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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 27, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-24954
U.S. Foodservice
(Exact name of registrant as specified in its charter)
Delaware 52-1634568
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9755 Patuxent Woods Drive, Columbia, Maryland 21046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 312-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [_]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant at September 18, 1998, based on the closing price
of such stock on the New York Stock Exchange on such date, was approximately
$1.5 billion.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on September 18, 1998 was 46,889,788.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the Proxy Statement for the 1998 Annual Meeting of
Stockholders of the registrant is incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
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Page
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PART I Item 1. Business........................................... 1
Item 2. Properties......................................... 11
Item 3. Legal Proceedings.................................. 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................ 12
Item 6. Selected Financial Data............................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 15
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk........................................ 27
Item 8. Financial Statements and Supplementary Data........ 28
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure................ 28
PART III Item 10. Directors and Executive Officers of the Registrant. 29
Item 11. Executive Compensation............................. 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 29
Item 13. Certain Relationships and Related Transactions..... 29
PART IV Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 30
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and "plan" as they relate to U.S.
Foodservice or its management are intended to identify such forward-looking
statements. All statements regarding U.S. Foodservice or U.S. Foodservice's
expected future financial position, business strategy, cost savings and
operating synergies, projected costs and plans, and objectives of management for
future operations are forward-looking statements. Although U.S. Foodservice
believes the expectations reflected in such forward-looking statements are based
on reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include, among others, the factors set forth under the caption
"Business--Risk Factors," general economic and business and market conditions,
changes in federal laws, increased competitive pressure in the foodservice
industry, and costs or difficulties relating to the integration of acquired
businesses, including difficulties in achieving expected cost savings and
operating synergies.
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PART I
Unless the context otherwise requires, references in this report to the
Company or U.S. Foodservice are to U.S. Foodservice and its consolidated
subsidiaries.
ITEM 1. BUSINESS
GENERAL
U.S. Foodservice (the "Company" or "U.S. Foodservice") is the nation's
second largest broadline foodservice distributor based on net sales of
approximately $5.5 billion in the year ended June 27, 1998 ("fiscal 1998").
Broadline distributors offer a comprehensive range of food and related products
from a single source of supply and provide foodservice establishments with the
cost savings associated with large, full-service deliveries. Operating from 37
full-service distribution centers nationwide at June 27, 1998, the Company
offers its products and services across a broad geographic area encompassing
more than 85% of the U.S. population.
The Company markets and distributes more than 40,000 national, private
label and signature brand items to over 130,000 foodservice customers, including
restaurants, hotels, healthcare facilities, cafeterias and schools. The
Company's diverse customer base encompasses both independent (or "street") and
multi-unit (or "chain") businesses. The Company also provides restaurant design
and engineering services for all types of foodservice operations through its
contract and design offices.
The Company supplements its internal expansion with an active program of
strategic acquisitions to take advantage of growth opportunities from ongoing
consolidation in the fragmented foodservice distribution industry. The Company
seeks to increase penetration of its existing markets through "fold-in"
acquisitions of small, privately owned distributors within its current markets
and to expand into new markets through acquisitions of larger-sized
distributors.
Effective February 27, 1998, the Company changed its corporate name from JP
Foodservice, Inc. to U.S. Foodservice. The references in this report to the
Company or U.S. Foodservice prior to February 27, 1998 are to JP Foodservice,
Inc.
The Company was organized in 1989 under the laws of the State of Delaware.
The principal executive offices of U.S. Foodservice are located at 9755 Patuxent
Woods Drive, Columbia, Maryland 21046, and U.S. Foodservice's telephone number
at that address is (410) 312-7100.
ACQUISITION OF RYKOFF-SEXTON, INC.
Effective December 23, 1997, the Company acquired by merger (the
"Acquisition") Rykoff-Sexton, Inc. ("Rykoff-Sexton"), the nation's third largest
broadline foodservice distributor based on net sales. In the transaction,
Rykoff-Sexton merged with and into a wholly-owned subsidiary of the Company.
The Company's subsidiary was the surviving corporation in the merger, was
renamed Rykoff-Sexton, Inc. as of the effective time of the merger and will
continue to be a wholly-owned subsidiary of the Company. Effective April 2,
1998, the corporate name of the subsidiary was changed from Rykoff-Sexton, Inc.
to U.S. Foodservice, Inc.
At the effective time of the merger, each issued and outstanding share of
common stock of Rykoff-Sexton was converted into the right to receive 0.775 of a
share of common stock of the Company (the "Common Stock"). In connection with
the Acquisition, holders of Rykoff-Sexton common stock immediately before the
merger received Common Stock representing approximately 50% of the Common Stock
outstanding giving effect to the merger.
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The Company has accounted for the Acquisition as a pooling of interests in
accordance with generally accepted accounting principles.
FOODSERVICE DISTRIBUTION INDUSTRY
Companies in the foodservice distribution industry purchase, store, market
and transport food products, paper products and other supplies and food-related
items to establishments that prepare and serve meals to be eaten away from home.
Foodservice distribution companies generally are classified as "broadline,"
"specialty" or "system" distributors. Broadline distributors offer a
comprehensive range of food and related products from a single source of supply
and provide foodservice establishments with the cost savings associated with
large full-service deliveries. Specialty distributors generally are small,
family-owned enterprises that supply only one or two product categories. System
distributors typically supply a narrow range of products to a limited number of
multi-unit businesses operating in a broad geographical area.
PRODUCTS
In fiscal 1998, U.S. Foodservice offered to the foodservice industry a
single source of supply for more than 40,000 national, private label and
signature brand items that were distributed to over 130,000 foodservice
customers.
Food Products. The Company's food products include canned fruits and
vegetables, tomatoes and tomato products, juices, syrups, dressings and salad
oils, baking supplies, spices, condiments, sauces, jellies and preserves,
coffee, tea and fountain goods, prepared convenience entrees, dairy and other
refrigerated products, fresh produce, fresh meats, seafood, poultry, desserts,
dietary foods, imported and domestic cheeses and specialty and gourmet imported
items.
Frozen foods include soups, prepared convenience entrees, bakery products,
fruits and vegetables, desserts, meat, poultry, seafood and other frozen
products customarily distributed to the foodservice industry.
Many of the Company's product offerings feature "center of the plate" and
entree selections.
Janitorial and Paper Products. The Company's non-food products include
janitorial supplies such as detergents and cleaning compounds; plastic products
such as refuse container liners, cutlery, straws and sandwich bags; and paper
products such as disposable napkins, cups, hats, placemats and coasters.
Equipment and Supplies. The Company distributes light restaurant equipment
and supply items, including cookware, glassware, dinnerware and other commercial
kitchen equipment.
The following table sets forth the product categories of the items sold by
the Company and the percentage of the Company's net sales generated by product
category and by contract and design services during fiscal 1998:
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PERCENTAGE
OF NET SALES
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Canned and dry products................ 30%
Meats.................................. 16
Other frozen foods..................... 14
Dairy products......................... 9
Paper products......................... 8
Poultry................................ 7
Seafood................................ 6
Perishable food products............... 3
Equipment and supplies................. 3
Janitorial supplies.................... 2
Contract and design services........... 2
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Total net sales 100%
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National Brands. U.S. Foodservice supplies more than 32,000 national brand
items, which represented approximately 73% of net sales in fiscal 1998.
Management believes that national brands are attractive to chain accounts and
other customers seeking consistent product quality throughout their operations.
The Company's national brand strategy has promoted closer relationships with
many national suppliers, who provide important sales and marketing support to
the Company.
Private Brands. U.S. Foodservice offers its customers an expanding line of
products under its various private brands. The Company currently offers over
8,000 private brand products, including frozen and canned goods, fruits,
vegetables and meats, under the following private labels: Rykoff-Sexton
Connoisseur(TM) (highest quality), U.S. Foodservice Blue(TM), U.S. Foodservice
Red(TM), Chef's Variety(R), Harvest Value(R), U.S. Foodservice Cattleman's
Choice(TM), U.S. Foodservice Cattleman's Selection(TM), Magnifry(R) and
Magnifries(TM). U.S. Foodservice also markets diet-modified products under the
brand name Health.Diet.Life(R) and a sugar substitute and artificial sweetner
under the brand names Allowance(R) and Allowance II(TM). Restaurant equipment
and supplies are marketed under the Serco Restaurant brand and cleaning products
under the Clean Pride(R) brand. The Company has developed the multi-tier
quality system to meet the specific requirements of different market segments.
Signature Brands. U.S. Foodservice offers its customers an exclusive and
expanding line of signature products which are comparable in quality to national
brand items and priced competitively with such items. The Company markets these
products under the names Roseli(R) (Italian-style products), Hilltop Hearth(R)
(bread and bakery products), Cross Valley Farms(TM) (processed fruits and
vegetables), Patuxent Farms(R) (processed meats), el Pasado Authentic Mexican
Cuisine with a Touch of the Past(R) (Mexican-style products), Rituals(R)
(gourmet coffee), Pacific-Jade(R) (Oriental-style products), and Harbor Banks(R)
(seafood products). At June 27, 1998, the Company offered more than 3,000
signature brand items.
Private and signature brand items enable the Company to offer its customers
product alternatives to comparable national brands across a wide range of
prices. The Company historically has sold a significantly lower proportion of
proprietary private and signature brand products than its primary competitors,
whose proprietary brand sales have accounted for 30% to over 60% of their sales
volume. Sales of the Company's proprietary brands represented approximately 27%
of net sales in fiscal 1998. The Company is currently consolidating the
proprietary brands marketed by JP Foodservice and Rykoff-Sexton prior to the
Acquisition, a process which it expects will be substantially completed in the
fiscal year ending July 3, 1999 ("fiscal 1999"). Although it intends to
continue to emphasize sales of national brand products, the Company plans to
expand sales of its private and signature brand product lines through national
and local advertising, representation at
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national food shows and at food shows sponsored by the Company at its branches,
and training of its sales force regarding the attributes of these products.
MANUFACTURING OPERATIONS
In the first quarter of fiscal 1999, U.S. Foodservice outsourced its
manufacturing capacity by selling the assets of the Rykoff-Sexton Manufacturing
Division to a third party. As part of this transaction, U.S. Foodservice
entered into a six-year supply agreement with the new company. The Company is
obligated in the first year of the agreement to purchase food and non-food
products with a minimum total purchase price of approximately $115 million. The
purchase commitment will increase by 6% each succeeding year of the contract
term.
SERVICES
To strengthen its customer relationships and increase account penetration,
U.S. Foodservice offers the following types of value-added services:
Management Support and Assistance. The Company's sales force assists
customers in managing their foodservice operations more efficiently and
profitably by providing advice and assistance on product selection, menu
planning and recipes, nutritional information, inventory analysis and product
costing and marketing strategies. The Company also provides in-service training
of customer personnel.
Specialized Market Services. The Company offers services and programs
tailored to specialized markets. For example, through an integrated service
program, the Company provides healthcare service providers with special
nutritional plans, customized software packages (directAdvantage(TM)), a variety
of marketing services and in-service training of institutional personnel. In
order to be eligible to participate in this program, healthcare institutions
must maintain a specified minimum volume of purchases from the Company.
Publications. The Company promotes active customer use of its other
products and services through the distribution of professionally printed
publications, including its quarterly magazines, Quintessential(TM) and
Healthnext(TM). The Company's publications highlight selected products,
including proprietary private and signature brand items, present menu
suggestions, provide nutritional information and include recipes using the
Company's products. Customers also may participate, at no cost, in the Company's
recipe program in which the Company furnishes participants every two weeks with
recipe cards that describe new menu concepts.
CUSTOMERS
The Company's customer base of over 130,000 accounts encompasses a wide
variety of foodservice establishments. The following table sets forth the
segments of the Company's customer base by type of customer for fiscal 1998:
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PERCENTAGE
TYPE OF CUSTOMER OF NET SALES
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Restaurants (limited and full menu)... 63%
Hotels and casinos.................... 9
Healthcare institutions............... 9
Schools and colleges.................. 8
Other................................. 11
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100%
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Street Customers. The Company's street customers are independent
restaurants, hotels, schools and other foodservice businesses. Street customers
are serviced directly by commission sales personnel who personally call on
customers, place orders, coordinate product delivery and provide the services
offered to these customers.
Street accounts represented approximately 61% of the Company's net sales in
fiscal 1998. The Company pursues a long-term strategy of increasing street
account sales as a percentage of net sales by attempting to expand sales to
street customers at a faster rate than sales to chain customers.
Chain Customers. The majority of the Company's chain customers consist of
franchises or corporate-owned units of national or regional family dining and
other restaurant "concepts" and, to a lesser extent, hotels and other regional
institutional operators. The Company has developed strong working relationships
with its chain accounts, which have enabled these accounts, in conjunction with
the Company, to develop distribution programs tailored to precise delivery and
product specifications. These distribution programs have created operating and
cost efficiencies for both the chain customers and the Company.
Chain customers generally are serviced by salaried sales and service
representatives who coordinate the procurement and delivery of all products
throughout the system from a central location. Gross profit margins generally
are lower for chain customers than for street customers. However, because there
are typically no commission sales costs related to chain account sales and
because chain customers usually have larger deliveries to individual locations,
sales and delivery costs generally are lower for chain accounts than for street
accounts.
Chain accounts represented approximately 39% of the Company's net sales in
fiscal 1998. The Company's business strategy emphasizes supporting the growth of
its existing chain accounts. Many of the Company's current chain customers,
primarily restaurants, are experiencing more rapid sales growth than other types
of foodservice businesses. The Company also targets new chain customers which
it believes represent attractive growth opportunities.
No single customer accounted for more than 3% of the Company's net sales in
fiscal 1998. Consistent with industry practice, the Company generally does not
enter into long-term contracts with its customers that may not be canceled by
either party at its option.
SALES AND MARKETING
U.S. Foodservice's principal marketing activities at June 27, 1998 were
conducted by approximately 2,000 street sales, 250 chain sales and 430 customer
service representatives. The Company's sales and service representatives are
responsible for soliciting and processing orders, servicing customers by
telephone, reviewing account balances and assisting with new product
information. In addition, the Company's sales representatives advise customers
on menu selection, methods of preparing and serving food and other operating
issues. The Company provides an in-house training program for its entry-level
sales and service representatives, which includes seminars, on-the-job training
and direct one-on-one supervision by experienced sales personnel.
The Company's commission program is designed to reward account
profitability and promote sales growth. The Company's strategy is to measure
the profitability of each account and product segment and to modify its
incentive program accordingly.
The Company maintains sales offices at each of its 37 full-service
distribution centers and at 26 additional locations in 13 states. The Company
employs sales and marketing staff at both the corporate and branch levels to
solicit and manage relationships with multi-unit chain accounts.
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The Company supplements its market presence with advertising campaigns in
national and regional trade publications, which typically focus on the Company's
services and its ability to service targeted industry segments. The Company
supports this effort with a variety of promotional services and programs,
including its quarterly magazines and its recipe program.
DISTRIBUTION
The Company distributes its products out of its 37 full-service
distribution centers and extends this geographic coverage through remote
distribution locations. The Company's Targeted Specialty Services division
warehouses and redistributes, out of three warehouses, to the 37 distribution
centers a full line of restaurant equipment and supplies, imported specialty
food products and proprietary products. This division allows the Company's
distribution centers to offer a more varied product mix while maintaining local
inventories at efficient levels. The Company's customers generally are located
within 150 miles of one of the Company's distribution centers, although the
Company's distribution network and reciprocal arrangements with other
distributors enable the Company to serve customers outside of its principal
service areas. Services to both street and chain customers are supported by the
same distribution facilities and equipment.
The 37 full-service distribution centers have a total of approximately 6.5
million square feet of warehouse space. Each distribution center operates from
a warehouse complex that contains dry, refrigerated and frozen storage areas as
well as office space for sales, marketing, distribution and administration
personnel.
Products are delivered to the Company's distribution centers by
manufacturers, common carriers and the Company's own fleet of trucks. The
Company employs management information systems which enable it to lower its
inbound transportation costs by making optimal use of its own fleet of trucks or
by consolidating deliveries into full truckloads. Orders from multiple
suppliers or multiple distribution centers are consolidated into single
truckloads for efficient use of available vehicle capacity and return-trip
hauls.
Orders typically are entered electronically by the commission sales force
with the appropriate distribution center through a hand-held computer device or
laptop computer. These devices facilitate order entry through the use of pre-
coded price lists which automatically price orders, apply pricing controls and
allow the sales representative to review the gross profit of each order at the
time of sale. Customers also have the option to place orders by telephone to
service representatives at each of the branches. Certain large customers place
orders through a direct connection to the Company's mainframe computer by means
of a computer terminal, personal computer or touch tone telephone, or through
Tranzmit(TM), the Company's proprietary direct order entry system.
Under all forms of order placement, the salesperson or customer is notified
immediately about product availability, which facilitates instant product
substitution, if necessary. Products are reserved automatically at the time of
order, thereby ensuring complete fulfillment of orders upon delivery.
Customers' orders are assembled in the warehouse, sorted and shrink-wrapped to
ensure order completeness. The products are staged automatically according to
the required delivery sequence.
Products are delivered door-to-door, typically on the day following
placement of the order. The Company delivers its products through its fleet of
over 2,400 tractor-trailer and straight trucks, each of which is equipped with
separate temperature-controlled compartments. In dispatching trucks, the Company
employs a computerized routing system designed to optimize delivery efficiency
and minimize drive time, wait time and excess mileage. The majority of the
Company's fleet utilizes on-board computer systems that monitor vehicle speeds,
fuel efficiency, idle time and other vital statistical information. The Company
collects and analyzes such data in an effort to monitor and improve
transportation efficiency and reduce costs.
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In certain geographic markets, the Company utilizes its remote
redistribution facilities to achieve a higher level of customer service.
Products are transported in large tractor-trailers or double trailers to the
redistribution facility, where the loads are then transferred to smaller
equipment for delivery in the normal fashion.
SUPPLIERS
At June 27, 1998, U.S. Foodservice employed approximately 250 purchasing
agents with expertise in specific product lines to purchase products for the
Company from approximately 7,000 suppliers located throughout the United States
and in other countries. Substantially all types of products distributed by the
Company are available from a variety of suppliers, and the Company is not
dependent on any single source of supply.
The Company manages its purchasing operations and negotiates all major
vendor programs from its corporate headquarters in Columbia, Maryland. The
Company seeks to concentrate purchases with selected suppliers to ensure access
to high-quality products on advantageous terms. The Company cooperates closely
with these suppliers to promote new and existing products. The suppliers assist
in training the Company's sales force and customers regarding new products, new
trends in the industry and new menu ideas, and collaborate with the Company in
advertising and promoting these products both through printed advertisements and
through annual branch-sponsored food shows and national trade shows.
Prior to the Acquisition, the Company transacted a majority of its
purchasing activities centrally at its corporate headquarters. At the former
Rykoff-Sexton divisions, purchases were primarily transacted locally. The
Company believes that centralized purchasing results in lower costs through
greater ordering efficiency. As part of its Acquisition restructuring plan, the
Company is progressively centralizing at its corporate headquarters the day-to-
day purchasing activities currently being performed at the former Rykoff-Sexton
divisions. This transition, which is dependent upon completion of
centralization of the Company's management information systems, is currently
expected to take two to three years to complete.
Through its purchasing department, the Company is able to monitor the
quality of the products offered by various suppliers and ensure consistency of
product quality across its distribution network. The Company maintains a
comprehensive quality control and assurance program that at June 27, 1998
actively involved approximately 225 employees in daily quality control
activities. The program is managed by employees engaged in purchasing
operations, including product group managers who each manage specific segments
of the product line and product line managers who purchase products for the
branches, and is supported at each branch by the merchandising manager, the
branch buyer and an inventory control specialist. The quality control process
includes the selection of suppliers and the policing of quality standards
through product sampling at both the Company's corporate offices and branch
locations and through visits to growing fields, manufacturing facilities and
storage operations.
The Company requires all of its suppliers and manufacturers to maintain
specified levels of product liability insurance and to name the Company as an
additional insured on the applicable insurance policies.
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COMPETITION
The foodservice distribution industry is extremely fragmented, with over
3,000 companies in operation in 1998. In recent years, the foodservice
distribution industry has been characterized by significant consolidation and
the emergence of larger competitors. The Company competes in each of its
markets with at least one other large national distribution company, generally
SYSCO Corp. or Alliant Foodservice, Inc., as well as with numerous regional and
local distributors.
U.S. Foodservice believes that, although price is an important
consideration, distributors in the foodservice industry compete principally on
the basis of service, product quality and customer relations. The Company
attributes its ability to compete effectively against smaller regional and local
distributors in part to its wider product selection, the cost advantages
resulting from its size and centralized purchasing operations and its ability to
offer broad and consistent market coverage. The Company competes effectively
against other broadline distributors primarily by providing its customers with
accurate and timely fulfillment of orders and an array of value-added services.
The Company typically competes against other foodservice distribution
companies for potential acquisitions. The Company believes that its financial
resources and its ability to offer owners of acquisition targets an interest in
the combined business through ownership of the Company's common stock provides
the Company with an advantage over many of its competitors.
GOVERNMENT REGULATION
The Company's operations are subject to regulation by state and local
health departments, the U.S. Department of Agriculture and the U.S. Food and
Drug Administration, which impose standards for product quality and sanitation.
The Company's facilities generally are inspected at least annually by state or
federal authorities.
The Company's relationship with its fresh food suppliers with respect to
the grading and commercial acceptance of produce shipments is governed by the
Federal Produce and Agricultural Commodities Act, which specifies standards for
sale, shipment, inspection and rejection of agricultural products. The Company
also is subject to regulation by state authorities for the accuracy of its
weighing and measuring devices.
Federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment, generally are not directly
applicable to the Company. Certain of the Company's distribution facilities
have underground and above-ground storage tanks for diesel fuel and other
petroleum products, which are subject to laws regulating such storage tanks.
Such laws have not had a material adverse effect on the capital expenditures,
earnings or competitive position of the Company.
INTELLECTUAL PROPERTY
The Company has proprietary rights to a number of trademarks used in its
business, including trademarks used in connection with the marketing of its
private and signature brand products and a variety of customized service
programs. A number of these trademarks are registered with the U.S. Patent and
Trademark Office, each for an initial period of ten or 20 years, which is
renewable for additional ten-year periods for as long as the Company continues
to use the trademarks. The Company considers its trademarks to be of material
importance to its business plans.
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EQUIPMENT AND MACHINERY
Equipment and machinery owned by the Company and used in its operations
consist principally of electronic data processing equipment and product handling
equipment. The Company also operates a fleet of over 2,400 vehicles, consisting
of tractors, trailers and straight trucks, which are used for long hauls and
local deliveries. At June 27, 1998, the Company owned approximately 30% of
these vehicles and leased the remainder. See Note 6 to the Company's
Consolidated Financial Statements included elsewhere in this report.
The Company outsources its data center operations for approximately one
third of its divisions. As the Company's business needs warrant, the Company can
either increase or decrease the amount of computer capacity it purchases upon
short notice to the vendor. Management believes that this arrangement provides
the Company with more reliable and flexible service at a lower cost than the
Company could achieve by operating its own data center for this segment of its
business.
The Company regularly evaluates the capacity of its various facilities and
equipment and makes capital investments to expand capacity where necessary. In
fiscal 1998, the Company spent $95.5 million on capital expenditures, primarily
for construction of new distribution centers in Fort Mill, South Carolina and
Las Vegas, Nevada, expansion of existing distribution centers at various
locations and upgrading of management information systems. The Company will
continue to undertake expansion or replacement of its facilities as and when
needed to accommodate the Company's growth.
EMPLOYEES
At the end of fiscal 1998, the Company had approximately 11,000 full-time
employees, of whom approximately 240 were employed in corporate management and
administration and approximately 4,200 of whom were hourly employees.
Approximately 3,000 of the Company's employees were covered by collective
bargaining contracts with approximately 40 different local unions associated
with the International Brotherhood of Teamsters and other labor organizations.
Collective bargaining contracts covering approximately 870 employees will expire
during fiscal 1999. The Company believes that its relations with its employees
are satisfactory.
EXECUTIVE OFFICERS OF THE COMPANY WHO ARE NOT DIRECTORS
George T. Megas, age 45, joined the Company in 1991 as Vice President-
Finance, with responsibility for the accounting, treasury and finance functions.
Mr. Megas, a Certified Public Accountant, previously served as the Corporate
Controller for Strategic Planning Associates, Inc., a management consulting
firm, from 1979 to 1990, when it was acquired by Mercer Management Consulting,
and served as a Controller for certain regions of Mercer Management Consulting
until 1991.
RISK FACTORS
The Company's business is subject to certain risks, including the
following:
Risks Associated with Future Acquisitions. U.S. Foodservice follows a
growth strategy of supplementing internal expansion with acquisitions of other
foodservice businesses. A significant portion of the growth of U.S.
Foodservice's revenues in recent years has resulted from acquisitions. The
Company's acquisition strategy involves a number of risks. U.S. Foodservice
cannot provide assurance that it will successfully identify suitable acquisition
candidates, complete acquisitions, integrate acquired operations into its
existing operations or expand into new markets in the future. Further,
particular acquisitions could have an adverse effect on U.S. Foodservice's
operating results. The possibility of such an adverse effect often is greatest
in periods
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following the acquisitions, when U.S. Foodservice is seeking to integrate the
operations of the acquired businesses into its own operations. Once integrated,
acquired operations may not achieve levels of net sales or profitability
comparable to those achieved before the acquisition, or otherwise perform as
expected. U.S. Foodservice may not be able to increase its revenues or earnings
through future acquisitions at the same rates it achieved through the
acquisitions it previously completed. The Company may determine that it is
necessary or desirable to obtain financing for acquisitions through additional
bank borrowings or the issuance of additional debt or equity securities. Debt
financing of an acquisition would increase the leverage of U.S. Foodservice and
will be subject to restrictions contained in certain of the Company's debt
agreements. Equity financing of an acquisition may dilute the ownership of
U.S. Foodservice's stockholders. In addition, U.S. Foodservice may not be able
to obtain financing on acceptable terms.
Low Margin Business; Economic Sensitivity. The foodservice distribution
industry is characterized by relatively high inventory turnover with relatively
low profit margins. The Company makes a significant portion of its sales at
prices that are based on the cost of the products it sells plus a percentage
markup. As a result, the Company's profit levels may be negatively affected
during periods of food price deflation, even though the Company's gross profit
percentage may remain relatively constant.
The foodservice industry is sensitive to national and regional economic
conditions. The demand for foodservice products supplied by the Company has
been adversely affected in past years by economic downturns. The Company's
operating results also are particularly sensitive to, and may be adversely
affected by, other factors. These factors include difficulties with the
collectability of accounts receivable, inventory control, competitive price
pressures, severe weather conditions and unexpected increases in fuel or other
transportation-related costs. Such factors generally have not had a material
adverse impact on the Company's past operations. It is possible, however, that
one or more of these factors will adversely affect the Company's future
operating results.
Year 2000 Compliance. The Company and third parties with which the Company
does business rely on numerous computer programs in their day-to-day operations.
The Company has undertaken a program to address the Year 2000 problem as it
relates to the Company's internal computer systems and third-party computer
systems, including the systems of certain suppliers and customers. The Company
expects to continue to incur internal staff costs and other expenses, which may
be significant and will be expensed as incurred, to address these issues. In
addition, the appropriate course of action may include replacement or an upgrade
of certain systems or equipment at a substantial cost to the Company. The
Company cannot provide assurance that the Year 2000 issue will be resolved in
1998 or 1999. If not resolved, this issue could have a material adverse impact
on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Information Systems and the Impact of the Year 2000 Issue."
Labor Relations. At June 27, 1998, approximately 3,000 employees are
members of approximately 40 different local unions associated with the
International Brotherhood of Teamsters and other labor organizations. These
employees represent approximately 27% of the Company's full-time employees and
approximately 29% of the employees employed in the Company's warehouse and
distribution operations. The Company has not experienced any significant labor
disputes or work stoppages, and believes that its relations with its employees
are satisfactory. A work stoppage, however, could have a material adverse
effect on the Company.
Competition. The Company operates in highly competitive markets. Its
future success will depend in large part on its ability to provide superior
service and high-quality products at competitive prices. The Company encounters
competition from a variety of sources, including specialty and system
foodservice distributors and other broadline distributors.
-10-
<PAGE>
Dependence on Senior Management. The Company's success is largely
dependent on the skills, experience and efforts of its senior management. The
loss of the services of one or more of the Company's senior management could
have a material adverse effect on the Company's business and development. To
date, the Company generally has been successful in retaining the services of its
senior management.
ITEM 2. PROPERTIES
Beginning in September 1998, the Company occupies new corporate
headquarters in Columbia, Maryland, which consists of a total of approximately
95,000 square feet of office space, pursuant to a lease which expires in June
2003.
The Company's 37 full-service distribution centers contain a total of
approximately 6.5 million square feet of warehouse space. The distribution
centers range in area from approximately 75,000 square feet to approximately
525,000 square feet. The centers contain dry, refrigerated and frozen storage
areas and office space for the sales and administrative operations of the
branch. As part of its Acquisition restructuring plan, the Company consolidated
certain overlapping distribution centers in fiscal 1998 and plans to close
additional facilities in fiscal 1999. The following table lists the Company's
distribution centers at June 27, 1998:
<TABLE>
<CAPTION>
<S> <C> <C>
Allentown, Pennsylvania Detroit, Michigan Norwich, Connecticut
Altoona, Pennsylvania Englewood, New Jersey Oklahoma City, Oklahoma
Atlanta, Georgia* Fort Mill, South Carolina Ormond Beach, Florida
Austin, Texas Fort Wayne, Indiana Phoenix, Arizona*
Baltimore, Maryland (two) Hartford, Connecticut Pittston, Pennsylvania
Boston, Massachusetts Hurricane, West Virginia Portland, Oregon*
Bridgeport, New Jersey Knoxville, Tennessee Reno, Nevada*
Buffalo, New York La Mirada, California Riviera Beach, Florida
Chicago, Illinois Las Vegas, Nevada Salem, Virginia
Cincinnati, Ohio (two) Lubbock, Texas San Francisco, California*
Columbus, Ohio* Mesquite, Texas Streator, Illinois
Dallas, Texas* Minneapolis, Minnesota
</TABLE>
- --------------------
* Indicates facility leased by the Company; all other facilities are owned.
The Company occupies 16 contract and design offices in 15 states. Of such
offices, 13 are located in distribution centers and three are leased. The
Company also leases in-transit warehouses in Indiana and Maryland and manages an
in-transit warehouse out of a third-party facility in California.
The Company plans to close or lease certain non-distribution facilities to
reduce excess capacity.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation and proceedings
arising out of the ordinary course of its business. There are no pending
material legal proceedings to which the Company is a party or to which the
property of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders in the
fourth quarter of fiscal 1998.
-11-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock has been listed on the New York Stock Exchange ("NYSE")
since December 31, 1996. The Company's current NYSE symbol is "UFS." From
November 16, 1994 until December 31, 1996, the Common Stock was quoted on the
Nasdaq National Market. The table below sets forth, for the last two fiscal
years, the reported high and low bid prices of the Common Stock on the Nasdaq
National Market prior to December 31, 1996 and, beginning on December 31, 1996,
the reported high and low sales prices on the NYSE Composite Tape:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 28, 1997
First Quarter................ $26.00 $20.50
Second Quarter............... 28.75 20.38
Third Quarter................ 29.25 25.75
Fourth Quarter............... 30.19 26.00
Fiscal Year Ended June 27, 1998
First Quarter................ $32.44 $28.25
Second Quarter............... 36.06 27.50
Third Quarter................ 37.19 32.13
Fourth Quarter............... 37.63 31.31
</TABLE>
As of September 18, 1998, there were approximately 800 holders of record
and approximately 12,000 beneficial holders of the Common Stock. On September
24, 1998, the reported closing sale price of the Common Stock on the NYSE
Composite Tape was $41.94 per share.
The Company has never declared or paid cash dividends on its Common Stock
and does not anticipate doing so in the foreseeable future. The current policy
of the Company's Board of Directors is to retain all earnings to support
operations and to finance the expansion of the Company's business.
The Company's revolving credit facility and the indenture governing public
notes issued by Rykoff-Sexton restrict the Company's ability to pay cash
dividends on the Common Stock. Pursuant to each instrument, cash dividends
payable to U.S. Foodservice by specified subsidiaries generally may not exceed
the sum of (i) 50% of the cumulative consolidated net income of such
subsidiaries earned after a stated date, plus (ii) the net cash proceeds to such
subsidiaries from the issuance or sale of their capital stock, plus (iii) any
net return of capital from investments in or advances to certain subsidiaries or
from restricted investments, plus (iv) a specified amount.
-12-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company as of
July 2, 1994, July 1, 1995, June 29, 1996, June 28, 1997 and June 27, 1998 and
for each of the years then ended. The selected financial data as of June 28,
1997 and June 27, 1998 and for each of the years in the three-year period ended
June 27, 1998 are derived from the Company's audited Consolidated Financial
Statements appearing elsewhere in this report. The selected financial data as
and for the fiscal years ended July 2, 1994, July 1, 1995, June 29, 1996 and
June 28, 1997 have been restated to include the financial data of Rykoff-Sexton
as of and for the years ended April 30, 1994, April 29, 1995, April 27,
1996 and June 28, 1997, respectively.
-13-
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Fiscal Years Ended
-----------------------------------------------------------------------
July 2, July 1, June 29, June 28, June 27,
1994 1995 1996 1997 1998 (1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales.......................................... $ 2,623,052 $ 2,857,334 $ 3,238,781 $ 5,169,406 $ 5,506,949
Cost of sales...................................... 2,071,087 2,262,819 2,586,096 4,166,332 4,465,281
----------- ----------- ----------- ----------- -----------
Gross profit....................................... 551,965 594,515 652,685 1,003,074 1,041,668
Operating expenses................................. 497,136 526,871 590,446 845,901 876,170
Amortization of intangible assets.................. 2,421 2,792 4,244 15,349 15,354
Restructuring costs (reversal)..................... - - (6,441) (4,000) 53,715
Charge for impairment of long-lived assets......... - - 29,700 - 35,530
----------- ----------- ----------- ----------- -----------
Income from operations............................. 52,408 64,852 34,736 145,824 60,899
Interest expense and other financing
costs, net........................................ 44,201 32,941 32,527 76,063 73,894
Nonrecurring charges............................... - - 1,517 5,400 17,822
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes and extraordinary
charge............................................ 8,207 31,911 692 64,361 (30,817)
Provision for income taxes......................... 4,384 13,608 559 26,075 6,475
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before extraordinary charge....................... 3,823 18,303 133 38,286 (37,292)
Income from discontinued operations................ - 137 - - -
Gain on disposal of discontinued
operations........................................ 3,241 23,359 - - -
Extraordinary charge............................... (1,444) (4,590) - - (9,712)
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. 5,620 37,209 133 38,286 (47,004)
Preference dividends............................... (504) (40) - - -
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
shareholders...................................... $ 5,116 $ 37,169 $ 133 $ 38,286 $ (47,004)
=========== =========== =========== =========== ===========
Per Share Data:
Net income (loss) per common share:
Basic:
Before extraordinary charge..................... $ 0.24 $0.75 $ 0.00 $ 0.88 $ (0.83)
Net income (loss)............................... $ 0.32 $1.52 $ 0.00 $ 0.88 $ (1.04)
Diluted:
Before extraordinary charge..................... $ 0.24 $0.74 $ 0.00 $ 0.87 $ (0.83)
Net income (loss) .............................. $ 0.32 $1.51 $ 0.00 $ 0.87 $ (1.04)
Weighted average common shares:
Basic............................................. 15,885,000 24,520,000 30,388,000 43,451,000 45,320,000
Diluted........................................... 15,949,000 24,567,000 30,515,000 44,063,000 45,320,000
Balance Sheet Data (at end of period):
Working capital.................................... $ 248,679 $ 270,942 $ 208,130 $ 234,803 $ 287,816
Total assets....................................... 856,744 939,280 1,052,211 1,732,183 1,817,791
Long-term debt, excluding current
maturities........................................ 430,379 306,702 303,728 655,246 680,625
Stockholders' equity............................... 145,079 315,060 316,676 579,146 584,720
</TABLE>
- -----------------------
(1) In connection with the acquisition of Rykoff-Sexton, the Company
incurred restructuring costs, asset impairment charges, transaction costs
and certain other operating charges, resulting from the integration of the
two businesses (the "Acquisition Related Costs") totaling approximately
$138.0 million, which significantly affected the Company's results for the
fiscal year ended June 27, 1998. Excluding the impact of the Acquisition
Related Costs, the Company's net income before extraordinary charge was
$62.6 million or $1.37 per share, on a diluted basis.
-14-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
U.S. Foodservice's business strategy is to increase net sales through
internal growth of chain and street sales, while acquiring other foodservice
distributors to expand the Company's distribution capabilities and increase
penetration of its existing markets. With the acquisition of Rykoff-Sexton,
Inc. on December 23, 1997 (the "Acquisition"), U.S. Foodservice (formerly JP
Foodservice, Inc.) became the second largest broadline foodservice distributor
in the United States based on net sales. The Acquisition expanded the Company's
distribution capabilities nationwide and strengthened its competitive position
in several major markets. A renewed focus on the growth of chain and street
sales at the former Rykoff-Sexton distribution centers, combined with additional
sales by companies acquired in the fiscal years ended June 28, 1997 ("fiscal
1997") and June 27, 1998 ("fiscal 1998"), resulted in net sales growth of 6.5%
in fiscal 1998 and 11.5% in the fourth quarter of fiscal 1998 over the
corresponding prior periods.
The Company's fiscal year ends on the Saturday closest to June 30.
Prior to April 28, 1996, Rykoff-Sexton had a fiscal year that ended on the
Saturday closest to April 30. The Acquisition was accounted for under the
pooling-of-interests method of accounting and, accordingly, the Company's
consolidated statements of operations for the fiscal years ended June 28, 1997
and June 29, 1996 ("fiscal 1996") have been restated to include the results of
operations for Rykoff-Sexton. The consolidated financial statements for the
fiscal years ended June 28, 1997 and June 29, 1996 combine the results of JP
Foodservice for such periods with the results of Rykoff-Sexton for the years
ended June 28, 1997 and April 27, 1996, respectively. Fiscal 1996, 1997 and 1998
each consist of 52-week periods.
In connection with the Acquisition, the Company incurred restructuring
costs, asset impairment charges, transaction costs and certain other operating
charges resulting from the integration of the two businesses (the "Acquisition
Related Costs"), which significantly affected the Company's results for fiscal
1998. The Acquisition Related Costs totaled approximately $138.0 million, of
which $76.6 million consisted of non-cash charges. Excluding the impact of the
Acquisition Related Costs, the Company's net income before extraordinary item
was $62.6 million or $1.37 per share on a diluted basis, representing a 41%
improvement over combined results of the Company for fiscal 1997 computed on the
same basis.
The following includes a discussion of the results of JP Foodservice
and Rykoff-Sexton prior to the Acquisition. Since each company was separately
managed prior to the Acquisition, certain operating results are discussed on a
combined basis, but in the context of the individual companies. References to JP
Foodservice below generally relate to activities of the Company prior to the
Acquisition.
Other Fiscal 1998 Acquisitions. The Company has pursued an active
program of strategic acquisitions to take advantage of growth opportunities from
ongoing consolidation in the fragmented foodservice distribution industry. In
the second quarter of fiscal 1998, the Company acquired Outwest Meat Company
("Outwest"), located in Las Vegas, Nevada. In the third quarter of fiscal 1998,
the Company acquired Westlund Provisions, Inc. ("Westlund"), a foodservice
distributor specializing in custom-cut meats located in Minneapolis, Minnesota.
These two acquisitions complemented the Company's existing operations in those
markets, while enabling the Company to enhance significantly its custom-cut meat
offerings. Also in the third quarter of fiscal 1998, the Company expanded the
scope of its distribution network into the northeastern United States by
acquiring Sorrento Food Service, Inc. ("Sorrento"), a broadline distributor
located in Buffalo, New York. These acquisitions were accounted for under the
purchase method of accounting, and accordingly, their operating results are
included from the date of the respective acquisitions.
-15-
<PAGE>
Fiscal 1997 Acquisitions. Prior to the Acquisition, JP Foodservice extended
the scope of its distribution network into the Western region of the United
States through its acquisition in the first quarter of fiscal 1997 of Valley
Industries, Inc. ("Valley"), a broadline distributor located in Las Vegas,
Nevada. Also in the first quarter of fiscal 1997, pursuant to JP Foodservice's
strategy to increase penetration of its existing service areas, JP Foodservice
acquired Arrow Paper and Supply Co., Inc. ("Arrow"), a broadline distributor
located in Connecticut serving the New England, New York, New Jersey and
Pennsylvania markets. In the second quarter of fiscal 1997, JP Foodservice
filled a gap in its Midwestern distribution network by acquiring Squeri Food
Service, Inc. ("Squeri"), a broadline distributor located in Ohio serving the
greater Cincinnati, Dayton, Columbus, Indianapolis, Louisville and Lexington
markets. In the fourth quarter of fiscal 1997, JP Foodservice strengthened its
presence in the Mid-Atlantic region through its acquisition of Mazo-Lerch
Company ("Mazo-Lerch"), a broadline distributor located in Virginia serving the
District of Columbia, Virginia, Maryland, southern New Jersey and northern North
Carolina markets. The Valley and Squeri acquisitions were accounted for under
the pooling-of-interests method of accounting, and accordingly, the operating
results for all years presented have been restated to incorporate the results of
Valley and Squeri. The Arrow and Mazo-Lerch acquisitions were accounted for
under the purchase method of accounting, and accordingly, the operating results
of Arrow and Mazo-Lerch are included only from the date of the respective
acquisitions.
Fiscal 1996 Acquisitions. In May 1996, Rykoff-Sexton significantly
expanded the geographic coverage of its distribution network in the
Southeastern, Southwestern and Mid-Atlantic regions of the United States through
its acquisition of US Foodservice Inc. ("USF"). In addition, in November 1995,
Rykoff-Sexton enhanced its distribution network throughout the State of Nevada
when it acquired substantially all of the assets of H&O Foods, Inc. ("H&O
Foods"), a regional, broadline institutional foodservice distributor. Both of
these acquisitions were accounted for under the purchase method of accounting,
and accordingly, the operating results of USF and H&O Foods are included only
from the date of the respective acquisitions.
RESULTS OF OPERATIONS
The Company sells a significant portion of its products at prices based on
product cost plus a percentage markup. Periods of inflation in food prices
result in higher product costs, which are reflected in higher sales prices and
higher gross profits.
Gross margins generally are lower for chain accounts than for street
accounts. However, because there are typically no commission sales costs related
to chain account sales and because chain accounts usually have larger deliveries
to individual locations, sales and delivery costs generally are lower for chain
accounts than for street accounts. Gross margins generally are higher for
private label products than for national brand products of comparable quality.
The Company, however, incurs additional advertising and other marketing costs in
promoting private label products.
The principal components of expenses include cost of sales, which
represent the amount paid to manufacturers and food processors for products
sold, and operating expenses, which include selling (primarily labor-related)
expenses, warehousing, transportation and other distribution costs, and
administrative expenses. Because distribution and administrative expenses are
relatively fixed in the short term, unexpected changes in net sales, such as
those resulting from adverse weather, can have a significant short-term impact
on operating income.
FISCAL 1998 COMPARED TO FISCAL 1997
Net Sales. Net sales increased 6.5% to $5.5 billion in fiscal 1998 from
$5.2 billion in fiscal 1997. Higher chain account and street sales contributed
significantly to net sales growth.
-16-
<PAGE>
Acquisitions of foodservice distributors other than Rykoff-Sexton in late fiscal
1997 and during fiscal 1998 accounted for net sales growth of 3.3%. An increase
of 5.8% in chain account sales reflected the continued growth in sales to the
Company's larger customers. Street account sales increased 6.8% in fiscal 1998
primarily as a result of the growth of the sales force and continued
improvements in sales force productivity.
Gross Profit. Gross profit margin decreased to 18.9% in fiscal 1998 from
19.4% in fiscal 1997. The decline in gross profit margin was primarily
attributable to a continuing shift in product mix from certain high-margin items
to higher turnover, lower-margin items ("center-of-the-plate" products) in the
former Rykoff-Sexton operations, as well as decreased margins at certain of the
operating units that were closed as part of the Acquisition restructuring plan.
Acquisition Related Costs of $8.6 million for writedowns of inventory at
operating units undergoing consolidation or realignment also caused a decline in
the Company's margins for fiscal 1998. The effect on gross profit of the shift
in product mix was offset in part by an increase in street sales as a percentage
of net sales and the growth of the Company's private brand and signature brand
product sales in fiscal 1998. Sales of private brand and signature brand
products increased by 5.6% in fiscal 1998 over fiscal 1997. In addition, the
Company estimates that it achieved approximately $9.0 million in savings from
the consolidation and renegotiation of its purchasing programs.
Operating Expenses. Operating expenses increased 3.6% to $876.2 million in
fiscal 1998 from $845.9 million in fiscal 1997. The increase was primarily
attributable to $19.4 million of Acquisition Related Costs recognized in fiscal
1998, which consisted principally of writedowns of receivables and other assets
at operating units undergoing consolidation or realignment.
Excluding charges for Acquisition Related Costs in fiscal 1998, operating
expenses increased by 1.8% ($14.9 million) in fiscal 1998 over fiscal 1997. As
a percentage of net sales, operating expenses declined to 15.6% in fiscal 1998
from 16.3% in fiscal 1997. The decrease was primarily attributable to operating
efficiencies resulting from the Acquisition restructuring plan, an increase in
the average size of customer deliveries, and synergies achieved through the
consolidation of the Company's general and administrative functions. The
Company also recognized a $7.4 million curtailment gain upon the suspension of
all participation and benefit accruals under one of Rykoff-Sexton's defined
benefit plans.
Amortization of Goodwill and Other Intangible Assets. Goodwill and other
intangible amortization totaled $15.3 million in both fiscal 1998 and fiscal
1997.
Restructuring, Impairment of Long-Lived Assets and Other Charges. The
Acquisition Related Costs in fiscal 1998 included a net restructuring charge of
$53.7 million. These costs consist primarily of change in control payments made
to former executives of Rykoff-Sexton and severance, idle facility and facility
closure costs related to the Company's plan to consolidate and realign certain
operating units and consolidate various overhead functions and a reversal of
$3.0 million of unutilized reserves from a prior restructuring.
The Acquisition Related Costs also included asset impairment charges of
$35.5 million. These charges were related to writedowns to net realizable value
of assets and facilities at operating units that are being consolidated or
realigned and assets related to management information systems which are being
replaced and not currently utilized.
The Company expects that it will recover the cash portion of the
Acquisition Related Costs over the next two years through income tax benefits
and proceeds from the sale of closed facilities.
Income from Operations. Income from operations decreased 58.2% to $60.9
million in fiscal 1998 from $145.8 million in fiscal 1997 primarily as a result
of the Acquisition Related Costs. Operating margin decreased to 1.1% in fiscal
1998 from 2.8% in fiscal 1997.
-17-
<PAGE>
Excluding the impact of the Acquisition Related Costs, income from
operations increased 22% to $178.1 million in fiscal 1998 from $145.8 million in
fiscal 1997. The increase resulted in an operating margin of 3.2% in fiscal
1998 compared to an operating margin of 2.8% in fiscal 1997. The increase in
income from operations was primarily attributable to reduced operating expenses
and the synergies achieved in integrating the Rykoff-Sexton operations.
Interest Expense and Other Financing Costs, Net. Interest expense and
other financing costs decreased 2.9% to $73.9 million in fiscal 1998 from $76.1
million in fiscal 1997. The decrease was primarily attributable to the
refinancing of certain indebtedness of JP Foodservice and Rykoff-Sexton, as
described below, in connection with the Acquisition. The Company's new credit
facility reduced average borrowing costs by approximately 275 basis points
during the second half of fiscal 1998 from the level in fiscal 1997. The
interest rate reduction was offset in part by higher average borrowings, which
were primarily attributable to the nonrecurring charges associated with the
Acquisition.
Nonrecurring Charges. Acquisition Related Costs included nonrecurring
charges of $17.8 million principally related to fees for financial advisory,
legal, accounting and other professional services incurred by both companies to
consummate the Acquisition.
During fiscal 1997, the Company recorded nonrecurring charges of $5.4
million with respect to legal and other professional fees required to complete
the acquisitions of Valley and Squeri.
Income Taxes. The provision for income taxes for fiscal 1998 decreased
$19.6 million from the $26.0 million provision for fiscal 1997. The Company's
effective tax rate in fiscal 1997 was 40.5%, which approximates the Company's
normal rate. Certain non-deductible Acquisition Related Costs had a significant
adverse effect on the Company's income tax rate in fiscal 1998.
Extraordinary Charge. Subsequent to the Acquisition, the Company applied
the proceeds of its new credit facility to refinance substantially all of its
indebtedness (excluding capital leases, $130 million of public notes and
approximately $30 million of other indebtedness) in order to lower significantly
its overall borrowing rates. As a result of this refinancing during fiscal
1998, the Company recorded an extraordinary charge of $9.7 million (net of $6.3
million income tax benefit) related to the write-off of deferred financing costs
with respect to the extinguished debt and additional payments to holders of the
Company's senior notes due 2004, which were paid in full in accordance with
their terms.
FISCAL 1997 COMPARED TO FISCAL 1996
The following comparison of fiscal 1997 operating results to fiscal 1996
operating results is materially affected by the acquisitions of USF and H&O
Foods consummated by Rykoff-Sexton in fiscal 1996. Because of the significance
of the USF acquisition and the related change in Rykoff Sexton's fiscal year end
from April (for years 1996 and before) to June (for subsequent years), there are
no directly comparable financial statements. The operating results of Rykoff-
Sexton for fiscal 1997 therefore have been compared to the operating results for
the 52-week period ended April 27, 1996. Results for fiscal 1996 do not include
any periods for USF and include the six-month period from November 2, 1995 to
April 27, 1996 for H&O Foods.
Net Sales. Net sales increased 59.6% to $5.2 billion in fiscal 1997 from
$3.2 billion in fiscal 1996.
Rykoff-Sexton's net sales increased 94.3% to $3.5 billion in fiscal 1997
from $1.8 billion in fiscal 1996 primarily as a result of the acquisitions of
USF and H&O Foods.
-18-
<PAGE>
JP Foodservice's net sales increased 16.7% to $1.7 billion in fiscal 1997
from $1.4 billion in fiscal 1996. The Arrow acquisition accounted for net sales
growth of 5.8%. Higher chain account and street sales both contributed to JP
Foodservice's net sales growth in fiscal 1997. An increase of 17.2% in chain
account sales reflected the continued growth in sales to JP Foodservice's larger
customers. As a percentage of net sales, chain account sales increased to 42.6%
in fiscal 1997 from 42.4% in fiscal 1996. Street sales increased 16.4% over
fiscal 1996 primarily as a result of the growth of the sales force and continued
improvements in sales force productivity.
Gross Profit. Gross profit margin decreased to 19.4% in fiscal 1997 from
20.2% in fiscal 1996. The decline in gross profit margin at Rykoff-Sexton was
offset in part by improved gross margin at JP Foodservice.
Rykoff-Sexton's gross profit margin in fiscal 1997 was 20.3% compared to
22.5% in fiscal 1996. The acquisition of USF, as well as the inclusion of a
full year of operating results for H&O Foods, were primarily responsible for the
reduction. Both USF and H&O Foods operate as broadline distributors which
typically have lower gross margins than the historical Rykoff-Sexton divisions.
The gross profit margin also was affected by the transition of the historical
Rykoff-Sexton divisions from niche distributors to broadline distributors that
provide customers with an expanded selection of product categories, including
fresh meats, produce and seafood, typically carrying lower margins. The
synergies achieved through the effective integration of the acquisitions and
improved pricing of food and non-food related products from enhanced purchasing
programs resulted in an improvement in gross profit of approximately $6.0
million. This improvement was offset in part by $2.0 million in nonrecurring
inventory and promotion-related charges incurred in the integration of USF.
JP Foodservice's gross profit margin increased to 17.5% in fiscal 1997 from
17.3% in fiscal 1996. The increase was primarily attributable to increased sales
of JP Foodservice's private and signature brand products, which increased to
20.0% of street sales at the end of fiscal 1997 from 16.3% at the end of fiscal
1996. JP Foodservice also realized purchasing synergies through the
consolidation of its purchasing programs with those of the acquired entities.
Operating Expenses. Operating expenses increased 43.3% to $845.9 million
in fiscal 1997 from $590.4 million in fiscal 1996 primarily as a result of the
increase in net sales and Rykoff-Sexton's acquisition of USF and H&O Foods.
As a percentage of net sales, operating expenses declined to 16.4% in fiscal
1997 from 18.2% in fiscal 1996.
Rykoff-Sexton's operating expenses increased 57.3% to $609.5 million in
fiscal 1997 from $387.5 million in fiscal 1996 primarily as a result of its
acquisition of USF and H&O Foods. As a percentage of net sales, operating
expenses decreased to 17.5% in fiscal 1997 from 21.7% in fiscal 1996. The
improvement in operating expenses as a percentage of net sales from fiscal 1996
to fiscal 1997 was attributable to the closure, consolidation or other
significant changes at certain divisions, realignment of the management
structure, consolidation of several corporate functions, insurance reductions
and other integration efforts. The improvement also was attributable to the
transition to broadline distribution discussed above, which generally produces
lower operating expense levels. The decrease in operating expenses as a
percentage of net sales was partially offset by approximately $2.0 million in
nonrecurring charges incurred in connection with the integration plan for
Rykoff-Sexton and USF. Operating expenses for fiscal 1997 included net gains of
$1.5 million related to sales of certain assets and the reversal of $3.4 million
of insurance reserves. Operating expenses for fiscal 1996 were negatively
affected by the relocation of Rykoff-Sexton's Los Angeles division to a new
distribution center and higher than expected bad debt and insurance expense.
JP Foodservice's operating expenses increased 14.5% to $232.4 million in
fiscal 1997 from $203.0 million in fiscal 1996 primarily as a result of the
increase in net sales. As a percentage of net sales, operating expenses
decreased to 13.7% in fiscal 1997 from 14.0% in fiscal 1996. The decrease in
operating expenses as a percentage of net sales resulted from distribution cost
savings related to a
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<PAGE>
higher percentage of sales to chain accounts, increased penetration of street
accounts, savings resulting from revised management compensation agreements
relating to certain of the acquired businesses, and the absence of costs
corresponding to those associated with the severe winter weather conditions
experienced in a majority of JP Foodservice's markets in fiscal 1996.
Amortization of Goodwill and Other Intangible Assets. Goodwill and other
intangible amortization was $15.3 million in fiscal 1997 compared with $4.2
million in fiscal 1996. The increase was attributable to the goodwill arising
from the USF acquisition.
Restructuring, Impairment of Long-Lived Assets and Other Charges. During
fiscal 1997, $4.0 million of the restructuring liability recorded in the nine-
week period ended June 28, 1997 was reversed into income upon the determination
that such liability was no longer required. In addition, the employment of two
senior executives was terminated, and the present value of severance
compensation and related benefits, aggregating $4.0 million, was charged to
expense.
Income from Operations. Income from operations increased 319.8% to $145.8
million in fiscal 1997 from $34.7 million in fiscal 1996 primarily as a result
of the fiscal 1997 increase in net sales, the increase in gross profit margin,
the decrease in operating expenses as a percentage of sales and the USF
acquisition. Operating margin increased to 2.8% in fiscal 1997 from 1.1% in
fiscal 1996.
Interest Expense and Other Financing Costs, Net. Interest expense and
other financing costs increased 133.8% to $76.1 million in fiscal 1997 from
$32.5 million in fiscal 1996 principally as a result of the increase in average
outstanding debt resulting from the USF acquisition.
Rykoff-Sexton's interest expense and other financing costs increased 243.4%
to $59.5 million in fiscal 1997 from $17.3 million in fiscal 1996. The increase
was primarily attributable to the assumption of outstanding USF debt in
connection with the USF acquisition.
JP Foodservice's interest expense and other financing costs increased 8.8%
to $16.5 million in fiscal 1997 from $15.2 million in fiscal 1996. The increase
was primarily attributable to increased borrowings incurred in connection with
the acquisitions consummated in fiscal 1997.
Income Taxes. The provision for income taxes for fiscal 1997 increased
$25.5 million over the provision for fiscal 1996. The effective income tax rate
for fiscal 1997 was 40.5%.
Rykoff-Sexton's effective income tax rate for fiscal 1997 was 38.2%
compared to an effective income tax benefit of (40.0)% for fiscal 1996. During
the fourth quarter of fiscal 1997, Rykoff-Sexton recorded a reduction in the
valuation allowance of $2.8 million based on an analysis of expected combined
operating results that included USF.
JP Foodservice's provision for income taxes for fiscal 1997 increased $4.6
million over the provision for fiscal 1996. The increase in the provision was
attributable to JP Foodservice's greater pretax profit level in fiscal 1997. JP
Foodservice's effective tax rate of 42.1% for fiscal 1997 increased from the
effective rate of 40.7% for fiscal 1996 primarily because of the nondeductible
portion of the nonrecurring charges related to the acquisitions consummated in
fiscal 1997.
QUARTERLY RESULTS AND SEASONALITY
Historically, the Company's operating results have reflected modest
seasonal variations. The Company generally experiences lower net sales and
income from operations during its third quarter, which includes the winter
months. In the second and third quarters of fiscal 1998, the Company incurred
Acquisition Related Costs totaling approximately $138.0 million, which
significantly affected the Company's reported results for those quarters. See
Note 3 to the Company's Consolidated Financial Statements appearing elsewhere in
this report.
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<PAGE>
The following table sets forth certain statement of operations data for
each of the last eight fiscal quarters:
-21-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
FISCAL YEAR ENDED JUNE 28, 1997
-----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................... $ 1,319,189 $ 1,304,983 $ 1,238,937 $ 1,306,297
Gross profit................................ 248,118 254,424 243,269 257,263
Income from operations...................... 30,993 36,883 35,553 42,395
Operating margin............................ 2.3% 2.8% 2.9% 3.2%
Net income before
extraordinary charge....................... 4,100 8,631 9,090 16,465
Net income per common share:
Basic:
Before extraordinary charge................ $ 0.09 $ 0.20 $ 0.21 $ 0.37
Net income................................. $ 0.09 $ 0.20 $ 0.21 $ 0.37
Diluted:
Before extraordinary charge................ $ 0.09 $ 0.20 $ 0.20 $ 0.37
Net income................................. $ 0.09 $ 0.20 $ 0.20 $ 0.37
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 27, 1998
-----------------------------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER (1) QUARTER (2) QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................... $ 1,338,828 $ 1,373,258 $ 1,338,138 $ 1,456,725
Gross profit................................ 256,246 256,497 248,126 280,799
Income (loss) from operations............... 35,720 (49,735) 12,710 62,204
Operating margin............................ 2.7% (3.6%) 0.9% 4.3%
Net income (loss) before
extraordinary charge....................... 9,791 (70,622) (3,260) 26,799
Net income (loss) per common share:
Basic:
Before extraordinary charge................ $ 0.20 $ (1.56) $ (0.07) $ 0.58
Net income (loss).......................... $ 0.20 $ (1.78) $ (0.07) $ 0.58
Diluted:
Before extraordinary charge................ $ 0.20 $ (1.56) $ (0.07) $ 0.57
Net income (loss).......................... $ 0.20 $ (1.78) $ (0.07) $ 0.57
</TABLE>
- ----------------
(1) In the second quarter, the Company incurred $112.6 million of Acquisition
Related Costs. Excluding these charges, gross profit was $262.5 million,
income from operations was $42.0 million, the operating margin was 3.1% and
net income before extraordinary charge was $12.8 million. Basic and diluted
earnings per common share, before extraordinary charge, were $.28 per share.
(2) In the third quarter, the Company incurred $25.4 million of Acquisition
Related Costs. Excluding these charges, gross profit was $250.6 million,
income from operations was $38.1 million, the operating margin was 2.8% and
net income before extraordinary charge was $13.3 million. Basic and diluted
earnings per common share, before extraordinary charge, were $.29 per share.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations and growth primarily
with cash flow from operations, equity offerings, and borrowings under its
credit facilities, operating and capital leases.
Cash Flows from Operating Activities. Net cash flows provided by (used in)
operating activities were $70.7 million, $116.1 million and ($3.1) million in
fiscal 1998, fiscal 1997 and fiscal 1996, respectively. The $45.4 million
decrease in net cash flows from operations in fiscal 1998 compared to fiscal
1997 primarily reflected the Company's adoption in January 1997, as required, of
Statement of Financial Accounting Standards No. 125 ("SFAS No. 125"), pursuant
to which the Company accounted for the $50.0 million received from the
securitization of JP Foodservice accounts receivable as a sale of those
receivables. Prior to the adoption of SFAS No. 125, the Company had accounted
for this transaction as a financing. In addition, in fiscal 1998, the Company
experienced a $61.9 million increase in accounts receivable and inventories as a
result of net sales growth in the fourth quarter of fiscal 1998. This increase
was offset in part by higher levels of accounts payable and accrued expenses,
including restructuring charges which have not been expended.
The Company's net working capital requirements generally average between
4.5% and 5.5% of annual sales (net of the $250 million of receivables sold under
accounts receivable securitization arrangements). The Company's net working
capital balance at June 27, 1998 was $287.8 million.
Cash Flows from Investing Activities. Net cash used in investing
activities was $102.3 million, $106.8 million and $74.3 million in fiscal 1998,
fiscal 1997 and fiscal 1996, respectively.
The Company used $102.3 million in net cash flows in fiscal 1998 for
investing activities, which included $95.5 million of capital expenditures. The
capital expenditures were used primarily for construction of new distribution
centers in Fort Mill, South Carolina and Las Vegas, Nevada, expansion of
distribution centers at various locations, and upgrading of management
information systems. The Company currently expects to make capital expenditures
of approximately $68 million in fiscal 1999, including approximately $41 million
to upgrade and expand its existing facilities.
Net cash flows used for investing activities in fiscal 1998 also included
$38.7 million of costs related to the acquisitions of Outwest, Sorrento, and
Westlund and $32.1 million in proceeds from sales of idle facilities and other
properties.
Cash Flows from Financing Activities. Net cash flows provided by financing
activities were $15.0 million, $30.8 million and $79.8 million in fiscal 1998,
fiscal 1997 and fiscal 1996, respectively. Net cash flows provided by financing
activities in fiscal 1998 included $33.2 million from the issuance of common
stock and $12.4 million used to purchase common stock in connection with a stock
repurchase program announced by JP Foodservice in the second quarter of fiscal
1998.
As of June 27, 1998, the Company's long-term indebtedness, including
current portion, totaled $688.2 million. On December 23, 1997, in connection
with the consummation of the Acquisition, the Company entered into a new credit
facility which provides for a $550 million five-year revolving credit facility
and a $200 million revolver/term loan facility which is renewable annually.
Initial borrowings under the new credit facility were used to repay the former
JP Foodservice revolving line of credit loans and senior notes due 2004 and the
former Rykoff-Sexton revolving and term loan facilities. The total debt repaid
was approximately $551.0 million. Amounts borrowed under the new credit facility
bear interest at the option of the Company at a rate equal to the sum of (a) the
London Interbank Offered Rate ("LIBOR"), a specified prime rate plus .5%, or the
federal funds rate plus .5%, and (b) an applicable margin. The applicable
margin will vary from .175% to .55%, based on a formula tied to the Company's
leverage from time to time. Annual facility fees are based on the same formula
and will vary between .055% and .2%. At June 27, 1998, borrowing rates were
based on LIBOR plus an applicable margin of .45% and averaged 6.17% (excluding
deferred financing costs). The new credit facility includes a $75 million
facility for standby and
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<PAGE>
commercial letters of credit and a $50 million swing-line facility for same day
borrowings. At June 27, 1998, borrowings of $502.2 million were outstanding and
the Company had available borrowings of $211.8 million under the new credit
facility. The new credit facility includes a number of covenants which require
the Company to maintain certain financial ratios and restrict the Company's
ability to pay dividends and to incur additional indebtedness.
From time to time, the Company acquires other foodservice businesses. Any
such business may be acquired for cash, common stock of the Company, or a
combination of cash and common stock. Accordingly, management may determine
that it is necessary or desirable to obtain financing for acquisitions through
additional bank borrowings or the issuance of new debt or equity securities.
The Company believes that the combination of cash flow generated by its
operations, additional capital leasing activity, sales of duplicate assets, and
borrowings under the new credit facility will be sufficient to enable it to
finance its growth and meet its currently projected capital expenditures and
other liquidity requirements for at least the next twelve months.
INFORMATION SYSTEMS AND THE IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue results from a programming convention in which computer
programs use two digits rather than four to define the applicable year. Software
and hardware may recognize a date using "00" as the year 1900, rather than the
year 2000. Such an inability of computer programs to recognize a year that
begins with "20" could result in system failures, miscalculations or errors
causing disruptions of operations or other business problems, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company's Program. The Company has undertaken a program to address the
Year 2000 issue with respect to the following: (i) the Company's information
technology and operating systems (including its billing, accounting and
financial reporting systems); (ii) the Company's non-information technology
systems (such as buildings, plant, equipment, telephone systems and other
infrastructure systems that may contain embedded microcontroller technology);
(iii) certain systems of the Company's major vendors and material service
providers (insofar as such systems relate to the Company's business activities
with such parties); and (iv) the Company's material customers (insofar as the
Year 2000 issue relates to the Company's ability to provide services to such
customers). As described below, the Company's Year 2000 program involves (i) an
assessment of the Year 2000 problems that may affect the Company, (ii) the
development of remedies to address the problems discovered in the assessment
phase, (iii) the testing of such remedies and (iv) the preparation of
contingency plans to deal with worst case scenarios.
Assessment Phase. In order to determine the extent to which its internal
systems are vulnerable to the Year 2000 issue, the Company is currently
evaluating the systems that are date sensitive. The Company's 37 distribution
centers and corporate headquarters currently use various information systems to
process transactions and meet financial reporting needs. Most of these systems
are not fully Year 2000 compliant. As of June 27, 1998, information systems
used by seven of the distribution centers are Year 2000 compliant. The
Company's data processing systems represent its most significant challenge with
respect to Year 2000 compliance. The Company expects that its evaluation of its
internal systems will be completed by December 31, 1998. In addition, in the
second quarter of fiscal 1999, the Company will complete sending letters to
certain of its significant hardware, software and other equipment vendors and
other material service providers, as well as to its significant customers,
requesting them to provide the Company with detailed, written information
concerning existing or anticipated Year 2000 compliance by their systems insofar
as the systems relate to such parties' business activities with the Company. The
Company expects that it will complete its distribution of these inquiries by
December 31, 1998.
Remediation and Testing Phase. The activities conducted during the
remediation and testing phase are intended to address potential Year 2000
problems in Company-developed computer
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<PAGE>
software and in its other information technology and non-information technology
systems in an attempt to demonstrate that this software will be made
substantially Year 2000 compliant on a timely basis. In this phase, the Company
will first evaluate a program application and, if a potential Year 2000 problem
is identified, will take steps to attempt to remediate the problem and
individually test the application to confirm that the remediating changes are
effective and have not adversely affected the functionality of that application.
The Company will undertake similar remediation and testing with respect to the
hardware and other equipment that runs or is run by the software. After the
individual applications and system components have undergone remediation and
testing phases, the Company will conduct integrated testing for the purpose of
demonstrating functional integrated systems operation. Following completion of
its internal, integrated systems testing, the Company intends to conduct
laboratory-simulated integrated systems testing in an attempt to demonstrate
substantial Year 2000 compliance of the Company's systems as they interface with
external systems and equipment of major vendors, other material service
providers and material customers.
During fiscal 1998, among other activities, the Company replaced
information processing systems (consisting of hardware and software) at five
distribution centers, initiated software remediation efforts at 15 locations,
and installed new payroll and human resources information systems at 14
locations. As of the date of this report, the Company has initiated software
and hardware remediation efforts at the remaining distribution centers and its
corporate headquarters. The Company currently seeks to have most of its
software remediated by December 1998 and to have all of its information systems
at its distribution centers and its corporate headquarters Year 2000 compliant
by July 1999.
Contingency Plans. The Company intends to develop contingency plans to
handle its most reasonably likely worst case Year 2000 scenarios, which it has
not yet identified fully. The Company intends to complete its determination of
worst case scenarios after it has received and analyzed responses to
substantially all of the inquiries it has made of third parties. Following its
analysis, the Company intends to develop a timetable for completing its
contingency plans.
Costs Related to the Year 2000 Issue. To date, the Company has incurred
approximately $0.5 million in costs for its Year 2000 program. It has also made
approximately $7.0 million of capital expenditures on new information processing
systems that are already Year 2000 compliant. The Company currently estimates
that it will incur additional costs, which are not expected to exceed
approximately $5.0 million, to complete its Year 2000 compliance work with
respect to the Company's major information systems. Of such additional
costs, approximately $3.0 million are expected to be incurred during fiscal 1999
and approximately $2.0 million are expected to be incurred during fiscal 2000.
These costs will be expensed as incurred. The Company currently believes that
the costs to resolve compliance issues with respect to other information systems
and its non-information technology systems will not be material. However, there
can be no assurance that the foregoing cost estimate will not change as the
Company completes its assessment.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the issue and the
success or failure of the Company's efforts described above cannot be known
until the year 2000. Failure by the Company and its major vendors, other
material service providers and material customers to address adequately their
respective Year 2000 issues in a timely manner (insofar as such issues relate to
the Company's business) could have a material adverse effect on the Company's
business, results of operations and financial condition.
Changes in Accounting Standards
During 1997 and 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income, SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, and SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activity. SFAS No. 130 and 131 generally require additional
financial statement disclosure. SFAS No. 133 establishes accounting and
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<PAGE>
reporting standards for derivative instruments and for hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company expects to adopt SFAS No. 130 and 131 during fiscal 1999 and
SFAS No. 133 during fiscal 2000, in accordance with the pronouncements, and is
currently evaluating the impact, if any, that SFAS No. 133 will have on its
consolidated financial statements.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-5, Reporting on the Costs of Start-Up
Activities. SOP No. 98-5 requires that costs incurred during a start-up
activity be expensed as incurred and that the initial application of the SOP, as
of the beginning of the fiscal year in which the SOP is adopted, be reported as
a cumulative effect of a change in accounting principle. The Company expects to
adopt SOP 98-5 in fiscal 2000. The cumulative effect of adoption is not
expected to be material.
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<PAGE>
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information constitutes forward-looking information. See
"Foward-Looking Statements."
The Company's major market risk exposure is to changing interest rates.
The Company's policy is to manage interest rates through the use of a
combination of fixed and floating rate debt. The Company uses interest rate
swap, cap and collar contracts to manage its exposure to fluctuations in
interest rates on floating long-term debt. Certain management monitoring
processes are designed to minimize the impact of sudden and sustained changes in
interest rates. As of June 27, 1998, the Company had effectively capped its
interest rate exposure at 7.85% on approximately $400.0 million of its floating
rate debt for the next 12 months. The Company would have had a loss of
approximately $1.8 million if it had terminated each of its interest rate
contracts as of June 27, 1998.
The tables below provide information about the Company's debt obligations
and derivative financial instruments that are sensitive to changes in interest
rates:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) DEBT OBLIGATIONS
--------------------------------------------------------------------------------------
EXPECTED MATURITY DATES (1)
----------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate................. - - - - - $ 120.2 $ 120.2 $ 125.5
Average interest rate.... - - - - - 8.875%
Variable rate.............. - - - $ 502.2 - $ 25.9 $ 528.1 $ 528.1
Average interest rate.... - - - LIBOR - LIBOR
<CAPTION>
INTEREST RATE DERIVATIVES
--------------------------------------------------------------------------------------
EXPECTED MATURITY DATES (1)
----------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate swap:
Variable to fixed.......... - $ 70.0 - - - - $ 70.0 $ (0.4)
Average rate received.... - LIBOR - - - -
Average rate paid........ - 5.97% - - - -
Swaption (2):
Variable to fixed.......... - - - - $ 129.0 - $ 129.0 $ (7.0)
Average rate received.... - - - - LIBOR+0.625% -
Average rate paid........ - - - - 8.875% -
Collars:
Variable to fixed.......... $ 300.0 - - - - - $ 300.0 $ -
Receive over............. 7.41% - - - - -
Pay under................ 5.00% - - - - -
Cap:
Variable to fixed.......... $ 100.0 - - - - - $ 100.0 $ -
Receive over............. 7.41% - - - - -
</TABLE>
- ----------------------------------
(1) Maturity dates are based on fiscal years ending in June.
(2) The swaption is for a notional amount of $129.0 million and can be
exercised by the holder commencing November 1998. The Company received $5.6
million upon sale of the swaption and will receive an additional $1.9
million to 5.7 million when, and if, exercised by the holder.
For debt obligations, the table presents principal cash flows and the
related interest rates by expected maturity dates for each of the Company's
major debt obligations. For interest rate derivatives, the table presents
notional amounts and interest rates by contractual maturity date.
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<PAGE>
Notional amounts are the amounts used to calculate the contractual payments to
be exchanged under the contract. Interest rates for debt obligations exclude the
premium or margin included in the debt instrument. See Note 7 to the Company's
Consolidated Financial Statements appearing elsewhere in this report.
In addition to the instruments listed above, the Company sells $250.0
million of accounts receivable on a revolving basis under accounts receivable
securitization arrangements. The proceeds received from sales of receivables
under these arrangements, which are accounted for under SFAS No. 125, are based
to a large extent on LIBOR. The Company also uses fixed-rate capital leases to
finance certain of its trucks and trailers.
Currently, the Company does not use foreign currency forward contracts
or commodity contracts and does not have any material foreign currency exposure.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedules listed in Item 14 are filed as
part of this report and appear on Pages F-2 through F-36.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information responsive to this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information responsive to this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information responsive to this Item is incorporated herein by reference to
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
The following financial statements of the Company appear on pages F-2
through F-32 of this report and are incorporated by reference in Part II,
Item 8:
Independent Auditors' Reports
Consolidated Balance Sheets as of June 28, 1997 and June 27, 1998.
Consolidated Statements of Operations for the fiscal years ended June 29,
1996, June 28, 1997 and June 27, 1998.
Consolidated Statements of Stockholders' Equity for the fiscal years ended
June 29, 1996, June 28, 1997 and June 27, 1998.
Consolidated Statements of Cash Flows for the fiscal years ended June 29,
1996, June 28, 1997 and June 27, 1998.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES
I. - Condensed Financial Information of Registrant
II. - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
3. EXHIBITS
The Commission File No. of Rykoff-Sexton, Inc. was 0-8105.
3.1 Restated Certificate of Incorporation of the Company. Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-3
(No. 333-59785) and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as Exhibit 3.2
to the Company's Registration Statement on Form S-3 (No. 333-
41795) and incorporated herein by reference.
4.1 Specimen certificate representing common stock, par value $.01
per share, of the Company. Filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (No. 333-27275) and
incorporated herein by reference.
4.2.1 Rights Agreement, dated as of February 19, 1996, between the
Company and The Bank of New York, as Rights Agent (the "Rights
Agreement").
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<PAGE>
Filed as Exhibit 1 to the Company's Registration Statement on
Form 8-A dated February 22, 1996 and incorporated herein by
reference.
4.2.2 Amendment No. 1 to the Rights Agreement, dated as of May 17,
1996. Filed as Exhibit 10.26 to Amendment No. 1 to the Company's
Registration Statement on Form S-3 (No. 333-07321) and
incorporated herein by reference.
4.2.3 Amendment No. 2 to the Rights Agreement, dated as of September
26, 1996. Filed as Exhibit 10.1 to Amendment No. 2 to the
Company `s Registration Statement on Form S-3 (No. 333-14039)
and incorporated herein by reference.
4.2.4 Amendment No. 3 to the Rights Agreement, dated as of June 30,
1997. Filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K filed on July 2, 1997 and incorporated herein by
reference.
4.2.5 Amendment No. 4 to the Rights Agreement, dated as of December
23, 1997. Filed as Exhibit 10.1 to the Company's Current Report
on Form 8-K filed on January 7, 1998 and incorporated herein by
reference.
4.3 Common Stock Purchase Warrant Expiring September 30, 2005 issued
to Bankers Trust New York Corporation. Filed as Exhibit 4.2 to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 27, 1997 and incorporated herein by
reference.
10.1 Employment Agreement, dated as of July 3, 1989, as amended,
between the Company and James L. Miller. Filed as Exhibit 10.1
to the Company's Registration Statement on Form S-1 (No. 33-
82724) and incorporated herein by reference.
10.2 Employment Agreement, dated as of August 9, 1991, between the
Company and Lewis Hay, III. Filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (No. 33-82724) and
incorporated herein by reference.
10.3 Second Amendment, dated as of June 27, 1995, to Employment
Agreement, dated as of July 3, 1989, as amended, between the
Company and James L. Miller. Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 30, 1995 and incorporated herein by reference.
10.4 First Amendment, dated as of June 27, 1995, to Employment
Agreement, dated as of August 9, 1991, between the Company and
Lewis Hay, III. Filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 30, 1995 and incorporated herein by reference.
10.5 Severance Agreement, dated as of September 27, 1995, between the
Company and Mark P. Kaiser. Filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 30, 1995 and incorporated herein by reference.
-31-
<PAGE>
10.6 Severance Agreement, dated as of September 27, 1995, between the
Company and George T. Megas. Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 30, 1995 and incorporated herein by reference.
10.7 Employment Agreement, dated as of January 4, 1996, between the
Company and James L. Miller. Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1996 and incorporated herein by reference.
10.8 Employment Agreement, dated as of January 4, 1996, between the
Company and Lewis Hay, III. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1996 and incorporated herein by reference.
10.9 Employment Agreement, dated as of January 4, 1996, between the
Company and Mark P. Kaiser. Filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1996 and incorporated herein by reference.
10.10 Employment Agreement, dated as of January 4, 1996, between the
Company and George T. Megas. Filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 30, 1996 and incorporated herein by reference.
10.11 Employment Agreement, dated as of June 10, 1996, between the
Company and David M. Abramson. Filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year ended
June 29, 1996 and incorporated herein by reference.
10.12 1994 Stock Incentive Plan, as amended, of U.S. Foodservice.
Filed as Exhibit 10.5 to the Company's Registration Statement on
Form S-4 (No. 333-32711) and incorporated herein by reference.
10.13 Stock Option Plan for Outside Directors, as amended, of U.S.
Foodservice. Filed as Exhibit 10.6 to the Company's
Registration Statement on Form S-4 (No. 333-32711) and
incorporated herein by reference.
10.14 U.S. Foodservice Supplemental Executive Retirement Plan. Filed
herewith.
10.15 U.S. Foodservice Restricted Stock Unit Plan. Filed herewith.
10.16 Description of the Company's annual bonus plan. Filed as
Exhibit 10.9 to the Company's Registration Statement on Form S-1
(No. 33-82724) and incorporated herein by reference.
10.17 Rykoff-Sexton, Inc. 1993 Director Stock Option Plan, as
amended. Filed herewith.
10.18 Amended and Restated Support Agreement, dated as of June 30,
1997, among JP Foodservice, Inc. and certain stockholders of
Rykoff-Sexton, Inc. Filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on September 9, 1997 and
incorporated herein by reference.
-32-
<PAGE>
10.19 Receivables Purchase Agreement, dated as of May 30, 1996, among
JP Foodservice Distributors, Inc., Illinois Fruit & Produce
Corp. and Sky Bros., Inc., JPFD Funding Company and the Company.
Filed as Exhibit 10.27 to the Company's Registration Statement
on Form S-3 (No. 333- 07321) and incorporated herein by
reference.
10.20.1 Transfer and Administration Agreement, dated May 30, 1996,
among Enterprise Funding Corporation, JPFD Funding Company, JP
Foodservice Distributors, Inc., NationsBank, N.A. and certain
other financial institutions from time to time parties thereto.
Filed as Exhibit 10.28 to the Company's Registration Statement
on Form S-3 (No. 333-07321) and incorporated herein by
reference.
10.20.2 Amendment No. 1, dated as of July 1, 1996, to the Transfer
and Administration Agreement, dated as of May 30, 1996, by and
among JPFD Funding Company, JP Foodservice Distributors, Inc.,
Enterprise Funding Corporation, NationsBank, N.A., and the
financial institutions from time to time parties thereto. Filed
as Exhibit 10.33 to the Company's Registration Statement on Form
S-3 (No. 333-07321) and incorporated herein by reference.
10.20.3 Amendment No. 2, dated as of May 19, 1997, to the Transfer
and Administration Agreement, dated as of May 30, 1996, by and
among JPFD Funding Company, JP Foodservice Distributors, Inc.,
Enterprise Funding Corporation, NationsBank, N.A., and the
financial institutions from time to time parties thereto. Filed
herewith. Filed as Exhibit 10.30 to the Company's Annual Report
on Form 10-K for the fiscal year ended June 28, 1997 and
incorporated herein by reference.
10.21.1 Indenture, dated as of November 1, 1993, between Rykoff-
Sexton, Inc. and Norwest Bank Minnesota, N.A., as trustee
(incorporated by reference from Rykoff-Sexton, Inc.'s Quarterly
Report on Form 10-Q for the fiscal quarter ended October 30,
1993).
10.21.2 Supplemental Indenture, dated as May 17, 1996, among Rykoff-
Sexton, Inc., the guarantors listed on the signature pages
thereof and Norwest Bank Minnesota, N.A., as trustee. Filed as
Exhibit 4.1.2 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended December 27, 1997 and incorporated
herein by reference.
10.21.3 Second Supplemental Indenture, dated as of December 23, 1997,
among Rykoff-Sexton, Inc., the guarantors listed on the
signature pages thereof and Norwest Bank Minnesota, N.A., as
trustee. Filed as Exhibit 4.1.3 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 27,
1997 and incorporated herein by reference.
10.21.4 Third Supplemental Indenture, dated as of February 10, 1998,
among Rykoff-Sexton, Inc., the guarantors listed on the
signature pages thereof and Norwest Bank Minnesota, N.A., as
trustee. Filed herewith.
10.22 Registration Rights Agreement, dated as of May 17, 1996, by
Rykoff-Sexton, Inc. and the other signatories listed on the
signature pages thereto (incorporated by reference from Rykoff-
Sexton, Inc.'s Annual Report on Form 10-K for the fiscal year
ended April 27, 1996).
-33-
<PAGE>
10.23.1 Five Year Credit Agreement, dated as of December 23, 1997,
among Rykoff-Sexton, Inc. and JP Foodservice Distributors, Inc.,
the Lenders Parties Thereto, NationsBank, N.A., as
Administrative Agent, NationsBanc Montgomery Securities, Inc.
and Chase Securities, Inc., as Co-Arrangers, The Chase Manhattan
Bank, as Syndication Agent, and Bank of America, NT & SA, as
Documentation Agent. Filed as Exhibit 10.1.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 1997 and incorporated herein by reference.
10.23.2 Five Year Guaranty Agreement, dated as of December 23, 1997,
among JP Foodservice, Inc., the Subsidiaries of the Borrowers
identified therein and NationsBank, N.A., as Administrative
Agent. Filed as Exhibit 10.1.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 27,
1997 and incorporated herein by reference.
10.24.1 364-Day Credit Agreement, dated as of December 23, 1997,
among Rykoff-Sexton, Inc. and JP Foodservice Distributors, Inc.,
the Lenders Parties Thereto, NationsBank, N.A., as
Administrative Agent, NationsBanc Montgomery Securities, Inc.
and Chase Securities, Inc., as Co-Arrangers, The Chase Manhattan
Bank, as Syndication Agent, and Bank of America, NT & SA, as
Documentation Agent. Filed as Exhibit 10.2.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 1997 and incorporated herein by reference.
10.24.2 364-Day Guaranty Agreement, dated as of December 23, 1997,
among JP Foodservice, Inc., the Subsidiaries of the Borrowers
identified therein and NationsBank, N.A., as Administrative
Agent. Filed as Exhibit 10.2.2 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended December 27,
1997 and incorporated herein by reference.
10.25.1 Participation Agreement, dated as of April 29, 1994, entered
into among Rykoff-Sexton, Inc., as Lessee ("Lessee"), Tone
Brothers, Inc., as Sublessee ("Sublessee"), BA Leasing & Capital
Corporation, as Agent ("Agent"), Manufacturers Bank and Pitney
Bowes Credit Corporation, as Lessors (the "Lessors")
(incorporated by reference from Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended April 30, 1994).
10.25.2 Waiver, Consent and Fifth Amendment to Participation Agreement,
dated as of December 23, 1997, among Lessee, Hudson Acquisition
Corp., Agent and the Lessors. Filed as Exhibit 10.3.7 to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 27, 1997 and incorporated herein by reference.
