U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 1997
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _______ to _______
Commission File Number 1-14556; 0-21857
POORE BROTHERS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 86-0786101
-------- ----------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
3500 S. La Cometa Drive, Goodyear, Arizona 85338
- ------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(602) 932-6200
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of June 30, 1997, the number of issued and outstanding shares of common stock
of the Registrant was 7,051,657.
Transitional Small Business Disclosure Format (check one): Yes No X
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Table of Contents
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996............................ 3
Consolidated Statements of Operations for the three and six months ended June 30, 1997
and 1996......................................................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1997
and 1996......................................................................................... 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.............................................................................. 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 12
Item 2. Changes in Securities............................................................................ 12
Item 3. Defaults Upon Senior Securities.................................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 12
Item 5. Other Information................................................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................................................. 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1997 1996
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 953,473 $ 3,603,850
Restricted certificate of deposit ................................ 1,250,000
Short term investments ........................................... 2,003,436
Accounts receivable, net of allowance of $136,000 in 1997
and $121,000 in 1996 ........................................... 2,189,806 1,912,064
Inventories ...................................................... 475,880 863,309
Other current assets ............................................. 77,614 193,581
------------ ------------
Total current assets ........................................... 5,700,209 7,822,804
Property and equipment, net ......................................... 6,422,862 4,032,343
Goodwill, net ....................................................... 2,233,439 2,295,617
Organizational costs, net ........................................... 148,779 174,614
Other assets ........................................................ 109,826 15,067
------------ ------------
Total assets ................................................... $ 14,615,115 $ 14,340,445
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................. $ 964,614 $ 1,318,952
Accrued and other current liabilities ............................ 403,522 500,192
Current portion of long-term debt ................................ 621,112 1,818,058
------------ ------------
Total current liabilities ...................................... 1,989,248 3,637,202
Long-term debt, less current portion ................................ 5,242,598 3,355,651
Other liabilities ................................................... 6,000
------------ ------------
Total liabilities .............................................. 7,231,846 6,998,853
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares authorized,
shares issued and outstanding 7,051,657 (1997), 6,648,824 (1996) 70,516 66,488
Additional paid-in capital ....................................... 10,789,769 9,702,940
Accumulated deficit .............................................. (3,477,016) (2,427,836)
------------ ------------
Total shareholders' equity ..................................... 7,383,269 7,341,592
Total liabilities and shareholders' equity ..................... $ 14,615,115 $ 14,340,445
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues ..................................... $ 3,756,427 $ 4,702,808 $ 7,613,814 $ 8,168,848
Cost of sales ................................ 2,918,550 3,687,739 5,904,052 6,292,248
----------- ----------- ----------- -----------
Gross profit ........................ 837,877 1,015,069 1,709,762 1,876,600
Selling, general and administrative expenses . 1,043,923 845,516 2,200,977 1,698,500
Depreciation and amortization ................ 102,684 88,100 197,400 207,670
Sale of Texas distribution business .......... 209,361 269,859
----------- ----------- ----------- -----------
Operating income (loss) ............. (518,091) 81,453 (958,474) (29,570)
----------- ----------- ----------- -----------
Interest income .............................. 31,911 2,704 74,687 1,949
Interest expense ............................. (84,580) (93,016) (165,393) (185,122)
----------- ----------- ----------- -----------
Net interest expense................. (52,669) (90,312) (90,706) (183,173)
----------- ----------- ----------- -----------
Net loss ..................................... $ (570,760) $ (8,859) $(1,049,180) $ (212,743)
=========== =========== =========== ===========
Loss per common share and common share
equivalent ................................. $ (0.08) $ (0.00) $ (0.15) $ (0.05)
Loss per common share - assuming full dilution * * * *
Weighted average common and common
equivalent shares outstanding .............. 7,004,826 4,232,036 6,982,594 4,250,490
=========== =========== =========== ===========
</TABLE>
*Anti-dilutive.
The accompanying notes are an integral part of these financial statements.
4
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POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $(1,049,180) $ (212,743)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................................. 207,414 207,670
Bad debt expense .......................................................... 21,500
Change in operating assets and liabilities:
Accounts receivable ..................................................... (220,828) (576,966)
Inventories ............................................................. 230,601 (50,432)
Other assets and liabilities ............................................ 60,107 (28,423)
Accounts payable and accrued liabilities ................................ (457,008) 319,313
----------- -----------
Net cash used in operating activities .......................................... (1,207,394) (341,581)
----------- -----------
Cash flows from investing activities:
Proceeds on disposal of property ............................................ 767,859 3,080
Sale of Texas distribution business......................................... 78,414
Purchase of equipment ...................................................... (2,275,463) (357,865)
Purchase of short term investments ......................................... (2,003,436)
----------- -----------
Net cash used in investing activities........................................... (3,432,626) (354,785)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock ...................................... 1,253,431 1,046,511
Payments on purchase of common stock ........................................ (56,709)
Stock issuance costs ........................................................ (162,574) (94,639)
Proceeds from issuance of long-term debt..................................... 1,677,793
Payments made on long-term debt ............................................. (2,010,723) (91,760)
Net decrease in restricted certificate of deposit............................ 1,250,000
Net increase (decrease) in working capital line of credit.................... (18,284) 127,000
----------- -----------
Net cash provided by financing activities ...................................... 1,989,643 930,403
----------- -----------
Net increase (decrease) in cash and cash equivalents ........................... (2,650,377) 234,037
Cash and cash equivalents at beginning of period ............................... 3,603,850 200,603
----------- -----------
Cash and cash equivalents at end of period ..................................... $ 953,473 $ 434,640
=========== ===========
Supplemental disclosures of cash flow information:
Summary of non cash investing and financing activities:
Construction loan for new facility ........................................ $ 998,746
Mortgage impounds for interest, taxes and insurance ....................... 35,990
Note received for sale of Texas distribution business ..................... 78,414
Capital lease obligation incurred - equipment acquisition ................. 6,479 $ 148,112
Cash paid during the six months for interest, net of amounts
capitalized ................................................................. 194,793 220,289
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies:
General
Poore Brothers, Inc. (the "Company"), a Delaware corporation, was
organized in February 1995 as a holding company and on May 31, 1995
acquired substantially all of the equity of Poore Brothers Southeast, Inc.
("PB Southeast") in an exchange transaction pursuant to which 1,560,000
previously unissued shares of the Company's common stock, par value $.01
per share (the "Common Stock"), were exchanged for 150,366 issued and
outstanding shares of PB Southeast's common stock. The exchange transaction
with PB Southeast has been accounted for similar to a pooling since both
entities had common ownership and control immediately prior to the
transaction. In December 1996, the Company completed an initial public
offering of its common stock.
On June 4, 1997, Poore Brothers of Texas, Inc. ("PB Texas"), a
wholly-owned subsidiary of Poore Brothers, Inc., sold its Houston, Texas
distribution business to Mr. David Hecht, (the "Buyer"), pursuant to an
Asset Purchase, Licensing and Distribution Agreement effective June 1,
1997. Under the Agreement, the Buyer was sold certain assets of PB Texas
(including inventory, vehicles and capital equipment), was granted a
license to be the Company's exclusive distributor in the Houston, Texas
market, and agreed not to distribute any other brand of kettle chips.
The Company manufactures and distributes potato chip and other snack
food products under the Poore Brothers(TM) brand name, as well as private
label potato chips and also distributes a wide variety of other
independently manufactured snack food items.
Basis of Presentation
The consolidated financial statements include the accounts of Poore
Brothers, Inc. and all of its controlled subsidiaries. In all situations,
the Company owns from 94% to 100% of the voting interests of the controlled
subsidiaries. All significant intercompany amounts and transactions have
been eliminated. The financial statements have been prepared in accordance
with the instructions for Form 10-QSB and, therefore, do not include all
the information and footnotes required by generally accepted accounting
principles. In the opinion of the Company, all adjustments required to
fairly present the Company's financial position, results of operations and
cash flows as of June 30, 1997 have been made. A description of the
Company's accounting policies and other financial information is included
in the audited December 31, 1996 financial statements filed with the Form
10-KSB. Included in this filing are footnotes and information that is new
or updated subsequent to the filing of the Form 10-KSB for the fiscal year
ended December 31, 1996. The results of operations for the quarter and six
months ended June 30, 1997 are not necessarily indicative of the results
expected for the full year.
Loss Per Share
Loss per common share and common share equivalent ("loss per common
share") is computed by dividing the net loss by the weighted average number
of shares of Common Stock and common stock equivalents outstanding during
each period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83, Company issuance of Common Stock, and
options and warrants to purchase Common Stock granted by the Company during
the 12 months immediately preceding the initial filing date of the public
offering have been included in the calculation of weighted average number
of shares of Common Stock outstanding as if the underlying shares were
outstanding for all periods presented (even if anti-dilutive, using the
treasury stock method and an offering price of $3.50 per share). The effect
on loss per common share for the outstanding options and warrants issued
prior to the one year period preceding the initial public offering have
been excluded from the loss per common share computation as they are
anti-dilutive. For 1996, the principles of SAB No. 83 were applied for the
first three quarters of the year before the initial public offering became
effective. For the first half of 1997, the principles of Accounting
Principles Board Opinion No. 15 were followed. Accordingly, the effect on
6
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loss per common share of the outstanding options and warrants in the first
half of 1997 have been excluded from the computation as they are
anti-dilutive. Loss per common share, assuming full dilution, is not
applicable for loss periods as it is anti-dilutive.
