SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Commission File No.0-25464
DOLLAR TREE STORES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1387365
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
500 Volvo Parkway, Chesapeake, VA 23320
(Address of principal executive offices)
Registrant's telephone number, including area code: (757) 321-5000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate 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 amendment to this
Form 10-K. (X)
The aggregate market value of Common Stock held by non-affiliates of the
Registrant on March 10, 2000 was $2,009,327,616 based on a $40.844 average of
the high and low sales prices for the Common Stock on such date. For purposes of
this computation, all executive officers and directors have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant.
On March 10, 2000 there were 62,248,562 shares of the Registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for in Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders of the Company
to be held May 25, 2000, which will be filed with the Securities and Exchange
Commission not later than April 30, 2000.
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DOLLAR TREE STORES, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. BUSINESS.........................................................4
Item 2. PROPERTIES.......................................................9
Item 3. LEGAL PROCEEDINGS...............................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...........................................11
Item 6. SELECTED FINANCIAL DATA.........................................11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................41
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............41
Item 11. EXECUTIVE COMPENSATION..........................................41
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................41
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................41
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K...................................................41
SIGNATURES......................................................42
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A WARNING ABOUT FORWARD LOOKING STATEMENTS: This document contains
"forward-looking statements" as that term is used in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements address future events,
developments and results. They include statements preceded by, followed by or
including words such as "believe," "anticipate," "expect," "intend," "plan,"
"view" or "estimate." For example, our forward-looking statements include
statements regarding:
o our anticipated comparable store net sales and the impact of our
growth on total sales;
o our future operating costs such as wages and landlord costs (including
rents and our ability to sublease our former distribution centers);
o the availability and cost of merchandise, including shipping costs;
o the reliability and stability of our sources of supply, particularly
China;
o our growth strategy, including store openings and remodeling plans and
entering new markets;
o the planned opening and performance of distribution centers;
o the anticipated consequences of the Year 2000 issue; and
o our expectations regarding competition, the overall retail environment
and domestic and international economies.
These forward-looking statements are subject to numerous risks,
uncertainties and assumptions potentially affecting Dollar Tree, including the
factors described in this annual report under the headings "Business,"
"Properties" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as well as the factors listed under "Risk Factors" in
our most recent prospectus. They include, among other things:
o possible difficulties in meeting our expansion goals on a profitable
basis, including anticipated store openings and expansions;
o adverse economic factors and increases in costs, including possible
increases in shipping rates, wage levels and inflation and interest
rates;
o risks relating to our dependence on imports and vulnerability to
import tariffs and restrictions, particularly those regarding China;
o potentially limited availability of low-cost, high-quality
merchandise;
o possible difficulties in achieving our sales goals due to the effect
of expansion, seasonal sales fluctuations, the development of our
larger format stores and changes in merchandise mix;
o the capacity and the performance of our distribution system and its
ability to cope with our expansion plans; and
o increasing competition in the discount retail market.
Our forward-looking statements could be wrong in light of these and other
risks, uncertainties and assumptions. The future events, developments or results
described in this report or our most recent prospectus could turn out to be
materially different. We have no obligation to publicly update or revise our
forward-looking statements after the date of this annual report and you should
not expect us to do so.
Investors should also be aware that while we do, from time to time,
communicate with securities analysts, it is against our policy to disclose to
them any material nonpublic information or other confidential commercial
information. Accordingly, shareholders should not assume that we agree with any
statement or report issued by any analyst regardless of the content of the
statement or report. We also have a policy against issuing financial forecasts
or projections or confirming those issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not our responsibility.
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INTRODUCTORY NOTE: Unless otherwise stated, references to "we," "our" and
"Dollar Tree" generally refer to Dollar Tree Stores, Inc. and its direct and
indirect subsidiaries on a consolidated basis.
PART I
Item 1. BUSINESS
Overview
Dollar Tree was started in 1986 by Macon Brock, our President and Chief
Executive Officer, Doug Perry, our Chairman, and Ray Compton, our Executive Vice
President. We are the leading operator of discount variety stores offering
merchandise at a fixed price point of $1.00 or less. We operate over 1,383
stores in 33 states and have added over 200 stores in each of the last two
years.
Our stores successfully operate in major metropolitan areas, mid-sized
cities and small towns with populations under 25,000 and perform well in a
variety of locations. We have traditionally opened stores generally between
3,500 and 6,000 total square feet in size, stocking a wide assortment of
products in many traditional variety store categories. During 1998, we began
testing larger stores in the 7,000 to 10,000 total square foot range, which
provides us the opportunity to target prime locations with the larger store
size. In 2000, we will open stores generally in the 5,000 to 12,000 total square
foot range.
In December 1998, we merged with 98 Cent Clearance Center, adding 66 stores
located in northern and central California and Nevada to our chain. In June
1999, we merged with Only $One, adding 24 stores to our chain in central and
upstate New York. These stores average 10,000 to 12,000 total square feet.
Business Strategy
We are the leader in the $1.00 price point segment of the discount retail
industry. Factors contributing to our success include:
Value Offering. We strive to exceed customers' expectations of the variety
and quality of products that can be purchased for $1.00. Many of the items we
sell for $1.00 are typically sold for higher prices elsewhere. We purchase a
substantial portion of our products directly from foreign manufacturers,
allowing us to pass on additional value to the customer. In addition, direct
relationships with both domestic and foreign manufacturers permit us to select a
broad product range, customize packaging and frequently obtain larger product
sizes and higher package quantities.
Convenient, Highly Visible Store Locations. We locate our stores close to
where we believe our core customer resides. Although our customer tends to be a
female with children in a middle income household, we attract customers from all
demographic ranges, including low and high income households. We believe that
bright lighting and the store's "curb appeal" attract new customers, as well as
our repeat customers, and enhance our image as both a destination and impulse,
treasure hunt store.
Strong and Consistent Store Level Economics. Since 1994, stores opened
under the Dollar Tree name have been profitable within the first full year of
operation. Our stores, whose first full year of operation was 1999, have an
average store level operating income of approximately $195,000 (approximately
22% of net sales).
Cost Control. Given our fixed $1.00 price structure, we must monitor
expenses, inventory levels and operating margins to be successful. We closely
manage both retail inventory shrinkage and retail markdowns of inventory,
limiting each to an average of not more than 2.5% of annual net sales over the
last five years. In the past five years, excluding merger related items, we have
kept our gross profit margins in the 35.9% to 37.7% range and increased our
operating income margin from 10.8% to 13.6%.
Growth Strategy
For the five years ended December 31, 1999, net sales increased at a
compound annual growth rate of 33.2% and operating income, excluding merger
related items, increased at a compound annual growth rate of 41.2%. Future sales
growth will come primarily from new store openings and, to a lesser degree,
sales increases from expanded and relocated stores and comparable store net
sales increases. We anticipate expanding by approximately 225 to 235 stores in
2000. While a portion of our store openings in 2000 are planned to occur in the
West, our
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store openings continue to be concentrated within our existing eastern markets
to take advantage of market opportunities, distribution efficiencies and field
management efficiencies. We also plan to selectively enter new markets.
We plan to increase our store expansion and relocation program. In 1999, we
expanded or relocated 59 stores and, in 2000, we plan to expand or relocate
approximately 100 additional stores. We target existing stores for expansion
based on the current sales per square foot and changes in market opportunities.
Our growth strategy includes the opening of new distribution centers and
the expansion or replacement of existing distribution centers. We currently
operate four distribution centers. Two of these can be physically expanded--the
facilities in Olive Branch, Mississippi and Stockton, California. In addition,
the Stockton facility can be fully automated when the store demand requires. We
are currently constructing a new 600,000 square foot, leased, automated
distribution facility in Savannah, Georgia which we expect to begin operating
during the first quarter of 2001. See more information on distribution centers
in "Merchandise Receiving and Distribution" on page 7.
We have experienced significant sales growth over the last five years.
Managing our growth has become more complex because we are now operating in 33
states from coast to coast. Our sales growth depends on our ability to
aggressively and steadily add stores and store support systems in a profitable
and efficient manner. Management believes that we are well positioned to
accomplish these tasks, but we may not achieve our targets for opening new
stores, and we may not expand profitably and efficiently. As we expand, we will
face challenges that may be difficult to manage, and others that may be entirely
controlled by outside economic factors. We must supply an increasing number of
stores with the proper mix and amount of merchandise. This will require hiring
an increasing number of qualified employees, opening suitable store sites, and
expanding and upgrading our distribution centers and internal store support
systems. Failure to achieve these goals in a timely and economical manner could
have a material adverse effect on our business and results of operations.
In the past four years, we have made three large acquisitions and a number
of smaller acquisitions which added 239 stores. Our acquisition strategy has
been to target companies with a similar single price point concept that have
shown success in operations or provide some strategic advantage. We look for
opportunities to leverage our management expertise in merchandise procurement,
logistics, management information systems, and in managing growth thereby
significantly improving the acquired company. Reviewing the operating strategies
of the acquired companies has also enabled us to improve our operations.
Although we do not have any current plans regarding potential acquisitions, we
continuously evaluate opportunities in our retail sector.
Inherent in our growth strategy is the constant evaluation of our
infrastructure needs in people, processes and systems. Over the past three
years, we have:
o increased our efforts in recruiting and training;
o improved human resource and merchandising functions;
o added buying and real estate infrastructure; and
o increased our top management expertise.
During this period of growth, we feel we have made appropriate investments
while containing costs and improving operating margins. We will continue making
future investments to improve our supply chain and decision making processes in
order to achieve our target growth rate.
Site Selection and Store Locations
We maintain a disciplined, cost-sensitive approach to store site selection,
favoring strip centers and selected enclosed malls. In the last five years, we
have opened primarily strip center based stores. These stores have required
lower initial capital investment and generated higher operating margins than
mall stores. We prefer opening new stores in strip center locations anchored by
strong mass merchandisers such as Wal-Mart, Kmart and Target, whose target
customers are similar to ours. We also open stores in neighborhood centers
anchored by large grocery retailers. Our stores have been successful in major
metropolitan areas, mid-sized cities and small towns. We believe that our stores
have a relatively small shopping radius, which allows us to concentrate multiple
stores in a single market profitably. Our ability to open new stores is
dependent upon, among other factors, locating suitable sites and negotiating
favorable lease terms.
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The size of our stores has evolved over time from a predominantly
mall-based store, averaging 2,500 to 3,000 total square feet, in the late
1980's, to a predominantly strip shopping center based store of approximately
4,500 to 5,000 total square feet in more recent years. In the past two years, we
have opened larger size stores, primarily in the 7,000 to 10,000 total square
foot range. The range of store sizes provides us with an important opportunity
to target a particular location with the appropriate store size. Although we
characterize a 7,000 square foot store as "larger," these stores are still
regarded as "small box" retailing within the discount retail industry. Our
management does not view these stores as a departure from our core business.
Including stores added by merger or acquisition, approximately 10% of our
store base at the end of 1999 is greater than 7,000 total square feet per store.
We expect to open 90 to 100 of these larger stores during 2000, primarily in the
8,000 to 12,000 total square foot range. For more information on retail
locations and retail store leases, see "Properties" on page 9.
Merchandising and Store Format
We offer a wide assortment of products which exceed customer expectations
of the value available for $1.00 by:
o providing a balanced mix of everyday core products and changing
selections in traditional variety store categories;
o maintaining a disciplined, global purchasing program; and
o emphasizing the effective display of merchandise in our stores.
Merchandise Mix. Our stores offer a well stocked selection of core and
changing products within traditional variety store categories. These categories
include housewares, candy and food, seasonal goods, health and beauty care,
toys, party goods, gifts, stationery and other consumer items. The actual items
and brands offered at any one time will vary. We have a core selection of
consumable products (such as household chemicals, paper and plastics, candy and
food, and health and beauty care) which we target to have in stock at our stores
continuously. These products are generally available year-round in our
distribution facilities for stores to reorder as needed. Our larger stores carry
more consumable products than our smaller stores, particularly food and health
and beauty care products. Because of the added space in the large stores, we can
also display a larger selection of certain items.
We sell seasonal and impulse items and, to a limited extent, selected
closeout merchandise to add variety and freshness to our core products. Seasonal
goods include Easter gifts, summer toys, back-to-school products and Christmas
wrapping paper. When the opportunity arises, we offer closeout merchandise,
whose value creates an exciting shopping experience for our customers. However,
in order to maintain our disciplined approach to merchandising, we limit
closeout merchandise to less than 20% of our purchases. We also sell lower
priced, private label goods, which are comparable to national name brands.
Purchasing. Our excellent supplier relationships, as well as our
substantial buying power at the $1.00 price point, contribute to our successful
purchasing strategy. We offer real product value to our customers that they
recognize and appreciate. At the same time, we establish disciplined, targeted
merchandise margin goals.
We purchase merchandise from a large number of vendors, including
manufacturers, trading companies and brokers. No vendor accounted for more than
10% of total merchandise purchased in any of the last five years. New vendors
are used frequently to offer competitive, yet varied, product selection and high
levels of value.
We buy product on an order-by-order basis and have no long-term purchase
contracts or other assurances of continued product supply or guaranteed product
cost. Management believes that an adequate supply of quality merchandise suited
to a $1.00 sales price will continue to be available.
Imports. Merchandise imported directly from overseas manufacturers and
agents accounts for approximately 40% to 45% of total purchases at retail. China
is the primary source for our import merchandise. In addition, our management
believes that a small portion of the non-consumable goods that we purchase from
domestic vendors is imported. While we do not expect to significantly increase
imports as a percentage of our merchandise, our future success depends on the
continuing availability of imported merchandise at favorable costs.
Chinese goods imported into the United States currently enjoy favorable
duties because the United States grants China normal trade relations, formerly
called "most favored nation" status. Under a 1974 law, China's favorable trade
status is reviewed on an annual basis and is
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currently extended through July 2, 2000. In November 1999, the United States and
China finalized an agreement concerning China's future membership in the World
Trade Organization. President Clinton has asked Congress to remove normal trade
relations with China from annual review. However, there continues to be
significant political opposition to the permanent extension of normal trade
relations with China. The opposition stems from a variety of issues, including
China's trade surplus with the United States, its failure to open its markets
adequately to U.S. businesses, its relations with Taiwan, its human rights
record and its acquisition and sale of weapons and sensitive technology. Failure
to renew normal trade relations could have a material adverse effect on our
business and results of operations. For example, administration officials
testified in June 1999 that ending normal trade relations with China would raise
tariffs on Chinese products from their current overall trade-weighted average of
4% to an estimated 44%. Depending on the extent of tariffs and the nature of
goods affected, such an increase could impose significantly higher purchasing
costs on our company.
Even if normal trade relations do become permanent, the United States could
also impose punitive trade sanctions on Chinese goods for a variety of reasons.
In 1995, the United States threatened to impose punitive trade tariffs on
certain categories of Chinese goods in response to China's failure to protect
the intellectual property of U.S. businesses. The November 1999 agreement
between the United States and China permits punitive tariffs and other tariffs
designed to reduce market disruptions because of a large increase in Chinese
imports. Although no punitive import duties are currently imposed, these duties
could equal as much as 100% of the cost of certain Chinese goods. Imposition of
trade restrictions, such as punitive tariffs or duties, could impose
significantly higher purchasing costs on us, depending on which goods might be
affected.
While imported goods are less expensive than domestic goods and have
contributed significantly to our historically favorable profit margins,
importing presents significant risks. For example, the flow of imported goods
could be interrupted, or the cost of purchasing or shipping foreign merchandise
could increase. In the event Chinese or other imported merchandise becomes more
expensive or unavailable, we believe we could find alternative sources of
supply. However, the transition to alternative sources may not occur in time to
meet our demands. Products from alternative sources could also be of lesser
quality and more expensive than those we currently import. As a result, a
disruption in the flow of imported merchandise or an increase in the cost of
those goods could have a material adverse effect on our business and results of
operations.
Visual Merchandising. The presentation and display of merchandise in our
stores is critical to communicating value and excitement to our customers. Our
stores are attractively designed. They create an inviting atmosphere for
shoppers by using bright lighting, vibrant colors, uniform decorative signs,
carpeting and background music. Our merchandise fixtures include gondola
shelving, slat walls, bins, and adjustable gift displays, allowing us the
flexibility to rearrange merchandise to feature seasonal products. Some of these
fixtures have been specifically designed for us, such as the customized shelf
display promoting our polyresin and porcelain gift products. Our field
merchandising group, including regional merchandise managers and store display
coordinators, maintains a consistent visual presentation of merchandise
throughout our chain of stores. We rely on attractive exterior signs and
in-store merchandising for our advertising. We generally do not use other forms
of advertising, except when promoting the opening of a new store.
The wide variety, value and freshness of our merchandise together with the
lively appearance of the store create an exciting shopping experience for our
customers. These unique features result in high store traffic, high sales volume
and an environment which encourages impulse purchases. Credit and debit cards
are accepted at a select number of stores and checks are accepted at all stores.
During 1999, we converted the 98 Cent Clearance Center stores to more
closely resemble existing Dollar Tree stores, including changing the store name
to Dollar Tree. During the first quarter of 2000, we will convert most of the 24
Only $One stores added in 1999. These conversions will include installing new
checkouts and display fixtures and improving store layouts and merchandise
displays at all Only $One stores and changing the name from Only $One to Dollar
Tree at select stores.
Merchandise Receiving And Distribution
Merchandise receiving and distribution are managed centrally from our
corporate headquarters, located on the same site as our Chesapeake, Virginia
distribution center. Maintaining a strong receiving and distribution system is
critical to our expansion and ability to maintain a low cost operating
structure.
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Substantially all of our inventory is shipped or picked up directly from
suppliers and delivered to our distribution centers, where the inventory is
processed and then distributed to our stores. The majority of our inventory is
delivered to the stores by contract carriers. Stores receive weekly shipments of
merchandise from distribution centers based on their anticipated inventory
requirements for that week. We also make semi-weekly deliveries to certain high
volume stores and during the busy Christmas season.
Our distribution center capacity allows us to receive manufacturers' early
shipment discounts and buy large quantities of goods at favorable prices. In
addition, during the past several years we have used off-site facilities to
accommodate large receipts of seasonal merchandise. For more information on
distribution centers, see "Properties" on page 9.
Competition
The retail industry is highly competitive. Our competitors include mass
merchandisers (such as Wal-Mart), discount stores (such as Dollar General),
closeout stores (such as Odd Lots and Big Lots) and other variety stores. In
past years, other single price point retailers have not been significant
competitors. However, we expect that our expansion plans as well as the
expansion plans of other single price point retailers such as 99 Cents Only
Stores based in Southern California and Dollar Express based in Philadelphia,
Pennsylvania will bring us increasingly into direct competition. Increased
competition may have a material adverse effect on our business, comparable store
net sales and results of operations.
Trademarks
We are the owners of Federal service mark registrations for "Dollar Tree,"
the "Dollar Tree" logo, "1 Dollar Tree" together with the related design, and
"One Price . . . One Dollar." A small number of our stores operate under the
name "Only One Dollar," for which we have not obtained a service mark
registration; if we were required to change the name of these stores, we do not
believe that this would have a material adverse effect on our business. We also
own a concurrent use registration for "Dollar Bill$" and the related logo.
During 1997, we acquired the rights to use trade names previously owned by
Everything's A Dollar, a former competitor in the $1.00 price point industry.
Several trade names were included in the purchase, including the marks
"Everything's $1.00 We Mean Everything" and "Everything's $1.00," the
registration of which is pending, and "The Dollar Store." In 1998, with the
acquisition of 98 Cent Clearance Center, we became the owner of additional
Federal service mark registrations which include "98 Cent Clearance Centers" and
"98 Cent Clearance Centers" together with the related design. In 1999, with the
acquisition of the Only $One stores, we became the owner of additional Federal
service mark registrations which include Only One $1 stylized "Only $One"
together with the related design. We also occasionally use various private
labels under which we market products, although management believes that these
brand names are not material to our operations.
Seasonality
Dollar Tree has historically experienced and expects to continue to
experience seasonal fluctuations in its net sales, operating income and net
income. See "Management's Discussion and Analysis--Seasonality and Quarterly
Fluctuations" on page 20.
Employees
We employed approximately 5,000 full-time and 13,000 part-time associates
on December 31, 1999. The number of part-time associates fluctuates depending on
seasonal needs. None of our associates are currently represented by a labor
union. The Teamsters have attempted to organize our associates at our Chesapeake
and Chicago distribution centers on several occasions, and we expect them to do
so in the future. We consider our relationship with associates to be good, and
we have not experienced significant interruptions of operations due to labor
disagreements.
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Item 2. PROPERTIES
As of December 31, 1999, we operated 1,383 stores in 33 states. The
following table presents a summary of our historical unit growth by region over
the past three years (number represents stores open as of the date indicated):
December 31,
---------------------------------------
1999 1998 1997
---- ---- ----
Southeast.................... 466 415 351
Midwest...................... 362 309 256
Mid-Atlantic................. 258 230 196
Southcentral................. 121 68 47
Northeast ................... 99 91 57
West......................... 77 66 59
----- ----- -----
Total....................... 1,383 1,179 966
===== ===== =====
Of the 1,383 stores open at December 31, 1999, the majority are located in
the Southeastern and Midwestern regions of the United States. We anticipate
expanding by approximately 225 to 235 stores in 2000.
We currently lease all of our existing store locations and expect that our
policy of leasing rather than owning stores will continue as we expand. Our
leases typically provide for a short initial lease term and give us the option
to extend. Management believes that this lease strategy enhances our flexibility
to pursue various expansion and relocation opportunities resulting from changing
market conditions. Our ability to open new stores is contingent upon:
o finding, signing leases for, building-out improvements for and opening
suitable store sites on a timely basis and on favorable economic
terms, including both in new geographic markets, where we have limited
or no experience, and in our established geographic markets, where new
stores may draw sales away from our existing stores; and
o hiring, training and retaining an increasing number of qualified
employees at affordable rates of compensation.
As current leases expire, we believe that we will be able either to obtain
lease renewals, if desired, for present store locations, or to obtain leases for
equivalent or better locations in the same general area. To date, we have not
experienced difficulty in either renewing leases for existing locations or
securing leases for suitable locations for new stores. We may have violated
prohibitions against a change in control of Dollar Tree in a minority of our
leases. Many of our leases contain provisions with which we do not comply,
including provisions requiring us to advertise or insure store property,
prohibiting us from operating another store within a specified radius and
restricting the sale of leasehold improvements. We believe that the violation of
these provisions will not have a material adverse effect on our business or
financial position because we maintain good relations with our landlords, and we
are a valued tenant. Most of our leases are at market rents, and we have
historically been able to secure leases for suitable locations.
The following table includes information about the distribution centers
that we currently operate. We believe our existing distribution centers can
support a total of approximately $1.7 billion in sales. The table shows the
location of those distribution centers; whether we own the facility or lease it,
and, if leased, when the lease expires; and the overall size in square feet of
the facility.
Size in
Location Own/Lease Lease Expires Square Feet
- -------- --------- ------------- -----------
Chesapeake, Virginia Own N/A 400,000
Olive Branch, Mississippi Own N/A 425,000
Chicago, Illinois area Lease June 2005, with 250,000
options to renew
Stockton, California Lease June 2004, with 317,000
options to renew
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We have also signed a contract to lease a 600,000 square foot distribution
center being constructed in Savannah, Georgia. We believe this facility, along
with our existing distribution centers, will support sales of more than $2
billion. We expect this distribution center to be operational in the first
quarter of 2001 and its lease expires in January 2005 with options to renew.
The Chesapeake and Olive Branch distribution centers contain, and the
Savannah distribution center will contain, advanced materials handling
technologies, including an automated conveyor and sorting system,
radio-frequency inventory tracking equipment and specialized information
systems. The Chicago and Stockton distribution centers are not automated, but
the Stockton distribution center is designed to allow for future automation.
Our Store Support Center in Chesapeake was built in 1997 to replace our
original location in Norfolk, Virginia. The lease on our former Norfolk location
expires in December 2009 and the facility has been subleased through February
2008. The distribution center in Olive Branch became operational in January 1999
and replaced a former location in Memphis, Tennessee. The lease on our former
Memphis distribution center expires in September 2005; this facility is
currently subleased through December 2000. The distribution center in Stockton
became operational in January 2000 and replaced a former location in the
Sacramento, California area. The lease on our former Sacramento distribution
center expires in June 2008; we hope to sublease this facility in the future.
See "Management's Discussion and Analysis--Inflation and Other Economic Factors"
on page 20.
Item 3. LEGAL PROCEEDINGS
Alper Lawsuit. On January 31, 1996, we bought all of the capital stock of
Dollar Bills, Inc. pursuant to a stock purchase agreement. In March and April
1996, Michael and Pamela Alper, former shareholders of Dollar Bills, together
with a corporation they control, filed lawsuits in the state and federal courts
in Illinois against our company and one of our employees, relating to the Dollar
Bills transaction. The lawsuits sought to recover compensatory damages of not
less than $10.0 million, punitive damages, attorney's fees and other relief. The
plaintiffs claimed contract violations, fraud, misrepresentation and other
violations in connection with our purchase of the wholesale operations which
were owned by Dollar Bills and are currently operated by Dollar Tree. Plaintiffs
subsequently dismissed their suit in state court voluntarily. On November 26,
1996, the federal court dismissed all counts of the plaintiffs' lawsuit against
us and the co-defendant. Plaintiffs' federal securities and federal antitrust
claims against us were dismissed with prejudice and the state claims were
dismissed without prejudice. No litigation is currently pending against us in
this matter. However, in light of the history of this dispute, the Alpers may
attempt to refile their state law claims in the future. We believe that the
ultimate outcome of this matter will not have a material adverse effect on our
financial condition or results of operations. Nevertheless, there can be no
assurance regarding the ultimate outcome of any future litigation, and any such
litigation may have a material adverse effect on our financial condition or
results of operations.
Consumer Products Liability. We recalled (in cooperation with the Consumer
Products Safety Commission) approximately 155,000 retractable dog leashes which
we sold between November 1997 and January 1998. We learned of several minor
injuries involving the leashes, and one leash allegedly caused a serious
personal injury in January 1998. Our insurer settled with that individual in
1999 at no cost to Dollar Tree. Management does not believe that potential
claims arising from product injuries will have a material adverse effect on us.
However, we can give no assurance that additional serious injuries from products
we have sold will not occur in the future.
Additional Disputes. We are also defendants to ordinary routine litigation
and proceedings incidental to our business, including certain matters which may
occasionally be asserted by the Consumer Products Safety Commission. We are
currently in the process of recalling three products. We do not believe that any
of these additional matters are individually or in the aggregate material to the
Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of our 1999 calendar year.
10
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Dollar Tree's common stock has been traded on The Nasdaq Stock Market(R)
under the symbol "DLTR" since our initial public offering on March 6, 1995. The
following table gives the high and low sales prices of our common stock as
reported by Nasdaq for the periods indicated, restated to reflect a 3-for-2
stock split effected as a stock dividend in June 1998.
1999: High Low
----- ---- ---
First Quarter........................... $ 49.250 $ 30.750
Second Quarter.......................... 44.000 28.750
Third Quarter........................... 46.500 32.500
Fourth Quarter.......................... 52.250 34.500
1998:
-----
First Quarter........................... $ 36.083 $ 23.000
Second Quarter.......................... 41.917 33.417
Third Quarter........................... 49.500 27.875
Fourth Quarter.......................... 48.750 23.750
On March 10, 2000, the last reported sale price for our common stock as
quoted by Nasdaq was $40.063 per share. As of March 10, 2000, we had
approximately 460 shareholders of record.
We anticipate that all of our income in the foreseeable future will be
retained for the development and expansion of our business and the repayment of
indebtedness. Management does not anticipate paying dividends on our common
stock in the foreseeable future. Additionally, our credit facilities contain
financial covenants which restrict our ability to pay dividends.
Item 6. SELECTED FINANCIAL DATA
This section of our report presents our selected financial data for the
last five years. This information is different from the information reported in
the table in our 1998 Annual Report on Form 10-K because we merged with Only
$One during 1999. We accounted for the merger as a pooling of interests, which
required us to combine the financial statements of Dollar Tree with those of
Only $One, retroactively.
The selected income statement and balance sheet items for December 31,
1999, 1998 and 1997 come from our consolidated financial statements that have
been audited by our independent certified public accountants. This information
should be read in conjunction with the consolidated financial statements and
related notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information found elsewhere in this
report.
11
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1999 1998(1) 1997(1) 1996(1,2) 1995(1,3)
---- ------- ------- --------- ---------
(In thousands, except store, per share data
and sales per square foot)
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Net sales......................................... $1,197,960 $944,122 $745,590 $577,440 $366,842
Cost of sales..................................... 746,463 589,080 474,612 369,701 235,117
Merger related costs (4) ......................... 443 1,301 - - -
--------- -------- ------- ------- -------
Gross profit................................... 451,054 353,741 270,978 207,739 131,725
Selling, general and administrative expenses:
Operating expenses............................. 259,917 208,782 169,792 131,682 85,880
Merger related expenses (4) ................... 607 4,024 - - -
Depreciation and amortization.................. 28,117 20,518 14,523 11,497 6,164
--------- ------- ------- ------- -------
Total........................................ 288,641 233,324 184,315 143,179 92,044
--------- ------- ------- ------- -------
Operating income.................................. 162,413 120,417 86,663 64,560 39,681
Interest income................................... 1,717 596 145 108 60
Interest expense.................................. (4,522) (4,927) (3,554) (5,712) (3,029)
--------- ------- ------- ------- -------
Income before income taxes........................ 159,608 116,086 83,254 58,956 36,712
Provision for income taxes........................ 61,090 44,533 31,295 22,249 13,392
--------- ------- ------- ------- -------
Net income........................................ $ 98,518 $ 71,553 $ 51,959 $ 36,707 $ 23,320
========= ======= ======= ======= =======
Income Per Share Data (5):
Basic net income per share..................... $ 1.59 $ 1.17 $ 0.86 $ 0.62 $ 0.40
========= ======= ======= ======= =======
Diluted net income per share................... $ 1.45 $ 1.06 $ 0.78 $ 0.56 $ 0.37
========= ======= ======= ======= =======
Pro Forma Income Data (6):
Pro forma net income........................... $ 98,013 $ 70,528 $ 51,177 $ 36,184 $ 22,853
========= ======= ======= ======= =======
Pro forma basic income per share............... $ 1.58 $ 1.15 $ 0.84 $ 0.61 $ 0.39
========= ======= ======= ======= =======
Pro forma diluted income per share............. $ 1.44 $ 1.04 $ 0.76 $ 0.55 $ 0.36
========= ======= ======= ======= =======
Weighted average number of common shares
outstanding, in thousands ...................... 61,839 61,185 60,714 59,436 58,008
========= ======= ======= ======= =======
Weighted average number of common shares and
dilutive potential common shares outstanding,
in thousands .................................. 68,135 67,626 66,982 65,495 63,641
========= ======= ======= ======= =======
Selected Operating Data:
Number of stores open at end of period (7)........ 1,383 1,179 966 801 552
Total gross square footage (7).................... 6,675 5,376 4,218 3,319 2,063
Net sales growth.................................. 26.9% 26.6% 29.1% 57.4% 28.5%
Comparable store net sales increase (8) .......... 5.6% 6.8% 7.5% 5.6% 6.4%
Net sales per store (9) .......................... $ 920 $ 879 $ 826 $ 758 $ 721
Net sales per square foot (9)..................... $ 198 $ 200 $ 199 $ 201 $ 195
<CAPTION>
As of December 31,
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Working capital................................... $ 219,545 $114,182 $ 65,313 $ 26,897 $ 33,025
Total assets...................................... 571,128 405,187 306,698 198,650 110,269
Total debt........................................ 82,058 49,426 41,166 13,039 19,836
Shareholders' equity.............................. 360,971 248,816 164,357 108,071 43,628
12
<PAGE>
<FN>
(1) We merged with 98 Cent Clearance Center during 1998 in a transaction
accounted for as a pooling of interests. The following table identifies the
reporting periods that have been combined:
Historical Fiscal Period Currently Reported
Dollar Tree 98 Cent Clearance Center Combined Period
----------- ------------------------ ---------------
Jan. 1, 1998-Dec. 31, 1998 Jan. 26, 1998-Dec. 31, 1998 Calendar Year 1998
Jan. 1, 1997-Dec. 31, 1997 Jan. 27, 1997-Jan. 25, 1998 Calendar Year 1997
Jan. 1, 1996-Dec. 31, 1996 Jan. 29, 1996-Jan. 26, 1997 Calendar Year 1996
Jan. 1, 1995-Dec. 31, 1995 Jan. 30, 1995-Jan. 28, 1996 Calendar Year 1995
Effective January 30, 1995 and prior to the merger with Dollar Tree in
1998, 98 Cent Clearance Center reported financial results based on a
52-week period that ended on the last Sunday in January. For this reason,
our combined calendar year 1998 financial statements include only an
11-month period for 98 Cent Clearance Center. Only $One's reported
financial results are based on a calendar year and are included in each
period presented.
(2) On January 31, 1996, we bought all of the stock of a corporation owning 136
Dollar Bills stores in an acquisition accounted for as a purchase. For this
reason, the operating results for the year ended December 31, 1996 only
include 11 months of results for Dollar Bills. The operating results for
the year ended December 31, 1995 do not include any Dollar Bills results.
(3) Effective January 30, 1995, 98 Cent Clearance Center changed its fiscal
year from a 52-week period ending on the Sunday nearest December 31 to the
last Sunday in January. For this reason, 98 Cent Clearance Center's results
of operations for the four-week period ended January 29, 1995 are not
included in the results of operations for the year ended December 31, 1995.
The net loss for this four-week period was $169.
(4) For 1999, represents expenses of $1,050 related to the June 1999 merger
with Only $One, primarily inventory writedowns and professional fees. For
1998, represents expenses of $5,325 related to the December 1998 merger
with 98 Cent Clearance Center, primarily professional fees and inventory
and fixed asset writedowns.
(5) Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income
per share is computed by dividing net income by the weighted average number
of common shares and dilutive potential common shares outstanding. Dilutive
potential common shares include all outstanding stock options and warrants
after applying the treasury stock method.
(6) Amounts include a pro forma adjustment for C-corporation income taxes
relating to Only $One of $505 in 1999, $1,025 in 1998, $782 in 1997, $523
in 1996, and $467 in 1995.
(7) We closed four stores in 1999, seven stores in 1998, one store in 1997, six
stores in 1996, and three stores in 1995.
(8) Comparable store net sales increase compares net sales for stores open
during the entire two periods compared. The comparable store net sales
increase calculation for the year ended December 31, 1998 includes net
sales for 98 Cent Clearance Center for the 11-month periods ended December
31, 1998 and 1997. The comparable store net sales increase calculation for
the year ended December 31, 1997 includes net sales of Dollar Bills stores
for the 12-month periods ended December 31, 1997 and 1996.
(9) For stores open the entire period presented. The net sales per store and
net sales per square foot calculations for 1998 include 98 Cent Clearance
Center's net sales for the 12-month period ended December 31, 1998. Dollar
Bills stores are included in the calculations beginning in 1997.
</FN>
</TABLE>
13
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
In Management's Discussion and Analysis, we explain our general financial
condition and results of operations, including:
o what factors affect our business;
o what our earnings and costs were for the years 1999, 1998, and 1997;
o why earnings and costs in 1999 and 1998 were different from the year
before;
o where our earnings come from;
o how all of this affects our overall financial condition;
o what our expenditures for capital projects were in 1999, 1998, and
1997 and what we expect them to be in 2000; and
o where funds will come from to pay for future expenditures.
We merged with 98 Cent Clearance Center in December 1998 and with Only $One
in June 1999. We accounted for each of these mergers as a "pooling of
interests." Under this form of accounting, we combined the financial statements
of Dollar Tree with those of 98 Cent Clearance Center and Only $One, not only
since the dates of the mergers, but also retroactively. As a result, all
financial data, information, and discussion assumes that 98 Cent Clearance
Center and Only $One had each been a part of Dollar Tree throughout all years
discussed. For each period presented, the outstanding 98 Cent Clearance Center
and Only $One shares have been converted into Dollar Tree shares based on the
exchange ratios used in each merger. This has the effect of changing our prior
net income per share calculations.
Key Events and Recent Developments
Several key events have had or are expected to have a significant effect on
our results of operations. When reading Management's Discussion and Analysis,
you should keep in mind that:
o In January 2000, we signed a contract to enter into an operating lease
for a new 600,000 square foot distribution center, which is being
constructed in Savannah, Georgia. We plan to have this facility in
operation in the first quarter of 2001.
o Also in January 2000, we opened a new 317,000 square foot distribution
center in Stockton, California, which replaced our Sacramento,
California facility.
o In June 1999, we completed our merger with Only $One. We issued
501,600 shares of our common stock to the former owners of Only $One.
Only $One operated 24 stores in central and upstate New York.
o In January 1999, we opened a new 425,000 square foot distribution
center in Olive Branch, Mississippi, which replaced our Memphis,
Tennessee facility.
o In December 1998, we completed our merger with 98 Cent Clearance
Center. We reserved or issued approximately 2,152,000 shares of our
common stock for 98 Cent Clearance Center's existing shareholders and
its option holders. 98 Cent Clearance Center operated 66 stores in
northern and central California and Nevada.
o In January 1996, we acquired a corporation owning 136 Dollar Bills
stores for $54.6 million in cash and inventory.
Results of Operations
In this section, we discuss our 1999 and 1998 operations and the factors
affecting them. Our net sales result from the sale of merchandise. Two major
factors tend to affect our net sales trends. First is our success at opening new
stores or adding new stores through mergers or acquisitions. Second, sales at
our existing stores change from one year to the next. We refer to this as a
change in "comparable store net sales," because we compare only those stores
which are open for the entire two years being compared.
14
<PAGE>
Most retailers can increase the price of their merchandise as well as sell
more merchandise in order to increase their comparable store net sales. As a
fixed price point retailer, we do not have the ability to raise our prices. Our
comparable store net sales increase only if we sell more merchandise. In 1999,
however, we increased the price point in the sixty-six 98 Cent Clearance Centers
from $0.98 to $1.00, which had a minor impact on our comparable store net sales.
We believe that our future comparable store net sales increases, if any, will be
lower than those we have experienced in the past. Our internal business plan
continues to call for a 2% to 3% increase in comparable store net sales in 2000,
with some reduction in the first quarter of 2000 because the Easter holiday
shopping season shifts to the second quarter.
We anticipate that our future sales growth will come mostly from new store
openings. We plan to expand by 225 to 235 stores in 2000. We also expect our
average store size to increase in 2000, which we believe will result in a
decrease in our net sales per square foot.
Increases in expenses could impact our operating results negatively since
we cannot pass on increased expenses to our customers by increasing our
merchandise price. Consequently, our future success depends in large part on our
ability to control costs.
The following table expresses certain of our expenses as a percentage of
net sales:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0%
Cost of sales.................................. 62.3 62.4 63.7
Merger related costs .......................... - 0.1 -
----- ----- -----
Gross profit................................. 37.7 37.5 36.3
Selling, general and administrative expenses:
Operating expenses........................... 21.7 22.1 22.8
Merger related expenses...................... 0.1 0.4 -
Depreciation and amortization................ 2.3 2.2 1.9
----- ----- -----
Total...................................... 24.1 24.7 24.7
----- ----- -----
Operating income............................... 13.6 12.8 11.6
Interest income................................ 0.1 0.0 0.0
Interest expense............................... (0.4) (0.5) (0.5)
----- ----- -----
Income before income taxes..................... 13.3 12.3 11.1
Provision for income taxes..................... 5.1 4.7 4.2
----- ----- -----
Net income..................................... 8.2% 7.6% 6.9%
===== ===== =====
</TABLE>
1999 Compared to 1998
Net Sales. Net sales increased 26.9% to $1,198.0 million for 1999 from
$944.1 million for 1998. We attribute this $253.9 million increase to two
factors:
o Approximately 81% of the increase came primarily from stores opened in
1999 and 1998, which are not included in our comparable store net
sales calculation.
o Approximately 19% of the increase came from comparable store net sales
growth. Comparable store net sales increased 5.6% during 1999.
Because our products sell for a fixed price, the increase in comparable
store net sales was entirely a result of an increase in the number of items sold
in the stores included in the calculation. We believe net sales increased in
comparable stores because:
o We improved the quality and mix of merchandise, with a slightly higher
emphasis on consumable products.
o Throughout 1999, we changed the merchandise mix at the 98 Cent
Clearance Center stores to more closely resemble the mix at our
existing Dollar Tree stores.
o We benefited from expanding and relocating existing stores, which are
included in the comparable store net sales calculation.
o Customers purchased a higher average number of items and more
customers visited our stores.
15
<PAGE>
We opened 208 new stores and closed four stores during 1999, compared to
220 new stores opened and seven stores closed the previous year. The new 1999
stores include four that we acquired from a small dollar store operator. We
added 24.2% to our total square footage in 1999 compared to adding 27.5% in
1998.
Gross Profit. Gross profit increased $97.3 million, or 27.5% in 1999 as
compared to 1998. Our gross profit expressed as a percentage of net sales is
called our "gross profit margin." Our gross profit margin increased to 37.7% in
1999 from 37.5% in 1998. This increase occurred mainly because of a decline in
certain costs as a percentage of net sales offset by increases in certain costs
as a percentage of sales:
o Our increased sales volume provided greater buying power with
merchandise vendors. We also experienced lower overall merchandise
costs resulting from an increase in the percentage of import
merchandise.
o Our distribution costs were lower as a result of efficiencies at our
Chesapeake and Olive Branch distribution centers.
o We experienced higher freight costs because of the increase in the
trans-Pacific shipping rates. Management estimates that the impact of
these higher shipping rates was approximately $5.0 million in 1999.
See "Inflation and Other Economic Factors" on page 20.
In 1999, we purchased a slightly higher percentage of imports, which
generally cost less than domestic product, and these goods improved our gross
profit margin for the year. In 2000, we intend to buy more consumable products,
such as food and household chemicals, to meet customer demand and supply our
larger store format. Consumable products are generally domestically produced and
carry a higher cost than imports. Management expects the changing merchandise
mix will result in a slight reduction in gross profit margin in 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $55.3 million, or 23.7%, in 1999 compared to
1998. As a percentage of net sales, selling, general and administrative expenses
decreased to 24.1% in 1999 compared to 24.7% in 1998. Excluding merger related
expenses, selling, general and administrative expenses decreased as a percentage
of net sales to 24.0% in 1999 from 24.3% in 1998. This decrease happened
primarily because our comparable store net sales allowed us to leverage our
fixed costs. Depreciation and amortization increased $7.6 million, to 2.3% as a
percentage of net sales in 1999 from 2.2% in 1998. This percentage increase is
mainly the result of depreciation related to the Olive Branch facility.
During 1999, we recorded a $1.3 million loss contingency in selling,
general and administrative expenses due to our uncertainty about being able to
sublease our Sacramento facility for an amount that would cover our remaining
payments. During 1998, we recorded a $1.1 million loss contingency in selling,
general and administrative expenses because we were not certain that we could
sublease our Memphis facility for an amount that would cover our remaining
payments. The Memphis facility experienced favorable developments in 1999, which
reduced the loss contingency approximately $0.7 million. See "Inflation and
Other Economic Factors" on page 20.
Operating Income. Our operating income increased $42.0 million, or 34.9%,
in 1999 as compared to 1998. As a percentage of net sales, operating income
increased to 13.6% in 1999 compared to 12.8% in 1998. Excluding merger related
items, operating income increased to $163.5 million in 1999 from $125.7 million
in 1998 and increased as a percentage of net sales to 13.6% from 13.3%. These
increases were attributable to our improved gross profit margin and the decrease
in our selling, general and administrative expenses as a percentage of net sales
discussed above.
Interest Income/Expense. Interest expense decreased $0.4 million to $4.5
million in 1999 from $4.9 million in 1998. Interest income increased $1.1
million to $1.7 million in 1999 from $0.6 million in 1998. The increase in
interest income and the decrease in interest expense each resulted from lower
levels of debt in 1999 compared to 1998, creating a higher cash position in 1999
compared to 1998.
1998 Compared to 1997
Net Sales. Net sales increased 26.6% to $944.1 million for 1998 from $745.6
million for 1997. We attribute this $198.5 million increase to two factors:
o Approximately 80% of the increase came primarily from stores opened in
1998 and 1997, which are not included in our comparable store net
sales calculation.
16
<PAGE>
o Approximately 20% of the increase came from comparable store net sales
growth. Comparable store net sales increased 6.8% during 1998. This
comparable store net sales calculation includes sales at 98 Cent
Clearance Center stores for the 11-month periods ended December 31,
1998 and December 31, 1997.
We believe net sales increased in comparable stores because:
o We stocked a more consistent quantity of consumable products during
the first half of 1998.
o Customers purchased a higher average number of items, and more
customers visited our stores.
o The number of days in the Easter selling season increased because
Easter shifted to April 12 in 1998 from March 30 in 1997.
o We continued to improve the quality and variety of merchandise offered
in our stores.
We opened 220 new stores and closed seven stores during 1998, compared to
166 new stores opened and one store closed the previous year. We acquired nine
of the new stores in 1998 from two small dollar store operators.
Gross Profit. Gross profit increased $82.8 million, or 30.5%, in 1998 as
compared to 1997. Our gross profit margin increased to 37.5% in 1998 from 36.3%
in 1997. If you exclude merger related costs otherwise included in cost of sales
(related to merchandise markdowns), the gross profit margin increased to 37.6%.
This increase occurred mainly because certain costs declined as a percentage of
net sales:
o Our increased sales volume gave us greater buying power with
merchandise vendors, which in turn lowered our overall merchandise
costs expressed as a percentage of net sales. We believe that
favorable foreign currency rates had only a minor effect on the lower
cost of our imported goods.
o We imported a higher percentage of our goods.
o We experienced lower occupancy costs expressed as a percentage of net
sales because occupancy costs tend to be mostly fixed. The ability to
lower fixed costs as a percentage of net sales because of a growth in
sales is known in the industry as "leverage."
In 1998, we brought in a larger than usual amount of imports compared to
1997, which generally cost less than domestic product, and these goods improved
our gross profit margin for the year. Consumable products are generally
domestically produced and carry a higher cost than imports.
In May 1998, certain ocean shippers increased freight charges by $300 per
container. The higher charges, which apply only to imported goods, added
approximately $700,000 to our freight costs in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $49.0 million, or 26.6%, in 1998 as compared
to 1997. As a percentage of net sales, selling, general and administrative
expenses remained constant at 24.7%. If you exclude merger related expenses,
selling, general and administrative expenses decreased as a percentage of net
sales to 24.2% in 1998 from 24.7% in 1997. This decline happened primarily
because we were able to leverage fixed costs across a higher sales volume
because of a high comparable store net sales increase. Depreciation and
amortization increased $6.0 million, to 2.2% as a percentage of net sales in
1998 from 1.9% in 1997. This percentage increase is mainly the result of
depreciation related to the Chesapeake Store Support Center.
Operating Income. Our operating income increased $33.8 million, or 38.9%,
in 1998 as compared to 1997. As a percentage of net sales, operating income
increased to 12.8% in 1998 from 11.6% in 1997. If you exclude merger related
items, operating income increased to $125.7 million in 1998 from $86.7 million
in 1997 and increased as a percentage of net sales to 13.3% from 11.6%. These
increases were attributable to our improved gross profit margin and the decrease
in our selling, general and administrative expenses as a percentage of net sales
discussed above.
Interest Income/Expense. Interest income increased $0.5 million to $0.6
million in 1998 from $0.1 million in 1997. This increase was primarily a result
of an increased net cash position in the fourth quarter of 1998 compared to
1997. Interest expense increased $1.3 million to $4.9 million in 1998 from $3.6
million in 1997. This increase was primarily a result of higher levels of debt
in 1998 compared to 1997 resulting from borrowings related to our two new
distribution centers. In 1998, we capitalized $402,000 of interest relating to
the construction of the Olive
17
<PAGE>
Branch facility compared with $916,000 of interest capitalized in 1997 related
to the construction of the Chesapeake Store Support Center.
Liquidity and Capital Resources
Overview
Our business requires capital primarily to open new stores and operate
existing stores. Our working capital requirements for existing stores are
seasonal and typically reach their peak in the months of September and October.
Historically, we have satisfied our seasonal working capital requirements for
existing stores and funded our store expansion program from internally generated
funds and borrowings under our credit facilities.
The following table compares certain cash-related information for 1999,
1998, and 1997:
1999 1998 1997
---- ---- ----
(in millions)
Net cash provided by (used in):
Operating activities............ $120.7 $ 71.0 $ 70.5
Investing activities............ (48.1) (53.4) (60.0)
Financing activities............ 29.2 9.4 29.4
We generally expended net cash used in investing activities to open new
stores and to meet the following additional needs:
o $17.9 million for part of the construction of the Olive Branch
distribution center in 1998 and another $1.4 million on that project
in 1999; and
o $30.0 million for the construction of the Chesapeake Store Support
Center in 1997.
Net cash provided by financing activities reflects cash which came from
sources other than normal operations. We obtained cash from the exercise of
stock options and the following sources:
o $21.6 million from the sale and leaseback of some of our retail store
leasehold improvements in 1999;
o $2.5 million in 1999 and $16.5 million in 1998 from the issuance of
callable bonds related to the construction of the Olive Branch
facility; and
o $30.0 million from the issuance of senior notes in 1997.
Our borrowings under our bank facility, senior notes and bonds were $49.0
million at December 31, 1999 and $46.5 million at December 31, 1998. At December
31, 1999, we had an additional $135.0 million available through our bank
facility. Of this amount, approximately $42.4 million is committed to letters of
credit issued for the routine purchase of imported merchandise.
Funding Requirements
We expect to expand by approximately 225 to 235 stores during 2000. In
1999, the average investment per new store, including capital expenditures,
initial inventory and pre-opening costs, was approximately $211,000 per store.
Of our new Dollar Tree stores in 1999, 35 were a slightly larger format than our
traditional prototype. Average investment for these larger stores was
approximately $307,000. We expect our cash needs for opening new stores in 2000,
including approximately 90 to 100 of the larger format stores, to total
approximately $58.0 million and we have budgeted $36.5 million for capital
expenditures and $21.5 million for initial inventory and pre-opening costs. Our
total planned capital expenditures for 2000 are approximately $77.5 million,
including planned expenditures for expanded and relocated stores, additional
equipment for the distribution centers, computer system upgrades, expanding the
Store Support Center in Chesapeake and remodeling and upgrading the Only $One
stores.
We believe that we can adequately fund our planned capital expenditures and
working capital requirements for the next several years from net cash provided
by operations and borrowings under our credit facility.
18
<PAGE>
Bank Credit Facility. During September 1996, we entered into an amended and
restated credit agreement with our banks which currently provides for a $135.0
million unsecured revolving credit facility to be used for working capital,
letters of credit and development needs, bearing interest at the agent bank's
prime rate or LIBOR plus a spread, at our option. As of December 31, 1999, the
interest rate was approximately 7.0%. The credit agreement, among other things,
requires the maintenance of certain specified ratios, restricts the payments of
cash dividends and other distributions, limits the amount of debt, and, through
March 1, 2000, requires that aggregate borrowings must be paid down to a
specified amount for at least 30 consecutive days at any time between December 1
and March 1. The facility matures May 31, 2002.
During 1998, our banks agreed to remove the requirement that our founding
shareholders maintain a minimum beneficial ownership in the company and to
eliminate requirements which restricted the amount of our capital expenditures.
Operating Lease Agreements. During June 1999, we entered into an $18.0
million operating lease agreement to finance the construction of a new
distribution center in Stockton, California. In January 2000, we entered into a
$35.0 million operating lease agreement to finance the construction of a new
distribution center in Savannah, Georgia. Under these agreements the lessor
purchases the property, pays for the construction costs and subsequently leases
the facility to us.
Sale-Leaseback Transaction. In September 1999, we sold some of our retail
store leasehold improvements to an unrelated third party and leased them back
for seven years. We have an option to repurchase the leasehold improvements at
the end of the fifth and seventh years at amounts approximating their fair
market values at the time the option is exercised. This transaction is treated
as a financing arrangement. The total amount of the lease obligation is $29.0
million. We are required to make monthly lease payments of $438,000 in years one
through five and $638,000 in years six and seven. As a result of the
transaction, we received net cash of $20.9 million and an $8.1 million 11% note
receivable which matures in September 2006 and is included in "other assets,
net."
Revenue Bond Financing. In May 1998, we entered into an agreement with the
Mississippi Business Finance Corporation under which it issued $19.0 million of
Taxable Variable Rate Demand Revenue Bonds. We used the proceeds from the bonds
to finance the acquisition, construction and installation of land, buildings,
machinery and equipment for our new distribution facility in Olive Branch,
Mississippi. At December 31, 1999, the balance outstanding on the bonds was
$19.0 million. We begin repayment of the principal amount of the bonds on June
1, 2006, with a portion maturing each June 1 until the final portion matures on
June 1, 2018. The bonds do not have a prepayment penalty as long as the interest
rate remains variable. The bonds contain a demand provision and, therefore,
outstanding amounts are classified as current liabilities. We pay interest
monthly based on a variable interest rate which was 6.9% at December 31, 1999.
The bonds are supported by a $19.3 million letter of credit issued by one of our
existing lending banks. The letter of credit is renewable annually. The letter
of credit and reimbursement agreement requires that we maintain certain
specified ratios and restricts our ability to pay dividends.
In April 1999, we entered into an interest rate swap agreement that
converts a portion of the Demand Revenue Bonds to a fixed rate and reduces our
exposure to changes in interest rates. Under this agreement, as amended, we pay
interest to the bank which provided the swap at a fixed rate of 4.99%. In
exchange, the bank pays us at a variable interest rate, which is similar to the
rate on the Demand Revenue Bonds and was 6.5% at December 31, 1999. A maximum
variable interest rate was set, such that no payments are made by either party
under the swap for monthly periods with an established interest rate greater
than 8.28%. The variable interest rate on the interest rate swap is set monthly.
The swap expires April 1, 2009; however, it may be canceled by us or the bank
and settled for the fair value of the swap as determined by market rates.
Debt Securities. In April 1997, we issued $30.0 million of 7.29% unsecured
senior notes. We used the proceeds to pay down a portion of the revolving credit
facility, which enabled us to use that credit facility to fund capital
expenditures for the Chesapeake corporate headquarters and distribution center.
We pay interest on the notes semiannually on April 30 and October 30 each year
and will pay principal in five equal installments of $6.0 million beginning
April 30, 2000. The note holders have the right to require us to prepay the
notes in full without premium upon a change of control or upon certain asset
dispositions or certain other transactions we may make. The note agreements
prohibit certain mergers and consolidations in which our company is not the
surviving company, require that we maintain certain specified ratios, require
that the notes rank on par with other debt and limit the amount of debt we can
incur. In the event of default or a prepayment at our option, we must pay a
prepayment penalty equal to a make-whole amount.
19
<PAGE>
Seasonality and Quarterly Fluctuations
We experience seasonal fluctuations in our net sales growth, comparable
store net sales, operating income and net income. Management expects this trend
to continue. Our results of operations may also fluctuate significantly as a
result of a variety of factors, including:
o shifts in the timing of certain holidays, especially Easter, which may
fall in different quarters from year to year;
o the timing of new store openings;
o the net sales contributed by new stores;
o changes in our merchandise mix; and
o competition.
Our highest sales periods are the Christmas and Easter seasons. We
generally realize a disproportionate amount of our net sales and a substantial
majority of our operating and net income during the fourth quarter. In
anticipation of increased sales activity during these months, we purchase
substantial amounts of inventory and hire a significant number of temporary
employees to supplement our permanent store staff. Our operating results,
particularly operating and net income, could suffer if our net sales were below
seasonal norms during the fourth quarter or Easter season for any reason,
including merchandise delivery delays due to receiving or distribution problems.