10.25.3 Guaranty, dated as of December 23, 1997, of JP Foodservice, Inc.
in favor of Agent. Filed as Exhibit 10.3.8 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
December 27, 1997 and incorporated herein by reference.
10.26.1 Receivables Sale Agreement, dated as of November 15, 1996, among
Rykoff-Sexton, Inc., John Sexton & Co., Biggers Brothers, Inc.,
White Swan, Inc., F.H. Bevevino & Company, Inc., Roanoke
Restaurant Service, Inc., King's Foodservice, Inc., U.S.
Foodservice of Florida, Inc., US Foodservice of Atlanta, Inc.,
RS Funding Inc. and US Foodservice Inc., as Servicer
(incorporated by reference from Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 28, 1997).
-34-
<PAGE>
10.26.2 Servicing Agreement, dated as of November 15, 1996, among RS
Funding Inc., as Company, US Foodservice Inc., as Servicer,
Rykoff-Sexton, Inc. and its other subsidiaries named therein as
Sub-Servicers and The Chase Manhattan Bank, Trustee
(incorporated by reference from Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 28, 1997).
10.26.3 Pooling Agreement, dated as of November 15, 1996, among RS
Funding Inc., as Company, US Foodservice Inc., as Servicer, and
The Chase Manhattan Bank, as Trustee (incorporated by reference
from Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the
fiscal year ended June 28, 1997).
10.26.4 Series 1996-1 Supplement to Pooling Agreement among RS Funding
Inc., as Company, US Foodservice Inc., as Servicer, and The
Chase Manhattan Bank, as Trustee (incorporated by reference from
Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the fiscal
year ended June 28, 1997).
10.27 Indenture of Trust, dated as of November 1, 1996, between La
Mirada Industrial Development Authority and Bankers Trust
Company of California, N.A. (incorporated by reference from
Rykoff-Sexton, Inc.'s Annual Report on Form 10-K for the fiscal
year ended June 28, 1997).
10.28 Loan Agreement, dated as of November 1, 1996, among La Mirada
Industrial Development Authority and Bankers Trust Company of
California, N.A. (incorporated by reference from Rykoff-Sexton,
Inc.'s Annual Report on Form 10-K for the fiscal year ended June
28, 1997).
10.29.1 Reimbursement Agreement, dated as of November 1, 1996, between
Rykoff-Sexton, Inc. and the First National Bank of Chicago
(incorporated by reference from Rykoff-Sexton, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 28, 1997).
10.29.2 Amendment, Consent and Assumption Agreement, dated as of
December 18, 1997, among Rykoff-Sexton, Inc., Hudson Acquisition
Corp. and The First National Bank of Chicago. Filed as Exhibit
10.7.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended December 27, 1997 and incorporated herein
by reference.
10.30.1 Commitment Agreement, dated as of August 10, 1992, between BRB
Holdings, Inc. and its subsidiaries and Sara Lee Corporation
(incorporated by reference from Rykoff-Sexton, Inc.'s
Registration Statement on Form S-4 (No. 333-02715)).
10.30.2 Amendment Number One to BRB Holdings Commitment Agreement, dated
as of September 27, 1995, by Sara Lee Corporation and BRB
Holdings, Inc. and guaranteed by US Foodservice Inc.
(incorporated by reference from Rykoff-Sexton, Inc.'s
Registration Statement on Form S-4 (No. 333-02715)).
10.31.1 Commitment Agreement, dated as of August 10, 1992, between WS
Holdings Corporation and its subsidiaries and Sara Lee
Corporation (incorporated by reference from Rykoff-Sexton's
Registration Statement on Form S-4 (No. 333-02715)).
-35-
<PAGE>
10.32.2 Amendment Number One to WS Holdings Commitment Agreement, dated
as of September 27, 1995, by Sara Lee Corporation and WS
Holdings Corporation (incorporated by reference from Rykoff-
Sexton, Inc.'s Registration Statement on Form S-4 (File No. 333-
02715)).
10.33 Standstill Agreement, dated as of as of May 17, 1996, by Rykoff-
Sexton, Inc. and the other signatories listed on the signature
pages thereto (incorporated by reference from Rykoff-Sexton,
Inc.'s Annual Report on Form 10-K for the fiscal year ended
April 27, 1996).
10.34 Participation Agreement, dated as of June 29, 1998, among JP
Foodservice Distributors, Inc., the signatories listed on the
signature pages thereto as Guarantors, First Security Bank,
National Association, as Owner Trustee, the Various Banks and
Other Lending Institutions Parties Thereto, as Holders and
Lenders, and First Union National Bank, as Agent. Filed
herewith.
10.35 Credit Agreement, dated as of June 29, 1998, among First
Security Bank, National Association, as Borrower, the Several
Lenders Parties Thereto, and First Union National Bank, as
Agent. Filed herewith.
10.36 Lease Agreement, dated as of June 29, 1998, between First
Security Bank, National Association, as Lessor, and JP
Foodservice Distributors, Inc., as Lessee, relating to the
corporate headquarters of U.S. Foodservice. Filed herewith.
21 Subsidiaries of the Company. Filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP, independent public
accountants. Filed herewith.
23.2 Consent of KPMG Peat Marwick LLP, independent public
accountants. Filed herewith.
23.3 Consent of KPMG Peat Marwick LLP, independent public
accountants. Filed herewith.
23.4 Consent of Arthur Andersen LLP, independent public
accountants. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company in the fourth quarter of fiscal
1998.
-36-
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
<S> <C>
Consolidated Financial Statements:
Independent Auditors' Reports........................................... F-2
Consolidated Balance Sheets as of June 28, 1997 and June 27, 1998...... F-7
Consolidated Statements of Operations for the fiscal years ended
June 29, 1996, June 28, 1997 and June 27, 1998....................... F-8
Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 29, 1996, June 28, 1997 and June 27, 1998................. F-9
Consolidated Statements of Cash Flows for the fiscal years ended
June 29, 1996, June 28, 1997 and June 27, 1998....................... F-10
Notes to Consolidated Financial Statements............................. F-12
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
U.S. Foodservice:
We have audited the accompanying consolidated balance sheets of U.S. Foodservice
(formerly JP Foodservice, Inc.) and subsidiaries as of June 28, 1997 and June
27, 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. In connection with our audits
of the consolidated financial statements, we have also audited the consolidated
financial statement schedules listed under Item 14 (a)(2). These consolidated
financial statements and the financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedules based on our audits. We did not audit the consolidated financial
statements of Rykoff-Sexton, Inc. as of and for the year ended June 28, 1997,
which consolidated financial statements reflect total assets constituting 70
percent, net sales constituting 67 percent and net income constituting 42
percent of the related 1997 consolidated financial statement totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion on the 1997 consolidated financial statements, insofar as it
relates to the amounts included for Rykoff-Sexton, Inc., is based solely on the
report of other auditors.
The consolidated financial statements of U.S. Foodservice and subsidiaries for
the year ended June 29, 1996, prior to their restatement for the pooling of
interests transaction described in note 3 to the consolidated financial
statements, were audited by other auditors whose report, presented herein dated
August 2, 1996, expressed an unqualified opinion on those statements. Separate
financial statements of Rykoff-Sexton, Inc. also included in the restated
consolidated financial statements of U.S. Foodservice for the year ended June
29, 1996, were audited by other auditors whose report, presented herein dated
August 14, 1997, expressed an unqualified opinion on those statements.
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 also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
1997 and 1998 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Foodservice and
subsidiaries as of June 28, 1997 and June 27, 1998, and the results of their
operations and their cash flows for each of the years then ended in conformity
with generally accepted accounting principles.
Also in our opinion, the related consolidated financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly, in all material respects, the information set forth
herein.
F-2
<PAGE>
We also audited the combination of the accompanying consolidated financial
statements and schedules as of June 28, 1997, and for each of the years in the
two-year period then ended, after restatement for the Rykoff-Sexton, pooling of
interests transaction and in our opinion, such financial statements and
schedules have been properly combined on the basis described in note 3 to the
consolidated financial statements.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
August 14, 1998
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rykoff-Sexton, Inc.:
We have audited the consolidated balance sheet of Rykoff-Sexton, Inc. (a
Delaware Corporation) and subsidiaries as of June 28, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal years ended June 28, 1997, and April 27, 1996, and the nine-week
transition period ended June 29, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Rykoff-Sexton, Inc. and
subsidiaries as of June 28, 1997 and the results of their operations and their
cash flows for the fiscal years ended June 28, 1997, and April 27, 1996, and the
nine-week transition period ended June 29, 1996, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
August 14, 1997
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of JP Foodservice, Inc.:
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated statements of operations, stockholders' equity and
cash flows as of and for the fiscal year ended June 29, 1996 present fairly, in
all material respects, the results of operations and cash flows of JP
Foodservice, Inc. and its subsidiaries for the fiscal year ended June 29, 1996,
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 audits. We did not audit the financial statements of Valley Industries,
Inc., which statements reflect total revenues of $121,504,000 for the year ended
January 31, 1996. This statement was audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for Valley Industries, Inc. is based solely
on the report of the other auditors. 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 and the report of other
auditors provide a reasonable basis for the opinion expressed above. We have
not audited the consolidated financial statements of JP Foodservice, Inc. for
any period subsequent to June 29, 1996.
/s/ PricewaterhouseCoopers LLP
Linthicum, Maryland
August 2, 1996, except as to Note 16,
which is as of September 10, 1996
and except as to the pooling of interests with
Valley Industries, Inc. and with Squeri Food Service, Inc.
which is as of November 14, 1996
F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS OF
VALLEY INDUSTRIES AND SUBSIDIARIES AND
Z LEASING (A GENERAL PARTNERSHIP)
The Board of Directors, Stockholders and Partners
Valley Industries, Inc. and Subsidiaries and
Z Leasing Company (A General Partnership):
We have audited the combined statements of earnings, stockholders' and partners'
equity, and cash flows of Valley Industries, Inc. and Subsidiaries and Z Leasing
Company (A General Partnership), collectively, the Company, for the year ended
January 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
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
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 combined financial statements referred to above present
fairly, in all material respects, the combined results of the Company's
operations and their cash flows for the year ended January 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
June 17, 1996
F-6
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
June 28, June 27,
1997 1998
- ----------------------------------------------------------------------------------------------
(Note 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 74,432 $ 57,817
Receivables, net 261,717 322,040
Inventories 314,897 349,583
Other current assets 29,919 28,548
Deferred income taxes 28,944 39,294
- ----------------------------------------------------------------------------------------------
Total current assets 709,909 797,282
Property and equipment, net 437,736 437,265
Goodwill, net of accumulated amortization of $31,304 and $45,960 541,519 561,695
Other noncurrent assets 29,354 21,549
Deferred income taxes 13,665 -
- ----------------------------------------------------------------------------------------------
Total assets $ 1,732,183 $ 1,817,791
- ----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 22,492 $ 604
Current obligations under capital leases 5,690 6,933
Accounts payable 321,442 381,151
Accrued expenses 125,482 120,778
- ----------------------------------------------------------------------------------------------
Total current liabilities 475,106 509,466
Long-term debt 621,788 650,679
Obligations under capital leases 33,458 29,946
Deferred income taxes - 6,064
Other noncurrent liabilities 22,685 36,916
- ----------------------------------------------------------------------------------------------
Total liabilities 1,153,037 1,233,071
- ----------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 150,000,000 shares authorized,
44,300,999 and 46,542,321 shares outstanding 443 465
Additional paid-in-capital 526,979 579,535
Retained earnings 51,724 4,720
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 579,146 584,720
- ----------------------------------------------------------------------------------------------
Commitments and contingent liabilities (notes 9 and 15)
- ----------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,732,183 $ 1,817,791
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
_____________________________________________________________________________________________________________
Fiscal Years Ended (Notes 3 and 4)
---------------------------------------------
June 29, June 28, June 27,
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 3,238,781 $ 5,169,406 $ 5,506,949
Cost of sales 2,586,096 4,166,332 4,465,281
- -------------------------------------------------------------------------------------------------------------
Gross profit 652,685 1,003,074 1,041,668
Operating expenses 590,446 845,901 876,170
Amortization of intangible assets 4,244 15,349 15,354
Restructuring costs (reversal) (6,441) (4,000) 53,715
Charge for impairment of long-lived assets 29,700 - 35,530
- -------------------------------------------------------------------------------------------------------------
Income from operations 34,736 145,824 60,899
Interest expense and other financing costs, net 32,527 76,063 73,894
Nonrecurring charges 1,517 5,400 17,822
- -------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary charge 692 64,361 (30,817)
Provision for income taxes 559 26,075 6,475
- -------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary charge 133 38,286 (37,292)
Extraordinary charge on early extinguishment of debt,
(net of income taxes of $6,325) - - (9,712)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) $ 133 $ 38,286 $ (47,004)
=============================================================================================================
Net income (loss) per common share:
Basic:
Before extraordinary charge $ 0.00 $ 0.88 $ (0.83)
Extraordinary charge - - (0.21)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ - $ 0.88 $ (1.04)
- -------------------------------------------------------------------------------------------------------------
Diluted:
Before extraordinary charge $ 0.00 $ 0.87 $ (0.83)
Extraordinary charge - - (0.21)
- -------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ 0.00 $ 0.87 $ (1.04)
=============================================================================================================
Weighted average common shares:
Basic 30,388,000 43,451,000 45,320,000
Diluted 30,515,000 44,063,000 45,320,000
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Additional Distribution in
Common paid-in Retained excess of net
stock capital earnings book value Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance July 1, 1995 $ 301 $ 278,057 $ 79,257 $ (44,943) $ 312,672
Net income -- -- 133 -- 133
Dividends and distributions to stockholders of acquired companies -- -- (1,599) -- (1,599)
Stock options exercised, including related tax benefit 2 3,558 -- -- 3,560
Treasury stock purchased and canceled -- (40) -- -- (40)
Employee stock purchases -- 338 -- -- 338
Contributions to 401(k) plan 1 1,611 -- -- 1,612
Net activity for the period April 28, 1996 to June 29, 1996 (note 3):
Net loss of Rykoff-Sexton, Inc. -- -- (60,180) -- (60,180)
Shares issued for US Foodservice, Inc. (note 4) 100 203,572 -- -- 203,672
Other net activity -- 53 -- -- 53
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance June 29, 1996 404 487,149 17,611 (44,943) 460,221
Net income -- -- 38,286 -- 38,286
Reclassification in connection with Sara Lee Offering -- (44,943) -- 44,943 --
Public stock offering 31 65,944 -- -- 65,975
Stock issued in connection with business acquisitions 4 9,754 -- -- 9,758
Dividends to stockholders of acquired companies -- -- (1,670) -- (1,670)
Stock options exercised, including related tax benefit 3 3,692 -- -- 3,695
Treasury stock purchased and canceled -- (12) -- -- (12)
Stock compensation -- 554 -- -- 554
Employee stock purchases -- 837 -- -- 837
Contributions to 401(k) plan 1 1,554 -- -- 1,555
Adjustments with respect to acquisitions -- 2,450 (2,503) -- (53)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance June 28, 1997 443 526,979 51,724 -- 579,146
Net loss -- -- (47,004) -- (47,004)
Stock issued in connection with business acquisitions 6 17,592 -- -- 17,598
Stock options exercised, including related tax benefit 13 32,009 -- -- 32,022
Treasury stock purchased and canceled (4) (12,413) -- -- (12,417)
Stock compensation 6 12,211 -- -- 12,217
Employee stock purchases -- 1,197 -- -- 1,197
Contributions to 401(k) plan 1 1,960 -- -- 1,961
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance June 27, 1998 $ 465 $ 579,535 $ 4,720 $ -- $ 584,720
- -------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-9
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Fiscal Years Ended (Notes 3 and 4)
----------------------------------------
June 29, June 28, June 27,
1996 1997 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 133 $ 38,286 $ (47,004)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 28,193 41,834 44,475
Amortization of intangible assets 4,244 15,349 15,354
Gain on disposal of property and equipment (1,489) (1,649) (1,670)
Write-off of deferred financing costs - - 9,172
Non-cash restructuring charge - - 13,110
Charge for impairment of long-lived assets 29,700 - 35,530
Deferred income taxes (5,456) 8,848 9,379
Changes in operating assets and liabilities, net of
effects from purchase acquisitions:
(Increase) decrease in receivables (36,571) 22,990 (39,765)
(Increase) decrease in inventories (13,035) 12,952 (22,109)
(Increase) decrease in other current assets (13,636) 10,623 1,905
Increase (decrease) in accounts payable and accrued expenses 2,284 (33,819) 45,985
Other 2,475 732 6,298
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (3,158) 116,146 70,660
- --------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (53,591) (88,436) (95,511)
Costs of businesses acquired, net of cash acquired (11,451) (35,964) (38,742)
(Issuance) collection of note receivable (5,500) 5,500 -
Proceeds from sales of property and equipment 2,649 10,321 32,086
Other (6,363) 1,816 (123)
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (74,256) (106,763) (102,290)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-10
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Fiscal Years Ended (Notes 3 and 4)
-----------------------------------------------
June 29, June 28, June 27,
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in borrowings under revolving lines of credit $ 36,000 $ 47,700 $ 438,500
Proceeds from issuance of long-term debt 51,024 25,953 --
Principal payments on long-term debt (3,433) (105,614) (439,843)
Payments of obligations under capital lease (4,536) (5,957) (6,184)
Net proceeds from public offerings of common stock -- 65,975 --
Purchases of treasury stock (40) (12) (12,417)
Proceeds from other issuances of common stock 3,863 5,086 33,219
Dividends paid by Rykoff-Sexton, Inc. (884) (1,670) --
Other (2,180) (681) 1,740
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 79,814 30,780 15,015
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,400 40,163 (16,615)
Cash and cash equivalents:
Beginning of period 20,649 34,269 74,432
- ------------------------------------------------------------------------------------------------------------------
End of period $ 23,049 $ 74,432 $ 57,817
- ------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash paid during the year for:
Interest $ 32,166 $ 59,035 $ 54,454
Income taxes $ 11,781 $ 15,777 $ 851
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-11
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
U.S. Foodservice, formerly JP Foodservice, Inc. ("JP Foodservice"), and its
consolidated subsidiaries (the "Company") operate as a broadline distributor of
fresh, frozen and packaged foods, paper products, equipment and ancillary
products to foodservice businesses. Upon the acquisition of Rykoff-Sexton, Inc.
("Rykoff-Sexton") on December 23, 1997, the Company became the second largest
broadline foodservice distributor in the United States. The Company's market
area includes most of the continental United States. The Company's principal
customers are restaurants, hotels, healthcare facilities, cafeterias and schools
encompassing both independent and multi-unit businesses. No single customer
accounts for more than 10% of the Company's trade receivables or sales for any
of the periods presented. Effective February 27, 1998, the Company changed its
name to U.S. Foodservice. References to JP Foodservice generally relate to
activities of the Company prior to its acquisition of Rykoff-Sexton on December
23, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of U.S. Foodservice
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
B. CASH EQUIVALENTS
For purposes of financial statement disclosure, cash equivalents consist of all
highly liquid instruments with original maturities of three months or less. The
cost of these investments is equivalent to fair market value.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
Information regarding fair value of long-term debt is set forth in Note 7 to the
consolidated financial statements. Fair values of other financial instruments,
such as receivables and payables, approximate carrying values because of the
short-term nature of these items.
D. REVENUE AND RECEIVABLES
Revenue is recognized when product is shipped to the customer. Allowances are
provided for estimated uncollectible receivables based on historical experience
and review of specific accounts.
Allowances and credits received from suppliers in connection with the Company's
buying and merchandising activities are recognized as earned.
(Continued)
F-12
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
E. INVENTORIES
Inventories consist principally of fresh, frozen and packaged foods and related
non-food products. Inventories are valued at the lower of cost or market, and
include the cost of purchased merchandise (net of applicable purchase rebates),
and for manufactured products, the cost of material, labor and factory overhead.
Cost for substantially all inventories is determined using the first-in, first-
out method. Inventories consist primarily of finished goods.
F. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. Major
renewals and betterments are capitalized, and ordinary repairs and maintenance
are charged against operations in the period in which the costs are incurred.
Related costs and accumulated depreciation are eliminated from the accounts upon
disposition of an asset and the resulting gain or loss is reflected in the
consolidated statement of operations.
Depreciation is computed using the straight-line method over estimated useful
lives from date of acquisition as follows:
Buildings and improvements 15-40 years
Machinery and equipment 3-15 years
Leasehold improvements Life of lease
Delivery vehicles 3-10 years
The Company capitalizes the costs of computer software developed or obtained for
internal use.
G. GOODWILL
Goodwill is amortized using the straight-line method over the periods expected
to be benefited not to exceed 40 years. The Company assesses the recoverability
of goodwill by determining whether amortization of the goodwill over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operations. Goodwill impairment, if any, is measured by
determining the amount by which the carrying value of the goodwill exceeds its
fair value based upon discounting future cash flows.
H. OTHER NONCURRENT ASSETS
Other noncurrent assets consist principally of deferred financing costs,
noncompete agreements, and other deferred costs. Deferred financing costs
associated with the acquisition of loans are capitalized and amortized using the
effective interest method over the term of the related debt. Such costs are
written off upon refinancing of the related debt.
(Continued)
F-13
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
I. IMPAIRMENT OF LONG-LIVED ASSETS
The recoverability of long-lived assets is assessed whenever events or changes
in circumstances indicate the carrying value of an asset may not be recoverable
through future undiscounted cash flows expected to be generated by the asset.
If such assets are deemed to be impaired, the impairment is measured by
determining the amount by which the carrying value of the asset exceeds its
estimated fair value.
J. INCOME TAXES
Income taxes are accounted for using the asset and liability method. Deferred
tax assets and liabilities are recognized based on the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period that included the
enactment date.
K. NET INCOME (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standard No. 128, Earnings
Per Share, as of December 27, 1997, and, accordingly, has restated all prior
periods in accordance with the pronouncement. The impact on adoption was not
material. Basic net income (loss) per common share is based on the weighted
average number of common shares outstanding. Diluted net income (loss) per
common share is based on the weighted average number of common shares and
dilutive securities outstanding. Dilutive securities consist of outstanding
stock options and warrants.
L. DERIVATIVE INSTRUMENTS
The Company uses interest rate swap, cap and collar contracts to manage its
exposure to fluctuations in interest rates. The interest rate differential on
interest rate contracts used to hedge underlying debt obligations is reflected
as an adjustment to interest expense over the life of the contract. Upon early
termination of an interest rate contract, the gains or losses on termination are
deferred and amortized as an adjustment to the interest expense on the related
debt instrument over the remaining period originally covered by the contract.
M. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies the intrinsic value method to account for stock-based
compensation to employees and directors.
(Continued)
F-14
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 2 - CONTINUED
N. ACCOUNTING ESTIMATES
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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
O. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS - During 1997 and 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standard ("SFAS") No. 130, Reporting Comprehensive Income, SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information, and SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activity. SFAS No.
130 and 131 generally require additional financial statement disclosure. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company expects to adopt SFAS No. 130 and
No. 131 during fiscal 1999 and SFAS No. 133 during fiscal 2000, in accordance
with the pronouncements, and is currently evaluating the impact, if any, that
SFAS No. 133 will have on its consolidated financial statements.
STATEMENT OF POSITIONS - During 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") No. 98-5, Reporting on the
Costs of Start-Up Activities. SOP No. 98-5 requires that costs incurred during a
start-up activity be expensed as incurred and that the initial application of
the SOP, as of the beginning of the fiscal year in which the SOP is adopted, be
reported as a cumulative effect of a change in accounting principle. The Company
expects to adopt SOP 98-5 in fiscal 2000. The cumulative effect of adoption is
not expected to be material.
P. RECLASSIFICATIONS
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the current year's presentation.
NOTE 3 - BASIS OF PRESENTATION AND ACQUISITION OF
RYKOFF-SEXTON, INC.
On December 23, 1997, Rykoff-Sexton, the nation's third-largest broadline
foodservice distributor based on net sales, was merged into a wholly owned
subsidiary of JP Foodservice. In connection with the merger, JP Foodservice
issued 22,657,498 shares of common stock with an approximate value of $782
million. Each outstanding share of common stock of Rykoff-Sexton was exchanged
for .775 of a share of JP Foodservice common stock (the "Exchange Ratio"). The
transaction has been accounted for under the pooling-of-interests method of
accounting.
(Continued)
F-15
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
Accordingly, the consolidated financial statements for the years ended June 29,
1996 and June 28, 1997 have been restated to include consolidated financial
information for Rykoff-Sexton.
Both the Company and Rykoff-Sexton have fiscal years which end on the Saturday
closest to June 30. Prior to April 28, 1996, Rykoff-Sexton had a fiscal year
that ended on the Saturday closest to April 30. The consolidated balance sheet
as of June 28, 1997, combines the consolidated balance sheets of JP Foodservice
and Rykoff-Sexton as of that date. The consolidated statements of operations for
the years ended June 28, 1997 ("fiscal 1997") and June 29, 1996 ("fiscal 1996")
combine the results of JP Foodservice for such periods with the results of
Rykoff-Sexton for the fiscal years ended June 28, 1997 and April 27, 1996,
respectively. Retained earnings activity of Rykoff-Sexton for the period April
28, 1996 to June 29, 1996 (the "transition period"), has been reflected as
adjustments to retained earnings as of June 29, 1996, in the consolidated
statement of stockholders' equity. Rykoff-Sexton's net sales, loss from
operations and net loss for the period from April 28, 1996 to June 29, 1996,
were $519,903, ($79,532) and ($60,180), respectively.
In connection with the acquisition, the Company incurred restructuring costs,
asset impairment charges, transaction costs and certain other operating charges
resulting from the integration of the two businesses during the year ended June
27, 1998 ("fiscal 1998"). These charges, which approximate $138 million or
$2.20 per share after income tax benefit, are further described as follows:
RESTRUCTURING COSTS - The Company recognized restructuring charges of $56.7
million, of which $13.1 million were non-cash charges. These restructuring
costs consist primarily of $26.8 million for change in control payments made to
former executives of Rykoff-Sexton and $12.7 million for severance and benefits,
$10.3 million for future lease commitments and $6.9 for idle facility and
facility closure costs related to the Company's plan to consolidate and realign
certain operating units and consolidate various overhead functions. Severance
and benefits were based on severance and other agreements with employees and
included an estimate of health and other benefits. Lease commitments were based
on amounts due under terminated lease agreements or facilities to be vacated for
which the Company is obligated to pay. Idle facility and facility closure costs
relate primarily to closing of duplicate facilities, including estimated
expenses associated with cleaning and maintaining closed facilities until they
are sold or subleased. As of June 27, 1998, $7.3 million of severance and
benefits, $10.4 million of lease commitment and $5.2 million of idle facility
and facility closure costs have yet to be expended. Of such amounts, $12
million are estimated to be paid in fiscal 1999, with the balance being paid
over the following four fiscal years.
ASSET IMPAIRMENT CHARGE - The Company recognized a non-cash asset impairment
charge of $35.5 million related to the Company's plan to consolidate and realign
certain operating units and install new management information systems at each
of the Company's operating units. These charges consist of writedowns to net
realizable value of assets of operating units that are being consolidated or
realigned.
(Continued)
F-16
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 3 - CONTINUED
OTHER OPERATING CHARGES - The Company charged $8.6 million to cost of goods sold
and $19.4 million to operating expenses for writedowns of inventory, receivables
and other current assets resulting from operating unit consolidation and
realignment during fiscal 1998.
NONRECURRING CHARGES- The Company recorded nonrecurring charges of approximately
$17.8 million for merger costs and expenses (consisting primarily of legal and
other professional fees) required to complete the transaction.
Net sales and net income previously reported by JP Foodservice and Rykoff-Sexton
and the combined amounts presented in the accompanying consolidated financial
statements are summarized as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------
June 29, 1996 June 28, 1997
- -----------------------------------------------------------------------------------------------------------------------
Net sales:
<S> <C> <C>
JP Foodservice $ 1,449,303 $ 1,691,913
Rykoff-Sexton 1,789,478 3,477,493
- -----------------------------------------------------------------------------------------------------------------------
Combined $ 3,238,781 $ 5,169,406
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss):
JP Foodservice $ 16,913 $ 22,248
Rykoff-Sexton (16,780) 16,038
- -----------------------------------------------------------------------------------------------------------------------
Combined $ 133 $ 38,286
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4 - OTHER ACQUISITIONS
ACQUISITIONS ACCOUNTED FOR AS POOLINGS OF INTERESTS
MERGER WITH VALLEY - On August 30, 1996, JP Foodservice completed a merger with
Valley Industries, Inc. (together with its affiliates, "Valley"), a broadline
distributor located in Las Vegas, Nevada. Under the terms of the merger, JP
Foodservice exchanged 1,936,494 shares of common stock for all of Valley's
common shares and ownership interests.
MERGER WITH SQUERI - On September 30, 1996, JP Foodservice completed a merger
with Squeri Food Service, Inc. (together with its affiliates, "Squeri"), a
broadline distributor located in Cincinnati, Ohio. Under the terms of the
merger, JP Foodservice exchanged 1,079,875 shares of common stock for all of
Squeri's common shares and ownership interests.
The fiscal years of Valley and Squeri have been conformed with the Company's
fiscal year as of June 29, 1996. Accordingly, retained earnings activity for
the period February 1, 1996 to June 29, 1996, for Valley and the period January
1, 1996 to June 29, 1996, for Squeri has been reflected as adjustments to
retained earnings as of June 29, 1996. Combined net sales, loss from operations
and
(Continued)
F-17
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 4 - CONTINUED
net loss for the periods February 1, 1996 to June 29, 1996, for Valley and
January 1, 1996 to June 29, 1996, for Squeri were $99,660, $2,028 and $1,848,
respectively. The net sales and net income of Valley and Squeri, on a combined
basis, included in the consolidated financial results of the Company for the
year ended June 29, 1996 were $206,627 and $2,856, respectively.
In connection with the mergers of Valley and Squeri, the Company recorded
nonrecurring charges of approximately $5.4 million for merger costs and expenses
(consisting primarily of legal and professional fees) required to complete the
transactions.
ACQUISITIONS ACCOUNTED FOR AS PURCHASES
WESTLUND ACQUISITION - On March 20, 1998, the Company completed the acquisition
of Westlund Provisions, Inc. ("Westlund"), a foodservice distributor
specializing in custom-cut meats located in Minneapolis, Minnesota. Under the
terms of the acquisition, the Company acquired all of the outstanding common
stock and assumed certain liabilities of Westlund in exchange for 229,070 shares
of the Company's common stock. The excess of the purchase price over the fair
value of the net assets acquired of approximately $8.5 million has been
allocated to goodwill and is being amortized using the straight-line method over
40 years. Results of Westlund for the period March 21, 1998 to June 27, 1998
have been included in the Company's fiscal 1998 consolidated statement of
operations.
SORRENTO ACQUISITION - On January 23, 1998, the Company completed the
acquisition of Sorrento Food Service, Inc. ("Sorrento"), a broadline foodservice
distributor located in Buffalo, New York. Under the terms of the acquisition,
the Company acquired all of the outstanding common stock and assumed or
discharged certain liabilities of Sorrento and paid cash consideration of
approximately $39 million. The excess of the purchase price over the fair value
of the net assets acquired of approximately $18.2 million has been allocated to
goodwill and is being amortized using the straight-line method over 40 years.
Results of Sorrento for the period January 24, 1998 to June 27, 1998 have been
included in the Company's fiscal 1998 consolidated statement of operations.
OUTWEST ACQUISITION - On October 30, 1997, the Company completed the acquisition
of Outwest Meat Company ("Outwest"), a foodservice distributor specializing in
meats, located in Las Vegas, Nevada. Under the terms of the acquisition, the
Company acquired all of the common stock of Outwest in exchange for 372,917
shares of the Company's common stock. The excess of the purchase price over the
fair value of the net assets acquired of approximately $7.1 million has been
allocated to goodwill and is being amortized using the straight-line method over
40 years. Results of Outwest for the period November 1, 1997 to June 27, 1998
have been included in the Company's fiscal 1998 consolidated statement of
operations.
(Continued)
F-18
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 4 - CONTINUED
PRO FORMA INFORMATION - Unaudited pro forma information for fiscal 1997 and
fiscal 1998, as if the Westlund, Sorrento and Outwest acquisitions had occurred
on the first day of the fiscal year, is shown below, in thousands, except for
share data.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------
JUNE 28, 1997 JUNE 27, 1998
-------------------------------
<S> <C> <C>
Net sales $ 5,388,722 $ 5,631,176
Income from operations $ 150,127 $ 65,163
Income (loss) before extraordinary item $ 39,454 $ (36,918)
Net income (loss) $ 39,454 $ (46,630)
Income (loss) per common share before
extraordinary item:
Basic $ 0.90 $ (0.81)
Diluted $ 0.88 $ (0.81)
Net income (loss) per common share:
Basic $ 0.90 $ (1.02)
Diluted $ 0.88 $ (1.02)
================================================================================
</TABLE>
MAZO-LERCH ACQUISITION - On June 19, 1997, JP Foodservice completed the
acquisition of Mazo-Lerch Company, Inc. ("Mazo-Lerch"), a broadline foodservice
distributor located in Alexandria, Virginia. Under the terms of the
acquisition, JP Foodservice acquired all of the outstanding common stock of
Mazo-Lerch in exchange for 279,268 shares of JP Foodservice common stock. The
excess of the purchase price over the fair value of net tangible assets acquired
of approximately $1.3 million has been allocated to goodwill and is being
amortized using the straight-line method over 40 years. Results of Mazo-Lerch
for the period June 20, 1997 to June 28, 1997, are included in the fiscal 1997
consolidated statement of operations.
ARROW ACQUISITION - On August 31, 1996, JP Foodservice completed the acquisition
of Arrow Paper and Supply Co., Inc. (together with its affiliate, "Arrow"), a
broadline foodservice distributor located in Norwich, Connecticut. Under the
terms of the acquisition, JP Foodservice purchased certain assets, assumed or
discharged certain liabilities and paid consideration of $28.9 million.
Approximately $1.7 million of the consideration was paid with 73,977 shares of
JP Foodservice common stock and the remainder was paid in cash. The excess of
the purchase price over the fair value of net tangible assets acquired of
approximately $28.2 million has been allocated to goodwill and is being
amortized using the straight-line method over 40 years. Results of Arrow for the
period September 1, 1996 to June 28, 1997, are included in the fiscal 1997
consolidated statement of operations.
US FOODSERVICE ACQUISITION - On May 17, 1996, Rykoff-Sexton merged with US
Foodservice Inc. ("USF"), a privately held broadline foodservice distribution
company. As part of the merger, USF stockholders received 1.457 shares of
Rykoff-Sexton common stock for each share of outstanding Class A and Class B
common stock of USF. Options and warrants to acquire approximately one million
shares of USF were converted into options and warrants to acquire Rykoff-Sexton
common stock on the same basis. The aggregate purchase price was approximately
$217 million, which included the costs of acquisition. Liabilities assumed in
the acquisition
(Continued)
F-19
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 4 - CONTINUED
approximated $477.2 million. In addition, all outstanding shares of the USF
cumulative redeemable exchangeable preferred stock were purchased for $26.6
million. The excess of the purchase price over fair value of net tangible
assets acquired of approximately $409 million was allocated to goodwill and is
being amortized using the straight-line method over 40 years. Results of USF
for the period May 17, 1996 to June 29, 1996, are included in the adjustment to
retained earnings for the period April 28, 1996 to June 29, 1996 related to
Rykoff-Sexton. The Company's consolidated statements of operations include
results for USF for periods after June 29, 1996.
H&O FOODS ACQUISITION - On November 1, 1995, Rykoff-Sexton acquired
substantially all of the assets of H&O Foods, Inc. ("H&O"), a regional,
institutional distributor located in Nevada. The aggregate purchase price was
approximately $29.6 million, which included the costs of acquisition. The
excess of the purchase price over the fair value of the net assets acquired of
approximately $18.4 million has been allocated to goodwill and is being
amortized using the straight-line method over 40 years. Results for H&O for the
period November 2, 1995 to April 29, 1996 are included in the fiscal 1996
consolidated statement of operations.
NOTE 5 - RECEIVABLES
Receivables are composed of the following:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Customer accounts and notes $ 68,826 $ 93,742
Residual interest in customer accounts sold 121,398 135,494
Less allowance for doubtful accounts (16,792) (16,982)
- --------------------------------------------------------------------------------
Net customer 173,432 212,254
Other, net, principally from suppliers 88,285 109,786
- --------------------------------------------------------------------------------
$ 261,717 $ 322,040
- --------------------------------------------------------------------------------
</TABLE>
The Company sells customer accounts receivable under two securitization
arrangements aggregating $250 million (see Note 8).
(Continued)
F-20
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 6 - PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land, buildings and improvements $ 338,750 $ 368,850
Machinery and equipment 285,675 273,769
Assets held under capital leases (Note 9) 50,113 52,740
- ------------------------------------------------------------------------------------------------------------------------------
674,538 695,359
Accumulated depreciation (236,802) (258,094)
- ------------------------------------------------------------------------------------------------------------------------------
$ 437,736 $ 437,265
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company capitalizes interest costs as part of major asset construction
projects. Capitalized interest was $1,077, $1,071 and $3,081 in fiscal 1996,
1997 and 1998, respectively.
The Company has facilities available for sale, largely attributable to the
restructurings discussed in Notes 3 and 14, with a carrying value of
approximately $24.6 million at June 27, 1998.
NOTE 7 - LONG-TERM DEBT
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving lines of credit $ 63,700 $ 502,200
Term loans 330,125 --
Industrial development revenue bonds 25,900 25,900
8.875% Senior subordinated notes 129,287 120,163
8.55% Senior notes payable 85,000 --
Other 10,268 3,020
- --------------------------------------------------------------------------------------------------------------------------------
Total long-term debt 644,280 651,283
Less current maturities of long-term debt 22,492 604
- --------------------------------------------------------------------------------------------------------------------------------
$ 621,788 $ 650,679
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
REVOLVING LINE OF CREDIT - In connection with the acquisition of Rykoff-Sexton,
the Company entered into a bank credit facility which provides for a $550
million five-year revolving credit facility and a $200 million revolving/term
facility (the "Credit Facility") which is renewable annually. Borrowings
outstanding under the Credit Facility bear interest at the Company's option at a
rate equal to the sum of (a) the London Interbank Offered Rate (LIBOR), a
specified prime rate plus .5%, or the federal funds rate plus .5% and (b) an
applicable margin. The applicable margin will vary from
(Continued)
F-21
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 7 - CONTINUED
.175% to .55%, based on a formula tied to the Company's leverage from time to
time. At June 27, 1998, borrowing rates were based on LIBOR plus an applicable
margin of .45% and averaged 6.17%. Annual facility fees are based on the same
formula and will vary from .055% to .2%. The revolving credit facility includes
a $75 million facility for standby and commercial letters of credit and a $50
million swing-line facility for same day borrowings. At June 27, 1998,
borrowings of $502,200 were outstanding and the Company had available borrowings
of $211,800 under the Credit Facility.
The Credit Facility includes a number of covenants which require the maintenance
of certain financial ratios and restrict the Company's ability to pay dividends
and to incur additional indebtedness.
At June 28, 1997, JP Foodservice had a $175 million unsecured revolving line of
credit agreement. The agreement required quarterly interest payments on
outstanding borrowings at the prime rate or, at the Company's option, LIBOR plus
.275% per annum. At June 28, 1997, Rykoff-Sexton had a credit facility which
consisted of a $150 million revolving line of credit and three term loans.
Borrowings under the Rykoff-Sexton line of credit required monthly or quarterly
interest payments based on LIBOR plus 2.5%. The Rykoff-Sexton term loans
required interest at LIBOR plus margins ranging from 2.5% to 3.25%. The JP
Foodservice line of credit and the Rykoff-Sexton line of credit and term loans
were replaced by the Credit Facility.
SENIOR SUBORDINATED NOTES - In 1993, Rykoff-Sexton issued $130 million principal
amount of 8 7/8% Senior Subordinated Notes due November 1, 2003 (the "8 7/8%
Notes"), with interest payable semi-annually commencing May 1, 1994. The 8 7/8%
Notes were sold at a discount for an aggregate price of $128.9 million.
Provisions of the 8 7/8% Notes include, without limitation, restrictions on
liens, indebtedness, asset sales, and dividends and other restricted payments.
The 8 7/8% Notes are redeemable at the option of the Company, in whole or in
part, at 104.44% of their principal amount beginning November 1998, and
thereafter at prices declining annually to 100% on and after November 2001. The
Company retired $9.2 million of the 8 7/8% Notes in fiscal 1998.
INDUSTRIAL DEVELOPMENT REVENUE BONDS - These bonds are secured by a letter of
credit issued on behalf of Rykoff-Sexton which is secured by a real estate lien
against a distribution facility. The bonds will mature on December 1, 2026, and
from time to time bear and pay interest under daily, weekly, commercial paper or
long-term interest rate indices at the election of the Company. The interest
rate on the bonds approximates LIBOR plus .625% (6.33% at June 27, 1998).
EXTRAORDINARY ITEM - In connection with the refinancing of the JP Foodservice
and the Rykoff-Sexton indebtedness described above, the Company recorded an
extraordinary charge of $9.7 million (net of $6.3 million income tax benefit).
The charge related to the write-off of deferred financing costs with respect to
the extinguished debt and additional payments to holders of the Company's senior
notes payable, which were retired in full.
(Continued)
F-22
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 7 - CONTINUED
DERIVATIVE FINANCIAL INSTRUMENTS - The Company enters into interest rate swaps,
caps and collars to manage its exposure to interest rates on floating rate long-
term debt. As of June 27, 1998, the Company has effectively capped its interest
rate exposure at 7.85% on approximately $400 million of its floating rate debt
for the next twelve months.
The Company has entered into a swaption agreement for a notional amount of $129
million which can be exercised by the holder commencing in November 1998. The
Company received $5.6 million upon execution of the swaption agreement and will
receive an additional amount ranging from $1.9 million to $5.7 million when, and
if, the swaption is exercised by the holder. The amounts received from the
holder will be amortized over the life of the swap arrangement.
If the Company had terminated each of the contracts on June 27, 1998, it would
have had a loss of approximately $1.8 million.
Interest expense and other financing costs were $32,527, $76,063 and $73,894 in
fiscal 1996, 1997 and 1998, respectively. Interest expense included
amortization of deferred financing cost of $735, $2,680 and $1,945,
respectively. Other financing costs of $235, $15,978 and $14,190 in fiscal
1996, 1997 and 1998, respectively, represent costs associated with the Company's
trade accounts receivable securitization arrangements (see Note 8).
The Company's aggregate annual principal payments applicable to long-term debt
are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
- --------------------------------------------------------------------------------
<S> <C>
1999 $ 604
2000 271
2001 284
2002 288
2003 502,442
Thereafter 147,394
- --------------------------------------------------------------------------------
$ 651,283
- --------------------------------------------------------------------------------
</TABLE>
Based on the borrowing rates currently available to the Company for indebtedness
with similar terms and average maturities, the fair value of the Company's long-
term debt is estimated to be $656,000.
NOTE 8 - TRADE ACCOUNTS RECEIVABLE SECURITIZATION
ARRANGEMENTS
The Company maintains revolving securitization arrangements for accounts
receivable of $200 million and $50 million. Under the arrangements, receivables
are sold by the Company to wholly owned, bankruptcy remote subsidiaries, which
in turn sell interests in the receivables to third-party investors. In order
to maintain the designated receivable balances, the Company is required to sell
interests in new receivables as existing receivables are collected. Under the
$200 million agreement,
(Continued)
F-23
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 8 - CONTINUED
all customer receivables of participating subsidiaries of the Company are sold
to a master trust and the Company acquires a participation interest in the
master trust equal to the amount in excess of the $200 million third-party
interest. Under the $50 million agreement, the Company sells an undivided
percentage ownership interest in a designated pool of accounts receivable to an
independent issuer of receivable-backed paper. Under both arrangements, the
Company effectively retains credit risk and is responsible for collection and
administration activities. The Company's interest in the master trust and its
retained interest in the undivided pool of receivables have been included in
receivables in the accompanying consolidated balance sheets.
NOTE 9 - LEASES
The Company leases its corporate office facilities and certain distribution
facilities and equipment under operating leases. The Company leases certain
of its delivery fleet under capital leases. Charges to operations for all
operating leases were $35,282, $50,656 and $50,504 in fiscal 1996, 1997 and
1998, respectively.
Set forth below are the future minimum lease payments under operating leases and
capital leases with noncancelable terms beyond one year.
<TABLE>
<CAPTION>
Operating Capital
Fiscal Years Ended leases leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 42,486 $ 9,775
2000 37,431 8,388
2001 29,606 7,724
2002 25,389 4,794
2003 16,908 5,369
Thereafter 42,127 36,020
- --------------------------------------------------------------------------------
Total minimum lease payments 193,947 72,070
Less interest portion 35,191
- --------------------------------------------------------------------------------
Obligations under capital leases 36,879
Less current obligations 6,933
- --------------------------------------------------------------------------------
$ 29,946
- --------------------------------------------------------------------------------
</TABLE>
During fiscal years 1996, 1997 and 1998, the Company's additions to property and
equipment of $4,536, $5,957 and $2,979, respectively, were financed through
capital lease obligations.
(Continued)
F-24
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES
The components of income taxes with respect to income (loss) before
extraordinary charge are as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
-----------------------------------
June 29, June 28, June 27,
1996 1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense (benefit):
Federal $ 4,426 $ 14,224 $ (1,857)
State and local 1,589 3,003 (1,047)
- --------------------------------------------------------------------------------
Total current 6,015 17,227 (2,904)
- --------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal (4,896) 10,354 7,216
State and local (560) (1,506) 2,163
- --------------------------------------------------------------------------------
Total deferred (5,456) 8,848 9,379
- --------------------------------------------------------------------------------
$ 559 $ 26,075 $ 6,475
================================================================================
</TABLE>
In addition, in fiscal 1998, the Company recognized current federal and state
income tax benefits of $5,230 and $1,095, respectively, with respect to the loss
on early extinguishment of debt of $16,037.
Temporary differences and the resulting deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
June 28, June 27,
1997 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loss carryforwards $ 25,474 $ 24,906
Restructuring reserves and asset impairment 22,383 45,821
Allowance for doubtful accounts 6,565 674
Capital leases 4,331 5,196
Accrued expenses 19,476 13,751
Other, net 10,513 1,528
Valuation allowance (1,398) (648)
- --------------------------------------------------------------------------------
Deferred tax assets 87,344 91,228
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment (30,687) (34,075)
Intangible assets (4,165) (5,823)
Other, net (9,883) (18,100)
- --------------------------------------------------------------------------------
Deferred tax liabilities (44,735) (57,998)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 42,609 $ 33,230
- --------------------------------------------------------------------------------
</TABLE>
(Continued)
F-25
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 10 - CONTINUED
Management believes it is more likely than not that the deferred tax assets, net
of valuation allowances, at June 27, 1998, including federal and state net
operating loss carryforwards, will be realizable through the combination of
future taxable income, alternative tax planning strategies and the reversal of
existing taxable temporary differences.
A reconciliation of the statutory Federal income tax rate to the income tax rate
on income (loss) before income taxes and extraordinary charge, is as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
- --------------------------------------------------------------------------------------------------------------------------
June 29, 1996 June 28, 1997 June 27, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed statutory expense (benefit) $ 242 35.0% $ 22,526 35.0% $ (10,786) (35.0)%
State and local income tax,
net of federal tax benefit (1,140) (164.7) 973 1.5 725 2.4
Permanent differences 3,084 445.7 4,853 7.5 17,448 56.6
Reversal of valuation allowance 916 132.4 (2,800) (4.4) (750) (2.4)
Gas tax credit and other (2,543) (367.5) 523 0.8 (162) (0.6)
- ---------------------------------------------------------------------------------------------------------------------------
$ 559 80.9% $ 26,075 40.4% $ 6,475 21.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal net operating loss carryforwards as of June 27, 1998 approximate $56,154
and expire in various amounts through 2011. Included in such amounts are net
operating losses incurred prior to the USF acquisition. The use of these net
operating losses is subject to certain limitations imposed by the Internal
Revenue Code. The Company does not anticipate these limitations will affect
utilization of the carryforwards prior to their expiration date. All tax years
of the Company, since fiscal 1994, are open for examination. The Internal
Revenue Service and certain state authorities have examinations in progress.
NOTE 11 - STOCKHOLDERS' EQUITY
ISSUANCE OF COMMON STOCK - In August and September 1996, the Company sold
3,075,000 shares of common stock in a public offering for $65.9 million, net.
The net proceeds of the offering were used to fund the cash portion of the Arrow
purchase price and to repay indebtedness assumed or discharged by the Company in
connection with its acquisitions of Valley and Arrow, as discussed in Note 4.
RELATED PARTY TRANSACTIONS - In December 1996, Sara Lee Corporation sold its
ownership interest of approximately 27% of the Company's outstanding common
stock in a public offering. As a result, the Company has reclassified $44,943
of distributions in excess of net book value of continuing stockholder's
interest as a reduction to additional paid-in-capital.
EMPLOYEE STOCK PURCHASE PLAN - The Company sponsors an employee stock purchase
plan, pursuant to which all full-time employees of the Company and its
subsidiaries who have been employed by the Company for 90 days or more are
eligible to purchase shares of common stock from
(Continued)
F-26
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 11 - CONTINUED
the Company. An aggregate of 1,500,000 shares of common stock may be issued and
purchased under the plan. Eligible employees may purchase shares of common
stock at a price equal to 85% of the market price per share on each quarterly
investment date. Purchases under this plan totaled 33,940 shares, 38,902 shares
and 32,830 shares during fiscal 1996, 1997 and 1998, respectively.
WARRANTS - At June 27, 1998, the Company had warrants outstanding to purchase
231,066 shares of common stock at $13.11 per share. The warrants expire on
September 30, 2005. Subsequent to June 27, 1998, a warrant to purchase 159,968
shares of common stock was exercised.
SHAREHOLDER RIGHTS PLAN - The Company has a shareholder rights plan under which
the issuance of rights, subject to specified exceptions, would be triggered by
the acquisition (or certain actions that would result in the acquisition) of 10%
or more of the Company's common stock by any person or group (or 15% or more by
any person eligible to report its ownership of the Company's common stock on
Schedule 13G under the Securities Exchange Act of 1934).
Pursuant to this plan, each share of common stock has attached one preferred
share purchase right (a "Right") which entitles the registered holder of common
stock to purchase from the Company, upon the occurrence of the specified
triggering events, one-hundredth of a share of a newly authorized issue of
junior participating preferred stock at a price of $95, subject to adjustment.
The Company may redeem the Rights at a price of $.01 per Right prior to a
triggering event. The Rights expire on February 19, 2006.
NOTE 12 - STOCK OPTION PLANS
The Company sponsors an employee stock incentive plan and an outside director
stock option plan. The employee plan authorizes the grant, at the discretion of
the Company's Board of Directors, of incentive stock options, non-qualified
stock options, restricted stock awards, stock appreciation rights, or any
combination thereof, at the fair market value on the date of grant. Options
granted under the employee plan generally have a life of ten years and vest over
a three-year period. The outside director plan provides for an initial award of
5,000 options and an annual award of 2,000 options, at fair market value, for a
ten-year period with one-fourth vesting upon grant and the balance vesting
equally over three years. Stockholders of the Company have authorized for
issuance pursuant to the employee plan and the outside director plan 2,600,000
and 200,000 shares of common stock, respectively.
Rykoff-Sexton sponsored several stock option plans for employees and directors.
In connection with the acquisition, options to purchase shares of Rykoff-Sexton
were exchanged for options to purchase the Company's common stock on the same
terms and conditions after adjusting the option amounts and exercise prices for
the Exchange Ratio. Virtually all of the options were immediately exercisable
as the result of the change of control provisions contained in each of the
option agreements.
F-27
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 12 - CONTINUED
The aggregate number of shares reserved for the issuance of common stock under
all plans was 3,297,001 at June 27, 1998. Upon a change of control of the
Company, as defined in the plans, all outstanding and previously unvested
options will become immediately exercisable. A summary of changes in
outstanding stock options follows:
<TABLE>
<CAPTION>
Weighted average
Stock exercise price
options per share
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance July 1, 1995 1,250,193 $ 17.73
Options granted 1,428,198 15.24
Options cancelled (148,774) 17.55
Options exercised (123,678) 5.71
- ----------------------------------------------------------------------------------------------------------------
Balance June 29, 1996 2,405,939 16.62
Options granted 681,545 21.79
Options cancelled (73,695) 16.10
Options exercised (249,848) 12.86
- ----------------------------------------------------------------------------------------------------------------
Balance June 28, 1997 2,763,941 18.19
Options granted 693,714 32.46
Options cancelled (231,251) 27.38
Options exercised (1,331,329) 19.11
- ----------------------------------------------------------------------------------------------------------------
Balance June 27, 1998 1,895,075 $ 22.49
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
June 27, 1998:
<TABLE>
<CAPTION>
Number Weighted average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise prices June 27, 1998 contractual life exercise price June 27, 1998 exercise price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.13-$ 4.48 10,749 4.54 $ 0.73 10,749 $ 0.73
$11.00-$15.75 457,726 6.00 $ 12.77 410,781 $ 12.59
$16.65-$24.84 812,687 7.68 $ 20.87 434,981 $ 19.91
$27.56-$35.19 613,913 8.68 $ 32.26 21,133 $ 29.96
---------------- --------------
1,895,075 7.58 $ 22.49 877,644 $ 16.49
---------------- --------------
</TABLE>
(Continued)
F-28
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 12 - CONTINUED
The Company applies the intrinsic value method when accounting for stock-based
employee compensation grants. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost been determined
under the fair value method of SFAS No. 123, the Company's net income (loss) and
net income (loss) per common share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------
June 29, 1996 June 28, 1997 June 27,1998
- --------------------------------------------------------------------------------
Net income (loss):
<S> <C> <C> <C>
As reported $ 133 $ 38,286 $ (47,004)
Pro forma (145) 36,479 (51,609)
- --------------------------------------------------------------------------------
Basic earnings (loss) per share:
As reported $ 0.00 $ 0.88 $ (1.04)
Pro forma 0.00 0.83 (1.14)
- --------------------------------------------------------------------------------
Diluted earnings (loss) per share:
As reported $ 0.00 $ 0.87 $ (1.04)
Pro forma 0.00 0.83 (1.14)
- --------------------------------------------------------------------------------
</TABLE>
The fair value of each option is estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions
used for grants in fiscal 1996, 1997 and 1998: dividend yield of 0%; expected
volatility of 41.45%, 45.44% and 41.02% for fiscal 1996, 1997 and 1998,
respectively; risk-free interest rate of 6.18%, 6.36% and 6.10% for fiscal 1996,
1997 and 1998, respectively; and expected lives of five years. The weighted
average fair value of options granted during fiscal 1996, 1997 and 1998 was
$6.48, $11.21 and $13.87, respectively.
Pro forma net income (loss) reflects only options granted in fiscal 1996, 1997
and 1998, as compensation cost for options granted prior to July 2, 1995 is not
considered. Compensation cost is reflected over the options' vesting periods of
three to four years.
NOTE 13 - EMPLOYEE RETIREMENT PLANS
DEFINED CONTRIBUTION PLANS - The Company and certain of its subsidiaries sponsor
several defined contribution profit sharing plans for which all full-time non-
union employees are generally eligible. Terms of the plans provide for employee
and Company contributions, which may be made in cash or common stock of the
Company. Charges to operations for employer contributions to the plans were
$1,775, $3,911 and $4,521 in fiscal 1996, 1997 and 1998, respectively. Of such
amounts, the Company made contributions in common stock of $1,612, $1,555 and
$1,961, respectively.
(Continued)
F-29
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 13 - CONTINUED
MULTI-EMPLOYER PLANS - The majority of the Company's union employees are covered
by union-administered pension plans. Since these plans are part of multi-
employer pension arrangements, it is not practicable to determine the amount of
accumulated plan benefits or plan net assets applicable solely to the Company's
employees. With the passage of the Multi-Employer Pension Plan Amendments Act
of 1980 (the "Act"), the Company may, under certain circumstances, become
subject to liabilities in excess of contributions made under collective
bargaining agreements. Generally, these liabilities are contingent upon the
termination, withdrawal, or partial withdrawal from these plans. Charges to
operations for all employer defined benefit pension contributions required by
union agreements aggregated $8,459, $8,546 and $9,210 in fiscal 1996, 1997 and
1998, respectively.
DEFINED BENEFIT PLANS - The Company maintains six non-contributory pension plans
for its salaried, commissioned and certain of its hourly employees. Under the
plans, the Company is required to make annual contributions that are determined
by the plans' consulting actuary, using participant data that is supplied by the
Company. It is the Company's policy to fund pension costs currently. Pension
benefits are based on length of service and either a percentage of final average
annual compensation or a dollar amount for each year of service. Benefits under
three of the plans are frozen at June 27, 1998. Projected benefit obligations of
plans for which benefits were not frozen at June 27, 1998 were $4,956. During
fiscal 1998, the Company recognized a curtailment gain of $7.4 million
reflecting the freezing of benefits from one of those defined benefit plans.
Net pension expense for defined benefit pension plans for fiscal 1996, 1997 and
1998 are included in the following components:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------
June 29, June 28, June 27,
1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 3,700 $ 5,045 $ 3,061
Interest cost on projected benefit obligation 4,473 6,055 5,911
Actual return on plan asset (5,452) (14,255) (8,556)
Effect of curtailment - - (7,390)
Net amortization and deferral (105) 7,555 (537)
- --------------------------------------------------------------------------------- ------------------- ------------------
Net pension expense (income) $ 2,616 $ 4,400 $ (7,511)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-30
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 13 - CONTINUED
The following table reconciles the pension plans' funded status to accrued
expense as of June 28, 1997 and June 27, 1998:
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------
June 28, June 27,
1997 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market value of plan assets in equities and bonds $ 88,784 $ 95,187
- -------------------------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated benefits:
Vested 69,007 86,751
Non-vested 4,279 583
Additional benefits based on estimated future salary levels 7,248 40
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligations 80,534 87,374
- -------------------------------------------------------------------------------------------------------------------------
Plan assets more than projected benefit obligations 8,250 7,813
Unrecognized net obligation to be amortized over 10 years 2,778 221
Unrecognized net gain (22,365) (8,446)
- -------------------------------------------------------------------------------------------------------------------------
Accrued pension expense $ (11,337) $ (412)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rates were 7.75% and 6.75% and the expected long-
term rates of return on plan assets were 9.5% and 9% at June 28, 1997 and June
27, 1998, respectively. As of June 27, 1998, plans are either frozen or have
benefits that accrue based on fixed amounts for each year of service.
OTHER POSTRETIREMENT BENEFIT PLANS - The Company has several nonpension
postretirement benefit plans, certain of which are contributory. The present
value of future benefits to be paid to current employees and eligible retirees
amounted to approximately $2.3 million at June 27, 1998 and is included in other
noncurrent liabilities in the accompanying consolidated balance sheet.
NOTE 14 - OTHER RESTRUCTURINGS
In connection with the USF acquisition described in Note 4, Rykoff-Sexton
recorded a restructuring charge of $57.6 million ($35.7 million after tax) in
the nine-week fiscal period ended June 29, 1996 (see Note 3). The restructuring
charge consisted of severance and employee benefits of $10.7 million, lease
related costs of $20.2 million and other closure and integration costs of
$26.7 million. During the nine week fiscal year transition period and fiscal
1997, Rykoff-Sexton charged costs of $28.1 million (consisting of severance and
employee benefits of $4.5 million, lease related costs of $2.7 million and other
closure and integration costs of $20.9 million against the restructuring reserve
and reversed $4.0 million into income, as management determined that such
liability was no longer required. During fiscal 1998, the Company paid
$6.0 million for severance and lease commitments and reversed $3.0 million of
unutilized reserves against restructuring costs. As of June 27, 1998, reserves
for $1.0 million of severance and benefits, $12.5 million of lease commitments
and $3.0 million of other exit costs have yet to be expended.
F-31
<PAGE>
U.S. FOODSERVICE AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except where noted)
- --------------------------------------------------------------------------------
NOTE 14 - CONTINUED
In fiscal 1996, Rykoff-Sexton recorded a pre-tax charge of $29.7 million which
was principally reflected as a reduction in the net carrying value of land,
buildings and improvements.
In October 1995, Rykoff-Sexton concluded a restructuring plan initiated in 1993
and credited the remaining unutilized restructuring reserve of $6.4 million into
income.
NOTE 15 - OTHER COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS - The Company is involved, from time to time, in litigation
and proceedings arising out of the ordinary course of business. There are no
pending material legal proceedings or environmental investigations to which the
Company is a party or to which the property of the Company is subject.
LETTERS OF CREDIT - The Company utilizes standby letters of credit principally
for worker's compensation self-insurance security deposit requirements. These
letters of credit are irrevocable and have one-year renewable terms. Outstanding
standby and commercial letters of credit as of June 27, 1998 were approximately
$36 million.
NOTE 16 - SUBSEQUENT EVENT (UNAUDITED)
On August 28, 1998, the Company completed the outsourcing of the Rykoff-Sexton
Manufacturing Division through the sale of its assets to a third party and
entered into a six-year supply agreement to purchase products from the new
company. Gross proceeds from the supply agreement and asset sale totaled $101
million.
F-32
<PAGE>
SCHEDULE I
Page 1 of 3
U.S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
The following are the condensed balance sheets, statements of operations and
cash flows for U.S. Foodservice with its subsidiaries at equity:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
Condensed Balance Sheets 1997 1998
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 126 $ 125
Other current assets 125 1
Intra-company receivables 82,384 135,072
Investments in subsidiaries 496,511 449,522
-------- --------
Total assets $579,146 $584,720
======== ========
Stockholders' Equity
- --------------------
Common stock $ 443 $ 465
Additional paid-in-capital 526,979 579,535
Retained earnings 51,724 4,720
-------- --------
Total stockholders' equity $579,146 $584,720
======== ========
</TABLE>
F-33
<PAGE>
SCHEDULE I
Page 2 of 3
U.S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------------------------------
JUNE 29, JUNE 28, JUNE 27,
Condensed Statements of Operations 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating expenses $ (6) $ (29) $ (15)
Net income (loss) of unconsolidated
subsidiaries 139 38,315 (46,989)
----- ------- --------
Net income (loss) $ 133 $38,286 $(47,004)
===== ======= ========
</TABLE>
F-34
<PAGE>
SCHEDULE I
Page 3 of 3
U.S. FOODSERVICE
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------
JUNE 29, JUNE 28, JUNE 27,
Condensed Statements of the Cash Flows 1996 1997 1998
- -----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 133 $ 38,286 $(47,004)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Net (income) loss of unconsolidated subsidiaries (139) (38,315) 46,989
Non-cash restructuring charge 12,217
Increase (decrease) in other assets 129 (6) 124
Increase in other assets (1,869) (68,817) (35,090)
Other 1,961
------- -------- --------
Net cash used in operating activities (1,746) (68,852) (20,803)
------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering 65,975
Purchases of treasury stock (12,417)
Proceeds from issuance of other common stock 33,219
Proceeds from employee stock purchase 1,846 2,869
------- -------- --------
Net cash provided by financing activities 1,846 68,844 20,802
------- -------- --------
Net increase (decrease) in cash and cash equivalents 100 (8) (1)
Cash and cash equivalents, at beginning of period 34 134 126
------- -------- --------
Cash and cash equivalents, at end of period $ 134 $ 126 $ 125
======= ======== ========
</TABLE>
F-35
<PAGE>
SCHEDULE II
U.S. FOODSERVICE
VALUATION AND QUALIFYING ACCOUNTS (1)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED CHARGED AMOUNTS BALANCE
BEGINNING TO COSTS AND TO OTHER CHARGED OFF AT END OF
Description OF PERIOD EXPENSES ACCOUNTS (2) TO RECOVERIES PERIOD (4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $6,856 $5,600 $108 $4,616 $7,948
</TABLE>
YEAR ENDED JUNE 28, 1997
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED CHARGED AMOUNTS BALANCE
BEGINNING TO COSTS AND TO OTHER CHARGED OFF AT END OF
Description OF PERIOD EXPENSES ACCOUNTS (3) TO RECOVERIES PERIOD (4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $7,948 $7,854 $10,608 $9,363 $17,047
</TABLE>
YEAR ENDED JUNE 27, 1998
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------
BALANCE AT CHARGED CHARGED AMOUNTS BALANCE
BEGINNING TO COSTS AND TO OTHER CHARGED OFF AT END OF
Description OF PERIOD EXPENSES ACCOUNTS (2) TO RECOVERIES PERIOD (4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $17,047 $12,336 $480 $12,581 $17,282
</TABLE>
(1) See Note 3 to consolidated financial statements for basis of presentation.
(2) Other charges consist of reserves acquired through purchase acquisitions.
(3) Other charges consist of $7,439 in reserves acquired through purchase
acquisitions during the year, net increase in reserves of $8,562 during the
transition period from pooled acquisitions, less amounts written off by
Rykoff-Sexton, Inc. during the period April 27, 1996 to June 29, 1996 of
$5,393.
(4) Includes $100, $255, and $300 with respect to supplier receivables at June
29, 1996, June 28, 1997, and June 27, 1998, respectively.
F-36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. FOODSERVICE
/s/ JAMES L. MILLER
-------------------------------------
By: James L. Miller, President and
Chief Executive Officer (Duly
Authorized Officer)
Date: September 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JAMES L. MILLER Chairman of the Board, President September 24, 1998
- ------------------------- and Chief Executive Officer
James L. Miller (Principal Executive Officer)
/s/ LEWIS HAY, III Director, Executive Vice President September 24, 1998
- ------------------------- and Chief Financial Officer
Lewis Hay, III (Principal Executive Officer)
/s/ GEORGE T. MEGAS Vice President-Finance September 24, 1998
- ------------------------- (Principal Accounting Officer)
George T. Megas
/s/ MICHAEL J. DRABB Director September 24, 1998
- -------------------------
Michael J. Drabb
/s/ DAVID M. ABRAMSON Director September 24, 1998
- -------------------------
David M. Abramson
/s/ ERIC E. GLASS Director September 24, 1998
- -------------------------
Eric E. Glass
/s/ MARK P. KAISER Director September 24, 1998
- -------------------------
Mark P. Kaiser
/s/ PAUL I. LATTA, JR. Director September 24, 1998
- -------------------------
Paul I. Latta, Jr.
/s/ DEAN R. SILVERMAN Director September 24, 1998
- -------------------------
Dean R. Silverman
/s/ JEFFREY D. SERKES Director September 24, 1998
- -------------------------
Jeffrey D. Serkes
/s/ JAMES P. MISCOLL Director September 24, 1998
- -------------------------
James P. Miscoll
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ BERNARD SWEET Director September 24, 1998
- ---------------------------------
Bernard Sweet
/s/ JAMES I. MASLON Director September 24, 1998
- ---------------------------------
James I. Maslon
/s/ NEIL I. SELL Director September 24, 1998
- ---------------------------------
Neil I. Sell
/s/ ALBERT J. FITZGIBBONS, III Director September 24, 1998
- ---------------------------------
Albert J. Fitzgibbons, III
/s/ MATTHIAS B. BOWMAN Director September 24, 1998
- ---------------------------------
Matthias B. Bowman
</TABLE>
<PAGE>
EXHIBIT 10.14
U.S. FOODSERVICE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective: July 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS................................................................ 1
2. SHARES SUBJECT TO THE PLAN................................................. 3
3. EMPLOYER CONTRIBUTION...................................................... 3
4. DEFERRED COMPENSATION ACCOUNTS............................................. 3
4.1. Accounts.............................................................. 3
4.2. Company Stock Account................................................. 3
4.3. Employee Self Directed Account........................................ 4
4.4. Account Credits and Debits............................................ 4
4.5. Trust Accounts........................................................ 4
4.6. Subaccounts........................................................... 4
5. VESTING.................................................................... 4
5.1. General............................................................... 4
5.2. Retirement; Disability; Death; Termination of Plan;
Change in Control................................................... 5
5.3. Change of Control..................................................... 5
5.4. Good Reason........................................................... 6
5.5. Termination for Cause................................................. 7
6. INVESTMENT EXPERIENCE...................................................... 8
6.1. Employee Self Directed Account........................................ 8
6.2. Company Stock Account................................................. 8
6.3. Taxes; Statements..................................................... 9
7. DISTRIBUTIONS.............................................................. 9
7.1. Separation From Service............................................... 9
7.2. Death; Disability; Retirement......................................... 10
7.3. Resignation........................................................... 10
7.4. Hardship.............................................................. 11
7.5. Change of Control..................................................... 11
7.6. Form of Payment....................................................... 12
8. ADMINISTRATION............................................................. 12
8.1. Committee............................................................. 12
8.2. Rules for Administration.............................................. 12
8.3. Committee Action...................................................... 12
8.4. Delegation............................................................ 13
8.5. Services.............................................................. 13
8.6. Indemnification....................................................... 13
9. AMENDMENT AND TERMINATION.................................................. 13
10. GENERAL PROVISIONS........................................................ 13
10.1. Limitation of Rights................................................. 13
10.2. Employment Rights.................................................... 13
10.3. Assignment, Pledge or Encumbrance.................................... 14
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4. Minor or Incompetent................................................. 14
10.5. Beneficiary.......................................................... 14
10.6. Binding Provisions................................................... 14
10.7. Notices.............................................................. 15
10.8. Governing Law........................................................ 15
10.9. Pronouns............................................................. 15
10.10. Withholding......................................................... 15
10.11. Effective Dates..................................................... 15
</TABLE>
- ii -
<PAGE>
1. DEFINITIONS
1.1 "Affiliate" means any legal entity controlled, directly or indirectly, by
---------
U.S. Foodservice.
1.2 "Beneficiary" means any person(s) or legal entity(ies) designated by the
-----------
Participant or otherwise determined in accordance with SECTION 10.5.
1.3 "Board of Directors" means the Board of Directors of the Company.
------------------
1.4 "Cause" shall have the meaning set forth in SECTION 5.5.
-----
1.5 "Change of Control" shall have the meaning set forth in SECTION 5.3.
-----------------
1.6 "Committee" means the Administrative Committee which administers the Plan
---------
in accordance with SECTION 8.
1.7 "Common Stock" means the common stock, par value $0.01 per share, of the
------------
Company.
1.8 "Company" means U.S. Foodservice, a Delaware corporation, or any successor
-------
thereto.
1.9 "Continuous Service" means the total uninterrupted service of a Participant
------------------
with the Company or an Affiliate from a measurement date to the date of the
Participant's Separation from Service.
1.10 "Disability" means the absence of the Participant from the Participant's
----------
duties with the Participant's Employer on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Participant or the Participant's legal representative.
1.11 "Earnings" for any Plan Year means the base salary of an Eligible Employee
--------
for such Plan Year, including any authorized deferrals and payroll
deductions and Target Bonus, but excluding the value of any perquisites,
stock options, restricted stock or Restricted Stock Units unless granted in
connection with authorized deferrals.
1.12 "Eligible Employee" for each Plan Year means an officer or other key
-----------------
management employee of the Employer designated by the Compensation
Committee as eligible to participate in the Plan for such Plan Year or
portion thereof.
1
<PAGE>
1.13 "Employer" means the Company and any Affiliate thereof which shall be
--------
designated by the Board of Directors as a participating employer under the
Plan.
1.14 "Employer Contribution Account" means any account maintained for a
-----------------------------
Participant pursuant to SECTION 4.1.
1.15 "Fair Market Value" means the opening price of a share of Common Stock
-----------------
reported on the New York Stock Exchange (the "NYSE") on the date Fair
Market Value is being determined, provided that if there is no opening
price reported on such date, the Fair Market Value of a share of Common
Stock on such date shall be deemed equal to the closing price as reported
by the NYSE for the last preceding date on which sales of shares of Common
Stock were reported. Notwithstanding the foregoing, in the event that the
shares of Common Stock are listed upon more than one established stock
exchange, "Fair Market Value" means the opening price of the shares of
Common Stock reported on the exchange that trades the largest volume of
shares of Common Stock on the date Fair Market Value is being determined.
1.16 "Good Reason" shall have the meaning set forth in SECTION 5.4.
-----------
1.17 "Participant" for any Plan Year means an Eligible Employee who participates
-----------
in the Plan for that Plan Year in accordance with SECTION 3.
1.18 "Plan" means the U.S. Foodservice Supplemental Executive Retirement Plan
----
as set forth herein and as amended from time to time.
1.19 "Plan Year" means each fiscal year of the Company.
---------
1.20 "Prime Rate" means the base rate on corporate loans at large U.S. money
----------
center commercial banks, as such rate is reported under "Prime Rate" in the
"Money Rates" section of The Wall Street Journal.
-----------------------
1.21 "Restricted Stock Unit" means a unit which represents a conditional right
---------------------
to receive a share of Common Stock in the future.
1.22 "Retirement" means a Participant's Separation from Service on or after
----------
reaching age 55 other than due to Disability, death or termination for
Cause.
1.23 "Separation from Service" means termination of a Participant's employment
-----------------------
with the Participant's Employer by reason of Retirement, Disability, death,
resignation, termination for Cause or otherwise. Transfer to employment
with an Affiliate shall not be deemed to be Separation from Service.
2
<PAGE>
1.24 "Target Bonus" for any Plan Year means 100% of base salary provided that
------------
the Target Bonus for any Plan Year is subject to change by the Compensation
Committee prior to the end of the first quarter of such Plan Year.
1.25 "Trust" means the trust established by the Company that identifies the Plan
-----
as a plan with respect to which assets are to be held by the Trustee.
1.26 "Trustees" means the trustee or trustees or their successors under the
--------
Trust.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in SECTION 6.1, the aggregate number of
shares of Common Stock that may be made available for distribution to
Participants under the Plan is the sum of (i) 45,000 and (ii) any shares
of Common Stock that are represented by awards under the Company's Restricted
Unit Plan which are forfeited, expire or are canceled with the delivery of
shares or which result in the forfeiture of shares to the Company. The shares
issuable under the Plan shall be issued pursuant to the U.S. Foodservice 1994
Stock Incentive Plan, and may be authorized but unissued shares, treasury shares
or issued and outstanding shares that are purchased in the open market.
3. EMPLOYER CONTRIBUTION
As an initial Employer Contribution, the Employer shall credit to each
Participant's Employer Contribution Account, as of July 1, an amount equal to
the amounts shown on SCHEDULE 1 attached hereto. The Employer shall credit to
each Participant's Employer Contribution Account an amount equal to 15% of
Earnings for the Plan Year. Amounts shall be credited to each Participant's
Employer Contribution Account at such times as may be determined by the
Committee, but not less frequently than every three (3) months.
4. DEFERRED COMPENSATION ACCOUNTS
4.1. ACCOUNTS
Within the Employer Contribution Account, the Committee shall establish a
Company Stock Account and an Employee Self Directed Account for each
Participant for all periods during which such Participant participates in
the Plan.
4.2. COMPANY STOCK ACCOUNT
Each Participant's Company Stock Account shall be credited with 50% of the
Employer Contribution for the relevant period and shall be credited with
3
<PAGE>
dividends deemed attributable to the Restricted Stock Units credited to
that Account, subject to adjustment as provided in SECTION 6.1.
4.3. EMPLOYEE SELF DIRECTED ACCOUNT
Each Participant's Employee Self Directed Account shall be credited with
50% of the Employer Contribution and shall be credited or debited with any
amounts deemed attributable to the investment experience of that Account.
4.4. ACCOUNT CREDITS AND DEBITS
All amounts credited to each Company Stock Account and Employee Self
Directed Account shall at all times be the sole and absolute property of
the Company, subject to the terms of any Trust with respect thereto. The
Company Stock Accounts and the Employee Self Directed Accounts shall be
debited to the extent of any distributions made pursuant to SECTION 7.
4.5. TRUST ACCOUNTS
The Committee may cause the Trustee, if any, to maintain and invest
separate asset accounts or subaccounts corresponding to each Participant's
Company Stock Account and Employee Self Directed Account.
4.6. SUBACCOUNTS
The Committee may establish such subaccounts or separate accounts for each
Participant as may be appropriate for the proper administration of the
Plan.
5. VESTING
5.1. GENERAL
A Participant shall be separately vested in the amount credited to the
Participant's Employer Contribution Account for each Plan Year, and the
earnings thereon, in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service
From the First Day of the Plan Year Vested Percentage
------------------------------------- -----------------
<S> <C>
Less than 1 0
At least 1 20
At least 2 40
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
At least 3 60
At least 4 80
5 or more 100
</TABLE>
provided however, that Participants shall be separately vested in the
initial contribution amount credited to the Participant's Employer
Contribution Account as of July 1, 1998, and the earnings thereon, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service
From July 1, 1998 Vested Percentage
----------------------------- -----------------
<S> <C>
Less than .5 0
At least .5 20
At least 1.5 40
At least 2.5 60
At least 3.5 80
4.5 or more 100
</TABLE>
5.2. RETIREMENT; DISABILITY; DEATH; TERMINATION OF PLAN; CHANGE IN CONTROL
Notwithstanding the provisions of SECTION 5.1, the amount credited to a
Participant's Employer Contribution Account shall be 100% vested in the
event of (i) Separation from Service by reason of Retirement, Good Reason
(as defined below), Disability, or death of a Participant, (ii) termination
of the Plan or (iii) a "Change of Control" (as defined below).
5.3. CHANGE OF CONTROL
"Change of Control" shall mean the happening of any of the following:
(a) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board of Directors; provided, however, that
any individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
5
<PAGE>
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person (as defined in Paragraph (b) below) other than the Board of
Directors;
(b) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person"), is or becomes the
beneficial owner (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 50% or more of the Company's stock generally
entitled to vote for the election of directors ("Voting Stock") or the
consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company or other transaction (a "Business Transaction"), in each case,
unless, following such Business Transaction, (i) no Person (excluding
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Transaction) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of Voting Stock of the Company or the corporation
resulting from such Business Transaction and (ii) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Transaction were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action
of the Board of Directors, providing for such Business Transaction; or
(c) consummation of a complete liquidation or dissolution of the Company.
5.4. GOOD REASON
"Good Reason" shall mean the happening of any of the following:
(a) the assignment to the Participant of any duties inconsistent,
negatively, in any material respect with the Participant's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by such
Participant's position and any employment agreement between the
Participant and the Participant's Employer, or any other action by the
Employer which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which
is remedied by
6
<PAGE>
the Employer promptly after receipt of notice thereof given by the
Participant;
(b) any failure by the Employer to comply with any of the provisions
governing compensation of any employment agreement between the
Participant and the Employer other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied
by the Employer promptly after receipt of notice thereof given by the
Participant; or
(c) any action by the Employer requiring the Participant to be based at
any office or location outside the metropolitan area of the office at
which the Participant was based at the time the Participant commenced
participating in the Plan or requiring the Participant to travel on
Employer business to a substantially greater extent than required at
the time the Participant commenced participating in the Plan.
For purposes of this SECTION 5.4, any good faith determination of "Good
Reason" made by the Participant shall be conclusive.
5.5. TERMINATION FOR CAUSE
If a Participant in the Plan incurs a termination of employment for Cause
or, in the reasonable judgment of the Board of Directors, has failed to
comply with the terms of any restrictive covenant of any employment
agreement between the Participant and the Participant's Employer, the
Participant shall forfeit all rights to receive any distributions or
payments under the Plan. "Cause" means (i) the willful and continued
failure of the Participant to perform substantially the Participant's
duties with the Participant's Employer (other than any failure resulting
from incapacity due to physical or mental illness), after a written demand
for substantial performance is delivered to the Participant by the Board or
the Chief Executive Officer of the Company which specifically identifies
the manner in which the Board of Directors or Chief Executive Officer
believes that the Participant has not substantially performed the
Participant's duties, or (ii) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. For purposes of this definition, no act or
failure to act, on the part of the Participant, shall be considered
"willful" unless it is done, or omitted to be done, by the Participant in
bad faith or without reasonable belief that the Participant's action or
omission was in the best interests of the Employer. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by
the Board of Directors or upon instructions of the Chief Executive Officer
or a senior officer of the Company or based upon the advice of counsel for
the Company
7
<PAGE>
shall be conclusively presumed to be done, or omitted to be done, by the
Participant in good faith and in the best interests of the Employer. The
cessation of employment of the Participant shall not be deemed to be for
Cause unless and until there shall have been delivered to the Participant a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board of Directors at a
meeting of the Board of Directors called and held for such purpose (after
reasonable notice is provided to the Participant and the Participant is
given an opportunity, together with counsel, to be heard before the Board
of Directors), finding that, in the good faith opinion of the Board of
Directors, the Participant has engaged in the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
6. INVESTMENT EXPERIENCE
6.1. EMPLOYEE SELF DIRECTED ACCOUNT
In its sole discretion, the Committee shall designate investments in which
each Participant's Employee Self Directed Account may be deemed to be
invested. From such designated investments each Participant may select
from time to time the investments in which the Participant's Employee Self
Directed Account will be deemed to be invested. Based on such selection,
the Committee will credit or debit to each Participant's Employee Self
Directed Account, as provided in SECTIONS 4.3 and 4.4, the amounts by which
the Participant's Employee Self Directed Account would have increased or
decreased as if they had been invested in the investments designated by the
Participant. The selection of investments is to be used only for the
purpose of valuing each Participant's Employee Self Directed Account. The
Company and the Committee are under no obligation to acquire or provide any
of the investments designated by a Participant, and any investments
actually made by the Committee will be made solely in the name of the
Company and will remain the property of the Company subject to the terms of
any Trust. During any period when the Company does not designate
investments in which each Participant's Employee Self Directed Account may
be deemed invested, the Company shall credit interest on each Participant's
Employee Self Directed Account at a rate equivalent to the Prime Rate in
effect during such period.
6.2. COMPANY STOCK ACCOUNT
Each Participant's Company Stock Account shall be deemed to be invested in
the number of Restricted Stock Units determined by dividing the Fair Market
Value of the Common Stock on the date the Company Stock Account is credited
with such Restricted Stock Units into the portion of the Employer
8
<PAGE>
Contribution allocated to the Participant's Company Stock Account. The
Committee will credit and adjust each Participant's Company Stock Account,
as provided in SECTIONS 4.2 and 4.4, in the amounts by which the
Participant's Company Stock Account would have increased or been adjusted
if it had been invested in Common Stock. The deemed investment is to be
used only for the purpose of valuing each Participant's Company Stock
Account. The Company and the Committee are under no obligation to acquire
or provide any Common Stock, and any investments actually made by the
Committee will be made solely in the name of the Company and will remain
the property of the Company subject to the terms of any Trust. If the
number of outstanding shares of Common Stock is increased or decreased or
the shares of Common Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Company, in each case
on account of any recapitalization, reclassification, stock split, reverse
split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, the
number and kinds of shares in which the Company Stock Account is deemed
invested shall be adjusted proportionately and accordingly by the Company.
6.3. TAXES; STATEMENTS
All taxes required to be paid in connection with the deemed investment
experience of Company Stock Accounts and Employee Self Directed Accounts,
but not in connection with the distributions to Participants, shall be paid
by the Employer. At least as often as 30 days after the last business day
of each calendar quarter, the Committee shall provide the Participant with
a statement of the Participant's account, in such reasonable detail as the
Committee shall deem appropriate, showing the income, gains and losses
(realized and unrealized), amounts of Employer Contributions, and
distributions from the Participant's Company Stock Account and Employee
Self Directed Account since the prior statement.
7. DISTRIBUTIONS
7.1. SEPARATION FROM SERVICE.
At the time an Eligible Employee commences participation in the Plan,
such Eligible Employee shall also elect in such manner as approved by the
Committee one of the following methods for the payment of the vested
portion of the Participant's Company Stock Account and Employee Self
Directed Account commencing within five years of the Participant's
Separation from Service:
9
<PAGE>
(a) a lump sum payment; or
(b) pro-rata annual installment payments for a period not to exceed 15
years after Separation from Service, with each installment equal to
the unpaid balance of such accounts divided by the number of remaining
payments; and, if the Participant dies before all payments are made,
the remaining payments to be made to the Participant's Beneficiary.
A Participant may elect one method of payment to such Participant and a
different method of payment to the Participant's Beneficiary.
A Participant may request a change of the Participant's election as to the
method of payment, by written notice to the Committee, subject to approval
by the Committee in its sole discretion, at any time in a tax year prior to
the tax year of the Participant's Separation from Service, provided,
however, if a Participant's Separation from Service for any reason other
than death occurs less than ninety (90) days following any election or
request for a change in election of a method of payment to himself, such
election may be disregarded by the Committee.
