Securities for distribution to the holders of shares of Series A Preferred Stock
upon conversion thereof so that, in addition to the shares of Common Stock
issuable upon conversion thereof, such holders will receive upon such conversion
the amount and kind of such Securities that such holders would have received if
the holders had, immediately prior to the record date for the distribution of
the Securities, converted the Series A Preferred Stock, then the number of
shares or Common Stock issuable upon conversion shall be increased so that the
holders thereafter shall be entitled to receive the number of shares of Common
Stock determined by multiplying the number of shares of Common Stock such
holders would have been entitled to receive immediately before such
-9-
<PAGE>
record date, had the holders converted the Series A Preferred Stock immediately
prior thereto, by a fraction, the numerator of which shall be the Fair Market
Value per share of the Common Stock on such record date, and the denominator of
which shall be such Fair Market Value per share of Common Stock minus the then
fair market value (as reasonably determined in good faith by an independent
appraiser) of the portion of the Securities so distributed applicable to one
share of Common Stock.
(e) Above Fair Market Value Repurchases of Common Stock. If, at any
time or from time to time after the Issuance Date, the Corporation or any
Subsidiary thereof shall repurchase, by self-tender offer or otherwise, any
shares of Common Stock of the Corporation (or any Convertible Security) at a
weighted average purchase price in excess of the Fair Market Value thereof, on
the Business Day (as defined below) immediately prior to the earliest of (i) the
date of such repurchase, (ii) the commencement of an offer to repurchase or
(iii) the public announcement of either (such date being referred to as the
"Determination Date"), the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock shall be increased so that the
holders of shares of Series A Preferred Stock thereafter will be entitled to
receive the number of shares of Common Stock determined by multiplying the
number of shares of Common Stock such holders would have been entitled to
receive before the Determination Date, had the holders converted their shares of
Series A Preferred Stock immediately prior thereto, by a fraction, the numerator
of which shall be the product of (1) the number of shares of Common Stock
outstanding immediately prior to such Determination Date minus the number of
shares of Common Stock (or shares of Common Stock into which the Convertible
Securities are convertible or exchangeable or exercisable, as the case may be)
represented by the securities repurchased or to be purchased by the Corporation
or any Subsidiary thereof in such repurchase and (2) the Fair Market Value of a
share of Common Stock immediately prior to such Determination Date, and the
denominator of which shall be (x) the product of (A) the number of shares of
Common Stock outstanding immediately prior to the Determination Date and (B) the
Fair Market Value of a share of Common Stock immediately prior to such
Determination Date minus (y) the sum of (1) the aggregate consideration paid by
the Corporation in connection with such repurchase and (2) in the case of
Convertible Securities, the additional consideration required to be received by
the Corporation upon the conversion, exchange or exercise of such securities.
(f) If, at any time after the Issuance Date and for so long as shares
of Series A Preferred Stock shall continue to be outstanding, the Corporation
shall issue shares of Common Stock or Convertible Securities to holders of
Disputed Claims (as defined in the Third Amended Plan of Reorganization, dated
March 11, 1997) in settlement of such Claims, in the aggregate, in excess of the
amounts set forth in Section 4.3(a)(i)(x) and
-10-
<PAGE>
Section 4.3(a)(vi) of the Stock Purchase Agreement, then on the date of any such
issuance, the number of shares of Common Stock issuable upon conversion of the
shares of Series A Preferred Stock shall be increased so that the number of
shares of Common Stock issuable to the holder(s) of Series A Preferred Stock on
the date of any such issuance (after giving effect to any such issuance) and the
number of shares of such holder(s) as of the Closing Date shall equal the same
percentage of the total number of shares of Common Stock outstanding, on a fully
diluted basis (without giving effect to the exercise of any options granted
pursuant to the Stock Incentive Plan). However, if the Corporation shall, in
the resolution of such Disputed Claim, issue less than all of the shares set
forth in Section 4.3(a)(i)(x) and Section 4.3(a)(vi) of the Stock Purchase
Agreement, the remaining shares may be distributed to the holders of Common
Stock without adjustment of the shares of Common Stock issuable upon conversion
of the shares of Series A Preferred Stock pursuant to this Section 6.
(g) Carryover. Notwithstanding any other provision of this Section
6, no adjustment shall be made to the number of shares of Common Stock to be
delivered to the holders of shares of Series A Preferred Stock if such
adjustment represents less than 1% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the earlier to occur of (i) the conversion of all or any
portion of such holder's shares of Series A Preferred Stock and (ii) the next
subsequent adjustment that, together with any adjustments so carried forward,
shall amount to 1% or more of the number of shares to be so delivered.
(h) No Adjustments for Certain Incentive Compensation or Issuance of
Series A Preferred Stock Shares. Notwithstanding any other provision hereof, it
is expressly understood that the Series A Preferred Stock shall not be adjusted
with respect to (a) Common Stock or Convertible Securities, in any case, that
may be issued to any of the Corporation's officers or employees pursuant to any
employee benefit plan, stock incentive plan, bonus plan or employment
arrangement (including the Stock Incentive Plan) (each, a "Plan"), to the extent
that (A) such Common Stock, rights, options or warrants, together with
all such other Common Stock, rights, options or warrants previously issued to
any officers or employees of the Corporation pursuant to any such Plan,
represent 10% or less of the outstanding Common Stock on a fully diluted basis
(including the shares of Series A Preferred Stock issued to WAF-6 on the
Issuance Date), calculated as of the Issuance Date and (B) the purchase,
conversion, exchange or exercise price per share of Common Stock, as the case
may be, of each such share of Common Stock, right, option, or warrant is not
less than the book value per share of Common Stock as of the Issuance Date,
without giving effect to the issuance and sale of the Warrants (as defined in
the Stock Purchase
-11-
<PAGE>
Agreement), or (b) the issuance of any shares of Common Stock upon conversion
thereof.
(i) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of shares
of Series A Preferred Stock against impairment. Without limiting the generality
of the foregoing, the Corporation will not increase the par value of any shares
of Common Stock receivable on the conversion of the Series A Preferred Stock
above the amount payable therefor on such conversion.
(j) The Corporation, in its sole discretion, shall have the right at
any time, or from time to time, to increase the number of shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock, including as it
considers to be advisable in order that any event treated for federal income tax
purposes as a dividend of stock or stock rights shall not be taxable to
recipients.
(k) Other Adjustments. If any event occurs as to which the foregoing
provisions of this Section 6 are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board, fairly protect
the conversion rights of the holder of shares of Series A Preferred Stock in
accordance with the essential intent and principles of this Section 6, then the
Board shall make such adjustments in the application of such provisions, in
accordance with such essential intent and principles, as shall be reasonably
necessary, in the good faith opinion of the Board, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of adversely affecting the holders of shares of Series A Preferred Stock.
7. OPTIONAL REDEMPTION.
(a) From and after the earliest to occur of (i) the sale, assignment,
transfer, lease, conveyance or other disposition of all or subsequently all of
the assets of the Corporation to any Person, in a single transaction or series
of related transactions; (ii) the consolidation or merger, in a single
transaction or series of related transactions, of the Corporation with or into
another Person pursuant to which the Corporation is not the surviving entity;
(iii) the consolidation or merger, in a single transaction or series of related
transactions, of the Corporation with or into another Person pursuant to which
the Corporation is the surviving entity (a
-12-
<PAGE>
"Forward Merger") and (w) the shareholders of the Corporation immediately
preceding such Forward Merger will not continue to own at least a majority of
the outstanding shares of capital stock of the Corporation on a fully diluted
basis following the consummation of such Forward Merger, (x) as a direct or
indirect result of such Forward Merger, a Change of Control (as defined in the
Indenture) shall have occurred, (y) the net worth of the Corporation immediately
following the consummation of such Forward Merger, shall not at least equal the
net worth of the Corporation immediately preceding such Forward Merger or (z)
immediately following the consummation of such Forward Merger, the Corporation
would not be permitted to incur any additional Indebtedness pursuant to Section
4.12 of the Indenture, and (iv) the expiration of the sixty-second month
following the date of closing of the Offering (as defined in the Stock Purchase
Agreement), the holders of the Series A Preferred Stock may elect to cause the
Corporation, upon written notice given to the Corporation by the holders (the
"Redemption Notice"), to redeem all of the shares of the Series A Preferred
Stock (to the extent that such redemption shall not violate any applicable
provisions of the laws of the State of Delaware) at a price per share (subject
to adjustment in the event of any stock dividend, stock split, stock
distribution or combination with respect to such shares), plus an amount equal
to any dividends declared but unpaid thereon, equal to the greater of (x)
$15,000 and (y) if the Common Stock shall not at such time be listed on a
national securities exchange or quoted on Nasdaq, the value of the number of
shares of Common Stock into which each share of Series A Preferred Stock is then
convertible based on the appraised value of the Corporation as determined by a
qualified Independent Appraiser reasonably acceptable to the holders of the
Series A Preferred Stock as of the 90th day following the date of the Redemption
Notice, which appraised value shall be determined as though the Corporation had
consummated an initial public offering of Common Stock (in which WAF-6 had
participated) on the date of such Redemption Notice (such amount is hereinafter
referred to as the "Redemption Price"). If the Corporation is unable at any
Redemption Date (as defined below) to redeem any shares of Series A Preferred
Stock then to be redeemed because such redemption would violate the applicable
laws of the State of Delaware, then the Corporation shall redeem such shares as
soon thereafter as redemption would not violate such laws. Notwithstanding the
foregoing, the provisions of this Section 6 shall not apply in the event of an
internal reorganization of the Corporation involving only the Corporation and
its wholly owned Subsidiaries pursuant to which the Corporation is the surviving
entity.
(b) The date fixed for any such redemption (the "Redemption Date")
shall be the first business day which is at least 180 days, after the date of
delivery of the Redemption Notice. On or prior to each Redemption Date, the
holders of the Series A Preferred Stock shall surrender their certificate(s)
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and thereupon the
-13-
<PAGE>
Redemption Price of such shares shall be payable to the holders of the Series A
Preferred Stock and each surrendered certificate shall be canceled. From and
after the Redemption Date, unless there shall have been a default in payment of
the Redemption Price, all rights of the holders of the Series A Preferred Stock
designated for redemption in the Redemption Notice as holders of Series A
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate(s)) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.
(c) Except as provided in paragraph (a) above, the Corporation shall
have no right to redeem the shares of Series A Preferred Stock. Shares of
Series A Preferred Stock so redeemed shall be permanently retired, shall no
longer be deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized Series A Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series A Preferred Stock at such price or prices as the
Corporation may determine, subject to the provisions of applicable law.
8. SUBSCRIPTION RIGHT.
(a) If at any time after the date hereof, the Corporation proposes
to issue, other than in an underwritten offering, equity securities of any kind
(the term "equity securities" shall include for these purposes any warrants,
options or other rights to acquire equity securities and debt securities
convertible into equity securities of the Corporation (except for any issuances
under any stock incentive or other similar plan of the Corporation hereafter
created and approved by the Board)), then, the Corporation shall:
(i) give at least five business days advance written notice to the
holders of the Series A Preferred Stock setting forth in
reasonable detail: (1) the designation and all of the terms and
provisions of the securities proposed to be issued (the
"Proposed Securities"), including, where applicable, the voting
powers, preferences and relative participating, optional or other
special rights, and the qualification, limitations or
[6~ restrictions thereof and interest rate and maturity; (2) the
price and other terms of the proposed sale of such securities;
(3) the amount of such securities proposed to be issued; and (4)
such other information as may be reasonably
-14-
<PAGE>
required in order to evaluate the proposed issuance; and
(ii) offer to sell to the holders of the Series A Preferred Stock a
portion of the Proposed Securities equal to a percentage
determined by dividing (x) the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock then
held by all holders of the Series A Preferred Stock, by (y) the
total number of Common Shares then outstanding on a fully diluted
basis (without giving effect to the exercise of any options
granted under the Stock Incentive Plan).
(b) The holders of the Series A Preferred Stock shall have the option
to accept such offer as to any or all of the shares so offered within 10 days
after receipt of such notice from the Corporation. To the extent that the
Corporation offers two or more Proposed Securities in units, the holders of the
Series A Preferred Stock must purchase such units as a whole and will not be
given the opportunity to purchase only one of the Proposed Securities
constituting such unit.
(c) Upon the expiration of the offering period described above, the
Corporation shall be free to sell such Proposed Securities that the holders of
the Series A Preferred Stock have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to the holders of the Series A Preferred
Stock. Any Proposed Securities offered or sold by the Corporation after such
90-day period must be reoffered to the holders of the Series A Preferred Stock
pursuant to this Section 8. The election by the holders of the Series A
Preferred Stock not to exercise their subscription rights under this Section 8
in any one instance shall not affect their right (other than in respect of a
reduction in its percentage of holdings of capital stock of the Corporation) as
to any subsequent issuance of Proposed Securities by the Corporation. Any sale
of Proposed Securities by the Corporation without first giving the holders of
the Series A Preferred Stock the rights described in this Section 8 shall be
void and of no force and effect.
(d) The rights and obligations of this Section 8 shall terminate on
the date the Common Stock is quoted on Nasdaq or listed on any national
securities exchange.
9. REPURCHASE RIGHT.
(a) If (A) the Corporation, in a single transaction or series of
related transactions, (i) sells, assigns, transfers, leases, conveys or
otherwise disposes of all or substantially all of the assets of the Corporation
to any Person; (ii) consolidates or merges with or into another Person and the
Corporation is not
-15-
<PAGE>
the surviving entity; or (iii) consummates a Forward Merger and (w) the
shareholders of the Corporation immediately preceding such Forward Merger will
not continue to own at least a majority of the outstanding shares of capital
stock of the Corporation on a fully diluted basis following the consummation of
such Forward Merger, (x) as a direct or indirect result of such Forward Merger,
a Change of Control (as defined in the Indenture) shall have occurred, (y) the
net worth of the Corporation immediately following the consummation of such
Forward Merger, shall not at least equal the net worth of the Corporation
immediately preceding such Forward Merger; or (z) immediately following the
consummation of such Forward Merger, the Corporation would not be permitted to
incur any additional Indebtedness pursuant to Section 4.12 of the Indenture, and
(B) the consideration payable in respect of any event described in the
immediately preceding clause (i), (ii) or (iii) does not consist solely of cash
(a "Repurchase Event"), the Corporation shall offer to repurchase (a "Repurchase
Offer"), in accordance with the procedures set forth in this Section 9, all
shares of Series A Preferred Stock or shares of Common Stock issuable upon
conversion thereof at the per share Fair Market Value of the Common Stock
issuable upon conversion thereof (the "Repurchase Price"). The Corporation
shall, subject to the provisions described in this Section 9, be required to
purchase all of the shares of Series A Preferred Stock or Common Stock issuable
upon conversion thereof properly tendered pursuant to a Repurchase Offer and not
withdrawn. Notwithstanding the foregoing, the provisions of this Section 9
shall not apply in the event of an internal reorganization of the Corporation
involving only the Corporation and its wholly owned Subsidiaries pursuant to
which the Corporation is the surviving entity.
(b) The Repurchase Offer shall remain open for at least 20 Business
Days and until the close of business on the fifth Business Day prior to the
Repurchase Date (as hereinafter defined).
(c) Not later than the 30th day following the occurrence of a
Repurchase Event, the Corporation shall mail to each holder of shares of Series
A Preferred Stock or shares of Common Stock issuable upon conversion thereof a
notice (the "Repurchase Notice") stating, among other things:
(1) that a Repurchase Event has occurred and that such holder
has the right to require the Corporation to repurchase such holder's
shares, or portion thereof, at the Repurchase Price;
(2) any information regarding such Repurchase Event required to
be furnished under applicable federal and State securities laws, rules and
regulations;
(3) a purchase date (the "Repurchase Date"), which shall be on a
Business Day and no earlier than 30 days
-16-
<PAGE>
nor later than 60 days after the occurrence of a Repurchase Event;
(4) that any shares of Series A Common Stock not tendered or
accepted for payment shall be subject to appropriate adjustment as required
by Section 6 hereof; and
(5) the instructions a holder must follow in order to have
shares of Series A-Preferred Stock or shares of Common Stock issuable upon
conversion thereof repurchased in accordance with this Section 9.
No failure of the Corporation to give the foregoing notice shall limit
any right of any holder right to exercise a repurchase right hereunder.
(d) To exercise the repurchase right, the holder must deliver, on or
before the fifth calendar day prior to the Repurchase Date (provided that the
Repurchase Notice shall have been delivered to each holder at least ten calendar
days prior to the Repurchase Date), written notice of the Corporation (or an
agent designated by the Corporation for such purpose) of the exercise of such
repurchase right, together with the holders certificates with respect to which
the right is being exercised, duly endorsed for transfer.
(e) On the Repurchase Date, the Corporation shall (i) accept for
payment shares of Series A Preferred Stock or shares of Common Stock issuable
upon conversion thereof tendered pursuant to the Repurchase Notice, (ii) appoint
a depository or paying agent, deposit with such depository or paying agent money
sufficient to pay the Repurchase Price of all shares of Series A Preferred Stock
or shares of Common Stock issuable upon conversion thereof so tendered and (iii)
deliver to the holders of shares of Series A Preferred Stock or shares of Common
Stock issuable upon conversion thereof so accepted together with an Officers'
Certificate stating the shares tendered to the Corporation. The depository, the
Corporation or the paying agent, as the case may be, shall promptly mail to the
holders whose shares are so accepted payment in an amount equal to the
Repurchase Price, and the Corporation shall promptly issue and mail to holders
new Series A Preferred Stock or Common Stock certificates, as the case may be,
representing the tendered but unpurchased number of shares of Series A Preferred
Stock or Common Stock, as applicable. The Corporation will publicly announce
the results of the Repurchase Offer on or as soon as practicable after the
Repurchase Date.
(f) The Corporation, to the extent applicable and if required by law,
will comply with the Securities Exchange Act of 1934, as amended, and any other
federal and state securities laws, rules and regulations that may then be
applicable to any offer by the Corporation to purchase the shares of Series A
-17-
<PAGE>
Preferred Stock or shares of Common Stock issuable upon conversion thereof
pursuant to the provisions of this Section 9.
10. DEFINITIONS. As used in this Certificate, the following terms
shall have the following respective meanings:
Business Day means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to be closed.
Fair Market Value means, with respect to any share of Common Stock, as
of the date of determination:
(a) If the Common Stock is listed or admitted for trading on a
national securities exchange or stock market (including, if applicable, the
Nasdaq Stock Market), the Fair Market Value shall be the average of the
closing sales prices for 30 consecutive trading days ended immediately
preceding the date in question of the Common Stock on the principal
national securities exchange on which the Common Stock is listed or
admitted for trading; or, if not quoted on any national securities exchange
or stock market, the average of the highest reported bid and lowest
reported asked quotation during the 30 consecutive trading days immediately
preceding the date in question; or
(b) If the Common Stock is not so listed or admitted to unlisted
trading privileges or if such a sale is not made on at least 25 of such
days, the Fair Market Value shall be as reasonably determined in good faith
by the Board (which determination shall be reasonably described in the
written notice delivered to the holder of shares of Series A Preferred
Stock) or, if an objection is made to such determination by a Qualifying
Holder of shares of Series A Preferred Stock (as defined below) in
accordance with the following sentence, as determined by a qualified
Independent Appraiser in accordance with the following sentence. In the
event that any Qualifying Holder of shares of Series A Preferred Stock
shall object to the determination of the Board of the Fair Market Value by
delivering written notice to the Corporation within ten Business Days
following the receipt by such Qualifying Holder of shares of Series A
Preferred Stock of such determination of the Board, the Fair Market Value
shall instead be determined by a qualified Independent Appraiser reasonably
acceptable to the holders of the Series A Preferred Stock. The term
"Qualifying Holder of shares of Series A Preferred Stock" shall include any
holder of shares of Series A Preferred Stock that, at the time of any
objection to the determination of the Board of the Fair Market Value,
beneficially owns, together with its Affiliates, at least 10% of the Common
Stock on a fully diluted basis. The determination of the Board of the Fair
Market Value shall be binding and conclusive if no objection
-18-
<PAGE>
is made to such determination by a Qualifying Holder of shares of Series A
Preferred Stock. The fees and expenses of any qualified Independent
Appraiser determining the Fair Market Value shall be borne by the
Corporation and the determination by such qualified Independent Appraiser
of the Fair Market Value shall be binding and conclusive.
"Independent Appraiser" means any nationally recognized investment
banking or accounting firm (other than any investment banking firm or accounting
firm having a significant ongoing relationship in the Company or any of its
Affiliates at the time of the appraisal) selected in good faith by the Board.
"Person" means an individual, corporation, partnership, association,
trust, joint venture, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended).
-19-
<PAGE>
IN WITNESS WHEREOF, Discovery Zone, Inc. has caused this Certificate
of Designations, Number, Voting Powers, Preferences and Rights of Series A
Convertible Preferred Stock to be duly executed by the undersigned and affirm
the foregoing as true under the penalties of perjury this 22 day of July,
1997.
DISCOVERY ZONE, INC.
By /s/ Scott Bernstein
--------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer
and President
<PAGE>
AMENDED AND RESTATED BY-LAWS
of
DISCOVERY ZONE, INC.
--------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE -- The registered office of Discovery
Zone, Inc. (the "Corporation") shall be established and maintained at the
office of The Corporation Trust Company at The Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle, State of
Delaware, and said Corporation Trust Company shall be the registered agent of
the Corporation in charge thereof.
SECTION 2. OTHER OFFICES -- The Corporation may have other offices,
either within or without the State of Delaware, at such place or places as
the Board of Directors of the Corporation (the "Board of Directors") may from
time to time select or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS -- Annual meetings of stockholders for the
election of directors, and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without
the State of Delaware, and at such time and date as the Board of Directors,
by resolution, shall determine and as set forth in the notice of the meeting.
If the Board of Directors fails so to determine the time, date and place of
meeting, the annual meeting of stockholders shall be held at the registered
office of the Corporation on the first Tuesday in April. If the date of the
annual meeting shall fall upon a legal holiday, the meeting shall be held on
the next succeeding business day. At each annual meeting, the stockholders
entitled to vote shall elect a Board of Directors and they may transact such
other corporate business as shall be stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS -- Special meetings of the stockholders
for any purpose or purposes may be called by the Chairman of the Board, the
President or the Secretary, or by resolution of the Board of Directors.
SECTION 3. VOTING -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation (as the same may be
amended or restated
<PAGE>
from time to time, the "Certificate of Incorporation") and these By-Laws may
vote in person or by proxy, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. All elections
for directors shall be decided by plurality vote; all other questions shall
be decided by majority vote except as otherwise provided by the Certificate
of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order, with the address of each, and the number of
shares held by each, shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is entitled to be present.
SECTION 4. QUORUM -- Except as otherwise required by law, the
Certificate of Incorporation or these By-Laws, the presence, in person or by
proxy, of stockholders holding shares constituting a majority of the voting
power of the Corporation shall constitute a quorum at all meetings of the
stockholders. In case a quorum shall not be present at any meeting, a
majority in interest of the stockholders entitled to vote thereat, present in
person or by proxy, shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the
requisite amount of stock entitled to vote shall be present. At any such
adjourned meeting at which the requisite amount of stock entitled to vote
shall be represented, any business may be transacted that might have been
transacted at the meeting is originally noticed, but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to
vote at any adjournment or adjournments thereof.
SECTION 5. NOTICE OF MEETINGS -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat, at
his or her address as it appears on the records of the Corporation, not less
than ten nor more than sixty days before the date of the meeting. No
business other than that stated in the notice shall be transacted at any
meeting without the unanimous consent of all the stockholders entitled to
vote thereat.
SECTION 6. ACTION WITHOUT MEETING -- Unless otherwise provided by the
Certificate of Incorporation, any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented to
writing.
-2-
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM -- The business and affairs of the
Corporation shall be managed under the direction of a Board of Directors
which shall consist of not less than three persons. The exact number of
directors shall initially be five and may thereafter be fixed from time to
time by the Board of Directors; provided, however, that the director
nominated by the Official Committee of Unsecured Creditors of the Corporation
shall serve a term of at least three (3) years, notwithstanding any
assignment of any ownership interest in the Corporation. Directors shall be
elected at the annual meeting of stockholders and each director shall be
elected to serve until his or her successor shall be elected and shall
qualify. A director need not be a stockholder.
SECTION 2. RESIGNATIONS -- Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Chairman of the Board, the President or the Secretary. The acceptance of
a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES -- If the office of any director becomes vacant,
the remaining directors in the office, though less than a quorum, by a
majority vote, may appoint any qualified person to fill such vacancy, who
shall hold office for the unexpired term and until his or her successor shall
be duly chosen. If the office of any director becomes vacant and there are no
remaining directors, the stockholders, by the affirmative vote of the holders
of shares constituting a majority of the voting power of the Corporation, at
a special meeting called for such purpose, may appoint any qualified person
to fill such vacancy.
SECTION 4. REMOVAL -- Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of the voting power entitled to
vote for the election of directors, at an annual meeting or a special meeting
called for the purpose, and the vacancy thus created may be filled, at such
meeting, by the affirmative vote of holders of shares constituting a majority
of the voting power of the Corporation.
SECTION 5. COMMITTEES -- The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate
one or more committees, each committee to consist of one or more directors of
the Corporation; provided, however, that such committee shall consist of not
less than three persons.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
SECTION 6. MEETINGS -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of
business, if a quorum be
-3-
<PAGE>
present, immediately after the annual meeting of the stockholders; or the
time and place of such meeting may be fixed by consent of all the Directors.
Regular meetings of the Board of Directors may be held without
notice at such places and times as shall be determined from time to time by
resolution of the Board of Directors.
Special meetings of the Board of Directors may be called by the
Chairman of the Board or the President, or by the Secretary on the written
request of any director, on at least two days' notice to each director given
personally or by telegram or facsimile transmission (except that notice of
any director may be waived in writing by such director) and shall be held at
such place or places as may be determined by the Board of Directors, or as
shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in any meeting of the Board of
Directors or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
SECTION 7. QUORUM -- A majority of the Director shall constitute a
quorum for the transaction of business. If at any meeting of the Board of
Directors there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum is obtained,
and no further notice thereof need be given other than by announcement at the
meeting which shall be so adjourned. The vote of the majority of the
Directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors unless the Certificate of Incorporation or these
By-Laws shall require the vote of a greater number.
SECTION 8. COMPENSATION -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the Board of Directors a fixed fee and expenses of attendance
may be allowed for attendance at each meeting. Nothing herein contained shall
be construed to preclude any director from serving the Corporation in any
other capacity as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 9. ACTION WITHOUT A MEETING -- Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or such committee.
-4-
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS -- The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Treasurer
and a Secretary, all of whom shall be elected by the Board of Directors and
shall hold office until their successors are duly elected and qualified. In
addition, the Board of Directors may elect such Assistant Secretaries and
Assistant Treasurers as they may deem proper. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of
Directors.
SECTION 2. CHAIRMAN OF THE BOARD -- The Chairman of the Board shall
be the Chief Executive Officer of the Corporation. He or she shall preside at
all meetings of the Board of Directors and shall have and perform such other
duties as may be assigned to him or her by the Board of Directors. The
Chairman of the Board shall have the power to execute bonds, mortgages and
other contracts on behalf of the Corporation, and to cause the seal of the
Corporation to be affixed to any instrument requiring it, and when so affixed
the seal shall be attested to by the signature of the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 3. PRESIDENT -- The President shall be the Chief Operating
Officer of the Corporation. He or she shall have the general powers and
duties of supervision and management usually vested in the office of
President of a corporation. The President shall have the power to execute
bonds, mortgages and other contracts on behalf of the Corporation, and to
cause the seal to be affixed to any instrument requiring it, and when so
affixed the seal shall be attested to by the signature of the Secretary or
the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 4. VICE PRESIDENTS -- Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him or her by
the Board of Directors.
SECTION 5. TREASURER -- The Treasurer shall be the Chief Financial
Officer of the Corporation. He or she shall have the custody of the Corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. He or she shall deposit
all moneys and other valuables in the name and to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the
President, taking proper vouchers for such disbursements. He or she shall
render to the Chairman of the Board, the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request
it, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of
Directors, he or she shall give the Corporation a bond for the faithful
discharge of his or her duties in such amount and with such surety as the
Board of Directors shall prescribe.
SECTION 6. SECRETARY -- The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and of the Board of Directors
and all other
-5-
<PAGE>
notices required by law or these By-Laws, and in case of his or her absence
or refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board or the President, or by the
Board of Directors, upon whose request the meeting is called as provided in
these By-Laws. He or she shall record all the proceedings of the meetings of
the Board of Directors, any committees thereof and the stockholders of the
Corporation in a book to be kept for that purpose, and shall perform such
other duties as may be assigned to him or her by the Board of Directors, the
Chairman of the Board or the President. He or she shall have the custody of
the seal of the Corporation and shall affix the same to all instruments
requiring it, when authorized by the Board of Directors, the Chairman of the
Board or the President, and attest to the same.
SECTION 7. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES --
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the Board of Directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK -- A certificate of stock shall be
issued to each stockholder certifying the number of shares owned by such
stockholder in the Corporation. Certificates of stock of the Corporation
shall be of such form and device as the Board of Directors may from time to
time determine.
SECTION 2. LOST CERTIFICATES -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the Corporation,
alleged to have been lost or destroyed, and the Board of Directors may, in
its discretion, require the owner of the lost or destroyed certificate, or
such owner's legal representatives, to give the Corporation a bond, in such
sum as they may direct, not exceeding double the value of the stock, to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss of any such certificate, or the issuance of any
such new certificate.
SECTION 3. TRANSFER OF SHARES -- The shares of stock of the
Corporation shall be transferable only upon its books by the holders thereof
in person or by their duly authorized attorneys or legal representatives, and
upon such transfer of the old certificates shall be surrendered to the
Corporation by the delivery thereof to the person in charge of the stock and
transfer books and ledgers, or to such other person as the Board of Directors
may designate, by whom they shall be cancelled, and new certificates shall
thereupon be issued. A record shall be made of each transfer and whenever a
transfer shall be made for collateral security, and not absolutely, it shall
be so expressed in the entry of the transfer. The Corporation shall be
entitled to treat the holder of record of any share or shares as the holder
in fact thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, and shall
not be liable for any registration or transfer of shares which are registered
or to be registered in the name of a fiduciary or nominee of a fiduciary
unless made with actual knowledge that a fiduciary or nominee of a fiduciary
is committing a breach of trust in requesting such registration or transfer,
or with knowledge of such facts that its participation therein amounts to bad
faith.
-6-
<PAGE>
SECTION 4. STOCKHOLDERS RECORD DATE -- In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon
which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action
in writing without a meeting, shall not be more than ten days from the date
upon which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than
sixty days prior to such other action. if no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceeding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action
of the Board of Directors is required by law, shall be the first day on which
a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in accordance with applicable law, or,
if prior action by the Board of Directors is required by law, shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholder shall apply to any adjournment of the meeting,
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
SECTION 5. DIVIDENDS -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon stock of
the Corporation as and when they deem appropriate. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the Board of Directors from time to time
in their discretion deem proper for working capital or as a reserve fund to
meet contingencies or for equalizing dividends or for such other purposes as
the Board of Directors shall deem conducive to the interests of the
Corporation.
SECTION 6. SEAL -- The corporate seal of the Corporation shall be in
such form as shall be determined by resolution of the Board of Directors.
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise imprinted upon the subject document or
paper.
SECTION 7. FISCAL YEAR -- The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
-7-
<PAGE>
SECTION 8. CHECKS -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers, or agent or
agents, of the Corporation, and in such manner as shall be determined from
time to time by resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE -- Whenever any notice is
required to be given under these By-Laws, personal notice is not required
unless expressly so stated, and any notice so required shall be deemed to be
sufficient if given by depositing the same in the United States mail, postage
prepaid, addressed to the person entitled thereto at his or her address as it
appears on the records of the Corporation, and such notice shall be deemed to
have been given on the day of such mailing. Notice to directors may also be
given by telegram or facsimile transmission. Stockholders not entitled to
vote shall not be entitled to receive notice of any meetings except as
otherwise provided by law. Whenever any notice is required to be given under
the provisions of any law, or under the provisions of the Certificate of
Incorporation or of these By-Laws, a waiver thereof, in writing and signed by
the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to such required notice.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any meeting of
the stockholders by the affirmative vote of the holders of shares
constituting a majority of the voting power of the Corporation. Except as
otherwise provided in the Certificate of Incorporation, the Board of
Directors may, by majority vote of those present at any meeting at which a
quorum is present, alter, amend or repeal these By-Laws, or enact such other
By-Laws as in their judgment may be advisable for the regulation and conduct
of the affairs of the Corporation.
-8-
<PAGE>
EXHIBIT 4.1
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
DISCOVERY ZONE, INC.,
AS ISSUER,
AND
THE SUBSIDIARY GUARANTORS NAMED HEREIN
AND
STATE STREET BANK AND TRUST COMPANY,
AS TRUSTEE
_____________________________________________
INDENTURE
DATED AS OF JULY 22, 1997
_____________________________________________
$85,000,000
13 1/2% SENIOR SECURED NOTES DUE 2002
AND
13 1/2% SENIOR SECURED NOTES DUE 2002, SERIES B
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE.................................. 1
SECTION 1.01. Definitions......................................... 1
SECTION 1.02. Other Definitions................................... 20
SECTION 1.03. Incorporation by Reference of TIA................... 21
SECTION 1.04. Rules of Construction............................... 22
ARTICLE TWO
THE NOTES................................................................... 22
SECTION 2.01. Form and Dating..................................... 22
SECTION 2.02. Execution and Authentication; Aggregate
Principal Amount. ........ 23
SECTION 2.03. Registrar and Paying Agent.......................... 24
SECTION 2.04. Paying Agent To Hold Assets in Trust................ 25
SECTION 2.05. Holder Lists........................................ 25
SECTION 2.06. Transfer and Exchange............................... 26
SECTION 2.07. Replacement Notes................................... 26
SECTION 2.08. Outstanding Notes................................... 27
SECTION 2.09. Treasury Notes...................................... 27
SECTION 2.10. Temporary Notes..................................... 28
SECTION 2.11. Cancellation........................................ 28
SECTION 2.12. CUSIP Number........................................ 28
SECTION 2.13. Deposit of Monies................................... 29
SECTION 2.14. Book-Entry Provisions for Global Note............... 29
SECTION 2.15. Special Transfer Provisions......................... 30
SECTION 2.16. Defaulted Interest.................................. 33
ARTICLE THREE
REDEMPTION.................................................................. 33
SECTION 3.01. Notices to Trustee.................................. 33
SECTION 3.02. Selection of Notes To Be Redeemed................... 34
SECTION 3.03. Optional Redemption................................. 34
SECTION 3.04. Notice of Redemption................................ 35
SECTION 3.05. Effect of Notice of Redemption...................... 36
SECTION 3.06. Deposit of Redemption Price ........................ 36
P-i
<PAGE>
SECTION 3.07. Notes Redeemed in Part.............................. 36
ARTICLE FOUR
COVENANTS................................................................... 37
SECTION 4.01. Payment of Notes.................................... 37
SECTION 4.02. Maintenance of Office or Agency..................... 37
SECTION 4.03. Corporate Existence................................. 37
SECTION 4.04. Payment of Taxes and other Claims................... 38
SECTION 4.05. Maintenance of Properties and Insurance............. 38
SECTION 4.06. Compliance Certificate; Notice of Default........... 38
SECTION 4.07. Compliance with Laws................................ 39
SECTION 4.08. Reports............................................. 39
SECTION 4.09. Waiver of Stay, Extension or Usury Laws............. 40
SECTION 4.10. Limitation on Restricted Payments................... 40
SECTION 4.11. Limitation on Transactions with Affiliates.......... 42
SECTION 4.12. Limitation on Incurrence of Additional Indebtedness and
Issuance of Preferred Stock......................... 43
SECTION 4.13. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.............................. 43
SECTION 4.14. Limitation on Change of Control..................... 44
SECTION 4.15. Limitation on Asset Sales........................... 46
SECTION 4.16. Limitation on Issuances and Sales of Capital Stock of
Subsidiaries........................................ 49
SECTION 4.17. Limitation on Liens................................. 49
SECTION 4.18. Conduct of Business................................. 49
SECTION 4.19. Payments For Consent................................ 49
SECTION 4.20. Registration Rights Agreement....................... 49
SECTION 4.21. Warrant Agreement................................... 50
SECTION 4.22. Impairment of Security Interest..................... 50
SECTION 4.23. Intercompany Indebtedness........................... 50
SECTION 4.24. Key Man Life Insurance.............................. 51
SECTION 4.25. Real Estate Mortgages and Filings................... 51
SECTION 4.26. Leasehold Mortgages and Filings..................... 52
SECTION 4.27. Rating of Notes..................................... 52
ARTICLE FIVE
SUCCESSOR CORPORATION....................................................... 52
SECTION 5.01. Merger, Consolidation and Sale of Assets............ 52
SECTION 5.02. Successor Corporation Substituted................... 54
P-ii
<PAGE>
ARTICLE SIX
DEFAULT AND REMEDIES........................................................ 54
SECTION 6.01. Events of Default................................... 54
SECTION 6.02. Acceleration........................................ 56
SECTION 6.03. Other Remedies...................................... 56
SECTION 6.04. Waiver of Past Defaults............................. 57
SECTION 6.05. Control by Majority................................. 57
SECTION 6.06. Limitation on Suits................................. 57
SECTION 6.07. Rights of Holders To Receive Payment................ 58
SECTION 6.08. Collection Suit by Trustee.......................... 58
SECTION 6.09. Trustee May File Proofs of Claim.................... 58
SECTION 6.10. Priorities.......................................... 59
SECTION 6.11. Undertaking for Costs............................... 59
SECTION 6.12. Restoration of Rights and Remedies.................. 60
SECTION 6.13. Rights and Remedies Cumulative...................... 60
SECTION 6.14. Delay or Omission Not Waiver........................ 60
ARTICLE SEVEN
TRUSTEE..................................................................... 60
SECTION 7.01. Duties of Trustee................................... 60
SECTION 7.02. Rights of Trustee................................... 62
SECTION 7.03. Individual Rights of Trustee........................ 63
SECTION 7.04. Trustee's Disclaimer................................ 63
SECTION 7.05. Notice of Default................................... 63
SECTION 7.06. Reports by Trustee to Holders....................... 63
SECTION 7.07. Compensation and Indemnity.......................... 64
SECTION 7.08. Replacement of Trustee.............................. 65
SECTION 7.09. Successor Trustee by Merger, Etc.................... 66
SECTION 7.10. Eligibility; Disqualification....................... 66
SECTION 7.11. Preferential Collection of Claims Against Company... 66
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE..................................... 67
SECTION 8.01. Legal Defeasance and Covenant Defeasance............ 67
SECTION 8.02. Satisfaction and Discharge.......................... 69
SECTION 8.03. Survival of Certain Obligations..................... 70
SECTION 8.04. Acknowledgment of Discharge by Trustee.............. 70
SECTION 8.05. Application of Trust Monies......................... 70
SECTION 8.06. Repayment to the Company; Unclaimed Money........... 71
SECTION 8.07. Reinstatement....................................... 71
P-iii
<PAGE>
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS......................................... 72
SECTION 9.01. Without Consent of Holders.......................... 72
SECTION 9.02. With Consent of Holders............................. 73
SECTION 9.03. Compliance with TIA................................. 74
SECTION 9.04. Revocation and Effect of Consents................... 74
SECTION 9.05. Notation on or Exchange of Notes.................... 75
SECTION 9.06. Trustee To Sign Amendments, Etc..................... 75
ARTICLE TEN
SECURITY.................................................................... 75
SECTION 10.01. Grant of Security Interest.......................... 75
SECTION 10.02. Execution of Intercreditor Agreement................ 76
SECTION 10.03. Recording and Opinions.............................. 77
SECTION 10.04. Release of Collateral............................... 78
SECTION 10.05. Specified Releases of Collateral.................... 79
SECTION 10.06. Form and Sufficiency of Release..................... 80
SECTION 10.07. Purchaser Protected................................. 80
SECTION 10.08. Authorization of Actions To Be Taken by the Trustee
Under the Collateral Agreements..................... 81
SECTION 10.09. Authorization of Receipt of Funds by the Trustee Under
the Collateral Agreements........................... 81
SECTION 10.10. Escrowed Interest Account........................... 81
ARTICLE ELEVEN
GUARANTEE................................................................... 84
SECTION 11.01. Unconditional Guarantee............................. 84
SECTION 11.02 Limitations on Subsidiary Guarantees................ 85
SECTION 11.03. Evidence of Execution and Delivery of
Subsidiary Guarantee................................ 85
SECTION 11.04. Release of a Subsidiary Guarantor................... 86
SECTION 11.05. Waiver of Subrogation............................... 87
SECTION 11.06. Immediate Payment................................... 87
SECTION 11.07. No Set-Off.......................................... 88
SECTION 11.08. Obligations Absolute................................ 88
SECTION 11.09. Obligations Continuing.............................. 88
SECTION 11.10. Obligations Not Reduced............................. 89
SECTION 11.11. Obligations Reinstated.............................. 89
SECTION 11.12. Obligations Not Affected............................ 89
SECTION 11.13. Waiver.............................................. 90
P-iv
<PAGE>
SECTION 11.14. No Obligation To Take Action Against the Company.... 91
SECTION 11.15. Dealing with the Company and Others................. 91
SECTION 11.16. Default and Enforcement............................. 91
SECTION 11.17. Certain Bankruptcy Events........................... 92
SECTION 11.18. Amendment, Etc...................................... 92
SECTION 11.19. Acknowledgment...................................... 92
SECTION 11.20. Costs and Expenses.................................. 92
SECTION 11.21. No Merger or Waiver; Cumulative Remedies............ 92
SECTION 11.22. Survival of Obligations............................. 93
SECTION 11.23. Subsidiary Guarantee in Addition to Other
Obligations........................................ 93
SECTION 11.24. Severability........................................ 93
SECTION 11.25. Successors and Assigns.............................. 93
ARTICLE TWELVE
AGREEMENT TO SUBORDINATE SECURITY INTEREST.................................. 94
SECTION 12.01. Subordination of Security Interest.................. 94
SECTION 12.02. Authorization of Trustee and Collateral Agent....... 94
ARTICLE THIRTEEN
MISCELLANEOUS............................................................... 94
SECTION 13.01. TIA Controls........................................ 94
SECTION 13.02. Notices............................................. 95
SECTION 13.03. Communications by Holders with Other Holders........ 96
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.. 96
SECTION 13.05. Statements Required in Certificate or Opinion....... 96
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar........... 97
SECTION 13.07. Legal Holidays...................................... 97
SECTION 13.08. Governing Law; Jurisdiction; Submission to Venue.... 97
SECTION 13.09. No Adverse Interpretation of other Agreements....... 98
SECTION 13.10. No Recourse Against Others.......................... 98
SECTION 13.11. Successors.......................................... 98
SECTION 13.12. Duplicate Originals................................. 98
SECTION 13.13. Severability........................................ 99
SECTION 13.14. Independence of Covenants........................... 99
SECTION 13.15 Table of Contents, Headings, Etc.................... 99
SIGNATURES..................................................................100
P-v
<PAGE>
INDENTURE, dated as of July 22, 1997, among Discovery Zone, Inc., a
Delaware corporation (the "Company"), the Subsidiary Guarantors referred to
below and State Street Bank and Trust Company, as trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 13 1/2%
Senior Secured Notes due August 1, 2002 (the "Initial Notes"), and 13 1/2%
Senior Secured Notes due August 1, 2002, Series B to be issued in exchange
for the Initial Notes pursuant to the Registration Rights Agreement (as
defined) (the "Exchange Notes" and, together with the Private Exchange Notes
(as defined) and the Initial Notes, the "Notes") and, to provide therefor,
the Company has duly authorized the execution and delivery of this Indenture.
The Notes will be secured by a first priority lien and security interest in
the Escrowed Interest Account (as defined) maintained with the Collateral
Agent (as defined) pursuant to the terms of the Escrow Agreement (as
defined). The Notes will also be secured by a first priority lien and
security interest in the Collateral (as defined) pursuant to the terms of the
Security Agreement (as defined), subject to the subordination of such lien as
provided herein, and by a pledge of all of the outstanding capital stock of
all Subsidiary Guarantors (as defined), pursuant to the terms of the Pledge
Agreement (as defined) and the Subsidiary Pledge Agreements (as defined).
The Notes will be jointly and severally guaranteed, on an unconditional
senior secured basis, by the Subsidiary Guarantors (as defined). All things
necessary to make the Notes, when duly issued and executed by the Company,
and authenticated and delivered hereunder, the valid obligations of the
Company and the Subsidiary Guarantors, and to make this Indenture a valid and
binding agreement of the Company and the Subsidiary Guarantors, have been
done.
Each party hereto agrees as follows for the benefit of the other party
and for the equal and ratable benefit of the Holders (as defined), without
preference of one series of the Notes over the other.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, excluding
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person.
"ADDITIONAL INTEREST" has the meaning set forth in the Registration
Rights Agreement.
-1-
<PAGE>
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any specified Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management of policies of such specified Person,
whether through the ownership of voting securities, by agreement or otherwise;
PROVIDED, HOWEVER, that beneficial ownership of 10% or more of the aggregate
voting power of the voting securities of a Person shall be deemed to be control.
"AGENT" means any Registrar, Paying Agent, Collateral Agent,
Authenticating Agent or co-Registrar.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (including any Sale and Leaseback Transaction) to any Person
other than the Company or a Wholly-Owned Subsidiary of the Company of (a) any
Capital Stock of any Subsidiary of the Company; or (b) any other property or
assets of the Company or any Subsidiary of the Company other than in the
ordinary course of business; PROVIDED, HOWEVER, that Asset Sales shall not
include (i) a transaction or series of related transactions for which the
Company or its Subsidiaries receive aggregate consideration of less than
$500,000 and (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under Section
5.01 hereof.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"BLOCK PARTY" means a Subsidiary of the Company to be formed prior to
the Issue Date that will be the owner of certain family entertainment centers.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution delivered to the Trustee and certified by the secretary or an
assistant secretary of such Person to have been duly adopted by the Board of
Directors of such Person and to be in full force and effect on the date of such
certification.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
-2-
<PAGE>
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and any and all warrants, options and rights with respect
thereto, including, without limitation, each class of common stock and preferred
stock, partnership interests and other indicia of ownership of such Person.
"CASH EQUIVALENTS" means: (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America; (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof; (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof;
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii); (v) money market accounts with any bank having capital surplus and
undivided profits aggregating at least $500 million; (vi) readily marketable
direct obligations issued by any state of the United States of America or any
political subdivision thereof having one of the two highest rating categories
obtainable from either Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group; and (vii) money market funds investing only in U.S. Government
Obligations.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events:
(i) the Permitted Holder ceases to be the direct or indirect
beneficial owner (as defined below) of Voting Stock of the Company
representing an amount of such Voting Stock greater than the amount
beneficially owned by any other Person or Group (as defined below);
(ii) the Permitted Holder ceases to be the direct or indirect
beneficial owner of interests or participations in, or measured by the
profits of, the Company representing an amount of such interests or
participations greater than the amount beneficially owned by any other
Person or Group;
(iii) any sale, lease, exchange or other transfer (in one
transaction or in a series of related transactions) of all or substantially
all of the assets of the Company to any Person or Group, together with any
Affiliates thereof (whether or not otherwise in compliance with the
provisions of this Indenture) that is not beneficially owned or controlled,
directly or indirectly, by the Permitted Holder; or
(iv) the Permitted Holder ceases to have the right or ability, by
voting power, control, contract or otherwise, to control a majority of the
Board of Directors of the Company.
-3-
<PAGE>
The terms "beneficially own", "beneficial owner" and "Group" shall
have the meanings ascribed to such terms in Sections 13(d) and 14(d) of the
Exchange Act; PROVIDED, HOWEVER, that, for the purposes of this definition of
"Change of Control" only, any Person or Group other than the Permitted Holder
shall be deemed to be the current beneficial owner of any shares of Voting Stock
of the Company, or any interests or participations in, or measured by the
profits of, the Company, that are issuable upon the exercise of any option,
warrant or similar right, or upon the conversion any convertible security, in
either case owned by such Person or Group without regard to whether such option,
warrant or convertible security is currently exercisable or convertible or will
become convertible or exercisable within 60 days if the exercise or conversion
price thereof at the time of grant was lower than the fair market value of the
underlying security at the time of grant.
"COLLATERAL" shall have the meaning assigned to such term in the
Security Agreement.
"COLLATERAL AGENT" shall have the meaning assigned to such term in the
Security Agreement.
"COLLATERAL AGREEMENTS" means, collectively, the Escrow Agreement, the
Pledge Agreement, the Subsidiary Pledge Agreements, the Security Agreement, the
Subsidiary Security Agreements, the Trademark Assignment and the Mortgages, in
each case, as the same may be in force from time to time.
"COMMON STOCK" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"COMPANY" means the party named as such above, until a successor
replaces such Person in accordance with the terms of this Indenture, and
thereafter means such successor.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (without
duplication) (a) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing Consolidated Net Income), (b) provision for taxes based on
income or profits to the extent such provision for taxes was included in
computing Consolidated Net Income, (c) consolidated interest expense of such
Person for such period, whether paid or accrued (including deferred financing
costs, non-cash interest payments and the interest component of capital lease
obligations), to the extent such expense was deducted in computing Consolidated
Net Income, (d) accretion of deferred rent expense under the McDonald's Rent
Deferral Secured Notes, to the extent such expense was deducted in computing
Consolidated Net Income, and (e) depreciation and amortization (including
amortization of goodwill and other intangibles) for such period to the extent
such
-4-
<PAGE>
deprecation or amortization were deducted in computing Consolidated Net Income,
in each case, on a consolidated basis and determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, that: (i) the Net Income of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid to the referent
Person or a Wholly-Owned Subsidiary thereof, (ii) the Net Income of any Person
that is a Subsidiary (other than a Subsidiary of which at least 80% of the
Capital Stock having ordinary voting power for the election of directors or
other governing body of such Subsidiary is owned by the referent Person directly
or indirectly through one or more Subsidiaries) shall be included only to the
extent of the amount of dividends or distributions paid to the referent Person
or a Wholly-Owned Subsidiary thereof; (iii) for the purpose of determining
whether the Company may make a Restricted Payment under clause (c) of Section
4.10 hereof only, the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded; and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the sum of
(i) the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (a) any cash received by such Person upon issuance of such preferred
stock and (b) the fair market value of any non-cash consideration received by
such Person upon issuance of such preferred stock PROVIDED that such value has
been determined in good faith by a nationally recognized investment bank, less
(x) all write-ups, subsequent to the date of this Indenture, in the book value
of assets owned by such Person or a consolidated Subsidiary of such Person,
other than (a) write-ups resulting from foreign currency translations and (b)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except such amounts arising
from the issuance of the Notes), all of the foregoing determined in accordance
with GAAP.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event known to the Company or which should have
been known to the Company after due inquiry that is, or with the passage of time
or the giving of notice or both would be, an Event of Default.
-5-
<PAGE>
"DEPOSITORY" means The Depository Trust Company, its nominees and
successors.
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"DTC" means The Depository Trust Company, a New York corporation.
"ELIGIBLE CREDIT FACILITY" means a credit facility (and any permitted
refinancing or replacement thereof) between the Company and a Lender, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time as permitted herein,
which credit facility (and any permitted refinancing or replacement thereof) (i)
has terms and conditions (including with respect to applicable interest rates
and fees) customary for similar facilities extended to borrowers comparable to
the Company, (ii) does not permit the Company to incur Indebtedness thereunder
at any time outstanding in excess of $10,000,000 in principal amount, and (iii)
may be secured by certain assets of the Company, subject to the terms and
conditions of an Intercreditor Agreement.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ESCROW AGREEMENT" means the Escrow and Security Agreement, dated as
of even date herewith, between the Company and the Trustee, substantially in the
form of Exhibit F attached hereto, as amended and supplemented from time to time
in accordance with its terms.
"ESCROW FUNDS" means the proceeds from the sale of Units to be
deposited in the Escrowed Interest Account in an aggregate amount specified in
the Escrow Agreement to, among other things, pay interest on the Notes that
accrues and is unpaid from the Issue Date through and including the Interest
Payment Date on August 1, 1999.
"ESCROWED INTEREST ACCOUNT" means one or more accounts established
with the Trustee pursuant to the terms of the Escrow Agreement for the deposit
of the Escrow Funds and the Pledged Securities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"EXCHANGE NOTES" has the meaning provided in the Preamble to this
Indenture.
-6-
<PAGE>
"EXCHANGE OFFER" means the offer that may be made by the Company,
pursuant to the Registration Rights Agreement, to exchange for any and all the
Initial Notes a like aggregate principal amount of Exchange Notes.
"FAIR MARKET VALUE" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Unless
otherwise provided herein, fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems Preferred Stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but prior
to the event for which the calculation of the Fixed Charge Coverage Ratio is
made, then the Fixed Charge Coverage Ratio (both the numerator and the
denominator therein) shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, repayment, repurchase or redemption of
Indebtedness, or such issuance or redemption of Preferred Stock, as if the same
had occurred at the beginning of the applicable period; PROVIDED that pro forma
effect shall be given to repayments, repurchases or redemptions of Indebtedness
or Preferred Stock only to the extent such Indebtedness or Preferred Stock is
permanently retired (and, in the case of the Notes, surrendered to the Trustee
for cancellation). For purposes of making the computation referred to above, in
the event that acquisitions, divestitures, mergers or consolidations have been
made by the Company or any of its Subsidiaries subsequent to the commencement of
the four-quarter period over which the Fixed Charge Coverage Ratio is being
calculated, but prior to the event for which the calculation of the Fixed Charge
Ratio is being made, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such acquisitions, divestitures, mergers and
consolidations as if such transactions had occurred at the beginning of the
applicable period.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (a) consolidated interest expense of such Person for such period, whether
paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of non-cash interest payments
and the interest component of capital leases but excluding amortization of
deferred financing fees) and (b) the product of (i) all dividend payments,
whether paid in cash, assets, securities or otherwise, in the case of a Person
that is a Subsidiary of the Company, on any series of preferred stock of such
Person, and all dividend payments in respect of any series of preferred stock of
the Company, whether paid in cash, assets, securities or otherwise (other than
dividends payable in additional shares of the preferred stock on which such
dividends are paid), times (ii) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal,
-7-
<PAGE>
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of this Indenture.
"HOLDER" OR "HOLDER" means the Person in whose name a Note is
registered on the Registrar's books.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases) or representing any Interest Swap Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing Indebtedness (other than Interest Swap
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and also includes, to the extent not otherwise
included, the guarantee (other than by endorsement of negotiable instruments for
collection in the ordinary course of business), direct or indirect, by such
Person in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any of the
items which would be included within this definition.
"INDENTURE" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"INDEPENDENT FINANCIAL ADVISOR" means an investment banking firm (i)
which does not, and whose directors, officers and employees or Affiliates do
not, have a direct or indirect financial interest in the Company or any of its
Subsidiaries and (ii) which, in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the task for which it
is to be engaged.
"INITIAL NOTES" has the meaning provided in the Preamble to this
Indenture.
"INITIAL PURCHASER" means Jefferies & Company, Inc.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"INTERCREDITOR AGREEMENT" means an agreement between the Trustee and a
Lender, substantially in the form of Exhibit G attached hereto, to be entered
into after the Issue Date, if the Company and such Lender enter into an Eligible
Credit Facility.
-8-
<PAGE>
"INTEREST PAYMENT DATE" means the stated maturity of an installment of
interest on the Notes.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including direct or indirect guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"ISSUE DATE" means the date of original issuance of the Initial Notes
under this Indenture.
"LENDER" means a Person that is not an Affiliate of the Company and is
a lender in an Eligible Credit Facility.
"LIEN" means, with respect to any asset, mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
excluding true lease and consignment filings).
"LIMITED INVESTMENT SUBSIDIARY" means, with respect to the Company or
any subsidiary of the Company, any corporation, partnership, joint venture,
association or other business entity in which the Company or any Subsidiary of
the Company (i) has at any time made an Investment permitted by clause (viii) of
the definition of "Permitted Investment" and (ii) has not at any time made any
other Investment.
"MATURITY DATE" means August 1, 2002.
"MCDONALD'S" means the McDonald's Corporation, a Delaware corporation,
and its successors and assigns.
-9-
<PAGE>
"MCDONALD'S COLLATERAL" means those certain fourteen parcels of real
property and related fixtures, including, without limitation, any proceeds
thereof and subject to McDonald's Senior Liens (as hereinafter defined).
"MCDONALD'S DOCUMENTS" means the agreement to indemnify as set forth
in Section 10.3(f) and Section 11.2(a)(iii) of that certain Agreement and Plan
of Merger, dated as of August 30, 1994, by and among Discovery Zone, Inc.,
Discovery Zone International, Inc., Leaps & Bounds, Inc. and McDonald's; the
McDonald's Secured Note (as hereinafter defined); and the McDonald's Rent
Deferral Secured Notes (as hereinafter defined).
"MCDONALD'S RENT DEFERRAL SECURED NOTES" means secured promissory
notes to be issued on the Issue Date by the Company in favor of McDonald's
pursuant to the Plan of Reorganization, which notes represent restructuring of
rent deferrals which McDonald's granted to the Company during bankruptcy
proceedings of the Company in an estimated aggregate principal amount of to
$265,000, which rent deferrals will continue to accrue after the Issue Date and
increase the principal amount owing under such notes and the interest on which
notes will be capitalized and payable on maturity.
"MCDONALD'S SECURED NOTE" means a secured promissory note to be issued
on the Issue Date by the Company in favor of McDonald's pursuant to the Plan of
Reorganization, which note represents restructured secured claims against the
Company in an estimated aggregate principal amount of up to $4,600,000.
"MCDONALD'S SENIOR LIENS" shall mean the first priority liens of
McDonald's on the McDonald's Collateral, as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Rent Deferral Secured Notes and any obligations of the Debtors (as
defined in the Plan of Reorganization) or the Company or any of the other
Reorganized Debtors (as defined in the Plan of Reorganization) that may arise
under (i) the agreement to indemnify as set forth in Section 10.3(f) and
Section 11.2(a)(iii) of the Agreement and Plan of Merger, dated as of August 30,
1994, by and among Discovery Zone, Inc., Discovery Zone International, Inc.,
Leaps & Bounds, Inc. and McDonald's Corporation and (ii) the Stipulation and
Order Between Debtors and McDonald's Corporation Providing for the Resolution,
Settlement and Compromise of Disputes and for Rent Deferrals and Allowance of
Certain Claims, entered by the United States Bankruptcy Court for the District
of Delaware on November 18, 1996, which liens are senior to the subordinate
liens on the McDonald's Properties granted by the Company to the Collateral
Agent as set forth in the Subordination Agreement (as hereinafter defined).
"MORTGAGES" means the mortgages, deeds of trust, deeds to secure debt
or other similar documents securing liens on the Premises and/or the Leased
Premises, as well as the other collateral secured by and described in the
mortgages, deeds of trust, deeds to secure debt or other similar documents.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment
-10-
<PAGE>
obligations when received in the form of cash or Cash Equivalents (other than
the portion of any such deferred payment constituting interest) received by the
Company or any of its Subsidiaries from such Asset Sale net of (a) reasonable
out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions), (b) taxes paid or payable after taking into account any reduction
in consolidated tax liability due to available tax credits or deductions and any
tax sharing arrangements, (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale and (d) appropriate amounts to be
provided by the Company or any Subsidiary, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset Sale
and retained by the Company or any Subsidiary, as the case may be, after such
Asset Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provisions for taxes on such extraordinary gain (but not loss).
"NON-U.S. PERSON" means a Person who is not a U.S. Person, as defined
in Regulation S.
"NOTES" has the meaning provided in the Preamble to this Indenture and
means the Initial Notes, the Exchange Notes, and the Private Exchange Notes, if
any, treated as a single class of securities, as amended or supplemented from
time to time in accordance with the terms hereof, that are issued pursuant to
this Indenture.
"OBLIGATIONS" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OFFERING CIRCULAR" means as of any time referred to in this
Indenture, the most recent offering memorandum (whether the preliminary
Confidential Offering Circular, dated June 23, 1997, as amended by the final
Confidential Offering Circular, dated July 15, 1997, or any amendment or
supplement thereto), in each case relating to the offering of the Initial Notes.
"OFFICER" means, with respect to any Person, the chief executive
officer, the president, any vice president, the chief financial officer, the
treasurer, the controller, or the secretary or assistant secretary of such
Person, or any other officer designated by the Board of Directors to serve in a
similar capacity.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and either an assistant
treasurer or an assistant secretary of
-11-
<PAGE>
such Person and otherwise complying with the requirements of Sections 13.04 and
13.05, as they relate to the making of an Officers' Certificate.
"OPINION OF COUNSEL" means a written opinion from legal counsel, who
may be counsel for the Company and who is reasonably acceptable to the Trustee,
complying with the requirements of Sections 13.04 and 13.05, as they relate to
the giving of an Opinion of Counsel.
"PERMITTED HOLDER" means Birch Acquisition L.L.C. so long as such
entity is directly or indirectly controlled by Martin S. Davis or, in the event
of his death, by Greg S. Feldman.
"PERMITTED INDEBTEDNESS" means each of the following:
(a) Indebtedness incurred by the Company or its Subsidiaries in
connection with or arising out of Sale and Leaseback Transactions, Capital
Lease Obligations or Purchase Money Obligations; PROVIDED that the
aggregate principal amount at any one time outstanding of all such Sale and
Leaseback Transactions, Capital Lease Obligations and Purchase Money
Obligations does not exceed $5 million;
(b) Indebtedness of the Company represented by the Notes (whether
incurred on the Issue Date or in connection with the Exchange Offer);
(c) Indebtedness owed by the Company to any of its Wholly-Owned
Subsidiaries for so long as such Indebtedness is held by a Wholly-Owned
Subsidiary of the Company, in each case subject to no Lien; PROVIDED that
(i) any such Indebtedness of the Company is unsecured and subordinated,
pursuant to a written agreement, to the Company's obligations under this
Indenture and the Notes and (ii) if as of any date any Person other than a
Wholly-Owned Subsidiary of the Company owns or holds any such Indebtedness
or any such Person holds a Lien in respect of such Indebtedness, such date
shall be deemed the date of incurrence of Indebtedness not constituting
Permitted Indebtedness of the Company;
(d) Indebtedness of a Wholly-Owned Subsidiary of the Company to the
Company or to a Wholly-Owned Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Wholly-Owned Subsidiary of the
Company and, if such Indebtedness from the Company to any Subsidiary
exceeds $500,000 in aggregate principal amount, evidenced by a written
promissory note or other instrument in form and substance reasonably
satisfactory to the Trustee, in each case subject to no Lien held by a
Person other than the Company or a Wholly-Owned Subsidiary of the Company;
PROVIDED that if, as of any date any Person other than the Company or a
Wholly-Owned Subsidiary of the Company owns or holds such Indebtedness or
holds a Lien in respect of such Indebtedness, such date shall be deemed the
date of incurrence of Indebtedness not constituting Permitted Indebtedness
by the issuer of such Indebtedness;
-12-
<PAGE>
(e) the incurrence by the Company and its Subsidiaries of
Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Permitted Indebtedness referred to in clauses
(a), (b) and (c) above and outstanding Indebtedness incurred in accordance
with Section 4.12 hereof (other than pursuant to this definition of
Permitted Indebtedness except to the extent provided in clauses (a), (b)
and (c) thereof) (the "Refinancing Indebtedness"); PROVIDED, HOWEVER, that
(i) the principal amount of such Refinancing Indebtedness shall not exceed
the principal amount of Indebtedness so refinanced (plus the amount of
reasonable expenses incurred in connection therewith); (ii) the Refinancing
Indebtedness shall rank in right of payment no more senior (and at least as
subordinated) to the Notes than did the Indebtedness being refinanced;
(iii) if the Indebtedness being refinanced is Indebtedness of the Company,
then such Refinancing Indebtedness shall be Indebtedness solely of the
Company; (iv) such Refinancing Indebtedness shall have a Weighted Average
Life longer, and a stated maturity which is later than, that of the
Indebtedness being refinanced; and (v) the Indebtedness so refinanced is
permanently retired (and, in case of the Notes, surrendered to the Trustee
for cancellation);
(f) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Subsidiaries and Interest Swap Obligations of any
Subsidiary covering Indebtedness of such Subsidiary; PROVIDED, HOWEVER,
that such Interest Swap Obligations are entered into to protect the Company
and its Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with this Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(g) Indebtedness of the Company outstanding on the Issue Date
pursuant to the McDonald's Secured Note, the McDonald's Rent Deferral
Secured Notes (including Indebtedness resulting from future rent deferrals
to the extent and in the manner contemplated by the McDonald's Rent
Deferral Secured Notes as in effect on the Issue Date) and the Pre-petition
Tax Payables, as reduced by the amount of any prepayments permitted by this
Indenture or scheduled amortization payments when actually paid or by any
permanent reductions thereof; and
(h) other Indebtedness of the Company in an aggregate amount not to
exceed $10 million at any one time outstanding, which Indebtedness may
include Indebtedness evidenced by an Eligible Credit Facility.
"PERMITTED INVESTMENTS" means: (i) Investments by the Company or any
of its Subsidiaries in any Person that is or will become immediately after such
Investment a Wholly-Owned Subsidiary of the Company or that will merge or
consolidate into the Company or a Wholly-Owned Subsidiary of the Company, (ii)
Investments in the Company by any Subsidiary of the Company; PROVIDED that any
Indebtedness evidencing such Investment is unsecured and subordinated, pursuant
to a written agreement, to the Company's obligations under the Notes and this
Indenture; (iii) investments in cash and Cash
-13-
<PAGE>
Equivalents; (iv) Interest Swap Obligations entered into in the ordinary course
of the Company's or its Subsidiaries' businesses and otherwise in compliance
with this Indenture; (v) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of such trade creditors or customers solely in
exchange for a claim against any such trade creditor or customer; (vi)
Investments in the Notes; (vii) Investments made by the Company or its
Subsidiaries as a result of an Asset Sale made in compliance with Section 4.15
hereof; and (viii) other Investments in joint ventures, corporations, limited
liability companies or partnerships formed by the Company, which joint ventures,
corporations, limited liability companies or partnerships engage in businesses
which are the same as, or similar or related to, the business of the Company as
contemplated by the Offering Circular; PROVIDED, HOWEVER, that the amount which
may be invested pursuant to this clause (viii) shall not exceed, in the twelve-
month period commencing on the Issue Date, $500,000 and in any successive
twelve-month period commencing on the Issue Date thereafter, $500,000 plus any
cumulative, unutilized portion of such amounts which could have been invested
pursuant to this clause (viii) during any of the prior twelve-month periods.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall
not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
-14-
<PAGE>
(vi) any interest or title of a lessor under any Capital Lease
Obligation; PROVIDED that such Liens do not extend to any property or
assets which are not leased property subject to such Capital Lease
Obligation;
(vii) Purchase Money Liens of the Company or any Subsidiary of the
Company acquired in the ordinary course of business; PROVIDED, HOWEVER,
that (A) the related Purchase Money Obligation shall not exceed the cost of
such property or assets and shall not be secured by any property or assets
of the Company or any Subsidiary of the Company other than the property and
assets so acquired and (B) the Lien securing such Indebtedness shall be
created within 90 days of such acquisition;
(viii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumbered documents and other property
relating to such letters of credit and products and proceeds thereof;
(ix) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of the
Company or any of its Subsidiaries, including rights of offset and set-off;
(x) Liens securing Interest Swap Obligations, which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xi) Liens securing Acquired Debt incurred in accordance with
Section 4.12 hereof; PROVIDED that (A) such Liens secured such Acquired
Debt at the time of and prior to the incurrence of such Acquired Debt by
the Company or a Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Indebtedness
by the Company or a Subsidiary of the Company and (B) such Liens do not
extend to or cover any property or assets of the Company or of any of its
Subsidiaries other than the property or assets that secured the Acquired
Debt prior to the time such Indebtedness became Acquired Debt of the
Company or a Subsidiary of the Company and are no more favorable to the
lienholders than those securing the Acquired Debt prior to the incurrence
of such Acquired Debt by the Company or a Subsidiary of the Company;
(xii) Liens existing on the Issue Date but only to the extent such
Liens are in effect on the Issue Date, including, without limitation the
McDonald's Senior Liens;
(xiii) Liens securing Indebtedness of the Company under an Eligible
Credit Facility;
(xiv) Liens in favor of the Company or a Wholly-Owned Subsidiary of
the Company on assets of any Subsidiary of the Company; and
(xv) Liens securing Refinancing Indebtedness which is incurred to
refinance any Indebtedness which has been secured by a Lien permitted under
this Indenture and which has been incurred in accordance with the
provisions of this Indenture;
-15-
<PAGE>
PROVIDED, HOWEVER, that such Liens (a) are no less favorable to the Holders
and are not more favorable to the lienholders with respect to such Liens
than the Liens in respect of the Indebtedness being refinanced and (b) do
not extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so refinanced.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLAN OF REORGANIZATION" means the Third Amended Joint Plan of
Reorganization of Discovery Zone, Inc., dated March 11, 1997, as amended.
"PLEDGE AGREEMENT" means the Pledge Agreement, dated as of even date
herewith, between the Company and the Trustee, substantially in the form of
Exhibit H attached hereto, as amended or supplemented from time to time in
accordance with its terms.
"PLEDGED COLLATERAL" shall have the meaning assigned to such term in
the Pledge Agreement.
"PLEDGED SECURITIES" means the U.S. Government Obligations to be
purchased by the Company and held in the Escrowed Interest Account in accordance
with the Escrow Agreement.
"PLEDGED SUBSIDIARY COLLATERAL" shall have the meaning ascribed to
such term in the Subsidiary Pledge Agreements.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock
of such Person or its Subsidiaries in respect of which a holder thereof is
entitled to receive payment upon dissolution or otherwise before any payment may
be made with respect to any other Capital Stock of such Person or its
Subsidiaries.
"PRE-PETITION TAX PAYABLES" means pre-petition tax claims restructured
pursuant to the Plan of Reorganization as pre-petition tax payables having an
estimated aggregate maximum principal amount of up to $5,000,000, which claims
have maturities of up to six years from the original date of assessment, require
principal payments in equal installments and accrue simple interest at 10% per
annum from the Issue Date.
"PRIMARY OFFERING" means an underwritten public offering of Qualified
Capital Stock of the Company pursuant to a registration statement filed with and
declared effective by the SEC pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise relating to equity securities
under any employee benefit plans) or pursuant to an exemption from the
registration requirements thereof.
"PRIVATE EXCHANGE NOTES" shall have the meaning assigned to such term
in the Registration Rights Agreement.
-16-
<PAGE>
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth on the
Notes in the form set forth in Exhibit A attached hereto.
"PRO FORMA" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article Eleven of Regulation S-X under the Securities Act, as determined by
the Board of Directors of the Company in consultation with its independent
public accountants.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated July 15,
1997, relating to the purchase and sale of the Units, entered into between the
Company and the Initial Purchaser.
"PURCHASE MONEY LIENS" means (i) Liens to secure or securing Purchase
Money Obligations permitted to be incurred under this Indenture and (ii) Liens
to secure Refinancing Indebtedness incurred solely to refinance Purchase Money
Obligations, PROVIDED that such Refinancing Indebtedness is incurred no later
than six (6) months after the satisfaction of such Purchase Money Obligations
and such Lien extends to or covers only the asset or property securing the
Purchase Money Obligations being refinanced.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or
incurred to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other Person at the time such other Person is merged with or
into or is otherwise acquired by the Company or any of its wholly-owned
Subsidiaries); PROVIDED that (i) the principal amount of such Indebtedness does
not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does not
extend to or cover any other asset or property other than the asset or property
being so acquired and (iii) such Indebtedness is incurred, and any Liens with
respect thereto are granted, within 90 days of the acquisition of such property
or asset.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not
Disqualified Capital Stock.
"QUALIFIED INSTITUTIONAL BUYER" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"RECORD DATE" means any of the Record Dates specified in the Notes,
whether or not a Legal Holiday.
"REFINANCING INDEBTEDNESS" has the meaning provided in clause (e) of
the definition of "Permitted Indebtedness" in this Section 1.01.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of even date herewith, between the Company and the Initial
Purchaser, as the same may be amended or modified from time to time in
accordance with the terms thereof.
"REGULATION S" means Regulation S under the Securities Act, as such
regulation may be amended from time to time.
-17-
<PAGE>
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SECURITY" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; PROVIDED that the Trustee shall be entitled
to request and conclusively rely on an Opinion of Counsel with respect to
whether any Note constitutes a Restricted Security.
"RULE 144A" means Rule 144A under the Securities Act.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect
arrangement with any Person or to which any such Person is a party providing for
the leasing to the Company or a Subsidiary of the Company of any property,
whether owned by the Company or any Subsidiary of the Company at the Issue Date
or later acquired, which has been or is to be sold or transferred by the Company
or such Subsidiary to such Person or to any other Person from whom funds have
been or are to be advanced by such Person on the security of such Property.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SECURITY AGREEMENT" means the Security Agreement, dated as of even
date herewith, between the Company and the Trustee, as amended or supplemented
from time to time in accordance with its terms, substantially in the form of
Exhibit I attached hereto.
"SECURITY INTERESTS" means the Liens on the Collateral created by this
Indenture and the Collateral Agreements in favor of the Collateral Agent for the
benefit of the Collateral Agent and the Holders.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be a
"significant subsidiary" as defined in Article One, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"SUBORDINATION AGREEMENT" means that certain Subordination Agreement,
dated on or after the Issue Date, substantially in the form of Exhibit P
attached hereto, by and between McDonald's Corporation and the Collateral Agent.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof; PROVIDED, HOWEVER, that with respect to the Company or any of its
-18-
<PAGE>
Subsidiaries, the term Subsidiary shall not include Block Party or any Limited
Investment Subsidiary.
"SUBSIDIARY COLLATERAL" shall have the meaning assigned to such term
in the Subsidiary Security Agreements.
"SUBSIDIARY GUARANTEES" means, individually, the guarantee and,
collectively, the guarantees given by the Subsidiary Guarantors pursuant hereto
or pursuant to supplemental indentures executed by Subsidiaries formed after the
Issue Date pursuant to which such Subsidiaries agree to be bound by the terms of
this Indenture.
"SUBSIDIARY GUARANTOR" means each of Discovery Zone Limited, Discovery
Zone (Puerto Rico), Inc., Discovery Zone Licensing, Inc. and all future
Subsidiaries of the Company other than (a) any Limited Investment Subsidiary or
(b) Block Party.
"SUBSIDIARY PLEDGE AGREEMENTS" means the Subsidiary Pledge Agreements
to be entered into between each Subsidiary Guarantor and the Trustee, each
substantially in the form of Exhibit L attached hereto, as amended or
supplemented from time to time in accordance with its terms.
"SUBSIDIARY SECURITY AGREEMENTS" means, individually, the subsidiary
security agreement and, collectively, the subsidiary security agreements, each
substantially in the form of Exhibit M attached hereto, executed by each
Subsidiary Guarantor on the Issue Date in favor of the Trustee, pursuant to
which such Subsidiary Guarantor grants a security interest in and lien on its
properties and assets as collateral security for the debts, liabilities and
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee, as the
same may be amended or modified from time to time in accordance with its terms.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb), as amended, as in effect on the date of this Indenture, until
such time as this Indenture is qualified under the TIA, and thereafter as in
effect on the date of such qualification, except as otherwise provided in
Section 9.03.
"TRADEMARK ASSIGNMENT" means the Collateral Assignment of Trademarks
(Security Agreement), dated as of even date herewith, by the Company in favor of
the Trustee, substantially in the form of Exhibit K attached hereto, as amended
and supplemented from time to time in accordance with its terms.
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer this Indenture, or in the case of a successor trustee, an
officer assigned to the department, division or group performing the corporation
trust work of such successor and assigned to administer this Indenture.
"TRUSTEE" means the party named as such in the Preamble to this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means such successor.
-19-
<PAGE>
"UNITS" means units consisting of Initial Notes and Warrants sold to
the Initial Purchaser on the Issue Date pursuant to a private offering conducted
by the Company and as described in the Offering Circular.
"U.S. GOVERNMENT OBLIGATIONS" means non-callable direct obligations
of, and non-callable obligations guaranteed by, the United States of America for
the payment of which the full faith and credit of the United States of America
is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"VOTING STOCK" means, with respect to any Person, one or more classes
of the Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the Board of Directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"WARRANT AGREEMENT" means the Warrant Agreement, dated as of even date
herewith, between the Company and the Trustee, as Warrant Agent, pursuant to
which the Warrants are issued, as amended and supplemented from time to time in
accordance with its terms.
"WARRANTS" means warrants to purchase shares of the Company's common
stock, par value $0.01 per share, comprising the Units and issued by the Company
contemporaneously with the Initial Notes pursuant to the terms and conditions of
the Warrant Agreement.
"WEIGHTED AVERAGE LIFE" means, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (i) the sum of
the products of the numbers of years from the date of determination to the date
of each successive scheduled principal payment of such Indebtedness multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any
Subsidiary of such Person of which all of the voting Capital Stock (other than
directors' qualifying shares, if any) is owned by such Person or any
Wholly-Owned Subsidiary of such Person.
SECTION 1.02. OTHER DEFINITIONS.
TERM DEFINED IN SECTION
"Acceleration Notice"..........................................6.02(a)
"Affiliate Transaction"........................................4.11
-20-
<PAGE>
"Agent Members"................................................2.14
"Authenticating Agent".........................................2.02
"Change of Control Offer"......................................4.14
"Change of Control Payment"....................................4.14
"Change of Control Payment Date"...............................4.14
"Covenant Defeasance"..........................................8.01
"Default Interest Payment Date"................................2.16
"Event of Default".............................................6.01
"Global Note"..................................................2.01
"Lease"........................................................4.26
"Leased Premises"..............................................4.26
"Legal Defeasance".............................................8.01
"Legal Holiday"...............................................13.07
"Net Proceeds Offer"...........................................4.15
"Net Proceeds Offer Amount"....................................4.15
"Net Proceeds Offer Payment Date"..............................4.15
"Net Proceeds Offer Trigger Date"..............................4.15
"Paying Agent".................................................2.03
"Physical Notes"...............................................2.01
"Premises".....................................................4.25
"Proceeds Purchase Date".......................................4.15
"Registrar"....................................................2.03
"Released Interests" .....................................10.05
"Replacement Assets"...........................................4.15
"Restricted Payments"..........................................4.10
"Separability Date"............................................2.15(f)
"Valuation Date"..............................................10.05
SECTION 1.03. INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture or any Exhibit hereto refers to a provision of
the TIA, such provision is incorporated by reference in, and made a part of,
this Indenture. The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, the
Subsidiary Guarantors or any other obligor on the Notes.
-21-
<PAGE>
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) words in the singular include the plural, and words in the plural
include the singular;
(4) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision;
(5) any reference to a statute, law or regulation means that statute,
law or regulation as amended and in effect from time to time and includes any
successor statute, law or regulation; PROVIDED, HOWEVER, that any reference to
the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant
case;
(6) provisions apply to successive events and transactions; and
(7) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. FORM AND DATING.
The Initial Notes, the Exchange Notes and the Trustee's respective
certificates of authentication relating thereto shall be substantially in the
forms of Exhibits A and B attached hereto. The Private Exchange Notes, if
required, and the Trustee's certificate of authentication relating thereto shall
be substantially in the form of Exhibit B attached hereto, but shall bear the
Private Placement Legend. The Notes may have notations, legends or endorsements
required by law, stock exchange rule or depository rule or usage. The Company
and the Trustee shall approve the forms of the Notes and any notation, legend or
-22-
<PAGE>
endorsement on them. Each Note shall be dated the date of its issuance and
shall show the date of its authentication.
The terms and provisions contained in the Notes annexed hereto as
Exhibits A and B shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Initial Notes offered and sold in reliance on Rule 144A and Notes
offered and sold in off-shore transactions in reliance on Regulation S shall be
issued initially in the form of one or more permanent global notes in registered
form, substantially in the form set forth in Exhibit A attached hereto (each
such Note, a "Global Note"), deposited with the Trustee, as custodian for the
Depository, and shall bear the legend set forth in Exhibit C attached hereto,
and be duly executed by the Company and authenticated by the Trustee as
hereinafter provided. Exchange Notes shall be issued initially in the form of
one or more permanent Global Notes, substantially in the form set forth in
Exhibit B attached hereto, deposited with the Trustee, as custodian for the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided and shall bear the legend set forth in Exhibit C attached
hereto. The aggregate principal amount of a Global Note may from time to time
be increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depository, as hereinafter provided.
Notes issued in exchange for an interest in a Global Note pursuant to
Section 2.14 may be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A attached hereto
(each such Note, a "Physical Note"). Initial Notes offered and sold to
Institutional Accredited Investors and Private Exchange Notes shall be issued in
the form of Physical Notes in substantially the form set forth in Exhibits A and
B, respectively, attached hereto and shall bear the Private Placement Legend.
SECTION 2.02. EXECUTION AND AUTHENTICATION; AGGREGATE
PRINCIPAL AMOUNT.
Two Officers, or an Officer and an assistant secretary of the Company,
shall sign, or one Officer shall sign and one Officer or an assistant secretary
of the Company (each of whom shall, in each case, have been duly authorized by
all requisite corporate actions) shall attest to, the Notes for the Company by
manual or facsimile signature. The corporate seal of the Company shall be
affixed to each Note or reproduced thereon.
If an Officer or assistant secretary of the Company, whose signature
is on a Note was an Officer or assistant secretary of the Company at the time of
such execution but no longer holds that office or position at the time the
Trustee authenticates the Note, the Note shall nevertheless be valid.
-23-
<PAGE>
A Note shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
The Trustee shall authenticate (i) Initial Notes for original issue in
the aggregate principal amount not to exceed $85,000,000, (ii) Private Exchange
Notes from time to time, and (iii) Exchange Notes from time to time for issue
only in exchange for a like principal amount of Initial Notes, in each case upon
written orders of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of Notes to be authenticated and
the date on which the Notes are to be authenticated, whether the Notes are to be
Initial Notes, Private Exchange Notes or Exchange Notes, and shall further
specify the amount of such Notes to be issued as the Global Notes or Physical
Notes. The aggregate principal amount of Notes outstanding at any time may not
exceed $85,000,000, except as provided in Section 2.07. In addition, with
respect to authentication pursuant to clause (ii) of the first sentence of this
paragraph, the first such written order from the Company shall be accompanied by
an Opinion of Counsel of the Company in a form reasonably satisfactory to the
Trustee stating that the issuance of the Exchange Notes or Private Exchange
Notes, as the case may be, does not give rise to an Event of Default, complies
with this Indenture and has been duly authorized by the Company.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency (which shall be located
in the Borough of Manhattan in the City of New York, State of New York), which
shall initially be State Street Bank and Trust Company, N.A., having a principal
office at 61 Broadway, 15th Floor, New York, NY 10006, where (a) Notes may be
presented or surrendered for registration of transfer or for exchange, (b) Notes
may be presented or surrendered for payment and (c) notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served (the
"New York Presenting Agent"), in addition to the Corporate Trust Office. In
addition, the Company shall maintain an office or agency to maintain the Note
register, for purposes of registration of record ownership of the Notes
("Registrar") and one or more paying agents ("Paying Agent") for payment of the
Notes. The Company hereby initially appoints the Trustee as Registrar and
Paying Agent. The Registrar shall keep a register of the Notes and of their
transfer and exchange. The Company, upon prior written notice to the Trustee,
may have one or more co-Registrars and
-24-
<PAGE>
one or more additional Paying Agents reasonably acceptable to the Trustee.
Neither the Company nor any Affiliate of the Company may act as Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such (PROVIDED, HOWEVER, that such requirement shall not be construed to
obligate the Trustee to maintain an office in New York).
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of demands and notices in connection with the Notes, until
such time as the Trustee has resigned or a successor has been appointed. The
Paying Agent or Registrar may resign upon 30 days notice to the Company.
SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing to hold in trust for the benefit of the Holders or the Trustee
all assets held by the Paying Agent for the payment of principal of, premium, if
any, or interest on, the Notes (whether such assets have been distributed to it
by the Company, a Subsidiary Guarantor or any other obligor on the Notes), and
the Company and the Paying Agent shall notify the Trustee of any Default by the
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed, and the Trustee may at
any time during the continuance of any payment Default, upon written request to
a Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
the Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company shall furnish or cause the Registrar to
furnish to the Trustee at least seven Business Days before each Record Date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of the Holders, including the aggregate principal amount thereof,
which list may be conclusively relied upon by the Trustee.
-25-
<PAGE>
SECTION 2.06. TRANSFER AND EXCHANGE.
Subject to the provisions of Sections 2.14 and 2.15, when Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer of such Notes or to exchange such Notes for an equal principal amount
of Notes of other authorized denominations, the Registrar or co-Registrar shall
register the transfer or make the exchange as requested if its requirements for
such transaction are met, including an Opinion of Counsel with respect to
whether (i) such Note constitutes a Restricted Security and (ii) the
requirements for transfer of such Note have been satisfied, including the
requirements provided for in Section 2.15; PROVIDED, HOWEVER, that the Notes
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Company, the Trustee and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall execute and the
Trustee shall authenticate Notes at the Registrar's or co-Registrar's request.
No service charge shall be made for any registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon exchanges or
transfers pursuant to Sections 2.10, 3.07, 4.14, 4.15 or 9.05, in which event
the Company shall be responsible for the payment of such taxes).
The Registrar or co-Registrar shall not be required to register the
transfer or exchange of any Note (i) during a period commencing at the opening
of business 15 days before the day of any selection of Notes for redemption
under Section 3.02 and ending at the close of business on such day of selection,
and (ii) selected for redemption in whole or in part pursuant to Article Three,
except the unredeemed portion of any Note being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Depository, and that
ownership of a beneficial interest in the Note shall be required to be reflected
in a book entry.
SECTION 2.07. REPLACEMENT NOTES.
If a mutilated Note is surrendered to the Trustee or if the Holder of
a Note claims that the Note has been lost, destroyed or wrongfully taken, the
Company shall issue and the Trustee shall authenticate a replacement Note if the
Trustee's requirements are met. If required by the Trustee or the Company, such
Holder must provide an affidavit of lost certificate and an indemnity bond or
other indemnity, sufficient in the judgment of both the Company and the Trustee,
to protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Note is replaced. The Company may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Note, including any tax or
governmental charge that may be imposed in relation thereto and reasonable fees
and expenses of its counsel and of the Trustee and its counsel. Every
replacement Note shall
-26-
<PAGE>
constitute an additional obligation of the Company and shall be entitled to all
the benefits of this Indenture equally and proportionately with all other Notes
duly issued hereunder.
In case any such mutilated, lost, destroyed or wrongfully taken Note
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note, pay such Note.
SECTION 2.08. OUTSTANDING NOTES.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding.
Subject to the provisions of Section 2.09, a Note does not cease to be
outstanding because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a mutilated
Note surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
If on a redemption date or the Maturity Date the Paying Agent holds
U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Notes payable on that date and is not
prohibited from paying such money to the Holders thereof pursuant to the terms
of this Indenture, then on and after that date such Notes (to the extent of the
principal amount redeemed, in the case of a partial redemption) cease to be
outstanding and interest on them ceases to accrue.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver, consent or notice, Notes owned by
the Company or any of its Affiliates shall be considered as though they are not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which a Trust Officer of the Trustee actually knows are so owned shall be
so considered. The Company shall notify the Trustee, in writing (which notice
shall constitute actual notice for purposes of the foregoing sentence), when it
or any of its Affiliates repurchases or otherwise acquires Notes, of the
aggregate principal amount of such Notes so repurchased or otherwise acquired
and such other information as the Trustee may reasonably request and the Trustee
shall be entitled to rely thereon.
-27-
<PAGE>
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon receipt of a written
order of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of temporary Notes to be authenticated and
the date on which the temporary Notes are to be authenticated. Temporary Notes
shall be substantially in the form of definitive Notes but may have variations
that the Company considers appropriate for temporary Notes and so indicates in
the Officers' Certificate. Without unreasonable delay, the Company shall
prepare and the Trustee shall authenticate upon receipt of a written order of
the Company pursuant to Section 2.02 definitive Notes of authorized
denominations and in like principal amount as the temporary Notes for which they
are being exchanged in exchange for the temporary Notes, upon surrender of the
temporary Notes at the office or agency of the Company designated for such
purpose pursuant to Section 4.02, without charge to the Holder. Until so
exchanged, the temporary Notes shall be entitled to the same benefits under this
Indenture as definitive Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee,
or at the direction of the Trustee, the Registrar or the Paying Agent, and no
one else, shall cancel and, at the written direction of the Company, shall
dispose, in its customary manner, of all Notes surrendered for transfer,
exchange, payment or cancellation, and deliver a certificate of destruction to
the Company. Subject to Section 2.07, the Company may not issue new Notes to
replace Notes that it has paid or delivered to the Trustee for cancellation. If
the Company shall acquire any of the Notes, such acquisition shall not operate
as a redemption or satisfaction of the Indebtedness represented by such Notes
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. CUSIP NUMBER.
The Company in issuing the Notes of each series may use a "CUSIP"
number, and if so, the Trustee shall use the CUSIP number in notices of
redemption or exchange as a convenience to Holders; PROVIDED; HOWEVER, that no
representation is hereby deemed to be made by the Trustee as to the correctness
or accuracy of the CUSIP number printed in the notice or on the Notes, and that
reliance may be placed only on the other identification numbers printed on the
Notes. The Company shall promptly, upon its becoming aware of any change in
CUSIP numbers, notify the Trustee of any change in the CUSIP number.
-28-
<PAGE>
SECTION 2.13. DEPOSIT OF MONIES.
Prior to 11:00 a.m. New York City time on each Interest Payment Date,
Maturity Date, redemption date, Change of Control Payment Date and Net Proceeds
Offer Payment Date, the Company shall have deposited with the Paying Agent in
immediately available funds U.S. Legal Tender sufficient to make cash payments,
if any, due on such Interest Payment Date, Maturity Date, redemption date,
Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case
may be, in a timely manner which permits the Paying Agent to remit payment to
the Holders on such Interest Payment Date, Maturity Date, redemption date,
Change of Control Payment Date and Net Proceeds Offer Payment Date, as the case
may be. At the option and direction of the Company, payment of interest on
Physical Notes may be made by the Paying Agent by check mailed to the Holders on
or before the relevant Interest Payment Date. Payments to Holders to be made by
wire transfer of immediately available funds shall require prior receipt by the
Paying Agent of appropriate wire transfer instructions.
SECTION 2.14. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
(a) The Global Note initially shall (i) be registered in the name of
the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit C attached hereto.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Note, and the Depository may be treated by the Company, the Trustee, any
agent of the Company, or the Trustee as the absolute owner of the Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Note.
(b) Transfers of the Global Note shall be limited to transfers of
such Global Note in whole, but not in part, to the Depository, its successors or
their respective nominees. Interests of beneficial owners in the Global Note
may be transferred or exchanged for Physical Notes in accordance with the rules
and procedures of the Depository and the provisions of Section 2.15. In
addition, Physical Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note (in each case
directed by the Depository) if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for the Global Note or the
Depository ceases to be a "Clearing Agency" registered under the Exchange Act
and a successor depositary is not appointed by the Company within 90 days of
such notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depository to issue Physical Notes.
-29-
<PAGE>
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the Company
shall execute, and the Trustee shall authenticate and deliver, one or more
Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Note, an equal aggregate principal amount of Physical Notes of authorized
denominations.
(e) Any Physical Note constituting a Restricted Security delivered in
exchange for an interest in the Global Note pursuant to paragraph (b) or (c)
shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section
2.15, bear the legend regarding transfer restrictions applicable to the Physical
Notes set forth in Exhibit A attached hereto.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
(g) Neither the Trustee nor the Paying Agent shall have any
responsibility or liability for the accuracy of the records of the Depository or
its Agent Members, or for any actions or omissions of the Depository or its
Agent Members.
SECTION 2.15. SPECIAL TRANSFER PROVISIONS.
(a) TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS AND
NON-U.S. PERSONS. The following provisions shall apply with respect to the
registration of any proposed transfer of a Note constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Note
constituting a Restricted Security, whether or not such Note bears the
Private Placement Legend, if (x) the requested transfer is after August 1,
1999; PROVIDED, HOWEVER, that neither the Company nor any Affiliate of the
Company has held any beneficial interest in such Note or portion thereof,
at any time on or prior to August 1, 1999 (as certified to the Trustee by
an Officers' Certificate of the Company), or (y) (1) in the case of a
transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to the
Registrar a certificate substantially in the form of Exhibit D attached
hereto or (2) in the case of a transfer
-30-
<PAGE>
to a Non-U.S. Person, the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit E attached
hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the Registrar's
customary procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount to
that amount of the beneficial interest in the Global Note to be transferred.
(b) TRANSFERS TO QIBS. The following provisions shall apply with
respect to the registration of any proposed transfer of a Note constituting a
Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided for
on the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Notes
to be transferred consist of Physical Notes which after transfer are to be
evidenced by an interest in the Global Note, upon receipt by the Registrar
of written instructions given in accordance with the Depository's and the
Registrar's customary procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the Global
Note in an amount equal to the principal amount of the Physical Notes to be
transferred, and the Trustee shall cancel the Physical Notes so
transferred.
(c) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of
-31-
<PAGE>
Notes bearing the Private Placement Legend, the Registrar shall deliver only
Notes that bear the Private Placement Legend unless (i) the circumstance
contemplated by paragraph (a)(i)(x) of this Section 2.15 exist or (ii) there is
delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) GENERAL. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar of the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; PROVIDED that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
(e) TRANSFERS OF NOTES HELD BY AFFILIATES. Any certificate (i)
evidencing a Note that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
assignment form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Note that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after the
last date on which the Company or any Affiliate of the Company was as owner of
such Note, in each case, bear a Private Placement Legend in substantially the
form set forth in this Section 2.15 hereof, unless otherwise agreed by the
Company (with written notice thereof to the Trustee).
(f) NO SEPARATE TRANSFERS PRIOR TO SEPARABILITY DATE.
Notwithstanding any other provision of this Article Two, no Note may be
transferred separately from the Warrants until the date which is the earlier of
(i) the date that is 45 days after the Issue Date or (ii) such earlier date as
the Initial Purchaser may, in its sole discretion, determine, as such date is
specified to the Company and the Trustee in writing (the "Separability Date").
The Company shall promptly notify the Registrar of the occurrence of the
Separability Date.
The Registrar shall retain copies of all letters, notices and other
written communications received by it pursuant to Section 2.14 or this Section
2.15 for so long as this Indenture remains in effect. The Company shall have the
right to inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
-32-
<PAGE>
SECTION 2.16. DEFAULTED INTEREST.
The Company shall pay interest on overdue principal from time to time
on demand at the rate of interest then borne by the Notes. The Company shall,
to the extent lawful, pay interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
of interest then borne by the Notes. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months, and, in the case of a partial
month, the actual number of days elapsed.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the Persons who are Holders on a
subsequent special record date, which special record date shall be the fifteenth
day next preceding the date fixed by the Company for the payment of defaulted
interest or the next succeeding Business Day if such date is not a Business Day.
The Company shall notify the Trustee in writing of the amount of defaulted
interest proposed to be paid on each Note and the date of the proposed payment
(a "Default Interest Payment Date"), and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such defaulted interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such defaulted interest as provided in
this Section; PROVIDED, HOWEVER, that in no event shall the Company deposit
monies proposed to be paid in respect of defaulted interest later than 11:00
a.m. New York City time of the proposed Default Interest Payment Date. At least
15 days before the subsequent special record date, the Company shall mail (or
cause to be mailed) to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing, any interest which is paid prior to the expiration of the 10-day
period set forth in Section 6.01(a) shall be paid to Holders as of the regular
record date for the Interest Payment Date for which interest has not been paid.
Notwithstanding the foregoing, the Company may make payment of any defaulted
interest in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange.
ARTICLE THREE
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to Paragraph 5 of the
Notes, it shall deliver to the Trustee and the Paying Agent, at least 30 days
but not more than 60 days before a redemption date, a notice complying with the
provisions of Section 13.02
-33-
<PAGE>
setting forth (i) the redemption date, (ii) the principal amount of the Notes to
be redeemed and that, after the redemption date, upon cancellation of the
original Note, a new Note or Notes in principal amount equal to the unredeemed
portion shall be issued, (iii) the redemption price, and (iv) the paragraph of
the Notes and/or the section of this Indenture pursuant to which the Notes
called for redemption are being redeemed.
The Company shall give each notice provided for in this Section 3.01,
at its expense, at least 30 days before the applicable redemption date (unless a
shorter notice period shall be satisfactory to the Trustee, as evidenced in a
writing signed on behalf of the Trustee), together with an Officers' Certificate
stating that such redemption shall comply with the conditions contained herein
and in the Notes.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If fewer than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance with
the requirements of the national securities exchange, if any, on which the Notes
are listed or, if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee deems to be fair and appropriate. The Trustee shall
make the selection from the Notes outstanding and not previously called for
redemption and shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes in denominations
of $1,000 or less may not be redeemed in part. The Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal of Notes that have denominations larger than $1,000. Provisions of
this Indenture that apply to Notes called for redemption also apply to portions
of Notes called for redemption.
SECTION 3.03. OPTIONAL REDEMPTION.
At any time, prior to August 1, 1999, the Company may, at its option,
use all or a portion of the net proceeds of a Primary Offering to redeem Notes
with a value up to 35% of the principal amount of Initial Notes issued on the
Issue Date, at a redemption price equal to 115% of the principal amount thereof
on the redemption date, plus accrued and unpaid interest, if any, thereon to the
redemption date; PROVIDED, HOWEVER, that (i) such Primary Offering results in
net proceeds to the Company of at least $20,000,000 and (ii) such redemption
shall occur within 30 days of the date of the closing of such Primary Offering.
The Notes also will be redeemable, at the Company's option, in whole
or in part at the times and at the prices set forth in the Notes.
-34-
<PAGE>
SECTION 3.04. NOTICE OF REDEMPTION.
At least 15 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed a notice of redemption by first
class mail, postage prepaid, to each Holder at each Holder's registered address
whose Notes are to be redeemed, with a copy to the Trustee and any Paying Agent.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. The Company
shall provide such notices of redemption to the Trustee at least fifteen days
before the intended mailing date.
Each notice for redemption shall identify (including the CUSIP number)
the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price and the amount of accrued interest, if any,
to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption
is being made;
(5) that any Physical Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price plus accrued interest,
if any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes (or applicable portions thereof) called for
redemption ceases to accrue on and after the redemption date, and the only
remaining right of the Holders of such Notes is to receive payment of the
redemption price plus accrued interest, if any, as of the redemption date
upon surrender to the Paying Agent of the Notes redeemed;
(7) that if any Physical Note is being redeemed in part, the portion
of the principal amount of such Note to be redeemed and that, after the
redemption date, and upon surrender, and subsequent cancellation of such
Note, a new Note or Notes in the aggregate principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder; and
(8) that, if fewer than all the Notes are to be redeemed, the
identification of the particular Physical Notes (or portion thereof) to be
redeemed, as well as the principal amount of Notes to be redeemed and the
principal amount of Notes to be outstanding after such partial redemption.
-35-
<PAGE>
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the purchase
of Notes.
SECTION 3.05. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.04,
Notes called for redemption become due and payable on the applicable redemption
date and at the applicable redemption price plus accrued interest, if any. Upon
surrender to the Trustee or Paying Agent, such Notes called for redemption shall
be paid at the redemption price (which shall include accrued and unpaid interest
thereon to the redemption date), but installments of interest, the maturity of
which is on or prior to the redemption date, shall be payable to Holders of
record at the close of business on the applicable Record Dates referred to in
the Notes.
SECTION 3.06. DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the redemption price plus
accrued interest to but excluding the redemption date, if any, of all Notes to
be redeemed on that date. The Paying Agent shall promptly return to the Company
any U.S. Legal Tender so deposited which is not required for that purpose,
except with respect to monies owed as obligations to the Trustee pursuant to
Article Seven.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such redemption price plus accrued interest,
if any, to but excluding the redemption date, interest on the Notes to be
redeemed will cease to accrue, on and after the applicable redemption date,
whether or not such Notes are presented for payment.
SECTION 3.07. NOTES REDEEMED IN PART.
Upon surrender of a Note that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Note or Notes equal in principal amount
to the unredeemed portion of the Note surrendered.
-36-
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay the principal of and interest on the Notes on
the dates and in the manner provided in the Notes and in this Indenture. An
installment of principal of or interest on the Notes shall be considered paid on
the date it is due if the Trustee or Paying Agent (other than the Company or an
Affiliate of the Company) holds on that date U.S. Legal Tender designated for
and sufficient to pay the installment in full and is not prohibited from paying
such money to the Holders pursuant to the terms of this Indenture.
Notwithstanding anything to the contrary contained in this Indenture,
the Company may, to the extent it is required to do so by law, deduct or
withhold income or other similar taxes from principal or interest payments
hereunder.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain the office or agency required under Section
2.03. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 13.02.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; PROVIDED, HOWEVER, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 4.03. CORPORATE EXISTENCE.
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done, at its own cost and expense, all things necessary to preserve
and keep in full force and effect its corporate existence and the corporate
existence of each of its Subsidiaries in accordance with the respective
organizational documents of each such Subsidiary and the material rights
(charter and statutory) and franchises of the Company and each such Subsidiary.
-37-
<PAGE>
SECTION 4.04. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
its properties or any of its Subsidiaries' properties and (ii) all material
lawful claims for labor, materials and supplies that, if unpaid, might by law
become a Lien upon its properties or any of its Subsidiaries' properties;
PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being or shall be contested in good faith
by appropriate proceedings properly instituted and diligently conducted for
which adequate reserves, to the extent required under GAAP, have been taken.
SECTION 4.05. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) The Company shall, and shall cause each of its Subsidiaries to,
maintain its properties used or held in the conduct of its business or the
business of any of its Subsidiaries in good working order and condition in all
material respects (subject to ordinary wear and tear) and make all necessary
repairs, renewals, replacements, additions, betterments and improvements thereto
necessary or desirable to actively conduct and carry on its business.
(b) The Company shall, and shall cause each of its Subsidiaries to,
maintain insurance (including appropriate self-insurance) against loss or damage
of the kinds that, in the good faith judgment of the Company, are adequate and
appropriate for the conduct of the business of the Company and its Subsidiaries
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as are adequate for the
conduct of its business and the value of its material properties and shall be
customary, in the good faith judgment of the Company, for companies similarly
situated within the industry of the Company.
SECTION 4.06. COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, an Officers' Certificate stating that a
review of its activities during the preceding fiscal year has been made under
the supervision of the signing officers with a view to determining whether it
has kept, observed, performed and fulfilled its obligations under this Indenture
and further stating, as to each such Officer signing such certificate, that, to
the best of such Officer's knowledge, after due inquiry, the Company during such
preceding fiscal year has kept, observed, performed and fulfilled each and every
such covenant under this Indenture, and that no Default or Event of Default
occurred during
-38-
<PAGE>
such year, and at the date of such certificate there is no Default or Event of
Default that has occurred and is continuing or, if such signers do know of such
Default or Event of Default, the certificate shall describe the Default or Event
of Default and its status with particularity. The Officers' Certificate shall
also notify the Trustee should the Company elect to change the manner in which
it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to Section
4.08 shall be accompanied by a written report of the Company's independent
accountants (who shall be a firm of established national reputation) that in
conducting their audit of such financial statements nothing has come to their
attention that would lead them to believe that the Company has violated any
provisions of Article Four, Five or Six of this Indenture insofar as they relate
to accounting matters or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable hereunder directly or indirectly to any Person
for any failure to obtain knowledge of any such violation.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 13.02 hereof,
by registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action within five Business Days of its
becoming aware of such occurrence.
SECTION 4.07. COMPLIANCE WITH LAWS.
The Company shall, and shall cause each of its Subsidiaries to, comply
with all applicable statutes, rules, regulations, orders and restrictions of the
United States of America, all states and municipalities thereof, and of any
governmental department, commission, board, regulatory authority, bureau, agency
and instrumentality of the foregoing, in respect of the conduct of its
businesses and the ownership of its properties, except for such noncompliances
as are not in the aggregate reasonably likely to have a material adverse effect
on the financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole.
SECTION 4.08. REPORTS.
(a) The Company shall deliver to the Trustee and mail to each Holder,
within 15 days after the filing of the same with the SEC, copies of its
quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the
other provisions of Section 314(a) of the TIA.
-39-
<PAGE>
(b) If at any time the Company is not subject to the requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC, to
the extent permitted, and distribute to the Trustee and to each Holder copies of
the quarterly and annual financial information that would have been required to
be contained in a filing with the SEC on Forms 10-Q and 10-K and all current
reports that would be required to be filed with the SEC on Form 8-K had the
Company been subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act. All such financial information shall include consolidated
financial statements (including footnotes) prepared in accordance with GAAP.
Such annual financial information shall also include an opinion thereon
expressed by an independent accounting firm of established national reputation.
All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The financial and other information to be distributed to Holders
shall be filed with the Trustee and mailed to the Holders at their respective
addresses appearing in the register of the Notes maintained by the Registrar,
within 120 days after the end of the Company's fiscal year and within 60 days
after the end of each of the first three quarters of each such fiscal year.
Such information shall be made available to securities analysts and prospective
investors upon request. In addition, the Company shall furnish to the Holders
and to securities analysts and to prospective purchasers upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act for so long as is required for an offer or sale of the Notes
under Rule 144A. From and after the date of effectiveness of any registration
statement filed with the SEC with respect to the Notes, the Company will file
with the SEC such Forms 10-Q and 10-K and any other information required to be
filed by it. The Company will provide a copy of this Indenture, the
Registration Rights Agreement and the Warrant Agreement to prospective
purchasers upon request.
SECTION 4.09. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.10. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any distribution
on account of the Company's or any of its Subsidiaries' Equity Interests (other
than dividends or distributions
-40-
<PAGE>
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly-Owned Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any
Wholly-Owned Subsidiary of the Company); (iii) voluntarily purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is PARI
PASSU with or subordinated to the Notes; or (iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments") unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately after giving effect to such transaction, on a pro
forma basis as if such transaction had occurred at the beginning of the
applicable four-quarter period, the Company would be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.12
hereof; and
(c) the amount of such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by the Company and
its Subsidiaries after the Issue Date, is less than the sum of (x) 25% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first quarter next succeeding
the quarter ended June 30, 1998 to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, 100% of such deficit), plus (y) 100% of the
aggregate net cash proceeds received by the Company from the issuance or
sale of Equity Interests of the Company (other than Equity Interests sold
to a Subsidiary of the Company and other than Disqualified Stock) since the
Issue Date, plus (z) 100% of the Net Cash Proceeds received by the Company
from the issuance or sale, other than to a Subsidiary of the Company, of
any debt security of the Company that has been converted into Equity
Interests of the Company (other than Disqualified Stock) since the Issue
Date. For purposes of this clause (c) the amount of any Restricted Payment
paid in property other than cash shall be the fair market value of such
property as determined reasonably and in good faith by the Board of
Directors of the Company.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (i) if no Default or Event of Default shall
have occurred and be continuing, the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of this Indenture; (ii) if no
Default or Event of Default shall have occurred and be continuing, the
redemption, repurchase, retirement or other acquisition of any Indebtedness or
Equity Interests of the Company in exchange for, or solely out of the proceeds
of, the substantially
-41-
<PAGE>
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); (iii) if no
Default or Event of Default shall have occurred and be continuing, the
redemption, repurchase or payoff of Purchase Money Obligations; (iv) if no
Default or Event of Default shall have occurred and be continuing, the
redemption, repurchase or payoff of any Indebtedness with proceeds of any
Refinancing Indebtedness permitted to be incurred under Section 4.12 hereof; (v)
if no Default or Event of Default shall have occurred and be continuing, the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any officer or employee of the Company
or its Subsidiaries; PROVIDED, HOWEVER, that the aggregate amount of all such
repurchases, redemptions and other acquisitions and retirements under this
clause (v) on or after the date of this Indenture shall not exceed $1,000,000;
(vi) if no Default or Event of Default shall have occurred and be continuing,
the voluntary purchase, redemption, defeasance or other acquisition or
retirement of all or any portion of the Indebtedness represented by the
McDonald's Documents with the Net Cash Proceeds of an Asset Sale that (A) is
permitted under Section 4.15 of this Indenture and (B) relates solely to
collateral for the obligations owed to McDonald's under the McDonald's Documents
in the form of undeveloped real estate not used or, in the reasonable judgment
of the Board of Directors, useful in the Company's business; (vii) if no Default
or Event of Default shall have occurred and be continuing, the purchase,
redemption, defeasance or other acquisition or retirement of Warrants required
by the terms of the Warrant Agreement; (viii) distributions required under the
Plan of Reorganization, but only in the manner and to the extent contemplated
thereby; and (ix) if no Default or Event of Default shall have occurred and be
continuing, payments or distributions to dissenting stockholders (it being
understood that such dissenting stockholders shall not include any Class 14
Interests (as defined in the Plan of Reorganization) required by applicable law
pursuant to or in connection with a consolidation, merger or Asset Sale that
complies with all applicable provisions of this Indenture.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this Section 4.10 were computed, which calculations may be based
upon the Company's latest available quarterly financial statements.
SECTION 4.11. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction or
series of related transactions (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any services) with,
or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"),
other than (x) Affiliate Transactions permitted under paragraph (b) below and
(y) Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained in a comparable transaction at such time on
an arm's length basis from a Person that is not an Affiliate of the Company or
such Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions
-42-
<PAGE>
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $2,000,000 shall be
approved by a majority of the disinterested members of the Board of Directors of
the Company, such approval to be evidenced by a Board Resolution stating that
such Board of Directors has determined that such transaction complies with the
foregoing provisions. If the Company or any such Subsidiary enters into an
Affiliate Transaction (or a series of related Affiliate Transactions which are
similar or part of a common plan) that involves an aggregate fair market value
of more than $5,000,000, the Company or such Subsidiary as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company
from a financial point of view from an Independent Financial Advisor and deliver
such opinion to the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply
to: (i) reasonable fees and compensation paid to, and indemnity provided on
behalf of, Officers, directors, employees or consultants of the Company or any
Subsidiary as determined in good faith by the Company's Board of Directors or
senior management; (ii) transactions exclusively between or among the Company
and any of its Wholly-Owned Subsidiaries or exclusively between or among such
Wholly-Owned Subsidiaries, PROVIDED such transactions are not otherwise
prohibited by this Indenture; and (iii) Restricted Payments not prohibited by
this Indenture.
SECTION 4.12. LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS AND
ISSUANCE OF PREFERRED STOCK.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness), and the Company will not issue
any Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of Preferred Stock; PROVIDED, HOWEVER, that the Company may incur
Indebtedness or issue shares of Disqualified Stock, if (i) no Default or Event
of Default shall have occurred and be continuing or would occur as a consequence
thereof and (ii) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least equal
to 3.0:1, determined on a pro forma basis as if the additional Indebtedness had
been incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period.
SECTION 4.13. LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrances or restrictions on the ability of any such Subsidiary
to (i) pay dividends or
-43-
<PAGE>
make any other distributions to the Company or any of its Subsidiaries (A) on
such Subsidiary's Capital Stock or (B) with respect to any other interest or
participation in, or measured by, its profits, or pay any Indebtedness owed to
the Company or any of its Subsidiaries; (ii) make loans or advances to the
Company or any of its Subsidiaries; or (iii) transfer any of its properties or
assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) applicable law, (b) this
Indenture and Notes, (c) customary non-assignment provisions of any contract or
any lease governing a leasehold interest of any Subsidiary of the Company, (d)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date, or (e) an agreement governing
Indebtedness incurred to refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in the immediately preceding clauses (b) or
(d) above; PROVIDED, HOWEVER, that the provisions relating to such encumbrance
or restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clauses (b) or (d).
SECTION 4.14. LIMITATION ON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company will be
required to notify the Trustee in writing thereof and to offer to repurchase all
or any part (equal to $1,000 of principal at maturity or an integral multiple
thereof) of each Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the principal
amount thereof on the date of purchase, plus accrued interest thereon, if any,
through the date of purchase (the "Change of Control Payment").
(b) Within 40 days following the date on which the Change of Control
occurred, the Company shall mail a notice to each Holder, with a copy to the
Trustee, which notice shall govern the terms of the Change of Control Offer.
The notice to the Holders shall contain all instructions and materials necessary
to enable such Holders to tender Notes pursuant to the Change of Control Offer.
Such notice shall state: (1) that the Change of Control Offer is being made
pursuant to this Section 4.14 and that all Notes tendered and not withdrawn will
be accepted for payment; (2) the purchase price (including the amount of any
accrued interest) and the purchase date, which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed, other than as may be
required by law (the "Change of Control Payment Date"); (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest on and
after the Change of Control Payment Date; (5) that Holders electing to have any
Physical Notes purchased pursuant to a Change of Control Offer will be required
to surrender the Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that Holders will
be entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the second Business Day preceding the
-44-
<PAGE>
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of Notes
delivered for purchase, and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (7) that Holders whose Physical Notes
are being purchased only in part will be issued new Physical Notes equal in
principal amount to the unpurchased portion of the Physical Notes surrendered;
PROVIDED, that each Physical Note purchased and each new Physical Note issued
shall be in a principal amount $1,000 or an integral multiple thereof. On the
Business Day immediately preceding the Change of Control Payment Date, the
Trustee shall notify the Company in writing of the Holders who have so elected
to have their Physical Notes purchased pursuant to the Change of Control Offer
(and who have not withdrawn such election pursuant to clause (5) above).
On or before the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment Notes or portions thereof tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S.
Legal Tender sufficient to pay the purchase price plus accrued interest, if any,
of all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the amount of the Notes or portions thereof being tendered
to the Company. The Paying Agent shall promptly mail to the Holders of the
Notes so accepted payment in an amount equal to the purchase price for such
Notes plus accrued interest, if any, to the Change of Control Payment Date, and
the Trustee shall promptly authenticate and mail to such Holders new Notes equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
PROVIDED, HOWEVER, that each such new Note shall be in a principal amount of
$1,000 or an integral multiple thereof. Any Notes not so accepted shall be
promptly mailed by the Company to the Holder thereof. For purposes of this
Section 4.14, the Trustee shall act as the Paying Agent.
Any amounts deposited with the Paying Agent and remaining after the
purchase of Notes pursuant to a Change of Control Offer shall be returned by the
Paying Agent to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, in each
case, to the extent such laws and regulations are applicable in connection with
the repurchase of Notes pursuant to a Change of Control Offer. To the extent
provisions of any securities laws or regulations conflict with this Section 4.14
of this Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
this Section 4.14 by virtue thereof.
The Company will announce publicly the results of the Change of
Control Offer on as soon as practicable after the Change of Control Date.
Neither the Board of Directors of the Company nor the Trustee may
waive the provisions of this Section 4.14 relating to the Company's obligation
to make a Change of Control Offer under this Section 4.14.
-45-
<PAGE>
SECTION 4.15. LIMITATION ON ASSET SALES.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Company's Board of
Directors), (ii) at least 85% of the consideration received by the Company or
the Subsidiary, as the case may be, from such Asset Sale shall be in the form of
cash or Cash Equivalents and is received at the time of such disposition; and
(iii) upon the consummation of an Asset Sale, the Company either (A) shall
apply, or cause such Subsidiary to apply, the Net Cash Proceeds relating to such
Asset Sale within 180 days of such Asset Sale either (1) to repay any
Indebtedness secured by the assets involved in such Asset Sale together with a
concomitant permanent reduction in the amount of such Indebtedness (including a
permanent reduction in the committed amounts therefor in the case of any
revolving credit facility so repaid), (2) to make an investment in properties
and assets that replace the properties and assets that were the subject of such
Asset Sale or in properties and assets that will be used in the business of the
Company and its Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (3) a combination of
repayment and investment permitted by the foregoing clauses (iii)(A)(1) and
(iii)(A)(2) or (B) shall (1) within 150 days of such Asset Sale enter into a
definitive written agreement committing it, subject to no material conditions
other than conditions customary in such agreements, to make an investment in
Replacement Assets within 270 days of such Asset Sale and (2) apply, or cause
such Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale
within 270 days of such Asset Sale to an investment in Replacement Assets. On
(i) the 181st day after an Asset Sale, or (ii) such earlier date as the Board of
Directors of the Company or of such Subsidiary determines to apply the Net Cash
Proceeds relating to such Asset Sale as set forth in clauses (iii)(A)(1),
(iii)(A)(2) and (iii)(A)(3) of the immediately preceding sentence, or (iii) if a
definitive written agreement relating to an investment in Replacement Assets was
entered into within 150 days of such Asset Sale, on the 271st day after such
Asset Sale or such earlier date on which such definitive written agreement is
for any reason terminated (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which has not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A) or
(iii)(B) of the immediately preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company or such Subsidiary to make an offer to
purchase (the "Net Proceeds Offer"), on a date (the "Net Proceeds Offer Payment
Date") not less than 30 nor more than 60 days following the applicable Net
Proceeds Offer Trigger Date, from all Holders on a PRO RATA basis that amount of
Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
aggregate principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that if at
any time any non-cash consideration received by the Company or any Subsidiary of
the Company, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash (other than interest received
with respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder, and the Net
Cash Proceeds thereof shall be applied in accordance with this Section 4.15.
The Company may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer
-46-
<PAGE>
Amount equal to or in excess of $5,000,000 resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not
just the amount in excess of $5,000,000, shall be applied as required pursuant
to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under Section 5.01, the successor corporation
shall be deemed to have sold the properties and assets of the Company and its
Subsidiaries not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or its Subsidiaries deemed to be sold shall be deemed to
be Net Cash Proceeds for purposes of this covenant.
(b) Subject to the deferral of the Net Proceeds Offer Trigger Date
contained in subsection (a) above, each notice of a Net Proceeds Offer pursuant
to this Section 4.15 shall be mailed or caused to be mailed, by first class
mail, by the Company within 25 days after the Net Proceeds Offer Trigger Date to
all Holders at their last registered addresses as of a date within 15 days of
the mailing of such notice, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to the Net Proceeds Offer and shall state the following
terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.15 and that all Notes tendered and not withdrawn, in whole or in
part, in integral multiples of $1,000 will be accepted for payment;
PROVIDED, HOWEVER, that if the aggregate principal amount of Notes tendered
in a Net Proceeds Offer plus accrued interest at the expiration of such
offer exceeds the aggregate amount of the Net Proceeds Offer, the Company
shall select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Notes
in denominations of $1,000 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of any accrued interest)
and the purchase date (which shall be 20 Business Days from the date of
mailing of notice of such Net Proceeds Offer, or such longer period as
required by law) (the "Proceeds Purchase Date");
(3) that any Note not tendered will continue to accrue interest on
and after the Proceeds Purchase Date;
(4) that, unless the Company defaults in making payment therefor, any
Note accepted for payment pursuant to the Net Proceeds offer shall cease to
accrue interest on and after the Proceeds Purchase Date;
(5) that Holders electing to have a Physical Note purchased pursuant
to a Net Proceeds Offer will be required to surrender the Note, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Note completed, to the
-47-
<PAGE>
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day prior to the Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Notes the
Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased; and
(7) that Holders whose Physical Notes are purchased only in part will
be issued new Physical Notes in a principal amount equal to the unpurchased
portion of the Physical Notes surrendered; PROVIDED that each Physical Note
purchased and each new Physical Note issued shall be in principal amount of
$1,000 or integral multiples thereof;
On the second Business Day immediately preceding the Proceeds Purchase
Date, the Trustee shall notify the Company in writing of the Holders who have so
elected to have their Physical Note purchased pursuant to such Net Proceeds
Offer (and who have not withdrawn such election, as provided above). On or
before the Proceeds Purchase Date, the Company shall (i) accept for payment
Notes or portions thereof tendered pursuant to the Net Proceeds Offer which are
to be purchased in accordance with item (b)(1) above, (ii) deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued
interest, if any, of all Notes to be purchased and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate stating the Notes or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to the Holders so accepted payment in an amount equal to the
purchase price for such Notes plus accrued interest, if any, to the Proceeds
Purchase Date. For purposes of this Section 4.15, the Trustee shall act as the
Paying Agent.
Any amounts deposited with the Paying Agent and remaining after the
purchase of Notes pursuant to a Net Proceeds Offer shall be returned by the
Paying Agent to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder, in each
case, to the extent such laws and regulations are applicable in connection with
the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that
the provisions of any securities laws or regulations conflict with this Section
4.15, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4.15 by virtue thereof.
-48-
<PAGE>
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF
SUBSIDIARIES.
The Company will not cause or permit any of its Subsidiaries to issue
or sell any Capital Stock (other than to the Company or to a Wholly-Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly-Owned Subsidiary of the Company) to own or hold any Capital Stock of any
Subsidiary of the Company or any Lien or security interest therein; PROVIDED,
HOWEVER, such covenant shall not prohibit the disposition (by sale, merger or
otherwise) of all of the Capital Stock of a Subsidiary of the Company; PROVIDED
any Net Cash Proceeds therefrom are applied in accordance with Section 4.15 of
this Indenture.
SECTION 4.17. LIMITATION ON LIENS.
Other than Permitted Liens, the Company shall not, and shall not cause
or permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of the Company or any of its Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom.
SECTION 4.18. CONDUCT OF BUSINESS.
Neither the Company nor any of its Subsidiaries will engage in any
business other than the business of operating family entertainment centers or
any activity related or ancillary thereto.
SECTION 4.19. PAYMENTS FOR CONSENT.
Neither the Company nor any of the Company's Subsidiaries (including,
for this purpose only, Block Party and all Permitted Investment Subsidiaries)
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder for, or as
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
or agreed to be paid to all Holders of Notes then outstanding that consent,
waive or agree to amend any of such terms or provisions in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
SECTION 4.20. REGISTRATION RIGHTS AGREEMENT.
The Company will comply with all of the terms and provisions of the
Registration Rights Agreement, including, without limitation, its obligation to
pay Additional
-49-
<PAGE>
Interest to the Holders, as set forth in Section 4 of therein (which provision
is hereby incorporated in its entirety by reference herein) and to notify the
Trustee immediately of the occurrence of any Registration Default (as defined in
the Registration Rights Agreement) thereunder.
SECTION 4.21. WARRANT AGREEMENT.
The Company will comply with all of the terms and provisions of the
Warrant Agreement and on or prior to the Separability Date shall notify the
Trustee immediately of the occurrence of any default or event of default
thereunder.
SECTION 4.22. IMPAIRMENT OF SECURITY INTEREST.
Subject to the Intercreditor Agreement and the Subordination
Agreement, neither the Company nor any of its Subsidiaries will take or omit to
take any action which would adversely affect or impair the Security Interests in
favor of the Trustee, on behalf of itself and the Holders, with respect to the
Collateral, and neither the Company nor any of its Subsidiaries shall grant to
any Person, or permit any Person (other than the Company) to have (other than to
the Trustee on behalf of the Trustee and the Holders) any interest whatsoever in
the Collateral, the Subsidiary Collateral, the Pledged Collateral or the Pledged
Subsidiary Collateral. Neither the Company nor any of its Subsidiaries will
enter into any agreement that requires the proceeds received from any sale of
Collateral, Subsidiary Collateral, Pledged Collateral or Pledged Subsidiary
Collateral to be applied to repay, redeem, defease or otherwise acquire or
retire any Indebtedness of any Person, other than pursuant to this Indenture,
the Notes, the Intercreditor Agreement, the Subordination Agreement, the
McDonald's Documents and the Collateral Agreements.
SECTION 4.23. INTERCOMPANY INDEBTEDNESS.
The Company shall evidence, or cause to be evidenced, any Indebtedness
of a Subsidiary of the Company to the Company or any Subsidiary of the Company,
if such Indebtedness of such Subsidiary exceeds $500,000 in aggregate principal
amount, by a written promissory note or other instrument from such Subsidiary,
in form and substance reasonably satisfactory to the Trustee, which promissory
note or other instrument shall be pledged to the Trustee and the Holders
pursuant to a note pledge agreement, in form and substance reasonably
satisfactory to the Trustee, and delivered with the appropriate endorsement in
blank to the Trustee. Any such Indebtedness shall be subordinate to the
Obligations of the Company and the Subsidiary Guarantors, and the promissory
note or other instrument evidencing such Indebtedness shall contain language
giving effect to such subordination, in form and substance reasonably
satisfactory to the Trustee.
-50-
<PAGE>
SECTION 4.24. KEY MAN LIFE INSURANCE.
The Company shall, not later than 60 days after the Issue Date and for
so long as the Notes are outstanding, maintain life insurance upon the life of
Scott W. Bernstein, the Company's Chief Executive Officer, and any successor
chief executive officer of the Company or other senior executive officer of the
Company performing similar functions, with the death benefit thereunder payable
to the Company in an amount not less than $10,000,000. The Company shall at all
times retain all the incidents of ownership of such insurance and shall not
borrow upon or otherwise impair its right to receive the proceeds of such
insurance.
SECTION 4.25. REAL ESTATE MORTGAGES AND FILINGS.
On or prior to the date which is seven (7) days after the Issue Date
and at no cost or expense to the Trustee or the Holders:
(a) the Trustee shall have received fully-executed counterparts of
Mortgages in form and substance reasonably acceptable to the Initial Purchaser
and its counsel for all real property owned in fee by the Company listed on
Schedule 4.25(a) attached hereto and made a part hereof and on which McDonald's
Corporation may have a prior lien (individually and collectively, the
"Premises");
(b) the Trustee shall have received commitments for Mortgage Title
Insurance Policies from a company, and in form and substance reasonably
acceptable to the Initial Purchaser and its counsel, insuring the Liens of the
Mortgages as valid and enforceable Liens on the real estate collateral described
in the Mortgages and related to each of the Premises;
(c) The Trustee shall have received, with respect to each of the
Premises, surveys, local counsel opinions and fixture filings, in each case in
form and substance reasonably acceptable to the Initial Purchaser and its
counsel, along with such other documents, instruments, certificates and
agreements as the Initial Purchaser and its counsel may reasonably request; and
(d) The Company shall have taken, or caused to be taken, all action
in order to create and perfect the lien of the Mortgages in all jurisdictions
designated by the Trustee.
The Trustee and Collateral Agent shall be authorized to enter into a
Subordination Agreement with respect to any Premises designated in writing by
the Company.
-51-
<PAGE>
SECTION 4.26. LEASEHOLD MORTGAGES AND FILINGS.
The Company and each of its Subsidiaries shall use commercially
reasonable efforts to deliver Mortgages, substantially in the form of Exhibit N
attached hereto, with respect to the Company's leasehold interests in the
premises (the "Leased Premises") occupied by the Company pursuant to leases of
new store properties entered into after the Issue Date (collectively, the
"Leases", and individually, a "Lease"). Prior to the effective date of any
Lease, the Company and such Subsidiaries shall provide to the Trustee all of the
items described in Section 4.25 and in addition shall provide an agreement,
substantially in the form of Exhibit O attached hereto, and executed by the
lessor of the Lease, whereby the lessor consents to the Mortgage (and which
shall be entered into by the Trustee, as "Mortgagee" thereunder. The Company
and such Subsidiaries shall perform all of its obligations required hereunder at
its sole cost and expense.
SECTION 4.27. RATING OF NOTES.
The Company shall cooperate with the Initial Purchaser at any time or
from time to time for a period of 18 months after the Issue Date to obtain a
rating for the Notes from at least one nationally recognized rating agency and
to keep a rating with respect to the Notes continuously in effect through the
Maturity Date.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. MERGER, CONSOLIDATION AND SALE OF ASSETS.
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets to,
another corporation, Person or entity unless: (i) the Company is the surviving
corporation, or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
will have been made assumes all the obligations of the Company under the
Collateral Agreements, the Registration Rights Agreement, the Warrant Agreement,
the Intercreditor Agreement and all Obligations of the Company under the Notes
and this Indenture, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction (including
giving effect to any Indebtedness and Acquired Debt incurred or expected to be
incurred in connection with or in
-52-
<PAGE>
respect of such transaction and to any assumption required by clause (ii) above)
no Default or Event of Default exists; (iv) the Company or any corporation
formed by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease conveyance or other disposition will have been made
(A) will have Consolidated Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments resulting from the transaction)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving PRO FORMA effect thereto as if such transaction had occurred at the
beginning of the applicable four quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to Section 4.12 of this Indenture and
will have a Fixed Charge Coverage Ratio, determined on a PRO FORMA basis,
greater than or equal to the Fixed Charge Coverage Ratio of the Company
immediately prior to the transaction; and (v) the Company or the entity or
Person formed by or surviving any such consolidation or merger, or to which such
sale, assignment, transfer, lease, conveyance or other disposition will have
been made shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and any
supplemental indenture required in connection with such transaction comply with
the applicable provisions of this Indenture and that all conditions precedent in
this Indenture relating to such transaction have been satisfied.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
(c) Each Subsidiary Guarantor (other than any Subsidiary Guarantor
whose Subsidiary Guarantee is to be released in accordance with the terms of
such Subsidiary Guarantee and this Indenture in connection with any transaction
made in compliance with the provisions of Section 4.15) will not, and the
Company will not cause or permit any Subsidiary Guarantor to, consolidate with
or merge with or into any Person, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets, unless: (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Subsidiary Guarantor), or to which such disposition shall have been made, is
a corporation organized and existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) such entity assumes by
supplemental indenture all of the obligations of the Subsidiary Guarantor on the
Subsidiary Guarantee; (iii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing, and (iv)
immediately after giving effect to such transaction and the use of any net
proceeds therefrom on a pro forma basis, the Company could satisfy the
provisions of clause (iv) of paragraph (a) of this Section 5.01; PROVIDED,
HOWEVER, that any merger or consolidation of a Subsidiary Guarantor with and
into the Company (with the Company being the surviving entity) or another
Subsidiary Guarantor need only comply with clause (iv) of paragraph (a) of this
Section 5.01.
-53-
<PAGE>
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Notes, the Collateral Agreements, the Registration Rights
Agreement, the Warrant Agreement and the Intercreditor Agreement with the same
effect as if such surviving entity had been named as such, and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants hereunder and thereunder.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) (i) for any Interest Payment Date occurring on or prior to
August 1, 1999, the Company fails to pay interest on any Notes when the
same become due and payable, and (ii) for any Interest Payment Date
occurring after August 1, 1999, the Company fails to pay interest on any
Notes when the same becomes due and payable and the Default continues for a
period of 10 days;
(b) the Company fails to pay the principal (or premium, if any) on
any Notes, when such principal becomes due and payable, at maturity, by
acceleration, upon redemption or otherwise (including the failure to make a
payment to purchase Notes tendered pursuant to a Change of Control Offer or
a Net Proceeds Offer);
(c) the Company or any of its Subsidiaries (in each case, to the
extent a party to the Collateral Agreements) defaults in the observance or
performance of any other covenant, provision or agreement contained in this
Indenture, the Notes or any of the Collateral Agreements (to the extent
such default, directly or indirectly, adversely affects (or with respect to
any such Subsidiary, materially adversely affects) the Security Interests
in the Collateral or the rights and benefits of the Holders under this
Indenture or the Notes), which default continues for a period of 30 days
after the Company receives written notice specifying the default (and
demanding that such default be remedied) from the Trustee or the Holders of
at least 25% of the outstanding principal amount of the Notes (except in
the case of a default under Section 5.01 of this Indenture, which default
will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
-54-
<PAGE>
(d) a default (after giving effect to any applicable grace periods or
any extension of any maturity date) under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness of the Company or of any Subsidiary of the
Company (or the payment of which is guaranteed by the Company or any
Subsidiary of the Company), whether such Indebtedness now exists or is
created after the Issue Date, if (a) either (A) such default results from
the failure to pay principal of or interest on such Indebtedness or (B) as
a result of such default the maturity of such Indebtedness may be
accelerated, and (b) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness with respect to
which a default (after the expiration of any applicable grace period or any
extension of the maturity date) has occurred, or the maturity of which may
be so accelerated, exceeds $2,000,000 in the aggregate, and the default
continues for a period of 10 days after the Company has received written
notice specifying the default from the Trustee or the Holders of at least
25% of the outstanding principal amount of the Notes;
(e) one or more judgments in an aggregate amount in excess of
$2,000,000 (other than any judgment as to which a reputable insurance
company has accepted full liability in writing) shall have been rendered
against the Company or any of its Subsidiaries and such judgments remain
undischarged, unpaid or unstayed for a period of 60 days after such
judgment or judgments become final and non-appealable;
(f) the Company, any Subsidiary Guarantor or any Subsidiary (A)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (B) consents to the entry of a judgment, decree or order
for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for
substantially all of its property or assets, (D) consents to or acquiesces
in the institution of a bankruptcy or an insolvency proceeding against it,
(E) makes a general assignment for the benefit of its creditors, (F) shall
generally not pay its debts when such debts become due or shall admit in
writing its inability to pay its debts generally or (G) takes any action to
authorize or effect any of the foregoing;
(g) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company, any Subsidiary Guarantor or any
Subsidiary in an involuntary case or proceeding under any Bankruptcy Law,
which shall (A) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company, any Subsidiary Guarantor or any Subsidiary, (B) appoint a
Custodian of the Company, any Subsidiary Guarantor or any Subsidiary or for
substantially all of its property or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall remain
unstayed and in effect or a period of 60 consecutive days; or
(h) any Subsidiary Guarantee for any reason ceases to be in full
force and effect or becomes or is declared to be null and void,
unenforceable or invalid or any Subsidiary Guarantor denies or disaffirms
its obligations under its Subsidiary
-55-
<PAGE>
Guarantee (other than by reason of release of a Subsidiary Guarantor in
accordance with the terms of this Indenture).
SECTION 6.02. ACCELERATION.
(a) If an Event of Default (other than an Event of Default specified
in Section 6.01(f) or (g) with respect to the Company or any of its Significant
Subsidiaries) occurs and is continuing and has not been waived pursuant to
Section 6.04, then the Trustee or the Holders of at least 25% in principal
amount of outstanding Notes may declare the principal of, premium, if any, and
accrued interest on all the Notes to be due and payable by notice in writing to
the Company and the Trustee specifying the respective Event of Default and that
it is a "notice of acceleration" (the "Acceleration Notice"), and the same shall
become immediately due and payable.
(b) If an Event of Default specified in Section 6.01(f) or (g) with
respect to the Company or any of its Significant Subsidiaries occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
(c) At any time after a declaration of acceleration with respect to
the Notes in accordance with Section 6.02(a), the Holders of a majority in
principal amount of the Notes may, by written notice to the Trustee, (i) waive
any existing Default or Event of Default and its consequences, except a
continuing Default or Event of Default under Section 6.01(a) or (b) hereof, and
(ii) rescind and cancel such declaration of acceleration and its consequences if
(A) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, and (B) all existing Events of Default have been cured
or waived (except any such Event of Default arising from the nonpayment of
principal or interest on the Notes that has become due solely because of the
acceleration).
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, premium, if any, or interest on the Notes or to enforce
the performance of any provision of the Notes, this Indenture or the Collateral
Agreements.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy arising
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of
any other remedy. All available remedies are cumulative to the extent permitted
by law.
-56-
<PAGE>
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Notes by written notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
continuing Default or Event of Default in the payment of principal of or
interest on any Note as specified in clauses (a) and (b) of Section 6.01. When a
Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to Section 2.09, the Holders of a majority in principal amount
of the outstanding Notes may direct in writing the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee, including, without limitation, any
remedies provided for in Section 6.03. Subject to Section 7.01, however, the
Trustee may refuse to follow any direction (i) that the Trustee reasonably
believes conflicts with any law or this Indenture or the Notes, (ii) that the
Trustee determines may be unduly prejudicial to the rights of another Holder or
(iii) that may involve the Trustee in personal liability; PROVIDED, further,
however, that the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction or this Indenture.
SECTION 6.06. LIMITATION ON SUITS.
No Holder will have any right to institute any proceeding, judicial or
otherwise, or pursue any remedy under this Indenture or the Notes unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
outstanding Notes have made a written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
under this Indenture;
(3) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, losses,
liabilities or expenses to be incurred in compliance with such request;
(4) the Trustee, for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute such proceeding;
and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 30-day period by the Holders of a majority
in principal amount of the outstanding Notes.
-57-
<PAGE>
The foregoing limitations shall not apply to a suit instituted by a
Holder for the enforcement of the payment of principal and premium, if any, or
interest on such Note on or after the respective due dates set forth in such
Note (including upon acceleration thereof) or the institution of any proceeding
with respect to this Indenture or any remedy hereunder, including without
limitation, acceleration, by the Holders of a majority in principal amount of
outstanding Notes; PROVIDED that upon institution of any proceeding or exercise
of any remedy, such Holder provides the Trustee with prompt notice thereof.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of, premium, if any, and interest on
a Note, on or after the respective due dates expressed in such Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
is absolute and unconditional and shall not be impaired or affected without the
written consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of principal of,
premium, if any, and accrued interest remaining unpaid, together with interest
on overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest at the rate set forth in Section
2.16 and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents, counsel, accountants and
experts) and the Holders allowed in any judicial proceedings relating to the
Company or Subsidiaries or any other obligor upon the Notes, any of their
respective creditors or any of their respective property and shall be entitled
and empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay
-58-
<PAGE>
to the Trustee any amount due to it for the reasonable compensation, expenses,
taxes, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
Fourth: to the Company or any other obligor on the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Notes, or a suit by a Holder or Holders for
the enforcement of the payment of the principal of, premium, if any, or interest
on the Notes, on or after the due dates expressed in the Notes.
-59-
<PAGE>
SECTION 6.12. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Note and such proceeding has
been discontinued or abandoned for any reason, or has been determined adversely
to the Trustee or to such Holder, then and in every such case, the Company, the
Trustee and the Holders shall, subject to any determination in such proceeding,
be restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.07,
no right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.14. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy arising upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this
Article Six or by law to the Trustee or to the Holders may be exercised from
time to time, and as may be deemed expedient, by the Trustee or by the Holders,
as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
The duties and responsibilities of the Trustee shall be as provided by
the TIA and as set forth herein.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the
-60-
<PAGE>
same degree of care and skill in its exercise thereof as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are specifically
set forth in this Indenture, and no covenants or obligations shall be
implied in this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; PROVIDED,
HOWEVER, that the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section 7.01;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05 of this Indenture.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01 and
Section 7.02 of this Indenture.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
-61-
<PAGE>
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any document reasonably believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
or both, which shall conform to Sections 13.04 and 13.05 of this Indenture. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it reasonably believes to be authorized or
within its rights or powers under this Indenture.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit, and, if
the Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, upon reasonable notice to the Company, to examine the books,
records, and premises of the Company, personally or by agent or attorney and to
consult with the officers and representatives of the Company, including the
Company's accountants and attorneys.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which may be incurred by it in compliance with such request, order
or direction.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(h) Any permissive right or power available to the Trustee under this
Indenture shall not be construed to be a mandatory duty or obligation.
-62-
<PAGE>
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, any
Subsidiary of the Company, or their respective Affiliates,with the same rights
it would have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee must comply with Sections 7.10 and 7.11 of this
Indenture, and the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, and it shall not be accountable for the Company's
use of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in this Indenture or the Notes other than the Trustee's
certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to the Company and each Holder
in the manner and to the extent provided in TIA Section 313(c) notice of the
Default or Event of Default within 45 days after such Default or Event of
Default occurs, unless such Default or Event of Default has been cured. Except
in the case of a Default or an Event of Default in payment of principal of, or
interest on, any Note, including an accelerated payment and the failure to make
payment on the Change of Control Payment Date pursuant to a Change of Control
Offer or on the Net Proceeds Offer Payment Date pursuant to a Net Proceeds
Offer, the Trustee may withhold the notice of a Default or an Event of Default
if and so long as its Board of Directors, the executive committee of its Board
of Directors or a committee of its directors and/or officers charged with such
responsibility in good faith determines that withholding the notice is in the
interest of the Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each November 1, beginning with November 1, 1997,
the Trustee shall, to the extent that any of the events described in Section
313(a) of the TIA occurred within the previous twelve months, but not otherwise,
mail to each Holder a brief report dated as of such date that complies with
Section 313(a) of the TIA. The Trustee also shall comply with Sections 313(b)
and (c) of the TIA.
A copy of each report at the time of its mailing to Holders shall be
mailed to the Company and filed with the SEC and each stock exchange or market,
if any, on which the Notes are listed or quoted.
-63-
<PAGE>
The Company shall promptly notify the Trustee if the Notes become
listed or quoted on any stock exchange or market and the Trustee shall comply
with Section 313(d) of the TIA.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred or made by it in connection with the performance of its duties under
this Indenture, except any such expense as may arise from its negligence, bad
faith or willful misconduct. Such expenses shall include but not be limited to
the reasonable fees and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee (or any predecessor
Trustee) and its agents, employees, stockholders and directors and officers for,
and hold them harmless against, any loss, liability, damage, claim or expense
(including reasonable fees and expenses of counsel), including taxes (other than
taxes based on the income of the Trustee) incurred by them except for such
actions to the extent caused by any negligence, bad faith or willful misconduct
on their part, arising out of or in connection with the administration of this
trust including the reasonable costs and expenses of enforcing this Indenture
against the Company (including this Section 7.07) and defending themselves
against any claim or liability in connection with the exercise or performance of
any of their rights, powers or duties hereunder. The Trustee shall notify the
Company promptly of any claim asserted against the Trustee for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve
the Company of its obligations hereunder. At the Trustee's sole discretion, the
Company shall defend the claim and the Trustee shall cooperate and may
participate in the defense; PROVIDED that any settlement of a claim shall be
approved in writing by the Trustee. Alternatively, the Trustee may at its
option have separate counsel of its own choosing and the Company shall pay the
reasonable fees and expenses of such counsel; PROVIDED that the Company will not
be required to pay such fees and expenses if it assumes the Trustee's defense
and there is no conflict of interest between the Company and the Trustee in
connection with such defense as reasonably determined by the Trustee. The
Company need not pay for any settlement made without its written consent, which
consent shall not be unreasonably withheld. The Company need not reimburse any
expense or indemnify against any loss or liability to the extent incurred by the
Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a claim prior to the Notes on all assets or money held or
collected by the Trustee, in its capacity as Trustee, except assets or money
held in trust to pay principal of or interest on particular Notes.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(f) or (g) of this Indenture occurs, such
expenses and the
-64-
<PAGE>
compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment, as provided in this Section 7.08.
The Trustee may resign by so notifying the Company in writing at least
30 days prior to the date of the proposed resignation. The Holders of a
majority in principal amount of the outstanding Notes may remove the Trustee by
so notifying the Company and the Trustee and may appoint a successor Trustee.
The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in aggregate principal
amount of the outstanding Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The Company and the successor Trustee shall mail notice of the
successor Trustee's succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
-65-
<PAGE>
If the Trustee is no longer eligible under or otherwise fails to
comply with Section 7.10, any Holder who satisfies the requirements of TIA
Section 310(b) may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
The Company shall give notice of any resignation and any removal of
the Trustee and each appointment of a successor Trustee to all Holders. Each
notice shall include the name of the successor Trustee and the address of its
corporate trust office.
Notwithstanding any resignation or replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 of this
Indenture shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
Person the resulting, surviving or transferee Person without any further act
shall, if such resulting, surviving or transferee Person is otherwise eligible
hereunder, be the successor Trustee; PROVIDED, HOWEVER, that such Person shall
be otherwise qualified and eligible under this Article Seven.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a corporation included in a bank holding company system, the related
bank holding company) shall have combined capital and surplus of at least
$150,000,000 as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company system, the Trustee, independently of such bank holding company,
shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall
comply with TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded
from the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA
Section 310 shall apply to the Company and its Subsidiaries, as obligor of the
Notes.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated
therein. The provisions of TIA Section 311(a) shall apply to the Company and
its Subsidiaries, as obligor on the Notes.
-66-
<PAGE>
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
(a) The Company may, at its option and at any time, elect to have
either paragraph (b) or paragraph (c) below be applied to the outstanding Notes
upon compliance with the applicable conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and the Subsidiary Guarantors
shall be deemed to have been released and discharged from their respective
obligations with respect to the outstanding Notes on the date the applicable
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For
this purpose, such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
Notes, which shall thereafter be deemed to be "outstanding" only for the
purposes of the Sections and matters under this Indenture referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such Notes and
this Indenture insofar as such Notes are concerned, except for the following
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of outstanding Notes to receive solely from the trust fund
described in paragraph (d) below and as more fully set forth in such paragraph,
payments in respect of the principal, premium, if any, and interest on such
Notes when such payments are due and (ii) obligations listed in Section 8.03,
subject to compliance with this Section 8.01. The Company may exercise its
option under this paragraph (b) notwithstanding the prior exercise of its option
under paragraph (c) below with respect to the Notes.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company and the Subsidiary Guarantors
shall be released and discharged from their respective obligations under any
covenant contained in Article Five, Sections 4.05 and 4.08, and Sections 4.10
through 4.19 with respect to the outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed to be not "outstanding" for the purpose
of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Notes, the Company and any Subsidiary Guarantor may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01(c), but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under
-67-
<PAGE>
paragraph (a) hereof of the option applicable to this paragraph (c), subject to
the satisfaction of the conditions set forth in Section 8.03 hereof, Sections
6.01(d), 6.01(e) and 6.01(h) shall not constitute Events of Default.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Notes:
(1) The Company shall have irrevocably deposited in trust with the
Trustee, pursuant to an irrevocable trust and security agreement in form
and substance reasonably satisfactory to the Trustee, U.S. Legal Tender or
U.S. Government Obligations or a combination thereof in such amounts and at
such times as are sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding Notes to maturity or redemption;
PROVIDED, HOWEVER, that the Trustee (or other qualifying trustee) shall
have received an irrevocable written order from the Company instructing the
Trustee (or other qualifying trustee) to apply such U.S. Legal Tender or
the proceeds of such U.S. Government Obligations to said payments with
respect to the Notes to maturity or redemption;
(2) No Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness, all or a
portion of which will be used to defease the Notes concurrently with such
incurrence);
(3) Such deposit and the defeasance contemplated hereby will not
result in a Default under, or a breach or violation of, this Indenture or
any other material instrument or agreement to which the Company or any of
its Subsidiaries is a party or by which it or their property or assets is
bound;
(4) (i) In the event the Company elects paragraph (b) hereof, the
Company shall deliver to the Trustee an Opinion of Counsel in the United
States, in form and substance reasonably satisfactory to the Trustee, to
the effect that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall state that, Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and the defeasance
contemplated hereby and will be subject to federal income tax in the same
amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred or (ii) in the event
the Company elects paragraph (c) hereof, the Company shall deliver to the
Trustee an Opinion of Counsel in the United States, in form and substance
reasonably satisfactory to the Trustee, to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such deposit and the defeasance contemplated hereby and will be subject
to
-68-
<PAGE>
federal income tax in the same amounts and in the same manner and at the
same times as would have been the case if such deposit and defeasance had
not occurred;
(5) The Company shall have delivered to the Trustee an Officers'
Certificate, stating that the deposit under clause (1) was not made by the
Company with the intent of preferring the Holders over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others;
(6) The Company shall have delivered to the Trustee an Opinion of
Counsel, reasonably satisfactory to the Trustee, to the effect that, (A)
the trust funds will not be subject to the rights of holders of
Indebtedness of the Company other than the Notes and as otherwise permitted
herein and (B) assuming no intervening bankruptcy of the Company between
the date of deposit and the 91st day following the deposit and that no
Holder is an insider of the Company, after the 91st day following the
deposit, the trust funds will not be subject to any applicable bankruptcy,
insolvency, reorganization or similar law affecting creditors' rights
generally; and
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; PROVIDED, HOWEVER, that such counsel
may rely, as to matters of fact, on Officers' Certificates of the Company.
In the event all or any portion of the Notes are to be redeemed
through such irrevocable trust, the Company must make arrangements reasonably
satisfactory to the Trustee, at the time of such deposit, for the giving of the
notice of such redemption or redemptions by the Trustee in the name and at the
expense of the Company.
SECTION 8.02. SATISFACTION AND DISCHARGE.
In addition to the Company's rights under Section 8.01, the Company
may terminate all of its obligations under this Indenture (subject to Section
8.03), when:
(1) all Notes theretofore authenticated and delivered (other than
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.07 and Notes for whose payment
money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust) have been delivered to the Trustee for cancellation or all
such Notes not theretofore delivered to the Trustee for cancellation have
become due and payable, and the Company has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust solely for that
purpose an amount of money sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest;
-69-
<PAGE>
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company;
(3) the Company has delivered irrevocable instructions to the Trustee
to apply the deposited money toward the payment of the Notes at maturity or
redemption, as the case may be; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, stating that all conditions precedent specified
herein relating to the satisfaction and discharge of this Indenture have
been complied with; PROVIDED, HOWEVER, that such counsel may rely, as to
matters of fact, on Officers' Certificates of the Company.
SECTION 8.03. SURVIVAL OF CERTAIN OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture and
of the Notes referred to in Section 8.01 or 8.02, the respective obligations of
the Company and the Trustee under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07,
2.10, 2.13, 2.14, 2.16, 4.01, 4.02, 4.09, 4.20, 4.21, 4.22, 4.24, 6.07, Article
Seven, 8.05, 8.06, 8.07, 11.02 and 11.04 of this Indenture shall survive until
the Notes are no longer outstanding, and thereafter the obligations of the
Company and the Trustee under Sections 7.07, 7.08, 8.05, 8.06 and 8.07 of this
Indenture shall survive. Nothing contained in this Article Eight shall abrogate
any of the obligations or duties of the Trustee under this Indenture.
SECTION 8.04. ACKNOWLEDGMENT OF DISCHARGE BY TRUSTEE.
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 of this Indenture have been satisfied, (ii) the Company has paid or caused
to be paid all other sums payable hereunder by the Company and (iii) the Company
has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent referred to in clause (i) above
relating to the satisfaction and discharge of this Indenture have been complied
with, the Trustee upon written request shall acknowledge in writing the
discharge of the Company's obligations under this Indenture except for those
surviving obligations specified in Section 8.03.
SECTION 8.05. APPLICATION OF TRUST MONIES.
The Trustee or Paying Agent shall hold any U.S. Legal Tender or U.S.
Government Obligations deposited with it in the irrevocable trust established
pursuant to Section 8.01 of this Indenture. The Trustee shall apply the
deposited U.S. Legal Tender or the U.S. Government Obligations, together with
earnings thereon, through the Paying Agent, in accordance with this Indenture
and the terms of the irrevocable trust agreement established pursuant to Section
8.01, to the payment of principal of and interest on the Notes. Anything
-70-
<PAGE>
in this Article Eight to the contrary notwithstanding, the Trustee shall deliver
or pay to the Company from time to time upon the Company's request any U.S.
Legal Tender or U.S. Government Obligations held by it as provided in Section
8.01(d) hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.01 or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of outstanding Notes.
SECTION 8.06. REPAYMENT TO THE COMPANY; UNCLAIMED MONEY.
Subject to Sections 7.07, 8.01 and 8.02 of this Indenture, the Trustee
and the Paying Agent shall promptly pay to the Company upon request any excess
U.S. Legal Tender or U.S. Government Obligations held by them at any time. The
Trustee and the Paying Agent will pay to the Company upon receipt by the Trustee
or the Paying Agent, as the case may be, of an Officers' Certificate, any money
held by it for the payment of principal or interest that remains unclaimed for
two years after payment to the Holders is required; PROVIDED, HOWEVER, that the
Trustee and the Paying Agent before being required to make any payment may, but
need not, at the expense of the Company cause to be published once in a
newspaper of general circulation in the City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to
money must look solely to the Company for payment as general creditors unless an
applicable abandoned property law designated another Person, and all liability
of the Trustee or Paying Agent with respect to such money shall thereupon cease.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government obligations in accordance with Section 8.01 or 8.02 of
this Indenture by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.01 or 8.02 of this Indenture until such time as
the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or
U.S. Government Obligations in accordance with Section 8.01 or 8.02 of this
Indenture; PROVIDED, HOWEVER, that if the Company has made any payment of
interest on or principal of
-71-
<PAGE>
any Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Notes without notice to
or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; PROVIDED that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to provide for the assumption of the Company's obligations to
Holders in the case of a merger, consolidation or similar transaction and
otherwise to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(4) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture and the Collateral Agreements
under the TIA;
(5) to make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the legal rights
hereunder of any Holder; or
(6) to provide for issuance of the Exchange Notes, which will have
terms substantially identical in all material respects to the Initial Notes
(except that the transfer restrictions contained in the Initial Notes will
be modified or eliminated, as appropriate), and which will be treated
together with any outstanding Initial Notes, as a single issue of
securities;
PROVIDED that the Company has delivered to the Trustee an Opinion of Counsel and
an Officers' Certificate stating that such amendment or supplement complies with
the provisions of this Section 9.01.