Historically, net sales, operating income and net income have been weakest
during the first quarter. We expect this trend to continue.
Our unaudited results of operations for the eight most recent quarters are
shown in a table in Footnote 12 of the consolidated financial statements in Item
8 of this Form 10-K. To reconcile the combined company's quarterly information
with that previously reported by Dollar Tree, refer to our Form 8-K, filed on
July 22, 1999, which includes quarterly information for the combined companies.
Inflation and Other Economic Factors
Our ability to provide quality merchandise at a fixed price point is
subject to certain economic factors which are beyond our control, including
inflation, operating costs, consumer confidence and general economic conditions.
These factors may not remain favorable. In particular, ocean shipping costs,
hourly minimum wage rates, or other costs may not remain at current levels.
Ocean Shipping Costs. In May 1998, a trans-Pacific ocean-shipping cartel
imposed a freight increase of $300 per container on United States imports from
Asia. In May 1999, the cartel imposed a further increase of $900 per container
for shipments from Asia to the West Coast of the United States and $1,000 for
shipments to the East Coast, with a $300 per container surcharge during the peak
shipping season from June 1 through November 30. Management believes the higher
rates will increase our shipping costs by approximately $2.0 to $3.0 million
during the first three quarters of 2000 as compared to the first three quarters
of 1999. The shipping cartel could seek a further rate increase in the future.
Minimum Wage. The federally mandated minimum wage increased by $0.50 per
hour on October 1, 1996 and by an additional $0.40 per hour on September 1,
1997. These changes increased payroll costs by approximately $5 million in 1998.
In February 2000, the United States Senate approved a proposal increasing the
federal minimum wage by $1.00 an hour over three years. In March 2000, the House
of Representatives approved a proposal increasing the federal minimum wage by
$1.00 per hour over two years. Differences between the two bills need to be
settled before a final bill is sent to the President for approval. Although our
average hourly rate is significantly higher than the federal minimum wage, an
increase in the minimum wage, if eventually passed into law, could have a
significant impact on our payroll costs.
Leases for Replaced Distribution Centers. We are liable for rent and
pass-through costs under leases for our former distribution center in Memphis
through September 2005 and in Sacramento through June 2008. Annual rent and
pass-through costs are approximately $745,000 for the Memphis facility and
$585,000 for the Sacramento facility. We have recorded loss contingencies for
each of these leases considering current market conditions and probable sublease
income at each location. If an acceptable sublease is not obtained in
Sacramento, we could record up to $250,000 in selling, general and
administrative expenses in 2000. If an acceptable sublease is not obtained in
Memphis beyond December 2000, we could record up to $350,000 in selling, general
and administrative expenses in 2000.
Unless offsetting cost savings are realized (and we can give no assurance
that they will be), an increase in inflation, minimum wage levels, shipping
costs or other operating costs, or a
20
<PAGE>
decline in consumer confidence or general economic conditions, could have a
material adverse effect on our financial condition and results of operations.
Year 2000 Compliance
We use a large number of computer software programs throughout our entire
organization, such as purchasing, distribution, retail store management,
financial business systems and various administrative functions. We developed
some of these programs in-house and bought others from vendors. At one time,
most computer programs were written to store only two digits of date-related
information in order to more efficiently handle and sort data. As a result,
these programs were unable to properly distinguish between dates occurring in
the year 1900 and dates occurring in the year 2000. This is referred to as the
"Year 2000 problem."
In preparation for Year 2000, we evaluated and adjusted all known
date-sensitive systems and equipment for Year 2000 compliance. We relied
primarily on internal resources to identify, correct or reprogram and test
systems for Year 2000 compliance. Through December 31, 1999, we spent less than
$150,000 in modifying our systems for the Year 2000, and we do not expect to
incur any additional costs.
We have not encountered any business interruptions due to Year 2000
problems. However, it is too early to conclude these interruptions will not
occur. We are unable to assess fully the potential effect of Year 2000 problems
on our international suppliers, particularly in China. We also cannot predict
the duration or severity of any disruptions which may occur in China or the home
countries of our other overseas suppliers. In the event we experience business
interruptions resulting from Year 2000 problems, we are prepared to enact
contingency plans developed during the Year 2000 project. This Year 2000
Compliance section is a Year 2000 readiness disclosure as defined under the Year
2000 Information and Readiness Disclosure Act of 1998.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," establishes standards for
derivative instruments and hedging activities and requires that companies
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
goes into effect on January 1, 2001. We do not expect that the implementation of
this pronouncement will have a material impact on our financial condition or
results of operations.
Recently Issued Securities
During the quarter ended June 30, 1999, we issued an aggregate of 501,600
shares of our common stock in connection with the purchase of the capital stock
of Tehan's Merchandising, Inc. The shares were issued pursuant to an exemption
by reason of Section 4(2) of the Securities Act of 1933. These sales were made
without general solicitation or advertising. Each purchaser was an accredited
investor or a sophisticated investor with access to all relevant information
necessary. We have filed a Registration Statement on Form S-3 covering the
resale of such securities.
During the quarter ended September 30, 1999, we granted an option to two
owners of a business we acquired to purchase 3,000 shares of our common stock at
an exercise price of $42.875 per share. The option was issued pursuant to an
exemption by reason of Section 4(2) of the Securities Act of 1933. The issuance
was made without general solicitation or advertising. The holders are accredited
investors or sophisticated investors with access to all relevant information
necessary.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes and foreign currency
rate fluctuations. We have the option of entering into interest rate swaps to
manage exposure to interest rate changes, and we may employ other risk
management strategies, including the use of foreign currency forward contracts.
We do not enter into derivative instruments for any purpose other than cash flow
hedging purposes. We do not hold derivatives for trading purposes.
Interest Rate Risk
We have financial instruments that are subject to interest rate risk,
comprised of debt obligations issued at variable and fixed rates. Based on
amounts outstanding on our fixed rate debt obligations at December 31, 1999, our
exposure to interest rate risk is not considered material.
21
<PAGE>
We use variable-rate debt to finance our operations. In particular, we have
issued variable-rate long-term revenue bonds. This obligation exposes us to
variability in interest payments due to changes in interest rates. If interest
rates increase, interest expense increases. Conversely, if interest rates
decrease, interest expense also decreases. We believe it is beneficial to limit
the variability of a portion of our interest payments.
To meet this objective, we entered into a derivative instrument in the form
of an interest rate swap to manage fluctuations in cash flows resulting from
interest rate risk. The interest rate swap changes the variable rate cash flow
exposure on the variable-rate debt to fixed-rate cash flows by entering into a
receive-variable, pay-fixed interest swap. Under the interest rate swap, we
receive variable interest rate payments and make fixed interest rate payments,
thereby creating fixed rate bonds. Under the interest rate swap, we pay the bank
at a fixed rate of 4.99% and receive variable interest at a rate approximating
the variable rate on the hedged cash flows. No payments are made by either party
under the swap for monthly periods in which the variable interest rate is
greater than 8.28%. As a result, we will not experience a negative cash flow or
income statement impact unless the variable interest rate increases to greater
than 8.28%. The variable rate under the swap was 6.5% for the month of December
1999. We assess interest rate cash flow risk by continually identifying and
monitoring changes in interest rate exposures that may adversely impact expected
future cash flows.
Foreign Currency Risk
Although we purchase most of our imported goods with U.S. dollars, we are
subject to foreign currency exchange rate risk relating to payments to a
supplier in Italian lire. As a general policy, we substantially hedge foreign
currency commitments of future payments by purchasing foreign currency forward
contracts. On December 31, 1999, we had one contract outstanding for $793,000.
Less than one percent of our expenditures are contracted in Italian lire and the
market risk exposure relating to currency exchange is not material.
22
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements Page
Independent Auditors' Report........................................... 24
Consolidated Balance Sheets as of December 31, 1999 and 1998........... 25
Consolidated Income Statements for the years ended
December 31, 1999, 1998 and 1997.............................. 26
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997.......... 27
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.............................. 28
Notes to Consolidated Financial Statements............................. 29
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Dollar Tree Stores, Inc.:
We have audited the accompanying consolidated balance sheets of Dollar Tree
Stores, Inc. and subsidiaries (the Company) as of December 31, 1999 and 1998,
and the related consolidated income statements and statements of shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dollar Tree
Stores, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
Norfolk, Virginia
January 24, 2000
24
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
---- ----
(In thousands,
ASSETS except share data)
Current assets:
<S> <C> <C>
Cash and cash equivalents................................................. $ 176,514 $ 74,644
Merchandise inventories................................................... 174,582 142,706
Deferred tax asset (Note 3)............................................... 5,398 6,709
Prepaid expenses and other current assets................................. 13,001 7,451
------- -------
Total current assets ............................................. 369,495 231,510
------- -------
Net property and equipment (Notes 4 and 5)..................................... 144,023 122,503
Deferred tax asset (Note 3).................................................... - 2,194
Goodwill, net of accumulated amortization (Note 2)............................. 42,394 42,551
Other assets, net (Note 2)..................................................... 15,216 6,429
------- -------
TOTAL ASSETS...................................................... $ 571,128 $ 405,187
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Accounts payable.......................................................... $ 63,170 $ 53,030
Income taxes payable (Note 3)............................................. 28,063 21,353
Other current liabilities (Note 5)........................................ 29,034 25,988
Current portion of long-term debt (Note 6)................................ 26,500 16,500
Current installments of obligations under capital leases (Note 4)......... 3,183 457
------- -------
Total current liabilities......................................... 149,950 117,328
Long-term debt, excluding current portion (Note 6)............................. 24,000 30,000
Obligations under capital leases, excluding current installments (Note 4)...... 28,375 2,469
Deferred tax liability (Note 3)................................................ 1,182 -
Other liabilities.............................................................. 6,650 6,574
------- -------
Total liabilities................................................. 210,157 156,371
------- -------
Commitments, contingencies and subsequent
event (Notes 1, 4, 6, 8, 10 and 11)
Shareholders' equity (Notes 2, 7, 8 and 10):
Common stock, par value $0.01. Authorized 300,000,000 shares,
62,111,143 shares issued and outstanding at December 31, 1999;
and authorized 100,000,000 shares, 61,380,418 shares issued
and outstanding at December 31, 1998.............................. 621 614
Additional paid-in capital................................................ 72,539 53,030
Retained earnings......................................................... 287,811 195,172
------- -------
Total shareholders' equity........................................ 360,971 248,816
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................ $ 571,128 $ 405,187
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(In thousands, except
per share data)
<S> <C> <C> <C>
Net sales..................................................... $ 1,197,960 $ 944,122 $ 745,590
Cost of sales................................................. 746,463 589,080 474,612
Merger related costs (Note 2)................................. 443 1,301 -
--------- ------- -------
Gross profit......................................... 451,054 353,741 270,978
--------- ------- -------
Selling, general and administrative expenses
(Notes 4, 7, and 9):
Operating expenses................................... 259,917 208,782 169,792
Merger related expenses (Note 2)..................... 607 4,024 -
Depreciation and amortization (Note 2)............... 28,117 20,518 14,523
--------- ------- -------
Total selling, general and administrative
expenses......................................... 288,641 233,324 184,315
--------- ------- -------
Operating income.............................................. 162,413 120,417 86,663
Interest income............................................... 1,717 596 145
Interest expense (Note 6)..................................... (4,522) (4,927) (3,554)
--------- ------- -------
Income before income taxes.................................... 159,608 116,086 83,254
Provision for income taxes (Note 3)........................... 61,090 44,533 31,295
--------- ------- -------
Net income......................................... $ 98,518 $ 71,553 $ 51,959
========= ======= =======
Net income per share (Note 8):
Basic net income per share................................ $ 1.59 $ 1.17 $ 0.86
========= ======= =======
Diluted net income per share.............................. $ 1.45 $ 1.06 $ 0.78
========= ======= =======
Pro forma income data (Note 2):
Net income................................................ $ 98,518 $ 71,553 $ 51,959
Pro forma adjustment for C-corporation income taxes....... 505 1,025 782
--------- ------- -------
Pro forma net income...................................... $ 98,013 $ 70,528 $ 51,177
========= ======= =======
Pro forma basic net income per share...................... $ 1.58 $ 1.15 $ 0.84
========= ====== =======
Pro forma diluted net income per share.................... $ 1.44 $ 1.04 $ 0.76
========= ======= =======
Weighted average number of common shares outstanding.......... 61,839 61,185 60,714
========= ======= =======
Weighted average number of common shares
and dilutive potential common shares outstanding............ 68,135 67,626 66,982
========= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
Common Additional
Stock Common Paid-in Retained Shareholders'
Shares Stock Capital Earnings Equity
------ ----- ------- -------- ------
(In thousands, except share data)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996....................... 60,381,297 $ 268 $ 33,818 $ 73,985 $ 108,071
Transfer from additional paid-in
capital for Common Stock dividend................ - 135 (135) - -
Net income for the year
ended December 31, 1997.......................... - - - 51,959 51,959
Shareholder distributions (Note 2)................. - - - (950) (950)
Issuance of stock under Employee
Stock Purchase Plan and
other plans (Note 10)............................ 26,078 - 358 - 358
Exercise of stock options, including
income tax benefit of $2,752 (Note 10)........... 466,901 2 4,917 - 4,919
---------- --- ------ ------- -------
Balance at December 31, 1997....................... 60,874,276 405 38,958 124,994 164,357
Transfer from additional paid-in
capital for Common Stock dividend................ - 198 (198) - -
Net income for the year
ended December 31, 1998.......................... - - - 71,553 71,553
Shareholder distributions (Note 2)................. - - - (1,375) (1,375)
Issuance of stock under Employee
Stock Purchase Plan and
other plans (Note 10)............................ 24,235 7 634 - 641
Grant of stock options under the 1998
Special Stock Option Plan (Note 10)............. - - 4,413 - 4,413
Exercise of stock options, including
income tax benefit of $4,916 (Note 10)........... 481,907 4 9,223 - 9,227
---------- --- ------ ------- -------
Balance at December 31, 1998....................... 61,380,418 614 53,030 195,172 248,816
Termination of Only $One S-corporation
status.......................................... - - 4,469 (4,469) -
Net income for the year
ended December 31, 1999.......................... - - - 98,518 98,518
Shareholder distributions (Note 2)................. - - - (1,410) (1,410)
Issuance of stock under Employee
Stock Purchase Plan and
other plans (Note 10)............................ 30,437 - 838 - 838
Exercise of stock options, including
income tax benefit of $6,278 (Note 10)........... 700,288 7 14,202 - 14,209
---------- --- ------ ------- -------
Balance at December 31, 1999....................... 62,111,143 $ 621 $ 72,539 $ 287,811 $ 360,971
========== === ====== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
<TABLE>
<CAPTION>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
(In thousands)
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ............................................... $ 98,518 $ 71,553 $ 51,959
------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 28,117 20,518 14,523
Loss on disposal of property and equipment.............. 1,221 2,814 305
Provision for deferred income taxes..................... 4,687 (1,207) (3,503)
Changes in assets and liabilities increasing
(decreasing) cash and cash equivalents:
Merchandise inventories........................... (31,148) (31,886) (20,537)
Prepaid expenses and other current assets......... (6,382) (558) 1,691
Other assets...................................... 307 247 (351)
Accounts payable.................................. 9,968 (2,010) 10,303
Income taxes payable.............................. 12,988 6,682 9,366
Other current liabilities......................... 3,046 4,538 5,281
Other liabilities................................. (597) 351 1,437
------- ------- -------
Total adjustments.............................. 22,207 (511) 18,515
------- ------- -------
Net cash provided by operating activities...... 120,725 71,042 70,474
------- ------- -------
Cash flows from investing activities:
Acquisition, net of cash acquired............................ (320) - -
Capital expenditures......................................... (47,931) (53,562) (60,118)
Proceeds from sale of property and equipment................. 172 174 159
------- ------- -------
Net cash used in investing activities.......... (48,079) (53,388) (59,959)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale-leaseback transaction..................... 21,605 - -
Proceeds from long-term debt................................. 19,400 202,300 236,600
Payment of long-term debt and facility fees.................. (18,041) (186,030) (209,803)
Net change in notes payable to bank.......................... - (10,045) 1,359
Principal payments under capital lease obligations........... (1,099) (425) (305)
Proceeds from stock issued pursuant to stock-based
compensation plans.......................................... 8,769 4,927 2,510
Distributions paid........................................... (1,410) (1,375) (950)
------- ------- -------
Net cash provided by financing activities...... 29,224 9,352 29,411
------- ------- -------
Net increase in cash and cash equivalents....................... 101,870 27,006 39,926
Cash and cash equivalents at beginning of year.................. 74,644 47,638 7,712
------- ------- -------
Cash and cash equivalents at end of year........................ $ 176,514 $ 74,644 $ 47,638
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized....................... $ 4,729 $ 4,389 $ 4,276
======= ======= =======
Income taxes.............................................. $ 43,100 $ 39,154 $ 25,257
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
DOLLAR TREE STORES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Dollar Tree Stores, Inc. (DTS or the Company) owns and operates, in one
business segment, discount variety retail stores which sell substantially all
items for $1.00. The Company operates under the names of Dollar Tree, Dollar
Bills, Only $One and Only One Dollar. The Company's headquarters and one of its
distribution centers are located in Chesapeake, Virginia. The Company also
operates distribution centers in Olive Branch, Mississippi, in the Chicago,
Illinois area and in Stockton, California. Most of the Company's stores are
located in the eastern half of the United States and in northern and central
California and Nevada. The Company's merchandise includes housewares, candy and
food, seasonal goods, health and beauty care, toys, party goods, gifts,
stationery and other consumer items. A slight majority of the Company's
merchandise is imported, primarily from China. The Company is not dependent on a
few suppliers.
Principles of Consolidation
At December 31, 1999, DTS has three wholly owned subsidiaries, Dollar Tree
Management, Inc. (DTM), Dollar Tree Distribution, Inc. (DTD) and Dollar Tree New
York, Inc. (DTN). DTM provides management, accounting and administrative
services to DTS for a fee and DTD provides merchandise procurement, purchasing,
warehousing and distribution services to DTS for a fee. DTN owns and operates
discount variety retail stores under the name Only $One and was merged with and
into DTS on January 1, 2000. Effective October 29, 1996, DTD established a
wholly owned subsidiary, Dollar Tree Properties, Inc. (DTP). DTP is organized as
a real estate holding company and owns certain undeveloped property. The
consolidated financial statements include the financial statements of Dollar
Tree Stores, Inc. and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
On December 10, 1998, Dollar Tree West, Inc. (DTW), a former wholly owned
subsidiary, completed a merger, which was accounted for as a pooling of
interests, with Step Ahead Investments, Inc. (98 Cent Clearance Center) in which
98 Cent Clearance Center became a wholly owned subsidiary of DTS. 98 Cent
Clearance Center operated 66 stores in northern and central California and
Nevada under the name "98 Cent Clearance Center." Prior to the merger, 98 Cent
Clearance Center's fiscal year end was the 52-week period ending on the last
Sunday in January. As a result of the merger, the Company's consolidated
financial statements were restated to retroactively combine 98 Cent Clearance
Center's financial statements as if the merger had occurred at the beginning of
the earliest period presented.
On June 30, 1999, DTN completed a merger, which was accounted for as a
pooling of interests, with privately-held Tehan's Merchandising, Inc. (Only
$One), in which Only $One became a wholly owned subsidiary of DTS. Only $One
operated 24 stores in New York state under the name "Only $One." As a result of
the merger, the Company's consolidated financial statements have been restated
to retroactively combine Only $One's financial statements as if the merger had
occurred at the beginning of the earliest period presented.
The consolidated income statement and statements of shareholders' equity
and cash flows for the year ended December 31, 1998 reflect the results of
operations and cash flows for Dollar Tree Stores, Inc. for the year then ended
combined with 98 Cent Clearance Center for the 11-month period ended December
31, 1998. The consolidated income statements, statements of shareholders' equity
and cash flows for the year ended December 31, 1997 reflect the results of
operations and cash flows for Dollar Tree Stores, Inc. for the year then ended
combined with 98 Cent Clearance Center for the fiscal year ended January 25,
1998.
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1999 and 1998 includes $162,755
and $64,200, respectively, of investments in money market securities and bank
participation agreements which are valued at cost, which approximates market.
The underlying assets of these short-term participation agreements are primarily
commercial notes. For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
29
<PAGE>
Merchandise Inventories
Merchandise inventories are stated at the lower of cost or market. Cost is
assigned to store inventories using the retail inventory method, determined on a
first-in, first-out (FIFO) basis. Costs directly associated with warehousing and
distribution are capitalized as merchandise inventories. Total warehousing and
distribution costs capitalized into inventories amounts to $8,347 and $7,790 at
December 31, 1999 and 1998, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets as
follows:
Buildings........................................ 39 years
Furniture, fixtures and equipment................ 3 to 7 years
Transportation vehicles.......................... 4 to 6 years
Leasehold improvements and assets held under capital leases are amortized
over the estimated useful lives of the respective assets or terms of the related
leases, whichever is shorter.
Costs incurred related to software developed for internal use are
capitalized and depreciated over three years. Costs capitalized include those
incurred in the application development stage.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 1998 and
1997, $402 and $916, respectively, of interest cost was capitalized; no interest
was capitalized in 1999.
Goodwill
Goodwill, which represents the excess of acquisition cost over the fair
value of net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally 20 to 25 years. If events indicate
the carrying amount of goodwill will not be recoverable, the Company assesses
the recoverability by comparing the carrying amount of the asset to expected
future net undiscounted cash flows of the acquired organization. The
recoverability of goodwill will be impacted if estimated future net cash flows
are not achieved. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of capital. Accumulated amortization
relating to goodwill approximates $7,593 and $5,619 at December 31, 1999 and
1998, respectively.
Financial Instruments
The Company utilizes derivative financial instruments to reduce its
exposure to market risks from changes in interest rates. By entering into a
receive-variable, pay-fixed interest rate swap, the Company changed the variable
rate cash flow exposure on certain variable-rate debt to fixed rate cash flows.
The Company is exposed to credit related losses in the event of non-performance
by the counterparty to the interest rate swap; however, the counterparty is a
major financial institution, and the risk of loss due to non-performance is
considered remote. Interest rate differentials paid or received on the swap are
recognized as adjustments to interest expense in the period earned or incurred.
The Company does not speculate using derivative instruments in the form of
interest rate swaps; therefore, these swaps are not recorded in the Company's
balance sheet. The Company had no interest rate derivative instruments
outstanding at December 31, 1998.
The Company enters into foreign exchange forward contracts to hedge
off-balance sheet foreign currency denominated purchase commitments from
suppliers. The contracts are exclusively for Italian lire. The terms of these
contracts are generally less than three months. Gains and losses on these
contracts are not recognized until included in the measurement of the related
foreign currency transaction. At December 31, 1999, open foreign exchange
contracts of approximately $793 were recorded based on current conversion rates
in prepaid expenses and other current assets and accounts payable. There were no
open exchange contracts at December 31, 1998.
Cost of Sales
The Company includes the cost of merchandise, warehousing and distribution
costs, and certain occupancy costs in cost of sales.
30
<PAGE>
Store Opening Costs
The Company expenses store opening costs as they are incurred.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between 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 the 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 the tax rates is recognized in income in
the period that includes the enactment date of such change.
Stock-Based Compensation
The Company has elected to apply Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB No. 25), and related
Interpretations in accounting for certain stock-based compensation plans as
permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). The Company has
adopted the disclosure-only provisions of SFAS No. 123.
Net Income Per Share
Basic net income per share has been computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
share reflects the potential dilution that could occur assuming the inclusion of
dilutive potential common shares and has been computed by dividing net income by
the weighted average number of common shares and dilutive potential common
shares outstanding. Dilutive potential common shares include all outstanding
stock options and warrants after applying the treasury stock method.
New Accounting Standards
The Financial Accounting Standards Board (FASB) has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133," an Amendment of SFAS No. 133, which defers the effective date
of SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Management does not expect the implementation of these pronouncements to
have a material effect on the Company's financial condition and results of
operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. In addition, the
Company has contingent liabilities related to legal proceedings and other
matters arising from the normal course of operations. Management does not expect
that amounts, if any, which may be required to satisfy such contingencies will
be material in relation to the accompanying consolidated financial statements.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified for comparability with
the 1999 financial statement presentation.
NOTE 2 - MERGERS AND ACQUISITIONS
98 Cent Clearance Center Merger
On December 10, 1998, the Company completed the merger with 98 Cent
Clearance Center. The merger qualified as a tax-free exchange and was accounted
for as a pooling of interests. DTS issued 1.1212 shares of the Company's common
stock for each share of 98 Cent Clearance Center outstanding common and
preferred stock. A total of 1,662,740 of the Company's common stock was issued
as a result of the merger and 98 Cent Clearance Center's outstanding stock
options were
31
<PAGE>
converted into options to purchase 323,207 common shares of the Company. In
addition, the Company issued options to certain former shareholders of 98 Cent
Clearance Center in exchange for non-competition agreements and a consulting
agreement. Included in other assets at December 31, 1998 is the fair value of
these agreements of $4,413 which is being amortized, generally, over a ten-year
period. At December 31, 1999, the carrying value of these agreements is $3,930,
net of $483 of accumulated amortization. The recording of these non-competition
agreements did not involve the use of cash and, accordingly, has been excluded
from the accompanying consolidated statements of cash flows. In connection with
the merger, the Company incurred $5,325 ($4,201 after taxes or $0.06 diluted net
income per share) of merger related costs and expenses, consisting primarily of
professional fees and writedowns of inventory and fixed assets, which were
charged to operations during the year ended December 31, 1998.
Only $One Merger
On June 30, 1999, the Company completed the merger with Only $One. The
merger qualified as a tax-free exchange of stock and was accounted for as a
pooling of interests. The Company issued 501,600 shares of its common stock for
all of the Only $One outstanding common stock. In connection with the merger,
the Company incurred approximately $1,050 ($792 after taxes or $0.01 diluted net
income per share) of merger related costs and expenses, consisting primarily of
professional fees and writedowns of inventory, which were charged to operations
during the year ended December 31, 1999.
Prior to June 30, 1999, Only $One was treated as an S-corporation for
federal and state income tax purposes. As such, income of Only $One for periods
prior to June 30, 1999 was taxable to the Only $One shareholders, rather than to
Only $One. Effective with the Company's merger with Only $One, Only $One became
a C-corporation. The pro forma provisions for income taxes presented in the
consolidated income statements represent an estimate of the taxes that would
have been recorded had Only $One been a C-corporation prior to the merger on
June 30, 1999. Distributions paid presented in the consolidated statements of
cash flows represent distributions paid to the Only $One shareholders for
payment of their pass-through tax liabilities.
The following table presents a reconciliation of net sales and net income
previously reported in the Company's 1998 Annual Report to those presented in
the accompanying consolidated financial statements.
For the year ended December 31,
1998 1997
---- ----
Net sales:
DTS................................ $ 918,807 $ 723,202
Only $One ......................... 25,315 22,388
------- -------
Combined........................... $ 944,122 $ 745,590
======= =======
Net income:
DTS................................ $ 68,890 $ 49,928
Only $One.......................... 2,663 2,031
------- -------
Combined........................... $ 71,553 $ 51,959
======= =======
Other
On July 6, 1999, the Company acquired all of the assets and liabilities of
a small dollar store operator for approximately $2,600 in cash and forgiveness
of receivables. The acquisition was accounted for as a purchase. The purchase
price was allocated to the assets acquired based on their estimated fair market
values. The excess of the purchase price over the fair value of the net assets
acquired (goodwill) was approximately $1,800. The goodwill is being amortized
over 20 years. The operating results of the acquired company are included in the
Company's operating results beginning July 6, 1999. Pro forma financial
information is not presented because it is immaterial.
NOTE 3 - INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998
and 1997 consists of the following:
1999 1998 1997
---- ---- ----
Federal--Current................... $ 48,535 $ 39,348 $ 29,967
Federal--Deferred.................. 3,950 (1,024) (3,067)
State--Current..................... 7,868 6,392 4,831
State--Deferred.................... 737 (183) (436)
------ ------ ------
$ 61,090 $ 44,533 $ 31,295
====== ====== ======
32
<PAGE>
A reconciliation of the statutory federal income tax rate and the effective
rate for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997
---- ---- ----
Statutory tax rate............................ 35.0% 35.0% 35.0%
Effect of:
State and local income taxes, net of
federal income tax benefit........... 3.5 3.5 3.3
Only $One S-corporation income.............. (0.3) (0.8) (0.8)
Other, net.................................. 0.1 0.7 0.1
---- ---- ----
Effective tax rate............................ 38.3% 38.4% 37.6%
==== ==== ====
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets and
liabilities are classified on the balance sheet based on the classification of
the underlying asset or liability. Significant components of the Company's net
deferred tax assets as of December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred tax assets:
Property and equipment......................... $ - $ 2,359
Accrued expenses............................... 5,707 5,487
Inventories.................................... 3,142 3,147
Other.......................................... 424 361
----- ------
Total deferred tax assets.................. 9,273 11,354
----- ------
Deferred tax liabilities:
Intangible assets.............................. (2,553) (2,311)
Property and equipment......................... (657) -
Deferred compensation.......................... (1,626) -
Other.......................................... (221) (140)
------ ------
Total deferred tax liabilities............. (5,057) (2,451)
------ ------
Net deferred tax assets.................... $ 4,216 $ 8,903
====== ======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
taxes will not be realized. Based upon the availability of carrybacks of future
deductible amounts to 1999, 1998 and 1997 taxable income and management's
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not the
existing net deductible temporary differences will reverse during periods in
which carrybacks are available or in which the Company generates net taxable
income. However, there can be no assurance that the Company will generate any
income or any specific level of continuing income in future years.
NOTE 4 - LEASES
Future minimum lease payments under noncancelable store, distribution
center and former corporate headquarters operating leases and the present value
of future minimum capital lease payments as of December 31, 1999 are as follows:
Capital Operating
Leases Leases
------ ------
Year ending December 31:
2000 ............................................. $ 5,873 $ 71,921
2001 ............................................. 5,859 65,016
2002 ............................................. 5,829 53,969
2003 ............................................. 5,792 41,629
2004 ............................................. 6,346 27,801
Thereafter........................................ 13,525 56,436
------ -------
Total minimum lease payments.......................... 43,224 $316,772
=======
Less amount representing interest
(at an average rate of approximately 9%).......... 11,666
------
Present value of net minimum capital lease payments... 31,558
Less current installments of obligations under
capital leases.................................... 3,183
------
Obligations under capital leases, excluding current
installments...................................... $ 28,375
======
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<PAGE>
The above future minimum lease payments include amounts for leases that
were signed prior to December 31, 1999 for stores that were not open as of
December 31, 1999. Minimum rental payments for operating leases do not include
contingent rentals that may be paid under certain store leases based on a
percentage of sales in excess of stipulated amounts. Future minimum lease
payments have not been reduced by future minimum sublease rentals of $7,284
under operating leases.
Included in property and equipment at December 31, 1999 and 1998 are leased
furniture and fixtures and transportation vehicles, excluding sale-leaseback
assets, with a cost of $3,366 and $3,473 and accumulated amortization of $1,170
and $677 at December 31, 1999 and 1998, respectively.
Sale-Leaseback Transaction
On September 30, 1999, the Company sold certain retail store leasehold
improvements to an unrelated third party and leased them back for a period of
seven years. The Company has an option to purchase the leasehold improvements at
the end of the fifth and seventh years at amounts approximating their fair
market values at the time the option is exercised. This transaction is being
accounted for as a financing arrangement. The total amount of the lease
obligation is $29.0 million. The lease agreement includes financial covenants
that are not more restrictive than those of existing loan agreements. As part of
the transaction, the Company received net proceeds of $20,880 and an $8,120 11%
note receivable which matures September 2006 and is included in "other assets,
net." The future minimum lease payments related to the capital lease obligation
are included in the five year schedule above.
Operating Leases
During June 1999, the Company entered into an $18,000 operating lease
agreement to finance the construction of the new unautomated distribution center
in Stockton. This distribution center replaced the Sacramento, California area
facility. Under this agreement, the lessor purchases the property, pays for the
construction costs and subsequently leases the facility to the Company. The
initial lease term is five years. The lease provides for a residual value
guarantee and includes a purchase option based on the initial cost of the
property. The Company estimates its liability, if any, under the residual value
guarantee and records additional rent expense on a straight-line basis over the
remaining lease term. (See Note 11)
The Company is responsible for payments under leases for former
distribution centers located in Memphis, Tennessee and Sacramento and the former
corporate headquarters and distribution center in Norfolk, Virginia. The leases
for the facilities expire in September 2005, June 2008, and December 2009,
respectively. The lease for the Norfolk facility is from a partnership owned by
related parties. The future minimum lease payments for each facility are
included in the five-year schedule above. The Company receives sublease income
in connection with the Norfolk and Memphis facilities from sublease agreements
which expire in February 2008 and December 2000, respectively. The sublease
income on the Norfolk facility exceeds the annual obligation of $656 under the
lease. Due to the uncertainty regarding the ultimate recovery of the future
lease payments and the investment in the improvements in the building in Memphis
and Sacramento, the Company recorded a $1,300 loss contingency related to
Sacramento in 1999 and a $1,125 loss contingency related to Memphis in 1998. The
loss contingency for Memphis was reduced $700 in 1999 due to favorable
developments.
The Company also leases properties for three of its stores from
partnerships owned by related parties. The total rental payments related to the
leases for the former corporate headquarters and distribution center and these
stores were $794, $790 and $789 for the years ended December 31, 1999, 1998 and
1997, respectively. Rental expense for these properties is included in the
rental expense disclosure below.
Rental expense for store, distribution center and former corporate
headquarters operating leases included in the accompanying consolidated income
statements for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---- ---- ----
Minimum rentals..................... $ 65,480 $ 51,693 $ 42,143
Contingent rentals.................. 1,613 1,374 1,837
------ ------ ------
Total........................ $ 67,093 $ 53,067 $ 43,980
====== ====== ======
34
<PAGE>
NOTE 5 - BALANCE SHEET COMPONENTS
Net property and equipment as of December 31, 1999 and 1998 consists of the
following:
1999 1998
---- ----
Land ........................................... $ 8,051 $ 8,051
Buildings......................................... 28,468 17,714
Improvements...................................... 61,779 47,508
Furniture, fixtures and equipment................. 111,033 80,729
Transportation vehicles........................... 3,248 3,903
Construction in progress.......................... 7,576 20,918
------- -------
Total property and equipment................ 220,155 178,823
Less accumulated depreciation and amortization.... 76,132 56,320
------- -------
Total ...................................... $144,023 $122,503
======= =======
Other current liabilities as of December 31, 1999 and 1998 consists of the
following:
1999 1998
---- ----
Compensation and benefits......................... $ 12,132 $ 13,496
Taxes (other than income taxes)................... 13,963 10,355
Other............................................. 2,939 2,137
------ ------
Total ...................................... $ 29,034 $ 25,988
====== ======
NOTE 6 - LONG-TERM DEBT
Long-term debt as of December 31, 1999 and 1998 consists of the following:
1999 1998
---- ----
7.29% Senior Notes, interest payable semiannually
on April 30 and October 30, principal payable
$6,000 per year beginning April 30, 2000.......... $ 30,000 $ 30,000
Demand Revenue Bonds, interest payable monthly at a
variable rate which was 6.9% at December 31, 1999,
principal payable beginning June 2006, maturing
June 2018......................................... 19,000 16,500
Note payable, interest at 7.0%, paid in
January 2000...................................... 1,500 -
----- ------
Total long-term debt ............................. 50,500 46,500
Less current portion ............................. 26,500 16,500
------ ------
Long-term debt, excluding current portion ........ $ 24,000 $ 30,000
====== ======
Maturities of long-term debt are as follows: 2000 - $26,500; 2001 - $6,000;
2002 - $6,000; 2003 - $6,000; 2004 - $6,000.
Senior Notes
The holders of the Senior Notes have the right to require the Company to
prepay the Notes in full without premium upon a change of control or upon
certain other transactions by the Company. The Note agreements, among other
things, prohibit certain mergers and consolidations, require the maintenance of
certain specified ratios, require that the Notes rank pari passu with the
Company's other debt and limit the amount of Company debt. In the event of
default or a prepayment at the option of the Company, the Company is required to
pay a prepayment penalty equal to a make-whole amount.
Demand Revenue Bonds
On May 20, 1998, the Company entered into a Loan Agreement with the
Mississippi Business Finance Corporation (MBFC) under which the MBFC issued
Taxable Variable Rate Demand Revenue Bonds (the Bonds) in an aggregate principal
amount of $19,000 to finance the acquisition, construction, and installation of
land, buildings, machinery and equipment for the Company's new distribution
facility in Olive Branch. The Bonds do not contain a prepayment penalty as long
as the interest
35
<PAGE>
rate remains variable. The Bonds are supported by a $19,300 letter of credit
issued by one of the Company's existing lending banks. The letter of credit is
renewable annually. The Letter of Credit and Reimbursement Agreement requires,
among other things, the maintenance of certain specified ratios and restricts
the payment of dividends. The Bonds contain a demand provision and, therefore,
outstanding amounts are classified as current liabilities.
On April 1, 1999, the Company entered into an interest rate swap agreement
(swap) related to the $19,000 Loan Agreement with the MBFC (Loan Agreement).
This swap converts the variable interest rate to a fixed rate and reduces the
Company's exposure to interest rate fluctuations. Under this agreement, as
amended, the Company pays interest to the bank which provided the swap at a
fixed rate of 4.99%. In exchange, the bank pays the Company at a variable
interest rate, which approximates the rate on the Loan Agreement. The variable
interest rate of the swap is adjusted monthly. For months in which the interest
rate as calculated under the agreement is greater than 8.28%, no payments are
made by either party. The swap, effective through April 1, 2009, is for the
entire amount outstanding under the Loan Agreement.
Note Payable
The Company issued a note in connection with the acquisition of four stores
from a small dollar store operator (see Note 2). The note bears interest at 7.0%
and the Company paid all except $24 of the principal and accrued interest in
January 2000. The remaining balance relates to certain contingent payments of
store deposits.
Revolving Credit Facility
On September 27, 1996, the Company entered into an Amended and Restated
Revolving Credit Agreement with its banks (the Agreement). The Agreement
provides for, among other things: (1) a $135,000 revolving line of credit,
bearing interest at the agent bank's prime interest rate or LIBOR, plus a
spread, at the option of the Company; (2) an annual facilities fee and annual
agent's fee payable quarterly; and (3) the reduction of amounts outstanding
under the Agreement for a period of 30 consecutive days between December 1, 1999
and March 1, 2000 to $10,000. There are no additional reduction requirements.
The Agreement, among other things, requires the maintenance of certain
specified financial ratios, restricts the payment of certain distributions and
prohibits the incurrence of certain new indebtedness. During 1998, the Agreement
was amended to remove the restrictions on the amount of capital expenditures and
on the minimum beneficial ownership of the founding shareholders. The Agreement
matures on May 31, 2002. At December 31, 1999, the variable interest rate on the
facility was 7.0%. At December 31, 1999 and 1998, no amounts were outstanding
under the Agreement; however, approximately $42,387 of the $135,000 available
under the Agreement was committed to certain letters of credit issued in
relation to the routine purchase of imported merchandise at December 31, 1999.
Fair Value of Financial Instruments
The carrying value of the Company's long-term debt approximates its fair
value. The fair value is estimated by discounting the future cash flows of each
instrument at rates offered for similar debt instruments of comparable
maturities.
The fair value of the interest rate swap is the estimated amount the
Company would receive or pay to terminate the agreement as of the reporting
date. The fair value of the interest rate swap at December 31, 1999 is $867.
NOTE 7 - MANAGEMENT ADVISORY SERVICES
The Company has a financial and management advisory service agreement with
one of its non-employee shareholders. The agreement provides for the payment of
$200 annually over the term of the agreement. The agreement is terminable by
vote of the Company's Board of Directors. During each of the years ended
December 31, 1999, 1998 and 1997, the Company paid $200 under this agreement.
NOTE 8 - SHAREHOLDERS' EQUITY
Unattached Warrants
The Company issued unattached warrants to purchase 2,792,450 shares of
Common Stock on September 30, 1993 for $0.18 per warrant and unattached warrants
to purchase 2,792,450 shares of Common Stock on February 22, 1994 for $0.18 per
warrant. The warrants, which are held by certain Company shareholders, carry an
exercise price of $0.86 per share, have been exercisable since
36
<PAGE>
March 6, 1995 (the effective date of the Company's initial public offering), and
expire on December 31, 2003. All warrants are outstanding at December 31, 1999.
Preferred Stock
Effective February 1, 1995, the Articles of Incorporation were amended to
authorize 10,000,000 shares of Preferred Stock, $0.01 par value per share.
Stock Dividends
In connection with stock dividends authorized by the Board of Directors in
1998 and 1997, the Company issued one-half share for each outstanding share of
Common Stock, payable June 29, 1998 to shareholders of record as of June 22,
1998, and payable July 21, 1997 to shareholders of record as of July 14, 1997,
respectively. All share and per share data in these consolidated financial
statements and the accompanying notes have been retroactively adjusted to
reflect these dividends, each having the effect of a 3-for-2 stock split.
Net Income Per Share
The following table sets forth the calculation of basic and diluted net
income per share:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(In thousands, except per share data)
Basic net income per share:
<S> <C> <C> <C>
Net income .......................................... $ 98,518 $ 71,553 $ 51,959
------ ------ ------
Weighted average number of common shares
outstanding ....................................... 61,839 61,185 60,714
------ ------ ------
Basic net income per share .......................... $ 1.59 $ 1.17 $ 0.86
====== ====== ======
Diluted net income per share:
Net income .......................................... $ 98,518 $ 71,553 $ 51,959
------ ------ ------
Weighted average number of common shares
outstanding ....................................... 61,839 61,185 60,714
Dilutive effect of stock options and warrants
(as determined by applying the treasury
stock method) ..................................... 6,296 6,441 6,268
------ ------ ------
Weighted average number of common shares and
dilutive potential common shares
outstanding ....................................... 68,135 67,626 66,982
------ ------ ------
Diluted net income per share ........................ $ 1.45 $ 1.06 $ 0.78
====== ====== ======
</TABLE>
NOTE 9 - PROFIT SHARING AND 401(K) RETIREMENT PLAN
The Company maintains defined contribution profit sharing and 401(k) plans
which are available to all employees over 21 years of age who have completed one
year of service in which they have worked, in general, at least 1,000 hours.
Eligible employees may make elective salary deferrals. The Company may make
contributions at its discretion.
Contributions to and reimbursements by the Company of expenses of the plans
included in the accompanying consolidated income statements for the years ended
December 31 were as follows:
1999................................. $ 5,344
1998................................. 4,017
1997................................. 2,923
NOTE 10 - STOCK-BASED COMPENSATION PLANS
At December 31, 1999, the Company has five stock-based compensation plans,
which are described below.
Accounting Method
The Company adopted the disclosure-only option under SFAS No. 123 as of
January 1, 1996. If the accounting provisions of SFAS No. 123 had been adopted
as of the beginning of 1996, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated in the following
table:
37
<PAGE>
1999 1998 1997
---- ---- ----
Net income:
As reported......................... $ 98,518 $ 71,553 $ 51,959
====== ====== ======
Pro forma........................... $ 88,499 $ 64,813 $ 48,951
====== ====== ======
Basic net income per share:
As reported......................... $ 1.59 $ 1.17 $ 0.86
====== ====== ======
Pro forma........................... $ 1.43 $ 1.06 $ 0.81
====== ====== ======
Diluted net income per share:
As reported......................... $ 1.45 $ 1.06 $ 0.78
====== ====== ======
Pro forma........................... $ 1.30 $ 0.96 $ 0.73
====== ====== ======
The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the pro forma net income and net income per
share amounts presented above because compensation cost is reflected over the
options' vesting periods and compensation cost for options granted prior to
January 1, 1995 is not considered. These pro forma amounts may not be
representative of future disclosures because compensation cost is reflected over
the options' vesting periods and because additional options may be granted in
future years.
Fixed Stock Option Plans
The Company has four fixed stock option plans. Under the Non-Qualified
Stock Option Plan (SOP), the Company granted options to its employees for
698,176 shares of Common Stock in 1993 and 698,859 shares in 1994. Options
granted under the SOP have an exercise price of $1.29 and are fully vested at
the date of grant.
Under the 1995 Stock Incentive Plan (SIP), the Company may grant options to
its employees for up to 5,400,000 shares of Common Stock. The exercise price of
each option equals the market price of the Company's stock at the date of grant,
unless a higher price is established by the Board of Directors, and an option's
maximum term is ten years. Options granted under the SIP generally vest over a
three-year period.
The Step Ahead Investments, Inc. Long-Term Incentive Plan (SAI Plan)
provided for the issuance of stock options, stock appreciation rights (SARs),
phantom stock and restricted stock awards to officers and key employees.
Effective with the merger with 98 Cent Clearance Center and in accordance with
the terms of the SAI Plan, outstanding 98 Cent Clearance Center options were
assumed by the Company and converted, based on 1.1212 Company options for each
98 Cent Clearance Center option, to options to purchase the Company's common
stock. Options issued as a result of this conversion were fully vested as of the
date of the merger. At the date of the merger, the SAI Plan was authorized to
issue 400,000 shares subject to stock options, 40,000 phantom shares, 125,000
SARs, and 25,000 restricted stock awards. In 1996, 98 Cent Clearance Center
converted all of the outstanding SARs and phantom stock awards to stock options
and restricted stock awards, respectively.
Under the 1998 Special Stock Option Plan (Special Plan), options to
purchase 165,000 shares were granted to five former officers of 98 Cent
Clearance Center who were serving as employees or consultants of the Company
following the merger. The options were granted as consideration for entering
into non-competition agreements and a consulting agreement. The exercise price
of each option equals the market price of the Company's stock at the date of
grant, and an option's maximum term is ten years. Options granted under the
Special Plan vest over a five-year period.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
1999 1998 1997
---- ---- ----
Expected term in years................ 8 8 10
Expected volatility................... 52.7% 50.4% 47.7%
Annual dividend yield................. - - -
Risk-free interest rate............... 6.6% 4.9% 5.8%
The following tables summarize the Company's various option plans,
including the SAI Plan for the period prior to the merger with 98 Cent Clearance
Center, as of December 31, 1999, 1998 and 1997, and changes during the years
then ended and information about fixed options outstanding at December 31, 1999.
38
<PAGE>
<TABLE>
<CAPTION>
Stock Option Activity
1999 1998 1997
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Per Share Per Share Per Share
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year....... 3,250,910 $ 21.50 2,404,642 $ 10.16 2,183,246 $ 7.07
Granted.................... 979,850 30.45 1,413,073 36.30 798,338 15.64
Exercised.................. (700,288) 11.33 (481,806) 8.91 (473,307) 4.59
Forfeited.................. (156,878) 31.58 (84,999) 18.19 (103,635) 12.60
--------- --------- ---------
Outstanding at
end of year............. 3,373,594 25.68 3,250,910 21.50 2,404,642 10.16
========= ========= =========
Options exercisable
at end of year.......... 1,474,729 18.10 1,344,067 8.98 1,087,587 6.04
========= ========= =========
Weighted average fair
value of options
granted during the
year.................... $ 20.08 $ 22.53 $ 10.39
</TABLE>
<TABLE>
<CAPTION>
Stock Options Outstanding and Exercisable
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December 31, Contractual Exercise at December 31, Exercise
Prices 1999 Life Price 1999 Price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$1.29...................... 152,053 (a) $ 1.29 152,053 $ 1.29
$4.44 to $8.92............. 370,060 5.7 years 6.69 370,060 6.69
$10.15 to $14.89........... 625,032 6.9 years 14.73 447,303 14.66
$16.22 to $29.25........... 870,376 9.1 years 28.70 57,301 22.31
$31.00 to $36.13........... 831,950 8.4 years 34.44 312,285 34.37
$38.44 to $49.81........... 524,123 9.0 years 40.72 135,727 40.48
--------- ---------
$1.29 to $49.81............ 3,373,594 8.1 years $ 25.68 1,474,729 $ 18.10
========= =========
<FN>
(a) Options granted under the SOP in 1993 and 1994 have no expiration date. They
are therefore not included in the total weighted average remaining life.
</FN>
</TABLE>
Employee Stock Purchase Plan
Under the Dollar Tree Stores, Inc. Employee Stock Purchase Plan (ESPP), the
Company is authorized to issue up to 506,250 shares of Common Stock to eligible
employees. Under the terms of the ESPP, employees can choose to have up to 10%
of their annual base earnings withheld to purchase the Company's common stock.
The purchase price of the stock is 85% of the lower of the price at the
beginning or the price at the end of the quarterly offering period. Under the
ESPP, the Company has sold 97,449 shares as of December 31, 1999.
The fair value of the employees' purchase rights is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Expected term............................. 3 months
Expected volatility....................... 21% to 34%
Annual dividend yield..................... -
Risk-free interest rate................... 5.16% to 5.88% (annualized)
The weighted average per share fair value of those purchase rights granted
in 1999, 1998 and 1997 was $6.10, $6.28, and $3.97, respectively.
39
<PAGE>
NOTE 11 - SUBSEQUENT EVENT (Unaudited)
On January 13, 2000, the Company entered into a $35,000 operating lease
agreement to finance the construction of a new automated distribution center in
Savannah, Georgia. Under this agreement the lessor purchases the property, pays
for the construction costs and subsequently leases the facility to the Company.
The initial lease term is five years with renewal options for two additional
five-year periods. The lease provides for a residual value guarantee and
includes a purchase option based on the initial cost of the property. When the
assets are placed into service, the Company will estimate its liability, if any,
under the residual value guarantee and record additional rent expense on a
straight-line basis over the remaining lease term. The new facility is expected
to be operational in early 2001.
NOTE 12 - QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table sets forth certain unaudited results of operations for
each quarter of 1999 and 1998. The unaudited information has been prepared on
the same basis as the audited consolidated financial statements appearing
elsewhere in this report and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for a fair
presentation of the financial data shown. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter(1) Quarter Quarter(2)
------- ---------- ------- ----------
(In thousands, except store and per share data)
1999:
<S> <C> <C> <C> <C>
Net sales............................... $227,044 $253,216 $265,372 $452,329
Gross profit............................ $ 80,865 $ 93,248 $ 98,047 $178,894
Operating income........................ $ 18,520 $ 24,050 $ 26,969 $ 92,874
Net income.............................. $ 11,327 $ 14,504 $ 16,102 $ 56,585
Pro forma net income (3)................ $ 11,093 $ 14,233 $ 16,102 $ 56,585
Diluted net income per share............ $ 0.17 $ 0.21 $ 0.24 $ 0.83
Pro forma diluted net income per share.. $ 0.16 $ 0.21 $ 0.24 $ 0.83
Stores open at end of quarter........... 1,227 1,291 1,344 1,383
Comparable store net sales increase(4).. 5.2% 1.8% 5.6% 8.3%
1998:
Net sales............................... $180,599 $205,209 $210,008 $348,307
Gross profit............................ $ 63,989 $ 74,079 $ 77,994 $137,679
Operating income........................ $ 13,578 $ 19,727 $ 21,508 $ 65,604
Net income.............................. $ 7,980 $ 11,806 $ 12,422 $ 39,345
Pro forma net income (3)................ $ 7,884 $ 11,507 $ 12,311 $ 38,826
Diluted net income per share............ $ 0.12 $ 0.17 $ 0.18 $ 0.58
Pro forma diluted net income per share.. $ 0.12 $ 0.17 $ 0.18 $ 0.57
Stores open at end of quarter........... 1,003 1,063 1,139 1,179
Comparable store net sales increase(4).. 6.4% 11.9% 5.5% 5.2%
<FN>
(1) Included in gross profit in 1999 is $443 of merger related costs. Included
in 1999 operating income is $443 of merger related costs and $607 of merger
related expenses. Excluding the effects of these merger related items, for
the second quarter 1999, gross profit would have been $93,691, operating
income would have been $25,100, net income would have been $15,296, diluted
net income per share would have been $0.22, pro forma net income would have
been $15,025, and pro forma diluted net income per share would have been
$0.22.
(2) Included in gross profit in 1998 is $1,301 of merger related costs.
Included in 1998 operating income is $1,301 of merger related costs and
$4,024 of merger related expenses. Excluding the effects of these merger
related costs and expenses, for the fourth quarter 1998, gross profit would
have been $138,980, operating income would have been $70,929, net income
would have been $43,546, diluted net income per share would have been
$0.64, pro forma net income would have been $43,027, and pro forma diluted
net income per share would have been $0.63.
(3) Amounts include a pro forma adjustment for C-corporation income taxes
relating to Only $One of $271 for the second quarter 1999, $234 for the
first quarter 1999, $519 for the fourth quarter 1998, $111 for the third
quarter 1998, $299 for the second quarter 1998, and $96 for the first
quarter 1998.
(4) Easter will be observed on April 23, 2000 and was observed on April 4,
1999, April 12, 1998, and March 30, 1997.
</FN>
</TABLE>
40
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning our Directors and Executive Officers required by
this Item is incorporated by reference to Dollar Tree Stores, Inc.'s Proxy
Statement relating to our Annual Meeting of Shareholders to be held on May 25,
2000, under the caption "Election of Directors."
Information set forth in the Proxy Statement under the caption "Compliance
with Section 16(a) of the Securities and Exchange Act of 1934," with respect to
director and executive officer compliance with Section 16(a), is incorporated
herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information set forth in the Proxy Statement under the caption
"Compensation of Executive Officers," with respect to executive compensation, is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information set forth in the Proxy Statement under the caption "Ownership
of the Common Stock of the Company," with respect to security ownership of
certain beneficial owners and management, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information set forth in the Proxy Statement under the caption "Certain
Relationships and Related Transactions" is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements. Reference is made to the Index to the
Consolidated Financial Statements set forth under Part II, Item 8, on
page 23 of this Form 10-K.
2. Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related instructions,
are not applicable, or the information is included in the Consolidated
Financial Statements, and therefore have been omitted.
3. Exhibits. The exhibits listed on the accompanying Index to Exhibits, on
page 43 of this Form 10-K, are filed as part of, or incorporated by
reference into, this report.
(b) The following reports on Form 8-K were filed since September 30, 1999.
1. Report on Form 8-K, filed January 26, 2000, included a press release
regarding earnings for the quarter and year ended December 31, 1999.
41
<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.
DOLLAR TREE STORES, INC.
DATE: February 29, 2000 By: /s/ Macon F. Brock, Jr.
------------------------------------
Macon F. Brock, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ J. Douglas Perry
- --------------------
J. Douglas Perry Chairman of the Board; February 29, 2000
Director
/s/ Macon F. Brock, Jr.
- -----------------------
Macon F. Brock, Jr. President and Chief Executive February 29, 2000
Officer; Director (principal
executive officer)
/s/ H. Ray Compton
- ------------------
H. Ray Compton Executive Vice President; February 29, 2000
Director
/s/ John F. Megrue
- ------------------
John F. Megrue Vice Chairman; Director February 29, 2000
/s/ Frederick C. Coble
- ----------------------
Frederick C. Coble Senior Vice President and February 29, 2000
Chief Financial Officer
(principal financial and
accounting officer)
/s/ Richard G. Lesser
- ---------------------
Richard G. Lesser Director February 29, 2000
/s/ Thomas A. Saunders, III
- ---------------------------
Thomas A. Saunders, III Director February 29, 2000
/s/ Alan L. Wurtzel
- -------------------
Alan L. Wurtzel Director February 29, 2000
/s/ Frank Doczi
- ---------------
Frank Doczi Director February 29, 2000
42
<PAGE>
Index to Exhibits
3. Articles and Bylaws
3.1 Third Restated Articles of Incorporation of Dollar Tree Stores, Inc.
(the Company), as amended (Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1996
incorporated herein by this reference)
3.2 Second Restated Bylaws of the Company (Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-88502, incorporated
herein by this reference)
10. Material Contracts
(a) The following document(s) is/are filed herewith:
10.1 Seventh Amendment to Amended and Restated Revolving Credit Agreement
(Amended and Restated Credit Agreement) dated September 15, 1999 by
and among Dollar Tree Stores, Inc., Dollar Tree Distribution, Inc.,
Dollar Tree Management, Inc., BankBoston, N.A., Bank of America,
N.A., Crestar Bank, First Union National Bank, Amsouth Bank of
Alabama, Union Bank of California, N.A.