7.2. DEATH; DISABILITY; RETIREMENT
Upon a Participant's Separation from Service by reason of the Participant's
death, Disability or Retirement, the Company shall pay to such Participant,
or to such Participant's Beneficiary in the case of the Participant's
death, such Participant's Company Stock Account and Employee Self Directed
Account as of the date of Separation from Service. Payment shall be made by
the method and on the date(s) previously elected by the Participant, or in
the sole discretion of the Committee, in a lump sum.
Lump sum payments shall be made on the last day of the calendar quarter in
which the Participant's Separation from Service occurs or on the date
previously elected by the Participant, if applicable.
7.3. RESIGNATION
Notwithstanding the provisions of SECTION 7.1, upon a Participant's
Separation from Service by reason of the Participant's resignation, the
Company shall pay to such Participant the vested portion of the
Participant's Company Stock Account and Employee Self Directed Account as
of the Date of Separation from Service resulting from the Participant's
resignation.
Payment shall be made to the Participant in a single lump sum on the last
day of the calendar quarter in which the Participant's resignation occurs.
10
<PAGE>
Notwithstanding the foregoing, at the Participant's request, the Committee,
at its option, may defer payment of the Participant's then vested Company
Stock Account and Employee Self Directed Account to the time(s) previously
selected by such Participant pursuant to SECTION 7.1. In the event of the
Participant's death, the balance of such accounts shall be distributed in
accordance with SECTION 7.2.
7.4. HARDSHIP
(a) Upon application by a Participant and approval thereof by the
Committee, the Participant may withdraw, upon a showing of hardship,
part or all of the amount vested in the Participant's Company Stock
Account and Employee Self Directed Account.
(b) For purposes of SECTION 7.4(A), "hardship" shall mean severe financial
hardship to a Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Internal Revenue Code of 1986, as amended) of
the Participant, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant, which
hardship may not be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets
(to the extent such liquidation would not itself cause severe
financial hardship).
7.5. CHANGE OF CONTROL.
Notwithstanding anything to the contrary contained in this Plan, upon the
consummation, of a Change of Control as defined in SECTION 5.3, each
Participant's Company Stock Account shall be immediately vested and
distributed to such Participant in a lump sum distribution within 15 days
following the consummation of such Change in Control. Notwithstanding
anything to the contrary contained in this Plan, upon the consummation, of
a Change of Control as defined in SECTION 5.3, each Participant's Employee
Self-Directed Account shall be immediately vested and distributed to such
Participant in a lump sum distribution within 15 days following
Participant's Separation from Service subsequent to consummation of such
Change in Control, or, in the event there is a Trust in effect with respect
to the Plan, in accordance with the terms of the Trust. For purposes of
this SECTION 7.5, a Participant will be deemed to have Separated from
Service if the Participant is providing services for less than 20 hours per
week.
11
<PAGE>
7.6. FORM OF PAYMENT.
(a) The value of the Employee Self-Directed Account shall be distributed
to the Participant in cash.
(b) The value of the Company Stock Account shall be distributed to the
Participant in shares of Common Stock, provided, however that cash
will be distributed in lieu of fractional shares. The Company shall
take use its best efforts to maintain the effectiveness of a
registration statement on Form S-8 (or any successor form) or another
appropriate form with respect to shares of Common Stock distributable
pursuant to the Plan.
8. ADMINISTRATION
8.1. COMMITTEE
The general administration of the Plan and the responsibility for carrying
out its provisions shall be placed in an Administrative Committee. The
Committee shall consist of at least two members appointed from time to time
by the Board of Directors to serve at the pleasure thereof. The initial
Administrative Committee shall consist of the Chief Financial Officer and
the General Counsel of the Company. Any member of the Committee may resign
by delivering the Participant's written resignation to the Company, and may
be removed at any time by action of the Board of Directors.
8.2. RULES FOR ADMINISTRATION
Subject to the limitations of the Plan, the Committee may from time to time
establish rules and procedures for the administration and interpretation of
the Plan and the transaction of its business as the Committee may deem
necessary or appropriate. The determination of the Committee as to any
disputed question shall be conclusive.
8.3. COMMITTEE ACTION
Any act which the Plan authorizes or requires the Committee to do may be
done by a majority of its members. The action of such majority, expressed
from time to time by a vote at a meeting (a) in person, (b) by telephone or
other means by which all members may hear one another or (c) in writing
without a meeting, shall constitute the action of the Committee and shall
have the same effect for all purposes as if assented to by all members of
the Committee at the time in office.
12
<PAGE>
8.4. DELEGATION
The members of the Committee may authorize one or more of their number to
execute or deliver any instrument, make any payment or perform any other
act which the Plan authorizes or requires the Committee to do.
8.5. SERVICES
The Committee may employ or retain agents to perform such clerical,
accounting, trust, trustee and other services as they may require in
carrying out the provisions of the Plan.
8.6. INDEMNIFICATION
The Company shall indemnify and save harmless each member of the Committee
against all expenses and liabilities arising out of membership on the
Committee, excepting only expenses and liabilities arising from the such
member's own gross negligence or willful misconduct, as determined by the
Board of Directors.
9. AMENDMENT AND TERMINATION
The Company, by action of the Board of Directors or the Compensation Committee
thereof, may at any time or from time to time modify or amend any or all of the
provisions of the Plan, or may at any time terminate the Plan provided that the
Company may not amend SECTION 5 or 7.5 to adversely affect any Participant
rights under such SECTIONS 5 and 7.5. No such action shall adversely affect the
accrued or vested rights of any Participant hereunder without the Participant's
consent thereto.
10. GENERAL PROVISIONS
10.1. LIMITATION OF RIGHTS
No Participant or other Eligible Employee shall have any right to any
payment or benefit hereunder except to the extent provided in the Plan.
10.2. EMPLOYMENT RIGHTS
The employment rights of any Participant or other Eligible Employee shall
not be enlarged, guaranteed or affected by reason of any of the provisions
of the Plan.
13
<PAGE>
10.3. ASSIGNMENT, PLEDGE OR ENCUMBRANCE
Assignment, pledge or other encumbrance of any payments or benefits under
the Plan shall not be permitted or recognized and, to the extent permitted
by law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive
the same, except to the extent such assignment, pledge or other encumbrance
is in favor of the Company to secure a loan or other extension of credit
from the Company to the Participant.
10.4. MINOR OR INCOMPETENT
If the Committee determines that any person to whom a payment is due
hereunder is a minor or is incompetent by reason of physical or mental
disability, the Committee shall have the power to cause the payments
becoming due to such person to be made to another for the benefit of such
minor or incompetent without responsibility of the Company or the Committee
to see to the application of such payment, unless claim prior to such
payment is made therefor by a duly appointed legal representative.
Payments made pursuant to such power shall operate as a complete discharge
of the Company and the Committee.
10.5. BENEFICIARY
Each Participant may designate, by written notice to the Committee, any
person or persons or legal entity or legal entities, including such
Participant's estate, as such Participant's Beneficiary under the Plan. A
Participant may revoke the Participant's designation of a Beneficiary or
change such Participant's Beneficiary at any time prior to such
Participant's death by written notice to the Committee. If no person or
legal entity shall be designated by a Participant as such Participant's
Beneficiary or if no designated Beneficiary survives such Participant, such
Participant's Beneficiary shall be such Participant's estate.
10.6. BINDING PROVISIONS
The provisions of this Plan shall be binding upon each Participant as a
consequence of the Participant's election to participate in the Plan, and
upon the Company, and their respective heirs, executors, administrators,
successors and assigns.
14
<PAGE>
10.7. NOTICES
Any election made or notice given by a Participant pursuant to the Plan
shall be in writing to the Committee or to such representative thereof as
may be designated by the Committee for such purpose and shall be deemed to
have been made or given on the date received by the Committee or its
representative.
10.8. GOVERNING LAW
The validity and interpretation of the Plan and of any of its provisions
shall be construed under the laws of the State of Maryland without giving
effect to the choice of law provisions thereof.
10.9. PRONOUNS
The masculine pronoun shall be deemed to include the feminine wherever it
appears in the Plan unless a different meaning is required by the context.
10.10. WITHHOLDING
Upon the request of the Participant, the Company shall withhold from the
shares of Common Stock distributable to such Participant such number of
shares as shall be sufficient to satisfy all or a portion of any federal,
state and local tax withholding requirements applicable to the designated
distribution. If the Participant has not requested to have sufficient
shares withheld to satisfy all such withholding requirements, the Company
shall have the right to deduct first from cash distributions hereunder any
federal, state, or local taxes required by law to be withheld with respect
to such distributions, and such additional amounts of withholding as are
reasonably requested by the Participant. Accordingly, the amount of
federal, state, or local taxes required, or agreed, to be withheld by the
Company with respect to the dollar amount determined pursuant to SECTION
7.6(A) above shall, for purposes of satisfying such withholding
obligations, be deducted from the dollar amount of the cash payment and
paid by the Company to the appropriate taxing authorities. If the entire
cash distribution is insufficient to satisfy the withholding obligations,
the Company shall have the right to deduct amounts from the Common Stock
distributable to satisfy such withholding obligations.
10.11. EFFECTIVE DATES
This Plan shall be effective as of July 1, 1998.
* * * * *
15
<PAGE>
EXHIBIT 10.15
U.S. FOODSERVICE
RESTRICTED UNIT PLAN
Effective: July 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS................................................................ 1
2. SHARES SUBJECT TO THE PLAN................................................. 2
3. RESTRICTED UNIT GRANT...................................................... 2
4. RESTRICTED UNIT ACCOUNTS................................................... 3
4.1. Restricted Unit Account............................................... 3
4.2. Account Credits and Debits............................................ 3
4.3. Subaccounts........................................................... 3
5. VESTING.................................................................... 3
5.1. General............................................................... 3
5.2. Retirement; Disability; Death; Termination of Plan;
Change in Control................................................... 4
5.3. Change of Control..................................................... 4
5.4. Good Reason........................................................... 5
5.5. Termination for Cause................................................. 5
5.6. Termination Without Cause............................................. 6
6. INVESTMENT EXPERIENCE...................................................... 7
6.1. Restricted Unit Account............................................... 7
6.2. Taxes................................................................. 8
7. DISTRIBUTIONS.............................................................. 8
7.1. Distribution After Vesting............................................ 8
7.2. Separation From Service............................................... 8
7.3. Death; Disability; Retirement......................................... 9
7.4. Resignation........................................................... 9
7.5. Hardship.............................................................. 10
7.6. Change of Control..................................................... 10
7.7. Form of Payment....................................................... 10
8. ADMINISTRATION............................................................. 11
8.1. Committee............................................................. 11
8.2. Rules for Administration.............................................. 11
8.3. Committee Action...................................................... 11
8.4. Delegation............................................................ 11
8.5. Services.............................................................. 11
8.6. Indemnification....................................................... 12
9. AMENDMENT AND TERMINATION.................................................. 12
10. GENERAL PROVISIONS........................................................ 12
10.1. Limitation of Rights................................................. 12
10.2. Employment Rights.................................................... 12
10.3. Assignment, Pledge or Encumbrance.................................... 12
10.4. Minor or Incompetent................................................. 13
10.5. Beneficiary.......................................................... 13
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
10.6. Binding Provisions................................................... 13
10.7. Notices.............................................................. 13
10.8. Governing Law........................................................ 13
10.9. Pronouns............................................................. 14
10.10. Withholding......................................................... 14
10.11. Effective Dates..................................................... 14
</TABLE>
- ii -
<PAGE>
1. DEFINITIONS
1.1 "Affiliate" means any legal entity controlled, directly or indirectly, by
---------
U.S. Foodservice.
1.2 "Beneficiary" means any person(s) or legal entity(ies) designated by the
-----------
Participant or otherwise determined in accordance with SECTION 10.5.
1.3 "Board of Directors" means the Board of Directors of the Company.
------------------
1.4 "Cause" shall have the meaning set forth in SECTION 5.5.
-----
1.5 "Change of Control" shall have the meaning set forth in SECTION 5.3.
-----------------
1.6 "Committee" means the Administrative Committee which administers the Plan
---------
in accordance with SECTION 8.
1.7 "Common Stock" means the common stock, par value $0.01 per share, of the
------------
Company.
1.8 "Company" means U.S. Foodservice, a Delaware corporation, or any successor
-------
thereto.
1.9 "Continuous Service" means the total uninterrupted service of a Participant
------------------
with the Company or an Affiliate from July 1, 1998 to the date of his
Separation from Service.
1.10 "Disability" means the absence of the Participant from the Participant's
----------
duties with the Participant's Employer on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a
physician selected by the Company or its insurers and acceptable to the
Participant or the Participant's legal representative.
1.11 "Eligible Employee" for each Plan Year means an officer or other key
-----------------
management employee of the Employer designated by the Compensation
Committee as eligible to participate in the Plan.
1.12 "Employer" means the Company and any Affiliate thereof which shall be
--------
designated by the Board of Directors as a participating employer under the
Plan.
1.13 "Good Reason" shall have the meaning set forth in SECTION 5.4.
-----------
1.14 "Grant" means an award of Restricted Stock Units under the Plan.
-----
1
<PAGE>
1.15 "Participant" means an Eligible Employee who participates in the Plan in
-----------
accordance with SECTION 3.
1.16 "Plan" means the U.S. Foodservice Restricted Unit Plan as set forth herein
----
and as amended from time to time.
1.17 "Restricted Stock Unit" means a unit awarded to a Participant pursuant to
---------------------
SECTION 3, which represents a conditional right to receive a share of
Common Stock in the future, and which is subject to restrictions and to a
risk of forfeiture.
1.18 "Retirement" means a Participant's Separation from Service on or after
----------
attaining age 55 other than due to Disability, death or termination for
Cause.
1.19 "Separation from Service" means termination of a Participant's employment
-----------------------
with the Participant's Employer by reason of Retirement, Disability, death,
resignation, termination for Cause or otherwise. Transfer to employment
with an Affiliate shall not be deemed to be Separation from Service.
2. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in SECTION 7.1, the aggregate number of shares
of Common Stock that may be made available for distribution to Participants
under the Plan is the sum of (i) 250,000 and (ii) any shares of Common Stock
that are reserved for issuance under the Company's Supplemental Executive
Retirement Plan, including shares which are forfeited, expire or are canceled
with the delivery of shares or which result in the forfeiture of shares to the
Company. The shares issuable under the Plan shall be issued pursuant to the U.S.
Foodservice 1994 Stock Incentive Plan and may, in the discretion of the Board of
Directors, be authorized but unissued shares, treasury shares or issued and
outstanding shares that are purchased in the open market.
3. RESTRICTED UNIT GRANT
The Employer shall credit each Participant's Restricted Unit Account with the
number of units awarded to the Participant set forth in APPENDIX A to the Plan,
which represent a conditional right to receive a share of Common Stock in the
future, and which are subject to restrictions and to a risk of forfeiture.
2
<PAGE>
4. RESTRICTED UNIT ACCOUNTS
4.1. RESTRICTED UNIT ACCOUNT
Each Participant's Restricted Unit Account shall be credited with the
Restricted Stock Units awarded to the Participant and shall be credited
with dividends deemed attributable to the Restricted Stock Units credited
to that Account subject to adjustment as provided in SECTION 7.1.
4.2. ACCOUNT CREDITS AND DEBITS
All amounts credited to the Participant's Restricted Unit Account shall at
all times be the sole and absolute property of the Company. The Restricted
Unit Accounts shall be debited to the extent of any distributions made
pursuant to SECTION 7.
4.3. SUBACCOUNTS
The Committee may establish such subaccounts or separate accounts for each
Participant as may be appropriate for the proper administration of the
Plan.
5. VESTING
5.1. GENERAL
A Participant shall be vested in the amount credited to the Restricted Unit
Account established for him in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service Vested Percentage
--------------------------- -----------------
<S> <C>
Less than 6.5 0
At least 6.5 25
At least 7.5 50
At least 8.5 75
9.5 or more 100
</TABLE>
3
<PAGE>
5.2. RETIREMENT; DISABILITY; DEATH; TERMINATION OF PLAN; CHANGE IN CONTROL
Notwithstanding the provisions of SECTION 5.1, the amount credited to a
Participant's Employer Contribution Account shall be 100% vested in the event of
(i) Separation from Service by reason of Retirement, Good Reason (as defined
below), Disability, or death of a Participant, (ii) termination of the Plan or
(iii) a "Change of Control" (as defined below).
5.3. CHANGE OF CONTROL
"Change of Control" shall mean the happening of any of the following:
(a) individuals who, as of the date hereof, constitute the Board of Directors
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person (as defined in Paragraph (b) below) other than the Board
of Directors;
(b) any individual, entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person"), is or becomes the beneficial owner (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the
Company's stock generally entitled to vote for the election of directors
("Voting Stock") or the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of
the assets of the Company or other transaction (a "Business Transaction"),
in each case, unless, following such Business Transaction, (i) no Person
(excluding any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Transaction) beneficially
owns, directly or indirectly, 50% or more of, respectively, the then
outstanding shares of Voting Stock of the Company or the corporation
resulting from such Business Transaction and (ii) at least a majority of
the members of the board of directors of the corporation resulting from
such Business Transaction were members of the Incumbent Board at the time
of the
4
<PAGE>
execution of the initial agreement, or of the action of the Board of
Directors, providing for such Business Transaction; or
(c) consummation of a complete liquidation or dissolution of the Company.
5.4. GOOD REASON
"Good Reason" shall mean the happening of any of the following:
(a) the assignment to the Participant of any duties inconsistent, negatively,
in any material respect with the Participant's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by such Participant's position and any
employment agreement between the Participant and the Participant's
Employer, or any other action by the Employer which results in a diminution
in such position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Employer promptly after receipt of
notice thereof given by the Participant;
(b) any failure by the Employer to comply with any of the provisions governing
compensation of any employment agreement between the Participant and the
Employer other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Employer promptly after
receipt of notice thereof given by the Participant; or
(c) any action by the Employer requiring the Participant to be based at any
office or location outside the metropolitan area of the office at which the
Participant was based at the time the Participant commenced participating
in the Plan or requiring the Participant to travel on Employer business to
a substantially greater extent than required at the time the Participant
commenced participating in the Plan.
For purposes of this SECTION 5.4, any good faith determination of "Good Reason"
made by the Participant shall be conclusive.
5.5. TERMINATION FOR CAUSE
If a Participant in the Plan incurs a termination of employment for Cause or, in
the reasonable judgment of the Board of Directors, has failed to comply with the
terms of any restrictive covenant of any employment agreement between the
Participant and the Participant's Employer, the Participant
5
<PAGE>
shall forfeit all rights to receive any distributions or payments under the
Plan. "Cause" means (i) the willful and continued failure of the Participant to
perform substantially the Participant's duties with the Participant's Employer
(other than any failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Participant by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board of Directors or Chief
Executive Officer believes that the Participant has not substantially performed
the Participant's duties, or (ii) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. For purposes of this definition, no act or failure to
act, on the part of the Participant, shall be considered "willful" unless it is
done, or omitted to be done, by the Participant in bad faith or without
reasonable belief that the Participant's action or omission was in the best
interests of the Employer. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board of Directors or upon
instructions of the Chief Executive Officer or a senior officer of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Participant in good faith and
in the best interests of the Employer. The cessation of employment of the
Participant shall not be deemed to be for Cause unless and until there shall
have been delivered to the Participant a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of
the Board of Directors at a meeting of the Board of Directors called and held
for such purpose (after reasonable notice is provided to the Participant and the
Participant is given an opportunity, together with counsel, to be heard before
the Board of Directors), finding that, in the good faith opinion of the Board of
Directors, the Participant has engaged in the conduct described in subparagraph
(i) or (ii) above, and specifying the particulars thereof in detail.
5.6. TERMINATION WITHOUT CAUSE
If the Company terminates the Participant's employment other than for Cause, the
Participant shall be vested in the amount credited to the Restricted Unit
Account established for him in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Continuous Service Vested Percentage
----------------------------- -----------------
<S> <C>
Less than .5 0
At least .5 10
At least 1.5 20
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
At least 2.5 30
At least 3.5 40
At least 4.5 50
At least 5.5 60
At least 6.5 70
At least 7.5 80
At least 8.5 90
9.5 or more 100
</TABLE>
provided, however, if the Participant is over 45 years of age on July 1,
1998, and if the Company terminates the Participant's employment other than
for Cause, the Participant shall be vested in the amount credited to the
Restricted Unit Account established for him pro-rata based on the ratio of
(x) the Participant's Years of Continuous Service from July 1, 1998 to the
date of termination to (y) the number of years from July 1, 1998 to the
date the Participant would attain 55 years of age.
6. INVESTMENT EXPERIENCE
6.1. RESTRICTED UNIT ACCOUNT
Each Participant's Restricted Unit Account shall be deemed to be invested
in Restricted Stock Units. The Committee will credit and adjust each
Participant's Restricted Unit Account, as provided in SECTIONS 4.1 and 4.2,
the amounts by which the Participant's Restricted Unit Account would have
increased or been adjusted if it had been invested in Common Stock. The
deemed investment is to be used only for the purpose of valuing each
Participant's Restricted Unit Account. The Company and the Committee are
under no obligation to acquire or provide any Common Stock, and any
investments actually made by the Committee will be made solely in the name
of the Company and will remain the property of the Company. If the number
of outstanding shares of Common Stock is increased or decreased or the
shares of Common Stock are changed into or exchanged for a different number
or kind of shares or other securities of the Company, in each case on
account of any recapitalization, reclassification, stock split, reverse
split, combination of shares, exchange of shares, stock dividend or other
distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, the
number and kinds of shares in
7
<PAGE>
which the Restricted Unit Account is deemed invested shall be adjusted
proportionately and accordingly by the Company.
6.2. TAXES
All taxes required to be paid in connection with the deemed investment
experience of Restricted Unit Accounts, but not in connection with the
distributions to Participants, shall be paid by the Employer.
7. DISTRIBUTIONS
7.1. DISTRIBUTION AFTER VESTING
In addition to the election with respect to the method of payment upon
Separation from Service specified in SECTION 7.2, each Participant may
elect, at the time and in such manner as approved by the Committee, one of
the following methods to receive payment of his Restricted Stock Account on
or after the date the Restricted Stock Account is 100% vested:
(a) a lump sum payment;
(b) pro-rata annual installment payments for a period not to exceed 15
years with each installment equal to the unpaid balance of such
accounts divided by the number of remaining payments; or
(c) one or more installments in an amount or amounts and at the date or
dates elected by the Eligible Employee.
A Participant may request a change in his election as to the method of
payment, by written notice to the Committee, subject to approval by the
Committee in its sole discretion, at any time in a tax year prior to the
tax year in which distributions would otherwise commence; however, if a
Participant's Separation from Service for any reason other than death
occurs less than ninety (90) days following any election or request for a
change in election of a method of payment to himself, such election may be
disregarded by the Committee.
7.2. SEPARATION FROM SERVICE.
At the time an Eligible Employee commences participation in the Plan, he
shall also elect, in such manner as approved by the Committee, one of the
following methods for the payment of the vested portion of his Restricted
Unit Account commencing within five years of his Separation from Service:
8
<PAGE>
(a) a lump sum payment; or
(b) pro-rata annual installment payments for a period not to exceed 15
years after Separation from Service, with each installment equal to
the unpaid balance of such accounts divided by the number of remaining
payments; and, if the Participant dies before all payments are made,
the remaining payments are to be made to his Beneficiary.
A Participant may elect one method of payment to himself and a different
method of payment to his Beneficiary.
A Participant may request a change of his election as to the method of
payment, by written notice to the Committee, subject to approval by the
Committee in its sole discretion, at any time in a tax year prior to the
tax year of his Separation from Service, provided, however, if a
Participant's Separation from Service for any reason other than death
occurs less than ninety (90) days following any election or request for a
change in election of a method of payment to himself, such election may be
disregarded by the Committee.
7.3. DEATH; DISABILITY; RETIREMENT
Upon a Participant's Separation from Service by reason of his death,
Disability or Retirement, the Company shall pay to him, or to his
Beneficiary in the case of his death, his Restricted Unit Account as of the
date of Separation from Service. Payment shall be made by the method and on
the date(s) previously elected by the Participant or, in the sole
discretion of the Committee, in a lump sum.
Lump sum payments shall be made on the last day of the calendar quarter in
which the Participant's Separation from Service occurs or on the date
previously elected by the Participant, if applicable.
7.4. RESIGNATION
Notwithstanding the provisions of SECTION 7.2, upon a Participant's
Separation from Service by reason of his resignation prior to age 55, the
Company shall pay to him the vested portion of his Restricted Unit Account
as of the Date of Separation from Service resulting from his resignation.
Payment shall be made to the Participant in a single lump sum on the last
day of the calendar quarter in which his resignation or discharge occurs.
Notwithstanding the foregoing, at the Participant's request, the Committee,
at its option, may defer payment of the Participant's then vested
Restricted
9
<PAGE>
Unit Account to the time(s) previously selected by such Participant
pursuant to SECTION 7.2. In the event of the Participant's death, the
balance of such accounts shall be distributed in accordance with SECTION
7.3.
7.5. HARDSHIP
(a) Upon application by a Participant and approval thereof by the
Committee, the Participant may withdraw, upon a showing of hardship,
part or all of the amount vested in his Restricted Unit Account.
(b) For purposes of SECTION 7.5(A), "hardship" shall mean severe financial
hardship to a Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Internal Revenue Code of 1986, as amended) of
the Participant, loss of the Participant's property due to casualty,
or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant, which
hardship may not be relieved through reimbursement or compensation by
insurance or otherwise or by liquidation of the Participant's assets
(to the extent such liquidation would not itself cause severe
financial hardship).
7.6. CHANGE OF CONTROL.
Notwithstanding anything to the contrary contained in this Plan, upon the
consummation, of a Change of Control as defined in SECTION 5.3, each
Participant's Restricted Unit Account shall be immediately vested and
distributed to him in a lump sum distribution within 15 days following the
consummation of such Change in Control.
7.7. FORM OF PAYMENT.
The value of the Restricted Unit Account shall be distributed to the
Participant in shares of Common Stock. The Company shall take use its best
efforts to maintain the effectiveness of a registration statement on Form
S-8 (or any successor form) or another appropriate form with respect to
shares of Common Stock distributable pursuant to the Plan.
10
<PAGE>
8. ADMINISTRATION
8.1. COMMITTEE
The general administration of the Plan and the responsibility for carrying
out its provisions shall be placed in an Administrative Committee. The
Committee shall consist of at least two members appointed from time to time
by the Board of Directors to serve at the pleasure thereof. The initial
Administrative Committee shall consist of the Chief Financial Officer and
the General Counsel of the Company. Any member of the Committee may resign
by delivering his written resignation to the Company, and may be removed at
any time by action of the Board of Directors.
8.2. RULES FOR ADMINISTRATION
Subject to the limitations of the Plan, the Committee may from time to time
establish rules and procedures for the administration and interpretation of
the Plan and the transaction of its business as the Committee may deem
necessary or appropriate. The determination of the Committee as to any
disputed question shall be conclusive.
8.3. COMMITTEE ACTION
Any act which the Plan authorizes or requires the Committee to do may be
done by a majority of its members. The action of such majority, expressed
from time to time by a vote at a meeting (a) in person, (b) by telephone or
other means by which all members may hear one another or (c) in writing
without a meeting, shall constitute the action of the Committee and shall
have the same effect for all purposes as if assented to by all members of
the Committee at the time in office.
8.4. DELEGATION
The members of the Committee may authorize one or more of their number to
execute or deliver any instrument, make any payment or perform any other
act which the Plan authorizes or requires the Committee to do.
8.5. SERVICES
The Committee may employ or retain agents to perform such clerical,
accounting and other services as they may require in carrying out the
provisions of the Plan.
11
<PAGE>
8.6. INDEMNIFICATION
The Company shall indemnify and save harmless each member of the Committee
against all expenses and liabilities arising out of membership on the
Committee, excepting only expenses and liabilities arising from such
member's own gross negligence or willful misconduct, as determined by the
Board of Directors.
9. AMENDMENT AND TERMINATION
The Company, by action of the Board of Directors or the Compensation Committee
thereof, may at any time or from time to time modify or amend any or all of the
provisions of the Plan or may at any time terminate the Plan provided that the
Company may not amend SECTION 5 or 7.6 to adversely affect any Participant
rights under such SECTIONS 5 and 7.6. No such action shall adversely affect the
accrued or vested rights of any Participant hereunder without his consent
thereto.
10. GENERAL PROVISIONS
10.1. LIMITATION OF RIGHTS
No Participant or other Eligible Employee shall have any right to any
payment or benefit hereunder except to the extent provided in the Plan.
10.2. EMPLOYMENT RIGHTS
The employment rights of any Participant or other Eligible Employee shall
not be enlarged, guaranteed or affected by reason of any of the provisions
of the Plan.
10.3. ASSIGNMENT, PLEDGE OR ENCUMBRANCE
Assignment, pledge or other encumbrance of any payments or benefits under
the Plan shall not be permitted or recognized and, to the extent permitted
by law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive
the same, except to the extent such assignment, pledge or other encumbrance
is in favor of the Company to secure a loan or other extension of credit
from the Company to the Participant.
12
<PAGE>
10.4. MINOR OR INCOMPETENT
If the Committee determines that any person to whom a payment is due
hereunder is a minor or is incompetent by reason of physical or mental
disability, the Committee shall have the power to cause the payments
becoming due to such person to be made to another for the benefit of such
minor or incompetent without responsibility of the Company or the Committee
to see to the application of such payment, unless claim prior to such
payment is made therefor by a duly appointed legal representative.
Payments made pursuant to such power shall operate as a complete discharge
of the Company and the Committee.
10.5. BENEFICIARY
Each Participant may designate, by written notice to the Committee, any
person or persons or legal entity or legal entities, including such
Participant's estate, as such Participant's Beneficiary under the Plan. A
Participant may revoke the Participant's designation of a Beneficiary or
change such Participant's Beneficiary at any time prior to such
Participant's death by written notice to the Committee. If no person or
legal entity shall be designated by a Participant as such Participant's
Beneficiary or if no designated Beneficiary survives such Participant, such
Participant's Beneficiary shall be such Participant's estate.
10.6. BINDING PROVISIONS
The provisions of this Plan shall be binding upon each Participant as a
consequence of his election to participate in the Plan, and upon the
Company, and their respective heirs, executors, administrators, and
assigns.
10.7. NOTICES
Any election made or notice given by a Participant pursuant to the Plan
shall be in writing to the Committee or to such representative as may be
designated by it for such purpose and shall be deemed to have been made or
given on the date received by the Committee or its representative.
10.8. GOVERNING LAW
The validity and interpretation of the Plan and of any of its provisions
shall be construed under the laws of the State of Maryland without giving
effect to the choice of law provisions thereof.
13
<PAGE>
10.9. PRONOUNS
The masculine pronoun shall be deemed to include the feminine wherever it
appears in the Plan unless a different meaning is required by the context.
10.10. WITHHOLDING
Subject to the right of the Participant pay to the Company, in cash or cash
equivalents, any amounts as may be necessary to satisfy all or a portion of
any federal, state and local tax withholding requirements, the Company
shall withhold from the shares of Common Stock distributable to such
Participant such number of shares as shall be sufficient to satisfy all or
any federal, state and local tax withholding requirements applicable to the
designated distribution.
10.11. EFFECTIVE DATES
This Plan shall be effective as of July 1, 1998.
* * * * *
14
<PAGE>
EXHIBIT 10.17
RYKOFF-SEXTON, INC.
1993 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of the Rykoff-Sexton, Inc. 1993 Director Stock
Option Plan (the "Plan") is to advance the interests of Rykoff-Sexton, Inc. (the
"Company") and its shareholders by encouraging increased share ownership by
members of the Board of Directors of the Company (the "Board") who are not
employees of the Company or any of its subsidiaries, in order to promote long-
term shareholder value through continuing ownership of the Company's common
stock.
2. ADMINISTRATION. The plan shall be administered by the Board. The
Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described hereto) to
prescribe the form of the agreement embodying awards of nonqualified stock
options made under the Plan ("Options"). The Board shall, subject to the
provisions of the Plan, grant Options under the Plan and shall have the power to
construe the Plan, to determine all questions arising thereunder and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable. Any decisions of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Board may act only
by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or any other officer of the Company to
execute and deliver documents on behalf of the Board. No member of the Board
shall be liable for anything done or omitted to be done by him or by any other
member of the Board in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.
3. PARTICIPATION. Each member of the Board who is not an employee of
the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below.
4. AWARDS UNDER THE PLAN.
(a) Awards under the Plan shall include only Options, which are
rights to purchase common stock of the Company having a par value of
$0.10 per share (the "Common Stock"). Such Options are subject to the
terms, conditions and restrictions specified in Paragraph 5 below.
<PAGE>
(b) There may be issued under the Plan pursuant to the exercise
of Options an aggregate of not more than 100,000 shares of Common Stock,
subject to adjustment as provided in Paragraph 6 below. If any Option is
cancelled, terminates or expires unexercised, in whole or in part, any
shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and
any person succeeding to such a Non-Employee Director's rights pursuant
to the Plan) shall have no rights as a shareholder with respect to any
Common Stock issuable pursuant to any such Option until the date of the
issuance of a stock certificate to him for such shares. Except as
provided in Paragraph 6 below, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities or other property) for
which the record date is prior to the date such stock certificate is
issued.
5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall
be evidenced by an agreement in such form as the Board shall prescribe from time
to time in accordance with the Plan and shall comply with the following terms
and conditions:
(a) The Option exercise price shall be the "Fair Market Value"
(as herein defined) of the Common Stock subject to such Option on the
date the Option is granted. Fair Market Value shall be the closing sales
price of a share of Common Stock on the date of grant as reported on
the New York Stock Exchange Composite Transactions Tape or, if the New
York Stock Exchange is closed on that date, on the last preceding date
on which the New York Stock Exchange was open for trading, but in no
event will such Option exercise price be less than the par value of the
Common Stock.
(b) Each Non-Employee Director shall receive, as of the date of
the adoption of the Plan by the Board, a one-time only Option for 5,000
shares of Common Stock (the "the One-Time Option"); provided, however,
that the One-Time Option shall be granted only to those directors who
are elected to new terms at the 1993 Annual Meeting of Stockholders or
whose terms of office will continue after such meeting. In addition, for
each year beginning in 1993, on the date of the annual meeting of
shareholders of the Company, each Non-Employee Director shall
automatically receive an Option for 1,000 shares of Common Stock (the
"Annual Option").
(c) The Option shall not be transferable by the optionee
otherwise than by will or the laws of descent and distribution, and
shall be exercisable during his lifetime only by him.
<PAGE>
(d) Options shall not be exercisable;
(i) before the expiration of one year from the date it
is granted and after the expiration of ten years from the date
it is granted, and (A) the One-Time Option may be exercised
during such period as follows: one-third (33 1/3%) of the total
number of shares covered by the One-Time Option shall become
exercisable each year beginning with the first anniversary of
the date it is granted, and (B) the Annual Option shall become
exercisable in full upon the first anniversary of the date it is
granted; provided that a Non-Employee Director who does not
stand for re-election to the Board may exercise any otherwise
unexercisable Annual Options beginning on the date such
director's successor is elected and qualified, subject to all of
the other terms and conditions of such Annual Options.
Notwithstanding anything to the contrary herein, an Option shall
automatically become immediately exercisable in full upon the
death of a Non-Employee Director;
(ii) unless payment in full is made for the shares of
Common Stock being acquired thereunder at the time of exercise;
such payment shall be made in United States dollars by cash or
check; or in lieu thereof, by tendering to the Company Common
Stock owned by the person exercising the Option and having a
Fair Market Value equal to the cash exercise price applicable to
such Option, or by a combination of United States dollars and
Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at
all times during the period beginning with the date of grant of
the Option and ending on the date of such exercise, a Non-
Employee Director of the Company, except that
(A) if such person shall cease to be such a Non-
Employee Director for reasons other than death, while holding an
Option that has not expired and has not been fully exercised,
such person may, at any time within three years of the date he
ceased to be a Non-Employee Director (but in no event after the
Option has expired under the provisions of subparagraph 5(d)(i)
above), exercise the Option with respect to any Common Stock as
to which he could have exercised on the date he ceased to be
such a Non-Employee Director; or
3
<PAGE>
(B) If any person to whom an Option has been
granted shall die holding an Option that has not expired
and has not been fully exercised, his executors,
administrators, heirs or distributees, as the case may be,
may, at any time within one year after the date of such
death (but in no event after the Option has expired under
the provisions of subparagraph 5(d)(i) above), exercise the
Option with respect to any shares subject to the Option.
(e) If, on any date on which Options are automatically granted,
the number of shares of Common Stock remaining available under the Plan
is insufficient for the grant to each Non-Employee Director of Options
to purchase 1,000 shares of Common Stock, then Options to purchase a
proportionate amount of such available number of shares of Common Stock
(rounded to the nearest whole share) shall be granted to each Non-
Employee Director.
6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of all or part of its assets, any distribution to
shareholders other than a normal cash dividend, or other extraordinary or
unusual event, the number or kind of shares that may be issued under the Plan
pursuant to subparagraph 4(b) above, and the number or kind of shares subject
to, and the Option price per share under, all outstanding Options shall be
automatically adjusted so that the proportionate interest of the participant
shall be maintained as before the occurrence of such event; such adjustment in
outstanding Options shall be made without change in the total Option exercise
price applicable to the unexercised portion of such Options and with a
corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. MISCELLANEOUS PROVISIONS
(a) Except as expressly provided for in the Plan, no Non-
Employee Director or other person shall have any claim or right to be
granted an Option under the Plan. Neither the Plan nor any action taken
hereunder shall be construed as giving any Non-Employee Director any
right to be retained in the service of the Company.
(b) A participant's rights and interest under the Plan may not
be assigned or transferred, hypothecated or encumbered in whole or in
part either directly or by operation of law or otherwise (except in the
event of a participant's death, by will or the laws of descent and
distribution), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any
4
<PAGE>
other manner, and no such right or interest of any participant in the
Plan shall be subject to any obligation or liability of such
participant.
(c) Common Stock shall not be issued hereunder unless counsel
for the Company shall be satisfied that such issuance will be in
compliance with applicable federal, state, local and foreign securities,
securities exchange and other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company
to issue Common Stock upon exercise of an Option, that the participant
(or any beneficiary or person entitled to act under subparagraph
5(d)(iii)(B) above) pay to the Company, upon its demand, such amount as
may be requested by the Company for the purpose of satisfying any
liability to withhold federal, state, local or foreign income or other
taxes. If the amount requested is not paid, the Company may refuse to
issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option or other benefit under the Plan,
each participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification
of, and consent to, any action taken under the Plan by the Company or
the Board.
(g) The appropriate officers of the Company shall cause to be
filed any reports, returns or other information regarding Options
hereunder or any Common Stock issued pursuant hereto as may be required
by Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, or any other applicable statute, rule or regulation.
8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time
and from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation. No
amendment of the Plan shall materially and adversely affect any right of any
participant with respect to any Option theretofore granted without such
participant's written consent.
9. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) upon the adoption of a resolution of the Board termination
the Plan; or
5
<PAGE>
(b) ten years from the date the Plan is initially approved and
adopted by the shareholders of the Company.
No termination of the Plan shall materially and adversely affect any of
the rights or obligations of any person, without his consent, under any Option
theretofore granted under the Plan.
10. EFFECTIVE DATE OF PLAN. The Plan will become effective on the
date that it is approved by the affirmative vote of the holders of a majority of
the shares of Common Stock entitled to notice of and to vote at the Company's
1993 Annual Meeting of Stockholders.
6
<PAGE>
FIRST AMENDMENT TO THE
RYKOFF-SEXTON, INC
1993 DIRECTOR STOCK OPTION PLAN
THIS AMENDMENT is made effective as of October 1, 1994, by
RYKOFF-SEXTON INC., a Delaware corporation (the "Company"), with respect to the
Rykoff-Sexton, Inc. 1993 Director Stock Option Plan (the "Plan").
RECITALS:
--------
WHEREAS, by an instrument in writing effective as of the date of the
Company's 1993 Annual Meeting and entitled "Rykoff-Sexton, Inc. 1993 Director
Stock Option Plan", the Company did create and establish the Plan for the
benefit of the members of its Board of Directors (the "Board");
WHEREAS, Section 8 of the Plan provides for the amendment thereof by the
Board in the manner and upon the terms and conditions therein recited;
WHEREAS, the Board has been advised by counsel that it would be
advisable to amend the Plan to facilitate compliance with an amendment to Rule
16b-3 that was adopted by the Securities and Exchange Commission in Exchange
Release Number 28869; and
Whereas, the Board has also been advised by counsel that such amendment
may be adopted without shareholder approval;
NOW, THEREFORE, in accordance with the provisions of the Plan and as
provided for thereby, the Plan is hereby amended in the following manner:
1. Effective October 1, 1994, Section 8 is hereby revoked and a
new Section 8 is hereby adopted in lieu thereof, reading as follows:
8. Amendment or Discontinuance. The Plan may be amended at any time
and from time to time by the Board as the Board shall deem advisable;
provided, however that:
(a) no amendment shall become effective without shareholder
approval if such shareholder approval is required by law, rule or
regulation;
(b) no amendment shall materially and adversely affect any right
of any participant with respect to any Option theretofore granted,
without such participant's written consent; and
(c) the following Plan provisions shall not be amended more
than once every six (6) months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act
or the rules thereunder:
(i) those designating the categories of individuals
eligible to participate;
(ii) those stating the amount and price of
securities to be awarded; and
(iii) those specifying the timing of awards.
2. Save as herein expressly amended, all of the terms and covenants
of, and Options awarded under the Plan shall remain in full force and effect.
The Secretary of the Company hereby certifies that this Amendment was
duly adopted by the Board on the __ day of ____________, 1994.
By:
----------------------------
Neil I. Sell, Secretary
<PAGE>
EXHIBIT 10.21.4
---------------
THIRD SUPPLEMENTAL INDENTURE
----------------------------
This THIRD SUPPLEMENTAL INDENTURE dated as of February 10, 1998 (this
"Supplemental Indenture") is between RYKOFF-SEXTON, INC., a Delaware corporation
----------------------
(the "Company"), and NORWEST BANK MINNESOTA, N.A., as trustee under the
-------
Indenture referred to below (in such capacity, the "Trustee").
-------
WITNESSETH:
-----------
WHEREAS, the Trustee and Rykoff-Sexton, Inc., a Delaware corporation
and the Company's predecessor in interest (the "Predecessor"), were parties to
-----------
the Indenture dated as of November 1, 1993 (as supplemented, the "Indenture"),
---------
pursuant to which the Predecessor issued its 8 7/8% Senior Subordinated Notes
due 2003 (the "Securities");
----------
WHEREAS, in connection with the Agreement and Plan of Merger dated as
of June 30, 1997, as amended, among the Predecessor, JP Foodservice, Inc., a
Delaware corporation ("JP Foodservice"), and the Company, the Predecessor merged
--------------
with and into the Company, with the Company being the surviving entity of such
merger (the "Merger");
------
WHEREAS, in accordance with Section 5.1(a)(1) of the Indenture, the
Company, as the surviving entity of the Merger, has assumed all obligations of
the Predecessor under the Securities and the Indenture;
WHEREAS, Section 4.8(a) of the Indenture requires the Company, whether
or not it is subject to Section 13(a) or 15(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), to file certain reports and other
------------
documents with the Securities and Exchange Commission (the "Commission") and to
----------
provide copies of such reports and other documents to the Trustee and the
registered holders of the Securities (the "Holders") (the "Commission Reporting
------- --------------------
Requirement");
- -----------
WHEREAS, the Company is a wholly-owned subsidiary of JP Foodservice
and is not subject to Section 13(a) or 15(d) of the Exchange Act;
WHEREAS, JP Foodservice is subject to Section 13(a) or 15(d) of the
Exchange Act and in accordance therewith files reports and other documents with
the Commission (the "JP Foodservice Commission Reports");
---------------------------------
WHEREAS, the Company has requested the Trustee to enter into this
Supplemental Indenture to authorize the Company, subject to certain conditions
<PAGE>
provided herein, to satisfy the Commission Reporting Requirement by providing
the Trustee and the Holders with copies of the JP Foodservice Commission
Reports;
WHEREAS, Section 9.1(7) of the Indenture permits the Company, when
authorized by a Board Resolution, and the Trustee to supplement the Indenture
without the consent of any Holder for the purpose of making provisions with
respect to matters or questions arising under the Indenture, provided, that,
such action shall not adversely affect the interests of any of the Holders in
any respect; and
WHEREAS, in the opinion of the Board of Directors as evidenced by a
Board Resolution delivered to the Trustee on the date hereof, the provisions in
the Third Supplemental Indenture with respect to the Commission Reporting
Requirement will not adversely affect the interests of any of the Holders in any
respect;
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to them in the Indenture.
ARTICLE II
EFFECTIVENESS
This Supplemental Indenture shall be effective as of the date first
above written.
ARTICLE III
AMENDMENT OF SECTION 4.8(a)
Section 4.8(a) of the Indenture is hereby amended by adding the
following sentence after the penultimate sentence of such Section 4.8(a):
Notwithstanding the foregoing, if and for so long as the Company is
not subject to Section 13(a) or 15(d) of the Exchange Act, the Company
shall be deemed to have complied with the
-2-
<PAGE>
requirements of the first two sentences of this Section 4.8(a) if it
provides to the Holders and the Trustee, within 15 days of each
Required Filing Date, copies of the annual reports, quarterly reports
and other documents (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe)
which JP Foodservice, Inc. is required to file with the Commission
pursuant to such Section 13(a) or 15(d); provided, that, (i) JP
Foodservice, Inc. is subject to Section 13(a) or 15(d) of the Exchange
Act and files the reports and other documents with the Commission
required to be filed in accordance therewith, (ii) JP Foodservice,
Inc. owns, directly or indirectly, all the outstanding Capital Stock
(other than directors' qualifying shares) of the Company and (iii) the
Company complies with the provisions of Section 4.8(b).
ARTICLE IV
MISCELLANEOUS
Section 4.1. Ratification of Indenture.
This Supplemental Indenture shall be construed as supplemental to the
Indenture and shall form a part thereof, and the Indenture is hereby
incorporated by reference herein and, as supplemented, modified and restated
hereby, is ratified, approved and confirmed.
Section 4.2 Governing Law.
This Supplemental Indenture shall be governed and construed in
accordance with the laws of the State of New York.
Section 4.3 Counterparts.
This Supplemental Indenture may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Supplemental Indenture.
IN WITNESS WHEREOF, the Company and the Trustee have caused this Third
Supplemental Indenture to be duly executed as of the day and year first above
written.
-3-
<PAGE>
RYKOFF-SEXTON, INC.
By: /s/ Lewis Hay, III
-------------------------
Lewis Hay, III
Title: Vice President
NORWEST BANK MINNESOTA, N.A.,
as Trustee
By: /s/ Jane Y. Schweiger
-------------------------
Name: Jane Y. Schweiger
-------------------------
Title: Corporate Trust Officer
-------------------------
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EXHIBIT 10.34
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PARTICIPATION AGREEMENT
Dated as of June 29, 1998
among
JP FOODSERVICE DISTRIBUTORS, INC.,
as the Construction Agent and as the Lessee,
THE VARIOUS PARTIES HERETO FROM TIME TO TIME,
as the Guarantors,
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually, except as expressly
stated herein, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1,
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE PARTIES
HERETO FROM TIME TO TIME, as the Holders,
THE VARIOUS BANKS AND OTHER LENDING INSTITUTIONS WHICH ARE PARTIES
HERETO FROM TIME TO TIME, as the Lenders,
and
FIRST UNION NATIONAL BANK,
as the Agent for the Lenders
and respecting the Security Documents,
as the Agent for the Lenders and the Holders,
to the extent of their interests
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TABLE OF CONTENTS
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SECTION 1A. INITIAL LENDER AND INITIAL HOLDER..........................................1
SECTION 1. THE LOANS...................................................................1
SECTION 2. HOLDER ADVANCES.............................................................2
SECTION 3. SUMMARY OF TRANSACTIONS.....................................................2
3.1. Operative Agreements..........................................................2
3.2. Property Purchase.............................................................2
3.3. Construction of Improvements; Commencement of Basic Rent......................3
SECTION 4. THE CLOSINGS................................................................3
4.1. Initial Closing Date..........................................................3
4.2. Transaction Expenses; Acquisition Advances; Construction Advances.............3
SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT; REPORTING REQUIREMENTS ON
COMPLETION DATE; THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS...............3
5.1. General.......................................................................3
5.2. Procedures for Funding........................................................4
5.3. Conditions Precedent for the Lessor, the Agent, the Lenders and the
Holders Relating to the Initial Closing Date and the Advance of Funds for
the Acquisition of a Property......................................................6
5.4. Conditions Precedent for the Lessor, the Agent, the Lenders and the
Holders Relating to the Advance of Funds after the Acquisition Advance.............11
5.5. Additional Reporting and Delivery Requirements on Completion Date and
on Construction Period Termination Date............................................12
5.6. The Construction Agent Delivery of Construction Budget Modifications..........13
5.7. Restrictions on Liens.........................................................13
5.8 Joinder Agreement Requirements.................................................13
5.9 Payments.......................................................................14
SECTION 6. REPRESENTATIONS AND WARRANTIES..............................................14
6.1. Representations and Warranties of the Trust Company and the Borrower..........14
6.2. Representations and Warranties of Each Credit Party...........................17
SECTION 6B. GUARANTY...................................................................21
6B.1. Guaranty of Payment and Performance..........................................21
6B.2. Obligations Unconditional....................................................21
6B.3. Modifications................................................................22
6B.4. Waiver of Rights.............................................................23
6B.5. Reinstatement................................................................23
6B.6. Remedies.....................................................................24
6B.7. Limitation of Guaranty.......................................................24
6B.9. Release of Guarantors........................................................24
SECTION 7. PAYMENT OF CERTAIN EXPENSES..................................................25
7.1. Transaction Expenses..........................................................25
7.2. Brokers' Fees.................................................................26
7.3. Certain Fees and Expenses.....................................................26
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7.4. Facility Fee..................................................................26
SECTION 8. OTHER COVENANTS AND AGREEMENTS..............................................27
8.1. Cooperation with the Construction Agent or the Lessee.........................27
8.2. Covenants of the Owner Trustee and the Holders................................27
8.3. Credit Party Covenants, Consent and Acknowledgment............................29
8.4. Sharing of Certain Payments...................................................33
8.5. Grant of Easements, etc.......................................................33
8.6. Appointment by the Agent, the Lenders, the Holders and the Owner Trustee......33
8.7. Collection and Allocation of Payments and Other Amounts.......................34
8.8. Release of Properties, etc....................................................37
8.9. Recordation of Memoranda of Lease and Lease Supplements.......................37
SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT........................................38
9.1. The Construction Agent's and the Lessee's Credit Agreement Rights.............38
9.2. The Construction Agent's and the Lessee's Trust Agreement Rights..............39
SECTION 10. TRANSFER OF INTEREST.......................................................39
10.1. Restrictions on Transfer.....................................................39
10.2. Effect of Transfer...........................................................40
SECTION 11. INDEMNIFICATION............................................................40
11.1. General Indemnity............................................................40
11.2. General Tax Indemnity........................................................43
11.3. Increased Costs, Illegality, etc.............................................47
11.4. Funding/Contribution Indemnity...............................................49
11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT LIABILITY, ETC.......49
SECTION 12. MISCELLANEOUS..............................................................50
12.1. Survival of Agreements.......................................................50
12.2. Notices......................................................................50
12.3. Counterparts.................................................................52
12.4. Terminations, Amendments, Waivers, Etc.; Unanimous Vote Matters..............52
12.5. Headings, etc................................................................53
12.6. Parties in Interest..........................................................53
12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; VENUE;
ARBITRATION........................................................................54
12.8. Severability.................................................................56
12.9. Liability Limited............................................................56
12.10. Rights of the Credit Parties................................................57
12.11. Further Assurances..........................................................57
12.12. Calculations under Operative Agreements.....................................58
12.13. Confidentiality.............................................................58
12.14. Financial Reporting/Tax Characterization....................................59
12.15. Set-off.....................................................................59
12.16. Obligations of the Lenders, the Agent, the Owner Trustee, the Trust
Company and the Holders.....................................................60
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EXHIBITS
A - Form of Requisition - Sections 4.2, 5.2, 5.3 and 5.4
B - Form of Outside Counsel Opinion for the Lessee - Section 5.3(j)
C - Form of Officer's Certificate - Section 5.3(z)
D - Form of Secretary's Certificate - Section 5.3(aa)
E - Form of Officer's Certificate - Section 5.3(cc)
F - Form of Secretary's Certificate - Section 5.3(dd)
G - Form of Outside Counsel Opinion for the Owner Trustee - Section 5.3(ee)
H - Form of Outside Counsel Opinion for the Lessee - Section 5.3(ff)
I - Form of Officer's Certificate - Section 5.5
J - Form of Joinder Agreement - Section 5.8(a)
K -Description of Material Litigation - Section 6.2(d)
L - State of Incorporation/Formation and Principal Place of Business of Each
Guarantor - Section 6.2(i)
M - Form of Officer's Compliance Certificate - Section 8.3(l)
N - Unrestricted Subsidiaries and Restricted Subsidiaries
Appendix A - Rules of Usage and Definitions
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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT dated as of June 29, 1998 (as amended, modified,
extended, supplemented, restated and/or replaced from time to time, this
"Agreement") is by and among JP FOODSERVICE DISTRIBUTORS, INC., a Delaware
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corporation (the "Lessee" or the "Construction Agent"); the various parties
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hereto from time to time as guarantors (subject to the definition of Guarantors
in Appendix A hereto, individually, a "Guarantor" and collectively, the
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"Guarantors"); FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national banking
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association, not individually, except as expressly stated herein (in its
individual capacity, the "Trust Company"), but solely as the Owner Trustee under
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the USF Real Estate Trust 1998-1 (the "Owner Trustee", the "Borrower" or the
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"Lessor"); the various banks and other lending institutions which are parties
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hereto from time to time as holders of certificates issued with respect to the
USF Real Estate Trust 1998-1 (subject to the definition of Holders in Appendix A
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hereto, individually, a "Holder" and collectively, the "Holders"); the various
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banks and other lending institutions which are parties hereto from time to time
as lenders (subject to the definition of Lenders in Appendix A hereto,
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individually, a "Lender" and collectively, the "Lenders"); and FIRST UNION
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NATIONAL BANK, a national banking association, as the agent for the Lenders and
respecting the Security Documents, as the agent for the Lenders and the Holders,
to the extent of their interests (in such capacity, the "Agent"). Capitalized
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terms used but not otherwise defined in this Agreement shall have the meanings
set forth in Appendix A hereto.
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In consideration of the mutual agreements herein contained and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
SECTION 1A. INITIAL LENDER AND INITIAL HOLDER.
Notwithstanding the various references in the Operative Agreements to multiple
Lenders and multiple Holders, First Union National Bank is the only Lender and
the only Holder as of the date of this Agreement. Additional Lenders and
additional Holders may become parties to the Operative Agreements subsequent to
the date hereof pursuant to the assignment provisions set forth in the
applicable Operative Agreements.
SECTION 1. THE LOANS.
Subject to the terms and conditions of this Agreement and the other Operative
Agreements and in reliance on the representations and warranties of each of the
parties hereto contained herein or made pursuant hereto, the Lenders have agreed
to make Loans to the Lessor from time to time in an aggregate principal amount
of up to the aggregate amount of the Commitments of the Lenders in order for the
Lessor to acquire the Properties and certain Improvements, to develop and
construct certain Improvements in accordance with the Agency Agreement and the
terms and provisions hereof and for the other purposes described herein, and in
consideration of the receipt of proceeds of the Loans, the Lessor will issue the
Notes. The Loans shall be made and the Notes shall be issued pursuant to the
Credit Agreement. Pursuant to
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Section 5 of this Agreement and Section 2 of the Credit Agreement, the Loans
will be made to the Lessor from time to time at the request of the Construction
Agent in consideration for the Construction Agent agreeing for the benefit of
the Lessor, pursuant to the Agency Agreement, to acquire the Properties, to
acquire the Equipment, to construct certain Improvements and to cause the Lessee
to lease the Properties, each in accordance with the Agency Agreement and the
other Operative Agreements. The Loans and the obligations of the Lessor under
the Credit Agreement shall be secured by the Collateral.
SECTION 2. HOLDER ADVANCES.
Subject to the terms and conditions of this Agreement and the other Operative
Agreements and in reliance on the representations and warranties of each of the
parties hereto contained herein or made pursuant hereto, on each date Advances
are requested to be made in accordance with Section 5 hereof, each Holder shall
make a Holder Advance on a pro rata basis to the Lessor with respect to the USF
Real Estate Trust 1998-1 based on its Holder Commitment in an amount in
immediately available funds such that the aggregate of all Holder Advances on
such date shall be three percent (3%) of the amount of the Requested Funds on
such date; provided, that no Holder shall be obligated for any Holder Advance in
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excess of its pro rata share of the Available Holder Commitment. The aggregate
amount of Holder Advances shall be up to the aggregate amount of the Holder
Commitments. No prepayment or any other payment with respect to any Advance
shall be permitted such that the Holder Advance with respect to such Advance is
less than three percent (3%) of the outstanding amount of such Advance, except
in connection with termination or expiration of the Term or in connection with
the exercise of remedies relating to the occurrence of a Lease Event of Default.
The representations, warranties, covenants and agreements of the Holders herein
and in the other Operative Agreements are several, and not joint or joint and
several.
SECTION 3. SUMMARY OF TRANSACTIONS.
3.1. OPERATIVE AGREEMENTS.
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On the date hereof, each of the respective parties hereto and thereto shall
execute and deliver this Agreement, the Lease, each applicable Ground Lease, the
Agency Agreement, the Credit Agreement, the Notes, the Trust Agreement, the
Certificates, the Security Agreement, each applicable Mortgage Instrument and
such other documents, instruments, certificates and opinions of counsel as
agreed to by the parties hereto.
3.2. PROPERTY PURCHASE.
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On each Property Closing Date and subject to the terms and conditions of this
Agreement (a) the Holders will each make a Holder Advance in accordance with
Sections 2 and 5 of this Agreement and the terms and provisions of the Trust
Agreement, (b) the Lenders will each make Loans in accordance with Sections 1
and 5 of this Agreement and the terms and provisions of the Credit Agreement,
(c) the Lessor will purchase and acquire good and marketable title to or ground
lease pursuant to a Ground Lease, the applicable Property, each to be within an
Approved State, identified by the Construction Agent, in each case pursuant to a
Deed, Bill of Sale or
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Ground Lease, as the case may be, and grant the Agent a lien on such Property by
execution of the required Security Documents, (d) the Agent, the Lessee and the
Lessor shall execute and deliver a Lease Supplement relating to such Property
and (e) the Term shall commence with respect to such Property.
3.3. CONSTRUCTION OF IMPROVEMENTS; COMMENCEMENT OF BASIC RENT.
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Construction Advances will be made with respect to particular Improvements to
be constructed and with respect to ongoing Work regarding the Equipment and
construction of particular Improvements, in each case, pursuant to the terms and
conditions of this Agreement and the Agency Agreement. The Construction Agent
will act as a construction agent on behalf of the Lessor respecting the Work
regarding the Equipment, the construction of such Improvements and the
expenditures of the Construction Advances related to the foregoing. The
Construction Agent shall promptly notify the Lessor upon Completion of the
Improvements and the Lessee shall commence to pay Basic Rent as of the Rent
Commencement Date.
SECTION 4. THE CLOSINGS.
4.1. INITIAL CLOSING DATE.
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All documents and instruments required to be delivered on the Initial Closing
Date shall be delivered at the offices of Moore & Van Allen, PLLC, Charlotte,
North Carolina, or at such other location as may be determined by the Lessor,
the Agent and the Lessee.
4.2. TRANSACTION EXPENSES; ACQUISITION ADVANCES; CONSTRUCTION ADVANCES.
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The Construction Agent shall deliver to the Agent a requisition (a
"Requisition"), in the form attached hereto as Exhibit A or in such other form
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as is satisfactory to the Agent, in its reasonable discretion, in connection
with (a) the Transaction Expenses and other fees, expenses and disbursements
payable, pursuant to Section 7.1, by the Lessor and (b) each Acquisition
Advance pursuant to Section 5.3 and (c) each Construction Advance pursuant to
Section 5.4.
SECTION 5. FUNDING OF ADVANCES; CONDITIONS PRECEDENT;
REPORTING REQUIREMENTS ON COMPLETION DATE;
THE LESSEE'S DELIVERY OF NOTICES; RESTRICTIONS ON LIENS.
5.1. GENERAL.
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(a) To the extent funds have been advanced to the Lessor as Loans by
the Lenders and as Holder Advances by the Holders, the Lessor will use such
funds from time to time in accordance with the terms and conditions of this
Agreement and the other Operative Agreements (i) at the direction of the
Construction Agent to acquire the Properties in accordance with the terms
of this Agreement, the Agency Agreement and the other Operative Agreements,
(ii) to make Advances to the Construction Agent to permit the acquisition,
testing, engineering, installation, development, construction,
modification, design, and renovation, as applicable, of the Properties (or
components
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thereof) in accordance with the terms of the Agency Agreement and the other
Operative Agreements, and (iii) to pay Transaction Expenses, fees, expenses
and other disbursements payable by the Lessor under Sections 7.1(a) and
7.1(b).
(b) In lieu of the payment of interest on the Loans and Holder Yield on
the Holder Advances on any Scheduled Interest Payment Date with respect to
any Property during the period prior to the Rent Commencement Date with
respect to such Property, (i) each Lender's Loan shall automatically be
increased by the amount of interest accrued and unpaid on such Loan for
such period (except to the extent that at any time such increase would
cause such Lender's Loan to exceed such Lender's Available Commitment, in
which case the Lessee shall pay such excess amount to such Lender in
immediately available funds on the date such Lender's Available Commitment
was exceeded), and (ii) each Holder's Holder Advance shall automatically be
increased by the amount of Holder Yield accrued and unpaid on such Holder
Advance for such period (except to the extent that at any time such
increase would cause the Holder Advance of such Holder to exceed such
Holder's Available Holder Commitment, in which case the Lessee shall pay
such excess amount to such Holder in immediately available funds on the
date the Available Holder Commitment of such Holder was exceeded). Such
increases in a Lender's Loan and a Holder's Holder Advance shall occur
without any disbursement of funds by any Person but the applicable accrued
interest or accrued Holder Yield shall be deemed to be paid as a result of
such increase.
5.2. PROCEDURES FOR FUNDING.
----------------------
(a) The Construction Agent shall designate the date for Advances
hereunder in accordance with the terms and provisions hereof; provided,
--------
however, it is understood and agreed that no more than two (2) Advances
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(excluding any conversion and/or continuation of any Loans or Holder
Advances) may be requested during any calendar month. Prior to 12:00 Noon,
Charlotte, North Carolina time, at least (i) three (3) Business Days prior
to the Initial Closing Date and (ii) three (3) Business Days prior to the
date on which any Acquisition Advance or Construction Advance is to be
made, the Construction Agent shall deliver to the Agent, (A) with respect
to the Initial Closing Date and each Acquisition Advance, a Requisition as
described in Section 4.2 hereof (including without limitation a legal
description of the Land, if any, a schedule of the Improvements, if any,
and a schedule of the Equipment, if any, acquired or to be acquired on such
date, and a schedule of the Work, if any, to be performed, each of the
foregoing in a form reasonably acceptable to the Agent) and (B) with
respect to each Construction Advance, a Requisition identifying (among
other things) the Property to which such Construction Advance relates.
(b) Each Requisition shall: (i) be irrevocable, (ii) request funds in
an amount that is not in excess of the total aggregate of the Available
Commitments plus the Available Holder Commitments at such time, and (iii)
request that the Holders make Holder Advances and that the Lenders make
Loans to the Lessor for the payment of Transaction Expenses, Property
Acquisition Costs (in the case of an Acquisition Advance) or other Property
Costs (in the case of a Construction Advance) that have
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previously been incurred or are to be incurred on the date of such Advance
to the extent such were not subject to a prior Requisition, in each case as
specified in the Requisition.
(c) Subject to the satisfaction of the conditions precedent set forth
in Sections 5.3 or 5.4, as applicable, and subject to the last sentence of
this Section 5.2(c), on each Property Closing Date or the date on which the
Construction Advance is to be made, as applicable, (i) the Lenders shall
make Loans based on their respective Lender Commitments to the Lessor in an
aggregate amount equal to ninety-seven percent (97%) of the Requested Funds
specified in any Requisition (ratably between the Tranche A Lenders and the
Tranche B Lenders with the Tranche A Lenders funding eighty-five percent
(85%) of the Requested Funds and the Tranche B Lenders funding twelve
percent (12%) of the Requested Funds), up to an aggregate principal amount
equal to the aggregate of the Available Commitments, (ii) each Holder shall
make a Holder Advance based on its Holder Commitment in an amount such that
the aggregate of all Holder Advances at such time shall be three percent
(3%) of the balance of the Requested Funds specified in such Requisition,
up to the aggregate advanced amount equal to the aggregate of the Available
Holder Commitments; and (iii) the total amount of such Loans and Holder
Advances made on such date shall (x) be used by the Lessor to pay Property
Costs and/or Transaction Expenses within three (3) Business Days of the
receipt by the Lessor of such Advance or (y) be advanced by the Lessor on
the date of such Advance to the Construction Agent or the Lessee to pay
Property Costs, as applicable. Notwithstanding that the Operative
Agreements state that Advances shall be directed to the Lessor, each
Advance shall in fact be directed to the Agent (for the benefit of the
Lessor) and applied by the Agent (for the benefit of the Lessor) pursuant
to the requirements imposed on the Lessor under the Operative Agreements.
(d) With respect to an Advance obtained by the Lessor to pay for
Property Costs and/or Transaction Expenses or other costs payable under
Section 7.1 hereof and not expended by the Lessor for such purpose on the
date of such Advance, such amounts shall be held by the Lessor (or the
Agent on behalf of the Lessor) until the time designated for use of such
funds or, if such funds are not used within three (3) Business Days of the
date of the Lessor's receipt of such Advance, shall be applied regarding
the applicable Advance to repay the Lenders and the Holders and shall
remain available for future Advances in accordance with the terms hereof,
and of the Credit Agreement and the Trust Agreement. Any such amounts held
by the Lessor (or the Agent on behalf of the Lessor) shall be subject to
the lien of the Security Agreement.
(e) All Operative Agreements which are to be delivered to the Lessor,
the Agent, the Lenders or the Holders shall be delivered to the Agent, on
behalf of the Lessor, the Agent, the Lenders or the Holders, and such items
(except for Notes, Certificates, Bills of Sale, the Ground Leases and
chattel paper originals, with respect to which in each case there shall be
only one original) shall be delivered with originals sufficient for the
Lessor, the Agent, each Lender and each Holder. All other items which are
to be delivered to the Lessor, the Agent, the Lenders or the Holders shall
be delivered to the Agent, on behalf of the Lessor, the Agent, the Lenders
or the Holders, and such other items shall be held by the Agent. To the
extent any such other items are requested
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in writing from time to time by the Lessor, any Lender or any Holder, the
Agent shall provide a copy of such item to the party requesting it.
(f) Notwithstanding the completion of any closing under this Agreement
pursuant to Sections 5.3 or 5.4, each condition precedent in connection
with any such closing may be subsequently enforced by the Agent (unless
such has been expressly waived in writing by the Agent).
5.3. CONDITIONS PRECEDENT FOR THE LESSOR, THE AGENT, THE LENDERS AND THE
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HOLDERS RELATING TO THE INITIAL CLOSING DATE AND THE ADVANCE OF FUNDS
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FOR THE ACQUISITION OF A PROPERTY.
---------------------------------
The obligations (i) on the Initial Closing Date of the Lessor, the Agent, the
Lenders and the Holders to enter into the transactions contemplated by this
Agreement, including without limitation the obligation to execute and deliver
the applicable Operative Agreements to which each is a party on the Initial
Closing Date, (ii) on the Initial Closing Date of the Holders to make Holder
Advances, and of the Lenders to make Loans in order to pay Transaction Expenses,
fees, expenses and other disbursements payable by the Lessor under Section
7.1(a) of this Agreement and (iii) on a Property Closing Date for the purpose of
providing funds to the Lessor necessary to pay the Transaction Expenses, fees,
expenses and other disbursements payable by the Lessor under Section 7.1(b) of
this Agreement and to acquire or ground lease a Property (an "Acquisition
-----------
Advance"), in each case (with regard to the foregoing Sections 5.3(i), (ii) and
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(iii)) are subject to the satisfaction or waiver of the following conditions
precedent on or prior to the Initial Closing Date or the applicable Property
Closing Date, as the case may be (to the extent such conditions precedent
require the delivery of any agreement, certificate, instrument, memorandum,
legal or other opinion, appraisal, commitment, title insurance commitment, lien
report or any other document of any kind or type, such shall be in form and
substance satisfactory to the Agent, in its reasonable discretion;
notwithstanding the foregoing, the obligations of each party shall not be
subject to any conditions contained in this Section 5.3 which are required to be
performed by such party):
(a) the material correctness of the representations and warranties of
the parties to this Agreement contained herein, in each of the other
Operative Agreements and each certificate delivered pursuant to any
Operative Agreement (including without limitation the Incorporated
Representations and Warranties) on each such date;
(b) the performance by the parties to this Agreement of their
respective agreements contained herein and in the other Operative
Agreements to be performed by them on or prior to each such date;
(c) the Agent shall have received a fully executed counterpart copy of
the Requisition, appropriately completed;
(d) title to each such Property shall conform to the representations
and warranties set forth in Section 6.2(l) hereof;
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(e) the Construction Agent shall have delivered to the Agent a good
standing certificate for the Construction Agent in the state where each
such Property is located, the Deed with respect to the Land and existing
Improvements (if any), a copy of the Ground Lease (if any), and a copy of
the Bill of Sale with respect to the Equipment (if any), respecting such of
the foregoing as are being acquired or ground leased on each such date with
the proceeds of the Loans and Holder Advances or which have been previously
acquired or ground leased with the proceeds of the Loans and Holder
Advances and such Land, existing Improvements (if any) and Equipment (if
any) shall be located in an Approved State;
(f) there shall not have occurred and be continuing any Default or
Event of Default under any of the Operative Agreements and no Default or
Event of Default under any of the Operative Agreements will have occurred
after giving effect to the Advance requested by each such Requisition;
(g) the Construction Agent shall have delivered to the Agent title
insurance commitments to issue policies respecting each such Property in
favor of the Lessor and the Agent from a title insurance company reasonably
acceptable to the Agent, with such title exceptions thereto as are
reasonably acceptable to the Agent;
(h) the Construction Agent shall have delivered to the Agent a Phase I
environmental site assessment respecting each such Property prepared by an
independent recognized professional reasonably acceptable to the Agent;
(i) the Construction Agent shall have delivered to the Agent a survey
(with a flood hazard certification) respecting each such Property prepared
by an independent recognized professional reasonably acceptable to the
Agent;
(j) unless such an opinion has previously been delivered with respect
to a particular state, the Construction Agent shall have caused to be
delivered to the Agent a legal opinion in the form attached hereto as
Exhibit B or in such other form as is reasonably acceptable to the Agent
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with respect to local law real property issues respecting the state in
which each such Property is located addressed to the Lessor, the Agent, the
Lenders and the Holders, from counsel located in the state where each such
Property is located, prepared by counsel reasonably acceptable to the
Agent;
(k) [INTENTIONALLY OMITTED];
(l) the Construction Agent shall have delivered to the Agent invoices
for, or other reasonably satisfactory evidence of, the various Transaction
Expenses and other fees, expenses and disbursements referenced in Sections
7.1(a) or 7.1(b) of this Agreement, as appropriate;
(m) the Construction Agent shall have caused to be delivered to the
Agent a Mortgage Instrument (in such form as is reasonably acceptable to
the Agent, with
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revisions as necessary to conform to applicable state law), Lessor
Financing Statements and Lender Financing Statements respecting each such
Property, all fully executed and in recordable form;
(n) the Lessee shall have delivered to the Agent with respect to each
such Property a Lease Supplement and a memorandum (or short form lease)
regarding the Lease and such Lease Supplement (such memorandum or short
form lease to be in the form attached to the Lease as Exhibit B or in such
---------
other form as is reasonably acceptable to the Agent, with modifications as
necessary to conform to applicable state law, and in form suitable for
recording);
(o) with respect to each Acquisition Advance, the sum of the Available
Commitment plus the Available Holder Commitment (after deducting the
Unfunded Amount, if any, and after giving effect to the Acquisition
Advance) will be sufficient to pay all amounts payable therefrom;
(p) if any such Property is subject to a Ground Lease, the Construction
Agent shall have caused a lease memorandum (or short form lease) to be
delivered to the Agent for such Ground Lease and, if requested by the
Agent, a landlord waiver and a mortgagee waiver (in each case, in such form
as is reasonably acceptable to the Agent);
(q) counsel (reasonably acceptable to the Agent) for the ground lessor
of each such Property subject to a Ground Lease shall have issued to the
Lessor, the Agent, the Lenders and the Holders, its opinion;
(r) the Construction Agent shall have delivered to the Agent a
preliminary Construction Budget for each such Property, if applicable;
(s) the Construction Agent shall have provided evidence to the Agent of
insurance with respect to each such Property as provided in the Lease;
(t) the Construction Agent shall have caused an Appraisal regarding
each such Property to be provided to the Agent from an appraiser reasonably
satisfactory to the Agent;
(u) the Construction Agent shall cause (i) Uniform Commercial Code lien
searches, tax lien searches and judgment lien searches regarding the Lessee
to be conducted (and copies thereof to be delivered to the Agent) in such
jurisdictions as determined by the Agent by a nationally recognized search
company reasonably acceptable to the Agent and (ii) the liens referenced in
such lien searches which are objectionable to the Agent to be either
removed or otherwise handled in a manner reasonably satisfactory to the
Agent; provided, that if such lien searches regarding the Lessee previously
--------
have been conducted in any jurisdiction, the Construction Agent shall cause
updates to such searches to be conducted in such jurisdictions;
8
<PAGE>
(v) all taxes, fees and other charges in connection with the execution,
delivery, recording, filing and registration of the Operative Agreements
and/or documents related thereto shall have been paid or provisions for
such payment shall have been made by Lessor to the reasonable satisfaction
of the Agent;
(w) in the reasonable opinion of the Agent (after consultation with its
counsel), the transactions contemplated by the Operative Agreements do not
and will not subject the Lessor, the Lenders, the Agent or the Holders to
any adverse regulatory prohibitions, constraints, penalties or fines;
(x) each of the Operative Agreements to be entered into on such date
shall have been duly authorized, executed and delivered by the parties
thereto, and shall be in full force and effect, and the Agent shall have
received a fully executed copy of each of the Operative Agreements;
(y) [INTENTIONALLY OMITTED].
(z) as of the Initial Closing Date only, the Agent shall have received
an Officer's Certificate, dated as of the Initial Closing Date, of the
Lessee in the form attached hereto as Exhibit C or in such other form as is
---------
reasonably acceptable to the Agent stating that (i) each and every
representation and warranty of each Credit Party contained in the Operative
Agreements to which it is a party is true and correct in all material
respects on and as of the Initial Closing Date (or, if as to an earlier
date, on and as of such earlier date); (ii) no Default or Event of Default
has occurred and is continuing under any Operative Agreement; (iii) each
Operative Agreement to which any Credit Party is a party is in full force
and effect with respect to it; and (iv) each Credit Party has duly
performed and complied with all covenants, agreements and conditions
contained herein or in any Operative Agreement required to be performed or
complied with by it on or prior to the Initial Closing Date;
(aa) as of the Initial Closing Date only, the Agent shall have received
(i) a certificate of the Secretary or an Assistant Secretary of each Credit
Party, dated as of the Initial Closing Date, in the form attached hereto as
Exhibit D or in such other form as is reasonably acceptable to the Agent
---------
attaching and certifying as to (1) the resolutions of the Board of
Directors of such Credit Party duly authorizing the execution, delivery and
performance by such Credit Party of each of the Operative Agreements to
which it is or will be a party, (2) the articles of incorporation of such
Credit Party certified as of a recent date by the Secretary of State of its
state of incorporation and its by-laws and (3) the incumbency and signature
of persons authorized to execute and deliver on behalf of such Credit Party
the Operative Agreements to which it is or will be a party and (ii) a good
standing certificate (or local equivalent) from the respective states where
such Credit Party is incorporated and where the principal place of business
of such Credit Party is located as to its good standing in each such state.
To the extent any Credit Party is a partnership, a limited liability
company or is otherwise organized, such Person shall deliver to the Agent
(in form and substance reasonably satisfactory to the Agent) as of the
Initial Closing Date (A) a certificate regarding such Person and any
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<PAGE>
corporate general partners covering the matters described in Exhibit D and
---------
(B) a good standing certificate, a certificate of limited partnership or a
local equivalent of either the foregoing as applicable;
(bb) [INTENTIONALLY OMITTED];
(cc) as of the Initial Closing Date only, the Agent shall have received
an Officer's Certificate of the Lessor dated as of the Initial Closing Date
in the form attached hereto as Exhibit E or in such other form as is
---------
reasonably acceptable to the Agent, stating that (i) each and every
representation and warranty of the Lessor contained in the Operative
Agreements to which it is a party is true and correct in all material
respects on and as of the Initial Closing Date (or, if as to an earlier
date, on and as of such earlier date), (ii) each Operative Agreement to
which the Lessor is a party is in full force and effect with respect to it
and (iii) the Lessor has duly performed and complied with all covenants,
agreements and conditions contained herein or in any Operative Agreement
required to be performed or complied with by it on or prior to the Initial
Closing Date;
(dd) as of the Initial Closing Date only, the Agent shall have received
(i) a certificate of the Secretary, an Assistant Secretary, Trust Officer
or Vice President of the Trust Company in the form attached hereto as
Exhibit F or in such other form as is reasonably acceptable to the Agent,
---------
attaching and certifying as to (A) the signing resolutions duly authorizing
the execution, delivery and performance by the Lessor of each of the
Operative Agreements to which it is or will be a party, (B) its articles of
association or other equivalent charter documents and its by-laws, as the
case may be, certified as of a recent date by an appropriate officer of the
Trust Company and (C) the incumbency and signature of persons authorized to
execute and deliver on its behalf the Operative Agreements to which it is a
party and (ii) a good standing certificate from the Office of the
Comptroller of the Currency;
(ee) as of the Initial Closing Date only, counsel for the Lessor
reasonably acceptable to the Agent shall have issued to the Lessee, the
Holders, the Lenders and the Agent its opinion in the form attached hereto
as Exhibit G or in such other form as is reasonably acceptable to the
---------
Agent; and
(ff) as of the Initial Closing Date only, the Construction Agent shall
have caused to be delivered to the Agent a legal opinion in the form
attached hereto as Exhibit H or in such other form as is reasonably
---------
acceptable to the Agent, addressed to the Lessor, the Agent, the Lenders
and the Holders, from counsel reasonably acceptable to the Agent; and
(gg) as of the Initial Closing Date only, the Construction Agent shall
cause (i) tax lien searches and judgment lien searches regarding each
Credit Party to be conducted (and copies thereof to be delivered to the
Agent) in such jurisdictions as determined by the Agent by a nationally
recognized search company reasonably acceptable to the Agent and (ii) the
liens referenced in such lien searches which are
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<PAGE>
objectionable to the Agent to be either removed or otherwise handled in a
manner reasonably satisfactory to the Agent.
5.4. CONDITIONS PRECEDENT FOR THE LESSOR, THE AGENT, THE LENDERS AND THE
-------------------------------------------------------------------
HOLDERS RELATING TO THE ADVANCE OF FUNDS AFTER THE ACQUISITION
--------------------------------------------------------------
ADVANCE.
-------
The obligations of the Holders to make Holder Advances, and the Lenders to
make Loans in connection with all requests for Advances subsequent to the
acquisition of a Property (and to pay the Transaction Expenses, fees, expenses
and other disbursements payable by the Lessor under Section 7.1 of this
Agreement in connection therewith) are subject to the satisfaction or waiver of
the following conditions precedent (to the extent such conditions precedent
require the delivery of any agreement, certificate, instrument, memorandum,
legal or other opinion, appraisal, commitment, title insurance commitment, lien
report or any other document of any kind or type, such shall be in form and
substance satisfactory to the Agent, in its reasonable discretion;
notwithstanding the foregoing, the obligations of each party shall not be
subject to any conditions contained in this Section 5.4 which are required to be
performed by such party):
(a) the material correctness on such date of the representations and
warranties of the parties to this Agreement contained herein, in each of
the other Operative Agreements and in each certificate delivered pursuant
to any Operative Agreement (including without limitation the Incorporated
Representations and Warranties);
(b) the performance by the parties to this Agreement of their
respective agreements contained herein and in the other Operative
Agreements to be performed by them on or prior to each such date;
(c) the Agent shall have received a fully executed counterpart of the
Requisition, appropriately completed;
(d) based upon the applicable Construction Budget which shall satisfy
the requirements of this Agreement, the Available Commitments plus the
Available Holder Commitment (after deducting the Unfunded Amount, if any,
and after giving effect to the Construction Advance) will be sufficient to
complete the Improvements;
(e) there shall not have occurred and be continuing any Default or
Event of Default under any of the Operative Agreements and no Default or
Event of Default under any of the Operative Agreements will have occurred
after giving effect to the Construction Advance requested by the applicable
Requisition;
(f) the title insurance policy delivered in connection with the
requirements of Section 5.3(g) shall provide for (or shall be endorsed to
provide for) insurance in an amount at least equal to the maximum total
Property Cost indicated by the Construction Budget referred to in
subparagraph (d) above and there shall be no title change or exception
objectionable to the Agent in its reasonable discretion;
11
<PAGE>
(g) the Construction Agent shall have delivered to the Agent copies of
the Plans and Specifications for the applicable Improvements;
(h) the Construction Agent shall have delivered to the Agent invoices
for, or other reasonably satisfactory evidence of, any Transaction Expenses
and other fees, expenses and disbursements referenced in Section 7.1(b)
that are to be paid with the Advance;
(i) the Construction Agent shall have delivered, or caused to be
delivered to the Agent, invoices, Bills of Sale or other documents
reasonably acceptable to the Agent, in each case with regard to any
Equipment or other components of such Property then being acquired with the
proceeds of the Loans and Holder Advances and naming the Lessor as
purchaser and transferee;
(j) all taxes, fees and other charges in connection with the execution,
delivery, recording, filing and registration of the Operative Agreements
shall have been paid or provisions for such payment shall have been made by
Lessor to the reasonable satisfaction of the Agent;
(k) since the date of the most recent audited financial statements of
the Lessee, there shall not have occurred any event, condition or state of
facts which shall have or could reasonably be expected to have a Material
Adverse Effect, other than as specifically contemplated by the Operative
Agreements; and
(l) in the opinion of the Agent (after consultation with its counsel),
the transactions contemplated by the Operative Agreements do not and will
not subject the Lessor, the Lenders, the Agent or the Holders to any
adverse regulatory prohibitions, constraints, penalties or fines.
5.5. ADDITIONAL REPORTING AND DELIVERY REQUIREMENTS ON COMPLETION DATE AND
---------------------------------------------------------------------
ON CONSTRUCTION PERIOD TERMINATION DATE.
---------------------------------------
On or prior to the Completion Date for each Property, the Construction Agent
shall deliver to the Agent an Officer's Certificate in the form attached hereto
as Exhibit I or in such other form as is reasonably acceptable to the Agent
---------
specifying (a) the address for such Property, (b) the Completion Date for such
Property, (c) the aggregate Property Cost for such Property, (d) detailed,
itemized documentation supporting the asserted Property Cost figures and (e)
that all representations and warranties of the Construction Agent and Lessee in
each of the Operative Agreements and each certificate delivered pursuant thereto
(including without limitation the Incorporated Representations and Warranties)
are true and correct in all material respects as of the Completion Date (or, if
as to an earlier date, on and as of such earlier date). The Agent shall have
the right to contest the information contained in such Officer's Certificate.
Furthermore, on or prior to the Completion Date for each Property, the
Construction Agent shall deliver or cause to be delivered to the Agent (unless
previously delivered to the Agent) originals of the following, each of which
shall be in form and substance acceptable to the Agent, in its reasonable
discretion: (v) a title insurance endorsement regarding the title insurance
policy delivered in
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<PAGE>
connection with the requirements of Section 5.3(g), but only to the extent such
endorsement is necessary to provide for insurance in an amount at least equal to
the maximum total Property Cost and, if endorsed, the endorsement shall not
include a title change or exception objectionable to the Agent; (w) an as-built
survey for such Property, (x) insurance certificates respecting such Property as
required hereunder and under the Lease Agreement, (y) if requested by the Agent,
amendments to the Lessor Financing Statements executed by the appropriate
parties and (z) an Appraisal regarding such Property; provided, however, such
-------- -------
an Appraisal shall not be required if, as of such Completion Date, the Agent has
previously received Appraisal(s) pursuant to Section 5.3(t) for Properties that
are then subject to the Lease and that have an aggregate value (as established
by such Appraisal(s)) of at least $12,000,000. In addition, on the Completion
Date for such Property the Construction Agent covenants and agrees that the
recording fees, documentary stamp taxes or similar amounts required to be paid
in connection with the related Mortgage Instrument shall have been paid in an
amount required by applicable law, subject, however, to the obligations of the
Lenders and the Holders to fund such costs to the extent required pursuant to
Section 7.1.