2. Long-Term Debt
On June 4, 1997, the Company refinanced its $998,746 construction loan
provided by National Bank of Arizona, for the Company's new 60,000 square foot
manufacturing, distribution and headquarters facility in Goodyear, Arizona. The
new permanent financing, provided by Morgan Guaranty Trust Company of New York,
is a $2 million, 15-year mortgage at 9.03%.
In addition, on June 25, 1997, the Company received funding of $719,007
from FINOVA Capital Corporation on a $930,000, 5-year, 8.71% equipment lease
line for new production equipment installed recently in the Company's new
facility.
3. Litigation
On July 11, 1997, summary judgment was granted in favor of all
defendants, including Poore Brothers Southeast, Inc., a subsidiary of Poore
Brothers, Inc., on all counts of the Gossett lawsuit. In that lawsuit, James
Gossett asserted that he was entitled to acquire up to 49% of the stock of Poore
Brothers Southeast, Inc. pursuant to an alleged oral agreement with Mark
Howells, Poore Brothers' current Chairman of the Board of Directors. Mr. Gossett
also asserted claims based upon an alleged breach of fiduciary duty and alleged
interference with the business of Poore Brothers Pacific, Inc., a company with
which Mr. Gossett claimed to be associated. In its July 11, 1997 Order, the
Maricopa County (Arizona) Superior Court ruled that there was no oral contract
and that the remainder of plaintiffs' claims could not support a cause of action
against the defendants. Because no final judgment has been entered by the Court,
the time for filing post-judgment motions and/or for perfecting an appeal has
not expired.
4. Pro Forma Financial Statements
On June 4, 1997, Poor Brothers of Texas, Inc. ("PB Texas"), a
wholly-owned subsidiary of the Registrant, entered into an Asset Purchase,
Licensing and Distribution Agreement effective June 1, 1997, pursuant to which
PB Texas sold certain assets (including inventory, vehicles and capital
equipment) to Mr. David Hecht (the "Buyer"). In addition, pursuant to the
Agreement the Buyer has been granted a license to be Registrant's exclusive
distributor in the Houston, Texas market. The purchase price for the assets sold
by PB Texas is approximately $157,000, 50% of which was paid by the Buyer in
cash at the closing and 50% of which will be paid pursuant to a one year,
non-interest bearing promissory note issued by the Buyer to the Registrant. The
Registrant will provide certain financial support to the Buyer, estimated at up
to $40,000, in connection with the transition of the business to the Buyer. As a
result of this transaction, the PB Texas distribution operation has been
dissolved.
Pro forma information has been provided below for the following periods
- - the three months ended June 30, 1997 and 1996; and the six months ended June
30, 1997 and 1996. The pro forma data is based on the historical statement of
operations, with elimination of all PB Texas transactions. The revenue decrease
associated with the elimination of PB Texas was $447,128 for the three months
ended June 30, 1997 and $1,323,427 for the six months then ended. Costs and
expenses were reduced with the elimination of PB Texas by $506,489 for the three
months ended June 30, 1997 and $1,443,286 for the six months ended June 30,
1997. There was an additional one time charge of $150,000 in June 1997
associated with the disposition of PB Texas. Accordingly, the financial
statements have been adjusted to reflect the above mentioned amounts.
7
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4. Pro Forma Financial Statements (cont.)
POORE BROTHERS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 3,756,427 $ 3,867,748 $ 7,613,814 $ 6,761,641
Cost of sales 2,918,550 2,958,785 5,904,052 5,030,531
----------- ----------- ----------- -----------
Gross profit 837,877 908,963 1,709,762 1,731,110
Selling, general and administrative expenses 1,043,923 711,047 2,200,977 1,406,291
Depreciation and amortization 102,684 79,100 197,400 189,670
----------- ----------- ----------- -----------
Operating income (loss) (308,730) 118,816 (688,615) 135,149
Net interest expense (52,669) (91,144) (90,706) (182,425)
----------- ----------- ----------- -----------
Net income (loss) (361,399) 28,672 (779,321) (47,276)
=========== =========== =========== ===========
Loss per common share and common share
equivalent $ (0.05) 0.01 (0.11) (0.01)
=========== =========== =========== ===========
</TABLE>
5. New Accounting Pronouncements
In February 1997, the Financial Accounting Standard Board ("FASB")
adopted Statement of Financial Accounting Standard No. 128, Earnings per Share
("SFAS 128"), which supersedes and simplifies the standards for computing
earnings per share ("EPS") previously found in Accounting Principles Board
Opiniion No. 15, Earnings per Share ("APB 15"). SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted. The Company
will provide the required EPS disclosures in its financial statements commencing
with the fiscal year ended December 31, 1997. SFAS 128 requires restatement of
all prior period EPS data presented. Pursuant to the provisions of SFAS 128, the
Company's net loss per common share was $.08 for the 1997 second quarter and
$.00 for the 1996 second quarter. The application of the provisions of SFAS 128
would have no effect on the amounts reported in the 1997 and 1996 second
quarters for net loss per common share assuming full dilution.
In February 1997, FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. This statement established standards for disclosing
information about an entity's capital structure. The Company has not yet
determined the effect, if any, of SFAS No. 129 on the consolidated financial
statements.
FASB Statement No. 130 "Reporting Comprehensive Income," which the
company will adopt during the first quarter of 1998, establishes standards for
reporting and display of comprehensive income and its components in financial
statements. Comprehensive income generally represents all changes in
shareholders' equity except those resulting from investments by or distributions
to shareholders. The Company has not yet determined the effect, if any, of SFAS
No. 130 on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. This Statement will change the way
public companies report information about segments of their business in their
annual financial statements and requires them to report selected segment
information in their quarterly reports issued to shareholders. It also requires
entity-wide disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and its major
customers. The Statement is effective for fiscal years beginning after December
15, 1997. The Company has not yet determined the effect, if any, of SFAS 131 on
the consolidated financial statements.
8
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Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
Quarter ended June 30, 1997 compared to the quarter ended June 30, 1996
Revenues for the three months ended June 30, 1997 were $3,756,427, down
$946,381 or 20%, from $4,702,808 for the three months ended June 30, 1996. The
disposition of the PB Texas distribution operation contributed $909,427 to the
revenue decline. An additional $296,022 resulted from the decrease in sales of
products manufactured by others, primarily due to the elimination of several
unprofitable product lines. Poore Brothers manufactured potato chip revenues,
excluding PB Texas, for the second quarter of 1997 were $2,943,898, up $259,068
or 10%, from $2,684,830 for the second quarter of 1996, driven by expanded
geographic markets and increased sales of low-fat product.
Gross profit for the three months which ended June 30, 1997, was
$837,877, or 22% of revenues, as compared to $1,015,069, or 22% of revenues, for
the three months which ended June 30, 1996. The decrease in gross profit dollars
of $177,192 was due to lower revenues.
Selling, general and administrative expenses increased to $1,043,923
for the three months ended June 30, 1997 from $845,516 for the same period in
1996. This represented a $198,407 increase, or 23%, over the second quarter of
1996. Included in selling, general, and administrative expenses were $84,000 of
insurance, printing, legal and accounting expenses not incurred prior to Poore
Brothers becoming a public company in December 1996. Also, charges of $44,000
were incurred due to the required occupancy of dual facilities while the Company
completes the transition to its new Arizona facility. In addition, the Company
has incurred $54,000 in increased freight costs due to the expansion of sales
into new geographical regions.
Depreciation and amortization totaled $102,684 for the quarter ended
June 30, 1997 and $88,100 for the quarter ended June 30, 1996. The increase of
$14,584 or 17%, was primarily due to the purchase of new manufacturing
equipment.
During the second quarter of 1997, the Company incurred a loss of
$209,361 in connection with its PB Texas subsidiary. These charges include a
loss from operations in the amount of $59,361. An additional $150,000 in charges
were incurred to dispose of the PB Texas business. These costs are related to
asset write-downs, severance and other shutdown expenses.
Net interest expense decreased to $52,669 for the quarter ended June
30, 1997 from $90,312 for the quarter ended June 30, 1996. This decrease was due
primarily to interest income generated from investment of the proceeds of the
initial public offering and secondarily from lower interest expense resulting
from payments on the Company's indebtedness with a portion of the proceeds from
the initial public offering.
The Company's net losses for the quarters ended June 30, 1997 and June
30, 1996 were $570,760 and $8,859, respectively. The increased net loss was
attributable primarily to the disposition of the Texas operation, and the higher
selling, general and administrative expenses.
9
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Six months ended June 30, 1997 compared to the six months ended June
30, 1996
Revenues for the six months ended June 30, 1997 were $7,613,814, down
$555,034 or 7%, from $8,168,848 for the six months ended June 30, 1996. The
disposition of the PB Texas distribution operation decreased revenue by
$1,616,214. This decrease was offset by significant growth in the Company's own
manufactured product lines. Sales of Kettle chips grew to $4,946,400, up
$755,298 or 18%, from $4,191,102, for the same six-month period in 1996. The
private label business, launched in the first quarter of 1996, generated
revenues of $462,214 for the first six months of 1997, up $82,584 or 22% from
the same period of 1996. The low-fat business, launched during June of 1996;
contributed $272,097 for the first six months of 1997, compared to only $14,724
during the first half of 1996. Sales of products manufactured by others declined
only $34,075 to $1,933,103 despite the Company's elimination of several
unprofitable lines.