10.2 Master Lease Agreement between Atlantic Financial Group, LTD., as
Lessor, and Dollar Tree Distribution, Inc. and Certain Other
Subsidiaries of Dollar Tree Stores, Inc., as Lessee dated January
13, 2000
10.3 Appendix A to Master Agreement, Lease, Loan Agreement and
Construction Agency Agreement
10.4 Master Agreement among Dollar Tree Stores, Inc., as a Guarantor,
Dollar Tree Distribution, Inc. and Certain Other Subsidiaries
of Dollar Tree Stores, Inc. That May Hereafter Become Party Hereto,
as Lessees, Atlantic Financial Group, LTD., as Lessor, Certain
Financial Institutions Parties Hereto, as Lenders and Crestar Bank,
as Agent, dated January 13, 2000
10.5 Dollar Tree Stores, Inc. Supplemental Deferred Compensation Plan
dated February 24, 2000.
(b) The following documents, filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5,
10.6, and 10.7 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1999 are incorporated herein by this
reference:
10.6 Merger Agreement by and among Dollar Tree Stores, Inc., Dollar Tree
New York, Inc., Tehan's Merchandising, Inc., dated June 15, 1999
10.7 Credit Agreement among First Security Bank, National Association and
First Union National Bank, dated June 2, 1999
10.8 Agency Agreement between Dollar Tree Distribution, Inc. and First
Security Bank, National Association, dated June 2, 1999
10.9 Trust Agreement between First Union National Bank and First Security
Bank, National Association, dated June 2, 1999
10.10 Security Agreement between First Security Bank, National Association
and First Union National Bank and accepted and agreed to by Dollar
Tree Distribution, Inc., dated June 2, 1999
10.11 Lease Agreement between First Security Bank, National Association,
and Dollar Tree Distribution, Inc., dated June 2, 1999
10.12 Participation Agreement among Dollar Tree Distribution, Inc. First
Security Bank, National Association and First Union National Bank,
dated June 2, 1999
43
<PAGE>
(c) The following document, filed as Exhibit 2.2 to the Company's Form S-3 on
August 18, 1999 is incorporated herein by this reference:
10.13 Amendment to Merger Agreement dated June 22, 1999 by and among
Dollar Tree Stores, Inc., Dollar Tree New York, Inc., Tehan's and
the Shareholders
(d) The following documents, filed as Exhibits 10.1 and 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
1999 are incorporated herein by this reference:
10.14 Master Lease Agreement between DTS Properties, Inc. and Dollar Tree
Stores, Inc., dated September 30, 1999 (Confidential material
omitted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment)
10.15 Purchase and Sale Agreement by and between Dollar Tree Stores, Inc.
and DTS Properties, Inc., dated September 30, 1999
21. Subsidiaries of the Registrant
21.1 Subsidiaries
23. Consents of Experts and Counsel
23.1 Consent of Independent Auditors
27. Financial Data Schedule
27.1 Financial Data Schedule as of and for the years ended December 31,
1999, December 31, 1998 and December 31, 1997. Years 1998 and 1997
have been restated to give effect to the pooling-of-interests merger
with Only $One
44
SEVENTH AMENDMENT TO AMENDED AND
RESTATED REVOLVING CREDIT AGREEMENT
This Seventh Amendment to Amended and Restated Revolving Credit
Agreement (the "Seventh Amendment") is made as of the 15th day of September,
1999 by and among
Dollar Tree Distribution, Inc. (the "Borrower"), a Virginia corporation
having its chief executive office at 500 Volvo Parkway, Chesapeake,
Virginia 23320;
Dollar Tree Stores, Inc. ("DTS"), a Virginia corporation having its
chief executive office at 500 Volvo Parkway, Chesapeake, Virginia
23320;
Dollar Tree Management, Inc. ("DTM"), a Virginia corporation having its
chief executive office at 500 Volvo Parkway, Chesapeake, Virginia
23320;
BankBoston, N.A. (f/k/a The First National Bank of Boston), Bank of
America, N.A. (f/k/a NationsBank, N.A.), Crestar Bank, First Union
National Bank (f/k/a First Union National Bank of Virginia), Amsouth
Bank of Alabama, Union Bank of California, N.A. and all other financial
institutions which are now or may hereafter become parties to such
Amended and Restated Revolving Credit Agreement (individually, a
"Lender" and collectively, the "Lenders"); and
BankBoston, N.A. (f/k/a The First National Bank of Boston), a national
banking association having its head office at 100 Federal Street,
Boston, Massachusetts, as Agent for the Lenders (in such capacity, the
"Agent").
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom,
W I T N E S S E T H:
WHEREAS, the Borrower, DTS, DTM, the Agent and the Lenders entered into
an Amended and Restated Revolving Credit Agreement dated as of September 27,
1996, as amended by a First Amendment to Amended and Restated Revolving Credit
Agreement dated January 25, 1997, as further amended by a Second Amendment to
Amended and Restated Revolving Credit dated as of May 8, 1997, as further
amended by a Third Amendment to Amended and Restated Revolving Credit dated as
of September 2, 1997, as further amended by a Fourth Amendment to Amended and
Restated Revolving Credit dated as of November 7, 1997, as further amended by a
Fifth Amendment to Amended and Restated Revolving Credit Agreement dated as of
September 30, 1998 and as further amended by a Sixth Amendment to Amended and
Restated Revolving Credit Agreement dated as of December 31, 1998 (collectively,
the "Agreement"); and
1
<PAGE>
WHEREAS, the Borrower, DTS, DTM, the Agent, and the Lenders desire to
further modify and amend the Agreement, as provided herein.
NOW, THEREFORE, it is hereby agreed as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined shall have the same meaning herein as in the
Agreement.
2. Amendments to Section 8. The provisions of ss.8 of the
Agreement are hereby amended as follows:
(a) The provisions of Section 8.1 of the Agreement are
hereby amended by adding the following clauses at the
end thereof:
(i) Indebtedness arising under Capitalized Leases.
(j) Other Indebtedness in an aggregate amount not to
exceed ten percent (10%) of the Consolidated Total
Assets of the Obligors (other than those properly
classified as intangible assets under Generally
Accepted Accounting Principles) at any
one time.
(b) The provisions of Section 8.4 of the Agreement are
hereby amended by adding the following clause at the
end thereof:
,or (iii) as long as no Default or Event of Default
then exists or would arise therefrom, the merger of
any other Person with any Obligor, provided that the
Obligor is the surviving entity and provided further
that the consideration paid by the Obligors in any
such merger consists of any combination of (A)
capital stock of DTS and/or (B) other consideration
not to exceed ten percent (10%) of the Consolidated
Total Assets of the Obligors (other than those
properly classified as intangible assets under
Generally Accepted Accounting Principles) immediately
prior to giving effect to such merger.
(c) The provisions of Section 8.7 of the Agreement are
hereby amended by adding the following clause
immediately after clause (c) thereof:
,or (d) as long as no Default or Event of Default
then exists or would arise therefrom, (i) from and
after the date of the Seventh Amendment to this
Agreement, repurchases or redemptions of the
2
<PAGE>
capital stock of DTS in an aggregate amount not to
exceed $50,000,000.00, and (ii) other Distributions
which in any fiscal year do not exceed in the
aggregate twenty percent (20%) of Consolidated Net
Income for the immediately preceding fiscal year,
(d) The provisions of Section 8.8 of the Agreement are
hereby amended by adding the following at the end of
the first sentence thereof:
, provided however, that without limiting the
provisions of the second sentence of this Section
8.8, the Obligors may maintain a Subsidiary
established or acquired in connection with an
acquisition or merger permitted pursuant to Section
8.4 hereof for a period of twelve months after
consummation of such acquisition or merger.
(e) The provisions of Section 8.10(c) of the Agreement
are hereby deleted in their entirety, effective as of
December 10, 1998.
3. Ratification of Loan Documents. Except as provided herein, all
terms and conditions of the Agreement and the other Loan
Documents remain in full force and effect. The Obligors each
hereby ratify, confirm, and reaffirm all representations,
warranties, and covenants contained therein and acknowledge
and agree that none of them have any offsets, defenses, or
counterclaims against the Agent or any Lender thereunder,
and to the extent that any such offsets, defenses, or
counterclaims may exist, each of the Obligors hereby waive and
release the Agent and Lenders therefrom.
4. Miscellaneous.
(a) This Seventh Amendment may be executed in several
counterparts and by each party on a separate
counterpart, each of which when so executed and
delivered shall be an original, and all of which
together shall constitute one instrument.
(b) This Seventh Amendment expresses the entire
understanding of the parties with respect to the
transactions contemplated hereby. No prior
negotiations or discussions shall limit, modify, or
otherwise affect the provisions hereof.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Seventh
Amendment as a sealed instrument as of the date first above written.
3
<PAGE>
DOLLAR TREE DISTRIBUTION, INC.
By:/s/ Frederick C.Coble
-------------------------
Name: Frederick C. Coble
Title: Senior Vice President, CFO
DOLLAR TREE STORES, INC.
By:/s/ Frederick C. Coble
-------------------------
Name: Frederick C. Coble
Title: Senior Vice President, CFO
DOLLAR TREE MANAGEMENT, INC.
By:/s/ Frederick C. Coble
-------------------------
Name: Frederick C. Coble
Title: Senior Vice President, CFO
BANKBOSTON, N.A. (f/k/a THE
FIRST NATIONAL BANK OF
BOSTON), individually and as
Agent
By:/s/ Kathleen a. Dimock
-------------------------
Name: Kathleen A. Dimock
Title: Vice President
4
<PAGE>
CRESTAR BANK
By:/s/ Bruce W. Nave
--------------------
Name: Bruce W. Nave
Title: Senior Vice President
FIRST UNION NATIONAL BANK
f/k/a FIRST UNION NATIONAL
BANK OF VIRGINIA
By:/s/ Eileen McCrickard
------------------------
Name: Eileen McCrickard
Title: Vice President
BANK OF AMERICA, N.A.
f/k/a NATIONSBANK, N.A.
By:/s/ Paula H. Smith
----------------------
Name: Paula H. Smith
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By:/s/ Sonja Sevcik
-------------------
Name: sonja Sevcik
Title: Assist. Vice President
AMSOUTH BANK OF ALABAMA
By:/s/ Brock E. Fredette
------------------------
Name: Brock E. Fredette
Title: Vice President
5
After recordation, this instrument should be returned to:
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Rex Palmer
MASTER LEASE AGREEMENT
Dated as of January 13, 2000
between
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
and
DOLLAR TREE DISTRIBUTION, INC. AND CERTAIN OTHER SUBSIDIARIES
OF DOLLAR TREE STORES, INC., as Lessees
-------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Lease Agreement)
Page
ARTICLE I. DEFINITIONS.................................................. 1
ARTICLE II. LEASE OF LEASED PROPERTY..................................... 1
2.1 Acceptance and Lease of Property............................. 1
2.2 Acceptance Procedure......................................... 2
ARTICLE III. RENT......................................................... 2
3.1 Basic Rent................................................... 2
3.2 Supplemental Rent............................................ 2
3.3 Method of Payment............................................ 3
3.4 Late Payment................................................. 3
3.5 Net Lease; No Setoff, Etc.................................... 3
3.6 Certain Taxes................................................ 4
3.7 Utility Charges.............................................. 5
ARTICLE IV. WAIVERS...................................................... 5
ARTICLE V. LIENS; EASEMENTS; PARTIAL CONVEYANCES........................ 6
ARTICLE VI. MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS..................... 7
6.1 Maintenance and Repair; Compliance With Law.................. 7
6.2 Alterations.................................................. 8
6.3 Title to Alterations......................................... 8
ARTICLE VII. USE.......................................................... 8
ARTICLE VIII. INSURANCE.................................................... 8
ARTICLE IX. ASSIGNMENT AND SUBLEASING................................... 10
ARTICLE X. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE................... 10
10.1 Event of Loss............................................... 10
10.2 Event of Taking............................................. 11
10.3 Casualty.................................................... 11
10.4 Condemnation................................................ 12
10.5 Verification of Restoration and Rebuilding.................. 12
10.6 Application of Payments..................................... 12
10.7 Prosecution of Awards....................................... 13
(i)
<PAGE>
10.8 Application of Certain Payments Not Relating
to an Event of Taking....................................... 13
10.9 Other Dispositions.......................................... 14
10.10 No Rent Abatement........................................... 14
ARTICLE XI. INTEREST CONVEYED TO LESSEES................................ 14
ARTICLE XII. EVENTS OF DEFAULT........................................... 15
ARTICLE XIII. ENFORCEMENT................................................. 17
13.1 Remedies.................................................... 17
13.2 Remedies Cumulative; No Waiver; Consents.................... 19
13.3 Purchase Upon an Event of Default........................... 19
ARTICLE XIV. SALE, RETURN OR PURCHASE OF LEASED PROPERTY;
RENEWAL .................................................... 20
14.1 Lessee's Option to Purchase................................. 20
14.2 Conveyance to Lessee........................................ 20
14.3 Acceleration of Purchase Obligation......................... 21
14.4 Determination of Purchase Price............................. 21
14.5 Purchase Procedure.......................................... 21
14.6 Option to Remarket.......................................... 22
14.7 Rejection of Sale........................................... 24
14.8 Return of Leased Property................................... 25
14.9 Renewal..................................................... 25
14.10 Environmental Report........................................ 25
ARTICLE XV. LESSEE'S EQUIPMENT.......................................... 26
ARTICLE XVI. RIGHT TO PERFORM FOR LESSEE................................. 26
ARTICLE XVII. MISCELLANEOUS............................................... 27
17.1 Reports..................................................... 27
17.2 Binding Effect; Successors and Assigns; Survival............ 27
17.3 Quiet Enjoyment............................................. 27
17.4 Notices..................................................... 27
17.5 Severability................................................ 28
17.6 Amendment; Complete Agreements.............................. 28
17.7 Construction................................................ 29
17.8 Headings.................................................... 29
17.9 Counterparts................................................ 29
17.10 GOVERNING LAW............................................... 29
17.11 Discharge of Lessee's Obligations by its
Subsidiaries or Affiliates.................................. 29
17.12 Liability of Lessor Limited................................. 29
17.13 Estoppel Certificates....................................... 30
(ii)
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17.14 No Joint Venture............................................ 30
17.15 No Accord and Satisfaction.................................. 30
17.16 No Merger................................................... 30
17.17 Survival.................................................... 31
17.18 Chattel Paper............................................... 31
17.19 Time of Essence............................................. 31
17.20 Recordation of Lease........................................ 31
17.21 Investment of Security Funds................................ 31
17.22 Ground Leases............................................... 32
17.23 Land and Building........................................... 32
17.24 Joint and Several........................................... 32
17.25 Construction Land Interests................................. 32
17.26 IDB Documentation........................................... 33
APPENDICES AND EXHIBITS
APPENDIX A Defined Terms
EXHIBIT A Lease Supplement
(iii)
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THIS MASTER LEASE AGREEMENT (as from time to time amended or
supplemented, this "Lease"), dated as of January 13, 2000, is among ATLANTIC
FINANCIAL GROUP, LTD., a Texas limited partnership (together with its successors
and assigns hereunder, the "Lessor"), as Lessor, and DOLLAR TREE DISTRIBUTION,
INC., a Virginia corporation, and certain other Subsidiaries of Dollar Tree
Stores, Inc. hereafter parties hereto (individually, with its successors and
permitted assigns hereunder, each a "Lessee" and collectively, the "Lessees"),
as Lessees.
PRELIMINARY STATEMENT
A. Lessor will purchase, or acquire a leasehold interest in, from one
or more third parties designated by the Construction Agent, on a Closing Date,
certain parcels of real property to be specified by the Construction Agent,
together with any improvements thereon.
B. Lessor desires to lease to each Lessee, and each Lessee desires to
lease from Lessor, certain of such properties as described on the Lease
Supplement(s) to which such Lessee is a party.
C. If applicable, the Construction Agent will construct, or cause to be
constructed, certain improvements on such parcels of real property which as
constructed will be the property of Lessor and will become part of such property
subject to the terms of this Lease.
In consideration of the mutual agreements herein contained and other
good and valuable consideration, receipt of which is hereby acknowledged, Lessor
and Lessees hereby agree as follows:
ARTICLE I.
DEFINITIONS
Terms used herein and not otherwise defined shall have the meanings
assigned thereto in Appendix A hereto for all purposes hereof.
ARTICLE II.
LEASE OF LEASED PROPERTY
Section 2.1 Acceptance and Lease of Property. On each Closing Date for
Land, Lessor, subject to the satisfaction or waiver of the conditions set forth
in Section 3 of the Master Agreement, hereby agrees to accept delivery on such
Closing Date of such Land pursuant to the terms of the Master Agreement,
together with any Building or other improvements thereon, and simultaneously to
lease to the related Lessee hereunder for the Lease Term, Lessor's interest in
such Land and in such Building or other improvements,
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together with any Building which thereafter may be constructed thereon pursuant
to the Construction Agency Agreement, and such related Lessee hereby agrees,
expressly for the direct benefit of Lessor, commencing on such Closing Date for
the Lease Term, to lease from Lessor Lessor's interest in such Land to be
delivered on such Closing Date, together with, in the case of Land, Lessor's
interest in any Building and other improvements thereon or which thereafter may
be constructed thereon pursuant to the Construction Agency Agreement.
Section 2.2 Acceptance Procedure. Lessor hereby authorizes one or more
employees of the related Lessee, to be designated by such Lessee, as the
authorized representative or representatives of Lessor to accept delivery on
behalf of Lessor of that Leased Property identified on the applicable Funding
Request. Each Lessee hereby agrees that such acceptance of delivery by such
authorized representative or representatives and the execution and delivery by
such Lessee on each Closing Date for property to be leased hereunder of a Lease
Supplement in substantially the form of Exhibit A hereto (appropriately
completed) shall, without further act, constitute the irrevocable acceptance by
such Lessee of that Leased Property which is the subject thereof for all
purposes of this Lease and the other Operative Documents on the terms set forth
therein and herein, and that such Leased Property, together with, in the case of
Land, any Building or other improvements thereon or to be constructed thereon
pursuant to the Construction Agency Agreement, shall be deemed to be included in
the leasehold estate of this Lease and shall be subject to the terms and
conditions of this Lease as of such Closing Date. The demise and lease of each
Building pursuant to this Section 2.2 shall include any additional right, title
or interest in such Building which may at any time be acquired by Lessor, the
intent being that all right, title and interest of Lessor in and to such
Building shall at all times be demised and leased to the related Lessee
hereunder.
ARTICLE III.
RENT
Section 3.1 Basic Rent. Beginning with and including the first Payment
Date occurring after the Initial Closing Date, each Lessee shall pay to the
Agent the Basic Rent for the Leased Properties subject to a Lease Supplement to
which such Lessee is a party, in installments, payable in arrears on each
Payment Date during the Lease Term, subject to Section 2.3(c) of the Master
Agreement.
Section 3.2 Supplemental Rent. Each Lessee shall pay to the Agent, or
to whomever shall be entitled thereto as expressly provided herein or in any
other Operative Document, any and all Supplemental Rent on the date the same
shall become due and payable and in the event of any failure on the part of such
Lessee to pay any Supplemental Rent, the Agent shall have all rights, powers and
remedies provided for herein or by law or in equity or otherwise in the case of
nonpayment of Basic Rent. All Supplemental Rent to be paid pursuant to this
Section 3.2 shall be payable in the type of funds and in the manner set forth in
Section 3.3.
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Section 3.3 Method of Payment. Basic Rent shall be paid to the Agent,
and Supplemental Rent (including amounts due under Article XIV hereof) shall be
paid to the Agent (or to such Person as may be entitled thereto) or, in each
case, to such Person as the Agent (or such other Person) shall specify in
writing to the related Lessee, and at such place as the Agent (or such other
Person) shall specify in writing to the related Lessee. Each payment of Rent
(including payments under Article XIV hereof) shall be made by the Lessees prior
to 12:00 p.m. (noon) Atlanta, Georgia time at the place of payment in funds
consisting of lawful currency of the United States of America which shall be
immediately available on the scheduled date when such payment shall be due,
unless such scheduled date shall not be a Business Day, in which case such
payment shall be made on the next succeeding Business Day. The Agent agrees, at
a Lessee's request, to arrange for automated clearing house debits from such
Lessee's accounts for payments due hereunder.
Section 3.4 Late Payment. If any Basic Rent shall not be paid on the
date when due, the related Lessee shall pay to the Agent, as Supplemental Rent,
interest (to the maximum extent permitted by law) on such overdue amount from
and including the due date thereof to but excluding the Business Day of payment
thereof at the Overdue Rate.
Section 3.5 Net Lease; No Setoff, Etc. This Lease is a net lease and
notwithstanding any other provision of this Lease, each Lessee shall pay all
Basic Rent and Supplemental Rent, and all costs, charges, assessments and other
expenses foreseen or unforeseen, for which such Lessee or any Indemnitee is or
shall become liable by reason of such Lessee's or such Indemnitee's estate,
right, title or interest in the Leased Properties, or that are connected with or
arise out of the acquisition (except the initial costs of purchase by Lessor of
its interest in any Leased Property, which costs, subject to the terms of the
Master Agreement, shall be funded by the Funding Parties pursuant to the Master
Agreement), construction (except costs to be funded under the Construction
Agency Agreement), installation, possession, use, occupancy, maintenance,
ownership, leasing, repairs and rebuilding of, or addition to, the Leased
Properties or any portion thereof, and any other amounts payable hereunder and
under the other Operative Documents without counterclaim, setoff, deduction or
defense and without abatement, suspension, deferment, diminution or reduction,
and each Lessee's obligation to pay all such amounts throughout the Lease Term,
including the Construction Term, is absolute and unconditional. The obligations
and liabilities of each Lessee hereunder shall in no way be released, discharged
or otherwise affected for any reason, including without limitation: (a) any
defect in the condition, merchantability, design, quality or fitness for use of
any Leased Property or any part thereof, or the failure of any Leased Property
to comply with all Applicable Law, including any inability to occupy or use any
Leased Property by reason of such non-compliance; (b) any damage to, removal,
abandonment, salvage, loss, contamination of or Release from, scrapping or
destruction of or any requisition or taking of any Leased Property or any part
thereof; (c) any restriction, prevention or curtailment of or interference with
any use of any Leased Property or any part thereof including eviction; (d) any
defect in title to or rights to any Leased Property or any Lien on such title or
rights or on any Leased Property; (e) any change, waiver, extension,
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indulgence or other action or omission or breach in respect of any obligation or
liability of or by Lessor, the Agent or any Lender; (f) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to any Lessee, Lessor, any Lender, the Agent or
any other Person, or any action taken with respect to this Lease by any trustee
or receiver of any Lessee, Lessor, any Lender, the Agent, any Ground Lessor or
any other Person, or by any court, in any such proceeding; (g) any claim that
any Lessee has or might have against any Person, including without limitation,
Lessor, any vendor, manufacturer, contractor of or for any Leased Property or
any part thereof, the Agent, any Ground Lessor, any Governmental Authority, or
any Lender; (h) any failure on the part of Lessor to perform or comply with any
of the terms of this Lease, any other Operative Document or of any other
agreement; (i) any invalidity or unenforceability or illegality or disaffirmance
of this Lease against or by any Lessee or any provision hereof or any of the
other Operative Documents or any provision of any thereof whether or not related
to the Transaction; (j) the impossibility or illegality of performance by any
Lessee, Lessor or both; (k) any action by any court, administrative agency or
other Governmental Authority; (l) any restriction, prevention or curtailment of
or interference with the Construction or any use of any Leased Property or any
part thereof; or (m) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not any Lessee shall have notice or
knowledge of any of the foregoing. Except as specifically set forth in Articles
XIV or X of this Lease, this Lease shall be noncancellable by each Lessee in any
circumstance whatsoever and each Lessee, to the extent permitted by Applicable
Law, waives all rights now or hereafter conferred by statute or otherwise to
quit, terminate or surrender this Lease, or to any diminution, abatement or
reduction of Rent payable by such Lessee hereunder. Each payment of Rent made by
a Lessee hereunder shall be final and such Lessee shall not seek or have any
right to recover all or any part of such payment from Lessor, the Agent, any
Lender or any party to any agreements related thereto for any reason whatsoever.
Each Lessee assumes the sole responsibility for the condition, use, operation,
maintenance, and management of the Leased Properties leased by it and Lessor
shall have no responsibility in respect thereof and shall have no liability for
damage to the property of either any Lessee or any subtenant of any Lessee on
any account or for any reason whatsoever, other than solely by reason of
Lessor's willful misconduct or gross negligence.
Section 3.6 Certain Taxes. Without limiting the generality of Section
3.5, each Lessee agrees to pay when due all real estate taxes, personal property
taxes, gross sales taxes, including any sales or lease tax imposed upon the
rental payments hereunder or under a sublease, occupational license taxes, water
charges, sewer charges, assessments of any nature and all other governmental
impositions and charges of every kind and nature whatsoever (the "tax(es)"),
when the same shall be due and payable without penalty or interest; provided,
however, that this Section shall not apply to any of the taxes covered by the
exclusion described in Section 7.4(b) of the Master Agreement. It is the
intention of the parties hereto that, insofar as the same may lawfully be done,
Lessor shall be, except as specifically provided for herein, free from all
expenses in any way related to the Leased Properties and the use and occupancy
thereof. Any tax relating to a fiscal period of any taxing authority
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falling partially within and partially outside the Lease Term, shall be
apportioned and adjusted between Lessor and the related Lessee. Each Lessee
covenants to furnish Lessor and the Agent, upon the Agent's written request,
within forty-five (45) days after the last date when any tax must be paid by
such Lessee as provided in this Section 3.6, official receipts of the
appropriate taxing, authority or other proof satisfactory to Lessor, evidencing
the payment thereof.
So long as no Event of Default has occurred and is continuing, the
related Lessee may defer payment of a tax so long as the validity or the amount
thereof is contested by such Lessee with diligence and in good faith; provided,
however, that such Lessee shall pay the tax in sufficient time to prevent
delivery of a tax deed. Such contest shall be at the related Lessee's sole cost
and expense. Each Lessee covenants to indemnify and save harmless Lessor, which
indemnification shall survive the termination of this Lease, the Agent and each
Lender from any actual and reasonable costs or expenses incurred by Lessor, the
Agent or any Lender as a result of such contest.
Section 3.7 Utility Charges. Each Lessee agrees to pay or cause to be
paid as and when the same are due and payable all charges for gas, water, sewer,
electricity, lights, heat, power, telephone or other communication service and
all other utility services used, rendered or supplied to, upon or in connection
with the Leased Properties leased by it.
ARTICLE IV.
WAIVERS
During the Lease Term, Lessor's interest in the Leased Properties,
including the Equipment, the Building(s) (whether or not completed) and the
Land, is demised and let by Lessor "AS IS" subject to (a) the rights of any
parties in possession thereof, (b) the state of the title thereto existing at
the time Lessor acquired its interest in the Leased Properties, (c) any state of
facts which an accurate survey or physical inspection might show (including the
survey delivered on the related Closing Date), (d) all Applicable Law, and (e)
any violations of Applicable Law which may exist upon or subsequent to the
commencement of the Lease Term. EACH LESSEE ACKNOWLEDGES THAT, ALTHOUGH LESSOR
WILL OWN AND HOLD TITLE TO THE LEASED PROPERTIES, LESSOR IS NOT A MANUFACTURER
OF, OR DEALER IN ANY LEASED PROPERTY, AND IS NOT RESPONSIBLE FOR THE DESIGN,
DEVELOPMENT, BUDGETING AND CONSTRUCTION OF THE BUILDING(S) OR ANY ALTERATIONS.
NEITHER LESSOR, THE AGENT NOR ANY LENDER HAS MADE OR SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, OR SHALL BE DEEMED TO
HAVE ANY LIABILITY WHATSOEVER AS TO THE VALUE, MERCHANTABILITY, TITLE,
HABITABILITY, CONDITION, DESIGN, OPERATION, OR FITNESS FOR USE OF THE LEASED
PROPERTIES (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER, EXPRESS OR
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IMPLIED, WITH RESPECT TO THE LEASED PROPERTIES (OR ANY PART THEREOF), ALL SUCH
WARRANTIES BEING HEREBY DISCLAIMED, AND NEITHER LESSOR, THE AGENT NOR ANY LENDER
SHALL BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN OR THE FAILURE
OF ANY LEASED PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY APPLICABLE LAW,
except that Lessor hereby represents and warrants that each Leased Property is
and shall be free of Lessor Liens. As between Lessor and the Lessees, each
related Lessee has been afforded full opportunity to inspect each Leased
Property, is satisfied with the results of its inspections of such Leased
Property and is entering into this Lease solely on the basis of the results of
its own inspections and all risks incident to the matters discussed in the two
preceding sentences, as between Lessor, the Agent or the Lenders on the one
hand, and the Lessees, on the other, are to be borne by the Lessees. The
provisions of this Article IV have been negotiated, and, except to the extent
otherwise expressly stated, the foregoing provisions are intended to be a
complete exclusion and negation of any representations or warranties by Lessor,
the Agent or the Lenders, express or implied, with respect to the Leased
Properties, that may arise pursuant to any law now or hereafter in effect, or
otherwise.
ARTICLE V.
LIENS; EASEMENTS; PARTIAL CONVEYANCES
No Lessee shall directly or indirectly create, incur or assume, any
Lien on or with respect to any Leased Property, the title thereto, or any
interest therein, including any Liens which arise out of the possession, use,
occupancy, construction, repair or rebuilding of any Leased Property or by
reason of labor or materials furnished or claimed to have been furnished to a
Lessee, or any of its contractors or agents or Alterations constructed by a
Lessee, except, in all cases, Permitted Liens.
Notwithstanding the foregoing paragraph, at the request of a Lessee,
Lessor shall, from time to time during the Lease Term and upon reasonable
advance written notice from such Lessee, and receipt of the materials specified
in the next succeeding sentence, consent to and join in any (i) grant of
easements, licenses, rights of way and other rights in the nature of easements,
including, without limitation, utility easements to facilitate Lessees' use,
development and construction of the Leased Properties, (ii) release or
termination of easements, licenses, rights of way or other rights in the nature
of easements which are for the benefit of the Land or the Building(s) or any
portion thereof, (iii) dedication or transfer of portions of the Land, not
improved with a Building, for road, highway or other public purposes, (iv)
execution of agreements for ingress and egress and amendments to any covenants
and restrictions affecting the Land or the Building(s) or any portion thereof
and (v) request to any Governmental Authority for platting or subdivision or
replatting or resubdivision approval with respect to the Land or any portion
thereof or any parcel of land of which the Land or any portion thereof forms a
part or a request for rezoning or any
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variance from zoning or other governmental requirements. Lessor's obligations
pursuant to the preceding sentence shall be subject to the requirements that:
(a) any such action shall be at the sole cost and expense of
the requesting Lessee and such Lessee shall pay all actual and reasonable
out-of-pocket costs of Lessor, the Agent and any Lender in connection therewith
(including, without limitation, the reasonable fees of attorneys, architects,
engineers, planners, appraisers and other professionals reasonably retained by
Lessor, the Agent or any Lender in connection with any such action),
(b) the requesting Lessee shall have delivered to Lessor and
Agent a certificate of a Responsible Officer of such Lessee stating that
(i) such action will not cause any Leased Property,
the Land or any Building or any portion thereof to fail to comply in
any material respect with the provisions of this Lease or any other
Operative Documents, or in any material respect with Applicable Law;
and
(ii) such action will not materially reduce the Fair
Market Sales Value, utility or useful life of any Leased Property, the
Land or any Building nor Lessor's interest therein; and
(c) in the case of any release or conveyance, if Lessor, the
Agent or any Lender so reasonably requests, the requesting Lessee will cause to
be issued and delivered to Lessor and the Agent by the Title Insurance Company
an endorsement to the Title Policy pursuant to which the Title Insurance Company
agrees that its liability for the payment of any loss or damage under the terms
and provisions of the Title Policy will not be affected by reason of the fact
that a portion of the real property referred to in Schedule A of the Title
Policy has been released or conveyed by Lessor.
ARTICLE VI.
MAINTENANCE AND REPAIR;
ALTERATIONS, MODIFICATIONS AND ADDITIONS
Section 6.1 Maintenance and Repair; Compliance With Law. Each Lessee,
at its own expense, shall at all times (a) maintain each Leased Property leased
by it in good repair and condition (subject to ordinary wear and tear), in
accordance with prudent industry standards and, in any event, in no less a
manner as other similar property owned or leased by such Lessee or its
Affiliates, (b) make all Alterations in accordance with, and maintain (whether
or not such maintenance requires structural modifications or Alterations) and
operate and otherwise keep each Leased Property in compliance in all material
respects with, all Applicable Laws and insurance requirements, and (c) make all
material repairs, replacements and renewals of each Leased Property or any part
thereof which may be required to keep such
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Leased Property in the condition required by the preceding clauses (a) and (b).
Each Lessee shall perform the foregoing maintenance obligations regardless of
whether any Leased Property is occupied or unoccupied. Each Lessee waives any
right that it may now have or hereafter acquire to (i) require Lessor, the Agent
or any Lender to maintain, repair, replace, alter, remove or rebuild all or any
part of any Leased Property or (ii) make repairs at the expense of Lessor, the
Agent or any Lender pursuant to any Applicable Law or other agreements or
otherwise. NEITHER LESSOR, THE AGENT NOR ANY LENDER SHALL BE LIABLE TO ANY
LESSEE OR TO ANY CONTRACTORS, SUBCONTRACTORS, LABORERS, MATERIALMEN, SUPPLIERS
OR VENDORS FOR SERVICES PERFORMED OR MATERIAL PROVIDED ON OR IN CONNECTION WITH
ANY LEASED PROPERTY OR ANY PART THEREOF. Neither Lessor, the Agent nor any
Lender shall be required to maintain, alter, repair, rebuild or replace any
Leased Property in any way.
Section 6.2 Alterations. Each Lessee may, without the consent of
Lessor, at such Lessee's own cost and expense, make Alterations which do not
diminish the value, utility or useful life of any Leased Property.
Section 6.3 Title to Alterations. Title to all Alterations shall
without further act vest in Lessor (subject to each Lessee's right to remove
trade fixtures, personal property and equipment which do not constitute
Alterations and which were not acquired with funds advanced by Lessor or any
Lender) and shall be deemed to constitute a part of the Leased Properties and be
subject to this Lease.
ARTICLE VII.
USE
Each Lessee may use each Leased Property leased by it or any part
thereof for any lawful purpose, and in a manner consistent with the standards
applicable to properties of a similar nature in the geographic area in which
such Leased Property is located, provided that such use does not materially
adversely affect the Fair Market Sales Value, utility, remaining useful life or
residual value of such Leased Property, and does not materially violate or
conflict with, or constitute or result in a material default under, any
Applicable Law or any insurance policy required hereunder. In the event that any
use of any of the Leased Property changes the character or original intended use
of such Leased Property and the Lessees do not purchase the Leased Properties at
the end of the Lease Term, the related Lessee, upon request of Lessor, shall
restore such Leased Property to its general character and intended use on the
Closing Date or Completion Date therefor, ordinary wear and tear excepted. No
Lessee shall commit or permit any waste of any Leased Property or any material
part thereof.
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ARTICLE VIII.
INSURANCE
(a) At any time during which any part of any Building or any
Alteration is under construction and as to any part of any Building or any
Alteration under construction, the related Lessee shall maintain, or cause to be
maintained, at its sole cost and expense, as a part of its blanket policies or
otherwise, "all risks" non-reporting completed value form of builder's risk
insurance.
(b) During the Lease Term, each Lessee shall maintain, at its
sole cost and expense, as a part of its blanket policies or otherwise, insurance
against loss or damage to any Building or any item of Equipment by fire and
other risks, including comprehensive boiler and machinery coverage, on terms and
in amounts no less favorable than insurance covering other similar properties or
equipment owned or leased by a Lessee, but in no event less than the replacement
cost of such Building or item of Equipment, as the case may be, from time to
time.
(c) During the Lease Term, each Lessee shall maintain, at its
sole cost and expense, commercial general liability insurance with respect to
such Lessee's use, operation and occupancy of the Leased Properties. Such
insurance shall be on terms and in amounts that are no less favorable than
insurance maintained by a Lessee or its Affiliates with respect to similar
properties or equipment that it owns or leases, but in no event less than
$1,000,000 general liability, plus $2,000,000 liability umbrella coverage, per
occurrence. Such insurance policies shall also provide that each Lessee's
insurance shall be considered primary insurance. Nothing in this Article VIII
shall prohibit Lessor, the Agent or any Lender from carrying at its own expense
other insurance on or with respect to the Leased Properties, provided that any
insurance carried by Lessor, the Agent or any Lender shall not prevent any
Lessee from carrying the insurance required hereby.
(d) Each policy of insurance maintained by a Lessee pursuant
to clauses (a) and (b) of this Article VIII shall provide that all insurance
proceeds in respect of any loss or occurrence shall be adjusted by such Lessee,
except if, and for so long as an Event of Default exists, all losses shall be
adjusted solely by, and all insurance proceeds shall be paid solely to, the
Agent (or Lessor if the Loans have been fully paid) for application pursuant to
this Lease.
(e) On the Closing Date for each parcel of Land and on each
anniversary of the related policy date each Lessee shall furnish Lessor with
certificates showing the insurance required under this Article VIII to be in
effect and naming Lessor, the Agent and the Lenders as additional insureds. Such
certificates shall include a provision for thirty (30) days' advance written
notice by the insurer to Lessor and the Agent in the event of cancellation or
expiration or nonpayment of premium with respect to such insurance, and shall
include a customary breach of warranty clause. Each Lessee shall provide
evidence to Lessor and the Agent that
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each insurance policy required by this Article VIII has been renewed or replaced
prior to the scheduled expiration date therefor.
(f) Each policy of insurance maintained by a Lessee pursuant
to this Article VIII shall provide that in respect of the interests of Lessor,
the Agent and the Lenders, such policies shall not be invalidated by any fraud,
action, inaction or misrepresentation of any Lessee or any other Person acting
on behalf of any Lessee. Each of each Lessee, Lessor, the Agent and the Lenders
agree to waive their rights of subrogation against the others to the extent of
the losses paid under insurance policies.
(g) All insurance policies carried in accordance with this
Article VIII shall be maintained with insurers rated at least A by A.M. Best &
Company, and in all cases the insurer shall be qualified to insure risks in the
State where each Leased Property is located.
ARTICLE IX.
ASSIGNMENT AND SUBLEASING
No Lessee may assign any of its right, title or interest in, to or
under this Lease, except as set forth in the following sentence. Each Lessee may
sublease all or any portion of any Leased Property, provided that (a) all
obligations of such Lessee shall continue in full effect as obligations of a
principal and not of a guarantor or surety, as though no sublease had been made;
(b) such assignment or sublease shall be expressly subject and subordinate to
this Lease, the Loan Agreement and the other Operative Documents; and (c) each
such sublease shall terminate on or before the Lease Termination Date. Each
Lessee shall give the Agent and Lessor prompt written notice of any such
sublease.
Except pursuant to an Operative Document, this Lease shall not be
mortgaged or pledged by any Lessee, nor shall any Lessee mortgage or pledge any
interest in any Leased Property or any portion thereof. Any such mortgage or
pledge shall be void.
ARTICLE X.
LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE
Section 10.1 Event of Loss. Any event (i) which would otherwise
constitute a Casualty during the Base Term, and (ii) which, in the good-faith
judgment of the related Lessee, renders repair and restoration of a Leased
Property impossible or impractical, or requires repairs to a Leased Property
that would cost in excess of 50% of the original cost of such Leased Property,
and (iii) as to which such Lessee, within sixty (60) days after the occurrence
of such event, delivers to Lessor an Officer's Certificate notifying Lessor of
such event and of such judgment, shall constitute an "Event of Loss". In the
case of any other event which constitutes a Casualty, the related Lessee shall
restore such Leased Property
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pursuant to Section 10.3. If an Event of Loss other than an Event of Taking
shall occur, the related Lessee shall pay to Lessor on the later of (i) the
thirtieth day and (ii) the next Payment Date following delivery of the Officer's
Certificate pursuant to clause (iii) above an amount equal to the related Leased
Property Balance. Upon Lessor's receipt of such Leased Property Balance on such
date, Lessor shall cause Lessor's interest in such Leased Property to be
conveyed to the related Lessee in accordance with and subject to the provisions
of Section 14.5 hereof; upon completion of such purchase, but not prior thereto,
this Lease with respect to such Leased Property and all obligations hereunder
with respect to such Leased Property shall terminate, except with respect to
obligations and liabilities hereunder, actual or contingent, that have arisen or
relate to events occurring on or prior to such date of purchase, or which are
expressly stated herein to survive termination of this Lease.
Upon the consummation of the purchase of any Leased Property pursuant
to this Section 10.1, any proceeds derived from insurance required to be
maintained by the related Lessee pursuant to this Lease for any Leased Property
remaining after payment of such purchase price shall be paid over to, or
retained by, such Lessee or as it may direct, and Lessor shall assign to such
Lessee, without warranty, all of Lessor's rights to and interest in such
insurance required to be maintained by such Lessee pursuant to this Lease.
Section 10.2 Event of Taking. Any event (i) which constitutes a
Condemnation of all of, or substantially all of, a Leased Property, or (ii) (A)
which would otherwise constitute a Condemnation, (B) which, in the good-faith
judgment of the related Lessee, renders restoration and rebuilding of a Leased
Property impossible or impractical, or requires repairs to a Leased Property
that would cost in excess of 50% of the original cost of such Leased Property,
and (C) as to which such Lessee, within sixty (60) days after the occurrence of
such event, delivers to Lessor an Officer's Certificate notifying Lessor of such
event and of such judgment, shall constitute an "Event of Taking". In the case
of any other event which constitutes a Condemnation, the related Lessee shall
restore and rebuild such Leased Property pursuant to Section 10.4. If an Event
of Taking shall occur, the related Lessee shall pay to Lessor (1) on the later
of (A) the thirtieth day and (B) the next Payment Date following the occurrence
of such Event of Taking, in the case of an Event of Taking described in clause
(i) above, or (2) on the later of (A) the thirtieth day and (B) the next Payment
Date following delivery of the Officer's Certificate pursuant to clause (ii)
above, in the case of an Event of Taking described in clause (ii) above, an
amount equal to the related Leased Property Balance. Upon Lessor's receipt of
such Leased Property Balance on such date, Lessor shall cause Lessor's interest
in such Leased Property to be conveyed to the related Lessee in accordance with
and subject to the provisions of Section 14.5 hereof (provided that such
conveyance shall be subject to all rights of the condemning authority); upon
completion of such purchase, but not prior thereto, this Lease with respect to
such Leased Property and all obligations hereunder with respect to such Leased
Property shall terminate, except with respect to obligations and liabilities
hereunder, actual or contingent, that have arisen or relate to events occurring
on or prior to such date of purchase, or which are expressly stated herein to
survive termination of this Lease.
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Upon the consummation of the purchase of such Leased Property pursuant
to this Section 10.2, all Awards received by Lessor, after deducting any
reasonable out-of-pocket costs incurred by Lessor in collecting such Awards,
received or payable on account of an Event of Taking with respect to such Leased
Property during the related Lease Term shall be promptly paid to the related
Lessee, and all rights of Lessor in Awards not then received shall be assigned
to Lessee by Lessor.
Section 10.3 Casualty. If a Casualty shall occur which is not an Event
of Loss, the related Lessee shall rebuild and restore the affected Leased
Property, will complete the same prior to the Lease Termination Date, and will
cause the condition set forth in Section 3.5 (c) of the Master Agreement to be
fulfilled with respect to such restoration and rebuilding prior to the Lease
Termination Date, regardless of whether insurance proceeds received as a result
of such Casualty are sufficient for such purpose.
Section 10.4 Condemnation. If a Condemnation shall occur which is not
an Event of Taking, the related Lessee shall rebuild and restore the affected
Leased Property, will complete the same prior to the Lease Termination Date, and
will cause the condition set forth in Section 3.5 (c) of the Master Agreement to
be fulfilled with respect to such restoration and rebuilding prior to the Lease
Termination Date.
Section 10.5 Verification of Restoration and Rebuilding. In the event
of Casualty or Condemnation that involves, or is reasonably expected to involve,
repair or rebuilding costs in excess of $1,000,000, to verify the related
Lessee's compliance with the foregoing Section 10.3 or 10.4, as appropriate,
Lessor, the Agent, the Lenders and their respective authorized representatives
may, upon five (5) Business Days' notice to such Lessee, make a reasonable
number of inspections of the affected Leased Property with respect to (i) the
extent of the Casualty or Condemnation and (ii) the restoration and rebuilding
of the related Building and the Land. All actual and reasonable out-of-pocket
costs of such inspections incurred by Lessor, the Agent or any Lender will be
paid by the related Lessee promptly after written request. No such inspection
shall unreasonably interfere with the related Lessee's operations or the
operations of any other occupant of such Leased Property. None of the inspecting
parties shall have any duty to make any such inspection or inquiry and none of
the inspecting parties shall incur any liability or obligation by reason of
making or not making any such inspection or inquiry.
Section 10.6 Application of Payments. All proceeds (except for payments
under insurance policies maintained other than pursuant to Article VIII of this
Lease) received at any time by Lessor, any Lessee or the Agent from any
Governmental Authority or other Person with respect to any Condemnation or
Casualty to any Leased Property or any part thereof or with respect to an Event
of Loss or an Event of Taking, plus the amount of any payment that would have
been due from an insurer but for a Lessee's self-insurance or deductibles ("Loss
Proceeds"), shall (except to the extent Section 10.9 applies) be applied as
follows:
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(a) In the event the related Lessee purchases such Leased
Property pursuant to Section 10.1 or Section 10.2, such Loss Proceeds shall be
applied as set forth in Section 10.1 or Section 10.2, as the case may be;
(b) In the event of a Casualty at such time when no Event of
Default has occurred and is continuing and the related Lessee is obligated to
repair and rebuild such Leased Property pursuant to Section 10.3, such Lessee
may, in good faith and subsequent to the date of such Casualty, certify to
Lessor and to the applicable insurer that no Event of Default has occurred and
is continuing, in which event the applicable insurer shall pay the Loss Proceeds
to such Lessee;
(c) In the event of a Condemnation at such time when no Event
of Default has occurred and is continuing and the related Lessee is obligated to
repair and rebuild such Leased Property pursuant to Section 10.4, such Lessee
may, in good faith and subsequent to the date of such Condemnation, certify to
Lessor and the Agent that no Event of Default has occurred and is continuing, in
which event the applicable Award shall be paid over to such Lessee; and
(d)As provided in Section 10.8, if such section is applicable.
During any period of repair or rebuilding pursuant to this Article X,
this Lease will remain in full force and effect and Basic Rent shall continue to
accrue and be payable without abatement or reduction. Each Lessee shall maintain
records setting forth information relating to the receipt and application of
payments in accordance with this Section 10.6. Such records shall be kept on
file by each Lessee at its offices and shall be made available to Lessor, the
Lenders and the Agent upon request.
Section 10.7 Prosecution of Awards.
(a) If any Condemnation shall occur, the party receiving the
notice of such Condemnation shall give to the other party and the Agent
promptly, but in any event within thirty (30) days after the occurrence thereof,
written notice of such occurrence and the date thereof, generally describing the
nature and extent of such Condemnation. With respect to any Event of Taking or
any Condemnation, the related Lessee shall control the negotiations with the
relevant Governmental Authority as to any proceeding in respect of which Awards
are required, under Section 10.6, to be assigned or released to such Lessee,
unless an Event of Default shall have occurred and be continuing, in which case
(i) the Agent (or Lessor if the Loans have been fully paid) shall control such
negotiations; and (ii) such Lessee hereby irrevocably assigns, transfers and
sets over to Lessor all rights of such Lessee to any Award on account of any
Event of Taking or any Condemnation and, if there will not be separate Awards to
Lessor and such Lessee on account of such Event of Taking or Condemnation,
irrevocably authorizes and empowers the Agent (or Lessor if the Loans have been
fully paid) during the continuance of an Event of Default, with full power of
substitution, in the name of such Lessee or otherwise (but without limiting the
obligations of such Lessee under this Article X), to file and prosecute what
would otherwise be such
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Lessee's claim for any such Award and to collect, receipt for and retain the
same. In any event Lessor and the Agent may participate in such negotiations,
and no settlement will be made without the prior consent of the Agent (or Lessor
if the Loans have been fully paid), not to be unreasonably withheld.
(b) Notwithstanding the foregoing, each Lessee may prosecute,
and Lessor shall have no interest in, any claim with respect to such Lessee's
personal property and equipment not financed by or otherwise property of Lessor,
business interruption or similar award and such Lessee's relocation expenses.
Section 10.8 Application of Certain Payments Not Relating to an Event
of Taking. In case of a requisition for temporary use of all or a portion of any
Leased Property which is not an Event of Taking, this Lease shall remain in full
force and effect with respect to such Leased Property, without any abatement or
reduction of Basic Rent, and the Awards for such Leased Property shall, unless
an Event of Default has occurred and is continuing, be paid to the related
Lessee.
Section 10.9 Other Dispositions. Notwithstanding the foregoing
provisions of this Article X, so long as an Event of Default shall have occurred
and be continuing, any amount that would otherwise be payable to or for the
account of, or that would otherwise be retained by, Lessee pursuant to this
Article X shall be paid to the Agent (or Lessor if the Loans have been fully
paid) as security for the obligations of the Lessees under this Lease and, at
such time thereafter as no Event of Default shall be continuing, such amount
shall be paid promptly to the related Lessee to the extent not previously
applied by Lessor or the Agent in accordance with the terms of this Lease or the
other Operative Documents.
Section 10.10 No Rent Abatement. Rent shall not abate hereunder by
reason of any Casualty, any Event of Loss, any Event of Taking or any
Condemnation of any Leased Property, and each Lessee shall continue to perform
and fulfill all of such Lessee's obligations, covenants and agreements hereunder
notwithstanding such Casualty, Event of Loss, Event of Taking or Condemnation
until the Lease Termination Date.
ARTICLE XI.
INTEREST CONVEYED TO LESSEES
Each Lessee and Lessor intend that this Lease be treated, for
accounting purposes, as an operating lease. For purposes of federal and state
income taxes, and bankruptcy law, each Lessee and Lessor intend that the
transaction represented by this Lease be treated as a financing transaction; for
such purposes, it is the intention of the parties hereto (i) that this Lease be
treated as a mortgage or deed of trust (whichever is applicable in the
jurisdictions in which the Leased Properties are located) and security
agreement, encumbering the Leased Properties, and that each Lessee, as grantor,
hereby grants to Lessor, as mortgagee or
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beneficiary and secured party, or any successor thereto, a first and paramount
Lien on each Leased Property in which such Lessee has an interest, (ii) that
Lessor shall have, as a result of such determination, all of the rights, powers
and remedies of a mortgagee, deed of trust beneficiary or secured party
available under Applicable Law to take possession of and sell (whether by
foreclosure or otherwise) any Leased Property, (iii) that the effective date of
such mortgage, security deed or deed of trust shall be the effective date of
this Lease, or the related Lease Supplement, if later, (iv) that the recording
of this Lease or a Lease Supplement shall be deemed to be the recording of such
mortgage, security deed or deed of trust, (v) that the obligations secured by
such mortgage, security deed or deed of trust shall include the Funded Amounts
and all Basic Rent and Supplemental Rent hereunder and all other obligations of
and amounts due from each Lessee hereunder and under the Operative Documents and
(vi) that the related Lessee will be treated as the owner of the Leased
Properties leased by such Lessee for tax purposes.
ARTICLE XII.
EVENTS OF DEFAULT
The following events shall constitute Events of Default (whether any
such event shall be voluntary or involuntary or come about or be effected by
operation of law or pursuant to or in compliance with any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(a) any Lessee shall fail to make any payment of Basic Rent within
three (3) Business Days after written notice of such failure from Lessor or the
Agent;
(b) any Lessee shall fail to make any payment of Rent (other than Basic
Rent and other than as set forth in clause (c)) or any other amount payable
hereunder or under any of the other Operative Documents (other than Basic Rent
and other than as set forth in clause (c)), and such failure shall continue for
a period of ten Business Days after written notice thereof from Lessor or the
Agent is received by DTD;
(c) any Lessee shall fail to pay the Funded Amount or Lease Balance
when due pursuant to Section 10.1, 10.2, 14.1 or 14.2, or any Lessee shall fail
to pay the Recourse Deficiency Amount when required pursuant to Article XIV or
the Construction Agent shall fail to make any payment when due under the
Construction Agency Agreement;
(d) any Lessee shall fail to maintain insurance as required by Article
VIII hereof, and such failure shall continue until the earlier of (i) fifteen
(15) days after written notice thereof from Lessor and (ii) the day immediately
preceding the date on which any applicable insurance coverage would otherwise
lapse or terminate;
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(e) any Obligor shall fail to pay at maturity, or within any applicable
period of grace, any obligation for borrowed money or credit received or in
respect of any Capitalized Leases in excess of $500,000 in the aggregate, or
fail to observe or perform any term, covenant or agreement contained in any
agreement by which it is bound, evidencing or securing borrowed money or credit
received or in respect of any Capitalized Leases in excess of $500,000 in the
aggregate for such period of time as would permit (assuming the giving of
appropriate notice if required) the holder or holders thereof or of any
obligations issued thereunder to accelerate the maturity thereof;
(f) any Obligor shall cease to be Solvent, or shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall petition
or apply for the appointment of a trustee or other custodian, liquidator or
receiver of any Obligor or of any substantial part of the assets of any Obligor
or shall commence any case or other proceeding relating to any Obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect, or shall take any action to authorize or in furtherance of any of the
fore going, or if any such petition or application shall be filed or any such
case or other proceeding shall be commenced against any Obligor and such Obligor
shall indicate its approval thereof, consent thereto or acquiescence therein; or
the filing of any case or other proceeding against any obligor under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, now or hereafter
in effect and such case or proceeding is not discharged or dismissed within
sixty (60) days of its commencement; a decree or order is entered appointing any
such trustee, custodian, liquidator or receiver or adjudicating any Obligor
bankrupt or insolvent, or approving a petition in any such case or other
proceeding, or a decree or order for relief is entered in respect of any
Obligor, in an involuntary case under federal bankruptcy laws as now or
hereafter constituted;
(g) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any uninsured
final judgment against any Obligor that, with other outstanding uninsured final
judgments, undischarged, against the Obligors exceeds $2,000,000.00 in the
aggregate;
(h) if any of the Operating Documents shall be cancelled, terminated,
revoked or rescinded or any action at law, suit or in equity or other legal
proceeding to cancel, revoke or rescind any of the Operating Documents shall be
commenced by or on behalf of any Obligor, or any court or any other governmental
or regulatory authority or agency of competent jurisdiction shall make a
determination that, or issue a judgment, order, decree or ruling to the effect
that, any one or more of the Operating Documents is illegal, invalid or
unenforceable in accordance with the terms thereof;
(i) with respect to any Guaranteed Pension Plan, an ERISA Reportable
Event shall have occurred and the Required Funding Parties shall have determined
in their reasonable
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discretion that such event reasonably could be expected to result in liability
of any Obligor to the PBGC on such Guaranteed Pension Plan in an aggregate
amount exceeding $500,000.00 and (i) such event in the circumstances occurring
reasonably could constitute grounds for the termination of such Guaranteed
Pension Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Guaranteed Pension Plan; or (ii)
a trustee shall have been appointed by the United States District Court to
administer such Plan; or (iii) the PBGC shall have instituted proceedings to
terminate such Guaranteed Pension Plan;
(j) any representation or warranty by DTS or any Lessee in any
Operative Document or in any certificate or document delivered to Lessor, the
Agent or any Lender pursuant to any Operative Document shall have been incorrect
in any material respect when made;
(k) any Lessee or DTS shall fail in any material respect to timely,
perform or observe any covenant or material agreement (not included in clause
(a) through (j) of this Article XII) to be performed or observed by it hereunder
or under any other Operative Document and such failure shall continue for a
period of thirty (30) days (or 10 Business Days in the case of financial
covenants) after such Lessee's or DTD's receipt of written notice thereof from
Lessor, the Agent or any Lender or such Lessee or DTD shall have knowledge of
such failure; provided, however, that if such failure is capable of cure, but is
not capable of cure within such thirty day period, so long as such Lessee or DTD
shall be diligently pursuing such cure, such failure shall not constitute an
Event of Default unless it shall continue for a period of ninety (90) days after
such Lessee's or DTD's receipt of notice or knowledge thereof.