5.6. THE CONSTRUCTION AGENT DELIVERY OF CONSTRUCTION BUDGET MODIFICATIONS.
--------------------------------------------------------------------
The Construction Agent covenants and agrees to deliver to the Agent each month
notification of any modification to any Construction Budget regarding any
Property if such modification increases the cost to construct such Property;
provided no Construction Budget may be increased unless (a) the title insurance
- --------
policies referenced in Section 5.3(g) are also modified or endorsed, if
necessary, to provide for insurance in an amount that satisfies the requirements
of Section 5.4(f) of this Agreement and (b) after giving effect to any such
amendment, the Construction Budget remains in compliance with the requirements
of Section 5.4(d) of this Agreement.
5.7. RESTRICTIONS ON LIENS.
---------------------
On each Property Closing Date, the Construction Agent shall cause each
Property acquired by the Lessor on such date to be free and clear of all Liens
except those referenced in Sections 6.2(r)(i) and 6.2(r)(ii). On each date a
Property is either sold to a third party in accordance with the terms of the
Operative Agreements or, pursuant to Section 22.1(a) of the Lease Agreement,
retained by the Lessor, the Lessee shall cause such Property to be free and
clear of all Liens (other than Lessor Liens and such other Liens that are
expressly set forth as title exceptions on the title commitment issued under
Section 5.3(g) with respect to such Property, to the extent such title
commitment has been approved by the Agent).
5.8 JOINDER AGREEMENT REQUIREMENTS.
------------------------------
Each Restricted Subsidiary formed or acquired subsequent to the Initial
Closing Date shall become a Guarantor and shall satisfy the following conditions
within thirty (30) days after the formation or acquisition of such Restricted
Subsidiary:
(a) such Restricted Subsidiary shall execute and deliver to the Agent a
Joinder Agreement in the form attached hereto as EXHIBIT J;
---------
13
<PAGE>
(b) such Restricted Subsidiary shall have delivered to the Agent (x) an
Officer's Certificate of such Restricted Subsidiary in the form attached
hereto as EXHIBIT C, (y) a certificate of the Secretary or an Assistant
---------
Secretary of such Restricted Subsidiary in the form attached hereto as
EXHIBIT D and (z) good standing certificates (or local equivalent) from the
---------
respective states where such Restricted Subsidiary is incorporated and
where the principal place of business of such Restricted Subsidiary is
located as to its good standing in each such state;
(c) such Restricted Subsidiary shall have delivered to the Agent an
opinion of counsel (which shall cover, among other things, the legality,
validity, binding effect and enforceability of the documentation referred
to in this Section 5.8), all in form, content and scope reasonably
satisfactory to the Agent; and
(d) the Agent shall have received such other documents, certificates
and information as the Agent shall have reasonably requested.
5.9 PAYMENTS.
--------
All payments of principal, interest, Holder Advances, Holder Yield and other
amounts to be made by the Construction Agent or the Lessee on behalf of the
Lessor under this Agreement or any other Operative Agreements (excluding
Excepted Payments which shall be paid directly to the party to whom such
payments are owed) shall be made to the Agent at the office designated by the
Agent from time to time in Dollars and in immediately available funds, without
setoff, deduction, or counterclaim. Subject to the definition of "Interest
Period" in Appendix A attached hereto, whenever any payment under this Agreement
----------
or any other Operative Agreements shall be stated to be due on a day that is not
a Business Day, such payment may be made on the next succeeding Business Day,
and such extension of time in such case shall be included in the computation of
interest, Holder Yield and fees payable pursuant to the Operative Agreements, as
applicable and as the case may be.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
6.1. REPRESENTATIONS AND WARRANTIES OF THE TRUST COMPANY AND THE BORROWER.
--------------------------------------------------------------------
Effective as of the Initial Closing Date and the date of each Advance, the
Trust Company in its individual capacity and as the Borrower, as indicated,
represents and warrants to each of the other parties hereto as follows,
provided, that the representations in the following paragraphs (h), (j) and (k)
- --------
are made solely in its capacity as the Borrower:
(a) It is a national banking association and is duly organized and
validly existing and in good standing under the laws of the United States
of America and has the power and authority to enter into and perform its
obligations under the Trust Agreement and (assuming due authorization,
execution and delivery of the Trust Agreement by the Holders) has the
corporate and trust power and authority to act as the Owner Trustee and
14
<PAGE>
to enter into and perform the obligations under each of the other Operative
Agreements to which the Trust Company or the Owner Trustee, as the case may
be, is or will be a party and each other agreement, instrument and document
to be executed and delivered by it on or before such Closing Date in
connection with or as contemplated by each such Operative Agreement to
which the Trust Company or the Owner Trustee, as the case may be, is or
will be a party;
(b) The execution, delivery and performance of each Operative Agreement
to which it is or will be a party, either in its individual capacity or
(assuming due authorization, execution and delivery of the Trust Agreement
by the Holders) as the Owner Trustee, as the case may be, has been duly
authorized by all necessary action on its part and neither the execution
and delivery thereof, nor the consummation of the transactions contemplated
thereby, nor compliance by it with any of the terms and provisions thereof
(i) does or will require any approval or consent of any trustee or holders
of any of its indebtedness or obligations, (ii) does or will contravene any
Legal Requirement relating to its banking or trust powers, (iii) does or
will contravene or result in any breach of or constitute any default under,
or result in the creation of any Lien upon any of its property under, (A)
its charter or by-laws, or (B) any indenture, mortgage, chattel mortgage,
deed of trust, conditional sales contract, bank loan or credit agreement or
other agreement or instrument to which it is a party or by which it or its
properties may be bound or affected, which contravention, breach, default
or Lien under clause (B) would materially and adversely affect its ability,
in its individual capacity or as the Owner Trustee, to perform its
obligations under the Operative Agreements to which it is a party or (iv)
does or will require any Governmental Action by any Governmental Authority
regulating its banking or trust powers;
(c) The Trust Agreement and, assuming the Trust Agreement is the legal,
valid and binding obligation of the Holders, each other Operative Agreement
to which the Trust Company or the Owner Trustee, as the case may be, is or
will be a party have been, or on or before such Closing Date will be, duly
executed and delivered by the Trust Company or the Owner Trustee, as the
case may be, and the Trust Agreement and each such other Operative
Agreement to which the Trust Company or the Owner Trustee, as the case may
be, is a party constitutes, or upon execution and delivery will constitute,
a legal, valid and binding obligation enforceable against the Trust Company
or the Owner Trustee, as the case may be, in accordance with the terms
thereof;
(d) There is no action or proceeding pending or, to its knowledge,
threatened to which it is or will be a party, either in its individual
capacity or as the Owner Trustee, before any Governmental Authority that,
if adversely determined, would materially and adversely affect its ability,
in its individual capacity or as the Owner Trustee, to perform its
obligations under the Operative Agreements to which it is a party or would
question the validity or enforceability of any of the Operative Agreements
to which it is or will become a party;
15
<PAGE>
(e) It has not assigned or transferred any of its right, title or
interest in or under the Lease, the Agency Agreement or its interest in any
Property or any portion thereof, except in accordance with the Operative
Agreements;
(f) No Default of Event of Default under the Operative Agreements
attributable to it has occurred and is continuing;
(g) Except as otherwise contemplated in the Operative Agreements, the
proceeds of the Loans and Holder Advances shall not be applied by the Owner
Trustee for any purpose other than the purchase and/or lease of the
Properties, the acquisition, installation and testing of the Equipment, the
construction of Improvements and the payment of Transaction Expenses and
the fees, expenses and other disbursements referenced in Sections 7.1(a)
and 7.1(b) of this Agreement, in each case which accrue prior to the Rent
Commencement Date with respect to a particular Property;
(h) Neither the Owner Trustee nor any Person authorized by the Owner
Trustee to act on its behalf has offered or sold any interest in the Trust
Estate or the Notes, or in any similar security relating to a Property, or
in any security the offering of which for the purposes of the Securities
Act would be deemed to be part of the same offering as the offering of the
aforementioned securities to, or solicited any offer to acquire any of the
same from, any Person other than, in the case of the Notes, the Agent, and
neither the Owner Trustee nor any Person authorized by the Owner Trustee to
act on its behalf will take any action which would subject, as a direct
result of such action alone, the issuance or sale of any interest in the
Trust Estate or the Notes to the provisions of Section 5 of the Securities
Act or require the qualification of any Operative Agreement under the Trust
Indenture Act of 1939, as amended;
(i) The Owner Trustee's principal place of business, chief executive
office and office where the documents, accounts and records relating to the
transactions contemplated by this Agreement and each other Operative
Agreement are kept are located at 79 South Main Street, Salt Lake City,
Utah 84111;
(j) The Owner Trustee is not engaged principally in, and does not have
as one (1) of its important activities, the business of extending credit
for the purpose of purchasing or carrying any margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System of the United States), and no part of the proceeds of the Loans or
the Holder Advances will be used by it to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock or for any purpose that violates, or is
inconsistent with, the provisions of Regulations G, T, U, or X of the Board
of Governors of the Federal Reserve System of the United States;
(k) The Owner Trustee is not an "investment company" or a company
controlled by an "investment company" within the meaning of the Investment
Company Act;
16
<PAGE>
(l) Each Property is free and clear of all Lessor Liens attributable to
the Owner Trustee in its individual capacity; and
(m) The Owner Trustee, in its trust capacity, is a party to no
documents, instruments or agreements other than the Operative Agreements to
which it is a party and any other documents delivered by the Owner Trustee
in connection with the Operative Agreements.
6.2. REPRESENTATIONS AND WARRANTIES OF EACH CREDIT PARTY.
---------------------------------------------------
Effective as of the Initial Closing Date, the date of each Advance, the date
each Restricted Subsidiary delivers a Joinder Agreement and the Rent
Commencement Date, each Credit Party represents and warrants to each of the
other parties hereto that:
(a) The Incorporated Representations and Warranties are true and
correct (unless such relate solely to an earlier point in time) and the
Lessee has delivered to the Agent the financial statements and other
reports referred to in Article IX of the Lessee Credit Agreement;
(b) The execution and delivery by each Credit Party of this Agreement
and the other applicable Operative Agreements as of such date and the
performance by each Credit Party of its respective obligations under this
Agreement and the other applicable Operative Agreements are within the
corporate, partnership or limited liability company (as the case may be)
powers of such Credit Party, have been duly authorized by all necessary
corporate, partnership or limited liability company (as the case may be)
action on the part of such Credit Party (including without limitation any
necessary shareholder action), have been duly executed and delivered, have
received all necessary governmental approval, and do not and will not (i)
violate any Legal Requirement which is binding on any Credit Party or any
of its Subsidiaries, (ii) contravene or conflict with, or result in a
breach of, any provision of the Articles of Incorporation, By-Laws or other
organizational documents of any Credit Party or any of its Subsidiaries or
of any agreement, indenture, instrument or other document which is binding
on any Credit Party or any of its Subsidiaries or (iii) result in, or
require, the creation or imposition of any Lien (other than pursuant to the
terms of the Operative Agreements) on any asset of any Credit Party or any
of its Subsidiaries;
(c) This Agreement and the other applicable Operative Agreements,
executed prior to and as of such date by any Credit Party, constitute the
legal, valid and binding obligation of such Credit Party, as applicable,
enforceable against such Credit Party, as applicable, in accordance with
their terms. Each Credit Party has executed the various Operative
Agreements required to be executed by such Credit Party as of such date;
(d) Except as described in EXHIBIT K, there are no material actions,
---------
suits or proceedings pending or, to the knowledge of such Credit Party,
threatened against any Credit Party in any court or before any Governmental
Authority (nor shall any order, judgment or decree have been issued or
proposed to be issued by any Governmental
17
<PAGE>
Authority to set aside, restrain, enjoin or prevent the full performance of
any Operative Agreement or any transaction contemplated thereby) that (i)
concern any Property or any Credit Party's interest therein, (ii) question
the validity or enforceability of any Operative Agreement to which any
Credit Party is a party or the overall transaction described in the
Operative Agreements to which any Credit Party is a party or (iii) have or
could reasonably be expected to have a Material Adverse Effect;
(e) No Governmental Action by any Governmental Authority or other
authorization, registration, consent, approval, waiver, notice or other
action by, to or of any other Person pursuant to any Legal Requirement,
contract, indenture, instrument or agreement or for any other reason is
required to authorize or is required in connection with (i) the execution,
delivery or performance by such Credit Party of any Operative Agreement,
(ii) the legality, validity, binding effect or enforceability of any
Operative Agreement with respect to such Credit Party, (iii) the
acquisition, ownership, construction, completion, occupancy, operation,
leasing or subleasing of any Property or (iv) any Advance, in each case,
except those which have been obtained and are in full force and effect;
(f) Upon the execution and delivery of each Lease Supplement to the
Lease, (i) the Lessee will have unconditionally accepted the Property
subject to the Lease Supplement and, to the Lessee's knowledge, will have a
valid and subsisting leasehold interest in such Property, subject only to
the Permitted Liens, and (ii) no offset will exist with respect to any Rent
or other sums payable under the Lease;
(g) Except as otherwise contemplated by the Operative Agreements, the
Construction Agent shall not use the proceeds of any Holder Advance or Loan
for any purpose other than the purchase and/or lease of the Properties, the
acquisition, installation and testing of the Equipment, the construction of
Improvements and the payment of Transaction Expenses and the fees, expenses
and other disbursements referenced in Sections 7.1(a) and 7.1(b) of this
Agreement, in each case which accrue prior to the Rent Commencement Date
with respect to a particular Property;
(h) All information heretofore or contemporaneously herewith furnished
by each Credit Party or its Subsidiaries to the Agent, the Owner Trustee,
any Lender or any Holder for purposes of or in connection with this
Agreement and the transactions contemplated hereby is, and all information
hereafter furnished by or on behalf of each Credit Party or its
Subsidiaries to the Agent, the Owner Trustee, any Lender or any Holder
pursuant hereto or in connection herewith will be, true and accurate in
every material respect on the date as of which such information is dated or
certified, and such information, taken as a whole, does not and will not
omit to state any material fact necessary to make such information, taken
as a whole, not misleading;
(i) The principal place of business, chief executive office and office
of the Construction Agent and the Lessee where the documents, accounts and
records relating to the transactions contemplated by this Agreement and
each other Operative Agreement are kept are located at 9830 Patuxent Woods
Drive, Columbia, Maryland and the states of
18
<PAGE>
formation and the chief executive offices of each other Credit Party are
located at the places set forth in EXHIBIT L;
---------
(j) The representations and warranties of each Credit Party set forth
in any of the Operative Agreements are true and correct in all material
respects on and as of each such date as if made on and as of such date (or,
if as to an earlier date, on and as of such earlier date). Each Credit
Party is in all material respects in compliance with its obligations under
the Operative Agreements and there exists no Default or Event of Default
under any of the Operative Agreements which is continuing and which has not
been cured within any cure period expressly granted under the terms of the
applicable Operative Agreement or otherwise waived in accordance with the
applicable Operative Agreement. No Default or Event of Default will occur
under any of the Operative Agreements as a result of, or after giving
effect to, the Advance requested by the Requisition on the date of each
Advance;
(k) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, each Property then being
financed consists of (i) unimproved Land or (ii) Land and existing
Improvements thereon which Improvements are either suitable for occupancy
at the time of acquisition or ground leasing or will be renovated and/or
modified in accordance with the terms of this Agreement. Each Property then
being financed is located at the location set forth on the applicable
Requisition, each of which is in one (1) of the Approved States;
(l) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, the Lessor has good and
marketable fee simple title to each Property, or, if any Property is the
subject of a Ground Lease, the Lessor will have a valid ground leasehold
interest enforceable against the ground lessor of such Property in
accordance with the terms of such Ground Lease, subject only to (i) such
Liens referenced in Sections 6.2(r)(i) and 6.2(r)(ii) on the applicable
Property Closing Date and (ii) subject to Section 5.7, Permitted Liens
after the applicable Property Closing Date;
(m) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, no portion of any Property is
located in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency, or if any such
Property is located in an area identified as a special flood hazard area by
the Federal Emergency Management Agency or other applicable agency, then
flood insurance has been obtained for such Property in accordance with
Section 14.2(b) of the Lease and in accordance with the National Flood
Insurance Act of 1968, as amended;
(n) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, each Property complies with
all Insurance Requirements and all standards of Lessee with respect to
similar properties owned by Lessee;
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(o) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, each Property complies with
all Legal Requirements as of such date (including without limitation all
zoning and land use laws and Environmental Laws), except to the extent that
failure to comply therewith, individually or in the aggregate, shall not
have and could not reasonably be expected to have a Material Adverse
Effect;
(p) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, all utility services and
facilities necessary for the construction and operation of the Improvements
and the installation and operation of the Equipment regarding each Property
(including without limitation gas, electrical, water and sewage services
and facilities) are available at the applicable Land and will be
constructed prior to the Completion Date for such Property;
(q) As of each Property Closing Date, the date of each subsequent
Advance and the Rent Commencement Date only, acquisition, installation and
testing of the Equipment (if any) and construction of the Improvements (if
any) to such date shall have been performed in a good and workmanlike
manner, substantially in accordance with the applicable Plans and
Specifications;
(r) The Security Documents create, as security for the Obligations (as
such term is defined in the Security Agreement), valid and enforceable
security interests in, and Liens on, all of the Collateral, in favor of the
Agent, for the ratable benefit of the Lenders and the Holders, as their
respective interests appear in the Operative Agreements, and such security
interests and Liens are subject to no other Liens other than Liens that are
expressly set forth as title exceptions on the title commitment issued
under Section 5.3(g) with respect to the applicable Property, to the extent
such title commitment has been approved by the Agent. Upon recordation of
the Mortgage Instrument in the real estate recording office in the
applicable Approved State identified by the Construction Agent or the
Lessee, the Lien created by the Mortgage Instrument in the real property
described therein shall be a perfected first priority mortgage Lien on such
real property in favor of the Agent, for the ratable benefit of the Lenders
and the Holders, as their respective interests appear in the Operative
Agreements. To the extent that the security interests in the portion of the
Collateral comprised of personal property can be perfected by filing in the
filing offices in the applicable Approved States or elsewhere identified by
the Construction Agent or the Lessee, upon filing of the Lender Financing
Statements in such filing offices, the security interests created by the
Security Agreement shall be perfected first priority security interests in
such personal property in favor of the Agent, for the ratable benefit of
the Lenders and the Holders, as their respective interests appear in the
Operative Agreements;
(s) The Plans and Specifications for each Property will be prepared
prior to the commencement of construction in accordance with all applicable
Legal Requirements (including without limitation all applicable
Environmental Laws and building, planning, zoning and fire codes), except
to the extent the failure to comply therewith, individually or in the
aggregate, shall not have and could not reasonably be expected to have a
20
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Material Adverse Effect. Upon completion of the Improvements for each
Property in accordance with the applicable Plans and Specifications, such
Improvements will be within any building restriction lines and will not
encroach in any manner onto any adjoining land (except as permitted by
express written easements, which have been approved by the Agent);
(t) As of the Rent Commencement Date only, each Property shall be
improved in accordance with the applicable Plans and Specifications in a
good and workmanlike manner and shall be operational;
(u) As of the Initial Closing Date, each Restricted Subsidiary (formed
prior to or on such date) shall have executed this Agreement in its
capacity as a Guarantor; and
(v) As of each Property Closing Date only, each Property has been
acquired or ground leased pursuant to a Ground Lease at a price that is not
in excess of fair market value or fair market rental value, as the case may
be.
SECTION 6B. GUARANTY
6B.1. GUARANTY OF PAYMENT AND PERFORMANCE.
-----------------------------------
Subject to Section 6B.7, each Guarantor hereby, jointly and severally,
unconditionally guarantees to each Financing Party the prompt payment and
performance of the Company Obligations in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration or otherwise) or when such
Obligations are otherwise to be performed; provided, notwithstanding the
--------
foregoing, the obligations of the Guarantors under this Section 6B shall not
constitute a direct guaranty of the indebtedness of the Lessor evidenced by the
Notes but rather a guaranty of the Company Obligations arising under the
Operative Agreements. This Section 6B is a guaranty of payment and performance
and not of collection and is a continuing guaranty and shall apply to all
Company Obligations whenever arising. All rights granted to the Financing
Parties under this Section 6B shall be subject to the provisions of Sections
8.2(h) and 8.6.
6B.2. OBLIGATIONS UNCONDITIONAL.
-------------------------
Each Guarantor agrees that the obligations of the Guarantors hereunder are
absolute and unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of any of the Operative Agreements, or any other
agreement or instrument referred to therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Company
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety, guarantor or
co-obligor, it being the intent of this Section 6B.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that this Section 6B may be enforced by
the Financing Parties without the necessity at any time of resorting to or
exhausting any other security or collateral and without the necessity at any
time of having recourse to the Notes, the Certificates or any other of the
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Operative Agreements or any collateral, if any, hereafter securing the Company
Obligations or otherwise and each Guarantor hereby waives the right to require
the Financing Parties to proceed against the Construction Agent, the Lessee or
any other Person (including without limitation a co-guarantor) or to require the
Financing Parties to pursue any other remedy or enforce any other right. Each
Guarantor further agrees that it hereby waives any and all right of subrogation,
indemnity, reimbursement or contribution against the Lessee and the Construction
Agent or any other Guarantor of the Company Obligations for amounts paid under
this Section 6B until such time as the Loans, Holder Advances, accrued but
unpaid interest, accrued but unpaid Holder Yield and all other amounts owing
under the Operative Agreements have been paid in full. Without limiting the
generality of the waiver provisions of this Section 6B, each Guarantor hereby
waives any rights to require the Financing Parties to proceed against the
Construction Agent, the Lessee or any co-guarantor or to require Lessor to
pursue any other remedy or enforce any other right, including without
limitation, any and all rights under N.C. Gen. Stat. (S) 26-7 through 26-9.
Each Guarantor further agrees that nothing contained herein shall prevent the
Financing Parties from suing on any Operative Agreement or foreclosing any
security interest in or Lien on any collateral, if any, securing the Company
Obligations or from exercising any other rights available to it under any
Operative Agreement, or any other instrument of security, if any, and the
exercise of any of the aforesaid rights and the completion of any foreclosure
proceedings shall not constitute a discharge of any Guarantor's obligations
hereunder; it being the purpose and intent of each Guarantor that its
obligations hereunder shall be absolute, independent and unconditional under any
and all circumstances; provided that any amounts due under this Section 6B which
--------
are paid to or for the benefit of any Financing Party shall reduce the Company
Obligations by a corresponding amount (unless required to be rescinded at a
later date). Neither any Guarantor's obligations under this Section 6B nor any
remedy for the enforcement thereof shall be impaired, modified, changed or
released in any manner whatsoever by an impairment, modification, change,
release or limitation of the liability of the Construction Agent or the Lessee
or by reason of the bankruptcy or insolvency of the Construction Agent or the
Lessee. Each Guarantor waives any and all notice of the creation, renewal,
extension or accrual of any of the Company Obligations and notice of or proof of
reliance by any Financing Party upon this Section 6B or acceptance of this
Section 6B. The Company Obligations shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon this Section 6B. All dealings between the Construction Agent, the
Lessee and any of the Guarantors, on the one hand, and the Financing Parties, on
the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Section 6B.
6B.3. MODIFICATIONS.
-------------
Each Guarantor agrees that (a) all or any part of the security now or
hereafter held for the Company Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) no Financing Party shall have
any obligation to protect, perfect, secure or insure any such security
interests, liens or encumbrances now or hereafter held, if any, for the Company
Obligations or the properties subject thereto; (c) with the written consent of
the Lessee, the time or place of payment of the Company Obligations may be
changed or extended, in whole or in part, to a time certain or otherwise, and
may be renewed or accelerated, in whole or in part; (d) the Construction Agent,
the Lessee and any other party liable for payment under the Operative Agreements
may be granted indulgences generally; (e) with the written consent of the
Lessee, any of the provisions of
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the Notes, the Certificates or any of the other Operative Agreements may be
modified, amended or waived; (f) any party (including any co-guarantor) liable
for the payment thereof may be granted indulgences or be released; and (g) any
deposit balance for the credit of the Construction Agent, the Lessee or any
other party liable for the payment of the Company Obligations or liable upon any
security therefor may be released, in whole or in part, at, before or after the
stated, extended or accelerated maturity of the Company Obligations, all without
notice to or further assent by such Guarantor, which shall remain bound thereon,
notwithstanding any such exchange, compromise, surrender, extension, renewal,
acceleration, modification, indulgence or release.
6B.4. WAIVER OF RIGHTS.
----------------
Each Guarantor expressly waives to the fullest extent permitted by applicable
law: (a) notice of acceptance of this Section 6B by any Financing Party and of
all extensions of credit or other Advances to the Construction Agent and the
Lessee by the Lenders pursuant to the terms of the Operative Agreements; (b)
presentment and demand for payment or performance of any of the Company
Obligations; (c) protest and notice of dishonor or of default with respect to
the Company Obligations or with respect to any security therefor; (d) notice of
any Financing Party obtaining, amending, substituting for, releasing, waiving or
modifying any security interest, lien or encumbrance, if any, hereafter securing
the Company Obligations, or any Financing Party's subordinating, compromising,
discharging or releasing such security interests, liens or encumbrances, if any;
and (e) all other notices to which such Guarantor might otherwise be entitled.
Notwithstanding anything to the contrary herein, (i) each Guarantor's payments
hereunder shall be due five (5) Business Days after written demand by the Agent
for such payment (unless the Company Obligations are automatically accelerated
pursuant to the applicable provisions of the Operative Agreements in which case
the Guarantors' payments shall be automatically due) and (ii) any modification
of the Operative Agreements which has the effect of increasing the Company
Obligations shall not be enforceable against a Guarantor unless such Guarantor
executes the document evidencing such modification or otherwise reaffirms its
guaranty in writing in connection with such modification.
6B.5. REINSTATEMENT.
-------------
The obligations of the Guarantors under this Section 6B shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of any Person in respect of the Company Obligations is rescinded or must be
otherwise restored by any holder of any of the Company Obligations, whether as a
result of any proceedings in bankruptcy or reorganization or otherwise, and each
Guarantor agrees that it will indemnify each Financing Party on demand for all
reasonable costs and expenses (including, without limitation, reasonable fees of
counsel) incurred by any Financing Party in connection with such rescission or
restoration, including without limitation any such costs and expenses incurred
in defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
23
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6B.6. REMEDIES.
--------
The Guarantors agree that, as between the Guarantors, on the one hand, and
each Financing Party, on the other hand, the Company Obligations may be declared
to be forthwith due and payable as provided in the applicable provisions of the
Operative Agreements (and shall be deemed to have become automatically due and
payable in the circumstances provided therein) notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing such
Company Obligations from becoming automatically due and payable) as against any
other Person and that, in the event of such declaration (or such Company
Obligations being deemed to have become automatically due and payable), such
Company Obligations (whether or not due and payable by any other Person) shall
forthwith become due and payable by the Guarantors in accordance with the
applicable provisions of the Operative Agreements.
6B.7. LIMITATION OF GUARANTY.
----------------------
Notwithstanding any provision to the contrary contained herein or in any of
the other Operative Agreements, to the extent the obligations of any Guarantor
shall be adjudicated to be invalid or unenforceable for any reason (including
without limitation because of any applicable state or federal law relating to
fraudulent conveyances or transfers) then the obligations of such Guarantor
hereunder shall be limited to the maximum amount that is permissible under
applicable law (whether federal or state and including without limitation the
Bankruptcy Code).
Subject to Section 6B.5, upon the satisfaction of the Company Obligations in
full, regardless of the source of payment, the Guarantors' obligations hereunder
shall be deemed satisfied, discharged and terminated other than indemnifications
set forth herein that expressly survive.
6B.8. PAYMENT OF AMOUNTS TO THE AGENT.
-------------------------------
Each Financing Party hereby instructs each Guarantor, and each Guarantor
hereby acknowledges and agrees, that until such time as the Loans and the Holder
Advances are paid in full and the Liens evidenced by the Security Agreement and
the Mortgage Instruments have been released any and all Rent (excluding Excepted
Payments which shall be payable to each Holder or other Person as appropriate)
and any and all other amounts of any kind or type under any of the Operative
Agreements due and owing or payable to any Person shall instead be paid directly
to the Agent (excluding Excepted Payments which shall be payable to each Holder
or other Person as appropriate) or as the Agent may direct from time to time for
allocation and distribution in accordance with the procedures set forth in
Section 8.7 hereof.
6B.9. RELEASE OF GUARANTORS.
---------------------
Each Financing Party hereby agrees that (a) the Agent shall be permitted to
release any Guarantor from its guaranty obligations under this Section 6B
without the consent of any other Financing Party if the release is granted in
connection with a disposition by the applicable Credit Party of all the shares
of stock or partnership or other equity interest in such Guarantor and such
disposition is permitted pursuant to the applicable provisions of the Operative
Agreements and the
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Lessee Credit Agreement and (b) the Agent shall be permitted to release any
Guarantor from its guaranty obligations under this Section 6B.9 without the
consent of any other Financing Party if the release is requested by JPFDI in
connection with a dissolution of the Guarantor, subject to JPFDI providing to
the Agent written representations to the effect that such Guarantor has no
business operations and no assets.
SECTION 7. PAYMENT OF CERTAIN EXPENSES.
7.1. TRANSACTION EXPENSES.
--------------------
(a) The Lessor agrees on the Initial Closing Date, to pay, or cause to
be paid, all Transaction Expenses arising from the Initial Closing Date,
including without limitation all reasonable fees, expenses and
disbursements of the various legal counsels for the Lessor and the Agent in
connection with the transactions contemplated by the Operative Agreements
and incurred in connection with such Initial Closing Date, the initial fees
and expenses of the Owner Trustee due and payable on such Initial Closing
Date, all fees, taxes and expenses for the recording, registration and
filing of documents and all other reasonable fees, expenses and
disbursements incurred in connection with such Initial Closing Date;
provided, however, the Lessor shall pay such amounts described in this
-------- -------
Section 7.1(a) only if (i) such amounts are properly described in a
Requisition delivered on or before the Initial Closing Date; provided, that
--------
Lessor shall provide to Lessee information regarding fees, expenses and
disbursements of its legal counsel, and (ii) funds are made available by
the Lenders and the Holders in connection with such Requisition in an
amount sufficient to allow such payment. On the Initial Closing Date after
delivery and receipt of the Requisition referenced in Section 4.2(a) hereof
and satisfaction of the other conditions precedent for such date, the
Holders shall make Holder Advances and the Lenders shall make Loans to the
Lessor to pay for the Transaction Expenses, fees, expenses and other
disbursements referenced in this Section 7.1(a).
(b) Subject to the provisions of Section 4.1(a) of the Agency Agreement
and assuming no Default or Event of Default shall have occurred and be
continuing and only for the period prior to the Rent Commencement Date, the
Lessor agrees on each Property Closing Date, on the date of any
Construction Advance and on the Completion Date to pay, or cause to be
paid, all Transaction Expenses including without limitation all reasonable
fees, expenses and disbursements of the various legal counsels for the
Lessor and the Agent in connection with the transactions contemplated by
the Operative Agreements and billed in connection with such Advance or such
Completion Date, all amounts described in Section 7.1(a) of this Agreement
which have not been previously paid, the annual fees and reasonable out-of-
pocket expenses of the Owner Trustee, all fees, expenses and disbursements
incurred with respect to the various items referenced in Sections 5.3, 5.4
and/or 5.5 (including without limitation any premiums for title insurance
policies and charges for any updates to such policies) and all other
reasonable fees, expenses and disbursements in connection with such Advance
or such Completion Date including without limitation all expenses relating
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<PAGE>
to and all fees, taxes and expenses for the recording, registration and
filing of documents and during the Commitment Period, all fees, expenses
and costs referenced in Sections 7.3(a), 7.3(b), 7.3(d) and 7.4; provided,
--------
however, the Lessor shall pay such amounts described in this Section 7.1(b)
-------
only if (i) such amounts are properly described in a Requisition delivered
on the applicable date and (ii) funds are made available by the Lenders and
the Holders in connection with such Requisition in an amount sufficient to
allow such payment. On each Property Closing Date, on the date of any
Construction Advance or any Completion Date, after delivery of the
applicable Requisition and satisfaction of the other conditions precedent
for such date, the Holders shall make a Holder Advance and the Lenders
shall make Loans to the Lessor to pay for the Transaction Expenses, fees,
expenses and other disbursements referenced in this Section 7.1(b).
7.2. BROKERS' FEES.
-------------
The Lessee agrees to pay or cause to be paid any and all brokers' fees, if
any, including without limitation any interest and penalties thereon, which are
payable in connection with the transactions contemplated by this Agreement and
the other Operative Agreements.
7.3. CERTAIN FEES AND EXPENSES.
-------------------------
The Lessee agrees to pay or cause to be paid (a) the initial and annual Owner
Trustee's fee and all reasonable expenses of the Owner Trustee and any co-
trustees (including without limitation reasonable counsel fees and expenses) or
any successor owner trustee and/or co-trustee, for acting as the owner trustee
under the Trust Agreement, (b) all reasonable costs and expenses incurred by the
Credit Parties, the Agent, the Lenders, the Holders or the Lessor in entering
into any Lease Supplement and any future amendments, modifications, supplements,
restatements and/or replacements with respect to any of the Operative
Agreements, whether or not such Lease Supplement, amendments, modifications,
supplements, restatements and/or replacements are ultimately entered into, or
giving or withholding of waivers of consents hereto or thereto, which have been
requested by any Credit Party, the Agent, the Lenders, the Holders or the
Lessor, (c) all reasonable costs and expenses incurred by the Credit Parties,
the Agent, the Lenders, the Holders or the Lessor in connection with any
exercise of remedies under any Operative Agreement or any purchase of any
Property by the Construction Agent, the Lessee or any third party and (d) all
reasonable costs and expenses incurred by the Credit Parties, the Agent, the
Lenders, the Holders or the Lessor in connection with any transfer or conveyance
of any Property, whether or not such transfer or conveyance is ultimately
accomplished.
7.4. FACILITY FEE.
------------
During the Commitment Period, the Lessee agrees to pay or to cause to be paid
to the Agent for the account of (a) the Lenders, respectively, a facility fee
(the "Lender Facility Fee") equal to the product of the Commitment of each
-------------------
Lender multiplied by a per annum rate equal to the Applicable Percentage for the
Lender Facility Fee and (b) the Holders, respectively, a facility fee (the
"Holder Facility Fee") equal to the product of the Holder Commitment of each
- --------------------
Holder multiplied by a per annum rate equal to the Applicable Percentage for the
Holder Facility Fee. Such Facility Fees shall be calculated on the basis of a
year of three hundred sixty (360) days for
26
<PAGE>
the actual days elapsed and shall be payable quarterly in arrears on each
Facility Fee Payment Date. If all or a portion of any such Facility Fee shall
not be paid when due, such overdue amount shall bear interest, payable by the
Lessee on demand, at a rate per annum equal to the ABR (or in the case of Holder
Yield, the ABR plus the Applicable Percentage for Eurodollar Holder Advances)
plus two percent (2%) from the date of such non-payment until such amount is
paid in full.
SECTION 8. OTHER COVENANTS AND AGREEMENTS.
8.1. COOPERATION WITH THE CONSTRUCTION AGENT OR THE LESSEE.
-----------------------------------------------------
The Holders, the Lenders, the Lessor (at the direction of the Majority Secured
Parties) and the Agent shall, at the expense of and to the extent reasonably
requested by the Construction Agent or the Lessee (but without assuming
additional liabilities on account thereof and only to the extent such is
acceptable to the Holders, the Lenders, the Lessor (at the direction of the
Majority Secured Parties) and the Agent in their reasonable discretion),
cooperate with the Construction Agent or the Lessee in connection with the
Construction Agent or the Lessee satisfying its covenant obligations contained
in the Operative Agreements including without limitation at any time and from
time to time, promptly and duly executing and delivering any and all such
further instruments, documents and financing statements (and continuation
statements related thereto).
8.2. COVENANTS OF THE OWNER TRUSTEE AND THE HOLDERS.
----------------------------------------------
Each of the Owner Trustee and the Holders hereby agrees that so long as this
Agreement is in effect:
(a) Neither the Owner Trustee (in its trust capacity or in its
individual capacity) nor any Holder will create or permit to exist at any
time, and each of them will, at its own cost and expense, promptly take
such action as may be necessary duly to discharge, or to cause to be
discharged, all Lessor Liens on the Properties attributable to it;
provided, however, that the Owner Trustee and the Holders shall not be
-------- -------
required to so discharge any such Lessor Lien while the same is being
contested in good faith by appropriate proceedings diligently prosecuted so
long as such proceedings shall not materially and adversely affect the
rights of the Lessee under the Lease and the other Operative Agreements or
involve any material danger of impairment of the Liens of the Security
Documents or of the sale, forfeiture or loss of, and shall not interfere
with the use or disposition of, any Property or title thereto or any
interest therein or the payment of Rent;
(b) Without prejudice to any right under the Trust Agreement of the
Owner Trustee to resign (subject to requirement set forth in the Trust
Agreement that such resignation shall not be effective until a successor
shall have agreed to accept such appointment), or the Holders' rights under
the Trust Agreement to remove the institution acting as the Owner Trustee
(after consent to such removal by the Agent as provided in the Trust
Agreement), each of the Owner Trustee and the Holders hereby agrees with
the
27
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Lessee and the Agent (i) not to terminate or revoke the trust created by
the Trust Agreement except as permitted by Article VIII of the Trust
Agreement, (ii) not to amend, supplement, terminate or revoke or otherwise
modify any provision of the Trust Agreement in such a manner as to
adversely affect the rights of any such party without the prior written
consent of such party and (iii) to comply with all of the terms of the
Trust Agreement, the nonperformance of which would adversely affect such
party;
(c) The Owner Trustee or any successor may resign or be removed by the
Holders as the Owner Trustee, a successor Owner Trustee may be appointed
and a corporation may become the Owner Trustee under the Trust Agreement,
only in accordance with the provisions of Article IX of the Trust Agreement
and, with respect to such appointment, with the consent of the Lessee (so
long as no Lease Event of Default shall have occurred and be continuing),
which consent shall not be unreasonably withheld or delayed;
(d) The Owner Trustee, in its capacity as the Owner Trustee under the
Trust Agreement, and not in its individual capacity, shall not contract
for, create, incur or assume any Debt, or enter into any business or other
activity or enter into any contracts or agreements, other than pursuant to
or under the Operative Agreements;
(e) The Holders will not instruct the Owner Trustee to take any action
in violation of the terms of any Operative Agreement;
(f) Neither any Holder nor the Owner Trustee shall (i) commence any
case, proceeding or other action with respect to the Owner Trustee under
any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, arrangement, winding-
up, liquidation, dissolution, composition or other relief with respect to
it or its debts, or (ii) seek appointment of a receiver, trustee, custodian
or other similar official with respect to the Owner Trustee or for all or
any substantial benefit of the creditors of the Owner Trustee; and neither
any Holder nor the Owner Trustee shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in this paragraph;
(g) The Owner Trustee shall give prompt notice to the Lessee, the
Holders and the Agent if the Owner Trustee's principal place of business or
chief executive office, or the office where the records concerning the
accounts or contract rights relating to any Property are kept, shall cease
to be located at 79 South Main Street, Salt Lake City, Utah 84111, or if it
shall change its name;
(h) The Owner Trustee shall take or refrain from taking such actions
and grant or refrain from granting such approvals with respect to the
Operative Agreements and/or relating to any Property in each case as
directed in writing by the Agent (until such time as the Loans are paid in
full, and then by the Majority Holders) or, in connection with Sections 8.5
and 9.2 hereof, the Lessee; provided, however, that notwithstanding the
-------- -------
foregoing provisions of this subparagraph (h) the Owner Trustee, the Agent,
the Lenders and the Holders each acknowledge, covenant and agree that
neither the Owner Trustee
28
<PAGE>
nor the Agent shall act or refrain from acting, regarding each Unanimous
Vote Matter, until such party has received the approval of each Lender and
each Holder affected by such matter.
(i) The Owner Trustee shall maintain the trust power and authority to
act as the Owner Trustee and to perform its obligations under each of the
Operative Agreements to which it is a party;
(j) Except as otherwise provided in any Operative Agreement, and
provided no Event of Default shall have occurred and be continuing, the
Owner Trustee shall not make any Improvement with respect to any Property
without the consent of the Lessee (which shall not be unreasonably
withheld); and
(k) The Owner Trustee shall use its best efforts to provide the Lessee
or the Construction Agent, as the case may be, with any notices received in
connection with any Property or the transactions contemplated hereby,
unless the Owner Trustee, in its reasonable judgment, believes that such
notice has previously been provided to the Lessee or the Construction
Agent, as the case may be.
8.3. CREDIT PARTY COVENANTS, CONSENT AND ACKNOWLEDGMENT.
--------------------------------------------------
(a) Each Credit Party acknowledges and agrees that the Owner Trustee,
pursuant to the terms and conditions of the Security Agreement and the
Mortgage Instruments, shall create Liens respecting the various personal
property, fixtures and real property described therein in favor of the
Agent. Each Credit Party hereby irrevocably consents to the creation,
perfection and maintenance of such Liens. Each Credit Party shall, to the
extent reasonably requested by any of the other parties hereto, cooperate
with the other parties and shall from time to time duly execute and deliver
any and all such future instruments, documents and financing statements
(and continuation statements related thereto) as any other party hereto may
reasonably request for the purpose of more fully effectuating the
provisions of the Operative Agreements.
(b) The Lessor hereby instructs each Credit Party, and each Credit
Party hereby acknowledges and agrees, that until such time as the Loans and
the Holder Advances are paid in full and the Liens evidenced by the
Security Agreement and the Mortgage Instruments have been released (i) any
and all Rent (excluding Excepted Payments which shall be payable to each
Holder or other Person as appropriate) and any and all other amounts of any
kind or type under any of the Operative Agreements due and owing or payable
to any Person shall instead be paid directly to the Agent (excluding
Excepted Payments which shall be payable to each Holder or other Person as
appropriate) or as the Agent may direct from time to time for allocation
and distribution in accordance with the procedures set forth in Section 8.7
hereof, (ii) all rights of the Lessor under the Lease shall be exercised by
the Agent and (iii) each Credit Party shall cause all notices,
certificates, financial statements, communications and other information
which are delivered, or are required to be delivered, to the Lessor, to
also be delivered at the same time to the Agent.
29
<PAGE>
(c) No Credit Party shall consent to or permit any amendment,
supplement or other modification of the terms or provisions of any
Operative Agreement except in accordance with Section 12.4 of this
Agreement.
(d) Each Credit Party hereby covenants and agrees that, except for
amounts payable as Basic Rent, any and all payment obligations owing from
time to time under the Operative Agreements by any Person to the Agent, any
Lender, any Holder or any other Person shall (without further action) be
deemed to be Supplemental Rent obligations payable by the Lessee and
guaranteed by the other Credit Parties. Without limitation, such
obligations shall include without limitation such arrangement fees,
administrative fees, facility fees, breakage costs, indemnities, trustee
fees and transaction expenses that the Operative Agreements provide are to
be paid by the Lessee and which are incurred by the parties hereto in
connection with the transactions contemplated by the Operative Agreements.
(e) The Lessee hereby covenants and agrees to cause an Appraisal or
reappraisal (in form and substance reasonably satisfactory to the Agent and
from an appraiser selected by the Agent) to be issued respecting any
Property as reasonably requested by the Agent from time to time (i) at each
and every time as such shall be required to satisfy any regulatory
requirements imposed on the Agent, the Lessor, the Trust Company, any
Lender and/or any Holder and (ii) after the occurrence of an Event of
Default.
(f) The Lessee hereby covenants and agrees that, except for amounts
payable as Basic Rent, any and all payment obligations owing from time to
time under the Operative Agreements by any Person to the Agent, any Lender,
any Holder or any other Person shall (without further action) be deemed to
be Supplemental Rent obligations payable by the Lessee. Without limitation,
such obligations of the Lessee shall include the Supplement Rent
obligations pursuant to Section 3.3 of the Lease, arrangement fees,
administrative fees, participation fees, commitment fees, facility fees,
prepayment penalties, breakage costs, indemnities, trustee fees and
transaction expenses incurred by the parties hereto in connection with the
transactions contemplated by the Operative Agreements.
(g) At any time the Lessor or the Agent is entitled under the Operative
Agreements to possession of a Property or any component thereof, each of
the Construction Agent and the Lessee hereby covenants and agrees, at its
own cost and expense, to assemble and make the same available to the Agent
(on behalf of the Lessor).
(h) The Lessee hereby covenants and agrees that Equipment (other than
Equipment that is essential to the operation of any individual parcel of
Property where such Equipment is located) respecting any individual parcel
of Property shall at no time constitute in excess of five percent (5%) of
the aggregate Advances respecting such parcel of Property funded at such
time under the Operative Agreements.
30
<PAGE>
(i) The Lessee hereby covenants and agrees that as of Completion (i)
the Property Cost for each individual parcel of the Property shall be no
less than $5,000,000 and (ii) each parcel of the Property shall be a
Permitted Facility.
(j) The Lessee hereby covenants and agrees that it shall give prompt
notice to the Agent if the Lessee's principal place of business or chief
executive office, or the office where the records concerning the accounts
or contract rights relating to any Property are kept, shall cease to be
located at 9830 Patuxent Woods Drive, Columbia, Maryland or if it shall
change its name.
(k) Unless the Agent otherwise agrees in writing, the Lessee hereby
covenants and agrees that Lessee will not exercise its Purchase Option
prior to the Expiration Date with respect to less than all of the
Properties if, after the exercise of such Purchase Option, the aggregate
Property Cost of all Properties remaining after giving effect to such
purchase will be less than $15,000,000.
(l) Until all the obligations of the Credit Parties under the Operative
Agreements have been finally and indefeasibly paid and satisfied in full,
the Commitments and the Holder Commitments terminated and the Term has
expired or been earlier terminated, then unless consent has been obtained
from the Majority Secured Parties, the Lessee will furnish or cause to be
furnished to each Holder, each Lender and the Agent at their respective
addresses set forth or referenced in Section 12.2 of this Agreement, or
such other office as may be designated by any such Holder, Lender or the
Agent from time to time: (i) not later than forty-five (45) days after the
end of each fiscal quarter, a certificate duly signed by the chief
executive officer, chief operating officer, chief financial officer,
treasurer or controller of USF setting forth the Total Debt Ratio for the
period of four (4) consecutive fiscal quarters ending with such quarter-end
and setting forth the computations employed in calculating the ratio (the
"Margin Certificate") and (ii) at each time financial statements are
-------------------
delivered or to be delivered pursuant to Section 28.1 of the Lease, a
compliance certificate duly executed by the president, treasurer, chief
financial offer or controller of USF substantially in the form of EXHIBIT M
---------
attached hereto (the "Officer's Compliance Certificate").
--------------------------------
(m) The Lessee hereby covenants and agrees that the rights of the
Lessee under this Agreement and the Lease shall not impair or in any way
diminish the obligations of the Construction Agent and/or the rights of the
Lessor under the Agency Agreement.
(n) Each Credit Party hereby covenants and agrees to cause each
Restricted Subsidiary formed after the Initial Closing Date to execute a
Joinder Agreement within thirty (30) days of the formation of such
Restricted Subsidiary.
(o) Each Credit Party shall promptly notify the Agent, or cause the
Agent to be promptly notified, upon such Credit Party gaining knowledge of
the occurrence of any Default or Event of Default which is continuing at
such time. In any event, such notice shall be provided to the Agent within
ten (10) days of when such Credit Party gains such knowledge.
31
<PAGE>
(p) Until all of the obligations under the Operative Agreements have
been finally and indefeasibly paid and satisfied in full and the
Commitments and the Holder Commitments terminated (unless consent has been
obtained from the Majority Secured Parties), each Credit Party will:
(i) except as permitted by the express provisions of the Lessee
Credit Agreement, preserve and maintain its separate legal existence
and all material rights, franchises, licenses and privileges necessary
to the conduct of its business, and qualify and remain qualified as a
foreign corporation (or partnership, limited liability company or
other such similar entity, as the case may be) and authorized to do
business in each jurisdiction in which the failure to do so qualify
would have a Material Adverse Effect;
(ii) pay and perform all obligations of the Credit Parties under
the Operative Agreements and pay and perform (A) all taxes,
assessments and other governmental charges that may be levied or
assessed upon it or any of its property, and (B) all other
indebtedness, obligations and liabilities in accordance with customary
trade practices, which if not paid would have a Material Adverse
Effect; provided that any Credit Party may contest any item described
--------
in this Section 8.3(p)(ii) in good faith so long as adequate reserves
are maintained with respect thereto in accordance with GAAP;
(iii) to the extent failure to do so would have a Material
Adverse Effect, observe and remain in compliance with all applicable
Laws and maintain in full force and effect all Governmental Actions,
in each case applicable to the conduct of its business, keep in full
force and effect all licenses, certifications or accreditations
necessary for any Facility to carry on its business, and not permit
the termination of any insurance reimbursement program available to
any Facility; and
(iv) provided that the Agent, the Lenders and the Holders use
reasonable efforts to minimize disruption to the business of the
Credit Parties, permit representatives of the Agent or any Lender or
Holder, from time to time, to visit and inspect its properties;
inspect, audit and make extracts from its books, records and files,
including without limitation management letters prepared by
independent accountants; and discuss with its principal officers, and
its independent accountants, its business, assets, liabilities,
financial condition, results of operations and business prospects.
(q) Lessee shall take all action as is necessary in Lessee's reasonable
opinion to assure that Lessee's computer based systems are able to operate
and effectively process data including dates on and after January 1, 2000.
32
<PAGE>
(r) Lessee shall perform any and all obligations of Lessor under, and
cause Lessor to otherwise remain in full compliance with, the terms and
provisions of each Ground Lease, if any.
8.4. SHARING OF CERTAIN PAYMENTS.
---------------------------
Except for Excepted Payments, the parties hereto acknowledge and agree that
all payments due and owing by any Credit Party to the Lessor under the Lease or
any of the other Operative Agreements shall be made by any Credit Party directly
to the Agent as more particularly provided in Section 8.3 hereof. The Lessor,
the Holders, the Agent, the Lenders and the Credit Parties acknowledge the terms
of Section 8.7 of this Agreement regarding the allocation of payments and other
amounts made or received from time to time under the Operative Agreements and
agree that all such payments and amounts are to be allocated as provided in
Section 8.7 of this Agreement.
8.5. GRANT OF EASEMENTS, ETC.
------------------------
The Agent, the Lenders and the Holders hereby agree that, so long as no
Default or Event of Default shall have occurred and be continuing, the Owner
Trustee shall, from time to time at the request of the Lessee (and with the
prior consent of the Agent), in connection with the transactions contemplated by
the Agency Agreement, the Lease or the other Operative Agreements, (i) grant
easements and other rights in the nature of easements with respect to any
Property, (ii) release existing easements or other rights in the nature of
easements which are for the benefit of any Property, (iii) execute and deliver
to any Person any instrument appropriate to confirm or effect such grants or
releases, and (iv) execute and deliver to any Person such other documents or
materials in connection with the acquisition, development, construction, testing
or operation of any Property, including without limitation reciprocal easement
agreements, construction contracts, operating agreements, development
agreements, plats, replats or subdivision documents; provided, that each of the
--------
agreements referred to in this Section 8.5 shall be of the type normally
executed by the Lessee in the ordinary course of the Lessee's business and shall
be on commercially reasonable terms so as not to diminish the value of any
Property in any material respect.
8.6. APPOINTMENT BY THE AGENT, THE LENDERS, THE HOLDERS AND THE OWNER
----------------------------------------------------------------
TRUSTEE.
-------
The Holders hereby appoint the Agent to act as collateral agent for the
Holders in connection with the Lien granted by the Security Documents to secure
the Holder Amount. The Lenders and the Holders acknowledge and agree and direct
that the rights and remedies of the beneficiaries of the Lien of the Security
Documents shall be exercised by the Agent on behalf of the Lenders and the
Holders as directed from time to time by the Majority Secured Parties or,
pursuant to Sections 8.2(h) and 12.4, all of the Lenders and the Holders, as the
case may be; provided, in all cases, the Agent shall allocate payments and other
--------
amounts received in accordance with Section 8.7. The Agent is further appointed
to provide notices under the Operative Agreements on behalf of the Owner Trustee
(as determined by the Agent, in its reasonable discretion), to receive notices
under the Operative Agreements on behalf of the Owner Trustee and (subject to
Sections 8.5 and 9.2) to take such other action under the Operative
33
<PAGE>
Agreements on behalf of the Owner Trustee as the Agent shall determine in its
reasonable discretion from time to time. The Agent hereby accepts such
appointments. For purposes hereof, the provisions of Section 7 of the Credit
Agreement, together with such other terms and provisions of the Credit Agreement
and the other Operative Agreements as required for the full interpretation and
operation of Section 7 of the Credit Agreement are hereby incorporated by
reference as if restated herein for the mutual benefit of the Agent and each
Holder as if each Holder were a Lender thereunder. Outstanding Holder Advances
and outstanding Loans shall each be taken into account for purposes of
determining Majority Secured Parties. Further, the Agent shall be entitled to
take such action on behalf of the Owner Trustee as is delegated to the Agent
under any Operative Agreement (whether express or implied) as may be reasonably
incidental thereto. The parties hereto hereby agree to the provisions contained
in this Section 8.6. Any appointment of a successor agent under Section 7.9 of
the Credit Agreement shall also be effective as an appointment of a successor
agent for purposes of this Section 8.6.
8.7. COLLECTION AND ALLOCATION OF PAYMENTS AND OTHER AMOUNTS.
-------------------------------------------------------
(a) Each Credit Party has agreed pursuant to Section 5.9 and otherwise
in accordance with the terms of this Agreement to pay to (i) the Agent any
and all Rent (excluding Excepted Payments) and any and all other amounts of
any kind or type under any of the Operative Agreements due and owing or
payable to any Person and (ii) each Person as appropriate the Excepted
Payments. Promptly after receipt, the Agent shall apply and allocate, in
accordance with the terms of this Section 8.7, such amounts received from
any Credit Party and all other payments, receipts and other consideration
of any kind whatsoever received by the Agent pursuant to the Security
Agreement or otherwise received by the Agent, the Holders or any of the
Lenders in connection with the Collateral, the Security Documents or any of
the other Operative Agreements. Ratable distributions among the Lenders and
the Holders under this Section 8.7 shall be made based on (in the case of
the Lenders) the ratio of the outstanding Loans to the aggregate Property
Cost and (in the case of the Holders) the ratio of the outstanding Holder
Advances to the aggregate Property Cost. Ratable distributions among the
Tranche A Lenders under this Section 8.7 shall be made based on the ratio
of the individual Tranche A Lender's Commitment for Tranche A Loans to the
aggregate of all the Tranche A Lenders' Commitments for Tranche A Loans.
Ratable distributions among the Tranche B Lenders under this Section 8.7
shall be made based on the ratio of the individual Tranche B Lender's
Commitment for Tranche B Loans to the aggregate of all the Tranche B
Lenders' Commitments for Tranche B Loans. Ratable distributions among the
Lenders (in situations where the Tranche A Lenders are not differentiated
from the Tranche B Lenders) shall be made based on the ratio of the
individual Lender's Commitment to the aggregate of all the Lenders'
Commitments. Ratable distributions among the Holders under this Section 8.7
shall be based on the ratio of the individual Holder's Holder Commitment to
the aggregate of all the Holders' Holder Commitments.
(b) Payments and other amounts received by the Agent from time to time
in accordance with the terms of subparagraph (a) shall be applied and
allocated as follows:
34
<PAGE>
(i) Any such payment or amount identified as or deemed to be Basic
Rent shall be applied and allocated by the Agent first, ratably to the
-----
Lenders for application and allocation to the payment of interest on
the Loans and thereafter the principal of the Loans which is due and
payable on such date and second, to the Holders for the payment of
------
accrued Holder Yield with respect to the Holder Advances and
thereafter the portion of the Holder Advances which is due on such
date; and third, if no Default or Event of Default is in effect, any
-----
excess shall be paid to such Person or Persons as the Lessee may
designate; provided, that if a Default or Event of Default is in
--------
effect, such excess (if any) shall instead be held by the Agent until
the earlier of (I) the first date thereafter on which no Default or
Event of Default shall be in effect (in which case such payments or
returns shall then be made to such other Person or Persons as the
Lessee may designate) and (II) the Maturity Date or the Expiration
Date, as the case may be (or, if earlier, the date of any
Acceleration), in which case such amounts shall be applied and
allocated in the manner contemplated by Section 8.7(b)(iv).
(ii) If on any date the Agent or the Lessor shall receive any
amount in respect of (A) any Casualty or Condemnation pursuant to
Sections 15.1(a) or 15.1(g) of the Lease (excluding any payments in
respect thereof which are payable to the Lessee in accordance with the
Lease), or (B) the Termination Value in connection with the delivery
of a Termination Notice pursuant to Article XVI of the Lease, or (C)
the Termination Value in connection with the exercise of the Purchase
Option under Section 20.1 of the Lease or the exercise of the option
of the Lessor to transfer the Properties to the Lessee pursuant to
Section 20.3 of the Lease, or (D) any payment required to be made or
elected to be made by the Construction Agent to the Lessor pursuant to
the terms of the Agency Agreement, then in each case, the Lessor shall
be required to pay such amount received (1) if no Acceleration has
occurred, first to prepay the principal balance of the Loans and
------
accrued interest thereon, on a pro rata basis, and second, to prepay
the Holder Advances and accrued Holder Yield thereon, each on a pro
rata basis, or (2) if an Acceleration has occurred, to apply and
allocate the proceeds respecting Sections 8.7(b)(ii)(A) through
8.7(b)(ii)(D) in accordance with Section 8.7(b)(iii) hereof.
(iii) Subject to Section 8.7(c), an amount equal to any payment
identified as proceeds of the sale or other disposition (or lease upon
the exercise of remedies) of the Properties or any portion thereof,
whether pursuant to Article XXII of the Lease or the exercise of
remedies under the Security Documents or otherwise, the execution of
remedies set forth in the Lease and any payment in respect of excess
wear and tear pursuant to Section 22.3 of the Lease (whether such
payment relates to a period before or after the Construction Period
Termination Date) shall be applied and allocated by the Agent first,
-----
ratably to the payment of the principal and interest of the Tranche B
Loans then outstanding, , second, to the extent such amount exceeds
------
the maximum amount to be returned pursuant to the foregoing provisions
of this paragraph (iii), ratably to the payment of the principal and
interest of the Tranche A Loans then outstanding, third, to any and
-----
all other amounts owing under the Operative Agreements to the Lenders
35
<PAGE>
under the Tranche B Loans, fourth, to any and all other amounts owing
------
under the Operative Agreements to the Lenders under the Tranche A
Loans, fifth, ratably to the payment to the Holders of the outstanding
-----
principal balance of all Holder Advances plus all outstanding Holder
Yield with respect to such outstanding Holder Advances, sixth, to any
-----
and all other amounts owing under the Operative Agreements to the
Holders, and seventh, to the extent moneys remain after application
-------
and allocation pursuant to clauses first through sixth above, to the
----- -----
Owner Trustee for application and allocation to any and all other
amounts owing to the Holders or the Owner Trustee and as the Holders
shall determine; provided, where no Event of Default shall exist and
--------
be continuing and a prepayment is made for any reason with respect to
less than the full amount of the outstanding principal amount of the
Loans and the outstanding Holder Advances, the proceeds shall be
applied and allocated ratably to the Lenders and to the Holders.
(iv) Subject to Section 8.7(c), an amount equal to (A) any such
payment identified as a payment pursuant to Section 22.1(b) of the
Lease (or otherwise) of the Maximum Residual Guarantee Amount (and any
such lesser amount as may be required by Section 22.1(b) of the Lease)
in respect of the Properties, (B) any other amount payable upon any
exercise of remedies after the occurrence of an Event of Default not
covered by Sections 8.7(b)(i) or 8.7(b)(iii) above (including without
limitation any amount received in connection with an Acceleration
which does not represent proceeds from the sale or liquidation of the
Properties) and (C) any other amount payable by any Guarantor pursuant
to Section 6B shall be applied and allocated by the Agent first,
-----
ratably, to the payment of the principal and interest balance of
Tranche A Loans then outstanding, second, ratably to the payment of
------
the principal and interest balance of the Tranche B Loans then
outstanding, third, to the payment of any other amounts owing to the
-----
Lenders hereunder or under any other Operative Agreement, fourth,
------
ratably to the payment of the principal balance of all Holder Advances
plus all outstanding Holder Yield with respect to such outstanding
Holder Advances, and fifth, to the extent moneys remain after
-----
application and allocation pursuant to clauses first through fourth
--------------------
above, to the Owner Trustee for application and allocation to Holder
Advances and Holder Yield and any other amounts owing to the Holders
or the Owner Trustee as the Holders shall determine.
(v) An amount equal to any such payment identified as Supplemental
Rent shall be applied and allocated by the Agent to the payment of any
amounts then owing to the Agent, the Lenders, the Holders and the
other parties to the Operative Agreements (or any of them) (other than
any such amounts payable pursuant to the preceding provisions of this
Section 8.7(b)) as shall be determined by the Agent in its reasonable
discretion; provided, however, that Supplemental Rent received upon
-------- -------
the exercise of remedies after the occurrence and continuance of an
Event of Default in lieu of or in substitution of the Maximum Residual
Guarantee Amount or as a partial payment thereon shall be applied and
allocated as set forth in Section 8.7(b)(iv).
36
<PAGE>
(vi) The Agent in its reasonable judgment shall identify the nature
of each payment or amount received by the Agent and apply and allocate
each such amount in the manner specified above.
(c) Upon the termination of the Commitments and the payment in full of
the Loans and all other amounts owing by the Owner Trustee hereunder or
under any Credit Document and the payment in full of all amounts owing to
the Holders and the Owner Trustee under the Trust Agreement, any moneys
remaining with the Agent shall be returned to the Owner Trustee or such
other Person or Persons as the Holders may designate for application and
allocation to any and all other amounts owing to the Holders or the Owner
Trustee and as the Holders shall determine. In the event of an Acceleration
it is agreed that, prior to the application and allocation of amounts
received by the Agent in the order described in Section 8.7(b) above, any
such amounts shall first be applied and allocated to the payment of (i) any
and all sums advanced by the Agent in order to preserve the Collateral or
to preserve its Lien thereon, (ii) the expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing or realizing on
the Collateral, or of any exercise by the Agent of its rights under the
Security Documents, together with reasonable attorneys' fees and expenses
and court costs and (iii) any and all other amounts reasonably owed to the
Agent under or in connection with the transactions contemplated by the
Operative Agreements (including without limitation any accrued and unpaid
administration fees).
8.8. RELEASE OF PROPERTIES, ETC.
---------------------------
If the Lessee shall at any time purchase any Property pursuant to the Lease,
or the Construction Agent shall purchase any Property pursuant to the Agency
Agreement, or if any Property shall be sold in accordance with Article XXII of
the Lease, then, upon satisfaction by the Owner Trustee of its obligation to
prepay the Loans, Holder Advances and all other amounts owing to the Lenders and
the Holders under the Operative Agreements, the Agent is hereby authorized and
directed to release such Properties from the Liens created by the Security
Documents to the extent of its interest therein. In addition, upon the
termination of the Commitments and the Holder Commitments and the payment in
full of the Loans, the Holder Advances and all other amounts owing by the Owner
Trustee and the Lessee hereunder or under any other Operative Agreement the
Agent is hereby authorized and directed to release all of the Properties from
the Liens created by the Security Documents to the extent of its interest
therein. Upon request of the Owner Trustee following any such release, the
Agent shall, at the sole cost and expense of the Lessee, execute and deliver to
the Owner Trustee and the Lessee such documents as the Owner Trustee or the
Lessee shall reasonably request to evidence such release.
37
<PAGE>
8.9. RECORDATION OF MEMORANDA OF LEASE AND LEASE SUPPLEMENTS.
-------------------------------------------------------
The Agent, the Lenders and the Holders hereby covenant and agree that, so long
as no Lease Event of Default exists, the Agent shall hold in escrow and shall
not record the Lease Supplements or memoranda of lease delivered to the Agent
from time to time in accordance with the terms of Section 5.3(n) hereof. In the
event that a Lease Event of Default occurs and is continuing, then (a) the Agent
may, in its sole discretion, record any memorandum of lease and/or any Lease
Supplement then held by (or thereafter delivered to) the Agent and (b) the
Lessee covenants and agrees to pay all necessary recording fees, documentary
stamp taxes and similar amounts required to be paid in connection with the
recording of such memoranda of lease and/or such Lease Supplements.
SECTION 9. CREDIT AGREEMENT AND TRUST AGREEMENT.
9.1. THE CONSTRUCTION AGENT'S AND THE LESSEE'S CREDIT AGREEMENT RIGHTS.
-----------------------------------------------------------------
Notwithstanding anything to the contrary contained in the Credit Agreement,
the Agent, the Lenders, the Holders, the Credit Parties and the Owner Trustee
hereby agree that, prior to the occurrence and continuation of any Default or
Event of Default, the Construction Agent or the Lessee, as the case may be,
shall have the following rights:
(a) the right to designate an account to which amounts funded under the
Operative Agreements shall be credited pursuant to Section 2.3(a) of the
Credit Agreement;
(b) the right to terminate or reduce the Commitments pursuant to
Section 2.5(a) of the Credit Agreement;
(c) the right to exercise the conversion and continuation options
pursuant to Section 2.7 of the Credit Agreement;
(d) the right to receive any notice and any certificate, in each case
issued pursuant to Section 2.11(a) of the Credit Agreement;
(e) the right to replace any Lender pursuant to Section 2.11(b) of the
Credit Agreement;
(f) the right to approve any successor agent pursuant to Section 7.9 of
the Credit Agreement; and
(g) the right to consent to any assignment by a Lender to which the
Lessor has the right to consent pursuant to Section 9.8 of the Credit
Agreement.
38
<PAGE>
9.2. THE CONSTRUCTION AGENT'S AND THE LESSEE'S TRUST AGREEMENT RIGHTS.
----------------------------------------------------------------
Notwithstanding anything to the contrary contained in the Trust Agreement, the
Credit Parties, the Owner Trustee and the Holders hereby agree that, prior to
the occurrence and continuation of any Default or Event of Default, the
Construction Agent or the Lessee, as the case may be, shall have the following
rights:
(a) the right to exercise the conversion and continuation options
pursuant to Section 3.8 of the Trust Agreement;
(b) the right to receive any notice and any certificate, in each case
issued pursuant to Section 3.9(a) of the Trust Agreement;
(c) the right to replace any Holder pursuant to Section 3.9(b) of the
Trust Agreement;
(d) the right to exercise the removal options contained in Section 3.9
of the Trust Agreement; and
(e) no removal of the Owner Trustee and appointment of a successor
Owner Trustee pursuant to Section 9.1 of the Trust Agreement shall be made
without the prior written consent (not to be unreasonably withheld or
delayed) of the Lessee.
(f) the right to designate an account to which amounts funded under the
Operative Agreements shall be credited pursuant to Section 3.1(b) of the
Trust Agreement.
SECTION 10. TRANSFER OF INTEREST.
10.1. RESTRICTIONS ON TRANSFER.
------------------------
Each Lender may participate, assign or transfer all or a portion of its
interest hereunder and under the other Operative Agreements in accordance with
Sections 9.7 and 9.8 of the Credit Agreement; provided, each participant,
--------
assignee or transferee must obtain the same ratable interest in Tranche A Loans,
Tranche B Loans and Holder Advances. The Holders may, directly or indirectly,
assign, convey or otherwise transfer any of their right, title or interest in or
to the Trust Estate or the Trust Agreement with the prior written consent of the
Agent and the Lessee (which consent shall not be unreasonably withheld or
delayed) and in accordance with the terms of Section 11.8(b) of the Trust
Agreement; provided, each participant, assignee or tranferee must obtain the
---------
same ratable interest in Tranche A Loans, Tranche B Loans and Holder Advances.
The Owner Trustee may, subject to the rights of the Lessee under the Lease and
the other Operative Agreements and to the Lien of the applicable Security
Documents but only with the prior written consent of the Agent (which consent
may be withheld by the Agent in its sole discretion) and (provided, no Default
--------
or Event of Default has occurred and is continuing) with the consent of the
Lessee, directly or indirectly, assign, convey, appoint an agent with respect to
39
<PAGE>
enforcement of, or otherwise transfer any of its right, title or interest in or
to any Property, the Lease, the Trust Agreement and the other Operative
Agreements (including without limitation any right to indemnification
thereunder), or any other document relating to a Property or any interest in a
Property as provided in the Trust Agreement and the Lease. The provisions of
the immediately preceding sentence shall not apply to the obligations of the
Owner Trustee to transfer Property to the Lessee or a third party purchaser
pursuant to Article XXII of the Lease upon payment for such Property in
accordance with the terms and conditions of the Lease. No Credit Party may
assign any of the Operative Agreements or any of their respective rights or
obligations thereunder or with respect to any Property in whole or in part to
any Person without the prior written consent of the Agent, the Lenders, the
Holders and the Lessor.
10.2. EFFECT OF TRANSFER.
------------------
From and after any transfer effected in accordance with this Section 10, the
transferor shall be released, to the extent of such transfer, from its liability
hereunder and under the other documents to which it is a party in respect of
obligations to be performed on or after the date of such transfer; provided,
--------
however, that any transferor shall remain liable hereunder and under such other
- -------
documents to the extent that the transferee shall not have assumed the
obligations of the transferor thereunder. Upon any transfer by the Owner
Trustee, a Holder or a Lender as above provided, any such transferee shall
assume the obligations of the Owner Trustee, the Holder or the Lender, as the
case may be, and shall be deemed an "Owner Trustee", "Holder", or "Lender", as
the case may be, for all purposes of such documents and each reference herein to
the transferor shall thereafter be deemed a reference to such transferee for all
purposes, except as provided in the preceding sentence. Notwithstanding any
transfer of all or a portion of the transferor's interest as provided in this
Section 10, the transferor shall be entitled to all benefits accrued and all
rights vested prior to such transfer including without limitation rights to
indemnification under any such document.
SECTION 11. INDEMNIFICATION.
11.1. GENERAL INDEMNITY.
-----------------
Whether or not any of the transactions contemplated hereby shall be
consummated, the Indemnity Provider hereby assumes liability for and agrees to
defend, indemnify and hold harmless each Indemnified Person on an After Tax
Basis from and against any Claims, which may be imposed on, incurred by or
asserted against an Indemnified Person by any third party, including without
limitation Claims arising from the negligence of an Indemnified Person (but not
to the extent such Claims arise from the gross negligence or willful misconduct
of such Indemnified Person) in any way relating to or arising or alleged to
arise out of the execution, delivery, performance or enforcement of this
Agreement, the Lease or any other Operative Agreement or on or with respect to
any Property or any component thereof, including without limitation Claims in
any way relating to or arising or alleged to arise out of (a) the financing,
refinancing, purchase, acceptance, rejection, ownership, design, construction,
refurbishment, development, delivery, acceptance, nondelivery, leasing,
subleasing, possession, use, occupancy, operation, maintenance, repair,
modification, transportation, condition, sale, return, repossession (whether by
summary proceedings or otherwise), or any other disposition of any Property or
any
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part thereof, including without limitation the acquisition, holding or
disposition of any interest in the Property, lease or agreement comprising a
portion of any thereof; (b) any latent or other defects in any Property or any
portion thereof whether or not discoverable by an Indemnified Person or the
Indemnity Provider; (c) an Environmental Violation, Environmental Claims or
other loss of or damage to any property or the environment relating to the
Property, the Lease, the Agency Agreement or the Indemnity Provider; (d) the
Operative Agreements, or any transaction contemplated thereby; (e) any breach by
the Indemnity Provider of any of its representations or warranties under the
Operative Agreements to which the Indemnity Provider is a party or failure by
the Indemnity Provider to perform or observe any covenant or agreement to be
performed by it under any of the Operative Agreements; and (f) personal injury,
death or property damage, including without limitation Claims based on strict or
absolute liability in tort.
If a written Claim is made against any Indemnified Person or if any proceeding
shall be commenced against such Indemnified Person (including without limitation
a written notice of such proceeding), for any Claim, such Indemnified Person
shall promptly notify the Indemnity Provider in writing and shall not take
action with respect to such Claim without the consent of the Indemnity Provider
for thirty (30) days after the receipt of such notice by the Indemnity Provider;
provided, however, that in the case of any such Claim, if action shall be
- -------- -------
required by law or regulation to be taken prior to the end of such period of
thirty (30) days, such Indemnified Person shall endeavor to, in such notice to
the Indemnity Provider, inform the Indemnity Provider of such shorter period,
and no action shall be taken with respect to such Claim without the consent of
the Indemnity Provider before seven (7) days before the end of such shorter
period.
If, within thirty (30) days of receipt of such notice from the Indemnified
Person (or such shorter period as the Indemnified Person has notified the
Indemnity Provider is required by law or regulation for the Indemnified Person
to respond to such Claim), the Indemnity Provider shall request in writing that
such Indemnified Person respond to such Claim, the Indemnified Person shall, at
the expense of the Indemnity Provider, in good faith conduct and control such
action (including without limitation by pursuit of appeals) (provided, however,
-------- -------
that (A) if such Claim, in the Indemnity Provider's reasonable discretion, can
be pursued by the Indemnity Provider on behalf of or in the name of such
Indemnified Person, the Indemnified Person, at the Indemnity Provider's request,
shall allow the Indemnity Provider to conduct and control the response to such
Claim and (B) in the case of any Claim (and notwithstanding the provisions of
the foregoing subsection (A)), the Indemnified Person may request the Indemnity
Provider to conduct and control the response to such Claim (with counsel to be
selected by the Indemnity Provider and consented to by such Indemnified Person,
such consent not to be unreasonably withheld; provided, however, that any
-------- -------
Indemnified Person may retain separate counsel at the expense of the Indemnity
Provider in the event of a conflict of interest between such Indemnified Person
and the Indemnity Provider)) by, in the sole discretion of the Person conducting
and controlling the response to such Claim (1) resisting payment thereof, (2)
not paying the same except under protest, if protest is necessary and proper,
(3) if the payment be made, using reasonable efforts to obtain a refund thereof
in appropriate administrative and judicial proceedings, or (4) taking such other
action as is reasonably requested by the Indemnity Provider from time to time.
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The party controlling the response to any Claim shall consult in good faith
with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of the response to such Claim; provided,
--------
that all decisions ultimately shall be made in the discretion of the controlling
party. The parties agree that an Indemnified Person may at any time decline to
take further action with respect to the response to such Claim and may settle
such Claim if such Indemnified Person shall waive its rights to any indemnity
from the Indemnity Provider that otherwise would be payable in respect of such
Claim (and any future Claim, the pursuit of which is precluded by reason of such
resolution of such Claim) and shall pay to the Indemnity Provider any amount
previously paid or advanced by the Indemnity Provider pursuant to this Section
11.1 by way of indemnification or advance for the payment of an amount regarding
such Claim, together with all reasonable costs and expenses incurred by the
Indemnity Provider in connection therewith.
Notwithstanding the foregoing provisions of this Section 11.1, an Indemnified
Person shall not be required to take any action and the Indemnity Provider shall
not be permitted to respond to any Claim in its own name or that of the
Indemnified Person unless (A) the Indemnity Provider shall have agreed to pay
and shall pay to such Indemnified Person on demand and on an After Tax Basis all
reasonable costs, losses and expenses that such Indemnified Person actually
incurs in connection with such Claim, including without limitation all
reasonable legal, accounting and investigatory fees and disbursements and, if
the Indemnified Person has informed the Indemnity Provider that it intends to
contest such Claim (whether or not the control of the contest is then assumed by
the Indemnity Provider), the Indemnity Provider shall have agreed that the Claim
is an indemnifiable Claim hereunder, (B) in the case of a Claim that must be
pursued in the name of an Indemnified Person (or an Affiliate thereof), the
amount of the potential indemnity (taking into account all similar or logically
related Claims that have been or could be raised for which the Indemnity
Provider may be liable to pay an indemnity under this Section 11.1) exceeds
$10,000 (or such lesser amount as may be subsequently agreed between the
Indemnity Provider and the Indemnified Person), (C) the Indemnified Person shall
have reasonably determined that the action to be taken will not result in any
material danger of sale, forfeiture or loss of the Property, or any part thereof
or interest therein, will not interfere with the payment of Rent, and will not
result in risk of criminal liability, (D) if such Claim shall involve the
payment of any amount prior to the resolution of such Claim, the Indemnity
Provider shall provide to the Indemnified Person an interest-free advance in an
amount equal to the amount that the Indemnified Person is required to pay (with
no additional net after-tax cost to such Indemnified Person) prior to the date
such payment is due, (E) in the case of a Claim that must be pursued in the name
of an Indemnified Person (or an Affiliate thereof), the Indemnity Provider shall
have demonstrated to the reasonable satisfaction of the Indemnified Person that
a reasonable basis exists to contest such Claim (or, in the case of an appeal of
an adverse determination, an opinion of such counsel to the effect that the
position asserted in such appeal will more likely than not prevail and (F) no
Event of Default shall have occurred and be continuing. In no event shall an
Indemnified Person be required to appeal an adverse judicial determination to
the United States Supreme Court. In addition, an Indemnified Person shall not
be required to contest any Claim in its name (or that of an Affiliate) if the
subject matter thereof shall be of a continuing nature and shall have previously
been decided adversely by a court of competent jurisdiction pursuant to the
contest provisions of this Section 11.1, unless there shall have been a change
in law (or interpretation thereof) and the Indemnified Person shall have
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received, at the Indemnity Provider's expense, an opinion of independent counsel
selected by the Indemnity Provider and reasonably acceptable to the Indemnified
Person stating that as a result of such change in law (or interpretation
thereof), it is more likely than not that the Indemnified Person will prevail in
such contest. In no event shall the Indemnity Provider be permitted to adjust
or settle any Claim without the consent of the Indemnified Person to the extent
any such adjustment or settlement involves, or is reasonably likely to involve,
any performance by or adverse admission by or with respect to the Indemnified
Person.
11.2. GENERAL TAX INDEMNITY.
---------------------
(a) The Indemnity Provider shall pay and assume liability for, and does
hereby agree to indemnify, protect and defend each Property and all
Indemnified Persons, and hold them harmless against, all Impositions on an
After Tax Basis, and all payments pursuant to the Operative Agreements
shall be made free and clear of and without deduction for any and all
present and future Impositions.
(b) Notwithstanding anything to the contrary in Section 11.2(a)
hereof, the following shall be excluded from the indemnity required by
Section 11.2(a):
(i) Taxes (other than Taxes that are, or are in the nature of,
sales, use, rental, value added, transfer or property taxes) that are
imposed on a Indemnified Person (other than the Lessor, the Owner
Trustee and the Trust) by the United States federal government or any
foreign government that are based on or measured by the net income
(including without limitation taxes based on capital gains and minimum
taxes) of such Person; provided, that this clause (i) shall not be
--------
interpreted to prevent a payment from being made on an After Tax Basis
if such payment is otherwise required to be so made;
(ii) Taxes (other than Taxes that are, or are in the nature of,
sales, use, rental, value added, transfer or property taxes) that are
imposed on any Indemnified Person (other than the Lessor, the Owner
Trustee and the Trust) by any state or local jurisdiction or taxing
authority within any state or local jurisdiction and that are based
upon or measured by the net income (including without limitation taxes
based on capital gains and minimum taxes) of such Person; provided
--------
that such Taxes shall not be excluded under this subparagraph (ii) to
---
the extent such Taxes would have been imposed had the location,
possession or use of any Property in, the location or the operation of
the Lessee in, or the Lessee's making payments under the Operative
Agreements from, the jurisdiction imposing such Taxes been the sole
connection between such Indemnified Person and the jurisdiction
imposing such Taxes; provided, further, that this clause (ii) shall
-------- -------
not be interpreted to prevent a payment from being made on an After
Tax Basis if such payment is otherwise required to be so made;
(iii) any Tax to the extent it relates to any act, event or
omission that occurs after the termination of the Lease and redelivery
or sale of the Property in accordance with the terms of the Lease (but
not any Tax that relates to such
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termination, redelivery or sale and/or to any period prior to such
termination, redelivery or sale); and
(iv) any Taxes which are imposed on an Indemnified Person as a
result of the gross negligence or willful misconduct of such
Indemnified Person but not Taxes imposed as a result of ordinary
negligence of such Indemnified Person;
(c) (i) Subject to the terms of Section 11.2(f), the Indemnity
Provider shall pay or cause to be paid all Impositions directly to the
taxing authorities where feasible and otherwise to the Indemnified
Person, as appropriate, and the Indemnity Provider shall at its own
expense, upon such Indemnified Person's reasonable request, furnish to
such Indemnified Person copies of official receipts or other
satisfactory proof evidencing such payment.
(ii) In the case of Impositions for which no contest is
conducted pursuant to Section 11.2(f) and which the Indemnity Provider
pays directly to the taxing authorities, the Indemnity Provider shall
pay such Impositions prior to the latest time permitted by the
relevant taxing authority for timely payment. In the case of
Impositions for which the Indemnity Provider reimburses an Indemnified
Person, the Indemnity Provider shall do so within thirty (30) days
after receipt by the Indemnity Provider of demand by such Indemnified
Person describing in reasonable detail the nature of the Imposition
and the basis for the demand (including without limitation the
computation of the amount payable), accompanied by receipts or other
reasonable evidence of such demand. In the case of Impositions for
which a contest is conducted pursuant to Section 11.2(f), the
Indemnity Provider shall pay such Impositions or reimburse such
Indemnified Person for such Impositions, to the extent not previously
paid or reimbursed pursuant to subsection (a), prior to the latest
time permitted by the relevant taxing authority for timely payment
after conclusion of all contests under Section 11.2(f).
(iii) At the Indemnity Provider's request, the amount of any
indemnification payment by the Indemnity Provider pursuant to
subsection (a) shall be verified and certified by an independent
public accounting firm mutually acceptable to the Indemnity Provider
and the Indemnified Person. The fees and expenses of such independent
public accounting firm shall be paid by the Indemnity Provider unless
such verification shall result in an adjustment in the Indemnity
Provider's favor of fifteen percent (15%) or more of the payment as
computed by the Indemnified Person, in which case such fee shall be
paid by the Indemnified Person.
(d) The Indemnity Provider shall be responsible for preparing and
filing any real and personal property or ad valorem tax returns in respect
of each Property and any other tax returns required for the Owner Trustee
respecting the transactions described in the Operative Agreements. In case
any other report or tax return shall be required to be made with respect to
any obligations of the Indemnity Provider under or arising out of
subsection (a) and of which the Indemnity Provider has knowledge or should
have
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knowledge, the Indemnity Provider, at its sole cost and expense, shall
notify the relevant Indemnified Person of such requirement and (except if
such Indemnified Person notifies the Indemnity Provider that such
Indemnified Person intends to prepare and file such report or return) (A)
to the extent required or permitted by and consistent with Legal
Requirements, make and file in the Indemnity Provider's name such return,
statement or report; and (B) in the case of any other such return,
statement or report required to be made in the name of such Indemnified
Person, advise such Indemnified Person of such fact and prepare such
return, statement or report for filing by such Indemnified Person or, where
such return, statement or report shall be required to reflect items in
addition to any obligations of the Indemnity Provider under or arising out
of subsection (a), provide such Indemnified Person at the Indemnity
Provider's expense with information sufficient to permit such return,
statement or report to be properly made with respect to any obligations of
the Indemnity Provider under or arising out of subsection (a). Such
Indemnified Person shall, upon the Indemnity Provider's request and at the
Indemnity Provider's expense, provide any data maintained by such
Indemnified Person (and not otherwise available to or within the control of
the Indemnity Provider) with respect to each Property which the Indemnity
Provider may reasonably require to prepare any required tax returns or
reports.