-72-
<PAGE>
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07 of this Indenture, the Company, when
authorized by a Board Resolution, and the Trustee, together, with the written
consent of the Holder or Holders of at least a majority in aggregate principal
amount of the outstanding Notes, may amend or supplement this Indenture or the
Notes and may waive compliance by the Company with any provision of this
Indenture or the Notes. Notwithstanding the foregoing, no amendment, supplement
or waiver, including a waiver pursuant to Section 6.04 of this Indenture, shall,
without the consent of each Holder of each Note affected thereby:
(1) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver of any provision of this Indenture or
the Notes;
(2) reduce the rate of or change or have the effect of changing the
time for payment of interest, including default interest, on any Notes;
(3) reduce the principal of, or the premium on, or change or have the
effect of changing the fixed maturity of any Notes, or alter the provisions
with respect to the redemption of the Notes, or alter the provisions with
respect to repurchases or redemptions of the Notes with Net Cash Proceeds
from Asset Sales or upon a Change of Control;
(4) make any Notes payable in money other than that stated in the
Notes;
(5) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on any Note (other than a Default in the
payment of an amount due as a result of an acceleration, where such
acceleration is rescinded pursuant hereto);
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders to receive payments of
principal of or interest on the Notes;
(7) waive a redemption payment with respect to any Note; or
(8) modify or change any provision of this Indenture affecting the
ranking of the Notes in a manner which adversely affects the Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or
-73-
<PAGE>
any defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
SECTION 9.03. COMPLIANCE WITH TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same Indebtedness as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date on which the
Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Notes have consented (and not theretofore revoked
such consent) to the amendment, supplement or waiver. An amendment, supplement
or waiver becomes effective upon receipt by the Trustee of such Officers'
Certificate and evidence of consent by the Holders of the requisite percentage
in principal amount of outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date, unless consents from Holders of the requisite percentage in
principal amount of outstanding Notes required hereunder for the effectiveness
of such consents shall have also been given and not revoked within such 90-day
period.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (8) of Section 9.02, in which case, the amendment, supplement or waiver
shall bind only each Holder who has consented to it and every subsequent Holder
of a Note or portion of a Note that evidences the same Indebtedness as the
consenting Holder's Note; PROVIDED, HOWEVER, that any such waiver shall not
impair or affect the right of any Holder to receive payment of principal,
premium, if any, and interest on a Note, on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates without the consent of such Holder.
-74-
<PAGE>
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver the Note to the Trustee.
The Trustee at the written direction of the Company may place an appropriate
notation on the Note about the changed terms and return it to the Holder, and
the Trustee may place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation, or issue a new Note, shall not affect the validity and effect of such
amendment, supplement or waiver. Any such notation or exchange shall be made at
the sole cost and expense of the Company.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; PROVIDED, HOWEVER, that the Trustee
may, but shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture; PROVIDED, that the legal counsel delivering such Opinion of Counsel
may rely as to matters of fact on one or more Officers' Certificates of the
Company. Such Opinion of Counsel shall not be an expense of the Trustee or the
Holders.
ARTICLE TEN
SECURITY
SECTION 10.01. GRANT OF SECURITY INTEREST.
To secure the due and punctual payment of the principal of, premium,
if any, and interest on the Notes when and as the same shall be due and payable,
whether on an Interest Payment Date, at maturity, by acceleration, purchase,
repurchase, redemption or otherwise, and interest on the overdue principal of,
premium, if any, and interest (to the extent permitted by law), if any, on the
Notes and the performance of all other Obligations of the Company to the Holders
or the Trustee under this Indenture and the Notes, the Company hereby covenants
to cause the Collateral Agreements to be executed and delivered concurrently
with this Indenture. The Collateral Agreements shall grant to the Collateral
Agent first priority Security Interests in the Collateral and shall be deemed
hereby incorporated by reference herein to the same extent and as fully as if
set forth in their entirety at this place, and reference is made hereby to each
Collateral Agreement for a more
-75-
<PAGE>
complete description of the terms and provisions thereof, subject to the
McDonald's Senior Liens.
Each Holder, by its acceptance of a Note, consents and agrees to the
terms of each Collateral Agreement, as the same may be in effect or may be
amended from time to time in accordance with its terms, and authorizes and
directs the Trustee and the Collateral Agent to enter into the Collateral
Agreements and to perform its obligations and exercise its rights thereunder in
accordance therewith. The Company shall, and shall cause each of its
Subsidiaries to, do or cause to be done all such actions and things as may be
necessary or proper, or as may be required by the provisions of the Collateral
Agreements, to assure and confirm to the Trustee and the Collateral Agent the
Security Interests in the Collateral contemplated hereby and by the Collateral
Agreements, as from time to time constituted, so as to render the same available
for the security and benefit of this Indenture and of the Notes secured hereby,
according to the interest and purpose herein and therein expressed. The Company
shall, and shall cause each of its Subsidiaries to, take, upon request of the
Trustee or the Collateral Agent, any and all actions required to cause the
Collateral Agreements to create and maintain, as security for the Obligations
contained in this Indenture and the Notes, valid and enforceable, perfected
(except as expressly provided herein, therein or in an Intercreditor Agreement)
first priority Security Interests in and on all the Collateral, in favor of the
Collateral Agent, superior to and prior to the rights of all third Persons, and
subject to no other Liens, in each case, except as expressly provided herein,
therein, in an Intercreditor Agreement, in the Subordination Agreement or in the
McDonald's Documents.
SECTION 10.02. EXECUTION OF INTERCREDITOR AGREEMENT.
Subject to the provisions of Article Twelve and other applicable
provisions of this Indenture, the Company is permitted to enter into an Eligible
Credit Facility at any time on or after the Issue Date; PROVIDED that (i)
entering into the Eligible Credit Facility is not prohibited by Section 4.12 and
(ii) the Liens upon any property or assets of the Company securing Indebtedness
under the Eligible Credit Facility are Permitted Liens, in each case, as
evidenced to the Trustee in an Officers' Certificate delivered to the Trustee
concurrently with the entering into an Eligible Credit Facility. As a condition
precedent to the Company's ability to enter into such Eligible Credit Facility,
the Company and any Lenders party thereto shall execute and deliver to the
Trustee an Intercreditor Agreement, substantially in the form of Exhibit G
attached hereto, providing, among other things, that (i) such Lenders' security
interest in certain of the assets of the Company shall be senior to the
Collateral Agent's security interest in such assets, (ii) during any insolvency
proceedings, the Lenders and the Collateral Agent will coordinate their efforts
to give effect to the relative priority of their security interests in such
properties and assets, and (iii) following an Event of Default, all decisions
with respect to such properties and assets, including the time and method of any
disposition thereof, will be made in accordance with the terms of such
Intercreditor Agreement, in each case, subject to the terms and provisions of
this Indenture and the Collateral Agreements.
-76-
<PAGE>
SECTION 10.03. RECORDING AND OPINIONS.
(a) The Company shall take or cause to be taken all action required
to perfect, maintain, preserve and protect the Security Interests in the
Collateral and the Escrow Funds and the Pledged Securities in the Escrowed
Interest Account granted by the Collateral Agreements, including, without
limitation, (i) the filing of financing statements, continuation statements,
collateral assignments and any instruments of further assurance, in such manner
and in such places as may be required by law to preserve and protect fully the
rights of the Holders, the Trustee and the Collateral Agent under this Indenture
and the Collateral Agreements to all property comprising the Collateral, and
(ii) the delivery of the certificates evidencing the securities pledged under
the Pledge Agreement, the Subsidiary Pledge Agreements and the Escrow Agreement,
duly endorsed in blank. The Company shall from time to time promptly pay all
financing and continuation statement recording and/or filing fees, charges and
taxes relating to this Indenture, the Collateral Agreements, the Intercreditor
Agreement and any amendments hereto or thereto and any other instruments of
further assurance required pursuant hereto or thereto.
(b) The Company shall furnish to the Trustee and the Collateral Agent
(if other than the Trustee), on the Closing Date, at such time as required by
Section 314(b) of the TIA, and promptly after the execution and delivery of any
other instrument of further assurance or amendment granting, perfecting,
protecting, preserving or making effective a security interest pursuant to any
Collateral Agreement, an Opinion of Counsel either (i) stating that, in the
opinion of such counsel, this Indenture and the Collateral Agreements, financing
statements and fixture filings then executed and delivered, as applicable, and
all other instruments of further assurance or amendment then executed and
delivered have been properly recorded, registered and filed, and all
certificates evidencing Pledged Securities pledged to the Trustee and the
Holders under the Escrow Agreement and the securities pledged to the Trustee and
the Holders under the Pledge Agreement and the Subsidiary Pledge Agreements have
been delivered and duly endorsed in blank, to the extent necessary to perfect
the Security Interests created by this Indenture and the Collateral Agreements
and reciting the details of such action or referring to prior Opinions of
Counsel in which such details are given, and stating that as to such Collateral
Agreements and such other instruments, such recording, registering, filing and
delivery are the only recordings, registerings, filings and deliveries necessary
to perfect such security interest and that no re-recordings, re-registerings,
re-filings or re-deliveries are necessary to maintain such perfection, and
further stating that all financing statements and continuation statements have
been executed and filed, and all such certificates have been delivered, that are
necessary fully to preserve and protect the rights of and perfect such security
interests of the Holders, the Trustee and the Collateral Agent hereunder and
under the Collateral Agreements or (ii) stating that, in the Opinion of such
Counsel, no such action is necessary to perfect any Security Interest created
under this Indenture, the Notes or any of the Collateral Agreements as intended
by this Indenture, the Notes and such Collateral Agreements.
(c) Annually, within 30 days after January 1 and beginning with the
year 1998, the Company shall furnish to the Trustee and the Collateral Agent (if
other than the Trustee), an Opinion of Counsel, dated as of such date, either
(i) stating that: (A) in the
-77-
<PAGE>
opinion of such counsel, action has been taken with respect to the registering,
recording, filing, re-recording, re-registering and refiling of this Indenture,
and all supplemental indentures, financing statements, continuation statements
and other documents, and delivery of all certificates, as are then necessary to
perfect or continue the perfection of the Security Interests created by the
Collateral Agreements and reciting the details of such action or referring to
prior Opinions of Counsel in which such details are given; and (B) based on
relevant laws as in effect on the date of such Opinion of Counsel, all financing
statements, continuation statements and other documents have been executed and
filed that are necessary as of such date and during the succeeding 24 months
fully to maintain, perfect or continue the perfection of such Security Interests
under the Collateral Agreements with respect to the Collateral and to maintain,
preserve, and protect the rights of the Holders and the Trustee hereunder and
under the Collateral Agreements or (ii) stating that, in the opinion of such
counsel, no such action is then necessary to perfect or continue the perfection
of such Security Interests.
SECTION 10.04. RELEASE OF COLLATERAL.
(a) Neither the Collateral Agent nor the Trustee, in its capacity as
Collateral Agent under the Collateral Agreements, shall at any time release
Collateral from the Security Interests created by this Indenture and the
Collateral Agreements unless such release is in accordance with the provisions
of this Indenture and the applicable Collateral Agreements.
(b) At any time when a Default or an Event of Default shall have
occurred and be continuing, no release of Collateral pursuant to the provisions
of this Indenture and the Collateral Agreements shall be effective as against
the Holders.
(c) The release of any Collateral from the terms of the Collateral
Agreements shall not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Collateral is
released pursuant to this Indenture and the Collateral Agreements. To the
extent applicable, the Company shall cause TIA Section 314(d) relating to the
release of property from the Security Interests created by this Indenture and
the Collateral Agreements to be complied with. Any certificate or opinion
required by TIA 314(d) may be made by an Officer of the Company, except in cases
where TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected or approved by the Trustee in the exercise of reasonable
care. A Person is "independent" if such Person (a) is in fact independent, (b)
does not have any direct financial interest or any material indirect financial
interest in the Company or in any Affiliate of the Company and (c) is not an
officer, employee, promoter, underwriter, trustee, partner or director or person
performing similar functions to any of the foregoing for the Company. The
Trustee shall be entitled to receive and rely upon a certificate provided by any
such Person confirming that such Person is independent within the foregoing
definition.
-78-
<PAGE>
SECTION 10.05. SPECIFIED RELEASES OF COLLATERAL.
(a) The Company shall be entitled to obtain a full release of items
of Collateral (the "Released Interests") from the Security Interests created by
this Indenture, the Notes and the Collateral Agreements upon compliance with the
conditions precedent set forth in Sections 4.15, 8.01 and 8.02 of this Indenture
and the applicable Collateral Agreements. So long as no Default or Event of
Default exists, upon the request of the Company and the furnishing of each of
the items required by Section 10.05(b), the Collateral Agent upon the direction
of the Trustee (or the Trustee if acting as Collateral Agent) shall forthwith
take all necessary action (at the request of and the expense of the Company,
without recourse or warranty) to release and reconvey to the Company all of the
Released Interests, and shall deliver such Released Interests in its possession
to the Company and its applicable Subsidiary Guarantors.
(b) So long as no Default or Event of Default exists, the Company
shall be entitled to obtain a release of, and the Collateral Agent and the
Trustee shall release, the Released Interests upon compliance with the condition
precedent that the Company shall have satisfied all applicable conditions
precedent to any such release set forth in this Indenture and the applicable
Collateral Agreements and shall have delivered to the Trustee and the Collateral
Agent the following, as applicable; PROVIDED, HOWEVER, that any release pursuant
to the Escrow Agreement shall be made in accordance with Section 10.10 hereof
and the terms and provisions of the Escrow Agreement:
(i) in connection with release of Collateral resulting from an
Asset Sale under Section 4.15, notice from the Company requesting the
release of Released Interests: (A) describing the proposed Released
Interests; (B) specifying the value of such Released Interests on a date
within 60 days of such notice (the "Valuation Date"); (C) stating that the
release of such Released Interests will not be expected to interfere with
the Collateral Agent's ability to realize the value of the remaining
Collateral and will not impair the maintenance and operation of the
remaining Collateral; and (D) certifying that such Asset Sale complies with
the terms and conditions of this Indenture and the applicable Collateral
Agreements with respect thereto;
(ii) in connection with release of Collateral resulting from an
Asset Sale under Section 4.15, an Officers' Certificate of the Company
stating that (A) such Asset Sale covers only the Released Interests and
complies with the terms and conditions of this Indenture with respect to
Asset Sales; (B) all Net Cash Proceeds from the sale of any of the Released
Interests will be applied pursuant to the provisions of this Indenture in
respect of Asset Sales; (C) there is no Default or Event of Default in
effect or continuing on the date thereof, the Valuation Date or the date of
such Asset Sale; (D) the release of the Collateral will not result in a
Default or Event of Default under this Indenture; and (E) all conditions
precedent in this Indenture relating to the release in question have been
or will be complied with;
-79-
<PAGE>
(iii) in connection with release of Collateral resulting from
an Asset Sale under Section 4.15, the Net Cash Proceeds and other non-cash
consideration from the Asset Sale required to be delivered to the
Collateral Agent pursuant to this Indenture;
(iv) to the extent required by the TIA, an Officers' Certificate
of the Company and an Opinion of Counsel certifying that all conditions
precedent to the release of the Released Interests have been met and that
such release complies with the terms and conditions of this Indenture and
the applicable Collateral Agreements; and
(v) all applicable certificates, opinions and other
documentation required by the TIA or this Indenture, if any.
Upon compliance by the Company with the conditions precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Company, the
Released Interests.
Notwithstanding anything to the contrary in this Article Ten, nothing
herein shall prevent, impede, compromise or limit in any manner whatsoever, the
full release of the McDonald's Collateral pursuant to the terms of the
McDonald's Documents, the Subordination Agreement and any Mortgages securing the
Company's obligations to McDonald's under the McDonald's Documents.
SECTION 10.06. FORM AND SUFFICIENCY OF RELEASE.
In the event that the Company has sold, exchanged, or otherwise
disposed of or proposes to sell, exchange or otherwise dispose of any portion of
the Collateral that may be sold, exchanged or otherwise disposed of by the
Company, and the Company requests the Trustee or the Collateral Agent to furnish
a written disclaimer, release or quit-claim of any interest in such property
under this Indenture and the Collateral Agreements, the Collateral Agent and the
Trustee, in its capacity as Collateral Agent under the Collateral Agreements,
shall execute, acknowledge and deliver to the Company (in proper form) such an
instrument promptly after satisfaction of the conditions set forth herein for
delivery of any such release. Notwithstanding the preceding sentence, all
purchasers and grantees of any property or rights purporting to be released
herefrom shall be entitled to rely upon any release executed by the Trustee
hereunder as sufficient for the purpose of this Indenture and as constituting a
good and valid release of the property therein described from the Lien of this
Indenture or of the Collateral Agreements.
SECTION 10.07. PURCHASER PROTECTED.
No purchaser or grantee of any property or rights purporting to be
released herefrom shall be bound to ascertain the authority of the Trustee or
the Collateral Agent to
-80-
<PAGE>
execute the release or to inquire as to the existence of any conditions herein
prescribed for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Indenture to be sold or
otherwise disposed of by the Company be under any obligation to ascertain or
inquire into the authority of the Company to make such sale or other
disposition.
SECTION 10.08. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE
UNDER THE COLLATERAL AGREEMENTS.
Subject to the provisions of the applicable Collateral Agreements, the
Subordination Agreement and an Intercreditor Agreement, (a) the Trustee and the
Collateral Agent may, in their sole discretion and without the consent of the
Holders, take all actions they deem necessary or appropriate in order to
(i) enforce any of the terms of the Collateral Agreements and (ii) collect and
receive any and all amounts payable in respect of the Obligations of the Company
hereunder, and (b) the Trustee and the Collateral Agent shall have power to
institute and to maintain such suits and proceedings as they may deem expedient
to prevent any impairment of the Collateral by any act that may be unlawful or
in violation of the Collateral Agreements or this Indenture, and suits and
proceedings as the Trustee and the Collateral Agent may deem expedient to
preserve or protect their interests and the interests of the Holders in the
Collateral (including the power to institute and maintain suits or proceedings
to restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest thereunder or be prejudicial to the interests
of the Holders, the Trustee or the Collateral Agent).
SECTION 10.09. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER
THE COLLATERAL AGREEMENTS.
The Trustee is authorized to receive any funds for the benefit of the
Holders distributed under the Collateral Agreements, and to make further
distributions of such funds to the Holders in accordance with the provisions of
Section 6.10 and the other provisions of this Indenture.
SECTION 10.10. ESCROWED INTEREST ACCOUNT.
(a) On the Issue Date, the Company shall execute and deliver the
Escrow Agreement and comply with the terms and provisions thereof, including,
without limitation, depositing or causing to be deposited the Escrow Funds in
the Escrowed Interest Account or any related account pursuant to the terms of
the Escrow Agreement. The Trustee shall establish and maintain the Escrowed
Interest Account in accordance with the terms and provisions of this Indenture
and the Escrow Agreement, and the Trustee shall hold the Escrow Funds and
Pledged Securities for the equal and ratable benefit of the Holders without
-81-
<PAGE>
preference, priority or distinction of any thereof over any other by reason of
difference in time of issuance, sale or otherwise, as security for the Company's
obligations to (i) provide for payment in full of the scheduled interest
payments due on the Notes through and including August 1, 1999 and (ii) secure
repayment of the principal, premium, if any, and interest on the Notes in the
event that the Notes become due and payable prior to the payment in full of all
scheduled interest payments due and payable under this Indenture and the Notes
through and including August 1, 1999.
(b) The Trustee shall have sole dominion and control over the
Escrowed Interest Account and the funds and securities from time to time on
deposit therein, and such funds and securities may be withdrawn or transferred
from the Escrowed Interest Account only in accordance with the provisions of
this Indenture and the Escrow Agreement. Subject to certain limitations set
forth in the Escrow Agreement, the Company may direct the Trustee to release
from the Escrowed Interest Account certain Escrow Funds or Pledged Securities
upon an optional redemption of the Notes with the net proceeds of a Primary
Offering. Additionally, after disbursing each of the scheduled interest
payments on the Notes through and including August 1, 1999 and compliance with
the provisions of Section 10.10(e), any remaining Escrow Funds and Pledged
Securities will be released and disbursed from the Escrowed Interest Account and
paid to the Company to such accounts as may be designated by the Company in
written instructions delivered to the Trustee.
(c) The Escrow Funds shall be invested by the Trustee in Pledged
Securities, pursuant to specific, written directions of the Company, as soon as
practicable after the Issue Date. Interest and other earnings on the Pledged
Securities will be added to the Escrowed Interest Account and will secure the
repayment of the principal, premium, if any, and interest on the Notes.
(d) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Escrow Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities and other assets
held in connection therewith) as the same may be in effect or may be amended
from time to time in accordance with its terms, and authorizes and directs the
Trustee to enter into the Escrow Agreement and to perform its respective
obligations and exercise its respective rights thereunder in accordance
therewith. The Company shall take, or shall cause to be taken, any and all
actions as may be necessary or proper, or as may be required hereunder or under
the Escrow Agreement (and any action requested by the Trustee) to cause the
Escrow Agreement, subject to the provisions therein and of this Indenture,
(A) to create and maintain, as security for certain of the Obligations of the
Company under this Indenture and the Notes, valid and enforceable first priority
Liens in and on the Escrowed Interest Account, the Escrow Funds and the Pledged
Securities, in favor of the Trustee, superior to and prior to the rights of
third Persons and subject to no other Liens, and (B) to assure and confirm to
the Trustee such Liens in the Escrowed Interest Account, the Escrow Funds and
the Pledged Securities so as to render the same available for the security and
benefit of this Indenture and of the Notes secured hereby, according to the
intent and purposes herein expressed.
-82-
<PAGE>
(e) The Trustee shall release from the Escrowed Interest Account any
Escrow Funds or Pledged Securities held in the Escrowed Interest Account upon
the delivery by the Company to the Trustee of the following:
(i) a notice from the Company requesting the release of such
Escrow Funds or Pledged Securities and certifying that release of such
Escrow Funds or Pledged Securities complies with the terms and
conditions of this Indenture and the Escrow Agreement with respect
thereto;
(ii) an Officers' Certificate of the Company stating that (A)
there is no Default or Event of Default in effect or continuing on the
date thereof, (B) the release of such Escrow Funds or Pledged
Securities will not result in a Default or Event of Default under this
Indenture, (C) all payments contemplated by and under the Escrow
Agreement, including, without limitation, each of the scheduled
interest payments to be made hereunder and in accordance with the
Notes through and including August 1, 1999 (except in the case of an
optional redemption of the Notes with the net proceeds of a Primary
Offering), have been paid in full without any claim, setoff, or
defense, and (D) all conditions precedent in this Indenture and the
Escrow Agreement relating to the release of the Escrow Funds or
Pledged Securities in question have been complied with; and
(iii) all other documentation required by the TIA and this
Indenture, if any.
The release of any Escrow Funds or Pledged Securities from the
Escrowed Interest Account pursuant to the Escrow Agreement will not be deemed to
impair the security under this Indenture in contravention of the provisions
hereof if and to the extent the Escrow Funds or Pledged Securities are released
pursuant to this Indenture, including, without limitation, this Article Ten, the
Escrow Agreement and the other Collateral Agreements.
(f) The Trustee, in its sole discretion and without the consent of
the Holders, may, and at the request of the Holders of at least 25% in aggregate
principal amount of Notes then outstanding shall, on behalf of the Holders, take
all actions it deems necessary or appropriate in order to (i) enforce any of the
terms of the Escrow Agreement and (ii) collect and receive any and all amounts
payable in respect of the obligations of the Company thereunder (subject, in
each case, to Article Seven hereof). The Trustee shall have power to institute
and to maintain such suits and proceedings as the Trustee may deem expedient to
preserve or protect its interests and the interests of the Holders in the
Escrowed Interest Account, the Escrow Funds and the Pledged Securities
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interests thereunder or be prejudicial to the interests of
the Holders or of the Trustee).
-83-
<PAGE>
ARTICLE ELEVEN
GUARANTEE
SECTION 11.01. UNCONDITIONAL GUARANTEE.
(a) In consideration of the promises contained herein and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each of the Subsidiary Guarantors hereby, jointly and severally,
irrevocably and unconditionally guarantees and agrees to be liable on a senior
secured basis to each Holder of a Note authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, irrespective of the
validity and enforceability of this Indenture, the Notes or the Obligations of
the Company or any other Subsidiary Guarantor under this Indenture or the Notes,
that: (a) the principal of, premium, if any, and interest on the Notes (and any
Additional Interest payable thereon) shall be duly and punctually paid in full
when due, whether at maturity, upon redemption (whether upon a Change of Control
or pursuant to a Net Proceeds Offer or otherwise), by acceleration or otherwise,
and interest on the overdue principal and (to the extent permitted by law)
interest, if any, on the Notes and all other Obligations of the Company or the
Subsidiary Guarantors to the Holders or the Trustee hereunder or thereunder
(including amounts due the Trustee under Section 7.07 hereof), shall be promptly
paid in full or performed, all in accordance with the terms hereof and thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other Obligations of the Company, the same shall be promptly paid in
full when due or performed in accordance with the terms of extension or renewal,
whether at maturity, upon redemption, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed, or failing performance of any
other Obligation of the Company to the Holders or the Trustee under this
Indenture or under the Notes, for whatever reason, each Subsidiary Guarantor
shall be obligated to pay, or to perform or cause the performance of, the same
immediately. An Event of Default under this Indenture or the Notes shall
constitute an event of default under each such Subsidiary Guarantee, and shall
entitle the Holders or Trustee to accelerate the Obligations of the Subsidiary
Guarantors under the Subsidiary Guarantees in the same manner and to the same
extent as the Obligations of the Company hereunder or under the Notes.
(b) Each of the Subsidiary Guarantors hereby agrees that its
Obligations under its Subsidiary Guarantee shall be unconditional, irrespective
of the validity, regularity or enforceability of the Notes or this Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions thereof, any release of any
other Subsidiary Guarantor, the recovery of any judgment against the Company,
any action to enforce the same, whether or not a Subsidiary Guarantee is affixed
to any particular Note, or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. Each of
the Subsidiary Guarantors hereby waives the benefit of diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that its
Subsidiary Guarantee shall not be discharged except by complete
-84-
<PAGE>
performance of the Obligations contained in the Notes, this Indenture and its
Subsidiary Guarantee. Each Subsidiary Guarantee shall be a guarantee of payment
and not of collection. If any Holder or the Trustee is required by any court or
otherwise to return to the Company or to any Subsidiary Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Company or such Subsidiary Guarantor, any amount paid by the Company or such
Subsidiary Guarantor to the Trustee or such Holder, the Subsidiary Guarantee, to
the extent theretofore discharged, shall be reinstated in full force and effect.
Each Subsidiary Guarantor shall further agree that, as between it, on the one
hand, and the Holders and the Trustee, on the other hand, (a) subject to this
Article Eleven, the maturity of the Obligations guaranteed may be accelerated as
provided in Article Six hereof for the purposes of its Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed thereby, and (b) in the
event of any acceleration of such Obligations as provided in Article Six hereof,
such Obligations (whether or not due and payable) shall forthwith become due and
payable jointly and severally by each Subsidiary Guarantor for the purpose of
its Subsidiary Guarantee.
(c) The Obligations of each Subsidiary Guarantor hereunder are
secured by and under the respective Subsidiary Security Agreements executed and
delivered in connection herewith, pursuant to which each Subsidiary Guarantor
has granted, and each future Subsidiary that becomes a Subsidiary Guarantor
shall grant, a first priority perfected security interest in and lien on the
assets and properties of each such Subsidiary Guarantor. The Company agrees to
cause each Person that shall become a Subsidiary (other than Block Party or any
Limited Investment Subsidiary) after the date of this Indenture to become a
Subsidiary Guarantor and execute and deliver a supplement to this Indenture,
pursuant to which such Person will guarantee the Obligations of the Company on
the same terms and conditions as contained in this Article Eleven.
SECTION 11.02 LIMITATIONS ON SUBSIDIARY GUARANTEES.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee will be limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Subsidiary Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the Obligations of such Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to its contribution
Obligations under this Indenture, will result in the Obligations of such
Subsidiary Guarantor under the applicable Subsidiary Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under federal or state law.
SECTION 11.03. EVIDENCE OF EXECUTION AND DELIVERY OF
SUBSIDIARY GUARANTEE.
(a) To further evidence each Subsidiary Guarantee referred to in
Section 11.01 hereby, each Subsidiary Guarantor shall agree that a notation of
such
-85-
<PAGE>
Subsidiary Guarantee, substantially in the form of Exhibit J herein, shall be
endorsed on each Note authenticated and delivered by the Trustee. Each such
endorsement shall be executed on behalf of each Subsidiary Guarantor by either
manual or facsimile signature of two Officers of each Subsidiary Guarantor, each
of whom, in each case, shall have been duly authorized to so execute by all
requisite corporate action. The validity and enforceability of any Subsidiary
Guarantee shall not be affected by the fact that it is not affixed to any
particular Note.
(b) Each of the Subsidiary Guarantors hereby agrees that its
Subsidiary Guarantee set forth in Section 11.01 hereby shall remain in full
force and effect notwithstanding any failure to so endorse on each Note a
notation of such Subsidiary Guarantee.
(c) If an Officer of a Subsidiary Guarantor whose signature is on a
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which such Subsidiary Guarantee is endorsed or at any
time thereafter, such Subsidiary Guarantor's Subsidiary Guarantee of such Note
shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of any Subsidiary Guarantee set
forth in this Indenture on behalf of each Subsidiary Guarantor.
SECTION 11.04. RELEASE OF A SUBSIDIARY GUARANTOR.
(a) If no Default or Event of Default exists or would exist under
this Indenture upon the sale or disposition of all of the Capital Stock of a
Subsidiary Guarantor by the Company or a Subsidiary of the Company in a
transaction constituting an Asset Sale, the Net Cash Proceeds of which are
applied in accordance with Section 4.15, or upon the consolidation or merger of
a Subsidiary Guarantor with or into any Person in compliance with Article Five
(in each case, other than to the Company or an Affiliate of the Company or a
Subsidiary), such Subsidiary Guarantor and each Subsidiary of such Subsidiary
Guarantor that is also a Subsidiary Guarantor shall be deemed released from all
Obligations under this Article Eleven and its Subsidiary Guarantee without any
further action required on the part of the Trustee or any Holder; PROVIDED,
HOWEVER, that each Subsidiary Guarantor is sold or disposed of in accordance
with this Indenture and, PROVIDED, further, that any such release shall occur
only to the extent that all Obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee, and under any Subsidiary Security Agreement shall also
terminate or be released upon such sale or transfer. Any Subsidiary Guarantor
not so released or the entity surviving such Subsidiary Guarantor, as
applicable, shall remain or be liable under its Subsidiary Guarantee and any
Subsidiary Security Agreement as provided in this Indenture.
(b) The Trustee shall deliver an appropriate instrument evidencing
the release of a Subsidiary Guarantor upon receipt of a request by the Company
or such Subsidiary Guarantor accompanied by an Officers' Certificate and an
Opinion of Counsel certifying as to the compliance with this Section 11.04,
PROVIDED the legal counsel delivering
-86-
<PAGE>
such Opinion of Counsel may rely as to matters of fact on one or more Officers'
Certificates of the Company.
(c) The Trustee shall execute any documents reasonably requested by
the Company or a Subsidiary Guarantor in order to evidence the release of such
Subsidiary Guarantor from its obligations under its Subsidiary Guarantee,
whether or not endorsed on the Notes, any Subsidiary Security Agreement and
under this Article Eleven.
Except as set forth in Articles Four and Five of this Indenture and
this Section 11.04, nothing contained in this Indenture or in any of the Notes
shall prevent any consolidation or merger of a Subsidiary Guarantor with or into
the Company or another Subsidiary Guarantor or shall prevent any sale or
conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or another Subsidiary Guarantor.
SECTION 11.05. WAIVER OF SUBROGATION.
Until this Indenture is discharged and all of the Notes are discharged
and paid in full, each Subsidiary Guarantor shall irrevocably waive and agree
not to exercise any claim or other rights which it may hereafter acquire against
the Company that arise from the existence, payment, performance or enforcement
of the Obligations of the Company under the Notes or this Indenture and such
Subsidiary Guarantor's Obligations under its Subsidiary Guarantee, Subsidiary
Security Agreement and this Indenture, in any such instance, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, and any right to participate in any claim, remedy or right
arises in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Subsidiary Guarantor in violation of the preceding sentence
and any amounts owing to the Trustee or the Holders under the Notes, this
Indenture, or any other document or instrument delivered under or in connection
with such agreements or instruments, shall not have been paid in full, such
amount shall have been deemed to have been paid to such Subsidiary Guarantor for
the benefit of, and held in trust for the benefit of, the Trustee or the Holders
and shall forthwith be paid to the Trustee for the benefit of itself or such
Holders to be credited against and applied to the Obligations of the Company,
whether matured or unmatured, in accordance with the terms of this Indenture.
Each Subsidiary Guarantor hereby acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that the waiver set forth in this Section 11.05 is knowingly made in
contemplation of such benefits.
SECTION 11.06. IMMEDIATE PAYMENT.
Each Subsidiary Guarantor shall agree to make immediate payment to the
Trustee on behalf of the Holders of all Obligations of the Company and such
Subsidiary
-87-
<PAGE>
Guarantor owing or payable to the respective Holders upon receipt of a demand
for payment therefor by the Trustee to such Subsidiary Guarantor in writing.
Each of the Subsidiary Guarantors agrees that neither the Trustee nor the
Holders need attempt to collect any amounts guaranteed hereunder from the
Company, any other Subsidiary Guarantor or any other Person or to realize upon
any Collateral, but may require any one of the Subsidiary Guarantors to make
immediate payment of all of such guaranteed amounts to the Holders when due,
whether by maturity, acceleration, redemption or otherwise, or at any time
thereafter.
SECTION 11.07. NO SET-OFF.
Each payment to be made by a Subsidiary Guarantor hereunder in respect
of the Obligations under its Subsidiary Guarantee shall be payable in the
currency or currencies in which such Obligations are denominated, and shall be
made without set-off, counterclaim, reduction or diminution of any kind or
nature.
SECTION 11.08. OBLIGATIONS ABSOLUTE.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee shall be absolute and unconditional and any monies or amounts
expressed to be owing or payable by each Subsidiary Guarantor which may not be
recoverable from such Subsidiary Guarantor on the basis of a Subsidiary
Guarantee shall be recoverable from such Subsidiary Guarantor as a primary
obligor and principal debtor in respect thereof.
SECTION 11.09. OBLIGATIONS CONTINUING.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee shall be continuing and shall remain in full force and effect until
all the Obligations hereunder have been paid and satisfied in full. Each
Subsidiary Guarantor hereby agrees with the Trustee that it will from time to
time deliver to the Trustee suitable acknowledgments of this continued liability
hereunder and under any other instrument or instruments in such form as counsel
to the Trustee may advise and as will prevent any action brought against it in
respect of any default hereunder being barred by any statute of limitations now
or hereafter in force and, in the event of the failure of a Subsidiary Guarantor
so to do, it shall irrevocable appoint the Trustee, the attorney and agent of
such Subsidiary Guarantor to make, execute and deliver such written
acknowledgment or acknowledgments or other instruments as may from time to time
become necessary or advisable, in the judgment of the Trustee on the advice of
counsel, to fully maintain and keep in force the liability of such Subsidiary
Guarantor under its Subsidiary Guarantee.
-88-
<PAGE>
SECTION 11.10. OBLIGATIONS NOT REDUCED.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee shall not be satisfied, reduced or discharged solely by the payment of
such principal, premium, if any, interest, fees and other monies or amounts as
may at any time prior to discharge of this Indenture pursuant to Article Eight
be or become owing or payable under or by virtue of or otherwise in connection
with the Notes of this Indenture.
SECTION 11.11. OBLIGATIONS REINSTATED.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee shall continue to be effective or shall be reinstated, as the case may
be, if at any time any payment which would otherwise have reduced such
Obligations of any Subsidiary Guarantor (whether such payment shall have been
made by or on behalf of the Company or by or on behalf of a Subsidiary
Guarantor) is rescinded or reclaimed from any of the Holders upon the
insolvency, bankruptcy, liquidation or reorganization of the Company or any
Subsidiary Guarantor or otherwise, all as though such payment had not been made.
If demand for, or acceleration of the time for, payment by the Company is stayed
upon the insolvency, bankruptcy, liquidation or reorganization of the Company,
all such Indebtedness otherwise subject to demand for payment or acceleration
shall nonetheless be payable by each Subsidiary Guarantor as provided herein.
SECTION 11.12. OBLIGATIONS NOT AFFECTED.
The Obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee shall not be affected, impaired or diminished in any way by any act,
omission, matter or thing whatsoever, occurring before, upon or after any demand
for payment (and whether or not known or consented to by any Subsidiary
Guarantor or any of the Holders) which, but for this provision, might constitute
a whole or partial defense to a claim against any Subsidiary Guarantor under its
Subsidiary Guarantee or might operate to release or otherwise exonerate any
Subsidiary Guarantor from any of its Obligations or otherwise affect such
Obligations, whether occasioned by default of any of the Holders or otherwise,
including, without limitation:
(a) any limitation of status or power, disability, incapacity or
other circumstance relating to the Company or any other Person, including any
insolvency, bankruptcy, liquidation, reorganization, readjustment, composition,
dissolution, winding-up or other proceeding involving or affecting either the
Company or any other Person;
(b) any irregularity, defect, unenforceability or invalidity in
respect of any Indebtedness or other Obligation of the Company or any other
Person under this Indenture, the Notes or any other document or instrument;
-89-
<PAGE>
(c) any failure of the Company, whether or not without fault on its
part, to perform or comply with any of the provisions of this Indenture or the
Notes, or to give notice thereof to a Subsidiary Guarantor;
(d) the taking or enforcing or exercising or the refusal or neglect
to take or enforce or exercise any right or remedy from or against the Company
or any other Person or their respective assets or the release or discharge of
any such right or remedy;
(e) the granting of time, renewals, extensions, compromises,
concessions, waivers, releases, discharges and other indulgences to the Company
or any other Person;
(f) any change in the time, manner or place of payment of, or in any
other term of, any of the Notes, or any other amendment, variation, supplement,
replacement or waiver of, or any consent to departure from, any of the Notes or
this Indenture, including, without limitation, any increase or decrease in the
principal amount of or premium, if any, or interest on any of the Notes;
(g) any change in the ownership, control, name, objects, businesses,
assets, capital structure or constitution of the Company or a Subsidiary
Guarantor;
(h) any merger or amalgamation of the Company or a Subsidiary
Guarantor with any Person or Persons other than the Company;
(i) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of any
governmental authority or court amending, varying, reducing or otherwise affect,
any of the Obligations of the Company under this Indenture or the Notes or the
Obligations of a Subsidiary Guarantor under its Subsidiary Guarantee; and
(j) any other circumstance, including release of the Subsidiary
Guarantor pursuant to Section 11.04 hereof (other than by complete, irrevocable
payment) that might otherwise constitute a legal or equitable discharge or
defense of the Company under this Indenture or the Notes or of a Subsidiary
Guarantor in respect of its Subsidiary Guarantee.
SECTION 11.13. WAIVER.
Without in any way limiting the provisions of Section 11.01 hereof,
each Subsidiary Guarantor hereby waives notice of acceptance hereof, notice of
any liability of any Subsidiary Guarantor under its Subsidiary Guarantee, notice
or proof of reliance by the Holders upon the Obligations of any Subsidiary
Guarantor under its Subsidiary Guarantee, and diligence, presentment, demand for
payment on the Company, protest, notice of dishonor or non-payment of any of the
Company's Obligations under this Indenture or the Notes, or other notice or
formalities to the Company or any Subsidiary Guarantor of any kind whatsoever.
-90-
<PAGE>
SECTION 11.14. NO OBLIGATION TO TAKE ACTION AGAINST THE COMPANY.
Neither the Trustee nor any other Person shall have any obligation to
enforce or exhaust any rights or remedies or to take any other steps under any
security for the Obligations of the Company under this Indenture or the Notes,
or against the Company or any other Person or any assets or properties of the
Company or any other Person before the Trustee is entitled to demand payment and
performance by any or all Subsidiary Guarantors of their liabilities and
obligations under any Subsidiary Guarantees or under this Indenture.
SECTION 11.15. DEALING WITH THE COMPANY AND OTHERS.
The Holders or the Trustee, without releasing, discharging, limiting
or otherwise affecting in whole or in part the Obligations of any Subsidiary
Guarantor and without the consent of or notice to any Subsidiary Guarantor, may:
(a) grant time, renewals, extensions, compromises, concessions,
waivers, releases and discharges to the Company or any other Person;
(b) take or abstain from taking security or Collateral from the
Company or from perfecting security interests in the Collateral;
(c) release, discharge, compromise, realize, enforce or otherwise
deal with or do any act or thing in respect of (with or without consideration)
any and all collateral, mortgages or other security, including, without
limitation, the Collateral, given by the Company or any third party with respect
to the Obligations of the Company under, or matters contemplated by, this
Indenture or the Notes;
(d) accept compromises or arrangements from the Company;
(e) apply all monies at any time received from the Company or in
respect of the Collateral upon such part of the Obligations of the Company under
this Indenture or the Notes as the Holders may see fit or change any such
application in whole or in part from time to time as the Holders may see fit;
and
(f) otherwise deal with, or waive or modify their right to deal with,
the Company and all other Persons and any Collateral as the Holders or the
Trustee may see fit.
SECTION 11.16. DEFAULT AND ENFORCEMENT.
If any Subsidiary Guarantor fails to comply with Section 11.06 hereof,
the Trustee may proceed in its name as trustee hereunder in the enforcement of
the Subsidiary Guarantee and its Subsidiary Security Agreement of any such
Subsidiary Guarantor and such Subsidiary Guarantor's Obligations thereunder and
hereunder by any remedy provided by
-91-
<PAGE>
law, whether by legal proceedings or otherwise, and to recover from such
Subsidiary Guarantor the Company's Obligations under this Indenture and the
Notes.
SECTION 11.17. CERTAIN BANKRUPTCY EVENTS.
Each Subsidiary Guarantor hereby covenants and agrees, to the fullest
extent that it may do so under applicable law, that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Subsidiary Guarantor shall not file (or join in any filing of), or
otherwise seek to participate in the filing of, any motion or request seeking to
stay or to prohibit (even temporarily) execution on the Subsidiary Guarantee and
hereby waives and agrees not to take the benefit of any such stay of execution,
whether under Section 362 or 105 of the United States Bankruptcy Code or
otherwise.
SECTION 11.18. AMENDMENT, ETC.
No amendment, modification or waiver of any provision of this
Indenture relating to any Subsidiary Guarantor or consent to any departure by
any Subsidiary Guarantor or any other Persons from any such provision will in
any event be effective unless it is signed by such Subsidiary Guarantor and the
Trustee.
SECTION 11.19. ACKNOWLEDGMENT.
Each Subsidiary Guarantor hereby acknowledges communication of the
terms of this Indenture and the Notes and consents to and approves of the same.
SECTION 11.20. COSTS AND EXPENSES.
Each Subsidiary Guarantor shall pay on demand by the Trustee any and
all costs, fees and expenses (including, without limitation, legal fees)
incurred by the Trustee, its agents, advisors and counsel or any of the Holders
in enforcing any of their rights under any Subsidiary Guarantee or Subsidiary
Security Agreement.
SECTION 11.21. NO MERGER OR WAIVER; CUMULATIVE REMEDIES.
No Subsidiary Guarantee shall operate by way of merger of any of the
obligations of a Subsidiary Guarantor under any other agreement, including,
without limitation, this Indenture. No failure to exercise and no delay in
exercising, on the part of the Trustee or the Holders, any right, remedy, power
or privilege under this Indenture or the Notes, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege under this Indenture or the Notes preclude any other or further
-92-
<PAGE>
exercise thereof or the exercise of any other right, remedy power or privilege.
The rights, remedies, powers and privileges in each Subsidiary Guarantee and
under this Indenture, the Notes and any other document or instrument between a
Subsidiary Guarantor and/or the Company and the Trustee are cumulative and not
exclusive of any rights, remedies, powers and privilege provided by law.
SECTION 11.22. SURVIVAL OF OBLIGATIONS.
Without prejudice to the survival of any of the other obligations of
each Subsidiary Guarantor, the obligations of each Subsidiary Guarantor under
Section 11.01 hereof shall survive the payment in full of the Company's
Obligations under this Indenture and the Notes and shall be enforceable against
such Subsidiary Guarantor without regard to and without giving effect to any
defense, right of offset or counterclaim available to or which may be asserted
by the Company or any Subsidiary Guarantor.
SECTION 11.23. SUBSIDIARY GUARANTEE IN ADDITION TO OTHER OBLIGATIONS.
The obligations of each Subsidiary Guarantor under its Subsidiary
Guarantee and this Indenture are in addition to and not in substitution for any
other obligations to the Trustee or to any of the Holders in relation to this
Indenture or the Notes and any guarantees or security at any time held by or for
the benefit of any of them.
SECTION 11.24. SEVERABILITY.
Any provision of this Article Eleven which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any jurisdiction.
SECTION 11.25. SUCCESSORS AND ASSIGNS.
Each Subsidiary Guarantee shall be binding upon and inure to the
benefit of each Subsidiary Guarantor and the Trustee and the other Holders and
their respective successors and permitted assigns, except that no Subsidiary
Guarantor may assign any of its obligations hereunder or thereunder.
-93-
<PAGE>
ARTICLE TWELVE
AGREEMENT TO SUBORDINATE SECURITY INTEREST
SECTION 12.01. SUBORDINATION OF SECURITY INTEREST.
The Company agrees, and each Holder by its acceptance thereof likewise
agrees, that the Trustee, on behalf of each Holder, may enter into an
Intercreditor Agreement with the Company and any Lender in connection with an
Eligible Credit Facility pursuant to which, among other things, such Lender
shall be granted a first priority security interest in certain assets of the
Company to the extent of the Indebtedness outstanding under the Eligible Credit
Facility; PROVIDED, HOWEVER, that (i) entering into the Eligible Credit Facility
at the time the Intercreditor Agreement is entered into is not prohibited by
Section 4.12 and (ii) the Liens upon any Collateral securing Indebtedness under
the Eligible Credit Facility are Permitted Liens, both as evidenced to the
Trustee in an Officers' Certificate delivered to the Trustee concurrently with
the execution and delivery of the Intercreditor Agreement. Notwithstanding the
foregoing, the grant of a Lien on such assets pursuant to the terms of an
Eligible Credit Facility and the Intercreditor Agreement shall not, other than
as specifically set forth in the Intercreditor Agreement, adversely affect in
any manner whatsoever the Security Interests created by this Indenture, the
Notes and the Collateral Agreements.
SECTION 12.02. AUTHORIZATION OF TRUSTEE AND COLLATERAL AGENT.
Each Holder by his acceptance thereof authorizes and expressly directs
the Trustee and the Collateral Agent on its behalf to take such action as may be
necessary or appropriate to effectuate on or after the Issue Date the
subordination provided in this Article Twelve and appoints the Trustee and the
Collateral Agent his attorney-in-fact for such purpose.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the provision required to be included by the TIA shall control; PROVIDED,
HOWEVER, that this Section 13.01 shall not of itself require that this Indenture
or the Trustee be qualified under the TIA or constitute any admission or
acknowledgement by any party hereto that any such qualification
-94-
<PAGE>
is required prior to the time this Indenture and the Trustee are required by the
TIA to be so qualified.
SECTION 13.02. NOTICES.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: Chief Executive Officer
Telephone Number: (954) 627-2400
Telecopy Number: (954) 627-2760
if to the Trustee:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attn: Corporate Trust Department
Telephone Number: (617) 664-5326
Telecopy Number: (617) 664-5371
Each of the Company and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
faxed; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address shall
not be deemed to have been given until actually received by the addressee).
Any notice or communication mailed to a Holder shall be mailed to such
Holder by first class mail or other equivalent means at such Holder's address as
it appears on the registration books of the Registrar and shall be sufficiently
given to such Holder if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
-95-
<PAGE>
SECTION 13.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Company
shall furnish to the Trustee upon request:
(1) an Officers' Certificate, in form and substance reasonably
satisfactory to the Trustee, stating that, in the opinion of the signers,
all conditions precedent to be performed by the Company and any Subsidiary
Guarantor, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company and
any Subsidiary Guarantor, if any, PROVIDED for in this Indenture relating
to the proposed action have been complied with (which counsel, as to
factual matters, may rely on an Officers' Certificate).
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is reasonably necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that with
-96-
<PAGE>
respect to matters of fact, an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 13.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules in accordance with the Trustee's
customary practices for action by or at a meeting of Holders. The Paying Agent
or Registrar may make reasonable rules for its functions.
SECTION 13.07. LEGAL HOLIDAYS.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York, Boston, Massachusetts or Fort Lauderdale, Florida or at such place of
payment are not required to be open. If a payment date is a Legal Holiday at
such place, payment may be made at such place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 13.08. GOVERNING LAW; JURISDICTION; SUBMISSION TO VENUE.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO
AGREES TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COMPETENT COURTS OF
THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK OR THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. EACH OF THE COMPANY
AND THE SUBSIDIARY GUARANTORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
EACH OF THE COMPANY AND THE SUBSIDIARY GUARANTORS IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH OF THE COMPANY AND THE SUBSIDIARY GUARANTORS
IRREVOCABLY CONSENTS TO THE FULLEST
-97-
<PAGE>
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS
OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE COMPANY AND THE GUARANTORS AT THE ADDRESS SET FORTH HEREIN, SUCH SERVICE TO
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT ANY
RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY OR THE
SUBSIDIARY GUARANTORS IN ANY OTHER JURISDICTION.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or those of any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 13.10. NO RECOURSE AGAINST OTHERS.
No past, present or future director, officer, employee, incorporator
or stockholder of the Company or any Subsidiary Guarantor, as such, shall have
any liability for any Obligations of the Company or any Subsidiary Guarantor
under the Notes or this Indenture, any Subsidiary Guarantee, the Registration
Rights Agreement or the Collateral Agreements or for any claim based on, in
respect of, or by reason of such obligations or their creations. Each Holder by
accepting a Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Notes.
SECTION 13.11. SUCCESSORS.
All agreements of the Company and any Subsidiary Guarantor in this
Indenture and the Notes and under any Subsidiary Guarantee, as the case may be,
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 13.12. DUPLICATE ORIGINALS.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
-98-
<PAGE>
SECTION 13.13. SEVERABILITY.
In case any one or more of the provisions in this Indenture or in the
Notes shall be held invalid, illegal or unenforceable, in any respect for any
reason, the validity, legality and enforceability of any such provision in every
other respect and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
SECTION 13.14. INDEPENDENCE OF COVENANTS.
All covenants and agreements in this Indenture and the Notes shall be
given independent effect so that if any particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
SECTION 13.15 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms and provisions hereof.
-99-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
---------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and
President
Attest: /s/ Robert G. Rooney
-----------------------
Name: Robert G. Rooney
Title: Senior Vice President,
Chief Financial and
Administrative Officer
and Secretary
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ Mary Lee Storrs
----------------------------------------
Name: Mary Lee Storrs
Title:
SUBSIDIARY GUARANTORS
DISCOVERY ZONE LIMITED
By: /s/ Scott Bernstein
----------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and
President
Attest: /s/ Robert G. Rooney
-----------------------
Name: Robert G. Rooney
Title: Senior Vice President,
Chief Financial and
Administrative Officer
and Secretary
DISCOVERY ZONE (PUERTO RICO),
INC.
By: /s/ Scott Bernstein
----------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and
President
Attest: /s/ Robert G. Rooney
-----------------------
Name: Robert G. Rooney
Title: Senior Vice President,
Chief Financial and
Administrative Officer
and Secretary
-100-
<PAGE>
DISCOVERY ZONE LICENSING, INC.
By: /s/ Robert G. Rooney
----------------------------------------
Name: Robert G. Rooney
Title: Senior Vice President, Chief
Financial and Administrative
Officer and Secretary
Attest: /s/ Carol A. Burton
------------------------------
Name: Carol A. Burton
Title: Admin. Asst.
-101-
<PAGE>
EXHIBIT A
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.
THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH NOTE PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE OF THIS NOTE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS THE
OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE)(THE "RESALE RESTRICTION
TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3) or (7) OF RULE 501
UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S, OR TRANSFER AGENT'S, AS APPLICABLE,
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E) OR
(F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE FOREGOING CASES, AN
ASSIGNMENT IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE OR TRANSFER AGENT. THIS LEGEND SHALL
A-1
<PAGE>
BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.
THIS NOTE IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT, DATED AS OF EVEN
DATE HEREWITH, BETWEEN THE COMPANY AND JEFFERIES & COMPANY, INC., A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
A-2
<PAGE>
CUSIP No.:
DISCOVERY ZONE, INC.
13 1/2% SENIOR SECURED NOTE DUE 2002
No. $
Discovery Zone, Inc., a Delaware corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
____________________ or registered assigns, the principal sum of ________
Dollars, on August 1, 2002.
Interest Payment Dates: August 1, November 1, February 1 and May 1
Record Dates: July 15, October 15, January 15 and April 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers its corporate seal to
be affixed hereto or imprinted hereon.
Discovery Zone, Inc.
By:
---------------------------------------------
Name:
Title:
By:
---------------------------------------------
Name:
Title:
Dated: _____________, 199__
Certificate of Authentication
This is one of the 13 1/2% Senior Secured Notes due 2002 referred to in
the within-mentioned Indenture.
State Street Bank and Trust Company,
as Trustee
Dated: ______________, 199__ By:
---------------------------------------------
Name:
Title:
A-3
<PAGE>
{REVERSE OF NOTE}
DISCOVERY ZONE, INC.
13 1/2% Senior Secured Note due 2002
1. INTEREST. Discovery Zone, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note at the
rate per annum shown above. The Company will pay interest quarterly in arrears
on each August 1, November 1, February 1 and May 1 (each an "Interest Payment
Date"), commencing August 1, 1997. Interest on the Notes will accrue from the
most recent date on which interest has been paid on this Note or, if no interest
has been paid, from July 22, 1997. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company shall pay interest on the Notes
to the Persons who are the registered Holders as of the close of business on the
Record Date immediately preceding the applicable Interest Payment Date even if
the Notes are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Notes to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). The Notes will be
payable both as to principal and to interest at the office or agency of the
Company, or, at the option of the Company, payment of interest may be made by
its check payable in such U.S. Legal Tender and mailed to the Holders at their
respective registered addresses as set forth in the register of Holders. If the
Company defaults in a payment of interest on the Notes, it shall pay the
defaulted interest plus any interest payable on the defaulted interest in
accordance with Section 2.16 of the Indenture.
3. PAYING AGENT AND REGISTRAR. Until otherwise designated by the
Company, the Registrar and Paying Agent for the Notes shall be State Street Bank
and Trust Company, the trustee (the "Trustee") under the Indenture (as defined
below), having an address as Two International Place, Boston, Massachusetts
02110, Attention: Corporate Trust Department. In addition, until otherwise
designated by the Company, the Company's office or agency maintained in the
Borough of Manhattan, in the City of New York at which the Notes may be
presented for payment or for transfer or exchange will be the office of State
Street Bank and Trust Company, N.A., having a principal office at 61 Broadway,
15th Floor, New York, NY 10006. The Company may change any Paying Agent,
Registrar or co-Registrar without notice to the Holders.
4. INDENTURE. The Company issued the Notes under an Indenture,
dated as of July 22, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
A-4
<PAGE>
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of them. The Notes are senior secured
obligations of the Company limited in aggregate principal amount to $85,000,000.
Payment on the Notes is guaranteed on a senior basis, jointly and severally, by
the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. Each
Holder, by accepting a Note, agrees to be bound by all of the terms and
provisions of the Indenture, as the same may be amended from time to time.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION. Except as described in paragraph (b) of
this Section 5, the Notes are not redeemable at the Company's option, at any
time prior to August 1, 1999. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
15 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount at maturity) if redeemed during the
twelve-month period commencing on August 1, of the years set forth below through
but not including the Maturity Date, plus, in each case, accrued and unpaid
interest thereon to the applicable date of redemption:
YEAR PERCENTAGE
1999 113.000%
2000 108.667%
2001 104.333%
(b) OPTIONAL REDEMPTION UPON PRIMARY OFFERING. Notwithstanding
paragraph (a) of this Section 5, at any time, prior to August 1, 1999, the
Company may, at its option, use the net cash proceeds of a Primary Offering to
redeem up to 35% of the original principal amount of the Notes at a redemption
price equal to 115% of the principal amount thereof outstanding on the
redemption date, plus accrued and unpaid interest thereon, if any, to the date
of redemption; PROVIDED that (i) such offering results in net proceeds to the
Company of at least $20,000,000 and (ii) such redemption shall occur within 30
days of the date of the closing of such Primary Offering.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed by
first class mail at least 15 days but not more than 60 days before the
redemption date to each Holder, at each of such Holder's registered address,
whose Notes are to be redeemed. If fewer than all of the Notes are to be
redeemed at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee deems to be fair and
appropriate; PROVIDED that Notes of $1,000 or less may not be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such redemption
A-5
<PAGE>
date, then, unless the Company defaults in the payment of such redemption price
plus accrued interest, if any, the Notes called for redemption will cease to
bear interest from and after such redemption date, and the only remaining right
of the Holders of such Notes will be to receive payment of the redemption price
plus accrued interest, if any, as of the redemption date upon surrender to the
Paying Agent of the Notes redeemed.
7. OFFERS TO PURCHASE. Sections 4.14 and 4.15 of the Indenture
provide that, after certain Asset Sales and upon the occurrence of a Change of
Control, and subject to further limitations contained therein, the Company will
make an offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
8. REGISTRATION RIGHTS. Pursuant to the Registration Rights
Agreement updated as of the date of the Indenture among the Company and the
Holders of the Initial Notes, the Company will be obligated to consummate an
exchange offer pursuant to which the Holder of this Note shall have the right to
exchange this Note for the Company's 13 1/2% Senior Secured Notes due 2002,
Series B (the "Exchange Notes"), which have been registered under the Securities
Act, in like principal amount and having terms identical in all material
respects as the Initial Notes. The Holders of the Initial Notes shall be
entitled to receive certain additional interest payments in the event such
exchange offer is not consummated and upon certain other conditions, all
pursuant to and in accordance with the terms of the Registration Rights
Agreement.
9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange of Notes in
accordance with the Indenture. The Registrar or co-Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. Subject to
certain provisions in the Indenture, the Registrar or co-Registrar need not
register the transfer of or exchange of any Notes or portions thereof selected
for redemption. Also the Registrar or co-Registrar need not register the
transfer or exchange of any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of notes and
ending at the close of business on the day of such mailing.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of such Note for all purposes.
11. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years (or such sooner period as may be
required by applicable abandoned property laws), the Trustee and the Paying
Agent will pay the money back to the Company. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from
A-6
<PAGE>
certain provisions of the Indenture and the Notes (including certain covenants,
but excluding its obligation to pay the principal of and interest on the Notes).
13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented by the Company, the
Trustee and with the written consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and, subject to
Section 6.07 of the Indenture, noncompliance with any provision of the Indenture
or this Note may be waived with the written consent of the Holders of a majority
in aggregate principal amount of the Notes then outstanding. Without the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders or that does not
adversely affect the legal right under the Indenture of any such Holder, or to
comply with the requirements of the U.S. Securities and Exchange Commission (the
"SEC") in order to effect or maintain the qualification of the Indenture under
the TIA. As provided in the Indenture, there shall be no amendment, supplement
or waiver without the consent of each Holder of each Note affected thereby with
respect to the circumstances enumerated in Section 9.02 therein.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations
on the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness or Liens, issue or sell its Capital Stock, enter into
transactions with Affiliates, cause to be effective restrictions affecting
Subsidiaries' abilities to pay certain dividends or make certain loans, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
15. SUCCESSORS. When a successor assumes, in accordance with the
Indenture, all the Obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those Obligations.
16. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee is not obligated to exercise any of the rights or powers
vested in it by the Indenture or the Notes and at the order or direction of any
Holders, unless it has received indemnity reasonably satisfactory to it.
Subject to certain limitations set forth in the Indenture, Holders of a majority
in aggregate principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except in the case
of a Default or Event of Default in payment of principal
A-7
<PAGE>
or interest or a failure to comply with Article Five of the Indenture) if it
determines that withholding notice is in their interest.
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates, as such, with the same rights it would have as if it were
not the Trustee.
18. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any Obligations of the Company
or any Subsidiary Guarantor under the Notes or the Indenture, the Collateral
Agreements, any Subsidiary Guarantee or the Registration Rights Agreement or for
any claim based on, in respect of, or by reason of such obligations or their
creations. Each Holder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Notes.
19. AUTHENTICATION. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
20. GOVERNING LAW. The laws of the State of New York shall govern
this Note and the Indenture.
21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be
used in the name of a Holder or an assignee, such as: TEN COM (=
tenants-in-common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants-in-common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture.
Requests may be made to: Discovery Zone, Inc., 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301, Attn: Chief Financial Officer.
A-8
<PAGE>
FORM OF ASSIGNMENT
If you, the Holder, want to assign this Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social
security or tax ID number of assignee)
and irrevocably appoint ,
-------------------------------------------------------
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: Signed:
--------------- ------------------------------------------------
(Sign exactly as your name appears on the other side of
this Note. This signature must be guaranteed by the
signatory's bank or broker.)
Signature Guarantee:
-------------------
A-9
<PAGE>
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) ________________, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
(Check One)
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) ___ to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
that has furnished to the Trustee a signed letter containing
certain representations and agreements (the form of which
letter can be obtained from the Trustee); or
(4) ___ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration provided by Rule
144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement under the
Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; PROVIDED that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
A-10
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Dated: Signed:
------------------ ------------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration requirements of the Securities Act provided by Rule 144A
thereunder.
Dated:
------------------ ---------------------------------------------
Executive Officer
Name: _______________________
Title: _______________________
A-11
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated: Signature:
------------------ ----------------------
Tax Identification No. ___________
Signature Guarantee:
---------------------------------------
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS IT
APPEARS UPON THE FACE OF THE WITHIN NOTE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND BE ACKNOWLEDGED AS GENUINE BY THE
ENDORSER'S BANK OR BROKER.
A-12
<PAGE>
EXHIBIT B
FORM OF NOTE
CUSIP No.:
DISCOVERY ZONE, INC.
13 1/2% SENIOR SECURED NOTE DUE 2002, SERIES B
No. $
Discovery Zone, Inc., a Delaware corporation (the "Company," which
term includes any successor entity), for value received promises to pay to
____________________ or registered assigns, the principal sum of
_________________ Dollars, on August 1, 2002.
Interest Payment Dates: August 1, November 1, February 1 and May 1
Record Dates: July 15, October 15, January 15 and April 15
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers its corporate seal to
be affixed hereto or imprinted hereon.
Discovery Zone, Inc.
By:
-------------------------------------------
Name:
Title:
By:
-------------------------------------------
Name:
Dated: _______________, 199__ Title:
Certificate of Authentication
This is one of the 13 1/2% Senior Secured Notes due 2002, Series B
referred to in the within-mentioned Indenture.
________________________________,
as Trustee
Dated: , 199__ By:
--------------- -- ----------------------------------------
Name:
Title:
B-1
<PAGE>
{REVERSE OF NOTE}
DISCOVERY ZONE, INC.
13 1/2% Senior Secured Note due 2002, Series B
1. INTEREST. Discovery Zone, Inc., a Delaware corporation
(the"Company"), promises to pay interest on the principal amount of this Note at
the rate per annum shown above. The Company will pay interest quarterly in
arrears on each August 1, November 1, February 1 and May 1 (each an "Interest
Payment Date"), commencing August 1, 1997. Interest on the Notes will accrue
from the most recent date on which interest has been paid on this Note or, if no
interest has been paid, from July 22, 1997. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. On each Interest Payment Date the Company
shall pay interest on the Notes to the Persons who are the registered Holders as
of the close of business on the Record Date immediately preceding the applicable
Interest Payment Date even if the Notes are cancelled on registration of
transfer or registration of exchange after such Record Date. Holders must
surrender Notes to a Paying Agent to collect principal payments. The Company
shall pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). The Notes will be payable both as to principal and to interest at the
office or agency of the Company, or, at the option of the Company, payment of
interest may be made by its check payable in such U.S. Legal Tender and mailed
to the Holders at their respective registered addresses as set forth in the
register of Holders. If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest plus any interest payable on the
defaulted interest in accordance with Section 2.16 of the Indenture.
3. PAYING AGENT AND REGISTRAR. Until otherwise designated by the
Company, the Company's office or agency will be the office of State Street Bank
and Trust Company, N.A., having a principal office at 61 Broadway, 15th Floor,
New York, NY 10006 (the "Trustee"), who will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-Registrar without
notice to the Holders.
4. INDENTURE. The Company issued the Notes under an Indenture,
dated as of July 22, 1997 (the "Indenture"), among the Company, the Subsidiary
Guarantors and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"),
as in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and Holders are referred to the
Indenture and the TIA for a statement of them. The Notes are senior secured
obligations of the Company limited in aggregate principal amount to $85,000,000.
Payment on the Notes is guaranteed on a senior basis, jointly and severally, by
the Subsidiary Guarantors, pursuant to Section Eleven of the
B-2
<PAGE>
Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
5. REDEMPTION.
(a) OPTIONAL REDEMPTION. Except as described in paragraph (b) of
this Section 5, the Notes are not redeemable at the Company's option, at any
time prior to August 1, 1999. Thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
15 nor more than 60 days' notice, at the following redemption prices (expressed
as percentages of principal amount at maturity) if redeemed during the
twelve-month period commencing on August 1 of the years set forth below through
but not including the Maturity Date, plus, in each case, accrued and unpaid
interest thereon to the applicable date of redemption:
YEAR PERCENTAGE
1999 113.000%
2000 108.667%
2001 104.333%
(b) OPTIONAL REDEMPTION UPON PRIMARY OFFERING. Notwithstanding
paragraph (a) of this Section 5, at any time, prior to August 1, 1999, the
Company may, at its option, use the net cash proceeds of a Primary Offering to
redeem up to 35% of the original principal amount of the Notes at a redemption
price equal to 115% of the principal amount thereof outstanding on the
redemption date, plus accrued and unpaid interest thereon, if any, to the date
of redemption; PROVIDED that (i) such offering results in net proceeds to the
Company of at least $20,000,000 and (ii) such redemption shall occur within 30
days of the date of the Closing of such Primary Offering.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed by
first class mail at least 15 days but nor more than 60 days before the
redemption date to each Holder, at each of such Holder's registered address,
whose Notes are to be redeemed. If fewer than all of the Notes are to be
redeemed, at any time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee deems to be fair and
appropriate; PROVIDED that Notes of $1,000 or less may not be redeemed in part.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such redemption date, then, unless the Company defaults in the
payment of such redemption price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such redemption date,
and the only remaining right of the Holders of such Notes will be to receive
payment of the redemption price plus accrued interest, if any, as of the
redemption date upon surrender to the Paying Agent of the Notes redeemed.
B-3
<PAGE>
7. OFFERS TO PURCHASE. Sections 4.14 and 4.15 of the Indenture
provide that, after certain Asset Sales and upon the occurrence of a Change of
Control, and subject to further limitations contained therein, the Company will
make an offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
8. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange of Notes in
accordance with the Indenture. The Registrar or co-Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay certain transfer taxes or similar governmental charges
payable in connection therewith as permitted by the Indenture. Subject to
certain provisions in the Indenture, the Registrar or co-Registrar need not
register the transfer of or exchange of any Notes or portions thereof selected
for redemption. Also, the Registrar or co-Registrar need not register the
transfer or exchange of any Note during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of notes and
ending at the close of business on the day of such mailing.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be
treated as the owner of such Note for all purposes.
10. UNCLAIMED MONEY. If money for the payment of principal or
interest remains unclaimed for two years (or such sooner period as may be
imposed by applicable abandoned property laws), the Trustee and the Paying Agent
will pay the money back to the Company. After that, all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
11. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
12. AMENDMENT: SUPPLEMENT; WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented by the Company, the
Trustee and with the written consent of the Holders of at least a majority in
aggregate principal amount of the Notes then outstanding, and, subject to
Section 6.07 of the Indenture, noncompliance with any provision of the Indenture
or this Note may be waived with the written consent of the Holders of a majority
in aggregate principal amount of the Notes then outstanding. Without the
consent of any Holder, the parties thereto may amend or supplement the Indenture
or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the Holders or that does not
adversely affect the legal right under the Indenture of any such Holder, or to
comply with the requirements of the U.S. Securities and Exchange Commission (the
"SEC") in order to effect or maintain the qualification of the Indenture under
the TIA.
B-4
<PAGE>
As provided in the Indenture, there shall be no amendment, supplement or waiver
without the consent of each Holder of each Note affected thereby with respect to
the circumstances enumerated in Section 9.02 therein.
13. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations
on the ability of the Company and its Subsidiaries to, among other things, incur
additional Indebtedness or Liens, issue or sell its Capital Stock, enter into
transactions with Affiliates, cause to be effective restrictions affecting
Subsidiaries' abilities to pay certain dividends or to make certain loans, merge
or consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
14. SUCCESSORS. When a successor assumes, in accordance with the
Indenture, all the Obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those Obligations.
15. DEFAULTS AND REMEDIES. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee is not obligated to exercise any of the rights or powers
vested in it by the Indenture or the Notes and at the order or direction of any
Holders, unless it has received indemnity reasonably satisfactory to it.
Subject to certain limitations set forth in the Indenture, Holders of a majority
in aggregate principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except in the case
of a Default or Event of Default in payment of principal or interest or a
failure to comply with Article Five of the Indenture) if it determines that
withholding notice is in their interest.
16. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates, as such, with the same rights it would have as if it were
not the Trustee.
17. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator or stockholder of the Company or any Subsidiary
Guarantor, as such, shall have any liability for any Obligations of the Company
or any Subsidiary Guarantor under the Notes or the Indenture, the Collateral
Agreements, any Subsidiary Guarantee, the Registration Rights Agreement, the
Warrant Agreement or the Intercreditor Agreement, or for any claim based on, in
respect of, or by reason of such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Notes.
B-5
<PAGE>
18. AUTHENTICATION. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
19. GOVERNING LAW. The Laws of the State of New York shall govern
this Note and the Indenture.
20. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be
used in the name of a Holder or an assignee, such as: TEN COM (=
tenants-in-common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants-in-common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
21. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders. No
representation is made as to the accuracy of such numbers as printed on the
Notes and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture.
Requests may be made to: Discovery Zone, Inc., 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301, Attn: Chief Financial Officer.
B-6
<PAGE>
FORM OF ASSIGNMENT
If you, the Holder, want to assign this; Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code and social
security or tax ID number of assignee)
and irrevocably appoint ,
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------ ------------------------------------------
(Sign exactly as your name appears on the
other side of this Note. This signature
must be guaranteed by the signatory's
bank or broker.)
Signature Guarantee:
-----------------------------
B-7
<PAGE>
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) _______________, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
(Check One)
(1) ___ to the Company or a subsidiary thereof; or
(2) ___ pursuant to and in compliance with Rule 144A under the
Securities Act; or
(3) ___ to an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
that has furnished to the Trustee a signed letter containing
certain representations and agreements (the form of which
letter can be obtained from the Trustee); or
(4) ___ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) ___ pursuant to the exemption from registration provided by Rule
144 under the Securities Act; or
(6) ___ pursuant to an effective registration statement under the
Securities Act; or
(7) ___ pursuant to another available exemption from the
registration requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; PROVIDED that if box (3), (4), (5) or (7) is checked,
the Company or the Trustee may require, prior to registering any such transfer
of the Notes, in its sole discretion, such legal opinions, certifications
(including an investment letter in the case of box (3) or (4)) and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
B-8
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in Section 2.15 of the Indenture shall have been satisfied.
Dated: Signed:
------------------ ------------------------------------------
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:
-----------------------------------------------------------
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration requirements of the Securities Act provided by Rule 144A
thereunder.
Dated:
------------------ ---------------------------------------------
Executive Officer
Name: ________________________
Title: ________________________
B-9
<PAGE>
FORM OF OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the appropriate
box:
Section 4.14 [ ]
Section 4.15 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$
-------------------
Dated: Signature:
------------------ ----------------------
Tax Identification No. ___________
Signature Guarantee:
-----------------------------
NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS IT
APPEARS UPON THE FACE OF THE WITHIN NOTE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND BE ACKNOWLEDGED AS GENUINE BY THE
ENDORSER'S BANK OR BROKER.
B-10
<PAGE>
EXHIBIT C
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT
EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS
NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY) MAY BE REGISTERED
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH
OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND
ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
C-1
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS TO NON-QIB ACCREDITED INVESTORS
__________, ____
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Re: Discovery Zone, Inc. (the "Company")
13 1/2% Senior Secured Notes due
2002 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed purchase of $____________ aggregate
principal amount of the Notes, we confirm that:
1. We have received a copy of the Offering Circular (the "Offering
Circular"), dated July 15, 1997, as amended or supplemented, relating to the
Notes and such other information as we have deemed necessary in order to make
our investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Notice to Investors" of the Offering
Circular.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture dated
as of July 22, 1997 relating to the Notes (the "Indenture"), and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with such restrictions and conditions and the U.S.
Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
Persons except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Notes prior to the date
which is two years after the later of the date of (x) original issue of the Note
and (y) the last date on which the Note is owned by the Company or an affiliate
of the
D-1
<PAGE>
Company, we will do so only (i) to the Company, (ii) pursuant to a registration
statement which has been declared effective under the Securities Act, (iii) for
so long as the Notes are eligible for resale pursuant to Rule 144A, to a person
it reasonably believes is a Qualified Institutional Buyer ("QIB") (within the
meaning of Rule 144A) that purchases for its own account or for the account of a
QIB to whom notice is given that the transfer is being made in reliance on Rule
144A, (iv) inside the United States to an institutional "accredited investor"
(as defined below) that, prior to such transfer, furnishes (or has furnished on
its behalf by a U.S. broker-dealer) to you and to the Company, a signed letter
containing certain representations and agreements relating to the restrictions
on transfer of the Notes, substantially in the form of this letter, (v) pursuant
to offers and sales to non-U.S. persons that occur outside of the United States
in compliance with Rule 904 of Regulation S under the Securities Act or (vi)
pursuant to any other available exemption from the registration requirements of
the Securities Act, and we further agree to provide to any person purchasing any
of the Notes from us a notice advising such purchaser that resales of the Notes
are restricted as stated herein.
4. We are not acquiring the Notes for or on behalf of, and will not
transfer the Notes to, any pension or welfare plan (as defined in Section 3 of
the Employee Retirement Income Security Act of 1974) except as permitted in the
section entitled "Notice to Investors" of the Offering Circular.
5. We understand that, on any proposed resale of any Notes, we will
be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company reasonably may require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Notes purchased by us will bear a legend to the
foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
each of the accounts for which we are acting are and is able to bear the
economic risk of our or its entire investment, as the case may be, for an
indefinite period.
7. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion, for
investment purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act.
You, the Company and your and their respective counsel are entitled to
rely upon this letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby, and we agree to
notify you promptly if any of our representations or warranties herein cease to
be accurate and complete.
D-2
<PAGE>
This letter shall be governed by, and construed in accordance with,
the laws of the State of New York.
Very truly yours,
[Name of Transferee]
By:
-----------------------------------------------
Authorized Signature
D-3
<PAGE>
EXHIBIT E
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S
__________, ____
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Re: DISCOVERY ZONE, INC. (THE "COMPANY")
13 1/2% SENIOR SECURED NOTES DUE
2002 (THE "NOTES")
Ladies and Gentlemen:
In connection with our proposed sale of $____________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S promulgated under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we
represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either: (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United States; or
(b) the transaction was executed in, on or through the facilities of a
designated off-shore securities market and neither we nor any person acting on
our behalf had knowledge that the transaction had been pre-arranged with a buyer
in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
E-1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby. Defined terms used herein without definition
have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-----------------------------------------------
Authorized Signature
E-2
<PAGE>
EXHIBIT J
FORM OF NOTATION ON NOTE RELATING TO SUBSIDIARY GUARANTEE
For value received, _________________, [a _______________ corporation,]
hereby unconditionally guarantees to the Holder of the Note upon which this
Subsidiary Guarantee is endorsed: (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Note, whether at maturity
acceleration, redemption or otherwise, (b) the due and punctual payment of
interest on the overdue principal of, premium, if any, and interest on the Note,
if any, to the extent lawful, (c) the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee, all in accordance with
the terms set forth in the Indenture, and (d) in case of any extension of time
of payment or renewal of any Note or any of such other obligations, the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration or
otherwise. Capitalized terms used herein have the meanings assigned to them in
the Indenture unless otherwise indicated.
This Subsidiary Guarantee shall be binding upon each Subsidiary Guarantor
and its successors and assigns and shall inure to the benefit of the successors
and assigns of the Trustee and the Holder and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof and
in the Indenture.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note upon which this Subsidiary
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized signatories.
[ ]
By: ________________________
Name:
Title:
Attest: _____________________
J-1
<PAGE>
EXHIBIT K
FORM OF TRADEMARK ASSIGNMENT
K-1
<PAGE>
EXHIBIT L
FORM OF SUBSIDIARY PLEDGE AGREEMENT
L-1
<PAGE>
EXHIBIT M
FORM OF SUBSIDIARY SECURITY AGREEMENT
M-1
<PAGE>
EXHIBIT N
FORM OF LEASEHOLD MORTGAGE
N-1
<PAGE>
EXHIBIT O
FORM OF LESSOR'S CONSENT TO LEASEHOLD MORTGAGE
LESSOR CONSENT
THIS LESSOR CONSENT (this "Agreement"), dated as of the ____ day of
_____________, _____, by and among ________________________ ("LESSOR"),
__________________________ ("LESSEE"), and [the Collateral Agent, on behalf of
the Noteholders] ("MORTGAGEE").
WHEREAS, Lessor is the holder of Lessor's interest and Lessee is the
holder of Lessee's interest, respectively, in, to and under the leases and
amendments thereof (the "LEASE") described on SCHEDULE "A" annexed hereto and
made a part hereof, which Lease cover the premises described therein and on
SCHEDULE "B" annexed hereto and made a part hereof (the "PREMISES"), Lessee's
estate and interest in the Lease being hereinafter referred to as the "LEASEHOLD
INTEREST"; and
WHEREAS, Mortgagee and Lessee have entered into an Indenture dated as
of ____________ pursuant to which certain notes of the Lessee were issued to the
Noteholders, and were to be secured by, among other things, a lien upon the
interest of Lessee under the Lease and upon further condition, among others,
that Lessor and Lessee enter into this Agreement.
NOW, THEREFORE, for good and valuable consideration, Lessor and Lessee
hereby modify and amend the Lease by incorporating the following as a Rider
thereto:
1. Lessee shall have the right, without Lessor's consent, to
mortgage its interest in the Lease to Mortgagee by a "Leasehold Mortgage" (as
hereinafter defined).
2. If Lessee shall mortgage its Leasehold Interest, then until the
same shall be satisfied of record, Lessor agrees that it shall not, without the
prior written consent of Mortgagee:
(a) amend or modify the Lease;
(b) consent to, acquiesce in or accept the termination of the
Lease or surrender of all or part of the Premises except pursuant to the
exercise by Lessee of an option to purchase or right of first refusal consented
to by Mortgagee;
(c) consent to the assignment or other transfer of all or part
of Lessee's Leasehold Interest;
O-1
<PAGE>
(d) consent to any further encumbrance of Lessee's Leasehold
Interest;
(e) create or permit any further encumbrance of Lessor's
interest in the real property described in Schedule "A".
3. If Lessee shall mortgage its Leasehold Interest, and if Mortgagee
shall send to Lessor notice of its making a Leasehold Mortgage, then until the
same shall be satisfied of record: (a) Mortgagee shall have and be subrogated to
any and all rights of Lessee with respect to the curing of any default under the
Lease; (b) Lessor shall give to Mortgagee, simultaneously with the serving of
the same on Lessee, a copy of each notice or demand ("NOTICE") which it gives to
Lessee, including all Notices of default by Lessee (which shall specify the
default), each Notice to be sent to the address designated by Mortgagee, by
registered or certified mail, return receipt requested, and the same shall be
effective upon receipt by such addressee; (c) Mortgagee shall have the right,
but not the obligation, to perform any covenant or agreement under the Lease to
be performed by Lessee (including the exercise of renewal or purchase options,
if any), and Lessor shall accept such performance by Mortgagee as though the
same had been performed by Lessee; (d) Mortgagee shall have the right (but not
the obligation) to cure any default by Lessee in the payment of rent and all
other charges provided for in the Lease and Lessor shall accept such
performance by Mortgagee as though the same had been performed by Lessee; and
(e) Lessee may assign its Leasehold Interest to Mortgagee (or its assignee,
designee or nominee) without Lessor's consent. Any notice or demand given by
Lessor in derogation hereof shall be deemed of no effect.
4. In addition to the right to cure defaults granted to Mortgagee in
the preceding paragraph, Lessor agrees that it will take no action to effect a
termination of the term of the Lease by reason of any default without first
giving Mortgagee reasonable time within which either (a) to cure each default if
such default can be cured without obtaining possession of the Premises, or
(b) to obtain possession of the Premises by Mortgagee (including possession by a
receiver) and thereafter to cure such default, if the default be one which can
be cured with the exercise of reasonable diligence by Mortgagee upon so
obtaining possession, or (c) to institute foreclosure proceedings and to
complete such foreclosure, or otherwise to acquire Lessee's interest under the
Lease with diligence and without unreasonable delay, in the case of a default
which cannot be cured with the exercise of reasonable diligence by Mortgagee
after obtaining possession of the Premises. Mortgagee shall not be required to
continue such foreclosure proceedings or proceedings to acquire Lessee's
interest under the Lease if the default shall be cured by Lessee, and Lessor
shall accept such cure by Lessee even if effected after the time provided to
Lessor under the Lease for effecting such cure.
5. (a) In the event of the termination of the Lease prior to its
stated expiration date, or the date of the expiration of any renewal option in
the event a renewal option shall have been exercised prior to the date of such
termination, Lessor agrees that it will give Mortgagee notice of such
termination, will waive its right to accelerate any payments due to it upon a
default under the Lease, and will enter into a new lease for the Premises with
Mortgagee or, at Mortgagee's option, with an assignee, designee or nominee
O-2
<PAGE>
of Mortgagee for the remainder of the term of the Lease, effective as of the
date of such termination, upon the same covenants, agreements, rights, terms,
options, provisions and limitations contained in the Lease except for
requirements which are no longer applicable or have already been performed,
provided i) Mortgagee or its assignee, designee or nominee makes written request
upon Lessor for such new lease within thirty (30) days after the giving of such
notice of termination and such written request is accompanied by payment to
Lessor of all amounts then due to Lessor of which Lessor shall have given
Mortgagee notice (provided, however, that Lessee shall not be required to make
any payments under any provisions of the Lease),ii) Mortgagee or its assignee,
designee or nominee pays or causes to be paid to Lessor at the time of the
execution and delivery of such new lease any and all additional sums which would
at the time of the execution and delivery thereof be due under the Lease but for
such termination, and pays or causes to be paid any and all expenses including
reasonable counsel fees, court costs and costs and disbursements incurred by
Lessor in connection with any such termination and in connection with the
execution and delivery of such new lease, less the net income from the Premises
collected by Lessor subsequent to the date of the termination of the Lease and
prior to the execution and delivery of such new lease. The provisions contained
herein shall survive the termination of the Lease.
(b) Lessee covenants and agrees that there shall be no merger of
the Lease, or of the Leasehold Interest, or of any interest in any building,
building service equipment or other improvement now or hereafter constituting a
portion of the Premises, with the fee estate of the owner or owners of the land
and other property described in the Lease or with a superior leasehold estate,
by reason of the fact that the Lease or the Leasehold Interest or any interest
in any such building, equipment of other improvements, may be held by or for the
account of any person or persons who shall be the owner or owners of such fee
estate or superior leasehold estate in said land and other property, unless and
until all persons at the time having an interest in the fee estate or superior
leasehold estate in said land and premises and all persons, including Mortgagee,
at the time having an interest in the Lease, Leasehold Interest, buildings,
equipment and improvements, shall join in a written instrument effecting such
merger and shall duly record the same.
6. With respect to the rights granted to Lessee to assign or
otherwise transfer its interest under the Lease, the granting of the Leasehold
Mortgage to Mortgagee shall not cause Mortgagee to be deemed an assignee or
transferee of the Lease or of the leasehold estate thereby created so as to
require it, as such, to assume the performance of any of the terms, covenants or
conditions on the part of Lessee to be performed thereunder, but the purchaser
at any sale of the Lease and of the leasehold estate thereby created in any
proceedings for the foreclosure of the Leasehold Mortgage, or the assignee or
transferee of the Lease and of the leasehold estate thereby created under any
instrument of assignment or transfer in lieu of the foreclosure of the Leasehold
Mortgage, or the assignee or transferee of the Lease and of the leasehold estate
thereby created pursuant to any other right granted to Mortgagee under the
Leasehold Mortgage, shall be deemed to be an assignee or transferee within the
meaning of the Lease and shall be deemed to have assumed the performance of all
of the terms, covenants and conditions on the part of Lessee to be performed
thereunder from and after the date of such purchase and assignment.
O-3
<PAGE>
7. If Mortgagee or any purchaser at a foreclosure sale shall acquire
Lessee's Leasehold Interest, and cure all defaults of Lessee which affect the
Premises and are susceptible of being cured (other than requirements of the
Lease which are no longer applicable or have already been performed), then
(a) said party shall be entitled to exercise any options or rights contained in
the Lease, (b) such other defaults which are not susceptible of being cured by
Mortgagee or by such purchaser no longer shall be defaults thereunder, and
(c) notwithstanding any provision in the Lease to the contrary, Mortgagee or
such purchaser or any of their designees or nominees shall have the further
right to assign the Leasehold Interest without Lessor's consent.
8. Lessor hereby agrees that any and all liens, distraints and other
rights against Lessee's inventory, equipment, machinery, personal property and
trade fixtures located at the Premises which Lessor has or may have under
applicable law or agreement for the payment of rent and other sums due pursuant
to the Lease or otherwise are fully subordinate to Mortgagee's now existing and
hereafter arising security interests and liens in such property which secure
Lessee's obligations and indebtedness to Mortgagee.
9. As used herein, the term "LEASEHOLD MORTGAGE" shall be deemed to
mean that certain recorded mortgage lien on the Leasehold Interest by Mortgagee
and any modification of any of the terms thereof, including, without limitation,
any supplement, modification, extension, renewal or refinancing of the
indebtedness secured thereby or any additional advance secured by the Leasehold
Mortgage or any additional Leasehold Mortgage given to secure the same.
10. Notwithstanding any provision in the Lease to the contrary, in
the event of any casualty to or condemnation of the Premises or any portion
thereof, Mortgagee shall be entitled to receive insurance proceeds and/or
condemnation awards otherwise payable to Lessee and shall have the right (but
not the obligation except as provided in the next sentence) to restore the
Premises. In addition, if Mortgagee (by reason of its acquiring Lessee's
Leasehold Interest) shall be obligated under the Lease to restore the Premises
in such event, then such obligation shall be limited to the amount of such
proceeds or award.
11. Lessor represents that Lessor (i) is the owner of record of the
Premises and (ii) has the necessary power and authority to execute this Lease
Amendment and has obtained all the consents or approvals of any party necessary
to effectuate the terms of this Lease Amendment.
12. Except as herein set forth, the Lease shall remain in full force
and effect.
13. The rights accorded to Mortgagee hereunder shall bind and inure
to the benefit of its successors, assignees, nominees and designees.
O-4
<PAGE>
14. Lessor and Lessee each represent and warrant to Mortgagee, its
successors and/or assigns, that:
(a) The Lease i) sets forth the entire agreement between Lessor
and Lessee with respect to the Premises, ii) is in full force and effect, and
iii) has not been amended or modified except for the amendment and
modifications, if any, described in Schedule "A" attached hereto.
(b) There are no defaults under the Lease and no event has
occurred which, with the giving of notice, lapse of time, or both, would
constitute a default under the Lease, or if any such default or state of fact
exists the same is hereby waived.
(c) All rent payable under the Lease has been paid through
______________.
15. Lessor hereby confirms that this Agreement constitutes notice
from Mortgagee that Mortgagee is the holder of a Leasehold Mortgage. Any notice
or communication necessary or desirable to be sent under the Lease or this
Agreement to Mortgagee shall be sent by registered or certified mail, postage
prepaid, return receipt requested to ______________________________ or such
other addresses and to such other persons as Mortgagee may designate from time
to time by written notice to Lessor.
16. Any notice or communication necessary or desirable to be sent
under the Lease to Lessor and Lessee shall be sent in accordance with the terms
of the Lease to the following addresses:
(a) If to Lessor:
______________________________
______________________________
______________________________
______________________________
(b) If to Lessee:
______________________________
______________________________
______________________________
______________________________
17. In the event of any conflict or inconsistency between the terms
of the Lease and this Agreement, the terms of this Agreement shall govern and be
binding.
O-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lessor
Consent as of the day and year first above written.
WITNESS/ATTEST LESSOR
By:______________________ By:___________________________
Name:_________________________
Title:________________________
LESSEE
_________________________ By:___________________________
Name:_________________________
Title:________________________
MORTGAGEE
_________________________ By:___________________________
Name:_________________________
Title:________________________
[ACKNOWLEDGEMENTS]
O-6
<PAGE>
SCHEDULE "A"
DESCRIPTION OF THE LEASE
O-7
<PAGE>
SCHEDULE "B"
DESCRIPTION OF THE PREMISES
O-8
<PAGE>
EXHIBIT P
FORM OF SUBORDINATION AGREEMENT
P-1
<PAGE>
SCHEDULE 4.25(A)
REAL PROPERTIES OWNED IN FEE BY THE COMPANY
P-2
<PAGE>
CROSS-REFERENCE TABLE
TIA SECTION INDENTURE SECTION
310(a)(1).............................................................. 7.10
(a)(2)............................................................... 7.10
(a)(3)............................................................... N.A.
(a)(4)............................................................... N.A.
(a)(5)......................................................... 7.08; 7.10
(b)..................................................... 7.08; 7.10; 13.02
(c).................................................................. N.A.
311(a)................................................................. 7.11
(b).................................................................. 7.11
(c).................................................................. N.A.
312(a)................................................................. 2.05
(b)................................................................. 13.03
(c)................................................................. 13.03
313(a)................................................................. 7.06
(b)(1).............................................................. 10.05
(b)(2)............................................................... 7.07
(c)........................................................... 7.06; 13.02
(d).................................................................. 7.06
314(a).................................................... 4.07; 4.08; 13.02
(b)................................................................. 10.03
(c)(1).............................................................. 13.04
(c)(2).............................................................. 13.04
(c)(3)............................................................... N.A.
(d)................................................................. 10.04
(e)................................................................. 13.05
(f).................................................................. N.A.
315(a).............................................................. 7.01(b)
(b)........................................................... 7.05; 13.02
(c)............................................................... 7.01(a)
(d)............................................................... 7.01(c)
(e).................................................................. 6.11
316(a) (last setence).................................................. 2.09
(a)(1)(A)............................................................ 6.05
(a)(1)(B)............................................................ 6.04
(a)(2)............................................................... N.A.
(b).................................................................. 6.07
(c).................................................................. 9.04
317(a)(1).............................................................. 6.08
(a)(2)............................................................... 6.09
(b).................................................................. 2.04
318(a)................................................................ 13.01
(c)................................................................. 13.01
______________
N.A. means not applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of the Indenture.
P-3
<PAGE>
EXHIBITS
EXHIBIT A - FORM OF INITIAL NOTES.........................................A-1
EXHIBIT B - FORM OF EXCHANGE NOTES........................................B-1
EXHIBIT C - FORM OF LEGEND FOR GLOBAL NOTES...............................C-1
EXHIBIT D - CERTIFICATE IN CONNECTION WITH TRANSFERS TO
INSTITUTIONAL ACCREDITED INVESTORS............................D-1
EXHIBIT E - CERTIFICATE IN CONNECTION WITH
REGULATION S TRANSFERS........................................E-1
EXHIBIT F - FORM OF ESCROW AND SECURITY AGREEMENT.........................F-1
EXHIBIT G - FORM OF INTERCREDITOR AGREEMENT...............................G-1
EXHIBIT H - FORM OF PLEDGE AGREEMENT......................................H-1
EXHIBIT I - FORM OF SECURITY AGREEMENT....................................I-1
EXHIBIT J - FORM OF NOTATION ON NOTE RELATING
TO SUBSIDIARY GUARANTEE.......................................J-1
EXHIBIT K - FORM OF TRADEMARK ASSIGNMENT..................................K-1
EXHIBIT L - FORM OF SUBSIDIARY PLEDGE AGREEMENT ..........................L-1
EXHIBIT M - FORM OF SUBSIDIARY SECURITY AGREEMENT.........................M-1
EXHIBIT N - FORM OF LEASEHOLD MORTGAGE ...................................N-1
EXHIBIT O - FORM OF LESSOR'S CONSENT TO LEASHOLD MORTGAGE.................O-1
EXHIBIT P - FORM OF SUBORDINATION AGREEMENT...............................P-1
SCHEDULE
SCHEDULE 4.25(a) - REAL PROPERTIES OWNED IN FEE BY THE COMPANY
P-4
<PAGE>
Exhibit 4.3
DISCOVERY ZONE, INC.
$85,000,000 13 1/2% SENIOR SECURED NOTES DUE 2002
WARRANTS TO PURCHASE 9.4724 SHARES OF COMMON STOCK
REGISTRATION RIGHTS AGREEMENT
July 22, 1997
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, CA 90025
Ladies and Gentlemen:
DISCOVERY ZONE, INC., a Delaware corporation (the "Company" or the
"Issuer") is issuing and selling to Jefferies & Company, Inc. (the "Initial
Purchaser"), upon the terms set forth in the Purchase Agreement, dated July 15,
1997 between the Company and the Initial Purchaser (the "Purchase Agreement"),
85,000 units (each, a "Unit" and the "Units"), each Unit consisting of one
$1,000 principal amount of the Company's 13 1/2% Senior Secured Notes due 2002
(each, a "Note," collectively, the "Notes") and one warrant (each, a "Warrant,"
and collectively, the "Warrants") to purchase 9.4724 shares of common stock, par
value $0.01 per share, of the Company (the "Common Stock"). As an inducement to
the Initial Purchaser to enter in to the Purchase Agreement, the Company agrees
with the Initial Purchaser, for the benefit of the Holders (as defined below) of
the Securities (as defined below) (including, without limitation, the Initial
Purchaser), as follows:
1. DEFINITIONS
Capitalized terms that are used herein without definition and are defined
in the Purchase Agreement shall have the respective meanings ascribed to them in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
ADDITIONAL INTEREST: See Section 4(a).
ADVICE: See last paragraph of Section 6.
AGREEMENT: This Registration Rights Agreement dated as of the Closing
Date, among the Company, the existing Subsidiary Guarantors and the Initial
Purchaser.
<PAGE>
APPLICABLE PERIOD: See Section 2(e).
BUSINESS DAY: A day that is not a Saturday, a Sunday or a day on which
banking institutions in the city of New York are authorized or required by law
or executive order to be closed.
CLOSING DATE: July __, 1997.
COLLATERAL AGREEMENTS: The Pledge Agreement, Escrow Agreement, Security
Agreement, Trademark Assignment and Subsidiary Security Agreements.
COMMON STOCK: See the first introductory paragraph to this Agreement.
COMPANY: See the first introductory paragraph to this Agreement.
DAY: Unless otherwise expressly provided, a calendar day.
EFFECTIVENESS DATE: The 180th day after the Closing Date.
EFFECTIVENESS PERIOD: See Section 3(a)
ESCROW AGREEMENT: The Escrow Agreement referred to in the Indenture.
EVENT DATE: See Section 4(b)
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
EXCHANGE NOTE: 13 1/2% Senior Secured Notes due 2002, Series B, of the
Issuer, including the guarantees endorsed thereon, identical in all material
respects to the Notes, except for references to series and restrictive legends.
EXCHANGE OFFER: See Section 2(a).
EXCHANGE REGISTRATION STATEMENT: See Section 2(a).
EXERCISE DATE: The date on which the Warrants are first exercisable.
FILING DATE: The 120th day after the Closing Date.
HOLDER: Any registered holder of Registrable Notes.
INDEMNIFIED PARTY: See Section 8(c).
INDEMNIFYING PARTY: See Section 8(c).
-2-
<PAGE>
INDENTURE: The Indenture, dated as of the Closing Date, among the Company,
the existing Subsidiary Guarantors and State Street Bank and Trust Company, as
trustee, pursuant to which the Notes are being issued, as amended or
supplemented from time to time in accordance with the terms hereof.
INITIAL PURCHASER: See the first introductory paragraph to this Agreement.
INITIAL SHELF REGISTRATION: See Section 3(a).
INSPECTORS: See Section 6(o).
ISSUER: See the first introductory paragraph to this Agreement.
NASD: National Association of Securities Dealers, Inc.
NOTES: See the first introductory paragraph to this Agreement.
NOTES PROSPECTUS: The prospectus included in any Notes Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance upon
Rule 430A promulgated under the Securities Act), as amended or supplemented by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Notes covered by such Notes Registration Statement,
and all other amendments and supplements to such prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
NOTES REGISTRATION STATEMENT: Any registration statement of the Issuer
filed with the SEC under the Securities Act, (including, but not limited to, the
Exchange Registration Statement, the Shelf Registration and any subsequent Shelf
Registration) that covers any of the Registrable Notes pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
PARTICIPATING BROKER-DEALER: See Section 2(e).
PERSON: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm, government or agency or political subdivision
thereof, or other legal entity.
PIGGY-BACK REGISTRATION: See Section 11(b).
-3-
<PAGE>
PLEDGE AGREEMENT: The Pledge Agreement referred to in the Indenture.
PRIVATE EXCHANGE: See Section 2(f).
PRIVATE EXCHANGE NOTES: See Section 2(f).
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Securities covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the first introductory paragraph to this
Agreement.
RECORDS: See Section 6(o).
REGISTRABLE NOTES: (i) Notes, (ii) Private Exchange Notes and (iii) any
Exchange Notes received in the Exchange Offer, in each case, that may not be
sold without restriction under federal or state securities laws.
REGISTRABLE WARRANT SHARES: Any of (i) the Warrant Shares (whether or not
the related Warrants have been exercised) and (ii) any other securities issued
or issuable with respect to any Warrant Shares by way of stock dividends or
stock splits or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any
particular Registrable Warrant Shares, such securities shall cease to be
Registrable Warrant Shares when (i) a Warrants Registration Statement with
respect to the offering of such securities by the Holder thereof shall have been
declared effective under the Securities Act and such securities shall have been
disposed of by such Holder pursuant to such Warrants Registration Statement,
(ii) such securities are eligible for sale to the public pursuant to Rule 144(k)
(or any similar provision then in force, but not Rule 144A) or are all otherwise
eligible for sale under Rule 144 by such Holder in the current calendar quarter,
or (iii) such securities shall have been otherwise transferred by such Holder
and new certificates for such securities not bearing a legend restricting
further transfer shall have been delivered by the Company or its transfer agent
and subsequent disposition of such securities shall not require registration or
qualification under the Securities Act or any similar state law then in force.
-4-
<PAGE>
REGISTRATION STATEMENT: Any Notes Registration Statement or Warrant Shares
Registration Statement.
RULE 144: Rule 144 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer or such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
RULE 144A: Rule 144A promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
RULE 415: Rule 415 promulgated under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
SECURITIES: The Notes, the Private Exchange Notes, the Exchange Notes, the
Warrants and the Warrant Shares.
SECURITY AGREEMENT: The Security Agreement referred to in the Indenture.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
SELLING HOLDER: A Holder who is selling Registrable Warrant Shares in
accordance with Section 11 hereof.
SHELF NOTICE: See Section 2(j).
SHELF REGISTRATION: See Section 3(b).
SUBSEQUENT SHELF REGISTRATION: See Section 3(b).
SUBSIDIARY GUARANTOR: Each subsidiary of the Issuer that guarantees the
obligations of the Issuer under the Notes and Indenture.
SUBSIDIARY SECURITY AGREEMENTS: The Subsidiary Security Agreements
referred to in the Indenture.
TIA: The Trust Indenture Act of 1939, as amended.
TRADEMARK ASSIGNMENT: The Trademark Assignment referred to in the
Indenture.
-5-
<PAGE>
TRUSTEE: The trustee under the Indenture and, if existent, the trustee
under any indenture governing the Exchange Notes and Private Exchange Notes (if
any).
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Issuer are sold to an underwriter for reoffering to the
public.
UNITS: See the first introductory paragraph to this Agreement.
WARRANT AGREEMENT: The Warrant Agreement referred to in the Indenture.
WARRANT SHARES REGISTRATION EXPENSES: All expenses incident to the
Company's performance of or compliance with Section 11 of this Agreement,
including, without limitation, all SEC and stock exchange or NASD registration
and filing fees and expenses, fees and expenses of compliance with securities or
blue sky laws (including, without limitation, reasonable fees and disbursements
of counsel for any underwriters in connection with blue sky qualifications of
the Registrable Warrants), preparing, printing, filing, duplicating and
distributing a Warrants Registration Statement and the related Prospectus, the
cost of printing stock certificates, the cost and charges of any transfer agent,
rating agency fees, printing expenses, messenger, telephone and delivery
expenses, fees and disbursements of any counsel for the Company and all
independent certified public accountants, the fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (but not
including any underwriting discounts or commissions or transfer taxes, if any,
attributable to the sale of Registrable Warrant Shares by Selling Holders), fees
and expenses of one counsel for the Selling Holders and other reasonable
out-of-pocket expenses of the Selling Holders.
WARRANTS: See the first introductory paragraph to this Agreement.
WARRANTS PROSPECTUS: The prospectus included in any Warrant Shares
Registration Statement (including, without limitation, any prospectus subject to
completion and a prospectus that includes any information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Warrants covered by such Warrant
Shares Registration Statement, and all other amendments and supplements to such
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
WARRANT SHARES: The shares of Common Stock issuable upon exercise of the
Warrants.
-6-
<PAGE>
WARRANT SHARES REGISTRATION FILING DATE: A date on or before the date
occurring 90 days after the effectiveness date of a registration statement filed
with the SEC in connection with an initial public offering of the Common Stock,
provided, however, that, upon the written request of the managing underwriter of
such initial public offering such date may be extended to the date 180 days
following the effectiveness date of such initial public offering.
WARRANT SHARES REGISTRATION STATEMENT: See Section 11(a).
2. EXCHANGE OFFER
(a) The Issuer shall (and shall cause any existing Subsidiary
Guarantor to) (i) prepare and file with the SEC promptly after the date hereof,
but in no event later than the Filing Date, a registration statement (the
"Exchange Registration Statement") on an appropriate form under the Securities
Act with respect to an offer (the "Exchange Offer") to the Holders of
Registrable Notes to issue and deliver to such Holders, in exchange for the
Notes, a like aggregate principal amount of Exchange Notes, (ii) use their best
efforts to cause the Exchange Registration Statement to become effective as
promptly as practicable after the filing thereof, but in no event later than the
Effectiveness Date, (iii) keep the Exchange Registration Statement effective
until the consummation of the Exchange Offer in accordance with its terms and
(iv) unless the Exchange Offer would not be permitted by a policy of the SEC,
commence the Exchange Offer and use their best efforts to issue on or prior to
30 Business Days after the date on which the Exchange Registration Statement is
declared effective, Exchange Notes in exchange for all Notes tendered prior
thereto in the Exchange Offer. The Exchange Offer shall not be subject to any
conditions, other than that the Exchange Offer does not violate applicable law
or any applicable interpretation of the staff of the SEC.
(b) The Exchange Notes shall be issued under, and entitled to the
benefits of, (i) the Indenture or a trust indenture that is identical to the
Indenture (other than such changes as are necessary to comply with any
requirements of the SEC to effect or maintain the qualifications thereof under
the TIA), (ii) the Security Agreement or a security agreement that is identical
to the Security Agreement and (iii) the Escrow Agreement or an agreement that is
identical to the Escrow Agreement.
(c) Interest on each Exchange Note and Private Exchange Note will
accrue from the last interest payment due date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest have been paid on the
Notes, from the date of original issue of the Notes. Each Exchange Note and
Private Exchange Note shall bear interest at the rate set forth thereon;
provided, that interest with respect to the period prior
-7-
<PAGE>
to the issuance thereof shall accrue at the rate or rates borne by the Notes
from time to time during such period.
(d) The Issuer may require each Holder who participates in the
Exchange Offer to represent (i) that any Exchange Notes received by it will be
acquired in the ordinary course of its business, (ii) that at the time of the
commencement of the Exchange Offer such Holder has not entered into any
arrangement or understanding with any Person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes in violation of
the provisions of the Securities Act, (iii) that if such Holder is an affiliate
of the Issuer within the meaning of the Securities Act, that it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable to it, (iv) if such Holder is not a broker-dealer, that it
is not engaged in, and does not intend to engage in, the distribution of the
Notes and (v) if such Holder is a Participating Broker-Dealer, that it will
deliver a Prospectus in connection with any resale of the Exchange Notes.
(e) The Issuer shall include within the Notes Prospectus contained in
the Exchange Registration Statement a Section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer for its own account
in exchange for Notes that were acquired by it as a result of market-making or
other trading activity (a "Participating Broker-Dealer"), whether such positions
or policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the judgment of the Initial Purchaser, represent the
prevailing views of the staff of the SEC. Such "Plan of Distribution" Section
shall also allow, to the extent permitted by applicable policies and regulations
of the SEC, the use of the Notes Prospectus by all Persons subject to the
prospectus delivery requirements of the Securities Act, including, to the extent
so permitted, all Participating Broker Dealers, and include a statement
describing the manner in which Participating Broker-Dealers may resell the
Exchange Notes. The Issuer shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Notes
Prospectus contained therein, in order to permit such Notes Prospectus to be
lawfully delivered by all Persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as such Persons must
comply with such requirements in order to resell the Exchange Notes (the
"Applicable Period").
(f) If, upon consummation of the Exchange Offer, the Initial
Purchaser holds any Notes acquired by it and having the status of an unsold
allotment in the initial distribution, the
-8-
<PAGE>
Company (upon the written request from such Initial Purchaser) shall,
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to the Initial Purchaser, in exchange (the "Private Exchange")
for the Notes held by the Initial Purchaser, a like principal amount of debt
securities of the Company, guaranteed by any then existing Subsidiary Guarantors
and secured by the same collateral as the Exchange Notes, that are identical in
all material respects to the Exchange Notes except for the existence of
restrictions on transfer thereof under the Securities Act and securities laws of
the several states of the U.S. (the "Private Exchange Notes") (and which are
issued pursuant to the same indenture as the Exchange Notes). The Private
Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
(g) In connection with the Exchange Offer, the Issuer shall:
(1) mail to each Holder a copy of the Notes Prospectus forming
part of the Exchange Registration Statement, together with an appropriate
letter of transmittal (as an exhibit thereto) and related documents;
(2) utilize the services of a depository for the Exchange Offer
with an address in the Borough of Manhattan, the City of New York, which
may be the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York time, on the last Business
Day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all
applicable laws.
(h) As soon as practicable after the close of the Exchange Offer or
the Private Exchange, as the case may be, the Issuer shall:
(1) accept for exchange all Notes validly tendered pursuant to
the Exchange Offer or the Private Exchange, as the case may be, and not
validly withdrawn;
(2) deliver to the Trustee for cancellation all Registrable
Notes so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to
each Holder tendering such Notes, Exchange Notes or Private Exchange Notes,
as the case may be, equal in principal amount to the Notes, Exchange Notes
or Private Exchange Notes, as the case may be, of such Holder so accepted
for exchange.
-9-
<PAGE>
(i) The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event will provide that the Exchange Notes
will not be subject to the transfer restrictions set forth in the Indenture and
that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will
be deemed one class of security (subject to the provisions of the Indenture) and
entitled to participate in all the security granted by the Company pursuant to
the Collateral Agreements and in any Subsidiary Guarantee as such terms are
defined in the Indenture) on an equal and ratable basis.
(j) If, (i) prior to the consummation of the Exchange Offer, either
the Issuer or the Holders of a majority in aggregate principal amount of the
outstanding Registrable Notes determines in its or their reasonable judgment
that (A) the Exchange Notes would not, upon receipt, be tradable by the Holders
thereof without restriction under the Securities Act, the Exchange Act or
applicable Blue Sky or state securities laws or (B) the interests of the Holders
under this Agreement, taken as a whole, would be materially adversely affected
by the consummation of the Exchange Offer, (ii) applicable interpretations of
the staff of the SEC would not permit the consummation of the Exchange Offer
prior to the Effectiveness Date, (iii) the Exchange Offer is not consummated
within 180 days of the Closing Date for any reason, (iv) any holder of Private
Exchange Notes so requests in writing to the Issuer within 120 days after the
consummation of the Exchange Offer or (v) in the case of any Holder not
permitted to participate in the Exchange Offer or any Holder that participates
in the Exchange Offer but does not receive Exchange Notes on the date of the
exchange that may be sold without restriction under state and federal securities
laws (other than due solely to the status of such Holder as an affiliate of the
Issuer within the meaning of the Securities Act) and so notifies the Company
within six months of consummation of the Exchange Offer, then the Issuer (and
any then existing Subsidiary Guarantor) shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and shall file an
Initial Shelf Registration pursuant to Section 3.
(k) No registration effected under this Section 2, and no failure to
effect a registration under this Section 2, shall relieve the Company of its
obligations to effect a registration upon the request of Holders of Registrable
Warrant Shares pursuant to Section 11 hereof.
3. SHELF REGISTRATION
If a Shelf Notice is delivered pursuant to Section 2(j), then this
Section 3 shall apply to all Registrable Notes. Otherwise, upon consummation of
the Exchange Offer in accordance with Section 2, the provisions of Section 3
shall apply solely with respect to (i) Notes held by any Holder thereof not
-10-
<PAGE>
permitted to participate in the Exchange Offer and (ii) Exchange Notes that are
not freely tradeable as contemplated by Section 2(j)(v) hereof, provided in each
case that the relevant Holder has duly notified the Issuer within six months of
the Exchange Offer as required by Section 2(j)(v).
(a) INITIAL SHELF REGISTRATION. The Issuer shall as promptly as
practicable file (and shall cause any then existing Subsidiary Guarantor to
file) with the SEC a Notes Registration Statement for an offering to be made on
a continuous basis pursuant to Rule 415 covering all of the Registrable Notes
(the "Initial Shelf Registration"). If the Issuer (and any then existing
Subsidiary Guarantor) has not yet filed an Exchange Registration Statement, the
Issuer shall file (and shall cause any then existing Subsidiary Guarantor to
file) with the SEC the Initial Shelf Registration on or prior to the Filing Date
and shall use its best efforts to cause such Initial Shelf Registration to be
declared effective under the Securities Act on or prior to the Effectiveness
Date. Otherwise, the Issuer shall use its best efforts to file (and shall cause
any then existing Subsidiary Guarantor to file) with the SEC the Initial Shelf
Registration within 20 days of the delivery of the Shelf Notice and shall use
its best efforts to cause such Shelf Registration to be declared effective under
the Securities Act as promptly as practicable thereafter. The Initial Shelf
Registration shall be on Form S-1 or another appropriate form permitting
registration of such Registrable Notes for resale by Holders in the manner or
manners designated by them (including, without limitation, one or more
underwritten offerings). The Issuer and Subsidiary Guarantors shall not permit
any securities other than the Registrable Notes to be included in any Shelf
Registration. No Holder of Registerable Notes shall be entitled to include any
of its Registrable Notes in any Shelf Registration pursuant to this Agreement
unless such Holder furnishes to the Issuer and the Trustee in writing, within 30
days after receipt of a request therefor, such information as the Issuer and the
Trustee after conferring with counsel with regard to information relating to
Holders that would be required by the SEC to be included in such Shelf
Registration or Prospectus included therein, may reasonably request for
inclusion in any Shelf Registration or Prospectus included therein. The Issuer
shall use its best efforts to keep the Initial Shelf Registration continuously
effective under the Securities Act until the date which is 36 months from the
Closing Date (the "Effectiveness Period"), or such shorter period ending when
(i) all Registrable Notes covered by the Initial Shelf Registration have been
sold in the manner set forth and as contemplated in the Initial Shelf
Registration or (ii) a Subsequent Shelf Registration covering all of the
Registrable Notes has been declared effective under the Securities Act.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities
-11-
<PAGE>
registered thereunder), the Issuer shall use its best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in any
event shall within 5 Business Days of such cessation of effectiveness amend such
Shelf Registration in a manner to obtain the withdrawal of the order suspending
the effectiveness thereof, or file (and cause any then existing Subsidiary
Guarantor to file) an additional "shelf" Notes Registration Statement pursuant
to Rule 415 covering all of the Registrable Notes (a "Subsequent Shelf
Registration"). If a Subsequent Shelf Registration is filed, the Issuer shall
use its best efforts to cause the Subsequent Shelf Registration to be declared
effective as soon as practicable after such filing and to keep such Subsequent
Shelf Registration continuously effective for a period equal to the number of
days in the Effectiveness Period less the aggregate number of days during which
the Initial Shelf Registration or any Subsequent Shelf Registrations was
previously continuously effective. As used herein the term "Shelf Registration"
means the Initial Shelf Registration and any Subsequent Shelf Registrations
(c) SUPPLEMENTS AND AMENDMENTS. The Issuer shall promptly supplement
and amend any Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if reasonably requested by
the Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Shelf Registration or by any underwriter of such Registrable
Notes.
(d) No registration effected under this Section 3, and no failure to
effect a registration under this Section 3, shall relieve the Company of its
obligations to effect a registration upon the request of Holders of Registrable
Warrant Shares pursuant to Section 11 hereof.
4. ADDITIONAL INTEREST
(a) The Issuer acknowledges and agrees that the Holders of
Registrable Notes will suffer damages if the Issuer fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuer agrees to pay, as liquidated damages, cash interest on the Notes
("Additional Interest") under the circumstances and to the extent set forth
below (each of which shall be given independent effect):
(i) if neither the Exchange Registration Statement nor the Initial
Shelf Registration has been filed on or prior to the Filing Date, then
commencing on the day after the Filing Date, Additional Interest shall
accrue on the Notes over and above any stated interest at a rate of 0.25%
per annum of the principal amount of such Notes for the first 90 days
commencing on the Filing Date, such Additional Interest rate
-12-
<PAGE>
increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the Initial
Shelf Registration is declared effective on or prior to the Effectiveness
Date, then commencing on the Effectiveness Date, Additional Interest shall
accrue on the Notes over and above any stated interest at a rate of 0.25%
per annum of the principal amount of such Notes for the first 90 days
immediately following the Filing Date, such Additional Interest rate
increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period;
(iii) if (A) the Issuer (and any then existing Subsidiary Guarantor)
has not exchanged Exchange Notes for all Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to the 210th
day after the date hereof, (B) if applicable, a Shelf Registration has been
declared effective and such Shelf Registration ceases to be effective at
any time during the Effectiveness Period and is not declared effective
again within 5 Business Days, (C) pending the announcement of a material
corporate transaction, the Issuer issues a written notice pursuant to
Section 6(e)(v) or (vi) that a Shelf Registration Statement or Exchange
Registration Statement is unusable and the aggregate number of days in any
365-day period for which all such notices issued or required to be issued,
have been, or were required to be, in effect exceeds 120 days in the
aggregate or 30 days consecutively, in the case of a Shelf Registration
Statement, or 15 days in the aggregate in the case of an Exchange
Registration Statement, then Additional Interest shall accrue on the Notes
over and above any stated interest at a rate of 0.25% per annum of the
principal amount of such Notes for the first 90 days commencing on the (x)
210th day after the date hereof, in the case of (A) above, (y) the day such
Shelf Registration ceases to be effective without being declared effective
again within 5 Business Days in the case of (B) above, or (z) the day the
Exchange Registration Statement or Shelf Registration ceased to be usable
in case of clause (C) above, such Additional Interest rate increasing by an
additional 0.25% per annum at the beginning of each such subsequent 90-day
period;
provided, however, that the Additional Interest rate on the Notes may not exceed
at any one time in the aggregate 1.00% per annum; and provided further, that (1)
upon the filing of the Exchange Registration Statement or Initial Shelf
Registration (in the case of (i) above), (2) upon the effectiveness of the
Exchange Registration Statement or Initial Shelf Registration (in the case of
(ii) above), or (3) upon the exchange of Exchange Notes for all Notes tendered
(in the case of (iii)(A) above), or upon the effectiveness of a Shelf
Registration which had ceased to remain effective (in the case of (iii)(B)
above), Additional Interest on
-13-
<PAGE>
the Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Issuer shall notify the Trustee within two Business Days
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "Event Date"). Any amounts of
Additional Interest due pursuant to clause (a)(i), (a)(ii) or (a)(iii) of this
Section 4 will be payable semi-annually, on the dates and in the manner provided
in the Indenture and whether or not any cash interest would then be payable on
such date, commencing with the first such semi-annual date occurring after any
such Additional Interest commences to accrue. The amount of Additional Interest
will be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Notes, multiplied by a fraction, the numerator of which
is the number of days such Additional Interest rate was applicable during such
semi-annual period (determined on the basis of a 360-day year comprised of
twelve 30-day months and, in the case of a partial month, the actual number of
days elapsed), and the denominator of which is 360.
5. HOLD-BACK AGREEMENTS
The Issuer agrees that it will not effect any public or private sale
or distribution (including a sale pursuant to Regulation D under the Securities
Act) of any securities the same as or similar to those covered by a Registration
Statement filed pursuant to Section 2 or 3 hereof, or any securities convertible
into or exchangeable or exercisable for such securities, during the 10 days
prior to, and during the 90-day period beginning on, (A) the effective date of
any Registration Statement filed pursuant to Sections 2 and 3 hereof unless the
Holders of a majority in the aggregate principal amount of the Registrable Notes
to be included in such Registration Statement consent or (B) the commencement of
an underwritten public distribution of Registrable Warrant Shares, if the
managing underwriter thereof so requests.
6. NOTES REGISTRATION PROCEDURES
In connection with the filing of any Notes Registration Statement
pursuant to Section 2 or 3 hereof, the Issuer shall effect such registrations to
permit the sale of such securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Notes Registration Statement filed by the Issuer hereunder,
the Issuer shall:
(a) Prepare and file with the SEC as soon as practicable after the
date hereof but in any event on or prior to the Filing Date, the Exchange
Registration Statement or if the Exchange Registration Statement is not filed
because of the circumstances contemplated by Section 2(j)(ii), a Shelf
-14-
<PAGE>
Registration as prescribed by Section 3, and use its best efforts to cause each
such Notes Registration Statement to become effective and remain effective as
provided herein; provided that, if (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Notes Prospectus contained in an Exchange Registration
Statement filed pursuant to Section 2 is required to be delivered under the
Securities Act by any Participating Broker-Dealer who seeks to sell Exchange
Notes during the Applicable Period, before filing any Notes Registration
Statement or Notes Prospectus or any amendments or supplements thereto the
Issuer shall, if requested, furnish to and afford the Holders of the Registrable
Notes to be registered pursuant to such Shelf Registration Statement, or each
Participating Broker-Dealer and to their counsel and the managing underwriters,
if any, a reasonable opportunity to review copies of all such documents
(including copies of any documents to be incorporated by reference therein and
all exhibits thereto) proposed to be filed (in each case at least five business
days prior to such filing). The Issuer shall not file any such Notes
Registration Statement or Notes Prospectus or any amendments or supplements
thereto if the holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Notes Registration Statement, or any such
Participating Broker-Dealer, as the case may be, their counsel, or the managing
underwriters, if any, shall reasonably object.
(b) Provide an indenture trustee for the Registrable Notes, the
Exchange Notes or the Private Exchange Notes, as the case may be, and cause the
Indenture (or other indenture relating to the Registrable Notes) to be qualified
under the TIA not later than the effective date of the first Registration
Statement; and in connection therewith, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such indenture
to be so qualified in a timely manner.
(c) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Notes Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Notes Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to it with respect to the disposition of all
securities covered by such Notes Registration Statement as so amended or in such
Notes Prospectus as so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer covered by
-15-
<PAGE>
any such Prospectus. The Issuer shall not, during the Applicable Period take
any action that would result in selling Holders of the Registrable Notes covered
by a Notes Registration Statement or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period.
(d) Furnish to such selling Holders and Participating Broker-Dealers
who so request in writing (i) upon the Company's receipt, a copy of the order of
the SEC declaring such Registration Statement and any post-effective amendment
thereto effective and (ii) such reasonable number of copies of such Registration
Statement and of each amendment and supplement thereto (in each case including
any documents incorporated therein by reference and all exhibits), (iii) such
reasonable number of copies of the Prospectus included in such Registration
Statement (including each preliminary Prospectus), and such reasonable number of
copies of the final Prospectus as filed by the Company pursuant to Rule 424(b)
under the Securities Act, in conformity with the requirements of the Securities
Act, and (iv) such other documents, (including any amendments required to be
filed pursuant to clause (c) of this Section), as any such Person may reasonably
request. The Company hereby consents to the use of the Prospectus by each of
the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, and the underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of the Registrable
Notes covered by, or the sale by Participating Broker-Dealers of the Exchange
Notes pursuant to, such Prospectus and any amendment thereto.
(e) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, notify in writing the selling Holders of Registrable Notes,
or each such Participating Broker-Dealer, as the case may be, their counsel and
the managing underwriters, if any, promptly (but in any event within two
Business Days) (i) when a Notes Prospectus or any Notes Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Notes
Registration Statement or any post-effective amendment, when the same has become
effective (including in such notice a written statement that any Holder may,
upon request, obtain, without charge, one conformed copy of such Notes
Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Notes Registration Statement or of any order
preventing or suspending the use of any Notes Prospectus or the initiation of
any proceedings for that purpose, (iii) if at any time when a Prospectus is
required by the Securities Act to be delivered in
-16-
<PAGE>
connection with sales of the Registrable Notes the representations and
warranties of the Issuer contained in any agreement (including any underwriting
agreement) contemplated by Section 6(n) hereof cease to be true and correct,
(iv) of the receipt by the Issuer of any notification with respect to the
suspension of the qualification or exemption from qualification of a Notes
Registration Statement or any of the Registrable Notes or the Exchange Notes to
be sold by any Participating Broker-Dealer for offer or sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (v) of the happening of any event, the existence of any condition of
any information becoming known that makes any statement made in such Notes
Registration Statement or related Notes Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in, or amendments or supplements to,
such Notes Registration Statement, Notes Prospectus or documents so that, in the
case of the Notes Registration Statement and the Notes Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(vi) of any reasonable determination by the Company that a post-effective
amendment to a Notes Registration Statement would be appropriate.
(f) Use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Notes Registration Statement or of any order
preventing or suspending the use of a Notes Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in
any jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible date.
(g) If (A) a Shelf Registration is filed pursuant to Section 3 or (B)
a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period or (C) requested by the managing underwriters, if any, or the
Holders of a majority in aggregate principal amount of the Registrable Notes
being sold in connection with an underwritten offering, (i) promptly incorporate
in a prospectus supplement or post-effective amendment such information or
revisions to information therein relating to such underwriters or selling
Holders as the managing underwriters, if any, or such Holders or their counsel
reasonably request to be included or made therein and (ii) make all required
filings of such prospectus supplement or such post-effective amendment as soon
as practicable after the Issuer has received notification of the matters to be
incorporated in such prospectus supplements or post-effective amendment.
-17-
<PAGE>
(h) Prior to any public offering of Registrable Notes or any delivery
of a Notes Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Notes or each such Participating
Broker-Dealer, as the case may be, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable Notes or
Exchange Notes, as the case may be, for offer and sale under the securities or
Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or any managing underwriter or
underwriters, if any, reasonably request in writing; provided that where
Exchange Notes held by Participating Broker-Dealers or Registrable Notes are
offered other than through an underwritten offering, the Issuer agrees to cause
its counsel to perform Blue Sky investigations and file any registrations and
qualifications required to be filed pursuant to this Section 6(h); keep each
such registration or qualification (or exemption therefrom) effective during the
period such Notes Registration Statement is required to be kept effective and do
any and all other acts or things reasonable necessary or advisable to enable the
disposition in such jurisdictions of the Exchange Notes held by Participating
Broker-Dealers or the Registrable Notes covered by the applicable Registration
Statement; provided that neither the Issuer nor any existing Subsidiary
Guarantor shall be required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any action that would
subject it to general service of process in any such jurisdiction where it is
not then so subject or (C) subject itself to taxation in excess of a nominal
dollar amount in any such jurisdiction where it is not then so subject.
(i) If (A) a Shelf Registration is filed pursuant to Section 3 or (B)
a Prospectus contained in an Exchange Registration Statement filed pursuant to
Section 2 is requested to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, cooperate with the selling Holders of Registrable Notes and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Notes to be
sold, which certificates shall not bear any restrictive legends and shall be in
a form eligible for deposit with The Depository Trust Company; and enable such
Registrable Notes to be in such denominations and registered in such names as
the managing underwriter or underwriters, if any, or Holders may reasonably
request.
(j) use its best efforts to cause the Registrable Notes covered by
any Notes Registration Statement to be registered with or approved by such
governmental agencies or authorities as may be necessary to enable the seller or
sellers
-18-
<PAGE>
thereof or the underwriter, if any, to consummate the disposition of such
Registrable Notes, except as may be required solely as a consequence of the
nature of such selling Holder's business, in which case the Issuer will
cooperate in all reasonable respects with the filing of such Notes Registration
Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
6(e)(v) or 6(e)(vi) hereof, as promptly as practicable prepare and file with the
SEC, at the expense of the Issuer, a supplement or post-effective amendment to
the Notes Registration Statement or a supplement to the related Notes Prospectus
or any document incorporated or deemed to be incorporated therein by reference,
or file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or to the purchasers
of the Exchange Notes to whom such Notes Prospectus will be delivered by a
Participating Broker-Dealer, such Notes Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(l) Use its best efforts to cause the Registrable Notes covered by a
Notes Registration Statement to be rated with the appropriate rating agencies,
if so requested by the Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Notes Registration Statement or the managing
underwriter or underwriters, if any.
(m) Prior to the initial issuance of the Exchange Notes, (i) provide
the Trustee with one or more certificates for the Registrable Notes in a form
eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP
number for the Exchange Notes.
(n) If a Shelf Registration is filed pursuant to Section 3, enter
into such agreements (including an underwriting agreement in form, scope and
substance as is customary in underwritten offerings of debt securities similar
to the Notes, as may be appropriate in the circumstances) and take all such
other actions in connection therewith (including those reasonably requested by
the managing underwriters, if any, or the Holders of a majority in aggregate
principal amount of the Registrable Notes being sold) in order to expedite or
facilitate the registration or the disposition of such Registrable Notes, and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten registration, (i) make such
representations and warranties to the
-19-
<PAGE>
Holders and the underwriters, if any, with respect to the business of the
Company and its subsidiaries, and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings of debt securities similar to
the Notes, as may be appropriate in the circumstances, and confirm the same if
and when reasonably required; (ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters, if any, and the Holders
of a majority in aggregate principal amount of the Registrable Notes being
sold), addressed to each selling Holder and each of the underwriters, if any,
covering the matters customarily covered in opinions of counsel to the Issuer
requested in underwritten offerings of debt securities similar to the Notes, as
may be appropriate in the circumstances; (iii) obtain "cold comfort" letters and
updates thereof (which letters and updates (in form, scope and substance) shall
be reasonably satisfactory to the managing underwriters) from the independent
certified public accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of the Company or of
any business acquired by the Company for which financial statements and
financial data are, or are required to be, included in the Registration
Statement), addressed to each of the underwriters and each selling Holder, such
letters to be in customary form and covering mattes of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings of
debt securities similar to the Notes, as may be appropriate in the
circumstances, and such other matters as reasonably requested by underwriters;
and (iv) deliver such documents and certificates as may be reasonably requested
by the Holders of a majority in principal amount of the Registrable Notes being
sold and the managing underwriters, if any, to evidence the continued validity
of the representations and warranties of the Company and its subsidiaries made
pursuant to clause (i) above and to evidence compliance with any conditions
contained in the underwriting agreement or other similar agreement entered into
by the Company.
(o) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Notes Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer, as the
case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
normally kept, during reasonable business hours, all financial and other records
and pertinent corporate
-20-
<PAGE>
documents of the Issuer and its subsidiaries (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees of
the Issuer and its subsidiaries to supply all information reasonably requested
by any such Inspector in connection with such Notes Registration Statement.
Such Records shall be kept confidential by each Inspector and shall not be
disclosed by the Inspector unless (i) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in such Notes
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii) the
information in such Records is public or has been made generally available to
the public other than as a result of a disclosure or failure to safeguard by
such Inspector or (iv) disclosure of such information is, in the opinion of
counsel for any Inspector, necessary or advisable in connection with any action,
claim, suit or proceeding, directly or indirectly, involving or potentially
involving such Inspector and arising out of, based upon, related to, or
involving this agreement, or any transaction contemplated hereby or arising
hereunder. Each selling Holder of such Registrable Notes and each such
Participating Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
Issuer unless and until such is made generally available to the public. Each
selling Holder of such Registrable Notes and each such Participating
Broker-Dealer will be required to further agree that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Issuer and, to the extent practicable, use its best efforts to
allow the Issuer, at its expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential at their expense.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to the security holders of the Company earnings
statements satisfying the provisions of section 11(a) of the Securities Act and
Rules 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days after the
end of any 12-month period if such period is a fiscal year) (i) commencing at
the end of any fiscal quarter in which Registrable Notes are sold to
underwriters in a firm commitment or best efforts underwritten offering and (ii)
if not sold to underwriters in such an offering, commencing on the first day of
the first fiscal quarter of the Company after the effective date of a Notes
Registration Statement, which statements shall cover said 12-month periods.
(q) Upon consummation of an Exchange Offer or Private Exchange,
obtain an opinion of counsel to the Company (in form, scope and substance
reasonably satisfactory to the Purchaser),
-21-
<PAGE>
addressed to the Trustee for the benefit of all Holders participating in the
Exchange Offer or Private Exchange, as the case may be, to the effect that (i)
the Company and the existing Subsidiary Guarantors have duly authorized,
executed and delivered the Exchange Notes or the Private Exchange Notes, as the
case may be, and the Indenture, (ii) the Exchange Notes or the Private Exchange
Notes, as the case may be, and the Indenture constitute legal, valid and binding
obligations of the Company and the existing Subsidiary Guarantors, enforceable
against the Company and the existing Subsidiary Guarantors in accordance with
their respective terms, except as such enforcement may be subject to customary
exceptions and (iii) all obligations of the Company and the existing Subsidiary
Guarantors under the Exchange Notes or the Private Exchange Notes, as the case
may be, and the Indenture are secured by Liens on the assets securing the
obligations of the Company under the Notes, Indenture and Collateral Agreements.
(r) If the Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by the Holders to the Issuers (or to such
other Person as directed by the Issuer) in exchange for the Exchange Notes of
the Private Exchange Notes, as the case may be, the Issuer shall mark, or caused
to be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; provided that in no event shall such Registrable Notes be
marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Notes covered by any
Notes Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the NASD.
(t) Use its best efforts to take all other steps reasonably necessary
to effect the registration of the Registrable Notes covered by a Notes
Registration Statement contemplated hereby.
The Issuer may require each seller of Registrable Notes or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Issuer such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Notes as the Issuer may,
from time to time, reasonably request. The Issuer may exclude from such
registration the Registrable Notes of any seller who fails to furnish such
information within a reasonable time (which time in no event shall exceed 60
days) after receiving such request.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon receipt of any
notice from the Issuer
-22-
<PAGE>
of the happening of any event of the kind described in Section 6(e)(ii),
6(e)(iv), 6(e)(v), or 6(e)(vi), such Holder will forthwith discontinue
disposition of such Registrable Notes covered by a Notes Registration Statement
and such Participating Broker-Dealer will forthwith discontinue disposition of
such Exchange Notes pursuant to any Notes Prospectus and, in each case,
forthwith discontinue dissemination of such Prospectus until such Holder's or
Participating Broker-Dealer's receipt of the copies of the supplemented or
amended Notes Prospectus contemplated by Section 6(k), or until it is advised in
writing (the "Advice") by the Issuer that the use of the applicable Prospectus
may be resumed, and has received copies of any amendments or supplements thereto
and, if so directed by the Issuer, such Holder or Participating Broker-Dealer,
as the case may be, will deliver to the Issuer all copies, other than permanent
file copies, then in such Holder's or Participating Broker-Dealer's possession,
of the Notes Prospectus covering such Registrable Notes current at the time of
the receipt of such notice. In the event the Issuer shall give any such notice,
the Applicable Period shall be extended by the number of days during such
periods from and including the date of the giving of such notice to and
including the date when each Participating Broker-Dealer shall have received (x)
the copies of the supplemented or amended Notes Prospectus contemplated by
Section 6(k) or (y) the Advice.
7. REGISTRATION EXPENSES
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuer (other than Warrant Shares
Registration Expenses which are covered by Section 11) shall be borne by the
Issuer, whether or not the Exchange Offer or a Shelf Registration is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees, including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with any underwritten offering
and (B) fees and expenses of compliance with state securities or Blue Sky laws
as provided in Section 6(h) hereof, (ii) printing expenses, including, without
limitation, expenses of printing Prospectuses if the printing of Prospectuses is
requested by the managing underwriter or underwriters, if any, or by the Holders
of a majority in aggregate principal amount of the Registrable Notes included in
any Notes Registration Statement or by any Participating Broker-Dealer during
the Applicable Period, as the case may be, (iii) messenger, telephone and
delivery expenses incurred in connection with the performance of its obligations
hereunder, (iv) fees and disbursements of counsel for the Issuer, (v) fees and
disbursements of all independent certified public accountants referred to in
Section 6(n)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, (vii) Securities Act liability insurance, if the Issuer
desires such insurance, (viii) fees and expenses of all other
-23-
<PAGE>
Persons retained by the Issuers, (ix) internal expenses of the Issuer
(including, without limitation, all salaries and expenses of officers and
employees of the Issuer performing legal or accounting duties), (x) the expense
of any annual audit, (xi) the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange and (ii)
the expenses relating to printing, word processing and distributing all
Registration Statements, underwriting agreements, securities sales agreements,
indentures and any other documents necessary in order to comply with this
Agreement.
(b) The Company shall reimburse the Holders for the reasonable fees
and disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Notes to be included in any Registration Statement. The Company
shall pay all documentary, stamp, transfers or other transactional taxes
attributable to the issuance or delivery of the Exchange Notes or Private
Exchange Notes in exchange for the Notes; provided that the Company shall not be
required to pay taxes payable in respect of any transfer involved in the
issuance or delivery of any Exchange Note or Private Exchange Note in a name
other than that of the Holder of the Note in respect of which such Exchange Note
or Private Exchange Note is being issued.
8. INDEMNIFICATION
(a) INDEMNIFICATION BY THE COMPANY. The Company shall (and shall
cause each Subsidiary Guarantor, jointly and severally, to) without limitation
as to time, indemnify and hold harmless each Holder of Registrable Notes,
Exchange Notes, Private Exchange Notes or Registrable Warrant Shares and each
Participating Broker-Dealer selling Exchange Notes during the Applicable Period,
each Person, if any, who controls each such Holder (within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and the
officers, directors and partners of each such Holder, Participating
Broker-Dealer and controlling person, to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, costs (including,
without limitation, reasonable costs of preparation and reasonable attorneys'
fees as provided in this Section 8) and expenses (including, without limitation,
reasonable costs and expenses incurred in connection with investigating,
preparing, pursuing or defending against any of the foregoing)(collectively,
"Losses"), as incurred, directly or indirectly caused by, related to, based
upon, arising out of or in connection with any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or form of prospectus, or in any amendment or supplement thereto, or in any
preliminary prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such
-24-
<PAGE>
Losses are solely based upon information relating to such Holder or
Participating Broker-Dealer and furnished in writing to the Company (or reviewed
and approved in writing) by such Holder or Participating Broker-Dealer or its
counsel expressly for use therein; provided, however, that the Company will not
be liable to any Indemnified Party under this Section 8 to the extent Losses
were solely caused by an untrue statement or omission or alleged untrue
statement or omission that was contained or made in any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto if (i)
the Prospectus does not contain any other untrue statement or omission or
alleged untrue statement or omission of a material fact that was the subject
matter of the related proceeding, (ii) any such Losses resulted from an action,
claim or suit by any Person who purchased Registrable Warrant Shares,
Registrable Notes or Exchange Notes which are the subject thereof from such
Indemnified Party and (iii) it is established in the related proceeding that
such Indemnified Party failed to deliver or provide a copy of the Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of the
sale of such Registrable Warrant Shares, Registrable Notes or Exchange Notes
sold to such Person if required by applicable law, unless such failure to
deliver or provide a copy of the Prospectus (as amended or supplemented) was a
result of noncompliance by the Issuer with Section 6 of this Agreement. The
Company shall also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers, directors, agents and employees and each Person who controls
such Persons (within the meaning of Section 5 of the Securities Act or Section
20(a) of the Exchange Act) to the same extent as provided above with respect to
the indemnification of the Holders or the Participating Broker-Dealer.
(b) INDEMNIFICATION BY HOLDER. In connection with any Registration
Statement, Prospectus or form of prospectus, any amendment or supplement
thereto, or any preliminary prospectus in which a Holder is participating, such
Holder shall furnish to the Company in writing such information as the Company
reasonably requests for use in connection with any Registration Statement,
Prospectus or form of prospectus, any amendment or supplement thereto, or any
preliminary prospectus and shall, without limitation as to time, indemnify and
hold harmless the Company, its directors and each Person, if any, who controls
the Company (within the meaning of Section 15 of the Securities Act and Section
20(a) of the Exchange Act), and the directors, officers, and partners of such
controlling persons, to the fullest extent lawful, from and against all Losses
arising out of or based upon any untrue or alleged untrue statement of a
material fact contained in any Registration Statement, Prospectus or form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the
-25-
<PAGE>
circumstances under which they were made, not misleading to the extent, but only
to the extent, that such losses are finally judicially determined by a court of
competent jurisdiction in a final, unappealable order to have resulted solely
from an untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact contained in or omitted from any
information so furnished in writing by such Holder to the Company expressly for
use therein. Notwithstanding the foregoing, in no event shall the liability of
any selling Holder be greater in amount than the dollar amount of the proceeds
(net of payment of all expenses) received by such Holder upon the sale of the
Registrable Notes or Registrable Warrant Shares giving rise to such
indemnification obligation.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the party or
parties from which such indemnity is sought (the "Indemnifying Parties") in
writing; provided, that the failure to so notify the Indemnifying Parties shall
not relieve the Indemnifying Parties from any obligation or liability except to
the extent (but only to the extent) that it shall be finally determined by a
court of competent jurisdiction (which determination is not subject to appeal)
that the Indemnifying Parties have been prejudiced materially by such failure.
The Indemnifying Party shall have the right, exercisable by giving
written notice to an Indemnified Party, within 20 business days after receipt of
written notice from such Indemnified Party of such Proceeding, to assume, at its
expense, the defense of any such Proceeding, provided, that an Indemnified Party
shall have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or parties unless: (1) the
Indemnifying Party has agreed to pay such fees and expenses; or (2) the
Indemnifying Party shall have failed promptly to assume the defense of such
Proceeding or shall have failed to employ counsel reasonably satisfactory to
such Indemnified Party; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party or any of its affiliates or controlling persons, and such
Indemnified Party shall have been advised by counsel that there may be one or
more defenses available to such Indemnified Party that are in addition to, or in
conflict with, those defenses available to the Indemnifying Party or such
affiliate or controlling person (in which case, if such Indemnified Party
notifies the Indemnifying Parties in writing that it elects to employ separate
counsel at the expense of the Indemnifying Parties, the Indemnifying Parties
shall not have the right to assume the defense and the reasonable fees and
expenses of such counsel shall be at the expense of the Indemnifying Party; it
being understood, however, that, the Indemnifying Party shall not, in connection
with any one such
-26-
<PAGE>
Proceeding or separate but substantially similar or related Proceedings in the
same jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses or more than one separate firm of attorneys
(together with appropriate local counsel) at any time for such Indemnified
Party).
No Indemnifying Party shall be liable for any settlement of any such
Proceeding effected without its written consent, which shall not be unreasonably
withheld, but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such Proceeding, each Indemnifying Party
jointly and severally agrees, subject to the exceptions and limitations set
forth above, to indemnify and hold harmless each Indemnified Party from and
against any and all Losses by reason of such settlement or judgment. The
Indemnifying Party shall not consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to each Indemnified Party of a release, in form and
substance reasonably satisfactory to the Indemnified Party, from all liability
in respect of such Proceeding for which such Indemnified Party would be entitled
to indemnification hereunder (whether or not any Indemnified Party is a party
thereto).
(d) CONTRIBUTION. If the indemnification provided for in this
Section 8 is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 8
would otherwise apply by its terms (other than by reason of exceptions provided
in this Section 8), then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall have a joint and several obligation
to contribute to the amount paid or payable by such Indemnified Party as a
result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party, on the one hand,
and Indemnified Party, on the other hand, shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent any such statement or omission. The amount paid or payable
by an Indemnified Party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding, to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in Section 8(a) or 8(b) was
available to such party.
-27-
<PAGE>
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), a selling Holder shall not
be required to contribute, in the aggregate, any amount in excess of such
Holder's Maximum Contribution Amount. A selling Holder's "Maximum Contribution
Amount" shall equal the excess of (i) the aggregate proceeds received by such
Holder pursuant to the sale of such Registrable Notes, Exchange Notes or
Registrable Warrant Shares over (ii) the aggregate amount of damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section 8
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
9. RULES 144 AND 144A
The Company covenants that it shall (a) file the reports required to
be filed by it (if so required) under the Securities Act and the Exchange Act in
a timely manner and, if at any time the Company is not required to file such
reports, it will, upon the request of any Holder of Registrable Notes, make
publicly available other information necessary to permit sales pursuant to Rule
144 and 144A and (b) take such further action as any Holder may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Notes without registration under the Securities Act pursuant to
the exemptions provided by Rule 144 and Rule 144A. Upon the request of any
Holder, the Company shall deliver to such Holder a written statement as to
whether it has complied with such information and requirements.
10. UNDERWRITTEN REGISTRATIONS OF REGISTRABLE NOTES
If any of the Registrable Notes covered by any Shelf Registration is
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering; provided, however, that such investment banker
or investment bankers and manager or managers must be reasonably acceptable to
the Issuer.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in
-28-
<PAGE>
any underwriting arrangements approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
11. REGISTRATION OF REGISTRABLE WARRANT SHARES
(a) SHELF REGISTRATION OF REGISTRABLE WARRANT SHARES. The Company
shall, on or prior to the Warrant Shares Registration Filing Date, (i) file a
registration statement covering resales of the Warrant Shares (the "Warrant
Shares Registration Statement"), (ii) use its best efforts to cause the Warrant
Shares Registration Statement to be declared effective under the Securities Act
and (iii) use its best efforts to keep effective the Warrant Shares Registration
Statement until the earlier of the tenth anniversary of the Closing Date or such
time as all of the Warrants have been exercised. The Company shall, in the
event that a Warrant Shares Registration Statement is filed, provide to each
Holder copies of the Prospectus that is a part of the Warrant Shares
Registration Statement, notify each such Holder when the Warrant Shares
Registration Statement has become effective and take such other actions as are
required to permit unrestricted resales of the Warrant Shares. The Company
shall require a Holder that sells Warrant Shares pursuant to the Warrant Shares
Registration Statement to be named as a selling securityholder in the related
prospectus and to deliver a prospectus to purchasers, and any such Holder shall
be bound by the provisions of this Agreement that are applicable to such Holder
(including certain indemnification rights and obligations). Each Holder of the
Warrant Shares shall deliver information to be used in connection with the
Warrant Shares Registration Statement and provide comments on the Warrant Shares
Registration Statement within the time periods set forth in this Agreement in
order to have its Warrant Shares included in the Warrant Shares Registration
Statement.
(b) PIGGY-BACK REGISTRATION OF REGISTRABLE WARRANT SHARES. If at any
time after the Closing Date the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any holders of its Common Stock (other
than (i) a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the SEC), (ii) a registration statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing security holders or (iii) any Notes Registration Statement),
then the Company shall give written notice of such proposed filing to the
Holders of Registrable Warrant Shares as soon as practicable (but in no event
fewer than 20 days before the anticipated filing date), and such notice shall
offer such Holders the opportunity to register such number of Registrable
Warrant Shares as each Holder may request in writing within 20 days after
receipt of such written notice from the Company (which request shall specify
-29-
<PAGE>
the Registrable Warrant Shares intended to be disposed of by such Selling Holder
and the intended method of distribution thereof) (a "Piggy-Back Registration").
The Company shall use its best efforts to keep such Piggy-Back Registration
continuously effective under the Securities Act until at least the earlier of
a)an aggregate of 180 days after the effective date thereof or b)the
consummation of the distribution by the Holders of all of the Registrable
Warrant Shares covered thereby. The Company shall use its best efforts to cause
the managing underwriter or underwriters, if any, of such proposed offering to
permit the Registrable Warrant Shares requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein and to
permit the sale or other disposition of such Registrable Warrant Shares in
accordance with the intended method of distribution thereof. Any Selling Holder
shall have the right to withdraw its request for inclusion of its Registrable
Warrant Shares in any Registration Statement pursuant to this Section 11 by
giving written notice to the Company of its request to withdraw at any time
prior to the filing of such Registration Statement with the SEC. The Company
will pay all Warrant Shares Registration Expenses in connection with each
registration of Registrable Warrant Shares requested pursuant to this Section
11, and each Holder of Registrable Warrant Shares shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Warrant Shares pursuant to a Piggy-Back
Registration effected pursuant to this Section 11.
No registration effected under this Section 11, and no failure to
effect a registration under this Section 11, shall relieve the Company of its
obligations to effect a registration upon the request of Holders of Registrable
Notes pursuant to Sections 2 and 3 hereof, and no failure to effect a
registration under this Section 11 and to complete the sale of securities
registered thereunder in connection therewith shall relieve the Company of any
other obligation under this Agreement.
(c) PRIORITY IN PIGGY-BACK REGISTRATION. In a registration pursuant
to this Section 11 involving an underwritten offering, if the managing
underwriter or underwriters of such underwritten offering have informed, in
writing, the Company and the Selling Holders requesting inclusion in such
offering that in such underwriter's or underwriter's opinion the total number of
securities which the Company, the Selling Holders and any other Persons desiring
to participate in such registration intend to include in such offering is such
as to adversely affect the success of such offering, including the price at
which such securities can be sold, then the Company will be required to include
in such registration only the amount of securities which it is so advised should
be included in such registration. In such event: (x) in cases initially
involving the registration for sale of securities for the Company's own account,
securities shall be registered in such offering in the
-30-
<PAGE>
following order of priority: ((i)first, the securities which the Company
proposes to register, ((ii)second, provided that no securities proposed to be
registered by the Company have been excluded from such registration, the
securities that have been requested to be included in such registration by the
Selling Holders, and ((iii)third, provided that no securities sought to be
included by the Selling Holders have been excluded from such registration, the
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (pro rata based on the
amount of securities sought to be registered by such Persons); and (y) in cases
not initially involving the registration for sale of securities for the
Company's own account, securities shall be registered in such offering in the
following order of priority: (i) first, the securities of any Person whose
exercise of a "demand" registration right pursuant to a contractual commitment
of the Company is the basis for the registration, (ii) second, provided that no
securities of any Person whose exercise of a "demand" registration right
pursuant to a contractual commitment of the Company is the basis for such
registration have been excluded from such registration, the securities requested
to be included in such registration by the Selling Holders pursuant to this
Agreement, (iii) third, provided that no securities sought to be included by the
Selling Holders or such Persons have been excluded from such registration,
securities of other Persons entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (pro rata based on the
amount of securities sought be registered by such Persons) and (iv) fourth,
provided that no securities sought to be included by other Persons entitled to
exercise "piggy-back" registration rights pursuant to such contractual
commitments have been excluded from such registration, any securities which the
Company proposes to register.
(d) SUSPENSION OF SALES, ETC. Subject to the next sentence of this
paragraph, the Company shall be entitled to postpone, for a reasonable period of
time, the effectiveness of, or suspend the rights of any Selling Holders to make
sales pursuant to any Warrant Shares Registration Statement otherwise required
to be prepared, filed and kept effective by it under this Section 11; provided,
however, that the duration of such postponement or suspension may not exceed the
earlier to occur of (A) 15 days after the cessation of the circumstances
described in the next sentence of this paragraph on which such postponement or
suspension is based or (B) 120 days after the date of the determination of the
Board of Directors referred to in the next sentence. Such postponement or
suspension may only be effected if the Board of Directors of the Company
determines in good faith that the effectiveness of, or sales pursuant to, such
Warrant Shares Registration Statement would materially impede, delay or
interfere with any significant financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or any of its affiliates or require disclosure of material
information which
-31-
<PAGE>
the Company has a bona fide business purpose for preserving as confidential. If
the Company shall so postpone the effectiveness of, or suspend the rights of any
Selling Holders to make sales pursuant to, a Warrant Shares Registration
Statement, it shall, as promptly as possible, notify any Selling Holders of such
determination, and the Selling Holders shall (y) have the right, in the case of
a postponement of the effectiveness of a Warrant Shares Registration Statement,
upon the affirmative vote of Selling Holders of not less than a majority of the
Registrable Warrant Shares to be included in such Warrant Shares Registration
Statement, to withdraw the request for registration by giving written notice to
the Company within 10 days after receipt of such notice or (z) in the case of a
suspension of the right to make sales, receive an extension of the registration
period referred to in Section 11(a) hereof equal to the number of days of the
suspension.
(e) EXCLUSION OF REGISTRABLE WARRANT SHARES. The Company shall not
be required by this Section 11 to include Registrable Warrant Shares in a
Piggy-Back Registration if (i) in the written opinion of outside counsel to the
Company, addressed to the Holders of Registrable Warrant Shares and delivered to
them, the Holders of such Registrable Warrant Shares seeking registration would
be free to sell all such Registrable Warrant Shares within the current calendar
quarter without registration under Rule 144, which opinion may be based in part
upon the representation by the Holders of such Registrable Warrant Shares
seeking registration, which representation shall not be unreasonably withheld,
that each such Holder is not an affiliate of the Company within the meaning of
the Securities Act, and (ii) all requirements under the Securities Act for
effecting such sales are satisfied at such time.
(f) OBLIGATIONS OF SELLING HOLDERS. The Company's obligations under
this Section 11 shall be subject to the obligations of the Selling Holders,
which the Selling Holders acknowledge, to furnish all information and materials
and to take any and all actions as may be required under applicable requirements
of the SEC and to obtain any acceleration of the effective date of a Warrant
Shares Registration Statement.
(g) NO SPECIAL AUDIT. The Company shall not be obligated to cause
any special audit to be undertaken in connection with any Piggy-Back
Registration unless such audit is requested by the underwriters with respect to
such Piggy-Back Registration.
12. MISCELLANEOUS
(a) NO INCONSISTENT AGREEMENTS. The Issuer has not entered, as of
the date hereof, and the Issuer shall not enter, after the date of this
Agreement, into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the Holders of Securities in this
Agreement or
-32-
<PAGE>
otherwise conflicts with the provisions hereof. The Issuer has not entered and
will not enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Notes Registration
Statement or a Warrant Shares Registration Statement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE WARRANT SHARES OR REGISTRABLE
NOTES. The Company shall not, directly or indirectly, take any action with
respect to the Registrable Warrant Shares or Registrable Notes as a class that
would adversely affect the ability of the Holders to include such Registrable
Warrant Shares or Registrable Notes in a registration undertaken pursuant to
this Agreement.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (A) in circumstances that would adversely affect any Holders of
Registrable Warrant Shares or Registrable Notes, the Holders of a majority of
the Registrable Warrant Shares (treating as outstanding for this purpose Warrant
Shares issuable on exercise of unexercised Warrants) or the Holders of not less
than a majority in aggregate principal amount of the then outstanding
Registrable Notes, as the case may be, and (B) in circumstances that would
adversely affect Participating Broker-Dealers, the Participating Broker-Dealers
holding not less than a majority in aggregate principal amount of the Exchange
Notes held by all Participating Broker-Dealers; provided, however, that Section
8 and this Section 12(c) may not be amended, modified or supplemented without
the prior written consent of each Holder and each Participating Broker-Dealer
(including any Person who was a Participating Broker-Dealer Holder of
Registrable Warrant Shares or Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement). Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Notes whose securities are being tendered pursuant to the Exchange
Offer or sold pursuant to a Notes Registration Statement and that does not
directly or indirectly affect, impair, limit or compromise the rights of other
Holders of Registrable Notes may be given by Holders of at least a majority in
aggregate principal amount of the Registrable Notes being tendered or being sold
by such Holders pursuant to such Notes Registration Statement.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
(1) if to a Holder of Securities or to any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may
-33-
<PAGE>
be, set forth on the records of the registrar of the Warrants or the Notes,
with a copy in like manner to the Initial Purchaser as follows:
JEFFERIES & COMPANY, INC.