ARTICLE XIII.
ENFORCEMENT
Section 13.1 Remedies. Upon the occurrence and during the continuance
of any Event of Default, Lessor may do one or more of the following as Lessor in
its sole discretion shall determine, without limiting any other right or remedy
Lessor may have on account of such Event of Default (including, without
limitation, the obligation of the Lessees to purchase the Leased Properties as
set forth in Section 14.3):
(a) Lessor may, by notice to DTD, rescind or terminate this
Lease as of the date specified in such notice; however, (A) no reletting,
reentry or taking of possession of any Leased Property by Lessor will be
construed as an election on Lessor's part to terminate this Lease unless a
written notice of such intention is given to DTD, (B) notwithstanding any
reletting, reentry or taking of possession, Lessor may at any time thereafter
elect to terminate this Lease for a continuing Event of Default, and (C) no act
or thing done by Lessor or any
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of its agents, representatives or employees and no agreement accepting a
surrender of any Leased Property shall be valid unless the same be made in
writing and executed by Lessor;
(b) Lessor may (i) demand that the Lessees, and the Lessees
shall upon the written demand of Lessor, return the Leased Properties promptly
to Lessor in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Articles VI and XIV hereof as if the Leased
Properties were being returned at the end of the Lease Term, and Lessor shall
not be liable for the reimbursement of any Lessee for any costs and expenses
incurred by such Lessee in connection therewith and (ii) without prejudice to
any other remedy which Lessor may have for possession of the Leased Properties,
and to the extent and in the manner permitted by Applicable Law, enter upon any
Leased Property and take immediate possession of (to the exclusion of the
related Lessee) any Leased Property or any part thereof and expel or remove the
related Lessee and any other person who may be occupying such Leased Property,
by summary proceedings or otherwise, all without liability to any Lessee for or
by reason of such entry or taking of possession, whether for the restoration of
damage to property caused by such taking or otherwise and, in addition to
Lessor's other damages, the Lessees shall be responsible for the actual and
reasonable costs and expenses of reletting, including brokers' fees and the
reasonable out-of-pocket costs of any alterations or repairs made by Lessor;
(c) Lessor may (i) sell all or any part of any Leased Property
at public or private sale, as Lessor may determine, free and clear of any rights
of any Lessee and without any duty to account to any Lessee with respect to such
action or inaction or any proceeds with respect thereto (except to the extent
required by Applicable Law or clause (ii) below if Lessor shall elect to
exercise its rights thereunder) in which event the related Lessee's obligation
to pay Basic Rent for such Leased Property hereunder for periods commencing
after the date of such sale shall be terminated or proportionately reduced, as
the case may be; and (ii) if Lessor shall so elect, demand that the related
Lessee pay to Lessor, and the related Lessee shall pay to Lessor, on the date of
such sale, as liquidated damages for loss of a bargain and not as a penalty (the
parties agreeing that Lessor's actual damages would be difficult to predict, but
the aforementioned liquidated damages represent a reasonable approximation of
such amount) (in lieu of Basic Rent due for periods commencing on or after the
Payment Date coinciding with such date of sale (or, if the sale date is not a
Payment Date, the Payment Date next preceding the date of such sale)), an amount
equal to (a) the excess, if any, of (1) the sum of (A) all Rent due and unpaid
to and including such Payment Date and (B) the Funded Amounts with respect to
such Leased Property, computed as of such date, over (2) the net proceeds of
such sale (that is, after deducting all out-of-pocket costs and expenses
incurred by Lessor, the Agent or any Lender incident to such conveyance
(including, without limitation, all costs, expenses, fees, premiums and taxes
described in Section 14.5(b))); plus (b) interest at the Overdue Rate on the
foregoing amount from such Payment Date until the date of payment;
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(d) Lessor may, at its option, not terminate this Lease, and
continue to collect all Basic Rent, Supplemental Rent, and all other amounts
(including, without limitation, the Funded Amount) due Lessor (together with all
costs of collection) and enforce the Lessees' obligations under this Lease as
and when the same become due, or are to be performed, and at the option of
Lessor, upon any abandonment of any Leased Property by Lessee or re-entry of
same by Lessor, Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease with respect thereto and may make such reasonable
alterations and necessary repairs in order to relet such Leased Property, and
relet such Leased Property or any part thereof for such term or terms (which may
be for a term extending beyond the term of this Lease) and at such rental or
rentals and upon such other terms and conditions as Lessor in its reasonable
discretion may deem advisable; and upon each such reletting all rentals actually
received by Lessor from such reletting shall be applied to the Lessees'
obligations hereunder in such order, proportion and priority as Lessor may elect
in Lessor's sole and absolute discretion. If such rentals received from such
reletting during any Rent Period are less than the Rent to be paid during that
Rent Period by the Lessees hereunder, the Lessees shall pay any deficiency, as
calculated by Lessor, to Lessor on the Payment Date for such Rent Period;
(e) Lessor may, whether or not Lessor shall have exercised or
shall thereafter at any time exercise any of its rights under paragraph (b), (c)
or (d) of this Article XIII, demand, by written notice to DTD specifying a date
(the "Final Rent Payment Date") not earlier than 30 days after the date of such
notice, that Lessees purchase, on the Final Rent Payment Date, all of the
remaining Leased Properties in accordance with the provisions of Sections 14.2,
14.4 and 14.5; provided, however, that (1) such purchase shall occur on the date
set forth in such notice, notwithstanding the provision in Section 14.2 calling
for such purchase to occur on the Lease Termination Date; and (2) Lessor's
obligations under Section 14.5(a) shall be limited to delivery of a special
warranty deed and quit claim bill of sale of such Leased Properties, without
recourse or warranty, but free and clear of Lessor Liens;
(f) Lessor may exercise any other right or remedy that may be
available to it under Applicable Law, or proceed by appropriate court action
(legal or equitable) to enforce the terms hereof or to recover damages for the
breach hereof. Separate suits may be brought to collect any such damages for any
Rent Period(s), and such suits shall not in any manner prejudice Lessor's right
to collect any such damages for any subsequent Rent Period(s), or Lessor may
defer any such suit until after the expiration of the Lease Term, in which event
such suit shall be deemed not to have accrued until the expiration of the Lease
Term; or
(g) Lessor may retain and apply against Lessor's damages all
sums which Lessor would, absent such Event of Default, be required to pay to, or
turn over to, a Lessee pursuant to the terms of this Lease.
Section 13.2 Remedies Cumulative; No Waiver; Consents. To the extent
permitted by, and subject to the mandatory requirements of, Applicable Law, each
and every right, power and remedy herein specifically given to Lessor or
otherwise in this Lease shall be
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cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by Lessor, and the exercise or the
beginning of the exercise of any power or remedy shall not be construed to be a
waiver of the right to exercise at the same time or thereafter any right, power
or remedy. No delay or omission by Lessor in the exercise of any right, power or
remedy or in the pursuit of any remedy shall impair any such right, power or
remedy or be construed to be a waiver of any default on the part of any Lessee
or to be an acquiescence therein. Lessor's consent to any request made by any
Lessee shall not be deemed to constitute or preclude the necessity for obtaining
Lessor's consent, in the future, to all similar requests. No express or implied
waiver by Lessor of any Event of Default shall in any way be, or be construed to
be, a waiver of any future or subsequent Potential Event of Default or Event of
Default. To the extent permitted by Applicable Law, each Lessee hereby waives
any rights now or hereafter conferred by statute or otherwise that may require
Lessor to sell, lease or otherwise use any Leased Property or part thereof in
mitigation of Lessor's damages upon the occurrence of an Event of Default or
that may otherwise limit or modify any of Lessor's rights or remedies under this
Article XIII.
Section 13.3 Purchase Upon an Event of Default. Upon the occurrence of
an Event of Default, until such time as Lessor commences material preparations
for the sale or re-lease of the Leased Properties, the Lessees may purchase all,
but not less than all, of the Leased Properties for the Lease Balance, plus any
amounts due pursuant to Section 7.5 of the Master Agreement. Such purchase shall
be made in accordance with Section 14.5, upon not less than five (5) Business
Days' written notice (which shall be irrevocable) to Lessor, which notice shall
set forth the date of purchase (which shall be a date no later than 30 Business
Days from the date of such notice).
ARTICLE XIV.
SALE, RETURN OR PURCHASE OF LEASED PROPERTY; RENEWAL
Section 14.1 Lessee's Option to Purchase.
(a) Subject to the terms, conditions and provisions set forth
in this Article XIV, each Lessee shall have the option (the "Purchase Option"),
to be exercised as set forth below, to purchase from Lessor, Lessor's interest
in all of the Leased Properties; provided that, except as set forth in paragraph
(b) below, such option must be exercised with respect to all, but not less than
all, of the Leased Properties under all of the Lease Supplements. Such option
must be exercised by written notice to Lessor not later than six months prior to
the Lease Termination Date which notice shall be irrevocable; such notice shall
specify the date that such purchase shall take place, which date shall be a date
occurring not less than thirty (30) days after such notice or the Lease
Termination Date (whichever is earlier). If the Purchase Option is exercised
pursuant to the foregoing, then, subject to the provisions set forth in this
Article XIV, on the applicable
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purchase date or the Lease Termination Date, as the case may be, Lessor shall
convey to each Lessee, by special warranty deed and bill of sale, without
recourse or warranty (other than as to the absence of Lessor Liens) and each
Lessee shall purchase from Lessor, Lessor's interest in the Leased Properties
leased by such Lessee.
(b) Subject to the terms, conditions and provisions set forth
in this Article XIV, each Lessee shall have the option (the "Partial Purchase
Option"), to be exercised as set forth below, to purchase from Lessor Lessor's
interest in any Leased Property leased by such Lessee, provided that the Partial
Purchase Option shall only be available if, after giving effect thereto, at
least one Leased Property remains subject to this Lease. Such option may be
exercised by written notice to Lessor at any time prior to the last year of the
term of this Lease, which notice shall be irrevocable; such notice shall specify
the Leased Property to be purchased and the date that such purchase shall take
place, which date shall be a date occurring not less than thirty (30) days after
such notice. If a Partial Purchase Option is exercised pursuant to the
foregoing, subject to the provisions set forth in this Article XIV, on the
applicable purchase date, Lessor shall convey to the related Lessee, and such
Lessee shall purchase from Lessor, Lessor's interest in the Leased Property that
is the subject of such Partial Purchase Option pursuant to Section 14.5.
Section 14.2 Conveyance to Lessee. Unless (a) the Lessees shall have
properly exercised the Purchase Option and purchased the Leased Properties
pursuant to Section 14.1(a) or 14.1(b) hereof, or (b) the Lessees shall have
properly exercised the Remarketing Option and shall have fulfilled all of the
conditions of Section 14.6 hereof, then, subject to the terms, conditions and
provisions set forth in this Article XIV, each Lessee shall purchase from
Lessor, and Lessor shall convey to each Lessee, on the Lease Termination Date
all of Lessor's interest in the Leased Properties leased to such Lessee. Any
Lessee may designate, in a notice given to Lessor not less than ten (10)
Business Days prior to the closing of such purchase, or any purchase pursuant to
Section 14.1(a) or (b),(time being of the essence), the transferee to whom the
conveyance shall be made (if other than to such Lessee), in which case such
conveyance shall (subject to the terms and conditions set forth herein) be made
to such designee; provided, however, that such designation of a transferee shall
not cause any Lessee to be released, fully or partially, from any of its
obligations under this Lease.
Section 14.3 Acceleration of Purchase Obligation. The Lessees shall be
obligated to purchase Lessor's interest in the Leased Properties immediately,
automatically and without notice upon the occurrence of any Event of Default
specified in clause (f) of Article XII, for the purchase price set forth in
Section 14.4. Upon the occurrence and during the continuance of any other Event
of Default, the Lessees shall be obligated to purchase Lessor's interest in the
Leased Properties for the purchase price set forth in Section 14.4 upon notice
of such obligation from Lessor.
Section 14.4 Determination of Purchase Price. Upon the purchase by the
Lessees of Lessor's interest in the Leased Properties upon the exercise of the
Purchase Option or
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pursuant to Section 14.2 or 14.3, the aggregate purchase price for all of the
Leased Properties shall be an amount equal to the Lease Balance as of the
closing date for such purchase, plus any amount due pursuant to Section 7.5(f)
of the Master Agreement as a result of such purchase. Upon the purchase by a
Lessee of Lessor's interest in a Leased Property upon the exercise of a Partial
Purchase Option, the purchase price for such Leased Property shall be an amount
equal to the Leased Property Balance for such Leased Property as of the closing
date for such purchase, plus any amount due pursuant to Section 7.5(f) of the
Master Agreement as the result of such purchase.
Section 14.5 Purchase Procedure.
(a) If a Lessee shall purchase Lessor's interest in a Leased
Property pursuant to any provision of this Lease, (i) such Lessee shall accept
from Lessor and Lessor shall convey such Leased Property by a duly executed and
acknowledged special warranty deed and quit claim bill of sale of such a Leased
Property in recordable form, (ii) upon the date fixed for any purchase of
Lessor's interest in Leased Property hereunder, the related Lessee(s) shall pay
to the order of the Agent (or Lessor if the Loans have been paid in full) the
Lease Balance or Leased Property Balance, as applicable, plus any amount due
pursuant to Section 7.5 of the Master Agreement as a result of such purchase by
wire transfer of immediately available funds, (iii) Lessor will execute and
deliver to the related Lessee such other documents, including releases,
affidavits, termination agreements and termination statements, as may be legally
required or as may be reasonably requested by Lessee in order to effect such
conveyance, free and clear of Lessor Liens and the Liens of the Operative
Documents and (iv) if such Leased Property is subject to a Ground Lease, Lessor
will execute and deliver to the related Lessee an assignment or termination of
such Ground Lease, as directed by such Lessee, in such form as may be reasonably
requested by such Lessee, and such Lessee shall pay any amounts due with respect
thereto under such Ground Lease.
(b) Each Lessee shall, at such Lessee's sole cost and expense,
obtain all required governmental and regulatory approval and consents and in
connection therewith shall make such filings as required by Applicable Law; in
the event that Lessor is required by Applicable Law to take any action in
connection with such purchase and sale, the Lessees shall pay prior to transfer
all reasonable out-of-pocket costs incurred by Lessor in connection therewith.
Without limiting the foregoing, all costs incident to such conveyance,
including, without limitation, each Lessee's attorneys' fees, Lessor's
attorneys' fees, commissions, each Lessee's and Lessor's escrow fees, recording
fees, title insurance premiums and all applicable documentary transfer or other
transfer taxes and other taxes required to be paid in order to record the
transfer documents that might be imposed by reason of such conveyance and the
delivery of such deed shall be borne entirely by and paid by the Lessees.
(c) Upon expiration or termination of this Lease resulting in
conveyance of Lessor's interest in the title to the Leased Properties to the
Lessees, there shall be no apportionment of rents (including, without
limitation, water rents and sewer rents), taxes, insurance, utility charges or
other charges payable with respect to the Leased Properties, all of
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such rents, taxes, insurance, utility or other charges due and payable with
respect to the Leased Properties prior to termination being payable by the
Lessees hereunder and all due after such time being payable by the Lessees as
the then owners of the Leased Properties.
Section 14.6 Option to Remarket. Subject to the fulfillment of each of
the conditions set forth in this Section 14.6, the Lessees shall have the option
to market all of, but not less than all of, the Leased Properties for Lessor
(the "Remarketing Option").
The Lessees' effective exercise and consummation of the Remarketing
Option shall be subject to the due and timely fulfillment of each of the
following provisions, the failure of any of which, unless waived in writing by
Lessor and the Lenders, shall render the Remarketing Option and the Lessees'
exercise thereof null and void, in which event, each Lessee shall be obligated
to perform its obligations under Section 14.2.
(a) Not later than twelve months prior to the Lease
Termination Date, DTD shall give to Lessor and the Agent written notice of the
Lessees' exercise of the Remarketing Option.
(b) Not later than ten (10) Business Days prior to the Lease
Termination Date, each Lessee shall deliver to Lessor and the Agent an
environmental assessment of each Leased Property leased by it dated not later
than forty-five (45) days prior to the Lease Termination Date. Such
environmental assessment shall be prepared by an environmental consultant
selected by the related Lessee and reasonably satisfactory to the Required
Funding Parties, shall be in form, detail and substance reasonably satisfactory
to the Required Funding Parties, and shall otherwise indicate no degradation in
environmental conditions beyond those described in the related Environmental
Audit for which corrective action is required by Applicable Law and shall not
include a recommendation for further investigation to make such determination.
(c) On the date of DTD's notice to Lessor and the Agent of the
Lessees' exercise of the Remarketing Option, each of the Construction Conditions
shall have been timely satisfied and no Event of Default or Potential Event of
Default shall exist, and thereafter, no Event of Default or Potential Event of
Default shall exist under this Lease.
(d) Each Lessee shall have completed in all material respects
all Alterations, restoration and rebuilding of the Leased Properties leased by
it pursuant to Sections 6.1, 6.2, 10.3 and 10.4 (as the case may be) and shall
have fulfilled in all material respects all of the conditions and requirements
in connection therewith pursuant to said Sections, in each case by the date on
which Lessor and the Agent receive DTD's notice of the Lessees' exercise of the
Remarketing Option (time being of the essence), regardless of whether the same
shall be within such Lessee's control.
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(e) Upon request by the Agent, each Lessee shall promptly
provide any maintenance records relating to each Leased Property leased by it to
Lessor, the Agent and any potential purchaser, and shall otherwise do all things
necessary to deliver possession of such Leased Property to the potential
purchaser at the appropriate closing date. Each Lessee shall allow Lessor, the
Agent and any potential purchaser reasonable access during normal business hours
to any Leased Property for the purpose of inspecting the same.
(f) On the Lease Termination Date, each Lessee shall surrender
the Leased Properties leased by it in accordance with Section 14.8 hereof.
(g) In connection with any such sale of the Leased Properties,
each Lessee will provide to the purchaser all customary "seller's" indemnities
requested by the potential purchaser (taking into account the location and
nature of the Leased Properties), representations and warranties regarding
title, absence of Liens (except Lessor Liens) and the condition of the Leased
Properties. Each Lessee shall fulfill all of the requirements set forth in
clause (b) of Section 14.5, and such requirements are incorporated herein by
reference. As to Lessor, any such sale shall be made on an "as is, with all
faults" basis without representation or warranty by Lessor, other than the
absence of Lessor Liens.
(h) In connection with any such sale of Leased Properties,
each Lessee shall pay directly, and not from the sale proceeds, all prorations,
credits, costs and expenses of the sale of the Leased Properties leased by it,
whether incurred by Lessor, any Lender, the Agent or such Lessee, including
without limitation, to the extent not paid by the purchaser, the cost of all
title insurance, surveys, environmental reports, appraisals, transfer taxes,
Lessor's and the Agent's attorneys' fees, such Lessee's attorneys' fees,
commissions, escrow fees, recording fees, and all applicable documentary and
other transfer taxes.
(i) The Lessees, jointly and severally, shall pay to the Agent
on the Lease Termination Date (or to such other Person as Agent shall notify
Lessee in writing, or in the case of Supplemental Rent, to the Person entitled
thereto) an amount equal to the Recourse Deficiency Amount, plus all accrued and
unpaid Basic Rent and Supplemental Rent, and all other amounts hereunder which
have accrued prior to or as of such date, in the type of funds specified in
Section 3.3 hereof.
If the Lessees have exercised the Remarketing Option, the following
additional provisions shall apply: During the period commencing on the date
twelve months prior to the scheduled expiration of the Lease Term, one or more
of the Lessees shall, as nonexclusive agent for Lessor, use commercially
reasonable efforts to sell Lessor's interest in the Leased Properties and will
attempt to obtain the highest purchase price therefor. All such marketing of the
Leased Properties shall be at the Lessees' sole expense. Lessee promptly shall
submit all bids
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to Lessor and the Agent and Lessor and the Agent will have the right to review
the same and the right to submit any one or more bids. All bids shall be on an
all-cash basis. In no event shall such bidder be a Lessee or any Subsidiary or
Affiliate of a Lessee. The written offer must specify the Lease Termination Date
as the closing date. If, and only if, the aggregate selling price (net of
closing costs and prorations, as reasonably estimated by the Agent) is less than
the difference between the Lease Balance at such time minus the Recourse
Deficiency Amount, then Lessor or the Agent may, in its sole and absolute
discretion, by notice to DTD, reject such offer to purchase, in which event the
parties will proceed according to the provisions of Section 14.7 hereof. If
neither Lessor nor the Agent rejects such purchase offer as provided above, the
closing of such purchase of the Leased Properties by such purchaser shall occur
on the Lease Termination Date, contemporaneously with the Lessees' surrender of
the Leased Properties in accordance with Section 14.8 hereof, and the gross
proceeds of the sale (i.e., without deduction for any marketing, closing or
other costs, prorations or commissions) shall be paid directly to the Agent (or
Lessor if the Funded Amounts have been fully paid); provided, however, that if
the sum of the gross proceeds from such sale plus the Recourse Deficiency Amount
paid by the Lessees on the Lease Termination Date pursuant to Section 14.6(i),
minus any and all reasonable costs and expenses (including broker fees,
appraisal costs, reasonable legal fees and transfer taxes) incurred by the Agent
or Lessor in connection with the marketing of the Leased Properties or the sale
thereof exceeds the Lease Balance as of such date, then the excess shall be paid
to DTD on the Lease Termination Date. No Lessee shall have the right, power or
authority to bind Lessor in connection with any proposed sale of the Leased
Properties.
Section 14.7 Rejection of Sale. Notwithstanding anything contained
herein to the contrary, if Lessor or the Agent rejects the purchase offer for
the Leased Properties as provided in (and subject to the conditions set forth
in) Section 14.6, then (a) the Lessees, jointly and severally, shall pay to the
Agent the Recourse Deficiency Amount pursuant to Section 14.6(i), and (b) Lessor
shall retain title to the Leased Properties.
Section 14.8 Return of Leased Property. If Lessor retains title to any
Leased Property pursuant to Section 14.7 hereof, then each Lessee shall, on the
Lease Termination Date, and at its own expense, return possession of the Leased
Properties leased by it to Lessor for retention by Lessor or, if the Lessees
properly exercise the Remarketing Option and fulfill all of the conditions of
Section 14.6 hereof and neither Lessor nor the Agent rejects such purchase offer
pursuant to Section 14.6, then each Lessee shall, on such Lease Termination
Date, and at its own cost, transfer possession of the Leased Properties leased
by it to the independent purchaser thereof, in each case by surrendering the
same into the possession of Lessor or such purchaser, as the case may be, free
and clear of all Liens other than Lessor Liens, in as good condition as it was
on the Completion Date therefor in the case of new Construction, or the Funding
Date (as modified by Alterations permitted by this Lease), ordinary wear and
tear excepted, and in compliance in all material respects with Applicable Law.
Each Lessee shall, on and within a reasonable time before and after the Lease
Termination Date, cooperate with Lessor and the independent purchaser of any
Leased
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Property leased by such Lessee in order to facilitate the ownership and
operation by such purchaser of such Leased Property after the Lease Termination
Date, which cooperation shall include the following, all of which such Lessee
shall do on or before the Lease Termination Date or as soon thereafter as is
reasonably practicable: providing all books and records regarding the related
Lessee's maintenance of such Leased Property and all know-how, data and
technical information relating thereto, providing a copy of the Plans and
Specifications within the possession of such Lessee or DTD, granting or
assigning all licenses (to the extent assignable) necessary for the operation
and maintenance of such Leased Property, and cooperating in seeking and
obtaining all necessary Governmental Action. Each Lessee shall have also paid
the cost of all Alterations commenced prior to the Lease Termination Date. The
obligations of such Lessee under this Article XIV shall survive the expiration
or termination of this Lease.
Section 14.9 Renewal. Subject to the conditions set forth herein, DTD
may, by written notice to Lessor and the Agent given not later than twelve
months and not earlier than sixteen months, prior to the then scheduled Lease
Termination Date, request to renew this Lease for five years, commencing on the
date following such Lease Termination Date, provided that in no event shall the
Lease Term exceed fifteen (15) years. No later than the date that is 45 days
after the date the request to renew has been delivered to each of Lessor and the
Agent, the Agent will notify DTD whether or not Lessor and the Lenders consent
to such renewal request (which consent may be granted or denied in the Lessor's
and each Lender's sole discretion and may be conditioned on such conditions
precedent as may be specified by Lessor or such Lender). If the Agent fails to
respond in such time frame, such failure shall be deemed to be a rejection of
such request.
Section 14.10 Environmental Report. Upon termination of this Lease,
unless the Lessees have exercised the Remarketing Option and complied with
Section 14.6, each Lessee shall deliver, at the Lessees' expense, to Lessor and
the Agent an environmental assessment of each Leased Property leased by it at
any time during the Lease Term. Such environmental assessment shall be prepared
by an environmental consultant, and shall be in a form, reasonably satisfactory
to Lessor and the Agent.
ARTICLE XV.
LESSEE'S EQUIPMENT
After any repossession of any Leased Property (whether or not this
Lease has been terminated), the related Lessee, at its expense and so long as
such removal of such trade fixture, personal property or equipment shall not
result in a violation of Applicable Law, shall, within a reasonable time after
such repossession or within ninety (90) days after such Lessee's receipt of
Lessor's written request (whichever shall first occur), remove all of such
Lessee's trade fixtures, personal property and equipment from such Leased
Property (to the extent that the same can be readily removed from such Leased
Property without causing
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material damage to such Leased Property); provided, however, that such Lessee
shall not remove any such trade fixtures, personal property or equipment that
has been financed by Lessor under the Operative Documents or otherwise
constituting Leased Property (or that constitutes a replacement of such
property). Any of a Lessee's trade fixtures, personal property and equipment not
so removed by such Lessee within such period shall be considered abandoned by
such Lessee, and title thereto shall without further act vest in Lessor, and may
be appropriated, sold, destroyed or otherwise disposed of by Lessor without
notice to any Lessee and without obligation to account therefor and the related
Lessee will pay Lessor, upon written demand, all reasonable costs and expenses
incurred by Lessor in removing, storing or disposing of the same and all costs
and expenses incurred by Lessor to repair any damage to such Leased Property
caused by such removal. Each Lessee will immediately repair at its expense all
damage to such Leased Property caused by any such removal (unless such removal
is effected by Lessor, in which event such Lessee shall pay all reasonable costs
and expenses incurred by Lessor for such repairs). Lessor shall have no
liability in exercising Lessor's rights under this Article XV, nor shall Lessor
be responsible for any loss of or damage to any Lessee's personal property and
equipment.
ARTICLE XVI.
RIGHT TO PERFORM FOR LESSEE
If any Lessee shall fail to perform or comply with any of its
agreements contained herein, Lessor, upon notice to DTD or such Lessee, may
perform or comply with such agreement, and Lessor shall not thereby be deemed to
have waived any default caused by such failure, and the amount of such payment
and the amount of the expenses of Lessor (including actual and reasonable
attorneys' fees and expenses) incurred in connection with such payment or the
performance of or compliance with such agreement, as the case may be, shall be
deemed Supplemental Rent, payable by the related Lessee to Lessor within thirty
(30) days after written demand therefor.
ARTICLE XVII.
MISCELLANEOUS
Section 17.1 Reports. To the extent required under Applicable Law and
to the extent it is reasonably practical for a Lessee to do so, such Lessee
shall prepare and file in timely fashion, or, where such filing is required to
be made by Lessor or it is otherwise not reasonably practical for a Lessee to
make such filing, Lessee shall prepare and deliver to Lessor (with a copy to the
Agent) within a reasonable time prior to the date for filing and Lessor shall
file, any material reports with respect to the condition or operation of such
Leased Property that shall be required to be filed with any Governmental
Authority.
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Section 17.2 Binding Effect; Successors and Assigns; Survival. The
terms and provisions of this Lease, and the respective rights and obligations
hereunder of Lessor and the Lessees, shall be binding upon their respective
successors, legal representatives and assigns (including, in the case of Lessor,
any Person to whom Lessor may transfer any Leased Property or any interest
therein in accordance with the provisions of the Operative Documents), and inure
to the benefit of their respective permitted successors and assigns, and the
rights granted hereunder to the Agent and the Lenders shall inure (subject to
such conditions as are contained herein) to the benefit of their respective
permitted successors and assigns. Each Lessee hereby acknowledges that Lessor
has assigned all of its right, title and interest to, in and under this Lease to
the Agent and the Lenders pursuant to the Loan Agreement and related Operative
Documents, and that all of Lessor's rights hereunder may be exercised by the
Agent.
Section 17.3 Quiet Enjoyment. Lessor covenants that it will not
interfere in the related Lessee's or any of its permitted sublessees' quiet
enjoyment of the Leased Properties in accordance with this Lease during the
Lease Term, so long as no Event of Default has occurred and is continuing. Such
right of quiet enjoyment is independent of, and shall not affect, Lessor's
rights otherwise to initiate legal action to enforce the obligations of the
Lessees under this Lease.
Section 17.4 Notices. Unless otherwise specified herein, all notices,
offers, acceptances, rejections, consents, requests, demands or other
communications to or upon the respective parties hereto shall be in writing and
shall be deemed to have been given as set forth in Section 8.2 of the Master
Agreement. All such notices, offers, acceptances, rejections, consents,
requests, demands or other communications shall be addressed as follows or to
such other address as any of the parties hereto may designate by written notice:
If to Lessor: Atlantic Financial Group, Ltd.
c/o Grogan & Browner
2311 Cedar Springs Road, Suite 150
Dallas, Texas 75201
Attn: Stephen Brookshire
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If to DTD
or any other Lessee: Dollar Tree Stores, Inc.
500 Volvo Parkway
Chesapeake, VA 23320
Attn: Frederick C. Coble
Facsimile: 757-321-5111
with a copy to: Hofhemier Nusbaum, P.C.
1700 Dominion Tower
999 Waterside Drive
Norfolk, VA 23510
Attn: William A. Old, Jr., Esq.
Facsimile: 757-629-0660
If to Agent: Crestar Bank
500 Main Street
Norfolk, Virginia 23510
Attn: Bruce W. Nave
Facsimile: 757-624-5457
with a copy to: SunTrust Equitable Securities Corporation
303 Peachtree Street, 24th Floor
MC 3951
Atlanta, Georgia 30308
Attn: Todd Shutley
If to a Lender, to the address provided in the Master Agreement.
Section 17.5 Severability. Any provision of this Lease that shall be
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, and Lessee shall remain
liable to perform its obligations hereunder except to the extent of such
unenforceability. To the extent permitted by Applicable Law, each Lessee hereby
waives any provision of law that renders any provision hereof prohibited or
unenforceable in any respect.
Section 17.6 Amendment; Complete Agreements. Neither this Lease nor any
of the terms hereof may be terminated, amended, supplemented, waived or modified
orally, except by an instrument in writing signed by Lessor and DTD in
accordance with the provisions of Section 8.4 of the Master Agreement. This
Lease, together with the applicable Lease Supplement and the other Operative
Documents, is intended by the parties as a final expression of their lease
agreement and as a complete and exclusive statement of the terms
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thereof, all negotiations, considerations and representations between the
parties having been incorporated herein and therein. No course of prior dealings
between the parties or their officers, employees, agents or Affiliates shall be
relevant or admissible to supplement, explain, or vary any of the terms of this
Lease or any other Operative Document. Acceptance of, or acquiescence in, a
course of performance rendered under this or any prior agreement between the
parties or their Affiliates shall not be relevant or admissible to determine the
meaning of any of the terms of this Lease or any other Operative Document. No
representations, undertakings, or agreements have been made or relied upon in
the making of this Lease other than those specifically set forth in the
Operative Documents.
Section 17.7 Construction. This Lease shall not be construed more
strictly against any one party, it being recognized that both of the parties
hereto have contributed substantially and materially to the preparation and
negotiation of this Lease.
Section 17.8 Headings. The Table of Contents and headings of the
various Articles and Sections of this Lease are for convenience of reference
only and shall not modify, define or limit any of the terms or provisions
hereof.
Section 17.9 Counterparts. This Lease 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 and the same instrument.
Section 17.10 GOVERNING LAW. THIS LEASE SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE,
EXCEPT AS TO MATTERS RELATING TO THE CREATION OF THE LEASEHOLD OR MORTGAGE
ESTATES HEREUNDER, AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO,
WHICH SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATES IN WHICH SUCH ESTATES ARE LOCATED.
Section 17.11 Discharge of Lessee's Obligations by its Subsidiaries or
Affiliates. Lessor agrees that performance of any Lessee's obligations hereunder
by one or more of such Lessee's Subsidiaries or Affiliates shall constitute
performance by Lessee of such obligations to the same extent and with the same
effect hereunder as if such obligations were performed by such Lessee, but no
such performance shall excuse any Lessee from any obligation not performed by it
or on its behalf under the Operative Documents.
Section 17.12 Liability of Lessor Limited. Except as otherwise
expressly provided below in this Section 17.12, it is expressly understood and
agreed by and between each Lessee, Lessor and their respective successors and
assigns that nothing herein contained shall be construed as creating any
liability of Lessor or any of its Affiliates or any of their respective
officers, directors, employees or agents, individually or personally, for any
failure
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to perform any covenant, either express or implied, contained herein, all such
liability (other than that resulting from Lessor's gross negligence or willful
misconduct, except to the extent imputed to Lessor by virtue of any Lessee's
action or failure to act), if any, being expressly waived by each Lessee and by
each and every Person now or hereafter claiming by, through or under any Lessee,
and that, so far as Lessor or any of its Affiliates or any of their respective
officers, directors, employees or agents, individually or personally, is
concerned, each Lessee and any Person claiming by, through or under any Lessee
shall look solely to the right, title and interest of Lessor in and to the
Leased Properties and any proceeds from Lessor's sale or encumbrance thereof
(provided, however, that no Lessee shall be entitled to any double recovery) for
the performance of any obligation under this Lease and under the Operative
Documents and the satisfaction of any liability arising therefrom (other than
that resulting from Lessor's gross negligence or willful misconduct, except to
the extent imputed to Lessor by virtue of any Lessee's action or failure to
act).
Section 17.13 Estoppel Certificates. Each party hereto agrees that at
any time and from time to time during the Lease Term, it will promptly, but in
no event later than thirty (30) days after request by the other party hereto,
execute, acknowledge and deliver to such other party or to any prospective
purchaser (if such prospective purchaser has signed a commitment or letter of
intent to purchase any Leased Property or any part thereof or any Note),
assignee or mortgagee or third party designated by such other party, a
certificate stating (a) that this Lease is unmodified and in force and effect
(or if there have been modifications, that this Lease is in force and effect as
modified, and identifying the modification agreements); (b) the date to which
Basic Rent has been paid; (c) whether or not there is any existing default by
any Lessee in the payment of Basic Rent or any other sum of money hereunder, and
whether or not there is any other existing default by either party with respect
to which a notice of default has been served, and, if there is any such default,
specifying the nature and extent thereof; (d) whether or not, to the knowledge
of the signer, there are any setoffs, defenses or counterclaims against
enforcement of the obligations to be performed hereunder existing in favor of
the party executing such certificate and (e) other items that may be reasonably
requested; provided that no such certificate may be requested unless the
requesting party has a good faith reason for such request.
Section 17.14 No Joint Venture. Any intention to create a joint
venture, partnership or other fiduciary relationship between Lessor and any
Lessee is hereby expressly disclaimed.
Section 17.15 No Accord and Satisfaction. The acceptance by Lessor of
any sums from any Lessee (whether as Basic Rent or otherwise) in amounts which
are less than the amounts due and payable by the Lessees hereunder is not
intended, nor shall be construed, to constitute an accord and satisfaction of
any dispute between Lessor and any Lessee regarding sums due and payable by any
Lessee hereunder, unless Lessor specifically deems it as such in writing.
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Section 17.16 No Merger. In no event shall the leasehold interests,
estates or rights of any Lessee hereunder, or of the holder of any Notes secured
by a security interest in this Lease, merge with any interests, estates or
rights of Lessor in or to the Leased Properties, it being understood that such
leasehold interests, estates and rights of each Lessee hereunder, and of the
holder of any Notes secured by a security interest in this Lease, shall be
deemed to be separate and distinct from Lessor's interests, estates and rights
in or to the Leased Properties, notwithstanding that any such interests, estates
or rights shall at any time or times be held by or vested in the same person,
corporation or other entity.
Section 17.17 Survival. The obligations of each Lessee to be performed
under this Lease prior to the Lease Termination Date and the obligations of
Lessee pursuant to Articles III, X, XI, XIII, Sections 14.2, 14.3, 14.4, 14.5,
14.8, Articles XV, and XVI, and Sections 17.10 and 17.12 shall survive the
expiration or termination of this Lease. The extension of any applicable statute
of limitations by Lessor, any Lessee, the Agent or any Indemnitee shall not
affect such survival.
Section 17.18 Chattel Paper. To the extent that this Lease constitutes
chattel paper (as such term is defined in the Uniform Commercial Code in any
applicable jurisdiction), no security interest in this Lease may be created
through the transfer or possession of any counterpart other than the sole
original counterpart, which shall be identified as the original counterpart by
the receipt of the Agent.
Section 17.19 Time of Essence. Time is of the essence of this Lease.
Section 17.20 Recordation of Lease. Each Lessee will, at its expense,
cause this Lease or a memorandum of lease in form and substance reasonably
satisfactory to Lessor and such Lessee (if permitted by Applicable Law) to be
recorded in the proper office or offices in the States and the municipalities in
which the Land is located.
Section 17.21 Investment of Security Funds. The parties hereto agree
that any amounts not payable to a Lessee pursuant to any provision of Article
VIII, X or XIV or this Section 17.21 shall be held by the Agent (or Lessor if
the Loans have been fully paid) as security for the obligations of the Lessees
under this Lease and the Master Agreement and of Lessor under the Loan
Agreement. At such time as such amounts are payable to the Lessee, such amounts,
net of any amounts previously applied to the Lessees' obligations hereunder or
under the Master Agreement (which application is hereby agreed to by Lessee),
shall be paid to the related Lessee. Any such amounts which are held by the
Agent (or Lessor if the Loans have been fully paid) pending payment to a Lessee
shall until paid to such Lessee, as provided hereunder or until applied against
the Lessees' obligations herein and under the Master Agreement and distributed
as provided in the Loan Agreement or herein (after the Loan Agreement is no
longer in effect) in connection with any exercise of remedies hereunder, be
invested by the Agent or Lessor, as the case may be, as directed from time to
time in writing by Lessee (provided, however, if an Event of Default has
occurred and is
32
<PAGE>
continuing it will be directed by the Agent or, if the Loans have been fully
paid, Lessor) and at the expense and risk of the Lessees, in Permitted
Investments. Any gain (including interest received) realized as the result of
any such investment (net of any fees, commissions and other expenses, if any,
incurred in connection with such investment) shall be applied in the same manner
as the principal invested. Lessee upon demand shall pay to the Agent or Lessor,
as appropriate, the amount of any loss incurred in connection with all such
investments and the liquidation thereof.
Section 17.22 Ground Leases. Each Lessee will, at its expense, timely
perform all of the obligations of Lessor, in its capacity as ground lessee,
under each Ground Lease and, if requested by Lessor shall provide satisfactory
evidence to Lessor of such performance.
Section 17.23 Land and Building. If any Building and the Land on which
such Building is located are subject to separate Lease Supplements, at any time
that the related Lessee exercises an option to purchase such Building or such
Land, or to renew this Lease with respect to such Building or such Land, or is
obligated to purchase such Building or such Land as a result of an Event of
Loss, an Event of Taking or an Event of Default, such purchase or renewal shall
be made simultaneously with respect to all of such Building and such Land.
Section 17.24 Joint and Several. Each obligation of each Lessee
hereunder shall be a joint and several obligation of all of the Lessees.
Section 17.25 Construction Land Interests. Notwithstanding any other
provision of this Lease or any of the Operative Documents, the following shall
apply with respect to any Construction Land Interest and take priority over any
other provision hereof or any of the Operative Documents from the date hereof
until the earlier of the Completion Date for such Leased Property or the
Construction Term Expiration Date:
(a) If the Completion Date for such Leased Property has not
occurred prior to the Construction Term Expiration Date, which failure is not
waived by the Lessor; or
(b) If the cost of the acquisition of Land and construction
of the Buildings exceeds the Construction Budget for such Leased Property which
is not accepted and waived by the Lessor; or
(c) Upon the occurrence of an Event of Default which is based
upon the existence of any mechanics, materialmen or similar lien based upon
goods or services provided to such Leased Property which is not a Permitted
Lien; or
(d) Upon the occurrence of an Event of Default which is based
upon a casualty loss of all or substantially all of such Leased Property;
33
<PAGE>
which, in any event, is both (i) unrelated to any breach by any Lessee, the
Guarantor or the Construction Agent of any representation, warranty or
obligation under any Operative Document, (ii) such event or circumstances are
beyond the control of such Persons, and (iii) not caused by any fraud,
misrepresentation, misapplication of funds or malfeasance of any Lessee, the
Guarantor or the Construction Agent then, in any such event, the Construction
Agent shall immediately, at its option, either pay to Lessor the Construction
Failure Payment for such Leased Property or purchase such Leased Property
pursuant to the Construction Agency Agreement, whereupon this Lease shall
terminate with respect to such Leased Property.
Section 17.26 IDB Documentation. If any Leased Property is subject to
an IDB Lease, this Lease shall be deemed to be a sublease. Each Lessee hereby
agrees to perform all of its obligations and all obligations of Lessor under all
IDB Documentation related to any Leased Property.
[Signature page follows]
34
<PAGE>
IN WITNESS WHEREOF, the undersigned have each caused this Lease
Agreement to be duly executed and delivered and attested by their respective
officers thereunto duly authorized as of the day and year first above written.
Witnessed: DOLLAR TREE DISTRIBUTION, INC.,
as a Lessee
By: /s/ Karen L. Joyner By: /s/ Frederick C. Coble
Name:Karen L. Joyner Name: Frederick C. Coble
Title: Senior Vice President, CFO
By: /s/ Virginia Collins
Name: Virginia Collins
LEASE
AGREEMENT
S-1
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD.,
as Lessor
By: Atlantic Financial Managers,
Inc., its General Partner
Witnessed:
By: /s/ Pattie Keath By: /s/ Stephen Brookshire
Name:Pattie Keath Name: Stephen Brookshire
Title: President
By: /s/ Lori Decker
Name: Lori Decker
LEASE
AGREEMENT
S-2
<PAGE>
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of the date hereof.
CRESTAR BANK,
as the Agent
By: /s/ Bruce W. Nave
Name: Bruce W. Nave
Title: Sr. Vice President
LEASE
AGREEMENT
S-3
<PAGE>
Recording requested by EXHIBIT A TO THE LEASE
and when recorded mail to:
============================
============================
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
LEASE SUPPLEMENT NO. __ AND MEMORANDUM OF LEASE
THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as of [ ],
between ATLANTIC FINANCIAL GROUP, LTD., as lessor (the "Lessor"), and [DOLLAR
TREE DISTRIBUTION, INC., a Virginia corporation,] as lessee (the "Related
Lessee").
WHEREAS Lessor is the owner of the Land described on Schedule I hereto
and wishes to lease the Land together with any Building and other improvements
thereon or which thereafter may be constructed thereon pursuant to the Lease 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; Interpretation. 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 Master Lease Agreement,
dated as of January 13, 2000 (as amended and supplemented from time to time, the
"Lease"), among the Lessees named therein and Lessor; and the rules of
interpretation set forth in Appendix A to the Lease shall apply to this Lease
Supplement.
SECTION 2. The Properties. Attached hereto as Schedule I is the
description of certain Land (the "Subject Property"). Effective upon the
execution and delivery of this Lease Supplement by Lessor and Lessee, such Land,
together with any Building and other improvements thereon or which thereafter
may be constructed thereon shall be subject to the terms and provisions of the
Lease and Lessor hereby grants, conveys, transfers and assigns to the Related
Lessee those interests, rights, titles, estates, powers and privileges provided
for in the Lease with respect to the Subject Property.
A-1
<PAGE>
SECTION 3. Amendments to Lease with Respect to Subject Property.
Effective upon the execution and delivery of this Lease Supplement by Lessor and
the Related Lessee, the following terms and provisions shall apply to the Lease
with respect to the Subject Property:
[Insert Applicable Sections per Local Law
as contemplated by the Master Agreement]
SECTION 4. Ratification; Incorporation. Except as specifically modified
hereby, the terms and provisions of the Lease are hereby ratified and confirmed
and remain in full force and effect. The terms of the Lease (as amended by this
Lease Supplement) are by this reference incorporated herein and made a part
hereof.
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 IN ACCORDANCE WITH THE LAW OF THE STATE OF GEORGIA, BUT EXCLUDING
ALL OTHER CHOICE OF LAW AND CONFLICTS OF LAW RULES OF SUCH STATE, EXCEPT AS TO
MATTERS RELATING TO THE CREATION OF THE LEASEHOLD AND MORTGAGE ESTATES
HEREUNDER, AND THE EXERCISE OF RIGHTS AND REMEDIES WITH RESPECT THERETO, WHICH
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE IN
WHICH SUCH ESTATES ARE LOCATED.
SECTION 7. 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 and the same
instrument.
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.
Witnessed: ATLANTIC FINANCIAL GROUP, LTD.,
as the Lessor
By: By: Atlantic Financial Managers,
Name: Inc., its General Partner
By: By:____________________________
Name: Name:
Title:
Witnessed: [DOLLAR TREE DISTRIBUTION, INC.],
as Related Lessee
By: ____________________________ By:____________________________
Name: Name:
Title:
By: ____________________________
Name:
S-1
<PAGE>
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 Atlantic Financial
Group, Ltd., on behalf of such partnership.
[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 [Dollar Tree
Distribution, Inc., a Virginia] corporation, on behalf of the corporation.
[Notarial Seal] ______________________________
Notary Public
My commission expires: ______________
N-1
<PAGE>
Receipt of this original counterpart of the foregoing Lease Supplement is hereby
acknowledged as of the date hereof.
CRESTAR BANK,
as the Agent
By: __________________________
Name:
Title:
S-2
APPENDIX A
to
Master Agreement, Lease,
Loan Agreement and Construction Agency Agreement
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Operative Documents and reference to any promissory
note includes any promissory note which is an extension or renewal
thereof or a substitute or replacement therefor;
(v) reference to any Applicable Law or Requirement of Law
means such Applicable Law or Requirement of Law as amended, modified,
codified, replaced or reenacted, in whole or in part, and in effect
from time to time, including rules and regulations promulgated
thereunder and reference to any section or other provision of any
Applicable Law or Requirement of Law means that provision of such
Applicable Law from time to time in effect and constituting the
substantive amendment, modification, codification, replacement or
reenactment of such section or other provision;
(vi) reference in any Operative Document to any Article,
Section, Appendix, Schedule or Exhibit means such Article or Section
thereof or Appendix, Schedule or Exhibit thereto;
(vii) "hereunder", "hereof", "hereto" and words of similar
import shall be deemed references to an Operative Document as a whole
and not to any particular Article, Section, paragraph or other
provision of such Operative Document;
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<PAGE>
(viii) "including" (and with correlative meaning "include")
means including without limiting the generality of any description
preceding such term;
(ix) "or" is not exclusive; and
(x) relative to the determination of any period of time,
"from" means "from and including" and "to" means "to but excluding".
B. Accounting Terms. In each Operative Document, unless expressly
otherwise provided, all terms of an accounting character used in the Operative
Documents shall be interpreted, all accounting determinations under the
Operative Documents shall be made, and all financial statements required to be
delivered under the Master Agreement shall be prepared, in accordance with
Generally Accepted Accounting Principles.
C. Conflict in Operative Documents. If there is any conflict between
any Operative Documents, each such Operative Document shall be interpreted and
construed, if possible, so as to avoid or minimize such conflict but, to the
extent (and only to the extent) of such conflict, the Master Agreement shall
prevail and control.
D. Legal Representation of the Parties. The Operative Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring any Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears, terms
defined herein have the respective indicated meanings when used in each
Operative Document.
"A Loan" means the A Percentage of Fundings made pursuant to the Loan
Agreement and the Master Agreement.
"A Note" is defined in Section 2.2 of the Loan Agreement.
"A Percentage" means 85%.
"Address" means with respect to any Person, its address set forth in
Schedule 8.2 to the Master Agreement or such other address as it shall have
identified to the parties to the Master Agreement in writing in the manner
provided for the giving of notices thereunder.
"Adjusted LIBO Rate" means, with respect to each Rent Period for a
LIBOR Advance, the rate obtained by dividing (A) LIBOR for such Rent Period by
(B) a percentage equal to 1 minus the then stated maximum rate (stated as a
decimal) of all reserves requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) applicable to any
member bank of the Federal Reserve System in respect of
2
<PAGE>
Eurocurrency liabilities as defined in Regulation D (or against any successor
category of liabilities as defined in Regulation D).
"Advance" means a LIBOR Advance or a Base Rate Advance.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by, or under common control with, such Person, whether
through the ownership of voting securities, by contract or otherwise. For
purposes of this definition, "control" (including with correlative meanings, the
terms "controlling", "controlled by", and "under common control with") as
applied to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person.
"After-Tax Basis" means (a) with respect to any payment to be received
by an Indemnitee (which, for purposes of this definition, shall include any Tax
Indemnitee), the amount of such payment supplemented by a further payment or
payments so that, after deducting from such payments the amount of all Taxes
(net of any current credits, deductions or other Tax benefits arising from the
payment by the Indemnitee of any amount, including Taxes, for which the payment
to be received is made) imposed currently on the Indemnitee by any Governmental
Authority or taxing authority with respect to such payments, the balance of such
payments shall be equal to the original payment to be received and (b) with
respect to any payment to be made by any Indemnitee, the amount of such payment
supplemented by a further payment or payments so that, after increasing such
payment by the amount of any current credits or other Tax benefits realized by
the Indemnitee under the laws of any Governmental Authority or taxing authority
resulting from the making of such payments, the sum of such payments (net of
such credits or benefits) shall be equal to the original payment to be made;
provided, however, for the purposes of this definition, and for purposes of any
payment to be made to either a Lessee or an Indemnitee on an after-tax basis, it
shall be assumed that (i) federal, state and local taxes are payable at the
highest combined marginal federal and state statutory income tax rate (taking
into account the deductibility of state income taxes for federal income tax
purposes) applicable to corporations from time to time and (ii) such Indemnitee
or such Lessee has sufficient income to utilize any deductions, credits (other
than foreign tax credits, the use of which shall be determined on an actual
basis) and other Tax benefits arising from any payments described in clause (b)
of this definition.
"Agent" means Crestar Bank, a Virginia state bank, in its capacity as
agent under the Master Agreement and the Loan Agreement.
"Alterations" means, with respect to any Leased Property, fixtures,
alterations, improvements, modifications and additions to such Leased Property.
"Applicable Law" means all applicable laws (including Environmental
Laws), rules, regulations (including proposed, temporary and final income tax
regulations), statutes, treaties, codes, ordinances, permits, certificates,
orders and licenses of and interpretations by, any Governmental Authority, and
applicable judgments, decrees, injunctions, writs, orders or like
3
<PAGE>
action of any court, arbitrator or other administrative, judicial or
quasi-judicial tribunal or agency of competent jurisdiction (including those
pertaining to health, safety or the environment (including, without limitation,
wetlands) and those pertaining to the construction, use or occupancy of any
Leased Property).
"Applicable Margin" means initially, 0 for Base Rate Advances and 50
basis points LIBOR Advances:
The Applicable Margin shall be adjusted, based upon the following
performance covenants:
Applicable
Funded Applicable Margin- Margin-Base
Tier Debt/EBITDA LIBOR Advances Rate Advances
I Less than or 50 basis points 0 basis points
equal to 0.75:1
II Less than 1.25:1 60 basis points 0 basis points
but greater than or
equal to 0.75:1
III Greater than or 105 basis points 0 basis points
equal to 1.25:1
For purposes of determining the Applicable Margin, the foregoing
performance measures shall be tested quarterly on a rolling four-quarter basis
beginning with the quarter ending December 31, 1999. The Applicable Margin shall
be adjusted based upon, and as of the fifth (5th) Business Day after the due
date of, the financial statements required to be delivered to the Agent under
Section 5.2(b) of the Master Agreement. The Applicable Margin shall be the
Applicable Margin set forth in the Tier in which the performance measures are
met.
"Appraisal" is defined in Section 3.1 of the Master Agreement.
"Appraiser" means an MAI appraiser reasonably satisfactory to the
Agent.
4
<PAGE>
"Architect" means with respect to any Leased Property the architect
engaged in connection with the construction of the related Building, if any, who
may be an employee of the General Contractor for such Leased Property.
"Architect's Agreement" means, with respect to any Leased Property, the
architectural services agreement, if any, between the Construction Agent (or a
Lessee) and the related Architect.
"Assignment and Assumption" means an assignment and assumption
agreement, substantially in the form of Exhibit F to the Master Agreement.
"Assignment of Lease and Rents" means, with respect to any Leased
Property, the Assignment of Lease and Rents, dated as of the related Closing
Date, from the Lessor to the Agent, substantially in the form of Exhibit B to
the Master Agreement.
"Authority" means a development or similar authority of any state,
county or municipality that is an issuer of Bonds.
"Award" means any award or payment received by or payable to the Lessor
or a Lessee on account of any Condemnation or Event of Taking (less the actual
costs, fees and expenses, including reasonable attorneys' fees, incurred in the
collection thereof, for which the Person incurring the same shall be reimbursed
from such award or payment).
"B Loan" means the B Percentage of Fundings made pursuant to the Loan
Agreement and the Master Agreement.
"B Note" is defined in Section 2.2 of the Loan Agreement.
"B Percentage" means 11.5%.
"Balance Sheet Date" means December 31, 1998.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended.
"Base Rate" means (with any change in the Base Rate to be effective as
of the date of change of either of the following rates) the higher of (i) the
rate which the Agent publicly announces from time to time as its prime lending
rate, as in effect from time to time, and (ii) the Federal Funds Rate, as in
effect from time to time, plus one-half of one percent (0.50%) per annum. The
Agent's prime lending rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to customers; the Agent may
make commercial loans or other loans at rates of interest at, above or below the
Agent's prime lend ing rate. The Base Rate is determined daily.
5
<PAGE>
"Base Rate Advance" means that portion of the Funded Amount bearing
interest at the Base Rate.
"Base Term" means, with respect to any Leased Property, (a) the period
commencing on the related Closing Date and ending on January 13, 2005 or (b)
such shorter period as may result from earlier termination of the Lease as
provided therein.
"Basic Rent" means the rent payable pursuant to Section 3.1 of the
Lease, determined in accordance with the following: each installment of Basic
Rent payable on any Payment Date shall be in an amount equal to the sum of (A)
the aggregate amount of Lender Basic Rent payable on such Payment Date, plus (B)
the aggregate amount of Lessor Basic Rent payable on such Payment Date, in each
case for the Leased Property or Properties that are then subject to the Lease.