(e) As between the Indemnity Provider on one hand, and each Financing
Party on the other hand, the Indemnity Provider shall be responsible for,
and the Indemnity Provider shall indemnify and hold harmless each Financing
Party (without duplication of any indemnification required by subsection
(a)) on an After Tax Basis against, any obligation for United States or
foreign withholding taxes or similar levies, imposts, charges, fees,
deductions or withholdings (collectively, "Withholdings") imposed in
------------
respect of the interest payable on the Notes, Holder Yield payable on the
Certificates or with respect to any other payments under the Operative
Agreement (all such payments being referred to herein as "Exempt Payments"
---------------
to be made without deduction, withholding or set off) (and, if any
Financing Party receives a demand for such payment from any taxing
authority or a Withholding is otherwise required with respect to any Exempt
Payment, the Indemnity Provider shall discharge such demand on behalf of
such Financing Party); provided, however, that the obligation of the
-------- -------
Indemnity Provider under this Section 11.2(e) shall not apply to:
(i) Withholdings on any Exempt Payment to any Financing Party
which is a non-U.S. Person unless such Financing Party is, on the date
hereof (or on the date it becomes a Financing Party hereunder) and on
the date of any change in the principal place of business or the
lending office of such Financing Party, entitled to submit a Form 1001
(relating to such Financing Party and entitling it to a complete
exemption from Withholding on such Exempt Payment) or Form 4224 or is
otherwise subject to exemption from Withholding with respect to such
Exempt Payment (except where the failure of the exemption results from
a change in the principal place of business of the Lessee; provided if
a failure of exemption for any Financing Party results from a change
in the principal place of business or lending office of any other
Financing Party, then such other Financing Party shall be liable for
any Withholding or indemnity with respect thereto), or
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(ii) Any U.S. Taxes imposed solely by reason of the failure by a
non-U.S. Person to comply with applicable certification, information,
documentation or other reporting requirements concerning the
nationality, residence, identity or connections with the United States
of America of such non-U.S. Person if such compliance is required by
statute or regulation of the United States of America as a
precondition to relief or exemption from such U.S. Taxes.
For the purposes of this Section 11.2(e), (A) "U.S. Person" shall mean a
-----------
citizen, national or resident of the United States of America, a
corporation, partnership or other entity created or organized in or under
any laws of the United States of America or any State thereof, or any
estate or trust that is subject to Federal income taxation regardless of
the source of its income, (B) "U.S. Taxes" shall mean any present or future
----------
tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein, (C)
"Form 1001" shall mean Form 1001 (Ownership, Exemption, or Reduced Rate
----------
Certificate) of the Department of the Treasury of the United States of
America and (D) "Form 4224" shall mean Form 4224 (Exemption from
---------
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) of the Department of Treasury of
the United States of America (or in relation to either such Form such
successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a
claim to which such Form relates). Each of the Forms referred to in the
foregoing clauses (C) and (D) shall include such successor and related
forms as may from time to time be adopted by the relevant taxing
authorities of the United States of America to document a claim to which
such Form relates.
If a Financing Party or an Affiliate with whom such Financing Party
files a consolidated tax return (or equivalent) subsequently receives the
benefit in any country of a tax credit or an allowance resulting from U.S.
Taxes with respect to which it has received a payment of an additional
amount under this Section 11.2(e), such Financing Party will pay to the
Indemnity Provider such part of that benefit as in the opinion of such
Financing Party will leave it (after such payment) in a position no more
and no less favorable than it would have been in if no additional payment
had been required to be paid, provided always that (i) such Financing Party
--------
will be the sole judge of the amount of any such benefit and of the date on
which it is received, so long as such Financing Party acts reasonably in
making such determination, (ii) such Financing Party will have the absolute
discretion as to the order and manner in which it employs or claims tax
credits and allowances available to it and (iii) such Financing Party will
not be obliged to disclose to the Borrower any information regarding its
tax affairs or tax computations.
Each non-U.S. Person that shall become a Financing Party after the date
hereof shall, upon the effectiveness of the related transfer or otherwise
upon becoming a Financing Party hereunder, be required to provide all of
the forms and statements referenced above or other evidences of exemption
from Withholdings.
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(f) If a written Claim is made against any Indemnified Person or if any
proceeding shall be commenced against such Indemnified Person (including
without limitation a written notice of such proceeding), for any
Impositions, the provisions in Section 11.1 relating to notification and
rights to contest shall apply; provided, however, that the Indemnity
-------- -------
Provider shall have the right to conduct and control such contest only if
such contest involves a Tax other than a Tax on net income of the
Indemnified Person and can be pursued independently from any other
proceeding involving a Tax liability of such Indemnified Person.
11.3. INCREASED COSTS, ILLEGALITY, ETC.
---------------------------------
(a) If, due to either (i) the introduction of or any change in or in
the interpretation of any law or regulation or (ii) the compliance with any
guideline or request hereafter adopted, promulgated or made by any central
bank or other governmental authority (whether or not having the force of
law), there shall be any increase in the cost to any Financing Party of
agreeing to make or making, funding or maintaining Advances, then the
Lessee shall from time to time, upon demand by such Financing Party (with a
copy of such demand to the Agent but subject to the terms of Section 2.11
of the Credit Agreement and 3.9 of the Trust Agreement, as the case may
be), pay to the Agent for the account of such Financing Party additional
amounts sufficient to compensate such Financing Party for such increased
cost. A certificate as to the amount of such increased cost, submitted to
the Lessee and the Agent by such Financing Party, shall be conclusive and
binding for all purposes, absent manifest error.
(b) If any Financing Party determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law, but in each
case promulgated or made after the date hereof) affects or would affect the
amount of capital required or expected to be maintained by such Financing
Party or any corporation controlling such Financing Party and that the
amount of such capital is increased by or based upon the existence of such
Financing Party's commitment to make Advances and other commitments of this
type or upon the Advances, then, upon demand by such Financing Party (with
a copy of such demand to the Agent but subject to the terms of Section 2.11
of the Credit Agreement and 3.9 of the Trust Agreement), the Lessee shall
pay to the Agent for the account of such Financing Party, from time to time
as specified by such Financing Party, additional amounts sufficient to
compensate such Financing Party or such corporation in the light of such
circumstances, to the extent that such Financing Party reasonably
determines such increase in capital to be allocable to the existence of
such Financing Party's commitment to make such Advances. A certificate as
to such amounts submitted to the Lessee and the Agent by such Financing
Party shall be conclusive and binding for all purposes, absent manifest
error.
(c) Without limiting the effect of the foregoing, the Lessee shall pay
to each Financing Party on the last day of the Interest Period therefor so
long as such Financing Party is maintaining reserves against "Eurocurrency
liabilities" under Regulation D an additional amount (determined by such
Financing Party and notified to the Lessee
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through the Agent) equal to the product of the following for each
Eurodollar Loan or Eurodollar Holder Advance, as the case may be, for each
day during such Interest Period:
(i) the principal amount of such Eurodollar Loan or Eurodollar
Holder Advance, as the case may be, outstanding on such day; and
(ii) the remainder of (x) a fraction the numerator of which is
the rate (expressed as a decimal) at which interest accrues on such
Eurodollar Loan or Eurodollar Holder Advance, as the case may be, for
such Interest Period as provided in the Credit Agreement or the Trust
Agreement, as the case may be (less the Applicable Percentage), and
the denominator of which is one (1) minus the effective rate
-----
(expressed as a decimal) at which such reserve requirements are
imposed on such Financing Party on such day minus (y) such numerator;
and
(iii) 1/360.
(d) Without affecting its rights under Sections 11.3(a), 11.3(b) or
11.3(c) or any other provision of any Operative Agreement, each Financing
Party agrees that if there is any increase in any cost to or reduction in
any amount receivable by such Financing Party with respect to which the
Lessee would be obligated to compensate such Financing Party pursuant to
Sections 11.3(a) or 11.3(b), such Financing Party shall use reasonable
efforts to select an alternative office for Advances which would not result
in any such increase in any cost to or reduction in any amount receivable
by such Financing Party; provided, however, that no Financing Party shall
-------- -------
be obligated to select an alternative office for Advances if such Financing
Party determines that (i) as a result of such selection such Financing
Party would be in violation of any applicable law, regulation, treaty, or
guideline, or would incur additional costs or expenses or (ii) such
selection would be inadvisable for regulatory reasons or materially
inconsistent with the interests of such Financing Party.
(e) With reference to the obligations of the Lessee set forth in
Sections 11.3(a) through 11.3(d), the Lessee shall not have any obligation
to pay to any Financing Party amounts owing under such Sections for any
period which is more than one (1) year prior to the date upon which the
request for payment therefor is delivered to the Lessee.
(f) Notwithstanding any other provision of this Agreement, if any
Financing Party shall notify the Agent that the introduction of or any
change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other governmental authority asserts that
it is unlawful, for any Financing Party to perform its obligations
hereunder to make or maintain Eurodollar Loans or Eurodollar Holder
Advances, as the case may be, then (i) each Eurodollar Loan or Eurodollar
Holder Advance, as the case may be, will automatically, at the earlier of
the end of the Interest Period for such Eurodollar Loan or Eurodollar
Holder Advance, as the case may be, or the date required by law, convert
into an ABR Loan or an ABR Holder Advance, as the case may be, and (iii)
the obligation of the Financing Parties to make, convert or continue
Eurodollar Loans or Eurodollar Holder Advances, as the case may be, shall
be suspended
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until the Agent shall notify the Lessee that such Financing Party has
determined that the circumstances causing such suspension no longer exist.
11.4. FUNDING/CONTRIBUTION INDEMNITY.
------------------------------
Subject to the provisions of Section 2.11(a) of the Credit Agreement and
3.9(a) of the Trust Agreement, as the case may be, the Lessee agrees to
indemnify each Financing Party and to hold each Financing Party harmless from
any loss or reasonable expense which such Financing Party may sustain or incur
as a consequence of (a) any failure in connection with the drawing of funds for
any Advance, (b) any failure in making any prepayment after a notice thereof has
been given in accordance with the provisions of the Operative Agreements or (c)
the making of a voluntary or involuntary prepayment of Eurodollar Loans or
Eurodollar Holder Advances, as the case may be, on a day which is not the last
day of an Interest Period with respect thereto. Such indemnification shall be
in an amount equal to the excess, if any, of (x) the amount of interest or
Holder Yield, as the case may be, which would have accrued on the amount so
prepaid, or not so borrowed for the period from the date of such prepayment or
of such failure to borrow to the last day of such Interest Period (or, in the
case of a failure to borrow the Interest Period that would have commenced on the
date of such failure) in each case at the applicable Eurodollar Rate plus the
Applicable Percentage for such Loan or Holder Advance, as the case may be, for
such Interest Period over (y) the amount of interest (as determined by such
Financing Party in its reasonable discretion) which would have accrued to such
Financing Party on such amount by (i) (in the case of the Lenders) reemploying
such funds in loans of the same type and amount during the period from the date
of prepayment or failure to borrow to the last day of the then applicable
Interest Period (or, in the case of a failure to borrow, the Interest Period
that would have commenced on the date of such failure) and (ii) (in the case of
the Holders) placing such amount on deposit for a comparable period with leading
banks in the relevant interest rate market. This covenant shall survive the
termination of the Operative Agreements and the payment of all other amounts
payable hereunder.
11.5. EXPRESS INDEMNIFICATION FOR ORDINARY NEGLIGENCE, STRICT LIABILITY,
------------------------------------------------------------------
ETC.
----
WITHOUT LIMITING THE GENERALITY OF THE INDEMNIFICATION PROVISIONS OF ANY AND
ALL OF THE OPERATIVE AGREEMENTS, EACH PERSON PROVIDING INDEMNIFICATION OF
ANOTHER PERSON UNDER ANY OPERATIVE AGREEMENT HEREBY FURTHER EXPRESSLY RELEASES
EACH BENEFICIARY OF ANY SUCH INDEMNIFICATION FROM ALL CLAIMS FOR LOSS OR DAMAGE,
DESCRIBED IN ANY OPERATIVE AGREEMENT, CAUSED BY ANY ACT OR OMISSION ON THE PART
OF ANY SUCH BENEFICIARY ATTRIBUTABLE TO THE ORDINARY NEGLIGENCE (WHETHER SOLE OR
CONTRIBUTORY) OR STRICT LIABILITY OF ANY SUCH BENEFICIARY, AND INDEMNIFIES,
EXONERATES AND HOLDS EACH SUCH BENEFICIARY FREE AND HARMLESS FROM AND AGAINST
ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, CLAIMS, LOSSES, COSTS,
LIABILITIES, DAMAGES AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE
ATTORNEY'S FEES AND EXPENSES), DESCRIBED ABOVE, INCURRED BY ANY SUCH BENEFICIARY
(IRRESPECTIVE
49
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OF WHETHER ANY SUCH BENEFICIARY IS A PARTY TO THE ACTION FOR WHICH
INDEMNIFICATION UNDER THIS AGREEMENT OR ANY OTHER OPERATIVE AGREEMENT IS SOUGHT)
ATTRIBUTABLE TO THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OR STRICT
LIABILITY OF ANY SUCH BENEFICIARY.
SECTION 12. MISCELLANEOUS.
12.1. SURVIVAL OF AGREEMENTS.
----------------------
The representations, warranties, covenants, indemnities and agreements of the
parties provided for in the Operative Agreements, and the parties' obligations
under any and all thereof, shall survive the execution and delivery of this
Agreement, the transfer of any Property to the Owner Trustee, the acquisition of
any Property (or any of its components), the construction of any Improvements,
the Completion of any Property, any disposition of any interest of the Owner
Trustee in any Property or any interest of the Holders in the Trust Estate and
shall be and continue in effect notwithstanding any investigation made by any
party and the fact that any party may waive compliance with any of the other
terms, provisions or conditions of any of the Operative Agreements. Except as
otherwise expressly set forth herein or in other Operative Agreements, the
indemnities of the parties provided for in the Operative Agreements shall
survive the expiration or termination of any thereof.
12.2. NOTICES.
-------
All notices required or permitted to be given under any Operative Agreement
shall be in writing. Notices may be served by certified or registered mail,
postage paid with return receipt requested; by private courier, prepaid; by
telex, facsimile, or other telecommunication device capable of transmitting or
creating a written record; or personally. Mailed notices shall be deemed
delivered five (5) days after mailing, properly addressed. Couriered notices
shall be deemed delivered when delivered as addressed, or if the addressee
refuses delivery, when presented for delivery notwithstanding such refusal.
Telex or telecommunicated notices shall be deemed delivered when receipt is
either confirmed by confirming transmission equipment or acknowledged by the
addressee or its office. Personal delivery shall be effective when
accomplished. Unless a party changes its address by giving notice to the other
party as provided herein, notices shall be delivered to the parties at the
following addresses:
If to the Construction Agent or the Lessee, to such entity at the
following address:
JP Foodservice Distributors, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: Robert W. Gillison
Telephone: (410) 309-6468
Telecopy: (410) 309-6296
50
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If to any Guarantor, to such entity in care of JP Foodservice
Distributors, Inc. at the following address:
JP Foodservice Distributors, Inc.
9830 Patuxent Woods Drive
Columbia, Maryland 21046
Attention: Robert W. Gillison
Telephone: (410) 309-6468
Telecopy: (410) 309-6296
If to the Owner Trustee or the Borrower, to it at the following address:
First Security Bank, National Association
79 South Main Street
Salt Lake City, Utah 84111
Attention: Val T. Orton,
Vice President
Telephone: (801) 246-5300
Telecopy: (801) 246-5053
If to the Holders, to each such Holder at the address set forth for such
Holder on Schedule I of the Trust Agreement.
----------
If to the Agent, to it at the following address:
First Union National Bank
c/o First Union Capital Markets Group
DC-6
301 South College Street
Charlotte, North Carolina 28288-0166
Attention: Ms. Donna Hemingway,
Capital Markets Services
Telephone: (704) 383-8763
Telecopy: (704) 383-7989
If to any Lender, to it at the address set forth for such Lender in
Schedule 1.1 of the Credit Agreement.
------------
From time to time any party may designate additional parties and/or
another address for notice purposes by notice to each of the other parties
hereto. Each notice hereunder shall be effective upon receipt or refusal
thereof.
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12.3. COUNTERPARTS.
------------
This Agreement may be executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one (1) and the same instrument.
12.4. TERMINATIONS, AMENDMENTS, WAIVERS, ETC.; UNANIMOUS VOTE MATTERS.
---------------------------------------------------------------
Each Operative Agreement may be terminated, amended, supplemented, waived or
modified only by an instrument in writing signed by, subject to Article VIII of
the Trust Agreement regarding termination of the Trust Agreement, the Majority
Secured Parties and each Credit Party (to the extent such Credit Party is a
party to such Operative Agreement); provided, to the extent no Default or Event
--------
of Default shall have occurred and be continuing, the Majority Secured Parties
shall not amend, supplement, waive or modify any provision of any Operative
Agreement in such a manner as to adversely affect the rights of any Credit Party
without the prior written consent (not to be unreasonably withheld or delayed)
of such Credit Party. In addition, (a) the Unanimous Vote Matters shall require
the consent of each Lender and each Holder affected by such matter and (b) any
provision of any Operative Agreement incorporated by reference or otherwise
referenced in a second Operative Agreement shall remain, respecting such second
Operative Agreement, in its original form without regard to any such
termination, amendment, supplement, waiver or modification in the first
Operative Agreement except if such has been agreed to by an instrument in
writing signed by, subject to Article VIII of the Trust Agreement regarding
termination of the Trust Agreement, the Majority Secured Parties and each Credit
Party (to the extent such Credit Party is a party to such Operative Agreement).
Notwithstanding the foregoing, no such termination, amendment, supplement,
waiver or modification shall, without the consent of the Agent and, to the
extent affected thereby, each Lender and each Holder (collectively, the
"Unanimous Vote Matters") (i) reduce the amount of any Note or any Certificate,
- -----------------------
extend the scheduled date of maturity of any Note, extend the scheduled
Expiration Date, extend any payment date of any Note or Certificate, reduce the
stated rate of interest payable on any Note, reduce the stated Holder Yield
payable on any Certificate (other than as a result of waiving the applicability
of any post-default increase in interest rates or Holder Yields), modify the
priority of any Lien in favor of the Agent under any Security Document,
subordinate any obligation owed to any Lender or Holder, reduce any Lender
Facility Fees or any Holder Facility Fees payable under the Participation
Agreement, extend the scheduled date of payment of any Lender Facility Fees or
any Holder Facility Fees or increase the amount or extend the expiration date of
any Lender's Commitment or the Holder Commitment of any Holder, or (ii)
terminate, amend, supplement, waive or modify any provision of this Section 12.4
or reduce the percentages specified in the definitions of Majority Lenders,
Majority Holders or Majority Secured Parties, or consent to the assignment or
transfer by the Owner Trustee of any of its rights and obligations under any
Credit Document or release a material portion of the Collateral (except in
accordance with Section 8.8) or release any Credit Party from its obligations
under any Operative Agreement or otherwise alter any payment obligations of any
Credit Party to the Lessor or any Financing Party under the Operative
Agreements, or (iii) terminate, amend, supplement, waive or modify any provision
of Section 7 of the Credit Agreement, or (iv) permit Advances for Work in excess
of the Construction Budget,
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or (v) eliminate the automatic option under Section 5.3(b) of the Agency
Agreement requiring that the Construction Agent pay certain liquidated damages
in exchange for the conveyance of a Property to the Construction Agent. Any such
termination, amendment, supplement, waiver or modification shall apply equally
to each of the Lenders and the Holders and shall be binding upon all the parties
to this Agreement. In the case of any waiver, each party to this Agreement shall
be restored to its former position and rights under the Operative Agreements,
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.
If at a time when the conditions precedent set forth in the Operative
Agreements to any Loan are, in the opinion of the Majority Lenders, satisfied,
any Lender shall fail to fulfill its obligations to make such Loan (any such
Lender, a "Defaulting Lender") then, for so long as such failure shall continue,
-----------------
the Defaulting Lender shall (unless the Lessee and the Majority Lenders,
determined as if the Defaulting Lender were not a "Lender", shall otherwise
consent in writing) be deemed for all purposes relating to terminations,
amendments, supplements, waivers or modifications under the Operative Agreements
to have no Loans, shall not be treated as a "Lender" when performing the
computation of Majority Lenders or Majority Secured Parties, and shall have no
rights under this Section 12.4; provided that any action taken pursuant to the
--------
second paragraph of this Section 12.4 shall not be effective as against the
Defaulting Lender.
If at a time when the conditions precedent set forth in the Operative
Agreements to any Holder Advance are, in the opinion of the Majority Holders,
satisfied, any Holder shall fail to fulfill its obligations to make such Holder
Advance (any such Holder, a "Defaulting Holder") then, for so long as such
-----------------
failure shall continue, the Defaulting Holder shall (unless the Lessee and the
Majority Holders, determined as if the Defaulting Holder were not a "Holder",
shall otherwise consent in writing) be deemed for all purposes relating to
terminations, amendments, supplements, waivers or modifications under the
Operative Agreements to have no Holder Advances, shall not be treated as a
"Holder" when performing the computation of Majority Holders or Majority Secured
Parties, and shall have no rights under this Section 12.4; provided that any
--------
action taken pursuant to the second paragraph of this Section 12.4 shall not be
effective as against the Defaulting Holder.
12.5. HEADINGS, ETC.
--------------
The Table of Contents and headings of the various Articles and Sections of
this Agreement are for convenience of reference only and shall not modify,
define, expand or limit any of the terms or provisions hereof.
12.6. PARTIES IN INTEREST.
-------------------
Except as expressly provided herein, none of the provisions of this Agreement
are intended for the benefit of any Person except the parties hereto.
53
<PAGE>
12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL;
----------------------------------------------------------------
VENUE; ARBITRATION.
------------------
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. Any legal action
or proceeding with respect to this Agreement or any other Operative
Agreement may be brought in the courts of the State of North Carolina in
Mecklenburg County or of the United States for the Western District of
North Carolina, and, by execution and delivery of this Agreement, each of
the parties to this Agreement hereby irrevocably accepts for itself and in
respect of its property, generally and unconditionally, the nonexclusive
jurisdiction of such courts. Each of the parties to this Agreement further
irrevocably consents to the service of process out 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 it at
the address set out for notices pursuant to Section 12.2, such service to
become effective three (3) days after such mailing. Nothing herein shall
affect the right of any party to serve process in any other manner
permitted by Law or to commence legal proceedings or to otherwise proceed
against any party in any other jurisdiction.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO THE
FULLEST EXTENT ALLOWED BY APPLICABLE LAW, WAIVES TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, ANY OTHER OPERATIVE
AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.
(c) Each of the parties to this Agreement hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or any other Operative Agreement brought in the courts
referred to in subsection (a) above and hereby further irrevocably waives
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.
(d) Notwithstanding the provisions of Section 12.7(a) or of any other
Operative Agreement to the contrary, upon demand of any party to this
Agreement and/or any other Operative Agreement, whether made before or
within three (3) months after institution of any judicial proceeding, any
dispute, claim or controversy arising out of, connected with or relating to
this Agreement and/or any other Operative Agreement between or among
parties to this Agreement and/or any other Operative Agreement ("Disputes")
--------
shall be resolved by binding arbitration as provided herein. Institution of
a judicial proceeding by a party does not waive the right of that party to
demand arbitration hereunder. Disputes may include without limitation tort
claims, counterclaims, disputes as to whether a matter is subject to
arbitration, claims brought as class actions, claims arising from
agreements executed in the future, or claims arising out of or connected
with the transaction reflected by this Agreement and/or any other Operative
Agreement.
54
<PAGE>
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
-----------------
American Arbitration Association (the "AAA") and Title 9 of the United
---
States Code. All arbitration hearings shall be conducted in Charlotte,
North Carolina. A hearing shall begin within ninety (90) days of demand for
arbitration and all hearings shall be concluded within one hundred twenty
(120) days of demand for arbitration. These time limitations may not be
extended unless a party shows cause for extension and then no more than a
total extension of sixty (60) days. The expedited procedures set forth in
Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of
-- ---
less than $1,000,000. All applicable statutes of limitation shall apply to
any Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys selected from the Commercial Financial
Disputes Arbitration Panel of the AAA. The single arbitrator selected for
expedited procedure shall be a retired judge from the highest court of
general jurisdiction, state or federal, of the state where the hearing will
be conducted or if such person is not available to serve, the single
arbitrator may be a licensed attorney. Notwithstanding the foregoing, this
arbitration provision does not apply to disputes under or related to swap
agreements.
Notwithstanding the immediately preceding binding arbitration
provisions, the parties to this Agreement and/or any other Operative
Agreement agree to preserve, without diminution, certain remedies that the
Agent on behalf of the Lenders and the Holders may employ or exercise
freely, independently or in connection with an arbitration proceeding or
after an arbitration action is brought. The Agent on behalf of the Lenders
and the Holders shall have the right to proceed in any court of proper
jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable (i) all rights to foreclose against any real or
personal property or other security by exercising a power of sale granted
under any Operative Agreement or under applicable Law or by judicial
foreclosure and sale, including without limitation a proceeding to confirm
the sale; (ii) all rights of self-help including without limitation
peaceful occupation of real property and collection of rents, set-off and
peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including without limitation injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing
an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment
by confession of judgment. Preservation of these remedies does not limit
the power of an arbitrator to grant similar remedies that may be requested
by a party in a Dispute. Notwithstanding the provisions of this Section
12.7, the Lessee and the Construction Agent shall have the right of access
to any court of proper jurisdiction in connection with the exercise by the
Agent of one or more of the remedies referred to in this paragraph.
The parties to this Agreement and/or any other Operative Agreement agree
that they shall not have a remedy of special, punitive or exemplary damages
against any other party in any Dispute and hereby waive any right or claim
to special, punitive or exemplary damages they have now or which may arise
in the future in connection with any Dispute whether the Dispute is
resolved by arbitration or judicially.
55
<PAGE>
By execution and delivery of this Agreement and/or any other Operative
Agreement, each of the parties hereto and/or thereto accepts, for itself
and in connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction relating to any arbitration proceedings
conducted under the Arbitration Rules in Charlotte, North Carolina and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with this Agreement and/or any other Operative Agreement from
which no appeal has been taken or is available.
12.8. SEVERABILITY.
------------
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12.9. LIABILITY LIMITED.
-----------------
(a) The Lenders, the Agent, the Credit Parties, the Owner Trustee and
the Holders each acknowledge and agree that the Owner Trustee is (except as
otherwise expressly provided herein or therein) entering into this
Agreement and the other Operative Agreements to which it is a party (other
than the Trust Agreement and in Sections 6.1 and 12.16 of this Agreement,
which the Trust Company is entering into in its individual capacity),
solely in its capacity as trustee under the Trust Agreement and not in its
individual capacity and that the Trust Company shall not be liable or
accountable under any circumstances whatsoever in its individual capacity
for or on account of any statements, representations, warranties, covenants
or obligations stated to be those of the Owner Trustee, except (i) for its
own gross negligence or willful misconduct and (ii) as otherwise expressly
provided in the Trust Agreement, Sections 6.1 and 12.16 or in the other
Operative Agreements.
(b) Subject to Section 12.16, anything to the contrary contained in
this Agreement, the Credit Agreement, the Notes or in any other Operative
Agreement notwithstanding (except for such Section 12.16), no Exculpated
Person shall be personally liable in any respect for any liability or
obligation arising hereunder or in any other Operative Agreement including
without limitation the payment of the principal of, or interest on, the
Notes, or for monetary damages for the breach of performance of any of the
covenants contained in the Credit Agreement, the Notes, this Agreement, the
Security Agreement or any of the other Operative Agreements. The Lenders,
the Holders and the Agent agree that, in the event any remedies under any
Operative Agreement are pursued, neither the Lenders, the Holders nor the
Agent shall have any recourse against any Exculpated Person, for any
deficiency, loss or Claim for monetary damages or otherwise resulting
therefrom and recourse shall be had solely and exclusively against the
Trust Estate (excluding Excepted Payments) and the Credit Parties (with
respect to the Credit Parties' obligations under the Operative Agreements);
56
<PAGE>
but nothing contained herein shall be taken to prevent recourse against or
the enforcement of remedies against the Trust Estate (excluding Excepted
Payments) in respect of any and all liabilities, obligations and
undertakings contained herein and/or in any other Operative Agreement.
Notwithstanding the provisions of this Section, nothing in any Operative
Agreement shall: (i) constitute a waiver, release or discharge of any
indebtedness or obligation evidenced by the Notes and/or the Certificates
arising under any Operative Agreement or secured by any Operative
Agreement, but the same shall continue until paid or discharged; (ii)
relieve any Exculpated Person from liability and responsibility for (but
only to the extent of the damages arising by reason of): active waste
knowingly committed by any Exculpated Person with respect to any Property,
any fraud, gross negligence or willful misconduct on the part of any
Exculpated Person; (iii) relieve any Exculpated Person from liability and
responsibility for (but only to the extent of the moneys misappropriated,
misapplied or not turned over) (A) except for Excepted Payments,
misappropriation or misapplication by the Lessor (i.e., application in a
manner contrary to any of the Operative Agreements) of any insurance
proceeds or condemnation award paid or delivered to the Lessor by any
Person other than the Agent, (B) except for Excepted Payments, any deposits
or any escrows or amounts owed by the Construction Agent under the Agency
Agreement held by the Lessor or (C) except for Excepted Payments, any rent
or other income received by the Lessor from any Credit Party that is not
turned over to the Agent; or (iv) affect or in any way limit the Agent's
rights and remedies under any Operative Agreement with respect to the Rents
and rights and powers of the Agent under the Operative Agreements or to
obtain a judgment against the Lessee's interest in the Properties or the
Agent's rights and powers to obtain a judgment against the Lessor or any
Credit Party (provided, that no deficiency judgment or other money judgment
--------
shall be enforced against any Exculpated Person except to the extent of the
Lessor's interest in the Trust Estate (excluding Excepted Payments) or to
the extent the Lessor may be liable as otherwise contemplated in clauses
(ii) and (iii) of this Section 12.9(b)).
12.10. RIGHTS OF THE CREDIT PARTIES.
----------------------------
If at any time all obligations (i) of the Owner Trustee under the Credit
Agreement, the Security Documents and the other Operative Agreements and (ii) of
the Credit Parties under the Operative Agreements have in each case been
satisfied or discharged in full, then the Credit Parties shall be entitled to
(a) terminate the Lease and guaranty obligations under Section 6B and (b)
receive all amounts then held under the Operative Agreements and all proceeds
with respect to any of the Properties. Upon the termination of the Lease and
Section 6B pursuant to the foregoing clause (a), the Lessor shall transfer to
the Lessee all of its right, title and interest free and clear of the Lien of
the Lease, the Lien of the Security Documents and all Lessor Liens in and to any
Properties then subject to the Lease and any amounts or proceeds referred to in
the foregoing clause (b) shall be paid over to the Lessee.
12.11. FURTHER ASSURANCES.
------------------
The parties hereto shall promptly cause to be taken, executed, acknowledged or
delivered, at the sole expense of the Lessee, all such further acts,
conveyances, documents and assurances
57
<PAGE>
as the other parties may from time to time reasonably request in order to carry
out and effectuate the intent and purposes of this Participation Agreement, the
other Operative Agreements and the transactions contemplated hereby and thereby
(including without limitation the preparation, execution and filing of any and
all Uniform Commercial Code financing statements, filings of Mortgage
Instruments and other filings or registrations which the parties hereto may from
time to time request to be filed or effected). The Lessee, at its own expense
and without need of any prior request from any other party, shall take such
action as may be necessary (including without limitation any action specified in
the preceding sentence), or (if the Owner Trustee shall so request) as so
requested, in order to maintain and protect all security interests provided for
hereunder or under any other Operative Agreement. In addition, in connection
with the sale or other disposition of any Property or any portion thereof, the
Lessee agrees to execute such instruments of conveyance as reasonably required
in connection therewith.
12.12. CALCULATIONS UNDER OPERATIVE AGREEMENTS.
---------------------------------------
The parties hereto agree that all calculations and numerical determinations to
be made under the Operative Agreements by the Owner Trustee shall be made by the
Agent and that such calculations and determinations shall be conclusive and
binding on the parties hereto in the absence of error.
12.13. CONFIDENTIALITY.
---------------
Each Financing Party severally agrees to use reasonable efforts to keep
confidential all non-public information pertaining to any Credit Party or any of
its Subsidiaries which is provided to it by any Credit Party or any of its
Subsidiaries and which an officer of any Credit Party or any of its Subsidiaries
has requested in writing be kept confidential (including non-public information
pertaining to the financing structure described in the unrecorded Operative
Agreements), and shall not intentionally disclose such information to any Person
except:
(a) to the extent such information is public when received by such
Person or becomes public thereafter due to the act or omission of any party
other than such Person;
(b) to the extent such information is independently obtained from a
source other than any Credit Party or any of its Subsidiaries and such
information from such source is not, to such Person's knowledge, subject to
an obligation of confidentiality or, if such information is subject to an
obligation of confidentiality, that disclosure of such information is
permitted;
(c) to counsel, auditors or accountants retained by any such Person or
any Affiliates of any such Person (if such Affiliates are permitted to
receive such information pursuant to clause (f) or (g) below), provided
they agree to keep such information confidential as if such Person or
Affiliate were party to this Agreement and to financial institution
regulators, including examiners of any Financing Party or any Affiliate
thereof in the course of examinations of such Persons;
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(d) in connection with any litigation or the enforcement or preservation
of the rights of any Financing Party under the Operative Agreements;
(e) to the extent required by any applicable statute, rule or regulation
or court order (including without limitation, by way of subpoena) or
pursuant to the request of any regulatory or Governmental Authority having
jurisdiction over any such Person; provided, however, that such Person
-------- --------
shall endeavor (if not otherwise prohibited by Law) to notify the Lessee
prior to any disclosure made pursuant to this clause (e), except that no
such Person shall be subject to any liability whatsoever for any failure to
so notify the Lessee;
(f) any Financing Party may disclose such information to another
Financing Party or to any Affiliate of a Financing Party that is a direct
or indirect owner of any Financing Party;
(g) any Financing Party may disclose such information to an Affiliate of
any Financing Party to the extent required in connection with the
transactions contemplated hereby or to the extent such Affiliate is
involved in, or provides advice or assistance to such Person with respect
to, such transactions (provided, in each case that such Affiliate has
--------
agreed in writing to maintain confidentiality as if it were such Financing
Party (as the case may be)); or
(h) to the extent disclosure to any other financial institution or other
Person is appropriate in connection with any proposed or actual (i)
assignment or grant of a participation by any of the Lenders of interests
in the Credit Agreement or any Note to such other financial institution
(who will in turn be required by the Agent to agree in writing to maintain
confidentiality as if it were a Lender originally party to this Agreement)
or (ii) assignment by any Holder of interests in the Trust Agreement to
another Person (who will in turn be required by the transferring Holder to
agree in writing to maintain confidentiality as if it were a Holder
originally party to this Agreement).
12.14. FINANCIAL REPORTING/TAX CHARACTERIZATION.
----------------------------------------
Lessee agrees to obtain advice from its own accountants and tax counsel
regarding the financial reporting treatment and the tax characterization of the
transactions described in the Operative Agreements. Lessee further agrees that
Lessee shall not rely upon any statement of any Financing Party or any of their
respective Affiliates and/or Subsidiaries regarding any such financial reporting
treatment and/or tax characterization.
12.15. SET-OFF.
-------
In addition to any rights now or hereafter granted under applicable Law and
not by way of limitation of any such rights, upon and after the occurrence of
any Event of Default and during the continuance thereof, the Lenders, the
Holders, their respective Affiliates and any assignee or participant of a Lender
or a Holder in accordance with the applicable provisions of the Operative
Agreements are hereby authorized by the Credit Parties at any time or from time
to time, without
59
<PAGE>
notice to the Credit Parties or to any other Person, any such notice being
hereby expressly waived, to set-off and to appropriate and to apply any and all
deposits (general or special, time or demand, including without limitation
indebtedness evidenced by certificates of deposit, whether matured or unmatured)
and any other indebtedness at any time held or owing by the Lenders, the
Holders, their respective Affiliates or any assignee or participant of a Lender
or a Holder in accordance with the applicable provisions of the Operative
Agreements to or for the credit or the account of any Credit Party against and
on account of the obligations of any Credit Party under the Operative Agreements
irrespective of whether or not (a) the Lenders or the Holders shall have made
any demand under any Operative Agreement or (b) the Agent shall have declared
any or all of the obligations of any Credit Party under the Operative Agreements
to be due and payable and although such obligations shall be contingent or
unmatured. Notwithstanding the foregoing, neither the Agent nor any other
Financing Party shall exercise, or attempt to exercise, any right of setoff,
banker's lien, or the like, against any deposit account or property of any
Credit Party held by the Agent or any other Financing Party, without the prior
written consent of the Majority Secured Parties, and any Financing Party
violating this provision shall indemnify the Agent and the other Financing
Parties from any and all costs, expenses, liabilities and damages resulting
therefrom. The contractual restriction on the exercise of setoff rights provided
in the foregoing sentence is solely for the benefit of the Agent and the
Financing Parties and may not be enforced by any Credit Party.
12.16. OBLIGATIONS OF THE LENDERS, THE AGENT, THE OWNER TRUSTEE, THE TRUST
-------------------------------------------------------------------
COMPANY AND THE HOLDERS.
-----------------------
Notwithstanding anything contained in this Agreement or in any other Operative
Agreement to the contrary, the Lenders, the Agent, the Owner Trustee, the Trust
Company and the Holders each covenant and agree with the Construction Agent, the
Lessee and the Other Credit Parties that: (a) it will not violate, or take or
omit to take any action that would cause the Construction Agent, the Lessee or
any Credit Party to violate, any provision of any Operative Agreement; and (b)
the Construction Agent, the Lessee or the applicable Credit Party may (to the
extent permitted under applicable law) enforce any or all of the obligations of
the Lenders, the Agent, the Owner Trustee, the Trust Company and the Holders
under any one or more of the Operative Agreements, notwithstanding the fact that
the Construction Agent, the Lessee or such Credit Party is not a party to such
Operative Agreement, to the extent necessary to enable the Construction Agent,
the Lessee or such Credit Party, as applicable, to enforce its rights or perform
its obligations, or both, under the applicable Operative Agreements.
[signature pages follow]
60
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
CONSTRUCTION AGENT
- ------------------
AND LESSEE:
- -----------
JP FOODSERVICE DISTRIBUTORS, INC., a
Delaware corporation
By: /s/ David B. Abramson
----------------------------------
Name: David B. Abramson
--------------------------------
Title: Vice President & Secretary
-------------------------------
<PAGE>
GUARANTORS:
- ----------
U.S. FOODSERVICE, a Delaware corporation
By: /s/ David B. Abramson
-----------------------------------------
Name: David B. Abramson
---------------------------------------
Title: Executive Vice President & Secretary
--------------------------------------
U.S. FOODSERVICE, INC.,
a Delaware corporation
BEIJING CHEF, INC.,
a Delaware corporation
E & H DISTRIBUTING CO.,
(d/b/a Valley Food Distributors of Nevada),
a Nevada corporation
HARRISON'S PRIME MEATS & PROVISIONS, INC., a
Nevada corporation
ILLINOIS FRUIT & PRODUCE CORP.,
an Illinois corporation
TRANS-PORTE, INC.,
a Delaware corporation
EL PASADO, INC.,
a Delaware corporation
RITUALS COFFEE COMPANY,
a Delaware corporation
ROSELI PRODUCTS CORPORATION,
a Delaware corporation
SQUERI FOOD SERVICE, INC.,
an Ohio corporation
NEVADA BAKING COMPANY, INC.
a Nevada corporation
OUTWEST MEAT COMPANY,
a Nevada corporation
HILLTOP HEARTH BAKERIES, INC.,
a Delaware corporation
CROSS VALLEY FARMS, INC.,
a Delaware corporation
By: /s/ David B. Abramson
-----------------------------------------
Name: David B. Abramson
---------------------------------------
Title: Vice President & Secretary
--------------------------------------
for each of the foregoing
<PAGE>
OWNER TRUSTEE AND
- -----------------
LESSOR:
- ------
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, except as expressly stated herein,
but solely as the Owner Trustee under the USF Real
Estate Trust 1998-1
By: /s/ C. Scott Nielsen
----------------------------------------------
Name: C. Scott Nielsen
--------------------------------------------
Title: Vice President
-------------------------------------------
TRUST COMPANY:
- -------------
FIRST SECURITY BANK, NATIONAL ASSOCIATION, in its
individual capacity solely with respect to
Sections 6.1 and 12.16
By: /s/ C. Scott Nielsen
----------------------------------------------
Name: C. Scott Nielsen
--------------------------------------------
Title: Vice President
-------------------------------------------
THE AGENT,
- -----------
LENDER AND HOLDER:
- -----------------
FIRST UNION NATIONAL BANK, as a Holder, as a
Lender and as the Agent
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE>
OWNER TRUSTEE AND
- -----------------
LESSOR:
- ------
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, except as expressly stated herein,
but solely as the Owner Trustee under the USF Real
Estate Trust 1998-1
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TRUST COMPANY:
- -------------
FIRST SECURITY BANK, NATIONAL ASSOCIATION, in its
individual capacity solely with respect to
Sections 6.1 and 12.16
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
THE AGENT,
- -----------
LENDER AND HOLDER:
- -----------------
FIRST UNION NATIONAL BANK, as a Holder, as a
Lender and as the Agent
By: /s/ Lucy C. Campbell
----------------------------------------------
Name: Lucy C. Campbell
--------------------------------------------
Title: Vice President
-------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Appendix A
Rules of Usage and Definitions
- --------------------------------------------------------------------------------
I. Rules of Usage
The following rules of usage shall apply to this Appendix A and the Operative
Agreements (and each appendix, schedule, exhibit and annex to the foregoing)
unless otherwise required by the context or unless otherwise defined therein:
(a) Except as otherwise expressly provided, any definitions set forth
herein or in any other document shall be equally applicable to the singular and
plural forms of the terms defined.
(b) Except as otherwise expressly provided, references in any document to
articles, sections, paragraphs, clauses, annexes, appendices, schedules or
exhibits are references to articles, sections, paragraphs, clauses, annexes,
appendices, schedules or exhibits in or to such document.
(c) The headings, subheadings and table of contents used in any document
are solely for convenience of reference and shall not constitute a part of any
such document nor shall they affect the meaning, construction or effect of any
provision thereof.
(d) References to any Person shall include such Person, its successors,
permitted assigns and permitted transferees.
(e) Except as otherwise expressly provided, reference to any agreement
means such agreement as amended, modified, extended, supplemented, restated
and/or replaced from time to time in accordance with the applicable provisions
thereof.
(f) Except as otherwise expressly provided, references to any law includes
any amendment or modification to such law and any rules or regulations issued
thereunder or any law enacted in substitution or replacement therefor.
(g) When used in any document, words such as "hereunder", "hereto",
"hereof" and "herein" and other words of like import shall, unless the context
clearly indicates to the contrary, refer to the whole of the applicable document
and not to any particular article, section, subsection, paragraph or clause
thereof.
(h) References to "including" means including without limiting the
generality of any description preceding such term and for purposes hereof the
rule of ejusdem generis shall not be applicable to limit a general statement,
followed by or referable to an enumeration of specific matters, to matters
similar to those specifically mentioned.
Appendix A-1
<PAGE>
(i) References herein to "attorney's fees", "legal fees", "costs of
counsel" or other such references shall be deemed to include the allocated cost
of in-house counsel.
(j) Each of the parties to the Operative Agreements and their counsel have
reviewed and revised, or requested revisions to, the Operative Agreements, and
the usual rule of construction that any ambiguities are to be resolved against
the drafting party shall be inapplicable in the construing and interpretation of
the Operative Agreements and any amendments or exhibits thereto.
(k) Capitalized terms used in any Operative Agreements which are not
defined in this Appendix A but are defined in another Operative Agreement shall
----------
have the meaning so ascribed to such term in the applicable Operative Agreement.
(l) Except as specifically provided herein, all accounting terms used
herein which are not expressly defined in the Operative Agreements have the
meanings given to them in accordance with GAAP and all computations made
pursuant to the Operative Agreements shall be made in accordance with GAAP. All
balance sheets and other financial statements delivered pursuant to Section 6.01
of the Lessee Credit Agreement shall be prepared in accordance with GAAP. If
any changes in accounting principles from those used in the preparation of the
most recent financial statements referred to in Section 6.01 of the Lessee
Credit Agreement are hereafter required or permitted by the rules, regulations,
pronouncements and opinions of the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto) and
are adopted by JPFDI and U.S. Foodservice, Inc. with the agreement of their
respective independent certified public accountants and such changes result or
could result (for any present or future period) in a change in the method of
calculation of any of the financial covenants, standards or terms in or relating
to Article VIII of the Lessee Credit Agreement, the parties hereto agree to
enter into discussions with a view to amending the provisions hereof relating to
such provisions so as to equitably reflect such changes with the desired result
that the criteria for evaluating the financial condition of JPFDI and U.S.
Foodservice, Inc. and their Restricted Subsidiaries shall be the same after such
changes as if such changes had not been made, provided that, no change in GAAP
--------
that would affect or could affect (for any present or future period) the method
of calculation of any of said financial covenants, standards or terms shall be
given effect in such calculations until such provisions are amended, in a manner
satisfactory to JPFDI, U.S. Foodservice, Inc., the Lenders and the Holders, to
so reflect such change in GAAP.
II. Definitions
"AAA" shall have the meaning given to such term in Section 12.7(d) of the
Participation Agreement.
"ABR" shall mean, for any day, a rate per annum (rounded upwards, if
necessary, to the nearest whole multiple of 1/16 of 1%) equal to the greater of
(a) the Prime Lending Rate in effect on such day, and (b) the Federal Funds
Effective Rate in effect on such day plus one-half of one
Appendix A-2
<PAGE>
percent (0.5%). For purposes hereof: "Prime Lending Rate" shall mean the rate
------------------
announced by the Agent from time to time as its prime lending rate as in effect
from time to time. The Prime Lending Rate is a reference rate and is one of
several interest rate bases used by the Agent and does not necessarily represent
the lowest or most favorable rate offered by the Agent actually charged to any
customer. Any Lender may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate. The Prime Lending Rate shall
change automatically and without notice from time to time as and when the prime
lending rate of the Agent changes. "Federal Funds Effective Rate" shall mean,
----------------------------
for any period, a fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight Federal funds
transactions with members or the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three (3) Federal funds brokers of recognized standing selected by
it. Any change in the ABR due to a change in the Prime Lending Rate or the
Federal Funds Effective Rate shall be effective as of the opening of business on
the effective day of such change in the Prime Lending Rate or the Federal Funds
Effective Rate, respectively.
"ABR Holder Advance" shall mean a Holder Advance bearing a Holder Yield based
on the ABR.
"ABR Loans" shall mean Loans the rate of interest applicable to which is based
upon the ABR.
"Acceleration" shall have the meaning given to such term in Section 6 of the
Credit Agreement.
"Accounts" shall have the meaning given to such term in Section 1 of the
Security Agreement.
"Acquired Assets" shall have the meaning assigned to such term in the
definition of "Operating Cash Flow."
"Acquired Subsidiary" shall have the meaning assigned to such term in the
definition of "Operating Cash Flow."
"Acquired Unit Adjustment" shall have the meaning assigned to such term in
the definition of "Operating Cash Flow."
"Acquisition Advance" shall have the meaning given to such term in Section 5.3
of the Participation Agreement.
"Acquisition Loan" shall mean any Loan made in connection with an Acquisition
Advance.
Appendix A-3
<PAGE>
"Additional Incorporated Terms" shall have the meaning given to such term in
Section 28.1 of the Lease.
"Advance" shall mean a Construction Advance or an Acquisition Advance.
"Affiliate" shall mean, with respect to any designated Person, any other
Person (a) directly or indirectly, through one or more intermediaries,
controlling or controlled by or under direct or indirect common control with
such designated Person, (b) which beneficially owns or holds 5% or more of the
shares of any class of Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of such designated Person, or
(c) 5% or more of any class of the Voting Stock (or in the case of a Person
which is not a corporation, 5% or more of the equity interest) of which is
beneficially owned or held by such designated Person; provided, however, that
-------- -------
none of the Lenders, the Holders, the Owner Trustee or the Trust Company shall
be deemed to be an Affiliate of JPFDI or any of its Subsidiaries solely by
reason of ownership of any obligations of JPFDI to such Lender, Holder, Owner
Trustee or Trust Company under any of the Operative Agreements or by reason of
having the benefits of any agreements or covenants of JPFDI and its Subsidiaries
contained in the Operative Agreements. For purposes of this definition,
"control" (including, with correlative meanings, the terms "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 and policies of such Person, whether through the
ownership of Voting Stock (or other equity interest) or by contract or
otherwise.
"After Tax Basis" shall mean, with respect to any payment to be received, the
amount of such payment increased so that, after deduction of the amount of all
taxes required to be paid by the recipient calculated at the then maximum
marginal rates generally applicable to Persons of the same type as the
recipients with respect to the receipt by the recipient of such amounts (less
any tax savings, calculated at such rates, reasonably expected to be realized as
a result of a payment of the indemnified amount), such increased payment (as so
reduced) is equal to the payment otherwise required to be made.
"Agency Agreement" shall mean the Agency Agreement, dated on or about the
Initial Closing Date between the Construction Agent and the Lessor.
"Agency Agreement Event of Default" shall mean an "Event of Default" as
defined in Section 5.1 of the Agency Agreement.
"Agent" shall mean First Union National Bank, as agent for the Lenders
pursuant to the Credit Agreement, or any successor agent appointed in accordance
with the terms of the Credit Agreement and respecting the Security Documents,
for the Lenders and the Holders, to the extent of their interests.
"Applicable Percentage" shall mean for Eurodollar Loans, the Lender Facility
Fee, Eurodollar Holder Advances and the Holder Facility Fee, the margin
(expressed as a percentage) to be used in determining the Eurodollar Rate and/or
the applicable Facility Fee, as the case may be, and shall, from the Initial
Closing Date until the receipt of the initial Officer's Compliance
Appendix A-4
<PAGE>
Certificate, be (a) 0.45%, for the Applicable Percentage for Eurodollar Loans,
(b) 0.175%, for the Lender Facility Fee, (c) 1.200%, for the Eurodollar Holder
Advances and (d) 0.175%, for the Holder Facility Fee, and for each fiscal
quarter ending after the Initial Closing Date shall be determined, subject to
the final paragraph of this definition, by reference to the Total Debt Ratio set
forth in the most recently delivered Officer's Compliance Certificate as
follows:
<TABLE>
<CAPTION>
Applicable
Applicable Percentage Applicable
Percentage for Applicable Percentage for Percentage
Total Debt Eurodollar for the Lender Facility Eurodollar Holder for the
Ratio Loans Fee Advances Holder Facility Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than or equal to 2.5 to 1.0 .175% .075% .925% .075%
- -------------------------------------------------------------------------------------------------------------------------------
Greater than 2.5 to 1.0 but less
than or equal to 3.0 to 1.0 .225% .100% .975% .100%
- -------------------------------------------------------------------------------------------------------------------------------
Greater than 3.0 to 1.0 but less
than or equal to 3.5 to 1.0 .275% .125% 1.025% .125%
- -------------------------------------------------------------------------------------------------------------------------------
Greater than 3.5 to 1.0 but less
than or equal to 4.0 to 1.0 .350% .150% 1.100% .150%
- -------------------------------------------------------------------------------------------------------------------------------
Greater than 4.0 to 1.0 but less
than or equal to 4.5 to 1.0 .450% .175% 1.200% .175%
- -------------------------------------------------------------------------------------------------------------------------------
Greater than 4.5 to 1.0 .550% .200% 1.300% .200%
===============================================================================================================================
</TABLE>
Adjustments, if any, in the Applicable Percentage shall be made by the Agent
on the fifth (5th) Business Day after receipt by the Agent of quarterly
financial statements for USF and its Subsidiaries and the accompanying Officer's
Compliance Certificate setting forth the Total Debt Ratio of USF and its
Consolidated Subsidiaries as of the most recent fiscal quarter end. Subject to
Section 2.8(b) of the Credit Agreement and Section 3.2(b) of the Trust
Agreement, in the event the Lessee fails to deliver, or to cause the delivery
of, such financial statements and certificate within forty-five (45) days after
the end of each fiscal quarter of USF, the Applicable Percentage shall be the
highest Applicable Percentage until five (5) Business Days after receipt by the
Agent of such financial statements and certificates.
"Appraisal" shall mean, with respect to any Property, an appraisal to be
delivered in connection with the Participation Agreement or in accordance with
the terms of the Lease, in each case prepared by a reputable appraiser
reasonably acceptable to the Agent, which in the judgment of counsel to the
Agent, complies with all of the provisions of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended, the rules and regulations
adopted pursuant thereto, and all other applicable Legal Requirements.
"Appraisal Procedure" shall have the meaning given such term in Section 22.4
of the Lease.
"Approved State" shall mean each of the following: Maryland and any other
state within the continental United States proposed by the Lessee and consented
to in writing by the Agent.
Appendix A-5
<PAGE>
"Appurtenant Rights" shall mean (a) all agreements, easements, rights of way
or use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land underlying the Improvements or the Improvements, including without
limitation the use of any streets, ways, alleys, vaults or strips of land
adjoining, abutting, adjacent or contiguous to the Land and (b) all permits,
licenses and rights, whether or not of record, appurtenant to such Land or the
Improvements.
"Arbitration Rules" shall have the meaning given to such term in Section
12.7(d) of the Participation Agreement.
"Assignment and Acceptance" shall mean the Assignment and Acceptance in the
form attached to the Credit Agreement as EXHIBIT B.
---------
"Available Commitment" shall mean, as to any Lender at any time, an amount
equal to the excess, if any, of (a) the amount of such Lender's Commitment over
(b) the aggregate principal amount of all Loans made by such Lender as of such
date after giving effect to Section 5.2(d) of the Participation Agreement (but
without giving effect to any other repayments or prepayments of any Loans
hereunder).
"Available Holder Commitments" shall mean an amount equal to the excess, if
any, of (a) the aggregate amount of the Holder Commitments over (b) the
aggregate amount of the Holder Advances made since the Initial Closing Date
after giving effect to Section 5.2(d) of the Participation Agreement (but
without giving effect to any other repayments or prepayments of any Holder
Advances).
"Bankruptcy Code" shall mean Title 11 of the U. S. Code entitled "Bankruptcy,"
as now or hereafter in effect or any successor thereto.
"Basic Rent" shall mean, the sum of (a) the Loan Basic Rent and (b) the Lessor
Basic Rent, calculated as of the applicable date on which Basic Rent is due.
"Benefitted Lender" shall have the meaning specified in Section 9.10(a) of the
Credit Agreement.
"Bill of Sale" shall mean a Bill of Sale regarding Equipment in form and
substance reasonably satisfactory to the Agent.
"Board" shall mean the Board of Governors of the Federal Reserve System of the
United States of America (or any successor).
"Board of Directors" shall mean the board of directors of JPFDI or U.S.
Foodservice, Inc., as the case may be, or a duly authorized committee of
directors lawfully exercising the relevant powers of such board of directors.
Appendix A-6
<PAGE>
"Borrower" shall mean the Owner Trustee, not in its individual capacity but as
Borrower under the Credit Agreement.
"Borrowing Date" shall mean any Business Day specified in a notice delivered
pursuant to Section 2.3 of the Credit Agreement as a date on which the Borrower
requests the Lenders to make Loans thereunder.
"Budgeted Total Property Cost" shall mean, at any date of determination with
respect to any Construction Period Property, an amount equal to the aggregate
amount which the Construction Agent in good faith expects to be expended in
order to achieve Completion with respect to such Property.
"Business Day" shall mean a day other than a Saturday, Sunday or other day on
which commercial banks in North Carolina and New York or any other states from
which the Agent, any Lender or any Holder funds or engages in administrative
activities with respect to the transactions under the Operative Agreements are
authorized or required by law to close; provided, however, that when used in
-------- -------
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits in the
London interbank market.
"Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on the balance sheet of such Person or in the notes thereto, other
than, in the case of any Restricted Subsidiary, any such lease under which
JPFDI, U.S. Foodservice, Inc. or a Predominantly Owned Restricted Subsidiary is
the lessor.
"Capital Lease Obligation" shall mean, as at any date, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder which
would, in accordance with GAAP, appear on a balance sheet of such lessee or in
the notes thereto in respect of such Capital Lease.
"Capital Stock" shall mean any nonredeemable capital stock of any Credit Party
or any of its Subsidiaries, whether common or preferred.
"Casualty" shall mean any damage or destruction of all or any portion of the
Property as a result of a fire or other casualty.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended by the
Superfund Amendments and Reauthorization Act of 1986.
"Certificate" shall mean a Certificate in favor of each Holder regarding the
Holder Commitment of such Holder issued pursuant to the terms and conditions of
the Trust Agreement.
"Change of Control" shall mean any acquisition subsequent to the Initial
Closing Date by any Person or group of Persons (within the meaning of Section 13
or 14 of the Exchange Act), of
Appedix A-7
<PAGE>
(a) beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of a majority of the Voting Stock of USF or (b) all or substantially all of
the properties and assets of USF. For purposes of this definition, "acquisition"
by any Person or Persons of the Voting Stock or properties and assets referred
to in the preceding sentence shall mean the earlier of (i) the actual possession
thereof and (ii) the consummation of any transaction or series of transactions
which, with the passage of time, will give such Person or Persons the actual
possession thereof.
"Chattel Paper" shall have the meaning given to such term in Section 1 of the
Security Agreement.
"Claims" shall mean any and all obligations, liabilities, losses, actions,
suits, penalties, claims, demands, costs and expenses (including without
limitation reasonable attorney's fees and expenses) of any nature whatsoever.
"Closing Date" shall mean the Initial Closing Date and each Property Closing
Date.
"Closing Date Intangibles" shall mean all goodwill and other intangible assets
that appear on a consolidated balance sheet of U.S. Foodservice, Inc., JPFDI and
their Restricted Subsidiaries prepared in accordance with GAAP as of the Initial
Closing Date.
"Code" shall mean the Internal Revenue Code of 1986 together with rules and
regulations promulgated thereunder, as amended from time to time, or any
successor statute thereto.
"Collateral" shall mean all assets of the Lessor, the Construction Agent and
the Lessee, now owned or hereafter acquired, upon which a Lien is purported to
be created by one or more of the Security Documents.
"Commencement Date" shall have the meaning specified in Section 2.2 of the
Lease.
"Commitment" shall mean, as to any Lender, the obligation of such Lender to
make the portion of the Loans to the Lessor in an aggregate principal amount at
any time outstanding not to exceed the amount set forth opposite such Lender's
name on Schedule 1.1 of the Credit Agreement, as such amount may be increased or
------------
reduced from time to time in accordance with the provisions of the Operative
Agreements.
"Commitment Percentage" shall mean, as to any Lender at any time, the
percentage which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such Lender's
Loans then outstanding constitutes of the aggregate principal amount of all of
the Loans then outstanding), and such Commitment Percentage shall take into
account both the Lender's Tranche A Commitment and the Lender's Tranche B
Commitment.
"Commitment Period" shall mean the period from and including the Initial
Closing Date to and including the Construction Period Termination Date, or such
earlier date as the Commitments shall terminate as provided in the Credit
Agreement or the Holder Commitment shall terminate as provided in the Trust
Agreement.
Appendix A-8
<PAGE>
"Company Obligations" shall mean the obligations of JPFDI, in any and all
capacities under and with respect to the Operative Agreements and each Property.
"Completion" shall mean, with respect to a Property, such time as the
acquisition, installation, testing and final completion of the Improvements on
such Property has been achieved in accordance with the Plans and Specifications,
the Agency Agreement and/or the Lease, and in compliance with all Legal
Requirements and Insurance Requirements and a certificate of occupancy has been
issued with respect to such Property by the appropriate governmental entity
(except if non-compliance, individually or in the aggregate, shall not have and
could not reasonably be expected to have a Material Adverse Effect). If the
Lessor purchases a Property that includes existing Improvements that are to be
immediately occupied by the Lessee, the date of Completion for such Property
shall be the Property Closing Date.
"Completion Date" shall mean, with respect to a Property, the earlier of (a)
the date on which Completion for such Property has occurred or (b) the
Construction Period Termination Date.
"Condemnation" shall mean any taking or sale of the use, access, occupancy,
easement rights or title to any Property or any part thereof, wholly or
partially (temporarily or permanently), by or on account of any actual or
threatened eminent domain proceeding or other taking of action by any Person
having the power of eminent domain, including without limitation an action by a
Governmental Authority to change the grade of, or widen the streets adjacent to,
any Property or alter the pedestrian or vehicular traffic flow to any Property
so as to result in a change in access to such Property, or by or on account of
an eviction by paramount title or any transfer made in lieu of any such
proceeding or action.
"Consolidated Subsidiary" shall mean, as to any Person, any Subsidiary of such
Person which under the rules of GAAP consistently applied should have its
financial results consolidated with those of such Person for purposes of
financial accounting statements.
"Construction Advance" shall mean an advance of funds to pay Property Costs
pursuant to Section 5.4 of the Participation Agreement.
"Construction Agent" shall mean JP Foodservice Distributors, Inc., a Delaware
corporation, as the construction agent under the Agency Agreement.
"Construction Budget" shall mean the cost of acquisition, installation,
testing, constructing and developing any Property as determined by the
Construction Agent in its reasonable, good faith judgment.
"Construction Commencement Date" shall mean, with respect to Improvements, the
date on which construction of such Improvements commences pursuant to the Agency
Agreement.
Appendix A-9
<PAGE>
"Construction Contract" shall mean any contract entered into between the
Construction Agent or the Lessee with a Contractor for the construction of
Improvements or any portion thereof on the Property.
"Construction Loan" shall mean any Loan made in connection with a Construction
Advance.
"Construction Loan Property Cost" shall mean with respect to each Construction
Period Property at the date of determination, an amount equal to (a) the
aggregate principal amount of Construction Loans made on or prior to such date
with respect to the Property minus (b) the aggregate principal amount of
-----
prepayments or repayments of the Loans allocated to reduce the Construction Loan
Property Cost of such Property pursuant to Section 2.6(c) of the Credit
Agreement.
"Construction Period" shall mean, with respect to a Property, the period
commencing on the Construction Commencement Date for such Property and ending on
the Completion Date for such Property.
"Construction Period Property" means, at any date of determination, any
Property as to which the Rent Commencement Date has not occurred on or prior to
such date.
"Construction Period Termination Date" shall mean (a) the earlier of (i) the
date that the Commitments have been terminated in their entirety in accordance
with the terms of Section 2.5(a) of the Credit Agreement, or (ii) the date
forty-two (42) months after the Initial Closing Date or (b) such later date as
shall be agreed to by the Majority Secured Parties.
"Contractor" shall mean each entity with whom the Construction Agent or the
Lessee contracts to construct any Improvements or any portion thereof on the
Property.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with any Credit Party, are treated as a single
employer under Section 414 of the Code.
"Co-Owner Trustee" shall have the meaning specified in Section 9.2 of the
Trust Agreement.
"Credit Agreement" shall mean the Credit Agreement, dated on or about the
Initial Closing Date, among the Borrower, the Agent and the Lenders, as
specified therein.
"Credit Agreement Default" shall mean any event or condition which, with the
lapse of time or the giving of notice, or both, would constitute a Credit
Agreement Event of Default.
"Credit Agreement Event of Default" shall mean any event or condition defined
as an "Event of Default" in Section 6 of the Credit Agreement.
Appendix A-10
<PAGE>
"Credit Documents" shall mean the Participation Agreement, the Credit
Agreement, the Notes and the Security Documents.
"Credit Parties" shall mean the Construction Agent, the Lessee and each
Guarantor.
"Debt" shall mean, as applied to any Person, as of any date of determination
(without duplication):
(a) all obligations of such Person for borrowed money or evidenced by
bonds, debentures, notes, drafts or similar instruments, or upon which
interest payments are customarily made except for all such obligations of
JPFDI, U.S. Foodservice, Inc. or any Restricted Subsidiary to one or more
of USF, U.S. Foodservice, Inc., JPFDI and the other Restricted
Subsidiaries;
(b) all obligations of such Person for all or any part of the deferred
purchase price of property or services (other than trade accounts payable
arising in the ordinary course of business which are not overdue by more
than 45 days or which are being contested in good faith by appropriate
proceedings) or for the cost of property constructed or of improvements;
(c) all obligations secured by any Lien other than a Lien deemed to
exist in connection with any Permitted Receivables Financing (including any
related filings of financing statements) provided that, for purposes of
determining the "Total Debt Ratio" as used herein (including, as used in
the definition of "Applicable Margin"), any obligation incurred by U.S.
Foodservice, Inc., JPFDI or any of their Restricted Subsidiaries pursuant
to any Permitted Receivables Financing shall be considered Debt, and it
being understood and agreed that the Permitted Receivables Financing Amount
in respect of any Permitted Receivables financing shall be deemed to be an
obligation secured by Liens in connection with a Permitted Receivables
Financing on or payable out of the proceeds of production from property
owned or held by such Person even though such Person has not assumed or
become liable for the payment of such obligations;
(d) all Capital Lease Obligations of such Person;
(e) all preferred stock issued by such Person or required by the terms
thereof to be redeemed, or for which mandatory sinking fund payments are
due, by a fixed date;
(f) the aggregate amount of the net liability exposure of such Person
under all Hedging Agreements relating to speculative hedge arrangements
(those hedge arrangements which are required to be marked-to-market under
GAAP) as determined under GAAP; and
(g) any Guaranty by such Person of or with respect to obligations of the
character referred to in the foregoing clauses (a) through (f) of another
Person;
Appendix A-11
<PAGE>
provided, however, that in determining the Debt of JPFDI, so long as the Sara
- -------- -------
Lee Offset Agreement shall remain in full force and effect and shall be
effective to permit the offset of principal and interest due under the Sara Lee
Note against principal and interest due under PYA's Note (or to establish
JPFDI's obligation in respect of the indebtedness evidenced by the Sara Lee Note
from and after a prepayment in full of PYA's Note as the remaining principal
balance of the Sara Lee Note after offset against amounts owing thereon of the
principal of and accrued and unpaid interest to the date of prepayment on the
PYA Note), the Debt evidenced by the Sara Lee Note shall be deemed equal to the
net amounts for which JPFDI is obligated under the Sara Lee Offset Agreement.
"Deed" shall mean a warranty deed regarding the Land and/or Improvements in
form and substance satisfactory to the Agent.
"Default" shall mean the occurrence of any default which upon notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Holder" shall have the meaning given to such term in Section 12.4
of the Participation Agreement.
"Defaulting Lender" shall have the meaning given to such term in Section 12.4
of the Participation Agreement.
"Deficiency Balance" shall have the meaning given to such term in Section
22.1(b) of the Lease.
"Disposed Assets" shall have the meaning assigned to such term in the
definition of "Operating Cash Flow."
"Disposed Subsidiary" shall have the meaning assigned to such term in the
definition of "Operating Cash Flow."
"Disposed Unit Adjustment" shall have the meaning assigned to such term in the
definition of "Operating Cash Flow."
"Disputes" shall have the meaning given to such term in Section 12.7(d) of the
Participation Agreement.
"Documents" shall have the meaning given to such term in Section 1 of the
Security Agreement.
"Dollars" and "$" shall mean lawful currency of the United States of America.
"Election Date" shall have the meaning given to such term in Section 20.1 of
the Lease.
"Election Notice" shall have the meaning given to such term in Section 20.1 of
the Lease.
Appendix A-12
<PAGE>
"Employee Benefit Plan" or "Plan" shall mean an employee benefit plan (within
the meaning of Section 3(3) of ERISA, including without limitation any
Multiemployer Plan), or any "plan" as defined in Section 4975(e)(1) of the Code
and as interpreted by the Internal Revenue Service and the Department of Labor
in rules, regulations, releases or bulletins in effect on any Closing Date.
"Environmental Claims" shall mean any event, condition or circumstance that
could prevent continued compliance in all material respects with the
Environmental Permits or any scheduled renewals thereof, or any applicable
Environmental Laws currently in effect, or that could give rise to any liability
on the part of JPFDI, U.S. Foodservice, Inc. or any Restricted Subsidiary or
otherwise form the basis of any claim, action, demand, request, notice, suit,
proceeding, hearing, study or investigation involving JPFDI, U.S. Foodservice,
Inc. or any of their Restricted Subsidiaries, based on or related to (i) a
violation of any applicable Environmental Laws currently in effect or (ii) the
manufacture, generation, refining, processing, distribution, use, sale,
treatment, receipt, storage, disposal, transport, arranging for transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any Hazardous Substance in violation of any applicable
Environmental Laws currently in effect.
"Environmental Law" shall mean any past, present or future Federal, state or
local law, or any regulation, ordinance, code, plan, order, permit, grant,
franchise, concession, restriction or agreement issued, entered, promulgated or
approved thereunder, relating to (a) the environment, human health or safety,
including, without limitation, emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment, or (b) the manufacture,
generation, refining, processing, distribution, use, sale, treatment, receipt,
storage, disposal, transport, arranging for transport, or handling of Hazardous
Substances.
"Environmental Permits" shall mean, collectively, any and all permits,
consents, licenses, approvals and registrations of any nature at any time
required pursuant to or in order to comply with any Environmental Law.
"Environmental Violation" shall mean any activity, occurrence or condition
that violates or threatens (if the threat requires remediation under any
Environmental Law and is not remediated during any grace period allowed under
such Environmental Law) to violate or results in or threatens (if the threat
requires remediation under any Environmental Law and is not remediated during
any grace period allowed under such Environmental Law) to result in
noncompliance with any Environmental Law.
"Equipment" shall mean equipment, apparatus, furnishings, fittings and
personal property of every kind and nature whatsoever purchased, leased or
otherwise acquired using the proceeds of the Loans or the Holder Advances by the
Construction Agent, the Lessee or the Lessor and all improvements and
modifications thereto and replacements thereof, whether or not now owned or
hereafter acquired or now or subsequently attached to, contained in or used or
usable in any way in connection with any operation of any Improvements,
including but without limiting the generality of the foregoing, all equipment
described in the Appraisal including without limitation all heating, electrical,
and mechanical equipment, lighting, switchboards, plumbing, ventilation, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators,
Appendix A-13
<PAGE>
elevators, loading and unloading equipment and systems, cleaning systems
(including without limitation window cleaning apparatus), telephones,
communication systems (including without limitation satellite dishes and
antennae), televisions, computers, sprinkler systems and other fire prevention
and extinguishing apparatus and materials, security systems, motors, engines,
machinery, pipes, pumps, tanks, conduits, appliances, fittings and fixtures of
every kind and description.
"Equipment Schedule" shall mean (a) each Equipment Schedule attached to the
applicable Requisition and (b) each Equipment Schedule attached to the
applicable Lease Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, as interpreted by the rules and
regulations thereunder, all as the same may be in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"ERISA Affiliate" shall mean each entity required to be aggregated with any
Credit Party pursuant to the requirements of Section 414(b) or (c) of the Code.
"Eurocurrency Reserve Requirements" shall mean for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal) of reserve requirements in effect on such day
(including without limitation basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed on eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Holder Advance" shall mean a Holder Advance bearing a Holder Yield
based on the Eurodollar Rate.
"Eurodollar Loans" shall mean Loans the rate of interest applicable to which
is based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean for the Interest Period for each Eurodollar Loan
or Eurodollar Holder Advance comprising part of the same borrowing or advance
(including without limitation conversions, extensions and renewals), a per annum
interest rate equal to the per annum rate determined by the Agent on the basis
of the offered rates for deposits in dollars for a period of time corresponding
to such Interest Period (and commencing on the first day of such Interest
Period), reported on Telerate page 3750 as of 11:00 a.m. (London time) two (2)
Business Days before the first day of such Interest Period. In the event no
such offered rates appear on Telerate page 3750, "Eurodollar Rate" shall mean
for the Interest Period for each Eurodollar Loan or Eurodollar Holder Advance
comprising part of the same borrowing or advance (including without limitation
conversions, extensions and renewals), a per annum interest rate equal to the
per annum rate determined by the Agent on the basis of the offered rates for
deposits in dollars for a period of time corresponding to such Interest Period
(and commencing on the first day of such Interest Period), which appear on the
Reuters Screen LIBO
Appendix A-14
<PAGE>
Page as of 11:00 a.m. (London time) two (2) Business Days before the first day
of such Interest Period (provided that if at least two (2) such offered rates
--------
appear on the Reuters Screen LIBO Page, the rate in respect of such Interest
Period will be the arithmetic mean of such offered rates). As used herein,
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks) ("RMMRS"). In the event the RMMRS is not then quoting such
-----
offered rates, "Eurodollar Rate" shall mean for the Interest Period for each
Eurodollar Loan or Eurodollar Holder Advance comprising part of the same
borrowing or advance (including without limitation conversions, extensions and
renewals), the average (rounded upward to the nearest one-sixteenth (1/16) of
one percent (1%)) per annum rate of interest determined by the office of the
Agent (each such determination to be conclusive and binding) as of two (2)
Business Days prior to the first day of such Interest Period, as the effective
rate at which deposits in immediately available funds in U.S. dollars are being,
have been, or would be offered or quoted by the Agent to major banks in the
applicable interbank market for Eurodollar deposits at any time during the
Business Day which is the second Business Day immediately preceding the first
day of such Interest Period, for a term comparable to such Interest Period and
in the amount of the requested Eurodollar Loan and/or Eurodollar Holder Advance.
If no such offers or quotes are generally available for such amount, then the
Agent shall be entitled to determine the Eurodollar Rate from another recognized
service or interbank quotation, or by estimating in its reasonable judgment the
per annum rate (as described above) that would be applicable if such quote or
offers were generally available.
"Event of Default" shall mean a Lease Event of Default, an Agency Agreement
Event of Default or a Credit Agreement Event of Default.
"Everett Facility" shall mean the facility owned by JPFDI on the date hereof
in Everett, Massachusetts.
"Excepted Payments" shall mean:
(a) all indemnity payments (including without limitation indemnity
payments made pursuant to Section 11 of the Participation Agreement),
whether made by adjustment to Basic Rent or otherwise, to which the Owner
Trustee, any Holder or any of their respective Affiliates, agents,
officers, directors or employees is entitled;
(b) any amounts (other than Basic Rent or Termination Value) payable
under any Operative Agreement to reimburse the Owner Trustee, any Holder or
any of their respective Affiliates (including without limitation the
reasonable expenses of the Owner Trustee, the Trust Company and the Holders
incurred in connection with any such payment) for performing or complying
with any of the obligations of any Credit Party under and as permitted by
any Operative Agreement;
(c) any amount payable to a Holder by any transferee of such interest of
a Holder as the purchase price of such Holder's interest in the Trust
Estate (or a portion thereof);
Appendix A-15
<PAGE>
(d) any insurance proceeds (or payments with respect to risks self-
insured or policy deductibles) under liability policies other than such
proceeds or payments payable to the Agent or any Lender;
(e) any insurance proceeds under policies maintained by the Owner
Trustee or any Holder;
(f) Transaction Expenses or other amounts, fees, disbursements or
expenses paid or payable to or for the benefit of the Owner Trustee or any
Holder;
(g) all right, title and interest of any Holder or the Owner Trustee to
any Property or any portion thereof or any other property to the extent any
of the foregoing has been released from the Liens of the Security Documents
and the Lease pursuant to the terms thereof;
(h) upon termination of the Credit Agreement pursuant to the terms
thereof, all remaining property covered by the Lease or Security Documents;
(i) all payments in respect of the Holder Yield;
(j) any payments in respect of interest to the extent attributable to
payments referred to in clauses (a) through (i) above; and
(k) any rights of either the Owner Trustee or the Trust Company to
demand, collect, sue for or otherwise receive and enforce payment of any of
the foregoing amounts, provided that such rights shall not include the
--------
right to terminate the Lease.
"Excess Proceeds" shall mean the excess, if any, of the aggregate of all
awards, compensation or insurance proceeds payable in connection with a Casualty
or Condemnation over the Termination Value paid by the Lessee pursuant to the
Lease with respect to such Casualty or Condemnation.
"Exculpated Persons" shall mean the Borrower, the Holders, the Lessor, their
officers, directors, shareholders and partners.
"Exempt Payments" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"Expiration Date" shall mean the last day of the Term; provided, in no event
--------
shall the Expiration Date be later than the fifth annual anniversary of the
Initial Closing Date, unless, subject to Section 2.2 of the Lease Agreement,
such later date has been expressly agreed to in writing by each of the Lessor,
the Lessee, the Agent, the Lenders and the Holders.
"Facility Fee" shall mean, collectively, the Holder Facility Fee and the
Lender Facility Fee.
Appendix A-16
<PAGE>
"Facility Fee Payment Date" shall mean the last Business Day of each March,
June, September and December.
"Fair Market Sales Value" shall mean, with respect to any Property, the
amount, which in any event, shall not be less than zero (0), that would be paid
in cash in an arms-length transaction between an informed and willing purchaser
and an informed and willing seller, neither of whom is under any compulsion to
purchase or sell, respectively, such Property. Fair Market Sales Value of any
Property shall be determined based on the assumption that, except for purposes
of Section 17 of the Lease, such Property is in the condition and state of
repair required under Section 10.1 of the Lease and each Credit Party is in
compliance with the other requirements of the Operative Agreements.
"Federal Funds Effective Rate" shall have the meaning given to such term in
the definition of ABR.
"Financing Party" shall mean the Lessor, the Owner Trustee, in its trust
capacity, the Agent, the Holders and the Lenders.
"Five Year Credit Agreement" shall mean that certain Five Year Credit
Agreement dated as of December 23, 1997 among JPFDI, U.S. Foodservice, Inc.
(formerly Rykoff-Sexton, Inc.), the lenders that are parties thereto form time
to time and NationsBank, N.A., as Administrative Agent, NationsBanc Montgomery
Securities LLC (formerly NationsBank Montgomery Securities, Inc.) and Chase
Securities, Inc., as Co-Arrangers, The Chase Manhattan Bank, as Syndication
Agent, and Bank of America, NT & SA, as Documentation Agent, as such may
hereafter be amended, modified, supplemented, restated and/or replaced from time
to time.
"Fixtures" shall mean all fixtures relating to the Improvements, including
without limitation all components thereof, located in or on the Improvements,
together with all replacements, modifications, alterations and additions
thereto.
"Force Majeure Event" shall mean any event beyond the control of the
Construction Agent, including without limitation strikes, lockouts, adverse soil
conditions, acts of God, adverse weather conditions, inability to obtain labor
or materials, governmental activities, civil commotion and enemy action; but
excluding any event, cause or condition that results from the acts or omissions
of the Construction Agent or the Construction Agent's financial condition.
"Form 1001" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"Form 4224" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"GAAP" shall mean generally accepted accounting principles as from time to
time set forth in the opinions of the Accounting Principles Board of the
American Institute of Certified Public Accountants and in statements by the
Financial Accounting Standards Board or in such
Appendix A-17
<PAGE>
opinions and statements of such other entities as shall be approved by a
significant segment of the accounting profession in the United States of
America.
"Governmental Action" shall mean all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Legal Requirement, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operating of the Property.
"Governmental Authority" shall mean any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Ground Lease" shall mean a ground lease (in form and substance reasonably
satisfactory to the Agent) respecting any Property (a) owned by any Credit Party
(or a parent corporation or any Subsidiary of any Credit Party) and leased to
the Lessor where such lease has at least a ninety-nine (99) year term and
payments set at no more than $1.00 per year, or (b) where such lease is subject
to such other terms and conditions as are reasonably satisfactory to the Agent.
"Guarantors" shall mean the various parties to the Participation Agreement
from time to time, as guarantors of the Construction Agent and the Lessee with
respect to the Operative Agreements and the Properties.
"Guaranty" shall mean, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise in any manner directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to (a) purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or (b) maintain
the solvency or any balance sheet or other financial condition of the obligor of
such obligation, or (c) make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or non-
furnishing thereof, in any such case if the purpose or intent of such agreement
is to provide assurance that such obligation will be paid or discharged, or that
any agreements relating thereto will be complied with, or that the holders of
such obligation will be protected against loss in respect thereof. For purposes
of all computations made under the Operative Agreements, the amount of any
Guaranty shall be equal to the amount of the obligation guaranteed or, if not
stated or determined, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
Appendix A-18
<PAGE>
"Hard Costs" shall mean all costs and expenses payable for supplies,
materials, labor and profit with respect to the Improvements under any
Construction Contract.
"Hazardous Substance" shall mean and include those substances included within
the definitions of "hazardous substances," "hazardous materials," "toxic
substances" or "solid waste" in the Comprehensive Environmental Response
Compensation and Liability Act of 1980 (42 U.S.C. (S) 9601 et seq.), as amended
-- ---
by Superfund Amendments and Reauthorization Act of 1986 (Pub. L. (S) 99-499 100
Stat. 1613), the Resource Conversation and Recovery Act of 1976 (42 U.S.C. (S)
6901 et seq.) and the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801
-- ---
et seq.) and in the regulations promulgated pursuant to said laws, all as
- -- ---
amended; and in any event shall include medical wastes, infectious wastes,
asbestos, paint containing lead, and urea formaldehyde.
"Hedging Agreement" shall mean any agreement entered into by a Person for
protection against future fluctuations in interest rates, foreign exchange
rates, commodities prices, or the like (including, but not limited to, interest
rate and/or currency swap arrangements, interest rate, currency and/or
commodities future or option contracts, and other similar agreements) and which
creates a contingent obligation of such Person to make any payments (other than
payments in respect of any fee or charge for contracting to provide the
protection provided by such agreement) to the holder(s) thereof or
counterparty(ies) thereunder upon the culmination or termination of such
agreement or otherwise.
"Holder Advance" shall mean any advance made by any Holder to the Owner
Trustee pursuant to the terms of the Trust Agreement or the Participation
Agreement.
"Holder Amount" shall mean as of any date, the aggregate amount of Holder
Advances made by each Holder to the Trust Estate pursuant to Section 2 of the
Participation Agreement and Section 3.1 of the Trust Agreement less any payments
of any Holder Advances received by the Holders pursuant to Section 3.4 of the
Trust Agreement.
"Holder Commitments" shall mean $1,800,000, as such amount may be increased or
reduced from time to time in accordance with the provisions of the Operative
Agreements; provided, if there shall be more than one (1) Holder, the Holder
--------
Commitment of each Holder shall be as set forth in Schedule I to the Trust
----------
Agreement as such Schedule I may be amended and replaced from time to time.
----------
"Holder Construction Property Cost" shall mean, with respect to each
Construction Period Property, at any date of determination, an amount equal to
the outstanding Holder Advances made with respect thereto under the Trust
Agreement.
"Holder Facility Fee" shall have the meaning given to such term in Section 7.4
of the Participation Agreement.
"Holder Overdue Rate" shall mean the lesser of (a) the then current rate of
Holder Yield respecting the particular amount in question plus two percent (2%)
and (b) the highest rate permitted by applicable law.
Appendix A-19
<PAGE>
"Holder Property Cost" shall mean with respect to a Property an amount equal
to the outstanding Holder Advances with respect thereto.
"Holder Yield" shall mean with respect to Holder Advances from time to time
either the Eurodollar Rate plus the Applicable Percentage or the ABR as elected
by the Owner Trustee from time to time with respect to such Holder Advances in
accordance with the terms of the Trust Agreement; provided, however, (a) upon
-------- -------
delivery of the notice described in Section 3.7(c) of the Trust Agreement, the
outstanding Holder Advances of each Holder shall bear a yield at the ABR
applicable from time to time from and after the dates and during the periods
specified in Section 3.7(c) of the Trust Agreement, and (b) upon the delivery by
a Holder of the notice described in Section 11.3(f) of the Participation
Agreement, the Holder Advances of such Holder shall bear a yield at the ABR
applicable from time to time after the dates and during the periods specified in
Section 11.3(f) of the Participation Agreement.
"Holders" shall mean First Union National Bank and shall include the other
banks and financial institutions which may be from time to time holders of
Certificates in connection with the USF Real Estate Trust 1998-1.