Gross profit for the six months ended June 30, 1997 was $1,709,762 or
22% of revenues, as compared to $1,876,600 or 23% of revenues for the six months
ended June 30, 1996. This decrease in gross profit is due to lower revenues and
a slight erosion in gross profit as a percentage of sales. Gross profit as a
percentage of sales decreased slightly due to higher labor costs associated with
the transition to new equipment and a new facility, along with slightly higher
raw material costs than experienced in 1996.
Selling, general and administrative expenses increased to $2,200,977
for the six months ended June 30, 1997, up $502,477 or 30%, from $1,698,500 in
1996. Included in selling, general and administrative expenses in 1997 were
approximately $255,000 of expenses related to severance, relocation, moving and
equipment writedowns. In addition, $108,000 of insurance, printing, legal and
accounting expenses were incurred during the first six months of 1997 that were
not incurred prior to the initial public offering that occurred in December
1996. Due to the expansion into new geographical regions, the Company has
incurred $93,000 in additional freight costs.
The Sale of Texas distribution business reflects a $119,859 loss from
operations of the PB Texas business, along with one-time expenses of $150,000
related to the disposal of the operation.
Depreciation and amortization totaled $197,400 for the six months ended
June 30, 1997 and $207,670 for the six months ended June 30, 1996. The decrease
of $10,270, or 5%, was partially due to the sale of the Company's old Goodyear,
Arizona facilities in February, offset by new equipment additions. Since the
sale and until the Company completes the move to the new facility, rental
charges on the old buildings will be incurred.
Net interest expense decreased to $90,706 for the six months ended June
30, 1997 from $183,173 for the six months ended June 30, 1996. This decrease was
due primarily to interest income generated from investment of the proceeds of
the initial public offering and secondarily from lower interest expense
resulting from lower interest expense resulting from payments on the Company's
indebtedness with a portion of the proceeds from the initial public offering.
The Company's net losses for the six months ended June 30, 1997 and
June 30, 1996 were $1,049,180 and $212,743 respectively. The increased net loss
was attributable to lower gross profit due to lower revenues, disposal of PB
Texas distribution business, along with higher selling, general and
administrative expenses.
10
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Liquidity and Capital Resources
Net working capital was $3,710,961 at June 30, 1997, with a current
ratio of 2.9:1. At December 31, 1996, net working capital was $4,185,602 with a
current ratio of 2.2:1. The $474,641 decrease in working capital was primarily
attributable to the Company's cash operating loss of approximately $820,000.
During the second quarter of 1997, the Company refinanced its $1 million new
facility construction loan into a $2 million, 15-year mortgage arrangement at
9.03% with Morgan Guaranty Trust Company of New York. In addition, the Company
received funding of $719,000 from FINOVA Capital Corporation on a $930,000,
5-year, 8.71% equipment lease line for new production equipment installed at the
new facility.
As a result of the expansion of the Company's operations, the Company may
incur additional operating losses in the future. Expenditures relating to market
and territory expansion, new product development and equipment relocation may
adversely affect cost of sales and selling, general and administrative expenses
and consequently may adversely affect operating and net income. These types of
expenditures are expensed for accounting purposes as incurred, while revenue
generated from the result of such expansion may benefit future periods.
Management believes that existing working capital, together with
available line of credit borrowings and anticipated cash flows from operations,
will be sufficient to finance the operations of the Company for at least the
next twelve months. The belief is based on current operating plans and certain
assumptions, including those relating to the Company's future revenue levels and
expenditures, industry and general economic conditions and other conditions. If
any of these factors change, the Company may require future debt or equity
financings to meet its business requirements. There can be no assurance that
such financings will be available or, if available, on terms attractive to the
Company.
FORWARD LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-QSB AND IN FUTURE FILINGS BY THE COMPANY WITH
THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE WORDS OR PHRASES
"WILL LIKELY RESULT," "THE COMPANY EXPECTS," "WILL CONTINUE," "IS ANTICIPATED,"
"ESTIMATED," "PROJECT," OR "OUTLOOK," OR SIMILAR WORDS OR EXPRESSIONS, ARE
INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY WISHES TO CAUTION READERS NOT TO
PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, EACH OF WHICH SPEAK
ONLY AS OF THE DATE MADE. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. IN LIGHT OF
SUCH RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING
INFORMATION CONTAINED IN THIS FORM 10-QSB WILL, IN FACT, TRANSPIRE OR PROVE TO
BE ACCURATE. THE COMPANY HAS NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY
REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT
ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF
SUCH STATEMENTS.
11
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 11, 1997, summary judgment was granted in favor of all
defendants, including Poore Brothers Southeast, Inc., a subsidiary of Poore
Brothers, Inc., on all counts of the Gossett lawsuit. In that lawsuit, James
Gossett asserted that he was entitled to acquire up to 49% of the stock of Poore
Brothers Southeast, Inc. pursuant to an alleged oral agreement with Mark
Howells, Poore Brothers' current Chairman of the Board of Directors. Mr. Gossett
also asserted claims based upon an alleged breach of fiduciary duty and alleged
interference with the business of Poore Brothers Pacific, Inc., a company with
which Mr. Gossett claimed to be associated. In its July 11, 1997 Order, the
Maricopa County (Arizona) Superior Court ruled that there was no oral contract
and that the remainder of plaintiffs' claims could not support a cause of action
against the defendants. Because no final judgment has been entered by the Court,
the time for filing post-judgment motions and/or for perfecting an appeal has
not expired.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
At June 30, 1997, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of
$2,299,591. The Company was not in compliance with a required interest coverage
ratio of 1.5:1 that the Company is required to maintain while the 9% Convertible
Debentures are outstanding. However, the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through September 30,
1997. After that time, the Company will be required to be in compliance with the
following financial ratios, so long as the 9% Convertible Debentures remain
outstanding: working capital of at least $1,000,000; minimum shareholders equity
(net worth) that will be calculated based upon the earnings of the Company and
the consideration received by the Company from issuances of securities by the
Company; an interest coverage ratio of at least 1.5:1; and a current ratio at
the end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible
Debentures is paid by the Company on a monthly basis. Payments of principal are
required to be made by the Company beginning in July 1998 through July 2002.
Management believes that the fulfillment of the Company's plans and objectives
will enable the Company to attain a sufficient level of profitability to be in
compliance with the financial ratios or alternatively, that the Company will be
able to obtain an extension or renewal of the waivers; however, there can be no
assurance that the Company will attain any such profitability, be in compliance
with the financial ratios upon the expiration of the waivers or be able to
obtain an extension or renewal of the waivers. Any acceleration under the 9%
Convertible Debentures prior to their maturity on July 1, 2002 could have a
material adverse effect upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the Company (the "Meeting") was held
on June 12, 1997.
(b) Proxies for the Meeting were solicited pursuant to Regulation 14A under the
Exchange Act. There was no solicitation in opposition to the management's
nominees as listed in the proxy statement and all of such nominees were
elected.
(c) At the Meeting, the Company's stockholders voted upon the election of six
directors of the Company. Management's nominees were Messrs. Mark S.
Howells, Eric J. Kufel, Jeffrey J. Puglisi, Parris H. Holmes, Jr., Robert
C. Pearson and Aaron M. Shenkman. There were no other nominees. The
following are the respective numbers of votes cast "for" and withheld with
respect to each nominee. There were no votes cast against or broker
non-votes with respect to any nominee.
Name of Nominee Votes Cast For Votes Withheld
- --------------- -------------- --------------
Mark S. Howells 5,220,944 29,675
Eric J. Kufel 5,221,219 29,400
Jeffrey J. Puglisi 5,221,219 29,400
Parris H. Holmes, Jr. 5,221,094 29,525
Robert C. Pearson 5,221,219 29,400
Aaron M. Shenkman 5,221,219 29,400
At the Meeting, stockholders also voted upon a proposal to amend the Company's
1995 Stock Option Plan to increase the number of shares of the Company's Common
Stock reserved for issuance pursuant to options granted thereunder by 500,000,
from 1,000,000 to 1,500,000 shares. The following votes were cast at the Meeting
with regard to such proposal.
For Against Abstentions and Broker Non-Votes
- --- ------- --------------------------------
2,978,823 190,358 2,081,438
As such proposal received a majority of the votes cast at the Meeting, such
proposal was adopted. There were no other matters voted upon at the Meeting.
Item 5. Other Information
None.
12
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
10.1 Employment Agreement dated April 10, 1997, by and between the Company
and Thomas W. Freeze.**
10.2 Asset Purchase, Licensing and Distribution Agreement dated as of June
1, 1997, by and between Poore Brothers of Texas, Inc. and Mr. David
Hecht.***
10.3 Fixed Rate Note dated June 4, 1997, by and between La Cometa
Properties, Inc. and Morgan Guaranty Trust Company of New York.*
10.4 Deed of Trust and Security Agreement dated June 4, 1997, by and between
La Cometa Properties, Inc. and Morgan Guarantee Trust Company of New
York.*
10.5 Guaranty Agreement dated June 4, 1997, by and between the Company and
Morgan Guaranty Trust Company of New York.*
10.6 Equipment Lease Agreement dated June 9, 1997, by and between Poore
Brothers of Arizona, Inc. and FINOVA Capital Corporation.*
11.1 Statement regarding computation of per share earnings. *
27.1 Financial Data Schedule. *
99.1 Poore Brothers, Inc. 1995 Stock Option Plan*
* Filed herewith.
** Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1997.
*** Incorporated by reference to the Company's Current Report on Form 8-K
dated June 4, 1997.
(b) Current reports on Form 8-K.
(1) Current Report on Form 8-K, dated June 4, 1997, regarding the
consummation of the sale by Poore Brothers of Texas, Inc. of its
Houston, Texas distribution business.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
-------------------------------------
Dated: August 14, 1997 Eric J. Kufel
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas W. Freeze
-------------------------------------
Dated: August 14, 1997 Thomas W. Freeze
Vice President, Chief Financial
Officer, Treasurer and
Secretary
(principal financial and accounting
officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.3 Fixed Rate Note dated June 4, 1997, by and between La Cometa
Properties, Inc. and Morgan Guaranty Trust Company of New York.
10.4 Deed of Trust and Security Agreement dated June 4, 1997, by and between
La Cometa Properties, Inc. and Morgan Guarantee Trust Company of New
York.
10.5 Guaranty Agreement dated June 4, 1997, by and between the Company and
Morgan Trust Guaranty Company of New York.
10.6 Equipment Lease Agreement dated June 9, 1997, by and between Poore
Brothers of Arizona, Inc. and FINOVA Capital Corporation.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule.
99.1 Poore Brothers, Inc. 1995 Stock Option Plan
15
Loan No. DHC#V00138
FIXED RATE NOTE
$2,000,000.00 June 3, 1997
FOR VALUE RECEIVED LA COMETA PROPERTIES, INC., an Arizona corporation,
(hereinafter referred to as "Borrower"), promises to pay to the order of MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, a New York banking corporation, its
successors and assigns (hereinafter referred to as "Lender"), at the office of
Lender or its agent, designee, or assignee at 60 Wall Street, New York, New York
10260-0060, Attention: Loan Servicing, or at such place as Lender or its agent,
designee, or assignee may from time to time designate in writing, the principal
sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00), in lawful money of the
United States of America, with interest thereon to be computed on the unpaid
principal balance from time to time outstanding at the Applicable Interest Rate
(hereinafter defined) at all times prior to the occurrence of an Event of
Default (as defined in the Security Instrument [hereinafter defined]), and to be
paid in installments as set forth below. Unless otherwise herein defined, all
initially capitalized terms shall have the meanings given such terms in the
Security Instrument.
1. PAYMENT TERMS
Principal and interest due under this Note shall be paid as follows:
(a) A payment of interest only on the date hereof for the
period from the date hereof through June 30, 1997, both inclusive; and
(b) A constant payment of $16,825.03, on the first day of
August, 1997 and on the first day of each calendar month thereafter up to and
including the first day of July, 2012;
with payments under this Note to be applied as follows:
(i) First, to the payment of interest and other costs
and charges due in connection with this Note or the Debt, as Lender may
determine in its sole discretion; and
(ii) The balance shall be applied toward the
reduction of the principal sum;
and the balance of said principal sum, together with accrued and unpaid interest
and any other amounts due under this Note shall be due and payable on the first
day of July, 2012 or upon earlier maturity hereof whether by acceleration or
otherwise (the "Maturity Date"). Interest on the principal sum of this Note
shall be calculated on the basis of a three hundred sixty (360) day year
composed of twelve (12) months of thirty (30) days each, except that interest
calculated with reference to the maximum rate permitted by applicable law shall
be calculated by multiplying the
MORGAN GUARANTY TRUST COMPANY
1
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actual number of days elapsed in such period by a daily rate based on a year of
365/366 days (as applicable). All amounts due under this Note shall be payable
without setoff, counterclaim or any other deduction whatsoever.
2. INTEREST
The term "Applicable Interest Rate" means from the date of this Note
through and including the Maturity Date, a rate of nine and three one-hundreths
percent (9.03%) per annum.
3. SECURITY
This Note is secured by, and Lender is entitled to the benefits of, the
Security Instrument, the Assignment, the Environmental Agreement, and the other
Loan Documents (hereinafter defined). The term "Security Instrument" means the
Deed of Trust and Security Agreement dated the date hereof given by Borrower for
the use and benefit of Lender covering the estate of Borrower in certain
premises as more particularly described therein (which premises, together with
all properties, rights, titles, estates and interests now or hereafter securing
the Debt and/or other obligations of Borrower under the Loan Documents, are
collectively referred to herein as the "Property"). The term "Assignment" means
the Assignment of Leases and Rents of even date herewith executed by Borrower in
favor of Lender. The term "Environmental Agreement" means the Environmental
Indemnity Agreement of even date herewith executed by Borrower in favor of
Lender. The term "Loan Documents" refers collectively to this Note, the Security
Instrument, the Assignment, the Environmental Agreement, and any and all other
documents executed in connection with this Note or now or hereafter executed by
Borrower and/or others and by or in favor of Lender, which wholly or partially
secure or guarantee payment of this Note or pertains to indebtedness evidenced
by this Note.
4. LATE FEE
If any installment payable under this Note (including the final
installment due on the Maturity Date) is not received by Lender within ten (10)
days after the date on which it is due (without regard to any applicable cure
and/or notice period), Borrower shall pay to Lender upon demand an amount equal
to the lesser of (a) five percent (5%) of such unpaid sum or (b) the maximum
late fee permitted by applicable law to defray the expenses incurred by Lender
in handling and processing such delinquent payment and to compensate Lender for
the loss of the use of such delinquent payment, and such amount shall be secured
by the Loan Documents.
5. DEFAULT AND ACCELERATION
So long as an Event of Default exists, Lender may, at its option,
without notice or demand to Borrower, declare the Debt immediately due and
payable. All remedies hereunder, under the Loan Documents and at law or in
equity shall be cumulative. In the event that it should become necessary
MORGAN GUARANTY TRUST COMPANY
2
<PAGE>
to employ counsel to collect the Debt or to protect or foreclose the security
for the Debt or to defend against any claims asserted by Borrower arising from
or related to the Loan Documents, Borrower also agrees to pay to Lender on
demand all costs of collection or defense incurred by Lender, including
reasonable attorneys' fees for the services of counsel whether or not suit be
brought.
6. DEFAULT INTEREST
Upon the occurrence of an Event of Default Borrower shall pay interest
on the entire unpaid principal sum and any other amounts due under the Loan
Documents at the rate equal to the greater of (i) five percent (5%) above the
Applicable Interest Rate or (ii) five percent (5%) above the Prime Rate
(hereinafter defined), in effect at the time of the occurrence of the Event of
Default (the "Default Rate"). The term "Prime Rate" means the prime rate
reported in the Money Rates section of The Wall Street Journal. In the event
that The Wall Street Journal should cease or temporarily interrupt publication,
the term "Prime Rate" shall mean the daily average prime rate published in
another business newspaper, or business section of a newspaper, of national
standing and general circulation chosen by Lender. In the event that a prime
rate is no longer generally published or is limited, regulated or administered
by a governmental or quasi-governmental body, then Lender shall select a
comparable interest rate index which is readily available and verifiable to
Borrower but is beyond Lender's control. The Default Rate shall be computed from
the occurrence of the Event of Default until the actual receipt and collection
of a sum of money determined by Lender to be sufficient to cure the Event of
Default. Amounts of interest accrued at the Default Rate shall constitute a
portion of the Debt, and shall be deemed secured by the Loan Documents. This
clause, however, shall not be construed as an agreement or privilege to extend
the date of the payment of the Debt, nor as a waiver of any other right or
remedy accruing to Lender by reason of the occurrence of any Event of Default.
7. PREPAYMENT
(a) The principal balance of this Note may not be prepaid in
whole or in part (except with respect to the application of casualty or
condemnation proceeds) prior to the sixth Loan Year (as hereinafter defined).
During the sixth Loan Year or at anytime thereafter, provided no Event of
Default exists, the principal balance of this Note may be prepaid, in whole but
not in part (except with respect to the application of casualty or condemnation
proceeds), on any scheduled payment date under this Note upon not less than
thirty (30) days prior written notice to Lender specifying the scheduled payment
date on which prepayment is to be made (the "Prepayment Date") and upon payment
of (i) interest accrued and unpaid on the principal balance of this Note to and
including the Prepayment Date, (ii) all other sums then due under this Note and
the other Loan Documents, and (iii) a prepayment consideration in an amount
equal to the greater of (A) one percent (1%) of the outstanding principal
balance of this Note at the time of prepayment, or (B) (x) the present value as
of the Prepayment Date of the remaining scheduled payments of principal and
interest from the Prepayment Date through the Maturity Date (including any
balloon payment) determined by discounting such payments at the Discount Rate
(as hereinafter defined), less (y) the amount of principal being prepaid. The
term "Discount Rate" means the rate which, when compounded
MORGAN GUARANTY TRUST COMPANY
3
<PAGE>
monthly, is equivalent to the Treasury Rate (as hereinafter defined), when
compounded semi-annually. The term "Treasury Rate" means the yield calculated by
the linear interpolation of the yields, as reported in Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading "U.S.
Government Securities/Treasury Constant Maturities" for the week ending prior to
the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. (In
the event Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate.) Lender shall notify Borrower of the
amount and the basis of determination of the required prepayment consideration.