"Board" means the Board of Governors of the Federal Reserve System and
any successor thereto or to the functions thereof.
"Board of Directors", with respect to a corporation, means either the
Board of Directors or any duly authorized committee of that Board which pursuant
to the by-laws of such corporation has the same authority as that Board as to
the matter at issue.
"Bonds" means industrial revenue or development bonds issued by a
state, county or municipal authority in connection with any Leased Property.
"Building" means, with respect to any Leased Property, the buildings,
structures and improvements located or to be located on the related Land, along
with all fixtures used or useful in connection with the operation of such Leased
Property, including, without limitation, all furnaces, boilers, compressors,
elevators, fittings, pipings, connectives, conduits, ducts, partitions,
equipment and apparatus of every kind and description now or hereafter affixed
or attached to the Building, equipment, if any, financed by the Lessor and/or
the Lenders and all Alterations (including all restorations, repairs,
replacements and rebuilding of such buildings, improvements and structures)
thereto (but in each case excluding trade fixtures and equipment financed other
than by the Lessor or the Lenders).
"Business Day" means any day other than a Saturday, Sunday or other day
on which banks are required or authorized to be closed for business in Atlanta,
Georgia and, if the applicable Business Day relates to a LIBOR Advance, on which
trading is not carried on by and between banks in the London interbank market.
"Capital Expenditures" means all Capitalized Leases and all
expenditures made by any Obligor which are capitalized or are required to be
capitalized on the consolidated cash flow statement of the Obligors in
accordance with Generally Accepted Accounting Principles.
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<PAGE>
"Capitalized Leases" means leases under which any Obligor is the lessee
or obligor, the discounted future rental payment obligations under which are
capitalized or are required to be capitalized on the balance sheet of the lessee
or obligor in accordance with Generally Accepted Accounting Principles.
"Casualty" means an event of damage or casualty relating to all or part
of any Leased Property that does not constitute an Event of Loss.
"Claims" means liabilities, obligations, damages, losses, demands,
penalties, fines, claims, actions, suits, judgments, proceedings, settlements,
utility charges, costs, expenses and disbursements (including, without
limitation, reasonable legal fees and expenses) of any kind and nature
whatsoever.
"Closing Date" means with respect to each parcel of Land, the date on
which (i) such Land is acquired by the Lessor pursuant to a Purchase Agreement
or such Land is leased to the Lessor pursuant to a Ground Lease and (ii) the
initial Funding occurs with respect to such Land under the Master Agreement.
"Code" or "Tax Code" means the Internal Revenue Code of 1986, as
amended.
"Commitment" means as to each Funding Party, its obligation to make
Fundings as investments in each Leased Property, or to make Loans to the Lessor,
in an aggregate amount not to exceed at any one time outstanding the amount set
forth for such Funding Party on Schedule 2.2 to the Master Agreement (as it may
be adjusted from time to time pursuant to Section 6 of the Master Agreement).
"Commitment Fee" is defined in Section 2.2(h) of the Master Agreement.
"Commitment Fee Percentage" means 0.125%.
"Commitment Percentage" means as to any Funding Party, at a particular
time, the percentage of the aggregate Commitments in effect at such time
represented by such Funding Party's Commitment, as such percentage is shown for
such Funding Party on Schedule 2.2 to the Master Agreement (as it may be
adjusted from time to time pursuant to Section 6 of the Master Agreement).
"Completion Date" with respect to any Leased Property means the
Business Day on which the conditions specified in Section 3.5 of the Master
Agreement have been satisfied or waived with respect to such Leased Property.
"Condemnation" means any condemnation, requisition, confiscation,
seizure or other taking or sale of the use, occupancy or title to any Leased
Property or any part thereof in, by or on account of any actual eminent domain
proceeding or other action by any Governmental Authority or other Person under
the power of eminent domain or any transfer in lieu of or in
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<PAGE>
anticipation thereof, which in any case does not constitute an Event of Taking.
A Condemnation shall be deemed to have "occurred" on the earliest of the dates
that use is prevented or occupancy or title is taken.
"Consolidated or consolidated" means, with reference to any term
defined herein, shall mean that term as applied to the accounts of DTS and its
Subsidiaries, consolidated in accordance with Generally Accepted Accounting
Principles.
"Consolidated Current Assets" means, at any time, all assets of DTS and
its Subsidiaries which would, in accordance with Generally Accepted Accounting
Principles, be classified as current assets, but excluding (i) Accounts with
respect to products, goods, and/or services which were delivered or performed by
Obligors more than ninety (90) days prior to such date, and (ii) the assets
described in subparagraphs (a) through (f) of the definition of Consolidated
Tangible Net Worth.
"Consolidated Current Liabilities" means at any time, all liabilities
of DTS and its Subsidiaries (including, without limitation, the Revolving Credit
Loans)which would, in accordance with Generally Accepted Accounting Principles,
be classified as current liabilities.
"Consolidated EBITDA" means with respect to any fiscal period, the
result(determined with respect to the same period and without duplication) of
the following: (a) Consolidated Net Income (or Deficit); plus (b) all
depreciation, amortization and other non-cash deductions included as an expense
of DTS and its Subsidiaries in the determination of Consolidated Net Income (or
Deficit); minus (c) extraordinary gains; plus (d) all taxes included as an
expense of DTS and its Subsidiaries in the determination of Consolidated Net
Income (or Deficit); plus (e) interest included as an expense of DTS and its
Subsidiaries in the determination of Consolidated Net Income (or Deficit).
"Consolidated Net Income (Or Deficit)" means with respect to any fiscal
period, the consolidated net income (or deficit) of DTS and its Subsidiaries,
after deduction of all expenses, taxes, and other proper charges, determined in
accordance with Generally Accepted Accounting Principles.
"Consolidated Operating Cash Flow" means with respect to any fiscal
period, the result (determined with respect to the same period and without
duplication) of (a) Consolidated EBITDA; minus (b) Capital Expenditures made or
incurred during such period plus (c) Rents payable during such period.
"Consolidated Tangible Net Worth" means the difference between
Consolidated Total Assets and Consolidated Total Liabilities, and less the sum
of:
(a) the total book value of all assets of DTS and its Subsidiaries
properly classified as intangible assets under Generally
Accepted Accounting principles, including
8
<PAGE>
such items as goodwill, the purchase price of acquired assets
in excess of the fair market value thereof, unamortized debt
discount and expense, trademarks, trade names, service marks,
brand names, copyrights, patents and licenses, and rights with
respect to the foregoing; plus
(b) all amounts representing any write-up in the book value of any
assets of DTS or its Subsidiaries resulting from a revaluation
thereof subsequent to the Balance Sheet Date; plus
(c) to the extent not already deducted, all reserves; plus
(d) the value of any minority interests in Subsidiaries; plus
(e) the aggregate amount of all loans made by DTS or any
Subsidiary to any officer, employee, or shareholder of DTS or
any Subsidiary; plus
(f) assets located, and notes and receivables due from obligors
domiciled, outside of the United States of America (excluding
inventory in transit).
"Consolidated Total Assets" means at any date, all assets of DTS and
its Subsidiaries that, in accordance with Generally Accepted Accounting
Principles ,should be classified as assets on a Consolidated balance sheet of
DTS and its Subsidiaries.
"Consolidated Total Liabilities" means at any date, all liabilities of
DTS and its Subsidiaries that, in accordance with Generally Accepted Accounting
Principles, should be classified as liabilities on the Consolidated balance
sheet of DTS and its Subsidiaries.
"Construction" means, with respect to any Leased Property, the
construction of the related Building pursuant to the related Plans and
Specifications.
"Construction Agency Agreement" means the Construction Agency
Agreement, dated as of January 13, 2000, between DTD and the Lessor.
"Construction Agency Event of Default" is defined in Section 5.1 of the
Construction Agency Agreement.
"Construction Agent" means DTD in its capacity as construction agent
pursuant to the Construction Agency Agreement.
"Construction Budget" is defined in Section 2.4 of the Construction
Agency Agreement.
"Construction Conditions" means the conditions set forth in Section 3.5
of the Master Agreement.
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"Construction Contract" means, with respect to any Leased Property,
that certain construction contract, if any, between a Lessee or the Construction
Agent and a General Contractor for the Construction of the related Building,
provided that such contract shall be assigned to the Lessor, and such assignment
shall be consented to by such General Contractor, pursuant to an assignment of
such construction contract substantially in the form of the Security Agreement
and Assignment set forth as Exhibit D to the Master Agreement.
"Construction Failure Payment" with respect to any Leased Property
means an amount equal to the sum of (i) 100% of the acquisition cost of the
related Land, plus (ii) 89% of the Construction costs (including development and
transaction costs, but excluding any upfront structuring fees) related to such
Leased Property that have been incurred through the date of payment, plus (iii)
any amounts owed with respect to such Leased Property pursuant to Section 3.3 of
the Construction Agency Agreement or Section 7.2 or 7.5 of the Master Agreement,
plus (iv) the cost of tenant improvements that were not part of the Construction
Budget for such Leased Property.
"Construction Force Majeure Event" means, with respect to any Leased
Property:
(a) an act of God arising after the related Closing Date, or
(b) any change in any state or local law, regulation or other
legal requirement arising after such Closing Date and relating
to the use of the Land or the construction of a building on
the Land, or
(c) strikes, lockouts, labor troubles, unavailability of
materials, riots, insurrections or other causes beyond a
Lessee's control
which prevents the Construction Agent from completing the Construction prior to
the Scheduled Construction Termination Date and which could not have been
avoided or which cannot be remedied by the Construction Agent through the
exercise of all commercially reasonable efforts or the expenditure of funds and,
in the case of (b) above, the existence or potentiality of which was not known
to and could not have been discovered prior to such Closing Date through the
exercise of reasonable due diligence by the Construction Agent.
"Construction Land Interest" means each parcel of Land for which the
Completion Date has not yet occurred.
"Construction Term" means, with respect to any Leased Property, the
period commencing on the related Closing Date and ending on the related
Construction Term Expiration Date, or such shorter period as may result from
earlier termination of the Lease as provided therein.
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"Construction Term Expiration Date" means, with respect to any Leased
Property, the earliest of the following:
(a) the related Completion Date,
(b) the date on which the aggregate Funded Amounts equal the
Commitments, and
(c) the related Scheduled Construction Termination Date.
"Contractual Obligation", as applied to any Person, means any provision
of any Securities issued by that Person or any indenture, mortgage, deed of
trust, contract, undertaking, agreement, instrument or other document to which
that Person is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject (including, without limitation, any
restrictive covenant affecting any of the properties of such Person).
"Credit Agreement" means the Amended and Restated Revolving Credit
Agreement, dated as of September 27, 1996, by and among DTD, DTS, DTM, the
financial institutions party thereto as lenders and The First National Bank of
Boston, as agent.
"Crestar Bank" means Crestar Bank, a Virginia state bank.
"Debt Service Charges" means for any fiscal period, the sum of (i) the
expenses of DTS and its Subsidiaries for such period for interest payable with
respect to Indebtedness (including, without limitation, the obligations under
the Credit Agreement and imputed interest on Capitalized Leases) and all fees
paid on account of or with respect thereto, plus (ii) principal payments made or
required to be made on account of Indebtedness (including, without limitation,
Capitalized Leases, but excluding payments on Intercompany Loans and other
Intercompany Indebtedness) for such period, plus (iii) Distributions made during
such period, plus (iv) Rents paid during such period, in each case determined in
accordance with Generally Accepted Accounting Principles.
"Deed" means, with respect to any Land, a general warranty deed (or, if
the related Title Policy is acceptable to the related Lessee and the Agent, a
special, limited warranty or trustee's deed), dated the applicable Closing Date,
from the applicable Seller to the Lessor, conveying such Land.
"Default" means any of the events specified in Article XII of the
Lease, without giving effect to any requirement for the giving of notice, for
the lapse of time, or both, or for the happening of any other condition, event
or act.
"Distribution" means, with respect to any Person, the declaration or
payment of any dividend on or in respect of any shares of any class of capital
stock, other than (a) dividends payable solely in shares of common stock of such
Person and (b) the payment of cash in lieu
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of the distribution of fractional shares in the event of any stock dividend or
stock split; the purchase, redemption, or other retirement of any shares of any
class of capital stock of such Person, directly or indirectly by such Person
through a Subsidiary of such Person or otherwise, unless such capital stock
shall be redeemed or reacquired through the exchange of such stock with stock of
the same class, and except for the redemption, repurchase, or acquisition of
stock of any Subsidiary by DTS; the return of capital by such Person to its
shareholders as such; or any other distribution (whether of such or other
property) on or in respect of any shares of any class of capital stock of such
Person.
"Dollars" and the sign "$" means lawful money of the United States of
America.
"DTD" means Dollar Tree Distribution, Inc., a Virginia corporation.
"DTM" means Dollar Tree Management, Inc., a Virginia corporation.
"DTS" means Dollar Tree Stores, Inc., a Virginia corporation.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA maintained or contributed to by DTS or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environment" shall have the meaning set forth in 42 U.S.C. ss.9601(8)
as defined on the date of the Master Agreement, and "Environmental" shall mean
pertaining or relating to the Environment.
"Environmental Audit" means, with respect to each parcel of Land, a
Phase I Environmental Assessment, dated no more than 90 days prior to the
related Closing Date, by an environmental services firm satisfactory to the
Funding Parties and DTD.
"Environmental Laws" means and include the Resource Conservation and
Recovery Act of 1976, (RCRA) 42 U.S.C. ss.ss. 6901-6987, as amended by the
Hazardous and Solid Waste Amendments of 1984, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. ss.ss. 9601-9657, (CERCLA), the
Hazardous Materials Transportation Act of 1975, 49 U.S.C. ss.ss. 1801-1812, the
Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601-2671, the Clean Air Act, 42
U.S.C. ss.ss. 7401 et seq., the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. ss.ss. 136 et seq., and all similar federal, state and local
environmental laws, ordinances, rules, orders, statutes, decrees, judgments,
injunctions, codes and regulations, and any other federal, state or local laws,
ordinances, rules, codes and regulations, relating to the environment, human
health or natural resources or the regulation or control of or imposing
liability or standards of conduct concerning human health, the environment,
Hazardous Materials or the clean-up or other remediation of any Leased Property,
or any part thereof, as any of the foregoing may have been from time to time
amended, supplemented or supplanted.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time or any successor federal statute, and the regulations
promulgated and rulings issued thereunder.
"ERISA Affiliate" means any Person which is treated as a single
employer with DTS under Section 414 of the Code.
"ERISA Reportable Event" means a reportable event (other than a
reportable event described in Subsections 4043(b)(2)-(4) and 4043(b)(6)-(9),
which do not require a thirty (30) day notice to the PBGC) with respect to a
Guaranteed Pension Plan within the meaning of Section 4043 of ERISA and the
regulations promulgated thereunder as to which the requirement of notice has not
been waived.
"Event of Default" means any event or condition designated as an "Event
of Default" in Article XII of the Lease.
"Event of Loss" is defined in Section 10.1 of the Lease.
"Event of Taking" is defined in Section 10.2 of the Lease.
"Executive Officer" means with respect to any Person, the Chief
Executive Officer, President, Vice Presidents (if elected by the Board of
Directors of such Person), Chief Financial Officer, Treasurer, Secretary and any
Person holding comparable offices or duties (if elected by the Board of
Directors of such Person).
"Fair Market Rental Value" means, with respect to any Leased Property,
the fair market rent as determined by an independent appraiser chosen by the
related Lessee and reasonably acceptable to the Lessor and the Agent (unless an
Event of Default has occurred and is continuing, in which case the appraiser
shall be chosen by the Agent) that would be obtained in an arm's-length lease
between an informed and willing lessee and an informed and willing lessor, in
either case under no compulsion to lease, and neither of which is related to or
affiliated with the Lessor or any Lessee for the lease of such Leased Property
on the terms (other than the amount of Basic Rent) set forth, or referred to, in
the Lease. Such fair market rent shall be calculated as the value for the use of
such Leased Property to be leased in place at the Land, assuming, in the
determination of such fair market rental value, that such Leased Property is in
the condition and repair required to be maintained by the terms of the Lease
(unless such fair market rental value is being determined for the purposes of
Section 13.1 of the Lease and except as otherwise specifically provided in the
Lease, in which case this assumption shall not be made).
"Fair Market Sales Value" means, with respect to any Leased Property or
any portion thereof, the fair market sales value as determined by an independent
appraiser chosen by the related Lessee and reasonably acceptable to the Lessor
and the Agent (unless an Event of Default has occurred and is continuing, in
which case the appraiser shall be chosen by the
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Agent), that would be obtained in an arm's-length transaction between an
informed and willing buyer (other than a lessee currently in possession) and an
informed and willing seller, under no compulsion, respectively, to buy or sell
and neither of which is related to the Lessor or any Lessee, for the purchase of
such Leased Property. Such fair market sales value shall be calculated as the
value for such Leased Property, assuming, in the determination of such fair
market sales value, that such Leased Property is in the condition and repair
required to be maintained by the terms of the Lease (unless such fair market
sales value is being determined for purposes of Section 13.1 of the Lease and
except as otherwise specifically provided in the Lease or the Master Agreement,
in which case this assumption shall not be made).
"Federal Funds Rate" means, 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 member banks of 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 Federal funds brokers of
recognized standing selected by it.
"Final Rent Payment Date" with respect to any Leased Property is
defined in Section 13.1(e) of the Lease.
"Funded Amount" means, as to the Lessor, the Lessor's Invested Amounts,
and, as to each Lender, the outstanding principal amount of such Lender's Loans.
"Funded Debt" means at any time, an amount equal to the sum of the then
outstanding balances of (a) the Revolving Credit Loans, plus (b) Capitalized
Leases, plus (c)other Indebtedness for borrowed money or other extensions of
credit.
"Funding" means any funding by the Funding Parties pursuant to Section
2.2 of the Master Agreement.
"Funding Date" means each Closing Date and each other date on which a
Funding occurs under Section 2 of the Master Agreement.
"Funding Parties" means the Lessor and the Lenders, collectively.
"Funding Party Balance" means, with respect to any Leased Property, (i)
for the Lessor as of any date of determination, an amount equal to the sum of
the outstanding related Lessor's Invested Amount, all accrued and unpaid Yield
on such outstanding related Lessor's Invested Amount, all unpaid related fees
owing to the Lessor under the Operative Documents, and all other related amounts
owing to the Lessor by the Lessees under the Operative Documents, and (ii) for
any Lender as of any date of determination, an amount equal to the sum of the
outstanding related Loans of such Lender, all accrued and unpaid interest
thereon,
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all unpaid related fees owing to such Lender under the Operative Documents, and
all other related amounts owing to such Lender by the Lessees under the
Operative Documents.
"Funding Request" is defined in Section 2.2 of the Master Agreement.
"Funding Termination Date" means the earlier of (i) July 13, 2001 and
(ii) the termination of the Commitments pursuant to Section 5.2 of the Loan
Agreement.
"General Partner" means Atlantic Financial Managers, Inc., a Texas
corporation.
"General Permitted Liens" means Liens permitted by Section 5.11 of the
Master Agreement.
"Generally Accepted Accounting Principles" means principles that are
(i)consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of DTS adopting the
same principles; provided that in each case referred to in this definition of
"Generally Accepted Accounting Principles" a certified public accountant would,
insofar as the use of such accounting principles impertinent, be in a position
to deliver an unqualified opinion (other than qualification regarding changes in
Generally Accepted Accounting Principles) as to financial statements in which
such principles have been properly applied. In the event of a change in
Generally Accepted Accounting Principles, the Funding Parties and the Obligors
will thereafter revise any covenants set forth in Sections 5.22 through 5.28 of
the Master Agreement affected thereby in order to make such covenants as now
applied consistent with Generally Accepted Accounting Principles then in effect.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgments, decrees,
licenses, exemptions, publications, filings, notices to and declarations of or
with, or required by, any Governmental Authority, or required by any Applicable
Law and shall include, without limitation, all citings, environmental and
operating permits and licenses that are required for the use, occupancy, zoning
and operation of any Leased Property.
"Governmental Authority" means 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" means, with respect to any Land, the ground lease
between the related Ground Lessor and the Lessor pursuant to which a leasehold
estate is conveyed in the Land to the Lessor.
"Ground Lessor" means, as to any Land, the ground lessor of such Land.
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"Guaranteed Pension Plan" means any employee pension benefit plan
within the meaning of Section 3(2) of ERISA maintained or contributed to by DTS
or any ERISA Affiliate the benefits of which are guaranteed on termination in
full or in part by the PBGC pursuant to Title IV of ERISA, other than a
Multiemployer Plan.
"Guarantor" means Dollar Tree Stores, Inc., a Virginia corporation.
"Guaranty Agreement" means the Guaranty Agreement, dated as of January
13, 2000, issued by DTS and DTD.
"Hazardous Material" or "Hazardous Substance" means any substance,
waste or material which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous, including
petroleum, crude oil or any fraction thereof, petroleum derivatives, by products
and other hydrocarbons, or which is or becomes regulated under any Environmental
Law by any Governmental Authority, including any agency, department, commission,
board or instrumentality of the United States, any jurisdiction in which a
Leased Property is located or any political subdivision thereof and also
including, without limitation, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls ("PCBs") and radon gas.
"IDB Documentation" means the Bonds, each IDB Lease and all other
agreements, documents, contracts and instruments entered into in connection with
any Bonds or IDB Property.
"IDB Lease" means a lease between the Lessor and an Authority with
respect to a Leased Property.
"IDB Property" means each Leased Property that is the subject of Bonds.
"Indebtedness" means all obligations, contingent and otherwise, that in
accordance with Generally Accepted Accounting Principles should be classified
upon the consolidated balance sheet of DTS and its Subsidiaries as liabilities,
or to which reference should be made by footnotes thereto, including in any
event and whether or not so classified: (a) all obligations for borrowed money
or other extensions of credit whether or not secured or unsecured, absolute or
contingent, including, without limitation, unmatured reimbursement obligations
with respect to letters of credit or guarantees issued for the account of or on
behalf of DTS and its Subsidiaries, and all obligations representing the
deferred purchase price of property, other than accounts payable arising in the
ordinary course of business, (b) all obligations evidenced by bonds, notes,
debentures or other similar instruments; (c) all liabilities secured by any
mortgage, pledge, security interest, lien, charge, or other encumbrance existing
on property owned or acquired subject thereto, whether or not the liability
secured thereby shall have been assumed; (d) all guarantees, endorsements(other
than endorsements in the ordinary course of business of negotiable instruments
or documents for deposit or collection) and other contingent obligations whether
direct or indirect in respect of indebtedness of others or
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otherwise, including any obligations with respect to puts, swaps, and other
similar undertakings, any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase indebtedness, or to
assure the owner of indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the indebtedness held by such owner or otherwise, and the obligations
to reimburse the issuer in respect of any letters of credit; (e) that portion of
all obligations arising under Capital Leases that is required to be capitalized
on the consolidated balance sheet of DTS and its Subsidiaries; and (f) all
redeemable preferred stock of DTS or its Subsidiaries valued at the greater of
its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends.
"Indemnitee" means Crestar Bank, in its individual capacity and in its
capacity as Agent, and each Lender (but only, with respect to any Leased
Property, from and after the Completion Date for such Leased Property), and the
Lessor, and their respective Affiliates, successors, permitted assigns,
permitted transferees, employees, officers, directors and agents; provided,
however, that in no event shall any Lessee be an Indemnitee.
"Indemnitee Group" means the respective Affiliates, employees,
officers, directors and agents of the Agent (in its individual capacity), each
Lender or the Lessor, as applicable; provided, however, that in no event shall
any Lessee be a member of the Indemnitee Group.
"Initial Closing Date" means the Closing Date for the first Leased
Property acquired by the Lessor.
"Insufficiency" means, with respect to any Plan, the amount, if any, by
which the present value of the vested benefits under such Plan exceeds the fair
market value of the assets of such Plan allocable to such benefits.
"Intercompany Loans" means all amounts due or to become due from any
Obligor or any other Affiliates for loans, and/or other advances by any Obligor
of funds or property to another Obligor or other Affiliates.
"Investments" means all expenditures made and all liabilities and
commitments incurred (contingently or otherwise) for the purchase or acquisition
of capital stock, partnership interests, or equity interests or securities, or
Indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or in respect of any guaranties (or other commitments as described
under indebtedness), or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there
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shall not be deducted in respect of any Investment any amounts received as
earnings on such Investment, whether as dividends, interest or otherwise, except
that accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
"Joinder Agreement" means an agreement substantially in the form of
Exhibit E to the Master Agreement pursuant to which a Subsidiary of DTS shall
become a Lessee.
"Land" means the land described in the related Lease Supplement.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, treaties or decrees of any Governmental Authority, or of any
court or similar entity established by any thereof.
"Lease" means the Master Lease Agreement, dated as of January 13, 2000
together with each Lease Supplement thereto, among the Lessees and the Lessor.
"Lease Balance" means, with respect to all of the Leased Properties, as
of any date of determination, an amount equal to the aggregate sum of the
outstanding Funded Amounts of all Funding Parties, all accrued and unpaid
interest on the Loans, all accrued and unpaid Yield on the Lessor's Invested
Amounts, all unpaid fees owing to the Funding Parties under the Operative
Documents, including all other amounts owing to the Funding Parties by the
Lessees under the Operative Documents.
"Lease Supplement" means a supplement to the Lease substantially in the
form of Exhibit A thereto.
"Lease Term" means (a) the Base Term, as it may be renewed pursuant to
Section 14.9 of the Lease or (b) such shorter period as may result from earlier
termination of the Lease as provided therein.
"Lease Termination Date" means the last day of the Lease Term.
"Leased Property" means Land and the related Building(s). For purposes
of the Lease, "Leased Property" means the Land identified in a Lease Supplement
and the Buildings related thereto, unless the context provides otherwise.
"Leased Property" shall not include any inventory of any Lessee.
"Leased Property Balance" means, with respect to any Leased Property,
as of any date of determination, an amount equal to the aggregate sum of the
outstanding related Funded Amounts of all Funding Parties, all accrued and
unpaid interest on the related Loans, all accrued and unpaid Yield on the
related Lessor Invested Amounts, all related unpaid fees owing to the Funding
Parties under the Operative Documents, and all other amounts owing to
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the Funding Parties by any Lessee under the Operative Documents with respect to
such Leased Property.
"Lender Basic Rent" means, for any Rent Period under the Lease, the
aggregate amount of interest accrued on the Loans pursuant to Section 2.4 of the
Loan Agreement during such Rent Period.
"Lenders" means such financial institutions as are, or who may
hereafter become, parties to the Loan Agreement as lenders to the Lessor.
"Lending Office" for each Lender means the office such Lender
designates in writing from time to time to DTD and the Agent.
"Lessee" is defined in the preamble to the Master Agreement. The
"related" Lessee with respect to any Leased Property means the Lessee that is
party to the Lease Supplement for such Leased Property.
"Lessor" is defined in the preamble to the Master Agreement.
"Lessor Basic Rent" means, for any Rent Period under the Lease, the
aggregate amount of Yield accrued and unpaid on the Lessor's Invested Amounts
pursuant to Section 2.3(a) of the Master Agreement during such Rent Period.
"Lessor Liens" means Liens on or against any Leased Property, the
Lease, any other Operative Document or any payment of Rent (a) which result from
any act or omission of, or any Claim against, the Lessor unrelated to the
Transaction or from Lessor's failure to perform as required under the Operative
Documents or (b) which result from any Tax owed by the Lessor, except any Tax
for which a Lessee or DTS is obligated to indemnify (including, without
limitation, in the foregoing exception, any assessments with respect to any
Leased Property noted on the related Title Policy or assessed in connection with
any construction or development by a Lessee or the Construction Agent).
"Lessor Rate" is defined in the Lessor Side Letter.
"Lessor Side Letter" means the letter agreement, dated as of January
13, 2000, between DTS and the Lessor.
"Lessor's Invested Amount" means the amounts funded by the Lessor
pursuant to Section 2 of the Master Agreement that are not proceeds of Loans by
a Lender, as such amount may be increased during the related Construction Term
pursuant to Section 2.3(c) of the Master Agreement.
"LIBOR" means, for any Rent Period, with respect to LIBOR Advances the
offered rate for deposits in U.S. Dollars, for a period comparable to the Rent
Period and in an amount
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comparable to such Advances, appearing on the Telerate Screen Page 3750 as of
11:00 A.M. (London, England time) on the day that is two London Business Days
prior to the first day of the Rent Period. If two or more of such rates appear
on the Telerate Screen Page 3750, the rate for that Rent Period shall be the
arithmetic mean of such rates. If the foregoing rate is unavailable from the
Telerate Screen for any reason, then such rate shall be determined by the Agent
from the Reuters Screen LIBO Page or, if such rate is also unavailable on such
service, then on any other interest rate reporting service of recognized
standing designated in writing by the Agent to DTD and the Funding Parties; in
any such case rounded, if necessary, to the next higher 1/100 of 1.0%, if the
rate is not such a multiple.
"LIBOR Advance" means that portion of the Funded Amount bearing
interest at a rate based on the Adjusted LIBO Rate.
"Lien" means, with respect to any asset, any mortgage, deed to secure
debt, deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, or encumbrance or servitude of any kind in
respect of such asset to secure or assure payment of indebtedness, whether by
consensual agreement or by operation of statute or other law, or by any
agreement, contingent or otherwise, to provide any of the foregoing.
"Loan" shall have the meaning specified in Section 2.1 of the Loan
Agreement.
"Loan Agreement" means the Loan Agreement, dated as of January 13,
2000, among the Lessor, the Agent and the Lenders.
"Loan Documents" means the Loan Agreement, the Notes, the Assignments
of Lease and Rents, the Mortgages and all documents and instruments executed and
delivered in connection with each of the foregoing.
"Loan Event of Default" means any of the events specified in Section
5.1 of the Loan Agreement, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, event or act has
been satisfied.
"Loan Potential Event of Default" means any event, condition or failure
which, with notice or lapse of time or both, would become a Loan Event of
Default.
"Loss Proceeds" is defined in Section 10.6 of the Lease.
"Margin Regulations" means Regulations T, U and X of the Board of
Governors of the Federal Reserve System, as the same may be in effect from time
to time.
"Margin Stock" means "margin stock" as defined in Regulation T, U or X.
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"Master Agreement" means the Master Agreement, dated as of January 13,
2000, among DTS, the Lessees, the Lessor, the Agent and the Lenders.
"Material Adverse Effect" means with respect to any event or occurrence
of whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), (i) a materially
adverse effect on the ability of Guarantor or any Lessee to perform its
obligations under any Operative Document, (ii) a materially adverse effect on
the financial condition, operations, business, prospects or assets of DTS and
its subsidiaries, taken as a whole, (iii) a materially adverse effect on the
value or useful life of any Leased Property, or the legality, validity or
enforceability of any of the Operative Documents or (iv) a materially adverse
effect on the status or priority of the Agent's or any Funding Party's interest
in any Leased Property.
"Monthly Payment Date" means the last Business Day of each calendar
month.
"Moody's" means Moody's Investors Service, Inc.
"Mortgage" means, with respect to any Leased Property, that certain
mortgage, deed of trust or security deed, dated as of the related Closing Date,
by the Lessor to the Agent, in the form of Exhibit D-1 or D-2 attached to the
Master Agreement, with such modifications as are satisfactory to the Lessor and
the Agent in conformity with Applicable Law to assure customary remedies in
favor of the Agent in the jurisdiction where the Leased Property is located.
"Multiemployer Plan" means any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by DTS or any ERISA
Affiliate.
"Notes" means the A Note and the B Note issued by the Lessor under the
Loan Agreement, and any and all notes issued in replacement or exchange therefor
in accordance with the provisions thereof.
"Obligations" means all indebtedness (whether principal, interest, fees
or otherwise), obligations and liabilities of the Guarantor and each Lessee to
the Funding Parties (including without limitation all extensions, renewals,
modifications, rearrangements, restructures, replacements and refinancings
thereof, whether or not the same involve modifications to interest rates or
other payment terms of such indebtedness, obligations and liabilities), whether
arising under any of the Operative Documents or otherwise, and whether now
existing or hereafter created, absolute or contingent, direct or indirect, joint
or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, or
acquired by Funding Parties outright, conditionally or as collateral security
from another, including but not limited to the obligation of the Guarantor and
each Lessee to repay future advances by the Funding Parties, whether or not made
pursuant to commitment and whether or not presently contemplated by the
Guarantor or any Lessee and the Funding Parties under the Operative Documents.
21
<PAGE>
"Obligors" means the Guarantor and the Lessees, collectively.
"Officer's Certificate" of a Person means a certificate signed by the
Chairman of the Board or the President or any Executive Vice President or any
Senior Vice President or any other Vice President or the Treasurer or any
Assistant Treasurer or the Controller or any Assistant Controller or the
Secretary of such Person.
"Operative Documents" means the Master Agreement, the Purchase
Agreements, the Deeds, the Lease, the Security Agreement and Assignment, the
Notes, the Loan Agreement, the Guaranty Agreement, the Assignments of Lease and
Rents, the Mortgages, the Ground Leases, the Construction Agency Agreement, the
Joinder Agreements and the other documents delivered in connection with the
transactions contemplated by the Master Agreement.
"Overdue Rate" means the lesser of (a) the highest interest rate
permitted by Applicable Law and (b) an interest rate per annum (calculated on
the basis of a 365-day (or 366-day, if appropriate) year equal to 2.0% above the
Base Rate in effect from time to time or, in the case of Yield, 2% above the
Lessor Rate.
"Partial Purchase Option" is defined in Section 14.1(b) of the Lease.
"Partnership Agreement" means the Agreement of Limited Partnership of
AFG, dated as of February 28, 1996, among the General Partner and the persons
listed on Schedule A thereto as limited partners.
"Payment Date" means the last day of each Rent Period (and if such Rent
Period is longer than three months, the day that is 90 days after the first day
of such Rent Period) or, if such day is not a Business Day, the next Business
Day.
"Payment Date Notice" is defined in Section 2.3(d) of the Master
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor thereto.
"Permitted Intercompany Distributions" means distributions among DTS
and its subsidiaries.
"Permitted Investments" means: (a) direct obligations of the United
States of America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any agency
thereof, in either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any Lender or by any
bank or trust company organized under the laws of the United States of America
or any state thereof and having capital, surplus and undivided profits of at
least $500,000,000, maturing not more than 90 days from the date of acquisition
thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's
Corporation or Moody's Investors Services, Inc.,
22
<PAGE>
respectively, maturing not more than six months from the date of acquisition
thereof; (d) commercial paper of any Lender (or any Affiliate thereof located in
the United States of America) that is rated A-1 or better or P-1 by Standard and
Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing
not more than six months from the date of acquisition thereof; (e) repurchase
agreements entered into with any Lender or with any bank or trust company
satisfying the conditions of clause (b) hereof that is secured by any obligation
of the type described in clauses (a) through (d) of this definition; and (f)
money market funds acceptable to the Required Lenders.
"Permitted Liens" means the following with respect to any Leased
Property: (a) the respective rights and interest of the related Lessee, the
Lessor, the Agent and any Lender, as provided in the Operative Documents, (b)
Liens for Taxes either not yet due or being contested in good faith and by
appropriate proceedings, so long as enforcement thereof is stayed pending such
proceedings, (c) materialmen's, mechanics', workers', repairmen's, employees' or
other like Liens arising after the related Closing Date in the ordinary course
of business for amounts either not yet due or being contested in good faith and
by appropriate proceedings, so long as enforcement thereof is stayed pending
such proceedings, (d) Liens arising after such Closing Date out of judgments or
awards with respect to which at the time an appeal or proceeding for review is
being prosecuted in good faith, so long as the enforcement thereof has been
stayed pending such appeal or review, (e) easements, rights of way,
reservations, servitudes and rights of others against the Land which do not
materially and adversely affect the value or the utility of such Leased
Property, (f) other Liens incidental to the conduct of the related Lessee's
business which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not in the aggregate materially
detract from the value of such Leased Property or materially impair the use
thereof, (g) assignments and subleases expressly permitted by the Operative
Documents and (h) Liens in favor of municipalities agreed to by the related
Lessee that do not affect the value or utility of the related Leased Property.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
nonincorporated organization or government or any agency or political
subdivision thereof.
"Plans and Specifications" means with respect to any Building the final
plans and specifications for such Building prepared by the Architect, and, if
applicable, referred to by the Appraiser in the Appraisal, as such Plans and
Specifications may be hereafter amended, supplemented or otherwise modified from
time to time.
"Potential Event of Default" means any event, condition or failure
which, with notice or lapse of time or both, would become an Event of Default.
"Purchase Agreement" means with respect to any Land, the purchase
agreement with the Seller for the conveyance of such Land to the Lessor.
23
<PAGE>
"Purchase Option" is defined in Section 14.1(a) of the Lease.
"Quarterly Payment Date" means the last Business Day of each March,
June, September and December of each year.
"Real Estate" means all real property at any time owned or leased (as
lessee or sublessee) by DTS or any of its Subsidiaries.
"Recourse Deficiency Amount" means, as of any date of determination
thereof, the sum of (i) the aggregate principal amount of the A Loans then
outstanding, plus (ii) all accrued and unpaid interest on the A Loans.
"Release" means the release, deposit, disposal or leak of any Hazardous
Material into or upon or under any land or water or air, or otherwise into the
environment, including, without limitation, by means of burial, disposal,
discharge, emission, injection, spillage, leakage, seepage, leaching, dumping,
pumping, pouring, escaping, emptying, placement and the like.
"Release Date" means, with respect to any Leased Property, the earlier
of (i) the date that the Lease Balance has been paid in full, and (ii) the date
on which the Agent gives notice to the Lessor that the Lenders release any and
all interest they may have in such Leased Property, and all proceeds thereof,
and any rights to direct, consent or deny consent to any action by the Lessor
with respect to such Leased Property.
"Remarketing Option" is defined in Section 14.6 of the Lease.
"Rent" means Basic Rent and Supplemental Rent, collectively.
"Rents" means all consideration paid in the ordinary course of business
by DTS and its Subsidiaries to any Person for the use or occupation of property
under any operating lease to which DTS or any of its Subsidiaries is the lessee
or obligor, determined in accordance with Generally Accepted Accounting
Principles.
"Rent Period" means (i) in the case of Base Rate Advances, means the
period from, and including, a Quarterly Payment Date to, but excluding, the next
succeeding Quarterly Payment Date; and (ii) with respect to any LIBOR Advance:
(1) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such
LIBOR Advance and ending one, two, three or six months
thereafter, as selected by DTD in its Funding Notice or
Payment Date Notice, as the case may be, given with respect
thereto; and
(2) thereafter, each period commencing on the last day of the next
preceding Rent Period applicable to such LIBOR Advance and
ending one, two, three or six
24
<PAGE>
months thereafter, as selected by DTD by irrevocable notice to
the Agent in its related Payment Date Notice;
provided, however that:
(a) The initial Rent Period for any Funding shall
commence on the Funding Date of such Funding and each Rent
Period occurring thereafter in respect of such Funding shall
commence on the day on which the next preceding Rent Period
expires;
(b) If any Rent Period would otherwise expire on a
day which is not a Business Day, such Rent Period shall expire
on the next succeeding Business Day, provided that if any Rent
Period in respect of LIBOR Advances would otherwise expire on
a day that is not a Business Day but is a day of the month
after which no further Business Day occurs in such month, such
Rent Period shall expire on the next preceding Business Day;
(c) Any Rent Period in respect of LIBOR Advances
which begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Rent Period shall, subject to paragraph (d) below, expire on
the last Business Day of such calendar month;
(d) No Rent Period shall extend beyond the Lease
Termination Date;
(e) At any one time, there shall be no more than six
(6) Rent Periods;
"Report" is defined in Section 7.6 of the Master Agreement.
"Required Funding Parties" means, at any time, Funding Parties holding
an aggregate outstanding principal amount of Funded Amounts equal to at least
66-2/3% of the aggregate outstanding principal amount of all Funded Amounts.
"Required Lenders" means, at any time, Lenders holding an aggregate
outstanding principal amount of Loans equal to at least 66-2/3% of the aggregate
outstanding principal amount of all Loans.
"Requirement of Law" for any Person means the articles or certificate
of incorporation and bylaws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
25
<PAGE>
"Reuters Screen" means, when used in connection with any designated
page and LIBOR, the display page so designated on the Reuters Monitor Money
Rates Service (or such other page as may replace that page on that service for
the purpose of displaying rates comparable to LIBOR).
"Revolving Credit Loans" means loans made to DTD pursuant to the Credit
Agreement.
"Scheduled Construction Termination Date" means with respect to any
Building the earlier of (i) two years after the Closing Date for the related
Land and (ii) eighteen months after the commencement of the Construction of such
Building.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Agreement and Assignment" means, with respect to any Leased
Property, the Security Agreement and Assignment (Construction Contract,
Architect's Agreement, Permits, Licenses and Governmental Approvals, and Plans,
Specifications and Drawings) from the Construction Agent to the Lessor,
substantially in the form of Exhibit C to the Master Agreement.
"Solvent" means, with respect to any Person as of any date, that on
such date(i) the fair value of the property of such Person is greater than the
total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair salable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become matured, (iii)
such Person is able to realize upon its assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business, (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature, and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. In computing the amount of contingent
liabilities at anytime, it is intended that such liabilities will be computed at
the amount which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.
"Stock Option Plan" means any Stock Option Plans, Stock Incentive
Plans, Employee Stock Purchase Plans, and any other plans of a similar nature of
any of the Obligors in effect now or in the future.
26
<PAGE>
"Subsidiary" means any corporation, association, partnership, trust, or
other business entity of which the designated parent shall at any time own
directly or indirectly through a Subsidiary or Subsidiaries at least a majority
(by number of votes or controlling interests) of the outstanding Voting
Interests.
"Supplemental Rent" means any and all amounts, liabilities and
obligations other than Basic Rent which any Lessee assumes or agrees or is
otherwise obligated to pay under the Lease or any other Operative Document
(whether or not designated as Supplemental Rent) to the Lessor, the Agent, any
Lender or any other party, including, without limitation, amounts under Article
XVI of the Lease, and indemnities and damages for breach of any covenants,
representations, warranties or agreements, and all overdue or late payment
charges in respect of any Funded Amount.
"Tax Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
"Tax Indemnitee" means the Lessor, the Agent, any Lender and their
respective Affiliates, successors, permitted assigns, permitted transferees,
employees, officers, directors and agents thereof, provided, however, that in no
event shall any Lessee be a Tax Indemnitee.
"Taxes" means any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of whatever nature,
including without limitation, income, receipts, excise, property, sales,
transfer, license, payroll, withholding, social security and franchise taxes now
or hereafter imposed or levied by the United States, or any state, local or
foreign government or by any department, agency or other political subdivision
or taxing authority thereof or therein and all interest, penalties, additions to
tax and similar liabilities with respect thereto.
"Telerate" means, when used in connection with any designated page and
LIBOR, the display page so designated on the Dow Jones Telerate Service (or such
other page as may replace that page on that service for the purpose of
displaying rates comparable to LIBOR).
"Title Insurance Company" means the company that has or will issue the
title policies with respect to a Leased Property, which company shall be
reasonably acceptable to the Funding Parties.
"Title Policy" is defined in Section 3.1 of the Master Agreement.
"Transaction" means all the transactions and activities referred to in
or contemplated
by the Operative Documents.
"UCC" means the Uniform Commercial Code of Georgia, as in effect from
time to time.
27
<PAGE>
"Voting Interests" means stock or similar ownership interests, of any
class or classes (however designated), the holders of which are at the time
entitled, as such holders, (a) to vote for the election of a majority of the
directors (or persons performing similar functions) of the corporation,
association, partnership, trust or other business entity involved, or (b) to
control, manage, or conduct the business of the corporation, partnership,
association, trust or other business entity involved.
"Withholding Taxes" is defined in Section 7.5(f) of the Master
Agreement.
"Yield" is defined in Section 2.3 of the Master Agreement.
28
MASTER AGREEMENT
Dated as of January 13, 2000
among
DOLLAR TREE STORES, INC.,
as a Guarantor,
DOLLAR TREE DISTRIBUTION, INC. AND
CERTAIN OTHER SUBSIDIARIES OF
DOLLAR TREE STORES, INC.
THAT MAY HEREAFTER BECOME PARTY HERETO,
as Lessees
ATLANTIC FINANCIAL GROUP, LTD., as Lessor,
CERTAIN FINANCIAL INSTITUTIONS PARTIES HERETO,
as Lenders
and
CRESTAR BANK, as Agent
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS; INTERPRETATION..................................2
ARTICLE II. ACQUISITION, CONSTRUCTION AND LEASE;
FUNDINGS; NATURE OF TRANSACTION..............................2
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease..............2
(a) Land...................................................2
(b) Building...............................................3
SECTION 2.2 Fundings of Purchase Price, Development Costs and
Construction Costs...........................................3
(a) Initial Funding and Payment of Purchase Price for
Land and Development Costs on Closing Date.............3
(b) Subsequent Fundings and Payments of Construction
Costs during Construction Term.........................4
(c) Aggregate Limits on Funded Amounts.....................4
(d) Notice, Time and Place of Fundings.....................4
(e) Lessee's Deemed Representation for Each Funding........5
(f) Not Joint Obligations..................................6
(g) Non-Pro Rata Fundings..................................6
(h) Commitment Fee.........................................6
SECTION 2.3 Funded Amounts and Interest and Yield Thereon................7
SECTION 2.4 Lessee Owner for Tax Purposes................................8
SECTION 2.5 Amounts Due Under Lease......................................8
ARTICLE III. CONDITIONS PRECEDENT; DOCUMENTS..............................9
SECTION 3.1 Conditions to the Obligations of the Funding Parties on
each Closing Date............................................9
(a) Documents.............................................10
(i) Deed and Purchase Agreement...................10
(ii) Lease Supplement..............................10
(iii) Mortgage or Deed of Trust and Assignment
of Lease and Rents............................10
(iv) Security Agreement and Assignment.............10
(v) Survey........................................11
(vi) Title and Title Insurance.....................11
(vii) Appraisal.....................................12
(viii) Environmental Audit and related Reliance
Letter........................................12
(ix) Evidence of Insurance.........................13
i
<PAGE>
(x) UCC Financing Statement; Recording Fees;
Transfer Taxes................................13
(xi) Opinions......................................13
(xii) Good Standing Certificates....................14
(xiii) IDB Property..................................14
(b) Litigation............................................14
(c) Legality..............................................14
(d) No Events.............................................14
(e) Representations.......................................15
(f) Cutoff Date...........................................15
(g) Transaction Expenses..................................15
(h) Approval..............................................15
SECTION 3.2 Additional Conditions for the Initial Closing Date..........15
(i) Loan Agreement; Guaranty Agreement............15
(ii) Master Agreement..............................16
(iii) Construction Agency Agreement.................16
(iv) Lease.........................................16
(v) Lessee's Resolutions and Incumbency
Certificate, etc..............................16
(vi) Opinions of Counsel...........................17
(vii) Good Standing Certificate.....................17
(viii) Lessor's Consents and Incumbency
Certificate, etc..............................17
SECTION 3.3 Conditions to the Obligations of Lessee.....................17
(a) General Conditions....................................17
(b) Legality..............................................18
(c) Purchase Agreement; Ground Lease......................18
SECTION 3.4 Conditions to the Obligations of the Funding Parties on
each Funding Date...........................................18
(a) Funding Request.......................................18
(b) Condition Fulfilled...................................18
(c) Representations.......................................18
(d) No Bonded Stop Notice or Filed Mechanics Lien.........19
(e) Lease Supplement......................................19
SECTION 3.5 Completion Date Conditions..................................19
(a) Title Policy Endorsements; Architect's Certificate....19
(b) Construction Completion...............................20
(c) Construction Agent Certification......................20
SECTION 3.6 Addition of Lessees.........................................22
ARTICLE IV. REPRESENTATIONS.............................................22
SECTION 4.1 Representations of DTS and Lessees..........................22
SECTION 4.2 Survival of Representations and Effect of Fundings..........32
(a) Survival of Representations and Warranties............32
(b) Each Funding a Representation.........................32
ii
<PAGE>
SECTION 4.3 Representations of the Lessor...............................33
(a) Securities Act........................................33
(b) Due Organization, etc.................................33
(c) Due Authorization; Enforceability, etc................33
(d) No Conflict...........................................33
(e) Litigation............................................34
(f) Lessor Liens..........................................34
(g) Employee Benefit Plans................................34
(h) General Partner.......................................34
(i) Financial Information.................................34
(j) No Offering...........................................35
(k) Investment Company....................................35
SECTION 4.4 Representations of each Lender..............................35
(a) Securities Act........................................35
(b) Employee Benefit Plans................................36
ARTICLE V. COVENANTS OF OBLIGORS AND THE LESSOR........................36
SECTION 5.1 Records and Accounts........................................36
SECTION 5.2 Financial Statements, Certificates and Information..........36
SECTION 5.3 Notices.....................................................38
(a) Defaults..............................................38
(b) Environmental Events..................................38
(c) Notice of Litigation and Judgments....................39
SECTION 5.4 Existence; Maintenance of Properties........................39
SECTION 5.5 Insurance...................................................39
SECTION 5.6 Taxes.......................................................40
SECTION 5.7 Inspection of Properties and Books..........................40
SECTION 5.8 Compliance with Laws, Contracts, Licenses, and
Permits.....................................................40
SECTION 5.9 ERISA Compliance............................................41
SECTION 5.10 Restrictions on Indebtedness................................41
SECTION 5.11 Restrictions on Liens, Etc..................................42
SECTION 5.12 Restrictions on Investments.................................44
SECTION 5.13 Merger, Consolidation.......................................44
SECTION 5.14 Sale and Leaseback..........................................44
SECTION 5.15 Compliance With Environmental Laws..........................45
SECTION 5.16 Distributions...............................................45
SECTION 5.17 Subsidiaries................................................45
SECTION 5.18 Fiscal Year.................................................45
SECTION 5.19 Loans and Advances..........................................45
SECTION 5.20 Transactions With Affiliates................................46
SECTION 5.21 Stock Ownership.............................................46
SECTION 5.22 Amendments to Organizational Documents......................46
SECTION 5.23 Financial Covenants of DTD..................................46
iii
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SECTION 5.24 Tangible Net Worth..........................................46
SECTION 5.25 Funded Debt to EBITDA Ratio.................................47
SECTION 5.26 Operating Cash Flow to Debt Service Ratio...................47
SECTION 5.27 Maximum Capital Expenditures................................47
SECTION 5.28 Inventory Reliance..........................................48
SECTION 5.29 Current Ratio...............................................49
SECTION 5.30 Solvency....................................................49
SECTION 5.31 Use of Proceeds.............................................49
SECTION 5.32 Further Assurances..........................................49
SECTION 5.33 Additional Required Appraisals..............................49
SECTION 5.34 Lessor's Covenants..........................................50
ARTICLE VI. TRANSFERS BY LESSOR AND LENDERS.............................52
SECTION 6.1 Lessor Transfers............................................52
SECTION 6.2 Lender Transfers............................................52
ARTICLE VII. INDEMNIFICATION.............................................54
SECTION 7.1 General Indemnification.....................................54
SECTION 7.2 Environmental Indemnity.....................................57
SECTION 7.3 Proceedings in Respect of Claims............................59
SECTION 7.4 General Tax Indemnity.......................................61
(a) Tax Indemnity.........................................61
(b) Exclusions from General Tax Indemnity.................62
(c) Contests..............................................65
(d) Reimbursement for Tax Savings.........................67
(e) Payments..............................................68
(f) Reports...............................................68
(g) Verification..........................................69
SECTION 7.5 Increased Costs, etc........................................69
(a) Illegality............................................69
(b) Requirements of Law...................................70
(c) Capital Adequacy......................................71
(d) Taxes.................................................71
(e) Tax Forms.............................................72
(f) Breakage Costs........................................73
(g) Action of Affected Funding Parties....................74
SECTION 7.6 End of Term Indemnity.......................................75
ARTICLE VIII. MISCELLANEOUS...............................................76
SECTION 8.1 Survival of Agreements......................................76
SECTION 8.2 Notices.....................................................76
SECTION 8.3 Counterparts................................................77
SECTION 8.4 Amendments..................................................77
SECTION 8.5 Headings, etc...............................................78
iv
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SECTION 8.6 Parties in Interest.........................................78
SECTION 8.7 GOVERNING LAW...............................................79
SECTION 8.8 Expenses....................................................79
SECTION 8.9 Severability................................................79
SECTION 8.10 Liabilities of the Funding Parties: Sharing of Payments.....79
SECTION 8.11 Submission to Jurisdiction; Waivers.........................81
SECTION 8.12 Liabilities of the Agent....................................81
v
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APPENDIX A Definitions and Interpretation
SCHEDULES
SCHEDULE 2.2 Commitments
SCHEDULE 4.1(g) Litigation
SCHEDULE 4.1(m) Contracts with Officers, Directors and Employees
SCHEDULE 4.1(p) Environmental Matters
SCHEDULE 4.1(q) Subsidiaries
SCHEDULE 4.1(r) Tradenames
SCHEDULE 5.5 Insurance
SCHEDULE 5.10 Indebtedness
SCHEDULE 5.11 Liens
SCHEDULE 5.12 Investments
SCHEDULE 5.19 Loans and Advances
SCHEDULE 8.2 Notice Addresses
EXHIBITS
EXHIBIT A Form of Funding Request
EXHIBIT B Form of Assignment of Lease and Rents
EXHIBIT C Form of Security Agreement and Assignment
EXHIBIT D-1 Form of Mortgage
EXHIBIT D-2 Form of Deed of Trust
EXHIBIT E Form of Joinder Agreement
EXHIBIT F Form of Assignment and Acceptance Agreement
EXHIBIT G Forms of Opinions of Counsel
EXHIBIT H Form of Certification of Construction Completion
EXHIBIT I Form of Payment Date Notice
EXHIBIT J Form of Compliance Certificate
vi
<PAGE>
MASTER AGREEMENT
THIS MASTER AGREEMENT, dated as of January 13, 2000 (as it may be
amended or modified from time to time in accordance with the provisions hereof,
this "Master Agreement"), is among DOLLAR TREE STORES, INC., a Virginia
corporation ("DTS" or "Guarantor"), DOLLAR TREE DISTRIBUTION, INC., a Virginia
corporation ("DTD"), and certain other Subsidiaries of DTS that may hereafter
become parties hereto as lessees pursuant to Section 3.6 (individually, together
with DTD in its capacity as a lessee, a "Lessee" and collectively the
"Lessees"), as Lessees, ATLANTIC FINANCIAL GROUP, LTD., a Texas limited
partnership (the "Lessor"), certain financial institutions parties hereto as
lenders (together with any other financial institution that becomes a party
hereto as a lender, collectively referred to as "Lenders" and individually as a
"Lender"), and CRESTAR BANK, a Virginia state bank, as agent for the Lenders (in
such capacity, the "Agent").
PRELIMINARY STATEMENT
In accordance with the terms and provisions of this Master Agreement,
the Lease, the Loan Agreement and the other Operative Documents, (i) the Lessor
contemplates acquiring Land and, in certain cases, the Buildings on such Land
identified by DTD from time to time, and leasing such Land and Buildings thereon
to a Lessee, (ii) DTD, as Construction Agent for the Lessor, wishes, in certain
instances, to construct Buildings on Land for the Lessor and, when completed,
the related Lessee wishes to lease such Buildings from the Lessor as part of the
Leased Properties under the Lease, (iii) DTD, as agent, wishes to obtain, and
the Lessor is willing to provide, funding for the acquisition of the Land and
Buildings, or, in certain instances, the construction of Buildings, and (iv) the
Lessor wishes to obtain, and Lenders are willing to provide, from time to time,
financing of a portion of the funding of the acquisition of the Land and
Buildings and, if applicable, the construction of the Buildings.