11100 Santa Monica Boulevard
10th Floor
Los Angeles, California 90025
Facsimile No.: (310) 575-5166
Attention: Andrew Whittaker
(2) if to the Initial Purchaser, at the address specified in
Section 12(d)(1);
(3) if to the Issuer, as follows:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Facsimile No.: (954) 627-2760
Attention: Chief Executive Officer
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the United States mail, postage prepaid, if mailed, one
business day after being deposited in the United States mail, postage prepaid,
if mailed, one business day after being timely delivered to a next-day air
courier guaranteeing overnight delivery, and when receipt is acknowledged by the
addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee under the
Indenture at the address specified in such Indenture.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for an express
assignment, subsequent Holders of Securities.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
-34-
<PAGE>
YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN
THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY TO DO SO UNDER APPLICABLE LAW,
TRIAL BY JURY AND ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF
PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID,
TO THE COMPANY AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION.
(i) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(j) SECURITIES HELD BY THE ISSUER OR ITS AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Securities is
required hereunder, Securities held by the Issuer or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such comment or approval was given by the Holders of such
required percentage.
(k) THIRD PARTY BENEFICIARIES. Holders and Participating
Broker-Dealers are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such Persons.
-35-
<PAGE>
(l) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement, the Indenture, the Warrants, the Warrant Agreement and the Collateral
Agreements, is intended by the parties as a final and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein and any and all prior oral or written
agreements, representations, or warranties, contracts, understanding,
correspondence, conversations and memoranda between the Initial Purchaser on the
one hand and the Issuer on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
-36-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and President
ACCEPTED AND AGREED TO:
JEFFERIES & COMPANIES, INC.
By: /s/ Andrew R. Whittaker
------------------------------
Name: Andrew R. Whittaker
Title: Executive Vice President
-37-
<PAGE>
EXHIBIT 4.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
--------------------------------------------------------
WARRANT AGREEMENT
--------------------------------------------------------
DATED AS OF JULY 22, 1997
WARRANTS TO PURCHASE SHARES OF COMMON STOCK
PAR VALUE $0.01 PER SHARE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES........................................ 1
SECTION 1.1. Issuance of Warrants..................................... 1
SECTION 1.2. Form of Warrant Certificates............................. 2
SECTION 1.3. Execution of Warrant Certificates........................ 2
SECTION 1.4. Appointment of Warrant Agent............................. 2
SECTION 1.5. Authentications and Delivery............................. 3
SECTION 1.6. Temporary Warrant Certificates........................... 3
SECTION 1.7. Separation of Warrants and Notes......................... 4
SECTION 1.8. Registrar and Warrant Register........................... 4
SECTION 1.9. Registration of Transfers and Exchanges.................. 4
SECTION 1.10. Lost, Stolen, Destroyed, Defaced or
Mutilated Warrant Certificates........................... 11
SECTION 1.11. Offices for Exercise, etc................................ 12
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE........................... 12
SECTION 2.1. Duration of Warrants..................................... 12
SECTION 2.2. Exercise, Exercise Price, Settlement and Delivery........ 13
SECTION 2.3. Cancellation of Warrant Certificates..................... 15
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS............................................... 15
SECTION 3.1. Enforcement of Rights.................................... 15
SECTION 3.2. Tag-Along Rights......................................... 16
SECTION 3.3. Exchange Rights of Holders............................... 18
SECTION 3.4. Repurchase Right......................................... 18
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY............................................ 20
SECTION 4.1. Payment of Taxes......................................... 20
SECTION 4.2. Notice of Expiration Date................................ 20
i
<PAGE>
SECTION 4.3. Reservation of Common Stock.............................. 20
SECTION 4.4. Warrant Shares to be Duly Authorized
and Issued, Fully Paid and Nonassessable................. 21
SECTION 4.5. Reports.................................................. 21
SECTION 4.6. Private Placement Numbers................................ 22
SECTION 4.7. Right of Action.......................................... 22
SECTION 4.8. Survival................................................. 22
ARTICLE V
ADJUSTMENTS................................................................. 22
SECTION 5.1. Adjustment of Exercise Price
and Number of Warrant Shares Issuable.................... 22
SECTION 5.2. Fractional Interest...................................... 30
SECTION 5.3. When Adjustment Not Required............................. 31
SECTION 5.4. Treasury Stock........................................... 31
SECTION 5.5. Notices to Warrant Agent and Holders..................... 31
ARTICLE VI
CONCERNING THE WARRANT AGENT................................................ 32
SECTION 6.1. Warrant Agent............................................ 32
SECTION 6.2. Conditions of Warrant Agent's Obligations................ 32
SECTION 6.3. Resignation and Appointment of Successor................. 36
ARTICLE VII
MISCELLANEOUS............................................................... 37
SECTION 7.1. Defined Terms............................................ 37
SECTION 7.2. Amendment................................................ 39
SECTION 7.3. Notices and Demands to the
Company and Warrant Agent................................ 40
SECTION 7.4. Address for Notices to the Company
and for Transmission of Documents........................ 40
SECTION 7.5. Notices to Holders....................................... 41
SECTION 7.6. Applicable Law........................................... 41
SECTION 7.7. Obtaining of Governmental Approvals...................... 41
SECTION 7.8. Persons Having Rights Under Agreement.................... 41
SECTION 7.9. Headings................................................. 41
SECTION 7.10. Counterparts............................................. 41
SECTION 7.11. Inspection of Warrant Agreement.......................... 41
SECTION 7.12. Successors............................................... 42
ii
<PAGE>
EXHIBITS
EXHIBIT A - FORM OF WARRANT CERTIFICATE......................................A-1
EXHIBIT B - CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS............................B-1
EXHIBIT C - TRANSFEREE LETTER OF REPRESENTATION..............................C-1
iii
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT ("Warrant Agreement"), dated as of July 22,
1997 is executed and delivered by Discovery Zone, Inc., a Delaware corporation
(together with any successor thereto, the "Company") and State Street Bank and
Trust Company as warrant agent (together with any successor warrant agent, the
"Warrant Agent"), for the benefit of the holders (the "Holders") from time to
time of the Warrant Certificates (as hereinafter defined).
WHEREAS, the Company has entered into a purchase agreement dated as of
even date herewith (the "Purchase Agreement") with Jefferies & Company, Inc.
(the "Initial Purchaser"), pursuant to which the Company has agreed, among other
things, to sell to the Initial Purchaser 85,000 units (the "Units"), each
consisting of (i) $1,000 principal amount of 13 1/2% Senior Secured Notes due
2002 (each a "Note" and, collectively, the "Notes") to be issued under an
indenture dated as of even date herewith (the "Indenture"), between the Company
and State Street Bank and Trust Company, as trustee (the "Trustee"), and (ii)
one warrant (each a "Warrant" and, collectively, the "Warrants" and the
certificates evidencing the Warrants being hereinafter referred to as the
"Warrant Certificates") to initially purchase 9.4724 shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), at an initial
exercise price of $.01 per share, subject to adjustment in accordance with the
terms hereof; and
WHEREAS, the Warrants and the Notes shall be separately transferable
on and after the Separation Date (as hereinafter defined); and
NOW, THEREFORE, in consideration of the purchase of the Units by the
Initial Purchaser and other valuable consideration, the adequacy and receipt of
which is hereby acknowledged, and for the purpose of defining the respective
rights and obligations of the Company, the Warrant Agent and the Holders, the
parties hereto agree as follows:
ARTICLE I
ISSUANCE, FORM, EXECUTION, DELIVERY AND
REGISTRATION OF WARRANT CERTIFICATES
SECTION 1.1. ISSUANCE OF WARRANTS. Each Warrant Certificate shall,
when countersigned by the Warrant Agent, evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the right,
subject to the provisions contained herein and therein, to purchase from the
Company (and the Company shall issue and sell to such Holder) 9.4724 fully paid
and non-assessable shares of Common Stock (the shares of Common Stock
purchasable upon exercise of a Warrant being hereinafter referred to as the
"Warrant Shares" and, where appropriate, such term shall also mean the other
securities or property purchasable and deliverable upon exercise of a Warrant as
<PAGE>
provided in Article V) at the price specified herein and therein, in each case
subject to adjustment as provided herein and therein.
SECTION 1.2. FORM OF WARRANT CERTIFICATES. The Warrant Certificates
will initially be issued either in global form (the "Global Warrants") or in
registered form as definitive Warrant certificates (the "Definitive Warrants").
The Warrant Certificates evidencing the Global Warrants or the Definitive
Warrants to be delivered pursuant to this Warrant Agreement shall be
substantially in the form set forth in Exhibit A attached hereto, dated the date
on which countersigned. Such Global Warrants shall represent such of the
outstanding Warrants as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Warrants from time to
time endorsed thereon and that the aggregate amount of outstanding Warrants
represented thereby may from time to time be reduced or increased, as
appropriate. Any endorsement of a Global Warrant to reflect the amount of any
increase or decrease in the amount of outstanding Warrants represented thereby
shall be made by the Warrant Agent and Depositary (as defined) in accordance
with instructions given by the Holder thereof. The Depository Trust Company
("DTC"), a New York corporation, shall act as the depository with respect to the
Global Warrants (the "Depositary") until a successor shall be appointed by the
Company. Upon written request, a Holder may receive from the Warrant Agent
Definitive Warrants as set forth in Section 1.9 hereof.
SECTION 1.3. EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be executed on behalf of the Company by its President or any
Vice President and attested to by its Secretary or Assistant Secretary, under
its corporate seal. Such signatures may be the manual or facsimile signatures
of the present or any future such officers. The seal of the Company may be in
the form of a facsimile hereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates. Typographical and other minor
errors or defects in any such reproduction of the seal or any such signature
shall not affect the validity or enforceability of any Warrant Certificate that
has been duly countersigned and delivered by the Warrant Agent.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
Certificate so signed shall be countersigned and delivered by the Warrant Agent
or disposed of by the Company, such Warrant Certificate nevertheless may be
countersigned and delivered or disposed of as though the person who signed such
Warrant Certificate had not ceased to be such officer of the Company; and any
Warrant Certificate may be signed on behalf of the Company by such persons as,
at the actual date of the execution of such Warrant Certificate, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Warrant Agreement any such person was not such an officer.
SECTION 1.4. APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as agent for the Company in accordance with
the terms and conditions set forth in this Agreement, and the Warrant Agent
hereby accepts such appointment.
-2-
<PAGE>
SECTION 1.5. AUTHENTICATIONS AND DELIVERY. Subject to the
immediately following paragraph of this Section 1.5, Warrant Certificates shall
be authenticated by manual signature and dated the date of authentication by the
Warrant Agent and shall not be valid for any purpose unless so authenticated and
dated. The Warrant Certificates shall be numbered and shall be registered in
the Warrant Register (as defined in Section 1.8 hereof).
Upon the receipt by the Warrant Agent of a written order of the
Company, which order shall be signed by its President or any Vice President and
attested to by its Secretary or Assistant Secretary and shall specify the amount
of Warrants to be authenticated, whether the Warrants are to be Global Warrants
or Definitive Warrants, the date of such Warrants and such other information as
the Warrant Agent may reasonably request, without any further action by the
Company, the Warrant Agent is authorized, upon receipt from the Company at any
time and from time to time of the Warrant Certificates, duly executed as
provided in Section 1.3 hereof, to authenticate the Warrant Certificates and
deliver them. Such authentication shall be by a duly authorized signatory of
the Warrant Agent (although it shall not be necessary for the same signatory to
sign all Warrant Certificates).
In case any authorized signatory of the Warrant Agent who shall have
authenticated any of the Warrant Certificates shall cease to be such authorized
signatory before the Warrant Certificate shall be disposed of by the Company,
such Warrant Certificate nevertheless may be delivered or disposed of as though
the person who authenticated such Warrant Certificate had not ceased to be such
authorized signatory of the Warrant Agent; and any Warrant Certificate may be
authenticated on behalf of the Warrant Agent by such persons as, at the actual
time of authentication of such Warrant Certificates, shall be the duly
authorized signatories of the Warrant Agent, although at the time of the
execution and delivery of this Warrant Agreement any such person is not an
authorized signatory.
The Warrant Agent's authentication on all Warrant Certificates shall
be in substantially the form set forth in Exhibit A hereto.
SECTION 1.6. TEMPORARY WARRANT CERTIFICATES. Pending the
preparation of the definitive Warrant Certificates, the Company may execute, and
the Warrant Agent shall authenticate and deliver, temporary Warrant
Certificates, which are printed, lithographed, typewritten or otherwise
produced, substantially of the tenor of the definitive Warrant Certificates in
lieu of which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Warrant
Certificates may determine, as evidenced by their execution of such Warrant
Certificates.
If temporary Warrant Certificates are issued, the Company will cause
definitive Warrant Certificates to be prepared without unreasonable delay.
After the preparation of definitive Warrant Certificates, the temporary Warrant
Certificates shall be exchangeable for definitive Warrant Certificates upon
surrender of the temporary Warrant Certificates at any office or agency
maintained by the Company for the purpose pursuant to
-3-
<PAGE>
Section 1.11 hereof. Subject to the provisions of Section 4.1 hereof, such
exchange shall be without charge to the Holder. Upon surrender for cancellation
of any one or more temporary Warrant Certificates, the Company shall execute,
and the Warrant Agent shall authenticate and deliver in exchange therefor, one
or more definitive Warrant Certificates representing in the aggregate a like
number of Warrants. Until so exchanged, the Holder of a temporary Warrant
Certificate shall in all respects be entitled to the same benefits under this
Warrant Agreement as a Holder of a definitive Warrant Certificate.
SECTION 1.7. SEPARATION OF WARRANTS AND NOTES. The Notes and
Warrants will not be separately transferable until the date (the "Separation
Date") which is the earlier of (i) 45 days from the Issue Date (as defined in
Section 1.9(a)(ii)(y) hereof) and (ii) such date as the Initial Purchaser may
determine (as specified to the Company and the Warrant Agent in writing).
SECTION 1.8. REGISTRAR AND WARRANT REGISTER. The Company will keep,
at the office or agency maintained by the Company for such purpose, a register
or registers in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of, and registration
of transfer and exchange of, Warrants as provided in this Article. Each Person
designated by the Company from time to time as a Person authorized to register
the transfer and exchange of the Warrants is hereinafter called, individually
and collectively, the "Registrar". Initially, State Street Bank and Trust
Company shall act as Registrar. Upon written notice to the Warrant Agent and
any acting Registrar, the Company may appoint a successor Registrar for such
purposes.
The Company will at all times designate one Person (who may be the
Company and who need not be a Registrar) to act as repository of a master list
of names and addresses of the Holders (the "Warrant Register"). The Company
will act as such repository unless and until some other Person is, by written
notice from the Company to the Warrant Agent and the Registrar, designated by
the Company to act as such. The Company shall cause each Registrar to furnish
to such repository, on a current basis, such information as to all registrations
of transfer and exchanges effected by such Registrar, as may be necessary to
enable such repository to maintain the Warrant Register on as current a basis as
is practicable.
SECTION 1.9. REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) TRANSFER AND EXCHANGE OF DEFINITIVE WARRANTS. When Definitive
Warrants are presented to the Warrant Agent with a request:
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants, the Warrant Agent shall register the transfer or
make the exchange as requested if the requirements under this Warrant
Agreement as set forth in this Section 1.9 for such transactions are
met; PROVIDED, HOWEVER, that
-4-
<PAGE>
the Definitive Warrants presented or surrendered for registration of
transfer or exchange:
(x) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Company and the Warrant Agent, duly executed by the
Holder thereof or by its attorney, duly authorized in
writing and
(y) in the case of Warrants the offer and sale of which has
not been registered under the Securities Act, and are
presented for transfer or exchange prior to (x) the
date which is one year after the later of the date of
original issue (the "Issue Date") and the last date on
which the Company or any affiliate of the Company was
the owner of such Warrant, or any predecessor thereto
and (y) such later date, if any, as may be required by
any subsequent change in applicable law (the "Resale
Restriction Termination Date"), such Warrants shall be
accompanied, in the sole discretion of the Company, by
the following additional information and documents, as
applicable:
(A) if such Warrant is being delivered to the Warrant
Agent by a Holder for registration in the name of
such Holder, without transfer, a certification
from such Holder to that effect (in substantially
the form of Exhibit B hereto); or
(B) if such Warrant is being transferred to a
qualified institutional buyer (as defined in Rule
144A under the Securities Act) in accordance with
Rule 144A under the Securities Act or pursuant to
an exemption from registration in accordance with
Rule 144 or Regulation S under the Securities Act,
a certification to that effect (in substantially
the form of Exhibit B hereto); or
(C) if such Warrant is being transferred to an
institutional "accredited investor" within the
meaning of subparagraph (a)(1), (a)(2), (a)(3) or
(a)(7) of Rule 501 under the Securities Act,
delivery of a certification to that effect (in
substantially the form of Exhibit B hereto) and a
letter of representation from the transferee in
substantially the form of Exhibit C hereto; or
-5-
<PAGE>
(D) if such Warrant is being transferred in reliance
on another exemption from the registration
requirements of the Securities Act, a
certification to that effect (in substantially the
form of Exhibit B hereto) and an opinion of
counsel reasonably acceptable to the Company to
the effect that such transfer is in compliance
with the Securities Act.
(b) RESTRICTIONS ON TRANSFER OF A DEFINITIVE WARRANT FOR A BENEFICIAL
INTEREST IN A GLOBAL WARRANT. A Definitive Warrant may not be transferred for a
beneficial interest in a Global Warrant except upon satisfaction of the
requirements set forth below. Upon receipt by the Warrant Agent of a Definitive
Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Warrant Agent, together with:
(i) certification, substantially in the form of Exhibit B
hereto, that such Definitive Warrant is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act) in accordance with Rule 144A under the Securities Act;
and
(ii) written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the Global Warrant
to reflect an increase in the aggregate amount of the Warrants
represented by the Global Warrant;
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants represented by the Global Warrant to be increased accordingly. If no
Global Warrant is then outstanding, the Company shall issue and the Warrant
Agent shall authenticate a new Global Warrant in the appropriate amount.
(c) TRANSFER AND EXCHANGE OF GLOBAL WARRANTS. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Section 1.9 and the procedures
of the Depositary therefor.
(d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL WARRANT FOR A
DEFINITIVE WARRANT.
(i) Any Person having a beneficial interest in a Global Warrant
may upon request transfer such beneficial interest for a Definitive
Warrant. Upon receipt by the Warrant Agent of written instructions or
such other form of instructions as is customary for the Depositary
from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a Global Warrant and upon receipt by the
Warrant Agent of a written order or such other form of instructions as
is customary for the Depositary or the Person
-6-
<PAGE>
designated by the Depositary as having such a beneficial interest
containing registration instructions and, in the case of any such
transfer or exchange prior to the Resale Restriction Termination Date,
the following additional information and documents:
(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the
beneficial owner, a certificate from such Person to
that effect (in substantially the form of Exhibit B
hereto); or
(B) if such beneficial interest is being transferred to a
qualified institutional buyer (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A
under the Securities Act or pursuant to an exemption
from registration in accordance with Rule 144 or
Regulation S under the Securities Act, a certification
to that effect from the transferee or transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred to an
institutional "accredited investor" within the meaning
of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of
Rule 501 under the Securities Act, delivery of a
certification to that effect (in substantially the form
of Exhibit B hereto), a letter of representation from
the transferee in substantially the form of Exhibit C
hereto and an opinion of counsel reasonably acceptable
to the Company to the effect that such transfer is in
compliance with the Securities Act; or
(D) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification to
that effect (in substantially the form of Exhibit B
hereto) and an opinion of counsel reasonably acceptable
to the Company to the effect that such transfer is in
compliance with the Securities Act,
then the aggregate amount of the Global Warrant will be reduced
by the Depositary or its custodian and, following such reduction,
the Company will execute and, upon receipt of an authentication
order in the form of an Officers' Certificate (as hereinafter
defined), the Warrant Agent will authenticate and deliver to the
transferee a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to Section 1.8(d) shall be
registered in such
-7-
<PAGE>
names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Warrant Agent in writing. The Warrant Agent shall
deliver such Definitive Warrant to the Persons in whose names such
Warrants are so registered.
(e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL WARRANTS.
Notwithstanding any other provisions of this Warrant Agreement (other than the
provisions set forth in Section 1.9(f)), a Global Warrant may not be transferred
as a whole except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary.
(f) AUTHENTICATION OF DEFINITIVE WARRANTS IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Warrants notifies the Company that
the Depositary is unwilling or unable to continue as Depositary for
the Global Warrant and a successor Depositary for the Global Warrant
is not appointed by the Company within 90 days after delivery of such
notice or
(ii) the Company, at its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of Definitive
Warrants under this Warrant Agreement,
then the Company will execute, and the Warrant Agent, upon receipt of an
officers' certificate signed by two duly authorized officers of the Company (one
of whom must be the principal executive officer, principal financial officer or
principal accounting officer) (an "Officers' Certificate") requesting the
authentication and delivery of Definitive Warrants, will authenticate and
deliver Definitive Warrants, in an aggregate number equal to the aggregate
number of warrants represented by the Global Warrant, in exchange for such
Global Warrant.
(g) LEGENDS.
(i) Except to the extent permitted by paragraph (ii) of this
Section 1.9(g), each Warrant Certificate evidencing the Global
Warrants and the Definitive Warrants (and all Warrants issued in
exchange therefor or substitution thereof) shall bear a legend
substantially to the following effect:
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF
-8-
<PAGE>
IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY ITS
ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY
PREDECESSOR OF SUCH WARRANTS OR WARRANT CERTIFICATE) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT
CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
-9-
<PAGE>
THIS SECURITY IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT DATED AS OF
JULY 22, 1997 BETWEEN THE COMPANY AND JEFFERIES & COMPANY, INC. (THE
"INITIAL PURCHASER"), A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
To the extent a Warrant Certificate evidences a Global Warrant, such
Warrant Certificate shall also bear the legend with respect thereto
substantially in the form set forth on Exhibit A hereto.
Each Warrant Certificate issued prior to the Separation Date shall
also bear the following legend on the face thereof:
THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE INITIALLY ISSUED AS
PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000 PRINCIPAL
AMOUNT OF 13 1/2% SENIOR SECURED NOTES DUE 2002 (THE "NOTES") OF THE COMPANY
AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 9.4724
SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER SHARE. PRIOR TO
THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) 45 DAYS AFTER JULY
22, 1997 AND (ii) SUCH EARLIER DATE AS THE INITIAL PURCHASER MAY DESIGNATE,
THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY
TOGETHER WITH, THE NOTES.
(ii) Upon any sale or transfer of a Warrant pursuant to Rule 144
under the Securities Act in accordance with this Section 1.9
or an effective registration statement under the Securities
Act;
(A) in the case of any Warrant that is a Definitive
Warrant, the Warrant Agent shall permit the Holder
thereof to exchange such Warrant for a Definitive
Warrant that does not bear the first paragraph of the
legend set forth above and rescind any related
restriction on the transfer of such Warrant; and
(B) any such Warrant represented by a Global Warrant shall
not be subject to the provisions set forth in (i) above
(such sales or transfers being subject only to the
provisions of Section 1.9(c) hereof); PROVIDED,
HOWEVER, that with respect to any request for an
exchange of a Warrant that is represented by a Global
Warrant for a Definitive Warrant that does not bear the
first paragraph of the legend set forth above, which
request is made in reliance upon Rule 144 under the
Securities Act, the Holder thereof shall certify in
writing to the Warrant
-10-
<PAGE>
Agent that such request is being made pursuant to Rule
144 under the Securities Act (such certification to be
substantially in the form of Exhibit B hereto).
(h) CANCELLATION AND/OR ADJUSTMENT OF A GLOBAL WARRANT. At such time
as all beneficial interests in a Global Warrant have either been exchanged for
Definitive Warrants, redeemed, repurchased or canceled, such Global Warrant
shall be returned to or retained and canceled by the Warrant Agent. At any time
prior to such cancellation, if any beneficial interest in a Global Warrant is
exchanged for Definitive Warrants, redeemed, repurchased or canceled, the number
of Warrants represented by such Global Warrant shall be reduced and an
endorsement shall be made on such Global Warrant by the Warrant Agent or the
Depositary to reflect such reduction.
(i) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF DEFINITIVE
WARRANTS.
(i) To permit registrations of transfers and exchanges, the
Company shall execute, at the Warrant Agent's request, and the Warrant
Agent shall authenticate Definitive Warrants and Global Warrants.
(ii) All Definitive Warrants and Global Warrants issued upon any
registration of transfer or exchange of Definitive Warrants or Global
Warrants shall be the valid obligations of the Company, entitled to
the same benefits under this Warrant Agreement as the Definitive
Warrants or Global Warrants surrendered upon the registration of
transfer or exchange.
(iii) Prior to due presentment for registration of transfer
of any Warrant, the Warrant Agent and the Company may deem and treat
the Person in whose name any Warrant is registered as the absolute
owner of such Warrant, and neither the Warrant Agent nor the Company
shall be affected by notice to the contrary.
(j) PAYMENT OF TAXES. The Company or the Warrant Agent may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any exchange or transfer pursuant to this
Section 1.9.
SECTION 1.10. LOST, STOLEN, DESTROYED, DEFACED OR MUTILATED WARRANT
CERTIFICATES. Upon receipt by the Company and the Warrant Agent (or any agent
of the Company or the Warrant Agent, if requested by the Company) of evidence
satisfactory to them of the loss, theft, destruction, defacement, or mutilation
of any Warrant Certificate and of indemnity reasonably satisfactory to them and,
in the case of mutilation or defacement, upon surrender thereof to the Warrant
Agent for cancellation, then, in the absence of notice to the Company or the
Warrant Agent that such Warrant Certificate has been acquired by a bona fide
purchaser or holder in due course, the Company shall execute, and an authorized
signatory of the Warrant Agent shall manually authenticate and deliver, in
exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated
Warrant Certificate, a new Warrant
-11-
<PAGE>
Certificate representing a like number of Warrants, bearing a number or other
distinguishing symbol not contemporaneously outstanding. Upon the issuance of
any new Warrant Certificate under this Section 1.10, the Company may require the
payment from the Holder of such Warrant Certificate of a sum sufficient to cover
any tax, stamp tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the Warrant
Agent and the Registrar) in connection therewith. Every substitute Warrant
Certificate executed and delivered pursuant to this Section 1.10 in lieu of any
lost, stolen or destroyed Warrant Certificate shall constitute an additional
contractual obligation of the Company, whether or not the lost, stolen or
destroyed Warrant Certificate shall be at any time enforceable by anyone, and
shall be entitled to the benefits of (but shall be subject to all the
limitations of rights set forth in) this Warrant Agreement equally and
proportionately with any and all other Warrant Certificates duly executed and
delivered hereunder. The provisions of this Section 1.10 are exclusive with
respect to the replacement of lost, stolen, destroyed, defaced or mutilated
Warrant Certificates and shall preclude (to the extent lawful) any and all other
rights or remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of lost, stolen,
destroyed, defaced or mutilated Warrant Certificates.
The Warrant Agent is hereby authorized to authenticate and deliver the
new Warrant Certificates required pursuant to the provisions of this Section
1.10.
SECTION 1.11. OFFICES FOR EXERCISE, ETC. So long as any of the
Warrants remain outstanding, the Company will designate and maintain in the
continental United States: (a) an office or agency where the Warrant
Certificates may be presented for exercise, (b) an office or agency where the
Warrant Certificates may be presented for registration of transfer and for
exchange (including the exchange of temporary Warrant Certificates for
definitive Warrant Certificates pursuant to Section 1.6 hereof), and (c) an
office or agency where notices and demands to or upon the Company in respect of
the Warrants or of this Warrant Agreement may be served. The Company may from
time to time change or rescind such designation, as it may deem desirable or
expedient. The Company will give to the Warrant Agent written notice of the
location of any such office or agency and of any change of location thereof.
The Company hereby designates the corporate trust office of the Warrant Agent in
New York, New York (the "Warrant Agent Office"), as the initial agency
maintained for each such purpose.
ARTICLE II
DURATION, EXERCISE OF WARRANTS AND EXERCISE PRICE
SECTION 2.1. DURATION OF WARRANTS. Subject to the terms and
conditions established herein, the Warrants shall expire at 5:00 p.m., New York
City time on August 1, 2007 (the "Expiration Date"). Each Warrant may be
exercised on any Business Day (as hereinafter defined) on or after the
Exercisability Date (as hereinafter defined) and on or prior to the Expiration
Date.
-12-
<PAGE>
Any Warrant not exercised before the close of business on the
Expiration Date relating to such Warrant shall become void, and all rights of
the Holder under the Warrant Certificate evidencing such Warrant and under this
Warrant Agreement shall cease.
SECTION 2.2. EXERCISE, EXERCISE PRICE, SETTLEMENT AND DELIVERY.
(a) Subject to the provisions of this Warrant Agreement, each Holder
shall have the right to purchase from the Company, on or after the date hereof
(the "Exercisability Date") and on or prior to the Expiration Date, 9.4724 fully
paid and non-assessable Warrant Shares per each Warrant such Holder owns,
subject to adjustment in accordance with Article V hereof, at the initial
purchase price of $0.01 for each Warrant Share purchased, subject to adjustment
in accordance with Article V hereof (the "Exercise Price").
(b) Warrants may be exercised, in whole or in part, on or after the
Exercisability Date by (i) surrendering at any Warrant Agent office the Warrant
Certificate evidencing such Warrants with the form of election to purchase
Warrant Shares set forth on the reverse side of the Warrant Certificate (the
"Election to Exercise") duly completed and signed by the registered Holder or
Holders thereof or by the duly appointed legal representative thereof or by a
duly authorized attorney, and (ii) paying in full the Exercise Price for each
such Warrant Share purchased and any other amounts required to be paid pursuant
to Section 4.1 hereof.
(c) Simultaneously with the exercise of each Warrant, payment in full
of the Exercise Price shall be made (i) in cash or by certified or official bank
check payable to the order of the Company, delivered to the office or agency
where the Warrant Certificate is being surrendered; or (ii) by delivery of
Warrant Certificates pursuant to Section 2.2(d).
(d) In the event that any Holder of Warrant Certificates delivers
such Warrant Certificates to the Company and indicates on the Election to
Exercise that such Holder intends to exercise all, or any portion of, the
Warrants represented by such Warrant Certificate to satisfy its obligation to
pay the Exercise Price in respect thereof by virtue of the provisions of this
Section 2.2(d), such Holder shall become entitled to receive, instead of the
number of Warrant Shares such Holder would have received had the Exercise Price
been paid in cash pursuant to Section 2.2(c), a number of Warrant Shares in
respect of the exercises of such Warrants equal to the PRODUCT of:
(A) the number of Warrant Shares issuable upon such
exercise of such Warrant Certificates (or, if only a portion of
such Warrant Certificates are being exercised, issuable upon the
exercise of such portion) MULTIPLIED by
(B) the QUOTIENT of:
(i) the DIFFERENCE of:
-13-
<PAGE>
(X) the per share Fair Market Value of the Common Stock
at the time of such exercise; MINUS
(Y) the Exercise Price at the time of such exercise;
DIVIDED by
(ii) the per share Fair Market Value of the Common Stock at
the time of such exercise.
For purposes of Rule 144 and Rule 144A under the Securities Act, the
Company and the Warrant Agent, on behalf of the Holders, hereby agree that the
exercise of any Warrants in accordance with this Section 2.2(d) shall be deemed
to be a conversion of such Warrants, pursuant to the terms of this Warrant
Agreement and the Warrants, into Warrant Shares.
(e) Upon such surrender of a Warrant Certificate and payment and
collection of the Exercise Price at any Warrant Agent Office, such Warrant
Certificate and payment shall be promptly delivered to the Warrant Agent. The
"Exercise Date" for a Warrant shall be the date when all of the items referred
to in the first sentence of paragraphs (b) and (c) of this Section 2.2 are
received by the Warrant Agent at or prior to 2:00 p.m., New York City time, on a
Business Day and the exercise of the Warrants will be effective as of such
Exercise Date. If any items referred to in the first sentence of paragraphs (b)
and (c) of this Section 2.2 are received after 2:00 p.m., New York City time, on
a Business Day, the exercise of the Warrants to which such item relates will be
effective on the next succeeding Business Day. Notwithstanding the foregoing,
in the case of an exercise of Warrants on the Expiration Date, if all of the
items referred to in the first sentence of paragraphs (b) and (c) of this
Section 2.2 are received by the Warrant Agent at or prior to 5:00 p.m., New York
City time, on such Expiration Date, the exercise of the Warrants to which such
items relate will be effective on the Expiration Date.
(f) Upon the exercise of a Warrant in accordance with the terms
hereof, the receipt of a Warrant Certificate and payment of the Exercise Price,
the Warrant Agent shall: (i) cause an amount equal to the Exercise Price,
whether in cash or Warrant Certificates, to be delivered or paid to the Company
by crediting the same to the account designated by the Company in writing to the
Warrant Agent for that purpose; (ii) in the case of a payment of the Exercise
Price in cash, advise the Company immediately by telephone of the amount so
deposited to the Company's account and promptly confirm such telephonic advice
in writing; and (iii) as soon as practicable, advise the Company in writing of
the number of Warrants exercised in accordance with the terms and conditions of
this Warrant Agreement and the Warrant Certificates, the instructions of each
exercising Holder with respect to delivery of the Warrant Shares to which such
Holder is entitled upon such exercise, and such other information as the Company
shall reasonably request.
(g) Subject to Section 5.2 hereof, as soon as practicable after the
exercise of any Warrant or Warrants in accordance with the terms hereof, the
Company shall issue or cause to be issued to or upon the written order of the
registered Holder evidencing such
-14-
<PAGE>
exercised Warrant or Warrants, a certificate or certificates evidencing the
Warrant Shares to which such Holder is entitled, in fully registered form,
registered in such name or names as may be directed by such Holder pursuant to
the Election to Exercise, as set forth on the reverse of the Warrant
Certificate. The Warrant Agent shall have no obligation to ascertain the number
of Warrant Shares to be issued with respect to the exercised Warrant or
Warrants. Such certificate or certificates evidencing the Warrant Shares shall
be deemed to have been issued and any Persons who are designated to be named
therein shall be deemed to have become the Holder of record of such Warrant
Shares as of the close of business on the Exercise Date. After such exercise of
any Warrant or Warrants, the Company shall also issue or cause to be issued to
or upon the written order of the registered holer of such Warrant Certificate, a
new Warrant Certificate, countersigned by the Warrant Agent pursuant to the
Company's written instruction, evidencing the number of Warrants, if any,
remaining unexercised (unless such Warrants shall have expired).
SECTION 2.3. CANCELLATION OF WARRANT CERTIFICATES. In the event the
Company shall purchase or otherwise acquire Warrants, the Warrant Certificates
evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if
so delivered, shall be canceled by it and retired. The Warrant Agent shall
cancel all Warrant Certificates properly surrendered for exchange, substitution,
transfer or exercise. The Warrant Agent shall destroy canceled Warrant
Certificates held by it and deliver a certificate of destruction to the Company.
The Warrant Agent shall account promptly to the Company with respect to Warrants
exercised and concurrently pay to the Company all money received by the Warrant
Agent for the purchase of Warrant Shares through the exercise of such Warrants.
ARTICLE III
OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANTS
SECTION 3.1. ENFORCEMENT OF RIGHTS.
(a) Notwithstanding any of the other provisions of this Warrant
Agreement, any Holder of Warrant Certificates or holder of Warrant Shares,
without the consent of the Warrant Agent, may, in and for its own behalf,
enforce, and may institute and maintain any suit, action or proceeding against
the Company suitable to enforce, its right to exercise the Warrant or Warrants
evidenced by its Warrant Certificate as provided in such Warrant Certificate and
in this Warrant Agreement.
(b) Neither the Warrants nor any Warrant Certificate shall entitle
the Holders thereof to any of the rights of a holder of Common Stock, including,
without limitation, the right to vote or to receive any dividends or other
payments or to consent or to receive notice as stockholders in respect of the
meetings of stockholders or for the election of directors of the Company or to
share in the assets of the Company in the event of the liquidation, dissolution
or winding up of the Company's affairs or any other matter, or any rights
whatsoever as stockholders of the Company.
-15-
<PAGE>
SECTION 3.2. TAG-ALONG RIGHTS. From and after the Issue Date until
the date on which the Common Stock is listed for trading on a national
securities exchange or is authorized for trading on any tier of the NASDAQ
National Market System (the "Tag-Along Period"), with respect to any proposed
sale, exchange, transfer or other disposition (collectively, a "proposed
transfer") of shares of Common Stock by Birch Holdings L.L.C., Birch Acquisition
L.L.C. or any of their Related Parties (any such Persons being hereinafter
referred to as a "Transferor") to a Person (such other Person being hereafter
referred to as the "proposed purchaser"), each Holder and each holder of Warrant
Shares (individually, a "Tag Along Investor" and, collectively, the "Tag-Along
Investors") shall have the right (the "Tag-Along Right") to require the proposed
purchaser to purchase from each Tag-Along Investor prior to consummation of the
proposed transfer up to the number of whole Warrant Shares owned, or which could
be acquired upon exercise of Warrants, by each such Tag-Along Investor equalling
the SUM of:
(i) the number derived by MULTIPLYING the total number of shares
of Common Stock the Transferor proposes to transfer by a fraction, the
numerator of which is the total number of Warrant Shares then
outstanding, or which could then be acquired upon exercise of
Warrants, by such Tag-Along Investor, and the denominator of which is
the SUM of (A) the total number of shares of Common Stock owned by the
Transferor, PLUS (B) the total number of shares of Common Stock then
outstanding which were previously issued upon conversion of
Convertible Preferred Stock and which could then be acquired upon
conversion of Convertible Preferred Stock by all holders of
Convertible Preferred Stock, PLUS (C) the total number of Warrant
Shares which are then outstanding, or which could then be acquired
upon exercise of Warrants, by all Tag-Along Investors; and
(ii) any additional Warrant Shares, if any, such Tag-Along
Investor shall be entitled to transfer if any other Tag-Along Investor
elects not to exercise its Tag-Along Right hereunder (as determined
pursuant to Section 3.2(c)).
At all times during the Tag-Along Period, each of Birch Acquisition
L.L.C., Birch Holdings, L.L.C. and their Related Parties (collectively, the
"Birch Parties") will hold their respective shares of Common Stock subject to
the Tag-Along Rights described herein.
(a) NOTICE OF PROPOSED TRANSFER. The Transferor and the Company
shall, not less than 45 nor more than 60 days prior to each proposed transfer,
notify, or cause to be notified, the Warrant Agent, each Holder and each holder
of Warrant Shares in writing (the "Sale Notice") of each such proposed transfer.
Such Sale Notice shall set forth: (i) the name of the Transferor and the number
of shares of Common Stock proposed to be transferred, (ii) the name and address
of the proposed purchaser, (iii) the proposed amount and form of consideration
and terms and conditions of payment offered by such proposed purchaser and (iv)
that the proposed purchaser has been informed of the Tag-Along Right provided
for in this Section 3.2 and has agreed to purchase shares of Common Stock (and
Warrant Shares) in accordance with the terms hereof.
-16-
<PAGE>
(b) EXERCISE OF TAG-ALONG RIGHT. The Tag-Along Right may be
exercised by any Tag-Along Investor by delivery of a written notice (the
"Tag-Along Notice") to the Transferor along with delivery of a copy of the
written notice to the Warrant Agent within 30 days following receipt by the
Warrant Agent of the Sale Notice. The Tag-Along Notice shall state the amount
of shares of Warrant Shares that such Tag-Along Investor proposes to include in
such transfer to the proposed purchaser (as determined in this Section 3.2),
plus the amount of additional Warrant Shares, if any, that such Tag-Along
Investor would be willing to sell to the proposed purchaser in the event that
any of the other Tag-Along Investors elect not to exercise their Tag-Along
Rights in whole or in part.
(c) ADDITIONAL WARRANT SHARES. The maximum amount of additional
Warrant Shares that each such Tag-Along Investor shall be entitled to sell, and
the proposed purchaser be required to purchase, shall be determined by
multiplying the total number of Warrant Shares, or Warrant Shares which could be
acquired upon exercise of Warrants, that Tag-Along Investors could have elected
to sell to the proposed purchaser but elected not to so sell (as indicated in
the Tag-Along Notices), by a fraction, the numerator of which is the total
number of Warrant Shares, or Warrant Shares which could be acquired upon
exercise of Warrants, owned by such Tag-Along Investors electing to sell
additional Warrant Shares and the denominator of which is the total number of
Warrant Shares, or Warrant Shares which could be acquired upon exercise of
Warrants, owned by all Tag-Along Investors who delivered Tag-Along Notices.
(d) LIMITATIONS ON RIGHT OF TRANSFEROR TO SELL COMMON STOCK. In the
event that the proposed purchaser does not purchase Warrant Shares from the
Tag-Along Investors on the same terms and conditions as specified in the Sale
Notice, then the Transferor shall not be permitted to sell any shares of Common
Stock to the proposed purchaser in the proposed transfer. If no Tag-Along
Notice is received during the 30-day period referred to above (or if such
Tag-Along Notices do not cover all the shares of Common Stock proposed to be
transferred), the Transferor shall have the right, for a 45-day period after the
expiration of the 30-day period referred to above, to transfer the shares of
Common Stock specified in the Sale Notice (or the remaining shares of Common
Stock) on terms and conditions no more favorable than those stated in the
Tag-Along Notice and without regard to the Tag-Along Rights described in this
Section 3.2.
(e) PAYMENT AND TRANSFER OF WARRANT SHARES. Any Warrant Shares
purchased from Tag-Along Investors hereunder shall be paid for in cash, at the
same price per share of Common Stock and upon the same terms and conditions as
such proposed transfer by the Transferor, it being agreed, however, that such
terms and conditions do not include the making of any representations and
warranties, indemnities or other similar agreements other than representations
and warranties with respect to title of the Warrant Shares being sold and
authority to sell such Warrant Shares and indemnities related thereto. All
payments to be made to the Tag-Along Investors shall be made to the Warrant
Agent on behalf of the Tag-Along Investors as directed in writing by the Warrant
Agent. Notwithstanding any provision to the contrary in this Section 3.2, no
Tag-Along Investor shall be required to surrender or deliver Warrant Shares (or
Warrant Certificates representing Warrant Shares) to any Person (including,
without limitation, the proposed purchaser) as a
-17-
<PAGE>
condition precedent to exercise of a Tag-Along Right hereunder; PROVIDED,
HOWEVER, that any such Tag-Along Investor electing to exercise any Tag-Along
Right hereunder shall, promptly after consummation of a proposed transfer of
Warrant Shares in accordance with this Section 3.2(e), exercise all Warrants
with respect to which a Tag-Along Right has been exercised and request that
Warrant Certificates (representing Warrant Shares acquired upon exercise of such
Warrants) be issued to such Tag-Along Investor in accordance with the provisions
of Article II hereof.
(f) ACKNOWLEDGMENT BY WARRANT AGENT AND THE COMPANY. The Company
agrees not to effect any transfer of shares of Common Stock by any of the Birch
Parties until the Company has received evidence reasonably satisfactory to it
and the Warrant Agent that the terms and provisions of this Section 3.2 with
respect to the exercise of any Tag-Along Right, if applicable to such transfer,
have been complied with in all respects.
SECTION 3.3. EXCHANGE RIGHTS OF HOLDERS. If either Birch Holdings
L.L.C., Birch Acquisition L.L.C. or any of their respective Related Parties
shall consummate a public or private offering of shares of Common Stock or any
security whether or not immediately convertible, exchangeable or exercisable
into Common Stock, the Holders and the Holders shall have the right to convert
the Warrants or Warrant Shares into such number of shares of Common Stock of
Birch Holdings L.L.C., Birch Acquisition L.L.C. or such other entity, as the
case may be, as have an equivalent Fair Market Value to the Fair Market Value of
the number of Warrant Shares outstanding or issuable upon the exercise of
outstanding Warrants as of the date of such offering, as determined by an
Independent Financial Advisor.
SECTION 3.4. REPURCHASE RIGHT.
(a) If (A) the Company, in a single transaction or series of related
transactions, (i) sells, assigns, transfers, leases, conveys or otherwise
disposes of all or substantially all of the assets of the Company to any Person;
(ii) consolidates or merges with or into another Person and the Company is not
the surviving entity; or (iii) consolidates or merges with or into another
Person and the Company is the surviving entity (a "Forward Merger") and (w) the
shareholders of the Company immediately preceding such Forward Merger will not
continue to own at least a majority of the outstanding shares of capital stock
of the Company on a fully diluted basis following the consummation of such
Forward Merger, (x) as a direct or indirect result of such Forward Merger, a
Change of Control (as defined in the Indenture) shall have occurred, (y) the net
worth of the Company following the consummation of such Forward Merger shall not
at least equal the net worth of the Company immediately preceding such Forward
Merger, or (z) immediately following the consummation of such Forward Merger,
the Company would not be permitted to incur any additional Indebtedness (as
defined in the Indenture) pursuant to Section 4.12 of the Indenture, and (B) the
consideration payable in respect of any event described in the immediately
preceding clause (i), (ii) or (iii) does not consist solely of cash (any such
event, hereinafter, a "Repurchase Event"), then the Company shall offer to
repurchase (a "Repurchase Offer"), in accordance with the procedures set forth
in this Section 3.4, all Warrants at the per share Fair Market Value of the
Common Stock issuable upon exercise
-18-
<PAGE>
thereof, less the Exercise Price (the "Repurchase Price"). The Company shall,
subject to the provisions described in this Section 3.4, be required to purchase
all Warrants properly tendered pursuant to a Repurchase Offer and not withdrawn.
Notwithstanding the foregoing, the provisions of this Section 3.4(a) shall not
apply in the event of an internal reorganization involving only the Company and
its wholly-owned subsidiaries pursuant to which the Company is the surviving
entity.
(b) The Repurchase Offer shall remain open for at least 20 Business
Days and until the close of business on the fifth Business Day prior to the
Repurchase Date (as hereinafter defined).
(c) Not later than the 30th day following the occurrence of the
Repurchase Event, the Company shall mail to the Warrant Agent and to each Holder
a notice (the "Repurchase Notice") stating, among other things:
(1) that a Repurchase Event has occurred and that such Holder
has the right to require the Company to repurchase such holder's Warrants,
or portion thereof, at the Repurchase Price;
(2) any information regarding such Repurchase Event required to
be furnished under applicable federal and State securities laws, rules and
regulations;
(3) a purchase date (the "Repurchase Date"), which shall be on a
Business Day and no earlier than 30 days nor later than 60 days after the
occurrence of a Repurchase Event;
(4) that any Warrant, or portion thereof, not tendered or
accepted for payment shall be subject to appropriate adjustment as required
by Section 5 of this Warrant Agreement, and continue in full force and
effect in accordance with this Warrant Agreement; and
(5) the instructions a Holder must follow in order to have
Warrants repurchased in accordance with this Section 3.4.
No failure of the Company to give the foregoing notice shall limit any
right to any Holder right to exercise a repurchase right hereunder.
(d) To exercise the repurchase right, the Holder must deliver, on or
before the fifth calendar day prior to the Repurchase Date, written notice of
the Company (or an agent designated by the Company for such purpose) of the
exercise of such repurchase right, together with the Warrant Certificates with
respect to which the right is being exercised, duly endorsed for transfer;
PROVIDED, HOWEVER, that with respect to Warrants held of record by DTC, the
Company or its designated agent may accept as tendered for repurchase pursuant
to this Section 3.4 Warrants tendered by means of a book entry in accordance
with the normal procedures of DTC.
-19-
<PAGE>
(e) On the Repurchase Date, the Company shall (i) accept for payment
Warrants or portions thereof tendered pursuant to the Repurchase Notice, (ii) if
the Company appoints a depository or Paying Agent, deposit with such depository
or Paying Agent money sufficient to pay the Repurchase Price of all Warrants or
portions thereof so tendered and (iii) deliver to the Warrant Agent Warrants so
accepted together with an Officers' Certificate stating the Warrants or portions
thereof tendered to the Company. DTC, the Company or the Paying Agent, as the
case may be, shall promptly mail to the Holders whose Warrants are so accepted
payment in an amount equal to the Repurchase Price, and the Warrant Agent shall
promptly authenticate and mail to Holders of Definitive Warrants new Definitive
Warrants equal in principal amount to any unpurchased portion of the Definitive
Warrant surrendered. The Company will publicly announce the results of the
Repurchase Offer on or as soon as practicable after the Repurchase Date. For
purposes of this Section 3.4, the Warrant Agent shall act as the Paying Agent.
(f) The Company, to the extent applicable and if required by law,
will comply with the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and any other federal and state securities laws, rules and regulations
that may then be applicable to any offer by the Company to purchase the Warrants
pursuant to the provisions of this Section 3.4.
ARTICLE IV
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrants and of the Warrant
Shares upon the exercise of Warrants or to the separation of the Note Warrants
and Notes on the Separability Date; PROVIDED, HOWEVER, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer involved in the issue of any Warrant Certificates or
any certificates for Warrant Shares in a name other than the registered Holder
surrendered upon the exercise of a Warrant. In any such case, the Company shall
not be required to issue or deliver such Warrant Certificate or certificate for
Warrant Shares unless or until the Person or Persons requesting issuance thereof
shall have paid to the Company the amount of such tax or other governmental
charge or shall have established to the satisfaction of the Company that such
tax or other governmental charge has been paid or an exemption is available
therefrom.
SECTION 4.2. NOTICE OF EXPIRATION DATE. The Company will give
notice of the Expiration Date to all Holders of the then outstanding Warrants,
not less than 90 and not more than 120 days prior to the Expiration Date.
SECTION 4.3. RESERVATION OF COMMON STOCK. The Company covenants and
agrees that it will at all times cause to be reserved and kept available out of
its authorized and unissued shares of Common Stock such number of shares of
Common Stock as will be sufficient to permit the exercise in full of all
Warrants issued hereunder and all
-20-
<PAGE>
other rights, warrants or options exercisable into, and the conversion of all
securities convertible into, Common Stock.
SECTION 4.4. WARRANT SHARES TO BE DULY AUTHORIZED AND ISSUED, FULLY
PAID AND NONASSESSABLE. The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Warrant Shares delivered upon
the exercise in full of any Warrants, at the time of delivery of the
certificates representing such shares, shall be duly and validly authorized and
issued and fully paid and nonassessable, free of any preemptive rights in favor
of any Person in respect of such issuance and free of any security interest,
lien or other encumbrance of any kind or nature created by, arising out of
actions of, the Company, any subsidiary or any affiliate of the Company.
SECTION 4.5. REPORTS.
(a) For so long as any Warrants are outstanding, the Company shall
deliver to the Warrant Agent and mail to each Holder, within 15 days after the
filing of the same with the Securities and Exchange Commission ("SEC"), copies
of its quarterly and annual reports and of the information, documents and other
reports, if any, which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act.
(b) For so long as any Warrants are outstanding, if at any time the
Company is not subject to the requirements of such Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC, to the extent permitted, and
distribute to the Warrant Agent and to each Holder copies of the quarterly and
annual financial information that would have been required to be contained in a
filing with the SEC on Forms 10-Q and 10-K and all current reports that would be
required to be filed with the SEC on Form 8-K had the Company been subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act. All such
financial information shall include consolidated financial statements (including
footnotes) prepared in accordance with generally accepted accounting principles.
Such annual financial information shall also include an opinion thereon
expressed by an independent accounting firm of established national reputation.
All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The financial and other information to be distributed to Holders
shall be filed with the Warrant Agent and mailed to the Holders at their
respective addresses appearing in the Warrant Register maintained by the Warrant
Agent, within 120 days after the end of the Company's fiscal year and within 60
days after the end of each of the first three quarters of each such fiscal year.
In addition, for so long as any Warrants are outstanding, the Company shall
furnish to the Holders and to securities analysts and to prospective purchasers
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act for so long as the Company is required for
an offer or sale of the Warrants under Rule 144A. From and after the date of
effectiveness of any registration statement filed with the SEC with respect to
the Warrants, the Company will file with the SEC such Forms 10-Q and 10-K and
any other information required to be filed by it.
-21-
<PAGE>
SECTION 4.6. PRIVATE PLACEMENT NUMBERS. The Company covenants and
agrees to obtain, and thereafter maintain, a private placement number in respect
of the Warrants and a private placement number or CUSIP number, as appropriate,
in respect of the Warrant Shares from the CUSIP Service Bureau of Standard &
Poor's, a division of McGraw-Hill, Inc.
SECTION 4.7. RIGHT OF ACTION. All rights of action in respect of
the Warrants are vested in the respective registered Holders of the Warrant
Certificates, and any registered Holder of any Warrant Certificate, without the
consent of the Holder of any other Warrant Certificate, may, on its own behalf
and for its own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, its right to exercise the Warrants evidenced by such Warrant Certificate in
the manner provided in such Warrant Certificate and in this Warrant Agreement.
SECTION 4.8. SURVIVAL. The agreements of the Company contained in
Section 4.1 and Section 4.7 shall survive the exercise of and the expiration of
the Warrants.
ARTICLE V
ADJUSTMENTS
SECTION 5.1. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES ISSUABLE. The Exercise Price and the number and kind of Warrant Shares
purchasable upon the exercise of each Warrant shall be subject to adjustment
from time to time as follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case the
Company shall hereafter (A) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (B) reclassify by subdivision its
outstanding shares of Common Stock into a greater number of shares or (C)
reclassify by combination its outstanding shares of Common Stock into a smaller
number of shares, (i) the number of Warrant Shares purchasable upon exercise of
each Warrant immediately prior thereto shall be adjusted so that the Holder of
any Warrant Certificate thereafter exercised shall be entitled to receive the
number of Warrant Shares which such Holder would have owned immediately
following such action had such Warrant been exercised immediately prior thereto,
and (ii) the Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter. An adjustment made
pursuant to this Section 5.1(a) shall become effective immediately after the
record date, in the case of a dividend, and shall become effective immediately
after the effective date, in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
Section 5.1(a), the Holder of any Warrant Certificate thereafter exercised shall
become entitled to receive shares of two or more classes of capital
-22-
<PAGE>
stock of the Company, the Board of Directors of the Company shall determine, in
its reasonable discretion, the allocation of the adjusted Exercise Price between
or among shares of such classes of capital stock.
(b) RECLASSIFICATION, COMBINATIONS, MERGERS, ETC. Subject to Section
3.4, if (A) any capital reorganization, reclassification or change of
outstanding shares of Common Stock (other than as set forth in Section 5.1(a)
and other than a change in par value, or from par value to no par value, or from
no par value to par value), or (B) in case of any consolidation or merger of the
Company with or into another corporation or other entity (other than a merger in
which the Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock of the Company (other than a change in par value, or from
par value to no par value, or from no par value to par value or as a result of a
subdivision or combination)) or (C) in case of any sale or conveyance to another
corporation or other entity of all or substantially all of the assets of the
Company shall be effected in such a way that the holders of Common Stock shall
be entitled to receive shares of common stock, other securities or assets
(whether such stock, other securities or assets are issued or distributed by the
Company or another Person) with respect to or in exchange for Common Stock,
then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, the Company or such a successor or
purchasing corporation or other entity, as the case may be, shall forthwith make
lawful and adequate provision whereby the Holder of such Warrant Certificate
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and assets
receivable upon such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that such holders would have been entitled to receive upon exercise of such
Warrant had such Warrant been exercised immediately before such
reclassification, reorganization, change, consolidation, merger, sale or
conveyance that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article V and enter into a supplemental warrant
agreement so providing.
For purposes of this Section 5.1(b), "shares of stock and other
securities and property" receivable upon a reclassification, charge,
consolidation, merger, sale or conveyance shall include stock of any successor
or acquiring corporation of any class which is not subject to redemption and
shall also include any evidence of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event any warrants or other rights to subscribe for or purchase any
such stock. If the issuer of securities deliverable upon exercise of Warrants
under the supplemental warrant agreement is an affiliate of the formed,
surviving or transferee corporation or other entity, such issuer shall join in
the supplemental warrant agreement.
In case of any such reclassification, reorganization, merger,
consolidation or dispositions of assets, the successor or acquiring corporation
or other entity shall expressly assume the due and punctual observance and
performance of each and every covenant and condition of this Warrant Agreement
to be performed and observed by the Company and all
-23-
<PAGE>
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
into which each Warrant is exercisable, which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article V.
(c) ISSUANCES OF COMMON STOCK OR RIGHTS. In the event that the
Company shall, at any time or from time to time after the date hereof, issue,
sell distribute or otherwise grant (in any such case, a "Distribution") shares
of Common Stock or Rights, whether or not such Rights are immediately
exercisable, convertible or exchangeable, at a Consideration Per Share lower
than the per share Fair Market Value of the Common Stock on the date of such
issuance or sale, or if the Company shall amend any of the provisions of any
Rights, including, without limitation, a change in the purchase, conversion,
exchange or exercise price per share of Common Stock, as the case may be, of
each such Right, or the Aggregate Consideration Receivable applicable to any
such Right (other than under or by reason of provisions designed to protect
against dilution upon an event which results in a related adjustment pursuant to
this Article V), then, immediately after the date of such issuance or sale,
(A) the number of Warrant Shares purchasable upon exercise of
each Warrant shall be increased so that the Holders thereafter will be
entitled to receive the number of Warrant Shares determined by MULTIPLYING:
(i) the number of shares of Common Stock such Holders would have
been entitled to receive immediately before the date of such issuance
or sale had such Holders exercised their Warrants immediately prior
thereto; by
(ii) a fraction, the numerator of which shall be the SUM of: (X)
the number of shares of Common Stock outstanding on such date PLUS (Y)
the number of additional shares of Common Stock offered for
subscription or purchase (or into which the Rights so offered are
initially convertible or exchangeable or exercisable, as the case may
be), and the denominator of which shall be the SUM of: (X) the number
of shares of Common Stock outstanding on such date PLUS (Y) the number
of shares of Common Stock that the Aggregate Consideration Receivable
would purchase at such per share Fair Market Value of the Common Stock
on the date of such issuance or sale, and
(B) the Exercise Price in effect immediately after such
Distribution shall be adjusted by MULTIPLYING the Exercise Price in effect
immediately prior to such Distribution by the QUOTIENT of:
(i) the SUM of: (A) the number of shares of Common Stock
outstanding immediately prior to such Distribution; PLUS (B) the
QUOTIENT of: (X) the Aggregate Consideration Receivable; DIVIDED by
(Y) the per share Fair
-24-
<PAGE>
Market Value of the Common Stock; in each case immediately prior to
such Distribution; DIVIDED by
(ii) the SUM of: (A) the number of shares of Common Stock
outstanding immediately prior to such Distribution; PLUS (B) the
number of shares of Common Stock so issued or sold (or initially
issuable pursuant to any Rights).
For purposes of the foregoing calculation, the total maximum number of
shares of Common Stock issuable upon exercise, conversion or exchange, as
applicable, of all Rights shall be deemed to have been issued as of the date of
such Distribution and thereafter shall be deemed to be outstanding and the
Company shall be deemed to have received as consideration therefor the Aggregate
Consideration Receivable applicable thereto after giving effect to such
exercise, conversion or exchange. Except as provided in Section 5.1(g), no
additional adjustments of the Exercise Price shall be made upon the actual
exercise, exchange or conversion, as applicable, of such Rights.
(d) DIVIDENDS AND DISTRIBUTIONS. In the event the Company shall, at
any time or from time to time after the date hereof, make or pay any dividend
of, or distribute to holders of Common Stock (in any such case, a "Dividend"),
shares of capital stock, any of its property or assets, including, without
limitation, cash, evidences of its indebtedness, Rights or other securities (in
each case, other than dividends payable in Common Stock) (collectively,
"Dividend Securities"), then, in each such case, unless the Company elects to
reserve shares or other units of such Dividend Securities for distribution to
the Holders upon exercise of their Warrants so that, in addition to the Warrant
Shares issuable upon exercise thereof, such Holders will receive upon such
exercise the amount and kind of such Dividend Securities that such Holders would
have received if the Holders had, immediately prior to the record date for the
distribution of the Dividend Securities, exercised the Warrants:
(A) the Exercise Price in effect after the record date in
respect of which Dividend Securities are distributed or issued shall be
adjusted by multiplying the Exercise Price in effect immediately prior to
such record date by the QUOTIENT of:
(i) the DIFFERENCE of (A) the per share Fair Market Value
of the Common Stock on such record date; MINUS (B) the QUOTIENT of:
(X) in the case of a Dividend made in cash, the
aggregate amount of cash so dividend or distributed and, in
the case of a Dividend made other than in cash, the then
Fair Market Value of the Dividend Securities so distributed
or issued; DIVIDED BY
(Y) the number of shares of Common Stock outstanding
on the record date; DIVIDED BY
-25-
<PAGE>
(ii) the per share Fair Market Value of the Common Stock on
such record date, and
(B) the number of Warrant Shares purchasable upon the exercise
of each Warrant shall be increased to a number determined by MULTIPLYING
the number of Warrant Shares such Holders would have been entitled to
receive immediately before the record date for such Dividend, had the
Holders exercised their Warrants immediately prior thereto, by a fraction,
the numerator of which shall be the Exercise Price in effect immediately
prior to the adjustment required by clause (A) of this sentence, and the
denominator of which shall be the Exercise Price in effect immediately
after such adjustment.
The adjustments required by this Section 5.1(d) shall be made whenever any such
Dividend is made retroactive to the record date for the determination of
stockholders entitled to receive such Dividend and shall be effective on the
date of such Dividend.
(e) SELF-TENDERS. If, at any time or from time to time after the
date hereof, the Company or any subsidiary of the Company shall repurchase, by
self-tender offer or otherwise, any shares of Common Stock of the Company or any
Right at a weighted average purchase price in excess of the per share Fair
Market Value of the Common Stock on the Business Day immediately prior to the
earliest of (i) the date of such repurchase, (ii) the commencement of an offer
to repurchase or (iii) the public announcement of either (such date being
referred to as the "DETERMINATION DATE"), the number of Warrant Shares
purchasable upon exercise of the Warrants shall be increased so that the Holders
thereafter will be entitled to receive the number of Warrant Shares determined
by MULTIPLYING the number of Warrant Shares such Holders would have been
entitled to receive before the Determination Date, had the Holders exercised
their Warrant Shares immediately prior thereto, by a fraction,
the numerator of which shall be the PRODUCT of:
(A) the DIFFERENCE between (X) the number of shares of Common
Stock outstanding immediately prior to such Determination Date MINUS
(Y) the number of shares of Common Stock (or shares of Common Stock
into which the Rights are convertible or exchangeable or exercisable,
as the case may be) represented by the Common Stock or Rights
repurchased or to be purchased by the Company or any subsidiary of the
Company in such repurchase, MULTIPLIED by
(B) the per share Fair Market Value of the Common Stock
immediately prior to such Determination Date, and
the denominator of which shall be the DIFFERENCE between:
-26-
<PAGE>
(A) the PRODUCT of (X) the number of shares of Common Stock
outstanding immediately prior to the Determination Date MULTIPLIED by
(Y) the per share Fair Market Value of the Common Stock immediately
prior to such Determination Date MINUS
(B) the SUM of (X) the aggregate consideration paid by the
Company or any of subsidiary of the Company in connection with such
repurchase PLUS (Y) in the case of Rights, the additional
consideration required to be received by the Company or any subsidiary
of the Company upon the conversion, exchange or exercise of such
Rights, and
the Exercise Price shall be adjusted by multiplying such Exercise Price
immediately prior to such repurchase by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon exercise of the Warrants prior
to such repurchase, and the denominator of which shall be the number of Warrant
Shares purchasable upon exercise of the Warrants immediately thereafter.
(f) FAIR MARKET VALUE OF CONSIDERATION RECEIVED. Notwithstanding any
provision to the contrary herein, for purposes of this Article V, if any Rights
shall be issued in connection with the issuance and sale of other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated to such Rights by the parties thereto, such Rights
shall be deemed to have been issued without consideration, PROVIDED, HOWEVER,
that if any such Rights have an exercise price (to the extent applicable) equal
to or greater than the per share Fair Market Value of the Common Stock on the
date of issuance of such Rights, then such Rights shall be deemed to have been
issued for consideration equal to such exercise price.
(g) DEFERRAL OF CERTAIN ADJUSTMENTS. No adjustment to the Exercise
Price (including the related adjustment to the number of Warrant Shares
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would result in an increase or decrease of at least one percent
(1%) of the Exercise Price; PROVIDED, HOWEVER, that any adjustments which by
reason of this 5.1(g) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. No adjustment need be made for
a change in the par value of the Common Stock; PROVIDED, HOWEVER, the Company
shall not increase the par value of the Common Stock to exceed the Exercise
Price. All calculations under this Section 5.1 shall be made to the nearest
1/1,000 of one cent or to the nearest 1/1,000th of a Warrant Share, as the case
may be.
(h) OTHER ADJUSTMENTS. In the event that at any time, as a result of
an adjustment made pursuant to this Article V, Holders shall become entitled to
receive any securities of the Company other than shares of Common Stock,
thereafter the number of such other securities so receivable upon exercise of
each Warrant and the Exercise Price applicable to such exercise shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant
-27-
<PAGE>
Shares and the Exercise Price contained in this Article V, and all other
relevant provisions of this Article V that are applicable to shares of Common
Stock shall be applicable to such other securities. In case at any time or from
time to time the Company shall take any action in respect of its outstanding
shares of Common Stock, other than any action described in this Article V, or
any event occurs as to which the provisions of this Article V are not strictly
applicable, then the number of Warrant Shares for which each Warrant is
exercisable shall be adjusted in such manner as may be equitable in the
circumstances and on terms as nearly equivalent as practicable to the provisions
with respect to the Warrant Shares and the Exercise Price contained in this
Article V and as shall be reasonably necessary, in the good faith opinion of the
Board of Directors of the Company, to protect the exercise rights of the
Holders, but in no event shall any such adjustment have the effect of adversely
affecting the Holders. If the Company shall at any time or from time to time
issue, sell or distribute any shares of capital stock (other than Common Stock),
any evidences of indebtedness, any property or assets, Rights or other
securities, then, in each such case, such issuance, sale or distribution shall
be deemed to be of, or in respect of, Common Stock for purposes of this Article
V.
(i) STATEMENT OF WARRANT CERTIFICATES. Irrespective of any
adjustment in the number of kind of Warrant Shares issuable upon the exercise of
each Warrant or the Exercise Price, Warrant Certificates theretofore or
thereafter issued shall continue to express the same number and kind of Warrant
Shares and Exercise Price as are stated in the Warrant Certificates initially
issuable pursuant to this Warrant Agreement.
(j) INCREASED WARRANT SHARES OR REDUCED EXERCISE PRICE. From time to
time, the Company may, for a period of not less than 20 Business Days, in its
discretion, increase the number of Warrant Shares purchasable upon the exercise
of each Warrant, without making any adjustment to the Exercise Price, or reduce
the Exercise Price, without making any adjustment to the number of Warrant
Shares purchasable upon the exercise of each Warrant.
(k) NO ADJUSTMENTS FOR CERTAIN INCENTIVE COMPENSATION OR ISSUANCE OF
WARRANT SHARES. Notwithstanding any other provision hereof, it is expressly
understood that the Warrants shall not be adjusted with respect to (a) Common
Stock or Rights, in any case, that may be issued to any of the Company's
officers or employees pursuant to the stock option plans or similar plans of the
Company, including, without limitation, the Discovery Zone, Inc. 1997 Stock
Incentive Plan (collectively, the "Plans"), to the extent that shares of Common
Stock or other securities issued or granted under such Plans are issued or
granted at a price, or with an exercise price, that is no less than the per
share Fair Market Value of the Common Stock at the date of grant or issuance and
such grant or issuance, together with all previous grants and issuances under
all such Plans, represent 10% of the fully diluted Common Stock at the time of
such grant or issuance, (b) the conversion or exchange (other than pursuant to a
reclassification), in any case on a share-for-share basis, of Common Stock for
non-voting common stock of the Company or (c) the issuance of any Warrant
Shares.
(l) NO IMPAIRMENT. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation,
-28-
<PAGE>
merger, dissolution, liquidation, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5.1 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders against impairment.
(m) FURTHER EQUITABLE ADJUSTMENTS. If, after one or more adjustments
to the Exercise Price pursuant to this Section 5.1, the Exercise Price cannot be
reduced further without falling below the greater of (i) $0.01 or (ii) the
lowest positive exercise price legally permissible for warrants to acquire
shares of common stock, the Company shall make further adjustments to compensate
the Holders, consistent with the foregoing principles, as the Board of Directors
of the Company, acting in good faith, deems necessary, including an increase in
the number of Warrant Shares issuable upon exercise of outstanding Warrants
and/or a cash payment to the Holders.
(n) OTHER ADJUSTMENTS.
(i) Adjustments shall be made pursuant to this Section 5.1
successively whenever any of the events referred to in Section 5.1(a)
through Section 5.1(e), inclusive, and Section 5.1(p) shall occur.
(ii) If any Warrant shall be exercised subsequent to the record
date for any of the events referred to in this Section 5.1, but prior to
the effective date thereof, appropriate adjustments shall be made
immediately after such effective date so that the Holder of such Warrant on
such record date shall have received, in the aggregate, the kind and number
of shares of Common Stock or other securities or property or assets that it
would have owned or been entitled to receive on such effective date had
such Warrant been exercised prior to such record date.
(iii) Shares of Common Stock owned by or held for the account
of the Company shall not, for purposes of the adjustments set forth in this
Section 5.1 be deemed outstanding.
(o) EXPIRATION OF RIGHTS. Upon the expiration of any Rights referred
to in this Section 5.1, without the exercise, exchange or conversion, as
applicable, thereof, the Exercise Price and the number of Warrant Shares shall,
upon such expiration, be readjusted and shall thereafter be such Exercise Price
and such number of Warrant Shares as would have been had such Exercise Price and
such number of Warrant Shares been originally adjusted (or had the original
adjustment not been required, as the case may be) as if:
(i) the only shares of Common Stock so issued were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
Rights; and
(ii) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Company upon such exercise plus
the
-29-
<PAGE>
aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such Rights, whether or not exercised;
PROVIDED, HOWEVER, that no such readjustment shall have the effect of
increasing the Exercise Price by an amount in excess of the amount of the
reduction initially made in respect of the issuance, sale, or grant of such
Rights.
(p) ADJUSTMENTS IN CONNECTION WITH PLAN DISTRIBUTIONS. If, at any
time after the Issue Date and for so long as Warrants shall continue to be
outstanding, the Company shall issue shares of Common Stock or Rights to holders
of Disputed Claims (as such term is defined in the Company's Third Amended Plan
of Reorganization, dated March 11, 1997 (the "Reorganization Plan")) in
settlement of such claims in an aggregate amount at any time outstanding greater
than 4,444,444 (which amount represents the sum of (x) all of the issued and
outstanding Common Stock on the date hereof in an aggregate amount of 4,000,000
issued to holders of certain claims against the Company in accordance with the
Reorganization Plan and (y) 444,444 shares of Common Stock reserved for issuance
upon exercise of the Ten Year Warrants (as defined under the Reorganization
Plan) (an "Excess Plan Distribution"), then, on the date of any such Excess Plan
Distribution, the number of Warrant Shares issuable upon exercise of all
Warrants shall be increased such that each Holder thereof would receive upon
such exercise on the date of any such Excess Plan Distribution such number of
Warrant Shares as shall be necessary to cause such Holder's percentage interest
in the Common Stock on a fully diluted basis (except issuances of shares of
Common Stock upon exercise of options granted under the Company's 1997 Stock
Incentive Plan (the "Plan")) immediately after such Excess Payment Distribution
to equal such Holder's percentage interest in Common Stock on a fully diluted
basis (except issuances of shares of Common Stock upon exercise of options
granted under the Plan) immediately prior to such Excess Plan Distribution.
Notwithstanding the foregoing, if the Company shall, in connection with the
resolution of Disputed Claims, issue shares of Common Stock in an aggregate
amount less than 4,444,444, the balance of any such shares of Common Stock may
be distributed by the Company without requiring any adjustment pursuant to this
Section 5.1(p). The adjustments required by this Section 5.1(p) shall not limit
or otherwise adversely affect the rights of the Holders under any other
adjustments required by this Article V.
SECTION 5.2. FRACTIONAL INTEREST. The Company shall not be required
to issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
shares of Common Stock acquirable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
Section 5.2, be issuable on the exercise of any Warrant, the Company shall
either (i) pay an amount in cash calculated by the Company to equal the per
share Fair Market Value of the Common Stock MULTIPLIED BY such fraction of a
share of Common Stock computed to the nearest whole cent or (ii) aggregate all
such fractional shares of Common Stock into a whole number of shares and sell
such aggregated fractional shares on behalf of the Holders entitled thereto in a
public or private sale and distribute, on a pro rata basis, the net cash
proceeds therefrom to such Holders. While the Company will use its best efforts
to secure the best available sale price for such aggregated fractional shares,
such
-30-
<PAGE>
price shall not necessarily be the highest price obtainable for such shares. By
their acceptances of the Warrant Certificates, Holders expressly waive any and
all rights to receive any fraction of a share of Common Stock or a stock
certificate or scrip representing a fraction of a share of Common Stock.
SECTION 5.3. WHEN ADJUSTMENT NOT REQUIRED. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be required
by reason of the taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
SECTION 5.4. TREASURY STOCK. The sale or other disposition of any
issued shares of Common Stock owned or held by or for the account of the Company
shall be deemed an issuance thereof and, except for a voluntary tender or
exchange offer made by the Company or any subsidiary of the Company subject to
Section 13(e) of the Exchange Act, a repurchase thereof and designation of such
shares as treasury stock shall not be deemed to be a redemption thereof for the
purposes of this Warrant Agreement.
SECTION 5.5. NOTICES TO WARRANT AGENT AND HOLDERS. Whenever the
number of Warrant Shares is adjusted or the Exercise Price in respect thereof is
adjusted, as herein provided, the Company shall promptly or, if notice of such
adjustment is required to be given to DTC, at least five (5) days prior to the
date on which notice of such adjustment is given to DTC, give to each Holder
notice of such adjustment or adjustments and shall promptly deliver to each
Holder and the Warrant Agent an Officer's Certificate (confirmed by a
certificate from the Company's independent certified public accountants) setting
forth: (i) the number of Warrant Shares issuable upon the exercise of each
Warrant and the Purchase Price of such shares after such adjustment; (ii) a
brief statement of the facts requiring such adjustment; and (iii) the
computation by which such adjustment was made.
So long as any Warrant is outstanding, within ninety (90) days of the
end of each fiscal year of the Company, the Company shall deliver to each Holder
an Officer's Certificate setting forth: (i) the number of Warrant Shares
issuable upon the exercise of each Warrant and the Exercise Price of such shares
as of the end of such fiscal year; (ii) a brief statement of the facts requiring
each adjustment, if any, required to be made in such fiscal year; and (iii) the
computation by which each such adjustment was made.
In the event that the Holders of at least 25% of the outstanding
Warrants shall challenge any of the calculations set forth in such notice within
20 Business Days after the Company's delivery thereof, the Company shall retain
an Independent Financial Advisor to prepare and execute a certificate verifying
that no adjustment is required. The Company shall promptly cause a signed copy
of any certificate prepared pursuant to this Section 5.5 to be delivered to each
Holder. The Company shall keep at the Warrant Agent Office copies of all such
certificates and cause the same to be available for inspection at said office
during
-31-
<PAGE>
normal business hours upon reasonable notice by any Holder or any prospective
purchaser of a Warrant designated by a Holder thereof.
ARTICLE VI
CONCERNING THE WARRANT AGENT
SECTION 6.1. WARRANT AGENT. At no time when the Company may be
acting as its own Warrant Agent shall any of its obligations to the Holders be
in any respect reduced as a result thereof. The Warrant Agent shall have the
powers and authority specifically granted to and conferred upon it in the
Warrant Certificates and this Warrant Agreement and such further powers and
authority to act on behalf of the Company as the Company may hereafter grant to
or confer upon it and it shall accept in writing. All of the terms and
provisions with respect to such powers and authority contained in the Warrant
Certificates are subject to and governed by the terms and provisions hereof.
SECTION 6.2. CONDITIONS OF WARRANT AGENT'S OBLIGATIONS. The Warrant
Agent accepts its obligations herein set forth upon the terms and conditions
hereof and in the Warrant Certificates, including the following, to all of which
the Company agrees and to all of which the rights hereunder of the Holders from
time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation to be agreed
upon with the Company in writing for all services rendered by it and the Company
agrees promptly to pay such compensation and to reimburse the Warrant Agent for
its reasonable out-of-pocket expenses (including reasonable fees and expenses of
counsel) incurred without gross negligence, bad faith or willful misconduct on
its part in connection with the services rendered by it hereunder. The Company
also agrees to indemnify the Warrant Agent, each predecessor Warrant Agent, and
their respective directors, officers, affiliates, agents and employees for, and
to hold it and its directors, officers, affiliates, agents and employees
harmless against, any loss, liability or expense of any nature whatsoever
(including, without limitation, fees and expenses of counsel) incurred without
gross negligence, bad faith or willful misconduct on the part of the Warrant
Agent or predecessor Warrant Agent, arising out of or in connection with its
acting as such Warrant Agent hereunder and its exercise or failure to exercise
of its rights and performance of its obligations hereunder. The obligations of
the Company under this Section 6.2 shall survive the exercise and the expiration
of the Warrant Certificates and the resignation and removal of the Warrant
Agent.
(b) In acting under this Warrant Agreement and in connection with the
Warrant Certificates, the Warrant Agent is acting solely as agent of the Company
and does not assume any obligation or relationship of agency or trust for or
with any of the owners or Holders of the Warrant Certificates.
(c) The Warrant Agent may consult with counsel and any advice or
written opinion of such counsel shall be full and complete authorization and
protection in respect of
-32-
<PAGE>
any action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion.
(d) The Warrant Agent shall be fully protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or thing
suffered by it in reliance upon any Warrant Certificate, notice, direction,
consent, certificate, affidavit, opinion of counsel, instruction, statement or
other paper or document reasonably believed by it to be genuine and to have been
presented or signed by the proper parties.
(e) The Warrant Agent and its Related Parties may become the owners
of, or acquire any interest in, Warrant Certificates, shares or other
obligations of the Company with the same rights that it or they would have it if
were not the Warrant Agent hereunder and, to the extent permitted by applicable
law, it or they may engage or be interested in any financial or other
transaction with the Company and may act on, or as depositary, trustee or agent
for, any committee or body of holders of shares or other obligations of the
Company as freely as if it were not the Warrant Agent hereunder. Nothing in
this Warrant Agreement shall be deemed to prevent the Warrant Agent or such
Related Parties from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability for interest
on, and shall not be required to invest, any money at any time received by it
pursuant to any of the provisions of this Warrant Agreement or of the Warrant
Certificates.
(g) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Warrant Agreement (or any term or provision
hereof) or the execution and delivery hereof or in respect of the validity or
execution of any Warrant Certificate (except its authentication thereof).
(h) The recitals and other statements contained herein and in the
Warrant Certificates (except as to the Warrant Agent's authentication thereon)
shall be taken as the statements of the Company, and the Warrant Agent assumes
no responsibility for the correctness of such recitals or other statements. The
Warrant Agent does not make any representation as to the validity or sufficiency
of this Warrant Agreement or the Warrant Certificates; PROVIDED, HOWEVER, that
the Warrant Agent shall not be relieved of its duty to authenticate the Warrant
Certificates as authorized by this Warrant Agreement. The Warrant Agent shall
not be accountable for the use or application by the Company of the proceeds of
the exercise of any Warrant.
(i) Before the Warrant Agent acts or refrain from acting with respect
to any matter contemplated by this Warrant Agreement, it may require:
(A) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Warrant Agreement relating to the proposed action have been complied
with; and
-33-
<PAGE>
(B) if reasonably necessary in the sole judgment of the Warrant
Agent, an opinion of counsel for the Company stating that, in the
opinion of such counsel, all such conditions precedent have been
complied with.
Each Officers' Certificate or, if requested, an opinion of counsel
(with respect to which such counsel may rely, as to matters of fact, on a
certificate or certificates of Officers of the Company) with respect to
compliance with a condition or covenant provided for in this Warrant Agreement
shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable
him or her to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of
such Person, such condition or covenant has been complied with.
(j) The Warrant Agent shall be obligated to perform such duties as
are herein and in the Warrant Certificates specifically set forth and no implied
duties or obligations shall be read into this Warrant Agreement or the Warrant
Certificates against the Warrant Agent. The Warrant Agent shall not be
accountable or under any duty or responsibility for the use by the Company of
any of the Warrant Certificates authenticated by the Warrant Agent and delivered
by it to the Company pursuant to this Warrant Agreement. The Warrant Agent
shall have no duty or responsibility in case of any default by the Company in
the performance of its covenants or agreements contained in the Warrant
Certificates or in the case of the receipt of any written demand from a Holder
with respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate any
proceedings at law or otherwise or, except as provided in Section 7.2 hereof, to
make any demand upon the Company. The Warrant Agent shall not be obligated to
perform any duty to the extent prohibited by law.
(k) Unless otherwise specifically provided herein, any order,
certificate, notice, request, direction or other communication from the Company
made or given under any provision of this Warrant Agreement shall be sufficient
if signed by its President or, Vice President and attested by its Treasurer,
Controller, Secretary or any Assistant Secretary.
(l) The Warrant Agent shall have no responsibility in respect of any
adjustment pursuant to Article V hereof.
-34-
<PAGE>
(m) The Company agrees that it will perform, execute, acknowledge and
deliver, or cause to be performed, executed, acknowledged and delivered, all
such further and other acts, instruments and assurances as may reasonably be
required by the Warrant Agent for the carrying out or performing by the Warrant
Agent of the provisions of this Warrant Agreement.
(n) The Warrant Agent is hereby authorized and directed to accept
written instructions with respect to the performance of its duties hereunder
from any one of the President, the Treasurer, the Controller, any Vice President
or the Secretary of the Company or any other officer or official of the Company
reasonably believed to be authorized to give such instructions and to apply to
such officers or officials for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations arising
under this Warrant Agreement. Such application by the Warrant Agent for written
instructions from the Company may, at the option of the Warrant Agent, set forth
in writing any action proposed to be taken or omitted by the Warrant Agent with
respect to its duties or obligations under this Warrant Agreement and the date
on or after which such action shall be taken, and the Warrant Agent shall not be
liable for any action taken or omitted to be taken in accordance with a proposal
included in any such application on or after the date specified therein (which
date shall be not less than 10 Business Days after the Company receives such
application unless the Company consents to a shorter period), provided that (i)
such application includes a statement to the effect that it is being made
pursuant to this Section 6.2(n) and that unless objected to prior to such date
specified in the application, the Warrant Agent will not be liable for any such
action or omission to the extent set forth in such application and (ii) prior to
taking or omitting any such action, the Warrant Agent has not received written
instructions objecting to such proposed action or omission.
(o) Whenever in the performance of its duties under this Warrant
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the President, the
Treasurer, the Controller, any Vice President or the Secretary of the Company or
any other officer or official of the Company reasonably believed by the Warrant
Agent to be authorized to give such instructions and delivered to the Warrant
Agent and such certificate shall grant full authorization to the Warrant Agent
for any action taken or suffered in good faith by it under the provisions of
this Warrant Agreement in reliance upon such certificate.
(p) The Warrant Agent shall not be required to risk or expend its own
funds in the performance of its obligations and duties hereunder.
-35-
<PAGE>
SECTION 6.3. RESIGNATION AND APPOINTMENT OF SUCCESSOR.
(a) The Company agrees, for the benefit of the Holders, that there
shall at all times be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant Agent by
giving written notice to the Company of such intention on its part, specifying
the date on which its desired resignation shall become effective, provided that
such date shall be at least 30 days after the date on which such notice is given
unless the Company agrees to accept less notice. Upon receiving such notice of
resignation, or in the event the Company shall determine not to continue to act
as its own Warrant Agent, the Company shall promptly appoint a successor Warrant
Agent, qualified as provided in Section 6.3(d) hereof, by written instrument in
duplicate signed on behalf of the Company, one copy of which shall be delivered
to the resigning Warrant Agent and one copy to the successor Warrant Agent. As
provided in Section 6.3(d) hereof, such resignation shall become effective upon
the earlier of (x) the acceptance of the appointment by the successor Warrant
Agent or (y) 30 days after receipt by the Company of notice of such resignation.
The Company may, at any time and for any reason, and shall, upon any event set
forth in the next succeeding sentence, remove the Warrant Agent and appoint a
successor Warrant Agent by written instrument in duplicate, specifying such
removal and the date on which it is intended to become effective, signed on
behalf of the Company, one copy of which shall be delivered to the Warrant Agent
being removed and one copy to the successor Warrant Agent. The Warrant Agent
shall be removed as aforesaid if it shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of
its property shall be appointed, or any public officer shall take charge or
control of it or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation. Any removal of the Warrant Agent and any
appointment of a successor Warrant Agent shall become effective upon acceptance
of appointment by the successor Warrant Agent as provided in Section 6.3(d). As
soon as practicable after appointment of the successor Warrant Agent, the
Company shall cause written notice of the change in the Warrant Agent to be
given to each of the registered Holders in the manner provided for in Section
7.4 hereof.
(c) Upon resignation or removal of the Warrant Agent, if the Company
shall fail to appoint a successor Warrant Agent within a period of 30 days after
receipt of such notice of resignation or removal, then the Holder or the Warrant
Agent may apply to a court of competent jurisdiction for the appointment of a
successor to the Warrant Agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such a court, the duties of the
Warrant Agent shall be carried out by the Company.
(d) Any successor Warrant Agent, whether appointed by the Company or
by a court, shall be a bank or trust company in good standing, incorporated
under the laws of the United States of America or any State thereof and having,
at the time of its appointment, a combined capital surplus of at least $150
million. Such successor Warrant Agent shall execute and deliver to its
predecessor and to the Company an instrument accepting such appointment
hereunder and all the provisions of this Warrant Agreement, and thereupon such
successor Warrant Agent, without any further act, deed or conveyance, shall
-36-
<PAGE>
become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor shall thereupon become obligated to (i) transfer
and deliver, and such successor Warrant Agent shall be entitled to receive, all
securities, records or other property on deposit with or held by such
predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then
due it pursuant to Section 6.2(a) hereof, pay over, and such successor Warrant
Agent shall be entitled to receive, all money deposited with or held by any
predecessor Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent hereunder
may be merged or converted, or any corporation or bank with which the Warrant
Agent may be consolidated, or any corporation or bank resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation or bank to which the Warrant Agent shall sell or otherwise transfer
all or substantially all of its corporate trust business or assets, shall be the
successor to the Warrant Agent under this Warrant Agreement (provided that such
corporation or bank shall be qualified as aforesaid) without the execution or
filing of any document or any further act on the part of any of the parties
hereto.
(f) No Warrant Agent under this Warrant Agreement shall be personally
liable for any action or omission of any successor Warrant Agent or of the
Company.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. DEFINED TERMS. Unless otherwise defined in this
Warrant Agreement, the capitalized terms set forth below and used in this
Warrant Agreement shall have the meanings given to such terms below:
"AGGREGATE CONSIDERATION RECEIVABLE" means, in the case of a sale,
issuance or other distribution of shares of Common Stock, the aggregate amount
paid to the Company in connection therewith and, in the case of an issuance,
sale or other distribution of Rights, or any amendment thereto, the SUM of: (a)
the aggregate amount paid to the Company for such Rights; PLUS (b) the aggregate
consideration or premium stated in such Rights to be payable for the shares of
Common Stock covered thereby, in each case, without deduction for any fees,
expenses or underwriters discounts; PROVIDED, FURTHER, that if all or any
portion of the aggregate amount paid to the Company for such Rights was not paid
in cash, the amount of such consideration other than cash received by the
Company shall be deemed to be the then Fair Market Value of such consideration.
"BUSINESS DAY" means any Monday, Tuesday, Wednesday, Thursday and
Friday on which (i) banks in New York City or the city in which the principal
corporate trust office of the Warrant Agent is located, (ii) the principal
national securities exchange or
-37-
<PAGE>
market, if any, on which the Common Stock or the Warrants are listed or admitted
to trading, in each case, are not obligated by law or executive order to be
closed.
"CLOSING PRICES" means, per share of Common Stock or any other
security, on any date specified herein:
(i) the last sale price, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and
asked prices on such date, in each case as officially reported on
the principal national securities exchange on which the Common
Stock or other security is then listed or admitted to trading;
and
(ii) if the Common Stock or other security is not then listed or
admitted to trading on any national securities exchange, but is
designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASD"), the last
trading price of the Common Stock or such other security on such
date, or if there shall have been no trading on such date or if
the Common Stock or such other security is not so designated, the
average of the reported closing bid and asked prices on such date
as shown by the National Association of Securities Dealers
Annotated Quotation System ("NASDAQ").
"CONSIDERATION PER SHARE" means, with respect to shares of Common
Stock or Rights, the quotient of: (a) the Aggregate Consideration Receivable in
respect of such shares of Common Stock or such Rights, DIVIDED BY (b) the total
number of such shares of Common Stock or, in the case of Rights, the total
number of shares of Common Stock into which such Rights are exercisable or
convertible.
"CONVERTIBLE PREFERRED STOCK" means the Series A Convertible Preferred
Stock of the Company issued by the Company in connection with the issuance of
the Notes and the Warrants.
"FAIR MARKET VALUE" means, per share of Common Stock or any other
security, as of any date of determination, the arithmetic mean of the daily
Closing Prices for the 30 consecutive trading days before such date of
determination; PROVIDED, HOWEVER, that if the Common Stock or such other
security is then neither listed or admitted to trading on any national
securities exchange, designated as a national market system security by the NASD
or quoted by NASDAQ, then "Fair Market Value" means the fair market value of one
share of Common Stock or such other security as determined by an Independent
Financial Advisor as of the date of determination.
"INDEPENDENT FINANCIAL ADVISOR" means Jefferies & Company, Inc. or any
of its successors. If and only to the extent Jefferies & Company, Inc. or any
such successor shall resign from acting as such, such other firm of independent
certified public accountants, an investment banking or appraisal firm (which
firm shall own no equity interest of, and shall not be an affiliate, subsidiary
or Related Party of the Company) of recognized national
-38-
<PAGE>
standing to be retained by the Company and acceptable to Jefferies & Company,
Inc. and the Warrant Agent.
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"RELATED PARTY" means, with respect to any Person: (A) any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person, (B) any spouse or immediate family
member of such Person or (C) a trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons holding a 75% or
more controlling interest of which consist of such Person and/or such other
Persons or entities referred to in the immediately preceding clause (A). A
Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
"RIGHT" means and includes:
(a) any warrant (including, without limitation, any Warrant) or
any option (including, without limitation, employee stock options) to
acquire Common Stock;
(b) any right issued to holders of the Common Stock, or any
class thereof, permitting the holders thereof to subscribe to shares of
Additional Common Stock (pursuant to a rights offering or otherwise);
(c) any right to acquire Common Stock pursuant to the provisions
of any security convertible or exchangeable into Common Stock; and
(d) any similar right permitting the holder thereof to subscribe
for or purchase shares of Common Stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
SECTION 7.2. AMENDMENT. This Warrant Agreement and the terms of the
Warrants may be amended by the Company and the Warrant Agent, without the
consent of any Holder, for the purpose of curing any ambiguity, or for curing,
correcting or supplementing any defective or inconsistent provision contained
herein or therein or in any other manner which the Company may deem necessary or
desirable and which shall not adversely affect in any respect the interests of
the Holders.
-39-
<PAGE>
The Company and the Warrant Agent may modify this Warrant Agreement
and the terms of the Warrants with the consent of not less than a majority in
number of the then outstanding Warrants for the purpose of adding any provision
to or changing in any manner or eliminating any of the provisions of this
Warrant Agreement or modifying in any manner the rights of the Holders;
PROVIDED, HOWEVER, that no such modification that increases the Exercise Price,
reduces the period of time during which the Warrants are exercisable hereunder,
otherwise adversely affects the exercise rights of the Holders, reduces the
percentage required for modification, or effects any change to this Section 7.1,
may be made with respect to an outstanding Warrant without the consent of the
Holder of such Warrant.
Any modification or amendment made in accordance with this Warrant
Agreement will be conclusive and binding on all present and future Holders
whether or not they have consented to such modification or amendment or waiver
and whether or not notation of such modification or amendment is made upon such
Warrant Certificates. Any instrument given by or on behalf of any Holder in
connection with any consent to any modification or amendment will be conclusive
and binding on all subsequent Holders.
SECTION 7.3. NOTICES AND DEMANDS TO THE COMPANY AND WARRANT AGENT.
If the Warrant Agent shall receive any notice or demand addressed to the Company
by the Holder of a Warrant Certificate pursuant to the provisions hereof or of
the Warrant Certificates, the Warrant Agent shall promptly forward such notice
or demand to the Company.
SECTION 7.4. ADDRESS FOR NOTICES TO THE COMPANY AND FOR TRANSMISSION
OF DOCUMENTS. All notices hereunder to the Company and the Warrant Agent shall
be deemed to have been given when sent by certified or registered mail, postage
prepaid, or by telecopy, confirmed by first class mail, postage prepaid,
addressed as follows:
To the Company:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Telecopy: (954) 627-2760
Telephone:(954) 627-2400
Attention: Chief Financial Officer
To the Warrant Agent:
State Street Bank and Trust Company
c/o Boston Equiserv, Inc.
150 Royall Street, Mail Stop 45-02-71
Canton, Massachusetts 02021
Telecopy: (617) 575-2500
Telephone: (617) 575-2400
Attention: Corporate Registration Department
-40-
<PAGE>
SECTION 7.5. NOTICES TO HOLDERS. Notices to Holders shall be mailed
to such Holders at the addresses of such Holders as they appear in the Warrant
Register. Any such notice shall be sufficiently given if sent by first-class
mail, postage prepaid.
SECTION 7.6. APPLICABLE LAW. THE VALIDITY, INTERPRETATION AND
PERFORMANCE OF THIS WARRANT AGREEMENT AND EACH WARRANT ISSUED HEREUNDER AND OF
THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 7.7. OBTAINING OF GOVERNMENTAL APPROVALS. The Company will
from time to time take all action required to be taken by it which may be
necessary to obtain and keep effective any and all permits, consents and
approvals of governmental agencies and authorities and securities laws filings
under United States Federal and State laws, and the rules and regulations of all
stock exchanges or markets on which the Warrants may be listed, which may be or
become requisite in connection with the issuance, sale, transfer, and delivery
of the Warrant Certificates, the exercise of the Warrants or the issuance, sale,
transfer and delivery of the Warrant Shares, it being understood, however, that
the only contractual registration rights of the Holders are those set forth in
the Registration Rights Agreement, dated of even date herewith (the
"Registration Rights Agreement"), between the Company and the Initial Purchaser.
SECTION 7.8. PERSONS HAVING RIGHTS UNDER AGREEMENT. Nothing in this
Warrant Agreement expressed or implied and nothing that may be inferred from any
of the provisions hereof is intended, or shall be construed, to confer upon, or
give to, any Person other than the Company, the Warrant Agent and the Holders
from time to time of the Warrant Certificates any right, remedy or claim under
or by reason of this Warrant Agreement or of any covenant, condition,
stipulation, promise or agreement hereof and all covenants, conditions,
stipulations, promises and agreements in this Warrant Agreement contained shall
be for the sole and exclusive benefit of the Company and the Warrant Agent and
their successors and of the Holders from time to time of the Warrant
Certificates.
SECTION 7.9. HEADINGS. The descriptive headings of the several
Articles and Sections of this Warrant Agreement are inserted for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions hereof.
SECTION 7.10. COUNTERPARTS. This Warrant Agreement may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original; but such Counterparts shall together constitute but one and the
same instrument.
SECTION 7.11. INSPECTION OF WARRANT AGREEMENT. A copy of this
Warrant Agreement shall be available at all reasonable times at the Warrant
Agent Office, for inspection by the Holder of any Warrant Certificate. The
Warrant Agent may require such Holder to submit his Warrant Certificate for
inspection by it.
-41-
<PAGE>
SECTION 7.12. SUCCESSORS. All the covenants and provisions of this
Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns
hereunder.
* * * * *
-42-
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by
the Company and the Warrant Agent as of the day and year first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
----------------------------------------
Name: Scott Bernstein
Title: President and CEO
STATE STREET BANK AND TRUST COMPANY
/s/ Vincent J. Quealy, Jr.
By: ----------------------------------------
Name: Vincent J. Quealy, Jr.
Title: Vice President
ACKNOWLEDGED AND AGREED TO:
BIRCH HOLDINGS L.L.C.
By: /s/ Greg S. Feldman
-----------------------
Name: Greg S. Feldman
Title: Member
BIRCH ACQUISITION L.L.C.
By: /s/ Greg S. Feldman
-------------------------
Name: Greg S. Feldman
Title: Member
-43-
<PAGE>
EXHIBIT A
{FORM OF WARRANT CERTIFICATE}
{FACE}
Unless and until it is exchanged in whole or in part for Warrants in
certificated form, this Warrant may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.(1)
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS WARRANT CERTIFICATE NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, REGISTRATION.
THE HOLDER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE, BY
ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THE
WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE PRIOR TO THE DATE WHICH IS
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE LAST DATE ON WHICH
DISCOVERY ZONE, INC. ("THE COMPANY") OR ANY AFFILIATE OF THE COMPANY WAS
THE OWNER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE (OR ANY
PREDECESSOR OF SUCH WARRANTS OR WARRANT CERTIFICATE) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE WARRANTS REPRESENTED BY THIS WARRANT
CERTIFICATE ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT
___________________
(1.) This paragraph is to be included only if the Warrant Certificate is in
global form.
A-1
<PAGE>
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND
SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE
MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1), (2), (3)
OR (7) OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH,
ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE WARRANT AGENT'S, AS
APPLICABLE, RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO
CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN
EACH OF THE FOREGOING CASES, AN ASSIGNMENT IN THE FORM APPEARING ON THE
OTHER SIDE OF THIS WARRANT CERTIFICATE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE WARRANT AGENT. THIS LEGEND SHALL BE REMOVED UPON THE
REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
THIS SECURITY IS SUBJECT TO A REGISTRATION RIGHTS AGREEMENT DATED AS
OF JULY 22, 1997 BETWEEN THE COMPANY AND JEFFERIES & COMPANY, INC., A COPY
OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE INITIALLY
ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF $1,000
PRINCIPAL AMOUNT OF 13 1/2% SENIOR SECURED NOTES DUE 2002 (THE "NOTES") OF
THE COMPANY AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO
PURCHASE 9.4724 SHARES OF THE COMPANY'S COMMON STOCK, PAR VALUE $.01 PER
SHARE. PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) 45
DAYS AFTER JULY 22, 1997 AND (ii) SUCH EARLIER DATE AS THE INITIAL
PURCHASER MAY DESIGNATE, THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT
BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR
EXCHANGED ONLY TOGETHER WITH, THE NOTES.
A-2
<PAGE>
CUSIP NUMBER: 25468B-115
No. [ ] [ ] Warrants
WARRANT CERTIFICATE
DISCOVERY ZONE, INC.
This Warrant Certificate certifies that [ ], or its
registered assigns, is the registered holder of [ ] Warrants (the
"Warrants") to purchase shares of Common Stock, par value $0.01 per share (the
"Common Stock"), of Discovery Zone, Inc., a Delaware corporation (the
"Company"). Each Warrant entitles the holder to purchase from the Company at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007 (the "Expiration Date"), 9.4724 fully paid and non-assessable
shares of Common Stock (as such number may be adjusted from time to time, the
"Warrant Shares", which may also include any other securities or property
issuable upon exercise of a Warrant, such adjustment and inclusion each as
provided in the Warrant Agreement) at the initial exercise price (the "Exercise
Price") of $0.01 per Warrant Share upon surrender of this Warrant Certificate
and payment of the Exercise Price at any office or agency maintained for that
purpose by the Company (the "Warrant Agent Office"), subject to the conditions
set forth herein and in the Warrant Agreement.
The Exercise Price shall be payable in cash or by certified or official
bank check in the lawful currency of the United States of America which as of
the time of payment is legal tender for payment of public or private debts. The
Company has initially designated its principal executive offices in New York,
New York, as the initial Warrant Agent Office. The number of Warrant Shares
issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
Any Warrants not exercised on or prior to 5:00 p.m., New York City time, on
August 1, 2007 shall thereafter be void.
Reference is hereby made to the further provisions on the reverse hereof,
which provisions shall for all purposes have the same effect as though fully set
forth at this place.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein shall have the meanings ascribed thereto in the Warrant
Agreement.
This Warrant Certificate shall not be valid unless authenticated by the
Warrant Agent, as such term is used in the Warrant Agreement. Initially, the
Company shall act as its own Warrant Agent.
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
A-3
<PAGE>
WITNESS the corporate seal of the Company and the signatures of its duly
authorized officers.
Dated: July 22, 1997
DISCOVERY ZONE, INC.
By: ______________________________
Name:
Title:
Attest:
______________________________
Name:
Title:
Certificate of Authentication:
This is one of the Warrants
referred to in the within-
mentioned Warrant Agreement:
STATE STREET BANK AND TRUST COMPANY
as Warrant Agent
By: ______________________________
Name:
Title:
A-4
<PAGE>
{FORM OF WARRANT CERTIFICATE}
{REVERSE}
DISCOVERY ZONE, INC.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, each of which represents the right to purchase at
any time on or after the date hereof and until 5:00 p.m., New York City time, on
August 1, 2007, 9.4724 Warrant Shares, subject to adjustment as set forth in the
Warrant Agreement (as defined). The Warrants are issued pursuant to a Warrant
Agreement dated as of July 22, 1997 (the "Warrant Agreement"), duly executed and
delivered by the Company for the benefit of the holders from time to time of the
Warrant Certificates, and subject to the terms and provisions of the
Registration Rights Agreement, dated as of July 22, 1997, between Jefferies &
Company, Inc. and the Company (the "Registration Rights Agreement"), which
Warrant Agreement and Registration Rights Agreement are hereby incorporated by
reference in and made a part of this instrument and are hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Warrant Agent, the Company and the holders (the
words "holders" or "holder" meaning the registered holders or registered holder)
of the Warrant Certificates. Warrants may be exercised by (i) surrendering at
any Warrant Agent Office this Warrant Certificate with the form of Election to
Exercise set forth hereon duly completed and executed and (ii) paying in full
the Warrant Exercise Price for each such Warrant exercised and any other amounts
required to be paid pursuant to the Warrant Agreement.
If all of the items referred to in the last sentence of the preceding
paragraph are received by the Warrant Agent at or prior to 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrant to which such items
relate will be effective on such Business Day. If any items referred to in the
last sentence of the preceding paragraph are received after 2:00 p.m., New York
City time, on a Business Day, the exercise of the Warrants to which such item
relates will be deemed to be effective on the next succeeding Business Day.
Notwithstanding the foregoing, in the case of an exercise of Warrants on the
Expiration Date, if all of the items referred to in the last sentence of the
preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on such Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
Subject to the terms of the Warrant Agreement, as soon as practicable after
the exercise of any Warrant or Warrants, the Company shall issue or cause to be
issued to or upon the written order of the registered holder of this Warrant
Certificate, a certificate or certificates evidencing the Warrant Share or
Warrant Shares to which such holder is entitled, in fully registered form,
registered in such name or names as may be directed by such holder pursuant to
the Election to Exercise, as set forth on the reverse of this Warrant
Certificate. Such certificate or certificates evidencing the Warrant Share or
Warrant Shares shall be deemed to have been issued and any Persons who are
designated to be named therein shall be
A-5
<PAGE>
deemed to have become the holder of record of such Warrant Share or Warrant
Shares as of the close of business on the date upon which the exercise of this
Warrant was deemed to be effective as provided in the preceding paragraph.
The Company will not be required to issue fractional shares of Common Stock
upon exercise of the Warrants or distribute Warrant Certificates that evidence
fractional shares of Common Stock. In lieu of fractional shares of Common
Stock, there shall be paid to the registered Holder of this Warrant Certificate
at the time such Warrant Certificate is exercised an amount in cash equal to the
same fraction of the Fair Market Value per share of Common Stock as determined
in accordance with the Warrant Agreement.
Warrant Certificates, when surrendered at any Warrant Agent Office by the
holder thereof in person or by legal representative or attorney duly authorized
in writing, may be exchanged for a new Warrant Certificate or new Warrant
Certificates evidencing in the aggregate a like number of Warrants, in the
manner and subject to the limitations provided in the Warrant Agreement, without
charge except for any tax or other governmental charge imposed in connection
therewith.
Upon due presentment for registration of transfer of this Warrant
Certificate at any office or agency maintained by the Company for that purpose,
a new Warrant Certificate evidencing in the aggregate a like number of Warrants
shall be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company and the Warrant Agent may deem and treat the registered holder
hereof as the absolute owner of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone) for the purpose of
any exercise hereof and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary.
All capitalized terms used in this Warrant Certificate and not otherwise
defined herein have the meanings given to such terms in the Warrant Agreement.
A-6
<PAGE>
ELECTION TO EXERCISE
TO BE EXECUTED UPON EXERCISE OF WARRANTS ON THE EXERCISE DATE
The undersigned hereby irrevocably elects to exercise ______ of the
Warrants represented by this Warrant Certificate and purchase the whole number
of Warrant Shares issuable upon the exercise of such Warrants and herewith
tenders payment for such Warrant Shares:*
(i) / / in the amount of $_____________ in cash or by certified or official
bank check; and/or
(ii) / / in Warrant Certificates,
in each case, pursuant to Section 2.1 of the Warrant Agreement.
The undersigned requests that a certificate representing such Warrant
Shares be registered in the name of ___________________, whose address is
____________________, and that such certificate be delivered to
_____________________, whose address is ____________________. Any cash payments
to be paid in lieu of a fractional Warrant Share should be made to
____________________, whose address is ____________________, and the check
representing payment thereof should be delivered to ____________________, whose
address is _____________________.
Name of holder of
Warrant Certificate:
------------------------------------------------
(Please Print)
Tax Identification or
Social Security Number:
---------------------------------------------
Signature:
----------------------------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Dated: ,
-------------- -----------------------
__________________
* INDICATE, AS APPLICABLE, THE FORM OF CONSIDERATION BEING PROVIDED.
A-7
<PAGE>
ASSIGNMENT
For value received, ____________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant Certificate, together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company, with full power of
substitution in the premises.
Dated: ,
-------------- -----------------------
Signature:
------------------------------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
this Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
SCHEDULE OF EXCHANGES OF DEFINITIVE WARRANTS**
The following exchanges of a part of this Global Warrant for Definitive Warrants
have been made:
<TABLE>
<CAPTION>
Amount of Amount of Number of Warrants
Decrease in Increase in of This Global
Number of Number of Warrant Following Signature of Authorized
Date of Warrants of This Warrants of This Such Decrease (or Signatory of Warrant Agent or
Exchange Global Warrant Global Warrant Increase) Depository
- --------------------------------------------------------------------------------------------------------------
<S><C>
</TABLE>
___________________
**This is to be included only if the Warrant Certificate is in global form.
A-8
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF WARRANTS
Re: Warrants to Purchase Common Stock (the "Warrants") of Discovery Zone, Inc.
This Warrant Certificate relates to _____ Warrants held in *_____
book-entry or *_____ certificated form by ____________________ (the
"Transferor").
The Transferor:*
/ / has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrant held by the
Depositary a Warrant or Warrants in definitive, registered form of authorized
denominations and an aggregate number equal to its beneficial interest in such
Global Warrant (or the portion thereof indicated above) or
/ / has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and the restrictions on
transfers thereof as provided in Section 1.8(b) of such Warrant Agreement, and
that the transfer of this Warrant does not require registration under the
Securities Act of 1933, as amended (the "Act") because(*):
/ / Such Warrant is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 1.8(a)(ii)(y)(A) or Section 1.8
(d)(i)(A) of the Warrant Agreement).
/ / Such Warrant is being transferred to a qualified institutional
buyer (as defined in Rule 144A under the Act) in reliance on Rule 144A or in
accordance with Regulation S under the Act.
/ / Such Warrant is being transferred in accordance with Rule 144
under the Act.
/ / Such Warrant is being transferred in reliance on and in
compliance with an exemption from the registration requirements of the Act,
other than Rule 144A or Rule 144 or Regulation S under the Act. An opinion of
counsel to the effect that such transfer does not require registration under the
Act accompanies this Certificate.
{INSERT NAME OF TRANSFEROR}
By:
-----------------------------------------
Date:
-----------------------------
* Check applicable box.
B-1
<PAGE>
EXHIBIT C
TRANSFEREE LETTER OF REPRESENTATION
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Ladies and Gentlemen:
In connection with our proposed purchase of warrants ("Warrants") to
purchase Common Stock, par value $0.01 per share (the "Common Stock", together
with the Warrants, the "Securities"), of Discovery Zone, Inc. (the "Company"),
we confirm that:
1. We understand that the Securities have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and, unless so
registered, may not be sold except as permitted in the following sentence. We
agree on our own behalf and on behalf of any investor account for which we are
purchasing Securities to offer, sell or otherwise transfer such Securities prior
to the date which is two years after the later of the date of original issue and
the last date on which the Company or any affiliate of the Company was the owner
of such Securities, or any predecessor thereto (the "Resale Restriction
Termination Date") only (a) to the Company, (b) pursuant to a registration
statement which has been declared effective under the Securities Act, (c) so
long as the Securities are eligible for resale pursuant to Rule 144A, under the
Securities Act, to a Person we reasonably believe is a qualified institutional
buyer under Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB and to whom notice is given that the transfer is being made in
reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the
United States within the meaning of Regulation S under the Securities Act, (e)
to an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act that is purchasing
for his own account or for the account of such an institutional "accredited
investor," or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject in each of the
foregoing cases to any requirement of law that the disposition of our property
or the property of such investor account or accounts be at all times within our
or their control and to compliance with any applicable state securities laws.
The foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Securities
is proposed to be made pursuant to clause (e) above prior to the Resale
Restriction Termination Date, the transferor shall deliver a letter from the
transferee substantially in the form of this letter to the warrant agent under
the Warrant Agreement pursuant to which the Securities were issued (the "Warrant
Agent") which shall provide, among other things, that the transferee is an
institutional "accredited investor" within the meaning of subparagraph (a)(1),
(2), (3) or (7) of Rule 501 under the Securities Act and that it is acquiring
such Securities for investment purposes and not for distribution in violation of
the Securities Act. The Warrant Agent and the Company reserve the right, prior
to any offer, sale or other transfer prior to the Resale Restriction Termination
Date of the Securities
C-1
<PAGE>
pursuant to clause (e) or (f) above, to require the delivery of a written
opinion of counsel, certifications, and/or other information reasonably
satisfactory to the Company and the Warrant Agent.
2. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
purchasing for our own account or for the account of such an institutional
"accredited investor," and we are acquiring the Securities for investment
purposes and not with a view to, or for offer or sale in connection with, any
distribution in violation of the Securities Act and we have such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Securities, and we and any accounts
for which we are acting are each able to bear the economic risk of our or its
investment for an indefinite period.
3. We are acquiring the Securities purchased by us for our own
account or for one or more accounts as to each of which we exercise sole
investment discretion.
4. You, the Warrant Agent and your respective counsel are entitled
to rely upon this letter and you are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
-------------------------
(Name of Purchaser)
By:
----------------------
Upon transfer the Securities would be registered in the name of the new
beneficial owner as follows:
Name:
-------------------------
Address:
----------------------
Taxpayer ID Number:
-----------
C-2
<PAGE>
Exhibit 4.5
ESCROW AND
SECURITY AGREEMENT
Dated as of July 22, 1997
From
DISCOVERY ZONE, INC.
as Pledgor
to
STATE STREET BANK AND TRUST COMPANY
as Collateral Agent
<PAGE>
ESCROW AND SECURITY AGREEMENT
This ESCROW AND SECURITY AGREEMENT (as amended, restated, supplemented
or modified from time to time, this "Escrow and Security Agreement") is made and
entered into as of July 22, 1997 by and among DISCOVERY ZONE, INC., a Delaware
corporation (the "Pledgor"), having its principal office at 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301, JEFFERIES & COMPANY, INC., acting as
the Initial Purchaser (the "Initial Purchaser"), and STATE STREET BANK AND TRUST
COMPANY, as trustee under the Indenture (as defined below), having an office at
Two International Place, Boston, MA 02110, as escrow agent and collateral agent
(in such capacity, the "Collateral Agent") for the holders (the "Holders") of
the Notes (as defined herein) issued by the Pledgor under the Indenture referred
to below.
W I T N E S S E T H:
WHEREAS, the Pledgor and the Initial Purchaser are a party to a
Purchase Agreement, dated July 15, 1997 (the "Purchase Agreement"), pursuant to
which the Pledgor will issue and sell to the Initial Purchaser 85,000 Units,
each consisting of $1,000 principal amount of its 13 1/2% Senior Secured Notes
due 2002 (collectively, as replaced or exchanged, the "Notes"), and one warrant
to purchase shares of the Pledgor's common stock, par value $.01 per share;
WHEREAS, the Pledgor, the Subsidiary Guarantors and the Collateral
Agent, as trustee thereunder, have entered into that certain Indenture dated as
of the date hereof (as amended, restated, supplemented or otherwise modified
from time to time, the "Indenture"), pursuant to which the Pledgor is issuing
the Initial Notes on the date hereof;
WHEREAS, pursuant to the Purchase Agreement and the Indenture, the
Pledgor is required to deposit on the Issue Date any combination of cash,
securities, instruments and certificates in an escrow account designated by the
Collateral Agent (the "Escrowed Interest Account") with the Collateral Agent to
be held by the Collateral Agent for its benefit and the ratable benefit of the
Holders to secure the Pledgor's obligation to (i) provide for payment in full of
any and all scheduled interest payments due on the Notes from the Issue Date
through August 1, 1999 and (ii) secure repayment of the principal, premium, if
any, and interest on the Notes in the event that the Notes are redeemed, prepaid
or otherwise become due and payable prior to such time as the scheduled interest
payments thereon through August 1, 1999 shall have been paid in full
(collectively, the "Obligations");
WHEREAS, pursuant to the terms and conditions of this Escrow and
Security Agreement, the Pledgor shall instruct the
1
<PAGE>
Collateral Agent to purchase or caused to be purchased with all or a portion of
the Escrowed Funds (as hereinafter defined) certain Pledged Securities (as
hereinafter defined) to be maintained in the Escrowed Interest Account in the
name of the Collateral Agent (or as otherwise required in accordance with
applicable law), and under the sole dominion and control of the Collateral
Agent, as set forth herein; and
WHEREAS, to secure the Obligations of the Pledgor, the Pledgor has
agreed to (i) pledge to the Collateral Agent for its benefit and the ratable
benefit of the Holders, a security interest in the Escrowed Funds, the Pledged
Securities and the other Collateral (as hereinafter defined) and (ii) execute
and deliver this Escrow and Security Agreement in order to secure the payment
and performance by the Pledgor of all the Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the premises herein contained, and
in order to induce the Holders to purchase the Notes, the Pledgor, the Initial
Purchaser and the Collateral Agent hereby agree, for the benefit of the
Collateral Agent and for the ratable benefit of the Holders, as follows:
SECTION 1. Definitions; Appointment; Deposit and Investment.
1.1 Definitions. All defined terms used herein without
definition shall have the respective meanings ascribed to them in the
Indenture. Unless otherwise defined herein or in the Indenture, terms used in
Articles 8 or 9 of the Uniform Commercial Code as in effect in the State of
New York (the "U.C.C.") are used herein as therein defined.
1.2 Appointment of the Collateral Agent. The Pledgor and the
Initial Purchaser hereby appoint the Collateral Agent as escrow agent and
collateral agent hereunder in accordance with the terms and conditions set forth
herein and authorize the Collateral Agent to take such actions, exercise such
powers and perform such duties as are expressly delegated to the Collateral
Agent by the terms of this Escrow and Security Agreement, together with such
other powers as are reasonably incidental thereto, and the Collateral Agent
hereby accepts such appointment, subject to the terms and conditions hereof.
1.3 Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Collateral Agent for its benefit and for the ratable benefit of
the Holders, and hereby grants to the Collateral Agent for its benefit and for
the ratable benefit of the Holders, a continuing first priority perfected
security interest in and to all of the Pledgor's right, title and interest in,
to and under the following (hereinafter collectively referred to as the
"Collateral"), whether characterized as investment
2
<PAGE>
property, general intangibles or otherwise: (a) the Escrowed Interest Account,
all funds and securities held therein and all certificates and instruments, if
any, from time to time representing or evidencing the Escrowed Interest Account,
including, without limitation, the Escrowed Funds and the Pledged Securities,
and any and all securities entitlements to the Escrowed Funds and the Pledged
Securities, and any and all related securities accounts in which security
entitlements to the Escrowed Funds and the Pledged Securities are carried, (b)
all notes, certificates of deposit, deposit accounts, checks and other
instruments from time to time hereafter delivered to or otherwise possessed by
the Collateral Agent for or on behalf of the Pledgor in substitution for or in
addition to any or all then existing Collateral, (c) all interest, dividends,
cash, instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Collateral, and (d) all proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds that constitute property of
the types described in clauses (a) - (c) above) and, to the extent not otherwise
included, all cash.
1.4. Deposit of Escrowed Funds. On the Issue Date, the Pledgor shall
deposit, or cause the Initial Purchaser to deposit $21,426,000 in cash
(collectively, the "Escrowed Funds") into the Escrowed Interest Account or such
greater amount as will be sufficient to provide for payment in full of the first
nine scheduled interest payments due on the outstanding Notes, being all such
scheduled interest payments from August 1, 1997 through August 1, 1999
(inclusive of the interest payments due and owing on August 1, 1997 and
August 1, 1999, respectively). Prior to the date (the "Effective Date") upon
which the Approved Plan (as defined in the Purchase Agreement) has become
Effective (as defined in the Purchase Agreement), and until invested in
accordance with Section 1.5 or Section 5, the Collateral Agent shall invest the
Escrowed Funds in money market accounts with any bank having capital surplus and
undivided profits aggregating at least $500 million or money market funds
investing only in U.S. Government Obligations to the extent such accounts or
funds do not impose any fee, cost or expense (such as a breakage fee) in
connection with any withdrawal, termination or liquidation of any such
investment; provided, however, that for the first Business Day from the Issue
Date the Escrowed Funds shall be invested in the instruments described in clause
(iv) of the definition of Cash Equivalent in the Indenture.
1.5. Purchase of Pledged Securities. At the direction of the Pledgor,
as set forth in a written notice (the "Pledged Securities Notice"), the form of
which is acceptable to the Collateral Agent, the Collateral Agent shall as soon
as practicable upon receipt of the Pledged Securities Notice (but in no event
earlier than the Effective Date) invest the Escrowed Funds in U.S. Government
Obligations in the manner as directed in the Pledged Securities Notice (such
U.S. Government Obligations,
3
<PAGE>
hereinafter, the "Pledged Securities"), which Pledged Securities shall be
deposited in the Escrowed Interest Account and shall be maintained by the
Collateral Agent for its benefit and the ratable benefit of the Holders in
accordance with the terms and conditions of this Escrow and Security Agreement.
Each Pledged Securities Notice shall (i) specify the amount and nature of the
Pledged Securities required to be purchased by the Collateral Agent with the
Escrowed Funds and contain all necessary directions or authorizations necessary
or reasonably required by the Collateral Agent to make such investment and (ii)
be accompanied by a written opinion of a nationally recognized firm of
independent public accountants or a recognized financial advisor, selected by
the Company and approved by the Initial Purchaser (the "Independent Financial
Advisor"), in form and substance reasonably acceptable to the Collateral Agent,
confirming (A) the investment of the Escrowed Funds in Pledged Securities as set
forth in the Pledged Securities Notice and (B) that the aggregate amount of the
Pledged Securities and Escrowed Funds, after giving effect to the investment in
the Pledged Securities referred to in such Pledged Securities Notice, will be
sufficient upon receipt of scheduled interest and principal payments of all
Pledged Securities to provide for payment in full of all scheduled interest
payments due on the outstanding Notes from August 1, 1997 through August 1,
1999.
SECTION 2. Security for Obligation. This Escrow and Security
Agreement secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all the
Obligations.
SECTION 3. Delivery of Collateral. On the Issue Date, all Escrowed
Funds shall be delivered to and held by or on behalf of the Collateral Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance sufficient to convey a valid security interest in and
lien on such Collateral to the Collateral Agent, or shall be credited to the
Escrowed Interest Account. In order to perfect or establish the perfection of
the Collateral Agent's rights in and to the Collateral, the Pledgor shall
forthwith, upon the pledge of any Collateral hereunder, cause all such
Collateral, including the Escrowed Interest Account, the Escrowed Funds, the
Pledged Securities and all other accounts representing a security entitlement to
or containing any Collateral to be registered in the name of the Collateral
Agent or such of its nominees as the Collateral Agent shall direct, and to be
under the sole dominion and control of the Collateral Agent, which dominion and
control shall be agreed to and acknowledged by any securities intermediary
holding any such account in an acknowledgement substantially in the form of
Exhibit B hereto, subject only to the revocable rights specified in Section 7.
In addition, the Collateral Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing the Collateral for
certificates or instruments of
4
<PAGE>
smaller or larger denominations. The Pledgor shall timely execute and deliver,
in form for filing and recordation, all necessary or appropriate UCC financing
statements with respect to the perfection of the security interest contemplated
hereby in the Pledged Securities and Escrowed Funds as determined by the
Collateral Agent.
SECTION 4. Maintaining the Escrowed Interest Account.
(a) So long as any Obligation shall remain unpaid, the Pledgor
will maintain the Escrow Interest Account with the Collateral Agent.
(b) It shall be a term and condition of the Escrowed Interest
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to the Escrowed Interest Account, and except as otherwise
provided by the provisions of Section 7 and Section 14, that no amount
(including interest on Escrowed Funds or Pledged Securities) shall be paid or
released to or for the account of, or withdrawn by or for the account of, the
Pledgor or any other Person, from the Escrowed Interest Account.
(c) The Escrowed Interest Account shall be subject to such
applicable laws, and such applicable regulations of the Board of Governors of
the Federal Reserve System and of any other appropriate banking or governmental
authority, as may now or hereafter be in effect.
SECTION 5. Investments. If requested in writing by the Pledgor, the
Collateral Agent will, subject to the provisions of Section 7 and Section 14,
from time to time (a) invest Escrowed Funds and other amounts on deposit in the
Escrowed Interest Account (other than Pledged Securities) in accordance with
Section 1.5 in the name of the Collateral Agent, as the Pledgor may select in
writing, and (b) invest interest paid on the Pledged Securities referred to in
clause (a) above, and so reinvest other proceeds of such Pledged Securities that
may mature or be sold, in each case in accordance with Section 1.5 in the name
of the Collateral Agent, as the Pledgor may select in writing, all of which
Pledged Securities shall be maintained in the Escrowed Interest Account.
Interest and proceeds that are not invested or reinvested in Pledged Securities
as provided above shall be deposited or remain on deposit in, as the case may
be, and held in the Escrowed Interest Account. In no event shall the Collateral
Agent be liable for any loss in the investment or reinvestment of amounts held
in the Escrowed Interest Account. All such investments selected by the Pledgor
shall be subject to availability to the Collateral Agent. The Collateral Agent
shall be under no duty to invest (or otherwise pay interest on) any amounts held
by it hereunder, absent specific written investment instructions from the
Pledgor in accordance with the terms hereof.
5
<PAGE>
SECTION 6. Delivery of Collateral Investments; Filing.
(a) The Collateral Agent shall become the holder of Pledged
Securities, Escrowed Funds, if applicable, and of any and all security
entitlements to the Pledged Securities and Escrowed Funds, if applicable,
through action by the Federal Reserve Bank of Boston ("FRBB") or another
securities intermediary, as confirmed (in writing or electronically or otherwise
in accordance with standard industry practice) to the Collateral Agent by FRBB
or such other securities intermediary (i) indicating by book-entry that the
Pledged Securities or a security entitlement thereto has been credited to the
Escrowed Interest Account, or (ii) acquiring the Pledged Securities or a
security entitlement thereto for the Collateral Agent and accepting the same for
credit to the Escrowed Interest Account.
(b) Prior to or concurrently with the execution and delivery
hereof and prior to the transfer to the Collateral Agent of Pledged Securities
(or acquisition by the Collateral Agent of any security entitlement thereto) or
any Escrowed Funds, as provided in subsection (a) of this Section 6, the
Collateral Agent shall establish the Escrowed Interest Account on its books as
an account segregated from all other custodial or collateral accounts at its
office at State Street Bank and Trust Company, Two International Place, Boston,
MA 02110, Attention: Corporate Trust Department. Upon transfer of the Pledged
Securities (or the Collateral Agent's acquisition of a security entitlement
thereto) or any Escrowed Funds, to the Collateral Agent, as confirmed to the
Collateral Agent by FRBB or another securities intermediary, the Collateral
Agent shall make appropriate book entries indicating that the Pledged Securities
and/or such security entitlement and all Escrowed Funds, if applicable, have
been credited to and are held in the Escrowed Interest Account. Subject to the
other terms and conditions of this Escrow and Security Agreement, all Pledged
Securities and all other Escrowed Funds held by the Collateral Agent pursuant to
this Escrow and Security Agreement shall be held in the Escrowed Interest
Account subject (except as expressly provided in subsections 7(a)-7(f) hereof)
to the exclusive dominion and control of the Collateral Agent and exclusively
for the benefit of the Collateral Agent and for the ratable benefit of the
Holders and segregated from all other funds or other property otherwise held by
the Collateral Agent.
(c) All Collateral shall be retained in the Escrowed Interest
Account pending disbursement pursuant to the terms hereof.
(d) Concurrently with the execution and delivery of this Escrow
and Security Agreement, the Collateral Agent is delivering to the Pledgor and
the Initial Purchaser a duly executed certificate, in the form of Exhibit A
hereto, of an officer of the Collateral Agent confirming the Collateral Agent's
6
<PAGE>
establishment and maintenance of the Escrowed Interest Account and its receipt
and holding of the Escrowed Funds, the Pledged Securities or any security
entitlement thereto and the crediting of the Pledged Securities, Escrowed Funds
or such security entitlement to the Escrowed Interest Account, all in accordance
with this Escrow and Security Agreement.
(e) Concurrently with the execution and delivery of this Escrow
and Security Agreement, the Pledgor is delivering to the Collateral Agent
acknowledgement copies or stamped receipt copies of proper financing statements,
duly filed on or before the Issue Date under the Uniform Commercial Code of the
State of New York and the State of Florida, together with all necessary account
assignments and security interest confirmation letters, covering the Collateral
described in this Escrow and Security Agreement. The Collateral Agent shall be
under no duty to determine the sufficiency of the foregoing.
SECTION 7. Disbursements. The Collateral Agent shall hold the
Collateral in the Escrowed Interest Account and release the same, or a portion
thereof, only as follows:
(a) At least five Business Days prior to the due date of any of
the first nine scheduled interest payments on the Notes from the Issue Date
through August 1, 1999 (or one Business Day in the case of the first such
interest payment), the Pledgor may, pursuant to written instructions executed by
the Pledgor (an "Issuer Order"), direct the Collateral Agent to release from the
Escrowed Interest Account and pay to the Holders proceeds sufficient to provide
for payment in full of such interest then due on the Notes. Upon receipt of an
Issuer Order, the Collateral Agent will take any action necessary to provide for
the payment of the interest on the Notes in accordance with the payment
provisions of the Indenture to the Holders from (and to the extent of) the
Pledged Securities, Escrowed Funds and proceeds thereof in the Escrowed Interest
Account. Nothing in this Section 7 shall affect the Collateral Agent's rights
to apply the Collateral to the payments of amounts due on the Notes upon
acceleration thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Collateral is security from a source of funds
other than the Escrowed Interest Account ("Pledgor Funds"), the Pledgor may,
after payment in full of such interest payment or portion thereof from proceeds
of the Collateral or such Pledgor Funds or both, direct the Collateral Agent to
release to the Pledgor or to another party at the direction of the Pledgor (the
"Pledgor's Designee"), net of any costs, fees or expenses (such as breakage
fees) incurred to permit such release, proceeds from the Escrowed Interest
Account in an amount less than or equal to the amount of Pledgor Funds
appropriately applied to such interest payment so that there remains in the
Escrowed Interest Account an amount at least sufficient to pay in full, after
receipt of scheduled interest
7
<PAGE>
and principal payments on Pledged Securities, in the written opinion of an
Independent Financial Advisor (which written opinion shall accompany any Issuer
Order), the remaining of the first nine interest payments due on the Notes.
Upon receipt of an Issuer Order and the related written opinion of such
Independent Financial Advisor by the Collateral Agent, the Collateral Agent
shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, the
appropriate requested amount from proceeds in the Escrowed Interest Account.
Immediately prior to any release of funds to the Pledgor pursuant to this
Section 7(b), Section 7(d)or Section 7(g), the Pledgor shall deliver to the
Collateral Agent a certificate signed by an officer of the Pledgor stating that
such release has been duly authorized by the Pledgor and will not contravene any
provision of applicable law or the Certificate of Incorporation of the Pledgor
or any material agreement or other material instrument binding upon the Pledgor
or any of its subsidiaries or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor or any of its
subsidiaries or result in the creation or imposition of any security interest in
or lien on any assets of the Pledgor, except for the security interests granted
under this Escrow and Security Agreement.
(c) At least five Business Days prior to the due date of any of
the first nine scheduled interest payments on the Notes (or one Business Day in
the case of the first such interest payment), the Pledgor covenants to give the
Collateral Agent (by Issuer Order) notice as to whether payment of interest will
be made pursuant to Section 7(a) or 7(b) and as to the respective amounts of
interest that will be paid pursuant to Section 7(a) or 7(b). If no such notice
is given by such fifth Business Day (or one Business Day in the case of the
first such interest payment) prior to the respective first nine scheduled
interest payments on the Notes, the Collateral Agent will act pursuant to
Section 7(a) as if it had received an Issuer Order pursuant thereto for the
payment in full of the interest then due.
(d) If Pledgor has optionally redeemed Notes with the net
proceeds of a Primary Offering, the Pledgor may, pursuant to an Issuer Order,
direct the Collateral Agent to release to Pledgor or any Pledgor's Designee
proceeds from the Escrowed Interest Account in an amount which bears the same
proportion to the aggregate value of the Escrowed Interest Account immediately
prior to the release of such proceeds as the aggregate principal amount of the
Notes so redeemed by Pledgor bears to the aggregate principal amount of the
Notes outstanding immediately prior to such redemption, net of any costs, fees
or expenses (such as breakage fees) incurred to permit such release, so that
there remains in the Escrowed Interest Account an amount sufficient to pay in
full, after receipt of scheduled interest and principal payments on Pledged
Securities, in the written opinion of an Independent Financial Advisor (which
written opinion shall accompany any Issuer Order) the remaining of the first
nine
8
<PAGE>
interest payments due on the Notes. Immediately prior to any release of funds
to the Pledgor pursuant to this Section 7(d), the Pledgor shall deliver any and
all certificates described in and pursuant to Section 7(b).
(e) Upon the occurrence and after the continuation of an Event
of Default, the Collateral Agent in its sole and absolute discretion may apply
any or all Collateral, including the Escrowed Funds and the Pledged Securities,
to the payment of all Obligations and any and all principal of and interest and
expenses on the Notes, in accordance with the terms and provisions of Section
14.
(f) Upon payment in full of the first nine scheduled interest
payments on the Notes in a timely manner, and if no Event of Default has
occurred and is continuing, the security interest in the Collateral evidenced by
this Escrow and Security Agreement will automatically terminate and be of no
further force and effect and the Collateral remaining, if any, shall promptly be
paid over and transferred to the Pledgor or Pledgor Designee. Furthermore, upon
the release of any Collateral from the Escrowed Interest Account in accordance
with the terms of this Escrow and Security Agreement, whether upon release of
Collateral to Holders as payment of interest or otherwise, the security interest
evidenced by this Escrow and Security Agreement in such released Collateral will
automatically terminate and be of no further force and effect.
(g) If on the Effective Date the total of the Escrowed Funds and
the Pledged Securities exceed the amount sufficient to pay in full, after
receipt of scheduled interest and principal payments on the Pledged Securities,
in the written opinion of the Independent Financial Advisor delivered to the
Collateral Agent, the remaining of the first nine scheduled interest payments
due on the Notes, and no Event of Default has occurred and shall be continuing,
the Pledgor may, on the Effective Date only, pursuant to an Issuer Order, direct
the Collateral Agent to release from the Escrowed Interest Account any such
overfunded amount of the Escrowed Funds (existing on the Effective Date) to the
Pledgor, net of any costs, fees and expenses (such as brokerage fees) incurred
to permit such release, so that there remains in the Escrowed Interest Account
an amount at least sufficient to pay in full, after receipt of scheduled
interest and principal payments on the Pledged Securities, in such written
opinion of the Independent Financial Advisor, the remaining of the first nine
scheduled interest payments due on the Notes. Immediately prior to any release
of such funds to the Pledgor pursuant to this Section 7 (g), the Pledgor shall
deliver any and all certificates described in and pursuant to Section 7(b). Upon
receipt of the foregoing certificates, Issue Order and opinion, the Collateral
Agent shall pay over to the Pledgor, on the Effective Date, such overfunded
amounts, net of such costs, fees or expenses.
9
<PAGE>
(h) The Collateral Agent may, but shall not be required to,
liquidate any Escrowed Funds or Pledged Securities, in whole or in part, in
order to make any scheduled payment of interest or any release or other required
payment hereunder and shall not be responsible for any loss, cost or expense,
including any breakage fee, diminution in principal or penalty in connection
therewith, all of which loss, cost or expense shall be borne solely by the
Pledgor.
(i) Nothing contained in Section 1, Section 5, this Section 7 or
any other provision of this Escrow and Security Agreement shall (i) afford the
Pledgor any right to issue entitlement orders with respect to any security
entitlement to the Escrowed Funds, the Pledged Securities or any securities
account in which any such security entitlement may be carried, or otherwise
afford the Pledgor control of any such security entitlement or (ii) otherwise
give rise to any rights of Pledgor with respect to the Escrowed Funds, the
Pledged Securities, any security entitlement thereto or any securities account
in which any such security entitlement may be carried, other than the Pledgor's
rights under this Escrow and Security Agreement as the beneficial owner of
Collateral pledged to and subject to the exclusive dominion and control (except
as expressly provided in Sections 7(a) - (g) hereof) of the Collateral Agent in
its capacity as such (and not as a securities intermediary). The Pledgor
acknowledges, confirms and agrees that the Collateral Agent holds a security
entitlement to the Escrowed Funds and the Pledged Securities, as applicable,
solely as collateral agent for the Holders and not as a securities intermediary.
(j) The Collateral Agent shall make any distribution from the
Escrow Interest Account required to be made by it (in its capacity as Escrow
Agent under the Escrow Agreement) pursuant to the Escrow Agreement.
SECTION 8. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) As of the Issue Date, the execution and delivery by the
Pledgor of, and the performance by the Pledgor of its obligations under, this
Escrow and Security Agreement will not contravene any provision of applicable
law or the Certificate of Incorporation of the Pledgor or any material agreement
or other material instrument binding upon the Pledgor or any of its subsidiaries
or any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Pledgor or any of its subsidiaries, or result in
the creation or imposition of any security interest on any assets of the
Pledgor, except for the security interest granted under this Escrow and Security
Agreement; giving effect to the occurrence of the Issue Date (assuming that the
Confirmation Order (as defined in the Plan
10
<PAGE>
of Reorganization) has become a Final Order (as defined in the Plan of
Reorganization) and the Approved Plan (as defined in the Plan of Reorganization)
has become Effective (as defined in the Plan of Reorganization)), no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required (i) for the performance by the Pledgor of its
obligations under this Escrow and Security Agreement, (ii) for the pledge by the
Pledgor of the Collateral pursuant to this Escrow and Security Agreement or
(iii) except for any such consents, approvals, authorizations or orders required
to be obtained by the Collateral Agent (or the Holders) for reasons other than
the consummation of this transaction, for the exercise by the Collateral Agent
of the rights provided for in this Escrow and Security Agreement or the remedies
in respect of the Collateral pursuant to this Escrow and Security Agreement.
(b) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), the
Pledgor is the beneficial owner of the Collateral, free and clear of any
security interest or any Lien or claims of any person or entity (except for the
security interests granted under this Escrow and Security Agreement). No
financing statement covering the Pledgor's interest in the Collateral is on file
in any public office other than the financing statements, if any, filed pursuant
to this Escrow and Security Agreement or the Indenture or the Security Agreement
and except for financing statements filed by pre-petition creditors as set forth
in the Pledgor's Plan of Reorganization but which no longer evidence valid or
existing security interests; no Pledged Security is in the possession of any
third party other than the Collateral Agent; and no notice to or arrangement
with any financial institution has been made regarding any security interest in
or Lien on or nominee arrangement for any Pledged Security or other Collateral.
(c) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), this
Escrow and Security Agreement will have been duly authorized, validly executed
and delivered by the Pledgor and (assuming the due authorization and valid
execution and delivery of this Escrow and Security Agreement by the Collateral
Agent and enforceability of the Escrow and Security Agreement against the
Collateral Agent in accordance with its terms) will constitute a valid and
binding agreement of the Pledgor, enforceable against the Pledgor in accordance
with its terms, except as (i) the enforceability hereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, preference, reorganization,
moratorium or similar laws now or hereafter in effect relating to or affecting
creditors' rights or remedies generally, (ii) the liability of equitable
remedies may be limited by equitable principles of general applicability and the
discretion of the court before which any proceeding therefor may be brought,
(iii) the exculpation provisions and rights to indemnification hereunder may be
limited by U.S. federal and state securities laws and public policy
considerations and (iv) the waiver of rights and defenses contained in Section
14(b),
11
<PAGE>
Section 17.11 and Section 17.16 hereof may be limited by applicable law.
(d) Upon the delivery to the Collateral Agent of the
certificates or instruments, if any, representing or evidencing the Collateral,
the filing of financing statements, if any, required by the UCC in the
appropriate offices in the State of New York and Florida, and the transfer and
pledge to the Collateral Agent of the Collateral and the acquisition by the
Collateral Agent of any security entitlement thereto, in accordance with Section
3, the continued possession by the Collateral Agent thereof and assuming that
the Collateral Agent, directly or by its agent, has maintained sole dominion and
control over the deposit and cash accounts, the pledge of and grant of a
security interest in the Collateral securing the payment of the Obligations for
the benefit of the Collateral Agent and the Holders will constitute a first
priority perfected security interest in such Collateral, enforceable as such
against all creditors of the Pledgor (and any persons purporting to purchase any
of the Collateral from the Pledgor), other than as permitted under the
Indenture.
(e) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), there will
be no legal or governmental proceedings pending or, to the best of the Pledgor's
knowledge, threatened to which the Pledgor or any of its subsidiaries is a party
or to which any of the properties of the Pledgor or any such subsidiary will be
subject that would materially adversely affect the power or ability of the
Pledgor to perform its obligations under this Escrow and Security Agreement or
to consummate the transactions contemplated hereby.
(f) The pledge of the Collateral pursuant to this Escrow and
Security Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System) applicable to the Pledgor.
(g) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), no Event
of Default, or event which with notice or passage of time or both would be an
Event of Default, exists.
SECTION 9. Further Assurances. The Pledgor will, promptly upon
request by the Collateral Agent (which request the Collateral Agent may submit
at the direction of the Holders of at least a majority in principal amount of
the Notes then outstanding), execute and deliver or cause to be executed and
delivered, or use its reasonable best efforts to procure, all assignments,
instruments and other documents, deliver any instruments to the Collateral Agent
and take any other actions that are necessary or desirable to perfect, continue
the
12
<PAGE>
perfection of or protect the first priority of the Collateral Agent's security
interest in and to the Collateral, to protect the Collateral against the rights,
claims, or interests of third persons (other than any such rights, claims or
interests created by or arising through the Collateral Agent) or to effect the
purposes of this Escrow and Security Agreement. The Pledgor also hereby
authorizes the Collateral Agent to file any financing or continuation statements
in the United States with respect to the Collateral without the signature of the
Pledgor (to the extent permitted by applicable law). The Pledgor will promptly
pay all costs incurred in connection with any of the foregoing within 30 days of
receipt of an invoice therefor. The Pledgor also agrees, whether or not
requested by the Collateral Agent, to take all actions that are necessary to
perfect or continue the perfection of, or to protect the first priority of, the
Collateral Agent's security interest in and to the Collateral, including the
filing of all necessary financing and continuation statements, and to protect
the Collateral against the rights, claims or interests of third persons (other
than any such rights, claims or interests created by or arising through the
Collateral Agent).
SECTION 10. Covenants. The Pledgor covenants and agrees with the
Collateral Agent and the Holders that from and after the date of this Escrow and
Security Agreement until the earlier of payment in full in cash of (x) each of
the first nine scheduled interest payments due on the Notes under the terms of
the Indenture or (y) all obligations due and owing under the Indenture and the
Notes in the event such obligations become due and payable prior to the payment
of the first nine scheduled interest payments on the Notes:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to, any of the
Collateral or (ii) it will not create or permit to exist any Lien upon or with
respect to any of the Collateral (except for the security interests granted
under this Escrow and Security Agreement and any Lien created by or arising
through the Collateral Agent) and at all times will be the sole beneficial owner
of the Collateral; or
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or inhibit the
Collateral Agent's rights or remedies hereunder, including, without limitation,
the Collateral Agent's right to sell or otherwise dispose of the Collateral or
(ii) fail to pay or discharge any tax, assessment or levy of any nature with
respect to the Collateral not later than five days prior to the date of any
proposed sale under any judgment, writ or warrant of attachment with respect to
the Collateral.
SECTION 11. Power of Attorney. In addition to all of the powers
granted to the Collateral Agent pursuant to the Indenture, the Pledgor hereby
appoints and constitutes the Collateral Agent as the Pledgor's attorney-in-fact
(with full
13
<PAGE>
power of substitution) to exercise to the fullest extent permitted by law all of
the following powers upon and at any time after the occurrence and during the
continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof; and
(d) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Collateral Agent in its sole reasonable discretion, and
such payments made by the Collateral Agent to become part of the Obligations,
due and payable immediately upon demand. The Collateral Agent's authority under
this Section 11 shall include, without limitation, the authority to endorse and
negotiate any checks, certificates or instruments representing proceeds of
Collateral in the name of the Pledgor, execute and give receipt for any
certificate of ownership or any document constituting Collateral, transfer title
to any item of Collateral, sign the Pledgor's name on all financing statements
(to the extent permitted by applicable law) or any other documents deemed
necessary or appropriate by the Collateral Agent to preserve, protect or perfect
the security interest in the Collateral and to file the same, prepare, file and
sign the Pledgor's name on any notice of Lien, and to take any other actions
arising from or incident to the powers granted to the Collateral Agent in this
Escrow and Security Agreement. This power of attorney is coupled with an
interest and is irrevocable by the Pledgor.
SECTION 12. No Assumption of Duties; Reasonable Care. The rights
and powers granted to the Collateral Agent hereunder are being granted in order
to preserve and protect the security interest of the Collateral Agent and the
Holders in and to the Collateral granted hereby and shall not be interpreted to,
and shall not impose any duties on the Collateral Agent in connection therewith
other than those expressly provided herein or imposed under applicable law and
no implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Escrow and Security Agreement or otherwise
exist against the Collateral Agent. Except as provided by applicable law or by
the Indenture, the Collateral Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which the
Collateral Agent accords similar property held by the Collateral Agent for
similar accounts, it being understood that the Collateral Agent in its capacity
as such shall not have any responsibility for (a) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities or other matters
relative to any Collateral, whether or not the Collateral Agent has or is deemed
to have knowledge of such matters, (b) taking any necessary steps to preserve
rights against any parties with respect to any Collateral or (c) investing or
reinvesting any of the Collateral, provided, however, that nothing contained in
this Escrow and Security Agreement shall relieve the Collateral Agent of any
14
<PAGE>
responsibilities as a securities intermediary under applicable law.
SECTION 13. Indemnity. The Pledgor shall indemnify, hold harmless
and defend the Collateral Agent and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including reasonable defense costs and expenses,
reasonable investigative fees and costs, and reasonable legal fees and damages
arising from the Collateral Agent's performance as Collateral Agent under this
Escrow and Security Agreement, except to the extent that such claim, action,
obligation, liability or expense is directly attributable to the bad faith,
gross negligence or wilful misconduct of such indemnified person.
SECTION 14. Remedies Upon Event of Default. If any Event of Default
under the Indenture or a material default hereunder (any such Event of Default
or default being referred to in this Escrow and Security Agreement as an "Event
of Default") shall have occurred and be continuing:
(a) The Collateral Agent and the Holders shall have, in addition
to all other rights given by law or by this Escrow and Security Agreement or the
Indenture or any other Collateral Agreement, all of the rights and remedies with
respect to the Collateral of a secured party under the UCC in effect in the
State of New York at that time. In addition, with respect to any Collateral
that shall then be in or shall thereafter come into the possession or custody of
the Collateral Agent, the Collateral Agent may and, at the direction of the
Holders of a majority in principal amount of the Notes then outstanding, shall,
sell or cause the same to be sold at any broker's board or at public or private
sale, in one or more sales or lots, at such price or prices as the Collateral
Agent may deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Collateral so sold
shall thereafter hold the same absolutely, free from any claim, encumbrance or
right of any kind whatsoever created by or through the Pledgor. Unless any of
the Collateral threatens, in the reasonable judgment of the Collateral Agent, to
decline speedily in value or is or becomes of a type sold on a recognized
market, the Collateral Agent will give the Pledgor reasonable notice of the time
and place of any public sale thereof, or of the time after which any private
sale or other intended disposition is to be made. Any sale of the Collateral
conducted in conformity with reasonable commercial practices of banks, insurance
companies, commercial finance companies, or other financial institutions
disposing of property similar to the Collateral shall be deemed to be
commercially reasonable. Any requirements of reasonable notice shall be met if
such notice is delivered to the address of the recipient in and in accordance
with Section 17.1 hereof at least ten days before the time of the sale or
disposition. The Collateral Agent or any Holder of Notes may, in its own name
or in the name of a designee or nominee, buy any of the Collateral
15
<PAGE>
at any public sale and, if permitted by applicable law, at any private sale.
All expenses (including court costs and reasonable attorneys' fees, expenses and
disbursements) of, or incident to, the enforcement of any of the provisions
hereof shall be recoverable from the proceeds of the sale or other disposition
of the Collateral.
(b) The Pledgor further agrees to do or cause to be done all
such other acts as may be necessary to make such sale or sales of all or any
portion of the Collateral pursuant to this Section 14 valid and binding and in
compliance with the Indenture and any and all other applicable requirements of
law. The Pledgor further agrees that a breach of any of the covenants contained
in this Section 14 will cause irreparable injury to the Collateral Agent and the
Holders, that the Collateral Agent and the Holders have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 14 shall be specifically enforceable against
the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses
against an action for specific performance of such covenants except for a
defense that no Event of Default has occurred.
SECTION 15. Expenses. The Pledgor will upon demand pay to the
Collateral Agent the amount of any and all reasonable expenses, including,
without limitation, the reasonable fees, expenses and disbursements of its
counsel, experts and agents retained by the Collateral Agent, that the
Collateral Agent may incur in connection with (a) the review, negotiation and
administration of this Escrow and Security Agreement, (b) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (c) the exercise or enforcement of any of the rights of the
Collateral Agent and the Holders hereunder or (d) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 16. Security Interest Absolute. All rights of the
Collateral Agent and the Holders and security interests and Liens hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations or other obligations under the
Indenture, or any other amendment or waiver of or any consent to any departure
from the Indenture;
(c) any exchange, surrender, release or non-perfection of any
Liens on any other collateral for all or any of the Obligations; or
16
<PAGE>
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Pledgor in respect of the Obligations or of this Escrow and
Security Agreement.
SECTION 17. Miscellaneous Provisions.
17.1 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answer-back
received, or in the case of telecopy notice, when sent, or in the case of a
nationally recognized overnight courier service, one business day after delivery
to such courier service, addressed, in the case of each party hereto to the
following address, or to such other address as may be designated by any party in
a written notice to the other party hereto:
if to the Pledgor:
Discovery Zone, Inc.
110 East Broward Boulevard
Ft. Lauderdale, Florida 33301
Attention: Chief Executive Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
if to the Initial Purchaser:
Jefferies & Company, Inc.
650 Fifth Avenue
New York, New York 10019
Attention: Andrew Whittaker
with a copy to:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Ronald S. Brody, Esq.
17
<PAGE>
if to the Collateral Agent:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
17.2. No Adverse Interpretation of Other Agreements. This Escrow and
Security Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor or any subsidiary thereof. No such pledge, security or
debt agreement (other than the Indenture) may be used to interpret this Escrow
and Security Agreement.
17.3. Severability. The provisions of this Escrow and Security
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Escrow and Security Agreement in any jurisdiction.
17.4. Headings. The headings in this Escrow and Security Agreement
have been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
17.5. Counterpart Originals. This Escrow and Security Agreement may
be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same agreement.
17.6. Benefits of Escrow and Security Agreement. Nothing in this
Escrow and Security Agreement, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder, and the Holders,
any benefit or any legal or equitable right, remedy or claim under this Escrow
and Security Agreement.
17.7. Amendments, Waivers and Consents. Any amendment or waiver of
any provision of this Escrow and Security Agreement and any consent to any
departure by the Pledgor from any provision of this Escrow and Security
Agreement shall be effective only if made or duly given in compliance with
all of the terms and provisions of the Indenture, and neither the Collateral
Agent nor any Holder of Notes shall be deemed, by any act, delay, indulgence,
omission or otherwise, to have waived any right or remedy hereunder or to
have acquiesced in any Default or Event of Default or in any breach of any of
the terms and conditions hereof. Failure of the Collateral Agent or any
Holder
18
<PAGE>
of Notes to exercise, or delay in exercising, any right, power or privilege
hereunder shall not preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Collateral
Agent or any Holder of Notes of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the
Collateral Agent or such Holder of Notes would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17.8. Interpretation of Agreement. All terms not defined herein or
in the Indenture shall have the meaning set forth in the UCC, except where the
context otherwise requires. To the extent a term or provision of this Escrow
and Security Agreement conflicts with the Indenture, the Indenture shall control
with respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Escrow and Security
Agreement shall not be relevant to determine the meaning of this Escrow and
Security Agreement even though the accepting or acquiescing party had knowledge
of the nature of the performance and opportunity for objection.
17.9. Continuing Security Interest; Termination.
(a) This Escrow and Security Agreement shall create a continuing
security interest in and to and Lien on the Collateral and shall, unless
otherwise provided in the Indenture or in this Escrow and Security Agreement,
remain in full force and effect until the payment in full in cash of the
Obligations. This Escrow and Security Agreement shall be binding upon the
Pledgor, its transferees, successors and assigns, and shall inure, together with
the rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent, the Holders and their respective successors, transferees and
assigns.
(b) This Escrow and Security Agreement shall terminate upon the
payment in full in cash of the Obligations. At such time, the Collateral Agent
shall, pursuant to an Issuer Order, and subject to and in accordance with the
applicable terms of the Indenture, if any, reassign and redeliver to the Pledgor
all of the Collateral hereunder that has not been sold, disposed of, retained or
applied by the Collateral Agent in accordance with the terms of this Escrow and
Security Agreement and the Indenture, such that such Collateral will be subject
in all respects to a valid and existing security interest and Lien under the
Indenture and Security Agreement. Such reassignment and redelivery shall be
without warranty by or recourse to the Collateral Agent in its capacity as such,
except as to the absence of any Liens on the Collateral created by or arising
through the Collateral Agent (except as may be granted under the Indenture or
Security Agreement or other Collateral Agreement), and shall be at the cost and
expense of the Pledgor.
19
<PAGE>
17.10. Survival Provisions. All representations, warranties and
covenants of the Pledgor contained herein shall survive the execution and
delivery of this Escrow and Security Agreement, and shall terminate only upon
the termination of this Escrow and Security Agreement. The obligations of the
Pledgor under Sections 13 and 15 hereof shall survive the termination of this
Escrow and Security Agreement.
17.11. Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
17.12. Authority of the Collateral Agent.
(a) The Collateral Agent shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident thereto.