"Impositions" shall mean any and all liabilities, losses, expenses, costs,
charges and Liens of any kind whatsoever for fees, taxes, levies, imposts,
duties, charges, assessments or withholdings ("Taxes") including but not limited
-----
to (i) real and personal property taxes, including without limitation personal
property taxes on any property covered by the Lease that is classified by
Governmental Authorities as personal property, and real estate or ad valorem
taxes in the nature of property taxes; (ii) sales taxes, use taxes and other
similar taxes (including rent taxes and intangibles taxes); (iii) excise taxes;
(iv) real estate transfer taxes, conveyance taxes, stamp taxes and documentary
recording taxes and fees; (v) taxes that are or are in the nature of franchise,
income, value added, privilege and doing business taxes, license and
registration fees; (vi) assessments on any Property, including without
limitation all assessments for public Improvements or benefits, whether or not
such improvements are commenced or completed within the Term; and (vii) taxes,
Liens, assessments or charges asserted, imposed or assessed by the PBGC or any
governmental authority succeeding to or performing functions similar to, the
PBGC; and in each case all interest, additions to tax and penalties thereon,
which at any time prior to, during or with respect to the Term or in respect of
any period for which the Lessee shall be obligated to pay Supplemental Rent, may
be levied, assessed or imposed by any Governmental Authority upon or with
respect to (a) any Property or any part thereof or interest therein; (b) the
leasing, financing, refinancing, demolition, construction, substitution,
subleasing, assignment, control, condition, occupancy, servicing, maintenance,
repair, ownership, possession, activity conducted on, delivery, insuring, use,
operation, improvement, sale, transfer of title, return or other disposition of
such Property or any part thereof or interest therein; (c) the Notes, other
indebtedness with respect to any Property, or the Certificates, or any part
thereof or interest therein; (d) the rentals, receipts or earnings arising from
any Property or any part thereof or interest therein; (e) the Operative
Agreements, the performance thereof, or any payment made or accrued pursuant
thereto; (f) the income or other proceeds received with respect to any Property
or any part thereof or interest therein upon the sale or disposition thereof;
(g) any contract (including the Agency Agreement) relating to the construction,
acquisition or delivery of
Appendix A-20
<PAGE>
the Improvements or any part thereof or interest therein; (h) the issuance of
the Notes or the Certificates; (i) the Owner Trustee, the Trust or the Trust
Estate; or (j) otherwise in connection with the transactions contemplated by the
Operative Agreements.
"Improvements" shall mean, with respect to the construction, renovations
and/or Modifications on any Land, all buildings, structures, Fixtures, and other
improvements of every kind existing at any time and from time to time on or
under the Land purchased or otherwise acquired using the proceeds of the Loans
or the Holder Advances or which is subject to a Ground Lease, together with any
and all appurtenances to such buildings, structures or improvements, including
without limitation sidewalks, utility pipes, conduits and lines, parking areas
and roadways, and including without limitation all Modifications and other
additions to or changes in the Improvements at any time, including without
limitation (a) any Improvements existing as of the Property Closing Date as such
Improvements may be referenced on the applicable Requisition and (b) any
Improvements made subsequent to such Property Closing Date.
"Incorporated Covenants" shall have the meaning given to such term in Section
28.1 of the Lease.
"Incorporated Representations and Warranties" shall have the meaning given to
such term in Section 28.1 of the Lease.
"Indemnified Person" shall mean the Lessor, the Owner Trustee, in its
individual and its trust capacity, the Trust, the Trust Company, the Agent, the
Holders, the Lenders and their respective successors, assigns, directors,
shareholders, partners, officers, employees, agents and Affiliates.
"Indemnity Provider" shall mean, respecting each Property, the Lessee.
"Initial Closing Date" shall mean __________, 1998.
"Initial Construction Advance" shall mean any initial Advance to pay for: (a)
Property Costs for construction of any Improvements; and (b) the Property Costs
of restoring or repairing any Property which is required to be restored or
repaired in accordance with Section 15.1(e) of the Lease.
"Instruments" shall have the meaning given to such term in Section 1 of the
Security Agreement.
"Insurance Requirements" shall mean all terms and conditions of any insurance
policy either required by the Lease to be maintained by the Lessee or required
by the Agency Agreement to be maintained by the Construction Agent, and all
requirements of the issuer of any such policy and, regarding self insurance, any
other requirements of the Lessee.
"Interest Expense" shall mean, as applied to any Person, for any period, the
sum of the following amounts for such Person: (a) the aggregate amount of all
interest accrued (whether or not actually paid) during such period on Debt
(including, without limitation, (i) imputed interest
Appendix A-21
<PAGE>
on Capital Lease Obligations and (ii) all imputed interest, whether in the form
of "yield", "discount" or other similar item, that accrues in respect of the
Permitted Receivables Financing Amount of any Permitted Receivables Financing
entered into by such Person (or by any Subsidiary of such Person or any other
Person "controlled" (as such term is defined in the Securities Act) by such
Person), together with any fees payable thereunder, plus (b) amortization of
----
debt discount and expense during such period (excluding deferred financing
amortization), plus (c) all fees and commissions payable in connection with any
----
letters of credit during such period. Unless otherwise specified, any reference
to Interest Expense for any period is intended as a reference to the sum for
such period of said amounts for U.S. Foodservice, Inc., JPFDI and their
Restricted Subsidiaries on a consolidated basis in accordance with GAAP after
eliminating all amounts properly attributable to outside minority interests in
Restricted Subsidiaries.
"Interest Period" shall mean (a) during the Commitment Period and thereafter
as to any Eurodollar Loan or Eurodollar Holder Advance (i) with respect to the
initial Interest Period, the period beginning on the date of the first
Eurodollar Loan and Eurodollar Holder Advance and ending one (1) month, two (2)
months, three (3) months or six (6) months thereafter, as selected by the Lessor
(in the case of a Eurodollar Loan) or the Owner Trustee (in the case of a
Eurodollar Holder Advance) in its applicable notice given with respect thereto
and (ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan or Eurodollar
Holder Advance and ending one (1) month, two (2) months, three (3) months or six
(6) months thereafter, as selected by the Lessor by irrevocable notice to the
Agent (in the case of a Eurodollar Loan) or by the Owner Trustee (in the case of
a Eurodollar Holder Advance) in each case not less than three (3) Business Days
prior to the last day of the then current Interest Period with respect thereto;
provided, however, that all of the foregoing provisions relating to Interest
- -------- -------
Periods are subject to the following: (A) if any Interest Period would end on a
day which is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day (except that with respect to any Eurodollar Loan or
Eurodollar Holder Advance, where the next succeeding Business Day falls in the
next succeeding calendar month, then on the next preceding Business Day), (B) no
Interest Period shall extend beyond the Maturity Date or the Expiration Date, as
the case may be, and (C) where an Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall, subject to clause (A)
above, end on the last Business Day of such calendar month.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended, together with the rules and regulations promulgated thereunder.
"JPFDI" means JP Foodservice Distributors, Inc., a Delaware corporation.
"Joinder Agreement" shall mean a joinder agreement, in the form of EXHIBIT J
---------
to the Participation Agreement, executed from time to time between a Restricted
Subsidiary and the Agent.
"Land" shall mean a parcel of real property described on (a) the Requisition
issued by the Construction Agent on the Property Closing Date relating to such
parcel and (b) the schedules to
Appendix A-22
<PAGE>
each applicable Lease Supplement executed and delivered in accordance with the
requirements of Section 2.4 of the Lease.
"Law" shall mean any statute, law, ordinance, regulation, rule, directive,
order, writ, injunction or decree of any Tribunal.
"Lease" or "Lease Agreement" shall mean the Lease Agreement dated on or about
the Initial Closing Date, between the Lessor and the Lessee, together with any
Lease Supplements thereto.
"Lease Default" shall mean any event or condition which, with the lapse of
time or the giving of notice, or both, would constitute a Lease Event of
Default.
"Lease Event of Default" shall have the meaning specified in Section 17.1 of
the Lease.
"Lease Supplement" shall mean each Lease Supplement substantially in the form
of Exhibit A to the Lease, together with all attachments and schedules thereto.
---------
"Legal Requirements" shall mean all federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting the Owner Trustee, any Holder, the
Lessor, any Credit Party, the Agent, any Lender or any Property, Land,
Improvement, Equipment or the taxation, demolition, construction, use or
alteration of such Improvements, whether now or hereafter enacted and in force,
including without limitation any that require repairs, modifications or
alterations in or to any Property or in any way limit the use and enjoyment
thereof (including without limitation all building, zoning and fire codes and
the Americans with Disabilities Act of 1990, 42 U.S.C. (S) 12101 et. seq., and
any other similar federal, state or local laws or ordinances and the regulations
promulgated thereunder) and any that may relate to environmental requirements
(including without limitation all Environmental Laws), and all permits,
certificates of occupancy, licenses, authorizations and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments which are either of record or known to any Credit Party
affecting any Property or the Appurtenant Rights.
"Lender Commitments" shall mean $58,200,000, as such amount may be increased
or reduced from time to time in accordance with the provisions of the Operative
Agreements; provided, if there shall be more than one (1) Lender, the Lender
--------
Commitment of each Lender shall be as set forth in Schedule 1.1 to the Credit
------------
Agreement as such Schedule 1.1 may be amended and replaced from time to time.
------------
"Lender Facility Fee" shall have the meaning given to such term in Section 7.4
of the Participation Agreement.
"Lender Financing Statements" shall mean UCC financing statements and fixture
filings appropriately completed and executed for filing in the applicable
jurisdiction in order to procure a security interest in favor of the Agent in
the Collateral subject to the Security Documents.
Appendix A-23
<PAGE>
"Lenders" shall mean First Union National Bank and shall include the other
banks and financial institutions which may be from time to time party to the
Participation Agreement and the Credit Agreement.
"Lessee" shall have the meaning set forth in the Lease.
"Lessee Credit Agreement" shall mean that certain 364-Day Credit Agreement
dated as of December 23, 1997 among JPFDI, U.S. Foodservice, Inc. (formerly
Rykoff-Sexton, Inc.), the lenders that are parties thereto from time to time and
NationsBank, N.A., as Administrative Agent, NationsBanc Montgomery Securities
LLC (formerly NationsBank Montgomery Securities, Inc.) and Chase Securities,
Inc., as Co-Arrangers, The Chase Manhattan Bank, as Syndication Agent, and Bank
of America, NT & SA, as Documentation Agent, as such may hereafter be amended,
modified, supplemented, restated and/or replaced from time to time.
"Lessee Credit Agreement Event of Default" shall mean an Event of Default as
defined in Section 10.01 of the Lessee Credit Agreement (other than an Event of
Default resulting from the failure to comply with the second sentence of Section
8.19 of the Lessee Credit Agreement or of the Five Year Credit Agreement).
"Lessor" shall mean the Owner Trustee, not in its individual capacity, but as
the Lessor under the Lease.
"Lessor Basic Rent" shall mean the scheduled Holder Yield due on the Holder
Advances on any Scheduled Interest Payment Date pursuant to the Trust Agreement
(but not including interest on (a) any such scheduled Holder Yield due on the
Holder Advances prior to the Rent Commencement Date with respect to the Property
to which such Holder Advances relate or (b) overdue amounts under the Trust
Agreement or otherwise).
"Lessor Financing Statements" shall mean UCC financing statements and fixture
filings appropriately completed and executed for filing in the applicable
jurisdictions in order to protect the Lessor's interest under the Lease to the
extent the Lease is a security agreement or a mortgage.
"Lessor Lien" shall mean any Lien, true lease or sublease or disposition of
title arising as a result of (a) any claim against the Lessor or the Trust
Company, in its individual capacity, not resulting from the transactions
contemplated by the Operative Agreements, (b) any act or omission of the Lessor
or the Trust Company, in its individual capacity, which is not required by the
Operative Agreements or is in violation of any of the terms of the Operative
Agreements, (c) any claim against the Lessor or the Trust Company, in its
individual capacity, with respect to Taxes or Transaction Expenses against which
the Lessee is not required to indemnify the Lessor or the Trust Company, in its
individual capacity, pursuant to Section 11 of the Participation Agreement or
(d) any claim against the Lessor arising out of any transfer by the Lessor of
all or any portion of the interest of the Lessor in the Properties, the Trust
Estate or the Operative Agreements other than the transfer of title to or
possession of any Properties by the Lessor pursuant to and in accordance with
the Lease, the Credit Agreement, the Security Agreement or
Appendix A-24
<PAGE>
the Participation Agreement or pursuant to the exercise of the remedies set
forth in Article XVII of the Lease.
"Lien" shall mean, as to any Person, any mortgage, lien (statutory or other),
pledge, assignment, hypothecation, adverse claim, charge, security interest or
other encumbrance in or on, or any interest or title of any vendor, lessor,
lender or other secured party to or of such Person under any conditional sale,
trust receipt or other title retention agreement or Capital Lease with respect
to, any property or asset of such Person, or the signing or filing of a
financing statement which names such Person as debtor, or the signing of any
security agreement authorizing any other party as the secured party thereunder
to file any financing statement which names such Person as debtor.
"Limited Recourse Amount" shall mean with respect to all the Properties on an
aggregate basis, an amount equal to the sum of the Termination Values with
respect to all the Properties on an aggregate basis on each Payment Date, less
the Maximum Residual Guarantee Amount as of such date with respect to all the
Properties on an aggregate basis.
"Loan Basic Rent" shall mean the scheduled interest due on the Loans on any
Scheduled Interest Payment Date pursuant to the Credit Agreement (but not
including interest on (a) any such Loan due prior to the Rent Commencement Date
with respect to the Property to which such Loan relates or (b) any overdue
amounts under Section 2.8(c) of the Credit Agreement or otherwise).
"Loan Property Cost" shall mean, with respect to each Property at any date of
determination, an amount equal to (a) the aggregate principal amount of all
Loans (including without limitation all Acquisition Loans and Construction
Loans) made on or prior to such date with respect to such Property minus (b) the
-----
aggregate amount of prepayments or repayments as the case may be of the Loans
allocated to reduce the Loan Property Cost of such Property pursuant to Section
2.6(c) of the Credit Agreement.
"Loans" shall mean the loans extended pursuant to the Credit Agreement and
shall include both the Tranche A Loans and the Tranche B Loans.
"Majority Holders" shall mean at any time, Holders whose Holder Advances
outstanding represent at least fifty-one percent (51%) of (a) the aggregate
Holder Advances outstanding or (b) to the extent there are no Holder Advances
outstanding, the aggregate Holder Commitments.
"Majority Lenders" shall mean at any time, Lenders whose Loans outstanding
represent at least fifty-one percent (51%) of (a) the aggregate Loans
outstanding or (b) to the extent there are no Loans outstanding, the aggregate
of the Lender Commitments.
"Majority Secured Parties" shall mean at any time, Lenders and Holders whose
Loans and Holder Advances outstanding represent at least fifty-one percent (51%)
of (a) the aggregate Advances outstanding or (b) to the extent there are no
Advances outstanding, the sum of the aggregate Holder Commitments plus the
aggregate Lender Commitments.
Appendix A-25
<PAGE>
"Margin Certificate" shall have the meaning given to such term in Section
8.3(l) of the Participation Agreement.
"Marketing Period" shall mean, if the Lessee has given a Sale Notice in
accordance with Section 20.1 of the Lease, the period commencing on the date
such Sale Notice is given and ending on the Expiration Date.
"Material Adverse Effect" shall, mean a material adverse effect on (a) the
business, condition (financial or otherwise), assets, liabilities or operations
of the Credit Parties (on a consolidated basis), (b) the ability of any Credit
Party to perform its respective obligations under any Operative Agreement to
which it is a party, (c) the validity or enforceability of any Operative
Agreement or the rights and remedies of the Agent, the Lenders, the Holders, or
the Lessor thereunder, (d) the validity, priority or enforceability of any Lien
on any Property created by any of the Operative Agreements, or (e) the value,
utility or useful life of any Property or the use, or ability of the Lessee to
use, any Property for the purpose for which it was intended.
"Maturity Date" shall mean the Expiration Date.
"Maximum Residual Guarantee Amount" shall mean an amount equal to the product
of the aggregate Property Cost for all of Properties times eighty-five percent
(85%).
"Merger Agreement" shall mean the Agreement and Plan of Merger, dated as of
June 30, 1997, as amended as of September 3, 1997 and November 5, 1997, together
with all exhibits and schedules thereto, by and among U.S. Foodservice, Hudson
Acquisition Corp., a wholly owned subsidiary of U.S. Foodservice and U.S.
Foodservice, Inc. (formerly Rykoff-Sexton, Inc.)
"Merger Transaction" shall mean the transaction in which, among other things,
(i) U.S. Foodservice, Inc. (formerly Rykoff-Sexton, Inc.) was merged with and
into Hudson Acquisition Corp., a wholly owned subsidiary of U.S. Foodservice,
and (ii) each issued and outstanding share of common stock of U.S. Foodservice,
Inc. (formerly Rykoff-Sexton, Inc.), other than shares, if any, owned by U.S.
Foodservice, Inc. (formerly Rykoff-Sexton, Inc.), U.S. Foodservice or Hudson
Acquisition Corp., were converted into the right to receive 0.775 of a share of
common stock of U.S. Foodservice, all upon the terms and conditions set forth in
the Merger Agreement.
"Modifications" shall have the meaning specified in Section 11.1(a) of the
Lease.
"Mortgage Instrument" shall mean any mortgage, deed of trust or any other
instrument executed by the Owner Trustee and the Lessee (or regarding any
Property subject to a Ground Lease, the applicable Affiliate of the Lessee) in
favor of the Agent (for the benefit of the Lenders and the Holders) and
evidencing a Lien on the Property, in form and substance reasonably acceptable
to the Agent.
"Multiemployer Plan" shall mean a plan described as such in Section 3(37) of
ERISA to which any Credit Party or any of its Subsidiaries or ERISA Affiliates
is making or incurring an obligation to make, or has made or incurred an
obligation to make, contributions.
Appendix A-26
<PAGE>
"Multiple Employer Plan" shall mean a plan to which any Credit Party or any
ERISA Affiliate, and at least one (1) employer other than a Credit Party or an
ERISA Affiliate, is making or accruing an obligation to make contributions or
has made or accrued an obligation to make contributions.
"Net Receivables" shall mean, on any day, in respect of any Permitted
Receivables Financing, the outstanding balance of accounts receivable sold,
transferred, pledged or otherwise subject to Liens, in each case, to or in favor
of a Receivables Financier in connection with such Permitted Receivables
Financing, excluding any accounts receivable not included in the calculation of
the Receivables Financier's percentage interest in the Transferred Assets (it
being understood that only the percentage interest shall be included in this
calculation) or borrowing base (such excluded accounts receivable may include,
without limiting the foregoing in any manner, any such accounts receivable (x)
not meeting the eligibility criteria under such Permitted Receivables Financing,
(y) exceeding the applicable concentration limits set forth for such Permitted
Receivables Financing, or (z) which are or become defaulted, delinquent,
charged-off or otherwise cease to be creditworthy as set forth in, and as
determined in accordance with, such Permitted Receivables Financing).
"New Facility" shall have the meaning given to such term in Section 28.1 of
the Lease.
"Notes" shall mean those notes issued to the Lenders pursuant to the Credit
Agreement and shall include both the Tranche A Notes and the Tranche B Notes.
"Obligations" shall have the meaning given to such term in Section 1 of the
Security Agreement.
"Officer's Certificate" with respect to any person shall mean a certificate
executed on behalf of such person by a Responsible Officer who has made or
caused to be made such examination or investigation as is necessary to enable
such Responsible Officer to express an informed opinion with respect to the
subject matter of such Officer's Certificate.
"Officer's Compliance Certificate" shall have the meaning given to such term
in Section 8.3(l) of the Participation Agreement.
"Operating Cash Flow" shall mean, for any period, (a) the net income (or
deficit) of U.S. Foodservice, Inc., JPFDI and their Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP after eliminating all
non-cash or nonrecurring items (whether cash or non-cash and whether or not
deemed extraordinary in accordance with GAAP) for such period; plus (b) the sum
----
of the following amounts, in each case to the extent deducted in arriving at
such amount determined in accordance with the foregoing subdivision (a):
(i) Interest Expense,
(ii) provisions for taxes imposed on or measured by income or excess
profits, and
Appendix A-27
<PAGE>
(iii) provisions for depreciation and amortization,
plus (c) the sum (without duplication) of the following items to the extent not
- ----
included in the amounts determined pursuant to subdivisions (a) and (b) above
(such sum being herein called the "Acquired Unit Adjustment"):
------------------------
(i) the net income (or net deficit) for such period of each Person
which shall have become a Restricted Subsidiary during such period (an
"Acquired Subsidiary") after eliminating all non-cash or nonrecurring items
--------------------
(whether cash or non-cash and whether or not deemed extraordinary in
accordance with GAAP),
(ii) the net income (or net deficit) derived during such period from
any operating assets acquired by U.S. Foodservice, Inc., JPFDI or a
Restricted Subsidiary during such period ("Acquired Assets"), and
---------------
(iii) the sum (without duplication) of the following items to the
extent deducted in determining net income of any Acquired Subsidiary or
derived from any Acquired Assets for such period: (A) Interest Expense of
such Acquired Subsidiary or associated with such Acquired Assets, (B)
provisions for taxes imposed on or measured by income or excess profits of
such Acquired Subsidiary or associated with such Acquired Assets, and (C)
provisions for depreciation and amortization of such Acquired Subsidiary or
associated with such Acquired Assets;
minus (d) the sum of the following items to the extent included in the amounts
- -----
determined pursuant to subdivisions (a), (b) and (c) above (such sum being
herein called the "Disposed Unit Adjustment"):
------------------------
(i) the net income (or net deficit) for such period of each Person
which shall have ceased to be a Restricted Subsidiary during such period (a
"Disposed Subsidiary") after eliminating all non-cash or nonrecurring items
-------------------
(whether cash or non-cash and whether or not deemed extraordinary in
accordance with GAAP),
(ii) the net income (or net deficit) derived during such period from
any assets which were sold or otherwise disposed of by U.S. Foodservice,
Inc., JPFDI or a Restricted Subsidiary during such period ("Disposed
--------
Assets"), and
(iii) the sum (without duplication) of the following items to the
extent deducted in determining net income of any Disposed Subsidiary or
derived from any Disposed Assets for such period: (A) Interest Expense of
such Disposed Subsidiary or associated with such Disposed Assets, (B)
provisions for taxes imposed on or measured by income or excess profits of
such Disposed Subsidiary or associated with such Disposed Assets for such
period, and (C) provisions for depreciation and amortization of such
Disposed Subsidiary or associated with such Disposed Assets;
provided, however, that (1) for purposes of determining Operating Cash Flow for
- -------- -------
any period, the Acquired Unit Adjustment and the Disposed Unit Adjustment shall
be determined by JPFDI in
Appendix A-28
<PAGE>
accordance with sound financial practice (and on the basis, to the extent
available, of appropriate financial statements and tax returns for such period)
and shall be set forth in a certificate of the principal financial officer of
JPFDI accompanied by calculations in reasonable detail showing the manner of
determination thereof, which certificate shall be furnished to the Agent, each
of the Lenders and each of the Holders not later than the certificate required
to be furnished by JPFDI in respect of such period pursuant to Section 8.3(l) of
the Participation Agreement, and (2) no amount shall in any event be includable
in Operating Cash Flow pursuant to subdivision (c) of this definition for any
period in respect of any Acquired Unit Adjustment unless the amount and
calculation thereof, as set forth in the certificate for such period required by
the foregoing clause (1), shall be reasonably acceptable to the Majority Secured
Parties; and provided further, however, that in determining the net income (or
-------- ------- -------
deficit) of U.S. Foodservice, Inc., JPFDI and their Restricted Subsidiaries
pursuant to the foregoing subdivision (a) for any period during which JPFDI
shall have sold or otherwise disposed of the Everett Facility, losses from such
sale or other disposition shall be disregarded to the extent the aggregate
amount of all such losses (computed without regard to Closing Date Intangibles
attributable to such facility) does not exceed $3,300,000 on an after tax basis.
"Operative Agreements" shall mean the following: the Participation Agreement,
the Agency Agreement, the Trust Agreement, the Certificates, the Credit
Agreement, the Notes, the Lease, the Lease Supplements (and memoranda of the
Lease and each Lease Supplement in a form reasonably acceptable to the Agent),
the Joinder Agreements, the Security Agreement, the Mortgage Instruments, the
other Security Documents, the Ground Leases, the Deeds and the Bills of Sale and
any and all other agreements, documents and instruments executed in connection
with any of the foregoing.
"Original Executed Counterpart" shall have the meaning given to such term in
Section 5 of EXHIBIT A to the Lease.
---------
"Overdue Interest" shall mean any interest payable pursuant to Section 2.8(b)
of the Credit Agreement.
"Overdue Rate" shall mean (a) with respect to the Loan Basic Rent, and any
other amount owed under or with respect to the Credit Agreement or the Security
Documents, the rate specified in Section 2.8(b) of the Credit Agreement, (b)
with respect to the Lessor Basic Rent, the Holder Yield and any other amount
owed under or with respect to the Trust Agreement, the Holder Overdue Rate, and
(c) with respect to any other amount, a per annum rate 2% greater than the rate
which would otherwise be applicable (or if no rate is applicable, whether in
respect of interest, fees or other amounts, then 2% greater than the ABR).
"Owner Trustee," "Borrower" or "Lessor" shall mean First Security Bank,
National Association, not individually, except as expressly stated in the
various Operative Agreements, but solely as the Owner Trustee under the USF Real
Estate Trust 1998-1, and any successor, replacement and/or additional Owner
Trustee expressly permitted under the Operative Agreements.
Appendix A-29
<PAGE>
"Participant" shall have the meaning given to such term in Section 9.7 of the
Credit Agreement.
"Participation Agreement" shall mean the Participation Agreement dated on or
about the Initial Closing Date, among the Lessee, the Guarantors, the Owner
Trustee, not in its individual capacity except as expressly stated therein, the
Holders, the Lenders and the Agent.
"Payment Date" shall mean any Scheduled Interest Payment Date and any date on
which interest or Holder Yield in connection with a prepayment of principal on
the Loans or of the Holder Advances is due under the Credit Agreement or the
Trust Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor thereto.
"Pension Plan" shall mean a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to title IV of ERISA (other than a Multiemployer
Plan), and to which any Credit Party or any ERISA Affiliate may have any
liability, including without limitation any liability by reason of having been a
substantial employer within the meaning of section 4063 of ERISA at any time
during the preceding five (5) years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
"Permitted Facility" shall mean a warehouse, office building or other property
of the type and size customarily used and operated by the Lessee, or which the
Lessee intends to use in its ordinary course of business.
"Permitted Liens" shall mean:
(a) the respective rights and interests of the parties to the Operative
Agreements as provided in the Operative Agreements;
(b) the rights of any sublessee or assignee under a sublease or an
assignment expressly permitted by the terms of the Lease for no longer than
the duration of the Lease;
(c) Liens (other than Liens created or imposed under ERISA) for Taxes
that either are not yet due or are being contested in accordance with the
provisions of Section 13.1 of the Lease;
(d) statutory Liens of materialmen, mechanics, carriers, warehousemen
and other similar Persons relating to the construction of the Improvements
or in connection with any Modifications or arising in the ordinary course
of business for amounts that either are not yet due or are being diligently
contested in good faith by appropriate proceedings, so long as such
proceedings satisfy the conditions for the continuation of proceedings to
contest Taxes set forth in Section 13.1 of the Lease;
Appendix A-30
<PAGE>
(e) Liens of any of the types referred to in clause (d) above that have
been bonded for not less than the full amount in dispute (or as to which
other security arrangements satisfactory to the Lessor and the Agent have
been made), which bonding (or arrangements) shall comply with applicable
Legal Requirements, and shall have effectively stayed any execution or
enforcement of such Liens;
(f) any attachment, judgment or other similar Lien arising in connection
with court proceedings, so long as (i) the execution or other enforcement
of such Lien is effectively stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings diligently
conducted and effective to prevent the forfeiture or sale of any property
of U.S. Foodservice, Inc., JPFDI or any Restricted Subsidiary or any
interference with the ordinary use thereof by U.S. Foodservice, Inc., JPFDI
or any Restricted Subsidiary, and (ii) such reserve or other appropriate
provision, if any, in the amount and of the type as shall be required by
GAAP shall be maintained therefor; and
(g) Liens in favor of municipalities to the extent agreed to by the
Lessor.
"Permitted Receivables Financing" shall mean any transaction involving one
or more sales, contributions or other conveyances by U.S. Foodservice, Inc.,
JPFDI and/or any Restricted Subsidiary of any accounts receivable (together with
certain related property relating thereto and the right to collections thereon,
being the "Transferred Assets") to a Subsidiary (including a Subsidiary which is
------------------
a Restricted Subsidiary) or Affiliate of U.S. Foodservice, Inc. or JPFDI (with
respect to any such transaction, the "Receivables Financing SPC"), which
-------------------------
Receivables Financing SPC then either (x) sells (as determined in accordance
with GAAP) such Transferred Assets (or undivided interests therein) to any
Person that is not a Subsidiary or Affiliate of U.S. Foodservice, Inc. or JPFDI
(with respect to any such transaction, the "Receivables Financier"), (y) borrows
---------------------
from such Receivables Financier and secures such borrowings by a pledge of such
Transferred Assets and/or (z) otherwise finances its acquisition of such
Transferred Assets and, in connection therewith, conveys an interest in such
Transferred Assets to the Receivables Financier, provided that (i) such
--------
receivables financing shall not involve any recourse to U.S. Foodservice, Inc.,
JPFDI or any Restricted Subsidiary (other than the Receivables Financing SPC)
for any reason other than (A) repurchases of non-eligible receivables, (B)
indemnifications for losses (including any adjustments for dilutions), other
than credit losses related to the receivables transferred in such financing, and
(C) payment of costs, fees, expenses and indemnities relating to such
receivables financing, (ii) such receivables financing shall not include any
Guaranty by U.S. Foodservice Inc., JPFDI or any Restricted Subsidiary, it being
understood that payment by U.S. Foodservice, Inc., JPFDI or any Restricted
Subsidiary of any amount of the type described in the immediately preceding
clause (i) which is owing by it to the Receivables Financing SPC shall not be
deemed to be a Guaranty notwithstanding that an identical amount may be owing by
the Receivables Financing SPC to the Receivables Financier, (iii) the Agent
shall be reasonably satisfied with the structure of and documentation for any
such transaction and the terms of such transaction, including any applicable
discount at which receivables are sold to the Receivables Financier and any
termination events, shall be (in the good faith understanding of the Agent)
consistent with those prevailing in the market for similar transactions
involving receivables and originators of similar credit quality and a
receivables pool
Appendix A-31
<PAGE>
of similar characteristics or shall otherwise be reasonably acceptable to the
Agent, and (iv) the documentation for such transaction shall not be amended or
modified, to permit the acquisition of interests in the Transferred Assets by
the Receivables Financier in excess of the Permitted Receivables Financing Over-
Collateralization Amount, to change or modify any provision of any Subordinated
Intercompany Revolving Note or any provision of any agreement relating to the
calculation of any amount due or to become due in respect thereof, or in any
other manner which, in the reasonable judgment of the Agent, is materially
inconsistent with the terms and provisions hereof (and/or any other amendment
which deals with the requirements for a Permitted Receivables Financing) (other
than, in each case, for the requirement that any such amendment or modification
(or any of the relevant documents affected thereby) satisfy the requirements set
forth in the immediately preceding clause (iii)) without the prior written
approval of the Agent (which approval shall not be unreasonably withheld). Each
of the Pre-Existing Receivables Financings constitutes a Permitted Receivables
Financing.
"Permitted Receivables Financing Amount" shall mean at any time with respect
to any Permitted Receivables Financing, the aggregate balance of all cash
received by the Receivables Financing SPC from the Receivables Financier in
respect of purchase proceeds or principal under such financing minus the
aggregate amount of all payments received by the Receivables Financier and
applied to the repayments of such amounts; it being understood and agreed that
any amounts previously applied as aforesaid which are subsequently required to
be repaid, disgorged or otherwise returned by the Receivables Financier shall be
deemed to have never been received and applied by the Receivables Financier.
"Permitted Receivables Financing Over-Collateralization Amount" shall mean,
with respect to any Permitted Receivables Financing, the excess from time to
time of (x) the outstanding face amount of the Net Receivables subject to the
Receivables Financier's interest in connection with such financing (it being
understood that if such interest is a percentage interest only that percentage
of such Net Receivables shall be included in this calculation) over (y) the
Permitted Receivables Financing Amount of such Permitted Receivables Financing.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, governmental authority or any other entity.
"Plans and Specifications" shall mean, with respect to Improvements, the plans
and specifications for such Improvements to be constructed or already existing,
as such Plans and Specifications may be amended, modified or supplemented from
time to time in accordance with the terms of the Operative Agreements.
"Predominantly Owned Restricted Subsidiary" shall mean any Restricted
Subsidiary at least 80% of all of the equity interests of each class of which
and at least 80% of the voting interests of which shall at the time be owned by
JPFDI or U.S. Foodservice, Inc. either directly or through one or more other
Predominantly Owned Restricted Subsidiaries.
"Pre-Existing Receivables Financings" shall mean the transactions provided
for in the Receivables Purchase Agreement dated as of May 30, 1996 among JPFDI,
Illinois Fruit &
Appendix A-32
<PAGE>
Produce Corp., Sky Bros., Inc., JPFD Funding Company and U.S. Foodservice
(formerly JP Foodservice, Inc.) and the Transfer and Administration Agreement
dated as of May 30, 1996 among Enterprise Funding Corporation, JPFD Funding
Company, JPFDI, NationsBank, N.A. and certain other financial institution
investors, and the transactions contemplated in the Rykoff-Sexton Receivables
Master Trust Pooling Agreement dated as of November 15, 1996 (the "Rykoff-Sexton
-------------
Pooling Agreement") among RF Funding, Inc., U.S.F. Distributors, Inc. (formerly
- -----------------
US Foodservice, Inc.) and The Chase Manhattan Bank, as supplemented by the
Series 1996-1 Supplement thereto dated as of November 15, 1996, including all
fundings, financings, facilities and purchases of accounts receivable
outstanding under such agreements as of the Initial Closing Date and any
subsequent increases or extensions of such fundings, financings, facilities or
purchases (including, in the case of the Rykoff-Sexton Pooling Agreement, the
issuance of additional certificates).
"Prime Lending Rate" shall have the meaning given to such term in the
definition of ABR.
"Property" shall mean, with respect to each Permitted Facility that is (or is
to be) acquired, constructed and/or renovated pursuant to the terms of the
Operative Agreements, the Land and each item of Equipment and the various
Improvements, in each case located on such Land, including without limitation
each Construction Period Property, each Property subject to a Ground Lease and
each Property for which the Term has commenced.
"Property Acquisition Cost" shall mean the cost to the Lessor to purchase a
Property on a Property Closing Date.
"Property Closing Date" shall mean the date on which the Lessor purchases a
Property or, with respect to the first Advance, the date on which the Lessor
seeks reimbursement for Property previously purchased by the Lessor.
"Property Cost" shall mean with respect to a Property the aggregate amount
(and/or the various items and occurrences giving rise to such amounts) of the
Loan Property Cost plus the Holder Property Cost for such Property (as such
amounts shall be increased equally among all Properties respecting the Holder
Advances and the Loans extended from time to time to pay for the Transaction
Expenses, fees, expenses and other disbursements referenced in Sections 7.1(a)
and 7.1(b) of the Participation Agreement).
"Purchase Option" shall have the meaning given to such term in Section 20.1 of
the Lease.
"Purchasing Lender" shall have the meaning given to such term in Section
9.8(a) of the Credit Agreement.
"PYA" shall mean PYA/Monarch, Inc., a Delaware corporation.
"PYA's Note" shall mean that certain promissory note of PYA, dated March 10,
1989, in the original principal amount of $110,000,000, and payable to JPFDI,
which bears interest at
Appendix A-33
<PAGE>
rates between 10.35% and 10.8% per annum, as such note shall be in effect on the
Initial Closing Date.
"Receivables Financier" shall have the meaning assigned to such term in the
definition of "Permitted Receivables Financing" set forth in this Appendix A.
----------
"Receivables Financing SPC" shall have the meaning assigned to such term in
the definition of "Permitted Receivables Financing" set forth in this Appendix
--------
A.
- -
"Register" shall have the meaning given to such term in Section 9.9(a) of the
Credit Agreement.
"Regulation D" shall mean Regulation D of the Board, as the same may be
modified and supplemented and in effect from time to time.
"Release" shall mean any release, pumping, pouring, emptying, injecting,
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance.
"Rent" shall mean, collectively, the Basic Rent and the Supplemental Rent, in
each case payable under the Lease.
"Rent Commencement Date" shall mean, regarding each Property, the Completion
Date.
"Reportable Event" shall mean any of the events set forth in Section 4043(b)
of ERISA or the regulations thereunder.
"Requested Funds" shall mean any funds requested by the Lessee or the
Construction Agent, as applicable, in accordance with Section 5 of the
Participation Agreement.
"Requisition" shall have the meaning specified in Section 4.2 of the
Participation Agreement.
"Responsible Officer" shall mean any officer of JPFDI who shall be permitted
to sign an Officers' Certificate (as provided in the definition of that term set
forth in this Section) and any other officer of JPFDI who shall at any time
hereafter perform substantially the same duties as are performed on the date
hereof by and any such officer permitted to sign an Officers' Certificate,
except that when used with respect to the Trust Company or the Owner Trustee,
"Responsible Officer" shall also include the Cashier, any Assistant Cashier, any
Trust Officer or Assistant Trust Officer, the Controller and any Assistant
Controller or any other officer of the Trust Company or the Owner Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
Appendix A-34
<PAGE>
"Restricted Subsidiary" shall mean each Subsidiary existing on the date hereof
which is not designated as an Unrestricted Subsidiary on EXHIBIT N to the
---------
Participation Agreement, each other Subsidiary which is not hereafter designated
by the Board of Directors as an Unrestricted Subsidiary, and each Unrestricted
Subsidiary which is hereafter designated by the Board of Directors as a
Restricted Subsidiary; provided, however, that (a) any Restricted Subsidiary may
-------- -------
be redesignated an Unrestricted Subsidiary as and to the extent provided in the
definition of "Unrestricted Subsidiary" set forth in this Appendix A; (b) any
----------
Subsidiary which shall be an Unrestricted Subsidiary at the commencement of any
period of 30 consecutive months and which shall have been redesignated a
Restricted Subsidiary during such period may, following such redesignation, be
further redesignated an Unrestricted Subsidiary during such period but may not,
following such further redesignation, again be redesignated a Restricted
Subsidiary during such period; and (c) notwithstanding any provision hereof to
the contrary, no Person which hereafter becomes a Subsidiary may be designated a
Restricted Subsidiary and no Subsidiary which is designated an Unrestricted
Subsidiary may be redesignated a Restricted Subsidiary unless:
(i) immediately after giving effect to such designation or
redesignation, no Default or Event of Default shall have occurred and be
continuing,
(ii) in the case of any such redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, no property or assets of such
Subsidiary shall at the time of such redesignation be subject to any Liens
which would not have been permitted to be created by such Subsidiary
pursuant to the terms of the Incorporated Covenants, and
(iii) such Subsidiary shall have become, in compliance with
Section 5.8 of the Participation Agreement, a Guarantor under and within
the meaning of the Participation Agreement.
"RSI" shall mean, prior to the effective time of the Merger Transaction,
Rykoff-Sexton, Inc., a Delaware corporation incorporated in 1961, and from and
after the effective time of the Merger Transaction, the successor to such
corporation in the Merger Transaction whose corporate name has changed to
Rykoff-Sexton, Inc. in connection with consummation of the Merger Transaction,
and subsequently has changed to U.S. Foodservice, Inc.
"Sale Date" shall have the meaning given to such term in Section 20.3(a) of
the Lease.
"Sale Notice" shall mean a notice given to the Lessor in connection with the
election by the Lessee of its Sale Option.
"Sale Option" shall have the meaning given to such term in Section 20.1 of the
Lease.
"Sale Proceeds Shortfall" shall mean the amount by which the proceeds of a
sale described in Section 22.1 of the Lease are less than the Limited Recourse
Amount with respect to the Properties if it has been determined that the Fair
Market Sales Value of the Properties at the expiration of the term of the Lease
has been impaired by greater than ordinary wear and tear during the Term of the
Lease.
Appendix A-35
<PAGE>
"Sara Lee" shall mean Sara Lee Corporation, a Maryland corporation.
"Sara Lee Note" shall mean that certain promissory note of JPFDI, dated August
19, 1989, issued in the original principal amount of $112,000,000 and payable to
PYA, which bears interest at the rate of 11% per annum, as such note shall be in
effect on the Initial Closing Date.
"Sara Lee Offset Agreement" shall mean the Amended and Restated Note Offset
Agreement, dated as of July 3, 1989, by and between PYA and JPFDI, providing,
among other things, for the settlement of maturities of principal and accrued
interest under the Sara Lee Note, on the one hand, and under PYA's Note, on the
other hand, by offsetting the respective amounts due thereunder.
"Scheduled Interest Payment Date" shall mean (a) as to any Eurodollar Loan or
Eurodollar Holder Advance, the last day of the Interest Period applicable to
such Eurodollar Loan or Eurodollar Holder Advance, (b) as to any ABR Loan or any
ABR Holder Advance, the fifteenth day of each month and (c) as to all Loans and
Holder Advances, the date of any voluntary or involuntary payment, prepayment,
return or redemption, and the Maturity Date or the Expiration Date, as the case
may be.
"Secured Parties" shall have the meaning given to such term in the Security
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, together
with the rules and regulations promulgated thereunder.
"Security Agreement" shall mean the Security Agreement dated on or about the
Initial Closing Date between the Lessor and the Agent, for the benefit of the
Secured Parties.
"Security Documents" shall mean the collective reference to the Security
Agreement, the Mortgage Instruments (to the extent the Lease is construed as a
security instrument), the Lease and all other security documents hereafter
delivered to the Agent granting a lien on any asset or assets of any Person to
secure the obligations and liabilities of the Lessor under the Credit Agreement
and/or under any of the other Credit Documents or to secure any guarantee of any
such obligations and liabilities.
"Soft Costs" shall mean all costs which are ordinarily and reasonably incurred
in relation to the acquisition, development, installation, construction,
improvement and testing of the Properties other than Hard Costs, including
without limitation structuring fees, administrative fees, legal fees, upfront
fees, fees and expenses related to appraisals, title examinations, title
insurance, document recordation, surveys, environmental site assessments,
geotechnical soil investigations and similar costs and professional fees
customarily associated with a real estate closing, the Lender Facility Fee, the
Holder Facility Fee, fees and expenses of the Owner Trustee payable or
reimbursable under the Operative Agreements and costs and expenses incurred
pursuant to Sections 7.3(a) and 7.3(b) of the Participation Agreement.
Appendix A-36
<PAGE>
"Subordinated Intercompany Revolving Note" shall mean, with respect to any
Permitted Receivables Financing, any note issued by a Receivables Financing SPC
in favor of U.S. Foodservice, Inc., JPFDI or any of their Restricted
Subsidiaries in connection therewith.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or other entity of which more than 50% of the Voting Stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation, partnership or other
entity is at the time, directly or indirectly, owned by, or the management is
otherwise controlled by, such Person and/or one or more of its other
Subsidiaries. Unless otherwise specified, any reference to a Subsidiary is
intended as a reference to a Subsidiary of JPFDI or U.S. Foodservice, Inc.
"Supplemental Amounts" shall have the meaning given to such term in Section
9.18 of the Credit Agreement.
"Supplemental Rent" shall mean all amounts, liabilities and obligations (other
than Basic Rent) which the Lessee assumes or agrees to pay to the Lessor, the
Trust Company, the Holders, the Agent, the Lenders or any other Person under the
Lease or under any of the other Operative Agreements including without
limitation payments of the Termination Value and the Maximum Residual Guarantee
Amount and all indemnification amounts, liabilities and obligations.
"Taxes" shall have the meaning specified in the definition of "Impositions".
"Term" shall have the meaning specified in Section 2.2 of the Lease.
"Termination Date" shall have the meaning specified in Section 16.2(a) of the
Lease.
"Termination Event" shall mean (a) with respect to any Pension Plan, the
occurrence of a Reportable Event or an event described in Section 4062(e) of
ERISA, (b) the withdrawal of any Credit Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial employer
(as such term is defined in Section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan, (c) the distribution of a notice of intent to
terminate a Plan or Multiemployer Plan pursuant to Section 4041(a)(2) or 4041A
of ERISA, (d) the institution of proceedings to terminate a Plan or
Multiemployer Plan by the PBGC under Section 4042 of ERISA, (e) any other event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan or
Multiemployer Plan, or (f) the complete or partial withdrawal of any Credit
Party or any ERISA Affiliate from a Multiemployer Plan.
"Termination Notice" shall have the meaning specified in Section 16.1 of the
Lease.
"Termination Value" shall mean the sum of (a) either (i) with respect to all
Properties, an amount equal to the aggregate outstanding Property Cost for all
the Properties, in each case as of the last occurring Payment Date, or (ii) with
respect to a particular Property, an amount equal to the Property Cost allocable
to such Property, plus (b) respecting the amounts described in each of the
foregoing subclause (i) or (ii), as applicable, any and all accrued but unpaid
interest on the
Appendix A-37
<PAGE>
Loans and any and all accrued but unpaid Holder Yield on the Holder Advances
related to the applicable Property Cost, plus (c) to the extent the same is not
duplicative of the amounts payable under clause (b) above, all other Rent and
other amounts then due and payable or accrued under the Agency Agreement, Lease
and/or under any other Operative Agreement (including without limitation amounts
under Sections 11.1 and 11.2 of the Participation Agreement and all costs and
expenses referred to in clause FIRST of Section 22.2 of the Lease).
-----
"Total Debt" shall mean, as of any date, the aggregate amount of all Debt of
USF and its Restricted Subsidiaries outstanding on such date, determined on a
consolidated basis.
"Total Debt Ratio" shall mean, for U.S. Foodservice, Inc., JPFDI and their
Restricted Subsidiaries as of any date, the number obtained by dividing (a)
Total Debt as of such date by (b) Operating Cash Flow for the period ("Cash Flow
---------
Period") of four consecutive fiscal quarters ended on such date or most recently
- ------
prior to such date.
"Tranche A Commitments" shall mean the obligation of the Tranche A Lenders to
make the Tranche A Loans to the Lessor in an aggregate principal amount at any
one (1) time outstanding not to exceed the aggregate of the amounts set forth
opposite each Tranche A Lender's name on Schedule 1.1 to the Credit Agreement,
------------
as such amount may be reduced from time to time in accordance with the
provisions of the Operative Agreements; provided, no Tranche A Lender shall be
--------
obligated to make Tranche A Loans in excess of such Tranche A Lender's share of
the Tranche A Commitments as set forth adjacent to such Tranche A Lender's name
on Schedule 1.1 to Credit Agreement.
------------
"Tranche A Lenders" shall mean First Union National Bank and shall include the
several banks and other financial institutions from time to time party to the
Credit Agreement that commit to make the Tranche A Loans.
"Tranche A Loans" shall mean the Loans made pursuant to the Tranche A
Commitments.
"Tranche A Note" shall have the meaning given to such term in Section 2.2 of
the Credit Agreement.
"Tranche B Commitments" shall mean the obligation of the Tranche B Lenders to
make the Tranche B Loans to the Lessor in an aggregate principal amount at any
one (1) time outstanding not to exceed the aggregate of the amounts set forth
opposite each Tranche B Lender's name on Schedule 1.1 to the Credit Agreement,
------------
as such amount may be reduced from time to time in accordance with the
provisions of the Operative Agreements; provided, no Tranche B Lender shall be
--------
obligated to make Tranche B Loans in excess of such Tranche B Lender's share of
the Tranche B Commitments as set forth adjacent to such Tranche B Lender's name
on Schedule 1.1 to Credit Agreement.
------------
"Tranche B Lenders" shall mean First Union National Bank and shall include the
several banks and other financial institutions from time to time party to the
Credit Agreement that commit to make the Tranche B Loans.
Appendix A-38
<PAGE>
"Tranche B Loan" shall mean the Loans made pursuant to the Tranche B
Commitments.
"Tranche B Note" shall have the meaning given to such term in Section 2.2 of
the Credit Agreement.
"Transaction Expenses" shall mean all Soft Costs and all other costs and
expenses incurred in connection with the preparation, execution and delivery of
the Operative Agreements and the transactions contemplated by the Operative
Agreements including without limitation all costs and expenses described in
Section 7.1 of the Participation Agreement and the following:
(a) the reasonable fees, out-of-pocket expenses and disbursements of
counsel in negotiating the terms of the Operative Agreements and the other
transaction documents, preparing for the closings under, and rendering
opinions in connection with, such transactions and in rendering other
services customary for counsel representing parties to transactions of the
types involved in the transactions contemplated by the Operative
Agreements;
(b) the reasonable fees, out-of-pocket expenses and disbursements of
accountants for any Credit Party in connection with the transactions
contemplated by the Operative Agreements;
(c) any and all other reasonable fees, charges or other amounts payable
to the Lenders, the Agent, the Holders, the Owner Trustee or any broker
which arises under any of the Operative Agreements;
(d) any other reasonable fees, out-of-pocket expenses, disbursements or
costs of any party to the Operative Agreements or any of the other
transaction documents; and
(e) any and all Taxes and fees incurred in recording or filing any
Operative Agreement or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or financing statement
with any public office, registry or governmental agency in connection with
the transactions contemplated by the Operative Agreement.
"Transferred Assets" shall have the meaning assigned to such term in the
definition of "Permitted Receivables Financing" set forth in this Appendix A.
----------
"Tribunal" shall mean any state, commonwealth, federal, foreign, territorial,
or other court or government body, subdivision agency, department, commission,
board, bureau or instrumentality of a governmental body.
"Trust" shall mean the USF Real Estate Trust 1998-1.
"Trust Agreement" shall mean the Trust Agreement dated on or about the Initial
Closing Date between the Holders and the Owner Trustee.
Appendix A-39
<PAGE>
"Trust Company" shall mean First Security Bank, National Association, in its
individual capacity, and any successor owner trustee under the Trust Agreement
in its individual capacity.
"Trust Estate" shall have the meaning specified in Section 2.2 of the Trust
Agreement.
"Type" shall mean, as to any Loan, whether it is an ABR Loan or a Eurodollar
Loan.
"UCC Financing Statements" shall mean collectively the Lender Financing
Statements and the Lessor Financing Statements.
"Unanimous Vote Matters" shall have the meaning given it in Section 12.4 of
the Participation Agreement.
"Unfunded Amount" shall have the meaning specified in Section 3.2(a) of the
Agency Agreement.
"Unfunded Liability" shall mean, with respect to any Plan, at any time, the
amount (if any) by which (a) the present value of all benefits under such Plan
exceeds (b) the fair market value of all Plan assets allocable to such benefits,
all determined as of the then most recent valuation date for such Plan, but only
to the extent that such excess represents a potential liability of the Company
or any member of the Controlled Group to the PBGC or such Plan under Title IV of
ERISA.
"Uniform Commercial Code" and "UCC" shall mean the Uniform Commercial Code as
in effect in any applicable jurisdiction.
"United States Bankruptcy Code" shall mean Title 11 of the United States Code.
"Unrestricted Subsidiary" shall mean each Subsidiary designated as an
Unrestricted Subsidiary in EXHIBIT N to the Participation Agreement and each
---------
other Subsidiary which is hereafter designated by the Board of Directors as an
Unrestricted Subsidiary; provided, however, that (a) any Unrestricted Subsidiary
-------- -------
may be redesignated a Restricted Subsidiary as and to the extent provided in the
definition of "Restricted Subsidiary" set forth in this Appendix A; (b) any
----------
Subsidiary which shall be a Restricted Subsidiary at the commencement of any
period of 30 consecutive months and which shall have been redesignated an
Unrestricted Subsidiary during such period may, following such redesignation, be
further redesignated a Restricted Subsidiary during such period but may not,
following such further redesignation, again be redesignated an Unrestricted
Subsidiary during such period; and (c) notwithstanding any provision hereof to
the contrary, no Subsidiary which is a Restricted Subsidiary may be redesignated
an Unrestricted Subsidiary unless
(i) immediately after giving effect to such redesignation, no Default
or Event of Default shall have occurred and be continuing, and
(ii) such Subsidiary does not own (directly or through its Subsidiaries)
any shares of stock or
Appendix A-40
<PAGE>
other securities of (or warrants, rights or options to acquire stock or
other securities of) any Restricted Subsidiary or hold any Debt of JPFDI,
U.S. Foodservice Inc. or any Restricted Subsidiary and, at the time of such
redesignation, all Debt and shares of stock of such Subsidiary which are
owned by JPFDI, U.S. Foodservice, Inc. and their Restricted Subsidiaries
could be sold in compliance with the Incorporated Covenants (in which case,
such redesignation shall be deemed a disposition of assets for purposes of
the Incorporated Covenants).
Any Subsidiary of any Person which shall at any time be an Unrestricted
Subsidiary shall itself be an Unrestricted Subsidiary for so long as such Person
shall remain an Unrestricted Subsidiary (and thereafter for so long as such
Subsidiary shall not have been redesignated as a Restricted Subsidiary in
compliance with the definition herein of that term).
"USF" shall mean U.S. Foodservice, a Delaware corporation, and its successors
and permitted assigns.
"USF Real Estate Trust 1998-1" shall mean the grantor trust created pursuant
to the terms and conditions of the Trust Agreement.
"U.S. Person" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"U.S. Taxes" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"Voting Stock" shall mean capital stock of a corporation the holders of which
are ordinarily, in the absence of contingencies, entitled to elect a majority of
the corporate directors (or persons performing similar functions) of such
corporation.
"Withholdings" shall have the meaning specified in Section 11.2(e) of the
Participation Agreement.
"Work" shall mean the furnishing of labor, materials, components, furniture,
furnishings, fixtures, appliances, machinery, equipment, tools, power, water,
fuel, lubricants, supplies, goods and/or services with respect to any Property.
"Year 2000" shall mean the calendar year beginning January 1, 2000 and ending
December 31, 2000.
Appendix A-41
<PAGE>
EXHIBIT 10.35
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of June 29, 1998
among
First Security Bank, National Association,
not individually, except as
expressly stated herein,
but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1,
as the Borrower,
The Several Lenders
from Time to Time Parties Hereto,
and
FIRST UNION NATIONAL BANK,
as the Agent
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS.................................................... 1
1.1 Definitions...................................................... 1
1.2 Interpretation................................................... 1
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................ 1
2.1 Commitments...................................................... 1
2.2 Notes............................................................ 2
2.3 Procedure for Borrowing.......................................... 2
2.4 Lender Facility Fees............................................. 3
2.5 Termination or Reduction of Commitments.......................... 3
2.6 Prepayments and Payments......................................... 4
2.7 Conversion and Continuation Options.............................. 5
2.8 Interest Rates and Payment Dates................................. 5
2.9 Computation of Interest.......................................... 6
2.10 Pro Rata Treatment and Payments.................................. 7
2.11 Notice of Amounts Payable; Mandatory Assignment.................. 7
SECTION 3. REPRESENTATIONS AND WARRANTIES................................. 8
SECTION 4. CONDITIONS PRECEDENT........................................... 8
4.1 Conditions to Effectiveness...................................... 8
4.2 Conditions to Each Loan.......................................... 9
SECTION 5. COVENANTS...................................................... 9
5.1 Other Activities................................................. 9
5.2 Ownership of Properties, Debt.................................... 9
5.3 Disposition of Assets............................................ 9
5.4 Compliance with Operative Agreements............................. 9
5.5 Further Assurances............................................... 10
5.6 Notices.......................................................... 10
5.7 Discharge of Liens............................................... 10
5.8 Trust Agreement.................................................. 10
SECTION 6. EVENTS OF DEFAULT.............................................. 10
SECTION 7. THE AGENT...................................................... 13
7.1 Appointment...................................................... 13
7.2 Delegation of Duties............................................. 14
7.3 Exculpatory Provisions........................................... 14
7.4 Reliance by the Agent............................................ 14
7.5 Notice of Default................................................ 15
7.6 Non-Reliance on the Agent and Other Lenders...................... 15
7.7 Indemnification.................................................. 16
7.8 The Agent in Its Individual Capacity............................. 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
7.9 Successor Agent.................................................. 16
7.10 Actions of the Agent on Behalf of Holders........................ 17
7.11 The Agent's Duty of Care......................................... 17
SECTION 8. MATTERS RELATING TO PAYMENT AND COLLATERAL..................... 17
8.1 Collection and Allocation of Payments and Other Amounts.......... 17
8.2 Certain Remedial Matters......................................... 17
8.3 Excepted Payments................................................ 18
SECTION 9 MISCELLANEOUS................................................... 18
9.1 Amendments and Waivers........................................... 18
9.2 Notices.......................................................... 18
9.3 No Waiver; Cumulative Remedies................................... 18
9.4 Survival of Representations and Warranties....................... 18
9.5 Payment of Expenses and Taxes.................................... 19
9.6 Successors and Assigns; Participations and Assignments........... 19
9.7 Participations................................................... 19
9.8 Assignments...................................................... 20
9.9 The Register; Disclosure; Pledges to Federal Reserve Banks....... 22
9.10 Adjustments; Set-off............................................. 22
9.11 Counterparts..................................................... 23
9.12 Severability..................................................... 23
9.13 Integration...................................................... 23
9.14 GOVERNING LAW.................................................... 24
9.15 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION................... 24
9.16 Acknowledgments.................................................. 24
9.17 WAIVERS OF JURY TRIAL............................................ 24
9.18 Nonrecourse...................................................... 24
9.19 USURY SAVINGS PROVISION.......................................... 25
</TABLE>
SCHEDULES
Schedule 1.1 Commitments and Addresses of Lenders
EXHIBITS
Exhibit A-1 Form of Tranche A Note
Exhibit A-2 Form of Tranche B Note
Exhibit B Form of Assignment and Acceptance
ii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 29, 1998 (as amended, modified,
extended, supplemented, restated and/or replaced from time to time, the
"Agreement"), is among FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
- ----------
individually, except as expressly stated herein, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1 (the "Owner Trustee" or the "Borrower"),
------------- --------
the several banks and other financial institutions from time to time parties to
this Agreement (the "Lenders"), and FIRST UNION NATIONAL BANK, a national
-------
banking association, as a Lender and as the agent for the Lenders (the "Agent").
-----
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions.
-----------
For purposes of this Agreement, capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings assigned to them in
Appendix A to that certain Participation Agreement dated as of June 29, 1998 (as
- ----------
amended, modified, extended, supplemented, restated and/or replaced from time to
time in accordance with the applicable provisions thereof, the "Participation
-------------
Agreement") among JP Foodservice Distributors, Inc., the various parties thereto
- ---------
from time to time, as the Guarantors, the Borrower, the various banks and other
lending institutions which are parties thereto from time to time, as the
Holders, the various banks and other lending institutions which are parties
thereto from time to time, as the Lenders, and First Union National Bank, as
agent for the Lenders and respecting the Security Documents, as the agent for
the Lenders and the Holders, to the extent of their interests. Unless otherwise
indicated, references in this Agreement to articles, sections, paragraphs,
clauses, appendices, schedules and exhibits are to the same contained in this
Agreement.
1.2 Interpretation.
--------------
The rules of usage set forth in Appendix A to the Participation Agreement
----------
shall apply to this Agreement.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments.
-----------
(a) Subject to the terms and conditions hereof, each of the Lenders
severally agrees to make the portion of the Tranche A Loans and the Tranche B
Loans to the Borrower from time to time during the Commitment Period in an
amount up to such Lender's Commitment as is set
<PAGE>
forth adjacent to such Lender's name in Schedule 1.1 hereto (as the commitment
------------
amount of such Lender may be amended from time to time in connection with an
assignment pursuant to Section 9.8 hereof) for the purpose of enabling the
Borrower to purchase the Properties and to pay Property Acquisition Costs,
Property Costs and Transaction Expenses, provided, that the aggregate principal
--------
amount at any one (1) time outstanding with respect to each of the Tranche A
Loans and the Tranche B Loans shall not exceed the amount of the Tranche A
Commitments and the Tranche B Commitments respectively. Any prepayments of the
Loans, whether mandatory or at the Borrower's election, shall not be subject to
reborrowing except as set forth in Section 5.2(d) of the Participation
Agreement.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans, or (iii) a combination thereof, as determined by the Borrower and
notified to the Agent in accordance with Sections 2.3 and 2.7. In the event the
Borrower fails to provide notice pursuant to Section 2.3, the Loan shall be an
ABR Loan. Further, any Loans by the Lenders on a given date in an aggregate
amount less than $100,000 shall be ABR Loans, unless the remaining Available
Commitment for the Lenders in the aggregate is less than $100,000, in which
case, the Borrower may elect a Eurodollar Loan for such remaining amount.
(c) The Commitment of each Lender to make Tranche A Loans and Tranche B
Loans shall be pro rata.
2.2 Notes.
-----
The Loans made by each Lender shall, consistent with Section 5.2(c) of the
Participation Agreement, be evidenced by promissory notes of the Borrower,
substantially in the form of Exhibit A-1 in the case of the Tranche A Loans
-----------
(each, a "Tranche A Note") or Exhibit A-2 in the case of the Tranche B Loans
-------------- -----------
(each, a "Tranche B Note," and with the Tranche A Notes, the "Notes"), with
-------------- -----
appropriate insertions as to payee, date and principal amount, payable to the
order of such Lender and in a principal amount equal to the Tranche A Commitment
or Tranche B Commitment, as the case may be, of such Lender. Each Lender is
hereby authorized to record the date, Type and amount of each Loan made by such
Lender, each continuation thereof, each conversion of all or a portion thereof
to another Type, and the date and amount of each payment or prepayment of
principal thereof on the schedule annexed to and constituting a part of its
Note, and any such recordation shall constitute prima facie evidence of the
----- -----
accuracy of the information so recorded, provided, that the failure to make any
--------
such recordation or any error in such recordation shall not affect the
Borrower's obligations hereunder or under such Note. Each Note shall (i) be
dated the Initial Closing Date, (ii) be stated to mature on the Maturity Date
and (iii) provide for the payment of principal in accordance with Section 2.6(d)
and the payment of interest in accordance with Section 2.8.
2.3 Procedure for Borrowing.
-----------------------
(a) The Borrower may borrow under the Commitments during the Commitment
Period on any Business Day that an Advance may be requested pursuant to the
terms of Section 5.2 of the Participation Agreement, provided, that the Borrower
--------
shall give the Agent irrevocable notice (which must be received by the Agent
prior to 12:00 Noon, Charlotte, North Carolina
2
<PAGE>
time, at least three (3) Business Days prior to the requested Borrowing Date
specifying (i) the amount to be borrowed (which on any date shall not be in
excess of the then Available Commitments), (ii) the requested Borrowing Date,
(iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a
combination thereof, (iv) if the borrowing is to be a combination of Eurodollar
Loans and ABR Loans, the respective amounts of each Type of Loan and (v) the
Interest Period applicable to each Eurodollar Loan. Pursuant to the terms of the
Participation Agreement, the Borrower shall be deemed to have delivered such
notice upon the delivery of a notice by the Construction Agent or the Lessee
containing such required information. Upon receipt of any such notice from the
Borrower (or the Construction Agent or the Lessee, as the case may be), the
Agent shall promptly notify each Lender thereof. Each Lender will make the
amount of its pro rata share of each borrowing available to the Agent for the
account of the Borrower at the office of the Agent specified in Section 12.2 of
the Participation Agreement (or such other address as may be identified by the
Agent from time to time) prior to 12:00 Noon, Charlotte, North Carolina time, on
the Borrowing Date requested by the Borrower in funds immediately available to
the Agent. Such borrowing will then be made available to the Borrower by the
Agent crediting an account designated, subject to Section 9.1 of the
Participation Agreement, by the Borrower on the books of such office with the
aggregate of the amounts made available to the Agent by the Lenders and in like
funds as received by the Agent. No amount of any Loan which is repaid or prepaid
by the Borrower may be reborrowed hereunder, except as set forth in Section
5.2(d) of the Participation Agreement.
(b) Interest accruing on each Loan during the Construction Period with
respect to any Property shall, subject to the limitations set forth in Section
5.1(b) of the Participation Agreement, be added to the principal amount of such
Loan on the relevant Scheduled Interest Payment Date. On each such Scheduled
Interest Payment Date, the Construction Loan Property Cost shall be increased by
the amount of interest added to the Loans.
2.4 Lender Facility Fees.
--------------------
Promptly after receipt from the Lessee of the payment of the Lender
Facility Fee payable pursuant to Section 7.4 of the Participation Agreement, the
Agent shall distribute such payments to the Lenders pro rata in accordance with
their respective Commitments.
2.5 Termination or Reduction of Commitments.
---------------------------------------
(a) The Borrower shall have the right, upon not less than three (3)
Business Days' written notice to the Agent, to terminate the Commitments or,
from time to time, to reduce the amount of the Commitments, provided, that
--------
(i) after giving effect to such reduction, the aggregate outstanding principal
amount of the Loans shall not exceed the aggregate Commitments and (ii) such
notice shall be accompanied by a certificate of the Construction Agent stating
that the amount equal to ninety-seven percent (97%) of aggregate Budgeted Total
Property Costs as of the date of such reduction does not exceed the aggregate
amount of Available Commitments as of such date after giving effect to such
reduction. Any such reduction (A) shall be in an amount equal to the lesser of
(1) $1,000,000 (or an even multiple thereof) or (2) the remaining Available
Commitments, (B) shall reduce permanently the
3
<PAGE>
Commitments then in effect and (C) shall be pro rata for the Commitments of all
Lenders and pro rata between the Tranche A Loans and the Tranche B Loans.
(b) The Commitments respecting any particular Property shall
automatically be reduced to zero (0) upon the occurrence of the Rent
Commencement Date respecting such Property. On any date on which the Commitments
shall automatically be reduced to zero (0) pursuant to Section 6, the Borrower
shall prepay all outstanding Loans, together with accrued unpaid interest
thereon and all other amounts owing thereunder.
2.6 Prepayments and Payments.
------------------------
(a) Subject to Sections 11.2(e), 11.3 and 11.4 of the Participation
Agreement, the Borrower may at any time and from time to time prepay the Loans,
in whole or in part, without premium or penalty, upon at least three (3)
Business Days' irrevocable notice to the Agent, specifying the date and amount
of prepayment and whether the prepayment is of Eurodollar Loans, ABR Loans or a
combination thereof, and, if a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Agent shall promptly notify each
Lender thereof. If any such notice is given, the amount specified in such
notice shall be due and payable on the date specified therein. Amounts prepaid
may not be reborrowed, and shall reduce the Commitments and the Available
Commitments, except in each case as set forth in Section 5.2(d) of the
Participation Agreement.
(b) If on any date the Agent or the Lessor shall receive any payment in
respect of (i) any Casualty, Condemnation or Environmental Violation pursuant to
Sections 15.1(a) or 15.1(g) or Article XVI of the Lease (excluding any payments
in respect thereof which are payable to the Lessee in accordance with the
Lease), or (ii) the Termination Value of any Property in connection with the
delivery of a Termination Notice pursuant to Article XVI of the Lease, or (iii)
the Termination Value of any Property in connection with the exercise of the
Purchase Option pursuant to Section 20.1 of the Lease or the exercise of the
option of the Lessor to transfer the Properties to the Lessee pursuant to
Section 20.3 of the Lease, or (iv) any payment required to be made or elected to
be made by the Construction Agent to the Lessor pursuant to the terms of the
Agency Agreement, then in each case, the Borrower shall pay such amounts to the
Agent and the Agent shall be required to pay such amounts received in accordance
with the provisions of Section 8.7(b)(ii) of the Participation Agreement.
(c) Each prepayment of the Loans pursuant to Section 2.6(a) shall be
allocated to reduce the respective Loan Property Costs of all Properties pro
---
rata according to the Loan Property Costs of such Properties immediately before
- ----
giving effect to such prepayment. Each prepayment of the Loans pursuant to
Section 2.6(b) shall be allocated to reduce the Loan Property Cost of the
Property or Properties subject to the respective Casualty, Condemnation,
Environmental Violation, termination, purchase, transfer or other circumstance
giving rise to such prepayment. Any amounts applied to reduce the Loan Property
Cost of any Construction Period Property pursuant to this Section 2.6(c) shall
also be applied to reduce the Construction Loan Property Cost of such Property
until such Construction Loan Property Cost has been reduced to zero (0).
4
<PAGE>
(d) The outstanding principal balance of the Loans and all other amounts
then due and owing under this Agreement or otherwise with respect to the Loans
shall be due and payable in full on the Maturity Date.
2.7 Conversion and Continuation Options.
-----------------------------------
(a) The Borrower may elect from time to time to convert Eurodollar Loans
to ABR Loans by giving the Agent at least three (3) Business Days' prior
irrevocable notice of such election, provided, that any such conversion of
--------
Eurodollar Loans may only be made on the last day of an Interest Period with
respect thereto, and provided, further, to the extent an Event of Default has
-------- -------
occurred and is continuing on the last day of any such Interest Period, the
applicable Eurodollar Loan shall automatically be converted to an ABR Loan on
such last day. The Borrower may elect from time to time to convert ABR Loans to
Eurodollar Loans by giving the Agent at least three (3) Business Days' prior
irrevocable notice of such election. Upon receipt of any such notice, the Agent
shall promptly notify each Lender thereof. All or any part of outstanding
Eurodollar Loans or ABR Loans may be converted as provided herein, provided,
--------
that (i) no ABR Loan may be converted into a Eurodollar Loan after the date that
is one (1) month prior to the Maturity Date and (ii) such notice of conversion
regarding any Eurodollar Loan shall contain an election by the Borrower of an
Interest Period for such Eurodollar Loan to be created by such conversion and
such Interest Period shall be in accordance with the terms of the definition of
the term "Interest Period" including without limitation subparagraphs (A)
through (C) thereof.
(b) Subject to the restrictions set forth in Section 2.3, any Eurodollar
Loan may be continued as such upon the expiration of the current Interest Period
with respect thereto by the Borrower giving irrevocable notice to the Agent, in
accordance with the applicable notice provision for the conversion of ABR Loans
to Eurodollar Loans set forth herein, of the length of the next Interest Period
to be applicable to such Loan, provided, that no Eurodollar Loan may be
--------
continued as such after the date that is one (1) month prior to the Maturity
Date, provided, further, no Eurodollar Loans may be continued as such if an
-------- -------
Event of Default has occurred and is continuing as of the last day of the
Interest Period for such Eurodollar Loan, and provided, further, that if the
-------- -------
Borrower shall fail to give any required notice as described above or otherwise
herein, or if such continuation is not permitted pursuant to the proceeding
proviso, such Loan shall automatically be converted to an ABR Loan on the last
day of such then expiring Interest Period.
2.8 Interest Rates and Payment Dates.
--------------------------------
(a) The Loans outstanding hereunder from time to time shall bear interest
at a rate per annum equal to either (i) with respect to a Eurodollar Loan, the
Eurodollar Rate determined for the applicable Interest Period plus the
Applicable Percentage or (ii) with respect to an ABR Loan, the ABR, as selected
by the Borrower in accordance with the provisions hereof; provided, however, (A)
-------- -------
upon delivery by the Agent of the notice described in Section 2.9(c), the Loans
of each of the Lenders shall bear interest at the ABR applicable from time to
time from and after the dates and during the periods specified in Section
2.9(c), (B) upon the delivery by a Lender of the notice described in Section
11.3(f) of the Participation Agreement, the Loans of such Lender
5
<PAGE>
shall bear interest at the ABR applicable from time to time from and after the
dates and during the periods specified in Section 11.3(f) of the Participation
Agreement and (C) in such other circumstances as expressly provided herein, the
Loans shall bear interest at the ABR.
(b) If all or a portion of (i) the principal amount of any Loan, (ii) any
interest payable thereon or (iii) any other amount payable hereunder shall not
be paid when due (whether at the stated maturity, by acceleration or otherwise),
such overdue amount shall bear interest at a rate per annum which is the lesser
of (x) the then current rate of interest respecting such payment plus two
percent (2%) and (y) the highest interest rate permitted by applicable law, in
each case from the date of such non-payment until such amount is paid in full
(whether after or before judgment).
(c) Interest shall be payable in arrears on the applicable Scheduled
Interest Payment Date, provided, that (i) interest accruing pursuant to Section
--------
2.8(b) shall be payable from time to time on demand and (ii) each prepayment of
the Loans shall be accompanied by accrued interest to the date of such
prepayment on the amount prepaid.
2.9 COMPUTATION OF INTEREST.
-----------------------
(a) Whenever it is calculated on the basis of the Prime Lending Rate,
interest shall be calculated on the basis of a year of three hundred sixty-five
(365) days (or three hundred sixty-six (366) days, as the case may be) for the
actual days elapsed; and, otherwise, interest shall be calculated on the basis
of a year of three hundred sixty (360) days for the actual days elapsed. The
Agent shall as soon as practicable notify the Borrower and the Lenders of each
determination of a Eurodollar Rate. Any change in the interest rate on a Loan
resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the day on which such change becomes effective.
The Agent shall as soon as practicable notify the Borrower and the Lenders of
the effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Borrower and
the Lenders in the absence of error.
(c) If the Eurodollar Rate cannot be determined by the Agent in the
manner specified in the definition of the term "Eurodollar Rate", the Agent
shall give telecopy or telephonic notice thereof to the Borrower and the Lenders
as soon as practicable thereafter. Commencing on the Scheduled Interest Payment
Date next occurring after the delivery of such notice and continuing until such
time as the Eurodollar Rate can be determined by the Agent in the manner
specified in the definition of such term, all outstanding Loans shall bear a
yield at the ABR. Until such time as the Eurodollar Rate can be determined by
the Agent in the manner specified in the definition of such term, no further
Eurodollar Loans shall be made or shall be continued as such at the end of the
then current Interest Period nor shall the Borrower have the right to convert
ABR Loans to Eurodollar Loans.
6
<PAGE>
2.10 PRO RATA TREATMENT AND PAYMENTS.
-------------------------------
(a) Each borrowing by the Borrower from the Lenders hereunder and any
reduction of the Commitments of the Lenders shall be made pro rata according to
their respective Commitments. Subject to the provisions of Section 8.7 of the
Participation Agreement and Section 2.11(b), each payment (including without
limitation each prepayment) by the Borrower on account of principal of and
interest on the Loans shall be made pro rata according to the respective
outstanding principal amounts on the Loans then held by the Lenders. All
payments (including without limitation prepayments) to be made by the Borrower
hereunder and under the Notes, whether on account of principal, interest or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, Charlotte, North Carolina time, on the due date thereof to the
Agent, for the account of the Lenders, at the Agent's office specified in
Section 12.2 of the Participation Agreement, in Dollars and in immediately
available funds. The Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder
becomes due and payable on a day other than a Business Day, such payment shall
be extended to the next succeeding Business Day; provided, however, if such
-------- -------
payment includes an amount of interest calculated with reference to the
Eurodollar Rate and the result of such extension would be to extend such payment
into another calendar month, then such payment shall be made on the immediately
preceding Business Day. In the case of any extension of any payment of
principal pursuant to the preceding two (2) sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make its share of such borrowing
available to the Agent, the Agent may assume that such Lender is making such
amount available to the Agent, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Agent. A certificate of the Agent submitted to any Lender with respect to
any amounts owing under this Section 2.10(b) shall be conclusive in the absence
of error. If such Lender's share of such borrowing is not made available to the
Agent by such Lender within three (3) Business Days of such Borrowing Date, the
Agent shall also be entitled to recover such amount with interest thereon at the
rate as set forth above on demand from the Borrower.
2.11 NOTICE OF AMOUNTS PAYABLE; MANDATORY ASSIGNMENT.
-----------------------------------------------
(a) In the event that any Lender becomes aware that any amounts are or
will be owed to it pursuant to Sections 11.2(e), 11.3 or 11.4 of the
Participation Agreement or that it is unable to make Eurodollar Loans, then it
shall promptly notify the Borrower, the Lessee and the Agent thereof and, as
soon as possible thereafter, such Lender shall submit to the Borrower (with a
copy to the Agent and the Lessee) a certificate indicating the amount owing to
it and the calculation thereof. The amounts set forth in such certificate shall
be prima facie evidence of the obligations of the Borrower hereunder.
7
<PAGE>
(b) In the event that any Lender delivers to the Borrower a certificate
in accordance with Section 2.11(a) in connection with amounts payable pursuant
to Sections 11.2(e), 11.3 or 11.4 of the Participation Agreement or such Lender
is required to make Loans as ABR Loans in accordance with Section 11.3(f) of the
Participation Agreement then, subject to Section 9.1(e) of the Participation
Agreement, the Borrower may, at its own expense (provided, such amounts shall be
--------
reimbursed or paid entirely (as elected by the Borrower) by the Lessee, as
Supplemental Rent) and in the reasonable discretion of the Borrower, (i) require
such Lender to transfer or assign, in whole or (with such Lender's consent which
shall not be unreasonably withheld) in part, without recourse (in accordance
with Section 9.8), all or (with such Lender's consent which shall not be
unreasonably withheld) part of its interests, rights (except for rights to be
indemnified for actions taken while a party hereunder) and obligations under
this Agreement to a replacement bank or institution if the Borrower (subject to
Section 9.1(g) of the Participation Agreement), with the full cooperation of
such Lender, can identify a Person who is ready, willing and able to be such
replacement bank or institution with respect thereto and such replacement bank
or institution (which may be another Lender) shall assume such assigned
obligations, or (ii) during such time as no Default or Event of Default has
occurred and is continuing, terminate the Commitment of such Lender and prepay
all outstanding Loans of such Lender; provided, however, that (x) subject to
-------- -------
Section 9.1(g) of the Participation Agreement, the Borrower or such replacement
bank or institution, as the case may be, shall have paid to such Lender in
immediately available funds the principal of and interest accrued to the date of
such payment on the Loans made by it hereunder and all other amounts owed to it
hereunder (and, if such Lender is also a Holder, all Holder Advances and Holder
Yield accrued and unpaid thereon), (y) any termination of Commitments shall be
subject to the terms of Section 2.5(a) and (z) such assignment or termination of
the Commitment of such Lender and prepayment of Loans does not conflict with any
law, rule or regulation or order of any court or Governmental Authority.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and to
make the Loans, each of the Trust Company and the Owner Trustee hereby makes and
affirms the representations and warranties set forth in Section 6.1 of the
Participation Agreement to the same extent as if such representations and
warranties were set forth in this Agreement in their entirety.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS TO EFFECTIVENESS.
---------------------------
The effectiveness of this Agreement is subject to the satisfaction of all
conditions precedent set forth in Section 5.3 of the Participation Agreement
required by said Section to be satisfied on or prior to the Initial Closing
Date.
8
<PAGE>
4.2 CONDITIONS TO EACH LOAN.
-----------------------
The agreement of each Lender to make any Loan requested to be made by it on
any date is subject to the satisfaction of all conditions precedent set forth in
Section 5.3 and 5.4 of the Participation Agreement required by said Sections to
be satisfied on or prior to the date of the applicable Loan.
Each borrowing by the Borrower hereunder shall constitute a representation
and warranty by the Borrower as of the date of such Loan that the conditions
contained in this Section 4.2, as applicable, have been satisfied.
SECTION 5. COVENANTS
So long as any Loan or Note remains outstanding and unpaid or any other
amount is owing to any Lender or the Agent hereunder:
5.1 OTHER ACTIVITIES.
----------------
The Borrower shall not conduct, transact or otherwise engage in, or commit
to transact, conduct or otherwise engage in, any business or operations other
than the entry into, and exercise of rights and performance of obligations in
respect of, the Operative Agreements and other activities incidental or related
to the foregoing.
5.2 OWNERSHIP OF PROPERTIES, DEBT.
-----------------------------
The Borrower shall not own, lease, manage or otherwise operate any
properties or assets other than in connection with the activities described in
Section 5.1, or incur, create, assume or suffer to exist any Debt or other
consensual liabilities or financial obligations other than as may be incurred,
created or assumed or as may exist in connection with the activities described
in Section 5.1 (including without limitation the Loans and other obligations
incurred by the Borrower hereunder).
5.3 DISPOSITION OF ASSETS.
---------------------
The Borrower shall not convey, sell, lease, assign, transfer or otherwise
dispose of any of its property, business or assets, whether now owned or
hereafter acquired, except to the extent expressly contemplated by the Operative
Agreements.
5.4 COMPLIANCE WITH OPERATIVE AGREEMENTS.
------------------------------------
The Borrower shall at all times (a) observe and perform all of the
covenants, conditions and obligations required to be performed by it (whether in
its capacity as the Lessor, the Owner Trustee or otherwise) under each Operative
Agreement to which it is a party and (b) observe and perform, or cause to be
observed and performed, all of the covenants, conditions and obligations
9
<PAGE>
of the Lessor under the Lease, even in the event that the Lease is terminated at
stated expiration following a Lease Event of Default or otherwise.
5.5 FURTHER ASSURANCES.
------------------
At any time and from time to time, upon the written request of the Agent,
and at the expense of the Borrower (provided, such amounts shall be reimbursed
--------
or paid entirely (as elected by the Borrower) by the Lessee, as Supplemental
Rent), the Borrower will promptly and duly execute and deliver such further
instruments and documents and take such further action as the Agent or the
Majority Lenders may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and the other Operative
Agreements and of the rights and powers herein or therein granted.
5.6 NOTICES.
-------
If on any date, a Responsible Officer of the Borrower shall obtain actual
knowledge of the occurrence of a Default or Event of Default, the Borrower will
give written notice thereof to the Agent within five (5) Business Days after
such date.
5.7 DISCHARGE OF LIENS.
------------------
Neither the Borrower nor the Trust Company will create or permit to exist
at any time, and will, at its own expense, promptly take such action as may be
necessary duly to discharge, or cause to be discharged, all Lessor Liens
attributable to it, provided, that the Borrower and the Trust Company shall not
--------
be required to discharge any Lessor Lien while the same is being contested in
good faith by appropriate proceedings diligently prosecuted so long as such
proceedings shall not involve any material danger of impairment of any of the
Liens contemplated by the Security Documents or of the sale, forfeiture or loss
of, and shall not materially interfere with the disposition of, any Property or
title thereto or any interest therein or the payment of Rent.
5.8 TRUST AGREEMENT.
---------------
Without prejudice to any right under the Trust Agreement of the Owner
Trustee to resign, the Owner Trustee (a) agrees not to terminate or revoke the
trust created by the Trust Agreement except as permitted by Article VIII of the
Trust Agreement, (b) agrees not to amend, supplement, terminate, revoke or
otherwise modify any provision of the Trust Agreement in any manner which could
reasonably be expected to have an adverse effect on the rights or interests of
the Agent or the Lenders hereunder or under the other Operative Agreements and
(c) agrees to comply with all of the terms of the Trust Agreement.
SECTION 6. EVENTS OF DEFAULT
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
- -----------------
10
<PAGE>
(a) Except as provided in Sections 6(c), the Borrower shall default in
the payment when due of any principal on the Loans or default in the payment
when due of any interest on the Loans, and in either case, such default shall
continue for five (5) or more Business Days; or
(b) Except as provided in Sections 6(a) and 6(c), the Borrower shall
default, and such default shall continue for five (5) or more Business Days, in
the payment of any amount owing under any Credit Document; or
(c) (i) The Borrower shall default in the payment of any amount due on
the Maturity Date owing under any Credit Document or (ii) the Borrower shall
default in the payment when due of any principal or interest on the Loans
payable with regard to any obligation of Lessee to pay Termination Value when
due or to pay Basic Rent or Supplemental Rent at such time as any Termination
Value is due; or
(d) The Borrower shall default in the due performance or observance by it
of any term, covenant or agreement contained in any Credit Document to which it
is a party (other than those referred to in paragraphs (a), (b) and (c) above),
provided, that in the case of any such default under Sections 5.4, 5.5 or
- --------
5.8(c), such default shall have continued unremedied for a period of at least
thirty (30) days after notice to the Borrower by the Agent or the Majority
Lenders, provided, further, if any such default under Sections 5.4, 5.5 or
-------- -------
5.8(c) is not capable of remedy within such thirty (30) day period but may be
remedied with further diligence and if the Borrower has and continues to pursue
diligently such remedy, then the Borrower shall be granted additional time to
pursue such remedy but in no event more than an additional thirty (30) days.