In consideration of the mutual agreements contained in this Master
Agreement and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix A hereto
for all purposes hereof; and the rules of interpretation set forth in Appendix A
hereto shall apply to this Master Agreement.
ARTICLE II.
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ACQUISITION, CONSTRUCTION AND LEASE; FUNDINGS;
NATURE OF TRANSACTION
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease.
(a) Land. Subject to the terms and conditions of this Master
Agreement, with respect to each parcel of Land identified by DTD, on the related
Closing Date (i) the Lessor agrees to acquire such interest in the related Land,
and any Building thereon, from the applicable Seller as is transferred, sold,
assigned and conveyed to the Lessor pursuant to the applicable Purchase
Agreement or to lease such interest in the related Land, and any Building
thereon, from the applicable Ground Lessor as is leased to the Lessor pursuant
to the applicable Ground Lease, (ii) the Lessor hereby agrees to lease, or
sublease, as the case may be, such Land and any Building thereon to the related
Lessee pursuant to the Lease, and (iii) the related Lessee hereby agrees to
lease, or sublease, as the case may be, such Land, and any Building thereon,
from the Lessor pursuant to the Lease. With respect to each IDB Property, (i)
the applicable Authority may acquire such interest in the related Land from the
applicable Seller as is transferred, sold, assigned and conveyed to the
Authority pursuant to the applicable Purchase Agreement, (ii) the applicable
Authority will lease such Land to the Lessor pursuant to the related IDB Lease,
and (iii) the related Lessee hereby agrees to sublease such Land from the Lessor
pursuant to the Lease (it being understood that any reference in the Operative
Documents to the lease by a Lessee of an IDB Property shall be deemed to refer
to the sublease thereof pursuant to the Lease).
(b) Building. With respect to each parcel of Land on which a
Building is to be constructed, subject to the terms and conditions of this
Master Agreement, from and after the Closing Date relating to such Land (i) the
Construction Agent agrees, pursuant to the terms of the Construction Agency
Agreement, to construct and install the Building on such Land for the Lessor
prior to the Scheduled Construction Termination Date, (ii) the Lenders and the
Lessor agree to fund the costs of such construction and installation (and
interest and yield thereon), (iii) the Lessor shall lease, or sublease, as the
case may be, such Building as part of such Leased Property to the related Lessee
pursuant to the Lease, and (iv) the related Lessee shall lease, or sublease, as
the case may be, such Building from the Lessor pursuant to the Lease.
SECTION 2.2 Fundings of Purchase Price, Development Costs and
Construction Costs.
(a) Initial Funding and Payment of Purchase Price for Land and
Development Costs on Closing Date. Subject to the terms and conditions of this
Master Agreement, on the Closing Date for any Land, and any Building thereon,
each Lender shall make available to the Lessor its initial Loan with respect to
such Land, and any Building thereon, in an amount equal to the product of such
Lender's Commitment Percentage times the purchase price for such Land, and any
Building thereon, and the development, transaction and closing costs incurred by
the Construction Agent, as agent, through such Closing Date, which funds the
Lessor shall use, together with the Lessor's own funds in an amount equal to the
product of the Lessor's Commitment Percentage times the purchase price for the
related Land and any Building thereon,
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and the development, transaction and closing costs incurred by the Construction
Agent, as agent, through such Closing Date, to purchase such Land, and any
Building thereon, from the applicable Seller pursuant to the applicable Purchase
Agreement or lease the Land and any Building thereon, from the applicable Ground
Lessor pursuant to the applicable Ground Lease, as the case may be, and to pay
to the Construction Agent the amount of such development, transaction and
closing costs, and the Lessor shall lease, or sublease, as the case may be, such
Land to the related Lessee pursuant to the Lease.
(b) Subsequent Fundings and Payments of Construction Costs
during Construction Term. Subject to the terms and conditions of this Master
Agreement, if a Building is to be constructed on Land, on each Funding Date
following the Closing Date for each such parcel of Land until the related
Construction Term Expiration Date, (i) each Lender shall make available to the
Lessor a Loan in an amount equal to the product of such Lender's Commitment
Percentage times the amount of Funding requested by the Construction Agent for
such Funding Date, which funds the Lessor hereby directs each Lender to pay over
to the Agent, for distribution to the Construction Agent, as set forth in
paragraph (d), and (ii) the Lessor shall pay over to the Agent, for distribution
to the Construction Agent, its own funds (which shall constitute a part of, and
an increase in, the Lessor's Invested Amount with respect to such Leased
Property) in an amount equal to the product of the Lessor's Commitment
Percentage times the amount of Funding requested by the Construction Agent for
such Funding Date.
(c) Aggregate Limits on Funded Amounts. The aggregate amount
that the Funding Parties shall be committed to provide as Funded Amounts under
this Master Agreement and the Loan Agreement shall not exceed (x) with respect
to each Leased Property the costs of purchase and construction of such Leased
Property and the related development, transaction, closing and financing costs,
or (y) $35,000,000 in the aggregate for all Leased Properties. The aggregate
amount that any Funding Party shall be committed to fund under this Master
Agreement and the Loan Agreement shall not exceed the lesser of (i) such Funding
Party's Commitment and (ii) such Funding Party's Commitment Percentage of the
aggregate Fundings requested under this Master Agreement.
(d) Notice, Time and Place of Fundings. With respect to each
Funding, a Lessee or the Construction Agent, as the case may be, shall give the
Lessor and the Agent an irrevocable prior telephone (followed within one
Business Day with written) or written notice not later than 11:00 a.m., Atlanta,
Georgia time, at least three Business Days prior to the proposed Closing Date or
other Funding Date, as the case may be, pursuant, in each case, to a Funding
Request in the form of Exhibit A (a "Funding Request"), specifying the Closing
Date or subsequent Funding Date, as the case may be, the amount of Funding
requested, whether such Funding shall be a LIBOR Advance or a Base Rate Advance
or a combination thereof and the Rent Period(s) therefor. All documents and
instruments required to be delivered on such Closing Date pursuant to this
Master Agreement shall be delivered at the offices of Mayer, Brown & Platt, 190
South LaSalle Street, Chicago, Illinois 60603, or at such other location as may
be determined by the Lessor, the Construction Agent and the Agent. Each Funding
shall occur on a Business Day and shall be in an amount equal to $500,000 or an
integral multiple of $1,000 in
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excess thereof. All remittances made by any Lender and the Lessor for any
Funding shall be made in immediately available funds by wire transfer to or, as
is directed by, the Construction Agent, with receipt by the Construction Agent
not later than 12:00 noon, Atlanta, Georgia time, on the applicable Funding
Date, upon satisfaction or waiver of the conditions precedent to such Funding
set forth in Section 3; such funds shall (1) in the case of the initial Funding
on a Closing Date, be used to pay the purchase price to the applicable Seller
for the related Land and any Building thereon and pay development, transaction
and closing costs related to such Land, and (2) in the case of each subsequent
Funding be paid to the Construction Agent, for the payment or reimbursement of
Construction costs incurred through such Funding Date and not previously paid or
reimbursed.
(e) Lessee's Deemed Representation for Each Funding. Each
Funding Request by a Lessee or the Construction Agent shall be deemed a
reaffirmation of each Lessee's indemnity obligations in favor of the Indemnitees
under the Operative Documents and a representation and warranty to the Lessor,
the Agent and the Lenders that on the proposed Closing Date or Funding Date, as
the case may be, (i) the amount of Funding requested represents amounts owing in
respect of the purchase price of the related Land, and any Building thereon, and
development, transaction and closing costs in respect of the Leased Property (in
the case of the initial Funding on a Closing Date) or amounts that are then due
to third parties in respect of the Construction, or amounts paid by the
Construction Agent to third parties or incurred by the Construction Agent as
overhead expenses in respect of the Construction for which the Construction
Agent has not previously been reimbursed by a Funding (in the case of any
Funding), (ii) no Event of Default or Potential Event of Default exists, and
(iii) the representations and warranties of the Guarantor, DTD and each other
Lessee set forth in Section 4.1 are true and correct in all material respects as
though made on and as of such Funding Date, except to the extent such
representations or warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
(f) Not Joint Obligations. Notwithstanding anything to the
contrary set forth herein or in the other Operative Documents, each Lender's and
the Lessor's commitments shall be several, and not joint. In no event shall any
Funding Party be obligated to fund an amount in excess of such Funding Party's
Commitment Percentage of any Funding, or to fund amounts in the aggregate in
excess of such Funding Party's Commitment.
(g) Non-Pro Rata Fundings. Notwithstanding anything to the
contrary set forth in this Master Agreement, but subject to Section 2.2(f)
above, at the Agent's option, Fundings may be made by drawing on the Lessor's
Commitment until such Commitment is fully funded before drawing on the Lenders'
Commitments. In such event, when the Lessor's Commitment is fully funded, the
Lenders will fund, on a pro rata basis as among themselves, 100% of the amount
of the Fundings thereafter, provided that, in no event will the Lessor's
Invested Amount be less than 3.5% of the aggregate Funded Amounts.
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(h) Commitment Fee. DTD shall pay to the Agent, for the
ratable benefit of each Funding Party based upon its Commitment Percentage of
the aggregate Commitments, a commitment fee (the "Commitment Fee") for the
period commencing on the date hereof to and including the Lease Termination Date
payable quarterly in arrears on each Quarterly Payment Date, and on the Lease
Termination Date in an amount equal to (i) the Commitment Fee Percentage, times
(ii) an amount equal to the aggregate Commitments, minus the aggregate Funded
Amounts on such day times (iii) 1/360 times (iv) the number of days from and
including the date hereof (in the case of the first Quarterly Payment Date) or
the immediately preceding Quarterly Payment Date (in the case of each other
Quarterly Payment Date) to, but excluding, such Quarterly Payment Date.
SECTION 2.3 Funded Amounts and Interest and Yield Thereon.
(a) The Lessor's Invested Amount for any Leased Property
outstanding from time to time shall accrue yield ("Yield") at the Lessor Rate,
computed using the actual number of days elapsed and a 360 day year. If all or a
portion of the principal amount of or yield on the Lessor's Invested Amounts
shall not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such overdue amount shall, without limiting the rights of the Lessor
under the Lease, to the maximum extent permitted by law, accrue yield at the
Overdue Rate, from the date of nonpayment until paid in full (both before and
after judgment).
(b) Each Lender's Funded Amount for any Leased Property
outstanding from time to time shall accrue interest as provided in the Loan
Agreement.
(c) During the Construction Term, in lieu of the payment of
accrued interest, on each Payment Date, each Lender's Funded Amount in respect
of a Construction Land Interest shall automatically be increased by the amount
of interest accrued and unpaid on the related Loans pursuant to the Loan
Agreement during the Rent Period ending immediately prior to such Payment Date
(except to the extent that at any time such increase would cause such Lender's
Funded Amount to exceed such Lender's Commitment, in which event the related
Lessee shall pay such excess amount to such Lender in immediately available
funds on such Payment Date). Similarly, in lieu of the payment of accrued Yield,
on each Payment Date, the Lessor's Invested Amount in respect of a Construction
Land Interest shall automatically be increased by the amount of Yield accrued on
the Lessor's Invested Amount in respect of such Leased Property during the Rent
Period ending immediately prior to such Payment Date (except to the extent that
at any time such increase would cause the Lessor's Invested Amount to exceed the
Lessor's Commitment, in which event the related Lessee shall pay such excess
amount to the Lessor in immediately available funds on such Payment Date). Such
increases in Funded Amounts shall occur without any disbursement of funds by the
Funding Parties.
(d) Three Business Days prior to the last day of each Rent
Period, DTD shall deliver (which delivery may be by facsimile) to the Lessor and
the Agent a notice substantially in the form of Exhibit I (each, a "Payment Date
Notice"), appropriately completed, specifying the allocation of the Funded
Amounts related to such Rent Period to LIBOR Advances and Base
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Rate Advances and the Rent Periods therefor, provided that no such allocation to
LIBOR Advances shall be in an amount less than $1,000,000. Each such Payment
Date Notice shall be irrevocable. If no such notice is given, the Funded Amounts
shall be allocated to a LIBOR Advance with a Rent Period of three (3) months.
SECTION 2.4 Lessee Owner for Tax Purposes. With respect to each Leased
Property, it is the intent of the Lessees and the Funding Parties that for
federal, state and local tax purposes and bankruptcy law purposes the Lease
shall be treated as the repayment and security provisions of a loan by the
Lessor to the Lessees, and that the related Lessee shall be treated as the legal
and beneficial owner entitled to any and all benefits of ownership of such
Leased Property and all payments of Basic Rent during the Lease Term shall be
treated as payments of interest and principal. Nevertheless, each of DTD and
each Lessee acknowledges and agrees that neither the Agent, nor any Funding
Party, nor any other Person has made any representations or warranties
concerning the tax, financial, accounting or legal characteristics or treatment
of the Operative Documents and that each of DTD and each Lessee has obtained and
relied solely upon the advice of its own tax, accounting and legal advisors
concerning the Operative Documents and the accounting, tax, financial and legal
consequences of the transactions contemplated therein.
SECTION 2.5 Amounts Due Under Lease. With respect to each Leased
Property, anything else herein or elsewhere to the contrary notwithstanding, it
is the intention of the Lessees and the Funding Parties that: (i) subject to
clauses (ii) and (iii) below, the amount and timing of Basic Rent due and
payable from time to time from the related Lessee under the Lease shall be equal
to the aggregate payments due and payable with respect to interest on the Loans
in respect of such Leased Property and Yield on the Lessor's Invested Amounts in
respect of such Leased Property on each Payment Date; (ii) if the related Lessee
elects the Purchase Option with respect to a Leased Property or becomes
obligated to purchase such Leased Property under the Lease, the Funded Amounts
in respect of such Leased Property, all interest and Yield thereon and all other
obligations of the related Lessee owing to the Funding Parties in respect of
such Leased Property shall be paid in full by such Lessee, (iii) if the Lessees
properly elect the Remarketing Option, the Lessees will only be required to pay
the Recourse Deficiency Amount and the other amounts required to be paid
pursuant to Section 14.6 of the Lease, which amounts shall be used to pay the
principal of the A Loans, and the Lessees shall only be required to pay to the
Lenders the principal amount of the B Loans and to the Lessor the Lessor's
Invested Amounts, to the extent of the proceeds of the sale of the Leased
Properties in accordance with Section 14.6 of the Lease; and (iv) upon an Event
of Default resulting in an acceleration of the Lessees' obligation to purchase
the Leased Properties under the Lease, the amounts then due and payable by the
Lessees under the Lease shall include all amounts necessary to pay in full the
Loans, and accrued interest thereon, the Lessor's Invested Amounts and accrued
Yield thereon and all other obligations of the Lessees owing to the Funding
Parties pursuant to the Operative Documents.
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ARTICLE III.
CONDITIONS PRECEDENT; DOCUMENTS
SECTION 3.1 Conditions to the Obligations of the Funding Parties on
each Closing Date. The obligations of the Lessor and each Lender to carry out
their respective obligations under Section 2 of this Master Agreement to be
performed on the Closing Date with respect to any Land and any Building thereon
shall be subject to the fulfillment to the satisfaction of, or waiver by, each
such party hereto (acting directly or through its counsel) on or prior to such
Closing Date of the following conditions precedent, provided that the
obligations of any Funding Party shall not be subject to any conditions
contained in this Section 3.1 which are required to be performed by such Funding
Party:
(a) Documents. The following documents shall have been
executed and delivered by the respective parties thereto:
(i) Deed and Purchase Agreement. The related original
Deed duly executed by the applicable Seller and in recordable
form, and copies of the related Purchase Agreement, assigned
to the Lessor, shall each have been delivered to the Agent by
DTD or the related Lessee, with copies thereof to each other
Funding Party or the related Ground Lease, duly assigned to
the Lessor, shall have been delivered to the Agent, with
copies thereof to each other Funding Party, as applicable (it
being understood, that each Purchase Agreement and each Ground
Lease shall be reasonably satisfactory in form and substance
to the Lessor and the Lenders).
(ii) Lease Supplement. The original of the related
Lease Supplement, duly executed by the related Lessee and the
Lessor and in recordable form, shall have been delivered to
the Agent by such Lessee.
(iii) Mortgage or Deed of Trust and Assignment of
Lease and Rents. Counterparts of the Mortgage or Deed of
Trust, as the case may be, (substantially in the form of
Exhibit D-1 or D-2, as the case may be, attached hereto), duly
executed by the Lessor and in recordable form, shall have been
delivered to the Agent (which Mortgage or Deed of Trust, as
the case may be, shall secure all of the debt to the Agent
unless such mortgage is subject to a tax based on the amount
of indebtedness secured thereby, in which case the amount
secured will be limited to debt in an amount equal to 125% of
the projected cost of acquisition and construction of such
Leased Property); and the Assignment of Lease and Rents
(substantially in the form of Exhibit B attached hereto) in
recordable form, duly executed by the Lessor, shall have been
delivered to the Agent by the Lessor.
(iv) Security Agreement and Assignment. If Buildings
are to be constructed on the Land, counterparts of the
Security Agreement and Assignment (substantially in the form
of Exhibit C attached hereto), duly executed by the
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Construction Agent, with an acknowledgment and consent thereto
satisfactory to the Lessor and the Agent duly executed by the
related General Contractor and the related Architect, as
applicable, and complete copies of the related Construction
Contract and the related Architect's Agreement certified by
the Construction Agent, shall have been delivered to the
Lessor and the Agent (it being understood and agreed that if
no related Construction Contract or Architect's Agreement
exists on such Closing Date, such delivery shall not be a
condition precedent to the Funding on such Closing Date, and
in lieu thereof the Construction Agent shall deliver complete
copies of such Security Agreement and Assignment and consents
concurrently with the Construction Agent's entering into such
contracts).
(v) Survey. The related Lessee shall have delivered,
or shall have caused to be delivered, to the Lessor and the
Agent, at such Lessee's expense, an accurate survey certified
to the Lessor and the Agent in a form reasonably satisfactory
to the Lessor and the Agent and showing no state of facts
unsatisfactory to the Lessor or the Agent and prepared within
ninety (90) days of such Closing Date (or such other time
period agreed to by the Lessor and the Agent) by a Person
reasonably satisfactory to the Lessor and the Agent. Such
survey shall (1) be acceptable to the Title Insurance Company
for the purpose of providing extended coverage to the Lessor
and a lender's comprehensive endorsement to the Agent, (2)
show no encroachments on such Land by structures owned by
others, and no encroachments from any part of such Leased
Property onto any land owned by others, and (3) disclose no
state of facts reasonably objectionable to the Lessor, the
Agent or the Title Insurance Company, and be reasonably
acceptable to each such Person.
(vi) Title and Title Insurance. On such Closing Date,
the Lessor shall receive from a title insurance company
acceptable to the Lessor and the Agent an ALTA Owner's Policy
of Title Insurance issued by such title insurance company and
the Agent shall receive from such title insurance company an
ALTA Mortgagee's Policy of Title Insurance issued by such
title insurance company, in each case, in the amount of the
projected cost of acquisition and construction of such Leased
Property, reasonably acceptable in form and substance to the
Lessor and the Agent, respectively (collectively, the "Title
Policy"). The Title Policy shall be dated as of such Closing
Date, and, to the extent permitted under Applicable Law, shall
include such affirmative endorsements as the Lessor or the
Agent shall reasonably request.
(vii) Appraisal. Each Funding Party shall have
received a report of the Appraiser (an "Appraisal"), paid for
by DTD or the related Lessee, which shall meet the
requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, shall be satisfactory to such
Funding Party and shall state in a manner satisfactory to such
Funding Party the estimated "as vacant" value of such Land and
existing Buildings or any Building to be constructed
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thereon. Such Appraisal must show that the "as vacant" value
of such Leased Property (if a Building is to be constructed on
the Land, determined as if the Building had already been
completed in accordance with the related Plans and
Specifications and by excluding from such value the amount of
assessments on such Leased Property) is at least 45% of the
total cost of such Leased Property.
(viii) Environmental Audit and related Reliance
Letter. The Lessor and the Agent shall have received an
Environmental Audit for such Leased Property, which shall be
conducted in accordance with ASTM standards and shall not
include a recommendation for further investigation and is
otherwise satisfactory to the Lessor and the Agent; and the
firm that prepared the Environmental Audit for such Leased
Property shall have delivered to the Lessor and the Agent a
letter stating that the Lessor, the Agent and the Lenders may
rely upon such firm's Environmental Audit of such Land, it
being understood that the Lessor's and the Agent's acceptance
of any such Environmental Audit shall not release or impair
any Lessee's obligations under the Operative Documents with
respect to any environmental liabilities relating to such
Leased Property.
(ix) Evidence of Insurance. The Lessor and the Agent
shall have received from the related Lessee certificates of
insurance evidencing compliance with the provisions of Article
VIII of the Lease (including the naming of the Lessor, the
Agent and the Lenders as additional insured or loss payee with
respect to such insurance, as their interests may appear), in
form and substance reasonably satisfactory to the Lessor and
the Agent.
(x) UCC Financing Statement; Recording Fees; Transfer
Taxes. Each Funding Party shall have received satisfactory
evidence of (i) the execution and delivery to Agent of a UCC-1
and, if required by applicable law, UCC-2 financing statement
to be filed with the Secretary of State of the applicable
State (or other appropriate filing office) and the county
where the related Land is located, respectively, and such
other Uniform Commercial Code financing statements as any
Funding Party deems necessary or desirable in order to perfect
such Funding Party's interests and (ii) the payment of all
recording and filing fees and taxes with respect to any
recordings or filings made of the related Deed, the Lease, the
related Lease Supplement, the related Mortgage and the related
Assignment of Lease and Rents.
(xi) Opinions. An opinion of local counsel for the
related Lessee qualified in the jurisdiction in which such
Leased Property is located, substantially in the form set
forth in Exhibit G-2 attached hereto, and containing such
other matters as the parties to whom they are addressed shall
reasonably request, shall have been delivered and addressed to
each of the Lessor, the Agent and the Lenders. To the extent
requested by the Agent, opinions supplemental to those
delivered under
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Section 3.2(vi) and reasonably satisfactory to the Agent shall
have been delivered and addressed to each of the Lessor, the
Agent and the Lenders.
(xii) Good Standing Certificates. The Agent shall
have received good standing certificates for the Lessor and
the related Lessee from the appropriate offices of the state
where the related Land is located.
(xiii) IDB Property. If such Leased Property is an
IDB Property or is otherwise subject to industrial development
or revenue bonds, the IDB Documentation shall have been
executed by the parties thereto, and shall be in form and
substance reasonably acceptable to the Agent, the Lessor and
the Lenders.
(b) Litigation. No action or proceeding shall have been
instituted or, to the knowledge of any Funding Party, threatened nor shall any
governmental action, suit, proceeding or investigation be instituted or
threatened before any Governmental Authority, nor shall any order, judgment or
decree have been issued or proposed to be issued by any Governmental Authority,
to set aside, restrain, enjoin or prevent the performance of this Master
Agreement or any transaction contemplated hereby or by any other Operative
Document or which is reasonably likely to materially adversely affect any Leased
Property or any transaction contemplated by the Operative Documents or which
would reasonably be expected to result in a Material Adverse Effect.
(c) Legality. In the opinion of such Funding Party or its
counsel, the transactions contemplated by the Operative Documents shall not
violate any Applicable Law, and no change shall have occurred or been proposed
in Applicable Law that would make it illegal for such Funding Party to
participate in any of the transactions contemplated by the Operative Documents.
(d) No Events. (i) No Event of Default, Potential Event of
Default, Event of Loss or Event of Taking relating to such Leased Property shall
have occurred and be continuing, (ii) no action shall be pending or threatened
by a Governmental Authority to initiate a Condemnation or an Event of Taking,
and (iii) there shall not have occurred any event that would reasonably be
expected to have a Material Adverse Effect since December 31, 1998.
(e) Representations. Each representation and warranty of the
parties hereto or to any other Operative Document contained herein or in any
other Operative Document shall be true and correct in all material respects as
though made on and as of such Closing Date, except to the extent such
representations or warranties relate solely to an earlier date, in which case
such representations and warranties shall have been true and correct in all
material respects on and as of such earlier date.
(f) Cutoff Date. No Closing Date shall occur after the Funding
Termination Date.
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(g) Transaction Expenses. The related Lessee shall have paid,
or made arrangements to pay, the transaction costs then accrued and invoiced
which the Lessees have agreed to pay pursuant to Section 8.8.
(h) Approval. The Agent shall not have rejected such Leased
Property for inclusion in the Lease by written notice to DTD.
SECTION 3.2 Additional Conditions for the Initial Closing Date. The
obligations of the Lessor and each Lender to carry out their respective
obligations under Section 2 of this Master Agreement to be performed on the
Initial Closing Date shall be subject to the satisfaction of, or waiver by, each
such party hereto (acting directly or through its counsel) on or prior to the
Initial Closing Date of the following conditions precedent in addition to those
set forth in Section 3.1, provided that the obligations of any Funding Party
shall not be subject to any conditions contained in this Section 3.2 which are
required to be performed by such Funding Party:
(i) Loan Agreement; Guaranty Agreement. Counterparts
of the Loan Agreement, duly executed by the Lessor, the Agent
and each Lender shall have been delivered to each of the
Lessor and the Agent. An A Note and a B Note, duly executed by
the Lessor, shall have been delivered to the Agent. The
Guaranty Agreement, duly executed by DTS and DTD, shall have
been delivered to the Agent.
(ii) Master Agreement. Counterparts of this Master
Agreement, duly executed by the parties hereto, shall have
been delivered to each of the parties hereto.
(iii) Construction Agency Agreement. Counterparts of
the Construction Agency Agreement, duly executed by the
parties thereto shall have been delivered to each of the
parties hereto.
(iv) Lease. Counterparts of the Lease, duly executed
by the Lessees party to this Master Agreement on the Initial
Closing Date, and the Lessor, shall have been delivered to
each Funding Party and the original, chattel paper copy of the
Lease shall have been delivered to the Agent.
(v) Lessee's Resolutions and Incumbency Certificate,
etc. Each of the Agent and the Lessor shall have received (x)
a certificate of the Secretary or an Assistant Secretary of
each of Guarantor and each Lessee party hereto on the Initial
Closing Date, attaching and certifying as to (i) the Board of
Directors' (or appropriate committee's) resolution duly
authorizing the execution, delivery and performance by it of
each Operative Document to which it is or will be a party,
(ii) the incumbency and signatures of persons authorized to
execute and deliver such documents on its behalf, (iii) its
articles or certificate of incorporation, certified as of a
recent date by the Secretary of State of the state of its
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incorporation and (iv) its by-laws, and (y) good standing
certificates for each of Guarantor and each Lessee party
hereto on the Initial Closing Date from the appropriate
offices of the States of Guarantor's or such Lessee's
incorporation and principal place of business.
(vi) Opinions of Counsel. The opinion of Hofheimer
Nusbaum, P.C. dated the Initial Closing Date, substantially in
the form set forth in Exhibit G-1, attached hereto, and
containing such other matters as the parties to whom it is
addressed shall reasonably request, shall have been delivered
and addressed to each of the Lessor, the Agent and the
Lenders. The opinion of Brown McCarroll & Oaks Hartline, LLP,
dated the Initial Closing Date, substantially in the form set
forth in Exhibit G-3 attached hereto, and containing such
other matters as the parties to whom it is addressed shall
reasonably request, shall have been delivered to each of the
Agent, the Lenders and DTD.
(vii) Good Standing Certificate. The Agent and DTD
shall have received a good standing certificate for the Lessor
from the appropriate office of the State of Texas.
(viii) Lessor's Consents and Incumbency Certificate,
etc. The Agent and DTD shall have received a certificate of
the Secretary or an Assistant Secretary of the General Partner
of the Lessor attaching and certifying as to (i) the consents
of the partners of the Lessor duly authorizing the execution,
delivery and performance by it of each Operative Document to
which it is or will be a party, (ii) the incumbency and
signatures of persons authorized to execute and deliver such
documents on its behalf, and (iii) the Partnership Agreement.
SECTION 3.3 Conditions to the Obligations of Lessee. The obligations of
any Lessee to lease a Leased Property from the Lessor are subject to the
fulfillment on the related Closing Date to the satisfaction of, or waiver by,
such Lessee, of the following conditions precedent:
(a) General Conditions. The conditions set forth in Sections
3.1 and 3.2 that require fulfillment by the Lessor or the Lenders shall have
been satisfied, including the delivery of good standing certificates by the
Lessor pursuant to Sections 3.1(a)(xiv) and 3.2(vii) and the delivery of an
opinion of counsel for the Lessor pursuant to Section 3.2(vi) and the execution
and delivery of the Operative Documents to be executed by the Lessor or the
Lenders in connection with such Leased Property.
(b) Legality. In the opinion of such Lessee or its counsel,
the transactions contemplated by the Operative Documents shall not violate any
Applicable Law, and no change shall have occurred or been proposed in Applicable
Law that would make it illegal for such Lessee to participate in any of the
transactions contemplated by the Operative Documents.
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(c) Purchase Agreement; Ground Lease. The Purchase Agreement
and, if applicable, the Ground Lease and all documents to be delivered under the
Purchase Agreement or Ground Lease, including title insurance, survey and
environmental audit, shall be reasonably satisfactory to such Lessee.
SECTION 3.4 Conditions to the Obligations of the Funding Parties on
each Funding Date. The obligations of the Lessor and each Lender to carry out
their respective obligations under Section 2 of this Master Agreement to be
performed on each Funding Date shall be subject to the fulfillment to the
satisfaction of, or waiver by, each such party hereto (acting directly or
through their respective counsel) on or prior to each such Funding Date of the
following conditions precedent, provided that the obligations of any Funding
Party shall not be subject to any conditions contained in this Section 3.4 which
are required to be performed by such Funding Party:
(a) Funding Request. The Lessor and the Agent shall have
received from the Construction Agent or a Lessee the Funding Request therefor
pursuant to Section 2.2(d).
(b) Condition Fulfilled. As of such Funding Date, the
condition set forth in Section 3.1A(d)(i) shall have been satisfied.
(c) Representations. As of such Funding Date, both before and
after giving effect to the Funding requested by the Construction Agent or a
Lessee on such date, the representations and warranties that the Construction
Agent or such Lessee is deemed to make pursuant to Section 2.2(e) shall be true
and correct in all material respects on and as of such Funding Date as though
made on and as of such Funding Date, except to the extent such representations
or warranties relate solely to an earlier date, in which case such
representations and warranties shall have been true and correct in all material
respects on and as of such earlier date.
(d) No Bonded Stop Notice or Filed Mechanics Lien. As of such
Funding Date, and as to any Funded Amount requested for any Leased Property on
such Funding Date, (i) none of the Lessor, the Agent or any Lender has received
(with respect to such Leased Property) a bonded notice to withhold Loan funds
that has not been discharged by the related Lessee or the Construction Agent,
and (ii) no mechanic's liens or materialman's liens have been filed against such
Leased Property that have not been discharged by the related Lessee, bonded over
in a manner reasonably satisfactory to the Agent or insured over by the Title
Insurance Company.
(e) Lease Supplement. If the Funding relates to a Building
that will be leased under a Lease Supplement separate from the Lease Supplement
for the related Land, the original of such separate Lease Supplement, duly
executed by the related Lessee and the Lessor and in recordable form, shall have
been delivered to the Agent.
SECTION 3.5 Completion Date Conditions. The occurrence of the
Completion Date with respect to any Leased Property shall be subject to the
fulfillment to the satisfaction of, or
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waiver by, each party hereto (acting directly or through its counsel) of the
following conditions precedent:
(a) Title Policy Endorsements; Architect's Certificate. The
Construction Agent shall have furnished to each Funding Party (1) the following
endorsements to the related Title Policy (each of which shall be subject to no
exceptions other than those reasonably acceptable to the Agent): a date-down
endorsement (redating and confirming the coverage provided under the Title
Policy and each endorsement thereto) and a "Form 9" endorsement (if available in
the applicable jurisdiction), in each case, effective as of a date not earlier
than the date of completion of the Construction, and (2) a certificate of the
Architect dated at or about the Completion Date, in form and substance
reasonably satisfactory to the Agent, the Lessor and the Lenders, and stating
that (i) the related Building has been completed substantially in accordance
with the Plans and Specifications therefor, and such Leased Property is ready
for occupancy, (ii) such Plans and Specifications comply in all material
respects with all Applicable Laws in effect at such time, and (iii) to the best
of the Architect's knowledge, such Leased Property, as so completed, complies in
all material respects with all Applicable Laws in effect at such time. The
Construction Agent shall also deliver to the Agent true and complete copies of:
(A) an "as built" or "record" set of the Plans and Specifications, (B) a plat of
survey of such Leased Property "as built" to a standard reasonably acceptable to
the Agent showing all easements, paving, driveways, fences and exterior
improvements, and (C) copies of a certificate or certificates of occupancy for
such Leased Property or other legally equivalent permission to occupy such
Leased Property.
(b) Construction Completion. Any related Construction shall
have been completed substantially in accordance with the related Plans and
Specifications (subject to minor punch list requirements), the related Deed and
all Applicable Laws, and such Leased Property shall be ready for occupancy and
operation. All fixtures, equipment and other property contemplated under the
Plans and Specifications to be incorporated into or installed in such Leased
Property shall have been substantially incorporated or installed, free and clear
of all Liens except for Permitted Liens.
(c) Construction Agent Certification. The Construction Agent
shall have furnished the Lessor, the Agent and each Lender with a certification
of the Construction Agent (substantially in the form of Exhibit H) that:
(i) all amounts owing to third parties for the
related Construction have been paid in full (other than
contingent obligations for which the Construction Agent has
made adequate reserves), and no litigation or proceedings are
pending, or to the best of the Construction Agent's knowledge,
are threatened, against such Leased Property or the
Construction Agent or the related Lessee which could
reasonably be expected to have a Material Adverse Effect;
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(ii) all material consents, licenses and permits and
other governmental authorizations or approvals required for
such Construction and operation of such Leased Property have
been obtained and are in full force and effect;
(iii) such Leased Property has available all services
of public facilities and other utilities necessary for use and
operation of such Leased Property for its intended purposes
including, without limitation, adequate water, gas and
electrical supply, storm and sanitary sewerage facilities,
telephone, other required public utilities and means of access
between the related Building and public highways for
pedestrians and motor vehicles;
(iv) all material agreements, easements and other
rights, public or private, which are necessary to permit the
lawful use and operation of such Leased Property as the
related Lessee intends to use such Leased Property under the
Lease and which are necessary to permit the lawful intended
use and operation of all then intended utilities, driveways,
roads and other means of egress and ingress to and from the
same have been obtained and are in full force and effect and
neither the Construction Agent nor the related Lessee has any
knowledge of any pending modification or cancellation of any
of the same; and the use of such Leased Property does not
depend on any variance, special exception or other municipal
approval, permit or consent that has not been obtained and is
in full force and effect for its continuing legal use;
(v) all of the requirements and conditions set forth
in Section 3.5(b) hereof have been completed and fulfilled
with respect to such Leased Property and the related
Construction; and
(vi) to the best of the Construction Agent's
knowledge, such Leased Property is in compliance in all
material respects with all applicable zoning laws and
regulations.
SECTION 3.6 Addition of Lessees. After the date hereof, additional
Subsidiaries of DTS may become Lessees hereunder and under the other Operative
Documents upon satisfaction of the following conditions precedent:
(a) such Subsidiary and the Guarantor shall have executed and
delivered to the Agent and the Lessor a Joinder Agreement, substantially in the
form of Exhibit E;
(b) such Subsidiary shall have delivered to each of the Agent
and the Lessor (x) a certificate of the Secretary or an Assistant Secretary of
such Subsidiary, attaching and certifying as to (i) the Board of Directors'
resolution duly authorizing the execution, delivery and performance by it of
each Operative Document to which it is or will be a party, (ii) the incumbency
and signatures of persons authorized to execute and deliver such documents on
its behalf, (iii) its certificate of incorporation, certified as of a recent
date by the Secretary of State of its incorporation and (iv) its by-laws, and
(y) good
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standing certificates from the appropriate offices of the States of such
Subsidiary's incorporation and principal place of business;
(c) such Subsidiary shall have delivered an opinion of
Hofheimer Nusbaum, P.C., addressed to each of the Lessor, the Agent and the
Lenders, substantially in the form set forth in Exhibit G-1; and
(d) the Agent, the Lessor and the Lenders shall have received
such other documents, certificates and information as any of them shall have
reasonably requested.
ARTICLE IV.
REPRESENTATIONS
SECTION 4.1 Representations of DTS, DTD and other Lessees. Effective as
of the date of execution hereof, as of each Closing Date and as of each Funding
Date, each of DTS, DTD and each other Lessee represents and warrants to each of
the other parties hereto as follows:
(a) Corporate Authority; Etc.
(1) Incorporation; Good Standing. Each of the DTD and
DTS (i) is a Virginia corporation, validly existing and in
good standing under the laws of the State of Virginia, (ii)
has all requisite power to own its property and conduct its
business as now conducted and as presently contemplated,
and(iii) is in good standing as a foreign corporation and is
duly authorized to do business in each jurisdiction where a
Leased Property is located and in each other jurisdiction
where such qualification is necessary except where a failure
to be so qualified in such other jurisdiction would not have a
Materially Adverse Effect.
(2) Authorization. The execution, delivery and
performance of this Master Agreement and the other Operative
Documents to which any Obligor or the Founders is to become a
party and the transactions contemplated hereby and thereby (i)
are within the authority of each Obligor, (ii) have been duly
authorized by all necessary proceedings, (iii) do not and will
not conflict with or result in any breach or contravention of
any provision of law, statute, rule, regulation or agreement
to which any Obligor is subject or any judgment, order, writ,
injunction, license or permit applicable to any Obligor, and
(iv) do not and will not conflict with any provision of any
Obligor's organization documents or other charter documents or
bylaws of, or any agreement or other instrument binding upon,
any Obligor.
(3) Enforceability. The execution and delivery of
this Master Agreement and the other Operative Documents to
which each Obligor is or is to become a party will result in
valid and legally binding obligations of each Obligor
enforceable against it in accordance with the respective terms
and provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium
or other
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laws relating to or affecting generally the enforcement of
creditors' rights and except to the extent that availability
of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any
proceeding therefor may be brought.
(b) Governmental Approvals. The execution, delivery and
performance by each Obligor of this Master Agreement and the other Operative
Documents to which any Obligor is or is to become a party and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained and the filing of related Mortgages, Assignments of Lease and Rents,
Lease Supplements and financing statements in the appropriate records office
with respect thereto.
(c) Title to Properties; Leases. DTS and its Subsidiaries own,
or possess under Capitalized Leases, all of the assets reflected in the
consolidated balance sheet of DTS and its Subsidiaries as at the Balance Sheet
Date or acquired since that date (except property and assets sold or otherwise
disposed of in the ordinary course of business since that date), and such assets
are not subject to any mortgages, leases (other than Capitalized
Leases),conditional sales agreements, title retention agreements, liens or other
encumbrances except General Permitted Liens.
(d) Solvency; Financial Statements. Each of the Obligors is
Solvent. The following financial statements have been furnished to the Agent and
each of the Funding Parties:
(1) A consolidated balance sheet of DTS and its
Subsidiaries as of December 31, 1998, and a consolidated
statement of income for the fiscal year then ended,
accompanied by an auditor's report prepared without
qualification by KPMG Peat Marwick or another independent
certified public accountant selected by DTS and satisfactory
to the Agent. Such balance sheet and statement of income have
been prepared in accordance with Generally Accepted Accounting
Principles and fairly present the financial condition of DTS
and its Subsidiaries as at the close of business on the date
thereof and the results of operations for the fiscal year then
ended. There are no contingent liabilities of DTS or any of
its Subsidiaries as of such date involving material amounts,
known to the officers of DTS or any of its Subsidiaries not
disclosed in said balance sheet and the related notes thereto.
(2) A consolidated balance sheet, a consolidated
statement of income and a consolidated statement of cash flow
of DTS and its Subsidiaries for each of the fiscal quarters of
DTS ended since December 31, 1998 certified by the chief
financial officer of DTS to have been prepared in accordance
with Generally Accepted Accounting Principles consistent with
those used in the preparation of the annual audited statements
delivered pursuant to paragraph (a) above and to fairly
present the financial condition of DTS and its Subsidiaries as
at the close of business on the dates thereof and the results
of operations for the fiscal quarters then ended (subject to
year-end adjustments). There are no contingent liabilities of
DTS or any of its Subsidiaries as of such dates involving
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material amounts, known to the officers of DTS or any of its
Subsidiaries, not disclosed in such balance sheets and the
related notes thereto.
(e) No Material Changes, Etc. From the Balance Sheet Date to
the date of this Master Agreement, there has occurred no materially adverse
change in the financial condition or business of DTD, DTS or its Subsidiaries as
shown on or reflected in the consolidated balance sheet of DTS and its
Subsidiaries as of the Balance Sheet Date, or the consolidated statement of
income for the fiscal year then ended, other than changes in the ordinary course
of business that have not had any materially adverse effect either individually
or in the aggregate on the business or financial condition of DTD, DTS or its
Subsidiaries.
(f) Franchises, Patents, Copyrights, Etc. The Obligors possess
all franchises, patents, copyrights, trademarks, trade names, licenses and
permits, and rights in respect of the foregoing, adequate for the conduct of its
business substantially as now conducted without known conflict with any rights
of others, except where failure to possess such rights has not had, and would
not have, a Material Adverse Effect..
(g) Litigation. Except as stated on Schedule 4.1(g), there are
no actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of DTD, threatened against any Obligors before any court, tribunal or
administrative agency or board that, if adversely determined, might, either in
any case or in the aggregate, materially adversely affect the properties,
assets, financial condition or business of any Obligor or materially impair the
right of any Obligor to carry on business substantially as now conducted by it,
or result in any substantial liability not adequately covered by insurance, or
for which adequate reserves are not maintained on the consolidated balance sheet
of DTS and its Subsidiaries, or which question the validity of this Master
Agreement or any of the other Operative Documents, or any action taken or to be
taken pursuant hereto or thereto.
(h) No Materially Adverse Contracts, Etc. None of the Obligors
is subject to any charter, corporate or other legal restriction, or any
judgment, decree, order, rule or regulation that has or is expected in the
future to have a materially adverse effect on the business, assets or financial
condition of any Obligor. None of the Obligors is a party to any contract or
agreement that has or is expected, in the judgment of DTD's officers, to have
any materially adverse effect on the business of any Obligor.
(i) Compliance with Other Instruments, Laws, Etc. None of the
Obligors is in violation of any provision of its charter or other organization
documents, by-laws, or any agreement or instrument to which it may be subject or
by which it or any of its properties may be bound or any decree, order,
judgment, statute, license, rule or regulation, in any of the foregoing cases in
a manner that could result in the imposition of substantial penalties or
materially and adversely affect the financial condition, properties or business
of any Obligor.
(j) Tax Status. Each Obligor (a) has made or filed, or placed
under lawful extension, all federal and state income and all other tax returns,
reports and declarations required
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by any jurisdiction to which it is subject, except where the failure to so make
or file such tax returns, reports or declarations has not had, and would not
have, a Material Adverse Effect, (b) has paid all taxes and other governmental
assessments and charges shown or determined to be due on such returns, reports
and declarations, except those being contested in good faith and by appropriate
proceedings and except where the failure to pay such taxes and other amounts has
not had, and would not have, a Material Adverse Effect, and (c) has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of DTD know of no basis
for any such claim.
(k) No Event of Default. No Potential Event of Default or
Event of Default has occurred and is continuing.
(l) Holding Company and Investment Company Acts. None of the
Obligors is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935; nor is it an "investment
company", or an "affiliated company" or a "principal underwriter" of
an"investment company", as such terms are defined in the Investment Company Act
of 1940.
(m) Certain Transactions. Except as set forth on Schedule
4.1(m), none of the officers, directors, or employees of any Obligor is
presently a party to any transaction with any Obligor (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, trustee, director or such employee or, to the
knowledge of DTD, any corporation, partnership, trust or other entity in which
any officer, trustee, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
(n) Employee Benefit Plans; Multiemployer Plans; Guaranteed
Pension Plans.
(1) No ERISA Reportable Event has occurred and is
continuing with respect to any such Plan; (ii) PBGC has not
instituted proceedings to terminate any such Plan; (iii) none
of the Obligors has (A) incurred any liability to PBGC with
respect to any such Plan other than for premiums not yet due
or payable, or (B)instituted or does not intend to institute
proceedings to terminate any such Plan under Sections 4041 or
4041A of ERISA or withdraw from any Multi-Employer Pension
Plan (as that term is defined in Section 3(37) of ERISA); (iv)
each such Plan of the Obligors has been maintained and funded
in all material respects in accordance with its terms and with
all provisions of ERISA and the Code applicable thereto; (v)
where applicable, each of the Obligors has complied with all
applicable minimum funding requirements of ERISA and the Code
with respect to each Plan; (vi) there are no unfunded benefit
liabilities (as defined in Section 4001(a)(18) of ERISA) with
respect to any such Plan of any of the Obligors which pose a
risk of causing a lien to be created in its assets; and(vii)
no material
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prohibited transaction under the Code or ERISA has occurred
with respect to any such Plan of any of the Obligors.
(o) Regulations U and X. No portion of any Advance is to be
used for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
(p) Environmental Compliance. Except as disclosed on Schedule
4.1(p),
(1) the operations of the Obligors comply in all
material respects with all applicable Environmental Laws;
(2) none of the operations of any Obligor is the
subject of any judicial or administrative proceeding alleging
the violation of any Environmental Laws;
(3) none of the operations of any Obligor is the
subject of any federal or state investigation evaluating
whether DTD or any of the Subsidiaries disposed of any
hazardous or toxic waste, substance or constituent at any site
that may require remedial action, or any federal or state
investigation evaluating whether any remedial action is needed
to respond to are lease of any hazardous or toxic waste,
substance or constituent into the environment;
(4) none of the Obligors has filed any notice under
any federal or state law indicating past or present treatment,
storage or disposal of a hazardous waste or reporting a spill
or release of a hazardous or toxic waste, substance or
constituent into the environment;
(5) none of the Obligors has any contingent liability
of which DTD has knowledge or reasonably should have knowledge
in connection with any release of any hazardous or toxic
waste, substance or constituent into the environment, nor has
any Obligor received any notice, letter or other indication of
potential liability arising from the disposal of any hazardous
or toxic waste, substance or constituent into the environment.
(q) Subsidiaries. Schedule 4.1(q) sets forth all of the
Subsidiaries of DTD and DTS. Except as set forth in Schedule 4.1(q), DTD or DTS,
as applicable, is the owner, free and clear of all liens and encumbrances, of
all of the issued and outstanding capital stock of each Subsidiary. Except as
set forth in Schedule 4.1(q), all shares of such stock have been validly issued
and are fully paid and nonassessable and no rights to subscribe to any
additional shares have been granted, and no options, warrants, or similar rights
are outstanding.
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(r) Trade Names. The Obligors do not transact or engage, and
have not transacted or engaged, in business under any names other than those set
forth in Schedule 4.1(r) hereto.
(s) Hazardous Materials - Leased Properties.
(i) To the best knowledge of the related Lessee,
except as described in the related Environmental Audit, on the
Closing Date for each Leased Property, there are no Hazardous
Materials present at, upon, under or within such Leased
Property or released or transported to or from such Leased
Property (except in compliance in all material respects with
all Applicable Law).
(ii) To the best knowledge of the related Lessee, on
the related Closing Date, no Governmental Actions have been
taken or are in process or have been threatened, which could
reasonably be expected to subject such Leased Property, any
Lender or the Lessor to any Material Claims or Liens with
respect to such Leased Property under any Environmental Law or
would otherwise have a Material Adverse Effect.
(iii) The related Lessee has, or will obtain on or
before the date required by Applicable Law, all Environmental
Permits necessary to operate each Leased Property, if any, in
accordance with Environmental Laws and is complying with and
has at all times complied with all such Environmental Permits,
except to the extent the failure to obtain such Environmental
Permits or to so comply would not have a Material Adverse
Effect.
(iv) Except as set forth in the related Environmental
Audit or in any notice subsequently furnished by the related
Lessee to the Agent and approved by the Agent in writing prior
to the respective times that the representations and
warranties contained herein are made or deemed made hereunder,
no notice, notification, demand, request for information,
citations, summons, complaint or order has been issued or
filed to or with respect to the related Lessee, no penalty has
been assessed on the related Lessee and no investigation or
review is pending or, to its best knowledge, threatened by any
Governmental Authority or other Person in each case relating
to any Leased Property with respect to any alleged material
violation or liability of the related Lessee under any
Environmental Law. To the best knowledge of the related
Lessee, no material notice, notification, demand, request for
information, citations, summons, complaint or order has been
issued or filed to or with respect to any other Person, no
material penalty has been assessed on any other Person and no
investigation or review is pending or threatened by any
Governmental Authority or other Person relating to any Leased
Property with respect to any alleged material violation or
liability under any Environmental Law by any other Person.
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(v) Each Leased Property and each portion thereof are
presently in compliance in all material respects with all
Environmental Laws, and, to the best knowledge of the related
Lessee, there are no present or past facts, circumstances,
activities, events, conditions or occurrences regarding such
Leased Property (including without limitation the release or
presence of Hazardous Materials) that would reasonably be
anticipated to (A) form the basis of a material Claim against
such Leased Property, any Funding Party or the related Lessee,
(B) cause such Leased Property to be subject to any material
restrictions on ownership, occupancy, use or transferability
under any Environmental Law, (C) require the filing or
recording of any notice or restriction relating to the
presence of Hazardous Materials in the real estate records in
the county or other appropriate municipality in which such
Leased Property is located, other than notices filed in the
ordinary cause of business, or (D) prevent or materially
interfere with the continued operation and maintenance of such
Leased Property as contemplated by the Operative Documents.
For purposes of this Section 4.1(s), the term "material" with respect to any
event or circumstance means that such event or circumstance would reasonably be
anticipated to result in criminal or material liability on the part of any
Funding Party, or to have a material adverse effect on the value of any Leased
Property or to otherwise have a Material Adverse Effect.
(t) Leased Property. The present condition of each Leased
Property conforms in all material respects with all conditions or requirements
of all existing material permits and approvals issued with respect to such
Leased Property, and the related Lessee's future intended use of such Leased
Property under the Lease does not, in any material respect, violate any
Applicable Law. To the best knowledge of the related Lessee, no material
notices, complaints or orders of violation or non-compliance have been issued or
threatened or contemplated by any Governmental Authority with respect to any
Leased Property or any present or intended future use thereof. All material
agreements, easements and other rights, public or private, which are necessary
to permit the lawful use and operation of each Leased Property as the related
Lessee intends to use such Leased Property under the Lease and which are
necessary to permit the lawful intended use and operation of all presently
intended utilities, driveways, roads and other means of egress and ingress to
and from the same have been, or to the related Lessee's best knowledge will be,
obtained and are or will be in full force and effect, and the related Lessee has
no knowledge of any pending material modification or cancellation of any of the
same.
(u) Flood Hazard Areas. No portion of any Leased 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 Leased
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 Leased Property in accordance with the
Lease and in accordance with the National Flood Insurance Act of 1968, as
amended.
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SECTION 4.2 Survival of Representations and Effect of Fundings.
(a) Survival of Representations and Warranties. All
representations and warranties made in Section 4.1 shall survive delivery of the
Operative Documents and every Funding, and shall remain in effect until all of
the Obligations are fully and irrevocably paid.
(b) Each Funding a Representation. Each Funding accepted by a
Lessee or the Construction Agent shall be deemed to constitute a representation
and warranty by DTS, DTD and each other Lessee to the effect of Section 4.1.
SECTION 4.3 Representations of the Lessor. Effective as of the date of
execution hereof, as of each Closing Date and as of each Funding Date, in each
case, with respect to each of the Leased Properties, the Lessor represents and
warrants to the Agent, the Lenders and the Lessees as follows:
(a) Securities Act. The interest being acquired or to be
acquired by the Lessor in such Leased Property is being acquired for its own
account, without any view to the distribution thereof or any interest therein,
provided that the Lessor shall be entitled to assign, convey or transfer its
interest in accordance with Section 6.1.
(b) Due Organization, etc. The Lessor is a limited partnership
duly organized and validly existing in good standing under the laws of Texas and
each state in which a Leased Property is located and has full power, authority
and legal right to execute, deliver and perform its obligations under the Lease,
this Master Agreement and each other Operative Document to which it is or will
be a party.
(c) Due Authorization; Enforceability, etc. This Master
Agreement and each other Operative Document to which the Lessor is or will be a
party have been or will be duly authorized, executed and delivered by or on
behalf of the Lessor and are, or upon execution and delivery will be, legal,
valid and binding obligations of the Lessor enforceable against it in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting creditors' rights
generally and by general equitable principles.
(d) No Conflict. The execution and delivery by the Lessor of
the Lease, this Master Agreement and each other Operative Document to which the
Lessor is or will be a party, are not or will not be, and the performance by the
Lessor of its obligations under each will not be, inconsistent with its
Partnership Agreement, do not and will not contravene any Applicable Law
applicable generally to parties providing financing and do not and will not
contravene any provision of, or constitute a default under, any Contractual
Obligation of Lessor, do not and will not require the consent or approval of,
the giving of notice to, the registration with or taking of any action in
respect of or by, any Governmental Authority applicable generally to parties
providing financing, except such as have been obtained, given or accomplished,
and the Lessor
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possesses all requisite regulatory authority to undertake and perform its
obligations under the Operative Documents.
(e) Litigation. There are no pending or, to the knowledge of
the Lessor, threatened actions or proceedings against the Lessor before any
court, arbitrator or administrative agency with respect to any Operative
Document or that would have a material adverse effect upon the ability of the
Lessor to perform its obligations under this Master Agreement or any other
Operative Documents to which it is or will be a party.
(f) Lessor Liens. No Lessor Liens (other than those created by
the Operative Documents) exist on any Closing Date on the Leased Property, or
any portion thereof, and the execution, delivery and performance by the Lessor
of this Master Agreement or any other Operative Document to which it is or will
be a party will not subject any Leased Property, or any portion thereof, to any
Lessor Liens (other than those created by the Operative Documents).
(g) Employee Benefit Plans. The Lessor is not and will not be
making its investment hereunder, and is not performing its obligations under the
Operative Documents, with the assets of an "employee benefit plan" (as defined
in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
defined in Section 4975(e)(1)) of the Code.
(h) General Partner. The sole general partner of the Lessor is
Atlantic Financial Managers, Inc.
(i) Financial Information. (A) The unaudited balance sheet of
the Lessor as of December 31, 1998 and the related statements of income,
partners' capital and cash flows for the year then ended, copies of which have
been delivered to the Agent, fairly present, in conformity with sound accounting
principles, consistent with the income tax basis reports provided to DTS for the
period ended on December 31, 1998, the financial condition of the Lessor as of
such date and the results of operations and cash flows for such period.
(B) Since December 31, 1998, there has been no event, act,
condition or occurrence having a material adverse effect upon the financial
condition, operations, performance or properties of the Lessor, or the ability
of the Lessor to perform in any material respect its obligations under the
Operative Documents.
(C) The Lessor has no recourse indebtedness, and the Lessor
has not entered into any other transactions, purchases, leases or other
agreements, other than immaterial transactions, purchases, leases and other
agreements entered into by the Lessor in the ordinary course of its business, in
which the Lessor has any liability to the other parties to such transactions,
purchases, leases or other agreements that is in excess of the Lessor's
ownership or other interest in the property subject to such transactions,
purchases, leases or other agreements other than liability for required
fundings, breach of contract, misrepresentation, gross negligence, willful
misconduct, fraud, failure to turn over funds and similar exceptions to
limitations on recourse.