The Collateral Agent may perform any of its duties hereunder or in connection
with the Collateral by or through agents or employees and shall be entitled to
retain counsel and to act in reliance upon the advice of counsel concerning all
such matters. Except as otherwise expressly provided in this Escrow and
Security Agreement or the Indenture, neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
liable to the Pledgor for any action taken or omitted to be taken by the
Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its
own bad faith, gross negligence or willful misconduct, and the Collateral Agent
shall not be responsible for the validity, effectiveness or sufficiency hereof
or of any document or security furnished pursuant hereto. The Collateral Agent
and its directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document believed by it or them to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Collateral Agent shall have no duty to cause any financing
statement or continuation statement to be filed in respect of the Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Escrow and Security
Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Escrow and Security Agreement shall, as between the Collateral Agent
and the Holders, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Collateral Agent and the Pledgor, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Holders with full and
20
<PAGE>
valid authority so to act or refrain from acting, and the Pledgor shall not be
obligated or entitled to make any inquiry respecting such authority.
(c) The Collateral Agents shall maintain appropriate books and
records with respect to the Collateral in which shall be recorded all deposits
and transactions in and disbursements from the Escrowed Interest Account and
regarding the Pledged Securities and shall permit the Company to inspect and to
make copies of such books and records at the Company's sole cost and expense.
17.13. Successor Collateral Agent. The term Collateral Agent shall
mean the Person named as the "Collateral Agent" in the first paragraph of the
Escrow and Security Agreement until a successor Collateral Agent shall have
become such, and thereafter "Collateral Agent" shall mean the Person who is then
the Collateral Agent hereunder. If the Collateral Agent consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business to another entity, the resulting, surviving or transferee entity,
without any further act, shall be the successor Collateral Agent.
17.14. Final Expression. This Escrow and Security Agreement,
together with the Indenture and any other agreement executed in connection
herewith, is intended by the parties as a final expression of this Escrow and
Security Agreement and is intended as a complete and exclusive statement of the
terms and conditions thereof.
17.15. Rights of Holders. No Holder of Notes shall have any rights
granted to individual Holders pursuant to Section 6.07 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Collateral Agent under the Notes or the Indenture.
17.16. GOVERNING LAW, SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; WAIVER OF DAMAGES.
(a) THIS ESCROW AND SECURITY AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT
OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS IN CONNECTION WITH
THIS ESCROW AND SECURITY AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.
(b) THE PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN ITS
CAPACITY AS COLLATERAL AGENT OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF
NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED
AGAINST THE PLEDGOR OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY
SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE
21
<PAGE>
PLEDGOR OR THE COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE COLLATERAL AGENT TO
REALIZE ON SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE COLLATERAL AGENT. THE PLEDGOR AGREES THAT IT WILL NOT
ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY
THE COLLATERAL AGENT TO REALIZE ON SUCH COLLATERAL OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF THE COLLATERAL AGENT, WITH RESPECT TO SUCH
COLLATERAL, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT
ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED.
THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN THE CITY OF NEW YORK ONCE THE COLLATERAL AGENT HAS COMMENCED A PROCEEDING
DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(c) THE RIGHTS AND POWERS GRANTED TO THE COLLATERAL AGENT
HEREUNDER ARE BEING GRANTED IN ORDER TO PRESERVE AND PROTECT THE SECURITY
INTEREST OF THE COLLATERAL AGENT AND THE HOLDERS IN AND TO THE COLLATERAL
GRANTED HEREBY AND SHALL NOT BE INTERPRETED TO, AND SHALL NOT IMPOSE ANY DUTIES
ON THE COLLATERAL AGENT IN CONNECTION THEREWITH OTHER THAN THOSE EXPRESSLY
PROVIDED HEREIN OR IMPOSED UNDER APPLICABLE LAW AND NO IMPLIED COVENANTS,
FUNCTIONS, RESPONSIBILITIES, DUTIES, OBLIGATIONS, OR LIABILITIES SHALL BE READ
INTO THIS ESCROW AND SECURITY AGREEMENT OR OTHERWISE EXIST AGAINST THE
COLLATERAL AGENT. EXCEPT AS PROVIDED BY APPLICABLE LAW OR BY THE INDENTURE, THE
COLLATERAL AGENT SHALL BE DEEMED TO HAVE EXERCISED REASONABLE CARE IN THE
CUSTODY AND PRESERVATION OF THE COLLATERAL IN ITS POSSESSION IF THE COLLATERAL
IS ACCORDED TREATMENT SUBSTANTIALLY EQUAL TO THAT WHICH THE COLLATERAL AGENT
ACCORDS SIMILAR PROPERTY HELD BY THE COLLATERAL AGENT FOR SIMILAR ACCOUNTS, IT
BEING UNDERSTOOD THAT THE COLLATERAL AGENT IN ITS CAPACITY AS SUCH SHALL NOT
HAVE ANY RESPONSIBILITY FOR (A) ASCERTAINING OR TAKING ACTION WITH RESPECT TO
CALLS, CONVERSIONS, EXCHANGES, MATURITIES OR OTHER MATTERS RELATIVE TO ANY
COLLATERAL, WHETHER OR NOT THE COLLATERAL AGENT HAS OR IS DEEMED TO HAVE
KNOWLEDGE OF SUCH MATTERS, (B) TAKING ANY NECESSARY STEPS TO PRESERVE RIGHTS
AGAINST ANY PARTIES WITH RESPECT TO ANY COLLATERAL OR (C) INVESTING OR
REINVESTING ANY OF THE COLLATERAL, PROVIDED, HOWEVER, THAT NOTHING CONTAINED IN
THIS ESCROW AND SECURITY AGREEMENT SHALL RELIEVE THE COLLATERAL AGENT OF ANY
RESPONSIBILITIES AS A SECURITIES INTERMEDIARY UNDER APPLICABLE LAW.
22
<PAGE>
IN WITNESS WHEREOF, the Pledgor, the Initial Purchaser and the Collateral
Agent have each caused this Escrow and Security Agreement to be duly executed
and delivered as of the date first above written.
Pledgor:
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
----------------------------------
Name: Scott Bernstein
Title: President and CEO
Initial Purchaser:
JEFFERIES & COMPANY, INC.
By: /s/ Andrew Whittaker
----------------------------------
Name: Andrew Whittaker
Title: EVP
Collateral Agent:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Mary Lee Storrs
----------------------------------
Name: Mary Lee Storrs
Title:
<PAGE>
EXHIBIT A
STATE STREET BANK AND TRUST COMPANY
OFFICER'S CERTIFICATE
Pursuant to Section 6(d) of the Escrow and Security Agreement (the
"Escrow and Security Agreement") dated as of July 22, 1997 by and among
Discovery Zone, Inc. (the "Pledgor"), Jefferies & Company, Inc., as placement
agent (the "Initial Purchaser"), and State Street Bank and Trust Company, as
escrow agent and collateral agent (the "Collateral Agent"), for the holders of
the Pledgor's 13 1/2% Senior Secured Notes Due 2002, the undersigned officer of
the Collateral Agent, on behalf of the Collateral Agent, makes the following
certifications to the Pledgor and the Initial Purchaser. Capitalized terms used
and not defined in this Officer's Certificate have the meanings set forth or
referred to in the Escrow and Security Agreement.
1. Substantially contemporaneously with the execution and delivery
of this Officer's Certificate, the Collateral Agent has established at its
offices, as securities intermediary a securities account in the name of "State
Street Bank and Trust Company Escrowed Interest Account Re: Discovery Zone" (the
"Escrowed Interest Account") with respect to which the Collateral Agent is the
entitlement holder and through which the Collateral Agent has acquired a
security entitlement to certain Escrow Funds and Pledged Securities and has sole
dominion and control and has made appropriate book entries in its records
establishing that such Escrowed Funds and Pledged Securities, as applicable, and
the Collateral Agent's securities entitlement thereto have been credited to and
are held in the Escrowed Interest Account.
2. The Collateral Agent has established and maintained and will
maintain the Escrowed Interest Account and all securities entitlements and other
positions carried in the Escrowed Interest Account solely in its capacity as
Collateral Agent and has not asserted and will not assert any claim to or
interest in the Escrowed Interest Account or any such securities entitlements or
other positions except in such capacity.
3. The Collateral Agent has acquired its security entitlement to the
Escrowed Funds and Pledged Securities, as applicable, for value and without
notice of any adverse claim thereto. Without limiting the generality of the
foregoing, the Escrowed Funds and the Pledged Securities are not and the
Collateral Agent's security entitlement to such Escrowed Funds and Pledged
Securities, as applicable, is not, to the Collateral Agent's knowledge, subject
to any Lien granted by or to or arising through or in favor of any securities
intermediary (including, without limitation, the Collateral Agent or the Federal
Reserve Bank of Boston) through which the Collateral Agent derives its security
entitlement to the Escrowed Funds and the Pledged Securities.
1
<PAGE>
4. The Collateral Agent has not caused or permitted the Escrowed
Funds, the Pledged Securities or its security entitlement thereto or any other
assets in the Escrowed Interest Account to become subject to any Lien created by
or arising through the Collateral Agent.
IN WITNESS WHEREOF, the undersigned officer has executed this
Officer's Certificate on behalf of State Street Bank and Trust Company, as
Collateral Agent this 22 day of July, 1997.
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT B
FORM OF ESCROWED INTEREST ACCOUNT LETTER
July __, 1997
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Re: Discovery Zone, Inc.
Dear Sir or Madam:
Reference is made to Escrowed Interest Account No. __________ into
which certain securities, instruments and other properties are deposited from
time to time (the "Escrowed Interest Account") maintained with you by State
Street Bank and Trust Company (the "Collateral Agent"). Pursuant to the Escrow
and Security Agreement, dated as of the date hereof (the "Escrow and Security
Agreement"), Discovery Zone, Inc. (the "Pledgor") has granted to the Collateral
Agent for the holders of Notes referred to in the Indenture dated as of July __,
1997 (the "Indenture"), between the Collateral Agent and the Pledgor, a security
interest in certain property of the Pledgor, including, among other things, the
following (collectively, hereinafter, the "Collateral"): (a) the Escrowed
Interest Account, all funds and securities held therein and all certificates and
instruments, if any, from time to time representing or evidencing the Escrowed
Interest Account, including, without limitation, the Escrowed Funds and the
Pledged Securities, and any and all securities entitlements to the Escrowed
Funds and the Pledged Securities, and any and all related securities accounts in
which security entitlements to the Escrowed Funds and the Pledged Securities are
carried; (b) all notes, certificates of deposit, deposit accounts, checks and
other instruments from time to time hereafter delivered to or otherwise
possessed by the Collateral Agent for or on behalf of the Pledgor in
substitution for or in addition to any or all then existing Collateral; (c) all
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the then existing Collateral; and (d) all proceeds of any and all
of the foregoing Collateral (including, without limitation, proceeds that
constitute property of the types described in clauses (a) - (c) above) and, to
the extent not otherwise included, all cash. It is a condition to the continued
maintenance of the Escrowed Interest Account with you that you agree to this
letter agreement.
1
<PAGE>
By signing this letter agreement, you acknowledge notice of, and
consent to the terms and provisions of, the Escrow and Security Agreement, a
copy of which is attached hereto, and confirmed to the Collateral Agent that the
description of the Escrowed Interest Account set forth on Schedule I hereof is
correct and that you have received no notice of any other pledge or assignment
of the Escrowed Interest Account. Further, you hereby agree that:
(a) Notwithstanding anything to the contrary in any other agreement
relating to the Escrowed Interest Account, the Escrowed Interest Account
are and will be subject to the terms and conditions of the Escrow and
Security Agreement, will be maintained solely for the benefit of the
Collateral Agent, will be entitled "State Street Bank and Trust Company, as
Collateral Agent for the benefit of the holders of the 13 1/2% Senior
Secured Notes Due 2002 of Discovery Zone, Inc. Collateral Pledge" and will
be subject to written instructions only from an officer of the Collateral
Agent. You hereby agree to comply with all instructions (including,
without limitation, any instructions to liquidate all or less than all the
Pledged Securities and transfer the proceeds thereof to the Collateral
Agent), originated by the Collateral Agent relating to the Escrowed
Interest Account without further consent from any other person (including,
without limitation, the Pledgor), and not to comply with any instructions
originated by any person other than the Collateral Agent.
(b) You will maintain a record of all securities, instruments, checks
and other remittance items received in the Escrowed Interest Account and,
in addition to providing the Collateral Agent and the Pledgor with a report
describing the contents on the Escrowed Interest Account on a daily basis,
furnish to the Collateral Agent a monthly statement of the Escrowed
Interest Account to be transmitted electronically to the Collateral Agent
at: State Street Bank and Trust Company, Two International Place, Boston,
MA 02110, Attn: Corporate Trust Department.
(c) All transfers required to be made by the Collateral Agent under
the Escrow and Security Agreement shall be made by you irrespective of, and
without deduction for, any counterclaim, defense, recoupment or set-off and
shall be final, and you will not seek to recover from the Holders or the
Pledgor for any reason any such payment once made.
(d) All service charges and fees with respect to the Escrowed
Interest Account shall be payable by the Pledgor.
(e) The Collateral Agent shall be entitled to exercise any and all
rights of the Pledgor in respect of the Escrowed Interest Account in
accordance with the terms of the
2
<PAGE>
Security Agreement and the Escrow and Security Agreement, and the
undersigned shall comply in all respects with such exercise.
This letter agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of the Collateral Agent, the holders
of the Notes and their successors, transferees and assigns. You may terminate
this letter agreement only upon thirty days' prior written notice to the Pledgor
and the Collateral Agent. Upon such termination you shall close the Escrowed
Interest Account to a cash collateral account as directed by you. After any
such termination, you shall nonetheless remain obligated promptly to transfer to
the such cash account all securities, instruments, funds and other property
received in respect of the Escrowed Interest Account.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflicts of law
provisions thereof.
Very truly yours,
DISCOVERY ZONE, INC.
By:
----------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
Name:
Title:
Acknowledged and agreed to as of
the date first above written:
- ---------------------------------
By:
-----------------------------
Name:
Title:
3
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the ___ day of July, 1997 before me personally came __________, to
me known, who being by me duly sworn, did depose and say that he is the
_____________ of DISCOVERY ZONE, INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
Notary Public
<PAGE>
Schedule I
to
Escrowed Interest Account Letter
1. Escrowed Interest Account
Discovery Zone, Inc. Escrowed Interest Account
Account No. EW0994
State Street Bank and Trust
Boston, MA 02110
<PAGE>
EXHIBIT 4.6
____________________________________________________________
____________________________________________________________
PLEDGE AGREEMENT
From
DISCOVERY ZONE, INC.,
as Pledgor
to
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
Dated as of July 22, 1997
____________________________________________________________
____________________________________________________________
<PAGE>
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (together with any amendments, replacements and
supplements hereafter entered into, the "Pledge Agreement"), dated as of July
22, 1997, between Discovery Zone, Inc., a Delaware corporation (together with
its successors and assigns, the "Pledgor"), and State Street Bank and Trust
Company, as Trustee under the Indenture (as defined below), acting as
Collateral Agent hereunder (together with its successors and assigns, in such
capacity, the "Collateral Agent"), is made for the ratable benefit of the
Holders. As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Indenture, dated as of July 22, 1997
(together with all amendments and supplements thereto, the "Indenture"),
among the Pledgor, each of the Subsidiary Guarantors and the Collateral
Agent, relating to the Pledgor's 13 1/2% Senior Secured Notes due 2002 (the
"Initial Notes") and 13 1/2% Senior Secured Notes due 2002, Series B to be
issued in exchange for the Initial Notes pursuant to the Registration Rights
Agreement, the Purchase Agreement and the Indenture ("Exchange Notes" and,
together with the Initial Notes, the "Notes"), as amended from time to time
in accordance with the terms thereof.
W I T N E S S E T H:
WHEREAS, the Pledgor has issued or will issue $85 million aggregate
principal amount of Notes pursuant to the Indenture;
WHEREAS, the Pledgor is or, as of the Issue Date (assuming that the
Confirmation Order (as defined in the Purchase Agreement) has become a Final
Order (as defined in the Purchase Agreement) and the Approved Plan (as defined
in the Purchase Agreement) has become Effective (as defined in the Purchase
Agreement)), will be the legal and beneficial owner of the issued and
outstanding shares of Capital Stock set forth on Schedule A attached hereto; and
WHEREAS, in order to secure the payment and performance in full of the
Obligations of the Pledgor under the Indenture and the Notes, the parties hereto
desire to set forth their mutual understanding and certain agreements regarding
the terms and conditions of the pledge of the Pledged Collateral (as defined
below) made by the Pledgor to the Collateral Agent for the ratable benefit of
the Holders.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
-1-
<PAGE>
Section 1. PLEDGE. As collateral security for the complete
payment and performance in full of the Obligations of the Pledgor under the
Indenture, the Notes and the Collateral Agreements (as contemplated by Article
Eight of the Indenture), the Pledgor hereby pledges, assigns, transfers, sets
over and delivers unto the Collateral Agent, and hereby grants unto the
Collateral Agent for the ratable benefit of the Holders and unto their
respective successors and assigns, a continuing first priority security interest
in all of the right, title and interest of the Pledgor in, to and under any and
all of the following described property, rights and interests (collectively, the
"Pledged Collateral"):
(a) all of the issued and outstanding shares of Capital Stock
identified on Schedule A attached hereto of the Subsidiaries and all other
wholly-owned subsidiaries of the Pledgor therein set forth (the "Pledged
Subsidiaries");
(b) all other shares of Capital Stock or other equity securities
issued, or in the future issued by the Pledged Subsidiaries now or hereafter
owned or acquired by the Pledgor in any manner, and the certificates
representing such securities, and any present or future options, warrants or
other rights to subscribe for or purchase any property described in Section 1(a)
or any notes, bonds, debentures or other evidences of indebtedness that are at
any time convertible, exchangeable or exercisable into Capital Stock or other
equity securities of the Pledged Subsidiaries or have or at any time could by
their terms have voting rights with respect to any matter affecting the Pledged
Subsidiaries and all securities, certificates and instruments representing or
evidencing ownership of any of the property described in Section 1(a) and this
Section 1(b) hereof;
(c) all shares of Capital Stock, other equity securities of any
entity issued to the Pledgor or any other security described in Section 1(b) if,
at the time of issuance, the entity is or as a result of such issuance becomes a
Subsidiary under the Indenture (the property described in Section 1(a), Section
1(b) and this Section 1(c) being referred to herein collectively as the "Pledged
Securities");
(d) any additional property of the kind or type described in
this Section 1 required to be supplied under the terms of this Pledge Agreement;
and
(e) all proceeds and products of the Pledged Securities,
including without limitation dividends, distributions, cash, instruments and
other property or securities, now or hereafter at any time or from time to time
received or receivable or otherwise distributed or distributable in respect of
or in exchange for any or all of the Pledged Securities;
-2-
<PAGE>
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, powers, privileges and preferences pertaining or incidental
thereto, unto the Collateral Agent for the benefit of the Holders and unto their
respective successors and assigns.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGOR. The Pledgor hereby represents and warrants (as of the date of
execution hereof as to the Pledged Collateral existing on such date and as of
the date of acquisition as to the Pledged Collateral acquired subsequently),
covenants and agrees that:
(a) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), the
Pledgor will be the legal and beneficial owner of the Pledged Collateral, will
hold the Pledged Collateral free and clear of all Liens (except for the security
interest granted hereunder to the Collateral Agent for the ratable benefit of
Holders of Notes and except for Liens for taxes not yet payable and except for
Permitted Liens), and has not made and will not make any other pledge,
assignment, mortgage, hypothecation or transfer of the Pledged Collateral except
for Permitted Liens.
(b) The Pledged Securities have been or, upon the Issue Date
(assuming that the Confirmation Order has become a Final Order and the Approved
Plan has become Effective), will be duly authorized and validly issued and are
fully paid and non-assessable.
(c) Upon delivery of physical certificates evidencing the
Pledged Securities to the Collateral Agent, and the continued possession thereof
by the Collateral Agent, the Collateral Agent will have a continuing perfected
first priority security interest in the Pledged Securities, securing the
Obligations.
(d) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), the
Pledgor will have the requisite corporate power and authority to pledge the
Pledged Collateral in accordance herewith and will defend its title thereto
against the claims of all persons whomsoever and shall maintain and preserve the
security interest granted hereunder with respect to the Pledged Collateral as
long as this Pledge Agreement shall remain in full force and effect, subject to
the Permitted Liens.
(e) Neither the execution and delivery of this Pledge Agreement
by the Pledgor, the performance by the Pledgor of its obligations hereunder, nor
the transactions herein contemplated will violate the Pledgor's or any Pledged
Subsidiary's Certificate of Incorporation or bylaws, each as will be in effect
as of the Issue Date (assuming that the Confirmation
-3-
<PAGE>
Order has become a Final Order and the Approved Plan has become Effective),
violate the terms of any agreement, indenture, mortgage, deed of trust,
equipment lease, instrument or other document to which the Pledgor or any
Pledged Subsidiary is a party, violate any law, order, rule or regulation
applicable to the Pledgor or any Pledged Subsidiary of any court or any
government, regulatory body or administrative agency or other governmental body
having jurisdiction over the Pledgor or any Pledged Subsidiary or their
properties, or result in or require the creation or imposition of any Lien
(other than the Lien contemplated hereby), upon or with respect to any of the
property now owned or hereafter acquired by the Pledgor or any Pledged
Subsidiary, which violation or conflict would have a material adverse effect on
the financial condition, business, assets or liabilities of the Pledgor or any
Pledged Subsidiary, taken as a whole, or on the value of the Pledged Collateral
or on the security interests hereunder.
(f) The Pledged Securities, described in Schedule A attached
hereto, include all of the issued and outstanding shares of Capital Stock of the
Pledged Subsidiaries, and, as of the date of execution hereof, there are no
outstanding options, warrants or other rights to subscribe for or purchase any
property described in Section 1(a) or any notes, bonds, debentures or other
evidences of indebtedness that are at any time convertible into Capital Stock of
the Pledged Subsidiaries or have or at any time could by their terms have voting
rights with respect to any matters affecting the Pledged Subsidiaries.
(g) Other than the occurrence of the Issue Date (assuming that
the Confirmation Order has become a Final Order and the Approved Plan has become
Effective), no consent or approval which has not been obtained prior to the date
hereof of any other person or entity, no authorization, approval or other action
(other than delivery of physical certificates evidencing the Pledged Securities)
by, and no notice to or filing with, any governmental body (other than UCC
filings), regulatory authority or securities exchange, was or is necessary as a
condition to the validity of the pledge hereunder of the Pledged Collateral, and
such pledge is effective to vest in the Collateral Agent the rights of the
Collateral Agent in the Pledged Collateral as set forth herein. Except under
the Indenture and this Pledge Agreement, there are no restrictions on the
transferability of any of the Pledged Collateral transferred or delivered by the
Pledgor hereunder or, except for restrictions related to federal and state
securities laws governing the sale of "restricted stock" or "control stock,"
with respect to the foreclosure, transfer or disposition thereof by the
Collateral Agent.
(h) The Pledgor shall deliver to the Collateral Agent
concurrently with the execution of this Pledge Agreement or, to the extent
acquired subsequent to the date of execution hereof, immediately upon the
Pledgor's acquisition thereof, all certificates and instruments representing the
Pledged Securities,
-4-
<PAGE>
and each other item of Pledged Collateral (including all certificates,
instruments and notes representing any such Pledged Collateral). Any and all
Pledged Securities so delivered to the Collateral Agent shall be accompanied by
undated duly executed powers in blank and by such other instruments of transfer
or documents as the Collateral Agent may reasonably request. The Collateral
Agent shall hold the certificates representing the Pledged Securities delivered
to it in its own name or in the name of its nominee, all in form and substance
satisfactory to the Collateral Agent. The Pledgor hereby acknowledges that the
Collateral Agent may, in its discretion, appoint one or more financial
institutions to act as the Collateral Agent's agent in holding in custodial
accounts instruments or other financial assets in which the Collateral Agent is
granted a security interest hereunder, including, without limitation,
certificates of deposit and other instruments evidencing short term obligations.
(i) The Collateral Agent shall at all times have full and free
access during normal business hours to all of the books, correspondence and
records of the Pledgor relating to the Pledged Collateral (other than
information that is privileged and confidential) and the Collateral Agent and
its representatives may examine the same, make abstracts therefrom and make
photocopies thereof, and the Pledgor agrees to render to the Collateral Agent,
at the Pledgor's costs and expense, such clerical and other assistance as may be
requested by the Collateral Agent with regard thereto.
(j) The Pledgor shall not permit any of the Pledged Subsidiaries
to issue any securities of the type required to be pledged hereunder unless such
securities are promptly pledged and delivered hereunder to the Collateral Agent
in accordance with Section 2(h).
(k) If, while this Pledge Agreement is in effect, any stock
dividend, stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the creation of any subscription or other rights relating
to the Pledged Securities, is declared or made, by any of the Pledged
Subsidiaries or any other issuer of Pledged Collateral, all substituted and
additional securities or interest issued with respect to the Pledged Collateral
and evidenced by certificates shall be endorsed in blank by the Pledgor promptly
upon receipt thereof or otherwise appropriately transferred to the Collateral
Agent in negotiable form, and all certificates or instruments evidencing such
securities shall be delivered to the Collateral Agent to be held under the terms
of this Pledge Agreement in the same manner as, and as a part of, the Pledged
Collateral. All Pledged Securities shall be evidenced by one or more
certificates. Any securities that may be issued upon exercise of any
subscription or other rights relating to the Pledged
-5-
<PAGE>
Securities shall be endorsed in blank and delivered to the Collateral Agent with
any necessary powers.
(l) The Pledgor shall pay and discharge all taxes, assessments
and governmental charges or levies against any Pledged Collateral prior to
delinquency thereof and shall keep all Pledged Collateral free of all unpaid
charges whatsoever, unless contested in good faith by appropriate proceedings,
properly instituted and diligently conducted, and adequate reserves have been
set aside in accordance with GAAP.
(m) The Pledgor shall promptly notify the Collateral Agent in
writing of any material changes in any fact or circumstance represented or
warranted by the Pledgor with respect to any material portion of the Pledged
Collateral, of any impairment of the Pledged Collateral and of any claim, action
or proceeding affecting title to all or any of the Pledged Collateral.
(n) The chief executive offices and principal places of business
of the Pledgor are located at 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 and 50 Main Street, White Plains, New York 10606. The Pledgor
shall not relocate its principal place of business or chief executive office to
another county or state or change its name, identity or corporate structure
unless the Pledgor (i) gives at least thirty (30) days' prior written notice to
the Collateral Agent, which notice shall specify such new name, identity,
corporate structure or new location and provide such other information as the
Collateral Agent may reasonably request and (ii) takes all action reasonably
satisfactory to the Collateral Agent to maintain the security interest of the
Collateral Agent in the Collateral.
(o) Upon Pledgor acquiring or forming any subsidiary, the
Pledgor shall amend Schedule A attached hereto to include such subsidiary and
such subsidiary shall thenceforth be treated hereunder for all purposes as a
Pledged Subsidiary and all shares of Capital Stock or other equity securities of
such subsidiary issued to Pledgor shall be treated hereunder for all purposes as
Pledged Collateral.
Section 3. ADMINISTRATION OF THE PLEDGED COLLATERAL. The
Collateral Agent shall administer the Pledged Collateral in accordance with the
provisions hereof and of the Indenture.
Section 4. RELEASE AND SUBSTITUTION OF PLEDGED COLLATERAL. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Article Ten of the
Indenture and in accordance with the provisions of Section 18 hereof. The
Collateral Agent shall return the physical certificates and related stock powers
evidencing Pledged Collateral in its
-6-
<PAGE>
possession when so permitted by the Indenture and this Pledge Agreement.
Section 5. VOTING RIGHTS, DIVIDENDS, ETC.
(a) Until an Event of Default (as defined below) shall have
occurred and be continuing:
(i) except as otherwise provided in Sections 5(b) and (c)
and Section 6 of this Pledge Agreement, the Pledgor shall be entitled to
exercise any and all voting or consensual rights and powers, including
subscription rights, accruing to an owner of the Pledged Collateral or any part
thereof for any purpose not inconsistent with the terms of this Pledge Agreement
or any agreement giving rise to any of the Indenture Obligations;
(ii) except as otherwise provided in this Pledge Agreement,
the Pledgor shall be entitled to retain and use any and all dividends,
distributions or other payments which are permitted by the Indenture and paid in
cash or property (other than securities which are subject to this Pledge
Agreement) and the Collateral Agent, upon receipt of any of the foregoing, shall
promptly pay or distribute the same to the Pledgor; and
(iii) the Collateral Agent shall execute and deliver to the
Pledgor or cause to be executed and delivered to the Pledgor, all such proxies,
powers of attorney, dividend orders and other instruments as the Pledgor may
reasonably request for the purpose of enabling it to exercise the voting or
consensual rights and powers which the Pledgor is entitled to exercise pursuant
to the foregoing Section 5(a)(i) or to receive the dividends, distributions or
other payments which the Pledgor is authorized to retain pursuant to the
foregoing Section 5(a)(ii).
(b) Upon the occurrence and during the continuation of an Event
of Default, (i) upon notice from the Collateral Agent, all rights of the Pledgor
to exercise the voting or consensual rights and powers which the Pledgor would
otherwise be entitled to exercise pursuant to Section 5(a)(i), and (ii) all
rights of the Pledgor to receive the dividends, distributions and other payments
which the Pledgor would otherwise be authorized to receive and retain pursuant
to Section 5(a)(ii), shall automatically cease, and all such rights shall
thereupon become vested in the Collateral Agent, which shall then have the sole
and exclusive right and authority to exercise, in its sole discretion, all such
voting and consensual rights and powers and to receive and retain as Pledged
Collateral all such dividends, distributions and other payments.
(c) Upon the occurrence and during the continuation of an Event
of Default, the Collateral Agent shall have the sole and exclusive right and
authority to receive and retain as Pledged Collateral all dividends,
distributions and
-7-
<PAGE>
other payments which are paid on the Pledged Collateral (other than dividends,
distributions or other payments permitted by the Indenture and paid on the
shares of common stock of the company issuing such shares) in cash or property.
Any and all money and other property paid over to or received by the Collateral
Agent pursuant to the provisions of Section 5(b) or this Section 5(c) shall be
retained by the Collateral Agent as additional Pledged Collateral hereunder and
shall be administered and applied in accordance with the provisions of this
Pledge Agreement and the Indenture. All dividends and interest payments which
are received by the Pledgor contrary to the provisions of Section 5(b) or this
Section 5(c) shall be received in trust for the benefit of the Collateral Agent,
shall be segregated from other funds of the Pledgor and shall be forthwith paid
over to the Collateral Agent as Pledged Collateral in the same form as so
received (with any necessary endorsement).
Section 6. DEFAULT; REMEDIES.
(a) Defined. For purposes of this Pledge Agreement, as provided
in the preamble to this Pledge Agreement, the terms "Default" and "Event of
Default" shall have the respective meanings provided in the Indenture.
(b) Exercise of Remedies Under the Pledge Agreement. If an
Event of Default shall have occurred and be continuing, the Collateral Agent
shall commence the taking of such actions (or refrain from taking actions)
toward collection or enforcement of this Pledge Agreement and the Pledged
Collateral (or any portion thereof), including, without limitation, action
toward foreclosure upon any Pledged Collateral, as it deems appropriate in
accordance with and subject to the applicable terms of the Indenture or within
three (3) Business Days after written instructions from the Requisite Holders
(as defined in Section 6(f) below), to the extent allowed by law (and subject to
the applicable terms of the Indenture and pursuant to the terms hereof). If any
Event of Default that was the basis for the commencement of such action shall
have been cured or waived, and, in the case where there has been an
acceleration, rescission of such acceleration shall have occurred, in each case
in accordance with the terms of the Indenture, any direction to the Collateral
Agent to take any action in connection with the aforementioned notice shall be
deemed rescinded upon notification by that percentage of Holders necessary to
effect such waiver with respect to such Event of Default as provided for in the
Indenture. The Collateral Agent shall have no obligation to take any collection
or enforcement action except upon satisfaction of the conditions set forth in
Section 7.01 and Section 7.02 of the Indenture.
(c) Remedies Generally. If an Event of Default shall have occurred
and be continuing, the Collateral Agent itself or by its agents or attorneys may
exercise any or all of its rights and remedies hereunder or under the Indenture,
or any other
-8-
<PAGE>
instrument or agreement securing, evidencing or relating to the Indenture
Obligations, the Notes or under applicable laws (including all of the rights and
remedies of a secured creditor under the Uniform Commercial Code then in effect
in the State of New York, the "UCC"), retain possession of the Pledged
Collateral or sell, assign, transfer, or dispose of, endorse and deliver the
whole or, from time to time, any part of the Pledged Collateral at public or
private sale or sales, at any exchanges, brokers board or at any of the
Collateral Agent's offices or elsewhere, for cash, upon credit or for other
property, for immediate or future delivery, and, to the extent permitted by
applicable law, for such price or prices and on such other terms as the
Collateral Agent may deem commercially reasonable. Upon consummation of any
such sale, the Collateral Agent shall have the right to assign, transfer,
endorse and deliver to the purchaser or purchasers thereof the Pledged
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Pledgor, and the Pledgor hereby waives (to the full extent permitted by law) all
rights of redemption, stay or appraisal which the Pledgor now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent shall give the Pledgor ten (10) days'
written notice (which the Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the UCC) in accordance
with Section 19 of the Collateral Agent's intention to make any such public or
private sale. Any such sale shall be held at such time or times and at such
place or places as the Collateral Agent may fix. At any such sale, the Pledged
Collateral, or portion thereof to be sold, may be sold as an entirety or in
separate portions, as the Collateral Agent may, in its sole discretion,
determine. The Collateral Agent 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
Collateral Agent 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 notice,
be made at the time and place to which the same was so adjourned. In case sale
of all or any part of the Pledged Collateral is made on credit for future
delivery, the Pledged Collateral so sold may be retained by the Collateral Agent
until the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability 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. As an alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by suit or suits at law or in equity to
exercise its remedies regarding the Pledged Collateral and sell the Pledged
Collateral or any portion thereof pursuant to judgment or decree of a court or
courts having competent jurisdiction. If under mandatory requirements of
applicable law,
-9-
<PAGE>
the Collateral Agent shall be required to make disposition of the Pledged
Collateral within a period of time that does not permit the giving of notice to
the Pledgor as hereinbefore provided, the Collateral Agent need give the Pledgor
only such notice of disposition as shall be reasonably practicable in view of
such mandatory requirements of law.
(d) Remedies; Obtaining the Pledged Collateral Upon Default.
The Pledgor agrees that if any Event of Default shall have occurred and be
continuing, then and in every such case, and in addition to the rights and
remedies available to a secured party under any applicable provision of the UCC,
or any other applicable law, the Collateral Agent may:
(i) personally, or by agents or attorneys, immediately
take possession of the Pledged Collateral or any part thereof from the Pledgor
or any other person who then has possession of any part thereof, with or without
notice or process of law, in accordance with applicable law, and for that
purpose may enter upon the Pledgor's premises where any of the Pledged
Collateral is located and remove the same;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation constituting Pledged Collateral to make any
payment or render any performance required by the terms of such agreement,
instrument or obligation directly to the Collateral Agent or its designee;
(iii) sell or otherwise liquidate, or direct the Pledgor
to sell or otherwise liquidate, any or all investments made in whole or in part
with the Pledged Collateral or any part thereof, and take possession of the
proceeds of any such sale or liquidation; and
(iv) take possession of the Pledged Collateral or any
part thereof by directing the Pledgor in writing to deliver the same to the
Collateral Agent at any place or places designated by the Collateral Agent, in
which event the Pledgor shall at its own expense:
(A) forthwith cause the same to be moved to the place
or places so designated by the Collateral Agent and there delivered to the
Collateral Agent;
(B) store and keep any Pledged Collateral so delivered
to the Collateral Agent at such place or places pending further action by the
Collateral Agent as provided in this Section 6(d); and
(C) while any such Pledged Collateral shall be so
stored and kept, provide such guard, security and maintenance services as shall
be necessary to protect the same and to preserve and maintain such Pledged
Collateral in good condition; it being understood that the Pledgor's obligation
so
-10-
<PAGE>
to deliver the Pledged Collateral is of the essence of this Pledge Agreement and
that, accordingly, upon application to a court of equity having jurisdiction,
the Collateral Agent shall be entitled to a decree requiring specific
performance by the Pledgor of such obligation.
(e) Preventing Impairment of the Pledged Collateral. Regardless
of whether or not there shall have occurred any Default or Event of Default, the
Collateral Agent may institute and maintain or cause in the name of the Pledgor
or of the Collateral Agent, or any of them, to be instituted and maintained,
such suits and proceedings as the Collateral Agent may be advised by counsel
shall be necessary or expedient to prevent any impairment of the security
interest in or perfection of the Pledged Collateral in contravention of the
terms of the Indenture. The Pledgor agrees not to knowingly take or permit to
be taken any action which would impair the Pledged Collateral or the Collateral
Agent's rights in the Pledged Collateral.
(f) Requisite Holders. For purposes of this Section 6,
"Requisite Holders" means the Holder or Holders of a majority in principal
amount of the outstanding Notes or as otherwise provided in Article Six of the
Indenture.
Section 7. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. The
Pledgor hereby constitutes and appoints the Collateral Agent its
attorney-in-fact for the purpose of carrying out the provisions, but subject to
the terms and conditions, of this Pledge Agreement and taking any action and
executing any instrument, including, without limitation, any financing statement
or continuation statement, and taking any other action to maintain the validity,
perfection, priority and enforcement of the security interest intended to be
created hereunder, that the Collateral Agent may reasonably deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent 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 monies due or
to become due in respect thereof or any property covered thereby, and no action
taken or omitted shall give rise to any defense, counterclaim or right of action
against the Collateral Agent, unless the Collateral Agents actions are taken or
omitted to be taken with gross negligence or bad faith or constitute willful
misconduct.
Section 8. PURCHASE OF PLEDGED COLLATERAL BY COLLATERAL AGENT OR
HOLDERS. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Collateral Agent or any Holder may, to the
extent permitted by applicable law, bid for and purchase, free from any right of
redemption, stay or appraisal (all such rights being
-11-
<PAGE>
hereby waived and released by the Pledgor to the extent permitted by law), the
Pledged Collateral or any part thereof or an interest therein and upon
compliance with the terms of such sale, may hold, retain, exploit, resell or
otherwise dispose of such property without further accountability to the Pledgor
for the proceeds of such sale (except in the event that there is a surplus of
such proceeds in excess of the Pledgor's Obligations under the Indenture and the
Notes, in which case, the Collateral Agent shall account to the Pledgor for such
surplus). The Pledgor will execute and deliver or cause to be executed and
delivered, such instruments, endorsements, assignments, waivers, certificates
and other documents and take such further action as the Collateral Agent shall
request in connection with any such sale.
Section 9. DISPOSITION OF PROCEEDS. The proceeds of any sale of
the whole or any part of the Pledged Collateral, together with any other monies
held by the Collateral Agent under the provisions of this Pledge Agreement,
shall be applied by the Collateral Agent in accordance with the provisions of
the Indenture.
Section 10. WAIVER OF CLAIMS. Except as otherwise provided in this
Pledge Agreement, THE PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
PLEDGED COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE, and, to the full extent permitted by applicable law, the
Pledgor hereby further waives:
(a) all damages occasioned by such taking of possession or
disposition except any damages which are the direct result of the Collateral
Agent's negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and terms of
sale or other requirements, with respect to the enforcement of the Collateral
Agent's rights and powers hereunder; and
(c) except as provided in Section 6(c) hereof, all rights of
redemption, appraisement, valuation, stay, marshalling of assets, extension or
moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this Pledge
Agreement or the sale or other disposition of the Pledged Collateral or any
portion thereof, and the Pledgor, for itself and all who may claim under it,
insofar as it now or hereafter lawfully may, hereby waives all such rights.
-12-
<PAGE>
Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, at law or in equity, of the Pledgor therein
and thereto, and shall be a perpetual bar both at law and in equity against the
Pledgor and against any and all persons claiming or attempting to claim the
Pledged Collateral so sold, optioned or realized upon, or any part thereof,
through and under the Pledgor.
Section 11. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Collateral Agent provided for herein or in the Indenture or in
another agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of any Holder, or now or hereafter existing at law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy of the Collateral Agent or any
Holder provided for herein or in the Indenture, the Notes or in another
agreement pursuant to which a Lien is created in favor of the Collateral Agent
for the benefit of any Holder or now or hereafter existing at law or in equity,
by statute or otherwise. No failure on the part of the Collateral Agent or any
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Indenture, the Notes or under another agreement pursuant
to which a Lien is created in favor of the Collateral Agent for the benefit of
any Holder or now or hereafter existing at law or in equity, by statute or
otherwise, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on the Pledgor hereunder shall, of itself, entitle the Pledgor to
any other or further notice or demand in the same, similar or other
circumstances.
Section 12. ADDITIONAL PLEDGED COLLATERAL. Without notice or
consent of the Pledgor and without impairment of the security interests and
rights created by this Pledge Agreement, the Collateral Agent may accept from
any Person or Persons additional collateral or other security for the
Obligations of any Pledged Subsidiary or the Pledgor's Obligations under the
Indenture. Neither the creation of the security interests created hereunder nor
the acceptance of any such additional collateral or security shall prevent the
Collateral Agent from resorting to such additional collateral or security or to
the Pledged Collateral, in any order, without affecting the Collateral Agent's
rights hereunder.
Section 13. FURTHER ASSURANCES. The Pledgor agrees that it shall,
at its own expense, promptly file or record such notices, financing statements,
continuation statements or other documents and take all further action as may be
necessary to perfect, maintain and protect the perfection of the security
interests of the Collateral Agent hereunder or to enable the
-13-
<PAGE>
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to the Pledged Collateral, and as the Collateral Agent may reasonably
request, such instruments to be in form and substance satisfactory to the
Collateral Agent, and that it shall, at its own expense, do such further acts
and things and execute and deliver to the Collateral Agent such additional
conveyances, assignments, endorsements, agreements and instruments as the
Collateral Agent may at any time request in connection with the administration
and enforcement of this Pledge Agreement or relative to the Pledged Collateral
or any part thereof or in order to assure and confirm unto the Collateral Agent
its rights, powers and remedies hereunder.
Section 14. INDEMNIFICATION AND EXPENSES.
(a) The Pledgor agrees to indemnify the Collateral Agent from
and against any and all claims, losses and liabilities arising or resulting from
or relating to this Pledge Agreement (including, without limitation, enforcement
of this Pledge Agreement), except claims, losses or liabilities resulting from
the Collateral Agent's gross negligence, bad faith or willful misconduct, as
determined by a final judgment of a court of competent jurisdiction. The
indemnification of the Collateral Agent set forth in the immediately preceding
sentence is cumulative and not exclusive of any indemnity of the Collateral
Agent set forth in the Indenture or provided for under the TIA.
(b) The Pledgor will pay upon demand to the Collateral Agent the
amount of any and all out-of-pocket expenses, including the reasonable fees and
charges of its counsel and of any experts and agents, that the Collateral Agent
may incur in connection with the custody, preservation, use or operation of, or
the sale of, collection from or other realization upon, any of the Pledged
Collateral, the exercise or enforcement of any of the rights of the Collateral
Agent or the Holders hereunder or the failure by the Pledgor to perform or
observe any of the provisions hereof, and all amounts so incurred by the
Collateral Agent shall be entitled to the benefits of Section 7.07 of the
Indenture.
Section 15. REGISTRATION RIGHTS, ETC.
(a) If the Collateral Agent determines that the registration of
any of the securities included in the Pledged Collateral under, or other
compliance with, the Securities Act or any similar Federal or state law is
desirable, upon or at any time after an Event of Default and acceleration of the
Notes in accordance with Section 6.02 of the Indenture, the Pledgor will use its
best efforts to cause such registration or compliance to be effectively made, at
no expense to the Collateral Agent or to the Holders, and to continue any such
registration effective for such time as may be necessary in the opinion of the
Collateral Agent. The Pledgor will reimburse the Collateral Agent upon demand
for any expenses incurred by the Collateral Agent
-14-
<PAGE>
(including reasonable attorneys' fees) incurred in connection therewith, which
obligation to pay such expenses shall be secured hereunder.
(b) If the Pledgor is unable to effect a public sale of any or
all of the Pledged Collateral or if the Collateral Agent determines that it is
desirable to sell the Pledged Collateral in one or more private sales, the
Collateral Agent may limit such sales to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to distribution or resale.
The Pledgor acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Collateral Agent shall be under no obligation to delay a sale of
any of the Pledged Collateral for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the
Securities Act or under applicable state securities laws even if such issuer
would agree to do so.
(c) The Pledgor further agrees to do or use all reasonable
efforts to cause to be done, to the extent the Pledgor may legally do so, all
such other acts and things as may be necessary to make such sale or sales of all
or any part of the Pledged Collateral valid and binding and in compliance with
any and all applicable laws, rules and regulations and orders and decrees of any
and all courts having jurisdiction over such sales, all at the Pledgor's
expense. The Pledgor further agrees that a breach of any of the covenants
contained in this Pledge Agreement will cause irreparable injury to the
Collateral Agent, as secured party, for which the Collateral Agent would have no
adequate remedy at law in respect of such breach and, as a consequence, agrees
that each and every covenant contained in this Section 15 shall be specifically
enforceable against the Pledgor and, to the full extent permitted by applicable
law, the Pledgor waives and agrees not to assert as a defense against an action
for specific performance of such covenant that Pledgor's failure to perform such
covenants will not cause irreparable injury to the Collateral Agent or the
Holders or that the Collateral Agent on behalf of the Holders has an adequate
remedy at law in respect of such breach.
Section 16. PLEDGOR'S INDENTURE OBLIGATIONS ABSOLUTE. The
liability of the Pledgor under this Pledge Agreement shall remain in full force
and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by: any change in the time, place or manner of
payment of all or any of the Pledgor's Obligations under the Indenture or the
Notes, or in any other term of the Indenture, the Notes or any Collateral
Agreement, any waiver, indulgence, renewal, extension, amendment or modification
of or
-15-
<PAGE>
addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Indenture, the Notes or any Collateral
Agreement, or any assignment or transfer thereof; any lack of validity or
enforceability, in whole or in part, of the Indenture, the Notes or any
Collateral Agreement; any furnishing of any additional security for such
Obligations or any acceptance thereof or any release or nonperfection of any
security interest in property; any limitation on any party's liability or
obligations under the Indenture, the Notes or any Collateral Agreement; any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to the Pledgor or any Person other
than the Pledgor, or any action taken with respect to this Pledge Agreement by
any trustee or receiver, or by any court, in any such proceeding, whether or not
the Pledgor shall have notice or knowledge of any of the foregoing; or any
exchange, release or amendment or waiver of or consent to departure from any
other agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of the Holder, pursuant to which a person other than the
Pledgor has granted a security interest.
Section 17. WAIVER. To the extent permitted by applicable law, the
Pledgor hereby waives promptness, diligence, notice of acceptance and any other
notice with respect to this Pledge Agreement and any requirement that the
Collateral Agent protect, secure, perfect or insure any security interest or any
property subject thereto or exhaust any right or take any action against the
Pledgor or any other person or entity; provided, however, that the Collateral
Agent shall in any event take such care in the handling of any Pledged
Securities in its possession as it takes with respect to its own property of a
similar nature in its possession.
Section 18. TERMINATION. Upon complete payment and performance in
full and satisfaction of all of the Pledgor's Obligations under the Indenture,
the Notes and the Collateral Agreements (as contemplated by Article Eight of the
Indenture), this Pledge Agreement shall terminate, subject to the applicable
terms of the Indenture, and the Collateral Agent shall assign and redeliver to
the Pledgor all of the Pledged Collateral hereunder that has not been sold,
disposed of, retained or applied by the Collateral Agent in accordance with the
terms hereof and the Indenture. Such reassignment and redelivery shall be
without warranty by, or recourse to, the Collateral Agent, and shall be at the
expense of the Pledgor. At such time, this Pledge Agreement shall no longer
constitute a Lien upon or a grant of any security interest in any of the Pledged
Collateral, and the Collateral Agent shall, at the Pledgor's expense deliver to
the Pledgor written acknowledgment thereof and of cancellation of this Pledge
Agreement in a form reasonably requested by the Pledgor; provided, however, that
this Pledge Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Pledgor's Obligations
under the Indenture, the Notes or the Collateral Agreements is
-16-
<PAGE>
rescinded or must otherwise be returned upon the insolvency, bankruptcy or
reorganization of the Pledgor, all as though such payment had not been made; and
provided, further, however, this Pledge Agreement shall no longer constitute a
Lien upon or a grant of any security interest in any of the Pledged Collateral
that has been released in accordance with the provisions of Section 10.05 of the
Indenture.
Section 19. NOTICES. Except as otherwise expressly provided
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy, telex, or
cable communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answer-back
received, or in the case of telecopy notice, when sent, or in the case of a
nationally recognized overnight courier service, one business day after delivery
to such courier service, addressed, in the case of each party hereto to the
following address, or to such other address as may be designated by any party in
a written notice to the other party hereto:
IF TO DISCOVERY ZONE LIMITED:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
IF TO DISCOVERY ZONE (PUERTO RICO), INC.:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: President
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
-17-
<PAGE>
IF TO DZ PARTY, INC.:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: President
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
IF TO DISCOVERY ZONE LICENSING, INC.:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: President
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
IF TO THE COLLATERAL AGENT:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
WITH A COPY TO:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: Robert J. Coughlin, Esq.
Section 20. BINDING AGREEMENT; ASSIGNMENT. This Pledge Agreement
shall be binding upon and inure to the benefit of the Collateral Agent, the
Pledgor and their respective successors and permitted assigns. Neither this
Pledge Agreement nor any interest herein or in the Pledged Collateral, or any
part thereof, may be assigned by the Pledgor without the prior written consent
of the Collateral Agent, except as expressly permitted herein or in the
Indenture. This Pledge Agreement shall be deemed to be automatically assigned
by the Collateral Agent to any person who succeeds to the Collateral Agent in
accordance with Section 7.08 or Section 7.09 of the Indenture, and its
-18-
<PAGE>
assignee shall have all rights and powers of, and act as, the Collateral Agent
hereunder.
Section 21. GOVERNING LAW. This Pledge Agreement shall be
construed in accordance with, and this Pledge Agreement and the transactions
described herein shall be governed by, the laws of the State of New York as to
all issues, including (without limitation) issues of validity, interpretation,
effect, performance and remedies.
Section 22. AMENDMENTS. This Pledge Agreement may not be amended
or modified, except in accordance with Article Nine of the Indenture.
Section 23. SEVERABILITY. In the event that any provisions
contained in this Pledge Agreement shall for any reason be held to be illegal or
invalid under the laws of any jurisdiction, such illegality or invalidity shall
in no way impair the effectiveness of any other provision hereof, or of such
provision under the laws of any other jurisdiction; provided, that in the
construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Pledge Agreement shall be
construed and enforced as though such illegal or invalid provision had not been
contained herein.
Section 24. HEADINGS. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Pledge Agreement.
Section 25. COUNTERPARTS. This Pledge Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with the Collateral
Agent.
Section 26. COOPERATION OF PLEDGED SUBSIDIARIES. The Pledgor shall
cause the Pledged Subsidiaries to take all actions necessary to facilitate the
Pledgor's compliance with the terms hereof. If any entity issues shares of
Capital Stock or other equity securities to a Pledged Subsidiary and, at the
time of such issuance, the entity is, or as a result of such issuance becomes, a
Pledged Subsidiary under the Indenture, the Pledgor shall cause such Pledged
Subsidiary to enter into a supplement hereto, substantially in the form of this
Pledge Agreement, pursuant to which such Pledged Subsidiary shall pledge,
assign, transfer, set over and deliver unto the Collateral Agent, and grant unto
the Collateral Agent for the ratable benefit of the Holders and their respective
successors and assigns, a continuing security interest in all of the right,
title and interest of the Pledged Subsidiary in, to and under any and all of
such Capital
-19-
<PAGE>
Stock or other equity securities as collateral security for the indefeasible
payment and performance in full of the Pledgor's Obligations under the
Indenture, the Notes and the Collateral Agreements. Such Capital Stock or
equity security shall thereafter be included as "Pledged Securities" hereunder,
such Pledged Subsidiary shall thereafter be included as a "Pledgor" hereunder,
and such entity shall thereafter be included as one of the "Pledged
Subsidiaries" hereunder.
Section 27. CONFIDENTIALITY. The parties agree that they and their
employees have maintained and will maintain, in confidence, all data, summaries,
reports or information of all kinds, whether oral or written, provided pursuant
to this Pledge Agreement or acquired or delivered in any manner from the other
party's personnel or files (the "CONFIDENTIAL INFORMATION"), and that they have
not and will not reveal the same to any persons not employed by the other party
except: at the written direction of such party; to the extent necessary to
comply with applicable law, reporting requirements imposed by the Securities and
Exchange Commission, or the valid order of a court of competent jurisdiction, in
which event the disclosing party shall so notify the other party as promptly as
practicable (and, if possible, prior to making any disclosure) and shall seek
confidential treatment of such information, or in connection with any
arbitration proceeding; as part of its normal reporting or review procedure to
its parent company, its auditors and its attorneys, and such parent company,
auditors and attorneys agree to be bound by the provisions of this Section; in
order to enforce any of its rights pursuant to, or in any other dispute with
respect to, this Agreement; if, at the time of disclosure to the recipient, the
Confidential Information is in the public domain; if, after disclosure to the
recipient, the Confidential Information becomes part of the public domain by
written publication through no fault of the recipient; or to any one or more
Holders and their representatives and agents.
Section 28. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights
and powers granted to the Collateral Agent hereunder are being granted in order
to preserve and protect the security interest of the Collateral Agent and the
Holders in and to the Pledged Collateral granted hereby and shall not be
interpreted to, and shall not impose any duties on the Collateral Agent in
connection therewith other than those expressly provided herein or imposed under
applicable law and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Pledge Agreement or
otherwise exist against the Collateral Agent. Except as provided by applicable
law or by the Indenture, the Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if the Pledged Collateral is accorded treatment substantially equal
to that which the Collateral Agent accords similar property held by the
Collateral Agent for similar accounts, it being understood that the Collateral
Agent in its capacity as such shall not have any
-20-
<PAGE>
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities or other matters relative to any Pledged
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, (b) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral or (c) investing or
reinvesting any of the Pledged Collateral, provided, however, that nothing
contained in this Pledge Agreement shall relieve the Collateral Agent of any
responsibilities as a securities intermediary under applicable law.
Section 29. AUTHORITY OF THE COLLATERAL AGENT.
(a) The Collateral Agent shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident thereto.
The Collateral Agent may perform any of its duties hereunder or in connection
with the Pledged Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge Agreement or the Indenture, neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
liable to the Pledgor for any action taken or omitted to be taken by the
Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its
own bad faith, gross negligence or willful misconduct, and the Collateral Agent
shall not be responsible for the validity, effectiveness or sufficiency hereof
or of any document or security furnished pursuant hereto. The Collateral Agent
and its directors, officers, employees, attorneys and agents shall be entitled
to rely on any communication, instrument or document believed by it or them to
be genuine and correct and to have been signed or sent by the proper person or
persons. The Collateral Agent shall have no duty to cause any financing
statement or continuation statement to be filed in respect of the Pledged
Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Pledge Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall, as between the Collateral Agent and the Holders, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Collateral Agent and
the Pledgor, the Collateral Agent shall be conclusively presumed to be acting as
agent for the Holders with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
-21-
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have caused
this Pledge Agreement to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.
DISCOVERY ZONE, INC.
By:/s/ Scott Bernstein
---------------------------
Name: Scott Bernstein
Title: Chief Executive Officer
and President
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By: /s/ Mary Lee Storrs
---------------------------
Name: Mary Lee Storrs
Title:
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 22nd day of July, 1997 before me personally came Robert G.
Rooney, to me known, who being by me duly sworn, did depose and say that he
is the Sr. Vice President of DISCOVERY ZONE, INC., the corporation described in
and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ David J. Schwartz
----------------------------------
Notary Public
[SEAL]
<PAGE>
Schedule A
SUBSIDIARY SHARES OF CAPITAL STOCK PLEDGED
1. Discovery Zone Limited 1
2. Discovery Zone (Puerto Rico), Inc. 1
3. DZ Party, Inc. 1
4. Discovery Zone, Licensing, Inc. 1,000
<PAGE>
EXHIBIT 4.7
_________________________________________________________________
_________________________________________________________________
SECURITY AGREEMENT
between
DISCOVERY ZONE, INC.
and
STATE STREET BANK AND TRUST COMPANY
as Collateral Agent
Dated as of July 22, 1997
_________________________________________________________________
_________________________________________________________________
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of July 22, 1997 (the "Security
Agreement"), is entered into by and between DISCOVERY ZONE, INC., (together with
its successors and assigns, the "Company"), and STATE STREET BANK AND TRUST
COMPANY, as the Trustee and Collateral Agent under the Indenture (defined below)
and secured party hereunder, for its benefit and the ratable benefit of the
holders of the Notes (defined below) (together with its successors and assigns,
in such capacity, the "Collateral Agent"). This Security Agreement is being
entered into in connection with, pursuant to and as collateral security for the
debts, liabilities and obligations arising under or with respect to the
Indenture and the Notes.
NOW, THEREFORE, in consideration of the premises and the covenants set
forth herein and in the Indenture, the parties hereto agree as follows.
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used herein, capitalized terms defined in the
Indenture and not otherwise defined herein are used herein as so defined.
All terms defined in the UCC (defined below) and not otherwise defined herein
or in the Indenture shall have the meanings assigned to them in the UCC.
"Accounts" shall mean all present and future rights of the Company to
payment for goods sold or leased or for services rendered, whether or not
evidenced by instruments or chattel paper, and whether or not earned by
performance, including, without limitation, accounts receivable and all
indebtedness due and owing from any Subsidiary (or any other subsidiary of the
Company), whether or not evidenced by a promissory note, intercompany credit or
other instrument of indebtedness.
"Affiliate" of any specified Person shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such specified Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the aggregate
voting power of the voting securities of a Person shall
<PAGE>
be deemed to be control. Notwithstanding the foregoing definitions, none of
Jefferies & Company, Inc. and its Affiliates shall be considered Affiliates of
the Company or any of its Subsidiaries (or any other subsidiaries of the
Company).
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and any and all warrants, options and rights with
respect thereto, including, without limitation, each class of common stock and
preferred stock, partnership interests and other indicia of ownership of such
Person.
"Collateral" shall have the meaning assigned to it in Article II
hereof.
"Equipment" shall mean all of the Company's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including, without limitation,
data processing hardware and software, motor vehicles, aircraft, dies, tools,
jigs, signage, tubes, slides, ball bins, climbing mountains, air and water
trampolines, obstacle courses, ramps, devices for crawling, jumping, running,
swinging and climbing, and other "soft zone" equipment and toys, games, arcade
games and video and other electronic entertainment games, chairs, jungle gyms,
kitchen and other food and beverage equipment, identification devices and office
equipment, as well as all of such types of property leased by the Company and
all of the Company's rights and interests with respect thereto under such leases
(including, without limitation, options to purchase); together with all present
and future additions and accessions thereto, replacements therefor, component
and auxiliary parts and supplies used or to be used in connection therewith, and
all substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto; wherever any of the
foregoing is located.
"Indenture" shall mean the Indenture, dated July 22, 1997, among the
Company, the Subsidiary Guarantors and the Collateral Agent, as trustee
thereunder, relating to the Notes, as amended or supplemented from time to time
in accordance with its terms.
"Intercreditor Agreement" shall mean an agreement between the
Collateral Agent and a Lender, substantially in the form of Exhibit G attached
to the Indenture, to be entered into after the Issue Date, if the Company and
such Lender enter into an Eligible Credit Facility.
"Inventory" shall mean all of the Company's now owned and hereafter
existing or acquired goods, merchandise, inventory and other personal property
other than personal property leased in connection with any real property lease,
all raw materials,
-2-
<PAGE>
work-in-process, finished goods, returned goods, and materials and supplies of
any kind, nature or description which are or might be used or consumed, wherever
located, in the Company's business or used in connection with the manufacture,
packing, shipping, advertising, maintenance, selling or finishing of such goods,
merchandise, inventory and other personal property, and all documents of title
or other documents representing them.
"Lender" shall mean a Person that is not an Affiliate and is a lender
in an Eligible Loan Facility.
"McDonald's Collateral" shall mean those certain fourteen parcels of
real property and related fixtures, including, without limitation, any proceeds
thereof, which properties and proceeds are subject to McDonald's Senior Liens.
"McDonald's shall mean the McDonald's Corporation, a Delaware
corporation, and its successors and assigns.
"McDonald's Secured Note" shall mean a secured promissory note to be
issued on the Issue Date by the Company in favor of McDonald's pursuant to the
Plan of Reorganization which note represents restructured secured claims against
the Company in an estimated aggregate principal amount of up to $4,600,000.
"McDonald's Secured Rent Deferral Notes" shall mean secured promissory
notes to be issued on the Issue Date by the Company in favor of McDonald's
pursuant to the Plan of Reorganization, which notes represent restructuring of
rent deferrals which McDonald's granted to the Company during bankruptcy
proceedings of the Company in an estimated aggregate principal amount of up to
$300,000.
"McDonald's Senior Liens" shall mean the first priority liens of
McDonald's on the McDonald's Collateral as set forth in the first mortgages,
deeds of trust and/or deeds to secure debt, which McDonald's Senior Liens
secure, among other things, the payment of the McDonald's Secured Note, the
McDonald's Secured Rent Deferral Notes and any obligations of the Debtors (as
defined in the Plan or Reorganization) or the Company or any of the other
Reorganized Debtors (as defined in the Plan of Reorganization) that may arise
under (i) the agreement to indemnify as set forth in Section 10.3(f) and
Section 11.2(a)(iii) of the Agreement and Plan of Merger, dated as of August 30,
1994, by and among Discovery Zone, Inc., Discovery Zone International, Inc.,
Leaps & Bounds, Inc. and McDonald's and (ii) the Stipulation and Order Between
Debtors and McDonald's Providing for the Resolution, Settlement and Compromise
of Disputes and for Rent Deferrals and Allowance of Certain Claims, entered by
the United States Bankruptcy Court for the District of Delaware on November 18,
1996, which liens are senior to the subordinate liens on the McDonald's
Collateral granted by the Company to the Collateral Agent as set forth in the
Subordination Agreement.
-3-
<PAGE>
"Notes" shall mean the 13 1/2% Senior Secured Notes due 2002 of the
Company, and the 13 1/2% Senior Secured Notes due 2002, Series B, or Private
Exchange Notes issued in exchange therefor in accordance with the Indenture, in
the aggregate principal amount of $85,000,000.
"Obligations" shall mean the Company's and the Subsidiary Guarantors'
Obligations under the Indenture, the Notes and the Collateral Agreements.
"Person" or "person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Agreement" shall mean the Purchase Agreement, dated July 15,
1997, between the Company and Jefferies & Company, Inc., as the initial
purchaser, relating to the purchase and sale of the Notes.
"Records" shall mean all of the present and future books of account of
every kind or nature of the Company, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of the Company
with respect to the foregoing maintained with or by any other person).
"Requisite Holders" shall mean the Holder or Holders of at least a
majority in principal amount of the outstanding Notes, unless otherwise provided
in Article Six of the Indenture.
"Secured Parties" shall mean the collective reference to the
Collateral Agent and each Holder.
"Securities" shall have the meaning assigned to it in Article II
hereof.
"Subordination Agreement" shall mean the Subordination Agreement dated
July __, 1997 between the Collateral Agent and McDonald's with respect to the
relative priorities of the security interests and liens on the McDonald's
Collateral encumbered by the McDonald's Senior Liens.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York, PROVIDED that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interest in any Collateral or the availability of any remedy
hereunder is governed by the Uniform Commercial Code as in effect on or after
the date hereof in any other jurisdiction, "UCC"
-4-
<PAGE>
means the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection or availability of such remedy.
"Voting Stock" shall mean, with respect to any Person one or more
classes of the Capital Stock of such Person having general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of such Person (irrespective of whether or not at the time
Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
ARTICLE II
GRANT OF SECURITY INTERESTS
2.1 SECURITY INTEREST. As security for the prompt and complete
payment and performance in full of the principal of, premium, if any, and
interest on the Notes when and as the same shall be due and payable, whether on
an Interest Payment Date, at maturity, by acceleration, purchase, repurchase,
redemption or otherwise, and interest on the overdue principal of, premium and
interest, if any, to the extent such premium or interest is permitted by law, on
the Notes and the performance of all other Obligations, the Company hereby
grants to the Collateral Agent, for the benefit of itself and the Holders, a
security interest in and continuing lien on, all of their right, title and
interest in, to and under the following, in each case, whether now owned or
existing or hereafter acquired or arising, and wherever located (all of which is
defined as the "Collateral"):
(i) Accounts;
(ii) subject to the final paragraph of this Section 2.1, all
present and future contract rights (including, without limitation, all rights
under service contracts pursuant to which the Company renders its services to
its customers, which rights shall include any and all rights to all retainers
which may arise thereunder), general intangibles (including, but not limited to,
tax and duty refunds, patents, trade secrets, trademarks, service marks,
copyrights, trade names, trade styles, logos, applications and registrations for
the foregoing, goodwill, processes, drawings, blueprints, customer lists,
licenses, whether as licensor or licensee, choses in action and other claims),
chattel paper, documents, instruments, letters of credit, bankers' acceptances
and guaranties;
(iii) all present and future monies, securities, credit balances,
deposit accounts and other property of the Company now or hereafter held or
received by or in transit to Lender or its Affiliates or any other lender or at
any other depository or other institution from or for the account of the
-5-
<PAGE>
Company, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including, without limitation,
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors of other persons securing the obligations of account debtors;
PROVIDED, HOWEVER, that the Collateral shall not include (A) the Escrow Funds,
(B) the Pledged Securities and other collateral held subject to the Escrow
Agreement (which are subject to the pledge and security interest granted
therein) unless made subject to the security interest and lien hereof, (C) the
Capital Stock of the Subsidiary Guarantors and the Company's other subsidiaries
which are subject to the Pledge Agreement (and the pledge and security interest
granted therein) and (D) the cash proceeds from the disposition of any
McDonald's Collateral subject to the McDonald's Senior Lien;
(iv) Inventory;
(v) Equipment;
(vi) Records; and
(vii) all products and proceeds of the foregoing, in any form,
including without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
In no event shall the Collateral Agent's security interest in a
contract or agreement of the Company be deemed to be a present assignment,
transfer conveyance, subletting or other disposition (an "Assignment") of such
contract or agreement to the Collateral Agent within the meaning of any
provision in such contract or agreement prohibiting, or requiring any consent or
establishing any other conditions for, an assignment thereof by the Company.
The Collateral Agent acknowledges that any sale, transfer or Assignment of any
such contract or agreement upon the enforcement of the Collateral Agent's
security interest therein would be subject to the terms of such contract or
agreement governing Assignment, except as otherwise provided in Section 9-318 of
the UCC. The Collateral Agent's security interest in each contract or agreement
of the Company shall attach from the date hereof to all of the following,
whether now existing or hereafter arising or acquired: (i) all of the Company's
Accounts and general intangibles for money due or to become due arising under
-6-
<PAGE>
such contract or agreement; (ii) all proceeds paid or payable to the Company
from any sale, transfer or assignment of such contract or agreement and all
rights to receive such proceeds; and (iii) all other rights and interests of the
Company in, to and under such contract or agreement to the fullest extent that
attachment thereto would not be a violation of such contract or agreement
directly or indirectly entitling a party thereto (other than the Company or
Affiliate thereof) to a legally enforceable right to terminate such contract or
agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Collateral Agent,
which representations and warranties shall survive execution and delivery of
this Security Agreement, as follows:
3.1 VALIDITY, PERFECTION AND PRIORITY.
Except as permitted under the Indenture, the security interests
in the Collateral granted to the Collateral Agent hereunder will constitute
valid and continuing first priority perfected security interests therein, to the
extent that such security interests may be perfected by the actions described in
Section 10.03 of the Indenture and subsections (i) and (ii) of this Section 3.1,
superior and prior to all Liens and rights or claims of all other Persons,
except Permitted Liens and as otherwise provided in the Indenture, subject only
to the terms of the Intercreditor Agreement and the Subordination Agreement
(with respect to the McDonald's Collateral), upon (i) the filing of U.C.C.
financing statements and continuation statements naming the Company as "debtor"
and the Collateral Agent as "secured party" and describing the Collateral in the
filing offices set forth on Schedule 3.1 hereto, and (ii) to the extent not
subject to Article 9 of the U.C.C. in any applicable jurisdiction, the
recordation of the security interests granted hereunder in patents, trademarks
and copyrights in the applicable patent, trademark and copyright registries and
the registration of all copyrights.
3.2 NO LIENS; OTHER FINANCING STATEMENTS.
(a) Except for the Security Interest granted to the Collateral
Agent hereunder and any security interest and liens contemplated by the
Intercreditor Agreement that may in the future be granted to the Lender under
the Eligible Loan Facility and except for the Permitted Liens, including,
without limitation, the McDonald's Senior Liens, the Company owns and, as to all
Collateral whether now existing or hereafter acquired, will continue to own,
each item of the Collateral free and clear of all Liens, rights and claims, and
the Company shall defend the
-7-
<PAGE>
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein adverse to the Collateral Agent on the
Collateral entitled to priority therein under applicable law.
(b) No financing statement or other evidence of any Lien
covering or purporting to cover any of the Collateral is on file and is
effective in any public office other than (i) financing statements filed or to
be filed in connection with the Security Interests granted to the Collateral
Agent hereunder, (ii) financing statements filed or to be filed in connection
with the Eligible Loan Facility, (iii) financing statements for which proper,
executed termination statements have been delivered to the Collateral Agent for
filing, (iv) mortgages, deeds of trust, deeds to secure debt, fixture filings,
financing statements or other evidence of Liens filed or to be filed in
connection with the McDonald's Senior Liens and/or the Subordination Agreement,
and (v) financing statements filed by pre-petition creditors as set forth in the
Company's Plan of Reorganization but which no longer evidence valid or existing
security interests in the Collateral.
3.3 CHIEF EXECUTIVE OFFICES. The chief executive offices of the
Company are 110 East Broward Boulevard, Fort Lauderdale, Florida 33301 and 50
Main Street, White Plains, New York 10606. The originals of the Records are
located at such chief executive offices of the Company. All Records are
maintained at, and controlled and directed (including, without limitation, for
general accounting purposes) from the chief executive offices or other offices
identified on Schedule 3.3 as such.
3.4 LOCATION OF INVENTORY. All Inventory is kept only at (or shall
be in transit to) the locations listed on Schedule 3.3 hereto. None of such
Inventory is in the possession of an issuer of a negotiable document (as defined
in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee
or other Person.
3.5 TRADE NAMES; PRIOR NAMES. The only names under which the Company
has conducted business during the last five years are as set forth on Schedule
3.5 hereto.
3.6 RECEIVABLES.
(a) Each Account (other than indebtedness due and owing from a
Subsidiary or any other subsidiary of the Company) arises from the actual and
BONA FIDE sale and delivery of goods by the Company or rendition of services by
the Company in the ordinary course of its business which transactions are
completed in all material respects with those terms and provisions contained in
any document related thereto, except for prepaid passes to FunCenters (as
defined in the Offering Memorandum) and deposits for birthday parties or other
similar functions which
-8-
<PAGE>
sale and delivery of goods by the Company or rendition of services by the
Company are to be completed in the ordinary course of its business.
(b) The representations and warranties contained in this Section
shall be deemed to be repeated by the Company as of the time when each
respective Account arises.
(c) Each Account arising from indebtedness due and owing from a
Subsidiary or any other subsidiary of the Company is a BONA FIDE intercompany
indebtedness arising from an appropriate business purpose incurred in the
ordinary course of the Company's business and in accordance with GAAP.
3.7 INTELLECTUAL PROPERTY.
(a) Schedule 3.5 sets forth (i) all United States, state and
foreign registration of and applications for patents, trademarks, service marks
and copyrights of the Company and (ii) all patent licenses, trademark and
service mark licenses and copyright licenses material to the business of the
Company; and
(b) the Company owns, or has valid rights to use, all patents,
trademarks, trade secrets, copyrights, and similar intellectual property rights
material to the business of the Company and used in the conduct of the Company's
business.
3.8 EQUIPMENT. All Equipment is owned free and clear of all Liens,
except Permitted Liens, is located only at the location set forth on
Schedule 3.3 hereto and is in good working condition subject only to wear and
tear in the ordinary course, all of which is accounted for at the lower of cost
or fair market value in accordance with GAAP on the financial statements of the
Company.
3.9 BASIC REPRESENTATIONS AND WARRANTIES. As of the Issue Date
(assuming that the Confirmation Order (as defined in the Plan of Reorganization)
has become a Final Order (as defined in the Plan of Reorganization) and the
Approved Plan (as defined in the Plan of Reorganization) has become Effective
(as defined in the Plan of Reorganization)), the Company (a) will be duly
organized and validly existing in good standing under the laws of the
jurisdiction of its formation or other jurisdiction in which it is qualified to
do business; (b) will have the power and authority to execute, deliver and carry
out the terms and provisions of this Security Agreement and consummate the
transactions contemplated hereby; (c) will have taken all necessary action to
authorize the execution, delivery and performance of this Security Agreement and
the consummation of the transactions contemplated hereby; and (d) will have duly
executed and delivered this Security Agreement. As of the Issue Date (assuming
that the Confirmation Order has become a Final Order and the Approved Plan has
become Effective), this Security
-9-
<PAGE>
Agreement will constitute the Company's legal, valid and binding obligation,
enforceable against the Company in accordance with its terms.
ARTICLE IV
COVENANTS
The Company covenants and agrees with the Collateral Agent that from
and after the date of this Security Agreement:
4.1 FURTHER ASSURANCES. The Company will from time to time at its
own expense, promptly execute, deliver, file and record all further instruments,
endorsements and other documents, and take such further action as the Collateral
Agent may deem necessary or desirable in obtaining the full benefits of this
Security Agreement and of the rights, remedies and powers herein granted,
including, without limitation, the following:
(i) the filing of any financing statements, in form
acceptable to the Collateral Agent under the Uniform Commercial Code in
effect in any jurisdiction with respect to the liens and security interests
granted hereby (and the Company hereby (x) authorizes the Collateral Agent
to file any such financing statement without its respective signature to
the extent permitted by applicable law and (y) agrees that a photocopy or
other reproduction of this Security Agreement shall be sufficient as a
financing statement and may be filed in lieu of the original to the extent
permitted by applicable law);
(ii) furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Collateral
Agent may request, all in reasonable detail and in form satisfactory to the
Collateral Agent; and
(iii) execute and deliver the Trademark Assignment and
cause it to be duly filed with the United States Patent and Trademark
Office.
4.2 CHANGE OF NAME, IDENTITY, CORPORATE STRUCTURE, CHIEF EXECUTIVE
OFFICES, OR LOCATION OF INVENTORY AND EQUIPMENT. The Company will not change
its name, identity, corporate structure or the location of its chief executive
offices (as specified in Section 3.3) or location of its Inventory or Equipment
without (i) giving the Collateral Agent at least thirty (30) days' prior written
notice clearly describing such new name, identity, corporate structure or new
location and providing such other information in connection therewith as the
Collateral Agent may reasonably request, and (ii) taking all action reasonably
satisfactory to the Collateral Agent as the Collateral Agent may
-10-
<PAGE>
reasonably request to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected with
the same or better priority than exists on the date hereof and in full force and
effect. All Accounts and Records of the Company will continue to be maintained
at, and controlled and directed (including, without limitation, for general
accounting purposes) from, such chief executive office or a location identified
as a location at which Accounts or Records are maintained, controlled and
directed on Schedule 3.3, or such new locations as the Company may establish in
accordance with this Section 4.2.
4.3 MAINTAIN RECORDS. The Company will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral, including,
but not limited to, the originals of all documentation with respect to all
Accounts and records of all payments received and all credits granted on the
Accounts, and all other dealings therewith.
4.4 RIGHT OF INSPECTION. The Collateral Agent shall at all times
have full and free access during normal business hours and upon reasonable
notice to the Company to all the books, correspondence and records of the
Company, and the Collateral Agent and its representatives may examine the same,
take extracts therefrom and make photocopies thereof, and the Company agrees to
render the Collateral Agent, at the cost and expense of the Company, such
clerical and other assistance as may be reasonably requested with regard
thereto.
4.5 PAYMENT OF OBLIGATIONS. The Company will pay promptly when due
all taxes, assessments and governmental charges or levies imposed upon the
Collateral, as well as all claims of any kind (including, without limitation,
claims for labor, materials, supplies and services) against or with respect to
the Collateral, except that no such tax, assessment, charge or levy need be paid
if (i) the validity thereof is being contested in good faith by appropriate
proceedings properly instituted and diligently conducted for which adequate
reserves, to the extent required under GAAP, have been taken and (ii) such
proceedings do not involve, in the sole opinion of the Collateral Agent, any
material danger for the sale, forfeiture or loss of any of the Collateral or any
interest therein.
4.6 NEGATIVE PLEDGE. The Company will not create, incur or permit to
exist, and will defend the Collateral against, and will take such other action
as is necessary to remove, any Lien or claim on or to the Collateral, other than
the Security Interest created hereby, Liens in favor of the Lender under the
Eligible Loan Facility, and Permitted Liens, including, without limitation, the
McDonald's Senior Liens.
4.7 LIMITATIONS ON DISPOSITIONS OF COLLATERAL. The Company will not
sell, transfer, lease or otherwise dispose of
-11-
<PAGE>
any of the Collateral, or attempt, offer or contract to do so except as
permitted in the Indenture.
4.8 PERFORMANCE BY THE COLLATERAL AGENT OF THE OBLIGATIONS OF THE
COMPANY; REIMBURSEMENT. If the Company fails to perform or comply with any of
its agreements contained herein, the Collateral Agent may, without consent by
the Company, but upon written notice to the Company reasonably given, perform or
comply or cause performance or compliance therewith, and the expenses of the
Collateral Agent incurred in connection with such performance or compliance,
together with interest thereon at a rate per annum borne by the Notes, shall be
payable by the Company to the Collateral Agent on demand and such reimbursement
obligation shall be secured hereby; PROVIDED, HOWEVER, that such interest shall
only be so due and payable if such expenses have not been so paid on demand and
in any event within ten (10) days of such notice; and, provided further, that
such interest shall be tolled in the event any such expenses are contested in
good faith as in error and the resolution of any such contest is diligently
pursued by the Company.
4.9 NO IMPAIRMENT. Except as expressly permitted herein or in the
Indenture (including the creation of Permitted Liens), the Company will not take
or knowingly permit to be taken any action which could impair the Collateral
Agent's rights in the Collateral. The Company shall promptly notify the
Collateral Agent of any changes in fact or circumstance represented or warranted
by the Company or that could reasonably be expected to have a material adverse
effect with respect to any material portion of the Collateral, of any impairment
of the Collateral and of any claim, action or proceeding affecting title to all
or any of the Pledged Collateral.
4.10 INSURANCE. The Company will maintain, with financially sound
and reputable insurers acceptable to the Collateral Agent and licensed to do
business in each state in which any of the Collateral covered by any policy is
located, insurance in compliance with Section 4.05(b) of the Indenture. All
policies of insurance shall (i) name the Collateral Agent as additional insured
(with respect to liability insurance policies) or loss payee with a lender's
loss payable endorsement, (ii) include waivers by the insurer of all claims for
insurance premiums against the Collateral Agent, (iii) provide that any losses
shall be payable to the Collateral Agent notwithstanding (A) any act, failure to
act or negligence of or violation of warranties, declarations or conditions
contained in such policy by the Company, (B) any foreclosure or other
proceedings or notice of sale relating to any Collateral insured thereunder, or
(C) any change in the title to or ownership of any Collateral insured
thereunder, and (iv) provide that no cancellation, termination or lapse in
coverage thereof shall be effective until at least 30 days after receipt by the
Collateral Agent of written notice thereof.
-12-
<PAGE>
4.11 EQUIPMENT. The Company shall maintain the Equipment in good and
working condition free of all Liens, except Permitted Liens, and shall not
remove or relocate any Equipment except as provided herein, except that any
motor vehicles or aircraft intended to be mobile may be so used to the extent
that all necessary and appropriate actions have been taken and filings made to
perfect a first priority security interest therein in favor of the Collateral
Agent for its benefit and the ratable benefit of the Holders.
ARTICLE V
POWER OF ATTORNEY
The Company hereby irrevocably constitutes and appoints the Collateral
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Company and in the name of the Company, from time to
time in the Collateral Agent's discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action, and to
execute in any appropriate manner any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Security
Agreement.
The Company hereby ratifies all that said attorneys shall lawfully do
or cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
ARTICLE VI
REMEDIES; RIGHTS UPON DEFAULT
6.1 RIGHTS AND REMEDIES GENERALLY.
(a) If an Event of Default shall occur and be continuing, then
and in every such case, the Collateral Agent shall have all the rights of a
secured party under the UCC, shall have all rights now or hereafter existing
under all other applicable laws, and, subject to any mandatory requirements of
applicable law then in effect, shall have all the rights set forth in this
Security Agreement and all the rights set forth with respect to the Collateral
or this Security Agreement in any other agreement between the parties.
(b) If an Event of Default occurs and is continuing, the
Collateral Agent may, and within three Business Days after written instructions
from the Requisite Holders shall, commence the taking of such actions toward
collection or enforcement of this Security Agreement and the Collateral (or any
portion thereof), including, without limitation, action toward
-13-
<PAGE>
foreclosure upon any Collateral, as the Collateral Agent deems in its discretion
to be appropriate or as otherwise instructed in writing by the Requisite
Holders.
6.2 ASSEMBLY OF COLLATERAL. If an Event of Default shall occur and
be continuing, immediately upon written notice to the Company, the Company
shall, at its own expense, and to the extent commercially practicable, assemble
the Collateral (or from time to time any portion thereof) and make it available
to the Collateral Agent at any place or places designated by the Collateral
Agent which is reasonably convenient to both parties.
6.3 DISPOSITION OF COLLATERAL. The Collateral Agent will determine
the circumstances and manner in which the Collateral will be disposed of,
including, but not limited to, the determination of whether to foreclose on the
Collateral following an Event of Default. The Collateral Agent will give the
Company reasonable written notice of the time and place of any public sale of
the Collateral or any part thereof or of the time after which any private sale
or any other intended disposition thereof is to be made. The Company agrees
that the requirements of reasonable notice to it shall be met if such notice is
delivered to its address specified in and in accordance with Section 7.3 of this
Security Agreement (or such other address that the Company may provide to the
Collateral Agent in writing) at least ten days before the time of any public
sale or after which any private sale may be made.
6.4 PROCEEDS. If an Event of Default shall occur and be continuing,
(i) all proceeds and distributions on the Collateral received by the Company
shall be held in trust for the Collateral Agent, segregated from other funds of
the Company in a separate deposit account containing only such proceeds and
distributions, and shall forthwith upon receipt thereof, be turned over to the
Collateral Agent in the same form received (appropriately endorsed or assigned
to the order of the Collateral Agent or in such other manner as shall be
satisfactory to the Collateral Agent) and (ii) any and all such proceeds and
distributions received by the Collateral Agent (whether from the Company or
otherwise), or any part thereof, may, in the sole discretion of the Collateral
Agent, be held by the Collateral Agent in a separate account as Collateral
hereunder and/or then or at any time or from time to time thereafter, be applied
by the Collateral Agent against the Obligations (whether matured or unmatured)
and related expenses, including attorney's fees as provided in Section 6.7
below.
6.5 RECOURSE. The Company shall pay or remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to satisfy the Obligations. The Company shall also be liable
for all expenses of the Collateral Agent incurred in connection with collecting
such deficiency, including, without limitation, the fees and
-14-
<PAGE>
disbursements of any attorneys employed by the Collateral Agent to collect such
deficiency.
6.6 EXPENSES; ATTORNEYS FEES. The Company shall pay or reimburse the
Collateral Agent for all its expenses in connection with the exercise of its
rights hereunder, including, without limitation, (i) all reasonable attorneys'
fees and legal expenses incurred by the Collateral Agent and (ii) all filing
fees and related expenses contemplated by Section 4.1 hereof. Expenses of
retaking, holding, preparing for sale, selling or the like shall include the
reasonable attorneys' fees and legal expenses of the Collateral Agent. All such
expenses shall be secured hereby.
6.7 LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL.
(a) The Collateral Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Collateral Agent deals with similar property for its own account;
(b) The Collateral Agent shall have no obligation to take any steps
to preserve rights against prior parties to any Collateral; and
(c) Neither the Collateral Agent nor any of its directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon all or any part of the Collateral or for any delay in doing so or shall be
under any obligations to sell or otherwise dispose of any Collateral upon the
request of the Company or otherwise, except with respect to actions taken or
omitted with gross negligence, willful misconduct or in bad faith.
6.8 COOPERATION OF SUBSIDIARY GUARANTORS. The Company shall cause
any Subsidiary that becomes a Subsidiary Guarantor after the date hereof to
enter into a supplement to the Subsidiary Security Agreement, pursuant to which
such Subsidiary shall grant to the Collateral Agent for itself and the ratable
benefit of the Holders and their respective successors and assigns, a continuing
security interest in all of the Collateral then owned by such Subsidiary or
thereafter acquired or arising as security for the prompt and complete payment
and performance in full of all the Obligations.
ARTICLE VII
MISCELLANEOUS
7.1 INDEMNITY. The Company agrees to indemnify, reimburse and hold
the Collateral Agent and its officers,
-15-
<PAGE>
directors, employees, representatives and agents ("Indemnitees") harmless from
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, judgments, suits, costs or expenses or disbursements (including
reasonable attorneys' fees and expenses) for whatsoever kind or nature
("Losses") which may be imposed on, asserted against or incurred by any of the
Indemnitees in any way relating to or arising out of this Security Agreement or
the transactions contemplated hereby, except to the extent that such Losses are
caused by the gross negligence, willful misconduct or bad faith of such
Indemnitees as determined by a final judgment of a court of competent
jurisdiction. The obligations of the Company under this Section shall be
secured hereby and shall survive payment and performance or discharge of the
Obligations and the termination of this Security Agreement.
7.2 GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS).
7.3 NOTICES. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answer-back
received, or in the case of telecopy notice, when sent, or in the case of a
nationally recognized overnight courier service, one business day after delivery
to such courier service, addressed, in the case of each party hereto to the
following address, or to such other address as may be designated by any party in
a written notice to the other party hereto:
IF TO THE COMPANY:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Telephone: (954) 627-2400
Facsimile: (954) 627-2760
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
-16-
<PAGE>
IF TO THE COLLATERAL AGENT:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Telephone: (617) 664-5326
Facsimile: (617) 664-5371
WITH A COPY TO:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: Robert J. Coughlin, Esq.
Facsimile: (617) 951-2125
7.4 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding
upon and inure to the benefit of the Company, the Collateral Agent, all future
holders of the Obligations and their respective successors and assigns, except
that the Company may not assign or transfer any of its rights or obligations
under this Security Agreement without the prior written consent of the
Collateral Agent.
7.5 WAIVERS AND AMENDMENTS. None of the terms or provisions of this
Security Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with the terms of Article Nine of the Indenture. In the
case of any waiver, the Company and the Collateral Agent shall be restored to
their former position and rights hereunder and under the outstanding
Obligations, and any Default or Event of Default waived shall be deemed to be
cured and not continuing, but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
7.6 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Collateral Agent in exercising any right, power or privilege hereunder
and no course of dealing between the Company and the Collateral Agent shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right or remedy which the Collateral Agent
would otherwise have on any future occasion. The rights and remedies herein
expressly provided are cumulative and may be exercised singly or concurrently
and as often and in such order as the Collateral Agent deems expedient and are
[6~not exclusive of any rights or remedies which the Collateral Agent would
otherwise have whether by security agreement or now or hereafter existing under
applicable law. No notice to or demand on the Company in any case shall entitle
the
-17-
<PAGE>
Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Collateral Agent to
any other or future action in any circumstances without notice or demand.
7.7 TERMINATION; RELEASE. When the Obligations have been completely
paid and performed in full in accordance with Article Eight of the Indenture,
this Security Agreement shall terminate, and the Collateral Agent, at the
request and sole expense of the Company, and subject to and in accordance with
the applicable terms of the Indenture, will execute and deliver to the Company
the proper instruments (including UCC termination statements) acknowledging the
termination of this Security Agreement, and will duly assign, transfer and
deliver to the Company, without recourse, representation or warranty of any kind
whatsoever, such of the Collateral and Securities as may be in possession of the
Collateral Agent and that has not theretofore been disposed of, applied or
released, all in accordance with the terms and conditions of the Indenture and
other Collateral Documents. In addition, so long as no Default or Event of
Default exists (with respect to a Released Interest other than in connection
with the immediately preceding sentence), the Collateral Agent, at the request
and sole expense of the Company, will execute and deliver to the Company the
proper instruments to effect the release of the Released Interests in compliance
with Section 10.05 of the Indenture.
7.8 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Security Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Security Agreement.
7.9 SEVERABILITY. In case any provision in or obligation under this
Security Agreement or the Obligations shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
7.10 COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Security
Agreement by signing any such counterpart.
7.11 TRUSTEE CAPACITY. In acting as Collateral Agent hereunder, the
Collateral Agent shall benefit from and be entitled to all of the protections
and benefits of the terms set forth in Article Seven of the Indenture.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
DISCOVERY ZONE, INC.
By: /s/ Scott Bernstein
----------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and
President
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
By: /s/ Mary Lee Storrs
----------------------------------
Name: Mary Lee Storrs
Title:
<PAGE>
Schedule 3.1
Filing Offices
<PAGE>
Schedule 3.3
Location of Collateral
<PAGE>
Schedule 3.5
List of Intellectual Property of Discovery Zone, Inc.,
Discovery Zone Limited and Discovery Zone (Puerto Rico) Inc.
1. Trademarks
2. Registered Trademarks and Service Marks and Application
3. Patents and Patent Applications
4. Copyright Registrations and Applicants
5. Material Licenses
[Pepsi]
[Pizza Hut]
[Gymboree]
<PAGE>
SCHEDULE 3.1
A. UCC FILINGS
State Facilities Located Filing Office
Within the Jurisdiction
of the Filing Office
- ------------ ------------------------ ----------------------------------
Alabama FunCenters ("FCs") Secretary of State
410, 413, 454 UCC Division
797 State Office Building, Room 536
Montgomery, AL 36130
Arizona Secretary of State
Dual Filing 1700 W. Washington, 7th Floor
Phoenix, AZ 85007
- AND -
FC 522 Pima County Recorder
115 N. Church Ave.
Tuscon, AZ
California FCs 362, 417, 418 Secretary of State
420, 428 UCC Division
429, 453, 461 P.O. Box 942835
465, 474, 480 Sacramento, CA 94235-0001
481, 513
514, 521, 523
526, 527, 561
563, 566
Colorado FCs 338, 353, 518 Secretary of State
556 Uniform Commercial Code
1560 Broadway, Suite 200
Denver, CO 80202
- AND -
Central Indexing Systems, Inc.
1301 Pennsylvania St., Ste 900
Denver, CO 80203
<PAGE>
2
Connecticut FCs 208, 235 Secretary of State
UCC Division
30 Trinity Street
P.O. Box 846
Hartford, CT 06106
Delaware FC 267 Department of State
Uniform Commercial Code
P.O. Box 793
Dover, DE 19901
Florida FCs 342, 433, 442 Bureau of Uniform Commercial Code
731, 733, 734 Department of State
740, 750, 755 P.O. Box 5588
758, 792 Tallahassee, FL 32314
CORPORATE OFFICES:
Fort Lauderdale, FL 33301
Plantation, FL 33313
Georgia FC 311 Clerk of the DeKalb County
Local Filing Superior Court
State Decatur, GA 30030
FC 334, 451 Clerk of the Cobb County
Superior Court
Box 3490
Marietta, GA 30091
FC 358 Clerk of the Fulton County
Superior Court
Atlanta, GA 30303
FC 439 Clerk of the Bibb County
Superior Court
P.O. Box 1015
Macon, GA 31208
<PAGE>
3
FC 802 Clerk of the Clayton County
Superior Court
121 So. McDonough
Jonesboro, GA 30236
Hawaii FC 547 Registrar of Conveyances
Bureau of Conveyances
P.O. Box 2867
Honolulu, HI 96803
Idaho FC 524 Secretary of State
Statehouse, Room 205
Boise, ID 83720
Illinois FCs 301, 303, 309 Secretary of State
335, 759, 787 UCC Division
Centennial Building
Springfield, IL 62756
Indiana FCs 307, 720, 736 Secretary of State
746, 760, 785 201 State House
796, 801 Indianapolis, IN 46204
Iowa FC 779 UCC Division
Secretary of State
Hoover Building
Des Moines, IA 50319
Kansas FCs 308, 554 Secretary of State
Attn: U.C.C., 2nd Floor, Capitol
Bldg.
Topeka, KS 66612
Kentucky Office of the Secretary of State
Dual Filing UCC Section
State Capitol Building
Frankfort, KY 40602-0718
- AND -
FCs 738, 745 Jefferson County Clerk
P.O. Box 33033
Louisville, KY 40202
<PAGE>
4
Louisiana FC 438 Clerk of the Court for the Parish for:
Local Filing 3908 Veterans Blvd.
State Metairie, LA 70001
FC 456 Clerk of the Caddo Parish Court
Shreveport, LA 71101
FC 458 Clerk of the Lafayette Parish Court
P.O. Box 2009
Lafayette, LA 70502
FC 804 Clerk of the Jefferson Parish Court
P.O. Box 10
Gretna, LA 70054
Maryland FCs 201, 213, 220 Department of Assessments and Taxation
222, 242, 416 301 West Preston Street
Baltimore, MD 21201
Massachusetts Office of the Secretary of State
Dual Filing Uniform Commercial Code Section
State 1 Ashburton Place, Room 1711
Boston, MA 02108
- AND-
FC 227 Town Clerk
Dartmouth, MA
FC 231 Town Clerk
Natick, MA
FC 232 Town Clerk
Tyngsboro, MA
FC 233 Town Clerk
Hanover, MA
FC 234 Town Clerk
Danvers, MA
<PAGE>
5
FC 257 Town Clerk
Shrewsbury, MA
FC 258 Town Clerk
Braintree, MA
FC 271 Town Clerk
W. Springfield, MA
Michigan FCs 332, 349, 431 Department of State
452, 455 U.C.C. Unit
Lansing, MI 48909-7697
Minnesota FCs 340, 739 Secretary of State
UCC Division
180 State Building
St. Paul, MN 55155
Mississippi Secretary of State
Dual Filing State UCC Division
P.O. Box 136
Jackson, MS 39205-0136
- AND -
FC 450 Clerk of the Madison County
Chancery Court
P.O. Box 404
Canton, MS 39046
Missouri Secretary of State
Dual Filing State Uniform Commercial Code
P.O. Box 1159
Jefferson City, MO 65102
- AND -
FC 315 Jackson County Recorder of Deeds
415 E. 12th Street
Independence, MO 64106
<PAGE>
6
FCs 321, 753, 754 St. Louis County Recorder of Deeds
Clayton, MO 63105
FC 769 Greene County Recorder of Deeds
Springfield, MO 65802
Nevada FC 345 Secretary of State
UCC Division, Capitol Complex
Secretary of State's Office
Carson City, NV 89710
New Jersey FCs 215, 217, 224 Secretary of State
228, 230, 236 UCC Section
243, 254, 260 State House
Trenton, NJ 08625
New Mexico FCs 532 Secretary of State
UCC Division
Executive Legislative Bldg.
Santa Fe, NM 87503
New York Department of State
Dual Filing State UCC Division
162 Washington Ave.
Albany, N.Y. 12231
- AND -
FCs 202, 216, 223 Monroe County Clerk
39 W. Main Street
Rochester, NY 14614
FC 206 Westchester County Clerk
CORPORATE OFFICE: White Plains, N.Y. 10601
White Plains, NY 10606
FCs 210, 256 Nassau County Clerk
240 Old Country Road
Mineola, NY 11501
FCs 214, 229 Onondaga County Clerk
Syracuse, NY 13202
<PAGE>
7
FC 219 Oneida County Clerk
Utica, NY 13501
FC 226 Dutchess County Clerk
22 Market Street
Poughkeepsie, NY 12601
FC 245 City Register
Bronx County Office
1932 Arthur Ave.
Bronx, NY 10457
FC 246 City Register
Queens County Office
90-27 Sutphin Blvd.
Jamaica, NY 11435
FC 248 Suffolk County Clerk
Riverhead, NY 11901
FC 249 City Register
Kings County Office
Municipal Bldg.
210 Joralemon St.
Brooklyn, NY 11201
FC 264 Chemung County Clerk
P.O. Box 588
Elmira, NY 14902
FC 266 Orange County Clerk
Goshen, NY 10924
FC 326 Erie County Clerk
25 Delaware Ave.
Buffalo, NY 14202
North Carolina Secretary of State
Dual Filing State UCC Division
300 North Salisbury Street
Raleigh, NC 27603-5909
<PAGE>
8
- AND -
FC 406 Forsythe County Registor of Deeds
P.O. Box 1013
Winston-Salem, NC 27101
FC 463 Cumberland County Registor of Deeds
P.O. Box 2039
Fayetteville, NC 28302
Ohio Secretary of State
Dual Filing State UCC Division
State Officer Tower
Columbus, OH 43216
- AND -
FC 306, 343 Hamilton County Recorder
Cincinnati, OH 45202
FCs 310, 339, 761 Franklin County Recorder
373 S. High Street
Columbus, OH 43215
FCs 716, 780 Cuyahoga County Recorder
1219 Ontario
Cleveland, OH 44113
FC 725 Summit County Recorder
117 South Main Street
Akron, OH 44308
FC 732 Stark County Recorder
110 Central Plaza South
Canton, OH 44702
FC 771 Lucas County Recorder
Jackson Street
Toledo, OH 43604
Oklahoma FCs 516, 517, 542 County Clerk of Oklahoma County
Oklahoma City, Oklahoma 73102
<PAGE>
9
Oregon FC 560, 565 Office of the Secretary of State
Uniform Commercial Code
Room 122, State Capital
Salem, OR 97310
Pennsylvania Secretary of Commonwealth
Dual Filing State UCC Division
Harrisburg, PA 17120
- AND -
FCs 204, 247, 352 Philadelphia County Prothonotary
Broad & Market
Philadelphia, PA 19107
FC 225 Lehigh County Prothonotary
Allentown, PA 18105
FC 239 Lackawanna County Prothonotary
P.O. Box 133
Scranton, PA 18503
FC 263 Bucks County Prothonotary
Doylestown, PA 18901
FC 273 York County Prothonotary
York, PA 17401
FCs 317, 773, 788 Allegheny County Prothonotary
542 Forbes Ave.
Pittsburgh, PA 15219
FC 324 Chester County Prothonotary
2 No. Hight Street
West Chester, PA 19380
Rhode Island FC 270 Division of Uniform Commercial Code
Office of Secretary of State
100 N. Main Street
Providence, RI 02903
<PAGE>
10
South
Carolina FCs 404, 409 Secretary of State
UCC Section
P.O. Box 11350
Columbia, SC 29211
Tennessee FCs 405, 415, 436 Secretary of State
437 UCC Section
James K. Polk Building, 18th Floor
Nashville, TN 37219
Texas FCs 313, 320, 322 Secretary of State
344, 347, 348 UCC Division
501, 502, 504 P.O. Box 13193
506, 511, 512 Austin, TX 78711-3193
525, 541, 544
546, 551, 552
553, 555, 559
Utah FC 549 Division of Corporations and
Commercial Code
UCC Division
P.O. Box 45801
Salt Lake City, UT 84145-0801
Virginia Clerk's Office
Dual Filing State State Corporation Commission
P.O. Box 1197
Richmond, VA 23218-1197
- AND -
FC 319 Clerk of the Court of
Prince William Country
P.O. Box 191
Manassas, VA 22110
FC 403 Clerk of the Court of the
City of Virginia Beach
Virginia Beach, VA 23458
<PAGE>
11
FC 407, 478 Clerk of the Court of the
County of Fairfax
4110 Chain Bridge Rd.
Fairfax, VA 22030
FC 408 Clerk of the Court for the
City of Newport News
Newport News, VA 23607
FC 430 Clerk of the Court for the
County of Henrico
P.O. Box 27032
Richmond, VA 23273
FC 443 Clerk of the Court for the
City of Norfolk
Norfolk, VA 23510
FC 477 Clerk of the Court for the
County of Roanoke
Salem, VA 24153
Washington FCs 357, 475, 571 Department of Licensing
UCC Division
P.O. Box 9660
Olympia, WA 98507-9660
Wisconsin FCs 304, 763, 764 Department of Financial Institutions
795, 803 Division of Corporate and Consumer
Services
P.O. Box 7847
Madison, WI 53707
<PAGE>
12
B. FIXTURE FILINGS
State Facilities Located Filing Office
Within the Jurisdiction
of the Filing Office
- ------------ ----------------------- ----------------------------------
Alabama FC 410 Madison County Judge of Probate
Huntsville, AL 35801
FC 413 Mobile County Judge of Probate
Mobile, AL 36602
FC 454 Montgomery County Judge of Probate
Montgomery, AL 36104
FC 797 Jefferson County Judge of Probate
Birmingham, AL 35203
FC 797 Jefferson County Judge of Probate
Bessemer, AL 35020
Arizona FC 522 Pima County Recorder
115 N. Church Ave.
Tuscon, AZ
California FC 362 San Bernardino County Clerk
and Recorder
Hall of Records
San Bernardino, CA 92415
FC 417 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 418 San Diego County Clerk and Recorder
P.O. Box 1750
San Diego, CA 92112
<PAGE>
13
FC 420 Orange County Clerk and Recorder
P.O. Box 238
Santa Ana, CA 92701
FC 428 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 429 Orange County Clerk and Recorder
P.O. Box 238
Santa Ana, CA 92701
FC 453 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 461 Riverside County Clerk and Recorder
Courthouse
Riverside, CA 92501
FC 465 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 474 San Diego County Clerk and Recorder
P.O. Box 1750
San Diego, CA 92112
FC 480 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 481 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
FC 513 Santa Clara County Clerk and Recorder
70 West Hedding
San Jose, CA 95110
<PAGE>
14
FC 514 San Joaquin County Clerk and Recorder
Hall of Records
Stockton, CA 95202
FC 521 Sacramento County Clerk and Recorder
P.O. Box 839
Sacramento, CA 95804
FC 523 Fresno County Clerk and Recorder
P.O. Box 766
Fresno, CA 93712
FC 526 Sacramento County Clerk and Recorder
P.O. Box 839
Sacramento, CA 95804
FC 527 Stanislaus-Modesto County
Clerk and Recorder
P.O. Box 1008
Courthouse
Modesto, CA 95353
FC 561 Santa Clara County Clerk and Recorder
70 West Hedding
San Jose, CA 95110
FC 563 San Mateo County Clerk and Recorder
Courthouse
Redwood City, CA 94063
FC 566 Los Angeles County Clerk and Recorder
RM5 - New Hall of Records
Los Angeles, CA 90012
Colorado FC 338 Office of the County Clerk and Recorder,
Douglas County
FC 353 Office of the County Clerk and Recorder,
Arapahoe County
FC 518 Office of County Clerk and Recorder,
El Paso County
<PAGE>
15
FC 556 Office of County Clerk and Recorder,
Jefferson County
Connecticut FC 208 Town Clerk
Danbury, CT
FC 235 Town Clerk
New Haven, CT
Delaware FC 267 New Castle County Recorder of Deeds
800 French Street
Wilmington, DE 19801
Florida Corporate Office Office of the Broward County
Circuit Court Clerk
Box 14668
Fort Lauderdale, FL 33302
Corporate Office Office of the Broward County
Circuit Court Clerk
Box 14668
Fort Lauderdale, FL 33302
FC 342 Office of the Palm Beach County
Circuit Court Clerk
Box 4177
West Palm Beach, FL 33402
FC 433 Office of the Escambia County
Circuit Court Clerk
Pensacola, FL 32501
FC 442 Office of the Leon County
Circuit Court Clerk
Box 726
Tallahassee, FL 32301
FC 731 Office of the Duval County
Circuit Court Clerk
Jacksonville, FL 32202
<PAGE>
16
FC 733 Office of the Orange County
Circuit Court Clerk
Box 38
Orlando, FL 32802
FC 734 Office of the Duval County
Circuit Court Clerk
Jacksonville, FL 32202
FC 740 Office of the Broward County
Circuit Court Clerk
Box 14668
Ft. Lauderdale, FL 33302
FC 750 Office of the Dade County
Circuit Court Clerk
Miami, FL 33130
FC 755 Office of the Broward County
Circuit Court Clerk
Box 14668
Ft. Lauderdale, FL 33302
FC 758 Office of the Polk County
Circuit Court Clerk
Box 9000
Bartow, FL 33831
FC 792 Office of the Lee County
Circuit Court Clerk
Box 2278
Fort Myers, FL 33902
Georgia FC 311 Clerk of the DeKalb County
Superior Court
Decatur, GA 30030
FC 334 Clerk of the Cobb County
Superior Court
Box 3490
Marietta, GA 30091
<PAGE>
17
FC 358 Clerk of the Fulton County Superior
Court
Atlanta, GA 30303
FC 439 Clerk of the Bibb County Superior Court
P.O. Box 1015
Macon, GA 31208
FC 451 Clerk of the Cobb County Superior Court
Box 3490
Marietta, GA 30091
FC 802 Clerk of the Clayton County
Superior Court
121 So. McDonough
Jonesboro, GA 30236
Hawaii FC 547 Registrar of Conveyances
Bureau of Conveyances
P.O. Box 2867
Honolulu, HI 96803
Idaho FC 524 Ada County Recorder
Boise, ID 83702
Illinois FC 301 Du Page County Recorder
Wheaton, IL 60187
FC 303 Du Page County Recorder
Wheaton, IL 60187
FC 309 Cook County Recorder
Chicago, IL 60602
FC 335 Cook County Recorder
Chicago, IL 60602
FC 759 Winnebago County Recorder
Rockford, IL 61101
FC 787 Peoria County Recorder
Peoria, IL 61602
<PAGE>
18
Indiana FC 307 Marion County Recorder
Indianapolis, IN 46204
FC 720 Lake County Recorder
2293 N. Main
Crown Point, IN 46307
FC 736 Marion County Recorder
Indianapolis, IN 46204
FC 746 Allen County Recorder
1 E. Main Street
Fort Wayne, IN 46802
FC 760 Marion County Recorder
Indianapolis, IN 46204
FC 785 Howard County Recorder
Courthouse
Kokomo, IN 46901
FC 796 Johnson County Recorder
P.O. Box 475
Franklin, IN 46131
FC 801 St. Joseph County Recorder
South Bend, IN 46601
Iowa FC 779 Polk County Recorder
111 Court Avenue
Des Moines 50309
Kansas FC 308 Johnson County Register of Deeds
P.O. Box 700
Olathes, KS 66061
FC 554 Sedgwick County Register of Deeds
Wichita, KS 67203
Kentucky FC 738 Jefferson County Clerk
P.O. Box 33033
Louisville, KY 40202
<PAGE>
19
FC 745 Jefferson County Clerk
P.O. Box 33033
Louisville, KY 40202
Louisiana FC 438 Clerk of the Jefferson Parish Court
P.O. Box 10
Gretna, LA 70054
FC 456 Clerk of the Caddo Parish Court
Shreveport, LA 71101
FC 458 Clerk of the Lafayette Parish Court
P.O. Box 2009
Lafayette, LA 70502
FC 804 Clerk of the Jefferson Parish Court
P.O. Box 10
Gretna, LA 70054
Maryland FC 201 Clerk of the Baltimore County
Circuit Court
Towson, MD 21285
FC 213 Clerk of the Anne Arundel County
Circuit Court
P.O. Box 71
Annapolis, MD 21404
FC 220 Clerk of the Harford County
Circuit Court
20 W. Courtland Street
Bel Air, MA 21014
FC 222 Clerk of the Baltimore County
Circuit Court
P.O. Box 6754
Towson, MD 21285
FC 242 Clerk of the Frederick County
Circuit Court
100 W. Patrick Street
Frederick, MD 21701
<PAGE>
20
FC 416 Clerk of the Anne Arundel County
Circuit Court
P.O. Box 71
Annapolis, MD 21404
Massachusetts FC 227 Bristol County
Registry of Deeds
FC 231 Middlesex County
Registry of Deeds
FC 232 Middlesex County
Registry of Deeds
FC 233 Plymouth County
Registry of Deeds
FC 234 Essex County
Registry of Deeds
FC 257 Worcester County
Registry of Deeds
FC 258 Norlfolk County
Registry of Deeds
FC 271 Hampden County
Registry of Deeds
Michigan FC 332 Oakland County Register of Deeds
Pontiac, MI 48053
FC 349 Macomb County Register of Deeds
10 N. Main
Mount Clemons, MI 48043
FC 431 Genesse County Register of Deeds
Flint, MI 48502
FC 452 Kalamazoo County Register of Deeds
Kalamazoo, MI 49007
<PAGE>
21
FC 455 Oakland County Register of Deeds
Pontiac, MI 48053
Minnesota FC 340 Anoka County Recorder
Anoka, MN 55303
FC 739 Hennepin County Recorder
Minneapolis, MN 55415
Mississippi FC 450 Clerk of the Madison County
Chancery Court
P.O. Box 404
Canton, MS 39046
Missouri FC 315 Jackson County Recorder of Deeds
415 E. 12th Street
Independence, MO 64106
FC 321 St. Louis County Recorder of Deeds
Clayton, MO 63105
FC 753 St. Louis County Recorder of Deeds
Clayton, MO 63105
FC 754 St. Louis County Recorder of Deeds
Clayton, MO 63105
FC 769 Greene County Recorder of Deeds
Springfield, MO 65802
Nevada FC 345 Clark County Recorder
Box 551510
309 South Third Street
Las Vegas, NV 89155
New Jersey FC 215 Morris County Clerk
CN 900
Morristown, NJ 07960
FC 217 Middlesex County Clerk
P.O. Box 1110
New Brunswick, NJ 08903
<PAGE>
22
FC 224 Hudson County Register of
Deeds and Mortgages
Jersey City, NJ 07306
FC 228 Camden County Register of
Deeds and Mortgages
Camden, NJ 08101
FC 230 Middlesex County Clerk
P.O. Box 1110
New Brunswick, NJ 08903
FC 236 Union County Register of
Deeds and Mortgages
Elizabeth, NJ 07207
FC 243 Mercer County Clerk
Trenton, NJ 08607
FC 254 Monmouth County Clerk
P.O. Box 351
Freehold, NJ 07728
FC 260 Bergen County Clerk
Hackensack, NJ 07601
New Mexico FC 532 Bernalillo County Clerk
Albququerque, NM 87108
New York Corporate Office Westchester County Clerk
White Plains, N.Y. 10601
FC 202 Monroe County Clerk
39 W. Main Street
Rochester, NY 14614
FC 206 Westchester County Clerk
White Plains, N.Y. 10601
FC 210 Nassau County Clerk
240 Old Country Road
Mineola, NY 11501
<PAGE>
23
FC 216 Monroe County Clerk
39 W. Main Street
Rochester, NY 14614
FC 223 Monroe County Clerk
39 W. Main Street
Rochester, NY 14614
FC 214 Onondaga County Clerk
Syracuse, NY 13202
FC 219 Oneida County Clerk
Utica, NY 13501
FC 229 Onondaga County Clerk
Syracuse, NY 13202
FC 226 Dutchess County Clerk
22 Market Street
Poughkeepsie, NY 12601
FC 245 City Register
Bronx County Office
1932 Arthur Ave.
Bronx, NY 10457
FC 246 City Register
Queens County Office
90-27 Sutphin Blvd.
Jamaica, NY 11435
FC 248 Suffolk County Clerk
Riverhead, NY 11901
FC 249 City Register
Kings County Office
Municipal Bldg.
210 Joralemon St.
Brooklyn, NY 11201
<PAGE>
23
FC 256 Nassau County Clerk
240 Old Country Road
Mineola, NY 11501
FC 264 Chemung County Clerk
P.O. Box 588
Elmira, NY 14902
FC 266 Orange County Clerk
Goshen, NY 10924
FC 326 Erie County Clerk
25 Delaware Ave.
Buffalo, NY 14202
North
Carolina FC 406 Forsythe County Registor of Deeds
P.O. Box 1013
Winston-Salem, NC 27101
FC 463 Cumberland County Registor of Deeds
P.O. Box 2039
Fayetteville, NC 28302
Ohio FC 306 Hamilton County Recorder
Cincinnati, OH 45202
FC 339 Franklin County Recorder
373 S. High Street
Columbus, OH 43215
FC 343 Hamilton County Recorder
Cincinnati, OH 45202
FC 310 Franklin County Recorder
373 S. High Street
Columbus, OH 43215
FC 716 Cuyahoga County Recorder
1219 Ontario
Cleveland, OH 44113
<PAGE>
25
FC 725 Summit County Recorder
117 South Main Street
Akron, OH 44308
FC 732 Stark County Recorder
110 Central Plaza South
Canton, OH 44702
FC 761 Franklin County Recorder
373 S. High Street
Columbus, OH 43215
FC 771 Lucas County Recorder
Jackson Street
Toledo, OH 43604
FC 780 Cuyahoga County Recorder
1219 Ontario
Cleveland, OH 44113
Oklahoma FC 516 County Clerk of Oklahoma County
Oklahoma City, OK 73102
FC 517 County Clerk of Tulsa County
Tulsa, OK 74103
FC 542 County Clerk of Oklahoma County
Oklahoma City, OK 73102
Oregon FC 560 Marion County Clerk
Salem, OR 97301
FC 565 Lane County Clerk
Eugene, OR 97401
Pennsylvania FC 204 Philadelphia County Recorder of Deeds
Broad & Market
Philadelphia, PA 19107
FC 225 Lehigh County Recorder of Deeds
Allentown, PA 18105
<PAGE>
26
FC 239 Lackawanna County Recorder of Deeds
P.O. Box 133
Scranton, PA 18503
FC 247 Philadelphia County Recorder of Deeds
Broad & Market
Philadelphia, PA 19107
FC 263 Bucks County Recorder of Deeds
Doylestown, PA 18901
FC 273 York County Recorder of Deeds
York, PA 17401
FC 317 Allegheny County Recorder of Deeds
542 Forbes Ave.
Pittsburgh, PA 15219
FC 324 Chester County Recorder of Deeds
2 No. Hight Street
West Chester, PA 19380
FC 352 Philadelphia County Recorder of Deeds
Broad & Market
Philadelphia, PA 19107
FC 773 Allegheny County Recorder of Deeds
542 Forbes Ave.
Pittsburgh, PA 15219
FC 788 Allegheny County Recorder of Deeds
542 Forbes Ave.
Pittsburgh, PA 15219
Rhode Island FC 270 Recorder of Deeds
East Greenwich, RI
South
Carolina FC 404 Charleston County Register of
Mesne Conveyances
P.O. Box 726
Charleston, SC 29401
<PAGE>
27
FC 409 Greenville County Register of
Mesne Conveyances
Greenville, SC 29601
Tennessee FC 405 Knox County Register
Knoxville, TN 37902
FC 415 Shelby County Register
Box 3823
Memphis, TN 38173
FC 436 Davidson County Register
103 Courthouse
Nashville, TN 37201
FC 437 Davidson County Register
103 Courthouse
Nashville, TN 37201
Texas FC 313 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
FC 320 Dallas County Clerk
Dallas, TX 75202
FC 322 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
FC 344 Bexar County Clerk
San Antonio, TX 78205
FC 347 Tarrant County Clerk
100 E. Weatherford
Fort Worth, TX 76196
FC 348 Bexar County Clerk
San Antonio, TX 78205
FC 501 Harris County Clerk
<PAGE>
28
P.O. Box 1525
Houston, TX 77251
FC 502 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
FC 504 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
FC 506 Collin County Clerk
McKinney, TX 75069
FC 511 Tarrant County Clerk
100 E. Weatherford
Fort Worth, TX 76196
FC 512 Dallas County Clerk
Dallas, TX 75202
FC 525 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
FC 541 Lubbock County Clerk
P.O. Box 10536
Lubbock, TX 79408
FC 544 El Paso County Clerk
501 E. Overland
El Paso, TX 79901
FC 546 Travis County Clerk
P.O. Box 1748
Austin, TX 78701
FC 551 Ft. Bend County Clerk
P.O. Box 520
Richmond, TX 77406
<PAGE>
29
FC 552 Dallas County Clerk
Dallas, TX 75202
FC 553 Jefferson County Clerk
P.O. Box 1151
Beaumont, TX 77704
FC 555 Midland County Clerk
P.O. Box 211
Midland, TX 79702
FC 559 Harris County Clerk
P.O. Box 1525
Houston, TX 77251
Utah FC 549 Salt Lake County Recorder
Salt Lake City, UT 84401
Virginia FC 319 Clerk of the Court of
Prince William Country
P.O. Box 191
Manassas, VA 22110
FC 403 Clerk of the Court of the
City of Virginia Beach
Virginia Beach, VA 23458
FC 407 Clerk of the Court of the
County of Fairfax
4110 Chain Bridge Rd.
Fairfax, VA 22030
FC 408 Clerk of the Court for the
City of Newport News
Newport News, VA 23607
FC 430 Clerk of the Court for the
County of Henrico
P.O. Box 27032
Richmond, VA 23273
<PAGE>
30
FC 443 Clerk of the Court for the
City of Norfolk
Norfolk, VA 23510
FC 477 Clerk of the Court for the
County of Roanoke
P.O. Box 1126
Salem, VA 24153
FC 478 Clerk of the Court for the
County of Fairfax
4110 Chain Bridge Road
Fairfax, VA 22030
Washington FC 357 Clark County Recording Officer
P.O. Box 5000
Vancouver, WA 98668
FC 475 Pierce County Recording Officer
2401 So. 35th Street
Tacoma, WA98409
FC 571 Clark County Recording Officer
P.O. Box 5000
Vancouver, WA 98668
Wisconsin FC 304 Milwaukee County Register of Deeds
901 N. 9th Street
Milwaukee, WI 53233
FC 763 Dane County Register of Deeds
210 Martin Luther King Blvd.
Box 1438
Madison, WI 53701
FC 764 Outagamie County Register of Deeds
410 South Walnut Street
Appleton, WI 54911
FC 795 Brown County Register of Deeds
P.O. Box 23600
Green Bay, WI 54305
<PAGE>
31
FC 803 Marathon County Register of Deeds
500 Forest Street
Wausau, WI 54403
<PAGE>
SCHEDULE 3.3
LOCATION OF COLLATERAL
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. Corporate Office Blockbuster Entertainment
110 East Broward Blvd. Att: Michael Victorson
Ft. Lauderdale, FL 33301 1201 Elm Street
Dallas, TX 75270
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. Corporate Office Tessler Enterprises
6600 NW 16th Street 2240 SW 70th Ave.
Plantation, FL 33313 Unit H
Davie, FL 33317
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. Corporate Office Alliance Business Centers
50 Main Street, STE 1000 50 Main Street, STE 1000
White Plains, NY 10606 White Plains, NY 10606
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 201 Burke Vincent Place Assoc. &
8661 Philadelphia Road White Oak Vincent Place Assoc.
Baltimore, MD 21237 1359 Beverly Road, Suite 200
McLean, VA 22101
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 202 P&B Realty Co.
1000 Hylan Dr. c/o Breslin Realty Development Corp
Hylan Dr. & Jefferson Rd. 500 Old Country Road
Henrietta, NY 14623 Garden City, NY 11530
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 204 New Plan Realty Trust
2327 Cottman Avenue 1120 Avenue of the Americas
Philadelphia, PA 19149 New York, New York 10036
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 206 KRT Property Holdings, Inc.
752 Central Park Ave For rent payment:
Yonkers, NY 10704 128 Fayette Street
Conshohocken, PA 19428
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 208 Tisano Realty Inc.
26 Backus Avenue 30 Sweet Briar Court
Danbury, CT 06810 Stamford, CT 06905
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 210 Nassau Mall Plaza Associates
3601 Hempstead Turnpike Randall Breslin
Levittown, NY 11756 370 Seventh Avenue, Ste. 618
New York, New York 10001
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 213 c/o Franklin Property Company
46 Mountain Road Dearborn Corporation
Glen Burnie, MD 21061 8401 Connecticut Avenue
Chevy Chase, MD 20815
========================= ==================================== ========================================
</TABLE>
<PAGE>
2
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 214 Hiawatha Plaza Associates
7421 Oswego Road William M. Dutch
Liverpool, NY 13090 c/o Kelly & Dutch Real Estate, Inc.
217 Montgomery St.,
The Hills Bldg
Syracuse, NY 13202
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 215 Corporate Property Investors
Rt. 80 & Mt. Hope Rd. Mitch Friedell
Rockaway, NJ 07866 3 Dag Hammarskjold Plaza
305 East 47th Street
New York, NY 10017
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 216 Benderson Development Company
1601 Penfield Road 570 Delaware Avenue
Rochester, NY 14625 Buffalo, New York 14202
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 217 Midstate HYE L.P.
300 Route 18 North c/o Gabrallian Assoc.
East Brunswick, NJ 08816 95 Route 17 South
Paramus, New Jersey 07652
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 219 Harvich Associates
1092 Commercial Drive c/o Howard J. Gordon
New Hartford, NY 13413 560 Sylvan Avenue
Englewood Cliffs, NJ 07632
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 220 Hill Management Services, Inc.
527 Baltimore Pike William Christopher Walsh, Jr.
Bel Air, MD 21014 9640 Deereco Road
Timonium, Maryland 21093
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 222 Jerome Siegel
6510 Baltimore National Pike c/o Maryland Financial Investors, Inc.
Catonsville, MD 21228 P.O. Box 376
Brooklandville, Maryland 21022
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 223 Greece Town Mall
170 Greece Ridge Center Drive Doug Healy
Greece, NY 14626 1265 Scottsville Road
Rochester, New York 14624
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 224 Hudson Associates L.P.
Route 440 South General Counsel
Jersey City, NJ 07304 c/o The Rubin Organization, Inc.
200 S Broad St, The Bellevue, 3rd Fl.
Philadelphia, Pennsylvania 19102
========================= ==================================== ========================================
</TABLE>
<PAGE>
3
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 225 KRT Property Holdings Inc.
2180 MacArthur Rd. For rent payment:
Whitehall, PA 18052 128 Fayette Street
Conshohocken, PA 19428
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 226 Sarakreek USA
838 South Road, Rt. 9 Peter C. Earley
Poughkeepsie, NY 12601 800 Third Avenue
New York, New York 10022
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 227 Equity Properties & Development
Rt. 6, 169 Dartmouth Mall Company
Dartmouth, MA 02747 Attn: Leasing Coordinator
Two North Riverside Plaza
Suite 1000
Chicago, Illinois 60606
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 228 Federal Realty Investment Trust
1660 Kings Highway North 4800 Hampden Lane
Cherry Hill, NJ 08034 Suite 500
Bethesda, Maryland 20814
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 229 Albert D. Pizio Trust B
3439 Erie Blvd. c/o Tornatore & Co., CPA's P.C.
Dewitt, NY 13214 6075 East Molloy Road
Syracuse, NY 13211
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 230 Gibralter Management Co., Inc.
Stelton & Hadley Roads 150 White Plains Road
South Plainfield, NJ 07080 Tarrytown, New York 10591
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 231 Harold Cohen Associates, Inc.
1282 Worcester Street, Rte. 9E 393 Potter Pond Road
Natick, MA 01760 Waltham, MA 02154-2013
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 232 TYN Limited Partnership
440 Middlesex Road Attn: Director of Real Estate
Tyngsboro, MA 01879 c/o Boston Development Assoc., Inc.
32 Southwest Park
Westwood, MA 02090
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 233 Campanelli -Tedeschi Trust
Rt. 3 at 53 One Campanelli Drive
1775 Washington Street Braintree, MA 02184
Hanover, MA 02339
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 234 Dancross Associates, L.P.
8-10 Newbury Street 1100 E. Hector Street
Danvers, MA 01923 Conshohocken, PA 19428
========================= ==================================== ========================================
</TABLE>
<PAGE>
4
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 235 Pad Two Associates, L.P.
138 Amity Road Attn: Controller
New Haven, CT 06515 c/o McCann Real Equities Dev. Co.
1271 Avenue of the Americas
New York, NY 10020
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 236 Martin Rappaport d/b/a
1235 Route 22 W. Union Equity Realty
Union, NJ 07083 P.O. Box 1562
Englewood Cliffs, NJ 07632
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 239 Office Max
423 Scranton Carbondale Hwy. 3605 Warrensville Center Road
Scanton, PA 18508 Shaker Heights, OH 44122-820
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 242 REIX, Inc.
470-474 Prospect Blvd. c/o Signet Bank, VA
Frederick, MD 21701 Attn: Marcus C. Galt
Real Estate Division
7 North 8th Street, 4th Floor
Richmond, Virginia 23260
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 243 Hilton Realty Company
318 Route 33 Jeffrey Sands
Hamilton Square, NJ 08619 194 Nassau Street
Princeton, New Jersey 08542
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 245 Val-Ford Realty, Inc.
237 East Fordham Rd. 1557 Broadway
Bronx, NY 10458 New York, NY 10036
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 246 Middle Village Associates
66-26 Metropolitan Avenue c/o Pergament Investments, Inc.
Middle Village (Queens), NY 11379 1500 Old Northern Blvd.
Roslyn, New York 11576
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 247 Urban Center Associates, L.P.
2403-17 Aramingo Ave c/o The Rubin Organization, Inc.
Philadelphia, PA 19125 200 South Broad Street
The Bellevue, 3rd Floor
Philadelphia, PA 19102
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 248 Deer Park Associates
114-116 Deer Park Avenue 1593 August Road
North Babylon, NY 11703 North Babylon, New York 11703
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 249 Kings Plaza Shopping Center of
5405 Kings Plaza Flatbush Avenue, Inc.
Brooklyn, NY 11234 31 West 34th Street
New York, New York 10001
========================= ==================================== ========================================
</TABLE>
<PAGE>
5
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 254 RB-3 Associates
Consumer Center 3 BFG Associates
310 Rt. 36, Suite 607 c/o Bendetson Development Co.
West Long Branch, NJ 07764 570 Delaware Avenue
Buffalo, NY 14202
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 256 Carle Place Annex Co
183 Glen Cove Road c/o Basser & Kaufman
Carle Place, NY 11514 335 Central Avenue
Lawrence, NY 11559
Attn: Marc Kemp, Esq.
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 257 Cherele Gentile, Trustee/Turnpike
77 Boston Turnpike, Rt. 9W Realty
Shrewsbury, MA 01545 c/o Joseph R. Cariglia
188 Lincoln Street
Worcester, MA 01605
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 258 c/o Corp. Property Investors
250 Granite Street - #1904 Braintree Property Associates
Braintree, MA 01284 3 DAG Hammarskjold Plaza
305 East 47th Street
New York, NY 10017
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 260 Fashion Center Associates
The Fashion Center c/o Kravco Co.
Rt. 17 at Ridgewood Avenue The Atrium
Paramus, NJ 07652 234 Mall Blvd, Box 1528
King of Prussia, PA 19406
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 263 Fairless Hills S.C. Associates
Fairless Hills Shopping Center 555 East City Line Avenue, #1170
463 Oxford Valley Road Bala Cynwyd, PA 19004
Fairless Hills, PA 19030 Attn: Leasing Coordinator
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 264 FG-85 Associates
845 County Route 64 570 Delaware Avenue
Elmira, NY 14903 Buffalo, New York 14202
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 266 The Clinton Exchange
200 N. Galleria Drive Attn: Management Division
Middletown, NY 10940 4 Clinton Square
Syracuse, NY 13202-1078
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 267 Ralph E. Gordy, Jr.
Gordy Plaza Gordy Mgmt, Inc.
4317 Kirkwood Hwy. 105 N. Dupont Hwy-Gordy
Wilmington, DE 19808 Building #901
New Castle, DE 19720
========================= ==================================== ========================================
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 270 Amalgamated Financial
1000 Division Street Group IX, L.P.
East Greenwich Shopping Center 1414 Atwood Avenue
East Greenwich, RI 02818 Johnston, RI 02919
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 271 CIC Realty Trust
247 Memorial Avenue 73 State Street
Century Shopping Center Springfield, MA 01103
W. Springfield, MA 01089
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 273 Kimco Development of Giants, Inc.
2420 Eastern Boulevard 3333 New Hyde Park Road
York, PA 17402 P.O. Box 5020
New Hyde Park, NY 11047-0020
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 301 McDonald's Corporation
Tower Crossing Shopping Center 8th Floor
1512 Naper Blvd., STE 180 1 McDonald's Plaza
Naperville, IL 60563 Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 303 McDonald's Corporation
6226 S. Cass Avenue 8th Floor
Westmont, IL 60559 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 304 McDonald's Corporation
5008 S. 74th Street 8th Floor
Greenfield, WI 53220 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 306 Gilbert Ave. Assoc.
8057 Beechmont Ave. 2820 Gilbert Ave.
Cincinnati, OH 45255 Cincinnati, OH 45206
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 307 Owned Property
3720 E. 82nd Street
Indianapolis, IN 46240
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 308 Carl & Josephine Privitera & Trustee
7594 W. 119th Street d/b/a Rosana Square Partnership
Overland Park, KS 66213 c/o Mark One Electric
909 Troost
Kansas City, MO 64106
========================= ==================================== ========================================
</TABLE>
<PAGE>
7
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 309 McDonald's Corporation
15131 S. LaGrange Road 8th Floor
Orland Park, IL 60461 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 310 McDonald's Corporation
Dublin Village Center 8th Floor
6561 Dublin Center Drive 1 McDonald's Plaza
Dublin, OH 43017 Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 311 McDonald's Corporation
Stone Mountain Square Shopping 8th Floor
Center 1 McDonald's Plaza
5370 Hwy. 78 #1100 Oakbrook, IL 60521
Stone Mountain, GA 30087 Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 313 McDonald's Corporation
7744 FM 1960 West 8th Floor
Houston, TX 77070 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 315 McDonald's Corporation
4420 S. Noland Rd. 8th Floor
Noland South Shopping Center 1 McDonald's Plaza
Independence, MO 64055 Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 317 McDonald's Corporation
251 Clairton Blvd. 8th Floor
West Mifflin, PA 15236 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 319 McDonald's Corporation
Promenade at Manassas 8th Floor
7730 Streamwalk Lane 1 McDonald's Plaza
Manassas, VA 22110 Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 320 McDonald's Corporation
1233 Town East Blvd. 8th Floor
Mesquite, TX 75150 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
========================= ==================================== ========================================
</TABLE>
<PAGE>
8
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 321 McDonald's Corporation
14373 Manchester Blvd. 8th Floor
Manchester, MO 63011 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 322 McDonald's Corporation
19801 Gulf Freeway #900 8th Floor
Webster, TX 77598 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 324 McDonald's Corporation
270 N. Pottstown Pike 8th Floor
Exton, PA 19341 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 326 McDonald's Corporation
5435 Sheridan Drive 8th Floor
Amherst, NY 14221 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 332 McDonald's Corporation
105 East 13 Mile Road 8th Floor
Madison Heights, MI 48071 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 334 Owned Property
824 Earnest W. Barrett Pkwy
Kennesaw, GA 30144
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 335 Owned Property
2570 W. Schaumburg Road
Schaumburg, IL 60194
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 338 Owned Property
7510 Parkway Drive
Littleton, CO 80124
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 339 Owned Property
5705 Chantry Drive
Columbus, OH 43232
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 340 Owned Property
8601 Springbrook Drive, NE
Coon Rapids, MN 55433
========================= ==================================== ========================================
</TABLE>
<PAGE>
9
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 342 McDonald's Corporation
10301 Southern Blvd. 8th Floor
Royal Palm Beach, FL 33411 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 343 Owned Property
1140 Smiley Road
Forest Park, OH 45240
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 344 Owned Property
5751 NW Loop 410
Leon Valley, TX 78238
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 345 McDonald's Corporation
2020 Olympic Avenue 8th Floor
Henderson, NV 89014 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 347 Owned Property
1118 W. Arbrook
Arlington, TX 76015
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 348 Owned Property
13722 Embassy Row
San Antonio, TX 78216
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 349 Owned Property
13745 Lakeside Circle
Sterling Hts, MI 48313
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 352 Owned Property
(Land Only)
Frankline Mills Mall
Wrights Rd & Woodhaven
Franklin Mills, PA 19154
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 353 Owned Property
14281 E. Exposition Avenue
Aurora, CO 80012
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 357 Owned Property
(Land Only)
Vancouver Mall Cr
Vancouver, WA 98662
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 358 McDonald's Corporation
730 Holcomb Bridge Road 8th Floor
Roswell, GA 30076 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
========================= ==================================== ========================================
</TABLE>
<PAGE>
10
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 362 McDonald's Corporation
10540 Foot Hill Blvd. 8th Floor
Rancho Cucamanga, CA 91730 1 McDonald's Plaza
Oakbrook, IL 60521
Attention: Bob Sweitzer
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 403 S.L. Nusbaum Realty Company
774 Hilltop North, #38 Susu Developers
Virginia Beach, VA 23451 SMZ Center
P.O. Box 3580
Norfolk, VA 23501
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 404 Timothy W. Olson
7800 North Rivers Ave. 400 Ernest Barrett Parkway
N. Charleston, SC 29418 Kennesaw, GA 30144
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 405 Windsor/Knoxville Assoc.
192 N. Seven Oaks Box 2630
Knoxville, TN 37922 Mercerville, NJ 08690
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 406 RCP-1
620 Hanes Mall Blvd Box 1960
Winston-Salem, NC 27103 Greensboro, NC 27402
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 407 Bill Dickinson
5195-A Leesburg Pike 2345 Crystal Drive
Falls Church, VA 22041 Arlington, VA 22202
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 408 KMart Corporation
401 Oriana Rd. c/o K-Mart Int'l. Hq.
Newport News, VA 23608 3100 W. Big Beam Rd.
Troy, MI 48034-3163
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 409 Verdae Properties, Inc.
20 Haywood Rd. Ste D Box 2287
Greenville, SC 29607 Greenville, SC 29602
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 410 Marx Realty & Improvement Co
6125 University Drive NW #D1 708 Third Ave, 15th Floor
Huntsville, AL 35806 New York, NY 10017
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 413 Centre Limited Partnership
3725 Airport Blvd, STE 133 7000 Wet Palmetto Park Road
Mobile, AL 36608 Boca Raton, FL 33433
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 415 Brown
3684 Ridgeway Stanley Graber and Joel W.
Memphis, TN 38115 c/o Graber Investments
4646 Poplar Ave Suite 245
Memphis, TN 38117
========================= ==================================== ========================================
</TABLE>
<PAGE>
11
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 416 The Macerich Company
81-B Forest Drive 233 Wilshire Blvd
Annapolis, MD 21401 Santa Monica, CA 90406
copy to:
Thomas J. Leanse
Katten Muchin Zavis & Weitzman
1999 Avenue of the Stars
Suite 1400
Los Angeles, CA 90067-6042
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 417 Hughes/Lyon Downey
147 Stonewood Street c/o Hughes/Purcell
Space A-35 800 Newport Center Dr
Downey, CA 90241 Suite 250
Newport Beach, CA 92660
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 418 Harman Asset Management
315 N. Magnolia Athena Harman
El Cajon, CA 92020 7835 Ivanhoe Ave
La Jolla, CA 92037
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 420 The Orangefair Company, L.L.C.
136 Orange Fair Mall 433 North Camden Drive, Suite 725
Fullerton, CA 92632 Beverly Hills, CA 90210
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 428 General Growth Management
6633 Fallbrook Avenue, #420 Jim McCarthy
West Hills, CA 91307 6633 Fallbrook Avenue #628
West Hills, CA 91307
Pollack Meyers & Rosenblun
Bell Atlantic Tower, 37th Floor
1717 Arch Street
Philadelphia, PA 19103
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 429 S.B.D. Properties, a California
16310 BeachBlvd General Partnership
Westminster, CA 92683 901 Civic Center West, Suite 300
Santa Ana, CA 92703
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 430 B. Dalton Booksellers
1532-A Parham Road 1501 LBJ Freeway
Richmond, VA 23229 Dallas, TX 75234
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 431 Heitman Retail Properties
5038 Miller Road, Suite D Joel Erickson
Flint, MI 48507 3341 South Linden Road
Flint, MI 48507
========================= ==================================== ========================================
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 433 Retail Fund Limited Partnership
1670 Airport Blvd c/o New Market Management Associate
Pensacola FL 32504 3350 Cumberland Circle, #1500
Atlanta, GA 30339
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 436 Casual Wear Inc.
2088 North Gallatin Road 3460 Galleria Circle
Madison, TN 37115 Birmingham, AL 35244
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 437 Property Fund Four Ltd
5314 Mountain View Road Paine Webber Qualified Plan
Antioch, TN 37013 265 Franklin Street, 16th floor
Boston, MA 02110
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 438 French Riviera Health Spa Inc.
3908 Veterans Blvd 3908 Veterans Blvd
Metairie, LA 70002 Metairie, LA 70001
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 439 Jeanne Irwin, Counsel
3640 Eisenhower Pkwy., Ste. 9 Unum Life Insurance Company of America
Macon, GA 31206 2211 Congress Street, K339
Portland, ME 04122-0590
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 442 Franklin Carriage Gate Associates
3425 Thomsville Road c/o Regency Realty Corp.
Tallahassee FL 32308 121 West Forsyth Street, Suite 200
Jacksonville, FL 32202
Copy to:
Laurie Selber Silverstein, Esq.
Potter Anderson & Corroon
350 Delaware Trust Building
Box 951
Wilmington, DE 19801
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 443 Janaf Assoc. LP
5900 East Virginia Beach Blvd. c/o McKinley Commercial, Inc.
Norfolk, VA 23510 For Bankers Trust
320 N. Main, Suite 200
Ann Arbor, MI 48104
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 450 Townline Square, L.P.
826 South Wheatly Street, STE B 1818 Crane Ridge Drive
Ridgeland, MS 39157 Jackson, MS 39216
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 451 Cumberland Real Estate
3701 Austell Road Perry Alterman
Marietta, GA 30062 333 Sandy Springs Circle
Suite 227
Altanta, GA 30328
========================= ==================================== ========================================
</TABLE>
<PAGE>
13
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 452 Seymour N Logan Associates
6175 South Westnedge Avenue c/o Maureen Potter
Portage, MI 49002 Varnum, Riddering, Schmidt & Howlett
Post Office Box 352
Grand Rapids, MI 49501-0352
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 453 Company, a California general
4645 Silva Street partnership
Lakewood, CA 90712 Lakewood Mall Shopping Center
c/o The Mace Rich Company
233 Wilshire Blvd, Suite 700
Santa Monica, CA 90401
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 454 Colonial Properties, Inc.
3439-D McGehee Road Joe Escaravage
Montgomery, AL 36111 Interstate Park Center
2000 Interstate Park Drive #703
Montgomery, AL 36109
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 455 Fourteen Mile and Haggerty Partnership
7390 S. Haggerty 1577 N. Woodward Avenue
W. Bloomfield, MI 48322 Suite 240
Bloomfield Hills, MI 48304
Southfield, MI 48034
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 456 Shreve City Shopping Center
1103 Shreveport-Barksdale Hwy. Stanley R Gumberg,Trustee
Shreveport, LA 71105 c/o J.J. Gumberg Company
1051 Brinton Road
Pittsburgh, PA 15221
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 458 Cap-Lafayette Investors
5700 Johnston, B20 c/o Centennial American Properties
Lafayette, LA 70503 2100 River Edge Parkway, Suite 680
Atlanta, GA 35290
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 461 California Joint Ventura
585 N. McKinley Street Corona Hills Marketplace a
Corona, CA 91719 Gatlin Development Co.
12625 High Bluff Drive, Suite 304
San Diego, CA 92130
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 463 Fayetteville Morganton Road
5075 Morganton Road Associates, LP
Fayetteville, NC 28314 c/o Paragon Groug
5821 Fairview Road #302
Charlotte, NC 28209
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 465 Krausz Enterprises
11231 183rd Street 651 Gateway Boulevard
Cerritos, CA 90701 Suite 1010
San Francisco, CA 94080
========================= ==================================== ========================================
</TABLE>
<PAGE>
14
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 474 Harriet Stone
510-520 Broadway 6566 Ridge Mann Ave.
Chula Vista, CA 91910 San Diego, CA 92120
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 475 Seattle First National Bank
5801 South Sprague Ct. Richard H. Anderson
Tacoma, WA 98409 c/o Investment Consolas, CSC-4
P.O. Box 3371
Seattle, WA 98124-1471
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 477 Dennis Cronk
4035 Electric Road, SW 30 West Franklin Road
Roanoke, VA 24014 Suite 800
Roanoke, VA 24011
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 478 Federal Realty Investment Trust
3031 Nutley St. 4800 Hampden Ln. Ste. 500
Fairfax, VA 22031 Bethesda, MD 20814
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 480 The Plaza At West Covina
320 S. California Ave. 1200 W. Covina Pkway, Ste. 112
West Covina, CA 91790 W. Covina, CA 91790
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 481 Antelope Valley Zone
1401 West Avenue P c/o Jerome White
Palmdale, CA 93551 10801 National Blvd #600
Los Angeles, CA 90064
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 501 c/o Bruce S. Shelby
10201 B Katy Freeway Milton Boniak, M.D.
Houston, TX 77024 1800 Bering Drive
Suite 495
Houston, TX 77057
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 502 Intercity Investment Properties, Inc.
4016-20 Bellaire Blvd. Mr. Bert Jordan
Houston, TX 77025 4301 Westside Dr. #100
Dallas, Texas 75209-6546
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 504 6464 TC Associates Ltd. Partnership
124 E. FM 1960 Bypass One Westchase Center
Humble, TX 77338 10777 Westheimer, Suite 800
Houston, Texas 77042
copy to:
Dow Coburn & Friedman
Attn: Tammy Haynes
9 Greenway Plaza
Suite 2300
Houston, TX 77056
========================= ==================================== ========================================
</TABLE>
<PAGE>
15
<TABLE>
<CAPTION>
========================= ===================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------- ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 506 HPI, Ltd.
1201 North Central Expressway No. 30 PO Box 97772
Plano, TX 75075 Dallas, Texas 75397-7772
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 511 MPC Group, Inc.
4860 S.W. Loop 820 Leslye Jones (Updated D19-94)
Ft. Worth, TX 76109-4420 12170 Abrams Road, Ste. 220
Dallas, TX 75243
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 512 Owned Property
15240 Dallas Parkway
Dallas, TX 75248
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 513 NCC - Sandhill
648 Blossom Hill Road c/o Nikko Capital Corp.
San Jose, CA 95123 3961 MacArthur Blvd. Ste. 105
Newport Beach, CA 92660
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 514 Normandy Village, L.P.
7912 North West Lane 1821 East Hammon Lane, Suite E
Stockton, CA 95210 Stockton, CA 95210
Attn: Leasing Coordinator
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 516 Deejay Associates, an Oklahoma Prtnshp.
2501 W. Memorial Road #105 400 South Highway 169, Suite 800
Oklahoma City, OK 73134 Minneapolis, MN 55426
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 517 Sollco L.C.
9919 E. 71st Street c/o Omega Development Corp.
Tulsa, OK 74133 6450 South Lewis Avenue, Ste. 200
Tulsa, OK 74136
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 518 Citadel Crossing Assoc.
855 N. Academy Blvd c/o The Summit Commercial Group
Colorado Springs, CO 80909 101 North Cascade Avenue, Suite 320
Colorado Springs, CO 80903
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 521 McNeil Real Estate Fund XXIV, L.P.
6351 Mack Road c/o McNeil Real Estate Management
Sacramento, CA 95823 535 East 4500 South, Suite #D-140
Salt Lake City, UT 84107-2966
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 522 Kivel Revoccable Trust
6238 E. Broadway Blvd. 5820 E. Broadway
Tuscon, AZ 85711 Tuscon, AZ 85711
Attn: J. Kivel
- ------------------------- ------------------------------------- ----------------------------------------
Discovery Zone, Inc. 523 Naomi Bujulian
455 East Shaw Avenue 6179 N. Palm Avenue
Fresno, CA 93710 Fresno, CA 93704
========================= ===================================== ========================================
</TABLE>
<PAGE>
16
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 524 Hawkins Companies
8567 West Franklin Road Rosie White
Boise, ID 83709 10346 Overland Road
Boise, ID 83709
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 525 Randall's Properties
Randall Center c/o Wolfe Management Services, Inc.
1822 SE Beltway 8 7026 Old Katz Road
Pasadena, TX 77503 Suite 301
Houston, TX 77029
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 526 Commonwealth Equity Trust
7155 Greenback Lane 705 University Ave.
Citrus Heights, CA 95610 Sacramento, CA 95825-6797
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 527 Beverly & Henry Rowan
3500 Sisk Road c/o Liberty Property Management
Modesto, CA 95356 1230 E. Orangeburg Ave., #C
Modesto, CA 95350
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 532 Pacific Mutual Life Insurance Co.
6300 San Mateo NE #G Attn: Jeffery R. Dey
Albuquerque, NM 87109 Re: REO-3500 Far North Shopping Center
700 Newport Center Drive
Newport Beach, CA 92660
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 541 EQUITY DEVELOPMENT CORPORATION
5011 Slide Road 519 Gibson Street
Lubbock, TX 79414 Seagoville, TX 75159
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 542 Price Edwards & Company
7110 South I-35 Service Road Dolores Rader
Oklahoma City, OK 73149 1601 Northwest Expressway
Suite 500 Equity Tower
Oklahoma, OK 73118-1400
Allen Gann
Crossroads Shopping Center Inc.
1 North Hudson #200W
Oklahoma City, OK 73102
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 544 Eastgate Center Ltd.
9801 Gateway Blvd. W. - #9 c/o The Sudler Companies
El Paso, TX 79925 75 Eisenhower Parkway
Roseland, NJ 07068
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 546 Triangle II Partners, Ltd.
Gateway Square 301 Congress Ave.
9503 Research Boulevard #500 Suite 1300
Austin, TX 78759 Austin, TX 78701
========================= ==================================== ========================================
</TABLE>
<PAGE>
17
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 547 DGM Group dba Waikele Factory Stores
Waikele Center 700 Bishop St., Suite 200
94-792 Lumiana Street Honolulu, HI 96813
Waipahu, HI 96797
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 549 Boyer Plaza 5400 Associates
1836 West 5400 South 127 S. 500 East 320
Taylorsville, UT 84118 Salt Lake City, UT 84102
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 551 Owned Property
(Land Only)
Reserve G at Town Center
Sugarland, TX 75060
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 552 Beltline & Airport Freeway J.V.
3301 W. Airport Freeway c/o Cencor Realty Services, Inc.
Irving, TX 75060 3102 Maple Avenue, Suite #500
Dallas, Texas 75201
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 553 Parkway Plaza Reo, LP
Parkdale Mall P.O. Box 5696
5755 Easter Freeway Beaumont, TX 77726
Beaumont, TX 77706
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 554 Robert W. Moore Company
7500 East Kellog - #100 Attn: Mickey Clagg
Wichita, KS 67207 701 N.W. 5th Street
Oklahoma City, OK 73102
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 555 Wal-Mart Stores, Inc.
4715 Billingsley Blvd Attn: Property management
Midland, TX 79705 701 S. Walton Blvd.
Bentonville, AR 72716
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 556 Brookhill III Limited Liability co.
9110 Wadsworth Pkwy. Attn: Mr. James Sullivan
Westminster, CO 80021 1001 Lincoln Street
Denver, CO 80203
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 559 KV Associates
2326 FM 1960 West c/o S.C. Management Co.
Houston, TX 77068 2189 FM 1960 West, #227
Houston, TX 77268
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 560 Sunset-Renee Properties
444 Lancaster Drive, NE 2264 McGillchrist Street SE
Salem, OR 97301 Suite 200
Salem, OR 97302-1147
========================= ==================================== ========================================
</TABLE>
<PAGE>
18
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 561 Hunter Properties
217 Ranch Drive Attn: Property Management
Milpitas, CA 95035 20725 Valley Green Drive
Suite 100
Cupertino, CA 98014
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 563 Spieker Properties
2541-43 El Camino Real 4900 Hopyard Rd.
Redwood City, CA 94063 Pleasanton, CA 94588
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 565 General Growth Management, Inc.
3000 Gateway Street, #412 Attn: General Counsel
Springfield OR 97477 400 South Hwy. 169, Suite 800
Minneapolis, MN 55426
Copy to:
Pollack Meyers & Rosenblum
Bell Atlantic Tower, 37th Floor
1717 Arch Street
Philadelphia, PA 19103
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 566 Sterik Company
930 N. San Fernando c/o Auberndale Properties, Inc.
Burbank, CA 91504 828 Moraga Drive
Bel Air, CA 90049
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 571 Calfano N.W. Partnership
7809 B Vancouver Plaza #180 2445 Belmont Avenue
Vancouver, WA 98662 P.O. Box 2186
Youngstown, OH 44504-0186
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 716 D & S Realty Co.
6420 Mayfield Road #1609 8255 East Washington Street
Mayfield Heights, OH 44124 Chagrin Falls, OH 44023
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 720 RD Merrillville Associates, L.P.
Merrillville Plaza c/o Acadia Management Company
1700 E. 80th Street 20 Soundview Marketplace
Merrillville, IN 46410 Port Washington, NY 11050
copy to:
Robert Masters, Esq.
20 Soundview Marketplace
Port Washington, NY 11050
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 725 T&S Development Company
1952 Bucholzer Blvd. Dr. George Saad
Akron, OH 44310 4269 Pearl Rd.
Ste. 401
Cleveland, OH 44109
========================= ==================================== ========================================
</TABLE>
<PAGE>
19
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 731 Lat Purser & Assoc. Inc.
8102-27A Blanding Blvd John Hancock Realty Income
Jacksonville, FL 32244 901 South Kings Drive, Suite 100
Denise Howard, President
Charlotte, NC 28204
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 732 Zaremba Group, Inc.
4377 Whipple Avenue, NW Sandra Ginnis
Canton, OH 44718 14600 Detroit Avenue
Suite 1500
Lakewood, OH 44107
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 733 University Park Joint Venture
205 University Park Drive c/o Colonial Properties
Winter Park, FL 32792 PO Box 11687
Birmingham, AL 35202-1687
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 734 Shopping Ctr. Equities
Discovery Zone Plaza 4347-10 Univ. Blvd. South
10732 Atlantic Blvd. Jacksonville, FL 32216
Jacksonville, FL 32225
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 736 Tucker Properties Corp.
5926 Crawfordsville Road c/o Tucker Management
Space 2A Center 5852 Crawfordsville Road
Speedway, IN 46224 Speedway, IN 46224
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 738 Banker's United Assurance Co
4615 Outer Loop 4333 Edgewood Rd., N.E.
Louisville, KY 40219 Cedar Rapids, IA 52499
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 739 Vulcan Properties, Inc.
3441 Hazelton Road Ms. Nancy Miller
Edina, MN 55435 c/o Eberhardt Co.
PO Box 1385
Minneapolis, MN 55440
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 740 Hasam Realty Ltd. Partnership
1403 E. Hallandale Beach Blvd. 1725 E. Hallandale Beach Blvd.
Hallandale, FL 33009 Hallandale, FL 33009
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 745 Taylorhurst Assoc.
2030 South Hustbourne Pkwy c/o THP Devleop. Co.
Louisville, KY 40220 10000 Shelbyville Rd., Suite 221
Louisville, KY 40223
========================= ==================================== ========================================
</TABLE>
<PAGE>
20
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 746 Shoppes of Coldwater, Inc.
5321 Coldwater Road c/o Trammell Crow Co
Fort Wayne, IN 46825 Two Pierce Place
Suite 700
Itasca, IL 60143
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 750 Cynwyd Investors
13700 SW 84th Street 725 Conshohocken State Rd.
Miami, FL 33183 BalaCynwyd, PA 19004
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 753 Capitol South, Inc.
12450 Tesson Ferry Rd. 11850 Studt Ave.
St. Louis, MO 63128 St. Louis, MO 63141
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 754 Bradley Real Estate Trust c/o
Shopping Center The Koman Group
2B Grandview Plaza One Cityplace Drive, Ste. 540
Florissant, MO 63033 St. Louis, MO 63141
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 755 Pines Palm West Associates
10141 Pines Blvd, #405 c/o Ross Realty Investments, Inc.
Pembroke Pines, FL 33026 10021 Pines Blvd, #101
Pennbroke Pines, FL 33026
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 758 Danis Properties L.P.