Notwithstanding the foregoing, Borrower shall have the additional privilege to
prepay the entire principal balance of this Note (together with any other sums
constituting the Debt) on any scheduled payment date during the six (6) months
preceding the Maturity Date without any fee or consideration for such privilege.
If any such notice of prepayment is given, the principal balance of this Note
and the other sums required under this paragraph shall be due and payable on the
Prepayment Date. Lender shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by the prepayment
consideration due in connection therewith. The term "Loan Year" for purposes of
this paragraph means each complete 365-day period (366 days in a leap year)
after the first scheduled payment date set forth in Section 1 of this Note.
(b) If following the occurrence of any Event of Default,
Borrower shall tender payment of an amount sufficient to satisfy the Debt at any
time prior to a sale of the Property, either through foreclosure or the exercise
of the other remedies available to Lender under the Security Instrument, such
tender by Borrower shall be deemed to be a voluntary prepayment under this Note
in the amount tendered. If at the time of such tender, prepayment of the
principal balance of this Note is not permitted, Borrower shall, in addition to
the entire Debt, also pay to Lender a sum equal to interest which would have
accrued on the principal balance of this Note at the Applicable Interest Rate in
effect on the date which is five (5) days prior to the date of prepayment, from
the date of such tender to the first day of the period during which prepayment
of the principal balance of this Note would have been permitted, together with a
prepayment consideration equal to the prepayment consideration which would have
been payable as of the first day of the period in which prepayment is permitted
under this Note. If at the time of such tender, prepayment of the principal
balance of this Note is permitted, Borrower shall, in addition to the entire
Debt, also pay to Lender the applicable prepayment consideration specified in
this Note.
(c) If the prepayment results from the application to the Debt
of the casualty or condemnation proceeds from the Property, no prepayment
consideration will be imposed. Partial prepayments of principal resulting from
the application of casualty or insurance proceeds to the Debt shall not change
the amounts of subsequent monthly installments nor change the dates on which
such installments are due, unless Lender shall otherwise agree in writing.
MORGAN GUARANTY TRUST COMPANY
4
<PAGE>
8. SAVINGS CLAUSE
Borrower agrees to pay an effective rate of interest that is the rate
stated above plus any additional rate of interest resulting from any other
charges in the nature of interest paid or to be paid by Borrower in connection
with this Note. This Note is subject to the express condition that at no time
shall Borrower be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of this Note until payment in full so that the rate or amount
of interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding. Notwithstanding anything to the contrary contained
herein or in any of the other Loan Documents, it is not the intention of Lender
to accelerate the maturity of any interest that has not accrued at the time of
such acceleration or to collect unearned interest at the time of such
acceleration.
9. WAIVERS
(a) Except as specifically provided in the Loan Documents,
Borrower and any endorsers, sureties or guarantors hereof jointly and severally
waive presentment and demand for payment, notice of intent to accelerate
maturity, notice of acceleration of maturity, protest and notice of protest and
non-payment, all applicable exemption rights, valuation and appraisement, notice
of demand, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note and the bringing
of suit and diligence in taking any action to collect any sums owing hereunder
or in proceeding against any of the rights and collateral securing payment
hereof. Borrower and any surety, endorser or guarantor hereof agree (i) that the
time for any payments hereunder may be extended from time to time without notice
and consent, (ii) to the acceptance by Lender of further collateral, (iii) the
release by Lender of any existing collateral for the payment of this Note, (iv)
to any and all renewals, waivers or modifications that may be granted by Lender
with respect to the payment or other provisions of this Note, and/or (v) that
additional Borrowers, endorsers, guarantors or sureties may become parties
hereto all without notice to them and without in any manner affecting their
liability under or with respect to this Note. No extension of time for the
payment of this Note or any installment hereof shall affect the liability of
Borrower under this Note or any endorser or guarantor hereof even though the
Borrower or such endorser or guarantor is not a party to such agreement.
MORGAN GUARANTY TRUST COMPANY
5
<PAGE>
(b) Failure of Lender to exercise any of the options granted
herein to Lender upon the happening of one or more of the events giving rise to
such options shall not constitute a waiver of the right to exercise the same or
any other option at any subsequent time in respect to the same or any other
event. The acceptance by Lender of any payment hereunder that is less than
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to exercise any of the options granted
herein to Lender at that time or at any subsequent time or nullify any prior
exercise of any such option without the express written acknowledgment of the
Lender.
10. EXCULPATION
(a) Notwithstanding anything in the Loan Documents to the
contrary, but subject to the qualifications below, Lender and Borrower agree
that:
(i) Borrower shall be liable upon the Debt and for
the other obligations arising under the Loan Documents to the full
extent (but only to the extent) of the security therefor; provided,
however, that in the event (A) of fraud, wilful misconduct or material
misrepresentation by Borrower or by any Guarantor or any Indemnitor in
connection with the loan evidenced by this Note, (B) an Event of
Default (as defined in the Security Instrument) arising under Sections
4.3 or 8.2 of the Security Instrument, or (C) the Property or any
material part thereof becomes an asset in (1) a voluntary bankruptcy or
insolvency proceeding, or (2) an involuntary bankruptcy or insolvency
proceeding commenced by any affiliate of Borrower, the limitation on
recourse set forth in this Subsection 10(a) will be null and void and
completely inapplicable, and this Note shall be with full recourse to
Borrower.
(ii) If a default occurs in the timely and proper
payment of all or any part of the Debt, Lender shall not enforce the
liability and obligation of Borrower to perform and observe the
obligations contained in this Note or the Security Instrument by any
action or proceeding wherein a money judgment shall be sought against
Borrower, except that Lender may bring a foreclosure action, action for
specific performance or other appropriate action or proceeding to
enable Lender to enforce and realize upon the Security Instrument, the
Other Loan Documents and the interest in the Property, the Rents and
any other collateral given to Lender created by the Security Instrument
and the Other Loan Documents; provided, however, that any judgment in
any action or proceeding shall be enforceable against Borrower only to
the extent of Borrower's interest in the Property, in the Rents and in
any other collateral given to Lender. Lender, by accepting this Note
and the Security Instrument, agrees that it shall not, except as
otherwise herein provided, sue for, seek or demand any deficiency
judgment against Borrower in any action or proceeding, under or by
reason of or under or in connection with this Note, the Other Loan
Documents or the Security Instrument.
(iii) The provisions of this Subsection 10(a) shall
not (A) constitute a waiver, release or impairment of any obligation
evidenced or secured by this Note, the Other Loan Documents or the
Security Instrument; (B) impair the right of Lender to name
MORGAN GUARANTY TRUST COMPANY
6
<PAGE>
Borrower as a party defendant in any action or suit for judicial
foreclosure and sale under the Security Instrument; (C) affect the
validity or enforceability of any indemnity, guaranty, master lease or
similar instrument made in connection with this Note, the Security
Instrument, or the Other Loan Documents; (D) impair the right of Lender
to obtain the appointment of a receiver; (E) impair the enforcement of
the Assignment executed in connection herewith; (F) impair the right of
Lender to enforce the provisions of Article 11 of the Security
Instrument; or (G) impair the right of Lender to obtain a deficiency
judgment or judgment on this Note against Borrower if necessary to
obtain any insurance proceeds or condemnation awards to which Lender
would otherwise be entitled under the Security Instrument; provided,
however, Lender shall only enforce such judgment against the insurance
proceeds and/or condemnation awards.
(iv) Notwithstanding the provisions of this Article
to the contrary, Borrower shall be personally liable to Lender for the
Losses it incurs due to: (A) the misapplication or misappropriation of
Rents after an Event of Default; (B) the misapplication or
misappropriation of insurance proceeds or condemnation awards; (C)
Borrower's failure to return or to reimburse Lender for all Personal
Property taken from the Property by or on behalf of Borrower and not
replaced with Personal Property of the same utility and of the same or
greater value; (D) any act of actual waste or arson by Borrower, any
principal, affiliate, general partner or member thereof or by any
Indemnitor or any Guarantor; (E) any fees or commissions paid by
Borrower to any principal, affiliate, general partner or member of
Borrower, any Indemnitor or any Guarantor in violation of the terms of
this Note, the Security Instrument or the Other Loan Documents; (F)
Borrower's failure to comply with the provisions of Section 11.2 of the
Security Instrument; or (G) any breach of the Environmental Indemnity.
(b) Nothing herein shall be deemed to be a waiver of any right
which Lender may have under Sections 506(a), 506(b), 1111(b) or any other
provisions of the Bankruptcy Code to file a claim for the full amount of the
Debt or to require that all collateral shall continue to secure all of the Debt,
owing to Lender in accordance with this Note, the Security Instrument and the
Other Loan Documents.
11. AUTHORITY
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute,
deliver and perform its obligations pursuant to this Note and the other Loan
Documents and that this Note and the other Loan Documents constitute legal,
valid and binding obligations of Borrower. Borrower further represents that the
loan evidenced by the Loan Documents was made for business or commercial
purposes and not for personal, family or household use.
MORGAN GUARANTY TRUST COMPANY
7
<PAGE>
12. NOTICES
All notices or other communications required or permitted to be given
pursuant hereto shall be given in the manner and be effective as specified in
the Security Instrument, directed to the parties at their respective addresses
as provided therein.