(e) Any representation or warranty made by the Borrower herein or in any
other Credit Document or by the Borrower or the Lessee in the Participation
Agreement, or in any statement or certificate delivered pursuant hereto or
thereto, shall be false or inaccurate in any material way when made; or
(f) (i) Any Lease Event of Default shall have occurred and be continuing
and shall not have been waived, or (ii) the Owner Trustee shall default in the
due performance or observance by it of any term, covenant or agreement contained
in the Participation Agreement or in the Trust Agreement to or for the benefit
of the Agent or a Lender, provided, that in the case of this clause (ii) such
--------
default shall have continued unremedied for a period of at least thirty (30)
days after notice to the Owner Trustee and Lessee by the Agent or the Majority
Lenders, provided, further, that in the case of this clause (ii), such default
-------- -------
is not capable of remedy within such thirty (30) day period but may be remedied
with further diligence and if the Borrower has and continues to pursue
diligently such remedy, then the Borrower shall be granted additional time to
pursue such remedy but in no event more than an additional thirty (30) days; or
(g) The Borrower shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) become insolvent or
be generally unable to or shall generally fail or admit in writing its inability
to pay its debts as such debts become due, (iii) make a general assignment for
the benefit of its creditors, (iv) commence a voluntary
11
<PAGE>
case under the Bankruptcy Code (as now or hereafter in effect), (v) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (vi) acquiesce in writing to, or fail to controvert in a
timely or appropriate manner, any petition filed against it in an involuntary
case under such Bankruptcy Code, (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing, or
(viii) take any corporate action in furtherance of any of the foregoing; or
a proceeding or case shall be commenced in respect of the Borrower, without
its application or consent, in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any substantial
part of its assets, or (iii) similar relief in respect of it under any law
providing for the relief of debtors, and such proceeding or case described in
clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect,
for a period of 45 days, or an order for relief shall be entered in an
involuntary case under the Bankruptcy Code (as now or hereafter in effect)
against the Borrower or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Borrower and shall continue undismissed, or unstayed and in effect, for a period
of 45 days;
(h) Any Security Document shall cease to be in full force and effect, or
shall cease to give the Agent the Liens, rights, powers and privileges purported
to be created thereby (including without limitation a first priority perfected
security interest in, and Lien on, all of the Properties), in favor of the Agent
on behalf of the Lenders and the Holders, superior to and prior to the rights of
all third Persons and subject to no other Liens (except in each case to the
extent expressly permitted herein or in any Operative Agreement) other than any
Ground Lease; or
(i) The Lease shall cease to be enforceable against the Lessee; or
(j) A final judgment or decree for the payment of money shall be rendered
by a court of competent jurisdiction against the Borrower which, either alone or
together with other outstanding judgments or decrees against the Borrower, shall
aggregate more than $100,000, and the Borrower shall not discharge the same or
provide for its discharge in accordance with its terms within sixty (60) days
from the date of entry thereof, or within such longer period (including, without
limitation, any period during which the Borrower shall be contesting a denial of
coverage of its liability in respect of such judgment by a reputable insurance
carrier) during which the execution of such judgment shall have been stayed,
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (g) above with respect to the Borrower, automatically the
Commitments shall immediately terminate and the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the Notes
shall immediately become due and payable, and (B) if such event is any other
Event of Default, either or both of the following actions may be taken:
(i) with the consent of the Majority Lenders, the Agent may, or upon the request
of the Majority Lenders, the Agent shall, by notice to the Borrower declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and (ii) with the consent of the
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Majority Lenders, the Agent may, or upon the request of the Majority Lenders,
the Agent shall, by notice to the Borrower, declare the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement and
the Notes to be due and payable forthwith, whereupon the same shall immediately
become due and payable (any of the foregoing occurrences or actions referred to
in clause (A) or (B) above, an "Acceleration"). Except as expressly provided
------------
above in this Section 6, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
Upon the occurrence of any Event of Default and at any time thereafter so
long as any Event of Default shall be continuing, the Agent shall, upon the
written instructions of the Majority Secured Parties, exercise any or all of the
rights and powers and pursue any and all of the remedies available to it
hereunder and (subject to the terms thereof) under the other Credit Documents,
the Lease and the other Operative Agreements and shall have any and all rights
and remedies available under the Uniform Commercial Code or any provision of
law.
Upon the occurrence of any Event of Default and at any time thereafter so
long as any Event of Default shall be continuing, the Agent may, and upon
request of the Majority Secured Parties shall, proceed to protect and enforce
this Agreement, the Notes, the other Credit Documents and the Lease by suit or
suits or proceedings in equity, at law or in bankruptcy, and whether for the
specific performance of any covenant or agreement herein contained or in
execution or aid of any power herein granted, or for foreclosure hereunder, or
for the appointment of a receiver or receivers for the Property or for the
recovery of judgment for the indebtedness secured thereby or for the enforcement
of any other proper, legal or equitable remedy available under applicable laws.
The Borrower shall be liable for any and all accrued and unpaid amounts due
hereunder before, after or during the exercise of any of the foregoing remedies,
including without limitation all reasonable legal fees and other reasonable
costs and expenses incurred by the Agent or any Lender by reason of the
occurrence of any Event of Default or the exercise of remedies with respect
thereto.
SECTION 7. THE AGENT
7.1 APPOINTMENT.
-----------
Each Lender hereby irrevocably designates and appoints the Agent as the
agent of such Lender under this Agreement and the other Operative Agreements,
and each such Lender irrevocably authorizes the Agent, in such capacity, to
execute the Operative Agreements as agent for and on behalf of such Lender, to
take such action on behalf of such Lender under the provisions of this Agreement
and the other Operative Agreements and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of this Agreement
and other Operative Agreements, together with such other powers as are
reasonably incidental thereto. Without limiting the generality of the
foregoing, each of the Lenders hereby specifically acknowledges the terms and
provisions of the Participation Agreement and directs the Agent to exercise such
powers, make such decisions and otherwise perform such duties as are delegated
to
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the Agent thereunder without being required to obtain any specific consent with
respect thereto from any Lender, unless the matter under consideration is a
Unanimous Vote Matter or otherwise requires the consent of the Majority Lenders
and/or the Majority Secured Parties. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Operative Agreement or otherwise exist against the Agent.
7.2 DELEGATION OF DUTIES.
--------------------
The Agent may execute any of its duties under this Agreement and the other
Operative Agreements by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
7.3 EXCULPATORY PROVISIONS.
----------------------
Neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (a) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or any other Operative Agreement (except for its or such Person's
own gross negligence or willful misconduct) or (b) responsible in any manner to
any of the Lenders for any recitals, statements, representations or warranties
made by the Borrower or the Lessee or any officer thereof contained in this
Agreement or any other Operative Agreement or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Operative
Agreement or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Operative Agreement or for any
failure of the Borrower or the Lessee to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Operative
Agreement, or to inspect the properties, books or records of the Borrower or the
Lessee.
7.4 RELIANCE BY THE AGENT.
---------------------
The Agent shall be entitled to rely, and shall be fully protected in
relying, upon any Note, writing, resolution, notice, consent, certificate,
affidavit, letter, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it in good faith to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including without limitation
counsel to the Borrower or the Lessee), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Operative Agreement unless it shall
first receive such advice or concurrence of the
14
<PAGE>
Majority Lenders, the Majority Secured Parties or all Secured Parties, as the
case may be, as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Operative Agreements in accordance
with a request of the Majority Lenders, the Majority Secured Parties or all
Secured Parties, as the case may be, and such and any action taken or failure to
act pursuant thereto shall be binding upon all the Lenders and all future
holders of the Notes (or all Secured Parties, as the case may be).
7.5 NOTICE OF DEFAULT.
-----------------
The Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default hereunder unless the Agent has received
written notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, the
Agent shall give notice thereof to the Lenders. The Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Majority Secured Parties; provided, that unless and until the
--------
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Secured Parties; provided, further, the foregoing shall not
-------- -------
limit (a) the rights of the Majority Secured Parties to elect remedies as set
forth in Section 6 and/or (b) the rights of the Majority Secured Parties or all
Secured Parties, as the case may be, as described in the Participation Agreement
(including without limitation Sections 8.2(h) and 8.6 of the Participation
Agreement).
7.6 NON-RELIANCE ON THE AGENT AND OTHER LENDERS.
-------------------------------------------
Each Lender expressly acknowledges that neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Agent hereinafter
taken, including without limitation any review of the affairs of the Borrower or
the Lessee, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrower and the
Lessee and made its own decision to make its Loans hereunder and enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Operative Agreements, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and the Lessee. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, property,
condition (financial or otherwise), prospects or creditworthiness
15
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of the Borrower or the Lessee which may come into the possession of the Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
7.7 INDEMNIFICATION.
---------------
The Lenders agree to indemnify the Agent, in its capacity as such (to the
extent not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their respective Commitment Percentages
in effect on the date on which indemnification is sought under this Section 7.7
(or, if indemnification is sought after the date upon which the Commitments
shall have terminated and the Loans shall have been paid in full, ratably in
accordance with their Commitment Percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including without limitation at any time
following the payment of the Notes) be imposed on, incurred by or asserted
against any of them in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Operative Agreements or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any of them
under or in connection with any of the foregoing; provided, that no Lender shall
--------
be liable for the payment of any portion of such liabilities, obligations,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the gross negligence or willful misconduct of the Agent.
The agreements in this Section 7.7 shall survive the payment of the Notes and
all other amounts payable hereunder.
7.8 THE AGENT IN ITS INDIVIDUAL CAPACITY.
------------------------------------
The Agent and its Affiliates may make loans to, accept deposits from and
generally engage in any kind of business with the Borrower or the Lessee as
though the Agent were not the Agent hereunder and under the other Operative
Agreements. With respect to its Loans made or renewed by it and any Note issued
to it, the Agent shall have the same rights and powers under this Agreement and
the other Operative Agreements as any Lender and may exercise the same as though
it were not the Agent, and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
7.9 SUCCESSOR AGENT.
---------------
The Agent may resign at any time as the Agent upon thirty (30) days' notice
to the Lenders, the Borrower and, so long as no Lease Event of Default shall
have occurred and be continuing, the Lessee. If the Agent shall resign as the
Agent under this Agreement, the Majority Lenders shall appoint from among the
Lenders a successor Agent which successor Agent shall be subject to the approval
of the Borrower and, so long as no Lease Event of Default shall have occurred
and be continuing, the Lessee, such approval not to be unreasonably withheld or
delayed. If no successor Agent is appointed prior to the effective date of the
resignation of the resigning Agent, the Agent may appoint, after consulting with
the Lenders and subject to the approval of the Borrower and, so long as no Lease
Event of Default shall have occurred and be continuing, the Lessee, such
approval not to be unreasonably withheld or delayed, a successor Agent from
among the Lenders. If no successor Agent has accepted appointment as the Agent
by
16
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the date which is thirty (30) days following a retiring Agent's notice of
resignation, the retiring Agent's notice of resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
the Agent until such time, if any, as the Majority Lenders appoint a successor
Agent, as provided for above. Upon the effective date of such resignation, only
such successor Agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's rights, powers and duties in such capacity shall be terminated.
After any retiring Agent resigns hereunder as the Agent, the provisions of this
Article VII and Section 9.5 shall inure to their respective benefit as to any
actions taken or omitted to be taken by it while it was the Agent under this
Agreement.
7.10 ACTIONS OF THE AGENT ON BEHALF OF HOLDERS.
-----------------------------------------
The parties hereto specifically acknowledge and consent to the Agent's
acting on behalf of the Holders as provided in the Participation Agreement, and,
in any such case, the Lenders acknowledge that the Holders shall be entitled to
vote as "Secured Parties" hereunder to the extent required or permitted by the
Operative Agreements (including without limitation Sections 8.2(h) and 8.6 of
the Participation Agreement).
7.11 THE AGENT'S DUTY OF CARE.
------------------------
Other than the exercise of reasonable care to assure the safe custody of
the Collateral while being held by the Agent hereunder or under any other
Operative Agreement, the Agent shall have no duty or liability to preserve
rights pertaining thereto, it being understood and agreed that the Lessee shall
be responsible for preservation of all rights in the Collateral, and the Agent
shall be relieved of all responsibility for the Collateral upon surrendering it
or tendering the surrender of it to the Lessee. The 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 Agent accords its own property, which shall be no less than the
treatment employed by a reasonable and prudent agent in the industry, it being
understood that the Agent shall not have responsibility for taking any necessary
steps to preserve rights against any parties with respect to any of the
Collateral.
SECTION 8. MATTERS RELATING TO PAYMENT AND COLLATERAL
8.1 COLLECTION AND ALLOCATION OF PAYMENTS AND OTHER AMOUNTS.
-------------------------------------------------------
The Lessee, the Construction Agent, the Agent, the Lenders, the Holders and
the Borrower have agreed pursuant to the terms of Section 8.7 of the
Participation Agreement to a procedure for the allocation and distribution of
certain payments and distributions, including without limitation the proceeds of
Collateral.
8.2 CERTAIN REMEDIAL MATTERS.
------------------------
Notwithstanding any other provision of this Agreement or any other Credit
Document:
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(a) the Borrower shall at all times retain to the exclusion of all other
parties, all rights to Excepted Payments payable to it and to demand, collect or
commence an action at law to obtain such payments and to enforce any judgment
with respect thereto; and
(b) the Borrower and each Holder shall at all times retain the right, but
not to the exclusion of the Agent, (i) to retain all rights with respect to
insurance that Article XIV of the Lease specifically confers upon the "Lessor",
(ii) to provide such insurance as the Lessee shall have failed to maintain or as
the Borrower or any Holder may desire, and (iii) to enforce compliance by the
Lessee with the provisions of Articles VIII, IX, X, XI, XIV and XVII of the
Lease.
8.3 EXCEPTED PAYMENTS.
-----------------
Notwithstanding any other provision of this Agreement or the Security
Documents, any Excepted Payment received at any time by the Agent shall be
distributed promptly to the Person entitled to receive such Excepted Payment.
SECTION 9 MISCELLANEOUS
9.1 AMENDMENTS AND WAIVERS.
----------------------
None of the terms or provisions of this Agreement may be terminated,
amended, supplemented, waived or modified except in accordance with the terms of
Section 12.4 of the Participation Agreement.
9.2 NOTICES.
-------
All notices required or permitted to be given under this Agreement shall be
given in accordance with Section 12.2 of the Participation Agreement.
9.3 NO WAIVER; CUMULATIVE REMEDIES.
------------------------------
No failure to exercise and no delay in exercising, on the part of the Agent
or any Lender, any right, remedy, power or privilege hereunder or under the
other Credit Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
9.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
All representations and warranties made by the Borrower under the Operative
Agreements shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder.
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9.5 PAYMENT OF EXPENSES AND TAXES.
-----------------------------
The Borrower agrees to (with funds provided by the Lessee as Supplemental
Rent): (a) pay all reasonable out-of-pocket costs and expenses of (i) the Agent
whether or not the transactions herein contemplated are consummated, in
connection with the negotiation, preparation, execution and delivery of the
Operative Agreements and the documents and instruments referred to therein
(including without limitation the reasonable fees and disbursements of Moore &
Van Allen, PLLC) and any amendment, waiver or consent relating thereto
(including without limitation the reasonable fees and disbursements of counsel
to the Agent) and (ii) the Agent and each of the Lenders in connection with the
enforcement of the Operative Agreements and the documents and instruments
referred to therein (including without limitation the reasonable fees and
disbursements of counsel for the Agent and for each of the Lenders) and (b) pay
and hold each of the Lenders harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters and
save each of the Lenders harmless from and against any all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to such Lender) to pay such taxes.
9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agent, all future holders of the Notes and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
9.7 PARTICIPATIONS.
--------------
Subject to and in accordance with Section 10.1 of the Participation
Agreement, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one (1) or more banks,
financial institutions or other entities (each, a "Participant") participating
-----------
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Operative Agreements; provided, that any such sale of a
--------
participating interest shall be in a principal amount of at least $2,000,000 or
such lesser amount constituting such Lender's entire interest in this Agreement
and the Notes. In the event of any such sale by a Lender of a participating
interest to a Participant, such Lender's obligations under this Agreement to the
other parties to this Agreement shall remain unchanged, such Lender shall remain
solely responsible for the performance thereof, such Lender shall remain the
holder of any such Note for all purposes under this Agreement and the Notes, and
the Borrower and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the Notes. In no event shall any Participant have any right to
approve any amendment or waiver of any provision of this Agreement or any other
Operative Agreement, or any consent to any departure by the Borrower or any
other Person therefrom, except to the extent that such amendment, waiver or
consent would (a) reduce the principal of, or interest on, any Loan or Note, or
postpone the date of the final maturity of any Loan or Note, or reduce the
amount of any Lender Facility Fee, in each case to the extent subject to such
participation or (b) release all or substantially all of the Collateral. The
Borrower agrees that,
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while an Event of Default shall have occurred and be continuing, if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interests in amounts
owing directly to it as a Lender under this Agreement or any Note, provided,
--------
that in purchasing such participating interest, such Participant shall be deemed
to have agreed to share with the Lenders the proceeds thereof as provided in
Section 9.10(a) as fully as if it were a Lender hereunder. The Borrower also
agrees that each Participant shall be entitled to the benefits of Sections
11.2(e), 11.3 and 11.4 of the Participation Agreement with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided, that such Participant shall have complied with
--------
the requirements of said Sections and provided, further, that no Participant
-------- -------
shall be entitled to receive any greater amount pursuant to any such Section
than the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
9.8 ASSIGNMENTS.
-----------
(a) Subject to and in accordance with Section 10.1 of the Participation
Agreement, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Lender or any affiliate of any Lender or, with the consent, subject to Section
9.1(g) of the Participation Agreement, of the Borrower and the Agent (which in
each case shall not be unreasonably withheld or delayed and which consent of the
Borrower shall not be required during the continuation of any Event of Default),
to an additional bank, financial institution or other entity that is either
organized under the laws of the United States or any state thereof or is a
foreign bank that operates a branch office in the United States, (each, a
"Purchasing Lender") all or any part of its rights and obligations under this
- ------------------
Agreement and the other Operative Agreements pursuant to an Assignment and
Acceptance, substantially in the form of Exhibit B, executed by such Purchasing
---------
Lender, such assigning Lender (and, in the case of a Purchasing Lender that is
not a Lender or an affiliate thereof, subject to Section 9.1(g) of the
Participation Agreement, by the Borrower and the Agent) and delivered to the
Agent for its acceptance and recording in the Register; provided, that no such
--------
assignment to a Purchasing Lender (other than any Lender or any affiliate
thereof) shall be in an aggregate principal amount less than $5,000,000 (other
than in the case of an assignment of all of a Lender's interests under this
Agreement and the Notes). Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Purchasing Lender thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
remaining portion of an assigning Lender's rights and obligations under this
Agreement, such assigning Lender shall cease to be a party hereto).
Notwithstanding anything to the contrary in this Agreement, the consent of the
Borrower shall not be required, and, unless requested by the relevant Purchasing
Lender and/or assigning Lender, new Notes shall not be required to be
20
<PAGE>
executed and delivered by the Borrower, for any assignment which occurs at any
time when any of the events described in Section 6(g) shall have occurred and be
continuing.
(b) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and a Purchasing Lender (and, in the case of a Purchasing
Lender that is not a Lender or an affiliate thereof, by the Borrower and the
Agent) together with payment to the Agent of a registration and processing fee
of $2,500 (which shall not be payable by the Borrower or the Lessee, except as
otherwise provided in connection with an assignment requested in accordance with
Section 2.11(b)), the Agent shall (i) promptly accept such Assignment and
Acceptance and (ii) promptly after the effective date determined pursuant
thereto, record the information contained therein in the Register and give
notice of such acceptance and recordation to the Lenders and the Borrower. On
or prior to such effective date, the Borrower, at its own expense, shall execute
and deliver to the Agent new Notes (in exchange for the Notes of the assigning
Lender), each in an amount equal to the Commitment assumed or Loans purchased by
the relevant Purchasing Lender pursuant to such Assignment and Acceptance, and,
if the assigning Lender has retained a Commitment or any Loan hereunder, new
Notes to the order of the assigning Lender, each in an amount equal to the
Commitment or Loans retained by it hereunder. Such new Notes shall be dated the
effective date of the applicable Assignment and Acceptance and shall otherwise
be in the form of the Notes replaced thereby.
(c) Each Purchasing Lender (other than any Lender organized and existing
under the laws of the U.S. or any political subdivision in or of the U.S.), by
executing and delivering an Assignment and Acceptance,
(i) agrees to execute and deliver to the Agent, as promptly as
practicable, four (4) signed copies (two (2) for the Agent and two (2) for
delivery by the Agent to the Borrower) of Form 1001 or Form 4224 (or any
successor form or comparable form) (it being understood that if the applicable
form is not so delivered, payments under or in respect of this Agreement may be
subject to withholding and deduction);
(ii) represents and warrants to the Borrower and the Agent that the
form so delivered is true and accurate and that, as of the effective date of the
applicable Assignment and Acceptance, each of such Purchasing Lender's lending
offices is entitled to receive payments of principal and interest under or in
respect of this Agreement without withholding or deduction for or on account of
any taxes imposed by the U.S. Federal government;
(iii) agrees to annually hereafter deliver to each of the Borrower
and the Agent not later than December 31 of the year preceding the year to which
it will apply, two (2) further properly completed signed copies of Form 1001 or
Form 4224 (or any successor form or comparable form), as appropriate, unless an
event has occurred which renders the relevant form inapplicable (it being
understood that if the applicable form is not so delivered, payments under or in
respect of this Agreement may be subject to withholding and deduction);
(iv) agrees to promptly notify the Borrower and the Agent in
writing if it ceases to be entitled to receive payments of principal and
interest under or in respect of this Agreement without withholding or deduction
for or on account of any taxes imposed by the U.S.
21
<PAGE>
or any political subdivision in or of the U.S. (it being understood that
payments under or in respect of this Agreement may be subject to withholding and
deduction in such event);
(v) acknowledges that in the event it ceases to be exempt from
withholding and/or deduction of such taxes, the Agent may withhold and/or deduct
the applicable amount from any payments to which such assignee Lender would
otherwise be entitled, without any liability to such assignee Lender therefor;
and
(vi) agrees to indemnify the Borrower and the Agent from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs or expenses that result from such assignee
Lender's breach of any such representation, warranty or agreement.
(d) Any Lender party to this Agreement may, from time to time and without
the consent of the Borrower or any other Person, pledge or assign for security
purposes any portion of its Loans or any other interests in this Agreement and
the other Credit Documents to any Federal Reserve Bank.
9.9 THE REGISTER; DISCLOSURE; PLEDGES TO FEDERAL RESERVE BANKS.
----------------------------------------------------------
(a) The Agent shall maintain for the benefit of the Lenders at its
address referred to in Section 9.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the recordation of the names
--------
and addresses of the Lenders, the Commitments of the Lenders, and the principal
amount of the Loans owing to each Lender from time to time. The entries in the
Register shall be conclusive, in the absence of error, and the Borrower, the
Agent and the Lenders may treat each Person whose name is recorded in the
Register as the owner of the Loan recorded therein for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or
any Lender at any reasonable time and from time to time upon reasonable notice.
(b) Nothing herein shall prohibit any Lender from pledging or assigning
any Note to any Federal Reserve Bank in accordance with applicable law.
9.10 ADJUSTMENTS; SET-OFF.
--------------------
(a) Except as otherwise expressly provided in Section 8.1 hereof and
Section 8.7 of the Participation Agreement where, and to the extent, one (1)
Lender is entitled to payments prior to other Lenders, if any Lender (a
"Benefitted Lender") shall at any time receive any payment of all or part of its
- ------------------
Loans, or interest thereon, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off, pursuant to events or
proceedings of the nature referred to in Section 6(g), or otherwise), in a
greater proportion than any such payment to or collateral received by any other
Lender, if any, in respect of such other Lender's Loans, or interest thereon,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loan, or
shall provide such other Lenders with the benefits of any such collateral, or
the proceeds thereof, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral or proceeds ratably
22
<PAGE>
with each of the Lenders; provided, however, that if all or any portion of such
-------- -------
excess payment or benefits is thereafter recovered from such Benefitted Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the event of such recovery, but without interest.
(b) In addition to any rights now or hereafter granted under applicable
law or otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, the Agent and each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Debt at any time
held or owing by the Agent or such Lender (including without limitation by
branches and agencies of the Agent or such Lender wherever located) to or for
the credit or the account of the Borrower against and on account of the
obligations and liabilities of the Borrower to the Agent or such Lender under
this Agreement or under any of the other Operative Agreements, including without
limitation all interests in obligations of the Borrower purchased by any such
Lender pursuant to Section 9.10(a), and all other claims of any nature or
description arising out of or connected with this Agreement or any other
Operative Agreement, irrespective or whether or not the Agent or such Lender
shall have made any demand and although said obligations, liabilities or claims,
or any of them, shall be contingent or unmatured.
9.11 COUNTERPARTS.
------------
This Agreement may be executed by one (1) or more of the parties to this
Agreement on any number of separate counterparts (including without limitation
by telecopy), each of which when so executed and delivered shall be an original,
but all such counterparts taken together shall be deemed to constitute one (1)
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Agent.
9.12 SEVERABILITY.
------------
Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.13 INTEGRATION.
-----------
This Agreement and the other Credit Documents represent the agreement of
the Borrower, the Agent, and the Lenders with respect to the subject matter
hereof and thereof, and there are no promises, undertakings, representations or
warranties by the Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Credit Documents.
23
<PAGE>
9.14 GOVERNING LAW.
-------------
THIS AGREEMENT AND THE NOTES AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
UNDER THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED,
INTERPRETED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH
CAROLINA.
9.15 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION.
----------------------------------------------
THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO SUBMISSION TO
JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY REFERENCE HEREIN,
MUTATIS MUTANDIS.
- ----------------
9.16 ACKNOWLEDGMENTS.
---------------
The Borrower hereby acknowledges that:
(a) neither the Agent nor any Lender has any fiduciary relationship with
or duty to the Borrower arising out of or in connection with this Agreement or
any of the other Credit Documents, and the relationship between the Agent and
the Lenders, on one (1) hand, and the Borrower, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(b) no joint venture is created hereby or by the other Credit Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Borrower and the Lenders.
9.17 WAIVERS OF JURY TRIAL.
---------------------
THE BORROWER, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.18 NONRECOURSE.
-----------
Subject to Section 12.16 of the Participation Agreement, anything to the
contrary contained in this Agreement or in any other Operative Agreement
notwithstanding (except for such Section 12.16 of the Participation Agreement),
no Exculpated Person shall be personally liable in any respect for any liability
or obligation hereunder or under any other Operative Agreement including without
limitation the payment of the principal of, or interest on, the Notes, or for
monetary damages for the breach of performance of any of the covenants contained
in this Agreement, the Notes or any of the other Operative Agreements. The
Agent and the Lenders agree that, in the event any of them pursues any remedies
available to them under this Agreement, the Notes or any other Operative
Agreement, neither the Agent nor the Lenders shall
24
<PAGE>
have any recourse against the Borrower, nor any other Exculpated Person, for any
deficiency, loss or claim for monetary damages or otherwise resulting therefrom
and recourse shall be had solely and exclusively against the Trust Estate and
the Lessee; but nothing contained herein shall be taken to prevent recourse
against or the enforcement of remedies against the Trust Estate in respect of
any and all liabilities, obligations and undertakings contained in this
Agreement, the Notes or any other Operative Agreement. The Agent and the Lenders
further agree that the Borrower shall not be responsible for the payment of any
amounts owing hereunder (excluding principal and interest (other than Overdue
Interest) in respect of the Loans) (such non-excluded amounts, "Supplemental
------------
Amounts") except to the extent that payments of Supplemental Rent designated
- -------
by the Lessee for application to such Supplemental Amounts shall have been paid
by the Lessee pursuant to the Lease (it being understood that the failure by the
Lessee for any reason to pay any Supplemental Rent in respect of such
Supplemental Amounts shall nevertheless be deemed to constitute a default by the
Borrower for the purposes of Section 6). Notwithstanding the foregoing
provisions of this Section 9.18, nothing in this Agreement or any other
Operative Agreement shall (a) constitute a waiver, release or discharge of any
obligation evidenced or secured by this Agreement or any other Credit Document,
(b) limit the right of the Agent or any Lender to name the Borrower as a party
defendant in any action or suit for judicial foreclosure and sale under any
Security Document, or (c) affect in any way the validity or enforceability of
any guaranty (whether of payment and/or performance) given to the Lessor, the
Agent or the Lenders, or of any indemnity agreement given by the Borrower, in
connection with the Loans made hereunder.
9.19 USURY SAVINGS PROVISION.
-----------------------
IT IS THE INTENT OF THE PARTIES HERETO TO CONFORM TO AND CONTRACT IN STRICT
COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT AND THAT N.C.
GEN. STAT. (S) 24-9 SHALL APPLY WITH RESPECT TO THIS AGREEMENT. TO THE EXTENT
N.C. GEN. STAT. (S) 24-9 IS HEREAFTER DEEMED NOT TO APPLY BY A COURT OF
COMPETENT JURISDICTION AND ANY PAYMENTS HEREUNDER ARE HEREINAFTER CHARACTERIZED
BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF PRINCIPAL AND
INTEREST THEREON, THE FOLLOWING PROVISIONS OF THIS SECTION 9.19 SHALL APPLY.
ANY SUCH PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS
"INTEREST." ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY LIMITED BY THE
PROVISIONS OF THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL ALL SUCH
AGREEMENTS, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER WRITTEN OR
ORAL. IN NO WAY, NOR IN ANY EVENT OR CONTINGENCY (INCLUDING WITHOUT LIMITATION
PREPAYMENT OR ACCELERATION OF THE MATURITY OF ANY OBLIGATION), SHALL ANY
INTEREST TAKEN, RESERVED, CONTRACTED FOR, CHARGED, OR RECEIVED UNDER THIS
AGREEMENT OR OTHERWISE, EXCEED THE MAXIMUM NONUSURIOUS AMOUNT PERMISSIBLE UNDER
APPLICABLE LAW. IF, FROM ANY POSSIBLE CONSTRUCTION OF ANY OF THE OPERATIVE
AGREEMENTS OR ANY OTHER DOCUMENT OR AGREEMENT, INTEREST WOULD OTHERWISE BE
PAYABLE IN EXCESS OF THE MAXIMUM NONUSURIOUS AMOUNT, ANY SUCH CONSTRUCTION SHALL
BE SUBJECT TO THE PROVISIONS OF THIS PARAGRAPH
25
<PAGE>
AND SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE AUTOMATICALLY
REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER APPLICABLE LAW,
WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW DOCUMENT OR
AGREEMENT. IF THE AGENT OR ANY LENDER SHALL EVER RECEIVE ANYTHING OF VALUE WHICH
IS CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR
UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS PROVISION, BE IN EXCESS OF
THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH WOULD HAVE BEEN
EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE
COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST,
OR REFUNDED TO THE BORROWER OR ANY OTHER PAYOR THEREOF, IF AND TO THE EXTENT
SUCH AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS
DEEMED TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY
ANY OF THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY
INTEREST WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND NEITHER
THE AGENT NOR ANY LENDER INTENDS TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN
THE EVENT OF SUCH DEMAND. ALL INTEREST PAID OR AGREED TO BE PAID TO THE AGENT OR
ANY LENDER SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE AMORTIZED,
PRORATED, ALLOCATED, AND SPREAD THROUGHOUT THE FULL STATED TERM (INCLUDING
WITHOUT LIMITATION ANY RENEWAL OR EXTENSION) OF THIS AGREEMENT SO THAT THE
AMOUNT OF INTEREST ON ACCOUNT OF SUCH PAYMENTS DOES NOT EXCEED THE MAXIMUM
NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE LAW.
[signature pages follow]
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, except as
expressly stated herein, but solely as the Owner
Trustee under the USF Real Estate Trust 1998-1
By: /s/ C. Scott Nielsen
---------------------------------------------
Name: C. Scott Nielsen
-------------------------------------------
Title: Vice President
------------------------------------------
FIRST UNION NATIONAL BANK, as the Agent
and a Lender
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, except as
expressly stated herein, but solely as the Owner
Trustee under the USF Real Estate Trust 1998-1
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
FIRST UNION NATIONAL BANK, as the Agent
and a Lender
By: /s/ Lucy C. Campbell
---------------------------------------------
Name: Lucy C. Campbell
-------------------------------------------
Title: Vice President
------------------------------------------
<PAGE>
Schedule 1.1
------------
<TABLE>
<CAPTION>
Tranche A Tranche B
Commitment Commitment
--------------------- ---------------------
Name and Address of Lenders Amount / Percentage Amount / Percentage
- --------------------------------------- --------------------- ---------------------
<S> <C> <C>
First Union National Bank $ 51,000,000 100% $ 7,200,000 100%
c/o First Union Capital Markets Group
DC-6
301 South College Street
Charlotte, North Carolina 28288-0166
Attention: Ms. Donna Hemingway
Capital Markets Services
Telephone: (704) 383-8763
Telecopy: (704) 383-7989
TOTAL $ 51,000,000 100% $ 7,200,000 100%
</TABLE>
<PAGE>
EXHIBIT A-1
-----------
TRANCHE A NOTE
(USF Real Estate Trust 1998-1)
___________, ____
FOR VALUE RECEIVED, the undersigned, FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1 (the "Borrower"), hereby unconditionally
--------
promises to pay to the order of [LENDER] (the "Lender"), at the office of First
------
Union National Bank, located at c/o First Union Capital Markets Group, DC-6, 301
South College Street, Charlotte, North Carolina 28288-0166 or at such other
address as may be specified by First Union National Bank, in lawful money of the
United States of America and in immediately available funds, on the Maturity
Date, the aggregate unpaid principal amount of all Tranche A Loans made by the
Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as
defined below). The Borrower agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time outstanding at
the rates and on the dates specified in Section 2.8 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of each
Tranche A Loan made pursuant to the Credit Agreement and the date and amount of
each payment or prepayment of principal thereof, each continuation thereof and
each conversion of all or a portion thereof to another Type. Each such
endorsement shall constitute prima facie evidence of the accuracy of the
----- -----
information endorsed. The failure to make any such endorsement or any error in
such endorsement shall not affect the obligations of the Borrower in respect of
such Loan.
This Note (a) is one (1) of the Notes referred to in the Credit
Agreement dated as of __________, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lender, the other banks and financial institutions from time to time parties
thereto and First Union National Bank, as the Agent, (b) is subject to the
provisions of the Credit Agreement (including without limitation Section 9.18
thereof) and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. Reference is hereby made to the
Credit Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one (1) or more of the Events of Default,
all amounts then remaining unpaid on this Note shall become, or may be declared
to be, immediately due and payable, all as provided in the Credit Agreement.
A1-1
<PAGE>
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely
as the Owner Trustee under the
USF Real Estate Trust 1998-1
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
A1-2
<PAGE>
EXHIBIT A-2
-----------
TRANCHE B NOTE
(USF Real Estate Trust 1998-1)
_________, ____
FOR VALUE RECEIVED, the undersigned, FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not in its individual capacity, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1 (the "Borrower"), hereby unconditionally
--------
promises to pay to the order of [LENDER] (the "Lender") at the office of First
------
Union National Bank located at c/o First Union Capital Markets Group, DC-6, 301
South College Street, Charlotte, North Carolina 28288-0166 or at such other
address as may be specified by First Union National Bank, in lawful money of the
United States of America and in immediately available funds, on the Maturity
Date, the aggregate unpaid principal amount of all Tranche B Loans made by the
Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement (as
defined below). The Borrower agrees to pay interest in like money at such
office on the unpaid principal amount hereof from time to time outstanding at
the rates and on the dates specified in Section 2.8 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of each
Tranche B Loan made pursuant to the Credit Agreement and the date and amount of
each payment or prepayment of principal thereof, each continuation thereof and
each conversion of all or a portion thereof to another Type. Each such
endorsement shall constitute prima facie evidence of the accuracy of the
----- -----
information endorsed. The failure to make any such endorsement or any error in
such endorsement shall not affect the obligations of the Borrower in respect of
such Loan.
This Note (a) is one (1) of the Notes referred to in the Credit
Agreement dated as of __________, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lender, the other banks and financial institutions from time to time parties
thereto and First Union National Bank, as the Agent, (b) is subject to the
provisions of the Credit Agreement (including without limitation Section 9.18
thereof) and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Credit Agreement. Reference is hereby made to the
Credit Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one (1) or more of the Events of Default,
all amounts then remaining unpaid on this Note shall become, or may be declared
to be, immediately due and payable, all as provided in the Credit Agreement.
A2-1
<PAGE>
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely
as the Owner Trustee under the
USF Real Estate Trust 1998-1
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
A2-2
<PAGE>
EXHIBIT B
---------
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of __________,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
- -----------------
individually, except as expressly stated therein, but solely as the Owner
Trustee under the USF Real Estate Trust 1998-1 (the "Owner Trustee" or the
-------------
"Borrower"), the Lenders named therein and FIRST UNION NATIONAL BANK, as the
- ---------
Agent. Unless otherwise defined herein, terms defined in the Credit Agreement
(or pursuant to Section 1 of the Credit Agreement, defined in other agreements)
and used herein shall have the meanings given to them in or pursuant to the
Credit Agreement.
____________________ (the "Assignor") and _______________ (the
--------
"Assignee") agree as follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below), a ___% interest (the "Assigned Interest") in
-----------------
and to the Assignor's rights and obligations under the Credit Agreement with
respect to the credit facility contained in the Credit Agreement as are set
forth on Schedule 1 hereto (the "Assigned Facility"), in a principal amount for
---------- -----------------
the Assigned Facility as set forth on Schedule 1.
----------
2. The Assignor (a) makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any other Operative
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any other Operative Agreement or
any other instrument or document furnished pursuant thereto, other than that it
has not created any adverse claim upon the interest being assigned by it
hereunder and that such interest is free and clear of any such adverse claim;
(b) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower, or any other obligor or the
performance or observance by the Borrower, or any other obligor of any of their
respective obligations under the Credit Agreement or any other Operative
Agreement or any other instrument or document furnished pursuant hereto or
thereto; and (c) attaches the Note held by it evidencing the Assigned Facility
and requests that the Agent exchange such Note for a new Note payable to the
Assignor and (if the Assignor has retained any interest in the Assigned
Facility) a new Note payable to the Assignee in the respective amounts which
reflect the assignment being made hereby (and after giving effect to any other
assignments which have become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is legally
authorized to enter into this Assignment and Acceptance; (b) confirms that it
has received copies of the Operative Agreements, and such other documents and
information as it has deemed appropriate to make its
B-1
<PAGE>
own credit analysis and decision to enter into this Assignment and Acceptance;
(c) agrees that it will, independently and without reliance upon the Assignor,
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement, the other Operative
Agreements or any other instrument or document furnished pursuant hereto or
thereto; (d) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit
Agreement, the other Operative Agreements or any other instrument or document
furnished pursuant hereto or thereto as are delegated to the Agent by the terms
thereof, together with such powers as are incidental thereto; and (e) agrees
that it will be bound by the provisions of the Credit Agreement and the other
Operative Agreements to which Assignee is a party and will perform in accordance
herewith all the obligations which by the terms of the Credit Agreement and the
other Operative Agreements to which Assignee is a party are required to be
performed by it as a Lender including without limitation, if it is organized
under the laws of a jurisdiction outside the U.S., its obligation pursuant to
Section 11.2(e) of the Participation Agreement.
4. The effective date of this Assignment and Acceptance shall be
________, ____ (the "Effective Date"). Following the execution of this
--------------
Assignment and Acceptance, it will be delivered to the Agent for acceptance by
it and recording by the Agent pursuant to Section 9.9 of the Credit Agreement,
effective as of the Effective Date (which shall not, unless otherwise agreed to
by the Agent, be earlier than five (5) Business Days after the date of such
acceptance and recording by the Agent).
5. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments in respect of the Assigned Interest
(including without limitation payments of principal, interest, fees and other
amounts) to the Assignee whether such amounts have accrued prior to the
Effective Date or accrue subsequent to the Effective Date. The Assignor and the
Assignee shall make all appropriate adjustments in payments by the Agent for
periods prior to the Effective Date or with respect to the making of this
assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Operative Agreements and shall be bound by the provisions thereof and (b)
the Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement and the other Operative Agreements.
7. This Assignment and Acceptance shall be governed by, and
construed, INTERPRETED AND ENFORCED in accordance with the laws of the State of
NORTH CAROLINA.
B-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
----------
[Name of Assignor]
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
[Name of Assignee]
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Consented To:
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely
as the Owner Trustee under the
USF Real Estate Trust 1998-1
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
FIRST UNION NATIONAL BANK, as the Agent
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
JP FOODSERVICE DISTRIBUTORS, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
B-3
<PAGE>
[consents required only to the extent expressly provided in Section 9.8 of the
Credit Agreement]
B-4
<PAGE>
SCHEDULE 1
TO ASSIGNMENT AND ACCEPTANCE
RELATING TO THE CREDIT AGREEMENT,
DATED AS OF __________, 1998,
AMONG
FIRST SECURITY BANK, NATIONAL ASSOCIATION
NOT INDIVIDUALLY,
EXCEPT AS EXPRESSLY STATED THEREIN,
BUT SOLELY AS THE OWNER TRUSTEE,
THE LENDERS NAMED THEREIN
AND
FIRST UNION NATIONAL BANK, AS THE AGENT
FOR THE LENDERS (IN SUCH CAPACITY, THE "AGENT")
-----
Name of Assignor:
-----------------------------------
Name of Assignee:
-----------------------------------
Effective Date of Assignment:
-----------------------
Credit Principal Commitment
Facility Assigned Amount Assigned Percentage Assigned
----------------- --------------- -------------------
_________________ $____________ ____________%
[Name of Assignor]
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
[Name of Assignee]
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
B-5
<PAGE>
EXHIBIT 10.36
- --------------------------------------------------------------------------------
LEASE AGREEMENT
Dated as of June 29, 1998
between
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not individually,
but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1,
as Lessor
and
JP FOODSERVICE DISTRIBUTORS, INC.,
as Lessee
- --------------------------------------------------------------------------------
This Lease Agreement is subject to a security interest in favor of First Union
National Bank, as the agent for the Lenders and respecting the Security
Documents, as the agent for the Lenders and the Holders, to the extent of their
interests (the "Agent") under a Security Agreement dated as of June 29, 1998
-----
between First Security Bank, National Association, not individually, but solely
as the Owner Trustee under the USF Real Estate Trust 1998-1 and the Agent, as
amended, modified, extended, supplemented, restated and/or replaced from time to
time in accordance with the applicable provisions thereof. This Lease Agreement
has been executed in several counterparts. To the extent, if any, that this
Lease Agreement constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no
security interest in this Lease Agreement may be created through the transfer or
possession of any counterpart other than the original counterpart containing the
receipt therefor executed by the Agent on the signature page hereof.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I.............................................................. 1
1.1 Definitions................................................... 1
1.2 Interpretation................................................ 2
ARTICLE II............................................................. 2
2.1 Property...................................................... 2
2.2 Lease Term.................................................... 2
2.3 Title......................................................... 3
2.4 Lease Supplements............................................. 3
ARTICLE III............................................................ 3
3.1 Rent.......................................................... 3
3.2 Payment of Basic Rent......................................... 4
3.3 Supplemental Rent............................................. 4
3.4 Performance on a Non-Business Day............................. 4
3.5 Rent Payment Provisions....................................... 4
ARTICLE IV............................................................. 5
4.1 Taxes; Utility Charges........................................ 5
ARTICLE V.............................................................. 5
5.1 Quiet Enjoyment............................................... 5
ARTICLE VI............................................................. 5
6.1 Net Lease..................................................... 5
6.2 No Termination or Abatement................................... 6
ARTICLE VII............................................................ 7
7.1 Ownership of the Properties................................... 7
ARTICLE VIII........................................................... 8
8.1 Condition of the Properties................................... 8
8.2 Possession and Use of the Properties.......................... 9
8.3 Integrated Properties.........................................10
ARTICLE IX.............................................................10
9.1 Compliance With Legal Requirements, Insurance Requirements
and Manufacturer's Specifications and Standards...................10
ARTICLE X..............................................................11
10.1 Maintenance and Repair; Return...............................11
10.2 Environmental Inspection.....................................12
ARTICLE XI.............................................................12
11.1 Modifications................................................12
ARTICLE XII............................................................13
12.1 Warranty of Title............................................13
ARTICLE XIII...........................................................14
13.1 Permitted Contests Other Than in Respect of Indemnities......14
13.2 Impositions, Utility Charges, Other Matters; Compliance with
Legal Requirements................................................15
ARTICLE XIV............................................................15
14.1 Public Liability and Workers' Compensation Insurance.........15
14.2 Permanent Hazard and Other Insurance.........................15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
14.3 Coverage.....................................................16
ARTICLE XV.............................................................17
15.1 Casualty and Condemnation....................................17
15.2 Environmental Matters........................................19
15.3 Notice of Environmental Matters..............................20
ARTICLE XVI............................................................20
16.1 Termination Upon Certain Events..............................20
16.2 Procedures...................................................20
ARTICLE XVII...........................................................21
17.1 Lease Events of Default......................................21
17.2 Surrender of Possession......................................24
17.3 Reletting....................................................24
17.4 Damages......................................................25
17.5 Power of Sale................................................25
17.6 Final Liquidated Damages.....................................26
17.7 Environmental Costs..........................................26
17.8 Waiver of Certain Rights.....................................26
17.9 Assignment of Rights Under Contracts.........................27
17.10 Remedies Cumulative.........................................27
ARTICLE XVIII..........................................................27
18.1 Lessor's Right to Cure Lessee's Lease Defaults...............27
ARTICLE XIX............................................................28
19.1 Provisions Relating to Lessee's Exercise of its Purchase
Option............................................................28
19.2 No Purchase or Termination With Respect to Less than All of
a Property........................................................28
ARTICLE XX.............................................................28
20.1 Purchase Option, Sale Option, Extension Option - General
Provisions........................................................28
20.2 Lessee Purchase Option.......................................29
20.3 Third Party Sale Option......................................30
ARTICLE XXI............................................................31
21.1 [Intentionally Omitted]......................................31
ARTICLE XXII...........................................................31
22.1 Sale Procedure...............................................31
22.2 Application of Proceeds of Sale..............................34
22.3 Indemnity for Excessive Wear.................................34
22.4 Appraisal Procedure..........................................34
22.5 Certain Obligations Continue................................35
ARTICLE XXIII..........................................................35
23.1 Holding Over.................................................35
ARTICLE XXIV...........................................................36
24.1 Risk of Loss.................................................36
ARTICLE XXV............................................................36
25.1 Assignment...................................................36
25.2 Subleases....................................................36
ARTICLE XXVI...........................................................37
26.1 No Waiver....................................................37
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XXVII..........................................................37
27.1 Acceptance of Surrender......................................37
27.2 No Merger of Title...........................................37
ARTICLE XXVIII.........................................................37
28.1 Incorporation of Covenants...................................37
ARTICLE XXIX...........................................................38
29.1 Notices......................................................38
ARTICLE XXX............................................................39
30.1 Miscellaneous................................................39
30.2 Amendments and Modifications.................................39
30.3 Successors and Assigns.......................................39
30.4 Headings and Table of Contents...............................39
30.5 Counterparts.................................................39
30.6 GOVERNING LAW................................................39
30.7 Calculation of Rent..........................................39
30.8 Memoranda of Lease and Lease Supplements.....................40
30.9 Allocations between the Lenders and the Holders..............40
30.10 Limitations on Recourse.....................................40
30.11 WAIVERS OF JURY TRIAL.......................................40
30.12 Exercise of Lessor Rights...................................40
30.13 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION..............41
30.14 USURY SAVINGS PROVISION.....................................41
</TABLE>
EXHIBITS
- --------
EXHIBIT A - Lease Supplement No. ____
EXHIBIT B - Memorandum of Lease and Lease Supplement No. ____
iii
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT dated as of June 29, 1998 (as amended, modified,
extended, supplemented, restated and/or replaced from time to time, this
"Lease") is between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
-----
banking association, having its principal office at 79 South Main Street, Salt
Lake City, Utah 84111, not individually, but solely as the Owner Trustee under
the USF Real Estate Trust 1998-1, as lessor (the "Lessor"), and JP FOODSERVICE
------
DISTRIBUTORS, INC., a Delaware corporation, having its principal place of
business at 9830 Patuxent Woods Drive, Columbia, Maryland, as lessee (the
"Lessee").
- -------
W I T N E S S E T H:
- - - - - - - - - -
A. WHEREAS, subject to the terms and conditions of the Participation
Agreement and the Agency Agreement, Lessor will (i) purchase or ground lease
various parcels of real property, some of which will (or may) have existing
Improvements thereon, from one (1) or more third parties designated by Lessee
and (ii) fund the acquisition, installation, testing, use, development,
construction, operation, maintenance, repair, refurbishment and restoration of
the Properties by the Construction Agent; and
B. WHEREAS, the Term shall commence with respect to each Property upon
the Property Closing Date with respect thereto; provided, Basic Rent with
--------
respect thereto shall not be payable until the applicable Rent Commencement
Date; and
C. WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to
lease from Lessor, each Property;
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
1.1 DEFINITIONS.
-----------
For purposes of this Lease, capitalized terms used in this Lease and not
otherwise defined herein shall have the meanings assigned to them in Appendix A
----------
to that certain Participation Agreement dated as of June 29, 1998 (as amended,
modified, extended, supplemented, restated and/or replaced from time to time in
accordance with the applicable provisions thereof, the "Participation
-------------
Agreement") among Lessee, the various parties thereto from time to time, as the
- ---------
Guarantors, Lessor, the various banks and other lending institutions which are
parties thereto from time to time, as the Holders, the various banks and other
lending institutions which are parties thereto from time to time, as the
Lenders, and First Union National
<PAGE>
Bank, as agent for the Lenders and respecting the Security Documents, as the
agent for the Lenders and the Holders, to the extent of their interests. Unless
otherwise indicated, references in this Lease to articles, sections, paragraphs,
clauses, appendices, schedules and exhibits are to the same contained in this
Lease.
1.2 INTERPRETATION.
--------------
The rules of usage set forth in Appendix A to the Participation Agreement
----------
shall apply to this Lease.
ARTICLE II
2.1 PROPERTY.
--------
Subject to the terms and conditions hereinafter set forth and contained in
the respective Lease Supplement relating to each Property, Lessor hereby leases
to Lessee and Lessee hereby leases from Lessor, each Property.
2.2 LEASE TERM.
----------
The term of this Lease with respect to each Property (the "Term") shall
----
begin upon the Property Closing Date for such Property (in each case the
"Commencement Date") and shall end on the fifth annual anniversary of the
-----------------
Initial Closing Date, unless the Term is earlier terminated or extended pursuant
to the next paragraph. Notwithstanding the foregoing, Lessee shall not be
obligated to pay Basic Rent until the Rent Commencement Date with respect to
such Property.
Lessee may, not less than sixty (60) days and no more than two hundred
forty (240) days prior to the Expiration Date, by irrevocable notice to Lessor,
the Lenders, the Holders and the Agent make written request to extend the
Expiration Date for all, but not less than all, the Properties for an additional
period of one year. Lessor, each Lender, each Holder and the Agent shall each
make a determination, in the absolute and sole discretion of each such party,
not later than thirty (30) days prior to the Expiration Date as to whether or
not such party will agree to extend the Expiration Date as requested; provided,
--------
however, that failure by any such party to make a timely response to Lessee's
- -------
request for extension of the Expiration Date shall be deemed to constitute a
refusal by such party to extension of the Expiration Date. In response to a
request for an extension of the Expiration Date, if (a) Lessor, each Lender,
each Holder and the Agent shall agree to the requested extension, then the Term
shall be extended and shall expire on the date one (1) year after the then
current Expiration Date or (b) Lessor, any Lender, any Holder or the Agent shall
refuse (or be deemed to have refused) to agree to the requested extension, then
the Term shall not be extended and shall expire on the then current Expiration
Date.
2
<PAGE>
2.3 TITLE.
-----
Except for Lessor's representations and warranties that each Property is
free of Lessor Liens, each Property is leased to Lessee without any
representation or warranty, express or implied, by Lessor and subject to the
rights of parties in possession (if any), the existing state of title (including
without limitation the Permitted Liens) and all applicable Legal Requirements.
Lessee shall in no event have any recourse against Lessor for any defect in
Lessor's title to any Property or any interest of Lessee therein other than for
Lessor Liens.
2.4 LEASE SUPPLEMENTS.
-----------------
On or prior to each Commencement Date, Lessee and Lessor shall each execute
and deliver a Lease Supplement for the Property to be leased effective as of
such Commencement Date in substantially the form of EXHIBIT A HERETO.
---------
ARTICLE III
3.1 RENT.
----
(a) Lessee shall pay Basic Rent in arrears on each Payment
Date, and on any date on which this Lease shall terminate with respect to
any or all Properties during the Term; provided, however, with respect to
-------- -------
each individual Property Lessee shall have no obligation to pay Basic Rent
with respect to such Property until the Rent Commencement Date with respect
to such Property (notwithstanding that Basic Rent for such Property shall
accrue from and including the Scheduled Interest Payment Date immediately
preceding such Rent Commencement Date).
(b) Basic Rent shall be due and payable in lawful money of
the United States and shall be paid by wire transfer of immediately
available funds on the due date therefor (or within the applicable grace
period) to such account or accounts at such bank or banks as Lessor shall
from time to time direct.
(c) Lessee's inability or failure to take possession of all
or any portion of any Property when delivered by Lessor, whether or not
attributable to any act or omission of the Construction Agent, Lessee or
any other Person other than Lessor or for any other reason whatsoever,
shall not delay or otherwise affect Lessee's obligation to pay Rent for
such Property in accordance with the terms of this Lease.
(d) Lessee shall make all payments of Rent prior to 12:00 Noon,
Charlotte, North Carolina time, on the applicable date for payment of such
amount.
3
<PAGE>
3.2 PAYMENT OF BASIC RENT.
---------------------
Basic Rent shall be paid absolutely net to Lessor or its designee, so that
this Lease shall yield to Lessor the full amount thereof, without setoff,
deduction or reduction.
3.3 SUPPLEMENTAL RENT.
-----------------
Lessee shall pay to the Person entitled thereto any and all Supplemental
Rent when and as the same shall become due and payable, and if Lessee fails to
pay any Supplemental Rent within three (3) days after the same is due, Lessor
shall have all rights, powers and remedies provided for herein or by law or
equity or otherwise in the case of nonpayment of Basic Rent. All such payments
of Supplemental Rent shall be in the full amount thereof, without setoff,
deduction or reduction. Lessee shall pay to the appropriate Person, as
Supplemental Rent due and owing to such Person, among other things, on demand,
(a) any and all payment obligations (except for amounts payable as Basic Rent)
owing from time to time under the Operative Agreements by Lessee to the Agent,
any Lender, any Holder or any other Person, (b) interest at the applicable
Overdue Rate on any installment of Basic Rent not paid when due (subject to the
applicable grace period) for the period for which the same shall be overdue and
on any payment of Supplemental Rent not paid when due or demanded by the
appropriate Person (subject to any applicable grace period) for the period from
the due date or the date of any such demand, as the case may be, until the same
shall be paid and (c) amounts referenced as Supplemental Rent obligations
pursuant to Section 8.3 of the Participation Agreement. It shall be an
additional Supplemental Rent obligation of Lessee to pay to the appropriate
Person all rent and other amounts when such become due and owing from time to
time under each Ground Lease and without the necessity of any notice from Lessor
with regard thereto. The expiration or other termination of Lessee's
obligations to pay Basic Rent hereunder shall not limit or modify the
obligations of Lessee with respect to Supplemental Rent. Unless expressly
provided otherwise in this Lease, in the event of any failure on the part of
Lessee to pay and discharge any Supplemental Rent as and when due, Lessee shall
also promptly pay and discharge any fine, penalty, interest or cost which may be
assessed or added for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
3.4 PERFORMANCE ON A NON-BUSINESS DAY.
---------------------------------
If any Basic Rent is required hereunder on a day that is not a Business
Day, then such Basic Rent shall be due on the corresponding Scheduled Interest
Payment Date. If any Supplemental Rent is required hereunder on a day that is
not a Business Day, then such Supplemental Rent shall be due on the next
succeeding Business Day.
3.5 RENT PAYMENT PROVISIONS.
-----------------------
Lessee shall make payment of all Basic Rent and Supplemental Rent when due
(subject to the applicable grace periods) regardless of whether any of the
Operative Agreements pursuant to which same is calculated and is owing shall
have been rejected, avoided or disavowed in any bankruptcy or insolvency
proceeding involving any of the parties to any of the
4
<PAGE>
Operative Agreements. Such provisions of such Operative Agreements and their
related definitions are incorporated herein by reference and shall survive any
termination, amendment or rejection of any such Operative Agreements.
ARTICLE IV
4.1 TAXES; UTILITY CHARGES.
----------------------
Lessee shall pay or cause to be paid all Impositions with respect
to the Properties and/or the use, occupancy, operation, repair, access,
maintenance or operation thereof and all charges for electricity, power, gas,
oil, water, telephone, sanitary sewer service and all other rents, utilities and
operating expenses of any kind or type used in or on any Property during the
Term. Upon Lessor's request, Lessee shall provide from time to time Lessor with
evidence of all such payments referenced in the foregoing sentence. Lessee shall
be entitled to receive any credit or refund with respect to any Imposition or
utility charge paid by Lessee. Unless an Event of Default shall have occurred
and be continuing, the amount of any credit or refund received by Lessor on
account of any Imposition or utility charge paid by Lessee, net of the
reasonable costs and expenses incurred by Lessor in obtaining such credit or
refund, shall be promptly paid over to Lessee. All charges for Impositions or
utilities imposed with respect to any Property for a period during which this
Lease expires or terminates shall be adjusted and prorated on a daily basis
between Lessor and Lessee, and each party shall pay or reimburse the other for
such party's pro rata share thereof.
ARTICLE V
5.1 QUIET ENJOYMENT.
---------------
Subject to the rights of Lessor contained in Sections 17.2, 17.3
and 20.3 and the other terms of this Lease and the other Operative Agreements
and so long as no Event of Default shall have occurred and be continuing, Lessee
shall peaceably and quietly have, hold and enjoy each Property for the
applicable Term, free of any claim or other action by Lessor or anyone
rightfully claiming by, through or under Lessor (other than Lessee) with respect
to any matters arising from and after the applicable Commencement Date.
ARTICLE VI
6.1 NET LEASE.
---------
This Lease shall constitute a net lease, and the obligations of
Lessee hereunder are absolute and unconditional. Lessee shall pay all operating
expenses arising out of the use, operation and/or occupancy of each Property.
Any present or future law to the contrary notwithstanding, this Lease shall not
terminate, nor shall Lessee be entitled to any abatement,
5
<PAGE>
suspension, deferment,reduction, setoff, counterclaim, or defense with respect
to the Rent, nor shall the obligations of Lessee hereunder be affected (except
as expressly herein permitted and by performance of the obligations in
connection therewith) for any reason whatsoever, including without limitation by
reason of: (a) any damage to or destruction of any Property or any part thereof;
(b) any taking of any Property or any part thereof or interest therein by
Condemnation or otherwise; (c) any prohibition, limitation, restriction or
prevention of Lessee's use, occupancy or enjoyment of any Property or any part
thereof, or any interference with such use, occupancy or enjoyment by any Person
or for any other reason; (d) any title defect, Lien or any matter affecting
title to any Property; (e) any eviction by paramount title or otherwise; (f) any
default by Lessor hereunder; (g) any action for bankruptcy, insolvency,
reorganization, liquidation, dissolution or other proceeding relating to or
affecting the Agent, any Lender, Lessor, Lessee, any Holder or any Governmental
Authority; (h) the impossibility or illegality of performance by Lessor, Lessee
or both; (i) any action of any Governmental Authority or any other Person; (j)
Lessee's acquisition of ownership of all or part of any Property; (k) breach of
any warranty or representation with respect to any Property or any Operative
Agreement; (l) any defect in the condition, quality or fitness for use of any
Property or any part thereof; or (m) any other cause or circumstance whether
similar or dissimilar to the foregoing and whether or not Lessee shall have
notice or knowledge of any of the foregoing. The parties intend that the
obligations of Lessee hereunder shall be covenants, agreements and obligations
that are separate and independent from any obligations of Lessor hereunder and
shall continue unaffected unless such covenants, agreements and obligations
shall have been modified or terminated in accordance with an express provision
of this Lease. Lessor and Lessee acknowledge and agree that the provisions of
this Section 6.1 have been specifically reviewed and subject to negotiation.
6.2 NO TERMINATION OR ABATEMENT.
---------------------------
Lessee shall remain obligated under this Lease in accordance with its terms
and shall not take any action to terminate, rescind or avoid this Lease,
notwithstanding any action for bankruptcy, insolvency, reorganization,
liquidation, dissolution, or other proceeding affecting any Person or any
Governmental Authority, or any action with respect to this Lease or any
Operative Agreement which may be taken by any trustee, receiver or liquidator of
any Person or any Governmental Authority or by any court with respect to any
Person, or any Governmental Authority. Lessee hereby waives all right (a) to
terminate or surrender this Lease (except as permitted under the terms of the
Operative Agreements) or (b) to avail itself of any abatement, suspension,
deferment, reduction, setoff, counterclaim or defense with respect to any Rent.
Lessee shall remain obligated under this Lease in accordance with its terms and
Lessee hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease. Notwithstanding any such statute or otherwise, Lessee shall be
bound by all of the terms and conditions contained in this Lease.
6
<PAGE>
ARTICLE VII
7.1 OWNERSHIP OF THE PROPERTIES.
---------------------------
(a) Lessor and Lessee intend that (i) for financial accounting
purposes with respect to Lessee (A) this Lease will be treated as an
"operating lease" pursuant to Statement of Financial Accounting Standards
No. 13, as amended, (B) Lessor will be treated as the owner and lessor of
each Property and (C) Lessee will be treated as the lessee of each
Property, but (ii) for federal and all state and local income tax purposes,
bankruptcy purposes and bank regulatory purposes (A) this Lease will be
treated as a financing arrangement and (B) Lessee will be treated as the
owner of the Properties and will be entitled to all tax benefits ordinarily
available to owners of property similar to the Properties for such tax
purposes. Notwithstanding the foregoing, neither party hereto has made, or
shall be deemed to have made, any representation or warranty as to the
availability of any of the foregoing treatments under applicable accounting
rules, tax, bankruptcy, regulatory, commercial or real estate law or under
any other set of rules. Lessee shall claim the cost recovery deductions
associated with each Property, and Lessor shall not, to the extent not
prohibited by Law, take on its tax return a position inconsistent with
Lessee's claim of such deductions.
(b) For all purposes other than as set forth in
Section 7.1(a)(i), Lessor and Lessee intend this Lease to constitute a
finance lease and not a true lease. In order to secure the obligations of
Lessee now existing or hereafter arising under any and all Operative
Agreements, Lessee hereby conveys, grants, assigns, transfers,
hypothecates, mortgages and sets over to Lessor, for the benefit of all
Financing Parties, a first priority security interest (but subject to the
security interest in the assets granted by Lessee in favor of the Agent in
accordance with the Security Documents) in and lien on all right, title and
interest of Lessee (now owned or hereafter acquired) in and to all
Properties, to the extent such is personal property and irrevocably grants
and conveys a lien, deed of trust and mortgage on all right, title and
interest of Lessee (now owned or hereafter acquired) in and to all
Properties to the extent such is real property. Lessor and Lessee further
intend and agree that, for the purpose of securing the obligations of
Lessee and/or the Construction Agent now existing or hereafter arising
under the Operative Agreements, (i) this Lease shall be a security
agreement and financing statement within the meaning of Article 9 of the
Uniform Commercial Code respecting each of the Properties and all proceeds
(including without limitation insurance proceeds thereof) to the extent
such is personal property and an irrevocable grant and conveyance of a
lien, deed of trust and mortgage on each of the Properties and all proceeds
(including without limitation insurance proceeds thereof) to the extent
such is real property; (ii) the acquisition of title (or to the extent
applicable, a leasehold interest pursuant to a Ground Lease) in each
Property referenced in Article II constitutes a grant by Lessee to Lessor
of a security interest, lien, deed of trust and mortgage in all of Lessee's
right, title and interest in and to each Property and all proceeds
(including without limitation insurance proceeds thereof) of the
conversion, voluntary or involuntary, of the foregoing into cash,
investments, securities or other property, whether in the form of cash,
investments,
7
<PAGE>
securities or other property, and an assignment of all rents, profits and
income produced by each Property; and (iii) notifications to Persons
holding such property, and acknowledgments, receipts or confirmations from
financial intermediaries, bankers or agents (as applicable) of Lessee shall
be deemed to have been given for the purpose of perfecting such lien,
security interest, mortgage lien and deed of trust under applicable law.
Lessee shall promptly take such actions as Lessor may reasonably request
(including without limitation the filing of Uniform Commercial Code
Financing Statements, Uniform Commercial Code Fixture Filings and memoranda
(or short forms) of this Lease and the various Lease Supplements) to ensure
that the lien, security interest, lien, mortgage lien and deed of trust in
each Property and the other items referenced above will be deemed to be a
perfected lien, security interest, mortgage lien and deed of trust of first
priority under applicable law and will be maintained as such throughout the
Term.
ARTICLE VIII
8.1 CONDITION OF THE PROPERTIES.
---------------------------
LESSEE ACKNOWLEDGES AND AGREES THAT IT IS LEASING EACH PROPERTY
"AS-IS, WHERE-IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR
IMPLIED) BY LESSOR (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR
OF LESSOR LIENS) AND IN EACH CASE SUBJECT TO (A) THE EXISTING STATE OF TITLE,
(B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF (IF ANY), (C) ANY STATE OF
FACTS REGARDING ITS PHYSICAL CONDITION OR WHICH AN ACCURATE SURVEY MIGHT SHOW,
(D) ALL APPLICABLE LEGAL REQUIREMENTS AND (E) VIOLATIONS OF LEGAL REQUIREMENTS
WHICH MAY EXIST ON THE DATE HEREOF AND/OR THE DATE OF THE APPLICABLE LEASE
SUPPLEMENT. NEITHER LESSOR NOR THE AGENT NOR ANY LENDER NOR ANY HOLDER HAS MADE
OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) (EXCEPT THAT LESSOR SHALL KEEP EACH PROPERTY FREE AND CLEAR
OF LESSOR LIENS) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE
TITLE, VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY
OR FITNESS FOR USE OF ANY PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY PROPERTY (OR ANY PART THEREOF), AND NEITHER LESSOR NOR THE AGENT
NOR ANY LENDER NOR ANY HOLDER SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT
DEFECT THEREON OR THE FAILURE OF ANY PROPERTY, OR ANY PART THEREOF, TO COMPLY
WITH ANY LEGAL REQUIREMENT. LESSEE HAS OR PRIOR TO THE BASIC TERM COMMENCEMENT
DATE WILL HAVE BEEN AFFORDED FULL OPPORTUNITY TO INSPECT EACH PROPERTY AND THE
IMPROVEMENTS THEREON (IF ANY), IS OR WILL BE (INSOFAR AS LESSOR, THE AGENT, EACH
LENDER AND EACH HOLDER ARE
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CONCERNED) SATISFIED WITH THE RESULTS OF ITS INSPECTIONS AND IS ENTERING INTO
THIS LEASE SOLELY ON THE BASIS OF THE RESULTS OF ITS OWN INSPECTIONS, AND ALL
RISKS INCIDENT TO THE MATTERS DESCRIBED IN THE PRECEDING SENTENCE, AS BETWEEN
LESSOR, THE AGENT, THE LENDERS AND THE HOLDERS, ON THE ONE (1) HAND, AND LESSEE,
ON THE OTHER HAND, ARE TO BE BORNE BY LESSEE.
8.2 POSSESSION AND USE OF THE PROPERTIES.
------------------------------------
(a) At all times during the Term with respect to each Property,
such Property shall be a Permitted Facility and shall be used by Lessee in
the ordinary course of its business. Lessee shall pay, or cause to be paid,
all charges and costs required in connection with the use of the Properties
as contemplated by this Lease. Lessee shall not commit or permit any waste
of the Properties or any part thereof.
(b) The principal place of business and chief executive office of
Lessee (as such terms are used in Section 9-103(3) of the Uniform
Commercial Code of any applicable jurisdiction) is 9830 Patuxent Woods
Drive, Columbia, Maryland, and Lessee will provide Lessor with prior
written notice of any change of location of its principal place of business
or chief executive office. Regarding a particular Property, each Lease
Supplement correctly identifies the initial location of the related
Equipment (if any) and Improvements (if any) and contains an accurate legal
description for the related parcel of Land or a copy of the Ground Lease
(if any). The Equipment and Improvements respecting each particular
Property will be located only at the location identified in the applicable
Lease Supplement.
(c) Lessee will not attach or incorporate any item of Equipment to
or in any other item of equipment or personal property or to or in any real
property in a manner that could give rise to the assertion of any Lien by a
third party on such item of Equipment by reason of such attachment, or the
assertion of a claim that such item of Equipment has become a fixture and
is subject to a Lien in favor of a third party, that is prior to the Liens
thereon created by the Operative Agreements.
(d) On the Commencement Date for each Property, Lessor and Lessee
shall execute a Lease Supplement in regard to such Property which shall
contain an Equipment Schedule that has a general description of the
Equipment which shall comprise the Property, an Improvement Schedule that
has a general description of the Improvements which shall comprise the
Property and a legal description of the Land to be leased hereunder (or, in
the case of any Property subject to a Ground Lease, to be subleased
hereunder) as of such date. Each Property subject to a Ground Lease shall
be deemed to be ground subleased from Lessor to Lessee as of the
Commencement Date, and such ground sublease shall be in effect until this
Lease is terminated or expires, in each case in accordance with the terms
and provisions hereof. Lessee shall satisfy and perform all obligations
imposed on Lessor under each Ground Lease. Simultaneously with the
execution and delivery of each Lease Supplement, such Equipment,
Improvements, Land,
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ground subleasehold interest, all additional Equipment and all additional
Improvements which are financed under the Operative Agreements after the
Commencement Date and the remainder of such Property shall be deemed to
have been accepted by Lessee for all purposes of this Lease and to be
subject to this Lease.
(e) At all times during the Term with respect to each Property, Lessee
will comply with all obligations under and (to the extent no Event of
Default exists and provided that such exercise will not impair the value,
utility or remaining useful life of such Property) shall be permitted to
exercise all rights and remedies under, all operation and easement
agreements and related or similar agreements applicable to such Property.
8.3 INTEGRATED PROPERTIES.
---------------------
On the Rent Commencement Date for each Property, Lessee shall, at
its sole cost and expense, cause such Property and the applicable property
subject to a Ground Lease to constitute (and for the duration of the Term shall
continue to constitute) all of the equipment, facilities, rights, other personal
property and other real property necessary or appropriate to operate, utilize,
maintain and control a Permitted Facility in a commercially reasonable manner.
ARTICLE IX
9.1 COMPLIANCE WITH LEGAL REQUIREMENTS, INSURANCE REQUIREMENTS AND
--------------------------------------------------------------
MANUFACTURER'S SPECIFICATIONS AND STANDARDS.
-------------------------------------------
Subject to the terms of Article XIII relating to permitted
contests, Lessee, at its sole cost and expense, shall (a) comply with all
applicable Legal Requirements (including without limitation all Environmental
Laws) and all Insurance Requirements relating to the Properties, (b) procure,
maintain and comply with all licenses, permits, orders, approvals, consents and
other authorizations required for the acquisition, installation, testing, use,
development, construction, operation, maintenance, repair, refurbishment and
restoration of the Properties, and (c) comply with all manufacturer's
specifications and standards, including without limitation the acquisition,
installation, testing, use, development, construction, operation, maintenance,
repair, refurbishment and restoration of the Properties, whether or not
compliance therewith shall require structural or extraordinary changes in any
Property or interfere with the use and enjoyment of any Property unless the
failure to procure, maintain and comply with such items identified in
subparagraphs (b) and (c), individually or in the aggregate, shall not and could
not reasonably be expected to have a Material Adverse Effect. Lessor agrees to
take such actions as may be reasonably requested by Lessee in connection with
the compliance by Lessee of its obligations under this Section 9.1.
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ARTICLE X
10.1 MAINTENANCE AND REPAIR; RETURN.
------------------------------
(a) Lessee, at its sole cost and expense, shall maintain each
Property in good condition, repair and working order (ordinary wear and
tear excepted) and in the repair and condition as when originally delivered
to Lessor and make all necessary repairs thereto and replacements thereof,
of every kind and nature whatsoever, whether interior or exterior, ordinary
or extraordinary, structural or nonstructural or foreseen or unforeseen, in
each case as required by Section 9.1 and on a basis consistent with the
operation and maintenance of properties or equipment comparable in type and
function to the applicable Property, such that such Property is capable of
being immediately utilized by a third party and in compliance with standard
industry practice subject, however, to the provisions of Article XV with
respect to Casualty and Condemnation.
(b) Lessee shall not use or locate any component of any Property
outside of the Approved State therefor. Lessee shall not move or relocate
any component of any Property beyond the boundaries of the Land (comprising
part of such Property) described in the applicable Lease Supplement, except
for the temporary removal of Equipment and other personal property for
repair or replacement.
(c) If any component of any Property becomes worn out, lost,
destroyed, damaged beyond repair or otherwise permanently rendered unfit
for use, Lessee, at its own expense, will within a reasonable time replace
such component with a replacement component which is free and clear of all
Liens (other than Permitted Liens and Lessor Liens) and has a value,
utility and useful life at least equal to the component replaced (assuming
the component replaced had been maintained and repaired in accordance with
the requirements of this Lease). All components which are added to any
Property shall immediately become the property of (and title thereto shall
vest in) Lessor and shall be deemed incorporated in such Property and
subject to the terms of this Lease as if originally leased hereunder.
(d) Upon reasonable advance notice, Lessor and its agents shall
have the right to inspect each Property and all maintenance records with
respect thereto at any reasonable time during normal business hours but
shall not, in the absence of an Event of Default, materially disrupt the
business of Lessee.
(e) If, at any time, the aggregate appraised value of Properties
then subject to this Lease for which the Agent has received an Appraisal
pursuant to the terms of Section 5.3 of the Participation Agreement is less
than the lesser of (i) $12,000,000 or (ii) the aggregate Property Cost at
such time (the "Base Amount"), then Lessee will cause an additional
Appraisal or Appraisals to be immediately delivered to Lessor in an amount
sufficient to cause such aggregate appraised value to equal or exceed the
Base Amount. In addition, Lessee shall cause to be delivered to Lessor (at
Lessee's sole expense) one (1) or more additional Appraisals (or
reappraisals of Property) as Lessor may request if
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any one (1) of Lessor, the Agent, the Trust Company, any Lender or any
Holder is required pursuant to any applicable Legal Requirement to obtain
such Appraisals (or reappraisals) and upon the occurrence of any Event of
Default.
(f) Lessor shall under no circumstances be required to build any
improvements or install any equipment on any Property, make any repairs,
replacements, alterations or renewals of any nature or description to any
Property, make any expenditure whatsoever in connection with this Lease or
maintain any Property in any way. Lessor shall not be required to
maintain, repair or rebuild all or any part of any Property, and Lessee
waives the right to (i) require Lessor to maintain, repair, or rebuild all
or any part of any Property, or (ii) make repairs at the expense of Lessor
pursuant to any Legal Requirement, Insurance Requirement, contract,
agreement, covenant, condition or restriction at any time in effect.
(g) Lessee shall, upon the expiration or earlier termination of
this Lease with respect to a Property, if Lessee shall not have exercised
its Purchase Option with respect to such Property and purchased such
Property, surrender such Property (i) to Lessor pursuant to the exercise of
the applicable remedies upon the occurrence of a Lease Event of Default or
(ii) pursuant to the second paragraph of Section 22.1(a) hereof, to Lessor
or the third party purchaser, as the case may be, subject to Lessee's
obligations under this Lease (including without limitation the obligations
of Lessee at the time of such surrender under Sections 9.1, 10.1(a) through
(f), 10.2, 11.1, 12.1, 22.1 and 23.1).
10.2 ENVIRONMENTAL INSPECTION.
------------------------
If Lessee has not given notice of exercise of its Purchase Option
on the Expiration Date pursuant to Section 20.1 or for whatever reason Lessee
does not purchase a Property in accordance with the terms of this Lease, then
not more than one hundred twenty (120) days nor less than sixty (60) days prior
to the Expiration Date, Lessee at its expense shall cause to be delivered to
Lessor a Phase I environmental site assessment recently prepared (no more than
thirty (30) days prior to the date of delivery) by an independent recognized
professional reasonably acceptable to Lessor, prepared in accordance with
standard industry practice and reasonably satisfactory to Lessor.
ARTICLE XI
11.1 MODIFICATIONS.
-------------
(a) Lessee at its sole cost and expense, at any time and from
time to time without the consent of Lessor, may make modifications,
alterations, renovations, improvements and additions to any Property or any
part thereof and substitutions and replacements therefor (collectively,
"Modifications"), and Lessee shall make any and all Modifications required
to be made pursuant to all Legal Requirements, Insurance Requirements and
manufacturer's specifications and standards; provided, that: (i) no
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Modification shall materially impair the value or utility of any Property
from that which existed immediately prior to such Modification; (ii) each
Modification shall be done expeditiously and in a good and workmanlike
manner; (iii) no Modification shall adversely affect the structural
integrity of any Property; (iv) to the extent required by Section 14.2(a),
Lessee shall maintain builders' risk insurance at all times when a
Modification is in progress; (v) subject to the terms of Article XIII
relating to permitted contests, Lessee shall pay all costs and expenses and
discharge any Liens (other than Permitted Liens) arising with respect to
any Modification; (vi) each Modification shall comply with the requirements
of this Lease (including without limitation Sections 8.2 and 10.1); and
(vii) no Improvement shall be demolished or otherwise rendered unfit for
use unless Lessee shall finance the proposed replacement Modification
outside of this lease facility; provided, further, Lessee shall not make
any Modification (unless required by any Legal Requirement) to the extent
any such Modification, individually or in the aggregate, shall or could
reasonably be expected to have a Material Adverse Effect. All Modifications
shall immediately and without further action upon their incorporation into
the applicable Property (1) become property of Lessor, (2) be subject to
this Lease and (3) be titled in the name of Lessor. Lessee shall not remove
or attempt to remove any Modification from any Property. Each Ground Lease
for a Property shall expressly provide for the provisions of the foregoing
sentence. Lessee, at its own cost and expense, will pay for the repairs of
any damage to any Property caused by the removal or attempted removal of
any Modification.
(b) The construction process provided for in the Agency Agreement
is acknowledged by Lessor to be consistent with and in compliance with the
terms and provisions of this Article XI.
ARTICLE XII
12.1 WARRANTY OF TITLE.
-----------------
(a) Lessee hereby acknowledges and shall cause title in each
Property (including without limitation all Equipment, all Improvements, all
replacement components to each Property and all Modifications) immediately
and without further action to vest in and become the property of Lessor and
to be subject to the terms of this Lease (provided, respecting each
Property subject to a Ground Lease, Lessor's interest therein is
acknowledged to be a leasehold interest pursuant to such Ground Lease) from
and after the date hereof or such date of incorporation into any Property.
Lessee agrees that, subject to the terms of Article XIII relating to
permitted contests, Lessee shall not directly or indirectly create or allow
to remain, and shall promptly discharge at its sole cost and expense, any
Lien, defect, attachment, levy, title retention agreement or claim upon any
Property, any component thereof or any Modifications or any Lien,
attachment, levy or claim with respect to the Rent or with respect to any
amounts held by Lessor, the Agent, any Lender or any Holder pursuant to any
Operative Agreement, other than Permitted Liens and Lessor Liens. Lessee
shall promptly notify Lessor in the event it receives actual knowledge that
a Lien other than a Permitted Lien or Lessor Lien has
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occurred with respect to a Property, the Rent or any other such amounts,
and Lessee represents and warrants to, and covenants with, Lessor that the
Liens in favor of Lessor and/or the Agent created by the Operative
Agreements are (and until the financing parties under the Operative
Agreements have been paid in full shall remain) first priority perfected
Liens subject only to Permitted Liens and Lessor Liens. At all times
subsequent to the Commencement Date respecting a Property, Lessee shall (i)
cause a valid, perfected, first priority Lien on each applicable Property
to be in place in favor of the Agent (for the benefit of the Lenders and
the Holders) and (ii) file, or cause to be filed, all necessary documents
under the applicable real property law and Article 9 of the Uniform
Commercial Code to perfect such title and Liens.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to or
for the performance by any contractor, mechanic, laborer, materialman,
supplier or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition
of or to any Property or any part thereof. NOTICE IS HEREBY GIVEN THAT
LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
FURNISHED OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING A PROPERTY OR
ANY PART THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER
LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT
THE INTEREST OF LESSOR IN AND TO ANY PROPERTY OTHER THAN PERMITTED LIENS.
ARTICLE XIII
13.1 PERMITTED CONTESTS OTHER THAN IN RESPECT OF INDEMNITIES.
-------------------------------------------------------
Except to the extent otherwise provided for in Section 11 of the
Participation Agreement, Lessee, on its own or on Lessor's behalf but at
Lessee's sole cost and expense, may contest, by appropriate administrative or
judicial proceedings conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Legal Requirement,
Imposition or utility charge payable pursuant to Section 4.1 or any Lien,
attachment, levy, encumbrance or encroachment, and Lessor agrees not to pay,
settle or otherwise compromise any such item, provided, that (a) the
--------
commencement and continuation of such proceedings shall suspend the collection
of any such contested amount from, and suspend the enforcement thereof against,
the applicable Properties, Lessor, each Holder, the Agent and each Lender; (b)
there shall not be imposed a Lien (other than Permitted Liens and Lessor Liens)
on any Property and no part of any Property nor any Rent would be in any danger
of being sold, forfeited, lost or deferred; (c) at no time during the permitted
contest shall there be a risk of the imposition of criminal liability or
material civil liability on Lessor, any Holder, the Agent or any Lender for
failure to comply therewith; and (d) in the event that, at any time, there shall
be a material risk of extending the application of such item beyond the end of
the Term, then Lessee shall deliver to Lessor an Officer's Certificate
certifying as to the matters set forth in clauses (a), (b) and (c) of this
Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute and
deliver to Lessee
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such authorizations and other documents as may reasonably be required in
connection with any such contest and, if reasonably requested by Lessee, shall
join as a party therein at Lessee's sole cost and expense.
13.2 IMPOSITIONS, UTILITY CHARGES, OTHER MATTERS; COMPLIANCE WITH
------------------------------------------------------------
LEGAL REQUIREMENTS.
------------------
Except with respect to Impositions, Legal Requirements, utility
charges and such other matters referenced in Section 13.1 which are the subject
of ongoing proceedings contesting the same in a manner consistent with the
requirements of Section 13.1, Lessee shall cause (a) all Impositions, utility
charges and such other matters to be timely paid, settled or compromised, as
appropriate, with respect to each Property and (b) each Property to comply with
all applicable Legal Requirements.
ARTICLE XIV
14.1 PUBLIC LIABILITY AND WORKERS' COMPENSATION INSURANCE.
----------------------------------------------------
During the Term for each Property, Lessee shall procure and
carry, at Lessee's sole cost and expense, commercial general liability and
umbrella liability insurance for claims for injuries or death sustained by
persons or damage to property while on such Property or respecting the Equipment
and such other public liability coverages as are then customarily carried by
similarly situated companies conducting business similar to that conducted by
Lessee. Such insurance shall be on terms and in amounts that are no less
favorable than insurance maintained by Lessee with respect to similar properties
and equipment that it owns and are then carried by similarly situated companies
conducting business similar to that conducted by Lessee, and in no event shall
have a minimum combined single limit per occurrence coverage (i) for commercial
general liability of less than $1,000,000 and (ii) for umbrella liability of
less than $15,000,000. The policies shall name Lessee as the insured and shall
be endorsed to name Lessor, the Holders, the Agent and the Lenders as additional
insureds. The policies shall also specifically provide that such policies shall
be considered primary insurance which shall apply to any loss or claim before
any contribution by any insurance which Lessor, any Holder, the Agent or any
Lender may have in force. In the operation of the Properties, Lessee shall
comply with applicable workers' compensation laws and protect Lessor, each
Holder, the Agent and each Lender against any liability under such laws.
14.2 PERMANENT HAZARD AND OTHER INSURANCE.
------------------------------------
(a) During the Term for each Property, Lessee shall keep such
Property insured against all risk of physical loss or damage by fire and
other risks and shall maintain builders' risk insurance during construction
of any Improvements or Modifications in each case in amounts no less than
the Property Cost of such Property from time to time and on terms that (i)
are no less favorable than insurance covering other similar properties
owned by Lessee and (ii) are then carried by similarly situated
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companies conducting business similar to that conducted by Lessee. The
policies shall name Lessee as the insured and shall be endorsed to name
Lessor and the Agent (on behalf of the Lenders and the Holders) as a named
additional insured and loss payee, to the extent of their respective
interests; provided, so long as no Event of Default exists, any loss
--------
payable under the insurance policies required by this Section for losses up
to $1,000,000 will be paid to Lessee.
(b) If, during the Term with respect to a Property the area in
which such Property is located is designated a "flood-prone" area pursuant
to the Flood Disaster Protection Act of 1973, or any amendments or
supplements thereto or is in a zone designated A or V, then Lessee shall
comply with the National Flood Insurance Program as set forth in the Flood
Disaster Protection Act of 1973. In addition, Lessee will fully comply with
the requirements of the National Flood Insurance Act of 1968 and the Flood
Disaster Protection Act of 1973, as each may be amended from time to time,
and with any other Legal Requirement, concerning flood insurance to the
extent that it applies to any such Property. During the Term, Lessee
shall, in the operation and use of each Property, maintain workers'
compensation insurance consistent with that carried by similarly situated
companies conducting business similar to that conducted by Lessee and
containing minimum liability limits of no less than $100,000. In the
operation of each Property, Lessee shall comply with workers' compensation
laws applicable to Lessee, and protect Lessor, each Holder, the Agent and
each Lender against any liability under such laws.