4286 US Highway 98 North 09500 Satellite Boulevard
Lakeland, FL 33809 Orlando, FL 32837
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 759 Rockford Joint Venture
Forest Plaza P.O. Box 5749
6055 East State St. Indianapolis, IN 46255
Rockford, IL 61107
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 760 Flynn and Zinkan Realty
9493 East Washington Street Attention: Kelly Flynn
Indianapolis, IN 46229 36 S. Pennsylvania Street
Suite 750
Indianapolis, IN 46204
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 761 COLUMBUS JOINT VENTURE
2745 Northland Plaza Drive c/o M.S. Management
Columbus, OH 43229 Associates Inc.
115 W. Washington St,
PO Box 7033
Indianapolis, IN 46207
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 763 The Shaw Company, Inc.
4617 Verona Road Madison Plaza Limited Partnership
Madison, WI 53711 802 W. Broadwaye
Suite 104
Madison, WI 53713
========================= ==================================== ========================================
</TABLE>
<PAGE>
21
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 764 Appleton Shops Ltd Prt
728 N. Casaloma Drive c/o Chase Properties
Appleton, WI 54915 25825 Science Park Drive
Suite 355
Benchwood, OH 44122
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 769 Battlefield Real Estate, Inc.
319 East Battlefield 1275 Peachtree Street
Springfield, MO 65807 Suite 100
Atlanta, GA 30367-1801
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 771 National Amusements, Inc.
5225 Monroe Street 200 Elm Street
Toledo, OH 43602-3603 Dedham, MA 02026
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 773 c/o First Wilshire Corporation
2002 Northway Mall of Penn.
Pittsburgh, PA 15237 Southmark Equity Partners, III
1550 McKnight Road
Pittsburgh, PA 15237
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 779 New Plan Realty Trust
4365 Merle Hay Road 1120 Avenue of the Americas
Des Moines, IA 50310 New York, New York 10036
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 780 Albert Ratner, Trustee
Parma Town Plaza c/o RMS Investment Corp.
7601 W. Ridgewood Rd. P.O. Box 30462
Parma, OH 44129 Cleveland, OH 44120-1199
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 785 M.S. Management Company
1429 S. Reed Road David B. Smith, Tenant Coord.
Kokomo, IN 46902 Merchants Plaza
P.O. Box 7033
Indianapolis, IN 46207
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 787 Tucker Financing Partnership
910 W. Lake 40 Skokie Boulevard Suite 600
Sheridan Rd. & Lake St. Northbrook, IL 60062
Peoria, IL 61614
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 788 Shopping Center
300 Mall Blvd. Management/Monroeville
Monroeville, PA 15146 One Turnberry Place
19495 Biscayne Blvd., Suite 900
Aventura, FL 33180
========================= ==================================== ========================================
</TABLE>
<PAGE>
22
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone, Inc. 792 Bernard Schononger Shopping
7091-9 College Parkway Centers, Ltd.
Ft. Myers, FL 33907 5821 Hollywood Boulevard
Suite 202
Hollywood, CA 33021
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 795 Andrew C. Teske, Esq.
2779 S. Oneida Street Attorney for WILC/Ashwaubenon
Ste. 101 Limited Partnership
Green Bay, WI 54304 13400 Bishops Lane, Suite 100
Brookfield, WI 53005
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 796 Trust Realty Corp.
Greenwood Shopping Center c/o Schottenstein
1238 US 31 North 1798 Fredit Ave.
Greenwood, IN 46142 Columbus, OH 43206
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 797 Developers Diversified of Alabama, Inc.
7001 Crestwood Blvd., 34555 Chagrin Blvd.
Ste. 700 P.O. Box 8022
Birmingham, AL 35210 Moreland Hills, OH 44022-8022
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 801 G.S.G. Properties, LLC
4150 Grape Road 401 S. Lafayette Blvd.
Mishawaka, IN 46545 P.O. Box 4056
South Bend, IN 46634-4056
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 802 Jamestown Management Corporation
1956 Mt. Zion Road One Lakeside Commons
Morrow, GA 30260 990 Hammond Drive, Suite 520
Atlanta, GA 30328
Attn: Richard D. Crossley
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 803 Cedar Creek Factory Stores Shopping
10101 Market Street, Ste. A5 Center
Mosinee, WI 54455 9001 Business Highway #51
Wausau, WI 54401
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone, Inc. 804 Associates Ltd.
1999 Barataria Blvd. Marrero Land & Improvement
Marrero, LA 70072 5201 Westbank Expressway
Marrero, LA 70022
========================= ==================================== ========================================
</TABLE>
<PAGE>
Exhibit 4.8
================================================================================
SUBSIDIARY
PLEDGE AGREEMENT
From
DISCOVERY ZONE LIMITED,
DISCOVERY ZONE (PUERTO RICO), INC.,
DZ PARTY, INC.,
and
DISCOVERY ZONE LICENSING, INC.
as Pledgors
to
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
Dated as of July 22, 1997
================================================================================
<PAGE>
SUBSIDIARY PLEDGE AGREEMENT
This SUBSIDIARY PLEDGE AGREEMENT (together with any amendments,
replacements and supplements hereafter entered into, the "SUBSIDIARY PLEDGE
AGREEMENT"), dated as of July 22, 1997, between Discovery Zone Limited, an
entity formed under the laws of Canada ("DZL"), Discovery Zone (Puerto Rico),
Inc., a corporation formed under the laws of Puerto Rico ("DZPR"), DZ Party,
Inc., a Delaware corporation ("DZPI"), Discovery Zone Licensing, Inc., a Nevada
corporation (together with DZL, DZPR, DZPI and any subsidiaries of the Company
that may become Subsidiary Guarantors after the date hereof and their permitted
respective successors and assigns, the "PLEDGORS" and, each individually, a
"PLEDGOR"), and State Street Bank and Trust Company as Trustee under the
Indenture (as defined below), acting as Collateral Agent hereunder (together
with its successors and assigns, in such capacity, the "COLLATERAL AGENT"), is
made for the ratable benefit of the Holders. As used herein, all capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Indenture, dated as of July 22, 1997 (together with all amendments and
supplements thereto, the "INDENTURE"), among Discovery Zone, Inc., a Delaware
corporation (the "COMPANY"), Pledgors and the Collateral Agent, relating to the
Company's 13 1/2% Senior Secured Notes due 2002 (the "INITIAL NOTES") and
13 1/2% Senior Secured Notes due 2002, Series B to be issued in exchange for
the Initial Notes pursuant to the Registration Rights Agreement, the Purchase
Agreement and the Indenture ("EXCHANGE NOTES" and, together with the Initial
Notes, the "NOTES"), as amended from time to time in accordance with the
terms thereof.
W I T N E S S E T H:
WHEREAS, the Company has issued or will issue $85 million aggregate
principal amount of Notes pursuant to the Indenture;
WHEREAS, each Pledgor, is or, as of the Issue Date (assuming that the
Confirmation Order (as defined in the Plan of Reorganization) has become a Final
Order (as defined in the Plan of Reorganization) and the Approved Plan (as
defined in the Plan of Reorganization) has become Effective (as defined in the
Plan of
-1-
<PAGE>
Reorganization)), will be the legal and beneficial owner of the issued and
outstanding shares of Capital Stock set forth under such Pledgor's name on
Schedule A attached hereto;
WHEREAS, pursuant to the Indenture or a supplement thereto, each
Pledgor has guaranteed the payment and performance in full of the Obligations of
the Company and the Pledgors under the Indenture and the Notes (the "SUBSIDIARY
GUARANTEES"); and
WHEREAS, in order to secure the payment and performance of the
Obligations secured by the Subsidiary Guarantees, the parties hereto desire to
set forth their mutual understanding and certain agreements regarding the terms
and conditions of the pledge of the Pledged Collateral (as defined below) made
by the Pledgors to the Collateral Agent for the ratable benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and other benefits to
the Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. PLEDGE. As collateral security for the complete
payment and performance in full of all the Obligations of the Company and the
Pledgors under the Indenture, the Notes and the Collateral Agreements (as
contemplated by Article Eight of the Indenture), each Pledgor hereby pledges,
assigns, transfers, sets over and delivers unto the Collateral Agent, and hereby
grants unto the Collateral Agent for the ratable benefit of the Holders and unto
their respective successors and assigns, a continuing first priority security
interest in all of the right, title and interest of each Pledgor in, to and
under any and all of the following described property, rights and interests
(collectively, the "PLEDGED COLLATERAL"):
(a) all of the issued and outstanding shares of Capital Stock
identified on Schedule A attached hereto as being owned by each Pledgor in any
of its subsidiaries (the "PLEDGED SUBSIDIARIES");
(b) all other shares of Capital Stock or other equity securities
issued, or in the future issued by the Pledged Subsidiaries now or hereafter
owned or acquired by each Pledgor in any manner, and the certificates
representing such securities,
-2-
<PAGE>
and any present or future options, warrants or other rights to subscribe for or
purchase any property described in Section 1(a) or any notes, bonds, debentures
or other evidences of indebtedness that are at any time convertible,
exchangeable or exercisable into Capital Stock or other equity securities of the
Pledged Subsidiaries or have or at any time could by their terms have voting
rights with respect to any matter affecting the Pledged Subsidiaries and all
securities, certificates and instruments representing or evidencing ownership of
any of the property described in Section 1(a) and this Section 1(b) hereof;
(c) all shares of Capital Stock, other equity securities of any
entity issued to each Pledgor or any other security described in Section 1(b)
if, at the time of issuance, the entity is or as a result of such issuance
becomes a subsidiary under the Indenture (the property described in Section
1(a), Section 1(b) and this Section 1(c) being referred to herein collectively
as the "PLEDGED SECURITIES");
(d) any additional property of the kind or type described in
this Section 1 required to be supplied under the terms of this Subsidiary Pledge
Agreement; and
(e) all proceeds and products of the Pledged Securities,
including without limitation dividends, distributions, cash, instruments and
other property or securities, now or hereafter at any time or from time to time
received or receivable or otherwise distributed or distributable in respect of
or in exchange for any or all of the Pledged Securities;
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, powers, privileges and preferences pertaining or incidental
thereto, unto the Collateral Agent for its benefit and the benefit of the
Holders and unto their respective successors and assigns.
Section 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PLEDGOR. Each of the Pledgors hereby represents and warrants (as of the date of
execution hereof as to the Pledged Collateral existing on such date and as of
the date of acquisition as to the Pledged Collateral acquired subsequently),
covenants and agrees that:
-3-
<PAGE>
(a) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), each
Pledgor will be the legal and beneficial owner of the Pledged Collateral, will
hold the Pledged Collateral free and clear of all Liens (except for the security
interest granted hereunder to the Collateral Agent for the ratable benefit of
Holders and except for Liens for taxes not yet payable and except for Permitted
Liens (other than the Permitted Liens with respect to the Eligible Credit
Facility)), and has not made and will not make any other pledge, assignment,
mortgage, hypothecation or transfer of the Pledged Collateral except for
Permitted Liens.
(b) The Pledged Securities have been or, upon the Issue Date
(assuming that the Confirmation Order has become a Final Order and the Approved
Plan has become Effective), will be duly authorized and validly issued and are
fully paid and non-assessable.
(c) Upon delivery of physical certificates evidencing the
Pledged Securities to the Collateral Agent, and the continued possession thereof
by the Collateral Agent, the Collateral Agent will have a continuing perfected
first priority security interest in the Pledged Securities, securing all of the
Obligations.
(d) As of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan has become Effective), each
Pledgor will have the requisite corporate power and authority to pledge the
Pledged Collateral in accordance herewith and will defend its title thereto
against the claims of all persons whomsoever and shall maintain and preserve the
security interest granted hereunder with respect to the Pledged Collateral as
long as this Subsidiary Pledge Agreement shall remain in full force and effect,
subject to the Permitted Liens.
(e) Neither the execution and delivery of this Subsidiary Pledge
Agreement by any Pledgor, the performance by each Pledgor of its obligations
hereunder, nor the transactions herein contemplated will violate any Pledgor's
or any Pledged Subsidiary's Certificate of Incorporation or bylaws, each as
currently in effect as of the Issue Date (assuming that the Confirmation Order
has become a Final Order and the Approved Plan
-4-
<PAGE>
has become Effective), violate the terms of any agreement, indenture, mortgage,
deed of trust, equipment lease, instrument or other document to which the
Pledgor or any Pledged Subsidiary is a party, violate any law, order, rule or
regulation applicable to any Pledgor or any Pledged Subsidiary of any court or
any government, regulatory body or administrative agency or other governmental
body having jurisdiction over any Pledgor or any Pledged Subsidiary or their
properties, or result in or require the creation or imposition of any Lien
(other than the Lien contemplated hereby), upon or with respect to any of the
property now owned or hereafter acquired by any Pledgor or any Pledged
Subsidiary, which violation or conflict would have a material adverse effect on
the financial condition, business, assets or liabilities of any Pledgor or any
Pledged Subsidiary, taken as a whole, or on the value of the Pledged Collateral
or on the security interests hereunder.
(f) Other than the occurrence of the Issue Date (assuming that
the Confirmation Order has become a Final Order and the Approved Plan has become
Effective), the Pledged Securities, described in Schedule A attached hereto,
include all of the issued and outstanding shares of Capital Stock of the Pledged
Subsidiaries, and, as of the date of execution hereof, there are no outstanding
options, warrants or other rights to subscribe for or purchase any property
described in Section 1(a) or any notes, bonds, debentures or other evidences of
indebtedness that are at any time convertible into Capital Stock of the Pledged
Subsidiaries or have or at any time could by their terms have voting rights with
respect to any matters affecting the Pledged Subsidiaries.
(g) Other than the occurrence of the Issue Date (assuming that
the Confirmation Order has become a Final Order and the Approved Plan has become
Effective), no consent or approval which has not been obtained prior to the date
hereof of any other person or entity, no authorization, approval or other action
(other than delivery of physical certificates evidencing the Pledged Securities)
by, and no notice to or filing with, any governmental body (other than UCC
filings), regulatory authority or securities exchange, was or is necessary as a
condition to the validity of the pledge hereunder of the Pledged Collateral, and
such pledge is effective to vest in the Collateral Agent the rights of the
Collateral Agent in the Pledged Collateral as set forth herein. Except under
the Indenture and this Pledge
-5-
<PAGE>
Agreement, there are no restrictions on the transferability of any of the
Pledged Collateral transferred or delivered by any Pledgor hereunder or, except
for restrictions related to federal and state securities laws governing the sale
of "restricted stock" or "control stock," with respect to the foreclosure,
transfer or disposition thereof by the Collateral Agent.
(h) Each Pledgor shall deliver to the Collateral Agent
concurrently with the execution of this Subsidiary Pledge Agreement or, to the
extent acquired subsequent to the date of execution hereof, immediately upon
such Pledgor's acquisition thereof, all certificates and instruments
representing the Pledged Securities, and each other item of Pledged Collateral
(including all certificates, instruments and notes representing any such Pledged
Collateral). Any and all Pledged Securities so delivered to the Collateral
Agent shall be accompanied by undated duly executed powers in blank and by such
other instruments of transfer or documents as the Collateral Agent may
reasonably request. The Collateral Agent shall hold the certificates
representing the Pledged Securities delivered to it in its own name or in the
name of its nominee, all in form and substance satisfactory to the Collateral
Agent. Each Pledgor hereby acknowledges that the Collateral Agent may, in its
discretion, appoint one or more financial institutions to act as the Collateral
Agent's agent in holding in custodial accounts instruments or other financial
assets in which the Collateral Agent is granted a security interest hereunder,
including, without limitation, certificates of deposit and other instruments
evidencing short term obligations.
(i) The Collateral Agent shall at all times have full and free
access during normal business hours to all of the books, correspondence and
records of each Pledgor relating to the Pledged Collateral (other than
information that is privileged and confidential) and the Collateral Agent and
its representatives may examine the same, make abstracts therefrom and make
photocopies thereof, and each Pledgor agrees to render to the Collateral Agent,
at such Pledgor's costs and expense, such clerical and other assistance as may
be requested by the Collateral Agent with regard thereto.
(j) No Pledgor shall permit any of the Pledged Subsidiaries to
issue any securities of the type required to be pledged hereunder unless such
securities are promptly pledged and
-6-
<PAGE>
delivered hereunder to the Collateral Agent in accordance with Section 2(h).
(k) If, while this Subsidiary Pledge Agreement is in effect, any
stock dividend, stock split, reclassification, readjustment, reorganization,
merger, consolidation, exchange offer, tender offer or other change in the
capital structure, including the creation of any subscription or other rights
relating to the Pledged Securities, is declared or made, by any of the Pledged
Subsidiaries or any other issuer of Pledged Collateral, all substituted and
additional securities or interest issued with respect to the Pledged Collateral
and evidenced by certificates shall be endorsed in blank by each Pledgor
promptly upon receipt thereof or otherwise appropriately transferred to the
Collateral Agent in negotiable form, and all certificates or instruments
evidencing such securities shall be delivered to the Collateral Agent to be held
under the terms of this Subsidiary Pledge Agreement in the same manner as, and
as a part of, the Pledged Collateral. All Pledged Securities shall be evidenced
by one or more certificates. Any securities that may be issued upon exercise of
any subscription or other rights relating to the Pledged Securities shall be
endorsed in blank and delivered to the Collateral Agent with any necessary
powers.
(l) Each Pledgor shall pay and discharge all taxes, assessments
and governmental charges or levies against any Pledged Collateral prior to
delinquency thereof and shall keep all Pledged Collateral free of all unpaid
charges whatsoever, unless contested in good faith by appropriate proceedings
properly instituted and diligently conducted and adequate reserves have been set
aside in accordance with GAAP.
(m) Each Pledgor shall promptly notify the Collateral Agent in
writing of any material changes in any fact or circumstance represented or
warranted by the Pledgor with respect to any material portion of the Pledged
Collateral, of any impairment of the Pledged Collateral and of any claim, action
or proceeding affecting title to all or any of the Pledged Collateral.
(n) The chief executive offices and principal places of business
of each Pledgor are located at 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 and 50 Main Street, White Plains, New York 10606. No Pledgor
shall relocate
-7-
<PAGE>
its principal places of business or chief executive offices to another county or
state or change its name, identity or corporate structure unless such Pledgor
(i) gives at least thirty (30) days' prior written notice to the Collateral
Agent, which notice shall specify such new name, identity, corporate structure
or new location and provide such other information as the Collateral Agent may
reasonably request and (ii) takes all action reasonably satisfactory to the
Collateral Agent to maintain the security interest of the Collateral Agent in
the Collateral.
(o) Upon any Pledgor acquiring or forming any subsidiary, such
Pledgor shall amend Schedule A attached hereto to include such subsidiary and
such subsidiary shall thenceforth be treated hereunder for all purposes as a
Pledged Subsidiary and all shares of Capital Stock or other equity securities of
such subsidiary issued to such Pledgor shall be treated hereunder for all
purposes as Pledged Collateral.
Section 3. ADMINISTRATION OF THE PLEDGED COLLATERAL. The
Collateral Agent shall administer the Pledged Collateral in accordance with the
provisions hereof and of the Indenture.
Section 4. RELEASE AND SUBSTITUTION OF PLEDGED COLLATERAL. The
Pledged Collateral shall not be released from the security interest created
hereunder and no property shall be substituted for any of the Pledged
Collateral, except in accordance with the provisions of Article Ten of the
Indenture and in accordance with the provisions of Section 18 hereof. The
Collateral Agent shall return the physical certificates and related stock powers
evidencing Pledged Collateral in its possession when so permitted by the
Indenture and this Subsidiary Pledge Agreement.
Section 5. VOTING RIGHTS, DIVIDENDS, ETC.
(a) Until an Event of Default (as defined below) shall have
occurred and be continuing:
(i) except as otherwise provided in Sections 5(b) and (c)
and Section 6 of this Subsidiary Pledge Agreement, each Pledgor shall be
entitled to exercise any and all voting or consensual rights and powers,
including subscription rights, accruing to an owner of the Pledged Collateral or
any part thereof for any purpose not inconsistent with the terms of this
-8-
<PAGE>
Subsidiary Pledge Agreement or any agreement giving rise to any of the Indenture
Obligations;
(ii) except as otherwise provided in this Subsidiary Pledge
Agreement, each Pledgor shall be entitled to retain and use any and all
dividends, distributions or other payments which are permitted by the Indenture
and paid in cash or property (other than securities which are subject to this
Subsidiary Pledge Agreement) and the Collateral Agent, upon receipt of any of
the foregoing, shall promptly pay or distribute the same to such Pledgor; and
(iii) The Collateral Agent shall execute and deliver to each
Pledgor or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney, dividend orders and other instruments as such Pledgor may
reasonably request for the purpose of enabling it to exercise the voting or
consensual rights and powers which such Pledgor is entitled to exercise pursuant
to the foregoing Section 5(a)(i) or to receive the dividends, distributions or
other payments which such Pledgor is authorized to retain pursuant to the
foregoing Section 5(a)(ii).
(b) Upon the occurrence and during the continuation of an Event
of Default, (i) upon notice from the Collateral Agent, all rights of each
Pledgor to exercise the voting or consensual rights and powers which the Pledgor
would otherwise be entitled to exercise pursuant to Section 5(a)(i), and (ii)
all rights of each Pledgor to receive the dividends, distributions and other
payments which the Pledgor would otherwise be authorized to receive and retain
pursuant to Section 5(a)(ii), shall automatically cease, and all such rights
shall thereupon become vested in the Collateral Agent, which shall then have the
sole and exclusive right and authority to exercise, in its sole discretion, all
such voting and consensual rights and powers and to receive and retain as
Pledged Collateral all such dividends, distributions and other payments.
(c) Upon the occurrence and during the continuation of an Event
of Default, the Collateral Agent shall have the sole and exclusive right and
authority to receive and retain as Pledged Collateral all dividends,
distributions and other payments which are paid on the Pledged Collateral (other
than dividends, distributions or other payments permitted by the
-9-
<PAGE>
Indenture and paid on the shares of common stock of the company issuing such
shares) in cash or property. Any and all money and other property paid over to
or received by the Collateral Agent pursuant to the provisions of Section 5(b)
or this Section 5(c) shall be retained by the Collateral Agent as additional
Pledged Collateral hereunder and shall be administered and applied in accordance
with the provisions of this Subsidiary Pledge Agreement and the Indenture. All
dividends and interest payments which are received by the Pledgor contrary to
the provisions of Section 5(b) or this Section 5(c) shall be received in trust
for the benefit of the Collateral Agent, shall be segregated from other funds of
each Pledgor and shall be forthwith paid over to the Collateral Agent as Pledged
Collateral in the same form as so received (with any necessary endorsement).
Section 6. DEFAULT; REMEDIES.
(a) Defined. For purposes of this Subsidiary Pledge Agreement,
as provided in the preamble of this Subsidiary Pledge Agreement, the terms
"Default" and "Event of Default" shall have the respective meanings provided in
the Indenture.
(b) Exercise of Remedies Under the Subsidiary Pledge Agreement.
If an Event of Default shall have occurred and be continuing, the Collateral
Agent shall commence the taking of such actions (or refrain from taking actions)
toward collection or enforcement of this Subsidiary Pledge Agreement and the
Pledged Collateral (or any portion thereof), including, without limitation,
action toward foreclosure upon any Pledged Collateral, as it deems appropriate
in accordance with and subject to the applicable terms of the Indenture or
within three (3) Business Days after instructions from the Requisite Holders (as
defined in Section 6(f) below), to the extent allowed by law (and subject to the
applicable terms of the Indenture and pursuant to the terms hereof). If any
Event of Default that was the basis for the commencement of such action shall
have been cured or waived, and, in the case where there has been an
acceleration, rescission of such acceleration shall have occurred, in each case
in accordance with the terms of the Indenture, any direction to the Collateral
Agent to take any action in connection with the aforementioned notice shall be
deemed rescinded upon notification by that percentage of Holders necessary to
effect such waiver with respect to such Event of Default as provided for in the
Indenture. The Collateral Agent
-10-
<PAGE>
shall have no obligation to take any collection or enforcement action except
upon satisfaction of the conditions set forth in Section 7.01 and Section 7.02
of the Indenture.
(c) Remedies Generally. If an Event of Default shall have
occurred and be continuing, the Collateral Agent itself or by its agents or
attorneys may exercise any or all of its rights and remedies hereunder or under
the Indenture, or any other instrument or agreement securing, evidencing or
relating to the Obligations, the Notes or under applicable laws (including all
of the rights and remedies of a secured creditor under the Uniform Commercial
Code then in effect in the State of New York, the "UCC"), retain possession of
the Pledged Collateral or sell, assign, transfer, or dispose of, endorse and
deliver the whole or, from time to time, any part of the Pledged Collateral at
public or private sale or sales, at any exchanges, brokers board or at any of
the Collateral Agent's offices or elsewhere, for cash, upon credit or for other
property, for immediate or future delivery, and, to the extent permitted by
applicable law, for such price or prices and on such other terms as the
Collateral Agent may deem commercially reasonable. Upon consummation of any
such sale, the Collateral Agent shall have the right to assign, transfer,
endorse and deliver to the purchaser or purchasers thereof the Pledged
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Pledgors, and each Pledgor hereby waives (to the full extent permitted by law)
all rights of redemption, stay or appraisal which any Pledgor now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Collateral Agent shall give the Pledgors ten (10) days'
written notice (which each Pledgor agrees shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the UCC) in accordance
with Section 19 of the Collateral Agent's intention to make any such public or
private sale. Any such sale shall be held at such time or times and at such
place or places as the Collateral Agent may fix. At any such sale, the Pledged
Collateral, or portion thereof to be sold, may be sold as an entirety or in
separate portions, as the Collateral Agent may, in its sole discretion,
determine. The Collateral Agent 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
Collateral Agent may, without notice or publication, adjourn any public or
private sale
-11-
<PAGE>
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 notice, be made at
the time and place to which the same was so adjourned. In case sale of all or
any part of the Pledged Collateral is made on credit for future delivery, the
Pledged Collateral so sold may be retained by the Collateral Agent until the
sale price is paid by the purchaser or purchasers thereof, but the Collateral
Agent shall not incur any liability 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.
As an alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by suit or suits at law or in equity to exercise
its remedies regarding the Pledged Collateral and sell the Pledged Collateral or
any portion thereof pursuant to judgment or decree of a court or courts having
competent jurisdiction. If under mandatory requirements of applicable law, the
Collateral Agent shall be required to make disposition of the Pledged Collateral
within a period of time that does not permit the giving of notice to the Pledgor
as hereinbefore provided, the Collateral Agent need give the Pledgor only such
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of law.
(d) Remedies; Obtaining the Pledged Collateral Upon Default.
Each Pledgor agrees that if any Event of Default shall have occurred and be
continuing, then and in every such case, and in addition to the rights and
remedies available to a secured party under any applicable provision of the UCC,
or any other applicable law, the Collateral Agent may:
(i) personally, or by agents or attorneys, immediately
take possession of the Pledged Collateral or any part thereof from the Pledgors
or any other person who then has possession of any part thereof, with or without
notice or process of law, in accordance with applicable law, and for that
purpose may enter upon the Pledgors' premises where any of the Pledged
Collateral is located and remove the same;
(ii) instruct the obligor or obligors on any agreement,
instrument or other obligation constituting Pledged Collateral to make any
payment or render any performance required by the terms of such agreement,
instrument or obligation directly to the Collateral Agent or its designee;
-12-
<PAGE>
(iii) sell or otherwise liquidate, or direct the Pledgors to
sell or otherwise liquidate, any or all investments made in whole or in part
with the Pledged Collateral or any part thereof, and take possession of the
proceeds of any such sale or liquidation; and
(iv) take possession of the Pledged Collateral or any part
thereof by directing the Pledgors in writing to deliver the same to the
Collateral Agent at any place or places designated by the Collateral Agent, in
which event the Pledgors shall at their own expense:
(A) forthwith cause the same to be moved to the place
or places so designated by the Collateral Agent and there delivered to the
Collateral Agent;
(B) store and keep any Pledged Collateral so delivered
to the Collateral Agent at such place or places pending further action by the
Collateral Agent as provided in this Section 6(d); and
(C) while any such Pledged Collateral shall be so
stored and kept, provide such guard, security and maintenance services as shall
be necessary to protect the same and to preserve and maintain such Pledged
Collateral in good condition; it being understood that the Pledgors' obligation
so to deliver the Pledged Collateral is of the essence of this Subsidiary Pledge
Agreement and that, accordingly, upon application to a court of equity having
jurisdiction, the Collateral Agent shall be entitled to a decree requiring
specific performance by the Pledgors of such obligation.
(e) Preventing Impairment of the Pledged Collateral. Regardless
of whether or not there shall have occurred any Default or Event of Default, the
Collateral Agent may institute and maintain or cause in the name of the Pledgors
or of the Collateral Agent, or any of them, to be instituted and maintained,
such suits and proceedings as the Collateral Agent may be advised by counsel
shall be necessary or expedient to prevent any impairment of the security
interest in or perfection of the Pledged Collateral in contravention of the
terms of the Indenture. Each Pledgor agrees not to knowingly take or permit to
be taken any action which would impair the Pledged Collateral or the Collateral
Agent's rights in the Pledged Collateral.
-13-
<PAGE>
(f) Requisite Holders. For purposes of this Section 6,
"Requisite Holders" means the Holder or Holders of a majority in principal
amount of the outstanding Notes or as otherwise provided in Article Six of the
Indenture.
Section 7. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Each
Pledgor hereby constitutes and appoints the Collateral Agent its
attorney-in-fact for the purpose of carrying out the provisions, but subject to
the terms and conditions, of this Subsidiary Pledge Agreement and taking any
action and executing any instrument, including, without limitation, any
financing statement or continuation statement, and taking any other action to
maintain the validity, perfection, priority and enforcement of the security
interest intended to be created hereunder, that the Collateral Agent may
reasonably deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest; provided, however, that
nothing herein contained shall be construed as requiring or obligating the
Collateral Agent 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 monies due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted shall give rise to any defense,
counterclaim or right of action against the Collateral Agent, unless the
Collateral Agents actions are taken or omitted to be taken with gross negligence
or bad faith or constitute willful misconduct.
Section 8. PURCHASE OF PLEDGED COLLATERAL BY COLLATERAL AGENT OR
HOLDERS. At any sale of the Pledged Collateral, whether pursuant to power of
sale or otherwise hereunder, the Collateral Agent or any Holder may, to the
extent permitted by applicable law, bid for and purchase, free from any right of
redemption, stay or appraisal (all such rights being hereby waived and released
by each Pledgor to the extent permitted by law), the Pledged Collateral or any
part thereof or an interest therein and upon compliance with the terms of such
sale, may hold, retain, exploit, resell or otherwise dispose of such property
without further accountability to the Pledgors for the proceeds of such sale
(except in the event that there is a surplus of such proceeds in excess of the
Company's and the Pledgor's Obligations under the Indenture, the Notes and the
-14-
<PAGE>
Collateral Agreements, in which case, the Collateral Agent shall account to the
Pledgor for such surplus). Each Pledgor will execute and deliver or cause to be
executed and delivered, such instruments, endorsements, assignments, waivers,
certificates and other documents and take such further action as the Collateral
Agent shall request in connection with any such sale.
Section 9. DISPOSITION OF PROCEEDS. The proceeds of any sale of
the whole or any part of the Pledged Collateral, together with any other monies
held by the Collateral Agent under the provisions of this Subsidiary Pledge
Agreement, shall be applied by the Collateral Agent in accordance with the
provisions of the Indenture.
Section 10. WAIVER OF CLAIMS. Except as otherwise provided in this
Subsidiary Pledge Agreement, EACH PLEDGOR HEREBY WAIVES, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL
AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
PLEDGED COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND
HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED
STATES OR OF ANY STATE, and, to the full extent permitted by applicable law, the
Pledgor hereby further waives:
(a) all damages occasioned by such taking of possession or
disposition except any damages which are the direct result of the Collateral
Agent's negligence, bad faith or willful misconduct;
(b) all other requirements as to the time, place and terms of
sale or other requirements, with respect to the enforcement of the Collateral
Agent's rights and powers hereunder; and
(c) except as provided in Section 6(c) hereof, all rights of
redemption, appraisement, valuation, stay, marshalling of assets, extension or
moratorium, existing at law or in equity, by statute or otherwise, now or
hereafter in force, in order to prevent or delay the enforcement of this
Subsidiary Pledge Agreement or the sale or other disposition of the Pledged
Collateral or any portion thereof, and each Pledgor, for itself
-15-
<PAGE>
and all who may claim under it, insofar as it now or hereafter lawfully may,
hereby waives all such rights.
Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, at law or in equity, of each Pledgor therein
and thereto, and shall be a perpetual bar both at law and in equity against each
Pledgor and against any and all persons claiming or attempting to claim the
Pledged Collateral so sold, optioned or realized upon, or any part thereof,
through and under the Pledgor.
Section 11. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Collateral Agent provided for herein or in the Indenture or in
another agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of any Holder, or now or hereafter existing at law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy of the Collateral Agent or any
Holder provided for herein or in the Indenture, the Notes or in another
agreement pursuant to which a Lien is created in favor of the Collateral Agent
for the benefit of any Holder or now or hereafter existing at law or in equity,
by statute or otherwise. No failure on the part of the Collateral Agent or any
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder or under the Indenture, the Notes or under another agreement pursuant
to which a Lien is created in favor of the Collateral Agent for the benefit of
any Holder or now or hereafter existing at law or in equity, by statute or
otherwise, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on the Pledgors hereunder shall, of itself, entitle the Pledgors to
any other or further notice or demand in the same, similar or other
circumstances.
Section 12. ADDITIONAL PLEDGED COLLATERAL. Without notice or
consent of the Pledgors and without impairment of the security interests and
rights created by this Subsidiary Pledge Agreement, the Collateral Agent may
accept from any Person or Persons additional collateral or other security for
the Obligations of the Company or the Pledgors' under the Indenture
-16-
<PAGE>
or the Notes. Neither the creation of the security interests created hereunder
nor the acceptance of any such additional collateral or security shall prevent
the Collateral Agent from resorting to such additional collateral or security or
to the Pledged Collateral, in any order, without affecting the Collateral
Agent's rights hereunder.
Section 13. FURTHER ASSURANCES. Each Pledgor agrees that it shall,
at its own expense, promptly file or record such notices, financing statements,
continuation statements or other documents and take all further action as may be
necessary to perfect, maintain and protect the perfection of the security
interests of the Collateral Agent hereunder or to enable the Collateral Agent to
exercise and enforce its rights and remedies hereunder with respect to the
Pledged Collateral, and as the Collateral Agent may reasonably request, such
instruments to be in form and substance satisfactory to the Collateral Agent,
and that it shall, at its own expense, do such further acts and things and
execute and deliver to the Collateral Agent such additional conveyances,
assignments, endorsements, agreements and instruments as the Collateral Agent
may at any time request in connection with the administration and enforcement of
this Subsidiary Pledge Agreement or relative to the Pledged Collateral or any
part thereof or in order to assure and confirm unto the Collateral Agent its
rights, powers and remedies hereunder.
Section 14. INDEMNIFICATION AND EXPENSES.
(a) Each Pledgor agrees, jointly and severally, to indemnify,
reimburse and hold the Collateral Agent from and against any and all claims,
losses and liabilities arising or resulting from or relating to this Subsidiary
Pledge Agreement (including, without limitation, enforcement of this Subsidiary
Pledge Agreement), except claims, losses or liabilities resulting from the
Collateral Agent's gross negligence, bad faith or willful misconduct, as
determined by a final judgment of a court of competent jurisdiction. The
indemnification of the Collateral Agent set forth in the immediately preceding
sentence is cumulative and not exclusive of any indemnity of the Collateral
Agent set forth in the Indenture or provided for under the TIA.
(b) Each Pledgor will pay upon demand to the Collateral Agent
the amount of any and all out-of-pocket expenses, including the reasonable fees
and charges of its
-17-
<PAGE>
counsel and of any experts and agents, that the Collateral Agent may incur in
connection with the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Pledged Collateral, the
exercise or enforcement of any of the rights of the Collateral Agent or the
Holders hereunder or the failure by any Pledgor to perform or observe any of the
provisions hereof, and all amounts so incurred by the Collateral Agent shall be
entitled to the benefits of Section 7.07 of the Indenture.
Section 15. REGISTRATION RIGHTS, ETC.
(a) If the Collateral Agent determines that the registration of
any of the securities included in the Pledged Collateral under, or other
compliance with, the Securities Act or any similar Federal or state law is
desirable, upon or at any time after an Event of Default and acceleration of the
Notes in accordance with Section 6.02 of the Indenture, each Pledgor will use
its best efforts to cause such registration or compliance to be effectively
made, at no expense to the Collateral Agent or to the Holders, and to continue
any such registration effective for such time as may be necessary in the opinion
of the Collateral Agent. The Pledgors will reimburse the Collateral Agent upon
demand for any expenses incurred by the Collateral Agent (including reasonable
attorneys' fees) incurred in connection therewith, which obligation to pay such
expenses shall be secured hereunder.
(b) If any Pledgor is unable to effect a public sale of any or
all of the Pledged Collateral or if the Collateral Agent determines that it is
desirable to sell the Pledged Collateral in one or more private sales, the
Collateral Agent may limit such sales to a restricted group of purchasers who
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to distribution or resale.
Each Pledgor acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Collateral Agent shall be under no obligation to delay a sale of
any of the Pledged Collateral for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the
-18-
<PAGE>
Securities Act or under applicable state securities laws even if such issuer
would agree to do so.
(c) Each Pledgor further agrees to do or use all reasonable
efforts to cause to be done, to the extent such Pledgor may legally do so, all
such other acts and things as may be necessary to make such sale or sales of all
or any part of the Pledged Collateral valid and binding and in compliance with
any and all applicable laws, rules and regulations and orders and decrees of any
and all courts having jurisdiction over such sales, all at the Pledgor's
expense. Each Pledgor further agrees that a breach of any of the covenants
contained in this Subsidiary Pledge Agreement will cause irreparable injury to
the Collateral Agent, as secured party, for which the Collateral Agent would
have no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section 15 shall be
specifically enforceable against each Pledgor and, to the full extent permitted
by applicable law, each Pledgor waives and agrees not to assert as a defense
against an action for specific performance of such covenant that Pledgor's
failure to perform such covenants will not cause irreparable injury to the
Collateral Agent or the Holders or that the Collateral Agent on behalf of the
Holders has an adequate remedy at law in respect of such breach.
Section 16. PLEDGORS' INDENTURE OBLIGATIONS ABSOLUTE. The
liability of the Pledgors under this Subsidiary Pledge Agreement shall remain in
full force and effect without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by: any change in the time, place
or manner of payment of all or any of the Company's or the Pledgors' Obligations
under the Indenture or the Notes, or in any other term of the Indenture, the
Notes or any Collateral Agreement, any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of the Indenture, the
Notes or any Collateral Agreement, or any assignment or transfer thereof; any
lack of validity or enforceability, in whole or in part, of the Indenture, the
Notes or any Collateral Agreement; any furnishing of any additional security for
such Obligations or any acceptance thereof or any release or nonperfection of
any security interest in property; any limitation on any party's liability or
obligations under the Indenture, the Notes or any Collateral Agreement; any
bankruptcy,
-19-
<PAGE>
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Pledgors or any Person other than the
Pledgors, or any action taken with respect to this Subsidiary Pledge Agreement
by any trustee or receiver, or by any court, in any such proceeding, whether or
not the Pledgor shall have notice or knowledge of any of the foregoing; or any
exchange, release or amendment or waiver of or consent to departure from any
other agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of the Holder, pursuant to which a person other than the
Pledgors has granted a security interest.
Section 17. WAIVER. To the extent permitted by applicable law,
each Pledgor hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to the this Subsidiary Pledge Agreement and any
requirement that the Collateral Agent protect, secure, perfect or insure any
security interest or any property subject thereto or exhaust any right or take
any action against the Pledgors or any other person or entity; provided,
however, that the Collateral Agent shall in any event take such care in the
handling of any Pledged Securities in its possession as it takes with respect to
its own property of a similar nature in its possession.
Section 18. TERMINATION. Upon complete payment and performance in
full and satisfaction of all of the Company's and Pledgors' Obligations under
the Indenture, the Notes and the Collateral Agreements (as contemplated by
Article Eight of the Indenture), this Subsidiary Pledge Agreement shall
terminate, subject to the applicable terms of the Indenture, and the Collateral
Agent shall assign and redeliver to the Pledgors all of the Pledged Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Collateral Agent in accordance with the terms hereof and the Indenture. Such
reassignment and redelivery shall be without warranty by, or recourse to, the
Collateral Agent, and shall be at the expense of the Pledgors. At such time,
this Subsidiary Pledge Agreement shall no longer constitute a Lien upon or a
grant of any security interest in any of the Pledged Collateral, and the
Collateral Agent shall, at the Pledgors' expense deliver to the Pledgors written
acknowledgment thereof and of cancellation of this Subsidiary Pledge Agreement
in a form reasonably requested by the Pledgors; provided, however, that this
Subsidiary Pledge Agreement shall continue to be effective or be reinstated, as
the
-20-
<PAGE>
case may be, if at any time any payment of any of the Company's and the
Pledgors' Obligations under the Indenture, the Notes or the Collateral
Agreements is rescinded or must otherwise be returned upon the insolvency,
bankruptcy or reorganization of the Pledgors, all as though such payment had not
been made; and provided, further, however, this Subsidiary Pledge Agreement
shall no longer constitute a Lien upon or a grant of any security interest in
any of the Pledged Collateral that has been released in accordance with the
provisions of Section 10.05 of the Indenture.
Section 19. NOTICES. Except as otherwise expressly provided
herein, all notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by telecopy, telex, or
cable communication), and shall be deemed to have been duly given or made when
delivered by hand, or five days after being deposited in the United States mail,
postage prepaid, or, in the case of telex notice, when sent, answer-back
received, or in the case of telecopy notice, when sent, or in the case of a
nationally recognized overnight courier service, one business day after delivery
to such courier service, addressed, in the case of each party hereto to the
following address, or to such other address as may be designated by any party in
a written notice to the other party hereto:
IF TO DISCOVERY ZONE LIMITED:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Facsimile: (954) 622-2760
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
-21-
<PAGE>
IF TO DISCOVERY ZONE (PUERTO RICO), INC.:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Facsimile: (954) 627-2760
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO DZ PARTY, INC.:
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Facsimile: (954) 627-2760
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO DISCOVERY ZONE LICENSING, INC.:
Discovery Zone Licensing, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Facsimile: (954) 627-2760
-22-
<PAGE>
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO THE COLLATERAL AGENT:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Facsimile: (617) 664-5321
WITH A COPY TO:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: Robert J. Coughlin, Esq.
Facsimile: (617) 951-2125
Section 20. BINDING AGREEMENT; ASSIGNMENT. This Subsidiary Pledge
Agreement shall be binding upon and inure to the benefit of the Collateral
Agent, the Pledgors and their respective successors and permitted assigns.
Neither this Subsidiary Pledge Agreement nor any interest herein or in the
Pledged Collateral, or any part thereof, may be assigned by the Pledgors without
the prior written consent of the Collateral Agent, except as expressly permitted
herein or in the Indenture. This Subsidiary Pledge Agreement shall be deemed to
be automatically assigned by the Collateral Agent to any person who succeeds to
the Collateral Agent in accordance with Section 7.08 or Section 7.09 of the
Indenture, and its assignee shall have all rights and powers of, and act as, the
Collateral Agent hereunder.
Section 21. GOVERNING LAW. This Subsidiary Pledge Agreement shall
be construed in accordance with, and this Subsidiary Pledge Agreement and the
transactions described herein
-23-
<PAGE>
shall be governed by, the laws of the State of New York as to all issues,
including (without limitation) issues of validity, interpretation, effect,
performance and remedies.
Section 22. AMENDMENTS. This Subsidiary Pledge Agreement may not
be amended or modified, except in accordance with Article Nine of the Indenture.
Section 23. SEVERABILITY. In the event that any provisions
contained in this Subsidiary Pledge Agreement shall for any reason be held to be
illegal or invalid under the laws of any jurisdiction, such illegality or
invalidity shall in no way impair the effectiveness of any other provision
hereof, or of such provision under the laws of any other jurisdiction; provided,
that in the construction and enforcement of such provision under the laws of the
jurisdiction in which such holding of illegality or invalidity exists, and to
the extent only of such illegality or invalidity, this Subsidiary Pledge
Agreement shall be construed and enforced as though such illegal or invalid
provision had not been contained herein.
Section 24. HEADINGS. Section headings used herein are inserted
for convenience only and shall not in any way affect the meaning or construction
of any provision of this Subsidiary Pledge Agreement.
Section 25. COUNTERPARTS. This Subsidiary Pledge Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be an original, and all of which shall together constitute but
one and the same instrument. A complete set of counterparts shall be lodged
with the Collateral Agent.
Section 26. COOPERATION OF PLEDGED SUBSIDIARIES. Each Pledgor
shall cause the Pledged Subsidiaries to take all actions necessary to facilitate
the Pledgor's compliance with the terms hereof. If any entity issues shares of
Capital Stock or other equity securities to a Pledgor and such entity becomes a
subsidiary of the Pledgor, the Pledgor shall cause such Subsidiary to enter into
a supplement hereto, substantially in the form of this Subsidiary Pledge
Agreement, pursuant to which such Pledged Subsidiary shall pledge, assign,
transfer, set over and deliver unto the Collateral Agent, and grant unto the
Collateral Agent for the ratable benefit of the Holders and their
-24-
<PAGE>
respective successors and assigns, a continuing security interest in all of the
right, title and interest of the Pledged Subsidiary in, to and under any and all
of such Capital Stock or other equity securities as collateral security for the
indefeasible payment and performance in full of the Company's and the Pledgors'
Obligations under the Indenture, the Notes and the Collateral Agreements. Such
Capital Stock or equity security shall thereafter be included as "Pledged
Securities" hereunder, such Pledged Subsidiary shall thereafter be included as a
"Pledgor" hereunder, and such entity shall thereafter be included as one of the
"Pledged Subsidiaries" hereunder.
Section 27. CONFIDENTIALITY. The parties agree that they and their
employees have maintained and will maintain, in confidence, all data, summaries,
reports or information of all kinds, whether oral or written, provided pursuant
to this Subsidiary Pledge Agreement or acquired or delivered in any manner from
the other party's personnel or files (the "CONFIDENTIAL INFORMATION"), and that
they have not and will not reveal the same to any persons not employed by the
other party except: at the written direction of such party; to the extent
necessary to comply with applicable law, reporting requirements imposed by the
Securities and Exchange Commission, or the valid order of a court of competent
jurisdiction, in which event the disclosing party shall so notify the other
party as promptly as practicable (and, if possible, prior to making any
disclosure) and shall seek confidential treatment of such information, or in
connection with any arbitration proceeding; as part of its normal reporting or
review procedure to its parent company, its auditors and its attorneys, and such
parent company, auditors and attorneys agree to be bound by the provisions of
this Section; in order to enforce any of its rights pursuant to, or in any other
dispute with respect to, this Agreement; if, at the time of disclosure to the
recipient, the Confidential Information is in the public domain; if, after
disclosure to the recipient, the Confidential Information becomes part of the
public domain by written publication through no fault of the recipient; or to
any one or more Holders and their representatives and agents.
Section 28. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights
and powers granted to the Collateral Agent hereunder are being granted in order
to preserve and protect the security interest of the Collateral Agent and the
Holders in and to the Pledged Collateral granted hereby and shall not be
interpreted
-25-
<PAGE>
to, and shall not impose any duties on the Collateral Agent in connection
therewith other than those expressly provided herein or imposed under applicable
law and no implied covenants, functions, responsibilities, duties, obligations,
or liabilities shall be read into this Pledge Agreement or otherwise exist
against the Collateral Agent. Except as provided by applicable law or by the
Indenture, the Collateral Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Pledged Collateral in its possession
if the Pledged Collateral is accorded treatment substantially equal to that
which the Collateral Agent accords similar property held by the Collateral Agent
for similar accounts, it being understood that the Collateral Agent in its
capacity as such shall not have any responsibility for (a) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities or other
matters relative to any Pledged Collateral, whether or not the Collateral Agent
has or is deemed to have knowledge of such matters, (b) taking any necessary
steps to preserve rights against any parties with respect to any Pledged
Collateral or (c) investing or reinvesting any of the Pledged Collateral,
provided, however, that nothing contained in this Pledge Agreement shall relieve
the Collateral Agent of any responsibilities as a securities intermediary under
applicable law.
Section 29. AUTHORITY OF THE COLLATERAL AGENT.
(a) The Collateral Agent shall have and be entitled to exercise
all powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident thereto.
The Collateral Agent may perform any of its duties hereunder or in connection
with the Pledged Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge Agreement or the Indenture, neither the Collateral Agent nor any
director, officer, employee, attorney or agent of the Collateral Agent shall be
liable to the Pledgor for any action taken or omitted to be taken by the
Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its
own bad faith, gross negligence or willful misconduct, and the Collateral Agent
shall not be responsible for the validity, effectiveness or sufficiency hereof
or of any document or security furnished pursuant hereto. The Collateral Agent
and its directors, officers, employees,
-26-
<PAGE>
attorneys and agents shall be entitled to rely on any communication, instrument
or document believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons. The Collateral Agent shall have
no duty to cause any financing statement or continuation statement to be filed
in respect of the Pledged Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Collateral Agent under this Pledge Agreement with
respect to any action taken by the Collateral Agent or the exercise or
non-exercise by the Collateral Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Pledge Agreement shall, as between the Collateral Agent and the Holders, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Collateral Agent and
the Pledgor, the Collateral Agent shall be conclusively presumed to be acting as
agent for the Holders with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
-27-
<PAGE>
IN WITNESS WHEREOF, the Pledgors and the Collateral Agent have caused
this Subsidiary Pledge Agreement to be duly executed and delivered by its
officer thereunto duly authorized as of the date first above written.
DISCOVERY ZONE LIMITED
By: /s/ Robert G. Rooney
---------------------------
Name: Robert G. Rooney
Title:
DISCOVERY ZONE (PUERTO RICO), INC.
By: /s/ Robert G. Rooney
---------------------------
Name: Robert G. Rooney
Title:
STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent
By: /s/ Mary Lee Storrs
---------------------------
Name: Mary Lee Storrs
Title:
<PAGE>
DISCOVERY ZONE LICENSING, INC.
By: /s/ Robert G. Rooney
---------------------------
Name: Robert G. Rooney
Title:
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 22nd day of July, 1997 before me personally came Robert G.
Rooney, to me known, who being by me duly sworn, did depose and say that he is
the President of DISCOVERY ZONE LIMITED, the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by order
of the Board of Directors of said corporation.
/s/ David J. Schwartz
----------------------------------------
Notary Public
[SEAL]
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 22nd day of July, 1997 before me personally came Robert G.
Rooney, to me known, who being by me duly sworn, did depose and say that he
is the President of DISCOVERY ZONE (PUERTO RICO), INC., the corporation
described in and which executed the foregoing instrument; and that he signed
his name thereto by order of the Board of Directors of said corporation.
/s/ David J. Schwartz
----------------------------------------
Notary Public
[SEAL]
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 28th day of July, 1997 before me personally came Robert
Rooney, to me known, who being by me duly sworn, did depose and say that he
is the Vice President of DISCOVERY ZONE LICENSING, the corporation described
in and which executed the foregoing instrument; and that he signed his name
thereto by order of the Board of Directors of said corporation.
/s/ Mark D. Woodward
----------------------------------------
Notary Public
[SEAL]
<PAGE>
Schedule A
Subsidiary Shares of Capital Stock Pledged
- ---------- -------------------------------
<PAGE>
EXHIBIT 4.9
_________________________________________________________________
_________________________________________________________________
SUBSIDIARY SECURITY AGREEMENT
among
DISCOVERY ZONE LIMITED,
DISCOVERY ZONE (PUERTO RICO), INC.,
DISCOVERY ZONE LICENSING, INC.
and
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
Dated as of July 22, 1997
_________________________________________________________________
_________________________________________________________________
<PAGE>
SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT, dated as of July 22, 1997 (the
"Subsidiary Security Agreement"), is entered into by and among DISCOVERY ZONE
LIMITED, an entity formed under the laws of Canada ("DZL"), DISCOVERY ZONE
(PUERTO RICO), INC., a corporation formed under the laws of Puerto Rico
("DZPR"), DISCOVERY ZONE LICENSING, INC., a Nevada corporation (together with
DZL, DZPR and other subsidiaries of the Company that may become Subsidiary
Guarantors after the date hereof and their permitted respective successors and
assigns, the "Subsidiary Guarantors"), and STATE STREET BANK AND TRUST COMPANY,
as the Trustee and Collateral Agent under the Indenture (as defined below) and
secured party hereunder for its benefit and the ratable benefit of the holders
of the Notes (as defined below) (together with its successors and assigns, in
such capacity, the "Collateral Agent"). This Subsidiary Security Agreement is
being entered into in connection with, pursuant to and as collateral security
for the debts, liabilities and Obligations arising under or with respect to the
Subsidiary Guarantees (as defined in the Indenture) set forth in Article Eleven
of the Indenture.
W I T N E S S E T H:
WHEREAS, Discovery Zone, Inc., a Delaware corporation (the
"Company"), has issued $85,000,000 aggregate principal amount of 13 1/2%
Senior Secured Notes due 2002 pursuant to the Indenture, dated July 22, 1997,
between the Company, each Subsidiary Guarantor and the Collateral Agent, as
amended or supplemented from time to time in accordance with its terms (the
"Indenture");
WHEREAS, pursuant to the Indenture or a supplement thereto, each
Subsidiary Guarantor has guaranteed the payment and performance of all now
existing and hereafter arising Obligations (defined below) of the Company and
the Subsidiary Guarantors (the "Subsidiary Guarantees"); and
WHEREAS, in order to secure the payment and performance in full of the
Obligations under the Subsidiary Guarantees, the parties hereto desire to set
forth their mutual understanding and certain agreements regarding the terms and
conditions of the supplement to the Indenture made by each Subsidiary Guarantor
to the Trustee for the ratable benefit of the Holders.
NOW, THEREFORE, in consideration of the premises and the covenants set
forth herein and in the Indenture, the parties hereto agree as follows.
-1-
<PAGE>
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used herein, capitalized terms defined in the
Indenture and not otherwise defined herein are used herein as so defined. All
terms defined in the UCC (defined below) and not otherwise defined herein or in
the Indenture shall have the meanings assigned to them in the UCC.
"Accounts" shall mean all present and future rights of each Subsidiary
Guarantor to payment for goods sold or leased or for services rendered, whether
or not evidenced by instruments or chattel paper, and whether or not earned by
performance, including, without limitation, accounts receivable.
"Affiliate" of any specified Person shall mean any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of such specified Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the aggregate
voting power of the voting securities of a Person shall be deemed to be control.
Notwithstanding the foregoing definitions, none of Jefferies & Company, Inc. and
its Affiliates shall be considered Affiliates of the Company or any of its
subsidiaries.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and any and all warrants, options and rights with
respect thereto, including, without limitation, each class of common stock and
preferred stock, partnership interests and other indicia of ownership of such
Person.
"Collateral" shall have the meaning assigned to it in Article II
hereof.
"Equipment" shall mean all of each Subsidiary Guarantor's now owned
and hereafter acquired machinery, equipment, furniture, furnishings, fixtures,
and other tangible personal property (except Inventory), including, without
limitation, data processing hardware and software, motor vehicles, aircraft,
dies, tools, jigs, signage, tubes, slides, ball bins, climbing mountains, air
and water trampolines, obstacle courses, ramps, devices for crawling, jumping,
running, swinging and climbing, and other "soft zone" equipment and toys, games,
arcade games and video and other electronic entertainment
-2-
<PAGE>
games, chairs, jungle gyms, kitchen and other food and beverage equipment,
identification devices and office equipment, as well as all of such types of
property leased by each Subsidiary Guarantor and all of each Subsidiary
Guarantor's rights and interests with respect thereto under such leases
(including, without limitation, options to purchase); together with all present
and future additions and accessions thereto, replacements therefor, component
and auxiliary parts and supplies used or to be used in connection therewith, and
all substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto; wherever any of the
foregoing is located.
"Inventory" shall mean all of each Subsidiary Guarantor's now owned
and hereafter existing or acquired goods, merchandise, inventory and other
personal property other than personal property leased in connection with any
real property lease, all raw materials, work-in-process, finished goods,
returned goods, and materials and supplies of any kind, nature or description
which are or might be used or consumed, wherever located, in such Subsidiary
Guarantor's business or used in connection with the manufacture, packing,
shipping, advertising, maintenance, selling or finishing of such goods,
merchandise, inventory and other personal property, and all documents of title
or other documents representing them.
"Notes" shall mean the 13 1/2% Senior Secured Notes due 2002 of the
Company, and the 13 1/2% Senior Secured Notes due 2002, Series B, or Private
Exchange Notes issued in exchange therefor in accordance with the Indenture, in
the aggregate principal amount of $85,000,000.
"Obligations" shall mean the Company's and each Subsidiary Guarantor's
Obligations under the Indenture, the Notes and the Collateral Agreements.
"Person" or "person" shall mean any individual, corporation,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Agreement" shall mean the Purchase Agreement, dated July 15,
1997, between the Company and Jefferies & Company, Inc., as the initial
purchaser, relating to the purchase and sale of the Notes.
"Records" shall mean all of the present and future books of account of
every kind or nature of each Subsidiary Guarantor, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing
-3-
<PAGE>
are stored (including any rights of each Subsidiary Guarantor with respect to
the foregoing maintained with or by any other person).
"Requisite Holders" shall mean the Holder or Holders of at least a
majority in principal amount of the outstanding Notes, unless otherwise provided
in Article Six of the Indenture.
"Secured Parties" shall mean the collective reference to the
Collateral Agent and each Holder.
"Securities" shall have the meaning assigned to it in Article II
hereof.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York, PROVIDED that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interest in any Collateral or the availability of any remedy
hereunder is governed by the Uniform Commercial Code as in effect on or after
the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-perfection or
availability of such remedy.
"Voting Stock" shall mean, with respect to any Person one or more
classes of the Capital Stock of such Person having general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers, or trustees of such Person (irrespective of whether or not at the time
Capital Stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
ARTICLE II
GRANT OF SECURITY INTERESTS
2.1 SECURITY INTEREST. As security for the prompt and complete
payment and performance in full of the principal of, premium, if any, and
interest on the Notes when and as the same shall be due and payable, whether on
an Interest Payment Date, at maturity, by acceleration, purchase, repurchase,
redemption or otherwise, and interest on the overdue principal of, premium and
interest, if any, to the extent such premium or interest is permitted by law, on
the Notes and the performance of all other Obligations, each Subsidiary
Guarantor hereby grants to the Collateral Agent, for the benefit of itself and
the Holders, a security interest in and continuing lien on, all of their right,
title and interest in, to and under the following, in each case, whether now
owned or existing or hereafter acquired or arising, and wherever located (all of
which is defined as the "Collateral"):
-4-
<PAGE>
(i) Accounts;
(ii) subject to the final paragraph of this Section 2.1, all present
and future contract rights (including, without limitation, all rights under
service contracts pursuant to which each Subsidiary Guarantor renders its
services to its customers, which rights shall include any and all rights to all
retainers which may arise thereunder), general intangibles (including, but not
limited to, tax and duty refunds, patents, trade secrets, trademarks, service
marks, copyrights, trade names, trade styles, logos, applications and
registrations for the foregoing, goodwill, processes, drawings, blueprints,
customer lists, licenses, whether as licensor or licensee, choses in action and
other claims), chattel paper, documents, instruments, letters of credit,
bankers' acceptances and guaranties;
(iii) all present and future monies, securities, credit balances,
deposit accounts and other property of each Subsidiary Guarantor now or
hereafter held or received by or in transit to a lender or at any other
depository or other institution from or for the account of each Subsidiary
Guarantor, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including, without limitation,
returned, repossessed and reclaimed goods, and (d) deposits by and property of
account debtors of other persons securing the obligations of account debtors;
(iv) Inventory;
(v) Equipment;
(vi) Records; and
(vii) all products and proceeds of the foregoing, in any form,
including without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
In no event shall the Collateral Agent's security interest in a
contract or agreement of each Subsidiary Guarantor be deemed to be a present
assignment, transfer conveyance, subletting or other disposition (an
"Assignment") of such contract or agreement to the Collateral Agent within the
meaning of any provision in such contract or agreement prohibiting, or
-5-
<PAGE>
requiring any consent or establishing any other conditions for, an assignment
thereof by each Subsidiary Guarantor. The Collateral Agent acknowledges that
any sale, transfer or Assignment of any such contract or agreement upon the
enforcement of the Collateral Agent's security interest therein would be subject
to the terms of such contract or agreement governing Assignment, except as
otherwise provided in Section 9-318 of the UCC. The Collateral Agent's security
interest in each contract or agreement of each Subsidiary Guarantor shall attach
from the date hereof to all of the following, whether now existing or hereafter
arising or acquired: (i) all of each Subsidiary Guarantor's Accounts and
general intangibles for money due or to become due arising under such contract
or agreement; (ii) all proceeds paid or payable to each Subsidiary Guarantor
from any sale, transfer or assignment of such contract or agreement and all
rights to receive such proceeds; and (iii) all other rights and interests of
each Subsidiary Guarantor in, to and under such contract or agreement to the
fullest extent that attachment thereto would not be a violation of such contract
or agreement directly or indirectly entitling a party thereto (other than each
Subsidiary Guarantor or Affiliate thereof) to a legally enforceable right to
terminate such contract or agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Subsidiary Guarantor hereby represents and warrants to the
Collateral Agent, which representations and warranties shall survive execution
and delivery of this Security Agreement, as follows:
3.1 VALIDITY, PERFECTION AND PRIORITY.
Except as permitted under the Indenture, the security interests
in the Collateral granted to the Collateral Agent hereunder will constitute
valid and continuing first priority perfected security interests therein, to the
extent that such security interests may be perfected by the actions described in
Section 10.03 of the Indenture and subsections (i) and (ii) of this Section 3.1,
superior and prior to all Liens and rights or claims of all other Persons,
except Permitted Liens (other than Permitted Liens with respect to the Eligible
Credit Facility) and as otherwise provided in the Indenture, upon (i) the filing
of U.C.C. financing statements and continuation statements naming any Subsidiary
Guarantor as "debtor" and the Collateral Agent as "secured party" or filing or
recordation of other similar financing statements or instruments or charges or
mortgages with respect to any jurisdiction in which the U.C.C. does not govern
secured transactions, and describing the Collateral in the appropriate filing
offices, and (ii) to the extent not subject to Article 9 of the Uniform
Commercial Code in any applicable jurisdiction, the recordation of the security
interests granted
-6-
<PAGE>
hereunder in patents, trademarks and copyrights in the applicable patent,
trademark and copyright registries and the registration of all copyrights.
3.2 NO LIENS; OTHER FINANCING STATEMENTS.
(a) Except for the Lien granted to the Collateral Agent
hereunder, and except for Permitted Liens (other than Permitted Liens with
respect to the Eligible Credit Facility), each Subsidiary Guarantor owns and, as
to all Collateral whether now existing or hereafter acquired, will continue to
own, each item of the Collateral free and clear of all Liens, rights and claims,
and each Subsidiary Guarantor shall defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to the Collateral Agent on the Collateral entitled to priority therein
under applicable law.
(b) No financing statement or other evidence of Lien covering or
purporting to cover any of the Collateral is on file and is effective in any
public office other than (i) financing statements filed or to be filed in
connection with the security interests granted to the Collateral Agent
hereunder, (ii) financing statements for which proper, executed termination
statements have been delivered to the Collateral Agent for filing; and (iii)
financing statements filed by pre-petition creditors as set forth in the
Company's Plan of Reorganization but which no longer evidence valid or existing
security interests in the Collateral.
3.3 CHIEF EXECUTIVE OFFICES. The chief executive offices of each
Subsidiary Guarantor are 110 East Broward Boulevard, Fort Lauderdale, Florida
33301 and 50 Main Street, White Plains, New York 10606. The originals of the
Records are located at such chief executive offices of the Company. All Records
are maintained at, and controlled and directed (including, without limitation,
for general accounting purposes) from the chief executive offices or other
offices identified on Schedule 3.3 as such.
3.4 LOCATION OF INVENTORY. All Inventory is kept only at (or shall
be in transit to) the locations listed on Schedule 3.3 hereto. None of such
Inventory is in the possession of an issuer of a negotiable document (as defined
in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee
or other Person.
3.5 TRADE NAMES; PRIOR NAMES. The only names under which each
Subsidiary Guarantor has conducted business during the last five years are as
set forth on Schedule 3.5 hereto.
-7-
<PAGE>
3.6 RECEIVABLES.
(a) Each Account (other than indebtedness due and owing from the
Company) arises from the actual and BONA FIDE sale and delivery of goods by a
Subsidiary Guarantor or rendition of services by a Subsidiary Guarantor in the
ordinary course of its business which transactions are completed in all material
respects with those terms and provisions contained in any document related
thereto, except for prepaid passes to FunCenters (as defined in the Offering
Memorandum) and deposits for birthday parties or other similar functions which
sale and delivery of goods by a Subsidiary Guarantor or rendition of services by
a Subsidiary Guarantor are to be completed in the ordinary course of its
business.
(b) The representations and warranties contained in this Section
shall be deemed to be repeated by each Subsidiary Guarantor as of the time when
each respective Account arises.
3.7 INTELLECTUAL PROPERTY.
(a) Schedule 3.5 sets forth (i) all United States, state and
foreign registration of and applications for patents, trademarks, service marks
and copyrights of each Subsidiary Guarantor and (ii) all patent licenses,
trademark and service mark licenses and copyright licenses material to the
business of the Subsidiary Guarantors; and
(b) each Subsidiary Guarantor owns, or has valid rights to use,
all patents, trademarks, trade secrets, copyrights, and similar intellectual
property rights material to the business of the Subsidiary Guarantors and used
in the conduct of any Subsidiary Guarantor's business.
(c) each account arising from indebtedness due and owing from
the Company is a BONA FIDE intercompany indebtedness arising from an appropriate
business purpose in the ordinary course of a subsidiary's business and in
accordance with GAAP.
3.8 EQUIPMENT. All Equipment is owned free and clear of all Liens,
except Permitted Liens (other than Permitted Liens with respect to the Eligible
Credit Facility), is located only at the location set forth on Schedule 3.3
hereto and is in good working condition subject only to wear and tear in the
ordinary course, all of which is accounted for at the lower of cost or fair
market value in accordance with GAAP on the financial statements of each of the
Subsidiary Guarantors.
3.9 BASIC REPRESENTATIONS AND WARRANTIES. As of the Issue Date
(assuming that the Confirmation Order (as defined in the Plan of Reorganization)
has become a Final Order (as defined in the Plan of Reorganization) and the
Approved Plan (as defined in the Plan of Reorganization) has become Effective
(as defined
-8-
<PAGE>
in the Plan of Reorganization), each Subsidiary Guarantor (a) will be duly
organized and validly existing in good standing under the laws of the
jurisdiction of its formation or other jurisdiction in which it is qualified to
do business; (b) will have the power and authority to execute, deliver and carry
out the terms and provisions of this Security Agreement and consummate the
transactions contemplated hereby; (c) will have taken all necessary action to
authorize the execution, delivery and performance of this Security Agreement and
the consummation of the transactions contemplated hereby; and (d) will have duly
executed and delivered this Security Agreement. As of the Issue Date (assuming
that the Confirmation Order has become a Final Order and the Approved Plan has
become Effective), this Security Agreement will constitute each Subsidiary
Guarantor's legal, valid and binding obligation, enforceable against each
Subsidiary Guarantor in accordance with its terms.
ARTICLE IV
COVENANTS
Each Subsidiary Guarantor covenants and agrees with the Collateral
Agent that from and after the date of this Security Agreement:
4.1 FURTHER ASSURANCES. Each Subsidiary Guarantor will from time to
time at its own expense, promptly execute, deliver, file and record all further
instruments, endorsements and other documents, and take such further action as
the Collateral Agent may deem necessary or desirable in obtaining the full
benefits of this Security Agreement and of the rights, remedies and powers
herein granted, including, without limitation, the following:
(i) the filing of any financing statements, in form acceptable
to the Collateral Agent under the Uniform Commercial Code in effect in any
jurisdiction with respect to the liens and security interests granted
hereby (and each Subsidiary Guarantor hereby (x) authorizes the Collateral
Agent to file any such financing statement without its respective signature
to the extent permitted by applicable law and (y) agrees that a photocopy
or other reproduction of this Security Agreement shall be sufficient as a
financing statement and may be filed in lieu of the original to the extent
permitted by applicable law); and
(ii) furnish to the Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Collateral
Agent may request, all in reasonable detail and in form satisfactory to the
Collateral Agent.
-9-
<PAGE>
4.2 CHANGE OF NAME, IDENTITY, CORPORATE STRUCTURE, CHIEF EXECUTIVE
OFFICES, OR LOCATION OF INVENTORY AND EQUIPMENT. No Subsidiary Guarantor will
change its name, identity, corporate structure or the location of its chief
executive offices (as specified in Section 3.3) or location of its Inventory or
Equipment without (i) giving the Collateral Agent at least thirty (30) days'
prior written notice clearly describing such new name, identity, corporate
structure or new location and providing such other information in connection
therewith as the Collateral Agent may reasonably request, and (ii) taking all
action reasonably satisfactory to the Collateral Agent as the Collateral Agent
may reasonably request to maintain the security interest of the Collateral Agent
in the Collateral intended to be granted hereby at all times fully perfected
with the same or better priority than exists on the date hereof and in full
force and effect. All Accounts and Records of each Subsidiary Guarantor will
continue to be maintained at, and controlled and directed (including, without
limitation, for general accounting purposes) from, such chief executive office
or a location identified as a location at which Accounts or Records are
maintained, controlled and directed on Schedule 3.3, or such new locations as
such Subsidiary Guarantor may establish in accordance with this Section 4.2.
4.3 MAINTAIN RECORDS. Each Subsidiary Guarantor will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, but not limited to, the originals of all documentation
with respect to all Accounts and records of all payments received and all
credits granted on the Accounts, and all other dealings therewith.
4.4 RIGHT OF INSPECTION. The Collateral Agent shall at all times
have full and free access during normal business hours and upon reasonable
notice to all the books, correspondence and records of each Subsidiary
Guarantor, and the Collateral Agent and its representatives may examine the
same, take extracts therefrom and make photocopies thereof, and each Subsidiary
Guarantor agrees to render the Collateral Agent at the cost and expense of the
Subsidiary Guarantors, such clerical and other assistance as may be reasonably
requested with regard thereto.
4.5 PAYMENT OF OBLIGATIONS. Each Subsidiary Guarantor will pay
promptly when due all taxes, assessments and governmental charges or levies
imposed upon the Collateral, as well as all claims of any kind (including,
without limitation, claims for labor, materials, supplies and services) against
or with respect to the Collateral, except that no such tax, assessment, charge
or levy need be paid if (i) the validity thereof is being contested in good
faith by appropriate proceedings properly instituted and diligently conducted
for which adequate reserves, to the extent required under GAAP, have been taken,
(ii) such proceedings do not involve, in the sole opinion of the Collateral
Agent, any material danger for the sale, forfeiture or loss of any of the
Collateral or any interest therein and (iii) such charge is adequately reserved
against on
-10-
<PAGE>
the books of the applicable Subsidiary Guarantor in accordance with GAAP.
4.6 NEGATIVE PLEDGE. No Subsidiary Guarantor will create, incur or
permit to exist, and each will defend the Collateral against, and will take such
other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than the Security Interest and Liens created hereby and
Permitted Liens (other than Permitted Liens with respect to the Eligible Credit
Facility).
4.7 LIMITATIONS ON DISPOSITIONS OF COLLATERAL. No Subsidiary
Guarantor will sell, transfer, lease or otherwise dispose of any of the
Collateral, or attempt, offer or contract to do so except as permitted in the
Indenture.
4.8 PERFORMANCE BY THE COLLATERAL AGENT OF THE OBLIGATIONS OF ANY
SUBSIDIARY GUARANTOR; REIMBURSEMENT. If any Subsidiary Guarantor fails to
perform or comply with any of its agreements contained herein, the Collateral
Agent may, without consent by such Subsidiary Guarantor, but upon written notice
to such Subsidiary Guarantor reasonably given, perform or comply or cause
performance or compliance therewith, and the expenses of the Collateral Agent
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum borne by the Notes, shall be payable by
each Subsidiary Guarantor to the Collateral Agent on demand and such
reimbursement obligation shall be secured hereby; provided, however, that such
interest shall only be so due and payable if such expenses have not been so paid
on demand and in any event within ten (10) days of such notice; and, provided
further, that such interest shall be tolled in the event any such expenses are
contested in good faith as in error and the resolution of any such contest is
diligently pursued by the Subsidiary Guarantors.
4.9 NO IMPAIRMENT. Except as expressly permitted herein or in the
Indenture (including the creation of Permitted Liens (other than Permitted Liens
with respect to the Eligible Credit Facility)), no Subsidiary Guarantor will
take or knowingly permit to be taken any action which could impair the
Collateral Agent's rights in the Collateral. Each Subsidiary Guarantor shall
promptly notify the Collateral Agent of any changes in any fact or circumstance
represented or warranted by such Subsidiary Guarantor or that could reasonably
be expected to have a material adverse effect with respect to any material
portion of the Collateral, of any impairment of the Collateral and of any claim,
action or proceeding affecting title to all or any of the Pledged Collateral.
4.10 INSURANCE. Each Subsidiary Guarantor will maintain, with
financially sound and reputable insurers acceptable to the Collateral Agent and
licensed to do business in each state in which any of the Collateral covered by
any policy is located, insurance in compliance with Section 4.05(b) of the
-11-
<PAGE>
Indenture. All policies of insurance shall (i) name the Collateral Agent as
additional insured (with respect to liability insurance policies) or loss payee
with a lender's loss payable endorsement, in each case as its interests may
appear, (ii) include waivers by the insurer of all claims for insurance premiums
against the Collateral Agent, (iii) provide that any losses shall be payable to
the Collateral Agent notwithstanding (A) any act, failure to act or negligence
of or violation of warranties, declarations or conditions contained in such
policy by any Subsidiary Guarantor, (B) any foreclosure or other proceedings or
notice of sale relating to any Collateral insured thereunder, or (C) any change
in the title to or ownership of any Collateral insured thereunder, and (iv)
provide that no cancellation, termination or lapse in coverage thereof shall be
effective until at least 30 days after receipt by the Collateral Agent of
written notice thereof.
4.11 EQUIPMENT. Each Subsidiary Guarantor shall maintain its
Equipment in good and working condition free of all Liens, except Permitted
Liens (other than Permitted Liens with respect to the Eligible Credit Facility),
and shall not remove or relocate any Equipment except as provided herein except
that any motor vehicles or aircraft intended to be mobile may be so used to the
extent that all necessary and appropriate actions have been taken and filings
made to perfect a first priority security interest therein in favor of the
Collateral Agent for its benefit and the ratable benefit of the Holders.
ARTICLE V
POWER OF ATTORNEY
Each Subsidiary Guarantor hereby irrevocably constitutes and appoints
the Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of each Subsidiary Guarantor and in
the name of each Subsidiary Guarantor, from time to time in the Collateral
Agent's discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action, and to execute in any
appropriate manner any and all documents and instruments which may be necessary
or desirable to accomplish the purposes of this Security Agreement.
Each Subsidiary Guarantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. This power of attorney
is a power coupled with an interest and shall be irrevocable.
-12-
<PAGE>
ARTICLE VI
REMEDIES; RIGHTS UPON DEFAULT
6.1 RIGHTS AND REMEDIES GENERALLY.
(a) If an Event of Default shall occur and be continuing, then
and in every such case, the Collateral Agent shall have all the rights of a
secured party under the UCC, shall have all rights now or hereafter existing
under all other applicable laws, and, subject to any mandatory requirements of
applicable law then in effect, shall have all the rights set forth in this
Security Agreement and all the rights set forth with respect to the Collateral
or this Security Agreement in any other agreement between the parties.
(b) If an Event of Default occurs and is continuing, the
Collateral Agent may, and within three Business Days after written instructions
from the Requisite Holders shall, commence the taking of such actions toward
collection or enforcement of this Security Agreement and the Collateral (or any
portion thereof), including, without limitation, action toward foreclosure upon
any Collateral, as the Collateral Agent deems in its discretion to be
appropriate or as otherwise instructed in writing by the Requisite Holders.
6.2 ASSEMBLY OF COLLATERAL. If an Event of Default shall occur and
be continuing, immediately upon written notice to each Subsidiary Guarantor,
each such Subsidiary Guarantor shall, at its own expense, and to the extent
commercially practicable, assemble the Collateral (or from time to time any
portion thereof) and make it available to the Collateral Agent at any place or
places designated by the Collateral Agent which is reasonably convenient to both
parties.
6.3 DISPOSITION OF COLLATERAL. The Collateral Agent will determine
the circumstances and manner in which the Collateral will be disposed of,
including, but not limited to, the determination of whether to foreclose on the
Collateral following an Event of Default. The Collateral Agent will give each
Subsidiary Guarantor reasonable written notice of the time and place of any
public sale of the Collateral or any part thereof or of the time after which any
private sale or any other intended disposition thereof is to be made. Each
Subsidiary Guarantor agrees that the requirements of reasonable notice to it
shall be met if such notice is delivered to its address specified in and in
accordance with Section 7.3 of this Security Agreement (or such other address
that a Subsidiary Guarantor may provide to the Collateral Agent in writing) at
least ten (10) days before the time of any public sale or after which any
private sale may be made.
6.4 PROCEEDS. If an Event of Default shall occur and be continuing,
(i) all proceeds and distributions on the
-13-
<PAGE>
Collateral received by any Subsidiary Guarantor shall be held in trust for the
Collateral Agent, segregated from other funds of the Subsidiary Guarantors in a
separate deposit account containing only such proceeds and distributions, and
shall forthwith upon receipt thereof be turned over to the Collateral Agent in
the same form received (appropriately endorsed or assigned to the order of the
Collateral Agent or in such other manner as shall be satisfactory to the
Collateral Agent) and (ii) any and all such proceeds and distributions received
by the Collateral Agent (whether from any Subsidiary Guarantor or otherwise), or
any part thereof, may, in the sole discretion of the Collateral Agent, be held
by the Collateral Agent in a separate account as Collateral hereunder and/or
then or at any time or from time to time thereafter, be applied by the
Collateral Agent against the Obligations (whether matured or unmatured) and
related expenses, including attorney's fees as provided in Section 6.7 below.
6.5 RECOURSE. Each Subsidiary Guarantor shall, jointly and
severally, pay or remain liable for any deficiency if the proceeds of any sale
or other disposition of the Collateral are insufficient to satisfy the
Obligations. Each Subsidiary Guarantor shall also be, jointly and severally,
liable for all expenses of the Collateral Agent incurred in connection with
collecting such deficiency, including, without limitation, the fees and
disbursements of any attorneys employed by the Collateral Agent to collect such
deficiency.
6.6 EXPENSES; ATTORNEYS FEES. Each Subsidiary Guarantor shall,
jointly and severally, pay or reimburse the Collateral Agent for all its
expenses in connection with the exercise of its rights hereunder, including,
without limitation, (i) all reasonable attorneys' fees and legal expenses
incurred by the Collateral Agent and (ii) all filing fees and related expenses
contemplated by Section 4.1 hereof. Expenses of retaking, holding, preparing
for sale, selling or the like shall include the reasonable attorneys' fees and
legal expenses of the Collateral Agent. All such expenses shall be secured
hereby.
6.7 LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL.
(a) The Collateral Agent's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC or otherwise, shall be to deal with
it in the same manner as the Collateral Agent deals with similar property for
its own account;
(b) The Collateral Agent shall have no obligation to take any
steps to preserve rights against prior parties to any Collateral; and
(c) Neither the Collateral Agent nor any of its directors,
officers, employees or agents shall be liable for
-14-
<PAGE>
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligations to sell or otherwise
dispose of any Collateral upon the request of any Subsidiary Guarantor or
otherwise, except with respect to actions taken or omitted with gross
negligence, willful misconduct or in bad faith.
6.8 COOPERATION OF OTHER SUBSIDIARIES. Each Subsidiary Guarantor
shall cause any subsidiary that becomes a subsidiary after the date hereof to
enter into a supplement to the subsidiary Security Agreement, pursuant to which
such Subsidiary shall grant to the Collateral Agent for itself and the ratable
benefit of the Holders and their respective successors and assigns, a continuing
security interest in all of the Collateral then owned by such subsidiary or
thereafter acquired or arising as security for the prompt and complete payment
and performance in full of all the Obligations.
ARTICLE VII
MISCELLANEOUS
7.1 INDEMNITY. Each Subsidiary Guarantor agrees, jointly and
severally, to indemnify, reimburse and hold the Collateral Agent and its
officers, directors, employees, representatives and agents ("Indemnitees")
harmless from any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs or expenses or disbursements (including
reasonable attorneys' fees and expenses) for whatsoever kind or nature
("Losses") which may be imposed on, asserted against or incurred by any of the
Indemnitees in any way relating to or arising out of this Security Agreement or
the transactions contemplated hereby, except to the extent that such Losses are
caused by the gross negligence, willful misconduct or bad faith of such
Indemnitees as determined by a final judgment of a court of competent
jurisdiction. The obligations of each Subsidiary Guarantor under this Section
shall be secured hereby, shall survive payment and performance or discharge of
the Obligations and the termination of this Security Agreement and shall be
joint and several with each of the other Subsidiary Guarantors.
7.2 GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAWS).
7.3 NOTICES. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex, or cable
communication), and shall be deemed to have been duly given or made when
delivered by hand,
-15-
<PAGE>
or five days after being deposited in the United States mail, postage prepaid,
or, in the case of telex notice, when sent, answer-back received, or in the case
of telecopy notice, when sent, or in the case of a nationally recognized
overnight courier service, one business day after delivery to such courier
service, addressed, in the case of each party hereto to the following address,
or to such other address as may be designated by any party in a written notice
to the other party hereto:
IF TO DISCOVERY ZONE LIMITED:
-----------------------------
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: Chief Executive Officer
Telephone: (954) 627-2400
Facsimile: (954) 627-2760
WITH A COPY TO:
---------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO DISCOVERY ZONE (PUERTO RICO), INC.:
-----------------------------------------
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: President
Facsimile: (954) 627-2760
WITH A COPY TO:
---------------
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO DISCOVERY ZONE LICENSING, INC.:
-------------------------------------
Discovery Zone, Inc.
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attention: President
Facsimile: (954) 627-2760
-16-
<PAGE>
WITH A COPY TO:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: Douglas P. Bartner, Esq.
Facsimile: (212) 848-7179
IF TO THE COLLATERAL AGENT:
State Street Bank and Trust Company
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Telephone: (617) 664-5326
Facsimile: (617) 664-5371
WITH A COPY TO:
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Attention: Robert J. Coughlin, Esq.
Facsimile: (617) 951-2125
7.4 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding
upon and inure to the benefit of each Subsidiary Guarantor, the Collateral
Agent, all future holders of the Obligations and their respective successors and
assigns, except that the Company may not assign or transfer any of its rights or
obligations under this Security Agreement without the prior written consent of
the Collateral Agent.
7.5 WAIVERS AND AMENDMENTS. None of the terms or provisions of this
Security Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with the terms of Article Nine of the Indenture. In the
case of any waiver, each Subsidiary Guarantor and the Collateral Agent shall be
restored to their former position and rights hereunder and under the outstanding
Obligations, and any Default or Event of Default waived shall be deemed to be
cured and not continuing, but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
7.6 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part
of the Collateral Agent in exercising any right, power or privilege hereunder
and no course of dealing among the Subsidiary Guarantors and the Collateral
Agent shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other
-17-
<PAGE>
right or remedy which the Collateral Agent would otherwise have on any future
occasion. The rights and remedies herein expressly provided are cumulative and
may be exercised singly or concurrently and as often and in such order as the
Collateral Agent deems expedient and are not exclusive of any rights or remedies
which the Collateral Agent would otherwise have whether by security agreement or
now or hereafter existing under applicable law. No notice to or demand on each
Subsidiary Guarantor in any case shall entitle any Subsidiary Guarantor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Collateral Agent to any other or future
action in any circumstances without notice or demand.
7.7 TERMINATION; RELEASE. When the Obligations have been completely
paid and performed in full in accordance with Article Eight of the Indenture,
this Security Agreement shall terminate, and the Collateral Agent, at the
request and sole expense of each Subsidiary Guarantor, and subject to and in
accordance with the applicable terms of the Indenture, will execute and deliver
to such Subsidiary Guarantor the proper instruments (including UCC termination
statements) acknowledging the termination of this Security Agreement, and will
duly assign, transfer and deliver to such Subsidiary Guarantor, without
recourse, representation or warranty of any kind whatsoever, such of the
Collateral and Securities as may be in possession of the Collateral Agent and
that has not theretofore been disposed of, applied or released, all in
accordance with the terms and conditions of the Indenture and other Collateral
Documents. In addition, so long as no Default or Event of Default exists (with
respect to a Released Interest other than in connection with the immediately
preceding sentence), the Collateral Agent, at the request and sole expense of
any Subsidiary Guarantor, will execute and deliver to such Subsidiary Guarantor
the proper instruments to effect the release of the Released Interests in
compliance with Section 10.05 of the Indenture.
7.8 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Security Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Security Agreement.
7.9 SEVERABILITY. In case any provision in or obligation under this
Security Agreement or the Obligations shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
7.10 COUNTERPARTS. This Security Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of
-18-
<PAGE>
the parties hereto may execute this Security Agreement by signing any such
counterpart.
7.11 TRUSTEE CAPACITY. In acting as Collateral Agent hereunder, the
Collateral Agent shall benefit from and be entitled to all of the protections
and benefits of the terms set forth in Article Seven of the Indenture.
7.12 JOINT AND SEVERAL LIABILITY. Each of the Subsidiary Guarantors,
on the date hereof or hereafter becoming a party hereto, shall be jointly and
severally liable for the Obligations under the Subsidiary Guarantees and under
this Security Agreement.
7.13 SUBSIDIARY GUARANTORS' INDENTURE OBLIGATIONS ABSOLUTE. The
liability of each Subsidiary Guarantor under this Subsidiary Security Agreement
shall remain in full force and effect without regard to, and shall not be
released, suspended, discharged, terminated or otherwise affected by: any
change in the time, place or manner of payment of all or any of such Subsidiary
Guarantor's Obligations under the Indenture or the Notes, or in any other term
of the Indenture, the Notes, the Subsidiary Pledge Agreement or any Subsidiary
Guarantee, any waiver, indulgence, renewal, extension, amendment or modification
of or addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Indenture, the Notes, the Subsidiary Pledge
Agreement or any Subsidiary Guarantee, or any assignment or transfer thereof;
any lack of validity or enforceability, in whole or in part, of the Indenture,
the Notes, the Subsidiary Pledge Agreement or any Subsidiary Guarantee; any
furnishing of any additional security for the Indenture Obligations or any
acceptance thereof or any release or nonperfection of any security interest in
property; any limitation on any party's liability or obligations under the
Indenture, the Notes, the Subsidiary Pledge Agreement or any Subsidiary
Guarantee; any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to any Subsidiary
Guarantor or any Person other than any Subsidiary Guarantor or any action taken
with respect to this Subsidiary Security Agreement by any trustee or receiver,
or by any court, in any such proceeding, whether or not such Subsidiary
Guarantor shall have notice or knowledge of any of the foregoing; or any
exchange, release or amendment or waiver of or consent to departure from any
other agreement pursuant to which a Lien is created in favor of the Collateral
Agent for the benefit of the Holder, pursuant to which a person other than a
Subsidiary Guarantor has granted a security interest.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Subsidiary
Security Agreement to be duly executed and delivered as of the date first above
written.
DISCOVERY ZONE LIMITED
By: /s/ Scott Bernstein
----------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and President
DISCOVERY ZONE (PUERTO RICO), INC.
By: /s/ Scott Bernstein
----------------------------------------
Name: Scott Bernstein
Title: Chief Executive Officer and President
STATE STREET BANK AND TRUST COMPANY
as Collateral Agent
By: /s/ Mary Lee Storrs
----------------------------------------
Name: Mary Lee Storrs
Title:
<PAGE>
DISCOVERY ZONE LICENSING, INC.
By: /s/ Robert G. Rooney
----------------------------------------
Name: Robert G. Rooney
Title:
<PAGE>
SCHEDULE 3.1
UCC FILINGS
A. DISCOVERY ZONE LICENSING, INC.
State Facilities Located Filing Office
Within the Jurisdiction
of the Filing Office
- ------------- ------------------------- -----------------------------------
Florida Corporate Office Bureau of Uniform Commercial Code
Department of State
P.O. Box 793
Tallahassee, FL 32314
Nevada State of Incorporation Secretary of State
UCC Division, Capitol Complex
Secretary of State's Office
Carson City, NV 89710
B. DISCOVERY ZONE (PUERTO RICO), INC.
Filing locations to be provided by Nachman Santiago & Guillemard, local counsel
to Initial Purchaser.
C. DISCOVERY ZONE LIMITED
Filing locations provided by McCarthy Tetrault, local counsel to Initial
Purchaser.
Ontario
Alberta
Manitoba
<PAGE>
SCHEDULE 3.3
LOCATION OF COLLATERAL
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone 110 East Broward Blvd. Blockbuster Entertainment
Licensing, Inc. Fort Lauderdale, FL 33301 Att: Michael Victorson
1201 Elm Street
Dallas, TX 75270
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone Limited 435 410-7 Power Contres Limited
Power Center c/o First Professional Mgmt., Inc.
150 W Dr. Unit 2A, Hwy 7 & 410 259 Yorkland Road, Ste. 300
Brampton, Ontario L6T4P9 N. York, Ontario M2J5B2
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone Limited 950 Great Pacific Industries, Inc.
360 Mayfield Common 19890 92A Avenue
Edmonton, Alberta T5P4K9 Langley, BC V3A4P8
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone Limited 951 Saskatchewan Co-op Credit Society Ltd.
3414 Calgary Trail South, #400 c/o Credit Union Central of Saskatchewan
Edmonton, Alberta T6J6RS 2055 Albert St.
P.O. Box 3030
Regina, Saskatchewan S4P3G8
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone Limited 952 Almahurst Holdings Limited
Superstore Mall c/o Effort Trust Company
4380 Wellington Road South 242 Main St., East
London, Ontario N6E2Z6 Hamilton, Ontario L8N1H5
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone Limited 953 65434 Manitoba Limited
1320 Ellice Avenue, #3 477 Westwood Drive
Winnipeg, Manitoba R36OE9 Whinnipeg, Manitoba R3K1G5
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone 901 HT Ventures, S.E.
(Puerto Rico), Inc. 506 Truncado Street 100 South Dixie Highway, Ste. 200
Hatillo, PR 00659 W. Palm Beach, FL 33401
- ------------------------- ------------------------------------ ----------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================= ==================================== ========================================
LOCATION LANDLORD ADDRESS
CORPORATION NUMBER AND ADDRESS INFORMATION (IF APPLICABLE)
- ------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Discovery Zone 904 F.W. Caguas Joint Venture
(Puerto Rico), Inc. Plaza Center II P.O. Box 361163
Munoz Marin Ave & Hwy. 30 San Juan, PR 009K-1163
Caguas, PR 00725
- ------------------------- ------------------------------------ ----------------------------------------
Discovery Zone 905 Big Beaver of Rio Piedras Development
(Puerto Rico), Inc. 9410 Los Romeros Avenue c/o KMart Corp.
San Juan, PR 00927 3100 West Bay Beaver Rd.
Troy, MI 48084
and
Manley-Bereson Assoc,
66 Long Wharf
Boston, Massachusetts 02110
========================= ==================================== ========================================
</TABLE>
<PAGE>
SCHEDULE 3.5
A. TRADEMARKS HELD BY EITHER:
(1) DISCOVERY ZONE, INC.;
(2) DISCOVERY ZONE LIMITED;
(3) DISCOVERY ZONE (PUERTO RICO), INC.; OR
(4) DISCOVERY ZONE LICENSING, INC.
See Schedule 3.5(A) to the Security Agreement, dated as of July 22, 1997,
between Discovery Zone, Inc and State Street Bank and Trust Company, as
Collateral Agent.
B. PATENTS HELD BY EITHER:
(1) DISCOVERY ZONE, INC.;
(2) DISCOVERY ZONE LIMITED;
(3) DISCOVERY ZONE (PUERTO RICO), INC.; OR
(4) DISCOVERY ZONE LICENSING, INC.
See Schedule 3.5(B) to the Security Agreement, dated as of July 22, 1997,
between Discovery Zone, Inc and State Street Bank and Trust Company, as
Collateral Agent.
C. COPYRIGHTS HELD BY EITHER:
(1) DISCOVERY ZONE, INC.;
(2) DISCOVERY ZONE LIMITED;
(3) DISCOVERY ZONE (PUERTO RICO), INC.; OR
(4) DISCOVERY ZONE LICENSING, INC.
See Schedule 3.5(C) to the Security Agreement, dated as of July 22, 1997,
between Discovery Zone, Inc and State Street Bank and Trust Company, as
Collateral Agent.
D. MATERIAL LICENSES
None.
<PAGE>
EXHIBIT 4.10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COLLATERAL ASSIGNMENT OF PATENTS, TRADEMARKS AND COPYRIGHTS
(SECURITY AGREEMENT)
between
DISCOVERY ZONE, INC.,
DISCOVERY ZONE LIMITED,
DISCOVERY ZONE (PUERTO RICO), INC.,
DZ PARTY, INC. and DISCOVERY ZONE LICENSING, INC.,
as Assignor
and
STATE STREET BANK AND TRUST COMPANY,
as Assignee
Dated as of July 22, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COLLATERAL ASSIGNMENT OF PATENTS, TRADEMARKS AND COPYRIGHTS
(SECURITY AGREEMENT)
COLLATERAL ASSIGNMENT OF PATENTS, TRADEMARKS AND COPYRIGHTS (SECURITY
AGREEMENT) dated as of July 22, 1997, between DISCOVERY ZONE, INC., a Delaware
corporation with offices at 110 East Broward Boulevard, Fort Lauderdale, Florida
33301 ("Discovery Zone"), DISCOVERY ZONE LIMITED, an entity organized under the
laws of Canada with offices at 110 East Broward Boulevard, Ft. Lauderdale,
Florida 33301 ("DZ Limited"), DISCOVERY ZONE (PUERTO RICO), INC., a corporation
organized under the laws of Puerto Rico with offices at 110 East Broward
Boulevard, Ft. Lauderdale, Florida 33301 ("DZ Puerto Rico"), DZ PARTY, INC., a
corporation with offices at 110 East Broward Boulevard, Ft. Lauderdale, Florida
33301 ("DZ Party"), Discovery Zone Licensing, Inc. ("DZ Licensing" and
collectively with Discovery Zone, DZ Limited, DZ Puerto Rico and DZ Party, the
"Assignor"), and STATE STREET BANK AND TRUST COMPANY, in its capacity as trustee
under the Indenture (as hereinafter defined), with an office at Two
International Place, Boston, MA 02110 (in such capacity, "Assignee").
Capitalized terms used in this Agreement which are defined in the Indenture (as
hereinafter defined) shall have the respective meanings given them in the
Indenture, unless otherwise defined herein.
W I T N E S S E T H:
WHEREAS, Discovery Zone and Assignee have entered into the Indenture
dated the date hereof (together with all supplements and amendments thereto and
all extensions, renewals, restatements and replacements thereof, the
"Indenture," and such Indenture together with all agreements, instruments and
documents now or hereafter entered into or delivered in connection therewith,
collectively, the "Collateral Agreements"), pursuant to which the Notes were
issued to the Holders;
WHEREAS, certain Security Agreements of even date herewith between
each of the Assignors and the Assignee (collectively, the "Security Agreement")
grants to the Assignee, for the benefit of itself and the ratable benefit of the
holders of the Notes, a security interest in certain of the Assignor's assets,
including, without limitation, its patents, patent rights and applications
therefor, trademarks and applications therefor, copyrights and all applications
and registrations therefor, license rights and goodwill;
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Assignor agrees as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST. As security for the complete and
timely payment and satisfaction of Assignor's Obligations to Assignee under the
Indenture and the Notes, Assignor hereby grants to the Assignee, a continuing
security interest in and continuing lien on Assignor's entire right, title and
interest in and to all of the now owned or existing and hereafter acquired or
arising:
a. United States and foreign patents and patent applications,
including, without limitation, the inventions and improvements
described and claimed therein, all patentable inventions and those
patents and patent applications listed on SCHEDULE A attached hereto
and made a part hereof, and the reissues, divisions, continuations,
renewals, extensions and continuations in-part of any of the
foregoing, and all income, royalties, damages and payments now and
hereafter due and/or payable under any of the foregoing with respect
to any of the foregoing, including, without limitation, damages and
payments for past, present and future infringements of any of the
foregoing and the right to sue for past, present and future
infringements of any of the foregoing (all of the foregoing United
States and foreign patents and patent applications are sometimes
hereinafter individually and/or collectively referred to as the
"Patents");
b. United States and foreign copyrights, rights and interests
in copyrights, works protectable by copyrights, copyright
registrations, and copyright applications, including, without
limitation, the copyright registrations and applications listed on
SCHEDULE B attached hereto and made a part hereof, and all renewals of
any of the foregoing, all income, royalties, damages and payments now
and hereafter due and/or payable under any of the foregoing,
including, without limitation, damages and payments for past, present
and future infringements of any of the foregoing and the right to sue
for past, present and future infringements of any of the foregoing
(all of the foregoing United States and foreign copyrights are
sometimes hereinafter individually and/or collectively referred to as
the "Copyrights");
c. United States and foreign trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos, other business identifiers, prints and
labels on which any of the foregoing have appeared or appear, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, the trademarks
and applications listed on SCHEDULE C attached hereto and made a part
-2-
<PAGE>
hereof or of any of the foregoing (other than applications to register
a mark under Section 1(b) of the Lanham Act for which a verified
statement of use has not been filed) (all of the foregoing trademarks,
tradenames, service marks, trademark registrations, service mark
registrations, trademark applications and service mark applications
are sometimes hereinafter individually and/or collectively referred to
as the "Trademarks");
d. any license agreement in which the Assignor is or becomes
licensed to use a Patent, Copyright, Trademark or the know-how of any
other Person including, without limitation, the license agreements
listed on SCHEDULES A, B AND C attached hereto and made a part hereof
(all the foregoing are referred to as the "Licenses"); and
e. the goodwill of the Assignor's business connected with the
use of and symbolized by the Trademarks.
All of the foregoing items set forth in clauses (a) through (e) are hereinafter
referred to collectively as the "Collateral" and shall be included as part of
the definition of Collateral in the Security Agreement. The Security Agreement
and the provisions thereof are hereby incorporated herein in their entirety by
this reference thereto.
2. ASSIGNOR'S OBLIGATIONS. Assignor agrees that it will perform and
discharge and remain liable for all its covenants, duties, and obligations
arising in connection with the Collateral and any licenses and agreements
related thereto. Assignee shall have no obligation or liability in connection
with the Collateral or any licenses or agreements relating thereto by reason of
this Assignment or any payment received by Assignee relating to the Collateral
and Assignee shall not be required to perform any covenant, duty or obligation
of Assignor arising in connection with the Collateral or any license or
agreement related thereto or to take any other action regarding the Collateral
or any such licenses or agreements, except and only to the extent that Assignee
has acquired absolute ownership of the Collateral upon an exercise of its
remedies under Section 5 hereof.
3. REPRESENTATIONS AND WARRANTIES. Assignor represents and warrants
to Assignee that as of the Issue Date (assuming that the Confirmation Order (as
defined in the Plan of Reorganization) has become a Final Order (as defined in
the Plan of Reorganization) and the Approved Plan (as defined in the Plan of
Reorganization) has become Effective (as defined in the Plan of Reorganization))
with respect to the Collateral in existence on such date each such
representation and warranty is made: (a) Assignor is the beneficial and record
owner of such
-3-
<PAGE>
Collateral, and no adverse claims have been made with respect to its title to or
the validity of such Collateral; (b) the trademarks and service marks covered by
the Licenses and the Trademarks as listed on Schedule C are the only trademarks,
service marks, trademark and service mark registrations and applications
therefor and the only trade names and trade styles in which Assignor has any or
all right, title and interest; (c) the patents and patent applications listed on
Schedule A are the only patents and patent applications in which Assignor has
any or all right, title and interest; (d) the copyright registrations and
applications listed on Schedule B are the only copyright registrations and
applications in which Assignor has any or all right, title and interest; (e) no
such Collateral is subject to any existing mortgage, pledge, lien, security
interest, lease, charge, encumbrance, settlement or consent, covenant not to
sue, non-assertion assurance, release or license (by Assignor as licensor),
except the security interest created hereby and under the other Collateral
Agreements and except for any licenses between or among any Assignors; (f)
Assignor has performed all acts and has paid all renewal, maintenance and other
fees and taxes required to maintain each and every registration and application
of such Collateral in full force and effect; (g) no claims have been made
against Assignor that the use of any of the Collateral violates the asserted
rights of any third party; (h) to the best of Assignor's knowledge, no third
party is infringing upon any such Collateral; and (i) when this Agreement is
filed in and recorded by the United States Patent and Trademark Office (the
"Trademark Office") the United States Copyright Office (the "Copyright Office")
and, other than with respect to Copyrights, UCC-1 Financing Statements in
appropriate form for recordation have been filed in the recording offices where
the Assignor's principal place of business is located and such other locations
required by applicable law, and the Assignee has taken the other actions
contemplated by the Indenture and in this Agreement, this Agreement will create
a legal and valid perfected and continuing lien on and security interest in the
Collateral in favor of Assignee, enforceable against Assignor and all third
parties, subject to no other mortgage, lien, charge, encumbrance, or security or
other interest, except as expressly permitted by the Indenture, the
Intercreditor Agreement and the other Collateral Agreements.
4. COVENANTS. Assignor will maintain and renew all items of
Collateral necessary for the conduct of its business and all registrations of
the Collateral necessary for the conduct of its business and will defend the
Collateral against the claims of all persons. Assignor will maintain the same
standards of quality for the goods and services in connection with which the
Trademarks and the trademarks covered by the Licenses are used as Assignor or
such other persons maintained for such goods and services prior to entering into
this Agreement. Assignee shall have the right to enter upon Assignor's premises
at all reasonable times to monitor such quality standards. Assignor shall
promptly notify Assignee if it knows or has reason to know
-4-
<PAGE>
that any of the Collateral may become subject to any adverse determination or
development (including the institution of proceedings) in any action or
proceeding in the Trademark Office, the Copyright Office, or any court. In the
event that any of the Collateral is infringed or diluted by a third party,
promptly after the Assignor becomes aware of such infringement or dilution,
Assignor shall take all reasonable actions to stop such infringement or dilution
and protect its exclusive rights in such Collateral including, but not limited
to, the initiation of a suit for injunctive relief and to recover damages.
Without limiting the generality of the foregoing, Assignor shall not permit the
expiration, termination or abandonment of any Trademark, Patent, Copyright or
License used in or necessary for the conduct of its business without the prior
written consent of Assignee. If, before the Obligations have been satisfied in
full, Assignor shall obtain rights to or be licensed to use any new Trademark,
Copyright or Patent not identified on Schedules A, B or C hereto, the provisions
of Section 1 hereof shall automatically apply thereto and Assignor shall give
Assignee prompt notice thereof in writing.
5. REMEDIES UPON DEFAULT. Whenever any Event of Default shall occur
and be continuing, Assignee shall have all the rights and remedies granted to it
in such event by the Indenture, which rights and remedies are specifically
incorporated herein by reference and made a part hereof. Assignee in such event
may collect directly any payments due to Assignor in respect of the Collateral
and, subject to any limitations imposed under any license agreements
constituting part of the Collateral, may sell, license, lease, assign, or
otherwise dispose of the Collateral in the manner set forth in the Indenture.
Assignor agrees that, in the event of any disposition of the Collateral upon any
such Event of Default which is continuing, it will duly execute, acknowledge,
and deliver all documents necessary or advisable to record title to the
Collateral in any transferee or transferees thereof, including, without
limitation, valid, recordable assignments of the Collateral. In the event an
Event of Default occurs and is continuing, Assignor hereby irrevocably appoints
Assignee as its attorney-in-fact, with power of substitution, to execute,
deliver, and record any such documents on Assignor's behalf. Notwithstanding
any provision hereof to the contrary, during the continuance of an Event of
Default, Assignor may sell merchandise or services bearing the Trademarks,
Copyrights and trademarks or copyrights covered by the Licenses and utilize the
Patents and patents covered by the Licenses in the ordinary course of their
respective business and in a manner consistent with its past practices, until it
receives written notice from Assignee of an intended sale or disposition of the
Collateral. The preceding sentence shall not limit any right or remedy granted
to Assignee with respect to Assignor's inventory and other property under the
Indenture and the Collateral Agreements or any other agreement now or
hereinafter in effect.
-5-
<PAGE>
6. POWER OF ATTORNEY. Concurrently with the execution and delivery
hereof, Assignor shall execute and deliver to the Assignee, in the form of
Exhibit 1 hereto, five (5) originals of a Special Power of Attorney for the
implementation of the assignment, sale, license, lease or other disposition of
the Trademarks, Copyrights, Patents and Licenses pursuant to Section 5.
Assignor hereby releases Assignee from any claims, causes of action and demands
at any time arising out of or with respect to any actions taken or omitted to be
taken by Assignee in accordance with Section 5 under the powers of attorney
granted therein, other than actions taken or omitted to be taken through the bad
faith, willful misconduct or gross negligence of Assignee, as determined by a
final, non-appealable order of a court of competent jurisdiction.
7. CUMULATIVE REMEDIES. The rights and remedies provided herein are
cumulative and not exclusive of any other rights or remedies provided by law.
The security interest granted hereby is granted in conjunction with the security
interest granted to Assignee under the Indenture and Security Agreement. The
rights and remedies of Assignee with respect to the security interest granted
hereby are in addition to those set forth in the Indenture and other Collateral
Agreements and those which are now or hereafter available to Assignee as a
matter of law or equity. The exercise by Assignee of any one or more of the
rights, powers or remedies provided for in this Agreement, Indenture and the
Security Agreement or now or hereafter existing at law or in equity shall not
preclude the simultaneous or later exercise by any person, including Assignee,
of any or all other rights, powers or remedies. The rights and remedies
provided herein are intended to be in addition to and not in substitution of the
rights and remedies provided by the Indenture and the Collateral Agreements.
8. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
supplemented, or amended, or any of its provisions waived at the request of
Assignor, without the prior written consent of Assignee. Assignor hereby
authorizes Assignee to modify this Agreement by amending the Schedules hereto to
include any future Trademark, Patent or Copyright, additional licenses or other
additional Collateral in the future arising.
9. WAIVER OF RIGHTS. No course of dealing between the parties to
this Agreement or any failure or delay on the part of any such party in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights and remedies of such party or any other party, and no single or partial
exercise of any rights or remedies by one party hereunder shall operate as a
waiver or preclude the exercise of any other rights and remedies of such party
or any other party. No waiver by Assignee of any breach or default by Assignor
shall be deemed a waiver of any other previous breach or default or of any
breach or default occurring thereafter.
-6-
<PAGE>
10. ASSIGNMENT. Each of Discovery Zone, DZ Limited, DZ Puerto Rico
and DZ Party hereby covenants and agrees to assign all of its right, title and
interest in and to the Collateral to DZ Licensing on or prior to July 29, 1997
pursuant to an Assignment of Intellectual Property, substantially in the form
attached hereto as Exhibit 2 (the "DZ Licensing Assignment"). The provisions of
this Agreement shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto; provided however, that except for
the DZ Licensing Assignment no interest herein or in or to the Collateral may be
assigned by Assignor without the prior written consent of Assignee; and,
provided further, that the Assignee may assign the rights and benefits hereof to
any party acquiring any interest in the Obligations of any part thereof.
11. FURTHER ACTS. Assignor shall have the duty to prosecute
diligently any application for the Patents, Trademarks and Copyrights necessary
for the conduct of its business pending as of the date of this Agreement or
thereafter, until the Obligations shall have been paid in full, and to make
applications on material unregistered but registrable trademarks and copyrights
and unpatented or unregistered but patentable or registrable invention;
necessary for the conduct of its business in any location where Assignor does
business and to preserve and maintain all rights in the Collateral necessary for
the conduct of its business. Any expenses incurred in connection with such
applications shall be borne by Assignor. Assignor shall not abandon any right
to file a trademark, service mark application or registration for any trademark,
service mark, copyright, copyright application or patent application or
registration used in or necessary for the conduct of its business, or abandon
any such pending applications or registrations necessary for the conduct of its
business, without the consent of Assignee.
12. ENFORCEMENT. Upon Assignor's failure to do so after Assignee's
demand, or upon an Event of Default, Assignee shall have the right but shall in
no way be obligated to bring suit in its own name to enforce the Trademarks,
Patents, Copyrights, Licenses or the trademarks, patents or copyrights covered
by the Licenses, and any license under any of the foregoing, in which event
Assignor shall at the request of Assignee do any and all lawful acts and execute
any and all proper documents that may be reasonably requested by Assignee in aid
of such enforcement including, but not limited to, joining as a plaintiff in any
such enforcement action, and Assignor shall promptly, upon demand, reimburse and
indemnify Assignee or its agents for all costs and expenses incurred by Assignee
in the exercise of its rights under this Section 12.
13. RELEASE AND RE-ASSIGNMENT. At such time as all of the
Obligations under the Indenture and the Notes have been satisfied, and the
Collateral Agreements have been terminated, other than upon enforcement of
Assignee's remedies under the Collateral Agreements after an Event of Default,
Assignee will,
-7-
<PAGE>
subject to and in accordance with the applicable terms of the Indenture, execute
and deliver to Assignor all deeds, assignments and other instruments as may be
necessary or proper to release Assignee's lien in the Collateral and reassign to
Assignor any and all rights of Assignee therein which were granted to Assignee
hereunder, subject to any dispositions thereof which may have been made by
Assignee pursuant hereto. No express or implied license with respect to the
Collateral is granted to Assignee under this Agreement and Assignee shall have
no rights in Collateral, except as provided in Section 5 as explicitly granted
therein and as otherwise explicitly granted hereunder in connection with the
security interest granted hereunder.
14. SEVERABILITY. If any clause or provision of this Agreement shall
be held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision in any other jurisdiction.
15. NOTICES. All notices, requests and demands to or upon Assignor
or Assignee under this Agreement shall be given in the manner prescribed by the
Indenture.
16. GOVERNING LAW. This Agreement shall be governed by and
construed, applied, and enforced in accordance with the federal laws of the
United States of America applicable to trademarks, patents and copyrights and
the laws of the State of New York, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
17. FINANCING AGREEMENT. This Agreement is one of the Collateral
Agreements.
18. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, and by each party in separate counterparts, which, when taken
together, shall constitute one and the same document.
19. INDENTURE PROTECTIONS. Notwithstanding any term hereof to the
contrary, the terms of this Agreement applicable to or governing the Assignee
shall in all respects be subject to the terms, benefits and protections afforded
to the Assignee under Article Seven of the Indenture.
{THIS SPACE INTENTIONALLY LEFT BLANK}
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
DISCOVERY ZONE, INC.,
Assignor
By: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title:
DISCOVERY ZONE LIMITED,
Assignor
By: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title:
DISCOVERY ZONE (PUERTO RICO), INC.,
Assignor
By: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title:
DZ PARTY, INC.,
Assignor
By: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title:
DISCOVERY ZONE LICENSING, INC.,
Assignor
By: /s/ Robert G. Rooney
--------------------------------------
Name: Robert G. Rooney
Title:
<PAGE>
STATE STREET BANK AND TRUST COMPANY, solely in its
capacity as Trustee and Collateral Agent under the
Indenture,
Assignee
By: /s/ Mary Lee Storrs
--------------------------------------
Name: Mary Lee Storrs
Title: Vice President
<PAGE>
Exhibit 4.11
ASSIGNMENT AND LICENSE AGREEMENT
ASSIGNMENT AND LICENSE AGREEMENT, dated as of July 29, 1997 (this
"Agreement") among Discovery Zone, Inc., a Delaware corporation, DZ Party,
Inc., a Delaware corporation, Discovery Zone Limited, a Canadian corporation,
Discovery Zone (Puerto Rico) Inc., a Puerto Rican corporation (individually
and collectively, "DZ") and Discovery Zone Licensing, Inc., a Nevadian
corporation ("DZIP").
W I T N E S S E T H
WHEREAS, DZ owns all right, title and interest in and to the patents
and patent applications on Schedule A (the "Patents"), the trademarks,
service marks and applications therefor on Schedule B (the "Marks"), the
copyright registrations and applications therefor on Schedule C (the
"Copyrights"), and other intellectual property, whether registered or not,
including but not limited to trade dress and trade secrets used in DZ's
business, and all goodwill and common-law rights symbolized by and associated
with any of the foregoing (individually and collectively, the "Intellectual
Property"); and
WHEREAS, DZ desires to transfer to DZIP, and DZIP desires to acquire
from DZ, all of the rights of DZ in and to the Intellectual Property in
exchange for DZIP maintaining the Intellectual Property and DZIP granting to
DZ a non-exclusive, perpetual, royalty-free, worldwide right and license to
exploit the Intellectual Property subject to DZIP's review and control.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Assignment to DZIP. DZ hereby assigns and transfers to DZIP all
right, title and interest in and to the Intellectual Property, together with all
of the goodwill of the business symbolized by the Marks and the Intellectual
Property, all common-law rights associated therewith, all registrations and
applications for registration of the Intellectual Property, and all
improvements, derivatives and other future developments of the Intellectual
Property. DZIP shall promptly record this assignment of the Intellectual
Property, at its expense, with the U.S. Patent and Trademark Office, the
Copyright Office of the U.S. Library of Congress, and equivalent foreign offices
with regard to foreign rights. DZIP shall use its reasonable best efforts to
preserve the secrecy of pending U.S. patent applications, if any, by filing
separate assignment agreements limited to the rights being recorded (or a
suitably redacted copy of this Agreement) with any government office, in the
Unites States or abroad, that will maintain a copy of such recordation document
as a public record. The parties shall cooperate with each other to execute and
deliver such other documents, instruments of transfer or assignment, and to do
all such further acts and things as may be reasonably required to secure for
DZIP, its successors and assigns, the entire right, title, and interest in and
to the Intellectual Property and to enforce such rights against third parties.
2. License to DZ. DZIP hereby grants to DZ a non-exclusive, perpetual,
royalty-free, worldwide right and license to exploit the Intellectual Property,
including but not limited to, the right
<PAGE>
to make, use and sell products and services covered by the Patents, the right
to use the Marks, and a right to reproduce, distribute, perform, display and
prepare derivatives of the Copyrights, in any and all mediums whatsoever.
3. Ownership and Use of the Marks. DZ acknowledges that DZIP owns each
of the Marks and all of the worldwide rights in and to the Marks. DZ further
acknowledges that any and all goodwill arising from DZ's use of the Marks
shall inure solely to the benefit of DZIP, and DZ shall not assert any claim
to such goodwill. DZ shall use the Marks in a manner that is consistent
with, and does not detract from, the goodwill associated with the Marks. DZ
agrees to cooperate with DZIP in maintaining DZIP's control of the nature and
quality of the goods and services on which and with which the Marks are used,
to permit reasonable inspection of DZ's operations, and to supply DZIP with
samples showing DZ's use of the Marks, all as reasonably requested by DZIP.
DZIP may terminate the license granted to DZ under Paragraph 2 with respect
to all or any of the Marks for any violation of this Paragraph 3 that is not
cured by DZ within thirty (30) days of DZIP's written notice to DZ. Upon
termination of DZ's license to any of the Marks, DZ shall promptly cease use
of such terminated mark and shall return or destroy all goods bearing such
terminate mark. DZ acknowledges that any failure to cease use of such
terminated mark and to return or destroy all goods bearing such terminated
mark shall result in irreparable harm and injury to DZIP.
4. Prosecution and Maintenance of the Intellectual Property. DZIP shall
prosecute applications for registration of the Intellectual Property and shall
maintain any registrations already obtained for the Intellectual Property. DZIP
shall be solely responsible for any costs thereof, including attorneys fees.
5. Protection of the Intellectual Property. DZIP, at its expense
(including attorneys fees), may protect the Intellectual Property against
unauthorized uses or infringement. DZ, at its expense (including attorneys
fees), may commence an action against a third party that DZ believes is
infringing the Intellectual Property in the event that DZIP does not commence an
action against such third party within thirty (30) days of its receipt of
written notice from DZ of the allegedly infringing activities of such third
party.
6. Representations and Warranties. DZIP and DZ each represents and
warrants to the other that each is an entity duly organized, validly existing
and in good standing under the laws of each of their respective states of
organization, with sole right, power and authority to execute, deliver and
perform the respective obligations of each under this Agreement; that the
execution, delivery and performance of this Agreement do not conflict with,
violate or breach any agreement to which each is a party; that this Agreement
has been duly executed and delivered by each and is a legal, valid and binding
obligation enforceable against each by the other in accordance with its terms;
and that each shall execute any papers and do such other acts, as reasonably
requested by the other, to carry out this Agreement.
7. Counterparts. This Agreement may be executed in one of more
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
8. Integration. This Agreement shall be binding on each of the parties
and their respective affiliates, successors, heirs and assigns, if any. This
Agreement contains the entire understanding and agreement between the parties on
the subject matter addressed herein.
<PAGE>
There are no representations or warranties other than those contained in this
Agreement. No waiver or modification of this Agreement shall be valid unless
contained in writing signed by the parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, as of
the date first written above, by their duly authorized officers.
Discovery Zone, Inc.
/s/ Robert G. Rooney
-------------------------------------------
By: Robert G. Rooney
Title: Senior Vice President, Chief Financial
and Administrative Officer
Sworn to and subscribed before me
this ____ day of July 1997.
- -----------------------------------
Notary Public
<PAGE>
IN WITNESS WHEREOF, I have executed this Assignment and License
Agreement, as of the date first written above.
DZ Party, Inc.
/s/ Robert G. Rooney
-----------------------------------
By: Robert G. Rooney
Title: Vice President, Secretary & Treasurer
Sworn to and subscribed before me
this 25 day of July 1997.
CTDL 086643824
8/13/97
/s/ Barbara Buchanan
- -------------------------------
Notary Public
[SEAL]
<PAGE>
IN WITNESS WHEREOF, I have executed this Assignment and License
Agreement, as of the date first written above.
Discovery Zone Limited
/s/ Robert G. Rooney
---------------------------------
By: Robert G. Rooney
Title: Vice President & Secretary
Sworn to and subscribed before me
this 28th day of July 1997.
CTDL 086643824
8/13/97
/s/ Mark D. Woodward
- ----------------------------------
Notary Public
[SEAL]
<PAGE>
IN WITNESS WHEREOF, I have executed this Assignment and License
Agreement, as of the date first written above.
Discovery Zone (Puerto Rico) Inc.
/s/ Robert G. Rooney
----------------------------------
By: Robert G. Rooney
Title: Senior Vice President & CFO
Sworn to and subscribed before me
this 25 day of July 1997.
CTDL 0866438245 8/13/97
/s/ Barbara Buchanan
- ----------------------------------
Notary Public
[SEAL]
<PAGE>
IN WITNESS WHEREOF, I have executed this Assignment and License
Agree-ment, as of the date first written above.
Discovery Zone Licensing, Inc.
/s/ Robert G. Rooney
------------------------------------
By: Robert G. Rooney
Title: Vice President & Secretary
Sworn to and subscribed before me
this 25 day of July 1997.
CTDL 086643824 8/13/97
/s/ Barbara Buchanan
- --------------------------------------
Notary Public
[SEAL]
<PAGE>
SCHEDULE A
PATENTS
ISSUED UTILITY PATENTS
TYPE INVENTOR NUMBER ISSUE DATE
- ---- -------- ------ ----------
US Lang 5,021,878 June 4, 1991
US Lang 5,142,803 September 1, 1992
US Gleeson, et al. 5,167,595 December 1, 1992
US Lang 5,182,557 January 26, 1993
US Lang 5,198,893 March 30, 1993
US Petersheim 5,205,748 April 27, 1993
US Lang 5,289,273 February 22, 1994
US Gutterman, et al. 5,353,822 October 11, 1994
US Gleeson, et al. 5,372,550 December 13, 1994
US Petersheim, et al. 5,405,304 April 11, 1995
US Gleeson, et al. 5,425,677 June 20, 1995
US Gutterman, et al. 5,482,565 January 9, 1996
US Weimer, et al. 5,499,641 March 19, 1996
UTILITY PATENT APPLICATIONS
TYPE INVENTOR NUMBER FILING DATE
- ---- -------- ------ -----------
US Huffman, et al. 08/348,363 November 30, 1994
PCT Weimer, et al. WO95/19854 January 20, 1995
US Gutterman, et al. 07/827,773 January 29, 1992
US Petersheim, et al. 07/845,119 March 3, 1992
US Gleeson, et al. 07/845,130 March 3, 1992
US Gleeson, et al. 07/845,301 March 3, 1992
US Petersheim 07/845,414 March 3, 1992
US Gleeson, et al. 07/097,494 July 23, 1993
US Weimer, et al. 08/184,513 January 21, 1994
US Petersheim, et al. 08/191,431 February 3, 1994
US Gutterman, et al. 08/316,700 September 30, 1994
US Weimer, et al. 08/472,086 June 7, 1995
US Weimer, et al. 08/475,314 June 7, 1995
US Weimer, et al. 08/475,317 June 7, 1995
US Lang 07/410,114 September 20, 1989
US Lang 07/595,381 October 10, 1990
US Lang 07/613,381 November 13, 1990
US Lang 07/805,113 December 10, 1991
US Lang 07/972,258 November 5, 1992
US Huffmann, et al. 08/791,873 January 31, 1997
US Huffmann, et al. 08/348,363 November 30, 1994
US Weimer, et al. 08/472,086 June 7, 1995
US Weimer, et al. 08/475,314 June 7, 1995
<PAGE>
US Weimer, et al. 08/475,317 June 7, 1995
US Weimer, et al. 08/184,513 January 21, 1994
US Gutterman, et al. 08/316,700 September 30, 1994
ISSUED DESIGN PATENTS
TYPE INVENTOR NUMBER ISSUE DATE
- ---- -------- ------ ----------
US Matsch 07/518,837 March 31, 1992
US Matsch 07/518,841 April 21, 1992
US Matsch 07/522,964 July 21, 1992
US Matsch 07/518,821 August 25, 1992
US Matsch 07/518,839 August 25, 1992
US Matsch 07/518,840 August 25, 1992
US Matsch 07/532,978 November 3, 1992
US Matsch 07/533,063 November 3, 1992
US Matsch 07/532,977 November 3, 1992
US Gleeson 07/828,590 September 14, 1993
US Petersheim 07/831,040 October 5, 1993
US Warren, et al. 07/828,594 October 5, 1993
US Gleeson 07/828,589 October 5, 1993
US Ingold, et al. 07/830,270 October 5, 1993
US Warren 07/830,269 October 5, 1993
US Gleeson, et al. 07/828,595 October 12, 1993
US Warren, et al. 07/830,268 October 19, 1993
US Petersheim 07/830,272 November 23, 1993
US Petersheim, et al. 07/828,587 December 7, 1993
US Petersheim 07/834,507 January 25, 1994
US Petersheim 07/834,506 February 15, 1994
US Warren 07/828,588 August 23, 1994
US Strawcutter, et al. 29/010,728 May 9, 1995
US Weimer, et al. 29/010,196 July 25, 1995
US Matsch 07/933,529 ABANDONED
US Petersheim, et al. 08/191,431 ABANDONED
US Petersheim, et al. 29/011,036 ABANDONED
US Matsch 07/696,068 ABANDONED
DESIGN PATENT APPLICATIONS
TYPE INVENTOR NUMBER FILING DATE
- ---- -------- ------ -----------
US Petersheim, et al. 07/828,587 January 30, 1992
US Warren 07/828,588 January 30, 1992
US Gleeson 07/828,589 January 30, 1992
US Gleeson 07/828,590 January 30, 1992
US Warren, et al. 07/828,594 January 30, 1992
US Gleeson et al. 07/828,595 January 30, 1992
US Warren, et al. 07/830,268 February 4, 1992
<PAGE>
US Warren 07/830,269 February 4, 1992
US Ingold, et al. 07/830,270 February 4, 1992
US Petersheim 07/830,272 February 4, 1992
US Petersheim 07/831,040 February 4, 1992
US Petersheim 07/834,506 February 15, 1994
US Petersheim 07/834,507 January 25, 1994
US Weimer, et al. 29/010,196 June 29, 1993
US Strawcutter, et al. 29/010,728 July 15, 1993
US Petersheim, et al. 29/011,036 July 23, 1993
US Matsch 07/518,821 May 4, 1990
US Matsch 07/518,839 May 4, 1990
US Matsch 07/518,841 May 4, 1990
US Matsch 07/522,964 May 15, 1990
US Matsch 07/533,063 June 4, 1990
US Matsch 07/532,977 June 4, 1990
US Matsch 07/532,978
US Matsch 07/698,068 May 10, 1991
US Matsch 07/933,529 August 24, 1992
US Matsch 07/518,837 May 4, 1990
<PAGE>
SCHEDULE B
TRADEMARKS
TRADEMARK REGISTRATIONS
COUNTRY MARK NUMBER CLASS
- ------- ---- ------ -----
Australia DISCOVERY ZONE 553185 41
Australia Discovery Zone Logo 553186 41
Bahrain DISCOVERY ZONE 1043 41
Benelux DISCOVERY ZONE 496168 41
Benelux Discovery Zone Logo 496167 41
Brazil DISCOVERY ZONE 816689598 41
Canada DISCOVERY ZONE 404011 41
Canada Discovery Zone Logo 404010 41
Egypt DISCOVERY ZONE 82901 41
France DISCOVERY ZONE 1656501 41
France Discovery Zone Logo 1656500 41
Germany DISCOVERY ZONE 2073100 41
Germany Discovery Zone Logo 2073101 41
Hong Kong DISCOVERY ZONE B01128/1995 41
Hong Kong Discovery Zone Logo B01129/1995 41
Hong Kong DISCOVERY ZONE 00259/1993 25
Hong Kong Discovery Zone Logo B2686/1994 25
Israel DISCOVERY ZONE T/83162 41
Italy DISCOVERY ZONE 619190 41
Italy Discovery Zone Logo 619191 41
Japan DISCOVERY ZONE 2683485 17
Korea (South) Discovery Zone Logo 17512 112
Korea (South) DISCOVERY ZONE 17513 112
Mexico DISCOVERY ZONE 424255 41
Mexico DISCOVERY ZONE 422050 41
Puerto Rico DISCOVERY ZONE 345 41
Saudi Arabia DISCOVERY ZONE 274/96 41
Saudi Arabia Discovery Zone Logo 382/19 41
Spain DISCOVERY ZONE 1 630 864/6 41
Spain Discovery Zone Logo 1 630 865/4 41
Switzerland DISCOVERY ZONE 431944 41
Taiwan DISCOVERY ZONE 81928 41
Taiwan Discovery Zone Logo 81934 41
United Kingdom DISCOVERY ZONE 1461058 41
United Kingdom Discovery Zone Logo 1461054 41
United States Discovery Zone Logo 1,619,865 16
United States DISCOVERY ZONE 1,619,867 16
United States Discovery Zone Logo 1,620,069 25
United States DISCOVERY ZONE 1,620,087 25
United States Discovery Zone Logo 1,620,486 41
United States DISCOVERY ZONE 1,620,487 41
<PAGE>
United States Discovery Zone Logo 1,639,186 28
United States DISCOVERY ZONE 1,639,187 28
United States FUNBELIEVABLE FITNESS 1,708,767 41
United States FUNBELIEVABLE 1,808,035 41
United States Robot Design 1,816,211 41
United States Z-BOP 1,827,776 41
United States WHERE KIDZ WANNA BE! 1,835,777 41
United States DZ 1,847,478 41
United States DZ 1,850,362 25
United States WEEBODIES 1,871,651 41
United States DZ DINER 1,871,739 42
United States PHONE THE ZONE 1,949,543 41
United States KIDZ WATCH 1,953,607 41
United States CHICKEN DINOBITES 1,958,271 29
United States DISCOVERY ZONE ... 1,976,126 41
United States STARTER ZONE 1,991,068 41
United States SKILL ZONE 1,991,069 41
United States TAKE ME HOME ZONE 1,992,959 41
United States MINI ZONE 1,992,960 41
United States FUNSITTERS 2,000,077 42
United States ZONE BRAIN 2,011,598 41
United States IMAGINACTION 2,012,590 41
United Staes MEGA ZONE 2,020,317 41
United States THE FREEDOM YOU ... 2,025,727 42
APPLICATIONS FOR TRADEMARK REGISTRATION
COUNTRY MARK NUMBER CLASS
- ------- ---- ------ -----
China DISCOVERY ZONE 950301 41
Indonesia DISCOVERY ZONE 21135 41
Japan Discovery Zone Logo 133794/1995 17
Korea (South) DISCOVERY ZONE 4850/95 112
Qatar DISCOVERY ZONE 9649 41
Ras-al-Khaimah DISCOVERY ZONE 8614 41
Switzerland Discovery Zone Logo 9515/95 41
United Arab Emirates DISCOVERY ZONE 9634 41
United Arab Emirates Discovery Zone Logo 18716 41
United States DISCOVERY ZONE 74/711695 14
United States Discovery Zone Logo 74/712805 14
United States DISCOVERY ZONE 74/720947 16
United States SHIPWRECKED 75/001665 41
United States TEKNO ZONE 75/027218 25
United States TEKNO ZONE 75/027782 41
United States TEKNO ZONE 75/031321 28
United States NITE ZONE 75/044823 14
United States NITE ZONE 75/045154 25
United States NITE ZONE 75/045155 41
<PAGE>
United States NITE ZONE 75/045156 16
United States DZ 75/067142 28
<PAGE>
SCHEDULE C
COPYRIGHTS
COPYRIGHT REGISTRATIONS
COUNTRY TITLE NUMBER DATE
- ------- ----- ------ ----
US We Make Happy... TX3277072 March 9, 1992
US Horizone TX3334160 March 14, 1992
US Hiring/Recruiting Manual TX3306504 April 29, 1992
US 1991 Kids PA564669 March 9, 1992
US Discover an Investment ... TX3285922 March 9, 1992
US Let Your Kids Bounce ... TX3299596 March 9, 1992
US At Discovery Zone, Every ... TX3299592 March 9, 1992
US The Place For Kids ... TX3299598 March 9, 1992
US Let Your Kids ... TX3299593 March 9, 1992
US Bring Your Kids ... TX3299594 March 9, 1992
US Discovery Zone TX3299599 March 9, 1992
US Fitness Fun ... TX3299597 March 9, 1992
US Tell Your Kids ... TX3299591 March 9, 1992
US Welcome to Discovery ... TX3276556 March 9, 1992
US The Perfect Destination ... TX3277110 March 9, 1992
US Discovery How Fit ... TX3299595 March 9, 1992
US Discovery Zone ... TX3153744 July 11, 1991
APPLICATIONS FOR COPYRIGHT REGISTRATION
COUNTRY TITLE
- ------- -----
US Z-Bop - robot character
US Employee Handbook
<PAGE>
EXHIBIT 4.12
-----------------------------------------------------------------
-----------------------------------------------------------------
INTERCREDITOR AGREEMENT
between
[NAME OF SENIOR LENDER]
and
STATE STREET BANK AND TRUST COMPANY,
as Collateral Agent
Dated as of July 22, 1997
----------------------------------------------------------------------
----------------------------------------------------------------------
<PAGE>
FORM OF
INTERCREDITOR AGREEMENT
THIS INTERCREDITOR AGREEMENT dated as of July 22, 1997 (this
"AGREEMENT") is made by and between State Street Bank and Trust Company (the
"SUBORDINATED CREDITOR"), solely in its capacity as trustee and collateral agent
under and pursuant to the Subordinated Creditor Indenture (as hereinafter
defined), and [Name of Lender], as senior secured lender (the "LENDER") under
and pursuant to the Lender Credit Agreement (as hereinafter defined).
RECITALS
A. Discovery Zone, Inc., a Delaware corporation (the "BORROWER"), certain
subsidiaries of the Borrower and the Subordinated Creditor entered into an
Indenture, dated July 22, 1997 (the "SUBORDINATED CREDITOR INDENTURE"), pursuant
to which and upon the terms and conditions stated therein indebtedness was
incurred by the Borrower (the "SUBORDINATED INDENTURE INDEBTEDNESS") the
repayment of which is secured by priority security interests in and liens on the
assets and properties (the "COLLATERAL") described in the Security Agreement
(the "SECURITY AGREEMENT") and the Collateral Assignment of Trademarks (the
"TRADEMARK ASSIGNMENT" and together with the Security Agreement and the
Subordinated Creditor Indenture, the "SUBORDINATED INDENTURE AGREEMENTS"), each
dated the date of the Subordinated Creditor Indenture by and between the
Borrower and the Subordinated Creditor.
B. As of ___________________, the Borrower and the Lender entered into a
Credit Agreement (the "LENDER CREDIT AGREEMENT") pursuant to which the Lender
agreed, upon the terms and conditions stated therein, to make loans and advances
to or to issue letters of credit on account of the Borrower in an aggregate
principal amount and face amount, as the case may be, not to exceed in the
aggregate $10 million (such aggregate principal and face amount, together with
all interest and reasonable fees and expenses payable thereon or with respect
thereto being the "SENIOR LOAN INDEBTEDNESS"), secured by priority security
interests in and liens on the Collateral pursuant to the Lender Credit Agreement
and the collateral security documents executed and delivered in connection
therewith (the "SENIOR SECURITY AGREEMENTS" and together with the Lender Credit
Agreement, the "SENIOR LOAN AGREEMENTS").
C. One of the conditions of the Lender Credit Agreement is that the
priority of the security interests in and liens on the Collateral under the
Senior Loan Agreements be senior to the
-1-
<PAGE>
security interests in and liens on the Collateral under the Subordinated
Indenture Agreements, in the manner and to the extent provided in this
Agreement.
D. The Lender and the Subordinated Creditor desire to enter into this
Agreement concerning the respective rights of the Lender and the Subordinated
Creditor with respect to the priority of their respective security interests in
and liens on the Collateral.
E. The terms of Sections 10.02, 12.01 and 12.02 of the Subordinated
Creditor Indenture permit the Borrower to enter into the Lender Credit
Agreement, subject to compliance with certain conditions, and in connection
therewith authorize and direct the Subordinated Creditor to enter into a
subordination agreement substantially in the form of this Agreement.
F. In order to induce the Lender to extend credit to the Borrower and for
purposes of certain conditions precedent and covenants of the Senior Loan
Agreements, the Subordinated Creditor hereby agrees with the Lender, and in
order to induce the Subordinated Creditor to approve the Senior Loan
Indebtedness and the Lender's security interests in and liens on the Collateral
for purposes of certain conditions precedent and covenants of the Subordinated
Indenture Agreements, the Lender and the Subordinated Creditor hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01. TERMS DEFINED ABOVE AND IN THE RECITALS. As used in this
Agreement, the following terms shall have the respective meanings indicated in
the opening paragraph hereof and in the above Recitals:
"Agreement"
"Borrower"
"Collateral"
"Lender"
"Lender Credit Agreement"
"Senior Loan Indebtedness"
"Senior Security Agreements"
"Senior Loan Agreements"
"Subordinated Creditor"
"Subordinated Creditor Indenture"
"Subordinated Indenture Indebtedness"
"Subordinated Indenture Agreements"
Section 1.02. LENDER CREDIT AGREEMENT DEFINITIONS. All capitalized terms
which are used but not defined herein shall have the same meaning as in the
Lender Credit Agreement.
-2-
<PAGE>
Section 1.03. OTHER DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
"FULLY PAID" shall mean the payment in cash in full of all obligations
under each Lender Loan Document at such time when there shall no longer be any
obligation of the Lender to make advances or issue letters of credit and there
shall no longer be any letter of credit outstanding thereunder or such letter of
credit shall have been cash collateralized in an amount not less than 105% of
the undrawn amount thereof.
"INSOLVENCY PROCEEDING" shall mean any proceeding for the purposes of
dissolution, winding up, liquidation, arrangement or reorganization of the
Borrower or its successors or assigns, whether in bankruptcy, insolvency,
arrangement, reorganization or receivership proceedings or upon an assignment
for the benefit of creditors or any other marshaling of the assets and
liabilities of the Borrower or its successors or assigns.
"LENDER LOAN DOCUMENTS" shall mean the Senior Loan Agreements, the
collateral documents and instruments executed and delivered in connection
therewith, the Lender Note, and such other agreements, instruments and
certificates as defined or referred to in the Lender Credit Agreement, as any or
all of the same may be amended or supplemented from time to time.
"LENDER NOTE" shall mean the promissory note (or notes) executed by the
Borrower in favor of the Lender pursuant to the Lender Credit Agreement.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction,
excluding true lease and consignment filings).
"LIEN PRIORITY" shall mean with respect to any Lien of the Lender or the
Subordinated Creditor in the Collateral, the order of priority of such Lien as
specified in Section 2.01.
"LOAN DOCUMENTS" shall mean the Lender Loan Documents and the Subordinated
Creditor Loan Documents.
"MCDONALD'S" shall mean the McDonald's Corporation, a Delaware corporation,
and its successors and assigns.
"MCDONALD'S COLLATERAL" shall mean those certain fourteen parcels of real
property and related fixtures, including, without limitation, any proceeds
thereof, which properties and proceeds are subject to McDonald's Senior Liens.
-3-
<PAGE>
"MCDONALD'S SECURED NOTE" shall mean a secured promissory note to be issued
on the Issue Date by the Borrower in favor of McDonald's pursuant to the Plan of
Reorganization, which note represents restructured secured claims against the
Borrower in an estimated aggregate principal amount of up to $4,600,000.
"MCDONALD'S SECURED RENT DEFERRAL NOTES" shall mean secured promissory
notes to be issued on the Issue Date by the Borrower in favor of McDonald's
pursuant to the Plan of Reorganization, which notes represent restructuring of
rent deferrals which McDonald's granted to the Borrower during bankruptcy
proceedings of the Borrower in an estimated aggregate principal amount of to
$300,000.
"MCDONALD'S SENIOR LIENS" shall mean the first priority liens of McDonald's
on the McDonald's Collateral, as set forth in the first mortgages, deeds of
trust and/or deeds to secure debt, which McDonald's Senior Liens secure, among
other things, the payment of the McDonald's Secured Note, the McDonald's Secured
Rent Deferral Notes and any obligations of the Debtors (as defined in the Plan
of Reorganization) or the Borrower or any of the other Reorganized Debtors (as
defined in the Plan of Reorganization) that may arise under (i) the agreement to
indemnify as set forth in Section 10.3(f) and Section 11.2(a)(iii) of the
Agreement and Plan of Merger, dated as of August 30, 1994, by and among
Discovery Zone, Inc., Discovery Zone International, Inc., Leaps & Bounds, Inc.
and McDonald's and (ii) the Stipulation and Order Between Debtors and McDonald's
Providing for the Resolution, Settlement and Compromise of Disputes and for Rent
Deferrals and Allowance of Certain Claims, entered by the United States
Bankruptcy Court for the District of Delaware on November 18, 1996, which liens
are senior to the subordinate liens on the McDonald's Collateral granted by the
Borrower to Subordinated Creditor as set forth in the Subordination Agreement,
dated as of July ___, 1997, by and between McDonald's and the Subordinated
Creditor.
"PARTY" shall mean any signatory to this Agreement.
"SENIOR LIABILITIES" shall mean the "Obligations", contingent or otherwise,
of the Borrower to the Lender as defined in the Lender Credit Agreement,
including interest, fees and expenses after the initiation of any Insolvency
Proceeding, and including the secured claims of the Lender in respect of the
Collateral in any Insolvency Proceeding.
"SUBORDINATED CREDITOR ENFORCEMENT EVENT" shall mean the occurrence and
continuance of an "Event of Default" under Section 6.01 of the Subordinated
Creditor Indenture.
"SUBORDINATED CREDITOR LOAN DOCUMENTS" shall mean the Subordinated
Indenture Agreements, the Collateral Agreements (as defined in the Subordinated
Creditor Indenture), the Subordinated Creditor Notes, the real property
mortgages referred to in the
-4-
<PAGE>
Subordinated Creditor Indenture (now existing or hereafter negotiated, executed,
delivered and recorded), and such other agreements, instruments and certificates
as defined or referred to in the Subordinated Creditor Indenture, as any or all
of the same may be amended or supplemented from time to time.
"SUBORDINATED CREDITOR NOTES" shall mean the Notes issued to the holders
thereof pursuant to the Subordinated Creditor Indenture.
"SUBORDINATED LIABILITIES" shall mean the "Obligations", contingent or
otherwise, of the Borrower and the Subsidiary Guarantors (as defined in the
Subordinated Creditor Indenture) to the Subordinated Creditor and the holders of
the Subordinated Creditor Notes defined in Section 1.01 of the Subordinated
Creditor Indenture, including interest, fees and expenses after the initiation
of any Insolvency Proceeding, and including the secured claim of the
Subordinated Creditor in respect of the Collateral in any Insolvency Proceeding.
"TRIGGER EVENT" shall mean any of (a) the occurrence of an Event of Default
under the applicable section of the Lender Credit Agreement, (b) the
acceleration of or demand for payment on the Lender Note by the Lender pursuant
to the applicable section of the Lender Credit Agreement, or (c) the
commencement of any action by the Lender, whether judicial or otherwise, for the
enforcement of the Lender's rights and remedies under any of the Loan Documents,
including (i) commencement of any receivership or foreclosure proceedings
against or any other sale of, collection on or disposition of any Collateral,
including any notification to third parties to make payment directly to the
Lender, (ii) exercise of any right of set-off, (iii) commencement of any
Insolvency Proceeding, and (iv) commencement of any action or proceeding against
the Borrower to recover all or any part of the Senior Liabilities.
Section 1.04. SINGULAR AND PLURAL. All definitions herein (whether set
forth herein directly or by reference to definitions in other documents) shall
be equally applicable to both the singular and the plural forms of the terms
defined.
Section 1.05. MISCELLANEOUS. The words "hereof", "herein" or "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Article and section references are to articles and sections of this Agreement
unless otherwise specified. The term "including" shall mean "including, without
limitation".
-5-
<PAGE>
ARTICLE II
LIEN PRIORITY
Section 2.01. AGREEMENT TO SUBORDINATE. The Subordinated Creditor hereby
agrees that the Liens of the Subordinated Creditor in the Collateral are and
shall be subordinate in priority of Lien to the Lender's Liens in the Collateral
up to and not exceeding the maximum amount of $10 million (inclusive of
principal, interest, premium and expenses thereof) of the Senior Liabilities;
PROVIDED, HOWEVER, that the terms, provisions and restrictions of this Agreement
shall be void and of no further force and effect in the event that the Lender's
Liens in the Collateral are avoided, disallowed, set aside or otherwise
invalidated in any judicial proceeding by a court, tribunal or administrative
agency of competent jurisdiction, to the extent of such Collateral which is the
subject of any such proceeding. The subordination of Liens in favor of the
Lender herein shall not be deemed to subordinate the Subordinated Creditor's
Liens to the Liens of any other Person.
Section 2.02. STANDSTILL PERIOD. If a Subordinated Creditor Enforcement
Event has occurred and is continuing, the Subordinated Creditor may give the
Lender written notice thereof, specifying the nature of the Subordinated
Creditor Enforcement Event in reasonable detail. If such Subordinated Creditor
Enforcement Event is continuing for more than 120 days after the delivery of
such notice, and if the Lender has not by the expiration of such 120-day period
notified the Subordinated Creditor that the Lender has commenced one or more
types of enforcement actions described in Section 3.01 or an Insolvency
Proceeding, then the Subordinated Creditor may, subject to the Lien Priority and
prior application of proceeds of the Collateral to the Senior Liabilities, as
provided herein, take one or more types of enforcement actions described in
Section 3.01 or otherwise available to the Subordinated Creditor under the
Subordinated Creditor Indenture and the other Subordinated Creditor Loan
Documents. If Lender has taken or commenced such action within such period and
thereafter discontinues such enforcement action or actions, and no Insolvency
Proceeding or other action described in Section 3.01 is then being taken by the
Lender, and such Subordinated Creditor Enforcement Event is then continuing,
then the Subordinated Creditor may, subject to the Lien Priority and prior
application of proceeds of the Collateral to the Senior Liabilities, as provided
herein, take one or more types of enforcement actions described in Section 3.01
or otherwise available to the Subordinated Creditor under the Subordinated
Creditor Indenture and the other Subordinated Creditor Loan Documents.
Section 2.03. EXERCISE OF RIGHTS.
(a) The Subordinated Creditor may exercise, and nothing herein shall
constitute a waiver of, any right it may
-6-
<PAGE>
have at law or equity to receive notice of, or to commence or join with any
creditor in commencing any Insolvency Proceeding or, subject to Section 2.02, to
join or participate in, any action or proceeding or other activity described in
Section 3.01; PROVIDED, HOWEVER, that exercise of any such right by the
Subordinated Creditor shall be subject to the Lien Priority and prior
application of proceeds of Collateral to the Senior Liabilities as provided
herein.
(b) The Subordinated Creditor may make such demands or file such
claims in respect of the Subordinated Liabilities as may be necessary to prevent
the waiver or bar of such claims under applicable statutes of limitations or
other statutes, court orders or rules of procedure, but except as provided in
this Section 2.03, the Subordinated Creditor shall not take any actions
restricted by Article 3 in respect of such claims until the Senior Liabilities
are Fully Paid.
Section 2.04. PRIORITY OF LIENS. Irrespective of the order of recording
of mortgages, financing statements, security agreements or other instruments,
and irrespective of the descriptions of Collateral contained in the Loan
Documents, including any financing statements, the Parties agree among
themselves that their respective liens and security interests in the Collateral
shall be governed by the Lien Priority, which shall be controlling in the event
of any conflict between this Agreement and any of the Loan Documents.
Notwithstanding any other term or provision herein contained, Collateral, as
such term is used herein, shall only include the assets and properties subject
to the security interest and lien of the Security Agreement and the Collateral
Assignment of Trademarks (Security Agreement), each dated July 22, 1997, by and
between the Subordinated Creditor and the Borrower, and shall not include the
properties, assets and securities or other collateral described in (i) the
Pledge Agreement or the Escrow and Security Agreement, each dated July 22, 1997,
by and between the Subordinated Creditor and the Borrower, (ii) the real
property mortgage instruments granting, now or hereafter, to the Subordinated
Creditor certain leasehold mortgages with respect to certain real property
leases and related assets and properties of the Borrower, and (iii) the
McDonald's Collateral regarding the McDonald's Senior Liens.
Section 2.05. NOTICE OF TRIGGER EVENT. The Lender and the Subordinated
Creditor each agree that it will notify the other if it receives actual notice
of the occurrence of a Trigger Event or Subordinated Creditor Enforcement Event,
respectively, not later than 30 days after the date of any such occurrence, in
accordance with Section 5.06.
-7-
<PAGE>
ARTICLE III
ACTIONS OF THE PARTIES
Section 3.01. LIMITATION ON CERTAIN ACTIONS. Subject to Section 2.02, so
long as any of the Senior Liabilities are not Fully Paid, the Subordinated
Creditor will not, without the consent of the Lender, take any of the following
actions:
(a) commence receivership or foreclosure proceedings against or
otherwise sell, collect or dispose of any Collateral; or
(b) notify third party account debtors to make payment directly to it
or any of its agents or other Persons acting on its behalf.
Section 3.02. NOTICES. The Lender shall provide the Subordinated Creditor
with written notice at least 15 days prior to the Lender exercising any remedies
with respect to the Collateral.
Section 3.03. FORECLOSURE. The Lender shall take commercially reasonable
steps as permitted by applicable law to foreclose upon only such portion of the
Collateral as shall be reasonably necessary so that the Senior Liabilities are
Fully Paid.
ARTICLE IV
ENFORCEMENT OF PRIORITIES
Section 4.01. IN FURTHERANCE OF LIEN PRIORITIES. The Lender and the
Subordinated Creditor agree as follows:
(a) Upon any distribution of all or any of the assets of the Borrower
to creditors of the Borrower (whether in cash, securities or other property) in
connection with any Insolvency Proceeding, which otherwise would be payable or
deliverable upon or with respect to the Collateral securing the Subordinated
Liabilities, such assets shall be paid or delivered by the Subordinated Creditor
directly to the Lender for application (in the case of cash) to or as collateral
(in the case of securities or other non-cash property) for the payment or
prepayment of the Senior Liabilities until the amount of $10 million (inclusive
of principal, interest, premium and expenses thereof) of Senior Liabilities
shall have been Fully Paid.
(b) If any Insolvency Proceeding is commenced by or against the
Borrower, the Subordinated Creditor, to the extent party to any such Insolvency
Proceeding, and to the extent it has commenced any action described in
Section 3.01, shall use its commercially reasonable efforts to duly and promptly
take such
-8-
<PAGE>
action as the Lender may reasonably request (i) to collect the proceeds of
Collateral securing the Subordinated Liabilities for account of the Lender at
Lender's reasonable cost and expense and to file appropriate claims or proofs of
claim in respect of the Subordinated Liabilities and (ii) to collect and receive
any and all payments or distributions which may be payable or deliverable upon
or with respect to the Collateral securing the Subordinated Liabilities and to
hold such payments or distributions in trust for the Lender, at Lender's
reasonable cost and expense, to the extent set forth herein; PROVIDED, HOWEVER,
that Subordinated Creditor shall have no liability to the Lender regarding the
adequacy of any such proceeds or for any such action subject to wilful
misconduct, bad faith or gross negligence.
(c) All payments or distributions upon or with respect to the
Subordinated Liabilities which are received by the Subordinated Creditor
contrary to the provisions of this Agreement shall be segregated from other
funds and property held by the Subordinated Creditor and shall be held in trust
for the Lender and shall forthwith pay over such remaining proceeds to the
Lender in the same form as so received (with any necessary endorsement) to be
applied (in the case of cash) to or held as Collateral (in the case of non-cash
property or securities) for the payment or prepayment of the Senior Liabilities
in accordance with the terms of the Lender Credit Agreement; PROVIDED, HOWEVER,
after such application of proceeds so that the Senior Liabilities are Fully Paid
to the extent set forth herein, the Lender shall segregate any remaining
payments and distributions from the Lender's other funds and properties and
shall hold such payments and distributions in trust for the Subordinated
Creditor and shall be forthwith paid over to the Subordinated Creditor in the
same form as so received (with any necessary endorsement) to be applied (in the
case of cash) to or held as Collateral (in the case of non-cash property or
securities) for the payment or prepayment of the Subordinated Liabilities in
accordance with the terms of the Subordinated Creditor Indenture, as further
provided in Section 5.14.
(d) Each of the Lender and the Subordinated Creditor is hereby
authorized to demand specific performance of this Agreement, whether or not the
Borrower shall have complied with any of the provisions hereof applicable to it,
at any time when the other shall have failed to comply with any of the
provisions of this Agreement applicable to it, PROVIDED, HOWEVER, the remedy of
specific performance shall not be available, and the asserting party shall be
free to assert any and all legal defenses it may possess, if such remedy would
result in, or otherwise constitute, a violation of the Employee Retirement
Income Security Act of 1974, as amended. Each of the Lender and the
Subordinated Creditor hereby irrevocably waives any defense based on the
adequacy of a remedy at law, which might be asserted as a bar to such remedy of
specific performance.
-9-
<PAGE>
(e) This Agreement shall continue to be effective or be reinstated,
as the case may be, if at any time any payment of any of the Senior Liabilities
is, other than as a result of any malfeasance, intentional fraud or negligence
of the Lender, rescinded or must otherwise be returned by the Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made.
Section 4.02 MCDONALD'S SENIOR LIENS. Nothing herein shall in any
way reduce, release, compromise, or limit the validity, perfection, priority or
enforceability of the McDonald's Senior Liens.
ARTICLE V
MISCELLANEOUS
Section 5.01. RIGHTS OF SUBROGATION. The Subordinated Creditor
agrees that no payment or distribution to the Lender pursuant to the provisions
of this Agreement shall entitle the Subordinated Creditor to exercise any rights
of subrogation in respect thereof until the Senior Liabilities shall have been
Fully Paid.
Section 5.02. FURTHER ASSURANCES. The Parties will, at their own
expense and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that either Party may reasonably request, in order to
protect any right or interest granted or purported to be granted hereby or to
enable the Lender or the Subordinated Creditor to exercise and enforce its
rights and remedies hereunder; PROVIDED, HOWEVER, that neither Party shall be
required to pay over any payment or distribution, execute any instruments or
documents, or take any other action referred to in this Section 5.02 to the
extent that such action would contravene any law, order or other legal
requirement, and in the event of a controversy or dispute, either Party may
interplead any payment or distribution in any court of competent jurisdiction,
without further responsibility in respect of such payment or distribution under
this Section 5.02.