13. TRANSFER
Lender shall have the unrestricted right at any time or from time to
time to sell this Note and the loan evidenced by this Note and the Loan
Documents or participation interests therein. Borrower shall execute,
acknowledge and deliver any and all instruments requested by Lender to satisfy
such purchasers or participants that the unpaid indebtedness evidenced by this
Note is outstanding upon the terms and provisions set out in this Note and the
other Loan Documents. To the extent, if any, specified in such assignment or
participation, such assignee(s) or participant(s) shall have the rights and
benefits with respect to this Note and the other Loan Documents as such
assignee(s) or participant(s) would have if they were the Lender hereunder.
14. WAIVER OF TRIAL BY JURY
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS NOTE
OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING
IN CONNECTION THEREWITH INCLUDING, BUT NOT LIMITED TO, THOSE RELATING TO (A)
ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY OR
PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS, DECEPTIVE
TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL
REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR
CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO,
INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION,
UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS
INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST;
OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY
OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY
BORROWER.
MORGAN GUARANTY TRUST COMPANY
8
<PAGE>
15. APPLICABLE LAW
This Note shall be governed by and construed in accordance with the
laws of the state in which the real property encumbered by the Security
Instrument is located (without regard to any conflict of laws or principles) and
the applicable laws of the United States of America.
16. JURISDICTION
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE IN WHICH THE MORTGAGED PROPERTY IS
LOCATED IN CONNECTION WITH ANY PROCEEDING OUT OF OR RELATING TO THIS NOTE.
17. NO ORAL CHANGE
The provisions of this Note and the Loan Documents may be amended or
revised only by an instrument in writing signed by the Borrower and Lender. This
Note and all the other Loan Documents embody the final, entire agreement of
Borrower and Lender and supersede any and all prior commitments, agreements,
representations and understandings, whether written or oral, relating to the
subject matter hereof and thereof and may not be contradicted or varied by
evidence of prior, contemporaneous or subsequent oral agreements or discussions
of Borrower and Lender. There are no oral agreements between Borrower and
Lender.
Executed as of the day and year first above written.
BORROWER:
LA COMETA PROPERTIES, INC.
By: /s/ Eric J. Kufel
------------------------
Name: Eric J. Kufel
----------------------
Title: President
---------------------
MORGAN GUARANTY TRUST COMPANY
9
PREPARED BY AND UPON
RECORDATION RETURN TO:
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
191 Peachtree Street, N.E.
Suite 3250
Atlanta, Georgia 30303
Attention: James H. Thompson, Esq.
================================================================================
Loan No. DHC #V00138
LACOMETA PROPERTIES, INC., as mortgagor
(Borrower)
to
FIRST AMERICAN TITLE INSURANCE COMPANY, as trustee
(Trustee)
for the benefit of
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as beneficiary
(Lender)
-----------------------------------
DEED OF TRUST AND
SECURITY AGREEMENT
-----------------------------------
Dated: June 4, 1997
MORGAN GUARANTY TRUST COMPANY
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - GRANTS OF SECURITY
Section 1.1 PROPERTY CONVEYED.....................................................................1
------------------
Section 1.2 ASSIGNMENT OF RENTS....................................................................4
-------------------
Section 1.3 SECURITY AGREEMENT.....................................................................4
------------------
Section 1.4 PLEDGE OF MONIES HELD..................................................................4
---------------------
ARTICLE 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 DEBT...................................................................................5
----
Section 2.2 OTHER OBLIGATIONS......................................................................5
-----------------
Section 2.3 DEBT AND OTHER OBLIGATIONS.............................................................5
--------------------------
Section 2.4 PAYMENTS...............................................................................6
--------
ARTICLE 3 - BORROWER COVENANTS
Section 3.1 INCORPORATION BY REFERENCE.............................................................6
--------------------------
Section 3.2 INSURANCE..............................................................................6
---------
Section 3.3 PAYMENT OF TAXES, ETC.................................................................12
---------------------
Section 3.4 CONDEMNATION..........................................................................13
------------
Section 3.5 USE AND MAINTENANCE OF PROPERTY.......................................................14
-------------------------------
Section 3.6 WASTE.................................................................................14
-----
Section 3.7 COMPLIANCE WITH LAWS; ALTERATIONS.....................................................14
---------------------------------
Section 3.8 BOOKS AND RECORDS.....................................................................15
-----------------
Section 3.9 PAYMENT FOR LABOR AND MATERIALS.......................................................16
-------------------------------
Section 3.10 PERFORMANCE OF OTHER AGREEMENTS.......................................................17
-------------------------------
ARTICLE 4 - SPECIAL COVENANTS
Section 4.1 PROPERTY USE..........................................................................17
------------
Section 4.2 ERISA.................................................................................17
-----
Section 4.3 SINGLE PURPOSE ENTITY.................................................................18
---------------------
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
Section 5.1 BORROWER'S REPRESENTATIONS............................................................20
--------------------------
Section 5.2 WARRANTY OF TITLE.....................................................................20
-----------------
Section 5.3 STATUS OF PROPERTY....................................................................20
------------------
Section 5.4 NO FOREIGN PERSON.....................................................................21
-----------------
Section 5.5 SEPARATE TAX LOT......................................................................22
----------------
ARTICLE 6 - OBLIGATIONS AND RELIANCES
Section 6.1 RELATIONSHIP OF BORROWER AND LENDER...................................................22
-----------------------------------
Section 6.2 NO RELIANCE ON LENDER.................................................................22
---------------------
Section 6.3 NO LENDER OBLIGATIONS.................................................................22
---------------------
</TABLE>
MORGAN GUARANTY TRUST COMPANY
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 6.4 RELIANCE..............................................................................22
--------
ARTICLE 7 - FURTHER ASSURANCES
Section 7.1 RECORDING FEES........................................................................23
--------------
Section 7.2 FURTHER ACTS..........................................................................23
------------
Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP LAWS................................23
------------------------------------------------------
Section 7.4 CONFIRMATION STATEMENT................................................................24
----------------------
Section 7.5 SPLITTING OF SECURITY INSTRUMENT......................................................24
--------------------------------
Section 7.6 REPLACEMENT DOCUMENTS.................................................................25
---------------------
ARTICLE 8 - DUE ON SALE/ENCUMBRANCE
Section 8.1 LENDER RELIANCE.......................................................................25
---------------
Section 8.2 NO SALE/ENCUMBRANCE...................................................................25
-------------------
Section 8.3 EXCLUDED AND PERMITTED TRANSFERS......................................................26
--------------------------------
Section 8.4 NO IMPLIED FUTURE CONSENT.............................................................28
-------------------------
Section 8.5 COSTS OF CONSENT......................................................................28
----------------
Section 8.6 CONTINUING SEPARATENESS REQUIREMENTS..................................................28
------------------------------------
ARTICLE 9 - DEFAULT
Section 9.1 EVENTS OF DEFAULT.....................................................................28
-----------------
Section 9.2 DEFAULT INTEREST......................................................................31
----------------
ARTICLE 10 - RIGHTS AND REMEDIES
Section 10.1 REMEDIES..............................................................................31
--------
Section 10.2 RIGHT OF ENTRY........................................................................37
--------------
ARTICLE 11 - INDEMNIFICATION; SUBROGATION
Section 11.1 GENERAL INDEMNIFICATION...............................................................37
-----------------------
Section 11.2 ENVIRONMENTAL INDEMNIFICATION.........................................................38
-----------------------------
Section 11.3 EXCLUDED OCCURRENCES..................................................................40
--------------------
Section 11.4 DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES .............................41
---------------------------------------------------------
Section 11.5 SURVIVAL OF INDEMNITIES...............................................................41
-----------------------
ARTICLE 12 - SECURITY AGREEMENT
Section 12.1 SECURITY AGREEMENT....................................................................41
------------------
ARTICLE 13 - WAIVERS
Section 13.1 MARSHALLING AND OTHER MATTERS.........................................................42
-----------------------------
Section 13.2 WAIVER OF NOTICE......................................................................42
----------------
Section 13.3 SOLE DISCRETION OF LENDER.............................................................42
-------------------------
Section 13.4 SURVIVAL..............................................................................43
--------
Section 13.5 WAIVER OF TRIAL BY JURY...............................................................43
-----------------------
Section 13.6 WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY..............................................44
----------------------------------------
</TABLE>
MORGAN GUARANTY TRUST COMPANY
ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 14 - NOTICES
Section 14.1 NOTICES...............................................................................44
-------
ARTICLE 15 - APPLICABLE LAW
Section 15.1 GOVERNING LAW.........................................................................45
-------------
Section 15.2 USURY LAWS............................................................................45
----------
Section 15.3 PROVISIONS SUBJECT TO APPLICABLE LAW..................................................45
------------------------------------
ARTICLE 16 - SECONDARY MARKET
Section 16.1 TRANSFER OF LOAN......................................................................46
----------------
ARTICLE 17 - COSTS
Section 17.1 PERFORMANCE AT BORROWER'S EXPENSE.....................................................46
---------------------------------
Section 17.2 ATTORNEY'S FEES FOR ENFORCEMENT.......................................................46
-------------------------------
ARTICLE 18 - DEFINITIONS
Section 18.1 GENERAL DEFINITIONS...................................................................46
-------------------
ARTICLE 19 - MISCELLANEOUS PROVISIONS
Section 19.1 NO ORAL CHANGE........................................................................47
--------------
Section 19.2 LIABILITY.............................................................................47
---------
Section 19.3 INAPPLICABLE PROVISIONS...............................................................47
-----------------------
Section 19.4 HEADINGS, ETC.........................................................................47
--------------
Section 19.5 DUPLICATE ORIGINALS; COUNTERPARTS.....................................................47
---------------------------------
Section 19.6 NUMBER AND GENDER.....................................................................47
-----------------
Section 19.7 SUBROGATION...........................................................................47
-----------
Section 19.8 ENTIRE AGREEMENT......................................................................48
----------------
ARTICLE 20 - TRUSTEE.............................................................................................48
ARTICLE 21 - INCORPORATION BY REFERENCE..........................................................................51
ARTICLE 22 - MANAGEMENT..........................................................................................51
</TABLE>
MORGAN GUARANTY TRUST COMPANY
iii
<PAGE>
Index of Defined Terms
Page
"ADA" ........................................................................15
"Applicable Laws".............................................................15
"attorneys' fees" ............................................................47
"attorneys" ..................................................................38
"Bankruptcy Code" .............................................................2
"Borrower".................................................................1, 46
"Business Day" ...............................................................45
"Collateral" .................................................................41