14.3 COVERAGE.
--------
(a) As of the date of this Lease and annually thereafter during
the Term, Lessee shall furnish the Agent (on behalf of Lessor and the other
beneficiaries of such insurance coverage) with certificates prepared by the
insurers or insurance broker of Lessee showing the insurance required under
Sections 14.1 and 14.2 to be in effect, naming (to the extent of their
respective interests) Lessor, the Holders, the Agent and the Lenders as
additional insureds and loss payees and evidencing the other requirements
of this Article XIV. All such insurance shall be at the cost and expense of
Lessee and provided by nationally recognized, financially sound insurance
companies having an A or better rating by A.M. Best's Key Rating Guide.
Lessee shall cause such certificates to include a provision for thirty (30)
days' advance written notice by the insurer to the Agent (on behalf of
Lessor and the other beneficiaries of such insurance coverage) in the event
of cancellation or material alteration of such insurance. If an Event of
Default has occurred and is continuing and the Agent (on behalf of Lessor
and the other beneficiaries of such insurance coverage) so requests, Lessee
shall deliver to the Agent (on behalf of Lessor and the other beneficiaries
of such insurance coverage) copies of all insurance policies required by
Sections 14.1 and 14.2.
(b) Lessee agrees that the insurance policy or policies required
by Sections 14.1, 14.2(a) and 14.2(b) shall include an appropriate clause
pursuant to which any such policy shall provide that it will not be
invalidated should Lessee or any Contractor, as the
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case may be, waive, at any time, any or all rights of recovery against any
party for losses covered by such policy or due to any breach of warranty,
fraud, action, inaction or misrepresentation by Lessee or any Person acting
on behalf of Lessee. Lessee hereby waives any and all such rights against
Lessor, the Hold ers, the Agent and the Lenders to the extent of payments
made to any such Person under any such policy.
(c) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Article XIV, except that Lessor may carry
separate liability insurance at Lessor's sole cost so long as (i) Lessee's
insurance is designated as primary and in no event excess or contributory
to any insurance Lessor may have in force which would apply to a loss
covered under Lessee's policy and (ii) each such insurance policy will not
cause Lessee's insurance required under this Article XIV to be subject to a
coinsurance exception of any kind.
(d) Lessee shall pay as they become due all premiums for the
insurance required by Section 14.1 and Section 14.2, shall renew or replace
each policy prior to the expiration date thereof or otherwise maintain the
coverage required by such Sections without any lapse in coverage.
ARTICLE XV
15.1 CASUALTY AND CONDEMNATION.
-------------------------
(a) Subject to the provisions of the Agency Agreement and this
Article XV and Article XVI (in the event Lessee delivers, or is obligated
to deliver or is deemed to have delivered, a Termination Notice), and prior
to the occurrence and continuation of a Default or an Event of Default,
Lessee shall be entitled to receive (and Lessor hereby irrevocably assigns
to Lessee all of Lessor's right, title and interest in) any condemnation
proceeds, award, compensation or insurance proceeds under Sections 14.2(a)
or 14.2(b) hereof to which Lessee or Lessor may become entitled by reason
of their respective interests in a Property (i) if all or a portion of such
Property is damaged or destroyed in whole or in part by a Casualty or (ii)
if the use, access, occupancy, easement rights or title to such Property or
any part thereof is the subject of a Condemnation; provided, however, if a
-------- -------
Default or an Event of Default shall have occurred and be continuing or if
such award, compensation or insurance proceeds shall exceed $1,000,000,
then such award, compensation or insurance proceeds shall be paid directly
to Lessor or, if received by Lessee, shall be held in trust for Lessor, and
shall be paid over by Lessee to Lessor and held in accordance with the
terms of this Section 15.1(a). All amounts held by Lessor hereunder on
account of any award, compensation or insurance proceeds either paid
directly to Lessor or turned over to Lessor shall be held as security for
the performance of Lessee's obligations hereunder and under the other
Operative Agreements and when all such obligations of Lessee with respect
to such matters (and all other obligations of
17
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Lessee which should have been satisfied pursuant to the Operative
Agreements as of such date) have been satisfied, all amounts so held by
Lessor shall be paid over to Lessee.
(b) Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or
insurance payment on account of any such Casualty or Condemnation and shall
pay all expenses thereof. At Lessee's reasonable request, and at Lessee's
sole cost and expense, Lessor and the Agent shall participate in any such
proceeding, action, negotiation, prosecution or adjustment. Lessor and
Lessee agree that this Lease shall control the rights of Lessor and Lessee
in and to any such award, compensation or insurance payment.
(c) If Lessee shall receive notice of a Casualty or a Condemnation
of a Property or any interest therein where damage to the affected Property
is estimated to equal or exceed twenty-five percent (25%) of the Property
Cost of such Property, Lessee shall give notice thereof to Lessor promptly
after Lessee's receipt of such notice. In the event such a Casualty or
Condemnation occurs (regardless of whether Lessee gives notice thereof),
then Lessee shall be deemed to have delivered a Termination Notice to
Lessor and the provisions of Sections 16.1 and 16.2 shall apply.
(d) In the event of a Casualty or a Condemnation (regardless of
whether notice thereof must be given pursuant to Section 15.1(c)), this
Lease shall terminate with respect to the applicable Property in accordance
with Section 16.1 if Lessee, within thirty (30) days after such occurrence,
delivers to Lessor a notice to such effect.
(e) If pursuant to this Section 15.1 this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to
the affected Property, Lessee shall, at its sole cost and expense (subject
to reimbursement in accordance with Section 15.1(a)) promptly and
diligently repair any damage to the applicable Property caused by such
Casualty or Condemnation in conformity with the requirements of Sections
10.1 and 11.1, using the as-built Plans and Specifications or
manufacturer's specifications for the applicable Improvements, Equipment or
other components of the applicable Property (as modified to give effect to
any subsequent Modifications, any Condemnation affecting the applicable
Property and all applicable Legal Requirements), so as to restore the
applicable Property to the same or a greater remaining economic value,
useful life, utility, condition, operation and function as existed
immediately prior to such Casualty or Condemnation (assuming all
maintenance and repair standards have been satisfied). In such event, title
to the applicable Property shall remain with Lessor.
(f) In no event shall a Casualty or Condemnation affect Lessee's
obligations to pay Rent pursuant to Article III.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term with respect to a Property a
Casualty occurs with respect to such Property or Lessee receives notice of
a Condemnation with respect to such Property, and following such Casualty
or Condemnation, the applicable Property cannot
18
<PAGE>
reasonably be restored, repaired or replaced on or before the day one
hundred eighty (180) days prior to the Expiration Date or the date nine (9)
months after the occurrence of such Casualty or Condemnation (if such
Casualty or Condemnation o c curs during the Term) to the same or a greater
remaining economic value, useful life, utility, condition, operation and
function as existed immediately prior to such Casualty or Condemnation
(assuming all maintenance and repair standards have been satisfied) or on
or before such day such Property is not in fact so restored, repaired or
replaced, then Lessee shall be required to exercise its Purchase Option for
such Property on the next Payment Date (notwithstanding the limits on such
exercise contained in Section 20.2) and pay Lessor the Termination Value
for such Property; provided, if any Default or Event of Default has
--------
occurred and is continuing, Lessee shall also promptly (and in any
event within three (3) Business Days) pay Lessor any award, compensation or
insurance proceeds received on account of any Casualty or Condemnation with
respect to any Property; provided, further, that if no Default or Event of
-------- -------
Default has occurred and is continuing, any Excess Proceeds shall be paid
to Lessee. If a Default or an Event of Default has occurred and is
continuing and any Loans, Holder Advances or other amounts are owing with
respect thereto, then any Excess Proceeds (to the extent of any such Loans,
Holder Advances or other amounts owing with respect thereto) shall be paid
to Lessor, held as security for the performance of Lessee's obligations
hereunder and under the other Operative Agreements and applied to such
obligations upon the exercise of remedies in connection with the occurrence
of an Event of Default, with the remainder of such Excess Proceeds in
excess of such Loans, Holder Advances and other amounts owing with respect
thereto being distributed to the Lessee.
15.2 ENVIRONMENTAL MATTERS.
---------------------
Promptly upon Lessee's actual knowledge of the presence of
Hazardous Substances in any portion of any Property or Properties in
concentrations and conditions that constitute an Environmental Violation and
which, in the reasonable opinion of Lessee, the cost to undertake any legally
required response, clean up, remedial or other action will or might result in a
cost to Lessee of more than $15,000, Lessee shall notify Lessor in writing of
such condition. In the event of any Environmental Violation (regardless of
whether notice thereof must be given), Lessee shall, not later than thirty (30)
days after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor a Termination Notice with respect to the applicable Property
or Properties pursuant to Section 16.1, if applicable, or, at Lessee's sole cost
and expense, promptly and diligently undertake and diligently complete any
response, clean up, remedial or other action (including without limitation the
pursuit by Lessee of appropriate action against any off-site or third party
source for contamination) necessary to remove, cleanup or remediate the
Environmental Violation in accordance with all Environmental Laws. Any such
undertaking shall be timely completed in accordance with prudent industry
standards. If Lessee does not deliver a Termination Notice with respect to such
Property pursuant to Section 16.1, Lessee shall, upon completion of remedial
action by Lessee, cause to be prepared by a reputable environmental consultant
acceptable to Lessor a report describing the Environmental Violation and the
actions taken by Lessee (or its agents) in response to such Environmental
Violation, and a statement by the consultant that the Environmental Violation
has been remedied in full
19
<PAGE>
compliance with applicable Environmental Law. Not less than sixty (60) days
prior to any time that Lessee elects to cease operations with respect to any
Property or to remarket any Property pursuant to Section 20.1 hereof or any
other provision of any Operative Agreement, Lessee at its expense shall cause to
be delivered to Lessor a Phase I environmental site assessment respecting such
Property recently prepared (no more than thirty (30) days prior to the date of
delivery) by an independent recognized professional reasonably acceptable to
Lessor in its reasonable discretion and prepared in accordance with standard
industry practice and satisfactory to Lessor in its reasonable discretion.
Notwithstanding any other provision of any Operative Agreement, if Lessee fails
to provide a Phase I environmental site assessment as set forth herein, Lessee
shall be obligated to purchase such Property for its Termination Value and shall
not be permitted to exercise (and Lessor shall have no obligation to honor any
such exercise) any rights under any Operative Agreement regarding a sale of such
Property to a Person other than Lessee or any Affiliate of Lessee.
15.3 NOTICE OF ENVIRONMENTAL MATTERS.
-------------------------------
Promptly, but in any event within five (5) Business Days from the
date Lessee has actual knowledge thereof, Lessee shall provide to Lessor written
notice of any pending or threatened claim, action or proceeding involving any
Environmental Law or any Release on or in connection with any Property or
Properties. All such notices shall describe in reasonable detail the nature of
the claim, action or proceeding and Lessee's proposed response thereto. In
addition, Lessee shall provide to Lessor, within five (5) Business Days of
receipt, copies of all material written communications with any Governmental
Authority relating to any Environmental Law in connection with any Property.
Lessee shall also promptly provide such detailed reports of any such material
environmental claims as may reasonably be requested by Lessor.
ARTICLE XVI
16.1 TERMINATION UPON CERTAIN EVENTS.
-------------------------------
If Lessee has delivered, or is deemed to have delivered, written
notice of a termination of this Lease with respect to the applicable Property to
Lessor in the form described in Section 16.2(a) (a "Termination Notice")
------------------
pursuant to the provisions of this Lease, then following the applicable
Casualty, Condemnation or Environmental Violation, this Lease shall terminate
with respect to the affected Property on the applicable Termination Date.
16.2 PROCEDURES.
----------
(a) A Termination Notice shall contain: (i) notice of
termination of this Lease with respect to the affected Property on a
Payment Date not more than sixty (60) days after Lessor's receipt of such
Termination Notice (the "Termination Date"); and (ii) a binding and
----------------
irrevocable agreement of Lessee to pay the Termination Value for the
applicable Property and purchase such Property on such Termination Date.
20
<PAGE>
(b) On each Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable Property, and Lessor shall convey such
Property or the remaining portion thereof, if any, to Lessee (or Lessee's
designee), all in accordance with Section 20.2.
ARTICLE XVII
17.1 LEASE EVENTS OF DEFAULT.
-----------------------
If any one (1) or more of the following events (each a
"Lease Event of Default") shall occur:
----------------------
(a) Lessee shall fail to make payment of (i) any Basic Rent
(except as set forth in clause (ii)) within five (5) Business Days after
the same has become due and payable or (ii) any Termination Value, on the
date any such payment is due and payable, or any payment of Basic Rent or
Supplemental Rent due on the due date of any such payment of Termination
Value, or any amount due on the Expiration Date;
(b) Lessee shall fail to make payment of any Supplemental Rent
(other than Supplemental Rent referred to in Section 17.1(a)(ii)) or any
other Credit Party shall fail to make any payment of any amount under any
Operative Agreement which has become due and payable within five (5)
Business Days after receipt of notice that such payment is due;
(c) Lessee shall fail to maintain insurance as required by
Article XIV of this Lease or to deliver any requisite annual certificate
with respect thereto within ten (10) days of the date such certificate is
due under the terms hereof;
(d) (i) Lessee shall fail to observe or perform any term,
covenant, obligation or condition of Lessee under this Lease (including
without limitation the Incorporated Covenants (other than failure to comply
with the second sentence of Section 8.19 of the Lessee Credit Agreement))
or any other Operative Agreement to which Lessee is a party other than
those set forth in Sections 17.1(a), (b) or (c) hereof, or any other Credit
Party shall fail to observe or perform any term, covenant, obligation or
condition of such Credit Party under any Operative Agreement other than
those set forth in Section 17.1(b) hereof and such failure shall continue
for thirty (30) days (or with respect to the Incorporated Covenants, the
grace period, if any, applicable thereto provided, that references to
--------
Incorporated Covenants in this Section 17.1(d) shall not be deemed to apply
to a failure to comply with the second sentence of Section 8.19 of the
Lessee Credit Agreement) after notice thereof to the Lessee or such Credit
Party, or (ii) any representation or warranty made by Lessee or any other
Credit Party set forth in this Lease (including without limitation the
Incorporated Representation and Warranties) or in any other Operative
Agreement or in any document entered into in connection herewith or
therewith or in any
21
<PAGE>
document, certificate or financial or other statement delivered in
connection herewith or therewith shall be false or inaccurate in any
material way when made;
(e) An Agency Agreement Event of Default shall have occurred and be
continuing and shall not have been waived;
(f) Any Credit Party or any Subsidiary of any Credit Party shall
default (beyond applicable periods of grace and/or notice and cure) in the
payment when due of any principal of or interest on any Debt having an
outstanding principal amount of at least $15,000,000; or any other event or
condition shall occur which enables the holder of any such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof;
(g) JPFDI, U.S. Foodservice, Inc. or any Restricted Subsidiary shall
(i) apply for or consent to the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) become insolvent or be generally
unable to or shall generally fail or admit in writing its inability to pay
its debts as such debts become due, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect), (v) file a petition
seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (vi) acquiesce in writing to, or fail to controvert in a
timely or appropriate manner, any petition filed against it in an
involuntary case under such Bankruptcy Code, (vii) take any action under
the laws of any jurisdiction (foreign or domestic) analogous to any of the
foregoing, or (viii) take any corporate action in furtherance of any of the
foregoing; or
(h) A proceeding or case shall be commenced in respect of JPFDI, U.S.
Foodservice, Inc. or any Restricted Subsidiary, without its application or
consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it
under any law providing for the relief of debtors, and such proceeding or
case described in clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of 45 days, or an order for relief
shall be entered in an involuntary case under the Bankruptcy Code (as now
or hereafter in effect) against JPFDI, U.S. Foodservice, Inc. or any
Restricted Subsidiary or action under the laws of any jurisdiction (foreign
or domestic) analogous to any of the foregoing shall be taken with respect
to JPFDI, U.S. Foodservice, Inc. or any Restricted Subsidiary and shall
continue undismissed, or unstayed and in effect, for a period of 45 days;
(i) [INTENTIONALLY OMITTED];
(j) [INTENTIONALLY OMITTED];
(k) [INTENTIONALLY OMITTED];
22
<PAGE>
(l) Any Lessee Credit Agreement Event of Default shall have occurred
and be continuing and shall not have been waived;
(m) A final judgment or decree for the payment of money shall be
rendered by a court of competent jurisdiction against JPFDI, U.S.
Foodservice, Inc. or any Restricted Subsidiary which, either alone or
together with other outstanding judgments or decrees against JPFDI, U.S.
Foodservice, Inc. or any one or more Restricted Subsidiaries, shall
aggregate more than $15,000,000, and JPFDI, U.S. Foodservice, Inc. or such
Subsidiary, as the case may be, shall not discharge the same or provide for
its discharge in accordance with its terms within 60 days from the date of
entry thereof or within such longer period (including, without limitation,
any period during which JPFDI, U.S. Foodservice, Inc. or such Subsidiary
shall be contesting a denial of coverage of its liability in respect of
such judgment by a reputable insurance carrier) during which execution of
such judgment shall have been stayed; or
(n) Any Credit Party or any member of the Controlled Group shall fail
to pay when due any amount which it shall have become liable to pay to the
PBGC or to a Pension Plan or Multiemployer Plan under Title IV of ERISA;
(ii) any Credit Party or any member of the Controlled Group shall withdraw
from a Multiple Employer Plan during a plan year in which it is a
substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or shall be treated as having so withdrawn under Section 4062(e) of
ERISA, or any Multiple Employer Plan shall be terminated; (iii) notice of
intent to terminate any Pension Plan or Multiemployer Plan shall be filed
under Title IV of ERISA by any Credit Party or any member of the Controlled
Group, any plan administrator or any combination of the foregoing; (iv) the
PBGC shall institute proceedings under Title IV of ERISA to terminate or to
cause a trustee to be appointed to administer any Pension Plan or
Multiemployer Plan; (v) any Credit Party or any member of the Controlled
Group shall withdraw from any Multiemployer Plan ; (vi) any Plan shall have
an Unfunded Liability; or (vii) any prohibited transaction (as defined in
Section 406 of ERISA or Section 4975 of the Code) or breach of fiduciary
responsibility shall occur which may subject any Credit Party or any member
of the Controlled Group to any liability under Section 406, 409, 502(i) or
502(l) of ERISA or Section 4975 of the Code, or under any agreement or
other instrument pursuant to which such Credit Party or any member of the
Controlled Group has agreed or is required to indemnify any Person against
any such liability; and there shall result from any such event or events
referred to in the foregoing subdivisions (n)(i) through (n)(vii) a
material risk of incurring a liability in excess of $5,000,000; or
(o) A Change of Control shall occur; or
(p) Any Operative Agreement shall cease to be in full force
and effect;
(q) Except as to any Credit Party which is released in connection with
the Operative Agreements, the guaranty given by any Guarantor
under the Participation
23
<PAGE>
Agreement or any material provision thereof shall cease to be in full force
and effect, or any Guarantor or any Person acting by or on behalf of such
Guarantor shall deny or disaffirm such Guarantor's obligations under such
guaranty;
then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Article XVII and in Section 18.1, terminate this
Lease by giving Lessee five (5) days notice of such termination (provided,
notwithstanding the foregoing, this Lease shall be deemed to be automatically
terminated without the giving of notice upon the occurrence of a Lease Event of
Default under Sections 17.1(g) or (h)) and this Lease shall terminate, and all
rights of Lessee under this Lease shall cease. Lessee shall, to the fullest
extent permitted by law, pay as Supplemental Rent all costs and expenses
incurred by or on behalf of Lessor or any other Financing Party, including
without limitation reasonable fees and expenses of counsel, as a result of any
Lease Event of Default hereunder.
A POWER OF SALE HAS BEEN GRANTED IN THIS LEASE. A POWER OF SALE MAY ALLOW
LESSOR TO TAKE THE PROPERTIES AND SELL THE PROPERTIES WITHOUT GOING TO COURT IN
A FORECLOSURE ACTION UPON THE OCCURRENCE OF A LEASE EVENT OF DEFAULT.
17.2 SURRENDER OF POSSESSION.
-----------------------
If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessee shall, upon thirty (30) days written notice, surrender to
Lessor possession of the Properties. Lessor may enter upon and repossess the
Properties by such means as are available at law or in equity, and may remove
Lessee and all other Persons and any and all personal property and Lessee's
equipment and personalty and severable Modifications from the Properties. Lessor
shall have no liability by reason of any such entry, repossession or removal
performed in accordance with applicable law. Upon the written demand of Lessor,
Lessee shall return the Properties promptly to Lessor, in the manner and
condition required by, and otherwise in accordance with the provisions of,
Section 22.1(c) hereof.
17.3 RELETTING.
---------
If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessor may, but shall be under no obligation to, relet any or all
of the Properties, for the account of Lessee or otherwise, for such term or
terms (which may be greater or less than the period which would otherwise have
constituted the balance of the Term) and on such conditions (which may include
concessions or free rent) and for such purposes as Lessor may determine, and
Lessor may collect, receive and retain the rents resulting from such reletting.
Lessor shall not be liable to Lessee for any failure to relet any Property or
for any failure to collect any rent due upon such reletting.
24
<PAGE>
17.4 DAMAGES.
-------
Neither (a) the termination of this Lease as to all or any of the
Properties pursuant to Section 17.1; (b) the repossession of all or any of the
Properties; nor (c) the failure of Lessor to relet all or any of the Properties,
the reletting of all or any portion thereof, nor the failure of Lessor to
collect or receive any rentals due upon any such reletting, shall relieve Lessee
of its liabilities and obligations hereunder, all of which shall survive any
such termination, repossession or reletting. If any Lease Event of Default shall
have occurred and be continuing and notwithstanding any termination of this
Lease pursuant to Section 17.1, Lessee shall forthwith pay to Lessor all Rent
and other sums due and payable hereunder to and including without limitation the
date of such termination. Thereafter, on the days on which the Basic Rent or
Supplemental Rent, as applicable, are payable under this Lease or would have
been payable under this Lease if the same had not been terminated pursuant to
Section 17.1 and until the end of the Term hereof or what would have been the
Term in the absence of such termination, Lessee shall pay Lessor, as current
liquidated damages (it being agreed that it would be impossible accurately to
determine actual damages) an amount equal to the Basic Rent and Supplemental
Rent that are payable under this Lease or would have been payable by Lessee
hereunder if this Lease had not been terminated pursuant to Section 17.1, less
the net proceeds, if any, which are actually received by Lessor with respect to
the period in question of any reletting of any Property or any portion thereof;
provided, that Lessee's obligation to make payments of Basic Rent and
- --------
Supplemental Rent under this Section 17.4 shall continue only so long as Lessor
shall not have received the amounts specified in Section 17.6. In calculating
the amount of such net proceeds from reletting, there shall be deducted all of
Lessor's, any Holder's, the Agent's and any Lender's reasonable expenses in
connection therewith, including without limitation repossession costs, brokerage
or sales commissions, fees and expenses for counsel and any necessary repair or
alteration costs and expenses incurred in preparation for such reletting. To the
extent Lessor receives any damages pursuant to this Section 17.4, such amounts
shall be regarded as amounts paid on account of Rent. Lessee specifically
acknowledges and agrees that its obligations under this Section 17.4 shall be
absolute and unconditional under any and all circumstances and shall be paid
and/or performed, as the case may be, without notice or demand and without any
abatement, reduction, diminution, setoff, defense, counterclaim or recoupment
whatsoever.
17.5 POWER OF SALE.
-------------
Without limiting any other remedies set forth in this Lease, in
the event that a court of competent jurisdiction rules that this Lease
constitutes a mortgage, deed of trust or other secured financing as is the
intent of the parties, then Lessor and Lessee agree that Lessee has granted,
pursuant to Section 7.1(b) hereof and each Lease Supplement, a Lien against the
Properties WITH POWER OF SALE, and that, upon the occurrence and during the
continuance of any Lease Event of Default, Lessor shall have the power and
authority, to the extent provided by law, after prior notice and lapse of such
time as may be required by law, to foreclose its interest (or cause such
interest to be foreclosed) in all or any part of the Properties.
25
<PAGE>
17.6 FINAL LIQUIDATED DAMAGES.
------------------------
If a Lease Event of Default shall have occurred and be
continuing, whether or not this Lease shall have been terminated pursuant to
Section 17.1 and whether or not Lessor shall have collected any current
liquidated damages pursuant to Section 17.4, Lessor shall have the right to
recover, by demand to Lessee and at Lessor's election, and Lessee shall pay to
Lessor, as and for final liquidated damages, but exclusive of the indemnities
payable under Section 11 of the Participation Agreement (which, if requested,
shall be paid concurrently), and in lieu of all current liquidated damages
beyond the date of such demand (it being agreed that it would be impossible
accurately to determine actual damages) the Termination Value. Upon payment of
the amount specified pursuant to the first sentence of this Section 17.6, Lessee
shall be entitled to receive from Lessor, either at Lessee's request or upon
Lessor's election, in either case at Lessee's cost, an assignment of Lessor's
entire right, title and interest in and to the Properties, Improvements,
Fixtures, Modifications, Equipment and all components thereof, in each case in
recordable form and otherwise in conformity with local custom and free and clear
of the Lien of this Lease (including without limitation the release of any
memoranda of Lease and/or the Lease Supplement recorded in connection therewith)
and any Lessor Liens. The Properties shall be conveyed to Lessee "AS-IS, WHERE-
IS" and in their then present physical condition. If any statute or rule of law
shall limit the amount of such final liquidated damages to less than the amount
agreed upon, Lessor shall be entitled to the maximum amount allowable under such
statute or rule of law; provided, however, Lessee shall not be entitled to
-------- -------
receive an assignment of Lessor's interest in the Properties, the Improvements,
Fixtures, Modifications, Equipment or the components thereof unless Lessee shall
have paid in full the Termination Value. Lessee specifically acknowledges and
agrees that its obligations under this Section 17.6 shall be absolute and
unconditional under any and all circumstances and shall be paid and/or
performed, as the case may be, without notice or demand and without any
abatement, reduction, diminution, setoff, defense, counterclaim or recoupment
whatsoever.
17.7 ENVIRONMENTAL COSTS.
-------------------
If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessee shall pay directly to any third party (or at Lessor's
election, reimburse Lessor) for the cost of any environmental testing and/or
remediation work undertaken respecting any Property, as such testing or work is
deemed appropriate in the reasonable judgment of Lessor. Lessee shall pay all
amounts referenced in the immediately preceding sentence within ten (10) days of
any request by Lessor for such payment. The provisions of this Section 17.7
shall not limit the obligations of Lessee under any Operative Agreement
regarding indemnification obligations, environmental testing, remediation and/or
work.
17.8 WAIVER OF CERTAIN RIGHTS.
------------------------
If this Lease shall be terminated pursuant to Section 17.1,
Lessee waives, to the fullest extent permitted by Law, (a) any notice of re-
entry or the institution of legal proceedings to obtain re-entry or possession;
(b) any right of redemption, re-entry or possession; (c) the
26
<PAGE>
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt; and (d) any other rights which might otherwise limit or
modify any of Lessor's rights or remedies under this Article XVII.
17.9 ASSIGNMENT OF RIGHTS UNDER CONTRACTS.
------------------------------------
If a Lease Event of Default shall have occurred and be
continuing, and whether or not this Lease shall have been terminated pursuant to
Section 17.1, Lessee shall upon Lessor's demand immediately assign, transfer and
set over to Lessor, if permissible pursuant to the terms thereof, all of
Lessee's right, title and interest in and to each agreement executed by Lessee
in connection with the acquisition, installation, testing, use, development,
construction, operation, maintenance, repair, refurbishment and restoration of
the Properties (including without limitation all right, title and interest of
Lessee with respect to all warranty, performance, service and indemnity
provisions), as and to the extent that the same relate to the acquisition,
installation, testing, use, development, construction, operation, maintenance,
repair, refurbishment and restoration of the Properties or any of them.
17.10 REMEDIES CUMULATIVE.
-------------------
The remedies herein provided shall be cumulative and in addition
to (and not in limitation of) any other remedies available at law, equity or
otherwise, including without limitation any mortgage foreclosure remedies.
ARTICLE XVIII
18.1 LESSOR'S RIGHT TO CURE LESSEE'S LEASE DEFAULTS.
----------------------------------------------
Lessor, without waiving or releasing any obligation or Lease
Event of Default, may (but shall be under no obligation to) remedy any Lease
Event of Default for the account and at the sole cost and expense of Lessee,
including without limitation the failure by Lessee to maintain the insurance
required by Article XIV, and may, to the fullest extent permitted by law, and
notwithstanding any right of quiet enjoyment in favor of Lessee, enter upon any
Property, and take all such action thereon as may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of any lessee. All out-of-
pocket costs and expenses so incurred (including without limitation reasonable
fees and expenses of counsel), together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid by Lessor, shall be
paid by Lessee to Lessor on demand.
27
<PAGE>
ARTICLE XIX
19.1 PROVISIONS RELATING TO LESSEE'S EXERCISE OF ITS PURCHASE OPTION.
---------------------------------------------------------------
Subject to Section 19.2, in connection with any termination of
this Lease with respect to any Property pursuant to the terms of Section 16.2,
or in connection with Lessee's exercise of its Purchase Option, upon the date on
which this Lease is to terminate with respect to any Property, and upon tender
by Lessee of the amounts set forth in Sections 16.2(b) or 20.2, as applicable,
Lessor shall execute and deliver to Lessee (or to Lessee's designee) at Lessee's
cost and expense an assignment (by deed or other appropriate instrument) of
Lessor's entire interest in such Property, in each case in recordable form and
otherwise in conformity with local custom and free and clear of any Lessor Liens
attributable to Lessor but without any other warranties (of title or otherwise)
from Lessor. Such Property shall be conveyed to Lessee "AS-IS, "WHERE-IS" and in
then present physical condition.
19.2 NO PURCHASE OR TERMINATION WITH RESPECT TO LESS THAN ALL OF A
-------------------------------------------------------------
PROPERTY.
- --------
Lessee shall not be entitled to exercise its Purchase Option or the Sale
Option separately with respect to a portion of any Property consisting of Land,
Equipment, Improvements and/or any interest pursuant to a Ground Lease but shall
be required to exercise its Purchase Option or the Sale Option with respect to
an entire Property.
ARTICLE XX
20.1 PURCHASE OPTION, SALE OPTION, EXTENSION OPTION - GENERAL PROVISIONS.
-------------------------------------------------------------------
Not less than one hundred eighty (180) days (or respecting the Purchase
Option only, not less than sixty (60) days) and no more than two hundred forty
(240) days prior to the Expiration Date or, respecting the Purchase Option only,
any Payment Date (such Expiration Date or, respecting the Purchase Option only,
any such Payment Date being hereinafter referred to as the "Election Date"),
-------------
Lessee may give Lessor irrevocable written notice (the "Election Notice") that
---------------
Lessee is electing to exercise (a) with respect to an Election Notice given in
connection with any Payment Date prior to the Expiration Date only, the option
to purchase one or more Properties; provided, Lessee may not make the election
under this Section 20.1(a) unless (i) with respect to an election to purchase
less than all the Properties, no Default or Event of Default shall have occurred
and be continuing, either at the date any such election is made or at the
applicable Election Date (other than those that will be cured by the payment of
the Termination Value for all the Properties), (ii) the aggregate Property Cost
of all remaining Properties after the purchase by Lessee on the applicable
Election Date is equal to or exceeds $15,000,000, and (iii) except as otherwise
agreed in writing by all of the Lenders and Holders, the Lessee provides one or
more Appraisals indicating that the aggregate fair market value of all remaining
Properties after the purchase by the Lessee on the applicable Election Date is
at least four (4) times the sum of (A) the aggregate of all amounts outstanding
under the Tranche B Notes and (B) the aggregate of all amounts outstanding under
the Holder Certificates, in each
28
<PAGE>
case after giving effect to the prepayment under such Tranche B Notes and Holder
Certificates in connection with the purchase by Lessee on the applicable
Election Date, (b) with respect to an Election Notice given in connection with
the Expiration Date only, the option to purchase all, but not less than all, the
Properties on the Expiration Date (the election or option to purchase one or
more Properties, the "Purchase Option"), (c) with respect to an Election Notice
given in connection with the Expiration Date only, the option to remarket all,
but not less than all, the Properties to a Person other than Lessee or any
Affiliate of Lessee and cause a sale of such Properties to occur on the
Expiration Date pursuant to the terms of Section 22.1 (the "Sale Option") or (d)
-----------
with respect to an Election Notice given in connection with the
Expiration Date only, the option to renew the Term for all, but not less than
all, the Properties for an additional period of one year pursuant to the terms
of Section 2.2 (the "Extension Option"). If Lessee does not give an Election
----------------
an Notice indicating the Purchase Option, the Sale Option or the
Extension Option within the allotted period of time prior to the Expiration Date
specified above in this Section 20.1, or if the requirements set forth in
Section 2.2 of this Lease are not fully satisfied regarding the Extension
Option, then Lessee shall be deemed to have elected for the Purchase Option to
apply on the Expiration Date. With respect to any such election by Lessee to
exercise its Purchase Option for one or more Properties prior to the Expiration
Date, Lessee shall pay to Lessor on the applicable Election Date an amount equal
to the Termination Value for all Properties Lessee has designated for purchase
in its election. Lessee may assign its rights and obligations under the Purchase
Option with respect to any Property or Properties to a third party or parties;
provided, that Lessee shall remain directly and primarily liable to perform
-------
the Purchase Option pursuant to the terms of the Operative Agreements in the
event any such assignee fails to do so. Notwithstanding the foregoing, with
respect to the continuing obligations under the Operative Agreements (including
without limitation indemnification obligations) pertaining to each Property
purchased by Lessee or its designee or sold to any other Person, Lessee shall
remain directly and primarily liable under the Lease and the other Operative
Agreements. If Lessee shall either (i) elect (or be deemed to have elected) to
exercise the Purchase Option on the Expiration Date or (ii) elect the Sale
Option on the Expiration Date and fail to cause all, but not less than all, the
Properties to be sold in accordance with the terms of Section 22.1, then on the
Expiration Date Lessee shall pay to Lessor on the date on which such purchase or
sale is scheduled to occur an amount equal to the Termination Value for all, but
not less than all, the Properties. In connection with the matters set forth in
each of the two preceding sentences, Lessee shall comply with the terms and
provisions of Section 22.1(c) to the same extent as if Lessor had exercised its
option to retain one (1) or more Properties pursuant to Section 22.1(a) and,
upon receipt of such amounts and satisfaction of such obligations, Lessor shall
transfer to Lessee all of Lessor's right, title and interest in and to all, but
not less than all, the Properties in accordance with Section 20.2.
20.2 LESSEE PURCHASE OPTION.
----------------------
Provided, with respect to clause (y) below, no Default or Event of Default
--------
shall have occurred and be continuing (other than those that will be cured by
the payment of the Termination Value for all the Properties) and provided, that
--------
the Election Notice has been appropriately given specifying the Purchase Option,
Lessee shall purchase (x) (in the case of Lessee's election of the Purchase
Option on a date prior to the Expiration Date) the Properties
29
<PAGE>
designated for purchase in such election and (y) (in the case of Lessee's
election of the Purchase Option on the Expiration Date) all the Properties on
the Expiration Date at a price equal to the Termination Value for all the
Properties to be purchased.
Subject to Section 19.2, in connection with any termination of
this Lease with respect to any Property pursuant to the terms of Section 16.2,
or in connection with Lessee's exercise of its Purchase Option, upon the date on
which this Lease is to terminate with respect to a Property or all of the
Properties, and upon tender by Lessee of the amounts set forth in Section
16.2(b) or this Section 20.2, as applicable, Lessor shall execute, acknowledge
(where required) and deliver to Lessee, at Lessee's cost and expense, each of
the following: (a) a termination or assignment (as requested by the Lessee) of
each applicable Ground Lease and special or limited warranty Deeds conveying
each Property (to the extent it is real property not subject to a Ground Lease)
to Lessee free and clear of the Lien of this Lease, the Lien of the Credit
Documents and any Lessor Liens; (b) a Bill of Sale conveying each Property (to
the extent it is personal property) to Lessee free and clear of the Lien of this
Lease, the Lien of the Credit Documents and any Lessor Liens; (c) any real
estate tax affidavit or other document required by law to be executed and filed
in order to record the applicable Deed and/or the applicable Ground Lease
termination; and (d) FIRPTA affidavits. All of the foregoing documentation must
be in form and substance reasonably satisfactory to Lessor. The applicable
Property shall be conveyed to Lessee "AS-IS, WHERE-IS" and in then present
physical condition.
If any Property is the subject of remediation efforts respecting
Hazardous Substances at the applicable Election Date which could materially and
adversely impact the Fair Market Sales Value of such Property (with materiality
determined in Lessor's reasonable discretion), then Lessee shall be obligated to
repurchase each such Property pursuant to Section 20.2.
On the applicable Election Date on which Lessee has elected to
exercise its Purchase Option, Lessee shall pay (or cause to be paid) to Lessor,
the Agent and all other parties, as appropriate, the sum of all costs and
expenses incurred by any such party in connection with the election by Lessee to
exercise its Purchase Option and all Rent and all other amounts then due and
payable or accrued under this Lease and/or any other Operative Agreement.
20.3 THIRD PARTY SALE OPTION.
-----------------------
(a) Provided, that (i) no Default or Event of Default shall have
--------
occurred and be continuing and (ii) the Election Notice has been
appropriately given specifying the Sale Option, Lessee shall undertake to
cause a sale of the Properties on the applicable Election Date (all as
specified in the Election Notice), in accordance with the provisions of
Section 22.1. Such Election Date on which a sale is required may be
hereafter referred to as the "Sale Date."
---------
(b) In the event Lessee exercises the Sale Option then, as soon
as practicable and in all events not less than sixty (60) days prior to the
Sale Date, Lessee at its expense shall cause to be delivered to Lessor a
Phase I environmental site assessment for each of
30
<PAGE>
the Properties recently prepared (no more than thirty (30) days old prior
to the Sale Date) by an independent recognized professional reasonably
acceptable to Lessor, prepared in accordance with standard industry
practice and reasonably satisfactory to Lessor. In the event that Lessor
shall not have received such environmental site assessment by the date
sixty (60) days prior to the Sale Date or in the event that such
environmental assessment shall reveal the existence of any material
violation of Environmental Laws, other material Environmental Violation or
potential material Environmental Violation (with materiality determined in
each case by Lessor in its reasonable discretion), then Lessee on the Sale
Date shall pay to Lessor an amount equal to the Termination Value for all
the Properties and any and all other amounts due and owing hereunder. Upon
receipt of such payment and all other amounts due under the Operative
Agreements, Lessor shall transfer to Lessee all of Lessor's right, title
and interest in and to all the Properties in accordance with Section 19.1.
ARTICLE XXI
21.1 [INTENTIONALLY OMITTED].
ARTICLE XXII
22.1 SALE PROCEDURE.
--------------
(a) During the Marketing Period, Lessee, on behalf of Lessor,
shall obtain bids for the cash purchase of all the Properties in connection
with a sale to one (1) or more third party purchasers to be consummated on
the Sale Date for the highest price available, shall notify Lessor promptly
of the name and address of each prospective purchaser and the cash price
which each prospective purchaser shall have offered to pay for each such
Property and shall provide Lessor with such additional information about
the bids and the bid solicitation procedure as Lessor may reasonably
request from time to time. All such prospective purchasers must be Persons
other than Lessee or any Affiliate of Lessee. On the Sale Date, Lessee
shall pay (or cause to be paid) to Lessor and all other parties, as
appropriate, the sum of all costs and expenses incurred by Lessor and/or
the Agent (as the case may be) in connection with such sale of one or more
Properties, all Rent and all other amounts then due and payable or accrued
under this Lease and/or any other Operative Agreement.
Lessor may reject any and all bids and may solicit and obtain
bids by giving Lessee written notice to that effect; provided, however,
-------- -------
that notwithstanding the foregoing, Lessor may not reject the bids
submitted by Lessee if such bids, in the aggregate, are greater than or
equal to the sum of the Limited Recourse Amount for all the Properties, and
represent bona fide offers from one (1) or more third party purchasers. If
the highest price which a prospective purchaser or the prospective
purchasers shall have offered to pay for all the Properties on the Sale
Date is less than the sum of the
31
<PAGE>
Limited Recourse Amount for all the Properties or if such bids do not
represent bona fide offers from one (1) or more third parties or if there
are no bids, Lessor may elect to retain one or more of the Properties by
giving Lessee prior written notice of Lessor's election to retain the same,
and promptly upon receipt of such notice, Lessee shall surrender, or cause
to be surrendered, each of the Properties specified in such notice in
accordance with the terms and conditions of Section 10.1. Upon acceptance
of any bid, Lessor agrees, at Lessee's request and expense, to execute a
contract of sale with respect to such sale, so long as the same is
consistent with the terms of this Article 22 and provides by its terms that
it is nonrecourse to Lessor.
Unless Lessor shall have elected to retain one or more of the
Properties pursuant to the provisions of the preceding paragraph, Lessee
shall arrange for Lessor to sell all the Properties free and clear of the
Lien of this Lease and any Lessor Liens attributable to Lessor, without
recourse or warranty (of title or otherwise), for cash on the Sale Date to
the purchaser or purchasers offering the highest cash sales price, as
identified by Lessee or Lessor, as the case may be; provided, however,
-------- -------
solely as to Lessor or the Trust Company, in its individual capacity, any
Lessor Lien shall not constitute a Lessor Lien so long as Lessor or the
Trust Company, in its individual capacity, is diligently and in good faith
contesting, at the cost and expense of Lessor or the Trust Company, in its
individual capacity, such Lessor Lien by appropriate proceedings in which
event the applicable Sale Date, all without penalty or cost to Lessee,
shall be delayed for the period of such contest; provided, further, that in
-------- -------
no event shall such contest materially and adversely affect the rights of
the Lessee hereunder and the other Operative Agreements or materially
interfere with the disposition of the Properties as set forth herein. To
effect such transfer and assignment, Lessor shall execute, acknowledge
(where required) and deliver to the appropriate purchaser each of the
following: (a) special or limited warranty Deeds conveying each such
Property (to the extent it is real property titled to Lessor) and an
assignment of the Ground Lease conveying the leasehold interest of Lessor
in each such Property (to the extent it is real property and subject to a
Ground Lease) to the appropriate purchaser free and clear of the Lien of
this Lease, the Lien of the Credit Documents and any Lessor Liens; (b) a
Bill of Sale conveying each such Property (to the extent it is personal
property) titled to Lessor to the appropriate purchaser free and clear of
the Lien of this Lease, the Lien of the Credit Documents and any Lessor
Liens; (c) any real estate tax affidavit or other document required by law
to be executed and filed in order to record each Deed and/or each Ground
Lease assignment; and (d) FIRPTA affidavits, as appropriate. All of the
foregoing documentation must be in form and substance reasonably
satisfactory to Lessor. Lessee shall surrender the Properties so sold or
subject to such documents to each purchaser in the condition specified in
Section 10.1, or in such other condition as may be agreed between Lessee
and such purchaser. Lessee shall not take or fail to take any action which
would have the effect of unreasonably discouraging bona fide third party
bids for any Property. If each of the Properties is not either (i) sold on
the Sale Date in accordance with the terms of this Section 22.1, or (ii)
retained by Lessor pursuant to an affirmative election made by Lessor
pursuant to the second sentence of the second paragraph of this Section
22.1(a), then (x) Lessee shall be obligated to pay Lessor on the Sale Date
an amount equal to the aggregate Termination
32
<PAGE>
Value for all the Properties less any sales proceeds received, and (y)
Lessor shall transfer each applicable Property to Lessee in accordance with
Section 20.2.
(b) If the Properties are sold on a Sale Date to one (1) or more third
party purchasers in accordance with the terms of Section 22.1(a) and the
aggregate purchase price paid for all the Properties is less than the sum
of the aggregate Property Cost for all the Properties (hereinafter such
difference shall be referred to as the "Deficiency Balance"), then Lessee
------------------
hereby unconditionally promises to pay to Lessor on the Sale Date the
lesser of (i) the Deficiency Balance, or (ii) the Maximum Residual
Guarantee Amount for all the Properties. On a Sale Date if (x) Lessor
receives the aggregate Termination Value for all the Properties from one
(1) or more third party purchasers, (y) Lessor and such other parties
receive all other amounts specified in the last sentence of the first
paragraph of Section 22.1(a) and (z) the aggregate purchase price paid for
all the Properties on such date exceeds the sum of the aggregate Property
Cost for all the Properties, then Lessee may retain such excess. If one or
more of the Properties are retained by Lessor pursuant to an affirmative
election made by Lessor pursuant to the provisions of Section 22.1(a), then
Lessee hereby unconditionally promises to pay to Lessor on the Sale Date an
amount equal to the Maximum Residual Guarantee Amount for the Properties so
retained. Any payment of the foregoing amounts described in this Section
22.1(b) shall be made together with a payment of all other amounts
referenced in the last sentence of the first paragraph of Section 22.1(a).
(c) In the event that all the Properties are either sold to one (1) or
more third party purchasers on the Sale Date or retained by Lessor in
connection with an affirmative election made by Lessor pursuant to the
provisions of Section 22.1(a), then in either case on the applicable Sale
Date Lessee shall provide Lessor or such third party purchaser (unless
otherwise agreed by such third party purchaser) with (i) all permits,
certificates of occupancy, governmental licenses and authorizations
necessary to use, operate, repair, access and maintain each such Property
for the purpose it is being used by Lessee, and (ii) such manuals, permits,
easements, licenses, intellectual property, know-how, rights-of-way and
other rights and privileges in the nature of an easement as are reasonably
necessary or desirable in connection with the use, operation, repair,
access to or maintenance of each such Property for its intended purpose or
otherwise as Lessor or such third party purchaser(s) shall reasonably
request (and a royalty-free license or similar agreement to effectuate the
foregoing on terms reasonably agreeable to Lessor or such third party
purchaser(s), as applicable). All assignments, licenses, easements,
agreements and other deliveries required by clauses (i) and (ii) of this
paragraph (c) shall be in form reasonably satisfactory to Lessor or such
third party purchaser(s), as applicable, and shall be fully assignable
(including without limitation both primary assignments and assignments
given in the nature of security) without payment of any fee, cost or other
charge. Lessee shall also execute any documentation requested by Lessor or
such third party purchaser(s), as applicable, evidencing the continuation
or assignment of each Ground Lease.
33
<PAGE>
22.2 APPLICATION OF PROCEEDS OF SALE.
-------------------------------
Lessor shall apply the proceeds of sale of any Property in the
following order of priority:
(a) FIRST, to pay or to reimburse Lessor (and/or the Agent, as
-----
the case may be) for the payment of all reasonable costs and expenses incurred
by Lessor (and/or the Agent, as the case may be) in connection with the sale (to
the extent Lessee has not satisfied its obligation to pay such costs and
expenses);
(b) SECOND, so long as the Credit Agreement is in effect and any
------
Loans or Holder Advances or any amount is owing to the Financing Parties under
any Operative Agreement, to the Agent to be applied pursuant to intercreditor
provisions among Lessor, the Lenders and the Holders contained in the Operative
Agreements; and
(c) THIRD, to Lessee.
-----
22.3 INDEMNITY FOR EXCESSIVE WEAR.
----------------------------
If the proceeds of the sale described in Section 22.1 with
respect to the Properties shall be less than the Limited Recourse Amount with
respect to the Properties, and at the time of such sale it shall have been
reasonably determined (pursuant to the Appraisal Procedure) that the Fair Market
Sales Value of the Properties shall have been impaired by greater than expected
wear and tear during the term of the Lease, Lessee shall pay to Lessor within
ten (10) days after receipt of Lessor's written statement (i) the amount of such
excess wear and tear determined by the Appraisal Procedure or (ii) the amount of
the Sale Proceeds Shortfall, whichever amount is less.
22.4 APPRAISAL PROCEDURE.
-------------------
For determining the Fair Market Sales Value of the Properties or
any other amount which may, pursuant to any provision of any Operative
Agreement, be determined by an appraisal procedure, Lessor and Lessee shall use
the following procedure (the "Appraisal Procedure"). Lessor and Lessee shall
-------------------
endeavor to reach a mutual agreement as to such amount for a period of ten (10)
days from commencement of the Appraisal Procedure under the applicable section
of the Lease, and if they cannot agree within ten (10) days, then two (2)
qualified appraisers, one (1) chosen by Lessee and one (1) chosen by Lessor,
shall mutually agree thereupon, but if either party shall fail to choose an
appraiser within twenty (20) days after notice from the other party of the
selection of its appraiser, then the appraisal by such appointed appraiser shall
be binding on Lessee and Lessor. If the two (2) appraisers cannot agree within
twenty (20) days after both shall have been appointed, then a third appraiser
shall be selected by the two (2) appraisers or, failing agreement as to such
third appraiser within thirty (30) days after both shall have been appointed, by
the American Arbitration Association. The decisions of the three (3) appraisers
shall be given within twenty (20) days of the appointment of the third appraiser
and the decision of the appraiser most different from the average of the other
two (2) shall be discarded and such average shall be binding on Lessor and
Lessee; provided, that if the
--------
34
<PAGE>
highest appraisal and the lowest appraisal are equidistant from the third
appraisal, the third appraisal shall be binding on Lessor and Lessee. The fees
and expenses of the appraiser appointed by Lessee shall be paid by Lessee; the
fees and expenses of the appraiser appointed by Lessor shall be paid by Lessor
(such fees and expenses not being indemnified pursuant to Section 13 of the
Participation Agreement); and the fees and expenses of the third appraiser shall
be divided equally between Lessee and Lessor.
22.5 CERTAIN OBLIGATIONS CONTINUE.
----------------------------
During the Marketing Period, the obligation of Lessee to pay
Rent with respect to the Properties (including without limitation the
installment of Basic Rent due on the Sale Date) shall continue undiminished
until payment in full to Lessor of the sale proceeds, if any, the Maximum
Residual Guarantee Amount, the amount due under Section 22.3, if any, and all
other amounts due to Lessor or any other Person with respect to all Properties
or any Operative Agreement. Lessor shall have the right, but shall be under no
duty, to solicit bids, to inquire into the efforts of Lessee to obtain bids or
otherwise to take action in connection with any such sale, other than as
expressly provided in this Article XXII.
ARTICLE XXIII
23.1 HOLDING OVER.
------------
If Lessee shall for any reason remain in possession of a Property
after the expiration or earlier termination of this Lease as to such Property
(unless such Property is conveyed to Lessee), such possession shall be as a
tenancy at sufferance during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to such Property and Lessee shall continue
to pay Basic Rent at the lesser of the highest lawful rate and one hundred ten
percent (110%) of the last payment of Basic Rent due with respect to such
Property prior to such expiration or earlier termination of this Lease. Such
Basic Rent shall be payable from time to time upon demand by Lessor and such
additional amount of Basic Rent shall be applied by Lessor ratably to the
Lenders and the Holders based on their relative amounts of the then outstanding
aggregate Property Cost for all Properties. During any period of tenancy at
sufferance, Lessee shall, subject to the second preceding sentence, be obligated
to perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given by
law to tenants at sufferance, to continue their occupancy and use of such
Property. Nothing contained in this Article XXIII shall constitute the consent,
express or implied, of Lessor to the holding over of Lessee after the expiration
or earlier termination of this Lease as to any Property (unless such Property is
conveyed to Lessee) and nothing contained herein shall be read or construed as
preventing Lessor from maintaining a suit for possession of such Property or
exercising any other remedy available to Lessor at law or in equity.
35
<PAGE>
ARTICLE XXIV
24.1 RISK OF LOSS.
------------
During the Term, unless Lessee shall not be in actual possession
of any Property in question solely by reason of Lessor's exercise of its
remedies of dispossession under Article XVII, the risk of loss or decrease in
the enjoyment and beneficial use of such Property as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Lessee, and Lessor shall in no event be answerable or
accountable therefor.
ARTICLE XXV
25.1 ASSIGNMENT.
----------
(a) Lessee may not assign this Lease or any of its rights or
obligations hereunder or with respect to any Property in whole or in part
to any Person without the prior written consent of the Agent, the Lenders,
the Holders and Lessor.
(b) No assignment by Lessee (referenced in this Section 25.1 or
otherwise) or other relinquishment of possession to any Property shall in
any way discharge or diminish any of the obligations of Lessee to Lessor
hereunder and Lessee shall remain directly and primarily liable under the
Operative Agreements as to any rights or obligations assigned by Lessee or
regarding any Property in which rights or obligations have been assigned or
otherwise transferred.
25.2 SUBLEASES.
---------
(a) Promptly, but in any event within five (5) Business Days,
following the execution and delivery of any sublease permitted by this
Article XXV, Lessee shall notify Lessor of the execution of such sublease.
As of the date of each Lease Supplement, Lessee shall lease the respective
Properties described in such Lease Supplement from Lessor, and any existing
tenant respecting such Property shall automatically be deemed to be a
subtenant of Lessee and not a tenant of Lessor.
(b) Without the prior written consent of the Agent, any Lender,
any Holder or Lessor and subject to the other provisions of this Section
25.2, Lessee may sublet any Property or portion thereof to any wholly-owned
Subsidiary of Lessee. Except as referenced in the immediately preceding
sentence, no other subleases shall be permitted unless consented to in
writing by Lessor. All subleasing shall be done on market terms and shall
in no way diminish the fair market value or useful life of any applicable
Property.
36
<PAGE>
(c) No sublease (referenced in this Section 25.2 or otherwise) or
other relinquishment of possession to any Property shall in any way
discharge or diminish any of Lessee's obligations to Lessor hereunder and
Lessee shall remain directly and primarily liable under this Lease as to
such Property, or portion thereof, so sublet. The term of any such sublease
shall not extend beyond the Term. Each sublease shall be expressly subject
and subordinate to this Lease.
ARTICLE XXVI
26.1 NO WAIVER.
---------
No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy upon a
default hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such default, shall constitute a waiver of any such
default or of any such term. To the fullest extent permitted by law, no waiver
of any default shall affect or alter this Lease, and this Lease shall continue
in full force and effect with respect to any other then existing or subsequent
default.
ARTICLE XXVII
27.1 ACCEPTANCE OF SURRENDER.
-----------------------
No surrender to Lessor of this Lease or of all or any portion of
any Property or of any part of any thereof or of any interest therein shall be
valid or effective unless agreed to and accepted in writing by Lessor and no act
by Lessor or the Agent or any representative or agent of Lessor or the Agent,
other than a written acceptance, shall constitute an acceptance of any such
surrender.
27.2 NO MERGER OF TITLE.
------------------
There shall be no merger of this Lease or of the leasehold estate
created hereby by reason of the fact that the same Person may acquire, own or
hold, directly or indirectly, in whole or in part, (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, (b) any right, title or interest in any Property, (c) any Notes, or (d)
a beneficial interest in Lessor.
ARTICLE XXVIII
28.1 INCORPORATION OF COVENANTS.
--------------------------
Reference is made to the Lessee Credit Agreement and the
representations and warranties of Lessee contained in Article IX of the Lessee
Credit Agreement (hereinafter referred
37
<PAGE>
to as the "Incorporated Representations and Warranties")and the covenants
-------------------------------------------
contained in Article VIII the Lessee Credit Agreement (hereinafter referred to
as the "Incorporated Covenants"). Lessee agrees with Lessor that the
------------------------
Incorporated Representations and Warranties and the Incorporated Covenants (and
all other relevant provisions of the Lessee Credit Agreement related thereto,
including without limitation the defined terms contained in Article I thereof
which are used in the Incorporated Representations and Warranties and the
Incorporated Covenants, hereinafter referred to as the "Additional Incorporated
-----------------------
Terms") are hereby incorporated are hereby incorporated by reference into this
- -----
Lease to the same extent and with the same effect as if set forth fully herein
and shall inure to the benefit of Lessor, without giving effect to any waiver,
amendment, modification or replacement of the Lessee Credit Agreement or any
term or provision of the Incorporated Representations and Warranties or the
Incorporated Covenants occurring subsequent to the date of this Lease, except to
the extent otherwise specifically provided in the following provisions of this
paragraph. In the event a waiver is granted under the Lessee Credit Agreement or
an amendment or modification is executed with respect to the Lessee Credit
Agreement, and such waiver, amendment and/or modification affects the
Incorporated Representations and Warranties, the Incorporated Covenants or the
Additional Incorporated Terms, then such waiver, amendment or modification shall
be effective with respect to the Incorporated Representations and Warranties,
the Incorporated Covenants and the Additional Incorporated Terms as incorporated
by reference into this Lease only if consented to in writing by the Agent
(acting upon the direction of the Majority Secured Parties). In the event of any
replacement of the Lessee Credit Agreement with a similar credit facility (the
"New Facility"), the representations and warranties, covenants and additional
------------
terms contained in the New Facility which correspond to the representations and
warranties, covenants contained in Article I and Article VIII, respectively, and
such additional terms (each of the foregoing contained in the Lessee Credit
Agreement) shall become the Incorporated Representations and Warranties, the
Incorporated Covenants and the Additional Incorporated Terms only if consented
to in writing by the Agent (acting upon the direction of the Majority Secured
Parties) and, if such consent is not granted or if the Lessee Credit Agreement
is terminated and not replaced, then the representations and warranties and
covenants contained in Article I and Article VIII, respectively, and such
additional terms (each of the foregoing contained in the Lessee Credit Agreement
(together with any modifications or amendments approved in accordance with this
paragraph)) shall continue to be the Incorporated Representations and
Warranties, the Incorporated Covenants and the Additional Incorporated Terms
hereunder.
ARTICLE XXIX
29.1 NOTICES.
-------
All notices required or permitted to be given under this Lease
shall be in writing and delivered as provided in the Participation Agreement.
38
<PAGE>
ARTICLE XXX
30.1 MISCELLANEOUS.
-------------
Anything contained in this Lease to the contrary notwithstanding,
all claims against and liabilities of Lessee or Lessor arising from events
commencing prior to the expiration or earlier termination of this Lease shall
survive such expiration or earlier termination. If any provision of this Lease
shall be held to be unenforceable in any jurisdiction, such unenforceability
shall not affect the enforceability of any other provision of this Lease and
such jurisdiction or of such provision or of any other provision hereof in any
other jurisdiction.
30.2 AMENDMENTS AND MODIFICATIONS.
----------------------------
Neither this Lease nor any Lease Supplement may be amended,
waived, discharged or terminated except in accordance with the provisions of
Section 12.4 of the Participation Agreement.
30.3 SUCCESSORS AND ASSIGNS.
----------------------
All the terms and provisions of this Lease shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
30.4 HEADINGS AND TABLE OF CONTENTS.
------------------------------
The headings and table of contents in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
30.5 COUNTERPARTS.
------------
This Lease may be executed in any number of counterparts, each of
which shall be an original, but all of which shall together constitute one (1)
and the same instrument.
30.6 GOVERNING LAW.
-------------
THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, EXCEPT TO
THE EXTENT THE LAWS OF THE STATE WHERE A PARTICULAR PROPERTY IS LOCATED ARE
REQUIRED TO APPLY.
30.7 CALCULATION OF RENT.
-------------------
All calculation of Rent payable hereunder shall be computed based
on the actual number of days elapsed over a year of three hundred sixty (360)
days or, to the extent such Rent is based on the Prime Lending Rate, three
hundred sixty-five (365) (or three hundred sixty-six (366), as applicable) days.
39
<PAGE>
30.8 MEMORANDA OF LEASE AND LEASE SUPPLEMENTS.
----------------------------------------
This Lease shall not be recorded; provided, Lessor and Lessee
--------
shall to the extent required and in accordance with Section 8.9 of the
Participation Agreement, promptly record a memorandum of this Lease and the
applicable Lease Supplement (in substantially the form of EXHIBIT B ATTACHED
---------
HERETO) OR A SHORT FORM LEASE (IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
LESSOR) REGARDING EACH PROPERTY IN THE LOCAL FILING OFFICE WITH RESPECT THERETO,
IN ALL CASES AT LESSEE'S COST AND EXPENSE.
30.9 ALLOCATIONS BETWEEN THE LENDERS AND THE HOLDERS.
-----------------------------------------------
Notwithstanding any other term or provision of this Lease to the
contrary, the allocations of the proceeds of the Properties and any and all
other Rent and other amounts received hereunder shall be subject to the inter-
creditor provisions between the Lenders and the Holders contained in the
Operative Agreements (or as otherwise agreed among the Lenders and the Holders
from time to time).
30.10 LIMITATIONS ON RECOURSE.
-----------------------
Notwithstanding anything contained in this Lease to the
contrary, Lessee agrees to look solely to Lessor's estate and interest in the
Properties (and in no circumstance to the Agent, the Lenders, the Holders or
otherwise to Lessor) for the collection of any judgment requiring the payment of
money by Lessor in the event of liability by Lessor, and no other property or
assets of Lessor or any shareholder, owner or partner (direct or indirect) in or
of Lessor, or any director, officer, employee, beneficiary, Affiliate of any of
the foregoing shall be subject to levy, execution or other enforcement procedure
for the satisfaction of the remedies of Lessee under or with respect to this
Lease, the relationship of Lessor and Lessee hereunder or Lessee's use of the
Properties or any other liability of Lessor to Lessee. Nothing in this Section
shall be interpreted so as to limit the terms of Sections 6.1 or 6.2 or the
provisions of Section 12.9 of the Participation Agreement.
30.11 WAIVERS OF JURY TRIAL.
---------------------
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY, TO
THE FULLEST EXTENT ALLOWED BY APPLICABLE LAW, WAIVE TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS LEASE AND FOR ANY COUNTERCLAIM
THEREIN.
30.12 EXERCISE OF LESSOR RIGHTS.
-------------------------
Lessee hereby acknowledges and agrees that the rights and powers
of Lessor under this Lease have been assigned to the Agent pursuant to the terms
of the Security Agreement and the other Operative Agreements. Lessor and Lessee
hereby acknowledge and agree that (a) the Agent shall, in its discretion, direct
and/or act on behalf of Lessor pursuant to
40
<PAGE>
the provisions of Sections 8.2(h) and 8.6 of the Participation Agreement, (b)
all notices to be given to Lessor shall be given to the Agent and (c) all
notices to be given by Lessor may be given by the Agent, at its election.
30.13 SUBMISSION TO JURISDICTION; VENUE; ARBITRATION.
----------------------------------------------
THE PROVISIONS OF THE PARTICIPATION AGREEMENT RELATING TO
SUBMISSION TO JURISDICTION, VENUE AND ARBITRATION ARE HEREBY INCORPORATED BY
REFERENCE HEREIN, MUTATIS MUTANDIS.
------- --------
30.14 USURY SAVINGS PROVISION.
-----------------------
IT IS THE INTENT OF THE PARTIES HERETO TO CONFORM TO AND
CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN
EFFECT. TO THE EXTENT ANY RENT OR PAYMENTS HEREUNDER ARE HEREINAFTER
CHARACTERIZED BY ANY COURT OF COMPETENT JURISDICTION AS THE REPAYMENT OF
PRINCIPAL AND INTEREST THEREON, THIS SECTION 30.14 SHALL APPLY. ANY SUCH RENT OR
PAYMENTS SO CHARACTERIZED AS INTEREST MAY BE REFERRED TO HEREIN AS "INTEREST."
ALL AGREEMENTS AMONG THE PARTIES HERETO ARE HEREBY LIMITED BY THE PROVISIONS OF
THIS PARAGRAPH WHICH SHALL OVERRIDE AND CONTROL ALL SUCH AGREEMENTS, WHETHER NOW
EXISTING OR HEREAFTER ARISING AND WHETHER WRITTEN OR ORAL. IN NO WAY, NOR IN ANY
EVENT OR CONTINGENCY (INCLUDING WITHOUT LIMITATION PREPAYMENT OR ACCELERATION OF
THE MATURITY OF ANY OBLIGATION), SHALL ANY INTEREST TAKEN, RESERVED, CONTRACTED
FOR, CHARGED, OR RECEIVED UNDER THIS LEASE OR OTHERWISE, EXCEED THE MAXIMUM
NONUSURIOUS AMOUNT PERMISSIBLE UNDER APPLICABLE LAW. IF, FROM ANY POSSIBLE
CONSTRUCTION OF ANY OF THE OPERATIVE AGREEMENTS OR ANY OTHER DOCUMENT OR
AGREEMENT, INTEREST WOULD OTHERWISE BE PAYABLE IN EXCESS OF THE MAXIMUM
NONUSURIOUS AMOUNT, ANY SUCH CONSTRUCTION SHALL BE SUBJECT TO THE PROVISIONS OF
THIS PARAGRAPH AND SUCH AMOUNTS UNDER SUCH DOCUMENTS OR AGREEMENTS SHALL BE
AUTOMATICALLY REDUCED TO THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED UNDER
APPLICABLE LAW, WITHOUT THE NECESSITY OF EXECUTION OF ANY AMENDMENT OR NEW
DOCUMENT OR AGREEMENT. IF LESSOR SHALL EVER RECEIVE ANYTHING OF VALUE WHICH IS
CHARACTERIZED AS INTEREST WITH RESPECT TO THE OBLIGATIONS OWED HEREUNDER OR
UNDER APPLICABLE LAW AND WHICH WOULD, APART FROM THIS PROVISION, BE IN EXCESS OF
THE MAXIMUM LAWFUL AMOUNT, AN AMOUNT EQUAL TO THE AMOUNT WHICH WOULD HAVE BEEN
EXCESSIVE INTEREST SHALL, WITHOUT PENALTY, BE APPLIED TO THE REDUCTION OF THE
COMPONENT OF PAYMENTS DEEMED TO BE PRINCIPAL AND NOT TO THE PAYMENT OF INTEREST,
OR
41
<PAGE>
REFUNDED TO LESSEE OR ANY OTHER PAYOR THEREOF, IF AND TO THE EXTENT SUCH
AMOUNT WHICH WOULD HAVE BEEN EXCESSIVE EXCEEDS THE COMPONENT OF PAYMENTS DEEMED
TO BE PRINCIPAL. THE RIGHT TO DEMAND PAYMENT OF ANY AMOUNTS EVIDENCED BY ANY OF
THE OPERATIVE AGREEMENTS DOES NOT INCLUDE THE RIGHT TO RECEIVE ANY INTEREST
WHICH HAS NOT OTHERWISE ACCRUED ON THE DATE OF SUCH DEMAND, AND LESSOR DOES NOT
INTEND TO CHARGE OR RECEIVE ANY UNEARNED INTEREST IN THE EVENT OF SUCH DEMAND.
ALL INTEREST PAID OR AGREED TO BE PAID TO LESSOR SHALL, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, BE AMORTIZED, PRORATED, ALLOCATED, AND SPREAD THROUGHOUT THE
FULL STATED TERM (INCLUDING WITHOUT LIMITATION ANY RENEWAL OR EXTENSION) OF THIS
LEASE SO THAT THE AMOUNT OF INTEREST ON ACCOUNT OF SUCH PAYMENTS DOES NOT EXCEED
THE MAXIMUM NONUSURIOUS AMOUNT PERMITTED BY APPLICABLE LAW.
[signature pages follow]
42
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
and delivered as of the date first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as the Owner Trustee under
the USF Real Estate Trust 1998-1, as Lessor
By: /s/ C. Scott Nielsen
----------------------------------
Name: C. Scott Nielsen
--------------------------------
Title: Vice President
-------------------------------
JP FOODSERVICE DISTRIBUTORS, INC., as Lessee
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
FIRST UNION NATIONAL BANK,
as the Agent
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
and delivered as of the date first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as the Owner Trustee under
the USF Real Estate Trust 1998-1, as Lessor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
JP FOODSERVICE DISTRIBUTORS, INC., as Lessee
By: /s/ David M. Abramson
----------------------------------
Name: David M. Abramson
--------------------------------
Title: Vice President & Secretary
-------------------------------
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
FIRST UNION NATIONAL BANK,
as the Agent
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
and delivered as of the date first above written.
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as the Owner Trustee under
the USF Real Estate Trust 1998-1, as Lessor
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
JP FOODSERVICE DISTRIBUTORS, INC., as Lessee
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Receipt of this original
counterpart of the foregoing
Lease is hereby acknowledged
as the date hereof
FIRST UNION NATIONAL BANK,
as the Agent
By: /s/ Lucy C. Campbell
----------------------------
Name: Lucy C. Campbell
---------------------------
Title: Vice President
--------------------------
<PAGE>
EXHIBIT A TO THE LEASE
----------------------
LEASE SUPPLEMENT NO. ___
THIS LEASE SUPPLEMENT NO. ___ (this "Lease Supplement") dated as of
----------------
[________________] between FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
banking association, not individually, but solely as the Owner Trustee under the
USF Real Estate Trust 1998-1, as lessor (the "Lessor"), and JP FOODSERVICE
------
DISTRIBUTORS, INC., a Delaware corporation, as lessee (the "Lessee").
------
WHEREAS, Lessor is the owner or will be the owner of the Property described
on Schedule 1 hereto (the "Leased Property") and wishes to lease the same to
---------- ---------------
Lessee;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS; RULES OF USAGE. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in Appendix A to the Participation Agreement,
----------
dated as of __________, 1998, among Lessee, Lessor, not individually, except as
expressly stated therein, but solely as the Owner Trustee under the USF Real
Estate Trust 1998-1, the various banks and other lending institutions which are
parties thereto from time to time, as the Holders, the various banks and other
lending institutions which are parties thereto from time to time, as the
Lenders, and First Union National Bank, as the Agent for the Lenders and
respecting the Security Documents, as the Agent for the Lenders and Holders, to
the extent of their interests, as such may be amended, modified, extended,
supplemented, restated and/or replaced from time to time.
SECTION 2. THE PROPERTIES. Attached hereto as Schedule 1 is the
----------
description of the Leased Property, with an Equipment Schedule attached hereto
as Schedule 1-A, an Improvement Schedule attached hereto as Schedule 1-B and [A
------------ ------------
LEGAL DESCRIPTION OF THE LAND / A COPY OF THE GROUND LEASE] attached hereto as
Schedule 1-C. Effective upon the execution and delivery of this Lease
- ------------
Supplement by Lessor and Lessee, the Leased Property shall be subject to the
terms and provisions of the Lease. Without further action, any and all
additional Equipment funded under the Operative Agreements and any and all
additional Improvements made to the Land shall be deemed to be titled to the
Lessor and subject to the terms and conditions of the Lease and this Lease
Supplement.
SECTION 3. USE OF PROPERTY. At all times during the Term with respect to
each Property, Lessee will comply with all obligations under and (to the extent
no Event of Default exists and provided, that such exercise will not impair the
--------
value of such Property) shall be permitted to exercise all rights and remedies
under, all operation and easement agreements and related or similar agreements
applicable to such Property.
A-1
<PAGE>
SECTION 4. RATIFICATION; INCORPORATION BY REFERENCE. Except as
specifically modified hereby, the terms and provisions of the Lease and the
Operative Agreements are hereby ratified and confirmed and remain in full force
and effect. The Lease is hereby incorporated herein by reference as though
restated herein in its entirety.
SECTION 5. ORIGINAL LEASE SUPPLEMENT. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the original
executed counterpart of this Lease Supplement (the "Original Executed
-----------------
Counterpart"). To the extent that this Lease Supplement constitutes chattel
- -----------
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
SECTION 6. GOVERNING LAW. THIS LEASE SUPPLEMENT SHALL BE GOVERNED BY AND
CONSTRUED, INTERPRETED TO AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE
OF NORTH CAROLINA, EXCEPT TO THE EXTENT THE LAWS OF THE STATE WHERE A PARTICULAR
PROPERTY IS LOCATED ARE REQUIRED TO APPLY.
SECTION 7. MORTGAGE; POWER OF SALE. Without limiting any other remedies
set forth in the Lease, in the event that a court of competent jurisdiction
rules that the Lease constitutes a mortgage, deed of trust or other secured
financing, then Lessor and Lessee agree that Lessee hereby grants a Lien against
the Leased Property WITH POWER OF SALE, and that, upon the occurrence of any
Lease Event of Default, Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be required by
law, to foreclose its interest (or cause such interest to be foreclosed) in all
or any part of the Leased Property.
SECTION 8. COUNTERPART EXECUTION. This Lease Supplement may be executed
in any number of counterparts and by each of the parties hereto in separate
counterparts, all such counterparts together constituting but one (1) and the
same instrument.
[The remainder of this page has been intentionally left blank.]
A-2
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease
Supplement to be duly executed by an officer thereunto duly authorized as of the
date and year first above written.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually, but solely as the
Owner Trustee under the USF Real Estate Trust
1998-1, as Lessor
By:
---------------------------
Name:
-------------------------
Title:
------------------------
JP FOODSERVICE DISTRIBUTORS, INC., as Lessee
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as the date hereof.
FIRST UNION NATIONAL BANK, as
the Agent
By:
---------------------------
Name:
-------------------------
Title:
------------------------
A-3
<PAGE>
[CONFORM TO STATE LAW REQUIREMENTS]
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of _________________ this _____ day of
____________, by ________________, as __________________ of FIRST SECURITY BANK,
NATIONAL ASSOCIATION, a national banking association, not individually, but
solely as the Owner Trustee under the USF Real Estate Trust 1998-1, on behalf of
the Owner Trustee.
[Notarial Seal] -----------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of _________________ this _____ day of
______________, by ________________, as __________________ of JP FOODSERVICE
DISTRIBUTORS, INC., a DELAWARE corporation, on behalf of the corporation.
[Notarial Seal]
-----------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Lease Supplement was acknowledged before me, the undersigned
Notary Public, in the County of ________________ this ____ day of ___________,
by _____________, as __________________ of FIRST UNION NATIONAL BANK, a national
banking association, as the Agent.
[Notarial Seal]
-----------------------------
Notary Public
My commission expires:____________
A-4
<PAGE>
SCHEDULE 1
TO LEASE SUPPLEMENT NO. ____
(Description of the Leased Property)
A-5
<PAGE>
SCHEDULE 1-A
TO LEASE SUPPLEMENT NO. ____
(Equipment)
A-6
<PAGE>
SCHEDULE 1-B
TO LEASE SUPPLEMENT NO. ____
(Improvements)
A-7
<PAGE>
SCHEDULE 1-C
TO LEASE SUPPLEMENT NO. ____
[(LAND)/
(GROUND LEASE)]
A-8
<PAGE>
EXHIBIT B TO THE LEASE
----------------------
[MODIFY OR SUBSTITUTE SHORT FORM LEASE AS
NECESSARY FOR LOCAL LAW REQUIREMENTS]
Recordation requested by:
Moore & Van Allen, PLLC
After recordation return to:
Moore & Van Allen, PLLC (LSJ)
100 North Tryon Street, Floor 47
Charlotte, NC 28202-4003
Space above this line
for Recorder's use
- -------------------------------------------------------------------------------
MEMORANDUM OF LEASE AGREEMENT
AND
LEASE SUPPLEMENT NO. ____
THIS MEMORANDUM OF LEASE AGREEMENT AND LEASE SUPPLEMENT NO. ____
("Memorandum"), dated as of _____________, 1998, is by and between FIRST
- ------------
SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not
individually, but solely as the Owner Trustee under the USF Real Estate Trust
1998-1, with an office at 79 South Main Street, Salt Lake City, Utah 84111
(hereinafter referred to as "Lessor"), and JP FOODSERVICE DISTRIBUTORS, INC., a
------
Delaware corporation, with an office at 9830 Patuxent Woods Drive, Columbia,
Maryland (hereinafter referred to as "Lessee").
------
WITNESSETH:
That for value received, Lessor and Lessee do hereby covenant, promise and
agree as follows:
1. DEMISED PREMISES AND DATE OF LEASE. Lessor has leased to Lessee,
----------------------------------
and Lessee has leased from Lessor, for the Term (as hereinafter defined),
certain real property and other property located in ________________, which is
described in the attached Schedule 1 (the "Property"), pursuant to the terms of
---------- --------
a Lease Agreement between Lessor and Lessee dated as of __________, 1998 (as
such may be amended, modified, extended, supplemented, restated and/or
B-1
<PAGE>
replaced from time to time, "Lease") and a Lease Supplement No. ___ between
Lessor and-----Lessee dated as of ______________ (the "Lease Supplement").
----------------
2. TERM, RENEWAL, EXTENSION AND PURCHASE OPTION. The term of the
--------------------------------------------
Lease for the Property ("Term") commenced as of __________, 1998 and shall end
----
as of ___________, unless the Term is extended or earlier terminated in
accordance with the provisions of the Lease. The Lease contains provisions for
renewal and extension. The tenant has a purchase option under the Lease.
3. TAX PAYER NUMBERS.
-----------------
Lessor's tax payer number:
------------------.
Lessee's tax payer number:
------------------.
4. MORTGAGE; POWER OF SALE. Without limiting any other remedies set
-----------------------
forth in the Lease, in the event that a court of competent jurisdiction rules
that the Lease constitutes a mortgage, deed of trust or other secured financing,
then Lessor and Lessee agree that Lessee has granted, pursuant to the terms of
the Lease and the Lease Supplement, a Lien against the Property WITH POWER OF
SALE, and that, upon the occurrence and during the continuance of any Lease
Event of Default, Lessor shall have the power and authority, to the extent
provided by law, after prior notice and lapse of such time as may be required by
law, to foreclose its interest (or cause such interest to be foreclosed) in all
or any part of the Property.
5. EFFECT OF MEMORANDUM. The purpose of this instrument is to give
--------------------
notice of the Lease and the Lease Supplement and their respective terms,
covenants and conditions to the same extent as if the Lease and the Lease
Supplement were fully set forth herein. This Memorandum shall not modify in any
manner the terms, conditions or intent of the Lease or the Lease Supplement and
the parties agree that this Memorandum is not intended nor shall it be used to
interpret the Lease or the Lease Supplement or determine the intent of the
parties under the Lease or the Lease Supplement.
[The remainder of this page has been intentionally left blank.]
B-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this instrument
as of the day and year first written.
LESSOR:
FIRST SECURITY BANK, NATIONAL ASSOCIATION, not
individually, but solely as the Owner Trustee
under the USF Real Estate Trust 1998-1
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
LESSEE:
JP FOODSERVICE DISTRIBUTORS, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
B-3
<PAGE>
SCHEDULE 1
----------
(Description of Property)
B-4
<PAGE>
[CONFORM TO STATE LAW REQUIREMENTS]
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Memorandum of Lease Agreement and Lease Supplement No. ____
was acknowledged before me, the undersigned Notary Public, in the County of
_________________ this _____ day of ______________, by ________________, as
__________________ of FIRST SECURITY BANK, NATIONAL ASSOCIATION, a national
banking association, not individually, but solely as the Owner Trustee under the
USF Real Estate Trust 1998-1, on behalf of the Owner Trustee.
[Notarial Seal]
-----------------------------------
Notary Public
My commission expires:____________
STATE OF _______________ )
) ss:
COUNTY OF ______________ )
The foregoing Memorandum of Lease Agreement and Lease Supplement No. ____
was acknowledged before me, the undersigned Notary Public, in the County of
_________________ this _____ day of ______________, by ________________, as
__________________ of JP FOODSERVICE DISTRIBUTORS, INC., a Delaware corporation,
on behalf of the corporation.
[Notarial Seal]
----------------------------------
Notary Public
My commission expires:____________
B-5
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
----------------------------------
(Direct and Indirect)
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<S> <C>
U.S. Foodservice, Inc. Delaware
JP Foodservice Distributors, Inc. Delaware
JPFD Funding Company Delaware
Illinois Fruit & Produce Corp. Illinois
Westlund Provisions, Inc. Minnesota
Squeri Cash & Carry, Inc. Ohio
Squeri Food Service, Inc. Ohio
E&H Distributing Co. Nevada
Nevada Baking Company, Inc. Nevada
Harrison's Prime Meats & Provisions, Inc. Nevada
Outwest Meat Company Nevada
Sorrento Food Service, Inc. New York
RS Funding, Inc. Nevada
Targeted Specialty Services, Inc. Delaware
BRB Holdings, Inc. Delaware
White Swan, Inc. Delaware
U.S. Systems Distribution, Inc. Texas
Biggers Brothers, Inc. Delaware
King's Foodservice, Inc. Kentucky
U.S. Foodservice of Atlanta, Inc. Delaware
Roanoke Restaurant Service, Inc. Virginia
F.H. Bevevino & Company, Inc. Pennsylvania
John Sexton & Co. Delaware
U.S. Foodservice of Illinois, Inc. Delaware
Duke Associates (Partnership) (1)
</TABLE>
________________________
(1) 97% owned by John Sexton & Co.; 3% owned by U.S. Foodservice, Inc.
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-88140, 33-88142, 33-88144, 33-88146, 33-81011,
333-37359, 333-43185, and 333-47759) and Form S-3 (No. 333-59785) of JP
Foodservice, Inc. of our report dated August 2, 1996, except as to Note 16,
which is as of September 10, 1996 and except as to the pooling of interests with
Valley Industries, Inc. and with Squeri Food Service, Inc., which is as of
November 14, 1996, which appears on page F-5 of U.S. Foodservice (formerly JP
Foodservice, Inc.) on Form 10-K for the year ended June 27, 1998.
PRICEWATERHOUSECOOPERS LLP
Linthicum, Maryland
September 21, 1998
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
U.S. Foodservice:
We hereby consent to the incorporation by reference in the registration
statements on Form S-3 (333-597850) and Form S-8 (Nos. 33-88140, 33-88142, 33-
88144, 33-88146, 33-81011, 333-37359, 333-43185 and 333-47759) of U.S.
Foodservice of our report, dated August 14, 1998, with respect to the
consolidated balance sheets of U.S. Foodservice and Subsidiaries as of June 28,
1997 and June 27, 1998 and the related consolidated statements of operations,
stockholders' equity, cash flows and schedules for each of the years then ended,
which report appears in the Form 10-K for the year ended June 27, 1998.
KPMG Peat Marwick LLP
Baltimore, Maryland
September 22, 1998
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Valley Industries, Inc. and
Z Leasing Company:
We hereby consent to the inclusion of our report, dated June 17, 1996, with
respect to the combined statements of earnings, stockholders' and partners'
equity, and cash flows of Valley Industries, Inc. and subsidiaries and Z Leasing
Company (A General Partnership) for the year ended January 31, 1996, in the Form
10-K for the year ended June 27, 1998 of U.S. Foodservice. We also consent to
the incorporation by reference of such report in the registration statements on
Form S-3 (333-59785) and Form S-8 (Nos. 33-88140, 33-88142, 33-88144, 33-88146,
33-81011, 333-37359, 333-43185 and 333-47759) of U.S. Foodservice.
KPMG Peat Marwick LLP
Baltimore, Maryland
September 22, 1998
<PAGE>
EXHIBIT 23.4
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated August 14, 1997, originally included in Rykoff-Sexton, Inc.'s Form
10-K, as amended by Form 10-K/A, for the fiscal year ended June 28, 1997, and
subsequently included in this Form 10-K dated September 24, 1998, into U.S.
Foodservice's (formerly JP Foodservices, Inc.) previously filed Registration
Statements on Form S-8 (File Nos. 33-88140, 33-88142, 33-88144, 33-88146, 33-
81011, 333-37359, 333-43185, 333-47759) and Form S-3 (File No. 333-59785).
Arthur Andersen LLP
Philadelphia, PA
September 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-28-1997 JUN-27-1998
<PERIOD-START> JUN-30-1996 JUN-29-1997
<PERIOD-END> JUN-28-1997 JUN-27-1998
<CASH> 74,432 57,817
<SECURITIES> 0 0
<RECEIVABLES> 278,509 339,022
<ALLOWANCES> (16,792) (16,982)
<INVENTORY> 314,897 349,583
<CURRENT-ASSETS> 709,909 797,282
<PP&E> 674,538 695,359
<DEPRECIATION> 236,802 258,094
<TOTAL-ASSETS> 1,732,183 1,817,791
<CURRENT-LIABILITIES> 475,106 509,466
<BONDS> 0 0
0 0
0 0
<COMMON> 443 465
<OTHER-SE> 578,703 584,255
<TOTAL-LIABILITY-AND-EQUITY> 1,732,183 1,817,791
<SALES> 5,169,406 5,506,949
<TOTAL-REVENUES> 5,169,406 5,506,949
<CGS> 4,166,332 4,465,281
<TOTAL-COSTS> 857,250 980,769
<OTHER-EXPENSES> 81,463 91,716
<LOSS-PROVISION> 7,854 12,336
<INTEREST-EXPENSE> 76,063 73,894
<INCOME-PRETAX> 64,361 (30,817)
<INCOME-TAX> 26,075 6,475
<INCOME-CONTINUING> 38,286 (37,292)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (9,712)
<CHANGES> 0 0
<NET-INCOME> 38,286 (47,004)
<EPS-PRIMARY> 0.88 (1.04)
<EPS-DILUTED> 0.87 (1.04)
</TABLE>