Section 5.03. DEFENSES SIMILAR TO SURETYSHIP DEFENSES. All rights and
interests of the Lender hereunder, and all agreements and obligations of the
Subordinated Creditor under this Agreement, shall remain in full force and
effect irrespective of:
(a) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Senior Liabilities, or any other amendment or
waiver of or any consent to departure from the Lender Note or the Lender Credit
Agreement, PROVIDED, HOWEVER, that this clause (a) shall not apply to, and the
Subordinated Creditor's liens and security interests in the
-10-
<PAGE>
Collateral shall not be subordinated in priority by virtue of this Agreement to
the Lender's liens and security interests therein to the extent that the Senior
Loan Indebtedness is increased by virtue of any amendment, without the express
written consent of the Subordinated Creditor, which alters the amount of the
Senior Liabilities or the rate of interest or commission payable with respect
thereto or alters the schedule of payments of principal or interest thereon, or
which has the effect stated in the proviso to clause (b) below; or
(b) any exchange, release or non-perfection of any Collateral, or any
release, amendment or waiver of or consent to departure from any guaranty, for
all or any of the Senior Liabilities, PROVIDED, HOWEVER, that this clause (b)
shall not apply to, and the Subordinated Creditor's Liens in the Collateral
shall not be subordinated in priority by virtue of this Agreement to the
Lender's Liens therein, if there is any such release, amendment, waiver or
consent, without the express written consent of the Subordinated Creditor, which
releases any material items or amount of Collateral.
Section 5.04. WAIVER. Except as otherwise provided herein, and
subject to commercially reasonable standards, the Subordinated Creditor hereby
waives, with respect to the Collateral to which the Lien Priority hereunder
relates (i) any failure, omission, delay or lack on the part of the Lender to
enforce, assert or exercise any right, power or remedy conferred on the Lender
in any of the Lender Loan Documents or this Agreement or the inability of the
Lender to enforce any provision of the Lender Loan Documents or this Agreement,
and (ii) without limiting the generality of the foregoing, any requirement that
the Lender protect, secure, perfect or insure any Liens or other lien or any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any Collateral; PROVIDED, HOWEVER, that this
Section 5.04 shall not be applicable to, and the Subordinated Creditor's Liens
in the Collateral shall not be subordinated in priority by virtue of this
Agreement to the Lenders' Liens therein, if, due to the Lender's malfeasance,
intentional fraud or gross negligence, or in the event there is any lack of
validity or enforceability, in any material respect, of the Lender Loan
Documents.
Section 5.05. AMENDMENTS, ETC. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any Party shall in
any event be effective unless the same shall be in writing and signed by the
each Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
Section 5.06. ADDRESSES FOR NOTICES. All demands, notices and other
communications provided for hereunder shall be in writing and, if to the
Subordinated Creditor, mailed or sent by telecopy or delivered to it, addressed
to it as follows:
-11-
<PAGE>
State Street Bank and Trust
Two International Place
Boston, MA 02110
Attention: Corporate Trust Department
Telephone: (617) 664-5326
Facsimile: (617) 664-5371
and if to the Lender, mailed, sent or delivered thereto, addressed to it at the
address of the Lender specified in the Lender Credit Agreement, or as to any
party at such other address as shall be designated by such party in a written
notice to the other parties complying as to delivery with the terms of this
Section. All such demands, notices and other communications shall be effective,
when mailed, two business days after deposit in the mails, postage prepaid, when
sent by telecopy, when receipt is acknowledged by the receiving telecopy
equipment (or at the opening of the next business day if receipt is after normal
business hours), or when delivered, as the case may be, addressed as aforesaid.
Section 5.07. NO WAIVER, REMEDIES. No failure on the part of any
Party to exercise, and no delay in exercising, any right hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
Section 5.08. CONTINUING AGREEMENT, TRANSFER OF LENDER NOTE. This
Agreement is a continuing agreement and shall (i) remain in full force and
effect until the Senior Liabilities and, solely for the purposes of Section
5.14, the Subordinated Liabilities shall have been paid in full, (ii) be binding
upon the Parties and their successors and assigns, and (iii) inure to the
benefit of and be enforceable by the Parties and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (iii), the Lender or the Subordinated Creditor may assign or otherwise
transfer its Lender Note or the Subordinated Liabilities to any other Person
(other than Borrower or an Affiliate of Borrower), and such other Person shall
thereupon become vested with all the rights in respect thereof granted to the
Lender or Subordinated Creditor, as the case may be, herein or otherwise.
Section 5.09. GOVERNING LAW: ENTIRE AGREEMENT. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York except as otherwise preempted by applicable federal law. This Agreement
constitutes the entire agreement and understanding among the Parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect thereto.
Section 5.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, and it is not necessary
-12-
<PAGE>
that the signatures of all Parties be contained on any one counterpart hereof,
each counterpart will be deemed to be an original, and all together shall
constitute one and the same document.
Section 5.11. NO THIRD PARTY BENEFICIARY. This Agreement is solely
for the benefit of the Parties (and their permitted assignees). No other Person
(including Borrower or any Affiliate of Borrower) shall be deemed to be a third
party beneficiary of this Agreement.
Section 5.12. HEADINGS. The headings of the articles and sections of
this Agreement are inserted for purposes of convenience only and shall not be
construed to affect the meaning or construction of any of the provisions hereof
Section 5.13. SEVERABILITY. If any of the provisions in this
Agreement shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement and shall not invalidate the Lien Priority
or any other priority set forth in this Agreement.
Section 5.14. PAYMENT IN FULL OF SENIOR LIABILITIES. From and after
the Senior Liabilities being Fully Paid up to $10 million (inclusive of
principal, interest, premium and expenses thereof):
(a) All payments or distributions from the Borrower or with respect
to the Collateral received by the Lender shall be segregated from other funds
and property held by the Lender and held in trust by the Lender for the
Subordinated Creditor and shall be promptly paid over to the Subordinated
Creditor in the same form as received (with any necessary endorsement without
recourse or warranty) to be applied to or held for the payment or prepayment of
the Subordinated Liabilities in accordance with the terms of the Subordinated
Creditor Indenture; and
(b) The Lender will promptly execute and deliver all further
instruments and documents, and take all further acts that may be necessary or
desirable, or that the Subordinated Creditor may reasonably request, to permit
the Subordinated Creditor to enforce the Subordinated Liabilities or recover any
proceeds of the Collateral;
PROVIDED, HOWEVER, that the Lender shall not be required to pay over any payment
or distribution, execute any instruments or documents, or take any other action
referred to in this Section 5.14 to the extent that such action would contravene
any law, order or other legal requirement, and in the event of a controversy or
dispute, the Lender may interplead any payment or distribution in any court of
competent jurisdiction, without further responsibility in respect of such
payment or distribution under this Section 5.14.
-13-
<PAGE>
Section 5.15. OTHER NON-SUBORDINATED ENCUMBERED ASSETS. Notwithstanding
any term herein to the contrary, it is hereby acknowledged and agreed that the
subordination set forth in this Agreement (and the term "Collateral" as defined
in this Agreement) does not include or apply to (i) certain Capital Stock
pledged by the Borrower to the Subordinated Creditor under and pursuant to a
Pledge Agreement between the Borrower and the Subordinated Creditor dated July
___, 1997, (ii) certain cash, securities, instruments and/or certificates in an
escrow account established with and pledged to the Subordinated Creditor under
and pursuant to a certain Escrow and Security Agreement between the Borrower and
the Subordinated Creditor dated July ___, 1997, (iii) certain leasehold
interests and related assets and properties of the Borrower and any of its
subsidiaries, encumbered by certain leasehold mortgages in favor of the
Subordinated Creditor, (iv) the McDonald's Collateral encumbered by the
McDonald's Senior Liens, as well as the Subordinated Creditor's subordinated
security interest and liens thereon, and (v) any assets or properties held by
any Subsidiary or any other subsidiary of the Borrower.
Section 5.16. SUBORDINATED CREDITOR TRUSTEE STATUS. Notwithstanding any
term herein to the contrary, it is hereby expressly agreed and acknowledged that
the terms of this Agreement applicable to or governing the Subordinated Creditor
shall at all times and in all respects, whether or not expressly referenced
therein, be subject to the terms, protections and benefits set forth in Article
Seven of the Subordinated Creditor Indenture. It is further expressly
acknowledged that the subordination and related agreements set forth herein by
the Subordinated Creditor are made solely in its capacity as Trustee under the
Subordinated Creditor Indenture and with respect to the Notes issued thereunder
(and not in its individual commercial capacity).
-14-
<PAGE>
IN WITNESS WHEREOF, the Lender and the Subordinated Creditor each has
caused this Agreement to be duty executed and delivered as of the date first
above written.
LENDER: [NAME OF LENDER]
By: ____________________________
SUBORDINATED STATE STREET BANK AND TRUST COMPANY,
CREDITOR: solely in its capacity as Trustee (and not
individually)
By:______________________________
Name:
Title:
<PAGE>
ACKNOWLEDGMENT
The undersigned ("Borrower"), hereby acknowledges that it has received
a copy of the foregoing Intercreditor Agreement and consents thereto, and agrees
to recognize all rights granted thereby to the parties thereto, and will not do
any act or perform any obligation which is not in accordance with the agreements
set forth in such Intercreditor Agreement. Borrower further acknowledges that
it is not an intended beneficiary or third party beneficiary under the
Intercreditor Agreement.
Dated as of _____________, 1997.
DISCOVERY ZONE, INC.
a Delaware corporation
By:
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 4.13
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by DISCOVERY
ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal place of
business at One Corporate Center, 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 to STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture, dated
July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust Company,
as trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including sub-
subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein,
shall have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to the Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("Surveys") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness
and Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or
any part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Mortgaged Property is
located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or
after any proceedings for the enforcement of this Mortgage;
-17-
<PAGE>
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom, and
thereupon Mortgagee may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Mortgagor, or in its own name and under the powers
herein granted,(A) use, operate, manage, control, insure, maintain, repair,
restore and otherwise deal with all and every part of the Mortgaged Property and
conduct the business thereat; (B) complete any construction on the Mortgaged
Property in such manner and form as Mortgagee deems advisable; (C) make
alterations, additions, renewals, replacements and improvements to or on the
Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect
to the Mortgaged Property, whether in the name of Mortgagor or otherwise
(including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Mortgaged
Property and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments, insurance and other charges in connection with
the Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee,
or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged Property.
-18-
<PAGE>
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Documents;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor,
-19-
<PAGE>
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Mortgaged Property, no forbearance on the part of Mortgagee and no
extension of time for the payment of the whole or any portion of the Obligations
or any other indulgence given by Mortgagee to Mortgagor, shall operate to
release or in any manner affect the interest of Mortgagee in the remaining
Mortgaged Property or the liability of Mortgagor to pay the Obligations. No
waiver by Mortgagee shall be effective, unless it is in writing and then only to
the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor and shall be secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
-20-
<PAGE>
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage and a "security agreement" within the meaning of the Uniform Commercial
Code. The Mortgaged Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted and hereby grants to Mortgagee, as security for the
Obligations, a security interest in the Mortgaged Property to the full extent
that the Mortgaged Property may be subject to the Uniform Commercial Code (said
portion of the Mortgaged Property so subject to the Uniform Commercial Code
being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees with
Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to Mortgagor at least ten (10) business days prior to such
action or such notice as is otherwise required by law or the Relevant Documents,
shall constitute commercially reasonable notice to Mortgagor. The proceeds of
any disposition of the Collateral, or any part thereof, may be applied by
Mortgagee to the payment of the Obligations in such priority and proportions as
Mortgagee shall determine in its sole discretion. In the event of any change in
name, identity or structure of Mortgagor, Mortgagor shall notify Mortgagee
thereof and, promptly after request, shall execute, file and record such Uniform
Commercial Code forms as are necessary to maintain the priority of Mortgagee's
lien upon and security interest in the Collateral, and shall pay all expenses
and fees in connection with the filing and recording
-21-
<PAGE>
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Mortgagor's obligations under this Mortgage or the other
Relevant Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Mortgagee, as secured party, in connection with the Collateral covered
by this Mortgage, such appointment to terminate upon the release of this
Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such
-22-
<PAGE>
security as Mortgagee may reasonably request to insure payment of such
Impositions and to secure and indemnify Mortgagee against any cost, expense,
loss or damage in connection with such contest or postponement of payment,; (d)
Mortgagor shall timely upon final determination thereof pay the amount of any
such Impositions, claim, fine or penalty so determined, together with all costs,
interest and penalties which may be payable in connection therewith; (e) the
failure to pay the Impositions, or mechanic's or materialman's or similar lien
claim does not constitute a default under any other deed of trust, mortgage or
security interest covering or affecting any part of the Mortgaged Property; and
(f) notwithstanding the foregoing, Mortgagor shall immediately upon request of
Mortgagee pay (and if Mortgagor shall fail so to do, Mortgagee may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Mortgagee, the Mortgaged Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be
-23-
<PAGE>
delivered as follows or at such other place as either party hereto may by notice
in writing (given in accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclosure this Mortgage.
The rights and remedies of Mortgagee under this Mortgage shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Mortgagee shall be construed as an election to proceed under
any one provision herein to the exclusion of any other provision. Mortgagee
shall not be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter afforded at law or
in equity.
-24-
<PAGE>
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
-25-
<PAGE>
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH
-26-
<PAGE>
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO
COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, nonperfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to
-27-
<PAGE>
it under any or all of the Relevant Documents without first exercising or
enforcing any of its rights and remedies hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to
-28-
<PAGE>
Mortgagee, and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed under seal by
the Mortgagor as of the day and year first written above.
In the Presence of: MORTGAGOR:
DISCOVERY ZONE, INC., a Delaware
/s/ Scott Bernstein corporation,
- ---------------------
Print Name: Scott Bernstein
/s/ Mark D. Woodward By: /s/ Robert G. Rooney
- --------------------- ---------------------------
Name: Robert G. Rooney
Print Name: Mark D. Woodward Title: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
Before me, a Notary Public in and for said County and State,
personally appeared the above-named DISCOVERY ZONE, INC., a corporation
organized under the laws of Delaware by Robert G. Rooney, its Senior Vice
President, who acknowledged that he did sign the foregoing instrument for and on
behalf of DISCOVERY ZONE, INC., and that the same is the free act and deed of
DISCOVERY ZONE, INC. and his free act and deed individually and such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
50 Main Street, White Plains, NY, this 28th day of July 1997.
/s/ Mark D. Woodward
-------------------------
Notary Public
THIS DOCUMENT PREPARED BY AND MARK D. WOODWARD
RECORDING REQUESTED BY AND Notary Public State of New York
WHEN RECORDED MAIL TO: No. 49897846
Ronald S. Brody, Esq. Qualified in New York County
Anderson Kill & Olick, P.C. Commission Expires June 15, 1998
1251 Avenue of the Americas
New York, New York 10020
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
Situate in the City of Forest Park, County of Hamilton, and State of Ohio, in
Section 19, Town 2, Entire Range 2, Springfield Township, and being more
particularly described as follows:
Commencing at the northwest corner of Section 19; thence with the section
line S. 00degrees 10' 00" W. for 1,709.00 feet to a point on the western
right of way of Interstate 275; thence crossing said right of way of
Interstate 275, N. 88 degrees 19' 00" E. for 440.65 feet to a point on the
eastern right of way of Interstate 275, being the TRUE POINT OF BEGINNING;
thence with the eastern right of way of Interstate 275, N. 44degrees 38' 05"
E. for 86.23 feet to a point; thence N. 44degrees 38' 05" E. for 366.76 feet
to an iron pin; thence N. 67degrees 02' 20" E. for 216.79 feet to a point;
thence leaving the eastern right of way of Interstate 275, S. 01degrees 41'
05" E. for 331.97 feet to a point; thence S. 88degrees 19' 00" W. for 10.81
feet to a point; thence S. 02degrees 01' 04" W. for 35.39 feet to an iron pin
on the line of Esther Willer; thence with the line of Esther Willer, S.
88degrees 34' 29" W. for 170.00 feet to a point; thence N. 01degrees 40' 59"
W. for 10.00 feet to a point; thence S. 88degrees 33' 53" W. for 75.00 feet
to a point; thence S. 01degrees 40' 04" E. for 35.32 feet to a point; thence
S. 88degrees 19' 00" W. for 271.52 feet to a point being the TRUE POINT OF
BEGINNING; containing 2.636 acres.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Mortgage. If any conflict or inconsistency exists between this
Exhibit B and the remainder of the attached Mortgage, this Exhibit B shall
govern.
A. MAXIMUM PRINCIPAL INDEBTEDNESS. This Mortgage secures the unpaid
balance of loan advances which may be made after this Mortgage is filed for
record. The maximum amount of the unpaid principal balance of all loan advances
(in the aggregate and exclusive of interest thereon and other advances made for
the payment of taxes, insurance, or for protection of the Mortgaged Property)
which may be outstanding at any time is $85,000,000.00. In addition to any
other debt or obligation secured hereby, this Mortgage shall also secure unpaid
balances of advances made with respect to the Mortgaged Property for the payment
of taxes, assessments, insurance premiums, and costs incurred for maintaining
the Improvements on, or for the protection of, the Mortgaged Property.
B. MECHANICS' LIEN LAW. Mortgagee shall be and hereby is authorized
and empowered to do, as mortgagee, all things provided to be done in the
mechanics' lien laws of the State of Ohio (including Section 1311.14 of the Ohio
Revised Code), and all acts amendatory or supplementary thereto.
B-1
<PAGE>
EXHIBIT 4.14
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
PIN: 07-19-105-003-0000
Common Address: 2570 W. Schaumburg Road
Schaumburg, IL 60194
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by DISCOVERY
ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal place of
business at One Corporate Center, 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 to STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture, dated
July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust Company,
as trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
-1-
<PAGE>
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
-2-
<PAGE>
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including sub-
subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or
-3-
<PAGE>
reimbursable tap fees, utility deposits and development costs in connection with
the Mortgaged Property, and all of the records and books of account now or
hereafter maintained by or on behalf of Mortgagor in connection with the
operation of the Mortgaged Property (collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for proceeds
payable under policies of insurance in respect of, the Mortgaged Property now
existing or hereafter arising), (iii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Mortgagor from time to time with
respect to damage or loss of or to any of the Mortgaged Property, (iv) any and
all payments (in any form whatsoever) made or due and payable to Mortgagor from
time to time in connection with the requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Mortgaged Property by any
Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
-4-
<PAGE>
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall
have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged
-5-
<PAGE>
Property), in each case whether general or special, ordinary or extraordinary,
foreseen or unforeseen, of every character in respect of the Mortgaged Property,
which at any time prior to, during or in respect of the term hereof may be
assessed or imposed on or in respect of or be a lien upon (i) Mortgagor
(including, without limitation, all income, franchise, single business or other
taxes imposed on Mortgagor for the privilege of doing business in the
jurisdiction in which the Mortgaged Property is located), (ii) the Mortgaged
Property, or any part thereof or any revenues therefrom or any estate, right,
title or interest therein, or (iii) any occupancy, operation, use or possession
of, or sales from, or activity conducted on, or in connection with the Mortgaged
Property by Mortgagor or the leasing or use of the Mortgaged Property or any
part thereof by Mortgagor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
-6-
<PAGE>
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject only to the Permitted
Encumbrances. Mortgagor shall forever warrant, defend and preserve such title
and the validity and priority of the lien of this Mortgage and shall forever
warrant and defend the same to Mortgagee against the claims of all persons
whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
-7-
<PAGE>
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding title policy so that such error
is corrected and to execute and cause to be recorded, if applicable, such
document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other
-8-
<PAGE>
obligations in, to and under the Leases; (c) demand, sue for or otherwise
collect, receive, and enforce payment of Rents, including those past-due and
unpaid and other rights under the Leases, prosecute any action or proceeding,
and defend against any claim with respect to the Rents and Leases; (d) enter
upon, take possession of and operate the Mortgaged Property; (e) lease all or
any part of the Mortgaged Property; and/or (f) perform any and all obligations
of Mortgagor under the Leases and exercise any and all rights of Mortgagor
therein contained to the full extent of Mortgagor's rights and obligations
thereunder, with or without the bringing of any action or the appointment of a
receiver and without need for any other authorization or other action by
Mortgagee or Mortgagor. At Mortgagee's request, Mortgagor shall deliver a copy
of this assignment to each tenant under a Lease and to each manager and managing
agent or operator of the Mortgaged Property. Mortgagor irrevocably directs any
tenant, manager, managing agent, or operator of the Property, without any
requirement for notice to or consent by Mortgagor, to comply with all demands of
Mortgagee under this Section 8 and to turn over to Mortgagee on demand all Rents
which it receives. Mortgagor hereby acknowledges and agrees that payment of any
Rents by a person to Mortgagee as hereinabove provided shall constitute payment
by such person, as fully and with the same effect as if such Rents had been paid
to Mortgagor. Mortgagee is hereby granted and assigned by Mortgagor the right,
at its option, upon revocation of the license granted herein, to enter upon the
Mortgaged Property in person or by agent, without bringing any action or
proceeding, or by court-appointed receiver to collect the Rents. Any Rents
collected after the revocation of the license shall be applied towards the
payment of the Obligations. Neither the enforcement of any of the remedies
under this Section 8 nor any other remedies or security interests afforded to
Mortgagee under the Relevant Documents, at law or in equity shall cause
Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties
-9-
<PAGE>
on which it operates similar businesses ("SIMILAR PROPERTIES"). Except as
otherwise permitted by the Relevant Documents, the Improvements, the Fixtures
and the equipment located on the Land or the Improvements shall not be removed,
demolished or materially altered (except for normal replacement of equipment)
without the consent of Mortgagee which shall not unreasonably be withheld or
delayed. Mortgagor shall comply with all laws, orders and ordinances affecting
the Mortgaged Property, or the use thereof. Except to the extent that Mortgagee
fails to turn over insurance proceeds, if any, received by Mortgagee pursuant to
Sections 10 and 11 with respect to such Mortgaged Property to Mortgagor,
Mortgagor shall promptly repair, replace or rebuild any part of the Mortgaged
Property that, following the date hereof, becomes damaged, worn or dilapidated
and Mortgagor shall complete and pay for any structure at any time in the
process of construction or repair on the Land. Notwithstanding anything to the
contrary contained herein, Mortgagor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Mortgaged Property. Mortgagor shall not initiate, join in, acquiesce in,
or consent to any change in any private restrictive covenant, zoning law or
other public or private restriction, limiting or defining the uses which may be
made of the Mortgaged Property or any part thereof, unless Mortgagor shall have
received Mortgagee's prior written consent, such consent not to be unreasonably
withheld or delayed. If under applicable zoning provisions the use of all or
any portion of the Mortgaged Property is or shall become a nonconforming use,
Mortgagor will not cause such nonconforming use to be discontinued or abandoned
without the express written consent of Mortgagee, such consent not to be
unreasonably withheld or delayed. Mortgagor shall not (i) change the use of the
Land in any material respect or (ii) permit or suffer to occur any waste on or
to the Mortgaged Property or to any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of
-10-
<PAGE>
premiums thereon, to Mortgagee, and in the case of all insurance about to
expire, shall deliver renewal policies or certificates evidencing such policies
not less than ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in
-11-
<PAGE>
the adjustment and collection of insurance proceeds shall be included in the
Obligations, and shall be reimbursed to Mortgagee upon demand or may be deducted
by Mortgagee from said insurance proceeds prior to another application thereof.
Interest on such amount shall accrue at the rate of thirteen and one-half
percent (13.5%) per annum, beginning ten (10) days after Mortgagor receives
notice of a request for payment of such amount from Mortgagee, until such
amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such application; (ii) restoration
can, in the reasonable judgment of Mortgagee, be completed prior to the maturity
of the Obligations; and (iii) restoration can, in the reasonable judgment of
Mortgagee, be effected within two (2) years after the date of such casualty and
in such a manner so that the Mortgaged Property will be of at least equal or
greater value to the value than the Mortgaged Property prior to such casualty.
Otherwise, Mortgagee may elect in its sole discretion to apply such proceeds
either (x) towards payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or (y) to
pay for the cost of Restoration. In all events, disbursement of insurance
proceeds by Mortgagee (or at Mortgagee's election by a disbursing or escrow
agent who shall be selected by Mortgagee and whose fees shall be paid by
Mortgagor), to pay the cost of restoration shall require (i) evidence reasonably
satisfactory to Mortgagee of the estimated costs of Restoration, (ii) funds (or
assurances reasonably satisfactory to Mortgagee that such funds are available)
sufficient in addition to the proceeds of insurance to complete and fully pay
for Restoration; and (iii) such architect's certificates, waivers of lien,
contractor's sworn statements, title insurance endorsements, plats of surveys
and such other evidences of cost, payment and performance as Mortgagee may
reasonably require and approve. Except to the extent Mortgagee fails to turn
over insurance proceeds, if any, received by Mortgagee hereunder with respect to
such casualty to Mortgagor, Mortgagor hereby covenants to restore, repair,
replace or rebuild the Improvements, to be of at least equal value, and of
substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Mortgagee, and Mortgagor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own
-12-
<PAGE>
name any action or proceedings, and (3) to make any compromise or settlement in
connection with such taking or damage. Mortgagor authorizes Mortgagee to
collect and receive such awards and compensation, to give proper receipts and
acquittances therefor and in Mortgagee's discretion to apply the same toward the
payment of the Obligations, notwithstanding the fact that the Obligations, or a
portion thereof, may not then be due and payable, or to the restoration of the
Mortgaged Property in accordance with the provisions set forth in the
penultimate sentence of Section 11(c) above. Mortgagor further agrees to make,
execute, and deliver to Mortgagee, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Mortgagee for the purpose of validly and
sufficiently assigning all compensations and awards made to Mortgagor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
-13-
<PAGE>
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Mortgage, or impose any other
tax or charge on the same, Mortgagor will pay for the same, with interest and
penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to
-14-
<PAGE>
cure such default in the name and on behalf of Mortgagor. All sums advanced and
expenses incurred at any time by Mortgagee under this Section 19, or otherwise
under this Mortgage or any of the other Relevant Documents or applicable law
(including, without limitation, the costs and expenses of Mortgagee and its
agents incurred in connection with the preservation, collection and enforcement
of this Mortgage or of the liens created hereby), shall bear interest from the
date that such sum is advanced or expense incurred, to and including the date of
reimbursement, computed at the rate of thirteen and one-half percent (13.5%) per
annum, and all such sums, together with interest thereon, shall constitute
additions to the Obligations and shall be secured by this Mortgage and Mortgagor
covenants and agrees to pay them to the order of the Mortgagee promptly upon
demand.
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
-15-
<PAGE>
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of Mortgagee in connection with this Mortgage
(including payment for the cost of any property surveys ("SURVEYS") prepared in
connection therewith), which title insurance policy shall be in form and
substance satisfactory to Mortgagee containing such endorsements as Mortgagee
may reasonably request, including, without limitation, the deletion of any
creditor's rights exception and (to the extent available) a variable rate
endorsement; survey endorsement; comprehensive endorsement; first loss
endorsement; last dollar endorsement; tie-in endorsement; future advances
endorsement; access coverage; tax parcel coverage; contiguity (if applicable)
coverage; and such other endorsements as Mortgagee shall reasonably require. In
the event that any Survey with respect to the Mortgaged Property reveals any
encumbrances, restrictions, building code or zoning violations or other matters
which in Mortgagee's reasonable judgment materially impair Mortgagee's security
interest in the Mortgaged Property, Mortgagor agrees to cooperate with Mortgagee
in performing any acts reasonably requested by Mortgagee to cause such
encumbrances, restrictions, violations or other matters to be removed or
remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
-16-
<PAGE>
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure;
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness
and Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or
any part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an
-17-
<PAGE>
entirety or in parcels, at such time and place, upon such terms and after such
notice thereof as may be required or permitted by the laws of the jurisdiction
in which such Mortgaged Property is located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or
after any proceedings for the enforcement of this Mortgage;
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom, and
thereupon Mortgagee may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Mortgagor, or in its own name and under the powers
herein granted,(A) use, operate, manage, control, insure, maintain, repair,
restore and otherwise deal with all and every part of the Mortgaged Property and
conduct the business thereat; (B) complete any construction on the Mortgaged
Property in such manner and form as Mortgagee deems advisable; (C) make
alterations, additions, renewals, replacements and improvements to or on the
Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect
to the Mortgaged Property, whether in the name of Mortgagor or otherwise
(including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Mortgaged
Property and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments, insurance and other charges in connection with
the Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand;
-18-
<PAGE>
(ix) require Mortgagor to pay monthly in advance to Mortgagee,
or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged Property.
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Documents;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
-19-
<PAGE>
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor, or Mortgagor's liability to pay such
obligation. No sale of all or any portion of the Mortgaged Property, no
forbearance on the part of Mortgagee and no extension of time for the payment of
the whole or any portion of the Obligations or any other indulgence given by
Mortgagee to Mortgagor, shall operate to release or in any manner affect the
interest of Mortgagee in the remaining Mortgaged Property or the liability of
Mortgagor to pay the Obligations. No waiver by Mortgagee shall be effective,
unless it is in writing and then only to the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations
-20-
<PAGE>
for the commencement or defense of any proceeding or threatened suit or
proceeding, shall be immediately due and payable by Mortgagor and shall be
secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage/deed of trust and a "SECURITY AGREEMENT" within the meaning of the
Uniform Commercial Code. The Mortgaged Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and
delivering this Mortgage has granted and hereby grants to Mortgagee, as security
for the Obligations, a security interest in the Mortgaged Property to the full
extent that the Mortgaged Property may be subject to the Uniform Commercial Code
(said portion of the Mortgaged Property so subject to the Uniform Commercial
Code being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees
with Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
-21-
<PAGE>
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to Mortgagor at least ten (10) business days prior to such
action or such notice as is otherwise required by law or the Relevant Documents,
shall constitute commercially reasonable notice to Mortgagor. The proceeds of
any disposition of the Collateral, or any part thereof, may be applied by
Mortgagee to the payment of the Obligations in such priority and proportions as
Mortgagee shall determine in its sole discretion. In the event of any change in
name, identity or structure of Mortgagor, Mortgagor shall notify Mortgagee
thereof and, promptly after request, shall execute, file and record such Uniform
Commercial Code forms as are necessary to maintain the priority of Mortgagee's
lien upon and security interest in the Collateral, and shall pay all expenses
and fees in connection with the filing and recording thereof. If Mortgagee
shall require the filing or recording of additional Uniform Commercial Code
forms or continuation statements, Mortgagor shall, promptly after request,
execute, file and record such Uniform Commercial Code forms or continuation
statements as Mortgagee shall deem necessary, and shall pay all expenses and
fees in connection with the filing and recording thereof, it being understood
and agreed, however, that no such additional documents shall materially increase
Mortgagor's obligations under this Mortgage or the other Relevant Documents.
Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled
with an interest, to file with the appropriate public office on its behalf any
UCC financing statements (or related documents) signed only by Mortgagee, as
secured party, in connection with the Collateral covered by this Mortgage, such
appointment to terminate upon the release of this Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims
-22-
<PAGE>
for labor materials and supplies or otherwise which could become a lien, and all
liens, encumbrances and charges upon the Mortgaged Property, or any part thereof
or interest therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such security as
Mortgagee may reasonably request to insure payment of such Impositions and to
secure and indemnify Mortgagee against any cost, expense, loss or damage in
connection with such contest or postponement of payment,; (d) Mortgagor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Mortgaged Property; and (f)
notwithstanding the foregoing, Mortgagor shall immediately upon request of
Mortgagee pay (and if Mortgagor shall fail so to do, Mortgagee may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Mortgagee, the Mortgaged Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
-23-
<PAGE>
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents.
-24-
<PAGE>
Mortgagee may resort for the payment of the Obligations to any other security
held by Mortgagee in such order and manner as Mortgagee, in its discretion, may
elect. Mortgagee may take action to recover the Obligations, or any portion
thereof, or to enforce any covenant hereof without prejudice to the right of
Mortgagee thereafter to foreclosure this Mortgage. The rights and remedies of
Mortgagee under this Mortgage shall be separate, distinct and cumulative and
none shall be given effect to the exclusion of the others. No act of Mortgagee
shall be construed as an election to proceed under any one provision herein to
the exclusion of any other provision. Mortgagee shall not be limited
exclusively to the rights and remedies herein stated but shall be entitled to
every right and remedy now or hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual,
-25-
<PAGE>
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, and the words "MORTGAGED PROPERTY"
shall include any portion of the Mortgaged Property and any interest therein and
the words "attorneys' fees" shall include any and all attorneys' fees, paralegal
and law clerk fees (including, without limitation, fees at the pre-trial, trial
and appellate levels incurred or paid by Mortgagee in protecting its interest in
the Mortgaged Property and Collateral and enforcing its rights hereunder
including, but not limited to, all such fees incurred in connection with any
bankruptcy or other insolvency proceedings). Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
-26-
<PAGE>
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
-27-
<PAGE>
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any
-28-
<PAGE>
extension, modification, replacement or renewal thereof, in accordance with the
provisions of that certain Subordination Agreement, dated as of the date hereof,
by and among Mortgagor, Mortgagee, and McDonald's Corporation (the
"SUBORDINATION AGREEMENT'), including any extension, modification, replacement
or renewal thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to Mortgagee,
and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Mortgagor has executed this instrument as of the day and year first
above written.
DISCOVERY ZONE, INC., a Delaware corporation
By: /s/ Robert G. Rooney
------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF WESTCHESTER )
I, Mark D. Woodward, a Notary Public in and for said County, in the State
aforesaid, do hereby certify that Robert G. Rooney, the Senior Vice President of
Discovery Zone, Inc., a Delaware corporation, who is personally known to me to
be the same person whose name is subscribed to the foregoing instrument as such
Senior Vice President, appeared before me this day in person and acknowledged
that he signed and delivered the said instrument as his own free and voluntary
act and as the free and voluntary act of said corporation, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal, this 28th day of July, 1997.
MARK D. WOODWARD /s/ Mark D. Woodward
Notary Public State of New York ------------------------------
No. 4997846 NOTARY PUBLIC
Qualified in New York County
Commission Expires June 15, 1998 (SEAL)
<PAGE>
Schaumburg
Cook County, Illinois
EXHIBIT A
PARCEL 1:
LOT 3 IN PRAIRIE TOWNE CENTER, BEING A SUBDIVISON OF THAT PART OF THE NORTHWEST
FRACTIONAL QUARTER OF SECTION 19, TOWNSHIP 41 NORTH, RANGE 10, EAST OF THE THIRD
PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
PARCEL 2:
ALL THOSE CERTAIN RIGHTS, BENEFITS AND EASEMENTS AS CREATED PURSUANT TO THE
EASEMENT AGREEMENT MADE BY AND BETWEEN K-MART CORPORATION, LEAPS AND BOUNDS
INC., AND KOHL'S DEPARTMENT STORES RECORDED MAY 20, 1993 AS DOCUMENT
93382707, AS AMENDED BY AMENDMENT TO OPERATION ANED EASEMENT AGREEMENT DATED
MARCH 16, 1994, RECORDED MARCH 22, 1994 AS DOCUMENT 94259759, AS FURTHER
AMENDED BY DECLARATION RECORDED JANUARY 31, 1995 AS DOCUMENT 95072883
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 48 of the attached Mortgage. If any conflict or inconsistency exists
between this Exhibit B and the remainder of the attached Mortgage, this Exhibit
B shall govern.
A. ILLINOIS RESPONSIBLE PROPERTY TRANSFER ACT. Mortgagor
represents and warrants to Mortgagee that none of the Mortgaged Property falls
within the definition of "real property" set forth in the Illinois Responsible
Property Transfer Act of 1988, 765 ILCS 90/1 ET SEQ. and no disclosure statement
is required to be filed thereunder as a consequence of any transaction related
to this Mortgage.
B. WAIVER OF RIGHT OF REDEMPTION AND REINSTATEMENT. In addition to
the provisions of Section 24 hereof, Mortgagor hereby voluntarily and knowingly
releases and waives any and all rights to retain possession of the Mortgaged
Property after the occurrence of an Event of Default hereunder and any and all
rights of redemption from judgment, as allowed under Section 15-1601(b) of the
Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 ET SEQ.), as amended from
time to time ("IMFL"), and any and all rights of reinstatement under Section
15-1602 of IMFL, on its own behalf, on behalf of all persons claiming or having
an interest (direct or indirect) by, through or under Mortgagor and on behalf of
each and every person acquiring any interest in the Mortgaged Property
subsequent to the date hereof, it being the intent hereof that any and all such
rights of redemption and reinstatement of Mortgagor and all such other persons
are and shall be deemed to be hereby waived to the fullest extent permitted by
applicable law or replacement statute. Mortgagor shall not invoke or use any
such law or laws or otherwise hinder, delay or impede the execution of any
right, power, or remedy herein or otherwise granted or delegated to the
Mortgagee, but shall permit the execution of every such right, power, and remedy
as though no such law or laws had been made or enacted. Mortgagor acknowledges
that the Mortgaged Property does not contain agricultural real estate, as said
term is defined in Section 15-1201 of IMFL, or residential real estate, as said
term is defined in Section 15-1219 of IMFL.
C. COMPLIANCE WITH IMFL.
1. If any provision in this Mortgage shall be inconsistent with any
provision of IMFL, the provisions of IMFL shall take precedence over the
provisions of this Mortgage, but shall not invalidate or render unenforceable
any other provision of this Mortgage that can be construed in a manner
consistent with IMFL.
2. If any provision of this Mortgage shall grant to Mortgagee any
rights or remedies upon default of the Mortgagor which are more limited than the
rights that would
B-1
<PAGE>
otherwise be vested in Mortgagee under IMFL in the absence of said provision,
Mortgagee shall be vested with the rights granted in IMFL to the full extent
permitted by Law.
3. Without limiting the generality of the foregoing, all expenses
incurred by Mortgagee to the extent reimbursable under Sections 15-1510 and
15-1512 of IMFL, whether incurred before or after any decree or judgment of
foreclosure, and whether or not enumerated in this Exhibit B or elsewhere in
this Mortgage, shall be added to the Obligations secured by this Mortgage or by
the judgment of foreclosure.
D. RIGHTS OF TENANTS; OPTION OF MORTGAGEE TO SUBORDINATE.
Mortgagee shall have the right and option to commence a civil action to
foreclose this Mortgage and to obtain a Decree of Foreclosure and Sale subject
to the rights of any tenant or tenants of the Mortgaged Property having an
interest in the Mortgaged Property prior and superior to that of Mortgagee. The
failure to join any such tenant or tenants of the Mortgaged Property as party
defendant or defendants in any such civil action or the failure of any Decree of
Foreclosure and Sale to foreclose their rights shall not be asserted by
Mortgagor as a defense in any civil action instituted to collect the Obligations
secured hereby, or any part thereof or any deficiency remaining unpaid after
foreclosure and sale of the Mortgaged Property, any statute or rule of Law at
any time existing to the contrary notwithstanding. At the option of Mortgagee,
this Mortgage shall become subject and subordinate, in whole or in part (but not
with respect to priority of entitlement to insurance proceeds or any award in
condemnation) to any and all Leases of all or any part of the Mortgaged Property
upon the execution by Mortgagee and recording thereof, at any time hereafter, in
the Office of the Recorder of Deeds in and for the county wherein the Land is
located, of a unilateral declaration to that effect.
E. RELATIONSHIP OF THE MORTGAGEE AND MORTGAGOR. Mortgagee shall in
no event be construed for any purpose to be a partner, joint venturer, agent or
associate of Mortgagor or of any tenant, subtenant, operator, concessionaire or
licensee of Mortgagor in the conduct of their respective businesses, and without
limiting the foregoing, Mortgagee shall not be deemed to be such partner, joint
venturer, agent or associate on account of Mortgagee becoming a "mortgagee in
possession" or exercising any rights pursuant to this Mortgage or any of the
other Relevant Documents.
F. SUBORDINATION OF PROPERTY MANAGER'S LIEN AND REAL ESTATE BROKER'S
LIEN. Any property management agreement for the Mortgaged Property entered into
hereafter by Mortgagor with a property manager shall contain a "no lien"
provision whereby the property manager waives and releases any and all
mechanics' lien rights that the property manager or anyone claiming by, through
or under the property manager may have pursuant to the Illinois Mechanics Lien
Act, 770 ILCS 60/0.01 ET SEQ. Such property management agreement or a short
form thereof shall, at Mortgagee's request, be recorded with the Recorder of
Deeds of the county where the Land is located. In addition, Mortgagor shall
cause the property manager to enter into a subordination of management agreement
with
B-2
<PAGE>
Mortgagee, in recordable form, whereby the property manager subordinates its
present and future lien rights, and those of any party claiming by, through or
under the property manager, to the lien of this Mortgage. Any agreement entered
into hereafter by Mortgagor or any agent of Mortgagor with any "broker," as
defined in the Real Estate License Act of 1983, 225 ILCS 455/1 ET SEQ., for the
purpose of selling, leasing or otherwise conveying an interest in the Mortgaged
Property shall contain a "no lien" provision whereby such broker waives and
releases any and all lien rights that such broker or anyone claiming by, through
or under such broker may have pursuant to the Commercial Broker Lien Act, 770
ILCS 15/1 ET SEQ. Mortgagor shall cause such broker to enter into a
subordination agreement with Mortgagee, in recordable form, whereby such broker
subordinates its present and future lien rights, and those of any party claiming
by, through or under such broker, to the lien of this Mortgage.
G. MORTGAGEE'S OPTION REGARDING ENFORCEMENT OF SECURITY INTEREST IN
PERSONAL PROPERTY. Upon an Event of Default occurring, Mortgagee, as the
secured party under Section 26 of this Mortgage, may, at its sole option and in
its sole discretion, proceed against the Collateral (as defined in Section 26 of
this Mortgage) under Part 5 of the Uniform Commercial Code, 810 ILCS 5/9-501 ET
SEQ., or may, pursuant to 810 ILCS 5/9-501(4), proceed against both the real
property covered by this Mortgage and the Collateral together, in accordance
with Mortgagee's rights and remedies under this Mortgage and the other Relevant
Documents and pursuant to IMFL.
H. MORTGAGEE'S RIGHT OF POSSESSION IN CASE OF DEFAULT. In any case
in which under the provisions of this Mortgage a default has occurred and is
continuing and Mortgagee has a right to institute foreclosure proceedings
pursuant to Section 24 hereof and such proceedings have commenced, Mortgagor
shall surrender to Mortgagee and Mortgagee shall be entitled to take actual
possession of, the Mortgaged Property or any part thereof, personally, or by its
agent or attorneys as provided in Subsections (b) (2) and (c) of Sections 1701
of the IMFL. In such event Mortgagee in its discretion may, with or without
force or process of law, enter upon and take and maintain possession of all or
any part of said Mortgaged Property, together with all documents, books,
records, papers and accounts of Mortgagor or the then owner of the Mortgaged
Property relating thereto, and may exclude Mortgagor and its agents wholly
therefrom, and may as attorney-in-fact or agent of Mortgagor, or in its own name
as Mortgagee and under the powers herein granted, hold, operate, manage and
control the Mortgaged Property and conduct the business, if any, thereof, either
personally or by its agents. Without limiting the generality of the foregoing
provisions of this Section, Mortgagee shall also have all power, authority and
duties as provided in Section 15-1703 of the IMFL. Should Mortgagee incur any
such liability, loss or damage in the defense of any claims or demands, the
amount thereof, including costs, expenses and reasonable attorneys' fees, shall
be secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand.
B-3
<PAGE>
I. ACTIONS OF MORTGAGEE. Mortgagor recognizes that, during the term
of this Mortgage, Mortgagee:
1. May be involved in court or administrative proceedings,
including, without restricting the foregoing, foreclosure, probate,
bankruptcy, creditors' arrangements, insolvency, housing authority and
pollution control proceedings of any kind, to which Mortgagee shall be a
party by reason of the Relevant Documents or in which the Relevant
Documents or the Mortgaged Property, or any portion thereof, are involved
directly or indirectly;
2. May make preparations following the occurrence of an Event
of Default hereunder for the commencement of any suit for the foreclosure
hereof, which may or may not be actually commenced;
3. May make preparations following the occurrence of an Event
of Default hereunder for, and do work in connection with, Mortgagee's
taking possession of and managing the Mortgaged Property, which event may
or may not actually occur;
4. May make preparations for and commence other private or
public actions to remedy an Event of Default hereunder, which other actions
may or may not be actually commenced;
5. May enter into negotiations with Mortgagor or any of its
agents, employees or attorneys in connection with the existence or curing
of any Event of Default hereunder, the sale of the Mortgaged Property, the
assumption of liability for any of the Obligations secured hereby or the
transfer of the Mortgaged Property in lieu of foreclosure; or
6. May enter into negotiations with Mortgagor or any of its
agents, employees or attorneys pertaining to Mortgagee's approval of
actions taken or proposed to be taken by Mortgagor which approval is
required by the terms of this Mortgage.
J. PROTECTIVE ADVANCES.
1. This Mortgage shall be a lien for all Protective Advances
(as defined herein) as to subsequent purchasers and judgment creditors from
the time the Mortgage is recorded, pursuant to Subsection (b) (5) of
Section 15-1302 of the IMFL. Protective Advances ("PROTECTIVE ADVANCES")
refer to all advances, disbursements and expenditures (collectively,
"ADVANCES") made by Mortgagee before and during foreclosure, prior to sale,
and where applicable, after sale, for the following purposes:
B-4
<PAGE>
(a) advances pursuant to this Exhibit B including all
advances made to paid the costs incurred by the Mortgagee with respect
to the actions described in paragraph I above;
(b) advances in accordance with the terms of this Mortgage
to: (i) protect, preserve or restore the Mortgaged Property; (ii)
preserve the lien of this Mortgage or the priority thereof; or (iii)
enforce this Mortgage, as referred to in Subsection (b) (5) of Section
15-1302 of the IMFL, as amended from time to time;
(c) payments of (i) when due installments of taxes and
assessments against the Mortgaged Property; (ii) other obligations
authorized by this Mortgage; or (iii) with court approval any other
amounts in connection with other liens, encumbrances or interests
reasonably necessary to preserve the status of title, all as referred
to herein and in Section 15-1505 of the IMFL;
(d) attorneys' fees and other costs incurred in connection
with the foreclosure of this Mortgage as referred to in Sections 1504
(d) (2) and 15-1510 of the IMFL and in connection with any other
litigation or administrative proceeding to which the Mortgagee may be
or become or be threatened or contemplated to be a party, including
probate and bankruptcy proceedings, or in the preparation for the
commencement or defense of any such suit or proceeding; including
filing fees, appraisers' fees, outlays for documents and expert
evidence, witness fees, stenographer's charges, publication costs, and
costs (which may be estimated as to items to be expended after entry
of judgment) of procuring all such abstracts of title, title charges
and examinations, foreclosure minutes, title insurance policies,
Torrens certificates, appraisals, and similar data and assurances with
respect to title and value as Mortgagee may deem reasonably necessary
either to prosecute or defend such suit or, in case of foreclosure, to
evidence to bidders at any sale which may be had pursuant to the
foreclosure judgment the true condition of the title to or the value
of the Mortgaged Property;
(e) Mortgagee's fees and costs arising between the entry of
judgment of foreclosure and the confirmation hearing as referred to in
Subsection (b)(1) of Section 15-1508 of the IMFL;
(f) expenses deductible from proceeds of sale referred to
in Subsections (a) and (b) of Section 15-1512 of the IMFL; and
(g) expenses incurred and expenditures made by Mortgagee
for any one or more of the following: (i) if the Mortgaged Property or
any portion thereof constitutes one or more units under a condominium
declaration, assessments imposed upon the owner thereof; (ii) if any
of the Mortgaged
B-5
<PAGE>
Property consists of an interest in a leasehold estate under a lease
or sublease, rentals or other payments required to be made by the
lessee under the terms of the lease or sublease; (iii) premiums upon
casualty and liability insurance made by Mortgagee whether or not
Mortgagee or a receiver is in possession, if reasonably required,
without regard to the limitation to maintaining of insurance in effect
at the time any receiver or mortgagee takes possession of the
Mortgaged Property imposed by Subsection (c) (1) of Section 15-1704 of
the IMFL; (iv) payments required or deemed by Mortgagee to be for the
benefit of the Mortgaged Property or required to be made by the owner
of the Mortgaged Property under any grant or declaration of easement,
easement agreement, reciprocal easement agreement, agreement with any
adjoining land owners or other instruments creating covenants or
restrictions for the benefit of or affecting the Mortgaged Property;
(v) shared or common expense assessments payable to any association or
corporation in which the owner of the Mortgaged Property is a member
in any way affecting the Mortgaged Property; (vi) operating deficits
incurred by Mortgagee in possession or reimbursed by Mortgagee to any
receiver; and (vii) fees and costs incurred to obtain an environmental
assessment report relating to the Mortgaged Property.
2. The Protective Advances shall, except to the extent, if any,
that any of the same is clearly contrary to or inconsistent with the
provisions of the IMFL, be included in:
(a) determination of the amount of indebtedness secured by
this Mortgage at any time;
(b) the indebtedness found due and owing to the Mortgagee
in the judgment of foreclosure and any subsequent amendment of such
judgment, supplemental judgments, orders, adjudications or findings by
the court of any additional indebtedness becoming due after entry of
such judgment, it being hereby agreed that in any foreclosure
judgment, the court may reserve jurisdiction for such purpose;
(c) if right of redemption has not been waived by this
Mortgage, computation of the amount required to redeem, pursuant to
Subsections (d) (2) and (e) of Section 15-1603 of the IMFL;
(d) determination of amounts deductible from sale proceeds
pursuant to Section 15-1512 of the IMFL;
(e) determination of the application of income in the hands
of any receiver or mortgagee in possession; and
B-6
<PAGE>
(f) computation of any deficiency judgment pursuant to
Subsections (b) (2) and (e) of Section 15-1508 and Section 15-1511 of
the IMFL.
3. All moneys paid for Protective Advances or any of the other
purposes herein authorized and all expenses paid or incurred in connection
therewith, including attorneys' fees, and any other moneys advanced by
Mortgagee to protect the Mortgaged Property and the lien hereof, shall be
so much additional indebtedness secured hereby, and shall become
immediately due and payable without notice and with interest thereon at the
maximum rate permissible under state law. Inaction of Mortgagee shall
never be considered as a waiver of any right accruing to it on account of
any default on the part of Mortgagor.
K. CONSENT TO APPOINTMENT OF RECEIVER. Without limiting the
generality of any other provisions of this Mortgage, the Mortgagor hereby and in
accordance with the provisions of Sections 15-1701, 1702 and 1703 of the IMFL,
735 ILCS 5/15-1701, 1702 and 1703, expressly authorizes and consents to the
placing of the mortgagee in possession and the appointment of a receiver in the
manner permitted thereunder. In addition to all other powers described in
Section 24 of this Mortgage, such receiver, which Mortgagee may be, shall have
all powers and duties prescribed by Section 15-1704 of the IMFL, including the
power to make leases to be binding upon all parties, including the Mortgagor
after redemption, the purchaser at a sale pursuant to a judgment of foreclosure
and any person acquiring an interest in the Mortgaged Property after entry of a
judgment of foreclosure, all as provided in Subsection (g) of Section 15-1701 of
the IMFL.
L. USE OF PROCEEDS. Mortgagor hereby represents and agrees that the
proceeds of the Mortgage Note secured by this Mortgage shall be used for
business purposes and that the indebtedness secured hereby constitutes a
business loan.
M. MAXIMUM AMOUNT SECURED BY THIS MORTGAGE. The total indebtedness
(or obligations) secured by this mortgage shall not exceed in the aggregate
Eighty-Five Million Dollars ($85,000,000).
B-7
<PAGE>
EXHIBIT 4.15
DOCUMENT PREPARED BY AND MORTGAGEE'S MAILING ADDRESS:
AFTER RECORDING RETURN TO: State Street Bank and Trust Company
Anderson Kill & Olick, P.C. Two International Place
1251 Avenue of the Americas Boston, Massachusetts 02110
New York, New York 10020
Attn: Ronald S. Brody, Esq.
- ------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
DEED TO SECURE DEBT AND SECURITY AGREEMENT
Dated as of July 29, 1997
THIS INSTRUMENT IS EXEMPT FROM INTANGIBLES TAX UNDER REGULATION 560-11-8-.14 OF
THE GEORGIA DEPARTMENT OF REVENUE, AS AN INSTRUMENT RECORDED PURSUANT TO A PLAN
OF REORGANIZATION CONFIRMED IN IN RE DISCOVERY, INC., CASE NO. 96-411 (HSB),
UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE, BY ORDER ENTERED
JULY 18, 1997.
<PAGE>
THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (as the same may from
time to time be extended, renewed or modified, this "MORTGAGE"), made as of the
29th day of July, 1997, by DISCOVERY ZONE, INC., a Delaware corporation
("MORTGAGOR"), having its principal place of business at One Corporate Center,
110 East Broward Boulevard, Fort Lauderdale, Florida 33301 to STATE STREET BANK
AND TRUST COMPANY, solely in its capacity as trustee and collateral agent under
and pursuant to that certain Indenture, dated July 22, 1997, among Discovery
Zone, Inc., State Street Bank and Trust Company, as trustee, and the Subsidiary
Guarantors named therein, its successors and assigns ("MORTGAGEE"), having an
address at Two International Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
E. WHEREAS, prior to entering into the Indenture, Mortgagor's
predecessors in interest filed voluntary petitions for relief under chapter 11,
title 11, United States Code and the Mortgage and the Notes are given pursuant
to the plan of reorganization confirmed by that certain Court Order, dated
July 18, 1997, in IN RE DISCOVERY ZONE, INC., Case No. 96-411 (HSB), United
States Bankruptcy Court for the District of Delaware (the "PLAN"), under which
-1-
<PAGE>
the Indenture and Relevant Documents including the Mortgage and the Notes
constitute "Exit Financing Documents";
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including,
-2-
<PAGE>
without limitation, all building or construction materials intended for
construction, reconstruction, alteration or repair of or installation on or in
the Mortgaged Property, of every kind and nature whatsoever now owned or
hereafter acquired by Mortgagor, and all proceeds thereof, as well as all
additions to, appurtenances, substitutions for, replacements of or accessions to
any of the items recited as aforesaid and all attachments, components, parts
(including spare parts) and accessories, whether installed thereon or affixed
thereto, now or hereafter owned by Mortgagor and used or intended to be used in
connection with, or with the operation of, the Mortgaged Property, to the extent
constituting real property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including sub-
subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
-3-
<PAGE>
(g) all proceeds (as defined in the Uniform Commercial Code) of
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for proceeds
payable under policies of insurance in respect of, the Mortgaged Property now
existing or hereafter arising), (iii) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to Mortgagor from time to time with
respect to damage or loss of or to any of the Mortgaged Property, (iv) any and
all payments (in any form whatsoever) made or due and payable to Mortgagor from
time to time in connection with the requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Mortgaged Property by any
Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government
(including, without limitation, any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from,
-5-
<PAGE>
or activity conducted on, or in connection with the Mortgaged Property by
Mortgagor or the leasing or use of the Mortgaged Property or any part thereof by
Mortgagor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good
and marketable fee simple title to Land and the Improvements and has good title
to the remainder of the Mortgaged Property and has the full power, authority and
right to execute, deliver and perform its obligations under this Mortgage and to
encumber, mortgage, give, grant, bargain, sell, alienate, enfeoff, convey,
confirm, warrant, pledge, assign and hypothecate the Mortgaged Property and that
Mortgagor possesses an unencumbered fee estate in the Land and the Improvements
and that it owns the Mortgaged Property free and clear of all liens,
encumbrances and charges whatsoever except for (x) those exceptions to title
which are existing on the date hereof and approved by Mortgagee and (y) those
exceptions of title that are permitted under the other terms and conditions of
this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and that this
Mortgage is and will remain a valid and enforceable first lien on and security
interest
-6-
<PAGE>
in the Mortgaged Property, subject only to the Permitted Encumbrances.
Mortgagor shall forever warrant, defend and preserve such title and the validity
and priority of the lien of this Mortgage and shall forever warrant and defend
the same to Mortgagee against the claims of all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably directs any tenant, manager, managing
agent, or operator of the Property, without any requirement for notice to or
consent by
-8-
<PAGE>
Mortgagor, to comply with all demands of Mortgagee under this Section 8 and to
turn over to Mortgagee on demand all Rents which it receives. Mortgagor hereby
acknowledges and agrees that payment of any Rents by a person to Mortgagee as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Mortgagor. Mortgagee is
hereby granted and assigned by Mortgagor the right, at its option, upon
revocation of the license granted herein, to enter upon the Mortgaged Property
in person or by agent, without bringing any action or proceeding, or by
court-appointed receiver to collect the Rents. Any Rents collected after the
revocation of the license shall be applied towards the payment of the
Obligations. Neither the enforcement of any of the remedies under this Section
8 nor any other remedies or security interests afforded to Mortgagee under the
Relevant Documents, at law or in equity shall cause Mortgagee to be deemed or
construed to be a Mortgagee in possession of the Mortgaged Property, to obligate
Mortgagee to lease the Mortgaged Property or attempt to do so, or to take any
action, incur any expense, or perform or discharge any obligation, duty or
liability whatsoever under any of the Leases or otherwise. Mortgagor shall, and
hereby agrees to indemnify Mortgagee for, and to hold Mortgagee harmless from
and against, any and all claims, liability, expenses, losses or damages which
may or might be asserted against or incurred by Mortgagee solely by reason of
Mortgagee's status as an assignee pursuant to the assignment of Rents and Leases
contained herein, but excluding any claim (a) to the extent caused by
Mortgagee's gross negligence or willful misconduct, or (b) to the extent arising
solely from Mortgagee's actions after Mortgagee has taken possession of the
Mortgaged Property. Should Mortgagee incur any such claim, liability, expense,
loss or damage, the amount thereof, including all actual expenses and reasonable
fees of attorneys, shall constitute Obligations secured hereby, and Mortgagor
shall reimburse Mortgagee therefor immediately upon demand. Mortgagor agrees
that all Leases shall be subject to the prior written approval of Mortgagee,
such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to the Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the Land. Notwithstanding anything to the contrary contained herein,
Mortgagor hereby confirms its obligation to comply with all relevant Legal
Requirements, including Environmental Laws, with respect to the Mortgaged
Property. Mortgagor shall not initiate, join in, acquiesce in, or consent to
any change in any private
-9-
<PAGE>
restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE.
(a) Mortgagor shall maintain casualty, liability and other policies
of insurance relating to the Mortgaged Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Mortgagee and consistent with
insurance that it maintains on Similar Properties. Mortgagor shall keep the
Mortgaged Property insured against loss by flood if the Mortgaged Property is
located in an area identified by the Secretary of Housing and Urban Development
as an area having a special flood hazards and in which flood insurance has been
made available under the National Flood Insurance Act of 1968 (or any successor
act thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory Mortgagee clauses attached to all policies in favor of
Mortgagee, without contribution, under a standard New York (or local equivalent)
Mortgagee clause naming Mortgagee as the party to which all payments made under
such insurance policies in excess of $150,000 should be paid, (ii) shall contain
an endorsement providing that neither Mortgagor nor Mortgagee nor any other
party shall be a co-insurer under said policies and shall contain a provision
requiring that the coverage evidenced thereby shall not be terminated or
materially modified without ten (10) days prior written notice to Mortgagee,
(iii) shall provide that no act or thing done by Mortgagor shall invalidate the
policy as against Mortgagee, and (iv) with respect to property insurance
policies, shall contain a waiver of subrogation against Mortgagee. Mortgagor
shall deliver certificates evidencing additional and renewal policies, together
with evidence of payment of premiums thereon, to Mortgagee, and in the case of
all insurance about to expire, shall deliver renewal policies or certificates
evidencing such policies not less than ten (10) days prior to their respective
dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with
-10-
<PAGE>
the provisions of this Mortgage and allocate to the Mortgaged Property, from
time to time, the coverage specified in this Mortgage without possibility of
reduction or co-insurance by reason of, or damage to, any other property named
therein. If the insurance required by this Mortgage shall be effected by any
such blanket or umbrella policies, Mortgagor shall furnish to Mortgagee
certificates with respect to, with schedules attached thereto showing the amount
of the insurance provided under such policies which is applicable to the
Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after foreclosure, the purchaser at the foreclosure sale or decree creditor, as
the case may be) is hereby authorized at its option either (i) to settle and
adjust any claim under such insurance policies without the consent of Mortgagor
or (ii) to allow Mortgagor to settle and adjust such claim (either jointly with
Mortgagee or by Mortgagor alone, at Mortgagee's discretion); provided that in
either case Mortgagee shall, and is hereby authorized to, collect and receipt
for any such insurance proceeds. Notwithstanding anything in the preceding
sentence to the contrary, Mortgagee agrees that it will allow Mortgagor to
settle and adjust any claims under the insurance policies which are in an amount
less than $150,000, per incident of loss, up to an aggregate amount of no
greater than $300,000. The expenses incurred by Mortgagee in the adjustment and
collection of insurance proceeds shall be included in the Obligations, and shall
be reimbursed to Mortgagee upon demand or may be deducted by Mortgagee from said
insurance proceeds prior to another application thereof. Interest on such
amount shall accrue at the rate of thirteen and one-half percent (13.5%) per
annum, beginning ten (10) days after Mortgagor receives notice of a request for
payment of such amount from Mortgagee, until such amount, plus interest, is paid
in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such application; (ii) restoration
can, in the reasonable judgment of Mortgagee, be completed prior to the maturity
of the Obligations; and (iii) restoration can, in the reasonable judgment of
Mortgagee, be effected within two (2) years after the date of such casualty and
in such a manner so that the Mortgaged Property will be of at least equal or
greater value to the value than the Mortgaged Property prior to such casualty.
Otherwise, Mortgagee may elect in its sole discretion to apply
-11-
<PAGE>
such proceeds either (x) towards payment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable, or (y) to pay for the cost of Restoration. In all events, disbursement
of insurance proceeds by Mortgagee (or at Mortgagee's election by a disbursing
or escrow agent who shall be selected by Mortgagee and whose fees shall be paid
by Mortgagor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Mortgagee of the estimated costs of Restoration, (ii)
funds (or assurances reasonably satisfactory to Mortgagee that such funds are
available) sufficient in addition to the proceeds of insurance to complete and
fully pay for Restoration; and (iii) such architect's certificates, waivers of
lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Mortgagee
may reasonably require and approve. Except to the extent Mortgagee fails to
turn over insurance proceeds, if any, received by Mortgagee hereunder with
respect to such casualty to Mortgagor, Mortgagor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Mortgagee, and Mortgagor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all compensations and awards made to
Mortgagor for any taking, either permanent or temporary, under any such
proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees as follows:
(a) promptly and unconditionally to release the Mortgaged Property
from the security title of this Mortgage in the event of a bona fide sale (other
than a "SALE LEASEBACK" or other similar financing transaction) of the Mortgaged
Property to a third party that is not
-12-
<PAGE>
affiliated with Mortgagor, provided that both of the following conditions are
satisfied: (i) neither Mortgagor nor any of its respective affiliates continue
to use or occupy the Mortgaged Property or any part thereof; (ii) Mortgagor
shall consult with Mortgagee prior to such sale and shall obtain Mortgagee's
prior written consent with respect to such sale and the sales price (such
consent not to be unreasonably withheld); and (iii) all of the proceeds of such
sale are applied towards repayment of the Obligations, notwithstanding the fact
that the Obligations, or a portion thereof, may not then be due and payable.
(b) promptly and unconditionally to cancel and surrender this
Mortgage in the event that Mortgagee is paid in full for all amounts owing to
Mortgagee by Mortgagor and any of its former affiliated debtors, including the
indefeasible payment in full of the Obligations, and no amount is then owing by
one or more of the foregoing to Mortgagee pursuant to the Indenture, the Notes
or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Mortgage, or impose any other
tax or charge on the same, Mortgagor will pay for the same, with interest and
penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any
-13-
<PAGE>
amount called for under the Notes or under any of the other Relevant Documents,
or contracted for, charged, taken, reserved, or received with respect to the
Obligations, or if Mortgagee's exercise of the option to accelerate the maturity
of the Notes, or if any prepayment by Mortgagor results in Mortgagor having paid
any interest in excess of that permitted by applicable law, then it is
Mortgagor's and Mortgagee's express intent that all excess amounts theretofore
collected by Mortgagee shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Mortgagor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Mortgagee for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may
-14-
<PAGE>
hereafter become bound to convey or assign to Mortgagee, or for carrying out the
intention or facilitating the performance of the terms of this Mortgage or for
filing, registering or recording this Mortgage. Mortgagor, on demand, will
execute and deliver and, Mortgagor hereby authorizes Mortgagee to execute in the
name of Mortgagor or without the signature of Mortgagor to the extent Mortgagee
may lawfully do so, one or more financing statements, chattel mortgages or other
instruments, to evidence more effectively the security interest of Mortgagee in
the Mortgaged Property. Notwithstanding anything to the contrary contained
herein, Mortgagor shall not be obligated to execute, deliver, file or record any
additional documents which increase Mortgagor's obligations under this Mortgage
or the Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power
of attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the security title hereof upon the Mortgaged Property and
each instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of Mortgagee in connection with this Mortgage
(including payment for the cost of any property surveys ("Surveys") prepared in
connection therewith), which title insurance policy shall be in form and
substance satisfactory to Mortgagee containing such endorsements as Mortgagee
may reasonably request, including, without limitation, the deletion of any
creditor's rights exception and (to the extent available) a variable rate
endorsement; survey endorsement; comprehensive endorsement; first loss
endorsement; last dollar endorsement; tie-in endorsement; future advances
endorsement; access coverage; tax parcel coverage; contiguity (if applicable)
coverage; and such other endorsements as Mortgagee shall reasonably require. In
the event that any Survey with respect to the Mortgaged Property reveals any
encumbrances, restrictions, building code or zoning violations or other matters
which in Mortgagee's reasonable judgment materially impair Mortgagee's security
interest in the Mortgaged Property, Mortgagor agrees
-15-
<PAGE>
to cooperate with Mortgagee in performing any acts reasonably requested by
Mortgagee to cause such encumbrances, restrictions, violations or other matters
to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure;
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
-16-
<PAGE>
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
i) declare the entire principal amount of the indebtedness
and Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
iv) sell for cash such Mortgaged Property or any part thereof
and all estate, claim, demand, right, title and interest of Mortgagor therein
and rights of redemption thereof, pursuant to power of sale or otherwise, at one
or more sales, as an entirety or in parcels, at such time and place, upon such
terms and after such notice thereof as may be required or permitted by the laws
of the jurisdiction in which such Mortgaged Property is located;
v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
vi) recover judgment on the Notes either before, during or
after any proceedings for the enforcement of this Mortgage, subject, however, to
the laws of the jurisdiction in which such Mortgaged Property is located;
vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its
-17-
<PAGE>
agents, nominees or attorneys and dispossess Mortgagor and its agents and
servants therefrom, and thereupon Mortgagee may (whether or not a receiver has
been appointed) as attorney-in-fact or agent of Mortgagor, or in its own name
and under the powers herein granted,(A) use, operate, manage, control, insure,
maintain, repair, restore and otherwise deal with all and every part of the
Mortgaged Property and conduct the business thereat; (B) complete any
construction on the Mortgaged Property in such manner and form as Mortgagee
deems advisable; (C) make alterations, additions, renewals, replacements and
improvements to or on the Mortgaged Property; (D) exercise all rights and powers
of Mortgagor with respect to the Mortgaged Property, whether in the name of
Mortgagor or otherwise (including, without limitation, the right to make,
cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all earnings, revenues, rents, issues, profits and other
income of the Mortgaged Property and every part thereof); and (E) apply the
receipts from the Mortgaged Property to the payment of the Obligations, after
deducting therefrom all reasonable expenses (including, without limitation,
reasonable attorneys' fees) incurred in connection with the aforesaid operations
and all amounts necessary to pay the taxes, assessments, insurance and other
charges in connection with the Mortgaged Property, it being agreed that should
Mortgagee incur any liability, loss or damage in the defense of any claims or
demands, the amount thereof, including costs, expenses and reasonable attorneys'
fees shall be secured hereby, and Mortgagor shall reimburse Mortgagee therefor
immediately upon demand;
ix) require Mortgagor to pay monthly in advance to Mortgagee,
or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and pursue such
other rights and remedies as may be available under the Relevant Documents or
otherwise at law or in equity or under the Uniform Commercial Code including the
right to establish a lock box for all Rents and other receivables of Mortgagor
relating to the Mortgaged Property.
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, the security title of this Mortgage shall continue
with respect to the remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Document;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
-18-
<PAGE>
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect in any manner or to any extent the security
title of this Mortgage upon the Mortgaged Property or any part thereof, or any
liens, rights, powers or remedies of Mortgagee hereunder, but such liens,
rights, powers and remedies of Mortgagee shall continue unimpaired as before.
(d) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor, or Mortgagor's liability to pay such
obligation. No sale of all or any portion of the Mortgaged Property, no
forbearance on the part of Mortgagee and no extension of time for the payment of
the whole or any portion of the Obligations or any other indulgence given by
Mortgagee to Mortgagor, shall operate to release or in any manner affect the
interest of Mortgagee in the remaining Mortgaged Property or the liability of
Mortgagor to pay the Obligations. No waiver by Mortgagee shall be effective,
unless it is in writing and then only to the extent specifically stated.
(e) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(f) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other
-19-
<PAGE>
judgment or decree all reasonable expenditures and expenses which may be paid or
incurred by or on behalf of Mortgagee for attorneys' fees, appraiser's fees,
outlays for documentary and expert evidence, stenographers' charges, publication
costs, and costs (which may be estimated as to items to be expended after entry
of the decree) of procuring all such abstracts of title, title searches and
examinations, title insurance policies, Torrens certificates, and similar data
and assurances with respect to title as Mortgagee may deem reasonably necessary
either to prosecute such suit or to evidence to bidders at any sale which may be
had pursuant to such decree the true condition of the title to or the value of
the Mortgaged Property. All such reasonable expenditures and expenses which
Mortgagee may incur as permitted by this Section for the protection of the
Mortgaged Property and the maintenance of the lien of this Mortgage, including,
but not limited to, the fees and out-of-pocket disbursements of any attorney
employed by Mortgagee in any litigation or proceeding affecting this Mortgage,
including, but not limited to, bankruptcy proceedings or preparations for the
commencement or defense of any proceeding or threatened suit or proceeding,
shall be immediately due and payable by Mortgagor and shall be secured by this
Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
26. SECURITY AGREEMENT. This Mortgage is both a real property deed
of to secure debt and a "security agreement" within the meaning of the Uniform
Commercial Code. The Mortgaged Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and
delivering this Mortgage has granted and hereby grants to Mortgagee, as security
for the Obligations, a security interest in the Mortgaged Property to the full
extent that the Mortgaged Property may be subject to the Uniform Commercial Code
(said portion of the Mortgaged Property so subject to the Uniform Commercial
Code being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees
with Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address
-20-
<PAGE>
set forth in the first paragraph of this Mortgage, and the place where
Mortgagor's books and records in respect of where the Mortgaged Property is
located are kept is the address of Mortgagor set forth in the first paragraph of
this Mortgage. If an Event of Default shall occur which shall remain uncured,
Mortgagee, in addition to any other rights and remedies which it may have, shall
have and may exercise immediately and without demand, any and all rights and
remedies granted to a secured party upon default under the Uniform Commercial
Code, (including, without limitation, to the extent permitted by law, the right
to take possession of the Collateral or any part thereof, and to take such other
measures as Mortgagee may deem necessary for the care, protection and
preservation of the Collateral). Upon request or demand of Mortgagee, Mortgagor
shall at its expense assemble the Collateral and make it available to Mortgagee
at a convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee
on demand therefor any and all reasonable expenses (including, without
limitation, reasonable legal expenses and attorneys' fees) incurred or paid by
Mortgagee in protecting the interest in the Collateral and in enforcing the
rights hereunder with respect to the Collateral. Any notice of sale,
disposition or other intended action by Mortgagee with respect to the Collateral
sent to Mortgagor at least ten (10) business days prior to such action or such
notice as is otherwise required by law or the Relevant Documents, shall
constitute commercially reasonable notice to Mortgagor. The proceeds of any
disposition of the Collateral, or any part thereof, may be applied by Mortgagee
to the payment of the Obligations in such priority and proportions as Mortgagee
shall determine in its sole discretion. In the event of any change in name,
identity or structure of Mortgagor, Mortgagor shall notify Mortgagee thereof
and, promptly after request, shall execute, file and record such Uniform
Commercial Code forms as are necessary to maintain the priority of Mortgagee's
lien upon and security interest in the Collateral, and shall pay all expenses
and fees in connection with the filing and recording thereof. If Mortgagee
shall require the filing or recording of additional Uniform Commercial Code
forms or continuation statements, Mortgagor shall, promptly after request,
execute, file and record such Uniform Commercial Code forms or continuation
statements as Mortgagee shall deem necessary, and shall pay all expenses and
fees in connection with the filing and recording thereof, it being understood
and agreed, however, that no such additional documents shall materially increase
Mortgagor's obligations under this Mortgage or the other Relevant Documents.
Mortgagor hereby irrevocably appoints Mortgagee as its attorney-in-fact, coupled
with an interest, to file with the appropriate public office on its behalf any
UCC financing statements (or related documents) signed only by Mortgagee, as
secured party, in connection with the Collateral covered by this Mortgage, such
appointment to terminate upon the release of this Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
-21-
<PAGE>
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such security as
Mortgagee may reasonably request to insure payment of such Impositions and to
secure and indemnify Mortgagee against any cost, expense, loss or damage in
connection with such contest or postponement of payment,; (d) Mortgagor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Mortgaged Property; and (f)
notwithstanding the foregoing, Mortgagor shall immediately upon request of
Mortgagee pay (and if Mortgagor shall fail so to do, Mortgagee may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Mortgagee, the Mortgaged Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all
-22-
<PAGE>
rights of marshaling in the event of any sale hereunder of the Mortgaged
Property or any part thereof or any interest therein. Further, Mortgagor hereby
expressly waives any and all rights of redemption from sale under any order or
decree of foreclosure of this Mortgage on behalf of Mortgagor, and on behalf of
each and every person acquiring any interest in or title to the Mortgaged
Property subsequent to the date of this Mortgage and on behalf of all persons to
the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of
-23-
<PAGE>
Mortgagee to comply with any request of Mortgagor to take any action to
foreclose this Mortgage or otherwise enforce any of the provisions hereof or of
the other Relevant Documents, (b) the release, regardless of consideration, of
the whole or any part of the Mortgaged Property, or of any person liable for the
Obligations or any portion thereof, or (c) any agreement or stipulation by
Mortgagee extending the time of payment or otherwise modifying or supplementing
the terms of this Mortgage or the other Relevant Documents. Mortgagee may
resort for the payment of the Obligations to any other security held by
Mortgagee in such order and manner as Mortgagee, in its discretion, may elect.
Mortgagee may take action to recover the Obligations, or any portion thereof, or
to enforce any covenant hereof without prejudice to the right of Mortgagee
thereafter to foreclosure this Mortgage. The rights and remedies of Mortgagee
under this Mortgage shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Mortgagee shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Mortgagee shall not be limited exclusively to
the rights and remedies herein stated but shall be entitled to every right and
remedy now or hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
-24-
<PAGE>
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, This Mortgage, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
-25-
<PAGE>
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. SECURITY TITLE ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE
COLLATERAL TRANSACTION. Mortgagor acknowledges that this Mortgage and a number
of other Relevant Documents and those documents required by the Relevant
Documents together secure the Obligations. Mortgagor agrees that the security
title of this Mortgage and all obligations of the Mortgagor hereunder shall be
absolute and unconditional and shall not in any manner be affected or impaired
by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
-27-
<PAGE>
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to Mortgagee,
and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-28-
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed under seal by the
Mortgagor as of the day and year first written above.
MORTGAGOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
ATTEST:
By: /s/ Scott Bernstein
------------------------------
Name: Scott Bernstein
Title:President
[Corporate Seal]
Signed, sealed and delivered
in the presence of:
/s/ Illegible Signatory
- ------------------------
Unofficial Witness
/s/ Patricia A. Fischer
- ------------------------
Notary Public
My Commission expires: 4/28/99
#02FI5076854
Patricia A. Fischer
- -------------------
[Notarial Seal]
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
Before me, the undersigned authority, on this day personally appeared
Robert G. Rooney, a Senior Vice President of DISCOVERY ZONE, INC., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed same for the
purposes and consideration therein expressed, in the capacity stated.
Given under my hand and seal of office this 28th day of July, 1997
/s/ Mark D. Woodward
Printed Name
Notary Public in and for the state of New York
My commission expires:
MARK D. WOODWARD
Notary Public State of New York
No. 4997846
Qualified in New York County
Commission Expires June 15, 1998
<PAGE>
Kennesaw
Cobb County, Georgia
EXHIBIT A
All that tract or parcel of land lying and being in Land Lot 720 of the 16th
District, 2nd Section, Cobb County, Georgia, and being more particularly
described as follows:
Commencing at the intersection of the easterly line of said land lot with the
northwesterly right-of-way line of Ernest Barrett Parkway (120 foot
right-of-way); proceeding thence along said northwesterly right-of-way) line
South 54degrees 26' 25" West a distance of 35.25 feet to a point, said point
being the True Point of Beginning; continuing thence along said northwesterly
right-of-way line South 54degrees 26' 25" West a distance of 414.75 feet to a
point; leaving said northwesterly right-of-way line and proceeding thence
southwesterly, westerly and northwesterly 113.79 feet along the arc of a
curve to the right, said curve having a radius of 72.44 feet and being
subtanded by a chord having a bearing and distance of North 80degrees 33' 34"
West 102.45 feet to a point; proceeding thence northwesterly, northerly and
northeasterly along the arc of a curve to the right, said curve having a
radius of 97.40 feet and being subtended by a chord having a bearing and
distance of North 03degrees 05' 43" East 121.68 feet to a point; proceeding
thence North 41degrees 45' 00" East a distance of 132.52 feet to a point;
proceeding thence northeasterly 64.69 feet along the arc of a curve to the
left, said curve having a radius of 313.34 feet and being subtended by a
chord having a bearing and a distance of North 35degrees 50' 09" East 64.57
feet to a point; proceeding thence South 89degrees 00' 00" East a distance of
274.77 feet to a point; proceeding thence South 35degrees 33' 35" East a
distance of 53.51 feet to the true point of beginning.
Said tract or parcel of land contains 1.7391 acres.
INCLUDING THE ADDITIONAL PARCEL
All that tract or parcel of land lying and being in Land Lot 720 of the 16th
District, 2nd Section, Cobb County, Georgia, and being more particularly
described as follows:
<PAGE>
Kennesaw
Cobb County, Georgia
EXHIBIT A
(continued)
Commencing at the intersection of the easterly line of said land lot with the
northwesterly right-of-way line of Ernest Barrett Parkway (130 foot
right-of-way); proceeding thence along said northwesterly right-of-way line
South 54degrees 26' 25" West a distance of 450.00 feet to a point; leaving said
northwesterly right-of-way line and proceeding thence southwesterly, westerly
and northwesterly 113.79 feet along the arc of a curve to the right, said curve
having a radius of 72.44 feet and being subtended by a chord having a bearing
and distance of North 80degrees 33' 34" West 102.45 feet to a point; proceeding
thence northwesterly, northerly and northeasterly along the arc of a curve to
the right, said curve having a radius of 97.40 feet and being subtended by a
chord having a bearing and distance of North 03degrees 05' 43" East 121.68 feet
to a point, said point being the True Point of Beginning; proceeding thence
North 38degrees 36' 25" East a distance of 188.75 feet to a point; proceeding
thence South 89degrees 00' 00" East a distance of 13.41 feet to a point;
proceeding thence southwesterly 64.69 feet along the arc of a curve to the
right, said curve having a radius of 313.34 feet and being subtended by a chord
having a bearing and distance of South 35degrees 50' 09" West 64.57 feet to a
point; proceeding thence South 41degrees 45' 00" West a distance of 132.52 feet
to the true point of beginning.
TOGETHER WITH the rights, easements, privileges and obligations appurtenant
to the above-described land created and established under the following
instruments:
(a) Restrictions, easements, covenants and agreements contained in
that certain Limited Warranty Deed from Jose Manuel Lomelin, et
al., to CA Cobb Retail Investors, Limited, a Georgia Limited
Partnership, dated June 24, 1985, filed June 27, 1985, and
recorded in Deed Book 3548, page 367, Records of Cobb County,
Georgia;
<PAGE>
Kennesaw
Cobb County, Georgia
EXHIBIT A
(continued)
(b) Easement Agreement by and among AMLI Land Development-I Limited
Partnership, The Barrett Place Company Limited I, L.P. and
Stanley E. Thomas dated August 19, 1992, filed August 20, 1992,
and recorded in Deed Book 6804, page 48, aforesaid records; as
amended by that certain First Supplement to Easement Agreement
filed May 12, 1994, and recorded in Deed Book 8235, page 243,
aforesaid records; as modified by that certain Affidavit
Affecting Title filed October 12, 1994, and recorded in Deed Book
8530, page 210, aforesaid records; as termiinated, canceled and
superseded by that certain Easement Agreement by and among AMLI
Land Development-I Limited Partnership, The Barrett Place Company
Limited I, L.P., Stanley E. Thomas and Barrett Pavilion Company,
Inc., dated September 30, 1994, filed October 12, 1994,and
recorded in Deed Book 8530, page 213, aforesaid records;
(c) Easements contained in that certain Limited Warranty Deed from
Stanley E. Thomas to B.R.D., Inc., dated October 30, 1992, filed
October 30, 1992, and recorded in Deed Book 6948, page 443,
aforesaid records; and
(d) Permanent & Perpetual Non-Exclusive Easement Agreement, Covenants
and Restrictions for Barrett Pavilion by Stanley E. Thomas dated
April 2, 1993, filed April 27, 1993, and recorded in Deed Book
7276, page 490, aforesaid records; as amended by that certain
First Amendment to Permanent & Perpetual Non-Exclusive Easement
Agreement, Covenants and Restrictions for Barrett Pavilion dated
May 27, 1994, and recorded in Deed Book 8282, page 3, aforesaid
records; as last amended by that certain Second Amendment to
Permanent & Perpetual Non-Exclusive Easement Agreement, Covenants
and Restrictions for Barrett Pavilion dated August 11, 1994, and
recorded in Deed Book 8455, page 163, aforesaid records.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 24 of the attached Mortgage. If any conflict or inconsistency exists
between this Exhibit B and the remainder of the attached Mortgage, this Exhibit
B shall govern.
A. SECURITY DEED. Notwithstanding any use of the words "lien"
or "mortgage" (or any variation thereof) when referring to this instrument, the
Mortgaged Property encumbered hereby, or the nature or effect of this instrument
or the interests granted or created hereby, it is intended by the parties hereto
that this instrument is a deed conveying title to the Mortgaged Property, and
not a mortgage creating a lien only, is made under the provisions of the
existing laws of the State of Georgia relating to deeds to secure debt
(including, but not limited to, Georgia Code Section 44-14-60), and constitutes
a security agreement under the UCC. The words "lien" or "liens" when used with
reference to the nature or effect of this instrument or the interests granted or
created hereby, shall be deemed to include the security title granted hereby.
B. If this Mortgage secures a "revolving loan account" as
defined in the Official Code of Georgia Annotated, as amended, Section 44-14-3
under which periodic advances and repayments will be made from time to time,
payment of all amounts outstanding on the Note from time to time shall not
cancel or release this Mortgage; no release of any part of the Mortgaged
Property (as hereinafter defined) or all or any part of the indebtedness hereby
secured, shall affect personal liability under the Note nor the priority of this
Mortgage. Re-advances will be secured to the same extent as original
obligations hereunder.
C. MORTGAGOR'S CONTINUING OBLIGATION. Mortgagor shall remain
liable for full payment of the Obligations (or any advancement or obligation)
notwithstanding any of the following: (a) the sale of all or a part of the
Mortgaged Property, (b) the assumption by another party of Mortgagor's
obligations hereunder, (c) the forbearance or extension of time for payment or
performance of any obligation hereunder, whether granted to Mortgagor or a
subsequent owner of the Mortgaged Property, and (d) the release of all or any
part of the Mortgaged Property securing said obligations or the release of any
party who assumes payment of the same. None of the foregoing shall in any way
affect the full force and effect of the security title of the Mortgage or impair
Mortgagee's right to a deficiency judgment (in the event of foreclosure) against
Mortgagor or any party assuming the obligations hereunder. None of the
foregoing shall in any way be deemed to be a consent by Mortgagee to a sale of
all or any part
B-1
<PAGE>
of the Mortgaged Property, the release of Mortgagor of its obligations
hereunder, or the agreement to release all or any part of the Mortgaged
Property.
D. RELEASE OF LIEN. Notwithstanding anything contained in the
previous Section C hereof, if all of the Obligations shall be fully satisfied,
paid and performed, then and in that event only, all rights and obligations
hereunder shall be terminated and Mortgagee shall cancel this Mortgage. In such
event, Mortgagee shall, at the request of Mortgagor, promptly deliver to
Mortgagor, in recordable form, all such documents as shall be necessary to
reconvey the Mortgaged Property to Mortgagor and to release the Mortgaged
Property from the liens, security interests, conveyances and assignments created
or evidenced hereby. Neither this Section nor any other provision of this
Mortgage shall, under any circumstance, be interpreted to be a defeasance
clause, this instrument constituting a deed to secure debt with regard to such
property, and not a mortgage.
E. ATTORNEY'S FEES. If Mortgagee employs an attorney to
enforce compliance by Mortgagor of any provision herein, or becomes party to a
suit to protect the Mortgaged Property or to protect the security title of the
Mortgage, then Mortgagor agrees to pay Mortgagee's reasonable and actual
attorneys' fees and all collection costs.
F. ANTI-MARSHALING PROVISION. Mortgagor agrees that Mortgagee
may make a partial release or releases of the Mortgaged Property or any other
security for the Obligations, provided Mortgagor is not in default under the
Note or other Relevant Documents (whether or not such releases are required by
agreement among the parties), without notice to, or the consent, approval or
agreement of other parties in interest, including junior lienors and purchasers
subject to this lien, which partial release or releases shall not impair in any
manner the validity of or priority of this Mortgage on the Mortgaged Property
remaining hereunder, nor release Mortgagor from personal liability for the
Obligations. Notwithstanding the existence of any other security interests in
the Mortgaged Property, Mortgagee shall have the right to determine the order in
which any or all of the Mortgaged Property or other collateral securing the
Obligations shall be subjected to the remedies provided herein. Mortgagee shall
have the right to determine the order in which any or all portions of the
Obligations are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Mortgagor and any party who consents to this or who
has actual or constructive notice hereof, hereby waives any and all right to
require the marshaling of assets in connection with the exercise of any of the
remedies permitted by applicable law or provided herein. None of the foregoing
shall in any way be deemed to be a consent by Mortgagee to a sale by Mortgagor
of the Mortgaged Property or any part hereof or as a consent or agreement to
release the Mortgaged Property or any part thereof under any circumstances
unless specifically set forth herein.
B-2
<PAGE>
G. APPOINTMENT OF RECEIVER. If an Event of Default shall have
occurred and not be cured within any applicable cure period, Mortgagee, upon
application to a court of competent jurisdiction, shall be entitled, as a matter
of strict right, without further notice and without regard to the value of the
Mortgaged Property or to the solvency of any person or persons liable for the
payment of the Obligations, to the appointment of a receiver. Mortgagor hereby
expressly consents and agrees to such appointment upon the occurrence of an
Event of Default that is not cured within any applicable cure period. Mortgagor
will pay to Mortgagee upon demand, all expenses, including receivers' fees,
attorneys' fees, costs and agents' compensation incurred pursuant to the
provisions of this paragraph, and any such amounts paid by Mortgagee shall be
added to the indebtedness secured hereby and shall be secured by this Mortgage.
H. REMEDIES. Upon the occurrence of an Event of Default the entire
balance of the Obligations, including all accrued interest, shall, at the option
of Mortgagee, become immediately due and payable with further notice or demand.
Upon failure to pay the Obligations in full at any stated or accelerated
maturity, Mortgagee may foreclose the lien and security title of this Mortgage
pursuant to the power of sale hereby granted or by judicial proceeding.
I. POWER OF SALE. Mortgagee is hereby granted a power of sale and
may sell the Mortgaged Property, to the full extent that the Mortgaged Property
constitutes real property, or such part or parts thereof or interests therein as
Mortgagee may select, at one or more public sales before the door of the
courthouse of the county in which the Mortgaged Property or any part of the
Mortgaged Property is situated, without notice except as required or set forth
herein (the Mortgaged Property not being residential), to the highest bidder for
cash, in order to pay the Obligations and all expenses of sale and of all
proceedings in connection therewith, including reasonable attorneys' fees
actually incurred and all costs of such sale, after advertising the time, place
and terms of sale one a week for four (4) weeks immediately preceding such sale
(but without regard to the number of days or the number of days intervening
between the date of publication of the first advertisement and the date of sale)
in a newspaper in which Sheriff's sales are advertised in said county, all other
notice being hereby waived by Mortgagor; and Mortgagee shall collect the
proceeds of such sale, and after reserving therefrom the entire amount secured
thereby, including the amount of any taxes, assessments or premium of insurance
or other payments or amounts advance by Mortgagee to protect or preserve the
Mortgaged Property or Mortgagee's security title thereon, together with all
costs and expenses of said sale and reasonable attorneys' fees actually
incurred, shall pay any overages as provided by law.
B-3
<PAGE>
J. FORECLOSURE DEED. At any such public sale, Mortgagee may execute
and deliver to the purchaser a conveyance of the Mortgaged Property sold or any
part thereof in fee simple, with full warranties of title, and to this end
Mortgagor hereby constitutes and appoints Mortgagee as the agent and
attorney-in-fact of Mortgagor to make such sale and conveyance, and thereby to
divest Mortgagor of all right, title and equity that Mortgagor may have in and
to the Mortgaged Property sold and to vest the same in the purchaser or
purchasers at such sale or sales; and all the acts and doings of said agent and
attorney-in-fact are hereby ratified and confirmed. Mortgagor hereby
constitutes and appoints Mortgagee as the agent and attorney-in fact of
Mortgagor to make such recitals, and Mortgagor hereby covenants and agrees that
the recitals so to be made by Mortgagee shall be binding and conclusive upon
Mortgagor, and the heirs, executors, administrators and assigns of Mortgagor,
and that the conveyance to be made by Mortgagee shall be effectual to bar all
equity of redemption (including any statutory redemption) of Mortgagor, or the
successors in interest of Mortgagor, in and to said Mortgaged Property.
K. POWER IRREVOCABLE. The aforesaid power of sale and agency hereby
granted are coupled with an interest and are irrevocable by death or otherwise,
are granted as cumulative of the other remedies provided hereby or by law for
collection of the Obligations, and shall not be exhausted by one exercise
thereof but may be exercised until full payment of the Obligations.
L. SEPARATE SALES. In the event of any sale under this Mortgage by
virtue of the exercise of the powers herein granted, or pursuant to any order in
any judicial proceedings or otherwise, the Mortgaged Property may be sold as a
entirety or in separate parcels and in such manner or order as Mortgagee in its
sole discretion may elect, and if Mortgagee so elects, Mortgagee may sell the
Collateral (as defined in Section 26), at one or more separate sales in any
manner permitted by the Uniform Commercial Code of the State of Georgia, and one
or more exercises of the powers herein granted shall not extinguish nor exhaust
such powers, until the entire Mortgaged Property is sold or the Note is paid in
full. If the Obligations is now or hereafter further secured by any chattel,
mortgages, pledges, contracts or guaranty, assignments of lease or other
security instruments, Mortgagee may at its option exhaust the remedies granted
under any of said security instruments, either concurrently or independently,
and in such order as Mortgagee may determine.
M. JUDICIAL ENFORCEMENT. Mortgagee may, in addition to and not in
abrogation of the rights covered under the immediately preceding provisions or
elsewhere herein, either with or without entry or taking possession as herein
provided or otherwise, proceed by a suit or suits in law or in equity or by any
other appropriate proceeding or
B-4
<PAGE>
remedy (i) to enforce payment of the Obligations, any guaranty given in
connection therewith, or the performance of any term, covenant, condition or
agreement of this Mortgage or any other right, and (ii) to pursue any other
remedy available to it, all as Mortgagee in its sole discretion shall elect.
N. LEASES. Mortgagee, at its option, is authorized to foreclose
this Mortgage subject to the rights of any lessees of the Mortgaged Property
under any leases, and the failure to make any such lessees parties to any such
foreclosure proceedings and to foreclose their rights will not be, nor be
asserted to be by Mortgagor, a defense to any proceedings instituted by
Mortgagee to collect the Obligations.
O. PURCHASE BY MORTGAGEE. Upon any foreclosure sale or sales of all
or any portion of the Mortgaged Property under the power herein granted,
Mortgagee may bid for and purchase the Mortgaged Property and may apply all or
any part of the Obligations secured hereby as a credit to the purchase.
P. MORTGAGOR AS TENANT HOLDING OVER. In the event of any such
foreclosure sale or sales under the power herein granted, Mortgagor shall be
deemed a tenant holding over and shall forthwith deliver possession to the
purchaser or purchasers at such sale or be summarily dispossessed according to
provisions of law applicable to tenants holding over.
Q. COMMERCIAL TRANSACTION. The interest of Mortgagee under this
Mortgage and the liability and obligation of Mortgagor for the payment of the
indebtedness secured hereby arise from a "commercial transaction" within the
meaning of Official Code of Georgia Annotated Section 44-14-260(1).
Accordingly, pursuant to Official Code of Georgia Annotated Section 44-14-263,
Mortgagor hereby expressly waives any and all rights which Mortgagor may have to
notice prior to seizure by Mortgagee of any interest in personal property of
Mortgagor which constitutes part of the Mortgaged Property, whether such seizure
is by writ of possession or otherwise.
R. HOMESTEAD AND EXEMPTION RIGHTS. Mortgagor hereby waives and
renounces all homestead and exemption rights provided for by the Constitution
and the laws of the United States and any state, in and to the Mortgaged
Property as against the collection of the Obligations, or any part hereof.
B-5
<PAGE>
S. PERPETUAL SECURITY TITLE. Mortgagor and Mortgagee hereby state
their intention to establish by this Mortgage a perpetual security title to and
interest in the Mortgaged Property in favor of the Mortgagee and their intention
that there shall be no reversion of title sooner than the twentieth anniversary
of the date of this Mortgage.
(REMAINDER OF THIS PAGE IS BLANK)
B-6
<PAGE>
T. WAIVER. BY EXECUTING THIS MORTGAGE, MORTGAGOR EXPRESSLY: (A)
ACKNOWLEDGES THE RIGHT OF MORTGAGEE TO ACCELERATE THE OBLIGATIONS SECURED HEREBY
AND THE POWER OF ATTORNEY GIVEN HEREIN TO GRANTEE TO SELL THE PROPERTY BY
NONJUDICIAL FORECLOSURE UPON THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER
WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF
ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS
MORTGAGE, (B) WAIVES ANY AND ALL RIGHTS MORTGAGOR MAY HAVE UNDER THE
CONSTITUTION OF THE STATE OF GEORGIA OR THE CONSTITUTION OF THE UNITED STATES OF
AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS
THEREOF) OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL
HEARING PRIOR TO THE EXERCISE BY MORTGAGEE OF ANY POWER OF SALE HEREIN PROVIDED
TO ISSUE, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN
UNDER THE PROVISIONS OF THIS MORTGAGE OR APPLICABLE LAW, AND (2) CONCERNING THE
APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM,
REINSTATEMENT, MARSHALING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY,
EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) WAIVES THE RIGHTS, IF
ANY, TO SET ASIDE OR INVALIDATE ANY SALE DULY CONSUMMATED WITHOUT A PRIOR
JUDICIAL HEARING; (D) ACKNOWLEDGES THAT MORTGAGOR HAS READ THIS MORTGAGE AND ANY
AND ALL QUESTIONS OF MORTGAGOR REGARDING THE LEGAL EFFECT OF THIS MORTGAGE AND
ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO MORTGAGOR AND MORTGAGOR HAS
CONSULTED WITH COUNSEL OF MORTGAGOR'S CHOICE PRIOR TO EXECUTING THIS MORTGAGE;
AND (E) ACKNOWLEDGES (1) THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF MORTGAGOR
HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY MORTGAGOR AS PART OF A
BARGAINED-FOR LOAN TRANSACTION, (2) THAT THIS WAIVER HAS BEEN GRANTED BY
MORTGAGOR AS AN INTENTIONAL RELINQUISHMENT AND ABANDONMENT OF A KNOWN RIGHT AND
PRIVILEGE, AND (3) THAT THIS MORTGAGE IS VALID AND ENFORCEABLE BY MORTGAGEE IN
ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF.
Initialed by Mortgagor R.G.R.
------
<PAGE>
Exhibit 4.16
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by DISCOVERY
ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal place of
business at One Corporate Center, 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 to STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture, dated
July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust Company,
as trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned
Indenture, dated as of July 22, 1997 (said Indenture, together with any
supplements or amendments thereto and any renewals, extensions, or
replacements thereof, is hereinafter referred to as the "INDENTURE") pursuant
to which the Mortgagor has issued (i) 13.50% Senior Secured Notes due August
1, 2002 ("INITIAL NOTES"), and (ii) 13.50% Senior Secured Notes due August 1,
2002, Series B to be issued in exchange for the Initial Notes pursuant to a
Registration Rights Agreement, dated as of July 22, 1997, between Mortgagor
and Jeffries & Company, Inc. (the "EXCHANGE NOTES") in the aggregate
principal amount of Eighty-Five Million Dollars ($85,000,000.00). The
Initial Notes, the Exchange Notes, and the Private Exchange Notes (as defined
in the Indenture) are hereinafter referred to collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and
for the purpose, among other things, of securing and providing for the
repayment of the Notes, Mortgagor and Mortgagee have entered into that
certain Security Agreement, Pledge Agreement, Escrow and Security Agreement,
and Collateral Assignment of Patents, Trademarks and Copyrights (Security
Agreement), each dated as of July 22, 1997, which aforementioned agreements
and the Indenture, together with any supplements or amendments thereto and
any renewals, extensions or replacements thereof are hereinafter collectively
referred to as the "RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to
its obligations under the Indenture and for the purpose, among other things,
of further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including sub-
subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used
herein, shall have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to the Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("Surveys") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness
and Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or
any part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Mortgaged Property is
located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or
after any proceedings for the enforcement of this Mortgage;
-17-
<PAGE>
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom, and
thereupon Mortgagee may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Mortgagor, or in its own name and under the powers
herein granted,(A) use, operate, manage, control, insure, maintain, repair,
restore and otherwise deal with all and every part of the Mortgaged Property and
conduct the business thereat; (B) complete any construction on the Mortgaged
Property in such manner and form as Mortgagee deems advisable; (C) make
alterations, additions, renewals, replacements and improvements to or on the
Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect
to the Mortgaged Property, whether in the name of Mortgagor or otherwise
(including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Mortgaged
Property and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments, insurance and other charges in connection with
the Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee,
or any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged Property.
-18-
<PAGE>
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Documents;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor,
-19-
<PAGE>
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Mortgaged Property, no forbearance on the part of Mortgagee and no
extension of time for the payment of the whole or any portion of the Obligations
or any other indulgence given by Mortgagee to Mortgagor, shall operate to
release or in any manner affect the interest of Mortgagee in the remaining
Mortgaged Property or the liability of Mortgagor to pay the Obligations. No
waiver by Mortgagee shall be effective, unless it is in writing and then only to
the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor and shall be secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
-20-
<PAGE>
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage and a "security agreement" within the meaning of the Uniform Commercial
Code. The Mortgaged Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted and hereby grants to Mortgagee, as security for the
Obligations, a security interest in the Mortgaged Property to the full extent
that the Mortgaged Property may be subject to the Uniform Commercial Code (said
portion of the Mortgaged Property so subject to the Uniform Commercial Code
being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees with
Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to Mortgagor at least ten (10) business days prior to such
action or such notice as is otherwise required by law or the Relevant Documents,
shall constitute commercially reasonable notice to Mortgagor. The proceeds of
any disposition of the Collateral, or any part thereof, may be applied by
Mortgagee to the payment of the Obligations in such priority and proportions as
Mortgagee shall determine in its sole discretion. In the event of any change in
name, identity or structure of Mortgagor, Mortgagor shall notify Mortgagee
thereof and, promptly after request, shall execute, file and record such Uniform
Commercial Code forms as are necessary to maintain the priority of Mortgagee's
lien upon and security interest in the Collateral, and shall pay all expenses
and fees in connection with the filing and recording
-21-
<PAGE>
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Mortgagor's obligations under this Mortgage or the other
Relevant Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Mortgagee, as secured party, in connection with the Collateral covered
by this Mortgage, such appointment to terminate upon the release of this
Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such
-22-
<PAGE>
security as Mortgagee may reasonably request to insure payment of such
Impositions and to secure and indemnify Mortgagee against any cost, expense,
loss or damage in connection with such contest or postponement of payment,; (d)
Mortgagor shall timely upon final determination thereof pay the amount of any
such Impositions, claim, fine or penalty so determined, together with all costs,
interest and penalties which may be payable in connection therewith; (e) the
failure to pay the Impositions, or mechanic's or materialman's or similar lien
claim does not constitute a default under any other deed of trust, mortgage or
security interest covering or affecting any part of the Mortgaged Property; and
(f) notwithstanding the foregoing, Mortgagor shall immediately upon request of
Mortgagee pay (and if Mortgagor shall fail so to do, Mortgagee may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Mortgagee, the Mortgaged Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be
-23-
<PAGE>
delivered as follows or at such other place as either party hereto may by notice
in writing (given in accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclosure this Mortgage.
The rights and remedies of Mortgagee under this Mortgage shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Mortgagee shall be construed as an election to proceed under
any one provision herein to the exclusion of any other provision. Mortgagee
shall not be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter afforded at law or
in equity.
-24-
<PAGE>
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
-25-
<PAGE>
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH
-26-
<PAGE>
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO
COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, nonperfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to
-27-
<PAGE>
it under any or all of the Relevant Documents without first exercising or
enforcing any of its rights and remedies hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to
-28-
<PAGE>
Mortgagee, and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed under seal by
the Mortgagor as of the day and year first written above.
In the Presence of: MORTGAGOR:
DISCOVERY ZONE, INC., a Delaware
/s/ Scott Bernstein corporation,
- ---------------------
Print Name: Scott Bernstein
/s/ Mark D. Woodward By: /s/ Robert G. Rooney
- --------------------- ---------------------------
Name: Robert G. Rooney
Print Name: Mark D. Woodward Title: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
Before me, a Notary Public in and for said County and State,
personally appeared the above-named DISCOVERY ZONE, INC., a corporation
organized under the laws of Delaware by Robert G. Rooney, its Senior Vice
President, who acknowledged that he did sign the foregoing instrument for and on
behalf of DISCOVERY ZONE, INC., and that the same is the free act and deed of
DISCOVERY ZONE, INC. and his free act and deed individually and such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
50 Main Street, White Plains, NY, this 28th day of July 1997.
/s/ Mark D. Woodward
-------------------------
Notary Public
THIS DOCUMENT PREPARED BY AND MARK D. WOODWARD
RECORDING REQUESTED BY AND Notary Public State of New York
WHEN RECORDED MAIL TO: No. 49897846
Ronald S. Brody, Esq. Qualified in New York County
Anderson Kill & Olick, P.C. Commission Expires June 15, 1998
1251 Avenue of the Americas
New York, New York 10020
<PAGE>
EXHIBIT A
-----------
LEGAL DESCRIPTION
DESCRIPTION OF 1.899 ACRES OF LAND
LOCATED ON THE SOUTHERLY SIDE OF CHANTRY
DRIVE AND WEST OF BRICE ROAD, IN THE
CITY OF COLUMBUS, COUNTY OF FRANKLIN,
STATE OF OHIO
SITUATED IN THE STATE OF OHIO, COUNTY OF FRANKLIN, CITY OF COLUMBUS,
BEING IN HALF SECTION 45, SECTION 26, TOWNSHIP 12, RANGE 21, REFUGEE LANDS,
CONTAINING 1.899 ACRES OF LAND, MORE OR LESS, SAID 1.899 ACRES OF LAND BEING
OUT OF THAT 50.917 ACRE TRACT OF LAND DESCRIBED IN THE DEED TO CHANTRY SQUARE
JOINT VENTURE, OF RECORD IN OFFICIAL RECORD 09543J14, RECORDER'S OFFICE,
FRANKLIN COUNTY, OHIO, SAID 1.899 ACRES OF LAND MORE PARTICULARLY DESCRIBED
AS FOLLOWS:
BEGINNING AT A POINT IN A SOUTHERLY RIGHT-OF-WAY LINE OF CHANTRY DRIVE,
EIGHTY FEET IN WIDTH, AS SAID CHANTRY DRIVE IS DESIGNATED AND DELINEATED UPON
THE RECORDED PLAT OF THE DEDICATION OF SCARBOROUGH BOULEVARD, CHANTRY DRIVE,
PARK CRESCENT, ALSHIRE ROAD AND EASEMENTS, OR RECORD IN PLAT BOOK 46, PAGE
52, 53, 54, AND 55, SAID POINT BEING THE NORTHEASTERLY CORNER OF THAT 1.972
ACRE TRACT OF LAND DESIGNATED AS TRACT II AND DESCRIBED IN THE DEED TO
BRATCHER, CAMANITI, CURRY AND SNYDER, OR RECORD IN OFFICIAL RECORD 03520A07,
BOTH BEING OF RECORD IN THE RECORDER'S OFFICE, FRANKLIN COUNTY, OHIO, SAID
POINT ALSO BEING THE TRUE PLACE OF BEGINNING FOR THE PARCEL HEREIN DESCRIBED:
THENCE EASTWARDLY, WITH THE SOUTHERLY RIGHT-OF-WAY BOUNDARY OF SAID
CHANTRY DRIVE AND WITH THE NORTHERLY BOUNDARY OF SAID 50.917 ACRE TRACT, THE
FOLLOWING SEVEN (7) COURSES AND DISTANCES:
1) S 86DEGREES 10' 30" E, A DISTANCE OF 232.07 FEET TO POINT OF CURVATURE;
2) WITH THE ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 35.00 FEET, A
CENTRAL ANGLE OF 90DEGREES 00' 00" AND A CHORD THAT BEARS S 41DEGREES
10' 30" E, A CHORD DISTANCE OF 49.50 FEET TO A POINT.
3) S 86DEGREES 10' 30" E, A DISTANCE OF 16.71 FEET TO A POINT;
4) S 17DEGREES 53' 38" E, A DISTANCE OF 19.49 FEET TO POINT;
5) S 3DEGREES 49' 30" W, A DISTANCE OF 166.92 FEET TO A POINT;
6) S 49DEGREES 34' 9" W, A DISTANCE OF 113.86 FEET TO A POINT;
7) N 86DEGREES 10' 30" W, A DISTANCE OF 209.44 FEET TO A POINT;
8) N 3DEGREES 49' 30" E, A DISTANCE OF 299.49 FEET TO THE TRUE POINT OF
BEGINNING AND CONTAINING 1.899 ACRES OF LAND MORE OR LESS.
Parcel 2
The Easement interest created by Article III of the Construction and Easement
Agreement recorded in Official Records Volume 24988, page DO7, Recorder's
Office, Franklin County, Ohio.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Mortgage. If any conflict or inconsistency exists between this
Exhibit B and the remainder of the attached Mortgage, this Exhibit B shall
govern.
A. MAXIMUM PRINCIPAL INDEBTEDNESS. This Mortgage secures the unpaid
balance of loan advances which may be made after this Mortgage is filed for
record. The maximum amount of the unpaid principal balance of all loan advances
(in the aggregate and exclusive of interest thereon and other advances made for
the payment of taxes, insurance, or for protection of the Mortgaged Property)
which may be outstanding at any time is $85,000,000.00. In addition to any
other debt or obligation secured hereby, this Mortgage shall also secure unpaid
balances of advances made with respect to the Mortgaged Property for the payment
of taxes, assessments, insurance premiums, and costs incurred for maintaining
the Improvements on, or for the protection of, the Mortgaged Property.
B. MECHANICS' LIEN LAW. Mortgagee shall be and hereby is authorized
and empowered to do, as mortgagee, all things provided to be done in the
mechanics' lien laws of the State of Ohio (including Section 1311.14 of the Ohio
Revised Code), and all acts amendatory or supplementary thereto.
B-1
<PAGE>
Exhibit 4.17
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
<PAGE>
THIS MORTGAGE (as the same may from time to time be extended, renewed
or modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal
place of business at One Corporate Center, 110 East Broward Boulevard, Fort
Lauderdale, Florida 33301 to STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, solely in its capacity as trustee and collateral
agent under and pursuant to that certain Indenture, dated July 22, 1997, among
Discovery Zone, Inc., State Street Bank and Trust Company, as trustee, and the
Subsidiary Guarantors named therein, its successors and assigns ("MORTGAGEE"),
having an address at Two International Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall
have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located), (ii)
the Mortgaged Property, or any part thereof or any revenues therefrom or any
estate, right, title or interest therein, or (iii) any occupancy, operation, use
or possession of, or sales from, or activity conducted on, or in connection with
the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to such Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately due
and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or any
part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Mortgaged Property is
located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after
any proceedings for the enforcement of this Mortgage;
-17-
<PAGE>
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom, and
thereupon Mortgagee may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Mortgagor, or in its own name and under the powers
herein granted,(A) use, operate, manage, control, insure, maintain, repair,
restore and otherwise deal with all and every part of the Mortgaged Property and
conduct the business thereat; (B) complete any construction on the Mortgaged
Property in such manner and form as Mortgagee deems advisable; (C) make
alterations, additions, renewals, replacements and improvements to or on the
Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect
to the Mortgaged Property, whether in the name of Mortgagor or otherwise
(including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Mortgaged
Property and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments, insurance and other charges in connection with
the Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee, or
any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged Property.
-18-
<PAGE>
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Document;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor,
-19-
<PAGE>
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Mortgaged Property, no forbearance on the part of Mortgagee and no
extension of time for the payment of the whole or any portion of the Obligations
or any other indulgence given by Mortgagee to Mortgagor, shall operate to
release or in any manner affect the interest of Mortgagee in the remaining
Mortgaged Property or the liability of Mortgagor to pay the Obligations. No
waiver by Mortgagee shall be effective, unless it is in writing and then only to
the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor and shall be secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
-20-
<PAGE>
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage/deed of trust and a "security agreement" within the meaning of the
Uniform Commercial Code. The Mortgaged Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and
delivering this Mortgage has granted and hereby grants to Mortgagee, as security
for the Obligations, a security interest in the Mortgaged Property to the full
extent that the Mortgaged Property may be subject to the Uniform Commercial Code
(said portion of the Mortgaged Property so subject to the Uniform Commercial
Code being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees
with Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code. Information concerning the security interest herein
granted may be obtained from the parties at the addresses of the parties set
forth in the first paragraph of this Mortgage. Mortgagor's chief executive
office and principal place of business is the Mortgagor's address set forth in
the first paragraph of this Mortgage, and the place where Mortgagor's books and
records in respect of where the Mortgaged Property is located are kept is the
address of Mortgagor set forth in the first paragraph of this Mortgage. If an
Event of Default shall occur which shall remain uncured, Mortgagee, in addition
to any other rights and remedies which it may have, shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the Uniform Commercial Code, (including,
without limitation, to the extent permitted by law, the right to take possession
of the Collateral or any part thereof, and to take such other measures as
Mortgagee may deem necessary for the care, protection and preservation of the
Collateral). Upon request or demand of Mortgagee, Mortgagor shall at its
expense assemble the Collateral and make it available to Mortgagee at a
convenient place acceptable to Mortgagee. Mortgagor shall pay to Mortgagee on
demand therefor any and all reasonable expenses (including, without limitation,
reasonable legal expenses and attorneys' fees) incurred or paid by Mortgagee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Mortgagee with respect to the Collateral sent to Mortgagor at
least ten (10) business days prior to such action or such notice as is otherwise
required by law or the Relevant Documents, shall constitute commercially
reasonable notice to Mortgagor. The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Mortgagee to the payment of
the Obligations in such priority and proportions as Mortgagee shall determine in
its sole discretion. In the event of any change in name, identity or structure
of Mortgagor, Mortgagor shall notify Mortgagee thereof and, promptly after
request, shall execute, file and record such Uniform Commercial Code forms as
are necessary to maintain the priority of Mortgagee's lien upon and security
interest in the Collateral, and shall pay all expenses and fees in connection
with the filing and recording thereof. If Mortgagee shall require the filing or
recording of additional Uniform Commercial Code forms or continuation
statements, Mortgagor shall, promptly after request, execute, file and record
such Uniform Commercial
-21-
<PAGE>
Code forms or continuation statements as Mortgagee shall deem necessary, and
shall pay all expenses and fees in connection with the filing and recording
thereof, it being understood and agreed, however, that no such additional
documents shall materially increase Mortgagor's obligations under this Mortgage
or the other Relevant Documents. Mortgagor hereby irrevocably appoints
Mortgagee as its attorney-in-fact, coupled with an interest, to file with the
appropriate public office on its behalf any UCC financing statements (or related
documents) signed only by Mortgagee, as secured party, in connection with the
Collateral covered by this Mortgage, such appointment to terminate upon the
release of this Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such security as
Mortgagee may reasonably request to insure payment of such Impositions and to
secure and indemnify Mortgagee against any cost, expense, loss or damage in
connection with such contest or postponement of payment,; (d) Mortgagor shall
timely upon final
-22-
<PAGE>
determination thereof pay the amount of any such Impositions, claim, fine or
penalty so determined, together with all costs, interest and penalties which may
be payable in connection therewith; (e) the failure to pay the Impositions, or
mechanic's or materialman's or similar lien claim does not constitute a default
under any other deed of trust, mortgage or security interest covering or
affecting any part of the Mortgaged Property; and (f) notwithstanding the
foregoing, Mortgagor shall immediately upon request of Mortgagee pay (and if
Mortgagor shall fail so to do, Mortgagee may, but shall not be required to, pay
or cause to be discharged or bonded against) any such Impositions, or claim
notwithstanding such contest, if in the reasonable opinion of Mortgagee, the
Mortgaged Property or any part thereof or interest therein may be in imminent
danger of being sold, forfeited, foreclosed, terminated, canceled or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, minimum bid or upset price, stay, extension, reinstatement,
moratorium and redemption laws now or hereafter in force and all rights of
marshaling in the event of any sale hereunder of the Mortgaged Property or any
part thereof or any interest therein. Further, Mortgagor hereby expressly
waives any and all rights of redemption from sale pursuant to a foreclosure of
this Mortgage on behalf of Mortgagor, and on behalf of each and every person
acquiring any interest in or title to the Mortgaged Property subsequent to the
date of this Mortgage and on behalf of all persons to the extent permitted by
applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
-23-
<PAGE>
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclosure this Mortgage.
The rights and remedies of Mortgagee under this Mortgage shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Mortgagee shall be construed as an election to proceed under
any one provision herein to the exclusion of any other provision. Mortgagee
shall not be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter afforded at law or
in equity.
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the
-24-
<PAGE>
parties in connection herewith or therewith except to the extent expressly
incorporated or specifically referred to herein or therein. This Mortgage, and
any provisions hereof, may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Mortgagor or Mortgagee, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
-25-
<PAGE>
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
MORTGAGOR IN ANY JURISDICTION.
-26-
<PAGE>
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
-27-
<PAGE>
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to Mortgagee,
and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-28-
<PAGE>
Mortgagor has executed this instrument as of the day and year first
above written.
DISCOVERY ZONE, INC., a Delaware corporation
By: /s/ Robert G. Rooney
-----------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
Before me, the undersigned authority, on this day personally appeared
Robert G. Rooney, a Senior Vice President of DISCOVERY ZONE, INC., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed same for the
purposes and consideration therein expressed, in the capacity stated.
Given under my hand and seal of office this 28th day of July, 1997
/s/ Mark D. Woodward
- --------------------------------------
Printed Name
Notary Public in and for the state of New York
My commission expires:
Mark D. Woodward
Notary Public State of New York
No. 4997846
Qualified in New York County
Commission Expires June 15, 1998
<PAGE>
Sterling Heights
Macomb County, Michigan
EXHIBIT A
All of Lot 33 and part of Lot 34, Lakeside Subdivision No. 4, according to the
plat thereof as recorded in liber 73, pages 1 and 2 of Plats, Macomb County
Records, and being more particularly described as: Beginning at the southwest
corner of Lott 33; thence north 02 degrees 50 minutes 00 seconds west 156.00
feet along the westerly line of said Lot 33 to the northwest corner of said Lot
33, said point also being the southwesterly corner of Lot 34; thence continuing
north 02 degrees 50 minutes 00 seconds west 126.00 feet along the westerly line
of said Lot 34; thence north 87 degrees 10 minutes 00 seconds east 307.47 feet
to a point on a curve said point being on the easterly line of said Lot 34;
thence along the arc of a curve to the left 126.98 feet, said curve having a
radius of 779.58 feet central angle of 09 degrees 19 minutes 57 seconds and a
chord bearing and distance of south 09 degrees 26 minutes 09 second east 126.84
feet to the southeast corner of said Lot 34 said point also being the northeast
corner of Lot 33; thence continuing along the arc of a curve to the left 152.79
feet said curve having a radius of 779.58 feet center angle of 11 degrees 13
minutes 45 seconds and a chord bearing and distance of south 19 degrees 43
minutes 00 seconds east 152.54 feet; thence south 25 degrees 19 minutes 52
seconds east 10.86 feet to the southeast corner of Lot 33; thence south 87
degrees 10 minutes 00 seconds west 370.51 feet along the south line of said Lot
33 to the point of beginning.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 48 of the attached Mortgage. If any conflict or inconsistency exists
between this Exhibit B and the remainder of the attached Mortgage, this Exhibit
B shall govern.
A. FORECLOSURE BY ADVERTISEMENT. Mortgagee may foreclose this
Mortgage by advertisement pursuant to the statutes in such case made and
provided in addition to all other rights and remedies hereunder. By execution
of this Mortgage, Mortgagor hereby grants to Mortgagee, in connection with a
foreclosure of this Mortgage, the power to sell and convey the Mortgaged
Property at public sale in accordance with the statutes providing therefor.
B. MICHIGAN STATUTES REGARDING ASSIGNMENT OF RENTS. The Mortgagee
shall be entitled to all the rights and remedies conferred by Act No. 210 of the
Michigan Public Acts of 1953 as amended by Act No. 151 of the Michigan Public
Acts of 1966 (MCLA 554.231 ET SEQ.) or Act No. 228 of the Michigan Public Acts
of 1925, as amended by Act No. 55 of the Michigan Public Acts of 1933 (MCLA
554.211 ET SEQ.), whichever is applicable. The assignment of Rents provided for
in Section 8 shall, notwithstanding anything to the contrary contained therein,
constitute an assignment of rents pursuant to MCLA 554.231 ET SEQ. or MCLA
554.211 ET SEQ., whichever is applicable, and shall be interpreted and applied
in accordance therewith.
C. WASTE. The failure of the Mortgagor to pay any taxes or
assessments assessed against the Mortgaged Property, or any installment thereof,
or any premiums payable with respect to any insurance policy covering the
Mortgaged Property, shall constitute waste, as provided by Act. No. 236 of the
Michigan Public Acts of 1961 as amended (MCLA 600.2927). The Mortgagor further
hereby consents to the appointment of a receiver under said statute, should
Mortgagee elect to seek such relief thereunder.
D. FUTURE ADVANCE MORTGAGE. This Mortgage secures future advances
and is a future advance mortgage under Act No. 348 of the Michigan Public Acts
of 1990 (MCL 565.901 ET SEQ.).
B-1
<PAGE>
E. POWER OF SALE; WAIVER OF NOTICE AND HEARING ON FORECLOSURE. THIS
MORTGAGE CONTAINS A POWER OF SALE AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT
MAY BE FORECLOSED BY ADVERTISEMENT. IN FORECLOSURE BY ADVERTISEMENT AND THE
SALE OF THE MORTGAGED PROPERTY IN CONNECTION THEREWITH NO HEARING IS REQUIRED
AND THE ONLY NOTICE REQUIRED IS THE PUBLICATION OF NOTICE IN A LOCAL NEWSPAPER
AND THE POSTING OF A COPY OF THE NOTICE ON THE MORTGAGED PROPERTY. THE
MORTGAGOR HEREBY WAIVES ALL RIGHTS UNDER THE CONSTITUTION AND LAWS OF THE UNITED
STATES AND THE STATE OF MICHIGAN TO A HEARING PRIOR TO SALE IN CONNECTION WITH
FORECLOSURE OF THIS MORTGAGE BY ADVERTISEMENT AND ALL NOTICE REQUIREMENTS EXCEPT
AS SET FORTH IN THE MICHIGAN STATUTE PROVIDING FOR FORECLOSURE BY ADVERTISEMENT.
B-2
<PAGE>
Exhibit 4.18
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
This Mortgage is exempt from mortgage registration tax as
being issued under a plan of reorganization confirmed under
Section 1129 of chapter 11, title 11, of the United States
Code (the "Bankruptcy Code"), pursuant to Section 1146(c) of
the Bankruptcy Code.
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by DISCOVERY
ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal place of
business at One Corporate Center, 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 to STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture, dated
July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust Company,
as trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall
have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to such Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of
this Mortgage in which case the Mortgaged Property or any interest therein
may be sold for cash or upon credit in one or more parcels or in several
interests or portions and in any order or manner in accordance with the
laws of the jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute
proceedings for the foreclosure of this Mortgage for the Obligations then
due and payable subject to the continuing lien of this Mortgage, in
accordance with the laws of the jurisdiction in which such Mortgaged
Property is located, for the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or any
part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of
sale or otherwise, at one or more sales, as an entirety or in parcels, at
such time and place, upon such terms and after such notice thereof as may
be required or permitted by the laws of the jurisdiction in which such
Mortgaged Property is located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained
herein or in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after
any proceedings for the enforcement of this Mortgage;
-17-
<PAGE>
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a
trustee, receiver, liquidator or conservator of the Mortgaged Property, as
a matter of strict right, without notice and without regard for the
adequacy of the security for the Obligations or the interest of the
Mortgagor therein and without regard for the solvency of the Mortgagor or
of any person, firm or other entity liable for the payment of the
Obligations, and Mortgagor hereby consents to such appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees
or attorneys and dispossess Mortgagor and its agents and servants
therefrom, and thereupon Mortgagee may (whether or not a receiver has been
appointed) as attorney-in-fact or agent of Mortgagor, or in its own name
and under the powers herein granted,(A) use, operate, manage, control,
insure, maintain, repair, restore and otherwise deal with all and every
part of the Mortgaged Property and conduct the business thereat; (B)
complete any construction on the Mortgaged Property in such manner and form
as Mortgagee deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Mortgaged Property; (D) exercise
all rights and powers of Mortgagor with respect to the Mortgaged Property,
whether in the name of Mortgagor or otherwise (including, without
limitation, the right to make, cancel, enforce or modify Leases, obtain and
evict tenants, and demand, sue for, collect and receive all earnings,
revenues, rents, issues, profits and other income of the Mortgaged Property
and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys'
fees) incurred in connection with the aforesaid operations and all amounts
necessary to pay the taxes, assessments, insurance and other charges in
connection with the Mortgaged Property, it being agreed that should
Mortgagee incur any liability, loss or damage in the defense of any claims
or demands, the amount thereof, including costs, expenses and reasonable
attorneys' fees shall be secured hereby, and Mortgagor shall reimburse
Mortgagee therefor immediately upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee, or
any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender
possession to Mortgagee of the Mortgaged Property or to such receiver and,
in default thereof, evict Mortgagor by summary proceedings or otherwise;
and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform
-18-
<PAGE>
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Mortgagor relating to the Mortgaged Property.
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Documents;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant
-19-
<PAGE>
Documents, no acceptance by Mortgagee of any payment after the occurrence of any
Event of Default and no payment by Mortgagee of any obligation for which
Mortgagor is liable hereunder shall be deemed to waive or cure any Event of
Default with respect to Mortgagor, or Mortgagor's liability to pay such
obligation. No sale of all or any portion of the Mortgaged Property, no
forbearance on the part of Mortgagee and no extension of time for the payment of
the whole or any portion of the Obligations or any other indulgence given by
Mortgagee to Mortgagor, shall operate to release or in any manner affect the
interest of Mortgagee in the remaining Mortgaged Property or the liability of
Mortgagor to pay the Obligations. No waiver by Mortgagee shall be effective,
unless it is in writing and then only to the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor and shall be secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and
-20-
<PAGE>
financial and other condition of Mortgagor with officers of Mortgagor and with
its independent certified public accountants, at such reasonable times as may be
requested by Mortgagee upon reasonable advance notice.
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage/deed of trust and a "SECURITY AGREEMENT" within the meaning of the
Uniform Commercial Code. The Mortgaged Property includes both real and personal
property and all other rights and interests, whether tangible or intangible in
nature, of Mortgagor in the Mortgaged Property. Mortgagor by executing and
delivering this Mortgage has granted and hereby grants to Mortgagee, as security
for the Obligations, a security interest in the Mortgaged Property to the full
extent that the Mortgaged Property may be subject to the Uniform Commercial Code
(said portion of the Mortgaged Property so subject to the Uniform Commercial
Code being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees
with Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to Mortgagor at least ten (10) business days prior to such
action or such notice as is otherwise required by law or the Relevant Documents,
shall constitute commercially reasonable notice to Mortgagor. The proceeds of
any disposition of the Collateral, or any part thereof, may be applied by
Mortgagee to the payment of the Obligations in such priority and proportions as
Mortgagee shall determine in
-21-
<PAGE>
its sole discretion. In the event of any change in name, identity or structure
of Mortgagor, Mortgagor shall notify Mortgagee thereof and, promptly after
request, shall execute, file and record such Uniform Commercial Code forms as
are necessary to maintain the priority of Mortgagee's lien upon and security
interest in the Collateral, and shall pay all expenses and fees in connection
with the filing and recording thereof. If Mortgagee shall require the filing or
recording of additional Uniform Commercial Code forms or continuation
statements, Mortgagor shall, promptly after request, execute, file and record
such Uniform Commercial Code forms or continuation statements as Mortgagee shall
deem necessary, and shall pay all expenses and fees in connection with the
filing and recording thereof, it being understood and agreed, however, that no
such additional documents shall materially increase Mortgagor's obligations
under this Mortgage or the other Relevant Documents. Mortgagor hereby
irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an
interest, to file with the appropriate public office on its behalf any UCC
financing statements (or related documents) signed only by Mortgagee, as secured
party, in connection with the Collateral covered by this Mortgage, such
appointment to terminate upon the release of this Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of
-22-
<PAGE>
obtaining knowledge thereof; (b) Mortgagor shall diligently and in good faith
contest the same by appropriate legal proceedings which shall operate to prevent
the enforcement or collection of the same and the sale of the Mortgaged Property
or any part thereof, to satisfy the same; (c) unless funds are otherwise
reserved, Mortgagor shall furnish to Mortgagee such security as Mortgagee may
reasonably request to insure payment of such Impositions and to secure and
indemnify Mortgagee against any cost, expense, loss or damage in connection with
such contest or postponement of payment,; (d) Mortgagor shall timely upon final
determination thereof pay the amount of any such Impositions, claim, fine or
penalty so determined, together with all costs, interest and penalties which may
be payable in connection therewith; (e) the failure to pay the Impositions, or
mechanic's or materialman's or similar lien claim does not constitute a default
under any other deed of trust, mortgage or security interest covering or
affecting any part of the Mortgaged Property; and (f) notwithstanding the
foregoing, Mortgagor shall immediately upon request of Mortgagee pay (and if
Mortgagor shall fail so to do, Mortgagee may, but shall not be required to, pay
or cause to be discharged or bonded against) any such Impositions, or claim
notwithstanding such contest, if in the reasonable opinion of Mortgagee, the
Mortgaged Property or any part thereof or interest therein may be in imminent
danger of being sold, forfeited, foreclosed, terminated, canceled or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if
-23-
<PAGE>
acceptance of delivery is refused. Notice may be given by fax but will only be
treated as delivered hereunder if: (x) sent between the hours of 9:00 a.m. and
5:00 p.m. (based on local time at the destination); and (y) receipt is
acknowledged by fax and delivery will be deemed to have been given on the date
the fax acknowledgment is sent. Notices shall be delivered as follows or at
such other place as either party hereto may by notice in writing (given in
accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclosure this Mortgage.
The rights and remedies of Mortgagee under this Mortgage shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Mortgagee shall be construed as an election to proceed under
any one provision herein to the exclusion of any other provision. Mortgagee
shall not be limited exclusively to the rights
-24-
<PAGE>
and remedies herein stated but shall be entitled to every right and remedy now
or hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any
-25-
<PAGE>
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT
-26-
<PAGE>
OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
-27-
<PAGE>
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to
-28-
<PAGE>
the extent that Mortgagor is not so qualified or in good standing in such State,
Mortgagor shall promptly qualify to do business and become in good standing in
such State and shall promptly present evidence of such qualification to do
business and good standing to Mortgagee, and shall in any event take such steps
as are necessary to insure the enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed under seal by
the Mortgagor as of the day and year first written above.
MORTGAGOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
------------------------------
Name: Robert G. Rooney
Title: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
The foregoing was acknowledged before me this 28th day of July, 1997,
by Robert G. Rooney, Senior Vice President of DISCOVERY ZONE, INC., a
corporation under the laws of Delaware on behalf of the corporation.
NOTARIAL STAMP OR SEAL (OR OTHER TITLE OR RANK)
[Notary Seal] /s/ Mark D. Woodward
-----------------------------
Signature of Person Taking
Acknowledgment
THIS INSTRUMENT WAS DRAFTED BY (NAME AND ADDRESS)
Ronald S. Brody, Esq.
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
Lot 1, Block 1, Springbrook Mall Second Addition, according to the plat thereof
file or record in the office of the County Recorder, Anoka County, Minnesota,
together with the appurtenant easement(s) contained in Document No. 952364.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48 of
the attached Mortgage. If any conflict or inconsistency exists between this
Exhibit B and the remainder of the attached Mortgage, this Exhibit B shall
govern. Notwithstanding anything in this Mortgage to the contrary, the
following provisions shall apply:
A. all Rents and revenues collected by Mortgagee or any receiver
following an Event of Default shall be applied as follows:
1. to the payment of all reasonable fees of any receiver approved by
court;
2. to the payment of all tenant security deposits then owing to any
lessee under any Lease pursuant to the provisions of Minn. Stat. Section 504.20;
3. to the payment of all prior real estate taxes and special
assessments with respect to the Mortgaged Property, or if this Mortgage requires
periodic escrow payments for such taxes and assessments, to the escrow payments
then due;
4. to the payment of all premiums then due for the insurance
required by the provisions of this Mortgage, or if this Mortgage requires
periodic escrow payments for such premiums, to the escrow payments then due;
5. to the payment of costs incurred in normal maintenance and
operation of the Mortgaged Property;
6. if received prior to any foreclosure sale of the Mortgaged
Property, to the Mortgagee for the payment of indebtedness secured by this
Mortgage, but no such payment made after the acceleration of the indebtedness
shall affect such acceleration;
7. if received during or with respect to the period of redemption
after a foreclosure sale of the Mortgaged Property:
(a) if the purchaser at the foreclosure sale is not the
Mortgagee, first to the Mortgagee to the extent of any deficiency of the
sale proceeds to repay the indebtedness secured by this Mortgage, second to
the purchaser as a credit to the redemption price, but if the Mortgaged
Property is not redeemed, then to the purchaser of the Mortgaged Property;
and
(b) if the purchaser at the foreclosure sale is the
Mortgagee, to the Mortgagee to the extent of any deficiency of the sale
proceeds to repay the
B-1
<PAGE>
indebtedness secured by this Mortgage and the balance to be retained by the
Mortgagee as a credit to the redemption price, but if the Mortgaged
Property is not redeemed, then to the Mortgagee, whether or not such
deficiency exists.
The rights and power of the Mortgagee under this Mortgage and the application of
Rents and revenue under this Subsection (A) shall continue until the expiration
of the redemption period from any foreclosure sale, whether or not any
deficiency remains after a foreclosure.
B. The Mortgagor represents and warrants that as of the date of this
Mortgage the Mortgaged Property is not in agricultural use as defined in Minn.
Stat. Section 40A.02, Subd. 3 and is not used for agricultural purposes.
C. From the date of its recording in the State of Minnesota, this
Mortgage shall be effective as a financing statement filed as a financing
statement with respect to all goods constituting part of the Mortgaged Property
which are or are to become fixtures related to the real estate covered by this
Section. For this purpose the following information is included: (i) The
Mortgagor shall be deemed the "Debtor" with the address set forth in Section 32;
(ii) the Mortgagee shall be deemed the "Secured Party" with the address set
forth in Section 32; (iii) this document covers goods which are or are to become
fixtures; (iv) the name of the record owner of the real estate included in the
Mortgaged Property is the Mortgagor; and (v) the Mortgagor's Internal Revenue
Service Taxpayer I.D. number is 36-3877601.
D. This Mortgage is exempt from mortgage registration tax as being
issued under a plan of reorganization confirmed under Section 1129 of chapter
11, title 11, of the United States Code (the "BANKRUPTCY CODE"), pursuant to
Section 1146(c) of the Bankruptcy Code.
E. The Mortgagor hereby grants to Mortgagee the power of sale.
B-2
<PAGE>
Exhibit 4.19
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by DISCOVERY
ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its principal place of
business at One Corporate Center, 110 East Broward Boulevard, Fort Lauderdale,
Florida 33301 to STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture, dated
July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust Company,
as trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, Mortgagor and Mortgagee
hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor to Mortgagee, including without
limitation, any and all obligations of Mortgagor under this Mortgage, the Notes,
the Indenture, and all other documents evidencing or securing any such
Obligations including, without limitation, the Relevant Documents. Mortgagor by
these presents does hereby mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate unto
Mortgagee, the Land and the buildings, structures and improvements of every
nature whatsoever now or hereafter located thereon to the extent owned by
Mortgagor (including, but not limited to, all gas and electric fixtures,
radiators, heaters, docks and docking facilities, engines and machinery,
boilers, elevators and motors, plumbing, heating and air conditioning fixtures,
carpeting and other floor coverings, water heaters, awnings and storm sashes
which are or shall be attached to the Land or said buildings, structures or
improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall
have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to the Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard,
non-contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall
promptly notify Mortgagee whenever any such separate insurance is taken out and
shall promptly deliver to Mortgagee the certificates evidencing the policy or
policies of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of
this Mortgage or for the sale of the Mortgaged Property upon execution in
which case the Mortgaged Property or any interest therein may be sold for
cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute
proceedings for the foreclosure of this Mortgage or for the sale of the
Mortgaged Property upon execution for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the
laws of the jurisdiction in which such Mortgaged Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or any
part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of
sale or otherwise, at one or more sales, as an entirety or in parcels, at
such time and place, upon such terms and after such notice thereof as may
be required or permitted by the laws of the jurisdiction in which such
Mortgaged Property is located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained
herein or in the other Relevant Documents;
-17-
<PAGE>
(vi) recover judgment on the Notes either before, during or
after any proceedings for the enforcement of this Mortgage;
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings or for the sale of the Mortgaged
Property upon execution, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Mortgaged Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without
regard for the solvency of the Mortgagor or of any person, firm or other
entity liable for the payment of the Obligations, and Mortgagor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings or for the sale of the Mortgaged
Property upon execution, enforce Mortgagee's interest in the Leases and
Rents and enter into or upon the Mortgaged Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom,
and thereupon Mortgagee may (whether or not a receiver has been appointed)
as attorney-in-fact or agent of Mortgagor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Mortgaged
Property and conduct the business thereat; (B) complete any construction on
the Mortgaged Property in such manner and form as Mortgagee deems
advisable; (C) make alterations, additions, renewals, replacements and
improvements to or on the Mortgaged Property; (D) exercise all rights and
powers of Mortgagor with respect to the Mortgaged Property, whether in the
name of Mortgagor or otherwise (including, without limitation, the right to
make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Mortgaged Property and every part thereof);
and (E) apply the receipts from the Mortgaged Property to the payment of
the Obligations, after deducting therefrom all reasonable expenses
(including, without limitation, reasonable attorneys' fees) incurred in
connection with the aforesaid operations and all amounts necessary to pay
the taxes, assessments, insurance and other charges in connection with the
Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the
amount thereof, including costs, expenses and reasonable attorneys' fees
shall be secured hereby, and Mortgagor shall reimburse Mortgagee therefor
immediately upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee, or
any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender
possession to Mortgagee of
-18-
<PAGE>
the Mortgaged Property or to such receiver and, in default thereof, evict
Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged
Property.
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Document;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way
-19-
<PAGE>
be considered a waiver of any rights, benefits or remedies evidenced or provided
by this Mortgage or the other Relevant Documents. The failure of Mortgagee to
exercise any right, remedy or option provided in this Mortgage or the other
Relevant Documents shall not be deemed a waiver of such right, remedy or option
or of any covenant or obligation secured by this Mortgage or the other Relevant
Documents. Subject to the provisions of the Relevant Documents, no acceptance
by Mortgagee of any payment after the occurrence of any Event of Default and no
payment by Mortgagee of any obligation for which Mortgagor is liable hereunder
shall be deemed to waive or cure any Event of Default with respect to Mortgagor,
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Mortgaged Property, no forbearance on the part of Mortgagee and no
extension of time for the payment of the whole or any portion of the Obligations
or any other indulgence given by Mortgagee to Mortgagor, shall operate to
release or in any manner affect the interest of Mortgagee in the remaining
Mortgaged Property or the liability of Mortgagor to pay the Obligations. No
waiver by Mortgagee shall be effective, unless it is in writing and then only to
the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Mortgagee in any
litigation or proceeding affecting this Mortgage, including, but not limited to,
bankruptcy proceedings or preparations for the commencement or defense of any
proceeding or threatened suit or proceeding, shall be immediately due and
payable by Mortgagor and shall be secured by this Mortgage.
-20-
<PAGE>
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage and a "security agreement" within the meaning of the Uniform Commercial
Code. The Mortgaged Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted and hereby grants to Mortgagee, as security for the
Obligations, a security interest in the Mortgaged Property to the full extent
that the Mortgaged Property may be subject to the Uniform Commercial Code (said
portion of the Mortgaged Property so subject to the Uniform Commercial Code
being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees with
Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to
-21-
<PAGE>
Mortgagor at least ten (10) business days prior to such action or such notice as
is otherwise required by law or the Relevant Documents, shall constitute
commercially reasonable notice to Mortgagor. The proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Mortgagee to the payment
of the Obligations in such priority and proportions as Mortgagee shall determine
in its sole discretion. In the event of any change in name, identity or
structure of Mortgagor, Mortgagor shall notify Mortgagee thereof and, promptly
after request, shall execute, file and record such Uniform Commercial Code forms
as are necessary to maintain the priority of Mortgagee's lien upon and security
interest in the Collateral, and shall pay all expenses and fees in connection
with the filing and recording thereof. If Mortgagee shall require the filing or
recording of additional Uniform Commercial Code forms or continuation
statements, Mortgagor shall, promptly after request, execute, file and record
such Uniform Commercial Code forms or continuation statements as Mortgagee shall
deem necessary, and shall pay all expenses and fees in connection with the
filing and recording thereof, it being understood and agreed, however, that no
such additional documents shall materially increase Mortgagor's obligations
under this Mortgage or the other Relevant Documents. Mortgagor hereby
irrevocably appoints Mortgagee as its attorney-in-fact, coupled with an
interest, to file with the appropriate public office on its behalf any UCC
financing statements (or related documents) signed only by Mortgagee, as secured
party, in connection with the Collateral covered by this Mortgage, such
appointment to terminate upon the release of this Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's
-22-
<PAGE>
or vendor's lien or right thereto shall not constitute a violation of this
Section if payment is not yet due under the contract which is the foundation
thereof. Notwithstanding the foregoing, Mortgagor shall not be in default for
failure to pay or discharge Impositions or mechanic's or materialman's or
similar lien asserted against the Mortgaged Property if, and so long as, (a)
Mortgagor shall have notified Mortgagee of same within seven (7) days of
obtaining knowledge thereof; (b) Mortgagor shall diligently and in good faith
contest the same by appropriate legal proceedings which shall operate to prevent
the enforcement or collection of the same and the sale of the Mortgaged Property
or any part thereof, to satisfy the same; (c) unless funds are otherwise
reserved, Mortgagor shall furnish to Mortgagee such security as Mortgagee may
reasonably request to insure payment of such Impositions and to secure and
indemnify Mortgagee against any cost, expense, loss or damage in connection with
such contest or postponement of payment,; (d) Mortgagor shall timely upon final
determination thereof pay the amount of any such Impositions, claim, fine or
penalty so determined, together with all costs, interest and penalties which may
be payable in connection therewith; (e) the failure to pay the Impositions, or
mechanic's or materialman's or similar lien claim does not constitute a default
under any other deed of trust, mortgage or security interest covering or
affecting any part of the Mortgaged Property; and (f) notwithstanding the
foregoing, Mortgagor shall immediately upon request of Mortgagee pay (and if
Mortgagor shall fail so to do, Mortgagee may, but shall not be required to, pay
or cause to be discharged or bonded against) any such Impositions, or claim
notwithstanding such contest, if in the reasonable opinion of Mortgagee, the
Mortgaged Property or any part thereof or interest therein may be in imminent
danger of being sold, forfeited, foreclosed, terminated, canceled or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested.
-23-
<PAGE>
Notice by commercial messenger or courier service will be deemed to have been
given on the day when delivered before 4:00 p.m. on a business day in the city
in which notice is delivered, provided that payment for the cost of delivery is
not requested of the recipient. Notice by mail shall be given by registered or
certified U.S. Mail, return receipt requested. Delivery of notice by commercial
messenger or courier service or mail shall be assumed if acceptance of delivery
is refused. Notice may be given by fax but will only be treated as delivered
hereunder if: (x) sent between the hours of 9:00 a.m. and 5:00 p.m. (based on
local time at the destination); and (y) receipt is acknowledged by fax and
delivery will be deemed to have been given on the date the fax acknowledgment is
sent. Notices shall be delivered as follows or at such other place as either
party hereto may by notice in writing (given in accordance with this Section 32)
designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any
-24-
<PAGE>
covenant hereof without prejudice to the right of Mortgagee thereafter to
foreclosure this Mortgage. The rights and remedies of Mortgagee under this
Mortgage shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Mortgagee shall be construed
as an election to proceed under any one provision herein to the exclusion of any
other provision. Mortgagee shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
-25-
<PAGE>
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK AND THE COMMONWEALTH OF PENNSYLVANIA WITH
RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING UNDER
THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY
-26-
<PAGE>
NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF ANY OF THE
AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR
TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST MORTGAGOR IN ANY
JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
-27-
<PAGE>
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to
-28-
<PAGE>
the extent that Mortgagor is not so qualified or in good standing in such State,
Mortgagor shall promptly qualify to do business and become in good standing in
such State and shall promptly present evidence of such qualification to do
business and good standing to Mortgagee, and shall in any event take such steps
as are necessary to insure the enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
IN WITNESS WHEREOF, this Mortgage has been duly executed under seal by
Mortgagor as of the day and year first above written.
MORTGAGOR:
WITNESS: DISCOVERY ZONE, INC., a
Delaware corporation
/s/ Scott Bernstein By:/s/ Robert G. Rooney
- ------------------------- -----------------------
Name: Scott Bernstein Name: Robert G. Rooney
President Title: Senior Vice President
[Corporate Seal]
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
BEFORE ME, the undersigned Notary Public, personally appeared Robert
G. Rooney, known to me (or satisfactorily proven) to be the person who executed
the foregoing document, who, having been duly sworn in accordance with law,
acknowledged himself to be Senior Vice President of DISCOVERY ZONE, INC., a
Delaware corporation, and that, being duly authorized to do so, he executed the
foregoing instrument for and on behalf of said corporation.
WITNESS my hand and seal this 28th day of July, 1997.
[Notarial Seal]
/s/ Mark D. Woodward
---------------------------
Notary Public
[Notary Seal]
My commission expires: _______
<PAGE>
Philadelphia
Philadelphia County, Pennsylvania
EXHIBIT A
ALL THAT CERTAIN lot or piece of ground. Situate in the 66th Ward of the City
of Philadelphia, Commonwealth of Pennsylvania and described in accordance with
ALTA/ACSM Land Title Survey of Parcel M-7R made for Leaps and Bounds Inc. by
Pennoni Associates Inc. dated May 18, 1993, as follows, to wit:
BEGINNING at a point the following course and distance from a point being the
intersection of the extended Easterlymost right-of-way line of Woodhaven Road
(State Highway 0063) (variable width) and the extended Southerlymost line of
Knights Road (State Highway 1015) (100' wide):
(A) North 53 degrees, 47 minutes, 12 seconds East a distance of 3943.48 feet to
the aforementioned point of beginning.
Thence (1) North 50 degrees, 54 minutes, 30 seconds East a distance of 326.52
feet to a point;
Thence (2) North 41 degrees, 17 minutes, 20 seconds West a distance of 338.54
feet to a point;
Thence (3) North 89 degrees, 35 minutes, 24 seconds West a distance of 64.92
feet to a point on the Southerly line of Knights Road (State Highway 1015);
Thence (4) along said line North 40 degrees, 12 minutes, 51 seconds East, a
distance of 1.29 feet to a point of curvature.
Thence (5) along the same, on a curve to the left having a radius of 1478.86
feet, an arc length of 98.72 feet to a point;
Thence (6) leaving said line of Knights Road, South 41 degrees, 17 minutes, 20
seconds East a distance of 573.53 feet to a point;
Thence (7) South 49 degrees, 00 minutes, 00 seconds West a distance of 42.97
feet to a point;
Thence (8) South 51 degrees, 30 minutes, 36 seconds East a distance of 134.72
feet to a point of curvature;
Thence (9) on a curve to the right having a radius of 329.04 feet, an arc length
of 136.57 feet, and a chord which bears South 31 degrees, 29 minutes, 05 seconds
East, to a point;
Thence (10) South 88 degrees, 40 minutes, 00 seconds West a distance of 444.08
feet to a point;
Thence (11) North 39 degrees, 05 minutes, 30 seconds West a distance of 167.21
** CONTINUED **
<PAGE>
Philadelphia
Philadelphia County, Pennsylvania
EXHIBIT A
(continued)
feet to the first mentioned point of beginning.
BEING NO. 4301 Byberry Road.
PROPERTY ADDRESS: 4301 Byberry Road Unit M-7R
BRT TAX NUMBER: 88-2-6932-00
REGISTRY NUMBER: 155 N 23 LOT 198
WARD: 66TH
Together with all rights and subject to all conditions contained within that
certain Master Declaration and Agreement of Easements, Covenants, Conditions
and Restrictions between Liberty Mills Limited Partnership and Liberty Mills
Residual Limited Partnership dated 6/28/1988 and recorded 6/30/1988 in Deed
Book FHS 1111 page 508, as amended by First Amendment to Master Declaration
and Agreement of Easements, Covenants, Conditions and Restrictions dated
2/5/1990 and recorded 3/12/1990 in Deed Book FHS 1576 page 347.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Mortgage. If any conflict or inconsistency exists between this
Exhibit B and the remainder of the attached Mortgage, this Exhibit B shall
govern.
A. CERTIFICATE OF RESIDENCE.
I, the undersigned, hereby certify that the precise address of
Mortgagee is Two International Place, Boston, Massachusetts 02110.
For Mortgagee:
/s/ Neal S. Smoler
-------------------------
Name: Neal S. Smoler
Title: Shareholder
Anderson Kill & Olick, P.C.
B-1
<PAGE>
Exhibit 4.20
DISCOVERY ZONE, INC.
(Mortgagor),
to
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Mortgagee)
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
<PAGE>
THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "MORTGAGE"), made as of the 29th day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("MORTGAGOR"), having its
principal place of business at One Corporate Center, 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301 to STATE STREET BANK AND TRUST
COMPANY, solely in its capacity as trustee and collateral agent under and
pursuant to that certain Indenture, dated July 22, 1997, among Discovery
Zone, Inc., State Street Bank and Trust Company, as trustee, and the
Subsidiary Guarantors named therein, its successors and assigns
("MORTGAGEE"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Mortgagor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Mortgagor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Mortgagor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Mortgagor and Mortgagee have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Mortgagor is entering into this Mortgage pursuant to its
obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Mortgagor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, with reference to the foregoing recitals and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Mortgagor and Mortgagee hereby agree as follows:
-1-
<PAGE>
For the purpose of securing the payment and performance of all of the
obligations (the "OBLIGATIONS") of Mortgagor, including without limitation, any
and all obligations of Mortgagor under this Mortgage, the Notes, the Indenture,
and all other documents evidencing or securing any such Obligations including,
without limitation, the Relevant Documents. Mortgagor by these presents does
hereby mortgage, give, grant, bargain, sell, alienate, enfeoff, convey, confirm,
warrant, pledge, assign and hypothecate unto Mortgagee, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Mortgagor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Mortgagor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Mortgagor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "MORTGAGED
PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Mortgagor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Mortgagor or in which Mortgagor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Mortgaged Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Mortgaged Property, of
every kind and nature whatsoever now owned or hereafter acquired by Mortgagor,
and all proceeds thereof, as well as all additions to, appurtenances,
substitutions for, replacements of or accessions to any of the items recited as
aforesaid and all attachments, components, parts (including spare parts) and
accessories, whether installed thereon or affixed thereto, now or hereafter
owned by Mortgagor and used or intended to be used in connection with, or with
-2-
<PAGE>
the operation of, the Mortgaged Property, to the extent constituting real
property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Mortgaged Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Mortgaged Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), lettings, licenses, concessions, occupancy agreements and other
agreements which grant a possessory interest in, or the right to use or occupy,
all or any part of the Mortgaged Property now or hereafter entered into, and all
amendments, extensions, renewals and guarantees thereof, and all security
therefor (collectively, the "LEASES") and all rents, issues, profits, revenues
(including all oil and gas or other mineral royalties and bonuses), deposits
(including, without limitation, security deposits) under the Leases (including,
without limitation, from the rental of any office space, retail space or other
space, halls, stores, and offices, and deposits securing reservations of such
space, exhibit or sales space of every kind, license, lease, sublease, fees and
rentals, letters of credit or cash instruments securing or evidencing
obligations under Leases, service charges, vending machine sales and proceeds,
if any, from business interruption or other loss of income insurance))
(collectively, the "RENTS") and all proceeds from the sale or other disposition
of the Leases and the right to receive and apply the Rents to the payment of the
Obligations;
(e) subject to the rights of Mortgagor hereunder, all proceeds of any
insurance policies covering the Mortgaged Property (including, without
limitation, the right to receive and apply the proceeds of any insurance,
judgments, or settlements made in lieu thereof, for damage to the Mortgaged
Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Mortgagor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Mortgaged Property, and
all of the records and books of account now or hereafter maintained by or on
behalf of Mortgagor in connection with the operation of the Mortgaged Property
(collectively, "SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in exchange for any or all of the Mortgaged Property, (ii) the
collection or other disposition of, or realization upon, any item or portion of
the Mortgaged Property (including, without limitation, all claims of Mortgagor
against third parties for loss of, damage to, destruction of, or for
-3-
<PAGE>
proceeds payable under policies of insurance in respect of, the Mortgaged
Property now existing or hereafter arising), (iii) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Mortgagor from time to
time with respect to damage or loss of or to any of the Mortgaged Property, (iv)
any and all payments (in any form whatsoever) made or due and payable to
Mortgagor from time to time in connection with the requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Mortgaged Property
by any Governmental Authority (or any person acting under color of Governmental
Authority), and (v) any and all real estate tax refunds payable to Mortgagor
with respect to the Mortgaged Property, and refunds or reimbursements payable
with respect to bonds, escrow accounts, or other sums payable in connection with
the use, development or ownership of the Mortgaged Property (collectively, the
"PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Mortgaged Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the
Mortgaged Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Mortgaged Property
unto and to the use and benefit of Mortgagee, and its successor and assigns,
forever, and Mortgagor does hereby bind itself, its successors and assigns to
WARRANT AND FOREVER DEFEND the title to the Mortgaged Property unto Mortgagee
and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS MORTGAGE, Mortgagor represents
and warrants to and covenants and agrees with Mortgagee as follows:
1. DEFINED TERMS. The following terms, when used herein, shall
have the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
-4-
<PAGE>
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Mortgage), ground rents, water,
sewer or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental impositions and other charges (including, without
limitation, vault charges and license fees for the use of vaults, chutes and
similar areas adjoining the Mortgaged Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Mortgaged Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Mortgagor (including, without limitation, all income, franchise,
single business or other taxes imposed on Mortgagor for the privilege of doing
business in the jurisdiction in which the Mortgaged Property is located),
(ii) the Mortgaged Property, or any part thereof or any revenues therefrom or
any estate, right, title or interest therein, or (iii) any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Mortgaged Property by Mortgagor or the leasing or use of the Mortgaged
Property or any part thereof by Mortgagor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the
Mortgaged Property or any part thereof which, in the case of this clause (iii),
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or in any material way limit or restrict the existing use and
enjoyment thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Mortgaged Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Mortgagor will pay the Obligations at the time and in the
manner provided in the Relevant Documents and in this Mortgage. All the
representations, warranties, covenants, conditions and agreements of Mortgagor
contained in the Relevant Documents are hereby made a part of this Mortgage to
the same extent and with the same force as if fully set forth herein. If there
shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Mortgage and the terms, covenants, conditions and
provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Mortgagor warrants that Mortgagor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Mortgaged Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Mortgage and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Mortgaged
Property and that Mortgagor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Mortgaged Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Mortgagee and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Mortgage (collectively, the "PERMITTED ENCUMBRANCES") and
that this Mortgage is and will remain a valid and enforceable first lien on and
security interest in the Mortgaged Property, subject
-6-
<PAGE>
only to the Permitted Encumbrances. Mortgagor shall forever warrant, defend and
preserve such title and the validity and priority of the lien of this Mortgage
and shall forever warrant and defend the same to Mortgagee against the claims of
all persons whomsoever.