"counsel fees" ...............................................................47
"Debt" ........................................................................5
"Default Rate" ...............................................................31
"Enforcement" .................................................................7
"Environmental Indemnity"......................................................6
"Environmental Law"...........................................................39
"Environmental Lien"..........................................................39
"ERISA" ......................................................................17
"Escrow Agreement".............................................................3
"Event of Default"............................................................28
"Event" ......................................................................46
"Exculpated Portion"..........................................................36
"family members" .............................................................27
"fees and expenses"...........................................................38
"Full Replacement Cost"........................................................6
"Guarantor" ..................................................................18
"Hazardous Substances"........................................................39
"Improvements" ................................................................1
"Indemnified Parties".........................................................40
"Indemnitor" ..................................................................6
"Insurance Premiums"...........................................................9
"Insured Casualty"............................................................11
"Intangibles" .................................................................3
"Investor" ...................................................................46
"Land" ........................................................................1
"Leases" ......................................................................2
"Lease" .......................................................................2
"legal fees" .................................................................47
"Lender"...................................................................1, 46
"Loan Documents" ..............................................................6
"Loan" .......................................................................27
"Losses" .....................................................................40
MORGAN GUARANTY TRUST COMPANY
Index-1
<PAGE>
"Note" ....................................................................1, 47
"Obligations" .................................................................5
"Ordinance or Law Coverage"....................................................7
"Original Principals".........................................................26
"Other Charges" ..............................................................12
"Other Loan Documents".........................................................6
"Other Obligations"............................................................5
"Permitted Exceptions"........................................................20
"Personal Property"............................................................4
"person" .....................................................................47
"Policies" ....................................................................9
"Policy" ......................................................................9
"Principal" ..................................................................18
"Property" ................................................................1, 47
"Qualified Insurer"............................................................9
"Rating Agency" ..............................................................46
"Release" ....................................................................40
"Remediation" ................................................................40
"Rents" .......................................................................2
"Securities" .................................................................46
"Security Instrument"..........................................................1
"Taxes" ......................................................................12
"Uniform Commercial Code"......................................................2
MORGAN GUARANTY TRUST COMPANY
Index-2
<PAGE>
THIS DEED OF TRUST AND SECURITY AGREEMENT (this "Security Instrument")
is made as of the ____ day of May, 1997, by LA COMETA PROPERTIES, INC., an
Arizona corporation, having its principal place of business and mailing address
of 3500 South La Cometa Drive, Goodyear, Arizona 85338 ("Borrower") to FIRST
AMERICAN TITLE INSURANCE COMPANY, a California corporation ("Trustee") having
its principal place of business at 111 West Monroe, Phoenix, Arizona 85003 for
the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York banking
corporation, having its principal place of business and mailing address of 60
Wall Street, New York, New York 10260-0060, as beneficiary ("Lender"). Borrower
also means "Trustor" as that term is defined and used in the Arizona statutes.
RECITALS:
Borrower by its Fixed Rate Note of even date herewith given to Lender
is indebted to Lender in the principal sum of $2,000,000 in lawful money of the
United States of America (such Fixed Rate Note, together with all extensions,
renewals, modifications, substitutions and amendments thereof, shall
collectively be referred to as the "Note"), with interest from the date thereof
at the rates set forth in the Note, principal and interest to be payable in
accordance with the terms and conditions provided in the Note.
Borrower desires to secure the payment of the Debt (as defined in
Article 2) and the performance of all of its obligations under the Note and the
Other Obligations (as defined in Article 2 ).
ARTICLE I - GRANTS OF SECURITY
Section 1.1 PROPERTY CONVEYED. Borrower does hereby irrevocably,
unconditionally and absolutely, grant, bargain, sell, pledge, enfeoff, assign,
warrant, transfer and convey to Trustee (with power of sale) in trust for the
purposes herein set forth, the following property, rights, interests and estates
now owned, or hereafter acquired, by Borrower (collectively, the "Property"):
(a) Land. The real property described in Exhibit A
attached hereto and made a part hereof (collectively, the "Land"),
together with additional lands, estates and development rights
hereafter acquired by Borrower for use in connection with the
development, ownership or occupancy of such real property, and all
additional lands and estates therein which may, from time to time, by
supplemental deed of trust or otherwise be expressly made subject to
the lien of this Security Instrument;
(b) Improvements. The buildings, structures,
fixtures, additions, accessions, enlargements, extensions,
modifications, repairs, replacements and improvements now or hereafter
erected or located on the Land (the "Improvements");
(c) Easements. All easements, rights-of-way or use,
rights, strips and gores of land, streets, ways, alleys, passages,
sewer rights, water, water courses, water rights
MORGAN GUARANTY TRUST COMPANY
1
<PAGE>
and powers, air rights and development rights, and all estates, rights,
titles, interests, privileges, liberties, servitudes, tenements,
hereditaments and appurtenances of any nature whatsoever, in any way
now or hereafter belonging, relating or pertaining to the Land and the
Improvements and the reversion and reversions, remainder and
remainders, and all land lying in the bed of any street, road or
avenue, opened or proposed, in front of or adjoining the Land, to the
center line thereof and all the estates, rights, titles, interests,
dower and rights of dower, curtesy and rights of curtesy, property,
possession, claim and demand whatsoever, both at law and in equity, of
Borrower of, in and to the Land and the Improvements and every part and
parcel thereof, with the appurtenances thereto;
(d) Fixtures and Personal Property. All machinery,
equipment, goods, inventory, consumer goods, fixtures (including, but
not limited to, all heating, air conditioning, plumbing, lighting,
communications and elevator fixtures) and other property of every kind
and nature whatsoever owned by Borrower, or in which Borrower has or
shall have an interest, now or hereafter located upon the Land and the
Improvements, or appurtenant thereto, and usable in connection with the
present or future use, maintenance, enjoyment, operation and occupancy
of the Land and the Improvements and all building equipment, materials
and supplies of any nature whatsoever owned by Borrower, or in which
Borrower has or shall have an interest, now or hereafter located upon
the Land and the Improvements, or appurtenant thereto, or usable in
connection with the present or future operation and occupancy of the
Land and the Improvements, and the right, title and interest of
Borrower in and to any of the Personal Property (as hereinafter
defined) which may be subject to any security interests, as defined in
the Uniform Commercial Code, as adopted and enacted by the state or
states where any of the Property is located (the "Uniform Commercial
Code"), superior in lien to the lien of this Security Instrument and
all proceeds and products of the above;
(e) Leases and Rents. All leases and other agreements
affecting the use, enjoyment or occupancy of the Land and the
Improvements heretofore or hereafter entered into, whether before or
after the filing by or against Borrower of any petition for relief
under 11 U.S.C. ss.101 et seq., as the same may be amended from time to
time (the "Bankruptcy Code") (individually, a "Lease"; collectively,
the "Leases") and all right, title and interest of Borrower, its
successors and assigns therein and thereunder, including, without
limitation, cash or securities deposited thereunder to secure the
performance by the lessees of their obligations thereunder and all
rents (including all tenant security and other deposits), additional
rents, revenues, issues and profits (including all oil and gas or other
mineral royalties and bonuses) from the Land and the Improvements
whether paid or accruing before or after the filing by or against
Borrower of any petition for relief under the Bankruptcy Code
(collectively the "Rents") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents
to the payment of the Debt;
(f) Condemnation Awards. All awards or payments,
including interest thereon, which may heretofore and hereafter be made
with respect to the Property, whether from the exercise of the right of
eminent domain (including but not limited to any transfer
MORGAN GUARANTY TRUST COMPANY
2
<PAGE>
made in lieu of or in anticipation of the exercise of the right), or
for a change of grade, or for any other injury to or decrease in the
value of the Property;
(g) Insurance Proceeds. All proceeds of and any
unearned premiums on any insurance policies covering the Property,
including, without limitation, the right to receive and apply the
proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Property;
(h) Tax Certiorari. All refunds, rebates or credits
in connection with a reduction in real estate taxes and assessments
charged against the Property as a result of tax certiorari or any
applications or proceedings for reduction;
(i) Conversion. All proceeds of the conversion,
voluntary or involuntary, of any of the foregoing including, without
limitation, proceeds of insurance and condemnation awards, into cash or
liquidation claims;
(j) Rights. The right, in the name and on behalf of
Borrower, to appear in and defend any action or proceeding brought with
respect to the Property and to commence any action or proceeding to
protect the interest of Lender in the Property;
(k) Agreements. All agreements, contracts (including
purchase, sale, option, right of first refusal and other contracts
pertaining to the Property), certificates, instruments, franchises,
permits, licenses, approvals, consents, plans, specifications and other
documents, now or hereafter entered into, and all rights therein and
thereto, respecting or pertaining to the use, occupation, construction,
management or operation of the Property (including any Improvements or
respecting any business or activity conducted on the Land and any part
thereof) and all right, title and interest of Borrower therein and
thereunder, (including without limitation all rights of the Borrower
under that certain Development Agreement dated June 12, 1996 between
Poore Brothers, Inc. and the City of Goodyear, Arizona) including,
without limitation, the right, upon the happening of any default
hereunder, to receive and collect any sums payable to Borrower
thereunder (excluding any such property owned solely by Poore Brothers,
Inc.);
(l) Trademarks. All tradenames, trademarks,
servicemarks, logos, copyrights, goodwill, books and records and all
other general intangibles relating to or used in connection with the
operation of the Property (excluding any such property owned solely by
Poore Brothers, Inc.);
(m) Accounts. All accounts, accounts receivable,
escrows (including, without limitation, all escrows, deposits, reserves
and impounds established pursuant to that certain Escrow Agreement for
Reserves and Impounds of even date herewith between Borrower and
Lender; hereinafter, the "Escrow Agreement"), documents, instruments,
chattel paper, claims, reserves (including deposits) representations,
warranties and general intangibles, as one or more of the foregoing
terms may be defined in the Uniform
MORGAN GUARANTY TRUST COMPANY
3
<PAGE>
Commercial Code, and all contract rights, franchises, books, records,
plans, specifications, permits, licenses (to the extent assignable),
approvals, actions, choses, claims, suits, proofs of claim in
bankruptcy and causes of action which now or hereafter relate to, are
derived from or are used in connection with the Property, or the use,
operation, maintenance, occupancy or enjoyment thereof or the conduct
of any business or activities thereon (hereinafter collectively called
the "Intangibles") (excluding any such property owned solely by Poore
Brothers, Inc.); and
(n) Other Rights. Any and all other rights of
Borrower in and to the Property and the Collateral and any accessions,
renewals, replacements and substitutions of all or any portion of the
Property and the Collateral and all proceeds derived from the sale,
transfer, assignment or financing of the Property and the Collateral or
any portion thereof.