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(j) No Offering. The Lessor has not offered the Notes to any
Person in any manner that would subject the issuance thereof to registration
under the Securities Act or any applicable state securities laws.
(k) Investment Company. The Lessor is not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.4 Representations of each Lender. Effective as of the date of
execution hereof, as of each Closing Date and as of each Funding Date, each
Lender represents and warrants to the Lessor and to the Lessees as follows:
(a) Securities Act. The interest being acquired or to be
acquired by such Lender in the Funded Amounts is being acquired for its own
account, without any view to the distribution thereof or any interest therein,
provided that such Lender shall be entitled to assign, convey or transfer its
interest in accordance with Section 6.2.
(b) Employee Benefit Plans. Such Lender is not and will not be
making its investment hereunder, and is not performing its obligations under the
Operative Documents, with the assets of an "employee benefit plan" (as defined
in Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
defined in Section 4975(e)(1)) of the Code.
ARTICLE V.
COVENANTS OF OBLIGORS AND THE LESSOR
SECTION 5.1 Records and Accounts. Each Obligor will (a) keep true and
accurate records and books of account in which full, true and correct entries
will be made in accordance with Generally Accepted Accounting Principles and
(b)maintain adequate accounts and reserves for all taxes (including income
taxes),depreciation and amortization of its properties, contingencies, and other
reserves.
SECTION 5.2 Financial Statements, Certificates and Information. DTS
will deliver to each of the Agent and each of the Funding Parties:
(a) As soon as practicable, but in any event not later than
one hundred twenty (120) days after the end of each fiscal year of DTS, the
audited consolidated balance sheet of DTS and its Subsidiaries at the end of
such year, and the related audited consolidated statements of earnings and cash
flows for such year, each setting forth in comparative form the figures for the
previous fiscal year and all such statements to be in reasonable detail,
prepared in accordance with Generally Accepted Accounting Principles, and
accompanied by an auditor's report prepared without qualification by KPMG Peat
Marwick or by another independent certified public accountant acceptable to the
Agent), together with the notes accompanying the financial statements.
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(b) As soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter of DTS, copies of the
unaudited consolidated balance sheet of DTS and its Subsidiaries as of the end
of such quarter, and the related unaudited consolidated statements of income and
cash flow for such quarter and that portion of the fiscal year of DTS then
elapsed, all in reasonable detail and prepared in accordance with Generally
Accepted Accounting Principles, in each case setting forth in comparative form
the figures for the corresponding period of the prior fiscal year, together with
a certification by the principal financial or accounting officer, or Corporate
Controller, of DTS that the information contained in such financial statements
fairly presents the financial position of DTS and its Subsidiaries on the date
thereof (subject to year-end adjustments). In addition, DTD shall include an
analysis of gross margins and of "same store sales", as applicable for each
Obligor, in form satisfactory to the Agent and each of the Funding Parties.
(c) Simultaneously with the delivery of the financial
statements referred to in subsections (a) and (b), above, a statement in the
form of Exhibit J hereto signed by the principal financial or accounting
officer, or Corporate Controller, of DTD and setting forth in reasonable detail
computations evidencing compliance with the covenants contained in Section 5.23
through 5.29 and (if applicable) reconciliations to reflect changes in Generally
Accepted Accounting Principles since the Balance Sheet Date.
(d) As soon as available and in any event within ninety (90)
days after the close of each Fiscal Year, (i) copies of internally prepared
unaudited consolidated and consolidating balance sheets and statements of income
of Obligors for such Fiscal Year prepared in a manner consistent with past
practice and in form and substance satisfactory to the Funding Parties and (ii)
internally prepared reports reflecting gross margin results and providing such
"same store" analysis of financial performance as the Funding Parties may
request, all of which shall be in form satisfactory to the Funding Parties.
(e) As soon as practicable, but in any event not later than
sixty (60) days after the close of each Fiscal Year, monthly projections of the
financial condition and results of operations of the Obligors for the current
fiscal year and annual projections thereof for each fiscal year thereafter
through and including the Fiscal Year of the Lease Termination Date, including,
but not limited to, a projected Consolidated balance sheet, statement of
operations, and statement of cash flows for each of such Fiscal Years.
(f) Promptly after the filing of any report on Form 8-K with
the Securities and Exchange Commission by any Obligor, notice of such filing.
(g) From time to time such other financial data and
information as the Agent or any Funding Party may reasonably request.
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SECTION 5.3 Notices.
(a) Defaults. DTD will, and shall cause each other Obligor to,
promptly notify the Agent and each of the Funding Parties in writing of the
occurrence of any Potential Event of Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under any Operative Document
or under any note, evidence of indebtedness, indenture or other obligation to
which or with respect to which any Obligor is a party or obligor, whether as
principal or surety, and such default would permit the holder of such note or
obligation or other evidence of indebtedness to accelerate the maturity thereof,
which acceleration would have a material adverse effect on any Obligor, DTD
shall, and shall cause each other Obligor to, forthwith give written notice
thereof to the Agent and each of the Funding Parties, describing the notice or
action and the nature of the claimed default.
(b) Environmental Events. DTD will, and will cause each other
Obligor to, promptly give notice to the Agent (i) of any violation of any
Environmental Law that any Obligor reports in writing or is reportable by such
Person in writing to any federal, state or local environmental agency and (ii)
upon becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability,
or any federal, state or local environmental agency or board, that in either
case involves any Real Estate or has the potential to have a Material Adverse
Effect.
(c) Notice of Litigation and Judgments. DTD will, and will
cause each other Obligor to, give notice to the Agent and each of the Funding
Parties in writing within fifteen (15) days of becoming aware of any litigation
or proceedings threatened in writing or any pending litigation and proceedings
affecting any Obligor or to which any Obligor is or is to become a party
involving an uninsured claim against any Obligor that could reasonably be
expected to have a materially adverse effect on any Obligor and stating the
nature and status of such litigation or proceedings. DTD will, and will cause
each other Obligor to, give notice to the Agent and each of the Funding Parties,
in writing, in form and detail satisfactory to the Agent and each of the Funding
Parties, within ten (10) days of any judgment in excess of $100,000.00, not
covered by insurance, final or otherwise, against any Obligor.
SECTION 5.4 Existence; Maintenance of Properties. Each Obligor will do
or cause to be done all things necessary to preserve and keep in full force and
effect its existence as a Virginia corporation. DTD will do or cause to be done
all things necessary to preserve and keep in full force all of its rights and
franchises and those of the other Obligors. Each Obligor (a) will cause all of
its properties used or useful in the conduct of its business to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
such Obligor may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will each continue to engage primarily in the businesses now conducted by it and
in related businesses.
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SECTION 5.5 Insurance. The Obligors will maintain insurance on all
Leased Properties as required by the Lease and will maintain with respect to its
other properties, with financially sound and reputable insurers, insurance with
respect to such properties and its business against such casualties and
contingencies as shall be in accordance with the general practices of businesses
engaged in similar activities in similar geographic areas and in amounts,
containing such terms, in such forms and for such periods as may be reasonable
and prudent.
SECTION 5.6 Taxes. Each Obligor will duly pay and discharge, or cause
to be paid and discharged, before the same shall become overdue, all taxes,
assessments and other governmental charges imposed upon it and its real
properties, sales and activities, or any part thereof, or upon the income or
profits therefrom, as well as all claims for labor, materials, or supplies,
except where the failure to so pay has not had, and would not have, a Material
Adverse Effect; provided, however, that Obligors shall not be required to pay
any such tax, assessment, charge or levy if and so long as the amount,
applicability or validity thereof shall currently be contested in good faith by
appropriate proceedings, appropriate accruals and cash reserves therefor have
been established in accordance with Generally Accepted Accounting Principles and
no lien with respect thereto has been filed against such Obligor or any of its
assets.
SECTION 5.7 Inspection of Properties and Books. Each Obligor shall
permit the Agent or any of the Agent's designated representatives upon
twenty-four (24) hours prior notice to DTD (at DTD's expense),to visit and
inspect any of the properties of any Obligor to examine the books of account of
any Obligor (and to make copies thereof and extracts therefrom)and to discuss
the affairs, finances and accounts of any Obligor with, and to be advised as to
the same by, its officers, all at such reasonable times and intervals as the
Agent may reasonably request (but in no event in excess of once in any fiscal
year if no Potential Event of Default or Event of Default has arisen).
SECTION 5.8 Compliance with Laws, Contracts, Licenses, and Permits.
Each Obligor will comply with (a) all material applicable laws and regulations
now or hereafter in effect wherever its business is conducted, including all
Environmental Laws, (b) the provisions of its corporate charter and other
charter documents and by-laws, (c) all agreements and instruments to which it is
a party or by which it or any of its properties may be bound, except where the
failure to so comply has not had, and would not have, a Material Adverse Effect,
and (d) all applicable decrees, orders, and judgments except for violations
which, in the aggregate, do not have a material adverse effect on the business,
operations, properties, assets, or financial condition of such Obligor. If at
any time while any Obligation is Outstanding or the Funding Parties have any
obligation to make Advances hereunder, any authorization, consent, approval,
permit or license from any officer, agency or instrumentality of any government
shall become necessary or required in order that any Obligor may fulfill any of
its obligations hereunder, each Obligor will promptly take or cause to be taken
all reasonable steps to obtain such authorization, consent, approval, permit or
license and furnish the Agent and the Funding Parties with evidence thereof.
SECTION 5.9 ERISA Compliance. Each of the Obligors shall at all times
make prompt payment of all contributions required under all Employee Benefit
Plans, Multiemployer Plans
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and Guaranteed Pension Plans and required to meet the minimum funding standard
set forth in ERISA with respect to all such Plans.
SECTION 5.10 Restrictions on Indebtedness. No Obligor will create,
incur, assume, guarantee or be or remain liable, contingently or otherwise, with
respect to any Indebtedness other than:
(a) Indebtedness arising under any of the Operative Documents
or under the Credit Agreement;
(b) current liabilities of any Obligor incurred in the
ordinary course of business but not incurred through (i) the borrowing of money,
or (ii) the obtaining of credit except for credit on an open account basis
customarily extended and in fact extended in connection with normal purchases of
goods and services;
(c) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment therefor shall not at the time be required to be made in
accordance with the provisions of Section 5.6;
(d) Indebtedness in respect of judgments or awards not in
excess of $2,000,000.00 in the aggregate that have been in force for less than
the applicable period for taking an appeal so long as execution is not levied
thereunder or in respect of which the Obligor shall at the time in good faith be
prosecuting an appeal or proceedings for review and in respect of which a stay
of execution shall have been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary course
of business;
(f) the Intercompany Loans;
(g) Indebtedness incurred for the construction of the new
distribution and office center for the Obligors, the terms of which Indebtedness
are approved by the Agent in its discretion, which approval shall not be
unreasonably withheld;
(h) Indebtedness existing on the date of this Master Agreement
and listed and described on Schedule 5.10 hereto;
(i) Indebtedness arising under Capitalized Leases; and
(j) other Indebtedness in an aggregate amount not to exceed
ten percent (10%) of the Consolidated Total Assets of the Obligor (other than
those properly classified as intangible assets under Generally Accepted
Accounting Principles) at any one time.
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SECTION 5.11 Restrictions on Liens, Etc. No Obligor will (a) create or
incur or suffer to be created or incurred or to exist any lien, encumbrance,
mortgage, pledge, charge, restriction or other security interest of any kind
upon any of its property or assets of any character whether now owned or
hereafter acquired, or upon the income or profits therefrom; (b) transfer any of
its property or assets or the income or profits therefrom for the purpose of
subjecting the same to the payment of Indebtedness or performance of any other
obligation in priority to payment of its general creditors; (c) acquire, or
agree or have an option to acquire, any property or assets upon conditional sale
or other title retention or purchase money security agreement, device or
arrangement; (d) suffer to exist for a period of more than thirty (30) days
after the same shall have been incurred any Indebtedness or claim or demand
against it that if unpaid might by law or upon bankruptcy or insolvency, or
otherwise, be given any priority whatsoever over its general creditors; or
(e)sell, assign, pledge or otherwise transfer any accounts, contract rights,
general intangibles, chattel paper or instruments, with or without recourse;
provided that any Obligor may create or incur or suffer to be created or
incurred or to exist:
(i) liens in favor of any Obligor on all or part of the assets of
another Obligor securing Indebtedness owing by such other
Obligor;
(ii) liens on properties to secure taxes, assessments and other
government charges or claims for labor, material or supplies
in respect of obligations not overdue;
(iii) deposits or pledges made in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old
age pensions or other social security obligations;
(iv) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by Section
5.10(d);
(v) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in existence less than 40
days from the date of creation thereof in respect of
obligations not overdue;
(vi) encumbrances on properties consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto,
landlord's or lessor's liens under leases to which any Obligor
is a party, and other minor liens or encumbrances none of
which interferes materially with the use of the property
affected in the ordinary conduct of the business of any
Obligor, which defects do not individually or in the aggregate
have a materially adverse effect on the business of any
Obligor individually or of DTS and its Subsidiaries on a
consolidated basis;
(vii) presently outstanding liens listed on Schedule 5.11 hereto; and
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(viii) liens in favor of the Agent and the Lenders under the Operative
Documents.
SECTION 5.12 Restrictions on Investments. No Obligor will make or
permit to exist or to remain outstanding any Investment, except Investments
which constitute:
(a) short term Investments (determined in accordance with
Generally Accepted Accounting Principles), including, without limitation,
marketable direct or guaranteed obligations of the United States of America;
demand deposits, certificates of deposit, bankers acceptances and time deposits
of United States banks; securities commonly known as "commercial paper" issued
by a corporation organized and existing under the laws of the United States of
America or any state thereof; and repurchase agreements secured by any of the
foregoing;
(b) Investments existing on the date hereof and listed on
Schedule 5.12 hereto; and
(c) Investments otherwise permitted pursuant to the Credit
Agreement.
SECTION 5.13 Merger, Consolidation. Without the prior written consent
of the Agent, no Obligor will become a party to any merger or consolidation, or
agree to or effect any asset acquisition or disposition or stock acquisition or
disposition (other than the acquisition or disposition of assets in the ordinary
course of business for fair consideration and consistent with past practices)
except (i) the merger or consolidation of one or more of the Subsidiaries of DTS
with and into DTS, (ii) the merger or consolidation of two or more Subsidiaries
of DTS, or (iii) as long as no Potential Event of Default or Event of Default
then exists or would arise therefrom, the merger of any other Person with any
Obligor, provided that the Obligor is the surviving entity and provided further
that the consideration paid by the Obligors in any such merger consists of any
combination of (A) capital stock of DTS and/or (B) other consideration not to
exceed ten percent (10%) of the Consolidated Total Assets of the Obligors (other
than those properly classified as intangible assets under Generally Accepted
Accounting Principles) immediately prior to giving effect to such merger.
SECTION 5.14 Sale and Leaseback. Without the prior written consent of
the Agent (which shall not be unreasonably withheld), no Obligor will enter into
any arrangement, directly or indirectly, whereby any Obligor shall sell or
transfer any property owned by it in order then or thereafter to lease such
property or lease other property that such Obligor intends to use for
substantially the same purpose as the property being sold or transferred.
SECTION 5.15 Compliance With Environmental Laws. No Obligor will do any
of the following: (a) use any of the Real Estate or any portion thereof as a
facility for the handling, processing, storage or disposal of Hazardous
Substances, except in full compliance with Environmental Laws, (b) cause or
permit to be located on any of the Real Estate any underground tank or other
underground storage receptacle for Hazardous Substances except in full
compliance with Environmental Laws, (c) generate or dispose of any Hazardous
Substances
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on any of the Real Estate except in full compliance with Environmental Laws, or
(d) conduct any activity at any Real Estate or use any Real Estate in any manner
so as to cause a Release.
SECTION 5.16 Distributions. Except for (a) Permitted Intercompany
Distributions or (b) as otherwise specifically permitted hereunder or (c) as to
which the Agent shall hereafter consent in writing, no Obligor will make any
Distributions, or (d) as long as no Potential Event of Default or Event of
Default then exists or would arise therefrom, (i) repurchases or redemptions of
the capital stock of DTS in an aggregate amount not to exceed $50,000,000.00,
and (ii) other Distributions which in any fiscal year do not exceed in the
aggregate twenty percent (20%) of Consolidated Net Income for the immediately
preceding fiscal year.
SECTION 5.17 Subsidiaries. Without limiting the provisions of Section
5.11, no Obligor shall acquire, form, or otherwise invest in any Subsidiary,
without the prior written consent of the Agent, which consent shall not be
unreasonably withheld, provided, however, that the Obligors may maintain a
Subsidiary established or acquired in connection with an acquisition or merger
permitted pursuant to Section 5.13 for a period of twelve months after
consummation of such acquisition or merger.
SECTION 5.18 Fiscal Year. The fiscal year of DTS and its Subsidiaries
presently ends on December 31 of each year. The Obligors shall not change their
fiscal year end without furnishing prior written notice thereof to, and first
obtaining the consent of, the Funding Parties, which consent shall not be
unreasonably withheld or delayed.
SECTION 5.19 Loans and Advances. The Obligors will not make any loans
or advances to any Person other than:
(a) Loans and advances existing on the date hereof and listed
on Schedule 5.19 hereof; and
(b) Loans and advances to and among the Obligors for working
capital purposes pursuant and subject to the terms of the Intercompany Operative
Documents.
SECTION 5.20 Transactions With Affiliates. Each of the Obligors may
enter into transactions with (except for making loans to) Affiliates or
shareholders upon terms not less favorable to any such Obligor than would be
obtainable at the time in comparable transactions of such Obligor in arms'
length dealings with Persons other than Affiliates or shareholders and shall
immediately disclose in writing any of said transactions to the Agent and the
Funding Parties.
SECTION 5.21 Amendments to Organizational Documents. The Obligors shall
not amend their articles of incorporation or bylaws, and shall not designate,
issue, create, or authorize additional classes of stock (common or preferred)
without the prior written consent of the Funding Parties.
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SECTION 5.22 Financial Covenants. DTS and its Subsidiaries shall comply
with the financial covenants set forth in the Credit Agreement as in effect from
time to time, which financial covenants are hereby incorporated by reference,
provided that, if the Credit Agreement is terminated or expires, the financial
covenants in the Credit Agreement on the date of such termination or expiration
shall be incorporated herein and shall continue.
SECTION 5.23 Solvency. Each of the Obligors shall remain Solvent at all
times.
SECTION 5.24 Use of Proceeds. DTD will not, and will not permit any
other Obligor to, use any proceeds of any Advance for any purpose other than the
acquisition and Construction of Leased Properties or use any such proceeds in
any manner which violates or results in a violation of law.
SECTION 5.25 Further Assurances. Upon the written request of the Lessor
or the Agent, each Lessee, at its own cost and expense, will cause all financing
statements (including precautionary financing statements), fixture filings and
other similar documents, to be recorded or filed at such places and times in
such manner, as may be necessary to preserve, protect and perfect the interest
of the Lessor, the Agent and the Lenders in the Leased Properties as
contemplated by the Operative Documents.
SECTION 5.26 Additional Required Appraisals. If, as a result of any
change in Applicable Law after the date hereof, an appraisal of all or any of
the Leased Properties is required during the Lease Term under Applicable Law
with respect to any Funding Party's interest therein, such Funding Party's
Funded Amount with respect thereto or the Operative Documents, then the related
Lessee shall pay the reasonable cost of such appraisal.
SECTION 5.27 Lessor's Covenants. The Lessor covenants and agrees that,
unless the Agent, DTD and the Lenders shall have otherwise consented in writing:
(a) the proceeds of the Loans received from the Lenders will
be used by the Lessor solely to acquire the related Leased Property and to pay
the Construction Agent or the related Lessee for certain closing, development
and transaction costs associated therewith and, if applicable, for the costs of
Construction. No portion of the proceeds of the Loans will be used by the Lessor
(i) in connection with, whether directly or indirectly, any tender offer for, or
other acquisition of, stock of any corporation with a view towards obtaining
control of such other corporation or (ii) directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any Margin Stock;
(b) it shall not engage in any business or activity, or invest
in any Person, except for activities similar to its activities conducted on the
date hereof, the Transaction and lease transactions similar to the Transaction;
(c) it will maintain tangible net worth in an amount no less
than the sum of (i) $100,000 plus (ii) 3% of its total assets (calculated
assuming no reduction in the value of any
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leased property from its original cost to the Lessor)and will at all times be
solvent (as defined in the Bankruptcy Code);
(d) it will deliver to the Agent and DTD, as soon as available
and in any event within 90 days after the end of each fiscal year, a balance
sheet of the Lessor as of the end of such fiscal year and the related statements
of income, partners' capital and cash flows for such fiscal year, setting forth
in each case in comparative form the figures for the previous fiscal year,
prepared in accordance with sound accounting principles consistent with the
income tax basis reports provided to DTD for the period ended on December 31,
1998, together with copies of its tax returns, all certified by an officer of
the General Partner (and if the Lessor ever prepares audited financial
statements, it shall deliver copies thereof to the Agent and DTD);
(e) it will permit the Agent and DTD and its representatives
to examine, and make copies from, the Lessor's books and records, and to visit
the offices and properties of the Lessor for the purpose of examining such
materials, and to discuss the Lessor's performance hereunder with any of its, or
its general partner's, officers and employees, in each case during normal
business hours and upon reasonable notice;
(f) it shall not consent to or permit the creation of any
easement or other restriction against any Leased Property other than as
permitted pursuant to Article VI of the Lease;
(g) it shall not incur or permit to exist, and will promptly
discharge each Lessor Lien and shall indemnify the Lenders and the Lessees for
any loss, cost, expense or diminution in value of any Leased Property resulting
from, or incurred as a result of, such Lessor Liens;
(h) it shall not enter into any other transactions, leases,
purchases or other agreements, other than immaterial transactions, purchases,
leases and other agreements entered into by the Lessor in the ordinary course of
its business, in which the other parties to said transactions, leases, purchases
or other agreements will have any recourse against Lessor other than recourse to
Lessor's ownership or other interest in the property subject to such
transactions, purchases, leases or other agreements, other than liability for
required fundings, breach of contract, misrepresentation, gross negligence,
willful misconduct, fraud, failure to turn over funds and similar exceptions to
limitations on recourse;
(i) it shall not guaranty the liabilities of any other Person;
(j) it shall pay its debts as such debts become due unless
such debts are the subject of a bona fide dispute; and
(k) it shall promptly notify DTD and the Agent of any claim
against the Lessor that would reasonably be expected to result in a material
liability of the Lessor for which it is not indemnified.
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ARTICLE VI.
TRANSFERS BY LESSOR AND LENDERS
SECTION 6.1 Lessor Transfers. The Lessor shall not assign, convey or
otherwise transfer all or any portion of its right, title or interest in, to or
under any Leased Property or any of the Operative Documents without the prior
written consent of the Lenders and, unless an Event of Default has occurred and
is continuing, DTD. Any proposed transferee of the Lessor shall make the
representation set forth in Section 4.3 to the other parties hereto.
SECTION 6.2 Lender Transfers.
(a) Any Lender may make, carry or transfer Loans at, to or for
the account of, any of its branch offices or the office of an Affiliate of such
Lender.
(b) Each Lender may assign all or a portion of its interests,
rights and obliga tions under this Master Agreement and the Loan Agreement
(including all or a portion of its Commitment and the Loans at the time owing to
it) to any Person; provided, however, that (i) the Agent and, except during the
continuance of a Potential Event of Default or Event of Default, DTD must give
its prior written consent to such assignment (which consent shall not be
unreasonably withheld or delayed) unless such assignment is to another Lender or
Affiliate of the assigning Lender, (ii) unless such Lender is assigning all of
its Commitment, after giving effect to such assignment, the Commitment of both
the assignor and the assignee is at least $1,000,000 and (iii) the parties to
each such assignment shall execute and deliver to the Agent an Assignment and
Acceptance, and, unless such assignment is to an Affiliate of such Lender, a
processing and recordation fee of $2,500. Any such assignment of the Loans shall
include both the A Loans and the B Loans of such assigning Lender, on a pro rata
basis. No Lessee shall be responsible for such processing and recordation fee or
any costs or expenses incurred by any Lender or the Agent in connection with
such assignment. From and after the effective date specified in each Assignment
and Acceptance, which effective date shall be at least five (5) Business Days
after the execution thereof, the assignee thereunder shall be a party hereto and
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Master Agreement and the Loan
Agreement.
(c) Each Lender may, without the consent of DTD or any Lessee,
sell participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Master Agreement and the Loan Agreement
(including all or a portion of its Commitments in the Loans owing to it),
provided, however, that (i) no Lender may sell a participation in its Commitment
(after giving effect to any permitted assignment hereunder) in an amount in
excess of fifty percent (50%) of such Commitment (provided that (1) sales of
participations to an Affiliate of Lender shall not be included in such
calculation and (2) no such maximum amount shall be applicable to any
participation sold at any time there exists an Event of Default), (ii) such
Lender's obligations under this Master Agreement and the Loan Agreement shall
remain unchanged, (iii) such Lender shall remain solely responsible to the other
parties
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hereto for the performance of such obligations, (iv) the participating bank or
other entity shall not be entitled to any greater benefit than its selling
Lender under the cost protection provisions contained in Section 7.5 of this
Master Agreement, and (v) DTD, each Lessee, the Agent and the other Lenders
shall continue to deal solely and directly with each Lender in connection with
such Lender's rights and obligations under this Master Agreement and the other
Operative Documents, and such Lender shall retain the sole right to enforce the
obligations of Lessor relating to the Loans and to approve any amendment,
modification or waiver of any provisions of this Master Agreement and the Loan
Agreement (except that such Lender may permit the participant to approve any
amendment, modification or waiver which would reduce the principal of or the
interest rate on its Loan, extend the term of such Lender's Commitment, reduce
the amount of any fees to which such participant is entitled or extend the final
scheduled payment date of any Loan). Any Lender selling a participation
hereunder shall provide prompt written notice to the Agent of the name of such
participant.
(d) Any Lender or participant may, in connection with the
assignment or par ticipation or proposed assignment or participation, pursuant
to this Section, disclose to the assignee or participant or proposed assignee or
participant any information relating DTD or its Subsidiaries furnished to such
Lender by or on behalf of DTD. With respect to any disclosure of confidential,
non-public, proprietary information, such proposed assignee or participant shall
agree to use the information only for the purpose of making any necessary credit
judgments with respect to this facility and not to use the information in any
manner prohibited by any law, including without limitation, the securities laws
of the United States. The proposed participant or assignee shall agree not to
disclose any of such information except as permitted by this Master Agreement.
The proposed participant or assignee shall further agree to return all documents
or other written material and copies thereof received from any Lender, the Agent
or any Lessee relating to such confidential information unless otherwise
properly disposed of by such entity.
(e) Any Lender may at any time assign all or any portion of
its rights under this Master Agreement and the Notes to a Federal Reserve Bank
without complying with the requirements of paragraph (a) above; provided that no
such assignment shall release such Lender from any of its obligations hereunder.
(f) The Lenders hereby acknowledge and agree that the Lessees
shall have the right to the quiet enjoyment of the Leased Properties pursuant to
the Lease, whether or not a Loan Event of Default that is not an Event of
Default has occurred and is continuing, so long as no Event of Default has
occurred and is continuing.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.1 General Indemnification. Each of DTD and each Lessee,
jointly and severally, agrees, whether or not any of the transactions
contemplated hereby shall be consummated, to assume liability for, and to
indemnify, protect, defend, save and hold harmless
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each Indemnitee, on an After-Tax Basis, from and against, any and all Claims
that may be imposed on, incurred by or asserted, or threatened to be asserted,
against such Indemnitee, whether or not such Indemnitee shall also be
indemnified as to any such Claim by any other Person (provided that no
Indemnitee shall have the right to double recovery with respect to any Claim)
and whether or not such Claim arises or accrues prior to any Closing Date or
after the Lease Termination Date, or results from such Indemnitee's negligence,
in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in respect
thereof; or
(b) the purchase, design, construction, preparation,
installation, inspection, delivery, non-delivery, acceptance, rejection,
ownership, management, possession, operation, rental, lease, sublease,
repossession, maintenance, repair, alteration, modification, addition,
substitution, storage, transfer of title, redelivery, use, financing,
refinancing, disposition, operation, condition, sale (including, without
limitation, any sale pursuant to the Lease), return or other disposition of all
or any part of any interest in any Leased Property or the imposition of any
Lien, other than a Lessor Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien, other than a Lessor Lien) thereon,
including, without limitation: (i) Claims or penalties arising from any
violation or alleged violation of law or in tort (strict liability or
otherwise), (ii) latent or other defects, whether or not discoverable, (iii) any
Claim based upon a violation or alleged violation of the terms of any
restriction, easement, condition or covenant or other matter affecting title to
any Leased Property or any part thereof, (iv) the making of any Alterations in
violation of any standards imposed by any insurance policies required to be
maintained by any Lessee pursuant to the Lease which are in effect at any time
with respect to any Leased Property or any part thereof, (v) any Claim for
patent, trademark or copyright infringement, (vi) Claims arising from any public
improvements with respect to any Leased Property resulting in any charge or
special assessments being levied against any Leased Property or any Claim for
utility "tap-in" fees, and (vii) Claims for personal injury or real or personal
property damage occurring, or allegedly occurring, on any Land, Building or
Leased Property;
(c) the breach or alleged breach (other than a breach
wrongfully alleged by such Indemnitee) by DTD or any Lessee of any
representation or warranty made by it or deemed made by it in any Operative
Document or any certificate required to be delivered by any Operative Document
(without giving effect to any exception in any representation based on the
absence of a Material Adverse Effect);
(d) the retaining or employment of any broker, finder or
financial advisor by DTD or any Lessee to act on its behalf in connection with
this Master Agreement, or the incurring of any fees or commissions to which the
Lessor, the Agent or any Lender might be subjected by virtue of their entering
into the transactions contemplated by this Master Agreement (other than fees or
commissions due to any broker, finder or financial advisor retained by the
Lessor, the Agent or any Lender);
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(e) the existence of any Lien on or with respect to any Leased
Property, the Construction, any Basic Rent or Supplemental Rent, title thereto,
or any interest therein, including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of any Leased Property or by
reason of labor or materials furnished or claimed to have been furnished to the
Construction Agent, any Lessee, or any of its contractors or agents or by reason
of the financing of any personalty or equipment purchased or leased by any
Lessee or Alterations constructed by any Lessee;
(f) the transactions contemplated hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle B
of Title I of ERISA and any prohibited transaction described in Section 4975(c)
of the Code;
(g) any act or omission by DTD or any Lessee under any
Purchase Agreement or any other Operative Document, or any breach by DTD or any
Lessee of any requirement, condition, restriction or limitation in any Deed,
Purchase Agreement, IDB Documentation or Ground Lease; or
(h) any IDB Documentation;
provided, however, no Lessee shall be required to indemnify any Indemnitee under
this Section 7.1 for any Claim to the extent that such Claim results from (i)
the willful misconduct or gross negligence of such Indemnitee or (ii) actions or
events occurring after the Lease has terminated and possession of the Leased
Properties has been turned over to a Person other than the Agent, any Funding
Party, DTS or any Affiliate thereof; and, provided, further, that with respect
to each Construction Land Interest, each Lessee's indemnity obligations with
respect to such Leased Property shall be governed by Section 3.3 of the
Construction Agency Agreement during the Construction Term therefor. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of, and shall be separate and independent
from any other remedy under this Master Agreement, the Lease or any other
Operative Document.
SECTION 7.2 Environmental Indemnity. In addition to and without
limitation of Section 7.1 or Section 3.3 of the Construction Agency Agreement,
each of DTD and each Lessee, jointly and severally, agrees to indemnify, hold
harmless and defend each Indemnitee, on an After-Tax Basis, from and against any
and all claims (including without limitation third party claims for personal
injury or real or personal property damage), losses (including but not limited
to any loss of value of any Leased Property), damages, liabilities, fines,
penalties, charges, suits, settlements, demands, administrative and judicial
proceedings (including informal proceedings and investigations) and orders,
judgments, remedial action, requirements, enforcement actions of any kind, and
all reasonable costs and expenses actually incurred in connection therewith
(including, but not limited to, reasonable attorneys' and/or paralegals' fees
and expenses), including, but not limited to, all costs incurred in connection
with any investigation or monitoring of site conditions or any clean-up,
remedial, removal or restoration work by any federal, state or local government
agency, arising directly or indirectly, in whole or in part, out of
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(i) the presence on or under any Land of any Hazardous
Materials, or any releases or discharges of any Hazardous Materials on,
under, from or onto any Land,
(ii) any activity, including, without limitation,
construction, carried on or undertaken on or off any Land, and whether
by a Lessee or any predecessor in title or any employees, agents,
contractors or subcontractors of a Lessee or any predecessor in title,
or any other Person, in connection with the handling, treatment,
removal, storage, decontamination, clean-up, transport or disposal of
any Hazardous Materials that at any time are located or present on or
under or that at any time migrate, flow, percolate, diffuse or in any
way move onto or under any Land,
(iii) loss of or damage to any property or the environment
(including, without limitation, clean-up costs, response costs,
remediation and removal costs, cost of corrective action, costs of
financial assurance, fines and penalties and natural resource damages),
or death or injury to any Person, and all expenses associated with the
protection of wildlife, aquatic species, vegetation, flora and fauna,
and any mitigative action required by or under Environmental Laws, in
each case to the extent related to any Leased Property,
(iv) any claim concerning any Leased Property's lack of
compliance with Environmental Laws, or any act or omission causing an
environmental condition on or with respect to any Leased Property that
requires remediation or would allow any governmental agency to record a
lien or encumbrance on the land records, or
(v) any residual contamination on or under any Land, or
affecting any natural resources on any Land, and to any contamination
of any property or natural resources arising in connection with the
generation, use, handling, storage, transport or disposal of any such
Hazardous Materials on or from any Leased Property; in each case
irrespective of whether any of such activities were or will be
undertaken in accordance with applicable laws, regulations, codes and
ordinances;
in any case with respect to the matters described in the foregoing clauses (i)
through (v) that arise or occur
(w) prior to or during the Lease Term,
(x) at any time during which a Lessee or any Affiliate thereof
owns any interest in or otherwise occupies or possesses any Leased
Property or any portion thereof, or
(y) during any period after and during the continuance of any
Event of Default until such time as possession of the Leased Properties
has been turned over to a Person other than the Agent, any Funding
Party, DTS or any Affiliate thereof;
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provided, however, no Lessee shall be required to indemnify any Indemnitee under
this Section 7.2 for any Claim to the extent that such Claim results from the
willful misconduct or gross negligence of such Indemnitee. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of, and shall be separate and independent from any
other remedy under this Master Agreement, the Lease or any other Operative
Document.
SECTION 7.3 Proceedings in Respect of Claims. With respect to any
amount that a Lessee is requested by an Indemnitee to pay by reason of Section
7.1 or 7.2, such Indemnitee shall, if so requested by such Lessee and prior to
any payment, submit such additional information to such Lessee as such Lessee
may reasonably request and which is in the possession of, or under the control
of, such Indemnitee to substantiate properly the requested payment. In case any
action, suit or proceeding shall be brought against any Indemnitee, such
Indemnitee promptly shall notify DTD of the commencement thereof (provided that
the failure of such Indemnitee to promptly notify DTD shall not affect DTD's or
any Lessee's obligation to indemnify hereunder except to the extent that a
Lessee's rights to contest or defenses otherwise available to such Lessee are
materially prejudiced by such failure), and such Lessee shall be entitled, at
its expense, to participate in, and, to the extent that such Lessee desires to,
assume and control the defense thereof with counsel reasonably satisfactory to
such Indemnitee; provided, however, that such Indemnitee may pursue a motion to
dismiss such Indemnitee from such action, suit or proceeding with counsel of
such Indemnitee's choice at the Lessees' expense; and provided further that a
Lessee may assume and control the defense of such proceeding only if DTD shall
have acknowledged in writing its and each Lessee's obligations to fully
indemnify such Indemnitee in respect of such action, suit or proceeding, Lessees
shall pay all reasonable costs and expenses related to such action, suit or
proceeding as and when incurred and the related Lessee shall keep such
Indemnitee fully apprised of the status of such action suit or proceeding and
shall provide such Indemnitee with all information with respect to such action
suit or proceeding as such Indemnitee shall reasonably request; and, provided
further, that no Lessee shall be entitled to assume and control the defense of
any such action, suit or proceeding if and to the extent that, (A) in the
reasonable opinion of such Indemnitee, (x) such action, suit or proceeding
involves any possibility of imposition of criminal liability or any material
risk of civil liability on such Indemnitee in excess of $5,000,000 or (y) such
action, suit or proceeding will involve a material risk of the sale, forfeiture
or loss of, or the creation of any Lien (other than a Permitted Lien) on any
Leased Property or any part thereof unless the related Lessee or DTD shall have
posted a bond or other security satisfactory to the relevant Indemnitees in
respect to such risk or (z) the control of such action, suit or proceeding would
involve an actual or potential conflict of interest, (B) such proceeding
involves Claims not fully indemnified by the Lessees which the related Lessee
and the Indemnitee have been unable to sever from the indemnified claim(s), or
(C) an Event of Default has occurred and is continuing. The Indemnitee may
participate in a reasonable manner at its own expense and with its own counsel
in any proceeding conducted by a Lessee in accordance with the foregoing.
If a Lessee fails to fulfill the conditions to such Lessee's assuming
the defense of any claim after receiving notice thereof on or prior to the date
that is fifteen (15) days prior to the
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date that an answer or response is required, the Indemnitee may undertake such
defense, at the Lessees' expense. No Lessee shall enter into any settlement or
other compromise with respect to any Claim in excess of $1,000,000 which is
entitled to be indemnified under Section 7.1 or 7.2 without the prior written
consent of the related Indemnitee, which consent shall not be unreasonably
withheld. Unless an Event of Default shall have occurred and be continuing, no
Indemnitee shall enter into any settlement or other compromise with respect to
any claim which is entitled to be indemnified under Section 7.1 or 7.2 without
the prior written consent of DTD, which consent shall not be unreasonably
withheld, unless such Indemnitee waives its right to be indemnified under
Section 7.1 or 7.2 with respect to such Claim.
Upon payment in full of any Claim by the Lessees pursuant to Section
7.1 or 7.2 to or on behalf of an Indemnitee, the Lessees, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be reasonably necessary
to preserve any such claims and otherwise cooperate with the Lessees and give
such further assurances as are reasonably necessary or advisable to enable the
Lessees vigorously to pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 7.1 or 7.2
shall be paid to such Indemnitee promptly upon, but in no event later than
thirty (30) days after, receipt of a written demand therefor from such
Indemnitee, accompanied by a written statement describing in reasonable detail
the basis for such indemnity and the computation of the amount so payable.
If for any reason the indemnification provided for in Section 7.1 or
7.2 is unavailable to an Indemnitee or is insufficient to hold an Indemnitee
harmless, then each of DTD and each Lessee agrees to contribute to the amount
paid or payable by such Indemnitee as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by such Indemnitee on the one hand and by DTD and the Lessees
on the other hand but also the relative fault of such Indemnitee as well as any
other relevant equitable considerations. It is expressly understood and agreed
that the right to contribution provided for herein shall survive the expiration
or termination of and shall be separate and independent from any other remedy
under this Master Agreement, the Lease or any other Operative Document.
SECTION 7.4 General Tax Indemnity. (a) Tax Indemnity. Except as
otherwise provided in this Section 7.4, each of DTD and each Lessee, jointly and
severally, shall pay on an After-Tax Basis, and on written demand shall
indemnify and hold each Tax Indemnitee harmless from and against, any and all
fees (including, without limitation, documentation, recording, license and
registration fees), taxes (including, without limitation, income, gross
receipts, sales, rental, use, turnover, value-added, property, excise and stamp
taxes), levies, imposts, duties, charges, assessments or withholdings of any
nature whatsoever, together with any penalties, fines or interest thereon or
additions thereto (any of the foregoing being referred to herein as "Taxes" and
individually as a "Tax" (for the purposes of this Section 7.4, the definition of
"Taxes" includes amounts imposed on, incurred by, or asserted against each Tax
Indemnitee as the result of any
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prohibited transaction, within the meaning of Section 406 or 407 of ERISA or
Section 4975(c) of the Code, arising out of the transactions contemplated hereby
or by any other Operative Document)) imposed on or with respect to any Tax
Indemnitee, any Lessee, DTD, any Leased Property or any portion thereof or any
Land, or any sublessee or user thereof, by the United States or by any state or
local government or other taxing authority in the United States in connection
with or in any way relating to (i) the acquisition, financing, mortgaging,
construction, preparation, installation, inspection, delivery, non-delivery,
acceptance, rejection, purchase, ownership, possession, rental, lease, sublease,
maintenance, repair, storage, transfer of title, redelivery, use, operation,
condition, sale, return or other application or disposition of all or any part
of any Leased Property or the imposition of any Lien (or incurrence of any
liability to refund or pay over any amount as a result of any Lien) thereon,
(ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from or
received with respect to any Leased Property or any part thereof, or any
interest therein or any applications or dispositions thereof, (iii) any other
amount paid or payable pursuant to the Notes or any other Operative Documents,
(iv) any Leased Property, any Land or any part thereof or any interest therein
(including, without limitation, all assessments payable in respect thereof,
including, without limitation, all assessments noted on the related Title
Policy), (v) all or any of the Operative Documents, any other documents
contemplated thereby, any amendments and supplements thereto, and (vi) otherwise
with respect to or in connection with the transactions contemplated by the
Operative Documents.
(b) Exclusions from General Tax Indemnity. Section 7.4(a)
shall not apply to:
(i) Taxes on, based on, or measured by or with
respect to net income of the Lessor, the Agent and the Lenders
(including, without limitation, minimum Taxes, capital gains
Taxes, Taxes on or measured by items of tax preference or
alternative minimum Taxes) other than (A) any such Taxes that
are, or are in the nature of, sales, use, license, rental or
property Taxes, and (B) withholding Taxes imposed by the
United States or any state in which Leased Property is located
(i) on payments with respect to the Notes, to the extent
imposed by reason of a change in Applicable Law occurring
after the Initial Closing Date or (ii) on Rent, to the extent
the net payment of Rent after deduction of such withholding
Taxes would be less than amounts currently payable with
respect to the Funded Amounts;
(ii) Taxes on doing business and business privilege,
franchise, capital, capital stock, net worth, gross receipts
or similar Taxes, other than (A) any increase in such Taxes
imposed on such Tax Indemnitee by any state in which Leased
Property is located, net of any decrease in such taxes
realized by such Tax Indemnitee, to the extent that such tax
increase would not have occurred if on each Funding Date the
Lessor and the Lenders had advanced funds to a Lessee or the
Construction Agent in the form of loans secured by the Leased
Property in an amount equal to the Funded Amounts funded on
such Funding Date, with debt service for such loans equal to
the Basic Rent payable on each Payment Date and a principal
balance at the maturity of such loans in a total amount equal
to the Funded Amounts at the end of the Lease Term, or (B) any
Taxes that
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are or are in the nature of sales, use, rental, license or
property Taxes relating to any Leased Property;
(iii) Taxes that are based on, or measured by, the
fees or other compensation received by a Person acting as
Agent (in its individual capacities) or any Affiliate of any
thereof for acting as trustee under the Loan Agreement;
(iv) Taxes that result from any act, event or
omission, or are attributable to any period of time, that
occurs after the earlier of (A) the expiration of the Lease
Term with respect to any Leased Property and, if such Leased
Property is required to be returned to the Lessor in
accordance with the Lease, such return and (B) the discharge
in full of the Lessees' obligations to pay the Lease Balance,
or any amount determined by reference thereto, with respect to
any Leased Property and all other amounts due under the Lease,
unless such Taxes relate to acts, events or matters occurring
prior to the earlier of such times or are imposed on or with
respect to any payments due under the Operative Documents
after such expiration or discharge;
(v) Taxes imposed on a Tax Indemnitee that result
from any voluntary sale, assignment, transfer or other
disposition or bankruptcy by such Tax Indemnitee or any
related Tax Indemnitee of any interest in any Leased Property
or any part thereof, or any interest therein or any interest
or obligation arising under the Operative Documents, or from
any sale, assignment, transfer or other disposition of any
interest in such Tax Indemnitee or any related Tax Indemnitee,
it being understood that each of the following shall not be
considered a voluntary sale: (A) any substitution, replacement
or removal of any of the Leased Property by any Lessee, (B)
any sale or transfer resulting from the exercise by any Lessee
of any termination option, any purchase option or sale option,
(C) any sale or transfer while an Event of Default shall have
occurred and be continuing under the Lease, and (D) any sale
or transfer resulting from the Lessor's exercise of remedies
under the Lease;
(vi) any Tax which is being contested in accordance
with the provisions of Section 7.4(c), during the pendency of
such contest;
(vii) any Tax that is imposed on a Tax Indemnitee as
a result of such Tax Indemnitee's gross negligence or willful
misconduct (other than gross negligence or willful misconduct
imputed to such Tax Indemnitee solely by reason of its
interest in any Leased Property);
(viii) to the extent any interest, penalties or
additions to tax result in whole or in part from the failure
of a Tax Indemnitee to file a return or pay a Tax that it is
required to file or pay in a proper and timely manner, unless
such failure (A) results from the transactions contemplated by
the Operative Documents in circumstances where Lessee did not
give timely notice to such Tax Indemnitee of such filing or
payment requirement that would have permitted a proper and
timely filing of such return or
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payment of such Tax, as the case may be, or (B) results from
the failure of Lessee to supply information necessary for the
proper and timely filing of such return or payment of such
Tax, as the case may be, that was not in the possession of
such Tax Indemnitee; and
(ix) as to Lessor, any Tax that results from the
breach by the Lessor of its representation and warranty made
in Section 4.3(g) or as to any Lender the breach of such
Lender of its representation and warranty made in Section
4.4(b).
(c) Contests. If any claim shall be made against any Tax
Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Taxes as to which the
Lessees may have an indemnity obligation pursuant to Section 7.4, or if any Tax
Indemnitee shall determine that any Taxes as to which the Lessees may have an
indemnity obligation pursuant to Section 7.4 may be payable, such Tax Indemnitee
shall promptly notify DTD. DTD shall be entitled, at its expense, to participate
in, and, to the extent that DTD desires to, assume and control the defense
thereof; provided, however, that DTD shall have acknowledged in writing its and
each Lessee's obligation to fully indemnify such Tax Indemnitee in respect of
such action, suit or proceeding if the contest is unsuccessful; and, provided
further, that DTD shall not be entitled to assume and control the defense of any
such action, suit or proceeding (but the Tax Indemnitee shall then contest, at
the sole cost and expense of DTD and the Lessees, on behalf of DTD with
representatives reasonably satisfactory to DTD or a Lessee) if and to the extent
that, (A) in the reasonable opinion of such Tax Indemnitee, such action, suit or
proceeding (x) involves any meaningful risk of imposition of criminal liability
or any material risk of material civil liability on such Tax Indemnitee or (y)
will involve a material risk of the sale, forfeiture or loss of, or the creation
of any Lien (other than a Permitted Lien) on any Leased Property or any part
thereof unless DTD or a Lessee shall have posted a bond or other security
satisfactory to the relevant Tax Indemnitees in respect to such risk, (B) such
proceeding involves Claims not fully indemnified by the Lessees which DTD and
the Tax Indemnitee have been unable to sever from the indemnified claim(s), (C)
an Event of Default has occurred and is continuing, (D) such action, suit or
proceeding involves matters which extend beyond or are unrelated to the
Transaction and if determined adversely could be materially detrimental to the
interests of such Tax Indemnitee notwithstanding indemnification by the Lessees
or (E) such action, suit or proceeding involves the federal or any state income
tax liability of the Tax Indemnitee. With respect to any contests controlled by
a Tax Indemnitee, (i) if such contest relates to the federal or any state income
tax liability of such Tax Indemnitee, such Tax Indemnitee shall be required to
conduct such contest only if DTD shall have provided to such Tax Indemnitee an
opinion of independent tax counsel selected by the Tax Indemnitee and reasonably
satisfactory to DTD stating that a reasonable basis exists to contest such claim
or (ii) in the case of an appeal of an adverse determination of any contest
relating to any Taxes, an opinion of such counsel to the effect that such appeal
is more likely than not to be successful, provided, however, such Tax Indemnitee
shall in no event be required to appeal an adverse determination to the United
States Supreme Court. The Tax Indemnitee may participate in a reasonable manner
at its own expense and with its own counsel in any proceeding conducted by DTD
in accordance with the foregoing.
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Each Tax Indemnitee shall, at DTD's and the Lessees' expense, supply
DTD with such information and documents in such Tax Indemnitee's possession as
are reasonably requested by DTD and are necessary or advisable for DTD to
participate in any action, suit or proceeding to the extent permitted by this
Section 7.4. Unless an Event of Default shall have occurred and be continuing,
no Tax Indemnitee shall enter into any settlement or other compromise with
respect to any Claim which is entitled to be indemnified under this Section 7.4
without the prior written consent of DTD, which consent shall not be
unreasonably withheld, unless such Tax Indemnitee waives its right to be
indemnified under this Section 7.4 with respect to such Claim.
Notwithstanding anything contained herein to the contrary, (a) a Tax
Indemnitee will not be required to contest (and DTD shall not be permitted to
contest except on its own behalf if it is subject thereto) a claim with respect
to the imposition of any Tax if such Tax Indemnitee shall waive its right to
indemnification under this Section 7.4 with respect to such claim (and any
related claim with respect to other taxable years the contest of which is
precluded as a result of such waiver) and (b) no Tax Indemnitee shall be
required to contest any claim if the subject matter thereof shall be of a
continuing nature and shall have previously been decided adversely, unless there
has been a change in law which in the opinion of Tax Indemnitee's counsel
creates substantial authority for the success of such contest. Each Tax
Indemnitee and DTD shall consult in good faith with each other regarding the
conduct of such contest controlled by either.
(d) Reimbursement for Tax Savings. If (x) a Tax Indemnitee
shall obtain a credit or refund of any Taxes paid by DTD or any Lessee pursuant
to this Section 7.4 or (y) by reason of the incurrence or imposition of any Tax
for which a Tax Indemnitee is indemnified hereunder or any payment made to or
for the account of such Tax Indemnitee by DTD or any Lessee pursuant to this
Section 7.4, such Tax Indemnitee at any time realizes a reduction in any Taxes
for which the Lessees are not required to indemnify such Tax Indemnitee pursuant
to this Section 7.4, which reduction in Taxes was not taken into account in
computing such payment by DTD or any Lessee to or for the account of such Tax
Indemnitee, then such Tax Indemnitee shall promptly pay to DTD (xx) the amount
of such credit or refund, together with the amount of any interest received by
such Tax Indemnitee on account of such credit or refund or (yy) an amount equal
to such reduction in Taxes, as the case may be; provided that no such payment
shall be made so long as an Event of Default shall have occurred and be
continuing (but shall be paid promptly after all Events of Default have been
cured) and, provided, further, that the amount payable to DTD by any Tax
Indemnitee pursuant to this Section 7.4(d) shall not at any time exceed the
aggregate amount of all indemnity payments made by DTD and the Lessees under
this Section 7.4 to such Tax Indemnitee with respect to the Taxes which gave
rise to the credit or refund or with respect to the Tax which gave rise to the
reduction in Taxes less the amount of all prior payments made to DTD by such Tax
Indemnitee under this Section 7.4(d). Each Tax Indemnitee agrees to act in good
faith to claim such refunds and other available Tax benefits, and take such
other actions as may be reasonable to minimize any payment due from DTD or the
Lessees pursuant to this Section 7.4. The disallowance or reduction of any
credit, refund or other tax savings with respect to which a Tax Indemnitee has
made a payment to DTD and the Lessees under this Section 7.4(d) shall be treated
as a Tax for which DTD and the Lessees are obligated to indemnify such Tax
Indemnitee hereunder without regard to Section 7.4(b) hereof.
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(e) Payments. Any Tax indemnifiable under this Section 7.4
shall be paid by DTD or a Lessee directly when due to the applicable taxing
authority if direct payment is practicable and permitted. If direct payment to
the applicable taxing authority is not permitted or is otherwise not made, any
amount payable to a Tax Indemnitee pursuant to Section 7.4 shall be paid within
thirty (30) days after receipt of a written demand therefor from such Tax
Indemnitee accompanied by a written statement describing in reasonable detail
the amount so payable, but not before the date that the relevant Taxes are due.
Any payments made pursuant to Section 7.4 shall be made to the Tax Indemnitee
entitled thereto or DTD, as the case may be, in immediately available funds at
such bank or to such account as specified by the payee in written directions to
the payor, or, if no such direction shall have been given, by check of the payor
payable to the order of the payee by certified mail, postage prepaid at its
address as set forth in this Master Agreement. Upon the request of any Tax
Indemnitee with respect to a Tax that DTD and the Lessees are required to pay,
DTD shall furnish to such Tax Indemnitee the original or a certified copy of a
receipt for DTD's or a Lessee's payment of such Tax or such other evidence of
payment as is reasonably acceptable to such Tax Indemnitee.
(f) Reports. If DTD or any Lessee knows of any report, return
or statement required to be filed with respect to any Taxes that are subject to
indemnification under this Section 7.4, such Lessee shall, if such Lessee is
permitted by Applicable Law, timely file such report, return or statement (and,
to the extent permitted by law, show ownership of the applicable Leased Property
in such Lessee); provided, however, that if such Lessee is not permitted by
Applicable Law or does not have access to the information required to file any
such report, return or statement, such Lessee will promptly so notify the
appropriate Tax Indemnitee, in which case Tax Indemnitee will file such report.
In any case in which the Tax Indemnitee will file any such report, return or
statement, the related Lessee shall, upon written request of such Tax
Indemnitee, prepare such report, return or statement for filing by such Tax
Indemnitee or, if such Tax Indemnitee so requests, provide such Tax Indemnitee
with such information as is reasonably available to such Lessee.
(g) Verification. At DTD's request, the amount of any
indemnity payment by a Lessee or any payment by a Tax Indemnitee to DTD pursuant
to this Section 7.4 shall be verified and certified by an independent public
accounting firm selected by DTD and reasonably acceptable to the Tax Indemnitee.
Unless such verification shall disclose an error in DTD's favor of 5% or more of
the related indemnity payment, the costs of such verification shall be borne by
DTD. In no event shall DTD or any Lessee have the right to review the Tax
Indemnitee's tax returns or receive any other confidential information from the
Tax Indemnitee in connection with such verification. The Tax Indemnitee agrees
to cooperate with the independent public accounting firm performing the
verification and to supply such firm with all information reasonably necessary
to permit it to accomplish such verification, provided that the information
provided to such firm by such Tax Indemnitee shall be for its confidential use.
The parties agree that the sole responsibility of the independent public
accounting firm shall be to verify the amount of a payment pursuant to this
Master Agreement and that matters of interpretation of this Master Agreement are
not within the scope of the independent accounting firm's responsibilities.
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SECTION 7.5 Increased Costs, etc.
(a) Illegality. Notwithstanding any other provision herein, if
any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Funding Party to make or maintain LIBOR
Advances as contemplated by this Master Agreement, (a) the commitment of such
Funding Party hereunder to continue LIBOR Advance as such and convert Funded
Amounts to LIBOR Advance shall forthwith be cancelled and (b) such Funding
Party's Funded Amounts then outstanding as LIBOR Advance, if any, shall be
converted automatically to Base Rate Advances on the respective last days of the
then current Rent Periods with respect to such Funded Amounts or within such
earlier period as required by law. If any such conversion of a LIBOR Advance
occurs on a day which is not the last day of the then current Rent Period with
respect thereto, each of DTD and each Lessee, jointly and severally, shall pay
to such Funding Party such amounts, if any, as may be required pursuant to
Section 7.5(f).