4. TAXES. Mortgagor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Mortgaged Property when due and shall, upon written request, furnish to
Mortgagee duplicate receipts therefor, Mortgagor may, in good faith and with
reasonable diligence, contest the validity or amount of any such taxes or
assessments provided that such contest shall have the effect of preventing the
collection of the tax or assessment so contested and the sale or forfeiture of
said Mortgaged Property or any part thereof, or any interest therein, to satisfy
the same.
5. INDEMNIFICATION. Mortgagor shall indemnify, defend and hold
harmless Mortgagee from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Mortgaged Property, arising from: (i)
Mortgagor's use of the Property or from the conduct of its business in or about
the Mortgaged Property; (ii) Mortgagor's default or breach of any term under
this Mortgage; and (iii) Mortgagor's violation or failure to comply with any
Legal Requirements, including Environmental Laws; provided that Mortgagor shall
not be liable for Loss arising from Mortgagee's negligence or willful misconduct
or from Mortgagee's breach of any of its obligations hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE MORTGAGED PROPERTY. Subject to
Section 50 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Mortgagor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Mortgaged Property or any part
thereof or any of its interest therein. Mortgagee shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Obligations immediately due and
payable upon Mortgagor's conveyance, alienation, mortgage, encumbrance, pledge
or transfer of the Mortgaged Property in violation of this Mortgage or any other
Relevant Document. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Mortgaged Property
that is not permitted pursuant to the Relevant Documents, regardless of whether
voluntary or not, or whether or not Mortgagee has consented to any previous
sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Mortgaged Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Mortgagor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Mortgagor does hereby absolutely
and unconditionally assign to Mortgagee, Mortgagor's right, title and interest
in all current and future Leases and Rents, it being intended by Mortgagor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Mortgagee shall not be
construed to bind Mortgagee to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Mortgagee. Mortgagee shall have no responsibility on account of
this assignment for the control, care, maintenance, management or repair of the
Mortgaged Property, for any dangerous or defective condition of the Mortgaged
Property, or for any negligence in the management, upkeep, repair or control of
the Mortgaged Property. Mortgagor agrees to execute and deliver to Mortgagee
such additional instruments, in form and substance satisfactory to Mortgagee, as
may hereafter be requested by Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this paragraph, Mortgagee
grants to Mortgagor a revocable license to collect all of the Rents and retain,
use and enjoy the same and otherwise exercise all rights of Mortgagor under any
Lease, in each case, subject to the terms hereof and of the Relevant Documents.
Upon an Event of Default (hereinafter defined), the license granted to Mortgagor
herein shall immediately and automatically be revoked, and Mortgagee shall
immediately be entitled to possession of all Rents, whether or not Mortgagee
enters upon or takes control of the Mortgaged Property, provided that if such
Event of Default ceases to exist, the license shall automatically be reinstated.
In addition, during the continuation of an Event of Default, Mortgagee may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Mortgaged Property in its own name, and in addition to and without limiting any
of Mortgagee's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Mortgagee and
that all Rents are to be paid directly to Mortgagee, whether or not Mortgagee
has commenced or completed foreclosure or taken possession of the Mortgaged
Property; (b) settle, compromise, release, extend the time of payment of, and
make allowances, adjustments and discounts of any Rents or other obligations in,
to and under the Leases; (c) demand, sue for or otherwise collect, receive, and
enforce payment of Rents, including those past-due and unpaid and other rights
under the Leases, prosecute any action or proceeding, and defend against any
claim with respect to the Rents and Leases; (d) enter upon, take possession of
and operate the Mortgaged Property; (e) lease all or any part of the Mortgaged
Property; and/or (f) perform any and all obligations of Mortgagor under the
Leases and exercise any and all rights of Mortgagor therein contained to the
full extent of Mortgagor's rights and obligations thereunder, with or without
the bringing of any action or the appointment of a receiver and without need for
any other authorization or other action by Mortgagee or Mortgagor. At
Mortgagee's request, Mortgagor shall deliver a copy of this assignment to each
tenant under a Lease and to each manager and managing agent or operator of the
Mortgaged Property. Mortgagor irrevocably
-8-
<PAGE>
directs any tenant, manager, managing agent, or operator of the Property,
without any requirement for notice to or consent by Mortgagor, to comply with
all demands of Mortgagee under this Section 8 and to turn over to Mortgagee on
demand all Rents which it receives. Mortgagor hereby acknowledges and agrees
that payment of any Rents by a person to Mortgagee as hereinabove provided shall
constitute payment by such person, as fully and with the same effect as if such
Rents had been paid to Mortgagor. Mortgagee is hereby granted and assigned by
Mortgagor the right, at its option, upon revocation of the license granted
herein, to enter upon the Mortgaged Property in person or by agent, without
bringing any action or proceeding, or by court-appointed receiver to collect the
Rents. Any Rents collected after the revocation of the license shall be applied
towards the payment of the Obligations. Neither the enforcement of any of the
remedies under this Section 8 nor any other remedies or security interests
afforded to Mortgagee under the Relevant Documents, at law or in equity shall
cause Mortgagee to be deemed or construed to be a Mortgagee in possession of the
Mortgaged Property, to obligate Mortgagee to lease the Mortgaged Property or
attempt to do so, or to take any action, incur any expense, or perform or
discharge any obligation, duty or liability whatsoever under any of the Leases
or otherwise. Mortgagor shall, and hereby agrees to indemnify Mortgagee for, and
to hold Mortgagee harmless from and against, any and all claims, liability,
expenses, losses or damages which may or might be asserted against or incurred
by Mortgagee solely by reason of Mortgagee's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Mortgagee's gross negligence or willful misconduct, or
(b) to the extent arising solely from Mortgagee's actions after Mortgagee has
taken possession of the Mortgaged Property. Should Mortgagee incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand. Mortgagor agrees that all Leases shall be subject to the prior
written approval of Mortgagee, such approval not to be unreasonably withheld.
9. MAINTENANCE OF MORTGAGED PROPERTY. Mortgagor shall cause the
Mortgaged Property to be maintained in a good and safe condition and repair
(subject to ordinary wear and tear), and shall otherwise operate and maintain
the Mortgaged Property in a manner consistent with the manner in which it
operates and maintains the other properties on which it operates similar
businesses ("SIMILAR PROPERTIES"). Except as otherwise permitted by the
Relevant Documents, the Improvements, the Fixtures and the equipment located on
the Land or the Improvements shall not be removed, demolished or materially
altered (except for normal replacement of equipment) without the consent of
Mortgagee which shall not unreasonably be withheld or delayed. Mortgagor shall
comply with all laws, orders and ordinances affecting the Mortgaged Property, or
the use thereof. Except to the extent that Mortgagee fails to turn over
insurance proceeds, if any, received by Mortgagee pursuant to Sections 10 and 11
with respect to the Mortgaged Property to Mortgagor, Mortgagor shall promptly
repair, replace or rebuild any part of the Mortgaged Property that, following
the date hereof, becomes damaged, worn or dilapidated and Mortgagor shall
complete and pay for any structure at any time in the process of construction or
repair on the
-9-
<PAGE>
Land. Notwithstanding anything to the contrary contained herein, Mortgagor
hereby confirms its obligation to comply with all relevant Legal Requirements,
including Environmental Laws, with respect to the Mortgaged Property. Mortgagor
shall not initiate, join in, acquiesce in, or consent to any change in any
private restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Mortgaged Property or any
part thereof, unless Mortgagor shall have received Mortgagee's prior written
consent, such consent not to be unreasonably withheld or delayed. If under
applicable zoning provisions the use of all or any portion of the Mortgaged
Property is or shall become a nonconforming use, Mortgagor will not cause such
nonconforming use to be discontinued or abandoned without the express written
consent of Mortgagee, such consent not to be unreasonably withheld or delayed.
Mortgagor shall not (i) change the use of the Land in any material respect or
(ii) permit or suffer to occur any waste on or to the Mortgaged Property or to
any portion thereof.
10. INSURANCE. (a) Mortgagor shall maintain casualty, liability
and other policies of insurance relating to the Mortgaged Property in form and
substance, and with insurers and coverages, reasonably satisfactory to Mortgagee
and consistent with insurance that it maintains on Similar Properties.
Mortgagor shall keep the Mortgaged Property insured against loss by flood if the
Mortgaged Property is located in an area identified by the Secretary of Housing
and Urban Development as an area having a special flood hazards and in which
flood insurance has been made available under the National Flood Insurance Act
of 1968 (or any successor act thereto). All policies of insurance to be
furnished hereunder (i) shall have standard non-contributory Mortgagee clauses
attached to all policies in favor of Mortgagee, without contribution, under a
standard New York (or local equivalent) Mortgagee clause naming Mortgagee as the
party to which all payments made under such insurance policies in excess of
$150,000 should be paid, (ii) shall contain an endorsement providing that
neither Mortgagor nor Mortgagee nor any other party shall be a co-insurer under
said policies and shall contain a provision requiring that the coverage
evidenced thereby shall not be terminated or materially modified without ten
(10) days prior written notice to Mortgagee, (iii) shall provide that no act or
thing done by Mortgagor shall invalidate the policy as against Mortgagee, and
(iv) with respect to property insurance policies, shall contain a waiver of
subrogation against Mortgagee. Mortgagor shall deliver certificates evidencing
additional and renewal policies, together with evidence of payment of premiums
thereon, to Mortgagee, and in the case of all insurance about to expire, shall
deliver renewal policies or certificates evidencing such policies not less than
ten (10) days prior to their respective dates of expiration.
(b) Mortgagor shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
hereunder unless Mortgagee is included thereon under a standard, non-
contributory Mortgagee clause acceptable to Mortgagee. Mortgagor shall promptly
notify Mortgagee whenever any such separate insurance is taken out and shall
promptly deliver to Mortgagee the certificates evidencing the policy or policies
of such insurance.
-10-
<PAGE>
(c) The insurance required by this Mortgage, at the option of
Mortgagor, may be effected by blanket and/or umbrella policies covering the
Mortgaged Property and other properties, provided, however, that in each case,
such insurance policies otherwise comply with the provisions of this Mortgage
and allocate to the Mortgaged Property, from time to time, the coverage
specified in this Mortgage without possibility of reduction or co-insurance by
reason of, or damage to, any other property named therein. If the insurance
required by this Mortgage shall be effected by any such blanket or umbrella
policies, Mortgagor shall furnish to Mortgagee certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Mortgaged Property.
(d) If Mortgagor fails to maintain insurance in compliance with this
Section, Mortgagee may obtain such insurance and pay the premium therefor and
Mortgagor shall, on demand, reimburse Mortgagee for all expenses incurred in
connection therewith. Mortgagor shall deliver original certificates to Mortgagee
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Mortgagee as Mortgagee, and loss payee with respect
to all casualty coverage and each liability policy shall name Mortgagee as an
additional insured thereunder.
11. CASUALTY. (a) Mortgagor shall give Mortgagee prompt notice of
any loss or damage to the Mortgaged Property.
(b) In case of loss or damage to the Mortgaged Property covered by
any of the insurance policies described in Section 10 above, Mortgagee (or,
after entry of decree of foreclosure, the purchaser at the foreclosure sale or
decree creditor, as the case may be) is hereby authorized at its option either
(i) to settle and adjust any claim under such insurance policies without the
consent of Mortgagor or (ii) to allow Mortgagor to settle and adjust such claim
(either jointly with Mortgagee or by Mortgagor alone, at Mortgagee's
discretion); provided that in either case Mortgagee shall, and is hereby
authorized to, collect and receipt for any such insurance proceeds.
Notwithstanding anything in the preceding sentence to the contrary, Mortgagee
agrees that it will allow Mortgagor to settle and adjust any claims under the
insurance policies which are in an amount less than $150,000, per incident of
loss, up to an aggregate amount of no greater than $300,000. The expenses
incurred by Mortgagee in the adjustment and collection of insurance proceeds
shall be included in the Obligations, and shall be reimbursed to Mortgagee upon
demand or may be deducted by Mortgagee from said insurance proceeds prior to
another application thereof. Interest on such amount shall accrue at the rate
of thirteen and one-half percent (13.5%) per annum, beginning ten (10) days
after Mortgagor receives notice of a request for payment of such amount from
Mortgagee, until such amount, plus interest, is paid in full.
(c) Mortgagee shall permit Mortgagor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the
Mortgaged Property resulting from the casualty ("RESTORATION") if: (i) there is
no Event of Default hereunder at the time of such
-11-
<PAGE>
application; (ii) restoration can, in the reasonable judgment of Mortgagee, be
completed prior to the maturity of the Obligations; and (iii) restoration can,
in the reasonable judgment of Mortgagee, be effected within two (2) years after
the date of such casualty and in such a manner so that the Mortgaged Property
will be of at least equal or greater value to the value than the Mortgaged
Property prior to such casualty. Otherwise, Mortgagee may elect in its sole
discretion to apply such proceeds either (x) towards payment of the Obligations,
notwithstanding the fact that the Obligations, or a portion thereof, may not
then be due and payable, or (y) to pay for the cost of Restoration. In all
events, disbursement of insurance proceeds by Mortgagee (or at Mortgagee's
election by a disbursing or escrow agent who shall be selected by Mortgagee and
whose fees shall be paid by Mortgagor), to pay the cost of restoration shall
require (i) evidence reasonably satisfactory to Mortgagee of the estimated costs
of Restoration, (ii) funds (or assurances reasonably satisfactory to Mortgagee
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Mortgagee may reasonably require and approve. Except to the
extent Mortgagee fails to turn over insurance proceeds, if any, received by
Mortgagee hereunder with respect to such casualty to Mortgagor, Mortgagor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Mortgagee, and
Mortgagor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Mortgagor warrants, covenants and agrees that
should the Mortgaged Property, or any part thereof or interest therein, be taken
or damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Mortgagor receive any notice of other information
regarding such proceeding, Mortgagor shall give written notice thereof within
five (5) business days to Mortgagee. Without Mortgagee's prior consent,
Mortgagor (1) shall not agree to any compensation or award, and (2) shall not
take any action or fail to take any action which would cause the compensation to
be determined. Mortgagee shall be entitled to: (1) all compensation, awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Mortgagor authorizes
Mortgagee to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Mortgagee's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Mortgaged Property in accordance with the provisions set
forth in the penultimate sentence of Section 11(c) above. Mortgagor further
agrees to make, execute, and deliver to Mortgagee, at any time upon request,
free and clear of any encumbrance of any kind whatsoever, any and all further
assignments and other instruments deemed necessary by Mortgagee for the purpose
of validly and sufficiently assigning all
-12-
<PAGE>
compensations and awards made to Mortgagor for any taking, either permanent or
temporary, under any such proceeding.
13. RELEASE OF MORTGAGE. Mortgagee agrees to promptly and
unconditionally release this Mortgage as follows:
(a) in the event of a bona fide sale (other than a "SALE LEASEBACK"
or other similar financing transaction) of the Mortgaged Property to a third
party that is not affiliated with Mortgagor, provided that both of the following
conditions are satisfied: (i) neither Mortgagor nor any of its respective
affiliates continue to use or occupy the Mortgaged Property or any part thereof;
(ii) Mortgagor shall consult with Mortgagee prior to such sale and shall obtain
Mortgagee's prior written consent with respect to such sale and the sales price
(such consent not to be unreasonably withheld); and (iii) all of the proceeds of
such sale are applied towards repayment of the Obligations, notwithstanding the
fact that the Obligations, or a portion thereof, may not then be due and
payable.
(b) in the event that Mortgagee is paid in full for all amounts owing
to Mortgagee by Mortgagor and any of its former affiliated debtors, including
the indefeasible payment in full of the Obligations, and no amount is then owing
by one or more of the foregoing to Mortgagee pursuant to the Indenture, the
Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Mortgage which imposes a tax, either
directly or indirectly, on the Obligations or Mortgagee's interest in the
Mortgaged Property, Mortgagor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Mortgagor shall not be obligated to pay
any tax which is imposed on the net income of Mortgagee or franchise taxes or
doing business taxes imposed on Mortgagee. In the event that the payment of
such tax or interest and penalties by Mortgagor would be unlawful or taxable to
Mortgagee or unenforceable or provide the basis for a defense of usury, then in
any such event, Mortgagee shall have the option, by written notice of not less
than ninety (90) days, to declare the Obligations immediately due and payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Mortgagor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Mortgaged
Property, or any part thereof, and (ii) no deduction shall otherwise be made or
claimed from the assessed value of the Mortgaged Property, or any part hereof,
for real estate tax purposes by reason of this Mortgage or the Obligations if
the effect of such deduction would impose on Mortgagee a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be
-13-
<PAGE>
affixed to the Notes or this Mortgage, or impose any other tax or charge on the
same, Mortgagor will pay for the same, with interest and penalties thereon, if
any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Mortgagor and Mortgagee at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Mortgagee to contract for, charge, take, reserve, or receive a greater amount of
interest than under state law) and that this Section shall control every other
covenant and agreement in this Mortgage and the other Relevant Documents. If
the applicable law (state or federal) is ever judicially interpreted so as to
render usurious any amount called for under the Notes or under any of the other
Relevant Documents, or contracted for, charged, taken, reserved, or received
with respect to the Obligations, or if Mortgagee's exercise of the option to
accelerate the maturity of the Notes, or if any prepayment by Mortgagor results
in Mortgagor having paid any interest in excess of that permitted by applicable
law, then it is Mortgagor's and Mortgagee's express intent that all excess
amounts theretofore collected by Mortgagee shall be credited on the principal
balance of the Notes and all other Obligations (or, if the Notes and all other
Obligations have been or would thereby be paid in full, refunded to Mortgagor),
and the provisions of the Notes and the other Relevant Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new documents, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid or agreed to
be paid to Mortgagee for the use, forbearance, or detention of the Obligations
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the Obligations until
payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum rate of interest permitted by law from
time to time in effect and applicable to the Obligations for so long as the
Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Mortgagor shall observe and
perform in all respects the terms to be observed or performed by Mortgagor under
any agreement or recorded instrument affecting or pertaining to the Mortgaged
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Mortgagee shall have the right, but
not the obligation, to cure such default in the name and on behalf of Mortgagor.
All sums advanced and expenses incurred at any time by Mortgagee under this
Section 19, or otherwise under this Mortgage or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Mortgagee and its agents incurred in connection with the
preservation, collection and enforcement of this Mortgage or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Mortgage and Mortgagor covenants and agrees to pay
them to the order of the Mortgagee promptly upon demand.
-14-
<PAGE>
20. FURTHER ACTS, ETC. Mortgagor will, at the cost of Mortgagor, and
without expense to Mortgagee, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignment, Uniform Commercial Code financing statements or continuation
statements, transfers and assurances as Mortgagee shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Mortgagee the property and rights hereby mortgaged, given,
granted, bargained, sold, alienated, enfeoffed, conveyed, confirmed, warranted,
pledged, assigned and hypothecated (including, without limitation, the
assignment of leases and rents contained in Section 8 hereof) or intended now or
hereafter so to be, or which Mortgagor may be or may hereafter become bound to
convey or assign to Mortgagee, or for carrying out the intention or facilitating
the performance of the terms of this Mortgage or for filing, registering or
recording this Mortgage. Mortgagor, on demand, will execute and deliver and,
Mortgagor hereby authorizes Mortgagee to execute in the name of Mortgagor or
without the signature of Mortgagor to the extent Mortgagee may lawfully do so,
one or more financing statements, chattel mortgages or other instruments, to
evidence more effectively the security interest of Mortgagee in the Mortgaged
Property. Notwithstanding anything to the contrary contained herein, Mortgagor
shall not be obligated to execute, deliver, file or record any additional
documents which increase Mortgagor's obligations under this Mortgage or the
Relevant Documents. Mortgagor grants to Mortgagee an irrevocable power of
attorney coupled with an interest for the purpose of exercising the rights
provided for in Section 19 and this Section 20.
21. RECORDING OF MORTGAGE, ETC. Mortgagor forthwith upon the
execution and delivery of this Mortgage and thereafter, from time to time, will
cause this Mortgage, and any security instrument creating a lien or security
interest or evidencing the lien hereof upon the Mortgaged Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Mortgagee in, the Mortgaged Property.
Mortgagor will pay all filing, registration or recording fees, the costs and
fees of local counsel for Mortgagee including, without limitation, costs and
fees for local counsel review of this Mortgage and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Mortgage, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Mortgaged Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Mortgage, any deed of trust or mortgage
supplemental hereto, any security instrument with respect to the Mortgaged
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Mortgagee), except where prohibited by law so to do. Mortgagor
shall hold harmless and indemnify Mortgagee, its successors and assigns, against
any liability incurred by reason of the imposition of any tax on the making and
recording of this Mortgage. Mortgagor shall pay all title costs and premiums in
connection with the ALTA lender's title insurance policy issued by Chicago Title
Insurance Company for the benefit of
-15-
<PAGE>
Mortgagee in connection with this Mortgage (including payment for the cost of
any property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Mortgagee
containing such endorsements as Mortgagee may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Mortgagee
shall reasonably require. In the event that any Survey with respect to the
Mortgaged Property reveals any encumbrances, restrictions, building code or
zoning violations or other matters which in Mortgagee's reasonable judgment
materially impair Mortgagee's security interest in the Mortgaged Property,
Mortgagor agrees to cooperate with Mortgagee in performing any acts reasonably
requested by Mortgagee to cause such encumbrances, restrictions, violations or
other matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Mortgagor agrees to give prompt notice
to Mortgagee of the insolvency or bankruptcy filing of Mortgagor. In addition,
Mortgagor will give notice to Mortgagee in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Mortgagor
hereunder, or (ii) notice to Mortgagor of any action, litigation or proceeding
instituted to recover possession of the Mortgaged Property from Mortgagor or for
any other purpose affecting this Mortgage or of any other action, litigation or
proceeding instituted against Mortgagor or judgment rendered against Mortgagor;
and such notice to Mortgagee shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Mortgagor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes, which
remains uncured following the expiration of any applicable cure periods;
(b) Mortgagor (i) shall fail to perform when due any payment
obligation under the terms of this Mortgage or the other Relevant Documents
within ten days after such amount becomes due, or (ii) shall be in violation of
any of the obligations or covenants contained herein or therein and such default
shall continued unremedied for a period of thirty (30) days, provided that if
such default is not readily susceptible of cure in such thirty (30) day period,
and provided that Mortgagor proceeds in a diligent manner to cure such default,
Mortgagor shall have such additional time to effect such cure as shall be
reasonably necessary to effect such cure; or
(c) Failure by Mortgagor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
-16-
<PAGE>
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Mortgaged Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Mortgagee may take such action permitted in law or at equity, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, by Mortgagee itself or
otherwise, including, but not limited to, the following actions, each of which
may be pursued concurrently or otherwise, at such time and in such order as
Mortgagee may determine, in its sole discretion, without impairing or otherwise
affecting the other rights and remedies of Mortgagee:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately due
and payable;
(ii) institute a proceeding or proceedings, judicial or
nonjudicial, by advertisement or otherwise, for the complete foreclosure of this
Mortgage in which case the Mortgaged Property or any interest therein may be
sold for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Mortgaged Property is located;
(iii) with or without entry, to the extent permitted, and
pursuant to the procedures provided by, applicable law, institute proceedings
for the foreclosure of this Mortgage for the Obligations then due and payable
subject to the continuing lien of this Mortgage, in accordance with the laws of
the jurisdiction in which such Mortgaged Property is located, for the balance of
the Obligations not then due;
(iv) sell for cash or upon credit the Mortgaged Property or any
part thereof and all estate, claim, demand, right, title and interest of
Mortgagor therein and rights of redemption thereof, pursuant to power of sale or
otherwise, at one or more sales, as an entirety or in parcels, at such time and
place, upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Mortgaged Property is
located;
(v) institute an action, suit or proceeding in equity for the
specific performance of any covenant, condition or agreement contained herein or
in the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after
any proceedings for the enforcement of this Mortgage;
-17-
<PAGE>
(vii) prior to, concurrently with, or subsequent to the
institution of foreclosure proceedings, apply for the appointment of a trustee,
receiver, liquidator or conservator of the Mortgaged Property, as a matter of
strict right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Mortgagor therein and without regard
for the solvency of the Mortgagor or of any person, firm or other entity liable
for the payment of the Obligations, and Mortgagor hereby consents to such
appointment;
(viii) prior to, concurrently with or subsequent to the
institution of foreclosure proceedings, enforce Mortgagee's interest in the
Leases and Rents and enter into or upon the Mortgaged Property and take
exclusive possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Mortgagor and its agents and servants therefrom, and
thereupon Mortgagee may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Mortgagor, or in its own name and under the powers
herein granted,(A) use, operate, manage, control, insure, maintain, repair,
restore and otherwise deal with all and every part of the Mortgaged Property and
conduct the business thereat; (B) complete any construction on the Mortgaged
Property in such manner and form as Mortgagee deems advisable; (C) make
alterations, additions, renewals, replacements and improvements to or on the
Mortgaged Property; (D) exercise all rights and powers of Mortgagor with respect
to the Mortgaged Property, whether in the name of Mortgagor or otherwise
(including, without limitation, the right to make, cancel, enforce or modify
Leases, obtain and evict tenants, and demand, sue for, collect and receive all
earnings, revenues, rents, issues, profits and other income of the Mortgaged
Property and every part thereof); and (E) apply the receipts from the Mortgaged
Property to the payment of the Obligations, after deducting therefrom all
reasonable expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts necessary
to pay the taxes, assessments, insurance and other charges in connection with
the Mortgaged Property, it being agreed that should Mortgagee incur any
liability, loss or damage in the defense of any claims or demands, the amount
thereof, including costs, expenses and reasonable attorneys' fees shall be
secured hereby, and Mortgagor shall reimburse Mortgagee therefor immediately
upon demand;
(ix) require Mortgagor to pay monthly in advance to Mortgagee, or
any receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Mortgaged Property
occupied by Mortgagor and require Mortgagor to vacate and surrender possession
to Mortgagee of the Mortgaged Property or to such receiver and, in default
thereof, evict Mortgagor by summary proceedings or otherwise; and
(x) pursue such other rights and remedies as may be available
under the Relevant Documents or otherwise at law or in equity or under the
Uniform Commercial Code including the right to establish a lock box for all
Rents and other receivables of Mortgagor relating to the Mortgaged Property.
-18-
<PAGE>
In the event of a sale, by foreclosure or otherwise, of less than all
of the Mortgaged Property, this Mortgage shall continue as a lien on the
remaining portions of the Mortgaged Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Mortgagee under this
Mortgage, whether under the provisions of this Section or otherwise, shall be
applied by Mortgagee in the following order of priority: first, on account of
all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Mortgage, or under the other Relevant Document;
third, any surplus to Mortgagor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Mortgagee may
bid for and acquire the Mortgaged Property or any part thereof and in lieu of
paying cash therefor may make settlement for the purchase price by crediting
upon the Obligations the net sales price after deducting therefrom the expenses
of the sale and costs of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage.
(c) recovery of any judgment by Mortgagee and no levy of an execution
under any judgment upon the Mortgaged Property or upon any other property of
Mortgagor shall affect in any manner or to any extent the lien of this Mortgage
upon the Mortgaged Property or any part thereof, or any liens, rights, powers or
remedies of Mortgagee hereunder, but such liens, rights, powers and remedies of
Mortgagee shall continue unimpaired as before.
(d) Mortgagee may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Mortgagee's sole discretion and without prejudice to Mortgagee.
(e) Mortgagee may resort to any remedies and the security given by
this Mortgage or the other Relevant Documents in whole or in part, and in such
portions and in such order as determined by Mortgagee's sole discretion. No
such action shall in any way be considered a waiver of any rights, benefits or
remedies evidenced or provided by this Mortgage or the other Relevant Documents.
The failure of Mortgagee to exercise any right, remedy or option provided in
this Mortgage or the other Relevant Documents shall not be deemed a waiver of
such right, remedy or option or of any covenant or obligation secured by this
Mortgage or the other Relevant Documents. Subject to the provisions of the
Relevant Documents, no acceptance by Mortgagee of any payment after the
occurrence of any Event of Default and no payment by Mortgagee of any obligation
for which Mortgagor is liable hereunder shall be deemed to waive or cure any
Event of Default with respect to Mortgagor,
-19-
<PAGE>
or Mortgagor's liability to pay such obligation. No sale of all or any portion
of the Mortgaged Property, no forbearance on the part of Mortgagee and no
extension of time for the payment of the whole or any portion of the Obligations
or any other indulgence given by Mortgagee to Mortgagor, shall operate to
release or in any manner affect the interest of Mortgagee in the remaining
Mortgaged Property or the liability of Mortgagor to pay the Obligations. No
waiver by Mortgagee shall be effective, unless it is in writing and then only to
the extent specifically stated.
(f) The interests and rights of Mortgagee under this Mortgage and the
other Relevant Documents, and the liens and security interests created and
evidenced by this Mortgage and the other Relevant Documents, shall not be
impaired by any indulgence, including (i) any renewal, extension or modification
which Mortgagee may grant with respect to any of the Obligations, (ii) any
surrender, compromise, release, renewal, extension, exchange or substitution
which Mortgagee may grant with respect to the Mortgaged Property or any portion
thereof; or (iii) any release or indulgence granted to any maker, endorser,
guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Mortgagee
under this Mortgage, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Mortgagee for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Mortgagee may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Mortgaged Property. All
such reasonable expenditures and expenses which Mortgagee may incur as permitted
by this Section for the protection of the Mortgaged Property and the maintenance
of the lien of this Mortgage, including, but not limited to, the fees and out-
of-pocket disbursements of any attorney employed by Mortgagee in any litigation
or proceeding affecting this Mortgage, including, but not limited to, bankruptcy
proceedings or preparations for the commencement or defense of any proceeding or
threatened suit or proceeding, shall be immediately due and payable by Mortgagor
and shall be secured by this Mortgage.
25. RIGHT OF ACCESS. Mortgagor shall permit agents, representatives
and employees of Mortgagee to (i) inspect the Mortgaged Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Mortgaged Property or violate the terms of any Lease, (ii) to
examine and make abstracts from any of Mortgagor's books and records and (iii)
to discuss the business, operations, properties and financial and other
condition of Mortgagor with officers of Mortgagor and with its independent
certified public accountants, at such reasonable times as may be requested by
Mortgagee upon reasonable advance notice.
-20-
<PAGE>
26. SECURITY AGREEMENT. This Mortgage is both a real property
mortgage and a "security agreement" within the meaning of the Uniform Commercial
Code. The Mortgaged Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Mortgagor in the Mortgaged Property. Mortgagor by executing and delivering this
Mortgage has granted and hereby grants to Mortgagee, as security for the
Obligations, a security interest in the Mortgaged Property to the full extent
that the Mortgaged Property may be subject to the Uniform Commercial Code (said
portion of the Mortgaged Property so subject to the Uniform Commercial Code
being called in this paragraph the "COLLATERAL"). Mortgagor hereby agrees with
Mortgagee to execute and deliver to Mortgagee, in form and substance
satisfactory to Mortgagee, such financing statements and such further assurances
as Mortgagee may from time to time, reasonably consider necessary to create,
perfect, and preserve Mortgagee's security interest herein granted. All or part
of the Mortgaged Property is or is to become "FIXTURES" as defined in the
Uniform Commercial Code, and this Mortgage, upon being filed for record in the
real estate records of the city or county wherein such fixtures are situated,
shall also constitute a "FIXTURE FILING" for the purposes of the Uniform
Commercial Code upon such of the Mortgaged Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Mortgage. Mortgagor's chief executive office and principal
place of business is the Mortgagor's address set forth in the first paragraph of
this Mortgage, and the place where Mortgagor's books and records in respect of
where the Mortgaged Property is located are kept is the address of Mortgagor set
forth in the first paragraph of this Mortgage. If an Event of Default shall
occur which shall remain uncured, Mortgagee, in addition to any other rights and
remedies which it may have, shall have and may exercise immediately and without
demand, any and all rights and remedies granted to a secured party upon default
under the Uniform Commercial Code, (including, without limitation, to the extent
permitted by law, the right to take possession of the Collateral or any part
thereof, and to take such other measures as Mortgagee may deem necessary for the
care, protection and preservation of the Collateral). Upon request or demand of
Mortgagee, Mortgagor shall at its expense assemble the Collateral and make it
available to Mortgagee at a convenient place acceptable to Mortgagee. Mortgagor
shall pay to Mortgagee on demand therefor any and all reasonable expenses
(including, without limitation, reasonable legal expenses and attorneys' fees)
incurred or paid by Mortgagee in protecting the interest in the Collateral and
in enforcing the rights hereunder with respect to the Collateral. Any notice of
sale, disposition or other intended action by Mortgagee with respect to the
Collateral sent to Mortgagor at least ten (10) business days prior to such
action or such notice as is otherwise required by law or the Relevant Documents,
shall constitute commercially reasonable notice to Mortgagor. The proceeds of
any disposition of the Collateral, or any part thereof, may be applied by
Mortgagee to the payment of the Obligations in such priority and proportions as
Mortgagee shall determine in its sole discretion. In the event of any change in
name, identity or structure of Mortgagor, Mortgagor shall notify Mortgagee
thereof and, promptly after request, shall execute, file and record such Uniform
Commercial Code forms as are necessary to maintain the priority of Mortgagee's
lien upon and security interest in the Collateral, and shall pay all expenses
and fees in connection with the filing and recording
-21-
<PAGE>
thereof. If Mortgagee shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Mortgagor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Mortgagee shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Mortgagor's obligations under this Mortgage or the other
Relevant Documents. Mortgagor hereby irrevocably appoints Mortgagee as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Mortgagee, as secured party, in connection with the Collateral covered
by this Mortgage, such appointment to terminate upon the release of this
Mortgage.
27. ACTIONS AND PROCEEDINGS. Mortgagee has the right to appear in
and defend any action or proceeding brought with respect to the Mortgaged
Property and to bring any action or proceeding, in the name and on behalf of
Mortgagor, which Mortgagee, in its reasonable discretion, decides should be
brought to protect its interest under this Mortgage or in the Mortgaged
Property. Subject to the foregoing, Mortgagor shall appear in and contest any
action or proceeding purporting to affect the security hereof and shall pay all
reasonable costs and expenses including cost of evidence of title and attorney's
fees, in any such action or proceeding in which Mortgagee may appear. Mortgagee
shall, at its option, be subrogated to the lien of any mortgage or other
security instrument discharged in whole or in part by the Obligations, and any
such subrogation rights shall constitute additional security for the payment of
the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Mortgage, the Notes and
the other Relevant Documents shall be payable without setoff or counterclaim
whatsoever.
29. LIENS. Mortgagor warrants, covenants and agrees to pay and
promptly discharge, at Mortgagor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Mortgaged Property, or any part thereof or interest
therein; provided that the existence of any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right thereto shall not constitute
a violation of this Section if payment is not yet due under the contract which
is the foundation thereof. Notwithstanding the foregoing, Mortgagor shall not
be in default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Mortgaged Property if, and so
long as, (a) Mortgagor shall have notified Mortgagee of same within seven (7)
days of obtaining knowledge thereof; (b) Mortgagor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Mortgaged
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Mortgagor shall furnish to Mortgagee such
-22-
<PAGE>
security as Mortgagee may reasonably request to insure payment of such
Impositions and to secure and indemnify Mortgagee against any cost, expense,
loss or damage in connection with such contest or postponement of payment,; (d)
Mortgagor shall timely upon final determination thereof pay the amount of any
such Impositions, claim, fine or penalty so determined, together with all costs,
interest and penalties which may be payable in connection therewith; (e) the
failure to pay the Impositions, or mechanic's or materialman's or similar lien
claim does not constitute a default under any other deed of trust, mortgage or
security interest covering or affecting any part of the Mortgaged Property; and
(f) notwithstanding the foregoing, Mortgagor shall immediately upon request of
Mortgagee pay (and if Mortgagor shall fail so to do, Mortgagee may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Mortgagee, the Mortgaged Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Mortgagee shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Mortgagee thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Mortgagor
existing at the time such earlier action was commenced.
31. MARSHALING, WAIVER OF REDEMPTION AND OTHER MATTERS. Mortgagor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshaling in the event of any sale
hereunder of the Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Mortgage on behalf of
Mortgagor, and on behalf of each and every person acquiring any interest in or
title to the Mortgaged Property subsequent to the date of this Mortgage and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be
-23-
<PAGE>
delivered as follows or at such other place as either party hereto may by notice
in writing (given in accordance with this Section 32) designate:
To Mortgagor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Mortgagee: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF MORTGAGEE. Wherever pursuant to this
Mortgage, Mortgagee exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Mortgagee, the decision of
Mortgagee to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Mortgagee
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Mortgagee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Mortgage. Mortgagor shall not be relieved of Mortgagor's Obligations
hereunder by reason of (a) the failure of Mortgagee to comply with any request
of Mortgagor to take any action to foreclose this Mortgage or otherwise enforce
any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Mortgaged
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Mortgagee extending the time of payment or
otherwise modifying or supplementing the terms of this Mortgage or the other
Relevant Documents. Mortgagee may resort for the payment of the Obligations to
any other security held by Mortgagee in such order and manner as Mortgagee, in
its discretion, may elect. Mortgagee may take action to recover the
Obligations, or any portion thereof, or to enforce any covenant hereof without
prejudice to the right of Mortgagee thereafter to foreclosure this Mortgage.
The rights and remedies of Mortgagee under this Mortgage shall be separate,
distinct and cumulative and none shall be given effect to the exclusion of the
others. No act of Mortgagee shall be construed as an election to proceed under
any one provision herein to the exclusion of any other provision. Mortgagee
shall not be limited exclusively to the rights and remedies herein stated but
shall be entitled to every right and remedy now or hereafter afforded at law or
in equity.
-24-
<PAGE>
35. NO ORAL CHANGE. This Mortgage and the other Relevant Documents
constitute the entire agreement among the parties pertaining to the subject
matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Mortgage, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Mortgagor or Mortgagee, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Mortgagee's consent to any transfer of the Mortgaged Property, this
Mortgage shall be binding upon and inure to the benefit of Mortgagor and
Mortgagee and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this
Mortgage or the Relevant Documents is held to be invalid, illegal or
unenforceable in any respect, this Mortgage and any such other Relevant Document
shall be construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Mortgage are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Mortgage may be executed in any number
of duplicate originals and each such duplicate original shall be deemed to be an
original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Mortgage may be used interchangeably in singular or plural form and the word
"MORTGAGOR" shall mean "each Mortgagor and any subsequent owner or owners of the
Mortgaged Property or any part thereof or any interest therein," the word
"MORTGAGEE" shall mean "Mortgagee and any subsequent holder(s) of the Notes,"
the word "PERSON" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, and the words "MORTGAGED PROPERTY" shall include any portion of the
Mortgaged Property and any interest therein and the words "ATTORNEYS' FEES"
shall include any and all attorneys' fees, paralegal and law clerk fees
(including, without limitation, fees at the pre-trial, trial and appellate
levels incurred or paid by Mortgagee in protecting its interest in the Mortgaged
Property and Collateral and enforcing its rights hereunder including, but not
limited to, all such fees incurred in connection with any bankruptcy or other
insolvency proceedings). Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice versa.
-25-
<PAGE>
41. HOMESTEAD. Mortgagor hereby waives and renounces all homestead
and exemption rights provided by the constitution and the laws of the United
States and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Mortgagee shall have the right to assign or
transfer its rights under this Mortgage without limitation. Any Mortgagee or
transferee shall be entitled to all the benefits afforded Mortgagee under this
Mortgage.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS MORTGAGE, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. MORTGAGEE IS HEREBY AUTHORIZED
TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF
THIS WAIVER BY MORTGAGOR.
44. CONSENT TO JURISDICTION. MORTGAGOR AND MORTGAGEE HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. MORTGAGOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. MORTGAGOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES
SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID
PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, MORTGAGOR HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN
RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO
ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH
-26-
<PAGE>
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT
THE RIGHT OF MORTGAGEE TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO
COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST MORTGAGOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Mortgage shall be governed by and construed
in accordance with the laws of the State of New York including, without
limitation, Section 5-1401 of the General Obligations Law, but otherwise without
regard to conflict of law principles; provided, however, that with respect to
the creation, attachment, perfection, priority and procedures relating to the
enforcement of the liens and security interests created by or pursuant to this
Mortgage and relating to real property, this Mortgage shall be governed by and
construed in accordance with the laws of the state in which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Mortgagor acknowledges that this Mortgage and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Mortgagor agrees that the lien of this
Mortgage and all obligations of the Mortgagor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Mortgagee of any security for or guarantees of
any of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Mortgagee to
realize upon or protect any of the indebtedness hereby secured or any of the
collateral security therefor, including the Relevant Documents;
(d) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released),
sale, pledge, surrender, compromise, settlement, non-perfection, renewal
extension, indulgence, alteration, exchange, modification or disposition of any
of the Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from
the Notes or any other Relevant Documents or of any guaranty thereof (except to
the extent of such amendment, waiver or consent in writing by Mortgagee), if
any, and Mortgagee may in its discretion foreclose, exercise any power of sale,
or exercise any other remedy available to
-27-
<PAGE>
it under any or all of the Relevant Documents without first exercising or
enforcing any of its rights and remedies hereunder; and
(g) any exercise of the rights or remedies of Mortgagee hereunder or
under any or all of the Relevant Documents.
Mortgagor specifically consents and agrees that Mortgagee may exercise
its rights and remedies hereunder and under the other Relevant Documents
separately or concurrently and in any order that Mortgagee may deem appropriate.
47. FUTURE ADVANCES. This Mortgage shall secure not only existing
indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Mortgagee, or otherwise, as are
made by Mortgagee to Mortgagor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Mortgage.
Nothing in this Mortgage shall be deemed an obligation on the part of the
Mortgagee to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Mortgagor and Mortgagee that there shall be no merger of any leasehold estate in
the Mortgaged Property with the fee interest in the Mortgaged Property or any
other estate or interest in the Mortgaged Property, and there shall be no merger
of this Mortgage and any estate in the Mortgaged Property, by reason of the fact
that the same person may own or hold (a) any leasehold interest in the Mortgaged
Property, and/or (b) this Mortgage, and/or (c) the fee interest in the Mortgaged
Property or any other estate or interest in the Mortgaged Property.
50. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Mortgage shall be subject and subordinate to that certain
amended and restated mortgage, assignment of leases and rents, security
agreement and fixture filing, dated as of the date hereof, made by Mortgagor in
favor of McDonald's Corporation, including any extension, modification,
replacement or renewal thereof, in accordance with the provisions of that
certain Subordination Agreement, dated as of the date hereof, by and among
Mortgagor, Mortgagee, and McDonald's Corporation (the "SUBORDINATION
AGREEMENT'), including any extension, modification, replacement or renewal
thereof.
51. GOOD STANDING. Mortgagor is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization.
Mortgagor is qualified to do business and in good standing in the State in which
the Mortgaged Property is located, and to the extent that Mortgagor is not so
qualified or in good standing in such State, Mortgagor shall promptly qualify to
do business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to
-28-
<PAGE>
Mortgagee, and shall in any event take such steps as are necessary to insure the
enforceability of the Notes and this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Mortgagor has executed this instrument as of the day and year first
above written.
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
----------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
Before me, the undersigned authority, on this day personally appeared
Robert G. Rooney, a Senior Vice President of DISCOVERY ZONE, INC., a Delaware
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed same for the
purposes and consideration therein expressed, in the capacity stated.
Given under my hand and seal of office this 28th day of July, 1997
/s/ Mark D. Woodward [Notary Seal]
- ----------------------------------------------
Printed Name
Notary Public in and for the state of New York
My commission expires:
<PAGE>
Washington
Marion County, Indiana
EXHIBIT A
Parcel I:
A part of the Northwest Quarter of Section 20, Township 17 North, Range 4 East
located in Washington Township, Marion County, Indiana, being bounded as
follows:
Commencing at the Southeast corner of the Southwest Quarter of Section 20,
Township 17 North, Range 4 East; thence North 00 degrees 07 minutes 10
seconds East (assumed bearing) 2,650.77 feet along the East line of said
Southwest Quarter to its Northeast corner and the Southeast corner of the
Northwest Quarter of Section; thence North 00 degrees 17 minutes 57 seconds
East 1,026.00 feet along the East line of said Northwest Quarter to the
centerline of East 82nd. Street; thence continuing North 00 degrees 17
minutes 57 seconds East 101.27 feet along the East line of said Northwest
Quarter to the terminus of the sixth course of the land description of the
0.675 acre tract of land described in a Warranty Deed recorded as Instrument
No. 87-77965 in the Office of the Recorder of Marion County, Indiana (the
next three (3) courses are along the Northeastern boundary of said 0.675 acre
tract of land); 1.) thence North 71 degrees 30 minutes 37 seconds West 455.99
feet; 2.) thence North 63 degrees 29 minutes 12 seconds West 99.20 feet; 3.)
thence North 70 degrees 49 minutes 29 seconds West 109.51 feet; thence North
70 degrees 46 minutes 35 seconds West 81.32 feet to the terminus of the ninth
course of the land description of the 0.836 acre tract of land described in
said Warranty Deed (the next three (3) courses are along the Northern
boundary of said 0.836 acre tract of land); 1.) thence North 69 degrees 01
minutes 49 seconds West 105.71 feet to a point on a non-tangent curve concave
to the Northeast, said point being South 24 degrees 13 minutes 40 seconds
West 5,664.58 feet from the radius point of said curve; 2.) thence
Northwesterly 286.89 feet along said curve to its point of tangency, said
point of tangency being South 27 degrees 07 minutes 46 seconds West 5,664.58
feet from the radius point of said curve; 3.) thence North 62 degrees 52
minutes 14 seconds West 287.00 feet; thence North 50 degrees 45 minutes 35
seconds East 32.43 feet to a point on a non-tangent curve being concave to
the West said point being South 62 degrees 52 minutes 14 seconds East 183.00
feet from the radius point of said curve; thence Northeasterly an Northerly
46.03 feet along said curve to a point, said point being South 77 degrees 16
minutes 57 seconds East 183.00 feet from the radius point of said curve;
thence 13 degrees 23 minutes 55 seconds East 126.16 feet; thence North 23
degrees 51 minutes 51 seconds East 65.36 feet; thence North 66 degrees 08
minutes 09 seconds West 25.00 feet to the POINT OF BEGINNING of this
description; thence North 23 degrees 51 minutes 51 seconds East 130.00 feet;
thence North 66 degrees 08 minutes 09 seconds West 134.00 feet; thence South
23 degrees 51 minutes 51 seconds West 130.00 feet; thence South 66 degrees 08
minutes 09 seconds East 134.00 feet to the POINT OF BEGINNING.
Parcel II:
An easement for vehicular parking and driveways, pedestrian walkways,
directional signs, lot lighting, trash enclosures, recycling bins and
landscaping over the land described in Exhibit "B" of the deed from Clearwater
Crossing Associates to Leaps & Bounds, Inc. recorded November 10, 1992 as
Instrument No. 92-149615 in the Office of the Recorder of Marion County,
Indiana.
(Continued)
<PAGE>
Washington
Marion County, Indiana
EXHIBIT A
(continued)
Parcel III:
Non-exclusive easements for access, parking and utilities as set out in a
Declaration And Grant of Easements recorded November 13, 1991 as Instrument No.
91-117692, as amended by Amendment To Declaration And Grant Of Easements
recorded February 13, 1992, as Instrument No. 92-17668, and as further amended
by the Second Amendment To Declaration And Grant of Easements recorded September
21, 1992 as Instrument No. 92-123846, all in the Office of the Recorder of
Marion County, Indiana.
Parcel IV
Non-Exclusive easement for ingress and egress as set out in Declaration and
Grant of Easements dated September 28, 1990 and recorded October 2, 1990 as
Instrument #90-102836, amended by Amendment to Declaration and Grant of
Easements dated September 15, 1992 and recorded September 18, 1992 as Instrument
#92-123838, all in the Office of the Recorder of Marion County, Indiana.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Mortgage. If any conflict or inconsistency exists between this
Exhibit B and the remainder of the attached Mortgage, this Exhibit B shall
govern.
A. SPECIAL FORECLOSURE PROVISIONS. To the extent the applicable
portion of the Mortgaged Property is situated in the State of Indiana, the
Mortgagor shall pay all sums of money secured hereby in the manner provided
herein and without relief from valuation or appraisement laws. Anything herein
to the contrary notwithstanding, upon the occurrence of an Event of Default, as
to all of the Mortgaged Property located in the State of Indiana, Mortgagee
shall have the right to foreclose this Mortgage in the manner provided under the
laws of Indiana and to exercise remedies available under Indiana law. In the
event a foreclosure action is commenced, as aforesaid, and a receiver is
appointed as to the Mortgaged Property located in Indiana, said receiver shall
possess all rights and powers granted to the Mortgagee hereunder to the extent
said receiver may possess and exercise said rights and powers under Indiana law.
A foreclosure action or actions or other judicial action or actions pending or
concluded in any other state against any of the security described herein which
is located in a state other than Indiana shall be construed as an action brought
under a separate mortgage and shall not prevent or preclude a concurrent
foreclosure action or other judicial action brought in Indiana to enforce this
mortgage or any provisions thereof against any or all of the security located in
Indiana.
B. WAIVER OF STATUTORY RIGHTS. To the extent permitted by law,
Mortgagor hereby agrees that it shall not and will not apply for or avail itself
of any appraisement, valuation, stay, extension or exemption laws, or any so-
called "MORATORIUM LAWS," now existing or hereafter enacted, in order to prevent
or hinder the enforcement or foreclosure of this Mortgage, but hereby waives the
benefit of such laws. Mortgagor for itself and all who may claim through or
under it waives any and all right to have the Mortgaged Property marshaled upon
any foreclosure of the lien hereof and agrees that any court having jurisdiction
to foreclose such lien may order the Property sold as an entirety. To the
maximum extent permitted by law, but subject to the terms of the next sentence,
Mortgagor hereby waives any and all rights of redemption (but not reinstatement)
from sale under any order or decree of foreclosure of this Mortgage on its
behalf and on behalf of each and every person, except decree or judgment
creditors of Mortgagor, acquiring any interest in or title to the Mortgaged
Property subsequent to the date of this Mortgage. In the event any waiver set
forth herein could be deemed to limit Mortgagee's rights hereunder or under the
Relevant
B-1
<PAGE>
Documents, including any rights to a deficiency judgment, such waiver shall be
deemed void and of no further force and effect.
C. OTHER. Anything contained in I.C. 32-8-16-1.5 to the contrary
notwithstanding, no waiver made by Mortgagor in this Mortgage or in the Relevant
Documents shall constitute the consideration for or be deemed to be a waiver or
release by Mortgagee or any judgment holder of the obligations hereby secured of
the right to seek a deficiency judgment against the Mortgagor or any other
person or entity who may be personally liable for the obligations hereby
secured, which right to seek a deficiency judgment is hereby reserved, preserved
and retained by Mortgagee for its own behalf and its successors and assigns.
B-2
<PAGE>
Exhibit 4.21
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.,
(Grantor)
to
KENNETH W. PEARSON , as Trustee
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "DEED OF TRUST"), made as of this 29th day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), successor in interest
to Discovery Zone Children's Amusement Corporation, successor in interest to
Discovery Zone L.P., having its principal place of business at One Corporate
Center, 110 East Broward Boulevard, Fort Lauderdale, Florida 33301 to KENNETH W.
PEARSON having his principal place of business at Brown, McCarrol & Oaks
Hartline, 300 Crescent Court, Suite 400, Dallas, Texas 75201 (and any subsequent
substitutes or successors thereof pursuant to Section 50 below, "TRUSTEE") to
and for the benefit of STATE STREET BANK AND TRUST COMPANY, solely in its
capacity as trustee and collateral agent under and pursuant to that certain
Indenture, dated July 22, 1997, among Discovery Zone, Inc., State Street Bank
and Trust Company, as trustee, and the Subsidiary Guarantors named therein, its
successors and assigns ("BENEFICIARY"), having an address at Two International
Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the obligations (the "OBLIGATIONS") of Grantor, including,
without limitation, any and all obligations of Grantor under this Deed of Trust,
the Indenture, and the Notes, and all other documents evidencing or securing any
such Obligations including, without limitation, the "RELEVANT DOCUMENTS"),
Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS, PLEDGES,
ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever in trust,
WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the buildings,
structures and improvements of every nature whatsoever now or hereafter located
thereon to the extent owned by Grantor (including, but not limited to, all gas
and electric fixtures, radiators, heaters, docks and docking facilities, engines
and machinery, boilers, elevators and motors, plumbing, heating and air
conditioning fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes which are or shall be attached to the Land or said
buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as
-2-
<PAGE>
all additions to, appurtenances, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon,
-3-
<PAGE>
any item or portion of the Trust Property (including, without limitation, all
claims of Grantor against third parties for loss of, damage to, destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, the Trust Property now existing or hereafter arising),
(iii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Grantor from time to time with respect to damage or loss of or to any
of the Trust Property, (iv) any and all payments (in any form whatsoever) made
or due and payable to Grantor from time to time in connection with the
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trust Property by any Governmental Authority (or any person acting
under color of Governmental Authority), and (v) any and all real estate tax
refunds payable to Grantor with respect to the Trust Property, and refunds or
reimbursements payable with respect to bonds, escrow accounts, or other sums
payable in connection with the use, development or ownership of the Trust
Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the Trust
Property unto Trustee and its successors, substitutes and assigns, for the
benefit of Beneficiary, and its successors and assigns against every person or
party whosoever claiming or to claim the same, or any part thereof;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in
-5-
<PAGE>
connection with the Trust Property by Grantor or the leasing or use of the Trust
Property or any part thereof by Grantor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust
-6-
<PAGE>
Property, subject only to the Permitted Encumbrances. Grantor shall forever
warrant, defend and preserve such title and the validity and priority of the
lien of this Deed of Trust and shall forever warrant and defend the same to
Beneficiary against the claims of all persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default (hereinafter defined), the license
granted to Grantor herein shall immediately and automatically be revoked, and
Beneficiary shall immediately be entitled to possession of all Rents, whether or
not Beneficiary enters upon or takes control of the Trust Property, provided
that if such Event of Default ceases to exist, the license shall automatically
be reinstated. In addition, during the continuation of an Event of Default,
Beneficiary may, either in person or by agent, without bringing any action or
proceeding, or by a receiver appointed by a court, without the necessity of
taking possession of the Trust Property in its own name, and in addition to and
without limiting any of Beneficiary's rights and remedies hereunder, under the
Notes and any other Relevant Documents and as otherwise available at law or in
equity, (a) notify any lessee or other person that the Leases have been assigned
to Beneficiary and that all Rents are to be paid directly to Beneficiary,
whether or not Beneficiary has commenced or completed foreclosure or taken
possession of the Trust Property; (b) settle, compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any Rents
or other obligations in, to and under the Leases; (c) demand, sue for or
otherwise collect, receive, and enforce payment of Rents, including those
past-due and unpaid and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to the Rents and Leases;
(d) enter upon, take possession of and operate the Trust Property; (e) lease all
or any part of the Trust Property; and/or (f) perform any and all obligations of
Grantor under the Leases and exercise any and all rights of Grantor therein
contained to the full extent of Grantor's rights and obligations thereunder,
with or without the bringing of any action or the appointment of a receiver and
without need for any other authorization or other action by Beneficiary or
Grantor. At Beneficiary's request, Grantor shall deliver a copy of this
assignment to each tenant under a Lease and to each manager and managing agent
or operator of the Trust Property. Grantor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice to or consent by Grantor, to comply with all demands of Beneficiary
under this Section 8 and to
-8-
<PAGE>
turn over to Beneficiary on demand all Rents which it receives. Grantor hereby
acknowledges and agrees that payment of any Rents by a person to Beneficiary as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Grantor. Beneficiary is
hereby granted and assigned by Grantor the right, at its option, upon revocation
of the license granted herein, to enter upon the Trust Property in person or by
agent, without bringing any action or proceeding, or by court-appointed receiver
to collect the Rents. Any Rents collected after the revocation of the license
shall be applied towards the payment of the Obligations. Neither the
enforcement of any of the remedies under this Section 8 nor any other remedies
or security interests afforded to Beneficiary under the Relevant Documents, at
law or in equity shall cause Beneficiary to be deemed or construed to be a
Beneficiary in possession of the Trust Property, to obligate Beneficiary to
lease the Trust Property or attempt to do so, or to take any action, incur any
expense, or perform or discharge any obligation, duty or liability whatsoever
under any of the Leases or otherwise. Grantor shall, and hereby agrees to
indemnify Beneficiary for, and to hold Beneficiary harmless from and against,
any and all claims, liability, expenses, losses or damages which may or might be
asserted against or incurred by Beneficiary solely by reason of Beneficiary's
status as an assignee pursuant to the assignment of Rents and Leases contained
herein, but excluding any claim (a) to the extent caused by Beneficiary's gross
negligence or willful misconduct, or (b) to the extent arising solely from
Beneficiary's actions after Beneficiary has taken possession of the Trust
Property. Should Beneficiary incur any such claim, liability, expense, loss or
damage, the amount thereof, including all actual expenses and reasonable fees of
attorneys, shall constitute Obligations secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand. Grantor agrees that all
Leases shall be subject to the prior written approval of Beneficiary, such
approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof,
-9-
<PAGE>
unless Grantor shall have received Beneficiary's prior written consent, such
consent not to be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of the Trust Property is or shall
become a nonconforming use, Grantor will not cause such nonconforming use to be
discontinued or abandoned without the express written consent of Beneficiary,
such consent not to be unreasonably withheld or delayed. Grantor shall not (i)
change the use of the Land in any material respect or (ii) permit or suffer to
occur any waste on or to the Trust Property or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this
-10-
<PAGE>
Deed of Trust shall be effected by any such blanket or umbrella policies,
Grantor shall furnish to Beneficiary certificates with respect to, with
schedules attached thereto showing the amount of the insurance provided under
such policies which is applicable to the Trust Property.
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing
-11-
<PAGE>
or escrow agent who shall be selected by Beneficiary and whose fees shall be
paid by Grantor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Beneficiary of the estimated costs of Restoration,
(ii) funds (or assurances reasonably satisfactory to Beneficiary that such funds
are available) sufficient in addition to the proceeds of insurance to complete
and fully pay for Restoration; and (iii) such architect's certificates, waivers
of lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Beneficiary
may reasonably require and approve. Except to the extent Beneficiary fails to
turn over insurance proceeds, if any, received by Beneficiary hereunder with
respect to such casualty to Grantor, Grantor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Beneficiary, and Grantor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably
-12-
<PAGE>
withheld); and (iii) all of the proceeds of such sale are applied towards
repayment of the Obligations, notwithstanding the fact that the Obligations, or
a portion thereof, may not then be due and payable.
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore
-13-
<PAGE>
collected by Beneficiary shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Grantor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing
-14-
<PAGE>
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Beneficiary in the Trust Property. Notwithstanding
anything to the contrary contained herein, Grantor shall not be obligated to
execute, deliver, file or record any additional documents which increase
Grantor's obligations under this Deed of Trust or the Relevant Documents.
Grantor grants to Beneficiary an irrevocable power of attorney coupled with an
interest for the purpose of exercising the rights provided for in Section 19 and
this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the Mortgagee's Policy of Title Insurance Policy
issued by Chicago Title Insurance Company for the benefit of Beneficiary in
connection with this Deed of Trust (including payment for the cost of any
property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Beneficiary
containing such endorsements as Beneficiary may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
-15-
<PAGE>
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
-16-
<PAGE>
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B)
-17-
<PAGE>
complete any construction on the Trust Property in such manner and form as
Beneficiary deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Trust Property; (D) exercise all
rights and powers of Grantor with respect to the Trust Property, whether in
the name of Grantor or otherwise (including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Trust Property and every part thereof); and
(E) apply the receipts from the Trust Property to the payment of the
Obligations, after deducting therefrom all reasonable expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with
the aforesaid operations and all amounts necessary to pay the taxes,
assessments, insurance and other charges in connection with the Trust
Property, it being agreed that should Beneficiary incur any liability, loss
or damage in the defense of any claims or demands, the amount thereof,
including costs, expenses and reasonable attorneys' fees shall be secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise; and
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a
-18-
<PAGE>
judgment or decree of foreclosure and sale, Beneficiary may bid for and acquire
the Trust Property or any part thereof and in lieu of paying cash therefor may
make settlement for the purchase price by crediting upon the Obligations the net
sales price after deducting therefrom the expenses of the sale and costs of the
action and any other sums which Beneficiary is authorized to deduct under this
Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
-19-
<PAGE>
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the
-20-
<PAGE>
parties set forth in the first paragraph of this Deed of Trust. Grantor's chief
executive office and principal place of business is the Grantor's address set
forth in the first paragraph of this Deed of Trust, and the place where
Grantor's books and records in respect of where the Trust Property is located
are kept is the address of Grantor set forth in the first paragraph of this Deed
of Trust. If an Event of Default shall occur which shall remain uncured,
Beneficiary, in addition to any other rights and remedies which it may have,
shall have and may exercise immediately and without demand, any and all rights
and remedies granted to a secured party upon default under the Uniform
Commercial Code, (including, without limitation, to the extent permitted by law,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Beneficiary may deem necessary for the care, protection
and preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding
-21-
<PAGE>
in which Beneficiary may appear. Beneficiary shall, at its option, be
subrogated to the lien of any mortgage or other security instrument discharged
in whole or in part by the Obligations, and any such subrogation rights shall
constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
-22-
<PAGE>
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
-23-
<PAGE>
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
other Relevant Documents. Beneficiary may resort for the payment of the
Obligations to any other security held by Beneficiary in such order and manner
as Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclosure
this Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Beneficiary shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
-24-
<PAGE>
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, and the words "Trust Property" shall include any portion of the
Trust Property and any interest therein and the words "attorneys' fees" shall
include any and all attorneys' fees, paralegal and law clerk fees (including,
without limitation, fees at the pre-trial, trial and appellate levels incurred
or paid by Beneficiary in protecting its interest in the Trust Property and
Collateral and enforcing its rights hereunder including, but not limited to, all
such fees incurred in connection with any bankruptcy or other insolvency
proceedings). Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW
-25-
<PAGE>
YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
GRANTOR FURTHER CONSENTS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there
-27-
<PAGE>
shall be no merger of this Deed of Trust and any estate in the Trust Property,
by reason of the fact that the same person may own or hold (a) any leasehold
interest in the Trust Property, and/or (b) this Deed of Trust, and/or (c) the
fee interest in the Trust Property or any other estate or interest in the Trust
Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Grantor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time,
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Beneficiary may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, and, if necessary, several successor Trustees in
succession, who shall succeed to all the estate, rights, powers, and duties of
the original Trustee named herein, without any other formality than an
appointment and designation in writing (or other formality required by
applicable law, if any). Such substitute trustee shall not be required to give
bond for the faithful performance of the duties of Trustee hereunder unless
required by Beneficiary. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain
-28-
<PAGE>
Subordination Agreement, dated as of the date hereof, by and among Grantor,
Beneficiary and McDonald's Corporation (the "SUBORDINATION AGREEMENT"),
including any extension, modification, replacement or renewal thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was knowledged before me on July 28, 1997 by Robert G.
Rooney, Senior Vice President of DISCOVERY ZONE, INC., a Delaware corporation,
on behalf of said corporation.
/s/ Mark D. Woodward
-------------------------------- [Notary Seal]
Notary Public, State of New York
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
Being all that tract of land in the City of Dallas, Dallas County, Texas, a part
of the Robert Wilburn Survey, Abstract No. 1580, and being all of Lot 2B, Block
2/8708, Prestonwood Towers, an addition to the City of Dallas according to the
replat of Lot 2, Block 2/8708 of Prestonwood Towers recorded in Volume 92208,
Page 3668, Dallas County Map Records, and being further described as follows:
BEGINNING at a 1/2 inch iron rod found at the northeast corner of said Lot 2B;
THENCE along the east line of said Lot 2B as follows:
South, 97.16 feet to a 1/2 inch iron rod found for corner;
South 45 degrees 00 minutes 00 seconds East, 162.02 feet to a P.K. nail found
for corner;
South 45 degrees 00 minutes 00 seconds West, 30.00 feet to a P.K. nail found at
the southeast corner of said Lot 2B;
THENCE along the south line of said Lot 2B as follows:
North 45 degrees 00 minutes 00 seconds West, 38.05 feet to a P.K. nail found for
corner;
South 89 degrees 31 minutes and 55 seconds West, 320.14 feet to a P.K. nail set
for corner;
North 45 degrees 28 minutes 05 seconds West, 30.94 feet to a 1/2 inch iron rod
found for corner;
North 79 degrees 30 minutes 00 seconds West, 126.58 feet to a 1/2 inch iron rod
found at the southwest corner of said Lot 2B, said point being in the east line
of Dallas North Tollway (a variable width right-of-way);
THENCE along the east line of Dallas North Tollway and the west line of said Lot
2B as follows:
North 12 degrees 41 minutes 04 seconds East, 14.64 feet to a 1/2 inch iron rod
found for corner;
Northeasterly, 161.45 feet along a curve to the left which has a central angle
of 06 degrees 24 minutes 48 seconds, a radius of 1442.39 feet, a tangent of
80.81 feet, and whose chord bears North 09 degrees 28 minutes 43 seconds East,
161.37 feet to a "x" in concrete found at the northwest corner of said Lot 2B;
THENCE along the north line of said Lot 2B as follows:
South 83 degrees 43 minutes 44 seconds East, 86.93 feet to a P.K. nail found for
corner;
South 89 degrees 59 minutes 08 seconds East, 284.00 feet to the POINT OF
BEGINNING and containing 83,313 square feet or 1.913 acres of land.
<PAGE>
EXHIBIT B
---------
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Deed of Trust. If any conflict or inconsistency exists between
this Exhibit B and the remainder of the attached Deed of Trust, this Exhibit B
shall govern.
A. FORECLOSURE PROCEEDINGS. The provisions of Section 24
notwithstanding, foreclosure proceedings shall include without limitation
non-judicial foreclosure pursuant to a power of sale in accordance with statutes
of the State of Texas then in force governing sales of real estate under powers
of sale conferred by deed of trust. Upon the occurrence and during the
continuance of an Event of Default, or at any time thereafter, Grantor
authorizes and empowers the Trustee, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Deed of Trust by
selling, in one or more sales as Beneficiary or Trustee may elect, the Trust
Property then subject to the lien hereof at public auction, to the highest
bidder, for cash or for credit against the indebtedness secured hereby if
Beneficiary is the highest bidder, at the county court house in the county in
Texas in which such Trust Property or any part thereof is situated, as herein
described, in the area designated by the commissioners court for such purpose
pursuant to a recordation of such designation in the real property records of
such county, or if no such recorded designation by the commissioners court has
been made, in the area at the county court house designated in the notice of
proposed sale posted, filed and served in accordance with the further provisions
of this paragraph, between the hours of 10:00 a.m. and 4:00 p.m. on the first
Tuesday of any month. The Trustee shall give notice of the time, place and
terms of said sale, and of the property to be sold as follows: (i) Notice of
such proposed sale shall be given by posting written notice thereof at least
twenty-one days preceding the date of the sale at the court house door, and by
filing a copy of the Notice in the office of the county clerk of the county in
which the sale is to be made, and if the property to be sold is situated in more
than one county, one notice shall be posted at the court house door and filed
with the county clerk of each county in which the property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
each debtor obligated to pay the debt secured hereby according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper, properly addressed to each such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to
the effect that such service was completed shall be prima facie evidence of the
fact of service; (ii) Any notice that is required or permitted to be given to
Grantor may be addressed to Grantor at Grantor's mailing address. Any notice
that is to be given by certified mail to any other debtor may, if no address for
such other debtor is shown by the records of Beneficiary, be addressed to such
other debtor at Grantor's mailing
B-1
<PAGE>
address. Notwithstanding the foregoing provisions of this paragraph (ii),
notice of such sale given in accordance with the requirements of the applicable
law of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers the
Trustee to sell all or any portion of the Trust Property, together or in lots or
parcels, as the Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of the Grantor. The recitals in the conveyance to the purchaser or purchasers
of the Trust Property shall be full and conclusive evidence of the truth of the
matters therein stated, and all prerequisites to such sale shall be presumed to
have been performed and such sale and conveyance shall be conclusive against
Grantor, its heirs, successors and assigns. In no event shall the Trustee be
required to exhibit, present or display at any such sale, any of the personalty
described herein to be sold at such sale. The Trustee making such sale shall
receive the proceeds thereof and shall apply the same as follows: (1) first, he
shall pay the reasonable expense of executing this deed of trust including a
reasonable Trustee's fee or commission; (2) second, he shall pay so far as may
be possible, the Obligations, discharging first that portion of the Obligations
arising under the covenants or agreements herein contained and not evidenced by
the Note; (3) third, he shall pay the residue, if any, to the person or persons
legally entitled thereto.
Payment of the purchase price to Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the application thereof. Said sale shall forever be a bar
against Grantor, its successors and assigns, and all other persons claiming
under it. In addition to and cumulative of the remedies provided in this
clause, the Beneficiary may foreclose or cause to be foreclosed the lien and
security interest of this instrument, in whole or in part, through judicial
foreclosure, private sale, or in any other manner as may at any time be
authorized under the laws of the State of Texas. Beneficiary shall have the
right to bid for the Trust Property and to become the purchaser at any sale made
pursuant to this clause, if it is the highest bidder therefor and in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made, after deducting therefrom
the expenses of the sale, the cost of any enforcement proceeding hereunder and
any other sums which Trustee or Beneficiary is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. If foreclosure
should be commenced by the Trustee, the Beneficiary may at any time before the
sale direct the Trustee to abandon the sale, and may at any time or times
thereafter direct the Trustee to again commence foreclosure; or, irrespective of
whether foreclosure is commenced by the Trustee, the Beneficiary may at any time
after an Event of Default institute suit for foreclosure of the lien of this
instrument. If Beneficiary should institute suit for foreclosure of the lien of
this instrument, Beneficiary may at any time before the entry of final judgment
dismiss the same, and require the Trustee to sell all or part of the Trust
Property in accordance with the provisions of this instrument. No single sale
or series of sales by the Trustee or by any substitute or successor Trustee
under this instrument and no judicial foreclosure shall extinguish the lien or
exhaust the power of sale under this
B-2
<PAGE>
instrument except with respect to the items of property sold, but such lien and
power shall exist for so long as, and may be exercised in any manner provided by
law or as provided in this instrument as often as the circumstances require to
give Beneficiary full relief hereunder. Grantor agrees for itself and its
trustees, receivers, successors and assigns that if any of them shall hold
possession of the Trust Property or any part thereof subsequent to foreclosure
of the lien hereof, Grantor, or the parties so holding possession, shall become
and be considered as tenants at will of the purchaser or purchasers at such
foreclosure sale or sales; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for rental on said premises, and shall be
subject to eviction and removal, forcible or otherwise, with or without process
of law, all damages which may be sustained by any such tenant as a result
thereof being hereby expressly waived.
The sale or sales by Trustee of less than the whole of the Trust
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Trust Property shall be sold; and if the proceeds of such sale
or sales of less than the whole of the Trust Property shall be less than the
aggregate of the Obligations, this Deed of Trust and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Trust Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
or sales of less than the whole of the Trust Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Trust Property. If an Event of Default has occurred and is
continuing hereunder, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such item either through judicial proceedings or
by directing Trustee to proceed as if under a full foreclosure, conducting the
sale as herein provided without declaring the entire Obligations due, and if
sale is made because an Event of Default has occurred and is continuing on an
installment, or a part of any installment, such sale may be made subject to the
unmatured part of the Obligations; and it is agreed that such sale, if so made,
shall not in any manner affect the unmatured part of the Obligations, but as to
such unmatured part, this Deed of Trust shall remain in full force and effect as
though no sale had been made under the provisions of this paragraph. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations. At any such sale (I) Grantor hereby agrees,
on its behalf and on behalf of its heirs, executors, administrators, successors,
personal representatives and assigns, that any and all recitals made in any
assignment of lease or deed of conveyance given by Trustee with respect to the
identity of Beneficiary, the occurrence or existence of any Event of Default,
the acceleration of the maturity of any of the Obligations, the request to sell,
the notice of sale, the giving of notice to all debtors legally entitled
thereto, the time, place, terms, and manner of sale, and receipt, distribution
and application of the money realized therefrom, or the due and proper
appointment of a substitute Trustee, and, without being limited by the
foregoing, with respect to any other act or thing having been duly done by
Beneficiary or by Trustee hereunder, shall be taken by all courts of law and
equity as prima facie evidence that the statements or
B-3
<PAGE>
recitals are the state of facts and are without further question to be so
accepted, and Grantor hereby ratifies and confirms every act that Trustee or any
substitute Trustee hereunder may lawfully do in the Trust Property by virtue
hereof; and (II) the purchaser may disaffirm any easement granted, or rental,
lease or other contract made, in violation of any provision of this Deed of
Trust and may take immediate possession of the Trust Property free from, and
despite the terms of, such grant of easement and rental or lease contract.
B. FINANCIAL INSTITUTIONS. Section 35 of this Deed of Trust is
hereby amended by adding the following paragraph at the end thereof:
To the extent that Beneficiary is a "financial institution" as
defined in Section 26.02 of the Texas Business & Commerce Code, the following
shall apply:
THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
C. RIGHTS AND REMEDIES OF SURETIES. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the rights and
remedies of sureties.
B-4
<PAGE>
Exhibit 4.22
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
KENNETH W. PEARSON, as Trustee
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (as the same may from time to time be extended,
renewed or modified, this "DEED OF TRUST"), made as of this 29 day of July,
1997, by DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), having its
principal place of business at One Corporate Center, 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301 to KENNETH W. PEARSON having his
principal place of business at Brown, McCarrol & Oaks Hartline, 300 Crescent
Court, Suite 400, Dallas, Texas 75201 (and any subsequent substitutes or
successors thereof pursuant to Section 50 below, "TRUSTEE") to and for the
benefit of STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture,
dated July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust
Company, as trustee, and the Subsidiary Guarantors named therein, its
successors and assigns ("BENEFICIARY"), having an address at Two
International Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the obligations (the "OBLIGATIONS") of Grantor, including,
without limitation, any and all obligations of Grantor under this Deed of Trust,
the Indenture, and the Notes, and all other documents evidencing or securing any
such Obligations including, without limitation, the "RELEVANT DOCUMENTS"),
Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS, PLEDGES,
ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever in trust,
WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the buildings,
structures and improvements of every nature whatsoever now or hereafter located
thereon to the extent owned by Grantor (including, but not limited to, all gas
and electric fixtures, radiators, heaters, docks and docking facilities, engines
and machinery, boilers, elevators and motors, plumbing, heating and air
conditioning fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes which are or shall be attached to the Land or said
buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as
-2-
<PAGE>
all additions to, appurtenances, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon,
-3-
<PAGE>
any item or portion of the Trust Property (including, without limitation, all
claims of Grantor against third parties for loss of, damage to, destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, the Trust Property now existing or hereafter arising),
(iii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Grantor from time to time with respect to damage or loss of or to any
of the Trust Property, (iv) any and all payments (in any form whatsoever) made
or due and payable to Grantor from time to time in connection with the
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trust Property by any Governmental Authority (or any person acting
under color of Governmental Authority), and (v) any and all real estate tax
refunds payable to Grantor with respect to the Trust Property, and refunds or
reimbursements payable with respect to bonds, escrow accounts, or other sums
payable in connection with the use, development or ownership of the Trust
Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the Trust
Property unto Trustee and its successors, substitutes and assigns, for the
benefit of Beneficiary, and its successors and assigns against every person or
party whosoever claiming or to claim the same, or any part thereof;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBs"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in
-5-
<PAGE>
connection with the Trust Property by Grantor or the leasing or use of the Trust
Property or any part thereof by Grantor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust
-6-
<PAGE>
Property, subject only to the Permitted Encumbrances. Grantor shall forever
warrant, defend and preserve such title and the validity and priority of the
lien of this Deed of Trust and shall forever warrant and defend the same to
Beneficiary against the claims of all persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default (hereinafter defined), the license
granted to Grantor herein shall immediately and automatically be revoked, and
Beneficiary shall immediately be entitled to possession of all Rents, whether or
not Beneficiary enters upon or takes control of the Trust Property, provided
that if such Event of Default ceases to exist, the license shall automatically
be reinstated. In addition, during the continuation of an Event of Default,
Beneficiary may, either in person or by agent, without bringing any action or
proceeding, or by a receiver appointed by a court, without the necessity of
taking possession of the Trust Property in its own name, and in addition to and
without limiting any of Beneficiary's rights and remedies hereunder, under the
Notes and any other Relevant Documents and as otherwise available at law or in
equity, (a) notify any lessee or other person that the Leases have been assigned
to Beneficiary and that all Rents are to be paid directly to Beneficiary,
whether or not Beneficiary has commenced or completed foreclosure or taken
possession of the Trust Property; (b) settle, compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any Rents
or other obligations in, to and under the Leases; (c) demand, sue for or
otherwise collect, receive, and enforce payment of Rents, including those
past-due and unpaid and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to the Rents and Leases;
(d) enter upon, take possession of and operate the Trust Property; (e) lease all
or any part of the Trust Property; and/or (f) perform any and all obligations of
Grantor under the Leases and exercise any and all rights of Grantor therein
contained to the full extent of Grantor's rights and obligations thereunder,
with or without the bringing of any action or the appointment of a receiver and
without need for any other authorization or other action by Beneficiary or
Grantor. At Beneficiary's request, Grantor shall deliver a copy of this
assignment to each tenant under a Lease and to each manager and managing agent
or operator of the Trust Property. Grantor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice to or consent by Grantor, to comply with all demands of Beneficiary
under this Section 8 and to
-8-
<PAGE>
turn over to Beneficiary on demand all Rents which it receives. Grantor hereby
acknowledges and agrees that payment of any Rents by a person to Beneficiary as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Grantor. Beneficiary is
hereby granted and assigned by Grantor the right, at its option, upon revocation
of the license granted herein, to enter upon the Trust Property in person or by
agent, without bringing any action or proceeding, or by court-appointed receiver
to collect the Rents. Any Rents collected after the revocation of the license
shall be applied towards the payment of the Obligations. Neither the
enforcement of any of the remedies under this Section 8 nor any other remedies
or security interests afforded to Beneficiary under the Relevant Documents, at
law or in equity shall cause Beneficiary to be deemed or construed to be a
Beneficiary in possession of the Trust Property, to obligate Beneficiary to
lease the Trust Property or attempt to do so, or to take any action, incur any
expense, or perform or discharge any obligation, duty or liability whatsoever
under any of the Leases or otherwise. Grantor shall, and hereby agrees to
indemnify Beneficiary for, and to hold Beneficiary harmless from and against,
any and all claims, liability, expenses, losses or damages which may or might be
asserted against or incurred by Beneficiary solely by reason of Beneficiary's
status as an assignee pursuant to the assignment of Rents and Leases contained
herein, but excluding any claim (a) to the extent caused by Beneficiary's gross
negligence or willful misconduct, or (b) to the extent arising solely from
Beneficiary's actions after Beneficiary has taken possession of the Trust
Property. Should Beneficiary incur any such claim, liability, expense, loss or
damage, the amount thereof, including all actual expenses and reasonable fees of
attorneys, shall constitute Obligations secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand. Grantor agrees that all
Leases shall be subject to the prior written approval of Beneficiary, such
approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof,
-9-
<PAGE>
unless Grantor shall have received Beneficiary's prior written consent, such
consent not to be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of the Trust Property is or shall
become a nonconforming use, Grantor will not cause such nonconforming use to be
discontinued or abandoned without the express written consent of Beneficiary,
such consent not to be unreasonably withheld or delayed. Grantor shall not (i)
change the use of the Land in any material respect or (ii) permit or suffer to
occur any waste on or to the Trust Property or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this
-10-
<PAGE>
Deed of Trust shall be effected by any such blanket or umbrella policies,
Grantor shall furnish to Beneficiary certificates with respect to, with
schedules attached thereto showing the amount of the insurance provided under
such policies which is applicable to the Trust Property.
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing
-11-
<PAGE>
or escrow agent who shall be selected by Beneficiary and whose fees shall be
paid by Grantor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Beneficiary of the estimated costs of Restoration,
(ii) funds (or assurances reasonably satisfactory to Beneficiary that such funds
are available) sufficient in addition to the proceeds of insurance to complete
and fully pay for Restoration; and (iii) such architect's certificates, waivers
of lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Beneficiary
may reasonably require and approve. Except to the extent Beneficiary fails to
turn over insurance proceeds, if any, received by Beneficiary hereunder with
respect to such casualty to Grantor, Grantor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Beneficiary, and Grantor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably
-12-
<PAGE>
withheld); and (iii) all of the proceeds of such sale are applied towards
repayment of the Obligations, notwithstanding the fact that the Obligations, or
a portion thereof, may not then be due and payable.
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore
-13-
<PAGE>
collected by Beneficiary shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Grantor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing
-14-
<PAGE>
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Beneficiary in the Trust Property. Notwithstanding
anything to the contrary contained herein, Grantor shall not be obligated to
execute, deliver, file or record any additional documents which increase
Grantor's obligations under this Deed of Trust or the Relevant Documents.
Grantor grants to Beneficiary an irrevocable power of attorney coupled with an
interest for the purpose of exercising the rights provided for in Section 19 and
this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the Mortgagee's Policy of Title Insurance Policy
issued by Chicago Title Insurance Company for the benefit of Beneficiary in
connection with this Deed of Trust (including payment for the cost of any
property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Beneficiary
containing such endorsements as Beneficiary may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
-15-
<PAGE>
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
-16-
<PAGE>
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B)
-17-
<PAGE>
complete any construction on the Trust Property in such manner and form as
Beneficiary deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Trust Property; (D) exercise all
rights and powers of Grantor with respect to the Trust Property, whether in
the name of Grantor or otherwise (including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Trust Property and every part thereof); and
(E) apply the receipts from the Trust Property to the payment of the
Obligations, after deducting therefrom all reasonable expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with
the aforesaid operations and all amounts necessary to pay the taxes,
assessments, insurance and other charges in connection with the Trust
Property, it being agreed that should Beneficiary incur any liability, loss
or damage in the defense of any claims or demands, the amount thereof,
including costs, expenses and reasonable attorneys' fees shall be secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise; and
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a
-18-
<PAGE>
judgment or decree of foreclosure and sale, Beneficiary may bid for and acquire
the Trust Property or any part thereof and in lieu of paying cash therefor may
make settlement for the purchase price by crediting upon the Obligations the net
sales price after deducting therefrom the expenses of the sale and costs of the
action and any other sums which Beneficiary is authorized to deduct under this
Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
-19-
<PAGE>
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the
-20-
<PAGE>
parties set forth in the first paragraph of this Deed of Trust. Grantor's chief
executive office and principal place of business is the Grantor's address set
forth in the first paragraph of this Deed of Trust, and the place where
Grantor's books and records in respect of where the Trust Property is located
are kept is the address of Grantor set forth in the first paragraph of this Deed
of Trust. If an Event of Default shall occur which shall remain uncured,
Beneficiary, in addition to any other rights and remedies which it may have,
shall have and may exercise immediately and without demand, any and all rights
and remedies granted to a secured party upon default under the Uniform
Commercial Code, (including, without limitation, to the extent permitted by law,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Beneficiary may deem necessary for the care, protection
and preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding
-21-
<PAGE>
in which Beneficiary may appear. Beneficiary shall, at its option, be
subrogated to the lien of any mortgage or other security instrument discharged
in whole or in part by the Obligations, and any such subrogation rights shall
constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
-22-
<PAGE>
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
-23-
<PAGE>
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
other Relevant Documents. Beneficiary may resort for the payment of the
Obligations to any other security held by Beneficiary in such order and manner
as Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclosure
this Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Beneficiary shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
-24-
<PAGE>
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, and the words "Trust Property" shall include any portion of the
Trust Property and any interest therein and the words "attorneys' fees" shall
include any and all attorneys' fees, paralegal and law clerk fees (including,
without limitation, fees at the pre-trial, trial and appellate levels incurred
or paid by Beneficiary in protecting its interest in the Trust Property and
Collateral and enforcing its rights hereunder including, but not limited to, all
such fees incurred in connection with any bankruptcy or other insolvency
proceedings). Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW
-25-
<PAGE>
YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
GRANTOR FURTHER CONSENTS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there
-27-
<PAGE>
shall be no merger of this Deed of Trust and any estate in the Trust Property,
by reason of the fact that the same person may own or hold (a) any leasehold
interest in the Trust Property, and/or (b) this Deed of Trust, and/or (c) the
fee interest in the Trust Property or any other estate or interest in the Trust
Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Grantor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time,
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Beneficiary may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, and, if necessary, several successor Trustees in
succession, who shall succeed to all the estate, rights, powers, and duties of
the original Trustee named herein, without any other formality than an
appointment and designation in writing (or other formality required by
applicable law, if any). Such substitute trustee shall not be required to give
bond for the faithful performance of the duties of Trustee hereunder unless
required by Beneficiary. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain
-28-
<PAGE>
Subordination Agreement, dated as of the date hereof, by and among Grantor,
Beneficiary and McDonald's Corporation (the "SUBORDINATION AGREEMENT"),
including any extension, modification, replacement or renewal thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was knowledged before me on July 28, 1997 by Robert G.
Rooney, Senior Vice President of DISCOVERY ZONE, INC., a Delaware corporation,
on behalf of said corporation.
/s/ Mark D. Woodward
--------------------------------
Notary Public, State of New York
[Notary Seal]
<PAGE>
San Antonio
Bexar County, Texas
EXHIBIT A
2.488 acre tract out of Lot 3B, NCB 12059, Embassy North Subdivision, Unit 5,
recorded in Volume 9518, Page 141, Deed and Plat Records of Bexar County, Texas
described as follows:
BEGINNING At a 1/2" iron pin found in the East Right of Way line of Embassy
Row, a 60 ft. Right of Way, for the Southwest corner of Lot 47,
NCB 12059, recorded in Volume 9525, Page 111, Deed Records, Bexar
County, Texas and the Northwest corner of said Lot 3B and
Northwest corner and Point of Beginning of this tract:
THENCE S72 degrees 57' 27" E, 300.00 ft along
the South line of said Lot 47 to a 1/2" iron pin in the North
line of Lot 3, NCB 12059, Sanbit Subdivision, recorded in Volume
7300, Page 109, Deed and Plat Records, Bexar County, Texas for
the Northeast corner of this tract;
THENCE Along the North line of said Lot 3 as follows:
S17 degrees 02" 33" West, 231.97 ft to a 1/2"
iron pin for an angle point S20 degrees 12' 54"
W, 97.41 ft to a 1/2" iron pin set for the
Southeast corner of this tract:
THENCE N72 degrees 57' 27" West, 324.58 ft to a 1/2" iron pin set in
the East Right of Way line of Embassy ROW for the Southwest
corner of this tract;
THENCE N17 degrees 02' 33" E, 329.33 feet along the East Right
of Way line to the Point of Beginning and NOW KNOWN AS
Lot 48, New City Block 12059, Embassy North Subdivision,
Unit 5C, an addition to the City of San Antonio, Bexar County,
Texas according to the map or plat thereof, recorded in Volume
9527, Page 221, Deed and Plat Records of Bexar County, Texas.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Deed of Trust. If any conflict or inconsistency exists between
this Exhibit B and the remainder of the attached Deed of Trust, this Exhibit B
shall govern.
A. FORECLOSURE PROCEEDINGS. The provisions of Section 24
notwithstanding, foreclosure proceedings shall include without limitation
non-judicial foreclosure pursuant to a power of sale in accordance with statutes
of the State of Texas then in force governing sales of real estate under powers
of sale conferred by deed of trust. Upon the occurrence and during the
continuance of an Event of Default, or at any time thereafter, Grantor
authorizes and empowers the Trustee, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Deed of Trust by
selling, in one or more sales as Beneficiary or Trustee may elect, the Trust
Property then subject to the lien hereof at public auction, to the highest
bidder, for cash or for credit against the indebtedness secured hereby if
Beneficiary is the highest bidder, at the county court house in the county in
Texas in which such Trust Property or any part thereof is situated, as herein
described, in the area designated by the commissioners court for such purpose
pursuant to a recordation of such designation in the real property records of
such county, or if no such recorded designation by the commissioners court has
been made, in the area at the county court house designated in the notice of
proposed sale posted, filed and served in accordance with the further provisions
of this paragraph, between the hours of 10:00 a.m. and 4:00 p.m. on the first
Tuesday of any month. The Trustee shall give notice of the time, place and
terms of said sale, and of the property to be sold as follows: (i) Notice of
such proposed sale shall be given by posting written notice thereof at least
twenty-one days preceding the date of the sale at the court house door, and by
filing a copy of the Notice in the office of the county clerk of the county in
which the sale is to be made, and if the property to be sold is situated in more
than one county, one notice shall be posted at the court house door and filed
with the county clerk of each county in which the property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
each debtor obligated to pay the debt secured hereby according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper, properly addressed to each such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to
the effect that such service was completed shall be prima facie evidence of the
fact of service; (ii) Any notice that is required or permitted to be given to
Grantor may be addressed to Grantor at Grantor's mailing address. Any notice
that is to be given by certified mail to any other debtor may, if no address for
such other debtor is shown by the records of Beneficiary, be addressed to such
other debtor at Grantor's mailing
B-1
<PAGE>
address. Notwithstanding the foregoing provisions of this paragraph (ii),
notice of such sale given in accordance with the requirements of the applicable
law of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers the
Trustee to sell all or any portion of the Trust Property, together or in lots or
parcels, as the Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of the Grantor. The recitals in the conveyance to the purchaser or purchasers
of the Trust Property shall be full and conclusive evidence of the truth of the
matters therein stated, and all prerequisites to such sale shall be presumed to
have been performed and such sale and conveyance shall be conclusive against
Grantor, its heirs, successors and assigns. In no event shall the Trustee be
required to exhibit, present or display at any such sale, any of the personalty
described herein to be sold at such sale. The Trustee making such sale shall
receive the proceeds thereof and shall apply the same as follows: (1) first, he
shall pay the reasonable expense of executing this deed of trust including a
reasonable Trustee's fee or commission; (2) second, he shall pay so far as may
be possible, the Obligations, discharging first that portion of the Obligations
arising under the covenants or agreements herein contained and not evidenced by
the Note; (3) third, he shall pay the residue, if any, to the person or persons
legally entitled thereto.
Payment of the purchase price to Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the application thereof. Said sale shall forever be a bar
against Grantor, its successors and assigns, and all other persons claiming
under it. In addition to and cumulative of the remedies provided in this
clause, the Beneficiary may foreclose or cause to be foreclosed the lien and
security interest of this instrument, in whole or in part, through judicial
foreclosure, private sale, or in any other manner as may at any time be
authorized under the laws of the State of Texas. Beneficiary shall have the
right to bid for the Trust Property and to become the purchaser at any sale made
pursuant to this clause, if it is the highest bidder therefor and in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made, after deducting therefrom
the expenses of the sale, the cost of any enforcement proceeding hereunder and
any other sums which Trustee or Beneficiary is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. If foreclosure
should be commenced by the Trustee, the Beneficiary may at any time before the
sale direct the Trustee to abandon the sale, and may at any time or times
thereafter direct the Trustee to again commence foreclosure; or, irrespective of
whether foreclosure is commenced by the Trustee, the Beneficiary may at any time
after an Event of Default institute suit for foreclosure of the lien of this
instrument. If Beneficiary should institute suit for foreclosure of the lien of
this instrument, Beneficiary may at any time before the entry of final judgment
dismiss the same, and require the Trustee to sell all or part of the Trust
Property in accordance with the provisions of this instrument. No single sale
or series of sales by the Trustee or by any substitute or successor Trustee
under this instrument and no judicial foreclosure shall extinguish the lien or
exhaust the power of sale under this
B-2
<PAGE>
instrument except with respect to the items of property sold, but such lien and
power shall exist for so long as, and may be exercised in any manner provided by
law or as provided in this instrument as often as the circumstances require to
give Beneficiary full relief hereunder. Grantor agrees for itself and its
trustees, receivers, successors and assigns that if any of them shall hold
possession of the Trust Property or any part thereof subsequent to foreclosure
of the lien hereof, Grantor, or the parties so holding possession, shall become
and be considered as tenants at will of the purchaser or purchasers at such
foreclosure sale or sales; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for rental on said premises, and shall be
subject to eviction and removal, forcible or otherwise, with or without process
of law, all damages which may be sustained by any such tenant as a result
thereof being hereby expressly waived.
The sale or sales by Trustee of less than the whole of the Trust
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Trust Property shall be sold; and if the proceeds of such sale
or sales of less than the whole of the Trust Property shall be less than the
aggregate of the Obligations, this Deed of Trust and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Trust Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
or sales of less than the whole of the Trust Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Trust Property. If an Event of Default has occurred and is
continuing hereunder, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such item either through judicial proceedings or
by directing Trustee to proceed as if under a full foreclosure, conducting the
sale as herein provided without declaring the entire Obligations due, and if
sale is made because an Event of Default has occurred and is continuing on an
installment, or a part of any installment, such sale may be made subject to the
unmatured part of the Obligations; and it is agreed that such sale, if so made,
shall not in any manner affect the unmatured part of the Obligations, but as to
such unmatured part, this Deed of Trust shall remain in full force and effect as
though no sale had been made under the provisions of this paragraph. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations. At any such sale (I) Grantor hereby agrees,
on its behalf and on behalf of its heirs, executors, administrators, successors,
personal representatives and assigns, that any and all recitals made in any
assignment of lease or deed of conveyance given by Trustee with respect to the
identity of Beneficiary, the occurrence or existence of any Event of Default,
the acceleration of the maturity of any of the Obligations, the request to sell,
the notice of sale, the giving of notice to all debtors legally entitled
thereto, the time, place, terms, and manner of sale, and receipt, distribution
and application of the money realized therefrom, or the due and proper
appointment of a substitute Trustee, and, without being limited by the
foregoing, with respect to any other act or thing having been duly done by
Beneficiary or by Trustee hereunder, shall be taken by all courts of law and
equity as prima facie evidence that the statements or
B-3
<PAGE>
recitals are the state of facts and are without further question to be so
accepted, and Grantor hereby ratifies and confirms every act that Trustee or any
substitute Trustee hereunder may lawfully do in the Trust Property by virtue
hereof; and (II) the purchaser may disaffirm any easement granted, or rental,
lease or other contract made, in violation of any provision of this Deed of
Trust and may take immediate possession of the Trust Property free from, and
despite the terms of, such grant of easement and rental or lease contract.
B. FINANCIAL INSTITUTIONS. Section 35 of this Deed of Trust is
hereby amended by adding the following paragraph at the end thereof:
To the extent that Beneficiary is a "financial institution" as
defined in Section 26.02 of the Texas Business & Commerce Code, the following
shall apply:
THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
C. RIGHTS AND REMEDIES OF SURETIES. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the rights and
remedies of sureties.
B-4
<PAGE>
Exhibit 4.23
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
KENNETH W. PEARSON, as Trustee
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (as the same may from time to time be extended,
renewed or modified, this "DEED OF TRUST"), made as of this 29 day of July,
1997, by DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR") having its
principal place of business at One Corporate Center, 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301 to KENNETH W. PEARSON having his
principal place of business at Brown, McCarrol & Oaks Hartline, 300 Crescent
Court, Suite 400, Dallas, Texas 75201 (and any subsequent substitutes or
successors thereof pursuant to Section 50 below, "TRUSTEE") to and for the
benefit of STATE STREET BANK AND TRUST COMPANY, solely in its capacity as
trustee and collateral agent under and pursuant to that certain Indenture,
dated July 22, 1997, among Discovery Zone, Inc., State Street Bank and Trust
Company, as trustee, and the Subsidiary Guarantors named therein, its
successors and assigns ("BENEFICIARY"), having an address at Two
International Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the obligations (the "OBLIGATIONS") of Grantor, including,
without limitation, any and all obligations of Grantor under this Deed of Trust,
the Indenture, and the Notes, and all other documents evidencing or securing any
such Obligations including, without limitation, the "RELEVANT DOCUMENTS"),
Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS, PLEDGES,
ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever in trust,
WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the buildings,
structures and improvements of every nature whatsoever now or hereafter located
thereon to the extent owned by Grantor (including, but not limited to, all gas
and electric fixtures, radiators, heaters, docks and docking facilities, engines
and machinery, boilers, elevators and motors, plumbing, heating and air
conditioning fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes which are or shall be attached to the Land or said
buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as
-2-
<PAGE>
all additions to, appurtenances, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon,
-3-
<PAGE>
any item or portion of the Trust Property (including, without limitation, all
claims of Grantor against third parties for loss of, damage to, destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, the Trust Property now existing or hereafter arising),
(iii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Grantor from time to time with respect to damage or loss of or to any
of the Trust Property, (iv) any and all payments (in any form whatsoever) made
or due and payable to Grantor from time to time in connection with the
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trust Property by any Governmental Authority (or any person acting
under color of Governmental Authority), and (v) any and all real estate tax
refunds payable to Grantor with respect to the Trust Property, and refunds or
reimbursements payable with respect to bonds, escrow accounts, or other sums
payable in connection with the use, development or ownership of the Trust
Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the Trust
Property unto Trustee and its successors, substitutes and assigns, for the
benefit of Beneficiary, and its successors and assigns against every person or
party whosoever claiming or to claim the same, or any part thereof;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in
-5-
<PAGE>
connection with the Trust Property by Grantor or the leasing or use of the Trust
Property or any part thereof by Grantor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust
-6-
<PAGE>
Property, subject only to the Permitted Encumbrances. Grantor shall forever
warrant, defend and preserve such title and the validity and priority of the
lien of this Deed of Trust and shall forever warrant and defend the same to
Beneficiary against the claims of all persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default (hereinafter defined), the license
granted to Grantor herein shall immediately and automatically be revoked, and
Beneficiary shall immediately be entitled to possession of all Rents, whether or
not Beneficiary enters upon or takes control of the Trust Property, provided
that if such Event of Default ceases to exist, the license shall automatically
be reinstated. In addition, during the continuation of an Event of Default,
Beneficiary may, either in person or by agent, without bringing any action or
proceeding, or by a receiver appointed by a court, without the necessity of
taking possession of the Trust Property in its own name, and in addition to and
without limiting any of Beneficiary's rights and remedies hereunder, under the
Notes and any other Relevant Documents and as otherwise available at law or in
equity, (a) notify any lessee or other person that the Leases have been assigned
to Beneficiary and that all Rents are to be paid directly to Beneficiary,
whether or not Beneficiary has commenced or completed foreclosure or taken
possession of the Trust Property; (b) settle, compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any Rents
or other obligations in, to and under the Leases; (c) demand, sue for or
otherwise collect, receive, and enforce payment of Rents, including those
past-due and unpaid and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to the Rents and Leases;
(d) enter upon, take possession of and operate the Trust Property; (e) lease all
or any part of the Trust Property; and/or (f) perform any and all obligations of
Grantor under the Leases and exercise any and all rights of Grantor therein
contained to the full extent of Grantor's rights and obligations thereunder,
with or without the bringing of any action or the appointment of a receiver and
without need for any other authorization or other action by Beneficiary or
Grantor. At Beneficiary's request, Grantor shall deliver a copy of this
assignment to each tenant under a Lease and to each manager and managing agent
or operator of the Trust Property. Grantor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice to or consent by Grantor, to comply with all demands of Beneficiary
under this Section 8 and to
-8-
<PAGE>
turn over to Beneficiary on demand all Rents which it receives. Grantor hereby
acknowledges and agrees that payment of any Rents by a person to Beneficiary as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Grantor. Beneficiary is
hereby granted and assigned by Grantor the right, at its option, upon revocation
of the license granted herein, to enter upon the Trust Property in person or by
agent, without bringing any action or proceeding, or by court-appointed receiver
to collect the Rents. Any Rents collected after the revocation of the license
shall be applied towards the payment of the Obligations. Neither the
enforcement of any of the remedies under this Section 8 nor any other remedies
or security interests afforded to Beneficiary under the Relevant Documents, at
law or in equity shall cause Beneficiary to be deemed or construed to be a
Beneficiary in possession of the Trust Property, to obligate Beneficiary to
lease the Trust Property or attempt to do so, or to take any action, incur any
expense, or perform or discharge any obligation, duty or liability whatsoever
under any of the Leases or otherwise. Grantor shall, and hereby agrees to
indemnify Beneficiary for, and to hold Beneficiary harmless from and against,
any and all claims, liability, expenses, losses or damages which may or might be
asserted against or incurred by Beneficiary solely by reason of Beneficiary's
status as an assignee pursuant to the assignment of Rents and Leases contained
herein, but excluding any claim (a) to the extent caused by Beneficiary's gross
negligence or willful misconduct, or (b) to the extent arising solely from
Beneficiary's actions after Beneficiary has taken possession of the Trust
Property. Should Beneficiary incur any such claim, liability, expense, loss or
damage, the amount thereof, including all actual expenses and reasonable fees of
attorneys, shall constitute Obligations secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand. Grantor agrees that all
Leases shall be subject to the prior written approval of Beneficiary, such
approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof,
-9-
<PAGE>
unless Grantor shall have received Beneficiary's prior written consent, such
consent not to be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of the Trust Property is or shall
become a nonconforming use, Grantor will not cause such nonconforming use to be
discontinued or abandoned without the express written consent of Beneficiary,
such consent not to be unreasonably withheld or delayed. Grantor shall not (i)
change the use of the Land in any material respect or (ii) permit or suffer to
occur any waste on or to the Trust Property or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this
-10-
<PAGE>
Deed of Trust shall be effected by any such blanket or umbrella policies,
Grantor shall furnish to Beneficiary certificates with respect to, with
schedules attached thereto showing the amount of the insurance provided under
such policies which is applicable to the Trust Property.
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing
-11-
<PAGE>
or escrow agent who shall be selected by Beneficiary and whose fees shall be
paid by Grantor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Beneficiary of the estimated costs of Restoration,
(ii) funds (or assurances reasonably satisfactory to Beneficiary that such funds
are available) sufficient in addition to the proceeds of insurance to complete
and fully pay for Restoration; and (iii) such architect's certificates, waivers
of lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Beneficiary
may reasonably require and approve. Except to the extent Beneficiary fails to
turn over insurance proceeds, if any, received by Beneficiary hereunder with
respect to such casualty to Grantor, Grantor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Beneficiary, and Grantor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably
-12-
<PAGE>
withheld); and (iii) all of the proceeds of such sale are applied towards
repayment of the Obligations, notwithstanding the fact that the Obligations, or
a portion thereof, may not then be due and payable.
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore
-13-
<PAGE>
collected by Beneficiary shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Grantor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing
-14-
<PAGE>
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Beneficiary in the Trust Property. Notwithstanding
anything to the contrary contained herein, Grantor shall not be obligated to
execute, deliver, file or record any additional documents which increase
Grantor's obligations under this Deed of Trust or the Relevant Documents.
Grantor grants to Beneficiary an irrevocable power of attorney coupled with an
interest for the purpose of exercising the rights provided for in Section 19 and
this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the Mortgagee's Policy of Title Insurance Policy
issued by Chicago Title Insurance Company for the benefit of Beneficiary in
connection with this Deed of Trust (including payment for the cost of any
property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Beneficiary
containing such endorsements as Beneficiary may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
-15-
<PAGE>
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
-16-
<PAGE>
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B)
-17-
<PAGE>
complete any construction on the Trust Property in such manner and form as
Beneficiary deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Trust Property; (D) exercise all
rights and powers of Grantor with respect to the Trust Property, whether in
the name of Grantor or otherwise (including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Trust Property and every part thereof); and
(E) apply the receipts from the Trust Property to the payment of the
Obligations, after deducting therefrom all reasonable expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with
the aforesaid operations and all amounts necessary to pay the taxes,
assessments, insurance and other charges in connection with the Trust
Property, it being agreed that should Beneficiary incur any liability, loss
or damage in the defense of any claims or demands, the amount thereof,
including costs, expenses and reasonable attorneys' fees shall be secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise; and
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a
-18-
<PAGE>
judgment or decree of foreclosure and sale, Beneficiary may bid for and acquire
the Trust Property or any part thereof and in lieu of paying cash therefor may
make settlement for the purchase price by crediting upon the Obligations the net
sales price after deducting therefrom the expenses of the sale and costs of the
action and any other sums which Beneficiary is authorized to deduct under this
Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
-19-
<PAGE>
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the
-20-
<PAGE>
parties set forth in the first paragraph of this Deed of Trust. Grantor's chief
executive office and principal place of business is the Grantor's address set
forth in the first paragraph of this Deed of Trust, and the place where
Grantor's books and records in respect of where the Trust Property is located
are kept is the address of Grantor set forth in the first paragraph of this Deed
of Trust. If an Event of Default shall occur which shall remain uncured,
Beneficiary, in addition to any other rights and remedies which it may have,
shall have and may exercise immediately and without demand, any and all rights
and remedies granted to a secured party upon default under the Uniform
Commercial Code, (including, without limitation, to the extent permitted by law,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Beneficiary may deem necessary for the care, protection
and preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding
-21-
<PAGE>
in which Beneficiary may appear. Beneficiary shall, at its option, be
subrogated to the lien of any mortgage or other security instrument discharged
in whole or in part by the Obligations, and any such subrogation rights shall
constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
-22-
<PAGE>
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
-23-
<PAGE>
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
other Relevant Documents. Beneficiary may resort for the payment of the
Obligations to any other security held by Beneficiary in such order and manner
as Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclosure
this Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Beneficiary shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
-24-
<PAGE>
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, and the words "Trust Property" shall include any portion of the
Trust Property and any interest therein and the words "attorneys' fees" shall
include any and all attorneys' fees, paralegal and law clerk fees (including,
without limitation, fees at the pre-trial, trial and appellate levels incurred
or paid by Beneficiary in protecting its interest in the Trust Property and
Collateral and enforcing its rights hereunder including, but not limited to, all
such fees incurred in connection with any bankruptcy or other insolvency
proceedings). Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW
-25-
<PAGE>
YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
GRANTOR FURTHER CONSENTS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there
-27-
<PAGE>
shall be no merger of this Deed of Trust and any estate in the Trust Property,
by reason of the fact that the same person may own or hold (a) any leasehold
interest in the Trust Property, and/or (b) this Deed of Trust, and/or (c) the
fee interest in the Trust Property or any other estate or interest in the Trust
Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Grantor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time,
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Beneficiary may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, and, if necessary, several successor Trustees in
succession, who shall succeed to all the estate, rights, powers, and duties of
the original Trustee named herein, without any other formality than an
appointment and designation in writing (or other formality required by
applicable law, if any). Such substitute trustee shall not be required to give
bond for the faithful performance of the duties of Trustee hereunder unless
required by Beneficiary. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain
-28-
<PAGE>
Subordination Agreement, dated as of the date hereof, by and among Grantor,
Beneficiary and McDonald's Corporation (the "SUBORDINATION AGREEMENT"),
including any extension, modification, replacement or renewal thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was knowledged before me on July 28, 1997 by Robert G.
Rooney, Senior Vice President of DISCOVERY ZONE, INC., a Delaware corporation,
on behalf of said corporation.
/s/ Mark D. Woodward
--------------------------------
Notary Public, State of New York
[NOTARY SEAL]
<PAGE>
Arlington
Tarrant County, Texas
EXHIBIT A
TRACT I:
Lot 4B Block A, THE PARKS RETAIL CENTER, an Addition to the City of Arlington,
Tarrant County, Texas, according to plat recorded in Cabinet A, Slide 1545, Deed
Records of Tarrant County, Texas.
TRACT II:
BEING A non-exclusive easement for parking, ingress, egress, and utilities, as
created by Shopping Center Easement Agreement recorded in Volume 11379, Page
1387, Deed Records of Tarrant County, Texas, and being more particularly
described by metes and bounds on attached Exhibit "A".
TRACT III:
BEING a non-exclusive access easement as created by Reciprocal Easement
Agreement recorded in Volume 8866, Page 1411, Deed Records of Tarrant County,
Texas.
TRACT 2
BEING a non-exclusive easement for parking, ingress, egress, and utilities, as
created by Shopping Center Easement Agreement recorded in Volume 11379, Page
1387, Deed Records, Tarrant County, Texas, in and to the following property:
BEING a description of all that certain lot, tract or parcel of land situated in
the J. W. Lane Survey, Abstract No. 950, Tarrant County, Texas, same being a
part of Lot 4A, Block A of the Revised Plat of Lot 4 of PARKS RETAIL CENTER, an
addition to the City of Arlington of record in Cabinet A, Slide 1545, of the
Tarrant County Map Records, same being a portion of that tract of land, which is
described as "Tract One" in a conveyance from Petro-Hunt Corporation to HWP
Parks Arlington, Ltd., by deed dated June 10, 1993 and recorded in Volume 11121,
Page 472, of the Tarrrant County Deed Records, and being more particularly
described as follows:
BEGINNING at 5/8 inch iron rod marking and located at the Northeast corner of
Lot 4B of said Replat of Lot 4 of PARKS RETAIL CENTER, same being the most
northerly Northwest corner of said Lot 4A, for the Northwest corner of the
tract of land herein described, described, and being on the arch of a curve
of the South line of West Arbrook Boulevard, a 120 foot right-of way;
THENCE leaving said Lot 4B, along and with the South right-of-way line of said
West Arbrook Boulevard, same being a North line of said Lot 4A, 48.14 feet to
the left, along the arc of said curve, having a radius of 1805.00 feet , a delta
angle of 01 degrees 31 minutes 41 seconds, and a sub-chord which bears South 84
degrees 38 minutes 46 seconds East, a distance of 48.14 feet to the Northeast
corner of the tract of land herein described;
THENCE leaving said West Arbrook Boulevard, through said Lot 4A, the following
courses and distances numbered (1) through (5);
(1) SOUTH, 40 degrees 33 minutes West, a distance of 30.65 feet to a corner of
the tract of land herein described;
(2) SOUTH, a distance of 482.00 feet to a corner of the tract of land herein
described;
<PAGE>
(3) WEST, a distance of 174.70 feet to a reentrant corner of the tract of land
herein described;
(4) SOUTH, a distance of 227.00 feet to a corner of the tract of land herein
described;
(5) West, a distance of 74.00 feet to the most southerly Southwest corner of the
tract of land herein described, same being on a West line of said Lot 4A, and
being on the East line of the HOMART ADDITION (Amended), an addition to the
City of Arlington of record in Cabinet A, Slide 901-904, of the Tarrant County
Map Records;
THENCE along and with a West line of said Lot 4A, and the East line of said
HOMART ADDITION, NORTH, a distance of 291.50 feet to a 5/8 inch iron rod marking
and located at an easterly Northeast corner of said Lot 4A, for an easterly
Northeast corner of the tract of land herein described, same being the Southwest
corner of aforesaid Lot 4B;
THENCE leaving said HOMART ADDITION, along and with a North line of said Lot 4A,
same being the South line of said Lot 4B, East, a distance of 220.70 feet to a
5/8 inch iron rod marking and located at the Southeast corner of said Lot 4B,
same being a reentrant corner of said Lot 4A, for a reentrant corner of the
tract of land herein described;
THENCE along and with a West line of said Lot 4A, the East line of said Lot 4B,
North, a distance of 445.28 feet to the PLACE OR POINT OF BEGINNING and
Containing 1.0449 Acres or 45,516 Square Feet of land, more or less, within the
herein described metes and bounds.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Deed of Trust. If any conflict or inconsistency exists between
this Exhibit B and the remainder of the attached Deed of Trust, this Exhibit B
shall govern.
A. FORECLOSURE PROCEEDINGS. The provisions of Section 24
notwithstanding, foreclosure proceedings shall include without limitation
non-judicial foreclosure pursuant to a power of sale in accordance with statutes
of the State of Texas then in force governing sales of real estate under powers
of sale conferred by deed of trust. Upon the occurrence and during the
continuance of an Event of Default, or at any time thereafter, Grantor
authorizes and empowers the Trustee, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Deed of Trust by
selling, in one or more sales as Beneficiary or Trustee may elect, the Trust
Property then subject to the lien hereof at public auction, to the highest
bidder, for cash or for credit against the indebtedness secured hereby if
Beneficiary is the highest bidder, at the county court house in the county in
Texas in which such Trust Property or any part thereof is situated, as herein
described, in the area designated by the commissioners court for such purpose
pursuant to a recordation of such designation in the real property records of
such county, or if no such recorded designation by the commissioners court has
been made, in the area at the county court house designated in the notice of
proposed sale posted, filed and served in accordance with the further provisions
of this paragraph, between the hours of 10:00 a.m. and 4:00 p.m. on the first
Tuesday of any month. The Trustee shall give notice of the time, place and
terms of said sale, and of the property to be sold as follows: (i) Notice of
such proposed sale shall be given by posting written notice thereof at least
twenty-one days preceding the date of the sale at the court house door, and by
filing a copy of the Notice in the office of the county clerk of the county in
which the sale is to be made, and if the property to be sold is situated in more
than one county, one notice shall be posted at the court house door and filed
with the county clerk of each county in which the property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
each debtor obligated to pay the debt secured hereby according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper, properly addressed to each such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to
the effect that such service was completed shall be prima facie evidence of the
fact of service; (ii) Any notice that is required or permitted to be given to
Grantor may be addressed to Grantor at Grantor's mailing address. Any notice
that is to be given by certified mail to any other debtor may, if no address for
such other debtor is shown by the records of Beneficiary, be addressed to such
other debtor at Grantor's mailing
B-1
<PAGE>
address. Notwithstanding the foregoing provisions of this paragraph (ii),
notice of such sale given in accordance with the requirements of the applicable
law of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers the
Trustee to sell all or any portion of the Trust Property, together or in lots or
parcels, as the Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of the Grantor. The recitals in the conveyance to the purchaser or purchasers
of the Trust Property shall be full and conclusive evidence of the truth of the
matters therein stated, and all prerequisites to such sale shall be presumed to
have been performed and such sale and conveyance shall be conclusive against
Grantor, its heirs, successors and assigns. In no event shall the Trustee be
required to exhibit, present or display at any such sale, any of the personalty
described herein to be sold at such sale. The Trustee making such sale shall
receive the proceeds thereof and shall apply the same as follows: (1) first, he
shall pay the reasonable expense of executing this deed of trust including a
reasonable Trustee's fee or commission; (2) second, he shall pay so far as may
be possible, the Obligations, discharging first that portion of the Obligations
arising under the covenants or agreements herein contained and not evidenced by
the Note; (3) third, he shall pay the residue, if any, to the person or persons
legally entitled thereto.
Payment of the purchase price to Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the application thereof. Said sale shall forever be a bar
against Grantor, its successors and assigns, and all other persons claiming
under it. In addition to and cumulative of the remedies provided in this
clause, the Beneficiary may foreclose or cause to be foreclosed the lien and
security interest of this instrument, in whole or in part, through judicial
foreclosure, private sale, or in any other manner as may at any time be
authorized under the laws of the State of Texas. Beneficiary shall have the
right to bid for the Trust Property and to become the purchaser at any sale made
pursuant to this clause, if it is the highest bidder therefor and in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made, after deducting therefrom
the expenses of the sale, the cost of any enforcement proceeding hereunder and
any other sums which Trustee or Beneficiary is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. If foreclosure
should be commenced by the Trustee, the Beneficiary may at any time before the
sale direct the Trustee to abandon the sale, and may at any time or times
thereafter direct the Trustee to again commence foreclosure; or, irrespective of
whether foreclosure is commenced by the Trustee, the Beneficiary may at any time
after an Event of Default institute suit for foreclosure of the lien of this
instrument. If Beneficiary should institute suit for foreclosure of the lien of
this instrument, Beneficiary may at any time before the entry of final judgment
dismiss the same, and require the Trustee to sell all or part of the Trust
Property in accordance with the provisions of this instrument. No single sale
or series of sales by the Trustee or by any substitute or successor Trustee
under this instrument and no judicial foreclosure shall extinguish the lien or
exhaust the power of sale under this
B-2
<PAGE>
instrument except with respect to the items of property sold, but such lien and
power shall exist for so long as, and may be exercised in any manner provided by
law or as provided in this instrument as often as the circumstances require to
give Beneficiary full relief hereunder. Grantor agrees for itself and its
trustees, receivers, successors and assigns that if any of them shall hold
possession of the Trust Property or any part thereof subsequent to foreclosure
of the lien hereof, Grantor, or the parties so holding possession, shall become
and be considered as tenants at will of the purchaser or purchasers at such
foreclosure sale or sales; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for rental on said premises, and shall be
subject to eviction and removal, forcible or otherwise, with or without process
of law, all damages which may be sustained by any such tenant as a result
thereof being hereby expressly waived.
The sale or sales by Trustee of less than the whole of the Trust
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Trust Property shall be sold; and if the proceeds of such sale
or sales of less than the whole of the Trust Property shall be less than the
aggregate of the Obligations, this Deed of Trust and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Trust Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
or sales of less than the whole of the Trust Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Trust Property. If an Event of Default has occurred and is
continuing hereunder, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such item either through judicial proceedings or
by directing Trustee to proceed as if under a full foreclosure, conducting the
sale as herein provided without declaring the entire Obligations due, and if
sale is made because an Event of Default has occurred and is continuing on an
installment, or a part of any installment, such sale may be made subject to the
unmatured part of the Obligations; and it is agreed that such sale, if so made,
shall not in any manner affect the unmatured part of the Obligations, but as to
such unmatured part, this Deed of Trust shall remain in full force and effect as
though no sale had been made under the provisions of this paragraph. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations. At any such sale (I) Grantor hereby agrees,
on its behalf and on behalf of its heirs, executors, administrators, successors,
personal representatives and assigns, that any and all recitals made in any
assignment of lease or deed of conveyance given by Trustee with respect to the
identity of Beneficiary, the occurrence or existence of any Event of Default,
the acceleration of the maturity of any of the Obligations, the request to sell,
the notice of sale, the giving of notice to all debtors legally entitled
thereto, the time, place, terms, and manner of sale, and receipt, distribution
and application of the money realized therefrom, or the due and proper
appointment of a substitute Trustee, and, without being limited by the
foregoing, with respect to any other act or thing having been duly done by
Beneficiary or by Trustee hereunder, shall be taken by all courts of law and
equity as prima facie evidence that the statements or
B-3
<PAGE>
recitals are the state of facts and are without further question to be so
accepted, and Grantor hereby ratifies and confirms every act that Trustee or any
substitute Trustee hereunder may lawfully do in the Trust Property by virtue
hereof; and (II) the purchaser may disaffirm any easement granted, or rental,
lease or other contract made, in violation of any provision of this Deed of
Trust and may take immediate possession of the Trust Property free from, and
despite the terms of, such grant of easement and rental or lease contract.
B. FINANCIAL INSTITUTIONS. Section 35 of this Deed of Trust is
hereby amended by adding the following paragraph at the end thereof:
To the extent that Beneficiary is a "financial institution" as
defined in Section 26.02 of the Texas Business & Commerce Code, the following
shall apply:
THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
C. RIGHTS AND REMEDIES OF SURETIES. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the rights and
remedies of sureties.
B-4
<PAGE>
Exhibit 4.24
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
KENNETH W. PEARSON , as Trustee
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "DEED OF TRUST"), made as of this 29 day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), having its principal
place of business at One Corporate Center, 110 East Broward Boulevard, Fort
Lauderdale, Florida 33301 to KENNETH W. PEARSON having his principal place of
business at Brown, McCarrol & Oaks Hartline, 300 Crescent Court, Suite 400,
Dallas, Texas 75201 (and any subsequent substitutes or successors thereof
pursuant to Section 50 below, "TRUSTEE") to and for the benefit of STATE
STREET BANK AND TRUST COMPANY, solely in its capacity as trustee and
collateral agent under and pursuant to that certain Indenture, dated July 22,
1997, among Discovery Zone, Inc., State Street Bank and Trust Company, as
trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("BENEFICIARY"), having an address at Two International Place,
Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the obligations (the "OBLIGATIONS") of Grantor, including,
without limitation, any and all obligations of Grantor under this Deed of Trust,
the Indenture, and the Notes, and all other documents evidencing or securing any
such Obligations including, without limitation, the "RELEVANT DOCUMENTS"),
Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS, PLEDGES,
ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever in trust,
WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the buildings,
structures and improvements of every nature whatsoever now or hereafter located
thereon to the extent owned by Grantor (including, but not limited to, all gas
and electric fixtures, radiators, heaters, docks and docking facilities, engines
and machinery, boilers, elevators and motors, plumbing, heating and air
conditioning fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes which are or shall be attached to the Land or said
buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as
-2-
<PAGE>
all additions to, appurtenances, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon,
-3-
<PAGE>
any item or portion of the Trust Property (including, without limitation, all
claims of Grantor against third parties for loss of, damage to, destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, the Trust Property now existing or hereafter arising),
(iii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Grantor from time to time with respect to damage or loss of or to any
of the Trust Property, (iv) any and all payments (in any form whatsoever) made
or due and payable to Grantor from time to time in connection with the
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trust Property by any Governmental Authority (or any person acting
under color of Governmental Authority), and (v) any and all real estate tax
refunds payable to Grantor with respect to the Trust Property, and refunds or
reimbursements payable with respect to bonds, escrow accounts, or other sums
payable in connection with the use, development or ownership of the Trust
Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the Trust
Property unto Trustee and its successors, substitutes and assigns, for the
benefit of Beneficiary, and its successors and assigns against every person or
party whosoever claiming or to claim the same, or any part thereof;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in
-5-
<PAGE>
connection with the Trust Property by Grantor or the leasing or use of the Trust
Property or any part thereof by Grantor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust
-6-
<PAGE>
Property, subject only to the Permitted Encumbrances. Grantor shall forever
warrant, defend and preserve such title and the validity and priority of the
lien of this Deed of Trust and shall forever warrant and defend the same to
Beneficiary against the claims of all persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default (hereinafter defined), the license
granted to Grantor herein shall immediately and automatically be revoked, and
Beneficiary shall immediately be entitled to possession of all Rents, whether or
not Beneficiary enters upon or takes control of the Trust Property, provided
that if such Event of Default ceases to exist, the license shall automatically
be reinstated. In addition, during the continuation of an Event of Default,
Beneficiary may, either in person or by agent, without bringing any action or
proceeding, or by a receiver appointed by a court, without the necessity of
taking possession of the Trust Property in its own name, and in addition to and
without limiting any of Beneficiary's rights and remedies hereunder, under the
Notes and any other Relevant Documents and as otherwise available at law or in
equity, (a) notify any lessee or other person that the Leases have been assigned
to Beneficiary and that all Rents are to be paid directly to Beneficiary,
whether or not Beneficiary has commenced or completed foreclosure or taken
possession of the Trust Property; (b) settle, compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any Rents
or other obligations in, to and under the Leases; (c) demand, sue for or
otherwise collect, receive, and enforce payment of Rents, including those
past-due and unpaid and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to the Rents and Leases;
(d) enter upon, take possession of and operate the Trust Property; (e) lease all
or any part of the Trust Property; and/or (f) perform any and all obligations of
Grantor under the Leases and exercise any and all rights of Grantor therein
contained to the full extent of Grantor's rights and obligations thereunder,
with or without the bringing of any action or the appointment of a receiver and
without need for any other authorization or other action by Beneficiary or
Grantor. At Beneficiary's request, Grantor shall deliver a copy of this
assignment to each tenant under a Lease and to each manager and managing agent
or operator of the Trust Property. Grantor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice to or consent by Grantor, to comply with all demands of Beneficiary
under this Section 8 and to
-8-
<PAGE>
turn over to Beneficiary on demand all Rents which it receives. Grantor hereby
acknowledges and agrees that payment of any Rents by a person to Beneficiary as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Grantor. Beneficiary is
hereby granted and assigned by Grantor the right, at its option, upon revocation
of the license granted herein, to enter upon the Trust Property in person or by
agent, without bringing any action or proceeding, or by court-appointed receiver
to collect the Rents. Any Rents collected after the revocation of the license
shall be applied towards the payment of the Obligations. Neither the
enforcement of any of the remedies under this Section 8 nor any other remedies
or security interests afforded to Beneficiary under the Relevant Documents, at
law or in equity shall cause Beneficiary to be deemed or construed to be a
Beneficiary in possession of the Trust Property, to obligate Beneficiary to
lease the Trust Property or attempt to do so, or to take any action, incur any
expense, or perform or discharge any obligation, duty or liability whatsoever
under any of the Leases or otherwise. Grantor shall, and hereby agrees to
indemnify Beneficiary for, and to hold Beneficiary harmless from and against,
any and all claims, liability, expenses, losses or damages which may or might be
asserted against or incurred by Beneficiary solely by reason of Beneficiary's
status as an assignee pursuant to the assignment of Rents and Leases contained
herein, but excluding any claim (a) to the extent caused by Beneficiary's gross
negligence or willful misconduct, or (b) to the extent arising solely from
Beneficiary's actions after Beneficiary has taken possession of the Trust
Property. Should Beneficiary incur any such claim, liability, expense, loss or
damage, the amount thereof, including all actual expenses and reasonable fees of
attorneys, shall constitute Obligations secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand. Grantor agrees that all
Leases shall be subject to the prior written approval of Beneficiary, such
approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof,
-9-
<PAGE>
unless Grantor shall have received Beneficiary's prior written consent, such
consent not to be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of the Trust Property is or shall
become a nonconforming use, Grantor will not cause such nonconforming use to be
discontinued or abandoned without the express written consent of Beneficiary,
such consent not to be unreasonably withheld or delayed. Grantor shall not (i)
change the use of the Land in any material respect or (ii) permit or suffer to
occur any waste on or to the Trust Property or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this
-10-
<PAGE>
Deed of Trust shall be effected by any such blanket or umbrella policies,
Grantor shall furnish to Beneficiary certificates with respect to, with
schedules attached thereto showing the amount of the insurance provided under
such policies which is applicable to the Trust Property.
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing
-11-
<PAGE>
or escrow agent who shall be selected by Beneficiary and whose fees shall be
paid by Grantor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Beneficiary of the estimated costs of Restoration,
(ii) funds (or assurances reasonably satisfactory to Beneficiary that such funds
are available) sufficient in addition to the proceeds of insurance to complete
and fully pay for Restoration; and (iii) such architect's certificates, waivers
of lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Beneficiary
may reasonably require and approve. Except to the extent Beneficiary fails to
turn over insurance proceeds, if any, received by Beneficiary hereunder with
respect to such casualty to Grantor, Grantor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Beneficiary, and Grantor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably
-12-
<PAGE>
withheld); and (iii) all of the proceeds of such sale are applied towards
repayment of the Obligations, notwithstanding the fact that the Obligations, or
a portion thereof, may not then be due and payable.
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore
-13-
<PAGE>
collected by Beneficiary shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Grantor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing
-14-
<PAGE>
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Beneficiary in the Trust Property. Notwithstanding
anything to the contrary contained herein, Grantor shall not be obligated to
execute, deliver, file or record any additional documents which increase
Grantor's obligations under this Deed of Trust or the Relevant Documents.
Grantor grants to Beneficiary an irrevocable power of attorney coupled with an
interest for the purpose of exercising the rights provided for in Section 19 and
this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the Mortgagee's Policy of Title Insurance Policy
issued by Chicago Title Insurance Company for the benefit of Beneficiary in
connection with this Deed of Trust (including payment for the cost of any
property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Beneficiary
containing such endorsements as Beneficiary may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
-15-
<PAGE>
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
-16-
<PAGE>
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B)
-17-
<PAGE>
complete any construction on the Trust Property in such manner and form as
Beneficiary deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Trust Property; (D) exercise all
rights and powers of Grantor with respect to the Trust Property, whether in
the name of Grantor or otherwise (including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Trust Property and every part thereof); and
(E) apply the receipts from the Trust Property to the payment of the
Obligations, after deducting therefrom all reasonable expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with
the aforesaid operations and all amounts necessary to pay the taxes,
assessments, insurance and other charges in connection with the Trust
Property, it being agreed that should Beneficiary incur any liability, loss
or damage in the defense of any claims or demands, the amount thereof,
including costs, expenses and reasonable attorneys' fees shall be secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise; and
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a
-18-
<PAGE>
judgment or decree of foreclosure and sale, Beneficiary may bid for and acquire
the Trust Property or any part thereof and in lieu of paying cash therefor may
make settlement for the purchase price by crediting upon the Obligations the net
sales price after deducting therefrom the expenses of the sale and costs of the
action and any other sums which Beneficiary is authorized to deduct under this
Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
-19-
<PAGE>
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the
-20-
<PAGE>
parties set forth in the first paragraph of this Deed of Trust. Grantor's chief
executive office and principal place of business is the Grantor's address set
forth in the first paragraph of this Deed of Trust, and the place where
Grantor's books and records in respect of where the Trust Property is located
are kept is the address of Grantor set forth in the first paragraph of this Deed
of Trust. If an Event of Default shall occur which shall remain uncured,
Beneficiary, in addition to any other rights and remedies which it may have,
shall have and may exercise immediately and without demand, any and all rights
and remedies granted to a secured party upon default under the Uniform
Commercial Code, (including, without limitation, to the extent permitted by law,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Beneficiary may deem necessary for the care, protection
and preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding
-21-
<PAGE>
in which Beneficiary may appear. Beneficiary shall, at its option, be
subrogated to the lien of any mortgage or other security instrument discharged
in whole or in part by the Obligations, and any such subrogation rights shall
constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
-22-
<PAGE>
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
-23-
<PAGE>
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
other Relevant Documents. Beneficiary may resort for the payment of the
Obligations to any other security held by Beneficiary in such order and manner
as Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclosure
this Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Beneficiary shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
-24-
<PAGE>
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, and the words "Trust Property" shall include any portion of the
Trust Property and any interest therein and the words "attorneys' fees" shall
include any and all attorneys' fees, paralegal and law clerk fees (including,
without limitation, fees at the pre-trial, trial and appellate levels incurred
or paid by Beneficiary in protecting its interest in the Trust Property and
Collateral and enforcing its rights hereunder including, but not limited to, all
such fees incurred in connection with any bankruptcy or other insolvency
proceedings). Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW
-25-
<PAGE>
YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
GRANTOR FURTHER CONSENTS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there
-27-
<PAGE>
shall be no merger of this Deed of Trust and any estate in the Trust Property,
by reason of the fact that the same person may own or hold (a) any leasehold
interest in the Trust Property, and/or (b) this Deed of Trust, and/or (c) the
fee interest in the Trust Property or any other estate or interest in the Trust
Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Grantor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time,
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Beneficiary may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, and, if necessary, several successor Trustees in
succession, who shall succeed to all the estate, rights, powers, and duties of
the original Trustee named herein, without any other formality than an
appointment and designation in writing (or other formality required by
applicable law, if any). Such substitute trustee shall not be required to give
bond for the faithful performance of the duties of Trustee hereunder unless
required by Beneficiary. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain
-28-
<PAGE>
Subordination Agreement, dated as of the date hereof, by and among Grantor,
Beneficiary and McDonald's Corporation (the "SUBORDINATION AGREEMENT"),
including any extension, modification, replacement or renewal thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was knowledged before me on July 28, 1997 by Robert G.
Rooney, Senior Vice President of DISCOVERY ZONE, INC., a Delaware corporation,
on behalf of said corporation.
/s/ Mark D. Woodward
--------------------------------
Notary Public, State of New York
Notary Seal
<PAGE>
Leon Valley
Bexar County, Texas
EXHIBIT A
LOT 9,
BLOCK 6,
COUNTY BLOCK 4429,
BANDERA EXCHANGE,
UNIT 16,
AN ADDITION TO THE CITY OF LEON VALLEY, BEXAR COUNTY, TEXAS ACCORDING TO THE
MAP OR PLAT THEREOF, RECORDED IN VOLUME 952B, PAGE 8, DEED AND PLAT RECORDS
OF BEXAR COUNTY, TEXAS.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Deed of Trust. If any conflict or inconsistency exists between
this Exhibit B and the remainder of the attached Deed of Trust, this Exhibit B
shall govern.
A. FORECLOSURE PROCEEDINGS. The provisions of Section 24
notwithstanding, foreclosure proceedings shall include without limitation
non-judicial foreclosure pursuant to a power of sale in accordance with statutes
of the State of Texas then in force governing sales of real estate under powers
of sale conferred by deed of trust. Upon the occurrence and during the
continuance of an Event of Default, or at any time thereafter, Grantor
authorizes and empowers the Trustee, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Deed of Trust by
selling, in one or more sales as Beneficiary or Trustee may elect, the Trust
Property then subject to the lien hereof at public auction, to the highest
bidder, for cash or for credit against the indebtedness secured hereby if
Beneficiary is the highest bidder, at the county court house in the county in
Texas in which such Trust Property or any part thereof is situated, as herein
described, in the area designated by the commissioners court for such purpose
pursuant to a recordation of such designation in the real property records of
such county, or if no such recorded designation by the commissioners court has
been made, in the area at the county court house designated in the notice of
proposed sale posted, filed and served in accordance with the further provisions
of this paragraph, between the hours of 10:00 a.m. and 4:00 p.m. on the first
Tuesday of any month. The Trustee shall give notice of the time, place and
terms of said sale, and of the property to be sold as follows: (i) Notice of
such proposed sale shall be given by posting written notice thereof at least
twenty-one days preceding the date of the sale at the court house door, and by
filing a copy of the Notice in the office of the county clerk of the county in
which the sale is to be made, and if the property to be sold is situated in more
than one county, one notice shall be posted at the court house door and filed
with the county clerk of each county in which the property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
each debtor obligated to pay the debt secured hereby according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper, properly addressed to each such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to
the effect that such service was completed shall be prima facie evidence of the
fact of service; (ii) Any notice that is required or permitted to be given to
Grantor may be addressed to Grantor at Grantor's mailing address. Any notice
that is to be given by certified mail to any other debtor may, if no address for
such other debtor is shown by the records of Beneficiary, be addressed to such
other debtor at Grantor's mailing
B-1
<PAGE>
address. Notwithstanding the foregoing provisions of this paragraph (ii),
notice of such sale given in accordance with the requirements of the applicable
law of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers the
Trustee to sell all or any portion of the Trust Property, together or in lots or
parcels, as the Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of the Grantor. The recitals in the conveyance to the purchaser or purchasers
of the Trust Property shall be full and conclusive evidence of the truth of the
matters therein stated, and all prerequisites to such sale shall be presumed to
have been performed and such sale and conveyance shall be conclusive against
Grantor, its heirs, successors and assigns. In no event shall the Trustee be
required to exhibit, present or display at any such sale, any of the personalty
described herein to be sold at such sale. The Trustee making such sale shall
receive the proceeds thereof and shall apply the same as follows: (1) first, he
shall pay the reasonable expense of executing this deed of trust including a
reasonable Trustee's fee or commission; (2) second, he shall pay so far as may
be possible, the Obligations, discharging first that portion of the Obligations
arising under the covenants or agreements herein contained and not evidenced by
the Note; (3) third, he shall pay the residue, if any, to the person or persons
legally entitled thereto.
Payment of the purchase price to Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the application thereof. Said sale shall forever be a bar
against Grantor, its successors and assigns, and all other persons claiming
under it. In addition to and cumulative of the remedies provided in this
clause, the Beneficiary may foreclose or cause to be foreclosed the lien and
security interest of this instrument, in whole or in part, through judicial
foreclosure, private sale, or in any other manner as may at any time be
authorized under the laws of the State of Texas. Beneficiary shall have the
right to bid for the Trust Property and to become the purchaser at any sale made
pursuant to this clause, if it is the highest bidder therefor and in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made, after deducting therefrom
the expenses of the sale, the cost of any enforcement proceeding hereunder and
any other sums which Trustee or Beneficiary is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. If foreclosure
should be commenced by the Trustee, the Beneficiary may at any time before the
sale direct the Trustee to abandon the sale, and may at any time or times
thereafter direct the Trustee to again commence foreclosure; or, irrespective of
whether foreclosure is commenced by the Trustee, the Beneficiary may at any time
after an Event of Default institute suit for foreclosure of the lien of this
instrument. If Beneficiary should institute suit for foreclosure of the lien of
this instrument, Beneficiary may at any time before the entry of final judgment
dismiss the same, and require the Trustee to sell all or part of the Trust
Property in accordance with the provisions of this instrument. No single sale
or series of sales by the Trustee or by any substitute or successor Trustee
under this instrument and no judicial foreclosure shall extinguish the lien or
exhaust the power of sale under this
B-2
<PAGE>
instrument except with respect to the items of property sold, but such lien and
power shall exist for so long as, and may be exercised in any manner provided by
law or as provided in this instrument as often as the circumstances require to
give Beneficiary full relief hereunder. Grantor agrees for itself and its
trustees, receivers, successors and assigns that if any of them shall hold
possession of the Trust Property or any part thereof subsequent to foreclosure
of the lien hereof, Grantor, or the parties so holding possession, shall become
and be considered as tenants at will of the purchaser or purchasers at such
foreclosure sale or sales; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for rental on said premises, and shall be
subject to eviction and removal, forcible or otherwise, with or without process
of law, all damages which may be sustained by any such tenant as a result
thereof being hereby expressly waived.
The sale or sales by Trustee of less than the whole of the Trust
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Trust Property shall be sold; and if the proceeds of such sale
or sales of less than the whole of the Trust Property shall be less than the
aggregate of the Obligations, this Deed of Trust and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Trust Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
or sales of less than the whole of the Trust Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Trust Property. If an Event of Default has occurred and is
continuing hereunder, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such item either through judicial proceedings or
by directing Trustee to proceed as if under a full foreclosure, conducting the
sale as herein provided without declaring the entire Obligations due, and if
sale is made because an Event of Default has occurred and is continuing on an
installment, or a part of any installment, such sale may be made subject to the
unmatured part of the Obligations; and it is agreed that such sale, if so made,
shall not in any manner affect the unmatured part of the Obligations, but as to
such unmatured part, this Deed of Trust shall remain in full force and effect as
though no sale had been made under the provisions of this paragraph. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations. At any such sale (I) Grantor hereby agrees,
on its behalf and on behalf of its heirs, executors, administrators, successors,
personal representatives and assigns, that any and all recitals made in any
assignment of lease or deed of conveyance given by Trustee with respect to the
identity of Beneficiary, the occurrence or existence of any Event of Default,
the acceleration of the maturity of any of the Obligations, the request to sell,
the notice of sale, the giving of notice to all debtors legally entitled
thereto, the time, place, terms, and manner of sale, and receipt, distribution
and application of the money realized therefrom, or the due and proper
appointment of a substitute Trustee, and, without being limited by the
foregoing, with respect to any other act or thing having been duly done by
Beneficiary or by Trustee hereunder, shall be taken by all courts of law and
equity as prima facie evidence that the statements or
B-3
<PAGE>
recitals are the state of facts and are without further question to be so
accepted, and Grantor hereby ratifies and confirms every act that Trustee or any
substitute Trustee hereunder may lawfully do in the Trust Property by virtue
hereof; and (II) the purchaser may disaffirm any easement granted, or rental,
lease or other contract made, in violation of any provision of this Deed of
Trust and may take immediate possession of the Trust Property free from, and
despite the terms of, such grant of easement and rental or lease contract.
B. FINANCIAL INSTITUTIONS. Section 35 of this Deed of Trust is
hereby amended by adding the following paragraph at the end thereof:
To the extent that Beneficiary is a "financial institution" as
defined in Section 26.02 of the Texas Business & Commerce Code, the following
shall apply:
THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
C. RIGHTS AND REMEDIES OF SURETIES. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the rights and
remedies of sureties.
B-4
<PAGE>
Exhibit 4.25
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
KENNETH W. PEARSON, as Trustee
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "DEED OF TRUST"), made as of this 29th day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), successor in interest
to Discovery Zone Children's Amusement Corporation, successor in interest to
Discovery Zone L.P., having its principal place of business at One Corporate
Center, 110 East Broward Boulevard, Fort Lauderdale, Florida 33301 to KENNETH W.
PEARSON having his principal place of business at Brown, McCarrol & Oaks
Hartline, 300 Crescent Court, Suite 400, Dallas, Texas 75201 (and any subsequent
substitutes or successors thereof pursuant to Section 50 below, "TRUSTEE") to
and for the benefit of STATE STREET BANK AND TRUST COMPANY, solely in its
capacity as trustee and collateral agent under and pursuant to that certain
Indenture, dated July 22, 1997, among Discovery Zone, Inc., State Street Bank
and Trust Company, as trustee, and the Subsidiary Guarantors named therein, its
successors and assigns ("BENEFICIARY"), having an address at Two International
Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the obligations (the "OBLIGATIONS") of Grantor, including,
without limitation, any and all obligations of Grantor under this Deed of Trust,
the Indenture, and the Notes, and all other documents evidencing or securing any
such Obligations including, without limitation, the "RELEVANT DOCUMENTS"),
Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS, PLEDGES,
ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever in trust,
WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the buildings,
structures and improvements of every nature whatsoever now or hereafter located
thereon to the extent owned by Grantor (including, but not limited to, all gas
and electric fixtures, radiators, heaters, docks and docking facilities, engines
and machinery, boilers, elevators and motors, plumbing, heating and air
conditioning fixtures, carpeting and other floor coverings, water heaters,
awnings and storm sashes which are or shall be attached to the Land or said
buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as
-2-
<PAGE>
all additions to, appurtenances, substitutions for, replacements of or
accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon,
-3-
<PAGE>
any item or portion of the Trust Property (including, without limitation, all
claims of Grantor against third parties for loss of, damage to, destruction of,
or for proceeds payable under, or unearned premiums with respect to, policies of
insurance in respect of, the Trust Property now existing or hereafter arising),
(iii) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Grantor from time to time with respect to damage or loss of or to any
of the Trust Property, (iv) any and all payments (in any form whatsoever) made
or due and payable to Grantor from time to time in connection with the
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Trust Property by any Governmental Authority (or any person acting
under color of Governmental Authority), and (v) any and all real estate tax
refunds payable to Grantor with respect to the Trust Property, and refunds or
reimbursements payable with respect to bonds, escrow accounts, or other sums
payable in connection with the use, development or ownership of the Trust
Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the Trust
Property unto Trustee and its successors, substitutes and assigns, for the
benefit of Beneficiary, and its successors and assigns against every person or
party whosoever claiming or to claim the same, or any part thereof;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
-4-
<PAGE>
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
now or hereafter in effect, relating to the protection of the environment, the
impact of Hazardous Substances or the generation, disposal or remediation
thereof on human health or safety, or the Release or threatened Release of
Hazardous Substances or otherwise relating to the Use of Hazardous Substances.
For purposes of this definition, (A) "HAZARDOUS SUBSTANCES" means collectively,
(i) any petroleum or petroleum products or waste oils, explosives, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls ("PCBS"), and lead-based paint, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definitions of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (iii) any other chemical or any
other material or substance, exposure to which is now or hereafter prohibited,
limited or regulated under any Environmental Law; (B) "USE" means, with respect
to any Hazardous Substance, the generation, manufacture, processing,
distribution, handling, use, treatment, recycling or storage of such Hazardous
Substance or transportation of such Hazardous Substance; and (C) "RELEASE" means
any release, spill, emission, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or outdoor
environment (including, without limitation, the movement of Hazardous Substances
through ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in
-5-
<PAGE>
connection with the Trust Property by Grantor or the leasing or use of the Trust
Property or any part thereof by Grantor.
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust
-6-
<PAGE>
Property, subject only to the Permitted Encumbrances. Grantor shall forever
warrant, defend and preserve such title and the validity and priority of the
lien of this Deed of Trust and shall forever warrant and defend the same to
Beneficiary against the claims of all persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding
-7-
<PAGE>
title policy so that such error is corrected and to execute and cause to be
recorded, if applicable, such document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default (hereinafter defined), the license
granted to Grantor herein shall immediately and automatically be revoked, and
Beneficiary shall immediately be entitled to possession of all Rents, whether or
not Beneficiary enters upon or takes control of the Trust Property, provided
that if such Event of Default ceases to exist, the license shall automatically
be reinstated. In addition, during the continuation of an Event of Default,
Beneficiary may, either in person or by agent, without bringing any action or
proceeding, or by a receiver appointed by a court, without the necessity of
taking possession of the Trust Property in its own name, and in addition to and
without limiting any of Beneficiary's rights and remedies hereunder, under the
Notes and any other Relevant Documents and as otherwise available at law or in
equity, (a) notify any lessee or other person that the Leases have been assigned
to Beneficiary and that all Rents are to be paid directly to Beneficiary,
whether or not Beneficiary has commenced or completed foreclosure or taken
possession of the Trust Property; (b) settle, compromise, release, extend the
time of payment of, and make allowances, adjustments and discounts of any Rents
or other obligations in, to and under the Leases; (c) demand, sue for or
otherwise collect, receive, and enforce payment of Rents, including those
past-due and unpaid and other rights under the Leases, prosecute any action or
proceeding, and defend against any claim with respect to the Rents and Leases;
(d) enter upon, take possession of and operate the Trust Property; (e) lease all
or any part of the Trust Property; and/or (f) perform any and all obligations of
Grantor under the Leases and exercise any and all rights of Grantor therein
contained to the full extent of Grantor's rights and obligations thereunder,
with or without the bringing of any action or the appointment of a receiver and
without need for any other authorization or other action by Beneficiary or
Grantor. At Beneficiary's request, Grantor shall deliver a copy of this
assignment to each tenant under a Lease and to each manager and managing agent
or operator of the Trust Property. Grantor irrevocably directs any tenant,
manager, managing agent, or operator of the Property, without any requirement
for notice to or consent by Grantor, to comply with all demands of Beneficiary
under this Section 8 and to
-8-
<PAGE>
turn over to Beneficiary on demand all Rents which it receives. Grantor hereby
acknowledges and agrees that payment of any Rents by a person to Beneficiary as
hereinabove provided shall constitute payment by such person, as fully and with
the same effect as if such Rents had been paid to Grantor. Beneficiary is
hereby granted and assigned by Grantor the right, at its option, upon revocation
of the license granted herein, to enter upon the Trust Property in person or by
agent, without bringing any action or proceeding, or by court-appointed receiver
to collect the Rents. Any Rents collected after the revocation of the license
shall be applied towards the payment of the Obligations. Neither the
enforcement of any of the remedies under this Section 8 nor any other remedies
or security interests afforded to Beneficiary under the Relevant Documents, at
law or in equity shall cause Beneficiary to be deemed or construed to be a
Beneficiary in possession of the Trust Property, to obligate Beneficiary to
lease the Trust Property or attempt to do so, or to take any action, incur any
expense, or perform or discharge any obligation, duty or liability whatsoever
under any of the Leases or otherwise. Grantor shall, and hereby agrees to
indemnify Beneficiary for, and to hold Beneficiary harmless from and against,
any and all claims, liability, expenses, losses or damages which may or might be
asserted against or incurred by Beneficiary solely by reason of Beneficiary's
status as an assignee pursuant to the assignment of Rents and Leases contained
herein, but excluding any claim (a) to the extent caused by Beneficiary's gross
negligence or willful misconduct, or (b) to the extent arising solely from
Beneficiary's actions after Beneficiary has taken possession of the Trust
Property. Should Beneficiary incur any such claim, liability, expense, loss or
damage, the amount thereof, including all actual expenses and reasonable fees of
attorneys, shall constitute Obligations secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand. Grantor agrees that all
Leases shall be subject to the prior written approval of Beneficiary, such
approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof,
-9-
<PAGE>
unless Grantor shall have received Beneficiary's prior written consent, such
consent not to be unreasonably withheld or delayed. If under applicable zoning
provisions the use of all or any portion of the Trust Property is or shall
become a nonconforming use, Grantor will not cause such nonconforming use to be
discontinued or abandoned without the express written consent of Beneficiary,
such consent not to be unreasonably withheld or delayed. Grantor shall not (i)
change the use of the Land in any material respect or (ii) permit or suffer to
occur any waste on or to the Trust Property or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this
-10-
<PAGE>
Deed of Trust shall be effected by any such blanket or umbrella policies,
Grantor shall furnish to Beneficiary certificates with respect to, with
schedules attached thereto showing the amount of the insurance provided under
such policies which is applicable to the Trust Property.
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing
-11-
<PAGE>
or escrow agent who shall be selected by Beneficiary and whose fees shall be
paid by Grantor), to pay the cost of restoration shall require (i) evidence
reasonably satisfactory to Beneficiary of the estimated costs of Restoration,
(ii) funds (or assurances reasonably satisfactory to Beneficiary that such funds
are available) sufficient in addition to the proceeds of insurance to complete
and fully pay for Restoration; and (iii) such architect's certificates, waivers
of lien, contractor's sworn statements, title insurance endorsements, plats of
surveys and such other evidences of cost, payment and performance as Beneficiary
may reasonably require and approve. Except to the extent Beneficiary fails to
turn over insurance proceeds, if any, received by Beneficiary hereunder with
respect to such casualty to Grantor, Grantor hereby covenants to restore,
repair, replace or rebuild the Improvements, to be of at least equal value, and
of substantially the same character as prior to such loss or damage, all to be
effected in accordance with plans, specifications and procedures to be first
submitted to and reasonably approved by Beneficiary, and Grantor shall pay all
costs of such restoring, repairing, replacing or rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably
-12-
<PAGE>
withheld); and (iii) all of the proceeds of such sale are applied towards
repayment of the Obligations, notwithstanding the fact that the Obligations, or
a portion thereof, may not then be due and payable.
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore
-13-
<PAGE>
collected by Beneficiary shall be credited on the principal balance of the Notes
and all other Obligations (or, if the Notes and all other Obligations have been
or would thereby be paid in full, refunded to Grantor), and the provisions of
the Notes and the other Relevant Documents immediately be deemed reformed and
the amounts thereafter collectible hereunder and thereunder reduced, without the
necessity of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing
-14-
<PAGE>
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Beneficiary in the Trust Property. Notwithstanding
anything to the contrary contained herein, Grantor shall not be obligated to
execute, deliver, file or record any additional documents which increase
Grantor's obligations under this Deed of Trust or the Relevant Documents.