(b) Requirements of Law. In the event that Eurocurrency
Reserve Requirements or any change in any Requirement of Law or in the
interpretation or application thereof or compliance by any Funding Party with
any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Funding Party to any tax of any
kind whatsoever with respect to this Master Agreement, any
Note or any LIBOR Advance made by it, or change the basis of
taxation of payments to such Funding Party in respect thereof
(except for taxes covered by Section 7.5(d) and changes in
franchise taxes or the rate of tax on the overall net income
of such Funding Party);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by,
any office of such Funding Party which is not otherwise
included in the determination of the LIBOR Rate; or
(iii) shall impose on such Funding Party any other
condition; and the result of any of the foregoing is to
increase the cost to such Funding Party, by an amount which
such Funding Party deems to be material, of making, converting
into, continuing or maintaining LIBOR Advances or to reduce
any amount receivable hereunder in respect thereof then, in
any such case, each of DTD and each Lessee, jointly and
severally, shall promptly pay such Funding Party, upon its
demand, any additional amounts necessary to compensate such
Funding Party for such increased cost or reduced amount
receivable. If any Funding Party becomes entitled to claim any
additional amounts pursuant to this subsection, it shall
promptly notify the DTD, through the Agent, of the event by
reason of which it has become so entitled. A certificate as to
any additional amounts payable pursuant to this subsection
submitted by such
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Funding Party, through the Agent, to the DTD in good faith and
setting forth in reasonable detail the calculation of such
amounts shall be conclusive in the absence of manifest error.
The provisions of this paragraph (b) shall survive the
termination of this Master Agreement and the Lease and the
payment of the Notes and all other amounts payable under the
Operative Documents.
(c) Capital Adequacy. In the event that any Funding Party or
corporation controlling such Funding Party shall have determined that any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Funding Party or such corporation with
any request or directive regarding capital adequacy (whether or not having the
force of law) from any Governmental Authority made subsequent to the date hereof
does or shall have the effect of reducing the rate of return on such Funding
Party's capital as a consequence of its obligations hereunder to a level below
that which such Funding Party could have achieved but for such change or
compliance (taking into consideration such Funding Party's policies with respect
to capital adequacy) by an amount deemed by such Funding Party to be material,
then from time to time, after submission by such Funding Party in good faith to
DTD (with a copy to the Agent) of a written request therefor setting forth in
reasonable detail the calculation of such amount (which request shall be
conclusive in the absence of manifest error), each of DTD and each Lessee,
jointly and severally, shall pay to such Funding Party such additional amount or
amounts as will compensate such Funding Party for such reduction. The provisions
of this paragraph (c) shall survive the termination of this Master Agreement and
the Lease and the payment of the Notes and all other amounts payable under the
Operative Documents.
(d) Taxes. Subject to Section 7.5(e), all payments made by a
Lessee under the Lease and the other Operative Documents shall be made free and
clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, now or hereafter imposed, levied, collected,
withheld or assessed by any Governmental Authority, excluding, in the case of
the Agent and each Funding Party, net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or such Funding Party, as the
case may be, as a result of a present or former connection between the
jurisdiction of the government or taxing authority imposing such tax and the
Agent or such Funding Party (excluding a connection arising solely from the
Agent or such Funding Party having executed, delivered or performed its
obligations or received a payment under, or enforced, this Master Agreement or
any other Operative Document) or any political subdivision or taxing authority
thereof or therein (all such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions and withholdings being hereinafter called "Withholding
Taxes"). If any Withholding Taxes are required to be withheld from any amounts
payable to the Agent or any Funding Party hereunder or under any other Operative
Document, the amounts so payable to the Agent or such Funding Party (so long as
such Funding Party is in compliance with Section 7.5(e), as appropriate) shall
be increased to the extent necessary to yield to the Agent or such Funding Party
(after payment of all Withholding Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in the Operative
Documents. Whenever any Withholding Taxes are payable by a
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Lessee, as promptly as possible thereafter such Lessee shall send to the Agent
for its own account or for the account of such Funding Party, as the case may
be, a certified copy of an original official receipt received by such Lessee
showing payment thereof. If a Lessee fails to pay any Withholding Taxes when due
to the appropriate taxing authority or fails to remit to the Agent the required
receipts or other required documentary evidence, each of DTD and each Lessee,
jointly and severally, shall indemnify the Agent and the Funding Parties for any
incremental taxes, interest or penalties that may become payable by the Agent or
any Funding Party as a result of any such failure. The agreements in this
subsection shall survive the termination of this Master Agreement and the Lease
and the payment of the Notes and all other amounts payable under the Operative
Documents.
(e) Tax Forms. Each Funding Party to this Master Agreement on
the Initial Closing Date that is not incorporated under the laws of the United
States of America or a state thereof agrees that, on or prior to the Initial
Closing Date, it will deliver to DTD and the Agent two duly completed copies of
(i) United States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, and (ii) an Internal Revenue Service Form
W-8 or W-9 or successor applicable form. Each such Funding Party also agrees to
deliver to DTD and the Agent two further copies of the said Form 1001 or 4224
and Form W-8 or W-9, or successor applicable forms or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to DTD, and such
extensions or renewals thereof as may reasonably be requested by DTD or the
Agent, unless in any such case an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Funding Party from duly completing and
delivering any such form with respect to it and such Funding Party so advises
DTD and the Agent. Such Funding Party shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under the Operative
Documents without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
(f) Breakage Costs. Each of DTD and each Lessee, jointly and
severally, agrees to indemnify each Funding Party and to hold each Funding Party
harmless from any loss or expense which such Funding Party may sustain or incur
as a consequence of (a) default by a Lessee in payment when due of the principal
amount of or interest on any LIBOR Advance, (b) default by a Lessee in making a
borrowing or conversion after such Lessee or the Construction Agent has given
(or is deemed to have given) a notice in accordance with this Master Agreement,
(c) default by the Construction Agent or a Lessee in making a borrowing of,
conversion into or continuation of LIBOR Advances after a Lessee or the
Construction Agent has given a notice requesting the same in accordance with the
provisions of this Master Agreement, (d) default by a Lessee in making any
prepayment of LIBOR Advances after such Lessee has given a notice thereof in
accordance with the provisions of the Operative Documents or (e) the making of a
prepayment, payment or conversion, of LIBOR Advances on a day which is not the
last day of a Rent Period with respect thereto, including, without limitation,
in each
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case, any such loss (other than non-receipt of the Applicable Margin or, without
duplication, anticipated profits) or expense arising from the reemployment of
funds obtained by it or from fees payable to terminate the deposits from which
such funds were obtained (it being understood that any such calculation will be
made on notional amounts as the Funding Parties are not required to show that
they matched deposits specifically). A certificate as to any additional amounts
payable pursuant to this subsection submitted by such Funding Party, through the
Agent, to DTD in good faith shall be conclusive in the absence of manifest
error. The provisions of this paragraph (f) shall survive the termination of
this Master Agreement and the Lease and the payment of the Notes and all other
amounts payable under the Operative Documents.
(g) Action of Affected Funding Parties. Each Funding Party
agrees to use reasonable efforts (including reasonable efforts to change the
booking office for its Loans) to avoid or minimize any illegality pursuant to
Section 7.5(a) or any amounts which might otherwise be payable pursuant to
Section 7.5(c) or (d); provided, however, that such efforts shall not cause the
imposition on such Funding Party of any additional costs or legal or regulatory
burdens deemed by such Funding Party to be material and shall not be deemed by
such Funding Party to be otherwise contrary to its policies. In the event that
such reasonable efforts are insufficient to avoid all such illegality or all
amounts that might be payable pursuant to Section 7.5(c) or (d), then such
Funding Party (the "Affected Funding Party") shall use its reasonable efforts to
transfer to any other Funding Party (which itself is not then an Affected
Funding Party) its Loans and Commitment, subject to the provisions of Section
6.2; provided, however, that such transfer shall not be deemed by such Affected
Funding Party, in its sole discretion, to be disadvantageous to it or contrary
to its policies. In the event that the Affected Funding Party is unable, or
otherwise is unwilling, so to transfer its Loans and Commitment, DTD may
designate an alternate lender (reasonably acceptable to the Agent) to purchase
the Affected Funding Party's Loans and Commitment, at par and including accrued
interest, and, subject to the provisions of Section 6.2, the Affected Funding
Party shall transfer its Commitment to such alternate lender and such alternate
lender shall become a Funding Party hereunder. Any fee payable to the Agent
pursuant to Section 6.2 in connection with such transfer shall be for the
account of DTD and the Lessees.
SECTION 7.6 End of Term Indemnity. In the event that at the end of the
Lease Term for the Leased Properties: (i) the related Lessee elects the option
set forth in Section 14.6 of the Lease, and (ii) after the Lessor receives the
sales proceeds from the Leased Properties under Section 14.6 or 14.7 of the
Lease, together with Lessees' payment of the Recourse Deficiency Amount, the
Lessor shall not have received the entire Lease Balance, then, within 90 days
after the end of the Lease Term, the Lessor or the Agent may obtain, at Lessees'
sole cost and expense, a report from the Appraiser (or, if the Appraiser is not
available, another appraiser reasonably satisfactory to the Lessor or the Agent,
as the case may be, and approved by DTD, such approval not to be unreasonably
withheld) in form and substance reasonably satisfactory to the Lessor and the
Agent (the "Report") to establish the reason for any decline in value of the
Leased Properties from the Lease Balance. The Lessees, jointly and severally,
shall promptly reimburse the Lessor for the amount equal to such decline in
value to the extent that the Report indicates that such decline was due to
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(v) during the time while any property was a Leased Property,
extraordinary use, failure to maintain, to repair, to restore, to
rebuild or to replace, failure to comply with all Applicable Laws,
failure to use good workmanship with respect to work performed after
the Closing Date related to such Leased Property, method of
installation or removal or maintenance, repair, rebuilding or
replacement, or any other cause or condition within the power of a
Lessee to control or effect resulting in the Building failing to be of
the type and quality contemplated by the Appraisal (excepting in each
case ordinary wear and tear), or
(w) any Alteration made to, or any rebuilding of, any Leased
Property or any part thereof by any Lessee, or
(x) any restoration or rebuilding carried out by any Lessee or
any condemnation of any portion of any Leased Property pursuant to
Article X of the Lease, or
(y) any use of any Leased Property or any part thereof by any
Lessee other than as permitted by the Lease, or any act or omission
constituting a breach of any requirement, condition, restriction or
limitation set forth in the related Deed or the related Purchase
Agreement, or
(z) the existence or compliance with any IDB Documentation.
ARTICLE VIII.
MISCELLANEOUS
SECTION 8.1 Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Documents, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Master Agreement and any of the
Operative Documents, the transfer of any Land to the Lessor as provided herein
(and shall not be merged into any Deed), any disposition of any interest of the
Lessor in any Leased Property, the purchase and sale of the Notes, payment
therefor and any disposition thereof and shall be and continue in effect
notwithstanding any investigation made by any party hereto or to any of the
other Operative Documents and the fact that any such party may waive compliance
with any of the other terms, provisions or conditions of any of the Operative
Documents.
SECTION 8.2 Notices. Unless otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be addressed to such parties at the addresses therefor as set forth
in Schedule 8.2, or such other address as any such party shall specify to the
other parties hereto, and shall be deemed to have been given (i) the Business
Day after being sent, if sent by overnight courier service; (ii) the Business
Day received, if sent by messenger; (iii) the day sent, if sent by facsimile and
confirmed electronically or otherwise during business hours of a Business Day
(or on the next Business
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Day if otherwise sent by facsimile and confirmed electronically or otherwise);
or (iv) three Business Days after being sent, if sent by registered or certified
mail, postage prepaid.
SECTION 8.3 Counterparts. This Master Agreement may be executed by the
parties hereto in separate counterparts (including by facsimile), each of which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 8.4 Amendments. No Operative Document nor any of the terms
thereof may be terminated, amended, supplemented, waived or modified with
respect to DTD, any Lessee or any Funding Party, except (a) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Lessees, with the written agreement or consent of DTD, and (b) in the case of a
termination, amendment, supplement, waiver or modification to be binding on the
Funding Parties, with the written agreement or consent of the Required Funding
Parties; provided, however, that
(x) notwithstanding the foregoing provisions of this Section
8.4 or clause (y) below, the consent of each Funding Party affected thereby
shall be required for any amendment, modification or waiver directly:
(i) modifying any of the provisions of this Section
8.4, changing the definition of "Required Funding Parties" or
"Required Lenders", or increasing the Commitment of such
Funding Party;
(ii) amending, modifying, waiving or supplementing
any of the provisions of Section 3 of the Loan Agreement or
the representations of such Funding Party in Section 4.2 or
4.3 or the covenants of such Funding Party in Section 6 of
this Master Agreement;
(iii) reducing any amount payable to such Funding
Party under the Operative Documents or extending the time for
payment of any such amount, including, without limitation, any
Rent, any Funded Amount, any fees, any indemnity, any Leased
Property Balance, the Lease Balance, any Funding Party
Balance, the Recourse Deficiency Amount, interest or Yield; or
(iv) consenting to any assignment of the Lease or the
extension of the Lease Term, releasing any of the collateral
assigned to the Agent and the Lenders pursuant to any Mortgage
and any Assignment of Lease and Rents (but excluding a release
of any rights that the Lenders may have in any Leased
Property, or the proceeds thereof as contemplated in the
definition of "Release Date"), releasing any Lessee from its
obligations in respect of the payments of Rent and the Lease
Balance, releasing DTD from its obligations under the
Operative Documents or changing the absolute and unconditional
character of any such obligation; and
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(y) no such termination, amendment, supplement, waiver or
modification shall, without the written agreement or consent of the Lessor, the
Agent and the Required Lenders, be made to the Lease or any Security Agreement
and Assignment; and
(z) subject to the foregoing clauses (x) and (y), so long as
no Event of Default has occurred and is continuing, the Lessor, the Agent and
the Lenders may not amend, supplement, waive or modify any terms of the Loan
Agreement, the Notes, the Mortgages and the Assignments of Lease and Rents
without the consent of DTD (such consent not to be unreasonably withheld or
delayed); provided that in no event may any Operative Document be amended so as
to increase the obligations of DTD or any Lessee, or deprive DTD or any Lessee
of any rights thereunder, without the written consent of DTD.
SECTION 8.5 Headings, etc. The Table of Contents and headings of the
various Articles and Sections of this Master Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
SECTION 8.6 Parties in Interest. Except as expressly provided herein,
none of the provisions of this Master Agreement is intended for the benefit of
any Person except the parties hereto and their respective successors and
permitted assigns.
SECTION 8.7 GOVERNING LAW. THIS MASTER AGREEMENT HAS BEEN DELIVERED IN,
AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF GEORGIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
SECTION 8.8 Expenses. Whether or not the transactions herein
contemplated are consummated, each of DTD and the Lessees, jointly and
severally, agrees to pay, as Supplemental Rent, all actual, reasonable and
documented out-of-pocket costs and expenses of the Lessor, the Agent and the
Lenders in connection with the preparation, execution and delivery of the
Operative Documents and the documents and instruments referred to therein and
any amendment, waiver or consent relating thereto (including, without
limitation, the reasonable fees and disbursements of Mayer, Brown & Platt, but
not including any fees and disbursements for any other outside counsel
representing any Lender) and of the Lessor, the Agent and the Lenders in
connection with endeavoring to enforce the Operative Documents and the documents
and instruments referred to therein (including, without limitation, the
reasonable fees actually incurred and disbursements of counsel for the Lessor,
the Agent and the Lenders), unless such enforcement action is finally denied by
a court on the merits. All references in the Operative Documents to "attorneys'
fees" or "reasonable attorneys fees" shall mean reasonable attorneys' fees
actually incurred, without regard to any statutory definition thereof.
SECTION 8.9 Severability. Any provision of this Master Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
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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.
SECTION 8.10 Liabilities of the Funding Parties: Sharing of Payments.
(a) No Funding Party shall have any obligation to any other
Funding Party or to the Guarantor or any Lessee with respect to the transactions
contemplated by the Operative Documents except those obligations of such Funding
Party expressly set forth in the Operative Documents or except as set forth in
the instruments delivered in connection therewith, and no Funding Party shall be
liable for performance by any other party hereto of such other party's
obligations under the Operative Documents except as otherwise so set forth. No
Lender shall have any obligation or duty to DTD or any Lessee, any other Funding
Parties or any other Person with respect to the transactions contemplated hereby
except to the extent of the obligations and duties expressly set forth in this
Master Agreement or the Loan Agreement.
(b) If any Funding Party shall obtain any payment (whether
voluntary or involuntary, or through the exercise of any right of set-off or
otherwise) on account of the Advances made by it in excess of its ratable share
of payments on account of the Advances obtained by all the Funding Parties, such
Funding Parties shall forthwith purchase from the other Funding Parties such
participations in the Advances owed to them as shall be necessary to cause such
purchasing Funding Party to share the excess payment ratably with each of them,
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Funding Party, such purchase from each
Funding Party shall be rescinded and such Funding Party shall repay to the
purchasing Funding Party the purchase price to the extent of such Funding
Party's ratable share (according to the proportion of (i) the amount of the
participation purchased from such Funding Party as a result of such excess
payment to (ii) the total amount of such excess payment) of such recovery
together with an amount equal to such Funding Party's ratable share (according
to the proportion of (i) the amount of such Funding Party's required repayment
to (ii) the total amount so recovered from the purchasing Funding Party) of any
interest or other amount paid or payable by the purchasing Funding Party in
respect of the total amount so recovered. Each Funding Party agrees that any
Funding Party so purchasing a participation from another Funding Party pursuant
to this Section 8.10 may, to the fullest extent permitted by law, exercise all
its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Funding Party were the direct creditor of such
Funding Party in the amount of such participation.
SECTION 8.11 Submission to Jurisdiction; Waivers. Each party hereto
hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Master Agreement or any other Operative
Document, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
State of Georgia sitting in Fulton County, the courts of the United
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States of America for the Northern District of Georgia, and appellate
courts from any thereof;
(ii) consents that any such action or proceedings may be
brought to such courts, and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same; and
(iii) agrees that nothing herein shall affect the right to
effect service of process in any manner permitted by law.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS MASTER
AGREEMENT, ANY OTHER OPERATIVE DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
SECTION 8.12 Liabilities of the Agent. The Agent shall have no duty,
liability or obligation to any party to this Master Agreement with respect to
the transactions contemplated hereby except those duties, liabilities or
obligations expressly set forth in this Master Agreement or the Loan Agreement,
and any such duty, liability or obligations of the Agent shall be as expressly
limited by this Master Agreement or the Loan Agreement, as the case may be. All
parties to this Master Agreement acknowledge that the Agent is not, and will not
be, performing any due diligence with respect to documents and information
received pursuant to this Master Agreement or any other Operative Agreement
including, without limitation, any Environmental Audit, Title Policy or survey.
The acceptance by the Agent of any such document or information shall not
constitute a waiver by any Funding Party of any representation or warranty of
DTD or any Lessee even if such document or information indicates that any such
representation or warranty is untrue.
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IN WITNESS WHEREOF, the parties hereto have caused this Master
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
DOLLAR TREE STORES, INC., as Guarantor
By: /s/ Frederick C. Coble
Name Printed: Frederick C. Coble
Title: Senior Vice President, CFO
DOLLAR TREE DISTRIBUTION, INC., as a
Lessee
By: /s/ Frederick C. Coble
Name Printed: Frederick C. Coble
Title: Senior Vice President, CFO
MASTER
AGREEMENT
S-1
<PAGE>
ATLANTIC FINANCIAL GROUP, LTD., as
Lessor
By: Atlantic Financial Managers, Inc., its
General Partner
By: /s/ Stephen Brookshire
Name Printed: Stephen Brookshire
Title: President
MASTER
AGREEMENT
S-2
<PAGE>
CRESTAR BANK, as Agent and as a Lender
By: /s/ Bruce W. Nave
Name Printed: Bruce W. Nave
Title: Sr. Vice President
MASTER
AGREEMENT
S-3
DOLLAR TREE STORES, INC.
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
Effective as of February 15, 2000
<PAGE>
DOLLAR TREE STORES, INC.
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
Effective as of February 15, 2000
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 ACCOUNT.........................................................1
1.2 BENEFICIARY ....................................................1
1.3 CODE ...........................................................1
1.4 COMPENSATION ...................................................1
1.5 COMPENSATION DEFERRAL ACCOUNT ..................................1
1.6 COMPENSATION DEFERRALS .........................................1
1.7 DESIGNATION DATE ...............................................2
1.8 EFFECTIVE DATE .................................................2
1.9 ELIGIBLE EMPLOYEE ..............................................2
1.10 EMPLOYER .......................................................2
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT ...........................2
1.12 EMPLOYER CONTRIBUTION CREDITS ..................................2
1.13 ENTRY DATE .....................................................2
1.14 PARTICIPANT ....................................................2
1.15 PARTICIPANT ENROLLMENT AND ELECTION FORM .......................2
1.16 PLAN ...........................................................3
1.17 PLAN YEAR ......................................................3
1.19 TRUST ..........................................................3
1.20 TRUSTEE ........................................................3
1.21 VALUATION DATE .................................................3
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS ...................................................3
2.2 RE-EMPLOYMENT ..................................................3
2.3 CHANGE OF EMPLOYMENT CATEGORY ..................................3
ARTICLE III
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS ..................................4
3.2 PARTICIPANT COMPENSATION DEFERRALS .............................4
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ARTICLE IV
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS ............5
4.2 ACCOUNTING FOR DISTRIBUTIONS ...................................5
4.3 SEPARATE BOOKKEEPING ACCOUNTS ..................................5
4.4 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS ...................6
4.5 PAYMENT OF TAXES AND EXPENSES ..................................7
ARTICLE V
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT .................7
5.2 HARDSHIP DISTRIBUTIONS .........................................8
5.3 RE-EMPLOYMENT OF RECIPIENT .....................................8
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.1 AMOUNT .........................................................8
6.2 METHOD OF PAYMENT ..............................................9
(a) Medium of Payment ........................................9
(b) Timing and Manner of Payment .............................9
6.3 DEATH BENEFITS .................................................9
ARTICLE VII
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES ...................................9
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND
BENEFICIARIES; INABILITY TO LOCATE PARTICIPANTS
OR BENEFICIARIES ..............................................10
ARTICLE VIII
ADMINISTRATION AND RECORDKEEPING
8.1 ADMINISTRATIVE AND RECORDKEEPING AUTHORITY ....................10
8.2 UNIFORMITY OF DISCRETIONARY ACTS ..............................11
8.3 LITIGATION ....................................................11
8.4 CLAIMS PROCEDURE ..............................................11
ii
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ARTICLE IX
AMENDMENT
9.1 RIGHT TO AMEND ................................................12
9.2 AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE
PLAN ..........................................................12
ARTICLE X
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE PLAN ............................12
10.2 AUTOMATIC TERMINATION OF PLAN .................................13
10.3 SUCCESSOR TO EMPLOYER .........................................13
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATIONS ON LIABILITY OF EMPLOYER ..........................13
11.2 CONSTRUCTION ..................................................13
11.3 SPENDTHRIFT PROVISION .........................................14
ARTICLE XII
THE TRUST
12.1 ESTABLISHMENT OF TRUST ........................................14
iii
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DOLLAR TREE STORES, INC.
SUPPLEMENTAL DEFERRED COMPENSATION PLAN
Effective as of February 15, 2000
RECITALS
This Dollar Tree Stores, Inc. Supplemental Deferred Compensation Plan
(the "Plan") is adopted by Dollar Tree Stores, Inc., Dollar Tree Distribution,
Inc. and Dollar Tree Management, Inc. (the "Employer") for certain of its
management employees. The purpose of the Plan is to offer those employees
deferred compensation benefits taxable under section 451 of the Internal Revenue
Code of 1986, as amended (the "Code") and to supplement such employees'
retirement benefits under the Employer's tax-qualified retirement plan and other
retirement programs. The Plan is intended to be a "top-hat plan" (i.e., an
unfunded deferred compensation plan maintained for a select group of management
or highly compensated employees) pursuant to sections 201(2), 301(a)(3) and
401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
Accordingly, the following Plan is adopted.
ARTICLE I
DEFINITIONS
The following terms, as used herein, unless a different meaning is
implied by the context, have the following meaning:
1.1 ACCOUNT means the balance credited to a Participant's Plan account,
including amounts credited under the Compensation Deferral Account and the
Employer Contribution Credit Account. Said Account shall be determined as of the
date of reference.
1.2 BENEFICIARY means any person or persons so designated in accordance
with the provisions of Article VII.
1.3 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
1.4 COMPENSATION means the total cash compensation of the Participant
for the Plan Year of reference, including regular pay (which includes car
allowance) and bonuses, but excluding any compensation for services rendered
before the Participant elects to defer compensation pursuant to Section 3.2.
1.5 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1.6 COMPENSATION DEFERRALS is defined in Section 3.2.
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1.7 DESIGNATION DATE means the date or dates as of which a designation
of deemed investment directions by an individual pursuant to Section 4.4 shall
become effective. The Designation Dates in any Plan Year include January 1,
April 1, July 1 and October 1.
1.8 EFFECTIVE DATE means the effective date of this the Plan, which
shall be February 15, 2000.
1.9 ELIGIBLE EMPLOYEE means any person employed by the Employer in a
Vice President or more senior position, or any other person employed by the
Employer who is determined by the Employer to be a member of a select group of
management or highly compensated employees of the Employer (within the meaning
of ERISA), who is designated by the Employer's Board of Directors to be an
Eligible Employee under the Plan and to whom the Employer desires to provide
supplemental retirement benefits.
By each December 1, the Employer shall notify those individuals, if
any, who will be Eligible Employees for the next Plan Year. If the Employer
determines that an individual first becomes an Eligible Employee during a Plan
Year, the Employer shall notify such individual of its determination and of the
date during the Plan Year on which the individual shall first become an Eligible
Employee.
1.10 EMPLOYER means Dollar Tree Stores, Inc., Dollar Tree Distribution,
Inc., Dollar Tree Management, Inc. and any direct or indirect wholly owned
subsidiary of the foregoing corporations, and their successors and assigns
unless otherwise herein provided, or any other corporation or business
organization which, with the consent of Dollar Tree Stores, Inc. or its
successors or assigns, assumes the Employer's obligations hereunder, or any
other corporation or business organization which agrees, with the consent of
Dollar Tree Stores, Inc., to become a party to the Plan.
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined in Section 3.1.
1.12 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.
1.13 ENTRY DATE with respect to an individual means the first day of a
pay period following the date on which the individual becomes an Eligible
Employee.
1.14 PARTICIPANT means any person so designated in accordance with the
provisions of Article II, including, where appropriate according to the context
of the Plan, any former employee who is or may become (or whose Beneficiaries
may become) eligible to receive a benefit under the Plan.
1.15 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form (or forms)
on which a Participant elects to defer Compensation hereunder, on which the
Participant makes elections concerning the time and manner of payment of amounts
attributable to such election, and on which the Participant makes certain other
designations as required thereon.
2
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1.16 PLAN means this Dollar Tree Stores, Inc. Supplemental Deferred
Compensation Plan, as amended from time to time.
1.17 PLAN YEAR means the twelve (12) month period ending on the
December 31 of each year during which the Plan is in effect. Notwithstanding the
preceding, the period beginning February 15, 2000 and ending December 31, 2000
shall be a short Plan Year.
1.19 TRUST means the trust fund, if any, established pursuant to the
Plan.
1.20 TRUSTEE means the trustee named in the agreement establishing the
Trust and such successor and/or additional trustees as may be named pursuant to
the terms of the agreement establishing the Trust.
1.21 VALUATION DATE means the last day of each Plan Year or such other
date the Employer, in its sole discretion, designates as a Valuation Date.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS. Every Eligible Employee on the Effective Date shall
be eligible to become a Participant on the Effective Date. Every other Eligible
Employee shall be eligible to become a Participant on the first Entry Date
occurring on or after the date on which he or she becomes an Eligible Employee.
No individual shall become a Participant, however, if he or she is not an
Eligible Employee on the date his or her participation is to begin.
Participation in the Compensation Deferral Account portion of the
Plan is voluntary. In order to participate in the Compensation Deferral Account
portion of the Plan, an otherwise Eligible Employee must make written
application in such manner as may be required by Section 3.2 and by the Employer
and must agree to make Compensation Deferrals as provided in Article III.
Participation in the Employer Contribution Credit Account portion
of the Plan is automatic for all Participants.
2.2 RE-EMPLOYMENT. If a Participant whose employment with the Employer
is terminated is subsequently re-employed with the Employer, he or she shall
become a Participant in accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a
Participant remains in the employ of the Employer, but ceases to be an Eligible
Employee, he or she shall not be eligible to make Compensation Deferrals or to
be credited with Employer Contribution Credits hereunder.
3
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ARTICLE III
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant, which shall be credited or debited, as applicable, with (a) amounts
equal to the Employer's Contribution Credits credited to that Account; and (b)
amounts equal to any deemed earnings and losses (to the extent realized, based
upon deemed fair market value of the Account's deemed assets as determined by
the Employer, in its discretion) allocated to that Account; and (c) expenses
and/or taxes charged to that Account.
The Employer's Contribution Credits credited to a Participant's
Employer Contribution Credit Account for any particular Plan Year shall be an
amount (if any) determined by the Employer, in its discretion.
A Participant shall become vested in amounts (if any) credited to
his or her Employer Contribution Credit Account according to the vesting
schedule to be adopted by the Employer, in its discretion.
3.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation which
is due to be earned and which would otherwise be paid to the Participant, in any
fixed periodic dollar amounts or percentages designated by the Participant,
provided that the Participant may elect to defer no more than fifty percent
(50%) of his or her Compensation (excluding bonuses) in any Plan Year. In the
case of bonus deferrals, the Participant may elect to defer up to one hundred
percent (100%) of his or her bonus or bonuses due to be paid by the Employer.
Amounts so deferred will be considered a Participant's "Compensation Deferrals."
Compensation Deferrals shall be made through regular payroll deductions or
through an election by the Participant to defer the payment of a bonus not yet
payable to him or her at the time of the election.
A Participant shall make such elections with respect to a coming
twelve (12) month Plan Year by the December 15th of the prior Plan Year,
provided, however, during the Plan Year in which the Plan is first implemented
(i.e., the Plan Year beginning February 15, 2000), a Participant may make an
election to defer Compensation for such Plan Year (including any bonus payable
during such Plan Year which is not yet payable at the time of the election)
within thirty (30) days after the Plan is effective; and, in the first Plan Year
in which a Participant becomes eligible to Participate, a Participant may make
an election to defer Compensation within thirty (30) days after the date the
Participant becomes eligible to participate.
Once made, a Compensation Deferral election shall continue in
force for the remainder of the Plan Year. Compensation Deferrals shall be
deducted by the Employer from the pay of a deferring Participant and shall be
credited to the Account of the deferring Participant.
There shall be established and maintained by the Employer a
separate Compensation Deferral Account in the name of each Participant, to which
shall be credited or debited, as applicable: (a) amounts equal to
4
<PAGE>
the Participant's Compensation Deferrals; (b) amounts equal to any deemed
earnings and losses (to the extent realized, based upon deemed fair market value
of the Account's deemed assets as determined by the Employer in its discretion)
attributable or allocable thereto; and (c) expenses and/or taxes charged to that
Account.
A Participant shall at all times be one hundred percent (100%)
vested in amounts credited to his or her Compensation Deferral Account.
ARTICLE IV
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Pursuant to
Section 4.4, each Participant shall have the right to direct the Employer as to
how amounts in his or her Plan Account shall be deemed to be invested in the
deemed investment options made available under the Plan. In no event, however,
shall the Employer or the Participant be deemed to invest in stock of the
Employer. Subject to such limitations as may from time to time be required by
law, imposed by the Employer or the Trustee or contained elsewhere in the Plan,
and subject to such operating rules and procedures as may be imposed from time
to time by the Employer, prior to the date on which a direction will become
effective, the Participant shall have the right to direct the Employer as to how
amounts in his or her Account shall be deemed to be invested. The Employer shall
direct the Trustee to invest the account maintained in the Trust on behalf of
the Participant pursuant to the deemed investment directions the Employer
properly has received from the Participant.
The value of the Participant's Account shall be equal to the
value of the account maintained under the Trust on behalf of the Participant. As
of each valuation date of the Trust, the Participant's Account will be credited
or debited to reflect the Participant's deemed investments of the Trust. The
Participant's Plan Account will be credited or debited with the increase or
decrease in the realizable net asset value or credited interest, as applicable,
of the designated deemed investments, as follows. As of each Valuation Date, an
amount equal to the net increase or decrease in realizable net asset value or
credited interest, as applicable (as determined by the Trustee), of each deemed
investment option within the Account since the preceding Valuation Date shall be
allocated among all Participants' Accounts deemed to be invested in that
investment option in accordance with the ratio which the portion of the Account
of each Participant which is deemed to be invested within that investment
option, determined as provided herein, bears to the aggregate of all amounts
deemed to be invested within that investment option.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to a Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
Such amounts shall be charged on a pro rata basis against the investment options
in which the Participant's Account is deemed to be invested. Such amounts shall
be charged first against any money market, fixedincome or similar fund in which
the Participant's Account is deemed to be invested, and thereafter on a pro rata
basis against the investment options in which the Participant's Account is
deemed to be invested.
4.3 SEPARATE BOOKKEEPING ACCOUNTS. A separate bookkeeping account
under the Plan shall be established and maintained by the Employer to reflect
the Account for each
5
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Participant, with bookkeeping sub-accounts to show separately the Participant's
Compensation Deferral Account and the Participant's Employer Contribution Credit
Account. Each sub-account will separately account for the credits and debits
described in Article III.
4.4 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such
limitations as may from time to time be required by law, imposed by the Employer
or the Trustee or contained elsewhere in the Plan, and subject to such operating
rules and procedures as may be imposed from time to time by the Employer, prior
to and effective for each Designation Date, each Participant may communicate to
the Employer a direction (in accordance with (a), below) as to how his or her
Plan Accounts should be deemed to be invested among such categories of deemed
investments as may be made available by the Employer hereunder. Such direction
shall designate the percentage (in any whole percent multiples) or amount (in
any whole dollar multiples) or amount (in any whole dollar multiples) of each
portion of the Participant's Plan Accounts which is requested to be deemed to be
invested in such categories of deemed investments, and shall be subject to the
following rules:
(a) Any initial or subsequent deemed investment direction shall be
in writing, on a form supplied by and filed with the Employer, and/or, as
required or permitted by the Employer, shall be by oral designation and/or
electronic transmission designation. A designation shall be effective as of the
Designation Date next following the date the direction is received and accepted
by the Employer on which it would be reasonably practicable for the Employer to
effect the designation.
(b) All amounts credited to the Participant's Account shall be
deemed to be invested in accordance with the then effective deemed investment
direction, and as of the Designation Date with respect to any new deemed
investment direction, all or a portion of the Participant's Account at that date
shall be reallocated among the designated deemed investment options according to
the percentages or amounts specified in the new deemed investment direction
unless and until a subsequent deemed investment direction shall be filed and
become effective. An election concerning deemed investment choices shall
continue indefinitely as provided in the Participant's most recent Participant
Enrollment and Election Form, or other form specified by the Employer.
(c) If the Employer receives an initial or revised deemed
investment direction which it deems to be incomplete, unclear or improper, the
Participant's investment direction then in effect shall remain in effect (or, in
the case of a deficiency in an initial deemed investment direction, the
Participant shall be deemed to have filed no deemed investment direction) until
the next Designation Date, unless the Employer provides for, and permits the
application of, corrective action prior thereto.
(d) If the Employer possesses (or is deemed to possess as provided
in (c), above) at any time directions as to the deemed investment of less than
all of a Participant's Account, the Participant shall be deemed to have directed
that the undesignated portion of the Account be deemed to be invested in a money
market, fixed income or similar fund made available under the Plan as determined
by the Employer in its discretion.
6
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(e) Each Participant hereunder, as a condition to his or her
participation hereunder, agrees to indemnify and hold harmless the Employer and
its agents and representatives from any losses or damages of any kind relating
to the deemed investment of the Participant's Account hereunder.
(f) Each reference in this Section to a Participant shall be deemed
to include, where applicable, a reference to a Beneficiary.
4.5 PAYMENT OF TAXES AND EXPENSES. Expenses, including Trustee fees,
associated with the administration or operation of the Plan shall be charged
against the appropriate Participant's Account or Participants' Accounts, unless,
in the discretion of the Employer, the Employer elects to pay such expenses. Any
taxes (or net operating loss reductions) allocable to an Account (or portion
thereof) maintained under the Plan which arise prior to the complete
distribution of the Account, shall be charged against the appropriate
Participant's Account or Participants' Accounts, unless, in the discretion of
the Employer, the Employer elects to absorb such taxes.
ARTICLE V
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account (or elect to treat his or her Account as two (2) or more sub-accounts
and select fixed payment dates for the payment or commencement of payment of
each sub-account), which will be valued and payable according to the provisions
of Article VI. Such payment dates may not be accelerated.
Alternatively, on his or her Participant Enrollment and Election
Form, a Participant may select payment or commencement of payment of his or her
vested Account (or a sub-account thereof) at his or her termination of
employment with the Employer. A Participant who selects payment or commencement
of payment of his or her vested Account (or portions thereof) on a fixed date or
dates shall receive payment or commence to receive payment of his or her vested
Account at the earlier of such fixed payment date or dates or his or her
termination of employment with the Employer.
Any fixed payment date elected by a Participant as provided above
must be a date no earlier than the January 1 of the third calendar year after
the calendar year in which the election is made.
If a Participant does not make an election as provided above for
any particular amounts hereunder, and the Participant terminates employment with
the Employer for any reason, the Participant's vested Account at the date of
such termination shall be valued and payable at or commencing at such
termination according to the provisions of Article VI.
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5.2 HARDSHIP DISTRIBUTIONS. In the event of an "Unforeseeable
Emergency" of the Participant, as hereinafter defined, the Participant may apply
to the Employer for the distribution of all or any part of his or her vested
Account. The Employer shall consider the circumstances of each such case, and
the best interests of the Participant and his or her family, and shall have the
right, in its sole discretion, if applicable, to allow such distribution, or, if
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of an "Unforeseeable
Emergency", the Employer shall make the appropriate distribution to the
Participant from amounts held by the Employer in respect of the Participant's
vested Account. In no event shall the aggregate amount of the distribution
exceed either the full value of the Participant's vested Account or the amount
determined by the Employer to be necessary to alleviate the Participant's
financial hardship caused by the "Unforeseeable Emergency" (which financial
hardship may be considered to include any taxes due because of the distribution
occurring because of this Section), and which is not reasonably available from
other resources of the Participant. For purposes of this Section, the value of
the Participant's Account shall be determined as of the date of the
distribution.
"Unforeseeable Emergency" means a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent 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. The circumstances that will constitute an "Unforeseeable Emergency"
would depend upon the facts of each case, but, in any case, payment may not be
made in the event that such hardship is or may be relieved:
(a) Through reimbursement or compensation by insurance or otherwise,
(b) by liquidation of the Participant's assets, to the extent that
liquidation of such assets would not itself cause severe financial hardship, or
(c) by cessation of Compensation Deferrals under the Plan.
The need to send a Participant's child to college or the desire to
purchase a home shall not be an "Unforeseeable Emergency."
5.3 RE-EMPLOYMENT OF RECIPIENT. If a Participant receiving installment
distributions pursuant to Section 6.2 is re-employed by the Employer as an
employee, the remaining distributions due to the Participant shall be suspended
until such time as the Participant (or his or her Beneficiary) once again
becomes eligible for benefits under Section 5.1 or 5.2, at which time such
distribution shall commence, subject to the limitations and conditions contained
in this Plan.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become
entitled to receive, on or about the date or dates selected by the Participant
on his or her Participant
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<PAGE>
Enrollment and Election Form or, if none, on or about the date of the
Participant's termination of employment (or earlier as provided in Article V), a
distribution in an aggregate amount equal to the Participant's vested Account.
Any payment due hereunder will be paid by the Employer from its general assets
or from the Trust, if any.
6.2 METHOD OF PAYMENT.
(a) Medium of Payment. Payments under the Plan shall be made in
cash or in-kind, as elected by the Participant, as permitted by the Employer and
the Trustee in their sole and absolute discretion and subject to applicable
restrictions on transfer as may be applicable legally or contractually.
(b) Timing and Manner of Payment. In the case of distributions to a
Participant or his or her Beneficiary by virtue of an entitlement pursuant to
Section 5.1, an aggregate amount equal to the Participant's vested Account will
be paid by the Employer or the Trust, as provided by Section 6.1, in a lump sum
or in substantially equal annual installments (adjusted for gains, losses and
expenses) over a period selected by the Participant. If a Participant fails to
designate timely and properly the manner of payment of the Participant's benefit
under the Plan, such payment will be in a lump sum. In no event may the
installments extend beyond a period exceeding the life expectancy of the
Participant.
If the whole or any part of a payment hereunder by the Employer
is to be in installments, the total to be so paid shall continue to be deemed to
be invested pursuant to Sections 4.1 and 4.4 under such procedures as the
Employer may establish, in which case any deemed income, gain, loss or expense
attributable thereto (as determined by the Employer, in its discretion) shall be
reflected in the installment payments, in such equitable manner as the Employer
shall determine.
6.3 DEATH BENEFITS. If a Participant dies before terminating his or
her employment with the Employer and before the commencement of payments to the
Participant hereunder, the entire value of the Participant's vested Account
shall be paid, as provided in Section 6.2, to the person or persons designated
in accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have
begun but before he or she has received all payments to which he or she is
entitled under the Plan, the remaining benefit payments shall be paid to the
person or persons designated in accordance with Section 7.1, in the manner in
which such benefits were payable to the Participant, unless the Employer elects
a more rapid form of distribution.
ARTICLE VII
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time
may designate any person or persons (who may be named contingently or
successively) to receive such benefits as may be payable under the Plan upon or
after the Participant's death, and such designation may be changed from time to
time by the Participant by filing a new designation.
9
<PAGE>
Each designation will revoke all prior designations by the same Participant,
shall be in the form prescribed by the Employer, and will be effective only when
filed in writing with the Employer during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at the
time any benefit payment is due to a Beneficiary, there is no living Beneficiary
validly named by the Participant, the Employer shall pay any such benefit
payment to the Participant's spouse, if then living, but otherwise to the
Participant's estate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records, shall be binding on the
Participant or Beneficiary for all purposes of the Plan. Neither the Trustee nor
the Employer shall be obliged to search for any Participant or Beneficiary
beyond the sending of a registered letter to such last known address. If the
Employer notifies any Participant or Beneficiary that he or she is entitled to
an amount under the Plan and the Participant or Beneficiary fails to claim such
amount or make his or her location known to the Employer within three (3) years
thereafter, then, except as otherwise required by law, if the location of one or
more of the next of kin of the Participant is known to the Employer, the
Employer may direct distribution of such amount to any one or more or all of
such next of kin, and in such proportions as the Employer determines. If the
location of none of the foregoing persons can be determined, the Employer shall
have the right to direct that the amount payable shall be deemed to be a
forfeiture and paid to the Employer, except that the dollar amount of the
forfeiture, unadjusted for deemed gains or losses in the interim, shall be paid
by the Employer if a claim for the benefit subsequently is made by the
Participant or the Beneficiary to whom it was payable. If a benefit payable to
an unlocated Participant or Beneficiary is subject to escheat pursuant to
applicable state law, neither the Trustee nor the Employer shall be liable to
any person for any payment made in accordance with such law.
ARTICLE VIII
ADMINISTRATION AND RECORDKEEPING
8.1 ADMINISTRATIVE AND RECORDKEEPING AUTHORITY. Except as otherwise
specifically provided herein, the Employer shall have the sole responsibility
for and the sole control of the operation, administration and recordkeeping of
the Plan, and shall have the power and authority to take all action and to make
all decisions and interpretations which may be necessary or appropriate in order
to administer and operate the Plan, including, without limiting the generality
of the foregoing, the power, duty and responsibility to:
(a) Resolve and determine all disputes or questions arising under
the Plan, including the power to determine the rights of Participants and
Beneficiaries, and their respective benefits, and to remedy any ambiguities,
inconsistencies or omissions, in the Plan.
(b) Adopt such rules of procedure and regulations as in its
opinion may be necessary for the proper and efficient administration of the Plan
and as are consistent with the Plan.
10
<PAGE>
(c) Implement the Plan in accordance with its terms and the rules
and regulations adopted as above.
(d) Subject to Section 9.1, make determinations concerning the
crediting and distribution of Participants' benefits.
8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such action shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. In any action or judicial proceeding affecting the
Plan, it shall be necessary to join as a party only the Employer. Except as may
be otherwise required by law, no Participant or Beneficiary shall be entitled to
any notice or service of process, and any final judgment entered in such action
shall be binding on all persons interested in, or claiming under, the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer and the
Employer shall respond in writing. If the claim is denied, the written notice of
denial shall state, in a manner calculated to be understood by the Claimant:
(a) The specific reason or reasons for denial, with specific
references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation of why
such material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall
be provided to the Claimant within ninety (90) days after the Employer's receipt
of the claim, unless special circumstances require an extension of time for
processing the claim. If such an extension is required, written notice of the
extension shall be furnished by the Employer to the Claimant within the initial
ninety (90) day period and in no event shall such an extension exceed a period
of ninety (90) days from the end of the initial ninety (90) day period. Any
extension notice shall indicate the special circumstances requiring the
extension and the date on which the Employer expects to render a decision on the
claim. Any claim not granted or denied within the period noted above shall be
deemed to have been denied.
Any Claimant whose claim is denied, or deemed to be denied under
the preceding sentence (or such Claimant's authorized representative), may,
within sixty (60) days after the Claimant's receipt of notice of the denial, or
after the date of the deemed denial, request a review of the denial by notice
given, in writing, to the Employer. Upon such a request for review, the
11
<PAGE>
claim shall be reviewed by the Employer (or its designated representative) which
may, but shall not be required to, grant the Claimant a hearing. In connection
with the review, the Claimant may have representation, may examine pertinent
documents, and may submit issues and comments in writing.
The decision on review normally shall be made within sixty (60)days
of the Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer, and the time limit for the decision on review shall be
extended to one hundred twenty (120) days. The decision on review shall be in
writing and shall state, in a manner calculated to be understood by the
Claimant, the specific reasons for the decision and shall include references to
the relevant Plan provisions on which the decision is based. The written
decision on review shall be given to the Claimant within the sixty (60) day (or,
if applicable, the one hundred twenty (120) day) time limit discussed above. If
the decision on review is not communicated to the Claimant within the sixty (60)
day (or, if applicable, the one hundred twenty (120) day) period discussed
above, the claim shall be deemed to have been denied upon review. All decisions
on review shall be final and binding with respect to all concerned parties.
ARTICLE IX
AMENDMENT
9.1 RIGHT TO AMEND. The Employer, by action of its Board of Directors,
shall have the right to amend the Plan at any time and with respect to any
provisions hereof, and all parties hereto or claiming any interest hereunder
shall be bound by such amendment; provided, however, that no such amendment
shall deprive any Participant or Beneficiary of a right accrued hereunder prior
to the date of the amendment.
9.2 AMENDMENT TO ENSURE PROPER CHARACTERIZATION OF THE PLAN.
Notwithstanding the provisions of Section 9.1, the Plan may be amended at any
time, retroactively if required, if found necessary, in the opinion of the
Employer, in order to ensure that the Plan is characterized as a
non-tax-qualified "top hat" plan of deferred compensation maintained for a
select group of management or highly compensated employees, as described under
ERISA sections 201(2), 301(a)(3) and 401(a)(1) and to conform the Plan and the
Trust to the provisions and requirements of any applicable law (including ERISA
and the Code).
ARTICLE X
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE PLAN. The Employer reserves the
right, at any time, to terminate the Plan and/or its obligation to make further
credits to Plan Accounts by unanimous action of its Board of Directors;
provided, however, that no such termination shall deprive any Participant or
Beneficiary of a right accrued hereunder prior to the date of termination and
provided that, upon termination, the full amount of each Participant's vested
Plan account(s) shall become immediately distributable to him or her.
12
<PAGE>
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan shall terminate
automatically upon the dissolution of the Employer or upon the Employer's merger
into or consolidation with any other corporation or business organization which
does not specifically adopt and agree to continue the Plan; provided, however,
that no such termination shall deprive any Participant or Beneficiary of a right
accrued hereunder prior to the date of termination and provided that, upon
termination, the full amount of each Participant's vested Plan Account shall
become immediately distributable to him or her.
10.3 SUCCESSOR TO EMPLOYER. Any corporation or other business
organization which is a successor to the Employer by reason of a consolidation,
merger or purchase of substantially all of the assets of the Employer shall have
the right to become a party to the Plan by adopting the same by resolution of
the entity's board of directors or other appropriate governing body. If, within
thirty (30) days from the effective date of such consolidation, merger or sale
of assets, such new entity does not become a party hereto, as above provided,
the Plan shall be terminated automatically, and the provisions of the foregoing
Sections shall become operative.
ARTICLE XI
MISCELLANEOUS
11.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of
the Plan nor any modification hereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan, shall be construed as
giving to any Participant or any other person any legal or equitable right
against the Employer or any officer or employee thereof, except as provided by
law or by any Plan provision. The Employer does not in any way guarantee any
Participant's Account from loss or depreciation, whether caused by poor
investment performance of a deemed investment or the inability to realize upon
an investment due to an insolvency affecting an investment vehicle or any other
reason. In no event shall the Employer, or any successor, employee, officer,
director or stockholder of the Employer, be liable to any person on account of
any claim arising by reason of the provisions of the Plan or of any instrument
or instruments implementing its provisions, or for the failure of any
Participant, Beneficiary or other person to be entitled to any particular tax
consequences with respect to the Plan, or any credit or distribution hereunder.
11.2 CONSTRUCTION. If any provision of the Plan is held to be illegal
or void, such illegality or invalidity shall not affect the remaining provisions
of the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein. For all purposes of the Plan, where the context permits, the singular
shall include the plural, and the plural shall include the singular. Headings of
Articles and Sections herein are inserted only for convenience of reference and
are not to be considered in the construction of the Plan. The laws of Virginia
shall govern, control and determine all questions of law arising with respect to
the Plan and the interpretation and validity of its respective provisions,
except where those laws are preempted by the laws of the United States.
Participation under the Plan will not give a Participant the right to be
retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
13
<PAGE>
The Plan is intended to be and at all times shall be interpreted
and administered so as to qualify as an unfunded plan of deferred compensation
(i.e., the mere promise of the Employer to make benefit payments in the future),
and no provision of this Plan shall be interpreted so as to give any individual
any right in any assets of the Employer which right is greater than the rights
of any general unsecured creditor of the Employer.
11.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or any
Beneficiary under the Plan will be subject in any manner to anticipation,
alienation, attachment, garnishment, sale, transfer, assignment (either at law
or in equity), levy, execution, pledge, encumbrance, charge or any other legal
or equitable process, and any attempt to do so will be void; nor will any
benefit hereunder be in any manner liable for or subject to the debts,
contracts, liabilities, engagements or torts of the person entitled thereto.
Further, (a) the withholding of taxes from Plan benefit payments, (b) the
recovery under the Plan of overpayments of benefits previously made to a
Participant or any Beneficiary, (c) if applicable, the transfer of benefit
rights from the Plan to another plan, or (d) the direct deposit of Plan benefit
payments to an account in a banking institution (if not actually part of an
arrangement constituting an assignment or alienation) shall not be construed as
an assignment or alienation.
In the event that a Participant's or any Beneficiary's benefits
hereunder are garnished or attached by order of any court, the Employer may
bring an action for a declaratory judgment in a court of competent jurisdiction
to determine the proper recipient of the benefits to be paid under the Plan.
During the pendency of said action, any benefits that become payable shall be
held as credits to a Participant's or Beneficiary's Account or, if the Employer
prefers, paid into the court as they become payable, to be distributed by the
court to the recipient as it deems proper at the close of said action.
ARTICLE XII
THE TRUST
12.1 ESTABLISHMENT OF TRUST. The Employer may, but need not, establish
the Trust with the Trustee pursuant to such terms and conditions as are set
forth in the Trust agreement to be entered into between the Employer and the
Trustee. The Trust is intended to be treated as a "grantor" trust under the Code
and the establishment of the Trust is not intended to cause the Participant to
realize current income on amounts contributed thereto nor to cause the Plan to
be "funded" within the meaning of ERISA, and the Trust shall be so interpreted.
14
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed
and its seal to be affixed hereto, effective as of the 15th day of February,
2000.
ATTEST/WITNESS: DOLLAR TREE STORES, INC.
/s/ Frederick C. Coble By: /s/ Macon F. Brock (SEAL)
Print Name: Frederick C. Coble Print Name: Macon F. Brock
Date: 2-4-00
ATTEST/WITNESS: DOLLAR TREE DISTRIBUTION, INC.
/s/ Frederick C. Coble By: /s/ Macon F. Brock (SEAL)
Print Name: Frederick C. Coble Print Name: Macon F. Brock
Date: 2/24/00
ATTEST/WITNESS: DOLLAR TREE MANAGEMENT, INC.
/s/ Frederick C. Coble By: /s/ Macon F. Brock (SEAL)
Print Name: Frederick C. Coble Print Name: Macon F. Brock
Date: 2/24/00
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The registrant is the parent company of Dollar Tree Distribution, Inc., a
distribution, warehousing and wholesale company, and Dollar Tree Management,
Inc., a management services company, both of which are Virginia companies.
Dollar Tree Distribution, Inc., is the parent of another Virginia company,
Dollar Tree Properties, Inc., a real estate holding company.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Dollar Tree Stores, Inc.:
We consent to incorporation by reference in the registration statements on Form
S-8 (Nos., 33-92812, 33-92814, 33-92816, 333-61139 and 333-38735) of Dollar Tree
Stores, Inc. of our report dated January 24, 2000 relating to the consolidated
balance sheets of Dollar Tree Stores, Inc. and subsidiaries as of December 31,
1999 and 1998 and the related consolidated income statements and statements of
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999 which report appears herein.
/s/ KPMG LLP
Norfolk, Virginia
March 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the Company's
Consolidated Financial Statements filed on Form 10-K for the periods ended
December 31, 1999, December 31, 1998 and December 31, 1997, and is qualified in
its entirety by reference to such financial statements. The Financial Data
Schedules for 1998 and 1997 are restated to give effect to the merger with
Tehan's Merchandising, Inc., which was accounted for as a pooling of interests.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> Dec-31-1999 Dec-31-1998 Dec-31-1997
<PERIOD-END> Dec-31-1999 Dec-31-1998 Dec-31-1997
<CASH> 176,514 74,644 47,638
<SECURITIES> 0 0 0
<RECEIVABLES> 0 0 0
<ALLOWANCES> 0 0 0
<INVENTORY> 174,582 142,706 110,820
<CURRENT-ASSETS> 369,495 231,510 170,819
<PP&E> 220,155 178,823 125,770
<DEPRECIATION> 76,132 56,320 38,630
<TOTAL-ASSETS> 571,128 405,187 306,698
<CURRENT-LIABILITIES> 149,950 117,328 105,506
<BONDS> 82,058 49,426 41,166
0 0 0
0 0 0
<COMMON> 621 614 405
<OTHER-SE> 360,350 248,202 163,952
<TOTAL-LIABILITY-AND-EQUITY> 571,128 405,187 306,698
<SALES> 1,197,960 944,122 745,590
<TOTAL-REVENUES> 1,197,960 944,122 745,590
<CGS> 746,906 590,381 474,612
<TOTAL-COSTS> 746,906 590,381 474,612
<OTHER-EXPENSES> 288,641 233,324 184,315
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 4,522 4,927 3,554
<INCOME-PRETAX> 159,608 116,086 83,254
<INCOME-TAX> 61,090 44,533 31,295
<INCOME-CONTINUING> 98,518 71,553 51,959
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 98,518 71,553 51,959
<EPS-BASIC> 1.59 1.17 0.86
<EPS-DILUTED> 1.45 1.06 0.78
</TABLE>