Grantor grants to Beneficiary an irrevocable power of attorney coupled with an
interest for the purpose of exercising the rights provided for in Section 19 and
this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the Mortgagee's Policy of Title Insurance Policy
issued by Chicago Title Insurance Company for the benefit of Beneficiary in
connection with this Deed of Trust (including payment for the cost of any
property surveys ("SURVEYS") prepared in connection therewith), which title
insurance policy shall be in form and substance satisfactory to Beneficiary
containing such endorsements as Beneficiary may reasonably request, including,
without limitation, the deletion of any creditor's rights exception and (to the
extent available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
-15-
<PAGE>
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
-16-
<PAGE>
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B)
-17-
<PAGE>
complete any construction on the Trust Property in such manner and form as
Beneficiary deems advisable; (C) make alterations, additions, renewals,
replacements and improvements to or on the Trust Property; (D) exercise all
rights and powers of Grantor with respect to the Trust Property, whether in
the name of Grantor or otherwise (including, without limitation, the right
to make, cancel, enforce or modify Leases, obtain and evict tenants, and
demand, sue for, collect and receive all earnings, revenues, rents, issues,
profits and other income of the Trust Property and every part thereof); and
(E) apply the receipts from the Trust Property to the payment of the
Obligations, after deducting therefrom all reasonable expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with
the aforesaid operations and all amounts necessary to pay the taxes,
assessments, insurance and other charges in connection with the Trust
Property, it being agreed that should Beneficiary incur any liability, loss
or damage in the defense of any claims or demands, the amount thereof,
including costs, expenses and reasonable attorneys' fees shall be secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise; and
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a
-18-
<PAGE>
judgment or decree of foreclosure and sale, Beneficiary may bid for and acquire
the Trust Property or any part thereof and in lieu of paying cash therefor may
make settlement for the purchase price by crediting upon the Obligations the net
sales price after deducting therefrom the expenses of the sale and costs of the
action and any other sums which Beneficiary is authorized to deduct under this
Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
-19-
<PAGE>
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute such suit
or to evidence to bidders at any sale which may be had pursuant to such decree
the true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the
-20-
<PAGE>
parties set forth in the first paragraph of this Deed of Trust. Grantor's chief
executive office and principal place of business is the Grantor's address set
forth in the first paragraph of this Deed of Trust, and the place where
Grantor's books and records in respect of where the Trust Property is located
are kept is the address of Grantor set forth in the first paragraph of this Deed
of Trust. If an Event of Default shall occur which shall remain uncured,
Beneficiary, in addition to any other rights and remedies which it may have,
shall have and may exercise immediately and without demand, any and all rights
and remedies granted to a secured party upon default under the Uniform
Commercial Code, (including, without limitation, to the extent permitted by law,
the right to take possession of the Collateral or any part thereof, and to take
such other measures as Beneficiary may deem necessary for the care, protection
and preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding
-21-
<PAGE>
in which Beneficiary may appear. Beneficiary shall, at its option, be
subrogated to the lien of any mortgage or other security instrument discharged
in whole or in part by the Obligations, and any such subrogation rights shall
constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
-22-
<PAGE>
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
-23-
<PAGE>
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms of this Deed of Trust or the
other Relevant Documents. Beneficiary may resort for the payment of the
Obligations to any other security held by Beneficiary in such order and manner
as Beneficiary, in its discretion, may elect. Beneficiary may take action to
recover the Obligations, or any portion thereof, or to enforce any covenant
hereof without prejudice to the right of Beneficiary thereafter to foreclosure
this Deed of Trust. The rights and remedies of Beneficiary under this Deed of
Trust shall be separate, distinct and cumulative and none shall be given effect
to the exclusion of the others. No act of Beneficiary shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Beneficiary shall not be limited exclusively to the rights and
remedies herein stated but shall be entitled to every right and remedy now or
hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
-24-
<PAGE>
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust, unincorporated association, government, governmental authority, and any
other entity, and the words "Trust Property" shall include any portion of the
Trust Property and any interest therein and the words "attorneys' fees" shall
include any and all attorneys' fees, paralegal and law clerk fees (including,
without limitation, fees at the pre-trial, trial and appellate levels incurred
or paid by Beneficiary in protecting its interest in the Trust Property and
Collateral and enforcing its rights hereunder including, but not limited to, all
such fees incurred in connection with any bankruptcy or other insolvency
proceedings). Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW
-25-
<PAGE>
YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THE RELEVANT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
GRANTOR FURTHER CONSENTS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN WHICH
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
-26-
<PAGE>
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there
-27-
<PAGE>
shall be no merger of this Deed of Trust and any estate in the Trust Property,
by reason of the fact that the same person may own or hold (a) any leasehold
interest in the Trust Property, and/or (b) this Deed of Trust, and/or (c) the
fee interest in the Trust Property or any other estate or interest in the Trust
Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct, and hereby waives any
statutory fee and agrees to accept reasonable compensation, in lieu thereof, for
any services rendered by Trustee in accordance with the terms hereof. Trustee
may resign at any time upon giving thirty (30) days' notice to Grantor and to
Beneficiary. Beneficiary may remove Trustee at any time or from time to time,
and select a successor trustee. In the event of the death, removal,
resignation, refusal to act, or inability to act of Trustee, or in its sole
discretion for any reason whatsoever Beneficiary may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, and, if necessary, several successor Trustees in
succession, who shall succeed to all the estate, rights, powers, and duties of
the original Trustee named herein, without any other formality than an
appointment and designation in writing (or other formality required by
applicable law, if any). Such substitute trustee shall not be required to give
bond for the faithful performance of the duties of Trustee hereunder unless
required by Beneficiary. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain
-28-
<PAGE>
Subordination Agreement, dated as of the date hereof, by and among Grantor,
Beneficiary and McDonald's Corporation (the "SUBORDINATION AGREEMENT"),
including any extension, modification, replacement or renewal thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-29-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was knowledged before me on July 28, 1997 by Robert G.
Rooney, Senior Vice President of DISCOVERY ZONE, INC., a Delaware corporation,
on behalf of said corporation.
/s/ Mark D. Woodward
-------------------------------- [Notary Seal]
Notary Public, State of New York
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Being a tract or parcel of land containing 2.0000 acres situated in the Elijah
Alcorn League, Abstract No. 1, in Fort Bend County, Texas, and being all of that
certain Commercial Reserve "G" in Creekside at Town Center as recorded in Slide
1281/B and 1282/A of the Plat Records of Fort Bend County, said 2.0000 acre
tract being more particularly described by metes and bounds as follows (with all
bearings referenced to the record plat):
BEGINNING at a 5/8 inch iron rod found for the most southerly southwest corner
of herein described 2.0000 acre Reserve "G", same being the most easterly return
at the intersection of the northerly right-of-way of Town Center Drive (65 feet
wide) with the proposed southeasterly right-of-way line of U.S. Highway 59;
THENCE in a northerly direction, a distance of 63.48 feet along the
southwesterly line of said Reserve "G", same being the northerly right-of-way
line of said Town Center Drive, following the arc of a curve to the right,
having a radius of 38.00 feet and a central angle of 95 degrees 42' 37''
(Chord equals 02 degrees 02' 59'' 56.35' to a 5/8 inch iron rod found for
a point of tangency, being also in the east line of the 0.5681 acre Landscape
and Access Reserve "H" in said Creekside at Town Center;
THENCE North 45 degrees 48' 19'' East along the northwesterly line of said
----
Reserve "G" and the southeasterly line of said Landscape and Access Reserve
"H", a distance of 113.44 feet to an aluminum disc in concrete found for and
angle point;
THENCE North 40 degrees 05' 41'' along the northwesterly line of said Reserve
"G" and the southeasterly line of said Landscape and Access Reserve "H", a
distance of 34.25 feet to a 5/8 inch iron rod found for the northwest corner
of said Reserve "G" in the northerly line of said Creekside at Town Center,
same being the southerly line of the Fort Bend County Levee Improvement
District No. 2 Easement recorded in Volume 841, Page 90, of the Deed Records
of Fort Bend County;
THENCE South 71 de 18' 15'' East along the northerly line of said Reserve "G"
and the southerly line of said Levee Easement, a distance of 247.17 feet to a
1/2-inch iron rod found for an angle point;
THENCE South 76 degrees 29' 15'' East along the northerly line of said
Reserve "G" and the southerly line of said Levee Easement, a distance of
76.58 feet to a 5/8-inch iron rod found for the most northerly northeast
corner of said Reserve "G";
THENCE South 14 degrees 02' 11'' East along the northeasterly line of said
Reserve "G" and the southerly line of said Levee Easement, a distance of
50.32 feet to a 1/2-inch iron rod found for the most easterly northeast
corner of said Reserve "G", same being the most westerly northwest corner of
Reserve "F" in the Replat of Reserves "E" and "F", Creekside at Town Center,
as recorded in Slide 1320/A of the Plat records of Fort Bend County;
THENCE South 40 degrees 05' 42'' West along the line common to said Reserves
"G" and "F", a distance of 283.88 feet to a 1/2 inch iron rod set for the
southeast corner of said Reserve "G" in the northerly right-of-way line of
said Town Center Drive;
THENCE North 49 degrees 54' 18'' West along the southerly line of said
Reserve "G" and the northerly right-of-way line of said Town Center Drive, a
distance of 312.87 feet to the POINT OF BEGINNING and containing 2.0000 acres
of land, more or less.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into Section 48
of the attached Deed of Trust. If any conflict or inconsistency exists between
this Exhibit B and the remainder of the attached Deed of Trust, this Exhibit B
shall govern.
A. FORECLOSURE PROCEEDINGS. The provisions of Section 24
notwithstanding, foreclosure proceedings shall include without limitation
non-judicial foreclosure pursuant to a power of sale in accordance with statutes
of the State of Texas then in force governing sales of real estate under powers
of sale conferred by deed of trust. Upon the occurrence and during the
continuance of an Event of Default, or at any time thereafter, Grantor
authorizes and empowers the Trustee, at the request of Beneficiary (which
request is hereby conclusively presumed), to enforce this Deed of Trust by
selling, in one or more sales as Beneficiary or Trustee may elect, the Trust
Property then subject to the lien hereof at public auction, to the highest
bidder, for cash or for credit against the indebtedness secured hereby if
Beneficiary is the highest bidder, at the county court house in the county in
Texas in which such Trust Property or any part thereof is situated, as herein
described, in the area designated by the commissioners court for such purpose
pursuant to a recordation of such designation in the real property records of
such county, or if no such recorded designation by the commissioners court has
been made, in the area at the county court house designated in the notice of
proposed sale posted, filed and served in accordance with the further provisions
of this paragraph, between the hours of 10:00 a.m. and 4:00 p.m. on the first
Tuesday of any month. The Trustee shall give notice of the time, place and
terms of said sale, and of the property to be sold as follows: (i) Notice of
such proposed sale shall be given by posting written notice thereof at least
twenty-one days preceding the date of the sale at the court house door, and by
filing a copy of the Notice in the office of the county clerk of the county in
which the sale is to be made, and if the property to be sold is situated in more
than one county, one notice shall be posted at the court house door and filed
with the county clerk of each county in which the property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one days preceding
the date of sale, serve written notice of the proposed sale by certified mail on
each debtor obligated to pay the debt secured hereby according to the records of
Beneficiary. Service of such notice shall be completed upon deposit of the
notice, enclosed in a postpaid wrapper, properly addressed to each such debtor
at the most recent address as shown by the records of Beneficiary, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person having knowledge of the facts to
the effect that such service was completed shall be prima facie evidence of the
fact of service; (ii) Any notice that is required or permitted to be given to
Grantor may be addressed to Grantor at Grantor's mailing address. Any notice
that is to be given by certified mail to any other debtor may, if no address for
such other debtor is shown by the records of Beneficiary, be addressed to such
other debtor at Grantor's mailing
B-1
<PAGE>
address. Notwithstanding the foregoing provisions of this paragraph (ii),
notice of such sale given in accordance with the requirements of the applicable
law of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale. Grantor hereby authorizes and empowers the
Trustee to sell all or any portion of the Trust Property, together or in lots or
parcels, as the Trustee may deem expedient, and to execute and deliver to the
purchaser or purchasers of such property, good and sufficient deeds of
conveyance of fee simple title with covenants of general warranty made on behalf
of the Grantor. The recitals in the conveyance to the purchaser or purchasers
of the Trust Property shall be full and conclusive evidence of the truth of the
matters therein stated, and all prerequisites to such sale shall be presumed to
have been performed and such sale and conveyance shall be conclusive against
Grantor, its heirs, successors and assigns. In no event shall the Trustee be
required to exhibit, present or display at any such sale, any of the personalty
described herein to be sold at such sale. The Trustee making such sale shall
receive the proceeds thereof and shall apply the same as follows: (1) first, he
shall pay the reasonable expense of executing this deed of trust including a
reasonable Trustee's fee or commission; (2) second, he shall pay so far as may
be possible, the Obligations, discharging first that portion of the Obligations
arising under the covenants or agreements herein contained and not evidenced by
the Note; (3) third, he shall pay the residue, if any, to the person or persons
legally entitled thereto.
Payment of the purchase price to Trustee shall satisfy the
obligation of the purchaser at such sale therefor, and such purchaser shall not
be responsible for the application thereof. Said sale shall forever be a bar
against Grantor, its successors and assigns, and all other persons claiming
under it. In addition to and cumulative of the remedies provided in this
clause, the Beneficiary may foreclose or cause to be foreclosed the lien and
security interest of this instrument, in whole or in part, through judicial
foreclosure, private sale, or in any other manner as may at any time be
authorized under the laws of the State of Texas. Beneficiary shall have the
right to bid for the Trust Property and to become the purchaser at any sale made
pursuant to this clause, if it is the highest bidder therefor and in lieu of
paying cash therefor, may make settlement for the purchase price by crediting
against the Obligations the amount of the bid made, after deducting therefrom
the expenses of the sale, the cost of any enforcement proceeding hereunder and
any other sums which Trustee or Beneficiary is authorized to deduct under the
terms hereof, to the extent necessary to satisfy such bid. If foreclosure
should be commenced by the Trustee, the Beneficiary may at any time before the
sale direct the Trustee to abandon the sale, and may at any time or times
thereafter direct the Trustee to again commence foreclosure; or, irrespective of
whether foreclosure is commenced by the Trustee, the Beneficiary may at any time
after an Event of Default institute suit for foreclosure of the lien of this
instrument. If Beneficiary should institute suit for foreclosure of the lien of
this instrument, Beneficiary may at any time before the entry of final judgment
dismiss the same, and require the Trustee to sell all or part of the Trust
Property in accordance with the provisions of this instrument. No single sale
or series of sales by the Trustee or by any substitute or successor Trustee
under this instrument and no judicial foreclosure shall extinguish the lien or
exhaust the power of sale under this
B-2
<PAGE>
instrument except with respect to the items of property sold, but such lien and
power shall exist for so long as, and may be exercised in any manner provided by
law or as provided in this instrument as often as the circumstances require to
give Beneficiary full relief hereunder. Grantor agrees for itself and its
trustees, receivers, successors and assigns that if any of them shall hold
possession of the Trust Property or any part thereof subsequent to foreclosure
of the lien hereof, Grantor, or the parties so holding possession, shall become
and be considered as tenants at will of the purchaser or purchasers at such
foreclosure sale or sales; and any such tenant failing or refusing to surrender
possession upon demand shall be guilty of forcible detainer and shall be liable
to such purchaser or purchasers for rental on said premises, and shall be
subject to eviction and removal, forcible or otherwise, with or without process
of law, all damages which may be sustained by any such tenant as a result
thereof being hereby expressly waived.
The sale or sales by Trustee of less than the whole of the Trust
Property shall not exhaust the power of sale herein granted, and Trustee is
specifically empowered to make successive sale or sales under such power until
the whole of the Trust Property shall be sold; and if the proceeds of such sale
or sales of less than the whole of the Trust Property shall be less than the
aggregate of the Obligations, this Deed of Trust and the lien, security interest
and assignment hereof shall remain in full force and effect as to the unsold
portion of the Trust Property just as though no sale or sales had been made;
provided, however, that Grantor shall never have any right to require the sale
or sales of less than the whole of the Trust Property, but Beneficiary shall
have the right, at its sole election, to request Trustee to sell less than the
whole of the Trust Property. If an Event of Default has occurred and is
continuing hereunder, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such item either through judicial proceedings or
by directing Trustee to proceed as if under a full foreclosure, conducting the
sale as herein provided without declaring the entire Obligations due, and if
sale is made because an Event of Default has occurred and is continuing on an
installment, or a part of any installment, such sale may be made subject to the
unmatured part of the Obligations; and it is agreed that such sale, if so made,
shall not in any manner affect the unmatured part of the Obligations, but as to
such unmatured part, this Deed of Trust shall remain in full force and effect as
though no sale had been made under the provisions of this paragraph. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Obligations. At any such sale (I) Grantor hereby agrees,
on its behalf and on behalf of its heirs, executors, administrators, successors,
personal representatives and assigns, that any and all recitals made in any
assignment of lease or deed of conveyance given by Trustee with respect to the
identity of Beneficiary, the occurrence or existence of any Event of Default,
the acceleration of the maturity of any of the Obligations, the request to sell,
the notice of sale, the giving of notice to all debtors legally entitled
thereto, the time, place, terms, and manner of sale, and receipt, distribution
and application of the money realized therefrom, or the due and proper
appointment of a substitute Trustee, and, without being limited by the
foregoing, with respect to any other act or thing having been duly done by
Beneficiary or by Trustee hereunder, shall be taken by all courts of law and
equity as prima facie evidence that the statements or
B-3
<PAGE>
recitals are the state of facts and are without further question to be so
accepted, and Grantor hereby ratifies and confirms every act that Trustee or any
substitute Trustee hereunder may lawfully do in the Trust Property by virtue
hereof; and (II) the purchaser may disaffirm any easement granted, or rental,
lease or other contract made, in violation of any provision of this Deed of
Trust and may take immediate possession of the Trust Property free from, and
despite the terms of, such grant of easement and rental or lease contract.
B. FINANCIAL INSTITUTIONS. Section 35 of this Deed of Trust is
hereby amended by adding the following paragraph at the end thereof:
To the extent that Beneficiary is a "financial institution" as
defined in Section 26.02 of the Texas Business & Commerce Code, the following
shall apply:
THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
C. RIGHTS AND REMEDIES OF SURETIES. Grantor waives any right or
remedy which Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the rights and
remedies of sureties.
B-4
<PAGE>
EXHIBIT 4.26
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
ANDERSON KILL & OLICK, P.C.
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
ATTENTION: RONALD S. BRODY, ESQ.
DEED OF TRUST, ASSIGNMENT OF LEASES AND
RENTS, SECURITY AGREEMENT AND FIXTURE FILING
GRANTOR (BORROWER): DISCOVERY ZONE, INC., A DELAWARE CORPORATION
GRANTEE (LENDER): STATE STREET BANK AND TRUST COMPANY, solely in its
capacity as trustee and collateral agent under and
pursuant to that certain indenture, dated as of July
22, 1997, among Discovery Zone, Inc., State Street Bank
and Trust Company, as trustee, and the subsidiary
guarantors named therein, its successors and assigns, a
Massachusetts trust company
GRANTEE (TRUSTEE): CHICAGO TITLE INSURANCE COMPANY, a Missouri Corporation
LEGAL DESCRIPTION: Lot 1, as described in and delineated on short plat,
recorded in book 2 at page 865 of short plats and as
recorded under auditor's file no. 9404150033, being a
portion of lot 2 of short plats, at page 535, records
of Clark county, being a parcel of property in the
northeast quarter of section 17, township 2 north,
range 2 east of the Willamette meridian, Clark county,
Washington. additional legal(s) on exhibit a.
ASSESSOR'S TAX PARCEL
ID NUMBER: 160080-005
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "DEED OF TRUST"), made as of this 29th day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), having its principal
place of business at One Corporate Center, 110 East Broward Boulevard, Fort
Lauderdale, Florida 33301 to CHICAGO TITLE INSURANCE COMPANY, a Missouri
corporation (and any subsequent substitutes or successors thereof pursuant to
Section 50 below, "TRUSTEE"), having an address at 701 Fifth Avenue, Suite 1800,
Seattle, Washington 98104, to and for the benefit of STATE STREET BANK AND TRUST
COMPANY, solely in its capacity as trustee and collateral agent under and
pursuant to that certain Indenture, dated July 22, 1997, among Discovery Zone,
Inc., State Street Bank and Trust Company, as trustee, and the Subsidiary
Guarantors named therein, its successors and assigns ("BENEFICIARY"), having an
address at Two International Place, Boston, Massachusetts 02110.
W I T N E S S E T H:
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("INITIAL NOTES"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"EXCHANGE NOTES") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "NOTES";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto (the "LAND");
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good
-1-
<PAGE>
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the all of the obligations (the "OBLIGATIONS") of Grantor,
including, without limitation, any and all obligations of Grantor under this
Deed of Trust, the Indenture, and the Notes, and all other documents evidencing
or securing any such Obligations including, without limitation, the Relevant
Documents, Grantor by these presents hereby GRANTS, BARGAINS, SELLS, WARRANTS,
PLEDGES, ASSIGNS AND CONVEYS to Trustee and its successors and assigns forever
in trust, WITH POWER OF SALE, for the benefit of Beneficiary, the Land and the
buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Grantor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature whatsoever now owned or hereafter acquired by Grantor, and all
proceeds thereof, as well as all additions to, appurtenances, substitutions for,
replacements of or accessions to any of the
-2-
<PAGE>
items recited as aforesaid and all attachments, components, parts (including
spare parts) and accessories, whether installed thereon or affixed thereto, now
or hereafter owned by Grantor and used or intended to be used in connection
with, or with the operation of, the Trust Property, to the extent constituting
real property (collectively, the "FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Mortgaged Property which, in any event, shall include, without limitation, (i)
cash, instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Trust Property,
(ii) the collection or other disposition of, or realization upon, any item or
portion of the Trust Property (including, without limitation, all claims of
Grantor
-3-
<PAGE>
against third parties for loss of, damage to, destruction of, or for proceeds
payable under, or unearned premiums with respect to, policies of insurance in
respect of, the Trust Property now existing or hereafter arising), (iii) any and
all proceeds of any insurance, indemnity, warranty or guaranty payable to
Grantor from time to time with respect to damage or loss of or to any of the
Trust Property, (iv) any and all payments (in any form whatsoever) made or due
and payable to Grantor from time to time in connection with the requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Trust Property by any Governmental Authority (or any person acting under color
of Governmental Authority), and (v) any and all real estate tax refunds payable
to Grantor with respect to the Trust Property, and refunds or reimbursements
payable with respect to bonds, escrow accounts, or other sums payable in
connection with the use, development or ownership of the Trust Property
(collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to
the Trust Property unto Trustee and its successors, substitutes and assigns, for
the benefit of Beneficiary, and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and
-4-
<PAGE>
authorizations, in each case as now or hereafter in effect, relating to the
protection of the environment, the impact of Hazardous Substances or the
generation, disposal or remediation thereof on human health or safety, or the
Release or threatened Release of Hazardous Substances or otherwise relating to
the Use of Hazardous Substances. For purposes of this definition, (A)
"HAZARDOUS SUBSTANCES" means collectively, (i) any petroleum or petroleum
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBS"), and lead-based
paint, (ii) any chemicals or other materials or substances which are now or
hereafter become defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any Environmental
Law and (iii) any other chemical or any other material or substance, exposure to
which is now or hereafter prohibited, limited or regulated under any
Environmental Law; (B) "USE" means, with respect to any Hazardous Substance, the
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation of such
Hazardous Substance; and (C) "RELEASE" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Trust Property by Grantor or the leasing or use of the Trust Property or any
part thereof by Grantor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust Property, subject only to the
Permitted Encumbrances. Grantor shall forever warrant, defend and preserve such
title and the validity and priority of the lien of this Deed of Trust and shall
forever warrant and defend the same to Beneficiary against the claims of all
persons
-6-
<PAGE>
whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding title policy so that such error
is corrected and to execute and cause to be recorded, if applicable, such
document as may be appropriate for such purpose.
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and
-7-
<PAGE>
unconditionally assign to Beneficiary, Grantor's right, title and interest in
all current and future Leases and Rents, it being intended by Grantor that this
assignment constitutes a present, absolute assignment and not an assignment for
additional security only. Such assignment to Beneficiary shall not be construed
to bind Beneficiary to the performance of any of the covenants, conditions or
provisions contained in any such Lease or otherwise impose any obligation upon
Beneficiary. Beneficiary shall have no responsibility on account of this
assignment for the control, care, maintenance, management or repair of the Trust
Property, for any dangerous or defective condition of the Trust Property, or for
any negligence in the management, upkeep, repair or control of the Trust
Property. Grantor agrees to execute and deliver to Beneficiary such additional
instruments, in form and substance satisfactory to Beneficiary, as may hereafter
be requested by Beneficiary to further evidence and confirm such assignment.
Nevertheless, subject to the terms of this paragraph, Beneficiary grants to
Grantor a revocable license to collect all of the Rents and retain, use and
enjoy the same and otherwise exercise all rights of Grantor under any Lease, in
each case, subject to the terms hereof and of the Relevant Documents. Upon an
Event of Default (hereinafter defined), the license granted to Grantor herein
shall immediately and automatically be revoked, and Beneficiary shall
immediately be entitled to possession of all Rents, whether or not Beneficiary
enters upon or takes control of the Trust Property, provided that if such Event
of Default ceases to exist, the license shall automatically be reinstated. In
addition, during the continuation of an Event of Default, Beneficiary may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Trust Property in its own name, and in addition to and without limiting any of
Beneficiary's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Beneficiary and
that all Rents are to be paid directly to Beneficiary, whether or not
Beneficiary has commenced or completed foreclosure or taken possession of the
Trust Property; (b) settle, compromise, release, extend the time of payment of,
and make allowances, adjustments and discounts of any Rents or other obligations
in, to and under the Leases; (c) demand, sue for or otherwise collect, receive,
and enforce payment of Rents, including those past-due and unpaid and other
rights under the Leases, prosecute any action or proceeding, and defend against
any claim with respect to the Rents and Leases; (d) enter upon, take possession
of and operate the Trust Property; (e) lease all or any part of the Trust
Property; and/or (f) perform any and all obligations of Grantor under the Leases
and exercise any and all rights of Grantor therein contained to the full extent
of Grantor's rights and obligations thereunder, with or without the bringing of
any action or the appointment of a receiver and without need for any other
authorization or other action by Beneficiary or Grantor. At Beneficiary's
request, Grantor shall deliver a copy of this assignment to each tenant under a
Lease and to each manager and managing agent or operator of the Trust Property.
Grantor irrevocably directs any tenant, manager, managing agent, or operator of
the Property, without any requirement for notice to or consent by Grantor, to
comply with all demands of Beneficiary under this Section 8 and to turn over to
Beneficiary on demand all Rents which it receives. Grantor hereby acknowledges
and agrees that payment of any Rents by a person to Beneficiary as hereinabove
provided shall constitute payment by such person, as fully and with the same
effect as if such Rents had been paid to Grantor. Beneficiary is hereby granted
and assigned by Grantor the right, at its option,
-8-
<PAGE>
upon revocation of the license granted herein, to enter upon the Trust Property
in person or by agent, without bringing any action or proceeding, or by
court-appointed receiver to collect the Rents. Any Rents collected after the
revocation of the license shall be applied towards the payment of the
Obligations. Neither the enforcement of any of the remedies under this
Section 8 nor any other remedies or security interests afforded to Beneficiary
under the Relevant Documents, at law or in equity shall cause Beneficiary to be
deemed or construed to be a Beneficiary in possession of the Trust Property, to
obligate Beneficiary to lease the Trust Property or attempt to do so, or to take
any action, incur any expense, or perform or discharge any obligation, duty or
liability whatsoever under any of the Leases or otherwise. Grantor shall, and
hereby agrees to indemnify Beneficiary for, and to hold Beneficiary harmless
from and against, any and all claims, liability, expenses, losses or damages
which may or might be asserted against or incurred by Beneficiary solely by
reason of Beneficiary's status as an assignee pursuant to the assignment of
Rents and Leases contained herein, but excluding any claim (a) to the extent
caused by Beneficiary's gross negligence or willful misconduct, or (b) to the
extent arising solely from Beneficiary's actions after Beneficiary has taken
possession of the Trust Property. Should Beneficiary incur any such claim,
liability, expense, loss or damage, the amount thereof, including all actual
expenses and reasonable fees of attorneys, shall constitute Obligations secured
hereby, and Grantor shall reimburse Beneficiary therefor immediately upon
demand. Grantor agrees that all Leases shall be subject to the prior written
approval of Beneficiary, such approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof, unless Grantor shall have received
Beneficiary's prior written consent, such consent not to be unreasonably
withheld or delayed. If under applicable zoning provisions the use of all or
any portion of the Trust Property is or shall become a nonconforming use,
Grantor will not cause such nonconforming use to be discontinued or abandoned
without the express written consent
-9-
<PAGE>
of Beneficiary, such consent not to be unreasonably withheld or delayed.
Grantor shall not (i) change the use of the Land in any material respect or (ii)
permit or suffer to occur any waste on or to the Trust Property or to any
portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this Deed of Trust shall be effected by any such blanket or umbrella
policies, Grantor shall furnish to Beneficiary certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Trust Property.
-10-
<PAGE>
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, after a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing or escrow agent who shall be
selected by Beneficiary and whose fees shall be paid by Grantor), to pay the
cost of restoration shall require (i) evidence reasonably satisfactory to
Beneficiary of the estimated costs of Restoration, (ii) funds (or assurances
reasonably satisfactory to Beneficiary
-11-
<PAGE>
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Beneficiary may reasonably require and approve. Except to the
extent Beneficiary fails to turn over insurance proceeds, if any, received by
Beneficiary hereunder with respect to such casualty to Grantor, Grantor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Beneficiary, and
Grantor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably withheld); and (iii) all of the proceeds of such sale are applied
towards repayment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable.
-12-
<PAGE>
b. in the event that Beneficiary is paid in full for all amounts
secured by this Deed of Trust.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore collected by Beneficiary shall be
credited on the principal balance of the Notes and all other Obligations (or, if
the Notes and all other Obligations have been or would thereby be paid in full,
refunded to Grantor), and the provisions of the Notes and the other Relevant
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new documents, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise
-13-
<PAGE>
called for hereunder or thereunder. All sums paid or agreed to be paid to
Beneficiary for the use, forbearance, or detention of the Obligations shall, to
the extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full stated term of the Obligations until payment in full
so that the rate or amount of interest on account of the Obligations does not
exceed the maximum rate of interest permitted by law from time to time in effect
and applicable to the Obligations for so long as the Obligations are
outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Beneficiary in the Trust Property. Notwithstanding anything to the
contrary contained herein, Grantor shall not be obligated to execute, deliver,
file or record any additional documents which increase Grantor's obligations
under this Deed of Trust or the Relevant Documents. Grantor grants to
Beneficiary an irrevocable power of attorney coupled with an interest for the
purpose of exercising the rights provided for in Section 19 and this Section 20.
-14-
<PAGE>
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the ALTA lender's title insurance policy issued
by Chicago Title Insurance Company for the benefit of Beneficiary in connection
with this Deed of Trust (including payment for the cost of any property surveys
("SURVEYS") prepared in connection therewith), which title insurance policy
shall be in form and substance satisfactory to Beneficiary containing such
endorsements as Beneficiary may reasonably request, including, without
limitation, the deletion of any creditor's rights exception and (to the extent
available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of
-15-
<PAGE>
any pleadings and papers received by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more parcels or in several interests or
portions and in any order or manner in accordance with the laws of the
jurisdiction in which such Trust Property is located;
-16-
<PAGE>
(iii) with or without entry, to the extent permitted, and pursuant to
the procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, without notice and without regard for the adequacy of the security
for the Obligations or the interest of the Grantor therein and without
regard for the solvency of the Grantor or of any person, firm or other
entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B) complete any construction on
the Trust Property in such manner and form as Beneficiary deems advisable;
(C) make alterations, additions, renewals, replacements and improvements to
or on the Trust Property; (D) exercise all rights and powers of Grantor
with respect to the Trust Property, whether in the name of Grantor or
otherwise (including, without limitation, the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all earnings, revenues, rents, issues, profits and
other income of the Trust Property and every part thereof); and (E) apply
the receipts from the Trust Property to the payment of the Obligations,
after deducting therefrom all reasonable expenses (including, without
limitation, reasonable
-17-
<PAGE>
attorneys' fees) incurred in connection with the aforesaid operations and
all amounts necessary to pay the taxes, assessments, insurance and other
charges in connection with the Trust Property, it being agreed that should
Beneficiary incur any liability, loss or damage in the defense of any
claims or demands, the amount thereof, including costs, expenses and
reasonable attorneys' fees shall be secured hereby, and Grantor shall
reimburse Beneficiary therefor immediately upon demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise;
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary may
bid for and acquire the Trust Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon the
Obligations the net sales price after deducting therefrom the expenses of the
sale and costs of the action and any other sums which Beneficiary is authorized
to deduct under this Deed of Trust.
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part
-18-
<PAGE>
thereof, or any liens, rights, powers or remedies of Beneficiary hereunder, but
such liens, rights, powers and remedies of Beneficiary shall continue unimpaired
as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all such abstracts of title, title searches and examinations, title insurance
policies, Torrens certificates, and similar data and assurances with respect to
title as Beneficiary may deem reasonably necessary either to prosecute
-19-
<PAGE>
such suit or to evidence to bidders at any sale which may be had pursuant to
such decree the true condition of the title to or the value of the Trust
Property. All such reasonable expenditures and expenses which Beneficiary may
incur as permitted by this Section for the protection of the Trust Property and
the maintenance of the lien of this Deed of Trust, including, but not limited
to, the fees and out-of-pocket disbursements of any attorney employed by
Beneficiary in any litigation or proceeding affecting this Deed of Trust,
including, but not limited to, bankruptcy proceedings or preparations for the
commencement or defense of any proceeding or threatened suit or proceeding,
shall be immediately due and payable by Grantor and shall be secured by this
Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Deed of Trust. Grantor's chief executive office and principal
place of business is the Grantor's address set forth in the first paragraph of
this Deed of Trust, and the place where Grantor's books and records in respect
of where the Trust Property is located are kept is the address of Grantor set
forth in the first paragraph of this Deed of Trust. If an Event of Default
shall occur which shall remain uncured, Beneficiary, in addition to any other
rights and remedies which it may have, shall have and may exercise immediately
and without demand, any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, (including, without limitation,
to the extent permitted by law, the right to take possession of the Collateral
or any part thereof, and to take such other
-20-
<PAGE>
measures as Beneficiary may deem necessary for the care, protection and
preservation of the Collateral). Upon request or demand of Beneficiary or
Trustee, Grantor shall at its expense assemble the Collateral and make it
available to Beneficiary at a convenient place acceptable to Beneficiary.
Grantor shall pay to Beneficiary on demand therefor any and all reasonable
expenses (including, without limitation, reasonable legal expenses and
attorneys' fees) incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor at least ten (10)
business days prior to such action or such notice as is otherwise required by
law or the Relevant Documents, shall constitute commercially reasonable notice
to Grantor. The proceeds of any disposition of the Collateral, or any part
thereof, may be applied by Beneficiary to the payment of the Obligations in such
priority and proportions as Beneficiary shall determine in its sole discretion.
In the event of any change in name, identity or structure of Grantor, Grantor
shall notify Beneficiary thereof and, promptly after request, shall execute,
file and record such Uniform Commercial Code forms as are necessary to maintain
the priority of Beneficiary's lien upon and security interest in the Collateral,
and shall pay all expenses and fees in connection with the filing and recording
thereof. If Beneficiary shall require the filing or recording of additional
Uniform Commercial Code forms or continuation statements, Grantor shall,
promptly after request, execute, file and record such Uniform Commercial Code
forms or continuation statements as Beneficiary shall deem necessary, and shall
pay all expenses and fees in connection with the filing and recording thereof,
it being understood and agreed, however, that no such additional documents shall
materially increase Grantor's obligations under this Deed of Trust or the other
Relevant Documents. Grantor hereby irrevocably appoints Beneficiary as its
attorney-in-fact, coupled with an interest, to file with the appropriate public
office on its behalf any UCC financing statements (or related documents) signed
only by Beneficiary, as secured party, in connection with the Collateral covered
by this Deed of Trust, such appointment to terminate upon the release of this
Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding in which Beneficiary may appear. Beneficiary shall, at its
option, be subrogated to the lien of any mortgage or other security instrument
discharged in whole or in part by the Obligations, and any such subrogation
rights shall constitute additional security for the payment of the Obligations.
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
-21-
<PAGE>
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof or any interest therein.
Further, Grantor hereby expressly waives any and all rights of redemption from
sale under any order or decree of foreclosure of this Deed of Trust on behalf of
Grantor, and on behalf of each and every person acquiring any interest in or
title to the Trust Property subsequent to the date of this Deed of Trust and on
behalf of all persons to the extent
-22-
<PAGE>
permitted by applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
(given in accordance with this Section 32) designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of Trust or otherwise
enforce any of the provisions hereof or of the other Relevant Documents, (b) the
release, regardless of consideration, of the whole or any part of the Trust
Property, or of any person liable for the Obligations or any portion thereof, or
(c) any agreement or stipulation by Beneficiary extending the time of payment or
otherwise modifying or supplementing the terms
-23-
<PAGE>
of this Deed of Trust or the other Relevant Documents. Beneficiary may resort
for the payment of the Obligations to any other security held by Beneficiary in
such order and manner as Beneficiary, in its discretion, may elect. Beneficiary
may take action to recover the Obligations, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Beneficiary
thereafter to foreclosure this Deed of Trust. The rights and remedies of
Beneficiary under this Deed of Trust shall be separate, distinct and cumulative
and none shall be given effect to the exclusion of the others. No act of
Beneficiary shall be construed as an election to proceed under any one provision
herein to the exclusion of any other provision. Beneficiary shall not be
limited exclusively to the rights and remedies herein stated but shall be
entitled to every right and remedy now or hereafter afforded at law or in
equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the final expression of the entire agreement among the
parties pertaining to the subject matter hereof and thereof and supersede all
prior and contemporaneous agreements, understanding, representations or other
arrangements, whether express or implied, written or oral, of the parties in
connection herewith or therewith except to the extent expressly incorporated or
specifically referred to herein or therein. This Deed of Trust, and any
provisions hereof, may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Grantor or Beneficiary, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used interchangeably in singular or plural form and the word
"Grantor" shall mean "each Grantor and any subsequent owner or owners of the
Trust Property or any part thereof or any interest therein," the word
"Beneficiary" shall mean "Beneficiary and any subsequent holder(s) of the
Notes," the word "person" shall include an individual, corporation, partnership,
trust,
-24-
<PAGE>
unincorporated association, government, governmental authority, and any other
entity, and the words "Trust Property" shall include any portion of the Trust
Property and any interest therein and the words "attorneys' fees" shall include
any and all attorneys' fees, paralegal and law clerk fees (including, without
limitation, fees at the pre-trial, trial and appellate levels incurred or paid
by Beneficiary in protecting its interest in the Trust Property and Collateral
and enforcing its rights hereunder including, but not limited to, all such fees
incurred in connection with any bankruptcy or other insolvency proceedings).
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. GRANTOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE COLLATERAL IS LOCATED IN
RESPECT OF ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE ARISING WITH
RESPECT TO SUCH COLLATERAL. GRANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, AT
-25-
<PAGE>
THE ADDRESSES SET FORTH IN THE FIRST PARAGRAPH HEREOF IN CONNECTION WITH ANY OF
THE AFORESAID PROCEEDINGS IN ACCORDANCE WITH THE RULES APPLICABLE TO SUCH
PROCEEDINGS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO
THE LAYING OF VENUE IN RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN
THE COURTS REFERRED TO ABOVE AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR
OTHERWISE PROCEED AGAINST GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations or this Deed of Trust
(other than the indefeasible payment in full in cash of all the Obligations
hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all
-26-
<PAGE>
or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there shall be no merger of this
Deed of Trust and any estate in the Trust Property, by reason of the fact that
the same person may own or hold (a) any leasehold interest in the Trust
Property, and/or (b) this Deed of Trust, and/or (c) the fee interest in the
Trust Property or any other estate or interest in the Trust Property.
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however,
-27-
<PAGE>
only for willful negligence or misconduct, and hereby waives any statutory fee
and agrees to accept reasonable compensation, in lieu thereof, for any services
rendered by Trustee in accordance with the terms hereof. Trustee may resign at
any time upon giving thirty (30) days' notice to Grantor and to Beneficiary.
Beneficiary may remove Trustee at any time or from time to time, and select a
successor trustee. In the event of the death, removal, resignation, refusal to
act, or inability to act of Trustee, or in its sole discretion for any reason
whatsoever Beneficiary may, without notice and without specifying any reason
therefor and without applying to any court, select and appoint a successor
trustee, by an instrument recorded wherever this Deed of Trust is recorded and
all powers, rights, duties and authority of Trustee, as aforesaid, shall
thereupon become vested in such successor. Such substitute trustee shall not be
required to give bond for the faithful performance of the duties of Trustee
hereunder unless required by Beneficiary. The procedure provided for in this
paragraph for substitution of Trustee shall be in addition to and not in
exclusion of any other provisions for substitution, by law or otherwise.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain Subordination Agreement, dated as of the date hereof, by and
among Grantor, Beneficiary and McDonald's Corporation (the "SUBORDINATION
AGREEMENT"), including any extension, modification, replacement or renewal
thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-28-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware corporation
By: /s/ Robert G. Rooney
-------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF WESTCHESTER )
I certify that I know or have satisfactory evidence that Robert G. Rooney
is the person who appeared before me, and said person acknowledged that said
person signed this instrument, on oath stated that said person was authorized to
execute the instrument and acknowledged it as Senior Vice President of DISCOVERY
ZONE, INC., a Delaware corporation, to be the free and voluntary act of such
corporation for the uses and purposes mentioned in the instrument.
Dated this 28th day of July, 1997.
- ------------------------------ /s/ Mark D. Woodward
---------------------------------------
(Signature of Notary)
---------------------------------------
(Legibly Print or Stamp Name of Notary)
- ------------------------------ [Notary Seal]
Use this space for Notorial
stamp/seal
Notary public in and for the state of New York,
residing at 1 Liberty Plaza, NY NY
My appointment expires 6/15/98
Use this space for Notarial stamp/seal
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
Lot 1, as described in and delineated on SHORT PLAT, recorded in Book 2 at Page
865, of Short Plats and as recorded under Auditor's File No. 9404150033, being a
portion of Lot 2 of Short Plats at Page 535, records of Clark County being a
parcel of property in the Northeast quarter of Section 17, Township 2 North,
Range 2 East of the Williamette Meridian, Clark County, Washington.
TOGETHER WITH that certain road easement for the purpose of ingress, egress and
passage and utilities as set forth and defined by document recorded May 8, 1991,
under Auditor's File No. 9105080180.
TOGETHER WITH a non-exclusive easement for ingress, egress, parking and
utilities as granted and described in document recorded under Auditor's File No.
G 705215 and as amended and restated by documents recorded under Auditor's File
Nos. 7806280148 and 8106250036.
TOGETHER WITH a non-exclusive easement for ingress and egress as delineated and
described in access easement recorded under Clark County Auditor's File No.
9404150214.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 48 of the attached Deed of Trust. If any conflict or inconsistency
exists between this Exhibit B and the remainder of the attached Deed of Trust,
this Exhibit B shall govern.
1. RIGHTS PERTAINING TO SALES. The following provisions shall apply
to any sale or sales of the Trust Property under or by virtue of this Paragraph
A, whether made under the power of sale granted in this Deed of Trust or by
virtue of judicial proceedings or of judgment or decree of foreclosure and sale:
(a) The Beneficiary or the Trustee may conduct any number of
sales for cash or upon credit from time to time. The power of sale set
forth in Section 24 shall not be exhausted by any one or more such sales as
to any part of the Trust Property which shall not have been sold, nor by
any sale which is not completed or is defective in the opinion of the
Trustee or the Beneficiary, until the Obligations shall have been paid in
full.
(b) Any sale may be postponed or adjourned by public
announcement at the time and place appointed for such sale or for such
postponed or adjourned sale without further notice.
(c) Any and all statements of fact or other recitals made in any
instruments given by the Trustee or the Beneficiary as to nonpayment of the
Obligations, or as to the occurrence of any Event of Default, or as to the
Beneficiary having declared all or any of the Obligations to be due and
payable, or as to the request to sell, or as to notice of time, place and
terms of sale and of the property or rights to be sold having been duly
given, or as to the refusal, failure or inability to act of the Trustee, or
as to the appointment of any substitute or successor Trustee, or as to any
other act or thing having been duly done by the Trustee or the Beneficiary,
shall be taken as PRIMA FACIE evidence of the truth of the facts so stated
and recited. The Trustee or the Beneficiary may appoint or delegate any
one or more persons as agent to perform any act or acts necessary or
incident to any sale so held, including the posting of notices and the
conduct of sale.
(d) The receipt of the Trustee or the Beneficiary for the
purchase money paid at any such sale, or the receipt of any other person
authorized to give the same, shall be sufficient discharge therefor to any
purchaser of any property or rights sold as aforesaid, and no such
purchaser, or its representatives, grantees or assigns, after paying such
purchase price and receiving such receipt, shall be bound to see to the
application of such purchase price or any part thereof upon or for any
trust or purpose
B-1
<PAGE>
of this Deed of Trust or, in any manner whatsoever, be answerable for any
loss, misapplication or nonapplication of any such purchase money, or part
thereof, or be bound to inquire as to the authorization, necessity,
expediency or regularity of any such sale.
(e) Any such sale or sales shall operate to divest all of the
estate, right, title, interest, claim and demand whatsoever, whether at law
or in equity, of the Grantor in and to the properties and rights so sold,
and shall be a perpetual bar both at law and in equity against the Grantor
and any and all persons claiming or who may claim the same, or any part
thereof, by, through or under the Grantor to the fullest extent permitted
by applicable law.
(f) In the event that the Grantor, or any person claiming by,
through or under the Grantor, shall transfer or refuse or fail to surrender
possession of the Trust Property after any sale of the Trust Property, then
the Grantor or such person shall be deemed a tenant at sufferance of the
purchaser at such sale, subject to eviction by means of forcible entry and
detainer proceedings, or subject to any other right or remedy available
under this Deed of Trust or under applicable law.
(g) Upon any such sale, the Trustee, the Beneficiary or any
public officer acting under execution or order of court shall not be
required to have present or constructively in its possession any or all of
the Trust Property.
(h) In the event a foreclosure under this Deed of Trust shall be
commenced by the Trustee, the Trustee or the Beneficiary may, at any time
before the sale of the Trust Property, abandon or direct the Trustee to
abandon the sale, and may institute suit for the collection of the
Obligations and for the foreclosure of this Deed of Trust, or in the event
that the Trustee or the Beneficiary should institute a suit for collection
of the Obligations, and for the foreclosure of this Deed of Trust, the
Beneficiary may at any time before the entry of final judgment in said suit
dismiss the same and require the Trustee to sell the Trust Property in
accordance with the provisions of this Deed of Trust.
2. EXERCISE BY TRUSTEE.
(a) EXERCISE BY TRUSTEE. Notwithstanding anything in this Deed
of Trust to the contrary, the Trustee (i) shall not exercise or waive the
exercise of, any of its rights or remedies under this Deed of Trust (other
than its right to reimbursement) except upon the request of the Beneficiary
and (ii) shall exercise, or waive the exercise of, any or all of such
rights or remedies upon the request of the Beneficiary and at the direction
of the Beneficiary as to the manner of such exercise or waiver, PROVIDED
that the Trustee shall have the right to decline to follow any such request
or direction if the Trustee shall be advised by counsel that the action or
proceeding, or manner thereof, so directed may not lawfully be taken or
waived.
B-2
<PAGE>
(b) TRUSTEE'S RESIGNATION. The Trustee may resign by an
instrument in writing addressed to the Beneficiary, or the Trustee may be
removed at any time with or without cause by an instrument in writing
executed by the Beneficiary. In case of the death, resignation, removal or
disqualification of the Trustee or if for any reason the Beneficiary shall
deem it desirable to appoint a substitute or successor trustee to act
instead of the Trustee named in this Deed of Trust or instead of any
substitute or successor Trustee, then the Beneficiary shall have the right
and is hereby authorized and empowered to appoint a successor Trustee, or a
substitute Trustee, without other formality than appointment and
designation in writing executed by the Beneficiary, and the authority
conferred by this Paragraph B shall extend to the appointment of other
successor and substitute Trustees successively until the Obligations have
been paid in full or until the Trust Property is sold under this Deed of
Trust. Such appointment and designation by the Beneficiary shall be full
evidence of the right and authority to make the same and of all facts
therein recited. Any such appointment executed on behalf of the
Beneficiary by an officer of the Beneficiary shall be conclusively presumed
to be executed with authority and shall be valid and sufficient without
proof of any action by the board of directors or any superior officer of
the Beneficiary. Upon the making of such appointment and designation, all
of the estate and title of the Trustee in the Trust Property shall vest in
the named successor or substitute Trustee, and the named successor or
substitute Trustee shall thereupon succeed to and shall hold, possess and
execute all the rights, powers, privileges, immunities and duties conferred
upon the Trustee in this Deed of Trust. Upon the written request of the
Beneficiary or of the successor or substitute Trustee, the Trustee ceasing
to act shall execute and deliver an instrument transferring to such
successor or substitute Trustee all of the estate and title in the Trust
Property of the Trustee so ceasing to act, together with all the rights,
powers, privileges, immunities and duties conferred upon the Trustee in
this Deed of Trust, and shall duly assign, transfer and deliver any of the
properties and moneys held by said Trustee under this Deed of Trust to said
successor or substitute Trustee. All references in this Deed of Trust to
the Trustee shall be deemed to refer to the Trustee (including any
successor or substitute appointed and designated as provided in this Deed
of Trust) from time to time acting under this Deed of Trust. The Grantor
hereby ratifies and confirms any and all acts which the Trustee or its
successor or successors, substitute or substitutes, in this trust, shall do
lawfully by virtue of this Deed of Trust.
(c) EXCULPATION. The Trustee shall not be liable for any error
of judgment or act done by the Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for
the Trustee's gross negligence or willful misconduct. The Trustee shall
have the right to rely on any instrument, document or signature authorizing
or supporting any action taken or proposed to be taken by the Trustee under
this Deed of Trust, believed by the Trustee in good faith to be genuine.
All moneys received by the Trustee, until used or applied as provided in
this Deed of Trust, shall be held in trust for the purposes for which they
were received, but need not be segregated in any manner from any other
moneys (except to the extent required by law), and the Trustee shall be
under no liability for interest on any moneys received by
B-3
<PAGE>
it under this Deed of Trust.
(d) RECONVEYANCE. Upon Beneficiary's written request and
surrender of this Deed of Trust for endorsement, the Trustee shall
reconvey, without warranty, all or any part of the Trust Property then held
hereunder. Recitals in such reconveyance of any matters of fact shall be
conclusive proof of the accuracy thereof. The grantee may be described in
such reconveyance as "the person or persons legally entitled thereto."
3. ORAL AGREEMENTS UNENFORCEABLE. ORAL AGREEMENTS OR ORAL
COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT
OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
4. The real property conveyed by this Deed of Trust is not used
principally for agricultural or farming purposes.
5. Grantor is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Grantor is
qualified to do business and in good standing in the State in which the Trust
Property is located, and to the extent that Grantor is not so qualified or in
good standing in such State, Grantor shall promptly qualify to do business and
become in good standing in such State and shall promptly present evidence of
such qualification to do business and good standing to Beneficiary, and shall in
any event take such steps as are necessary to insure the enforceability of the
Notes and this Deed of Trust.
B-4
<PAGE>
Exhibit 4.27
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
THE PUBLIC TRUSTEE OF ARAPAHOE COUNTY,
COLORADO, AS TRUSTEE
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT
AND FIXTURE FILING (as the same may from time to time be extended, renewed or
modified, this "DEED OF TRUST"), made as of this 29 day of July, 1997, by
DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), having its principal
place of business at One Corporate Center, 110 East Broward Boulevard, Fort
Lauderdale, Florida 33301 to THE PUBLIC TRUSTEE OF ARAPAHOE COUNTY, COLORADO,
AS TRUSTEE (and any subsequent substitutes or successors thereof pursuant to
Section 50 below, "TRUSTEE") to and for the benefit of STATE STREET BANK AND
TRUST COMPANY, solely in its capacity as trustee and collateral agent under
and pursuant to that certain Indenture, dated July 22, 1997, among Discovery
Zone, Inc., State Street Bank and Trust Company, as trustee, and the
Subsidiary Guarantors named therein, its successors and assigns
("BENEFICIARY"), having an address at Two International Place, Boston,
Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto commonly known as [14281 EAST EXPOSTION
AVENUE, AURORA, COLORADO] (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the all of the obligations (the "OBLIGATIONS"), which Obligations
shall be due and payable in full on August 1, 2002 if not sooner paid, of
Grantor, including, without limitation, any and all obligations of Grantor under
this Deed of Trust, the Indenture, and the Notes, and all other documents
evidencing or securing any such Obligations including, without limitation, the
Relevant Documents, Grantor by these presents hereby GRANTS, BARGAINS, SELLS,
WARRANTS, PLEDGES, ASSIGNS AND CONVEYS to Trustee and its successors and assigns
forever in trust, WITH POWER OF SALE, for the benefit of Beneficiary, the Land
and the buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Grantor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature
-2-
<PAGE>
whatsoever now owned or hereafter acquired by Grantor, and all proceeds thereof,
as well as all additions to, appurtenances, substitutions for, replacements of
or accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Trust Property which, in any event, shall include, without limitation, (i) cash,
instruments and other property received, receivable or otherwise distributed in
respect of or in exchange for any or all
-3-
<PAGE>
of the Trust Property, (ii) the collection or other disposition of, or
realization upon, any item or portion of the Trust Property (including, without
limitation, all claims of Grantor against third parties for loss of, damage to,
destruction of, or for proceeds payable under, or unearned premiums with respect
to, policies of insurance in respect of, the Trust Property now existing or
hereafter arising), (iii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Grantor from time to time with respect to damage
or loss of or to any of the Trust Property, (iv) any and all payments (in any
form whatsoever) made or due and payable to Grantor from time to time in
connection with the requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trust Property by any Governmental
Authority (or any person acting under color of Governmental Authority), and (v)
any and all real estate tax refunds payable to Grantor with respect to the Trust
Property, and refunds or reimbursements payable with respect to bonds, escrow
accounts, or other sums payable in connection with the use, development or
ownership of the Trust Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to
the Trust Property unto Trustee and its successors, substitutes and assigns, for
the benefit of Beneficiary, and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or
-4-
<PAGE>
judgments thereunder, and any permits, approvals, licenses, registrations,
filings and authorizations, in each case as now or hereafter in effect, relating
to the protection of the environment, the impact of Hazardous Substances or the
generation, disposal or remediation thereof on human health or safety, or the
Release or threatened Release of Hazardous Substances or otherwise relating to
the Use of Hazardous Substances. For purposes of this definition, (A)
"HAZARDOUS SUBSTANCES" means collectively, (i) any petroleum or petroleum
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBS"), and lead-based
paint, (ii) any chemicals or other materials or substances which are now or
hereafter become defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any Environmental
Law and (iii) any other chemical or any other material or substance, exposure to
which is now or hereafter prohibited, limited or regulated under any
Environmental Law; (B) "USE" means, with respect to any Hazardous Substance, the
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation of such
Hazardous Substance; and (C) "RELEASE" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Trust Property by Grantor or the leasing or use of the Trust Property or any
part thereof by Grantor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust Property, subject only to the
Permitted Encumbrances. Grantor shall forever warrant, defend and preserve such
title and the validity and priority of the lien of this Deed of Trust and shall
-6-
<PAGE>
forever warrant and defend the same to Beneficiary against the claims of all
persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding title policy so that such error
is corrected and to execute and cause to be recorded, if applicable, such
document as may be appropriate for such purpose.
-7-
<PAGE>
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default, the license granted to Grantor
herein shall immediately and automatically be revoked, and Beneficiary shall
immediately be entitled to possession of all Rents, whether or not Beneficiary
enters upon or takes control of the Trust Property, provided that if such Event
of Default ceases to exist, the license shall automatically be reinstated. In
addition, during the continuation of an Event of Default, Beneficiary may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Trust Property in its own name, and in addition to and without limiting any of
Beneficiary's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Beneficiary and
that all Rents are to be paid directly to Beneficiary, whether or not
Beneficiary has commenced or completed foreclosure or taken possession of the
Trust Property; (b) settle, compromise, release, extend the time of payment of,
and make allowances, adjustments and discounts of any Rents or other obligations
in, to and under the Leases; (c) demand, sue for or otherwise collect, receive,
and enforce payment of Rents, including those past-due and unpaid and other
rights under the Leases, prosecute any action or proceeding, and defend against
any claim with respect to the Rents and Leases; (d) enter upon, take possession
of and operate the Trust Property; (e) lease all or any part of the Trust
Property; and/or (f) perform any and all obligations of Grantor under the Leases
and exercise any and all rights of Grantor therein contained to the full extent
of Grantor's rights and obligations thereunder, with or without the bringing of
any action or the appointment of a receiver and without need for any other
authorization or other action by Beneficiary or Grantor. At Beneficiary's
request, Grantor shall deliver a copy of this assignment to each tenant under a
Lease and to each manager and managing agent or operator of the Trust Property.
Grantor irrevocably directs any tenant, manager, managing agent, or operator of
the Property, without any requirement for notice to or consent by Grantor, to
comply with all demands of Beneficiary under this Section 8 and to turn over to
Beneficiary on demand all Rents which it receives. Grantor hereby acknowledges
and agrees that payment of any Rents by a person to Beneficiary as hereinabove
provided shall constitute payment by such person, as fully and with the same
effect as if such Rents had been
-8-
<PAGE>
paid to Grantor. Beneficiary is hereby granted and assigned by Grantor the
right, at its option, upon revocation of the license granted herein, to enter
upon the Trust Property in person or by agent, without bringing any action or
proceeding, or by court-appointed receiver to collect the Rents. Any Rents
collected after the revocation of the license shall be applied towards the
payment of the Obligations. Neither the enforcement of any of the remedies
under this Section 8 nor any other remedies or security interests afforded to
Beneficiary under the Relevant Documents, at law or in equity shall cause
Beneficiary to be deemed or construed to be a Beneficiary in possession of the
Trust Property, to obligate Beneficiary to lease the Trust Property or attempt
to do so, or to take any action, incur any expense, or perform or discharge any
obligation, duty or liability whatsoever under any of the Leases or otherwise.
Grantor shall, and hereby agrees to indemnify Beneficiary for, and to hold
Beneficiary harmless from and against, any and all claims, liability, expenses,
losses or damages which may or might be asserted against or incurred by
Beneficiary solely by reason of Beneficiary's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Beneficiary's gross negligence or willful misconduct, or
(b) to the extent arising solely from Beneficiary's actions after Beneficiary
has taken possession of the Trust Property. Should Beneficiary incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Grantor shall reimburse Beneficiary therefor immediately
upon demand. Grantor agrees that all Leases shall be subject to the prior
written approval of Beneficiary, such approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof, unless Grantor shall have received
Beneficiary's prior written consent, such consent not to be unreasonably
withheld or delayed. If under applicable zoning provisions the use of all or
any portion of the Trust Property is or shall become a nonconforming use,
Grantor will not cause
-9-
<PAGE>
such nonconforming use to be discontinued or abandoned without the express
written consent of Beneficiary, such consent not to be unreasonably withheld or
delayed. Grantor shall not (i) change the use of the Land in any material
respect or (ii) permit or suffer to occur any waste on or to the Trust Property
or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this Deed of Trust shall be effected by any such blanket or umbrella
policies, Grantor shall furnish to Beneficiary certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Trust Property.
-10-
<PAGE>
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, after a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing or escrow agent who shall be
selected by Beneficiary and whose fees shall be paid by Grantor), to pay the
cost of restoration shall require (i) evidence reasonably satisfactory to
Beneficiary of the estimated costs of Restoration, (ii) funds (or assurances
reasonably satisfactory to Beneficiary
-11-
<PAGE>
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Beneficiary may reasonably require and approve. Except to the
extent Beneficiary fails to turn over insurance proceeds, if any, received by
Beneficiary hereunder with respect to such casualty to Grantor, Grantor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Beneficiary, and
Grantor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably withheld); and (iii) all of the proceeds of such sale are applied
towards repayment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable.
-12-
<PAGE>
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore collected by Beneficiary shall be
credited on the principal balance of the Notes and all other Obligations (or, if
the Notes and all other Obligations have been or would thereby be paid in full,
refunded to Grantor), and the provisions of the Notes and the other Relevant
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and
-13-
<PAGE>
thereunder reduced, without the necessity of the execution of any new documents,
so as to comply with the applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid or
agreed to be paid to Beneficiary for the use, forbearance, or detention of the
Obligations shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the
Obligations until payment in full so that the rate or amount of interest on
account of the Obligations does not exceed the maximum rate of interest
permitted by law from time to time in effect and applicable to the Obligations
for so long as the Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Beneficiary in the Trust Property. Notwithstanding anything to the
contrary contained herein, Grantor shall not be obligated to execute, deliver,
file or record any additional documents which increase Grantor's obligations
under this Deed of Trust or the Relevant
-14-
<PAGE>
Documents. Grantor grants to Beneficiary an irrevocable power of attorney
coupled with an interest for the purpose of exercising the rights provided for
in Section 19 and this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the ALTA lender's title insurance policy issued
by Chicago Title Insurance Company for the benefit of Beneficiary in connection
with this Deed of Trust (including payment for the cost of any property surveys
("Surveys") prepared in connection therewith), which title insurance policy
shall be in form and substance satisfactory to Beneficiary containing such
endorsements as Beneficiary may reasonably request, including, without
limitation, the deletion of any creditor's rights exception and (to the extent
available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
-15-
<PAGE>
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more
-16-
<PAGE>
parcels or in several interests or portions and in any order or manner in
accordance with the laws of the jurisdiction in which such Trust Property
is located;
(iii) with or without entry, to the extent permitted, and pursuant to the
procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, EX PARTE and without notice and without regard for the adequacy of
the security for the Obligations or the interest of the Grantor therein and
without regard for the solvency of the Grantor or of any person, firm or
other entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B) complete any construction on
the Trust Property in such manner and form as Beneficiary deems advisable;
(C) make alterations, additions, renewals, replacements and improvements to
or on the Trust Property; (D) exercise all rights and powers of Grantor
with respect to the Trust Property, whether in the name of Grantor or
otherwise (including, without limitation, the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all earnings, revenues,
-17-
<PAGE>
rents, issues, profits and other income of the Trust Property and every
part thereof); and (E) apply the receipts from the Trust Property to the
payment of the Obligations, after deducting therefrom all reasonable
expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts
necessary to pay the taxes, assessments, insurance and other charges in
connection with the Trust Property, it being agreed that should Beneficiary
incur any liability, loss or damage in the defense of any claims or
demands, the amount thereof, including costs, expenses and reasonable
attorneys' fees shall be secured hereby, and Grantor shall reimburse
Beneficiary therefor immediately upon demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise;
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary may
bid for and acquire the Trust Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon the
Obligations the net sales price after deducting therefrom the expenses of the
sale and costs of the action and any other sums which Beneficiary is authorized
to deduct under this Deed of Trust.
-18-
<PAGE>
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated
-19-
<PAGE>
as to items to be expended after entry of the decree) of procuring all such
abstracts of title, title searches and examinations, title insurance policies,
Torrens certificates, and similar data and assurances with respect to title as
Beneficiary may deem reasonably necessary either to prosecute such suit or to
evidence to bidders at any sale which may be had pursuant to such decree the
true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Deed of Trust. Grantor's chief executive office and principal
place of business is the Grantor's address set forth in the first paragraph of
this Deed of Trust, and the place where Grantor's books and records in respect
of where the Trust Property is located are kept is the address of Grantor set
forth in the first paragraph of this Deed of Trust. If an Event of Default
shall occur which shall remain uncured, Beneficiary, in addition to any other
rights and remedies which it may have, shall have and may exercise immediately
-20-
<PAGE>
and without demand, any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, (including, without limitation,
to the extent permitted by law, the right to take possession of the Collateral
or any part thereof, and to take such other measures as Beneficiary may deem
necessary for the care, protection and preservation of the Collateral). Upon
request or demand of Beneficiary or Trustee, Grantor shall at its expense
assemble the Collateral and make it available to Beneficiary at a convenient
place acceptable to Beneficiary. Grantor shall pay to Beneficiary on demand
therefor any and all reasonable expenses (including, without limitation,
reasonable legal expenses and attorneys' fees) incurred or paid by Beneficiary
in protecting the interest in the Collateral and in enforcing the rights
hereunder with respect to the Collateral. Any notice of sale, disposition or
other intended action by Beneficiary with respect to the Collateral sent to
Grantor at least ten (10) business days prior to such action or such notice as
is otherwise required by law or the Relevant Documents, shall constitute
commercially reasonable notice to Grantor. The proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Beneficiary to the
payment of the Obligations in such priority and proportions as Beneficiary shall
determine in its sole discretion. In the event of any change in name, identity
or structure of Grantor, Grantor shall notify Beneficiary thereof and, promptly
after request, shall execute, file and record such Uniform Commercial Code forms
as are necessary to maintain the priority of Beneficiary's lien upon and
security interest in the Collateral, and shall pay all expenses and fees in
connection with the filing and recording thereof. If Beneficiary shall require
the filing or recording of additional Uniform Commercial Code forms or
continuation statements, Grantor shall, promptly after request, execute, file
and record such Uniform Commercial Code forms or continuation statements as
Beneficiary shall deem necessary, and shall pay all expenses and fees in
connection with the filing and recording thereof, it being understood and
agreed, however, that no such additional documents shall materially increase
Grantor's obligations under this Deed of Trust or the other Relevant Documents.
Grantor hereby irrevocably appoints Beneficiary as its attorney-in-fact, coupled
with an interest, to file with the appropriate public office on its behalf any
UCC financing statements (or related documents) signed only by Beneficiary, as
secured party, in connection with the Collateral covered by this Deed of Trust,
such appointment to terminate upon the release of this Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding in which Beneficiary may appear. Beneficiary shall, at its
option, be subrogated to the lien of any mortgage or other security instrument
discharged in whole or in part by the Obligations, and any such subrogation
rights shall constitute additional security for the payment of the Obligations.
-21-
<PAGE>
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof
-22-
<PAGE>
or any interest therein. Further, Grantor hereby expressly waives any and all
rights of redemption from sale under any order or decree of foreclosure of this
Deed of Trust on behalf of Grantor, and on behalf of each and every person
acquiring any interest in or title to the Trust Property subsequent to the date
of this Deed of Trust and on behalf of all persons to the extent permitted by
applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
given in accordance with this Section 32 designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of
-23-
<PAGE>
Trust or otherwise enforce any of the provisions hereof or of the other Relevant
Documents, (b) the release, regardless of consideration, of the whole or any
part of the Trust Property, or of any person liable for the Obligations or any
portion thereof, or (c) any agreement or stipulation by Beneficiary extending
the time of payment or otherwise modifying or supplementing the terms of this
Deed of Trust or the other Relevant Documents. Beneficiary may resort for the
payment of the Obligations to any other security held by Beneficiary in such
order and manner as Beneficiary, in its discretion, may elect. Beneficiary may
take action to recover the Obligations, or any portion thereof, or to enforce
any covenant hereof without prejudice to the right of Beneficiary thereafter to
foreclosure this Deed of Trust. The rights and remedies of Beneficiary under
this Deed of Trust shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Beneficiary shall not be limited exclusively
to the rights and remedies herein stated but shall be entitled to every right
and remedy now or hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used
-24-
<PAGE>
interchangeably in singular or plural form and the word "Grantor" shall mean
"each Grantor and any subsequent owner or owners of the Trust Property or any
part thereof or any interest therein," the word "Beneficiary" shall mean
"Beneficiary and any subsequent holder(s) of the Notes," the word "person" shall
include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words "Trust Property" shall include any portion of the Trust Property and any
interest therein and the words "attorneys' fees" shall include any and all
attorneys' fees, paralegal and law clerk fees (including, without limitation,
fees at the pre-trial, trial and appellate levels incurred or paid by
Beneficiary in protecting its interest in the Trust Property and Collateral and
enforcing its rights hereunder including, but not limited to, all such fees
incurred in connection with any bankruptcy or other insolvency proceedings).
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. GRANTOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH
-25-
<PAGE>
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the
-26-
<PAGE>
Grantor in respect of the Obligations or this Deed of Trust (other than the
indefeasible payment in full in cash of all the Obligations hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there shall be no merger of this
Deed of Trust and any estate in the Trust Property, by reason of the fact that
the same person may own or hold (a) any leasehold interest in the Trust
Property, and/or (b) this Deed of Trust, and/or (c) the fee interest in the
Trust Property or any other estate or interest in the Trust Property.
-27-
<PAGE>
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain Subordination Agreement, dated as of the date hereof, by and
among Grantor, Beneficiary and McDonald's Corporation (the "SUBORDINATION
AGREEMENT"), including any extension, modification, replacement or renewal
thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE AND NOTARY PAGES FOLLOW.]
-28-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
---------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was acknowledged before me this 28th day of July,
1997, by Robert G. Rooney, as Senior Vice President of Discovery Zone, Inc., a
Delaware corporation, on behalf of said corporation.
WITNESS my hand and official seal.
My Commission Expires:
/s/ Mark D. Woodward
- --------------- -----------------------------
Notary Public
[Notary Seal]
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
PARCEL 1:
LOT 1,
BLOCK 1,
THE PLAZA AT AURORA MALL SUBDIVISION FILING NO. 3,
COUNTY OF ARAPAHOE,
STATE OF COLORADO.
PARCEL 2:
THE RIGHTS, BENEFITS AND EASEMENTS AS CONTAINED IN THAT CERTAIN OPERATING
AGREEMENT RECORDED MAY 2, 1974 IN BOOK 2234 AT PAGE 139, AND AS AMENDED BY THE
DEED OF TRUST RECORDED JULY 26, 1977 IN BOOK 2623 AT PAGE 252,
COUNTY OF ARAPAHOE,
STATE OF COLORADO.
PARCEL 3:
THE RIGHTS AND BENEFITS AS CONTAINED IN THAT CERTAIN RECIPROCAL EASEMENT
AGREEMENT RECORDED MARCH 4, 1991 IN BOOK 6105 AT PAGE 431 OVER LOT 2, BLOCK
1, THE PLAZA AT AURORA MALL SUBDIVISION FILING NO. 2, COUNTY OF ARAPAHOE,
STATE OF COLORADO.
COUNTY OF ARAPAHOE,
STATE OF COLORADO.
PARCEL 4:
THE RIGHTS AND BENEFITS AS CONTAINED IN THAT CERTAIN DECLARATION OF RESTRICTIONS
AND GRANT OF EASEMENTS RECORDED FEBRUARY 3, 1994 IN BOOK 7399 AT
PAGE 636,
COUNTY OF ARAPAHOE,
STATE OF COLORADO.
PARCEL 5:
THE RIGHTS AND BENEFITS AS CONTAINED IN THAT CERTAIN EASEMENT AGREEMENT
RECORDED JAUNARY 14, 1994 IN BOOK 7367 AT PAGE 189,
COUNTY OF ARAPAHOE,
STATE OF COLORADO.
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 24 of the attached Deed of Trust. If any conflict or inconsistency
exists between this Exhibit B and the remainder of the attached Deed of Trust,
this Exhibit B shall govern.
A. SPECIAL FORECLOSURE PROVISIONS. Notwithstanding anything to the
contrary contained in Section 24 hereof, Beneficiary may foreclose this Deed of
Trust either by judicial action or through Trustee. Foreclosure through Trustee
will be initiated by Beneficiary's filing of its notice of election and demand
for sale with Trustee. Upon the filing of such notice of election and demand
for sale, Trustee shall promptly comply with all notice and other requirements
of the laws of Colorado then in force with respect to such sales, and shall give
four weeks' public notice of the time and place of such sale by advertisement
weekly in some newspaper of general circulation then published in the county or
city and county in which the Land is located. Any sale conducted by Trustee
pursuant to this paragraph shall be held at the front door of the county
courthouse for such county or city and county, or on the Land, or at such other
place as similar sales are then customarily held in such county or city and
county, provided that the actual place of sale shall be specified in the notice
of sale. In any such sale, it shall and may be lawful for the Trustee to sell
and dispose of the Trust Property en masse or in separate parcels, as the
Trustee may think best.
All fees, costs and expenses of any kind incurred by Beneficiary
in connection with foreclosure of this Deed of Trust, including, without
limitation, the costs of any appraisals of the Land obtained by Beneficiary, all
costs of any receivership for the Land advanced by Beneficiary, all costs of any
environmental audits or tests incurred by Beneficiary and all attorneys' and
consultants' fees incurred by Beneficiary, shall constitute a part of the
Obligations and may be included as part of the amount owing from Grantor to
Beneficiary at any foreclosure sale. The proceeds of any sale under this
paragraph shall be applied first to the fees and expenses of the officer
conducting the sale, and then as set forth in Section 24(a) of this Deed of
Trust. At the conclusion of any foreclosure sale, the officer conducting the
sale shall execute and deliver to the purchaser at the sale a certificate of
purchase which shall describe the property sold to such purchaser and shall
state that upon the expiration of the applicable periods for redemption, the
holder of such certificate will be entitled to a deed to the property described
in the certificate. After the expiration of all applicable periods of
redemption, unless the property sold has been redeemed by Grantor, the officer
who conducted such sale shall, upon request, execute and deliver an appropriate
deed to the holder of the certificate of purchase or the last certificate of
redemption, as the case may be. Nothing in this paragraph dealing with
foreclosure procedures or specifying
B-1
<PAGE>
particular actions to be taken by Beneficiary or by Trustee or any similar
officer shall be deemed to contradict or add to the requirements and procedures
now or hereafter specified by Colorado law, and any such inconsistency shall be
resolved in favor of Colorado law applicable at the time of foreclosure.
B. NON-AGRICULTURAL USE. The Land encumbered by this Deed of Trust
is not used principally or primarily for agricultural or farming purposes.
B-2
<PAGE>
Exhibit 4.28
- --------------------------------------------------------------------------------
DISCOVERY ZONE, INC.
(Grantor),
to
THE PUBLIC TRUSTEE OF DOUGLAS COUNTY,
COLORADO, AS TRUSTEE
(Trustee)
for the benefit of
STATE STREET BANK AND TRUST COMPANY,
solely in its capacity as Trustee and Collateral Agent
(Beneficiary)
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
- --------------------------------------------------------------------------------
Dated as of July 29th, 1997
DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020
Attention: Ronald S. Brody, Esq.
- --------------------------------------------------------------------------------
<PAGE>
THIS DEED OF TRUST, ASSIGNMENT OF LEASES AND RENTS, SECURITY
AGREEMENT AND FIXTURE FILING (as the same may from time to time be extended,
renewed or modified, this "DEED OF TRUST"), made as of this 29th day of July,
1997, by DISCOVERY ZONE, INC., a Delaware corporation ("GRANTOR"), having its
principal place of business at One Corporate Center, 110 East Broward
Boulevard, Fort Lauderdale, Florida 33301 to THE PUBLIC TRUSTEE OF DOUGLAS
COUNTY, COLORADO, AS TRUSTEE (and any subsequent substitutes or successors
thereof pursuant to Section 50 below, "TRUSTEE") to and for the benefit of
STATE STREET BANK AND TRUST COMPANY, solely in its capacity as trustee and
collateral agent under and pursuant to that certain Indenture, dated July 22,
1997, among Discovery Zone, Inc., State Street Bank and Trust Company, as
trustee, and the Subsidiary Guarantors named therein, its successors and
assigns ("BENEFICIARY"), having an address at Two International Place,
Boston, Massachusetts 02110.
W I T N E S S E T H:
--------------------
A. WHEREAS, Grantor has entered into the aforementioned Indenture,
dated as of July 22, 1997 (said Indenture, together with any supplements or
amendments thereto and any renewals, extensions, or replacements thereof, is
hereinafter referred to as the "INDENTURE") pursuant to which the Grantor has
issued (i) 13.50% Senior Secured Notes due August 1, 2002 ("Initial Notes"), and
(ii) 13.50% Senior Secured Notes due August 1, 2002, Series B to be issued in
exchange for the Initial Notes pursuant to a Registration Rights Agreement,
dated as of July 22, 1997, between Grantor and Jeffries & Company, Inc. (the
"Exchange Notes") in the aggregate principal amount of Eighty-Five Million
Dollars ($85,000,000.00). The Initial Notes, the Exchange Notes, and the
Private Exchange Notes (as defined in the Indenture) are hereinafter referred to
collectively as, the "Notes";
B. WHEREAS, pursuant to its obligations under the Indenture, and for
the purpose, among other things, of securing and providing for the repayment of
the Notes, Grantor and Beneficiary have entered into that certain Security
Agreement, Pledge Agreement, Escrow and Security Agreement, and Collateral
Assignment of Patents, Trademarks and Copyrights (Security Agreement), each
dated as of July 22, 1997, which aforementioned agreements and the Indenture,
together with any supplements or amendments thereto and any renewals, extensions
or replacements thereof are hereinafter collectively referred to as the
"RELEVANT DOCUMENTS";
C. WHEREAS, Grantor is entering into this Deed of Trust pursuant to
its obligations under the Indenture and for the purpose, among other things, of
further securing and providing for repayment of the Notes; and
D. WHEREAS, Grantor is the fee simple owner of the real estate
described in Exhibit A attached hereto commonly known as 7510 PARKWAY DRIVE,
LITTLETON, COLORADO (the "LAND");
-1-
<PAGE>
NOW THEREFORE, for and in consideration of One ($1) Dollar, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the Grantor, and in order to secure, to the extent of principal
of EIGHTY-FIVE MILLION ($85,000,000) DOLLARS plus interest and other charges
thereon or disbursements in connection therewith, the prompt payment and
performance of the all of the obligations (the "OBLIGATIONS"), which Obligations
shall be due and payable in full on August 1, 2002 if not sooner paid, of
Grantor, including, without limitation, any and all obligations of Grantor under
this Deed of Trust, the Indenture, and the Notes, and all other documents
evidencing or securing any such Obligations including, without limitation, the
Relevant Documents, Grantor by these presents hereby GRANTS, BARGAINS, SELLS,
WARRANTS, PLEDGES, ASSIGNS AND CONVEYS to Trustee and its successors and assigns
forever in trust, WITH POWER OF SALE, for the benefit of Beneficiary, the Land
and the buildings, structures and improvements of every nature whatsoever now or
hereafter located thereon to the extent owned by Grantor (including, but not
limited to, all gas and electric fixtures, radiators, heaters, docks and docking
facilities, engines and machinery, boilers, elevators and motors, plumbing,
heating and air conditioning fixtures, carpeting and other floor coverings,
water heaters, awnings and storm sashes which are or shall be attached to the
Land or said buildings, structures or improvements) (the "IMPROVEMENTS");
TOGETHER WITH: all right, title, interest and estate of Grantor now
owned, or hereafter acquired, in and to the following property, rights, interest
and estates relating to the Land and the Improvements, together with Grantor's
interest in the following property, rights, interests and estates hereinafter
described (the Land, Improvements, and the following property, rights, interests
and estates being hereinafter collectively referred to as the "TRUST PROPERTY"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights and
powers, air rights and development rights, construction and equipment
warranties, and all estates, rights, titles, interests, privileges, liberties,
tenements, hereditaments and appurtenances of any nature whatsoever, in any way
belonging, relating to or pertaining to the Land and the Improvements and the
reversion and reversions, remainder and remainders, and all land lying in the
bed of any street, road or avenue, opened or proposed, in front of or adjoining
the Land, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of Grantor
of, in and to the Land and the Improvements and every part and parcel thereof,
with the appurtenances thereto, and in and to any streets, ways, alleys,
passages, strips or gores of land adjoining the Land or any part thereof;
(b) all fixtures, attachments and other articles attached to the Land
or the Improvements constituting realty or real property now or hereafter owned
by Grantor or in which Grantor has or shall acquire an interest, now or
hereafter located on, attached to or contained in or used or usable in
connection with the Trust Property, and including, without limitation, all
building or construction materials intended for construction, reconstruction,
alteration or repair of or installation on or in the Trust Property, of every
kind and nature
-2-
<PAGE>
whatsoever now owned or hereafter acquired by Grantor, and all proceeds thereof,
as well as all additions to, appurtenances, substitutions for, replacements of
or accessions to any of the items recited as aforesaid and all attachments,
components, parts (including spare parts) and accessories, whether installed
thereon or affixed thereto, now or hereafter owned by Grantor and used or
intended to be used in connection with, or with the operation of, the Trust
Property, to the extent constituting real property (collectively, the
"FIXTURES");
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Trust Property, whether
from the exercise of the right of eminent domain (including, but not limited to,
any transfer made in lieu of or in anticipation of the exercise of said rights),
or for a change of grade, or for any other injury to or decrease in the value of
the Trust Property;
(d) to the extent assignable, leases, subleases (including
sub-subleases), and, to lettings, licenses, concessions, occupancy agreements
and other agreements which grant a possessory interest in, or the right to use
or occupy, all or any part of the Trust Property now or hereafter entered into,
and all amendments, extensions, renewals and guarantees thereof, and all
security therefor (collectively, the "LEASES") and all rents, issues, profits,
revenues (including all oil and gas or other mineral royalties and bonuses),
deposits (including, without limitation, security deposits) under the Leases
(including, without limitation, from the rental of any office space, retail
space or other space, halls, stores, and offices, and deposits securing
reservations of such space, exhibit or sales space of every kind, license,
lease, sublease fees and rentals, letters of credit or cash instruments securing
or evidencing obligations under Leases, service charges, vending machine sales
and proceeds, if any, from business interruption or other loss of income
insurance)) (collectively, the "RENTS") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to the
payment of the Obligations;
(e) subject to the rights of Grantor hereunder, all proceeds of any
insurance policies covering the Trust Property (including, without limitation,
the right to receive and apply the proceeds of any insurance, judgments, or
settlements made in lieu thereof, for damage to the Trust Property);
(f) all refundable, returnable or reimbursable fees deposits or other
funds or evidences of credit or indebtedness deposited by or on behalf of
Grantor with any governmental authorities, boards, corporations, providers of
utility services, public or private, including specifically, but without
limitation, all refundable, returnable or reimbursable tap fees, utility
deposits and development costs in connection with the Trust Property, and all of
the records and books of account now or hereafter maintained by or on behalf of
Grantor in connection with the operation of the Trust Property (collectively,
"SECURITY ACCOUNTS");
(g) all proceeds (as defined in the Uniform Commercial Code) of the
Trust Property which, in any event, shall include, without limitation, (i) cash,
instruments and other property received, receivable or otherwise distributed in
respect of or in exchange for any or all
-3-
<PAGE>
of the Trust Property, (ii) the collection or other disposition of, or
realization upon, any item or portion of the Trust Property (including, without
limitation, all claims of Grantor against third parties for loss of, damage to,
destruction of, or for proceeds payable under, or unearned premiums with respect
to, policies of insurance in respect of, the Trust Property now existing or
hereafter arising), (iii) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Grantor from time to time with respect to damage
or loss of or to any of the Trust Property, (iv) any and all payments (in any
form whatsoever) made or due and payable to Grantor from time to time in
connection with the requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trust Property by any Governmental
Authority (or any person acting under color of Governmental Authority), and (v)
any and all real estate tax refunds payable to Grantor with respect to the Trust
Property, and refunds or reimbursements payable with respect to bonds, escrow
accounts, or other sums payable in connection with the use, development or
ownership of the Trust Property (collectively, the "PROCEEDS");
(h) to the extent permitted under applicable law, all licenses,
permits, variances and certificates used in connection with the ownership,
operation, use or occupancy of the Trust Property (including, without
limitation, business licenses, state health department licenses, food service
licenses, liquor licenses, licenses to conduct business and all such other
permits, licenses and rights, obtained from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of the Trust
Property) (collectively, "PERMITS");
(i) all plans, specifications, shop drawings and other technical
descriptions prepared for construction, repair or alteration of the Improvements
(including diskettes containing any such data), and all amendments and
modifications thereof; and
(j) any and all replacements and renewals of or additions and
substitutions to any of the foregoing and all proceeds of any of the foregoing.
TO HAVE AND TO HOLD the above granted and described Trust Property
unto and to the use and benefit of Trustee, and the successors, substitutes and
assigns of Trustee forever, IN TRUST WITH POWER OF SALE, for the benefit of
Beneficiary, and its successors and assigns, and Grantor does hereby bind
itself, its successors and assigns to WARRANT AND FOREVER DEFEND the title to
the Trust Property unto Trustee and its successors, substitutes and assigns, for
the benefit of Beneficiary, and its successors and assigns;
AND, TO PROTECT THE SECURITY OF THIS DEED OF TRUST, Grantor represents
and warrants to and covenants and agrees with Beneficiary as follows:
1. Defined Terms. The following terms, when used herein, shall have
the meanings set forth below:
"ENVIRONMENTAL LAWS" means any and all present and future federal,
state or local laws, statutes, ordinances or regulations, any judicial or
administrative orders, decrees or
-4-
<PAGE>
judgments thereunder, and any permits, approvals, licenses, registrations,
filings and authorizations, in each case as now or hereafter in effect, relating
to the protection of the environment, the impact of Hazardous Substances or the
generation, disposal or remediation thereof on human health or safety, or the
Release or threatened Release of Hazardous Substances or otherwise relating to
the Use of Hazardous Substances. For purposes of this definition, (A)
"HAZARDOUS SUBSTANCES" means collectively, (i) any petroleum or petroleum
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBS"), and lead-based
paint, (ii) any chemicals or other materials or substances which are now or
hereafter become defined as or included in the definitions of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants", "pollutants" or words of similar import under any Environmental
Law and (iii) any other chemical or any other material or substance, exposure to
which is now or hereafter prohibited, limited or regulated under any
Environmental Law; (B) "USE" means, with respect to any Hazardous Substance, the
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation of such
Hazardous Substance; and (C) "RELEASE" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata).
"GOVERNMENTAL AUTHORITY" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government (including
without limitation any court).
"IMPOSITIONS" means all taxes (including, without limitation, all real
estate, ad valorem, sales (including those imposed on lease rentals), use,
single business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed within the term of this Deed of Trust), ground rents,
water, sewer or other rents and charges, excises, levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental impositions and other charges (including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Trust Property), in each case whether general or
special, ordinary or extraordinary, foreseen or unforeseen, of every character
in respect of the Trust Property, which at any time prior to, during or in
respect of the term hereof may be assessed or imposed on or in respect of or be
a lien upon (i) Grantor (including, without limitation, all income, franchise,
single business or other taxes imposed on Grantor for the privilege of doing
business in the jurisdiction in which the Trust Property is located), (ii) the
Trust Property, or any part thereof or any revenues therefrom or any estate,
right, title or interest therein, or (iii) any occupancy, operation, use or
possession of, or sales from, or activity conducted on, or in connection with
the Trust Property by Grantor or the leasing or use of the Trust Property or any
part thereof by Grantor.
-5-
<PAGE>
"LEGAL REQUIREMENTS" means (i) all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities (including, without limitation, Environmental Laws)
affecting either the Borrower or any Property or any part thereof or the
construction, ownership, use, alteration or operation thereof, or any part
thereof (whether now or hereafter enacted and in force), (ii) all permits,
licenses and authorizations and regulations relating thereto, and (iii) all
covenants, conditions and restrictions contained in any instruments at any time
in force (whether or not involving Governmental Authorities) affecting the Trust
Property or any part thereof which, in the case of this clause (iii), require
repairs, modifications or alterations in or to the Trust Property or any part
thereof, or in any material way limit or restrict the existing use and enjoyment
thereof.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"UNIFORM COMMERCIAL CODE" means the Uniform Commercial Code, as
adopted, enacted and amended from time to time by the state or states where any
of the Trust Property is located.
2. PAYMENT OF OBLIGATIONS AND INCORPORATION OF COVENANTS, CONDITIONS
AND AGREEMENTS. Grantor will pay the Obligations at the time and in the manner
provided in the Relevant Documents and in this Deed of Trust. All the
representations, warranties, covenants, conditions and agreements of Grantor
contained in the Relevant Documents are hereby made a part of this Deed of Trust
to the same extent and with the same force as if fully set forth herein. If
there shall be any inconsistencies between the terms, covenants, conditions and
provisions set forth in this Deed of Trust and the terms, covenants, conditions
and provisions set forth in the Relevant Documents, then the terms, covenants,
conditions and provisions of the Relevant Documents shall prevail.
3. WARRANTY OF TITLE. Grantor warrants that Grantor has good,
marketable and insurable fee simple title to Land and the Improvements and has
good title to the remainder of the Trust Property and has the full power,
authority and right to execute, deliver and perform its obligations under this
Deed of Trust and to encumber, mortgage, give, grant, bargain, sell, alienate,
enfeoff, convey, confirm, warrant, pledge, assign and hypothecate the Trust
Property and that Grantor possesses an unencumbered fee estate in the Land and
the Improvements and that it owns the Trust Property free and clear of all
liens, encumbrances and charges whatsoever except for (x) those exceptions to
title which are existing on the date hereof and approved by Beneficiary and (y)
those exceptions of title that are permitted under the other terms and
conditions of this Deed of Trust (collectively, the "PERMITTED ENCUMBRANCES")
and that this Deed of Trust is and will remain a valid and enforceable first
lien on and security interest in the Trust Property, subject only to the
Permitted Encumbrances. Grantor shall forever warrant, defend and preserve such
title and the validity and priority of the lien of this Deed of Trust and shall
-6-
<PAGE>
forever warrant and defend the same to Beneficiary against the claims of all
persons whomsoever.
4. TAXES. Grantor hereby warrants, covenants and agrees to pay
before any penalty attaches all real property taxes, general and special, and
all other taxes and assessments of any kind or nature whatsoever, against the
Trust Property when due and shall, upon written request, furnish to Beneficiary
duplicate receipts therefor, Grantor may, in good faith and with reasonable
diligence, contest the validity or amount of any such taxes or assessments
provided that such contest shall have the effect of preventing the collection of
the tax or assessment so contested and the sale or forfeiture of said Trust
Property or any part thereof, or any interest therein, to satisfy the same.
5. INDEMNIFICATION. Grantor shall indemnify, defend and hold
harmless Beneficiary from and against all of the following (collectively, and
individually referred to as a "LOSS"): claims, demands, causes of action,
judgments, costs, expenses, liabilities, losses and damages (including
consequential and punitive damages), reasonable attorneys' fees and expenses and
court costs, disbursements and court costs, and all risk of damage to property
and injury to persons in or upon the Trust Property, arising from: (i)
Grantor's use of the Property or from the conduct of its business in or about
the Trust Property; (ii) Grantor's default or breach of any term under this Deed
of Trust; and (iii) Grantor's violation or failure to comply with any Legal
Requirements, including Environmental Laws; provided that Grantor shall not be
liable for Loss arising from Beneficiary's or Trustee's negligence or willful
misconduct or from Beneficiary's or Trustee's breach of any of their obligations
hereunder.
6. TRANSFER OR ENCUMBRANCE OF THE TRUST PROPERTY. Subject to
Section 52 hereof and except as may otherwise be permitted hereunder or pursuant
to the Relevant Documents, Grantor shall not sell, convey, alienate, mortgage,
encumber, pledge or otherwise transfer the Trust Property or any part thereof or
any of its interest therein. Beneficiary shall not be required to demonstrate
any actual impairment of its security or any increased risk of default hereunder
in order to declare the Obligations immediately due and payable upon Grantor's
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the Trust
Property in violation of this Deed of Trust or any other Relevant Document.
This provision shall apply to every sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer of the Trust Property that is not permitted
pursuant to the Relevant Documents, regardless of whether voluntary or not, or
whether or not Beneficiary has consented to any previous sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Trust Property.
7. AMENDMENT TO LEGAL DESCRIPTION. If it becomes evident that the
legal description attached to any Relevant Document is inaccurate or does not
fully describe all of the real property which is reasonably connected to the
Land, Grantor hereby agrees to an amendment of such legal description and the
legal description contained on the corresponding title policy so that such error
is corrected and to execute and cause to be recorded, if applicable, such
document as may be appropriate for such purpose.
-7-
<PAGE>
8. ASSIGNMENT OF LEASES AND RENTS. Grantor does hereby absolutely
and unconditionally assign to Beneficiary, Grantor's right, title and interest
in all current and future Leases and Rents, it being intended by Grantor that
this assignment constitutes a present, absolute assignment and not an assignment
for additional security only. Such assignment to Beneficiary shall not be
construed to bind Beneficiary to the performance of any of the covenants,
conditions or provisions contained in any such Lease or otherwise impose any
obligation upon Beneficiary. Beneficiary shall have no responsibility on
account of this assignment for the control, care, maintenance, management or
repair of the Trust Property, for any dangerous or defective condition of the
Trust Property, or for any negligence in the management, upkeep, repair or
control of the Trust Property. Grantor agrees to execute and deliver to
Beneficiary such additional instruments, in form and substance satisfactory to
Beneficiary, as may hereafter be requested by Beneficiary to further evidence
and confirm such assignment. Nevertheless, subject to the terms of this
paragraph, Beneficiary grants to Grantor a revocable license to collect all of
the Rents and retain, use and enjoy the same and otherwise exercise all rights
of Grantor under any Lease, in each case, subject to the terms hereof and of the
Relevant Documents. Upon an Event of Default, the license granted to Grantor
herein shall immediately and automatically be revoked, and Beneficiary shall
immediately be entitled to possession of all Rents, whether or not Beneficiary
enters upon or takes control of the Trust Property, provided that if such Event
of Default ceases to exist, the license shall automatically be reinstated. In
addition, during the continuation of an Event of Default, Beneficiary may,
either in person or by agent, without bringing any action or proceeding, or by a
receiver appointed by a court, without the necessity of taking possession of the
Trust Property in its own name, and in addition to and without limiting any of
Beneficiary's rights and remedies hereunder, under the Notes and any other
Relevant Documents and as otherwise available at law or in equity, (a) notify
any lessee or other person that the Leases have been assigned to Beneficiary and
that all Rents are to be paid directly to Beneficiary, whether or not
Beneficiary has commenced or completed foreclosure or taken possession of the
Trust Property; (b) settle, compromise, release, extend the time of payment of,
and make allowances, adjustments and discounts of any Rents or other obligations
in, to and under the Leases; (c) demand, sue for or otherwise collect, receive,
and enforce payment of Rents, including those past-due and unpaid and other
rights under the Leases, prosecute any action or proceeding, and defend against
any claim with respect to the Rents and Leases; (d) enter upon, take possession
of and operate the Trust Property; (e) lease all or any part of the Trust
Property; and/or (f) perform any and all obligations of Grantor under the Leases
and exercise any and all rights of Grantor therein contained to the full extent
of Grantor's rights and obligations thereunder, with or without the bringing of
any action or the appointment of a receiver and without need for any other
authorization or other action by Beneficiary or Grantor. At Beneficiary's
request, Grantor shall deliver a copy of this assignment to each tenant under a
Lease and to each manager and managing agent or operator of the Trust Property.
Grantor irrevocably directs any tenant, manager, managing agent, or operator of
the Property, without any requirement for notice to or consent by Grantor, to
comply with all demands of Beneficiary under this Section 8 and to turn over to
Beneficiary on demand all Rents which it receives. Grantor hereby acknowledges
and agrees that payment of any Rents by a person to Beneficiary as hereinabove
provided shall constitute payment by such person, as fully and with the same
effect as if such Rents had been
-8-
<PAGE>
paid to Grantor. Beneficiary is hereby granted and assigned by Grantor the
right, at its option, upon revocation of the license granted herein, to enter
upon the Trust Property in person or by agent, without bringing any action or
proceeding, or by court-appointed receiver to collect the Rents. Any Rents
collected after the revocation of the license shall be applied towards the
payment of the Obligations. Neither the enforcement of any of the remedies
under this Section 8 nor any other remedies or security interests afforded to
Beneficiary under the Relevant Documents, at law or in equity shall cause
Beneficiary to be deemed or construed to be a Beneficiary in possession of the
Trust Property, to obligate Beneficiary to lease the Trust Property or attempt
to do so, or to take any action, incur any expense, or perform or discharge any
obligation, duty or liability whatsoever under any of the Leases or otherwise.
Grantor shall, and hereby agrees to indemnify Beneficiary for, and to hold
Beneficiary harmless from and against, any and all claims, liability, expenses,
losses or damages which may or might be asserted against or incurred by
Beneficiary solely by reason of Beneficiary's status as an assignee pursuant to
the assignment of Rents and Leases contained herein, but excluding any claim (a)
to the extent caused by Beneficiary's gross negligence or willful misconduct, or
(b) to the extent arising solely from Beneficiary's actions after Beneficiary
has taken possession of the Trust Property. Should Beneficiary incur any such
claim, liability, expense, loss or damage, the amount thereof, including all
actual expenses and reasonable fees of attorneys, shall constitute Obligations
secured hereby, and Grantor shall reimburse Beneficiary therefor immediately
upon demand. Grantor agrees that all Leases shall be subject to the prior
written approval of Beneficiary, such approval not to be unreasonably withheld.
9. MAINTENANCE OF TRUST PROPERTY. Grantor shall cause the Trust
Property to be maintained in a good and safe condition and repair (subject to
ordinary wear and tear), and shall otherwise operate and maintain the Trust
Property in a manner consistent with the manner in which it operates and
maintains the other properties on which it operates similar businesses ("SIMILAR
PROPERTIES"). Except as otherwise permitted by the Relevant Documents, the
Improvements, the Fixtures and the equipment located on the Land or the
Improvements shall not be removed, demolished or materially altered (except for
normal replacement of equipment) without the consent of Beneficiary which shall
not unreasonably be withheld or delayed. Grantor shall comply with all laws,
orders and ordinances affecting the Trust Property, or the use thereof. Except
to the extent that Beneficiary fails to turn over insurance proceeds, if any,
received by Beneficiary pursuant to Sections 10 and 11 with respect to the Trust
Property to Grantor, Grantor shall promptly repair, replace or rebuild any part
of the Trust Property that, following the date hereof, becomes damaged, worn or
dilapidated and Grantor shall complete and pay for any structure at any time in
the process of construction or repair on the Land. Notwithstanding anything to
the contrary contained herein, Grantor hereby confirms its obligation to comply
with all relevant Legal Requirements, including Environmental Laws, with respect
to the Trust Property. Grantor shall not initiate, join in, acquiesce in, or
consent to any change in any private restrictive covenant, zoning law or other
public or private restriction, limiting or defining the uses which may be made
of the Trust Property or any part thereof, unless Grantor shall have received
Beneficiary's prior written consent, such consent not to be unreasonably
withheld or delayed. If under applicable zoning provisions the use of all or
any portion of the Trust Property is or shall become a nonconforming use,
Grantor will not cause
-9-
<PAGE>
such nonconforming use to be discontinued or abandoned without the express
written consent of Beneficiary, such consent not to be unreasonably withheld or
delayed. Grantor shall not (i) change the use of the Land in any material
respect or (ii) permit or suffer to occur any waste on or to the Trust Property
or to any portion thereof.
10. INSURANCE.
(a) Grantor shall maintain casualty, liability and other policies of
insurance relating to the Trust Property in form and substance, and with
insurers and coverages, reasonably satisfactory to Beneficiary and consistent
with insurance that it maintains on Similar Properties. Grantor shall keep the
Trust Property insured against loss by flood if the Trust Property is located in
an area identified by the Secretary of Housing and Urban Development as an area
having a special flood hazards and in which flood insurance has been made
available under the National Flood Insurance Act of 1968 (or any successor act
thereto). All policies of insurance to be furnished hereunder (i) shall have
standard non-contributory mortgagee clauses attached to all policies in favor of
Beneficiary, without contribution, under a standard New York (or local
equivalent) mortgagee clause naming Beneficiary as the party to which all
payments made under such insurance policies in excess of $150,000 should be
paid, (ii) shall contain an endorsement providing that neither Grantor nor
Beneficiary nor any other party shall be a co-insurer under said policies and
shall contain a provision requiring that the coverage evidenced thereby shall
not be terminated or materially modified without ten (10) days prior written
notice to Beneficiary, (iii) shall provide that no act or thing done by Grantor
shall invalidate the policy as against Beneficiary, and (iv) with respect to
property insurance policies, shall contain a waiver of subrogation against
Beneficiary. Grantor shall deliver certificates evidencing additional and
renewal policies, together with evidence of payment of premiums thereon, to
Beneficiary, and in the case of all insurance about to expire, shall deliver
renewal policies or certificates evidencing such policies not less than ten (10)
days prior to their respective dates of expiration.
(b) Grantor shall not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained
hereunder unless Beneficiary is included thereon under a standard,
non-contributory mortgagee clause acceptable to Beneficiary. Grantor shall
promptly notify Beneficiary whenever any such separate insurance is taken out
and shall promptly deliver to Beneficiary the certificates evidencing the policy
or policies of such insurance.
(c) The insurance required by this Deed of Trust, at the option of
Grantor, may be effected by blanket and/or umbrella policies covering the Trust
Property and other properties, provided, however, that in each case, such
insurance policies otherwise comply with the provisions of this Deed of Trust
and allocate to the Trust Property, from time to time, the coverage specified in
this Deed of Trust without possibility of reduction or co-insurance by reason
of, or damage to, any other property named therein. If the insurance required
by this Deed of Trust shall be effected by any such blanket or umbrella
policies, Grantor shall furnish to Beneficiary certificates with respect to,
with schedules attached thereto showing the amount of the insurance provided
under such policies which is applicable to the Trust Property.
-10-
<PAGE>
(d) If Grantor fails to maintain insurance in compliance with this
Section, Beneficiary may obtain such insurance and pay the premium therefor and
Grantor shall, on demand, reimburse Beneficiary for all expenses incurred in
connection therewith. Grantor shall deliver original certificates to Beneficiary
of all insurance policies maintained pursuant to this Section 10. Each property
insurance policy shall name Beneficiary as mortgagee, and loss payee with
respect to all casualty coverage and each liability policy shall name
Beneficiary as an additional insured thereunder.
11. CASUALTY. (a) Grantor shall give Beneficiary prompt notice of
any loss or damage to the Trust Property.
(b) In case of loss or damage to the Trust Property covered by any of
the insurance policies described in Section 10 above, Beneficiary (or, after a
trustee's sale or sheriff's sale under this Deed of Trust, the purchaser at such
sale) is hereby authorized at its option either (i) to settle and adjust any
claim under such insurance policies without the consent of Grantor or (ii) to
allow Grantor to settle and adjust such claim (either jointly with Beneficiary
or by Grantor alone, at Beneficiary's discretion); provided that in either case
Beneficiary shall, and is hereby authorized to, collect and receipt for any such
insurance proceeds. Notwithstanding anything in the preceding sentence to the
contrary, Beneficiary agrees that it will allow Grantor to settle and adjust any
claims under the insurance policies which are in an amount less than $150,000,
per incident of loss, up to an aggregate amount of no greater than $250,000.
The expenses incurred by Beneficiary in the adjustment and collection of
insurance proceeds shall be included in the Obligations, and shall be reimbursed
to Beneficiary upon demand or may be deducted by Beneficiary from said insurance
proceeds prior to another application thereof. Interest on such amount shall
accrue at the at the rate of thirteen and one-half percent (13.5%) per annum,
beginning ten (10) days after Grantor receives notice of a request for payment
of such amount from Beneficiary, until such amount, plus interest, is paid in
full.
(c) Beneficiary shall permit Grantor to apply the proceeds of
insurance policies received in connection with any casualty to pay for the cost
of restoring, repairing, replacing or rebuilding the loss or damage to the Trust
Property resulting from the casualty ("RESTORATION") if: (i) there is no Event
of Default hereunder at the time of such application; (ii) restoration can, in
the reasonable judgment of Beneficiary, be completed no later than two (2) years
prior to the maturity of the Obligations; and (iii) restoration can, in the
reasonable judgment of Beneficiary, be effected in such a manner so that the
Trust Property will be of at least equal or greater value to the value than the
Trust Property prior to such casualty. Otherwise, Beneficiary may elect in its
sole discretion to apply such proceeds either (x) towards payment of the
Obligations, notwithstanding the fact that the Obligations, or a portion
thereof, may not then be due and payable, or (y) to pay for the cost of
Restoration. In all events, disbursement of insurance proceeds by Beneficiary
(or at Beneficiary's election by a disbursing or escrow agent who shall be
selected by Beneficiary and whose fees shall be paid by Grantor), to pay the
cost of restoration shall require (i) evidence reasonably satisfactory to
Beneficiary of the estimated costs of Restoration, (ii) funds (or assurances
reasonably satisfactory to Beneficiary
-11-
<PAGE>
that such funds are available) sufficient in addition to the proceeds of
insurance to complete and fully pay for Restoration; and (iii) such architect's
certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, plats of surveys and such other evidences of cost, payment and
performance as Beneficiary may reasonably require and approve. Except to the
extent Beneficiary fails to turn over insurance proceeds, if any, received by
Beneficiary hereunder with respect to such casualty to Grantor, Grantor hereby
covenants to restore, repair, replace or rebuild the Improvements, to be of at
least equal value, and of substantially the same character as prior to such loss
or damage, all to be effected in accordance with plans, specifications and
procedures to be first submitted to and reasonably approved by Beneficiary, and
Grantor shall pay all costs of such restoring, repairing, replacing or
rebuilding.
12. EMINENT DOMAIN. Grantor warrants, covenants and agrees that
should the Trust Property, or any part thereof or interest therein, be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner, or should Grantor receive any notice of other information
regarding such proceeding, Grantor shall give written notice thereof within five
(5) business days to Beneficiary. Without Beneficiary's prior consent, Grantor
(1) shall not agree to any compensation or award, and (2) shall not take any
action or fail to take any action which would cause the compensation to be
determined. Beneficiary shall be entitled to: (1) all compensation awards and
other payments or relief therefor, (2) to commence, appear in and prosecute in
its own name any action or proceedings, and (3) to make any compromise or
settlement in connection with such taking or damage. Grantor authorizes
Beneficiary to collect and receive such awards and compensation, to give proper
receipts and acquittances therefor and in Beneficiary's discretion to apply the
same toward the payment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable, or to the
restoration of the Trust Property in accordance with the provisions set forth in
the penultimate sentence of Section 11(c) above. Grantor further agrees to make,
execute, and deliver to Beneficiary, at any time upon request, free and clear of
any encumbrance of any kind whatsoever, any and all further assignments and
other instruments deemed necessary by Beneficiary for the purpose of validly and
sufficiently assigning all compensations and awards made to Grantor for any
taking, either permanent or temporary, under any such proceeding.
13. RELEASE OF DEED OF TRUST. Beneficiary agrees to promptly and
unconditionally release this Deed of Trust as follows:
a. in the event of a bona fide sale (other than a "sale leaseback"
or other similar financing transaction) of the Trust Property to a third party
that is not affiliated with Grantor, provided that the following conditions are
satisfied: (i) neither Grantor nor any of its respective affiliates continue to
use or occupy the Trust Property or any part thereof; (ii) Grantor shall consult
with Beneficiary prior to such sale and shall obtain Beneficiary's prior written
consent with respect to such sale and the sales price (such consent not to be
unreasonably withheld); and (iii) all of the proceeds of such sale are applied
towards repayment of the Obligations, notwithstanding the fact that the
Obligations, or a portion thereof, may not then be due and payable.
-12-
<PAGE>
b. in the event that Beneficiary is paid in full for all amounts
owing to Beneficiary by Grantor and any of its former affiliated debtors,
including the indefeasible payment in full of the Obligations, and no amount is
then owing by one or more of the foregoing to Beneficiary pursuant to the
Indenture, the Notes or any other Relevant Documents.
14. CHANGES IN THE LAWS REGARDING TAXATION. If any law is enacted or
adopted or amended after the date of this Deed of Trust which imposes a tax,
either directly or indirectly, on the Obligations or Beneficiary's interest in
the Trust Property, Grantor will pay such tax, with interest and penalties
thereon, if any, provided, however, that Grantor shall not be obligated to pay
any tax which is imposed on the net income of Beneficiary or franchise taxes or
doing business taxes imposed on Beneficiary. In the event that the payment of
such tax or interest and penalties by Grantor would be unlawful or taxable to
Beneficiary or unenforceable or provide the basis for a defense of usury, then
in any such event, Beneficiary shall have the option, by written notice of not
less than ninety (90) days, to declare the Obligations immediately due and
payable.
15. NO CREDITS ON ACCOUNT OF THE OBLIGATIONS. (i) Grantor will not
claim or demand or be entitled to any credit or credits on account of the
Obligations for any part of the Impositions assessed against the Trust Property,
or any part thereof, and (ii) no deduction shall otherwise be made or claimed
from the assessed value of the Trust Property, or any part hereof, for real
estate tax purposes by reason of this Deed of Trust or the Obligations if the
effect of such deduction would impose on Beneficiary a tax, either directly or
indirectly, for which it otherwise would not have been liable.
16. DOCUMENTARY STAMPS. If at any time the United States of America,
any State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Notes or this Deed of Trust, or impose any
other tax or charge on the same, Grantor will pay for the same, with interest
and penalties thereon, if any.
17. CONTROLLING AGREEMENT. It is expressly stipulated and agreed to
be the intent of Grantor and Beneficiary at all times to comply with applicable
state law or applicable United States federal law (to the extent that it permits
Beneficiary to contract for, charge, take, reserve, or receive a greater amount
of interest than under state law) and that this Section shall control every
other covenant and agreement in this Deed of Trust and the other Relevant
Documents. If the applicable law (state or federal) is ever judicially
interpreted so as to render usurious any amount called for under the Notes or
under any of the other Relevant Documents, or contracted for, charged, taken,
reserved, or received with respect to the Obligations, or if Beneficiary's
exercise of the option to accelerate the maturity of the Notes, or if any
prepayment by Grantor results in Grantor having paid any interest in excess of
that permitted by applicable law, then it is Grantor's and Beneficiary's express
intent that all excess amounts theretofore collected by Beneficiary shall be
credited on the principal balance of the Notes and all other Obligations (or, if
the Notes and all other Obligations have been or would thereby be paid in full,
refunded to Grantor), and the provisions of the Notes and the other Relevant
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and
-13-
<PAGE>
thereunder reduced, without the necessity of the execution of any new documents,
so as to comply with the applicable law, but so as to permit the recovery of the
fullest amount otherwise called for hereunder or thereunder. All sums paid or
agreed to be paid to Beneficiary for the use, forbearance, or detention of the
Obligations shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the
Obligations until payment in full so that the rate or amount of interest on
account of the Obligations does not exceed the maximum rate of interest
permitted by law from time to time in effect and applicable to the Obligations
for so long as the Obligations are outstanding.
18. PERFORMANCE OF OTHER AGREEMENTS. Grantor shall observe and
perform in all respects the terms to be observed or performed by Grantor under
any agreement or recorded instrument affecting or pertaining to the Trust
Property.
19. RIGHT TO PERFORM THE OBLIGATIONS. Subject to the terms of the
Relevant Documents, if any default exists, Beneficiary shall have the right, but
not the obligation, to cure such default in the name and on behalf of Grantor.
All sums advanced and expenses incurred at any time by Beneficiary under this
Section 19, or otherwise under this Deed of Trust or any of the other Relevant
Documents or applicable law (including, without limitation, the costs and
expenses of Beneficiary and its agents incurred in connection with the
preservation, collection and enforcement of this Deed of Trust or of the liens
created hereby), shall bear interest from the date that such sum is advanced or
expense incurred, to and including the date of reimbursement, computed at the
rate of thirteen and one-half percent (13.5%) per annum, and all such sums,
together with interest thereon, shall constitute additions to the Obligations
and shall be secured by this Deed of Trust and Grantor covenants and agrees to
pay them to the order of the Beneficiary promptly upon demand.
20. FURTHER ACTS, ETC. Grantor will, at the cost of Grantor, and
without expense to Beneficiary, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, mortgages, deeds of trust,
assignments, notices of assignment, Uniform Commercial Code financing statements
or continuation statements, transfers and assurances as Beneficiary shall, from
time to time, reasonably require, for the better assuring, conveying, assigning,
transferring, and confirming unto Beneficiary the property and rights hereby
mortgaged, given, granted, bargained, sold, alienated, enfeoffed, conveyed,
confirmed, warranted, pledged, assigned and hypothecated (including, without
limitation, the assignment of leases and rents contained in Section 8 hereof) or
intended now or hereafter so to be, or which Grantor may be or may hereafter
become bound to convey or assign to Beneficiary, or for carrying out the
intention or facilitating the performance of the terms of this Deed of Trust or
for filing, registering or recording this Deed of Trust. Grantor, on demand,
will execute and deliver and, Grantor hereby authorizes Beneficiary to execute
in the name of Grantor or without the signature of Grantor to the extent
Beneficiary may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Beneficiary in the Trust Property. Notwithstanding anything to the
contrary contained herein, Grantor shall not be obligated to execute, deliver,
file or record any additional documents which increase Grantor's obligations
under this Deed of Trust or the Relevant
-14-
<PAGE>
Documents. Grantor grants to Beneficiary an irrevocable power of attorney
coupled with an interest for the purpose of exercising the rights provided for
in Section 19 and this Section 20.
21. RECORDING OF DEED OF TRUST, ETC. Grantor forthwith upon the
execution and delivery of this Deed of Trust and thereafter, from time to time,
will cause this Deed of Trust, and any security instrument creating a lien or
security interest or evidencing the lien hereof upon the Trust Property and each
instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Beneficiary in, the Trust Property. Grantor
will pay all filing, registration or recording fees, the costs and fees of local
counsel for Beneficiary including, without limitation, costs and fees for local
counsel review of this Deed of Trust and the Subordination Agreement
(hereinafter defined) and the preparation of opinion letters in connection
therewith, and all expenses incident to the preparation, execution and
acknowledgment of this Deed of Trust, any deed of trust or mortgage supplemental
hereto, any security instrument with respect to the Trust Property and any
instrument of further assurance, and all federal, state, county and municipal,
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution and delivery of this Deed of Trust, any deed of trust or
mortgage supplemental hereto, any security instrument with respect to the Trust
Property or any instrument of further assurance (other than income or franchise
taxes imposed on Beneficiary), except where prohibited by law so to do. Grantor
shall hold harmless and indemnify Beneficiary, its successors and assigns,
against any liability incurred by reason of the imposition of any tax on the
making and recording of this Deed of Trust. Grantor shall pay all title costs
and premiums in connection with the ALTA lender's title insurance policy issued
by Chicago Title Insurance Company for the benefit of Beneficiary in connection
with this Deed of Trust (including payment for the cost of any property surveys
("Surveys") prepared in connection therewith), which title insurance policy
shall be in form and substance satisfactory to Beneficiary containing such
endorsements as Beneficiary may reasonably request, including, without
limitation, the deletion of any creditor's rights exception and (to the extent
available) a variable rate endorsement; survey endorsement; comprehensive
endorsement; first loss endorsement; last dollar endorsement; tie-in
endorsement; future advances endorsement; access coverage; tax parcel coverage;
contiguity (if applicable) coverage; and such other endorsements as Beneficiary
shall reasonably require. In the event that any Survey with respect to the
Trust Property reveals any encumbrances, restrictions, building code or zoning
violations or other matters which in Beneficiary's reasonable judgment
materially impair Beneficiary's security interest in the Trust Property, Grantor
agrees to cooperate with Beneficiary in performing any acts reasonably requested
by Beneficiary to cause such encumbrances, restrictions, violations or other
matters to be removed or remedied as appropriate.
22. REPORTING REQUIREMENTS. Grantor agrees to give prompt notice to
Beneficiary of the insolvency or bankruptcy filing of Grantor. In addition,
Grantor will give notice to Beneficiary in writing not later than ten (10) days
after: (i) the occurrence of any Event of Default with respect to Grantor
hereunder, or (ii) notice to Grantor of any action, litigation or proceeding
instituted to recover possession of the Trust Property from Grantor or for any
-15-
<PAGE>
other purpose affecting this Deed of Trust or of any other action, litigation or
proceeding instituted against Grantor or judgment rendered against Grantor; and
such notice to Beneficiary shall include a true copy of any notice of default,
or if any action is then proceeding, copies of any pleadings and papers received
by Grantor.
23. EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" as used herein
shall mean the occurrence or happening, at any time and from time to time, of
one or more of the following events:
(a) a default or event of default under any of the Notes or any of
the other Relevant Documents, which remains uncured following the expiration of
any applicable cure periods;
(b) Grantor (i) shall fail to perform when due any payment obligation
under the terms of this Deed of Trust within ten days after such amount becomes
due, or (ii) shall be in violation of any of the obligations or covenants
contained herein and such default shall continued unremedied for a period of
thirty (30) days, provided that if such default is not readily susceptible of
cure in such thirty (30) day period, and provided that Grantor proceeds in a
diligent manner to cure such default, Grantor shall have such additional time to
effect such cure as shall be reasonably necessary to effect such cure;
(c) Failure by Grantor to maintain insurance and deliver evidence
thereof pursuant to Section 10;
(d) a default under any other mortgage, deed of trust or other
security instrument covering the Trust Property or a portion thereof which
remains uncured following the expiration of any applicable cure periods; or
(e) the occurrence of an Event of Default under the Indenture.
24. REMEDIES. (a) Upon the occurrence of any Event of Default,
Beneficiary may take such action or cause Trustee to take such action permitted
in law or at equity, without notice or demand, as it deems advisable to protect
and enforce its rights against Grantor and in and to the Trust Property, by
Beneficiary itself, or through Trustee or otherwise, including, but not limited
to, the following actions, each of which may be pursued concurrently or
otherwise, at such time and in such order as Beneficiary may determine, in its
sole discretion, without impairing or otherwise affecting the other rights and
remedies of Beneficiary:
(i) declare the entire principal amount of the indebtedness and
Obligations secured hereby with interest accrued thereon to be immediately
due and payable;
(ii) institute a proceeding or proceedings, judicial or nonjudicial, by
advertisement or otherwise, for the complete foreclosure of this Deed of
Trust in which case the Trust Property or any interest therein may be sold
for cash or upon credit in one or more
-16-
<PAGE>
parcels or in several interests or portions and in any order or manner in
accordance with the laws of the jurisdiction in which such Trust Property
is located;
(iii) with or without entry, to the extent permitted, and pursuant to the
procedures provided by, applicable law, institute proceedings for the
foreclosure of this Deed of Trust for the Obligations then due and payable
subject to the continuing lien of this Deed of Trust, in accordance with
the laws of the jurisdiction in which such Trust Property is located, for
the balance of the Obligations not then due;
(iv) sell for cash or upon credit the Trust Property or any part thereof
and all estate, claim, demand, right, title and interest of Grantor therein
and rights of redemption thereof, pursuant to power of sale or otherwise,
at one or more sales, as an entirety or in parcels, at such time and place,
upon such terms and after such notice thereof as may be required or
permitted by the laws of the jurisdiction in which such Trust Property is
located;
(v) institute an action, suit or proceeding in equity for the specific
performance of any covenant, condition or agreement contained herein or in
the other Relevant Documents;
(vi) recover judgment on the Notes either before, during or after any
proceedings for the enforcement of this Deed of Trust;
(vii) prior to, concurrently with, or subsequent to the institution of
foreclosure proceedings, apply for the appointment of a trustee, receiver,
liquidator or conservator of the Trust Property, as a matter of strict
right, EX PARTE and without notice and without regard for the adequacy of
the security for the Obligations or the interest of the Grantor therein and
without regard for the solvency of the Grantor or of any person, firm or
other entity liable for the payment of the Obligations, and Grantor hereby
consents to such appointment;
(viii) prior to, concurrently with or subsequent to the institution of
foreclosure proceedings, enforce Beneficiary's interest in the Leases and
Rents and enter into or upon the Trust Property and take exclusive
possession thereof, either personally or by its agents, nominees or
attorneys and dispossess Grantor and its agents and servants therefrom, and
thereupon Beneficiary may (whether or not a receiver has been appointed) as
attorney-in-fact or agent of Grantor, or in its own name and under the
powers herein granted,(A) use, operate, manage, control, insure, maintain,
repair, restore and otherwise deal with all and every part of the Trust
Property and conduct the business thereat; (B) complete any construction on
the Trust Property in such manner and form as Beneficiary deems advisable;
(C) make alterations, additions, renewals, replacements and improvements to
or on the Trust Property; (D) exercise all rights and powers of Grantor
with respect to the Trust Property, whether in the name of Grantor or
otherwise (including, without limitation, the right to make, cancel,
enforce or modify Leases, obtain and evict tenants, and demand, sue for,
collect and receive all earnings, revenues,
-17-
<PAGE>
rents, issues, profits and other income of the Trust Property and every
part thereof); and (E) apply the receipts from the Trust Property to the
payment of the Obligations, after deducting therefrom all reasonable
expenses (including, without limitation, reasonable attorneys' fees)
incurred in connection with the aforesaid operations and all amounts
necessary to pay the taxes, assessments, insurance and other charges in
connection with the Trust Property, it being agreed that should Beneficiary
incur any liability, loss or damage in the defense of any claims or
demands, the amount thereof, including costs, expenses and reasonable
attorneys' fees shall be secured hereby, and Grantor shall reimburse
Beneficiary therefor immediately upon demand;
(ix) require Grantor to pay monthly in advance to Beneficiary, or any
receiver appointed to collect the Rents, the fair and reasonable rental
value for the use and occupation of any portion of the Trust Property
occupied by Grantor and require Grantor to vacate and surrender possession
to Beneficiary of the Trust Property or to such receiver and, in default
thereof, evict Grantor by summary proceedings or otherwise;
(x) sell the property under the Deed of Trust's power of sale or foreclose
this Deed of Trust as a mortgage; and
(xi) pursue such other rights and remedies as may be available under the
Relevant Documents or otherwise at law or in equity or under the Uniform
Commercial Code including the right to establish a lock box for all Rents
and other receivables of Grantor relating to the Trust Property.
In the event of a sale, by foreclosure or otherwise, of less than all of the
Trust Property, this Deed of Trust shall continue as a lien on the remaining
portions of the Trust Property.
The proceeds of any sale made under or by virtue of this Section 24,
together with any other sums which then may be held by Beneficiary under this
Deed of Trust, whether under the provisions of this Section or otherwise, shall
be applied by Beneficiary in the following order of priority: first, on account
of all reasonable costs and expenses incident to the foreclosure proceedings,
including all such items as are mentioned in this Section 24; second, all other
items which under the terms hereof constitute secured indebtedness, which are
any amounts due under this Deed of Trust, or under the other Relevant Documents;
third, any surplus to Grantor, its successors or assigns, as their rights may
appear.
(b) Upon any sale made under or by virtue of this Section 24, whether
made under the power of sale herein granted or under or by virtue of judicial
proceedings or of a judgment or decree of foreclosure and sale, Beneficiary may
bid for and acquire the Trust Property or any part thereof and in lieu of paying
cash therefor may make settlement for the purchase price by crediting upon the
Obligations the net sales price after deducting therefrom the expenses of the
sale and costs of the action and any other sums which Beneficiary is authorized
to deduct under this Deed of Trust.
-18-
<PAGE>
(c) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect in any manner or to any extent the lien of this Deed of
Trust upon the Trust Property or any part thereof, or any liens, rights, powers
or remedies of Beneficiary hereunder, but such liens, rights, powers and
remedies of Beneficiary shall continue unimpaired as before.
(d) Beneficiary may adjourn, terminate or rescind any proceeding or
other action brought in connection with its exercise of the remedies provided in
this Section 24 at any time before the conclusion thereof, as determined in
Beneficiary's sole discretion and without prejudice to Beneficiary.
(e) Beneficiary may resort to any remedies and the security given by
this Deed of Trust or the other Relevant Documents in whole or in part, and in
such portions and in such order as determined by Beneficiary's sole discretion.
No such action shall in any way be considered a waiver of any rights, benefits
or remedies evidenced or provided by this Deed of Trust or the other Relevant
Documents. The failure of Beneficiary to exercise any right, remedy or option
provided in this Deed of Trust or the other Relevant Documents shall not be
deemed a waiver of such right, remedy or option or of any covenant or obligation
secured by this Deed of Trust or the other Relevant Documents. Subject to the
provisions of the Relevant Documents, no acceptance by Beneficiary of any
payment after the occurrence of any Event of Default and no payment by
Beneficiary of any obligation for which Grantor is liable hereunder shall be
deemed to waive or cure any Event of Default with respect to Grantor, or
Grantor's liability to pay such obligation. No sale of all or any portion of
the Trust Property, no forbearance on the part of Beneficiary and no extension
of time for the payment of the whole or any portion of the Obligations or any
other indulgence given by Beneficiary to Grantor, shall operate to release or in
any manner affect the interest of Beneficiary in the remaining Trust Property or
the liability of Grantor to pay the Obligations. No waiver by Beneficiary shall
be effective, unless it is in writing and then only to the extent specifically
stated.
(f) The interests and rights of Beneficiary under this Deed of Trust
and the other Relevant Documents, and the liens and security interests created
and evidenced by this Deed of Trust and the other Relevant Documents, shall not
be impaired by any indulgence, including (i) any renewal, extension or
modification which Beneficiary may grant with respect to any of the Obligations,
(ii) any surrender, compromise, release, renewal, extension, exchange or
substitution which Beneficiary may grant with respect to the Trust Property or
any portion thereof; or (iii) any release or indulgence granted to any maker,
endorser, guarantor or surety of any of the Obligations.
(g) Upon the occurrence of any Event of Default under Section 23, in
any suit to foreclose the lien hereof or enforce any other remedy of Beneficiary
under this Deed of Trust, there shall be allowed and included as additional
indebtedness in the decree for sale or other judgment or decree all reasonable
expenditures and expenses which may be paid or incurred by or on behalf of
Beneficiary for attorneys' fees, appraiser's fees, outlays for documentary and
expert evidence, stenographers' charges, publication costs, and costs (which may
be estimated
-19-
<PAGE>
as to items to be expended after entry of the decree) of procuring all such
abstracts of title, title searches and examinations, title insurance policies,
Torrens certificates, and similar data and assurances with respect to title as
Beneficiary may deem reasonably necessary either to prosecute such suit or to
evidence to bidders at any sale which may be had pursuant to such decree the
true condition of the title to or the value of the Trust Property. All such
reasonable expenditures and expenses which Beneficiary may incur as permitted by
this Section for the protection of the Trust Property and the maintenance of the
lien of this Deed of Trust, including, but not limited to, the fees and
out-of-pocket disbursements of any attorney employed by Beneficiary in any
litigation or proceeding affecting this Deed of Trust, including, but not
limited to, bankruptcy proceedings or preparations for the commencement or
defense of any proceeding or threatened suit or proceeding, shall be immediately
due and payable by Grantor and shall be secured by this Deed of Trust.
25. RIGHT OF ACCESS. Grantor shall permit agents, representatives
and employees of Beneficiary to (i) inspect the Trust Property or any part
thereof, provided that such inspection does not materially interfere with the
tenants of the Trust Property or violate the terms of any Lease, (ii) to examine
and make abstracts from any of Grantor's books and records and (iii) to discuss
the business, operations, properties and financial and other condition of
Grantor with officers of Grantor and with its independent certified public
accountants, at such reasonable times as may be requested by Beneficiary upon
reasonable advance notice.
26. SECURITY AGREEMENT. This Deed of Trust is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Trust Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Grantor in the Trust Property. Grantor by executing and delivering this Deed of
Trust has granted and hereby grants to Beneficiary, as security for the
Obligations, a security interest in the Trust Property to the full extent that
the Trust Property may be subject to the Uniform Commercial Code (said portion
of the Trust Property so subject to the Uniform Commercial Code being called in
this paragraph the "COLLATERAL"). Grantor hereby agrees with Beneficiary to
execute and deliver to Beneficiary, in form and substance satisfactory to
Beneficiary, such financing statements and such further assurances as
Beneficiary may from time to time, reasonably consider necessary to create,
perfect, and preserve Beneficiary's security interest herein granted. All or
part of the Trust Property is or is to become "fixtures" as defined in the
Uniform Commercial Code, and this Deed of Trust, upon being filed for record in
the real estate records of the city or county wherein such fixtures are
situated, shall also constitute a "fixture filing" for the purposes of the
Uniform Commercial Code upon such of the Trust Property that is or may become
fixtures. Information concerning the security interest herein granted may be
obtained from the parties at the addresses of the parties set forth in the first
paragraph of this Deed of Trust. Grantor's chief executive office and principal
place of business is the Grantor's address set forth in the first paragraph of
this Deed of Trust, and the place where Grantor's books and records in respect
of where the Trust Property is located are kept is the address of Grantor set
forth in the first paragraph of this Deed of Trust. If an Event of Default
shall occur which shall remain uncured, Beneficiary, in addition to any other
rights and remedies which it may have, shall have and may exercise immediately
-20-
<PAGE>
and without demand, any and all rights and remedies granted to a secured party
upon default under the Uniform Commercial Code, (including, without limitation,
to the extent permitted by law, the right to take possession of the Collateral
or any part thereof, and to take such other measures as Beneficiary may deem
necessary for the care, protection and preservation of the Collateral). Upon
request or demand of Beneficiary or Trustee, Grantor shall at its expense
assemble the Collateral and make it available to Beneficiary at a convenient
place acceptable to Beneficiary. Grantor shall pay to Beneficiary on demand
therefor any and all reasonable expenses (including, without limitation,
reasonable legal expenses and attorneys' fees) incurred or paid by Beneficiary
in protecting the interest in the Collateral and in enforcing the rights
hereunder with respect to the Collateral. Any notice of sale, disposition or
other intended action by Beneficiary with respect to the Collateral sent to
Grantor at least ten (10) business days prior to such action or such notice as
is otherwise required by law or the Relevant Documents, shall constitute
commercially reasonable notice to Grantor. The proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Beneficiary to the
payment of the Obligations in such priority and proportions as Beneficiary shall
determine in its sole discretion. In the event of any change in name, identity
or structure of Grantor, Grantor shall notify Beneficiary thereof and, promptly
after request, shall execute, file and record such Uniform Commercial Code forms
as are necessary to maintain the priority of Beneficiary's lien upon and
security interest in the Collateral, and shall pay all expenses and fees in
connection with the filing and recording thereof. If Beneficiary shall require
the filing or recording of additional Uniform Commercial Code forms or
continuation statements, Grantor shall, promptly after request, execute, file
and record such Uniform Commercial Code forms or continuation statements as
Beneficiary shall deem necessary, and shall pay all expenses and fees in
connection with the filing and recording thereof, it being understood and
agreed, however, that no such additional documents shall materially increase
Grantor's obligations under this Deed of Trust or the other Relevant Documents.
Grantor hereby irrevocably appoints Beneficiary as its attorney-in-fact, coupled
with an interest, to file with the appropriate public office on its behalf any
UCC financing statements (or related documents) signed only by Beneficiary, as
secured party, in connection with the Collateral covered by this Deed of Trust,
such appointment to terminate upon the release of this Deed of Trust.
27. ACTIONS AND PROCEEDINGS. Beneficiary has the right to appear in
and defend any action or proceeding brought with respect to the Trust Property
and to bring any action or proceeding, in the name and on behalf of Grantor,
which Beneficiary, in its reasonable discretion, decides should be brought to
protect its interest under this Deed of Trust or in the Trust Property. Subject
to the foregoing, Grantor shall appear in and contest any action or proceeding
purporting to affect the security hereof and shall pay all reasonable costs and
expenses including cost of evidence of title and attorney's fees, in any such
action or proceeding in which Beneficiary may appear. Beneficiary shall, at its
option, be subrogated to the lien of any mortgage or other security instrument
discharged in whole or in part by the Obligations, and any such subrogation
rights shall constitute additional security for the payment of the Obligations.
-21-
<PAGE>
28. WAIVER OF SETOFF AND COUNTERCLAIM. Except as may be permitted
under the Relevant Documents, all amounts due under this Deed of Trust, the
Notes and the other Relevant Documents shall be payable without setoff or
counterclaim whatsoever.
29. LIENS. Grantor warrants, covenants and agrees to pay and
promptly discharge, at Grantor's cost and expense, all taxes, assessments and
governmental charges levied upon it, its income and assets as and when such
taxes, assessments and charges are due and payable (including, without
limitation, all Impositions), as well as all lawful claims for labor materials
and supplies or otherwise which could become a lien, and all liens, encumbrances
and charges upon the Trust Property, or any part thereof or interest therein;
provided that the existence of any mechanic's, laborer's, materialman's,
supplier's or vendor's lien or right thereto shall not constitute a violation of
this Section if payment is not yet due under the contract which is the
foundation thereof. Notwithstanding the foregoing, Grantor shall not be in
default for failure to pay or discharge Impositions or mechanic's or
materialman's or similar lien asserted against the Trust Property if, and so
long as, (a) Grantor shall have notified Beneficiary of same within seven (7)
days of obtaining knowledge thereof; (b) Grantor shall diligently and in good
faith contest the same by appropriate legal proceedings which shall operate to
prevent the enforcement or collection of the same and the sale of the Trust
Property or any part thereof, to satisfy the same; (c) unless funds are
otherwise reserved, Grantor shall furnish to Beneficiary such security as
Beneficiary may reasonably request to insure payment of such Impositions and to
secure and indemnify Beneficiary against any cost, expense, loss or damage in
connection with such contest or postponement of payment; (d) Grantor shall
timely upon final determination thereof pay the amount of any such Impositions,
claim, fine or penalty so determined, together with all costs, interest and
penalties which may be payable in connection therewith; (e) the failure to pay
the Impositions, or mechanic's or materialman's or similar lien claim does not
constitute a default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Trust Property; and (f)
notwithstanding the foregoing, Grantor shall immediately upon request of
Beneficiary pay (and if Grantor shall fail so to do, Beneficiary may, but shall
not be required to, pay or cause to be discharged or bonded against) any such
Impositions, or claim notwithstanding such contest, if in the reasonable opinion
of Beneficiary, the Trust Property or any part thereof or interest therein may
be in imminent danger of being sold, forfeited, foreclosed, terminated, canceled
or lost.
30. RECOVERY OF SUMS REQUIRED TO BE PAID. Beneficiary shall have the
right from time to time to take action to recover any sum or sums which
constitute a part of the Obligations as the same become due and owing, without
regard to whether or not the balance of the Obligations shall be due, and
without prejudice to the right of Beneficiary thereafter to bring an action of
foreclosure, or any other action, for a default or defaults by Grantor existing
at the time such earlier action was commenced.
31. MARSHALLING, WAIVER OF REDEMPTION AND OTHER MATTERS. Grantor
hereby waives, to the extent permitted by law, the benefit of all appraisement,
valuation, stay, extension, reinstatement, moratorium and redemption laws now or
hereafter in force and all rights of marshalling in the event of any sale
hereunder of the Trust Property or any part thereof
-22-
<PAGE>
or any interest therein. Further, Grantor hereby expressly waives any and all
rights of redemption from sale under any order or decree of foreclosure of this
Deed of Trust on behalf of Grantor, and on behalf of each and every person
acquiring any interest in or title to the Trust Property subsequent to the date
of this Deed of Trust and on behalf of all persons to the extent permitted by
applicable law.
32. NOTICE. Any notice which either party hereto may desire or be
required to give to the other party shall be in writing and delivered by: (x) a
commercial courier or messenger service or (y) by U.S. registered or certified
mail with return receipt requested. Notice by commercial messenger or courier
service will be deemed to have been given on the day when delivered before 4:00
p.m. on a business day in the city in which notice is delivered, provided that
payment for the cost of delivery is not requested of the recipient. Notice by
mail shall be given by registered or certified U.S. Mail, return receipt
requested. Delivery of notice by commercial messenger or courier service or
mail shall be assumed if acceptance of delivery is refused. Notice may be given
by fax but will only be treated as delivered hereunder if: (x) sent between the
hours of 9:00 a.m. and 5:00 p.m. (based on local time at the destination); and
(y) receipt is acknowledged by fax and delivery will be deemed to have been
given on the date the fax acknowledgment is sent. Notices shall be delivered as
follows or at such other place as either party hereto may by notice in writing
given in accordance with this Section 32 designate:
To Grantor: Discovery Zone, Inc.
One Corporate Center
110 East Broward Boulevard
Fort Lauderdale, Florida 33301
Attn: President
Telecopy Number: (954) 627-2670
To Beneficiary: State Street Bank and Trust Company
Two International Place
Boston, Massachusetts 02110
Attn: Corporate Trust Department
Telecopy Number: (617) 664-5371
33. SOLE DISCRETION OF BENEFICIARY. Wherever pursuant to this Deed
of Trust, Beneficiary exercises any right given to it to approve or disapprove,
or any arrangement or term is to be satisfactory to Beneficiary, the decision of
Beneficiary to approve or disapprove or to decide that arrangements or terms are
satisfactory or not satisfactory shall be in the sole discretion of Beneficiary
and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
34. NON-WAIVER. The failure of Beneficiary to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Deed of Trust. Grantor shall not be relieved of Grantor's Obligations
hereunder by reason of (a) the failure of Beneficiary to comply with any request
of Grantor to take any action to foreclose this Deed of
-23-
<PAGE>
Trust or otherwise enforce any of the provisions hereof or of the other Relevant
Documents, (b) the release, regardless of consideration, of the whole or any
part of the Trust Property, or of any person liable for the Obligations or any
portion thereof, or (c) any agreement or stipulation by Beneficiary extending
the time of payment or otherwise modifying or supplementing the terms of this
Deed of Trust or the other Relevant Documents. Beneficiary may resort for the
payment of the Obligations to any other security held by Beneficiary in such
order and manner as Beneficiary, in its discretion, may elect. Beneficiary may
take action to recover the Obligations, or any portion thereof, or to enforce
any covenant hereof without prejudice to the right of Beneficiary thereafter to
foreclosure this Deed of Trust. The rights and remedies of Beneficiary under
this Deed of Trust shall be separate, distinct and cumulative and none shall be
given effect to the exclusion of the others. No act of Beneficiary shall be
construed as an election to proceed under any one provision herein to the
exclusion of any other provision. Beneficiary shall not be limited exclusively
to the rights and remedies herein stated but shall be entitled to every right
and remedy now or hereafter afforded at law or in equity.
35. NO ORAL CHANGE. This Deed of Trust and the other Relevant
Documents constitute the entire agreement among the parties pertaining to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements, understanding, representations or other arrangements, whether
express or implied, written or oral, of the parties in connection herewith or
therewith except to the extent expressly incorporated or specifically referred
to herein or therein. This Deed of Trust, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Grantor or Beneficiary, but only by
an agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
36. SUCCESSORS AND ASSIGNS. Subject to the provisions hereof
requiring Beneficiary's consent to any transfer of the Trust Property, this Deed
of Trust shall be binding upon and inure to the benefit of Grantor and
Beneficiary and their respective permitted successors and assigns forever.
37. SEVERABILITY. If any term, covenant or condition of this Deed of
Trust or the Relevant Documents is held to be invalid, illegal or unenforceable
in any respect, this Deed of Trust and any such other Relevant Document shall be
construed without such provision.
38. HEADINGS, ETC. The headings and captions of various paragraphs
of this Deed of Trust are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
39. DUPLICATE ORIGINALS. This Deed of Trust may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
40. DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this Deed
of Trust may be used
-24-
<PAGE>
interchangeably in singular or plural form and the word "Grantor" shall mean
"each Grantor and any subsequent owner or owners of the Trust Property or any
part thereof or any interest therein," the word "Beneficiary" shall mean
"Beneficiary and any subsequent holder(s) of the Notes," the word "person" shall
include an individual, corporation, partnership, trust, unincorporated
association, government, governmental authority, and any other entity, and the
words "Trust Property" shall include any portion of the Trust Property and any
interest therein and the words "attorneys' fees" shall include any and all
attorneys' fees, paralegal and law clerk fees (including, without limitation,
fees at the pre-trial, trial and appellate levels incurred or paid by
Beneficiary in protecting its interest in the Trust Property and Collateral and
enforcing its rights hereunder including, but not limited to, all such fees
incurred in connection with any bankruptcy or other insolvency proceedings).
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa.
41. HOMESTEAD. Grantor hereby waives and renounces all homestead and
exemption rights provided by the constitution and the laws of the United States
and of any state, in and to the Land as against the collection of the
Obligations, or any part hereof.
42. ASSIGNMENTS. Beneficiary shall have the right to assign or
transfer its rights under this Deed of Trust without limitation. Any
Beneficiary or transferee shall be entitled to all the benefits afforded
Beneficiary under this Deed of Trust.
43. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW EACH PARTY HERETO HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE NOTES, THIS DEED OF TRUST, OR THE OTHER RELEVANT DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY SUCH PARTY, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. BENEFICIARY IS HEREBY
AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE
EVIDENCE OF THIS WAIVER BY GRANTOR.
44. CONSENT TO JURISDICTION. GRANTOR AND BENEFICIARY HERETO CONSENT
FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS IN THE STATE OF NEW YORK WITH RESPECT TO ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING UNDER THE RELEVANT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY. GRANTOR FURTHER CONSENTS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NONEXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS OF THE STATE IN WHICH
-25-
<PAGE>
ANY OF THE COLLATERAL IS LOCATED IN RESPECT OF ANY PROCEEDING RELATING TO ANY
MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH IN THE FIRST
PARAGRAPH HEREOF IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT OF
ANY OF THE AFORESAID PROCEEDINGS BROUGHT IN THE COURTS REFERRED TO ABOVE AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF BENEFICIARY TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST
GRANTOR IN ANY JURISDICTION.
45. GOVERNING LAW. This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of New York including,
without limitation, Section 5-1401 of the General Obligations Law, but otherwise
without regard to conflict of law principles; provided, however, that with
respect to the creation, attachment, perfection, priority and procedures
relating to the enforcement of the liens and security interests created by or
pursuant to this Deed of Trust and relating to real property, this Deed of Trust
shall be governed by and construed in accordance with the laws of the state in
which the Land is located.
46. LIEN ABSOLUTE, MULTI-SITE REAL ESTATE AND MULTIPLE COLLATERAL
TRANSACTION. Grantor acknowledges that this Deed of Trust and a number of other
Relevant Documents and those documents required by the Relevant Documents
together secure the Obligations. Grantor agrees that the lien of this Deed of
Trust and all obligations of the Grantor hereunder shall be absolute and
unconditional and shall not in any manner be affected or impaired by:
(a) any lack of validity or enforceability of the Notes or any other
Relevant Document, any agreement with respect to any of the Obligations or any
other agreement or instrument relating to any of the foregoing;
(b) any acceptance by Beneficiary of any security for or guarantees of any
of the indebtedness hereby secured;
(c) any failure, neglect or omission on the part of Beneficiary to realize
upon or protect any of the indebtedness hereby secured or any of the collateral
security therefor, including the Relevant Documents, or due to any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Grantor in respect of the Obligations hereby secured or any
collateral security therefor, including the Relevant Documents, or due to any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the
-26-
<PAGE>
Grantor in respect of the Obligations or this Deed of Trust (other than the
indefeasible payment in full in cash of all the Obligations hereby secured);
(d) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations;
(e) any release (except as to the property or obligation released), sale,
pledge, surrender, compromise, settlement, non-perfection, renewal extension,
indulgence, alteration, exchange, modification or disposition of any of the
Obligations hereby secured or of any of the collateral security therefor;
(f) any amendment or waiver of or any consent to any departure from the
Notes or any other Relevant Documents or of any guaranty thereof (except to the
extent of such amendment, waiver or consent in writing by Beneficiary), if any,
and Beneficiary may in its discretion foreclose, exercise any power of sale, or
exercise any other remedy available to it under any or all of the Relevant
Documents without first exercising or enforcing any of its rights and remedies
hereunder; and
(g) any exercise of the rights or remedies of Beneficiary hereunder or
under any or all of the Relevant Documents.
Grantor specifically consents and agrees that Beneficiary may exercise its
rights and remedies hereunder and under the other Relevant Documents separately
or concurrently and in any order that Beneficiary may deem appropriate.
47. FUTURE ADVANCES. This Deed of Trust shall secure not only
existing indebtedness, but also such future advances, whether such advances are
obligatory or are to be made at the option of Beneficiary, or otherwise, as are
made by Beneficiary to Grantor after the date hereof, to the same extent as if
such future advances were made on the date of the execution of this Deed of
Trust. Nothing in this Deed of Trust shall be deemed an obligation on the part
of the Beneficiary to make any future advances.
48. STATE SPECIFIC PROVISIONS. The provisions of Exhibit B are
hereby incorporated by reference as though set forth in full herein.
49. NO MERGER OF ESTATES. It is the intention and agreement of
Grantor and Beneficiary that there shall be no merger of any leasehold estate in
the Trust Property with the fee interest in the Trust Property or any other
estate or interest in the Trust Property, and there shall be no merger of this
Deed of Trust and any estate in the Trust Property, by reason of the fact that
the same person may own or hold (a) any leasehold interest in the Trust
Property, and/or (b) this Deed of Trust, and/or (c) the fee interest in the
Trust Property or any other estate or interest in the Trust Property.
-27-
<PAGE>
50. CONCERNING THE TRUSTEE. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being liable,
however, only for willful negligence or misconduct.
51. TRUSTEE'S FEES. Grantor shall pay all reasonable costs, fees and
expenses incurred by Trustee and Trustee's agents and counsel in connection with
the performance by Trustee of Trustee's duties hereunder and all such costs,
fees and expenses shall be secured by this Deed of Trust. TRUSTEE SHALL BE
INDEMNIFIED, HELD HARMLESS AND REIMBURSED BY GRANTOR FOR ANY LIABILITY, DAMAGE
OR EXPENSE, INCLUDING REASONABLE ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT,
WHICH TRUSTEE MAY INCUR OR SUSTAIN IN CONNECTION WITH THIS DEED OF TRUST OR IN
THE DOING OF ANY ACT WHICH TRUSTEE IS REQUIRED OR PERMITTED TO DO BY THE TERMS
HEREOF OR BY LAW (EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TRUSTEE), AND SHALL BE REIMBURSED THEREFOR UPON DEMAND.
52. SUBORDINATION. Notwithstanding anything to the contrary
contained herein, this Deed of Trust shall be subject and subordinate to that
certain amended and restated deed of trust, assignment of leases and rents,
security agreement and fixture filing, dated as of the date hereof, made by
Grantor in favor of McDonald's Corporation, including any extension,
modification, replacement or renewal thereof, in accordance with the provisions
of that certain Subordination Agreement, dated as of the date hereof, by and
among Grantor, Beneficiary and McDonald's Corporation (the "SUBORDINATION
AGREEMENT"), including any extension, modification, replacement or renewal
thereof.
53. GOOD STANDING. Grantor is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization. Grantor
is qualified to do business and in good standing in the State in which the
Trust Property is located, and to the extent that Grantor is not so qualified
or in good standing in such State, Grantor shall promptly qualify to do
business and become in good standing in such State and shall promptly present
evidence of such qualification to do business and good standing to
Beneficiary, and shall in any event take such steps as are necessary to
insure the enforceability of the Notes and this Deed of Trust.
-28-
<PAGE>
Grantor has executed this instrument as of the day and year first
above written.
GRANTOR:
DISCOVERY ZONE, INC., a Delaware
corporation
By: /s/ Robert G. Rooney
---------------------------------
Name: Robert G. Rooney
Its: Senior Vice President
<PAGE>
STATE OF NEW YORK )
COUNTY OF WESTCHESTER )
This instrument was acknowledged before me this 28th day of July,
1997, by Robert G. Rooney, as Senior Vice President of Discovery Zone, Inc., a
Delaware corporation, on behalf of said corporation.
WITNESS my hand and official seal.
My Commission Expires:
/s/ Mark D. Woodward
- --------------- -----------------------------
Notary Public
[Mark D. Woodward]
[Notary Public State of New York]
[Notary Seal]
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
LOT 1, BLOCK 1,
PARKWAY SUBDIVISION FILING NO. 1,
COUNTY OF DOUGLAS
STATE OF COLORADO
<PAGE>
EXHIBIT B
STATE SPECIFIC PROVISIONS
The following provisions are incorporated by reference into
Section 24 of the attached Deed of Trust. If any conflict or inconsistency
exists between this Exhibit B and the remainder of the attached Deed of Trust,
this Exhibit B shall govern.
A. SPECIAL FORECLOSURE PROVISIONS. Notwithstanding anything to the
contrary contained in Section 24 hereof, Beneficiary may foreclose this Deed of
Trust either by judicial action or through Trustee. Foreclosure through Trustee
will be initiated by Beneficiary's filing of its notice of election and demand
for sale with Trustee. Upon the filing of such notice of election and demand
for sale, Trustee shall promptly comply with all notice and other requirements
of the laws of Colorado then in force with respect to such sales, and shall give
four weeks' public notice of the time and place of such sale by advertisement
weekly in some newspaper of general circulation then published in the county or
city and county in which the Land is located. Any sale conducted by Trustee
pursuant to this paragraph shall be held at the front door of the county
courthouse for such county or city and county, or on the Land, or at such other
place as similar sales are then customarily held in such county or city and
county, provided that the actual place of sale shall be specified in the notice
of sale. In any such sale, it shall and may be lawful for the Trustee to sell
and dispose of the Trust Property en masse or in separate parcels, as the
Trustee may think best.
All fees, costs and expenses of any kind incurred by Beneficiary
in connection with foreclosure of this Deed of Trust, including, without
limitation, the costs of any appraisals of the Land obtained by Beneficiary, all
costs of any receivership for the Land advanced by Beneficiary, all costs of any
environmental audits or tests incurred by Beneficiary and all attorneys' and
consultants' fees incurred by Beneficiary, shall constitute a part of the
Obligations and may be included as part of the amount owing from Grantor to
Beneficiary at any foreclosure sale. The proceeds of any sale under this
paragraph shall be applied first to the fees and expenses of the officer
conducting the sale, and then as set forth in Section 24(a) of this Deed of
Trust. At the conclusion of any foreclosure sale, the officer conducting the
sale shall execute and deliver to the purchaser at the sale a certificate of
purchase which shall describe the property sold to such purchaser and shall
state that upon the expiration of the applicable periods for redemption, the
holder of such certificate will be entitled to a deed to the property described
in the certificate. After the expiration of all applicable periods of
redemption, unless the property sold has been redeemed by Grantor, the officer
who conducted such sale shall, upon request, execute and deliver an appropriate
deed to the holder of the certificate of purchase or the last certificate of
redemption, as the case may be. Nothing in this paragraph dealing with
foreclosure procedures or specifying
B-1
<PAGE>
particular actions to be taken by Beneficiary or by Trustee or any similar
officer shall be deemed to contradict or add to the requirements and procedures
now or hereafter specified by Colorado law, and any such inconsistency shall be
resolved in favor of Colorado law applicable at the time of foreclosure.
B. NON-AGRICULTURAL USE. The Land encumbered by this Deed of Trust
is not used principally or primarily for agricultural or farming purposes.
B-2
<PAGE>
EXHIBIT 12.1
DISCOVERY ZONE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES:
(Dollars in thousands, except ratios)
<TABLE>
<CAPTION>
-------------------------------------------------------
Seven Months Two Months Nine Months
Ended July 31, Ended September Ended September
1997 30, 1997 30, 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Income (loss) before taxes on
income: $ (29,909) $ (9,746) $ (58,365)
Adjustments:
Fixed charges: 3,957 2,468 4,978
-------------- --------------- ---------------
Earnings before taxes and fixed
charges as adjusted $ (25,952) $ (7,277) $ (53,387)
============== =============== ===============
Fixed charges:
Interest incurrred $ 3,957 $ 2,468 $ 4,978
Portion of rent expense which
represents interest factor -- -- --
-------------- --------------- ---------------
Total fixed charges $ 3,957 $ 2,468 $ 4,978
============== =============== ===============
Ratio of earnings to fixed charges -- (a) -- -- (a)
============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1994 1995 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
Income (loss) before taxes on
income: $ (23,124) $ (83,834) $ (445,245)
Adjustments:
Fixed charges 5,137 6,277 12,226
-------------- --------------- ---------------
Earnings before taxes and fixed
charges as adjusted $ (17,987) $ (77,557) $ (443,019)
============== =============== ===============
Fixed charges:
Interest incurred $ 5,137 $ 6,277 $ 12,226
Portion of rent expense which
represents interest factor -- -- --
-------------- --------------- ---------------
Total fixed charges
$ 5,137 $ 6,277 $ 12,226
============== =============== ===============
Ratio of earnings to fixed charges -- x -- -- x
============== =============== ===============
</TABLE>
<PAGE>
EXHIBIT 21.1
List of Subsidiaries of the Registrant
1. Discovery Zone Licensing, Inc.
2. Discovery Zone Limited
3. DZ Party, Inc.
4. Discovery Zone Puerto Rico
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 2, 1997, in the Registration Statement (Form S-4
No. 33-00000) and related Prospectus of Discovery Zone, Inc. for the
registration of $85,000,000 13 1/2% Senior Secured Notes.
/s/ Ernst & Young LLP
West Palm Beach, Florida
November 17, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Discovery Zone, Inc. of our report dated
April 13, 1996 relating to the financial statements of Discovery Zone, Inc.,
which appears in such prospectus. We also consent to the application of such
report to the Financial Statement Schedule II for the year ended December 31,
1995 listed under Item 16(b) of this Registration Statement when such schedule
is read in conjunction with the financial statements referred to in our report.
The audit referred to in such report also included this schedule. We also
consent to the reference to us in the heading "Experts" in such Prospectus.
PRICE WATERHOUSE L.L.P.
Miami, Florida
November , 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we consent to the reference to our firm
under the caption "Experts" and to the use of our report dated March 21, 1995
(except with respect to the Company's bankruptcy filing discussed in Note 1 as
to which the date is March 25, 1996), in the Registration Statement (Form S-4
No. 33-00000) and related Prospectus of Discovery Zone, Inc. for the
registration of $85,000,000 13 1/2% Senior Secured Notes.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
November 18, 1997