Section 1.2 ASSIGNMENT OF RENTS. Borrower hereby absolutely and
unconditionally assigns to Lender Borrower's right, title and interest in and to
all current and future Leases and Rents; it being intended by Borrower that this
assignment constitutes a present, absolute and unconditional assignment and not
an assignment for additional security only. Nevertheless, subject to the terms
of this Section 1.2 and the terms and conditions of that certain Assignment of
Rents and Leases, of even date herewith between Borrower and Lender, Lender
grants to Borrower a revocable license to collect and receive the Rents.
Borrower shall hold the Rents, or a portion thereof sufficient to discharge all
current sums due on the Debt, for use in the payment of such sums.
Section 1.3 DEFINITION OF PERSONAL PROPERTY. For purposes of this
Security Instrument, the Property identified in Sections 1.1(d) through 1.1(n),
inclusive, shall be collectively referred to herein as the "Personal Property".
Section 1.4 PLEDGE OF MONIES HELD. Borrower hereby pledges to Lender
any and all monies now or hereafter held by Lender, including, without
limitation, any sums deposited in the Funds (as defined in the Escrow
Agreement), all insurance proceeds described in Section 3.2 and condemnation
awards or payments described in Section 3.4, as additional security for the
Obligations until expended or applied as provided in this Security Instrument.
CONDITIONS TO GRANT
TO HAVE AND TO HOLD the above granted and described Property unto and
to the use and benefit of Trustee, and the successors and assigns of Trustee,
forever;
PROVIDED, HOWEVER, these presents are upon the express condition that,
if Borrower shall well and truly pay to Lender the Debt at the time and in the
manner provided in the Note and this Security Instrument, shall well and truly
perform the Other Obligations as set forth in this Security Instrument and shall
well and truly abide by and comply with each and every covenant and condition
set forth herein and in the Note, these presents and the estate hereby granted
shall cease, terminate and be void; provided however, that Borrower's obligation
to indemnify and hold harmless
MORGAN GUARANTY TRUST COMPANY
4
<PAGE>
Lender pursuant to the provisions hereof with respect to matters relating to any
period of time during which this Security Instrument was in effect shall survive
any such payment or release.
ARTICLE 2 - DEBT AND OBLIGATIONS SECURED
Section 2.1 DEBT. This Security Instrument and the grants, assignments
and transfers made in Article 1 are given for the purpose of securing the
following, in such order of priority as Lender may determine in its sole
discretion (the "Debt"):
(a) the payment of the indebtedness evidenced by the
Note in lawful money of the United States of America;
(b) the payment of interest, default interest, late
charges and other sums, as provided in the Note, this Security
Instrument or the Other Loan Documents (as hereinafter defined);
(c) the payment of all other moneys agreed or
provided to be paid by Borrower in the Note, this Security Instrument
or the Other Loan Documents;
(d) the payment of all sums advanced pursuant to this
Security Instrument to protect and preserve the Property and the lien
and the security interest created hereby; and
(e) the payment of all sums advanced and costs and
expenses incurred by Lender in connection with the Debt or any part
thereof, any renewal, extension, or change of or substitution for the
Debt or any part thereof, or the acquisition or perfection of the
security therefor, whether made or incurred at the request of Borrower
or Lender.
Section 2.2 OTHER OBLIGATIONS. This Security Instrument and the grants,
assignments and transfers made in Article 1 are also given for the purpose of
securing the following (the "Other Obligations"):
(a) the performance of all other obligations of
Borrower contained herein;
(b) the performance of each obligation of Borrower
contained in any other agreement given by Borrower to Lender which is
for the purpose of further securing the obligations secured hereby, and
any amendments, modifications and changes thereto; and
(c) the performance of each obligation of Borrower
contained in any renewal, extension, amendment, modification,
consolidation, change of, or substitution or replacement for, all or
any part of the Note, this Security Instrument or the Other Loan
Documents.
MORGAN GUARANTY TRUST COMPANY
5
<PAGE>
Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations for the
payment of the Debt and the performance of the Other Obligations shall be
referred to collectively herein as the "Obligations".
Section 2.4 PAYMENTS. Unless payments are made in the required amount
in immediately available funds at the place where the Note is payable,
remittances in payment of all or any part of the Debt shall not, regardless of
any receipt or credit issued therefor, constitute payment until the required
amount is actually received by Lender in funds immediately available at the
place where the Note is payable (or any other place as Lender, in Lender's sole
discretion, may have established by delivery of written notice thereof to
Borrower) and shall be made and accepted subject to the condition that any check
or draft may be handled for collection in accordance with the practice of the
collecting bank or banks. Acceptance by Lender of any payment in an amount less
than the amount then due shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall be and continue to be an Event
of Default (as hereinafter defined).
ARTICLE 3 - BORROWER COVENANTS
Borrower covenants and agrees that:
Section 3.1 INCORPORATION BY REFERENCE. All the covenants, conditions
and agreements contained in (a) the Note, and (b) all and any of the documents
other than the Note or this Security Instrument now or hereafter executed by
Borrower and/or others and by or in favor of Lender in connection with the
creation of the Obligations, the payment of any other sums owed by Borrower to
Lender or the performance of any Obligations (collectively the "Other Loan
Documents"), are hereby made a part of this Security Instrument to the same
extent and with the same force as if fully set forth herein. The term "Loan
Documents" as used herein shall individually and collectively refer to the Note,
this Security Instrument and the Other Loan Documents; provided, however, that
notwithstanding any provision of this Security Instrument to the contrary, the
Obligations of the indemnitor(s) under that certain Environmental Indemnity
Agreement of even date herewith executed by Borrower and Poore Brothers, Inc.
("Indemnitor") in favor of Lender (the "Environmental Indemnity") shall not be
deemed or construed to be secured by this Security Instrument or otherwise
restricted or affected by the foreclosure of the lien hereof or any other
exercise by Lender of its remedies hereunder or under any other Loan Document,
such Environmental Indemnity being intended by the signatories thereto to be its
(or their) unsecured obligation.
Section 3.2 INSURANCE.
(a) Borrower shall obtain and maintain, and shall pay
all premiums in accordance with Subsection 3.2(b) below for, insurance
for Borrower and the Property providing at least the following
coverages:
(i) comprehensive all risk insurance
(including, without limitation, riot and civil commotion,
vandalism, malicious mischief, water, fire,
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burglary and theft) on the Improvements and the Personal
Property and in each case (A) in an amount equal to the lesser
of the principal balance of the Note or 100% of the "Full
Replacement Cost", which for purposes of this Security
Instrument shall mean actual replacement value (exclusive of
costs of excavations, foundations, underground utilities and
footings) with a waiver of depreciation; (B) containing an
agreed amount endorsement with respect to the Improvements and
Personal Property waiving all co-insurance provisions; (C)
providing that the deductible shall not exceed the lesser of
$10,000.00 or one percent (1%) of the face value of the
policy; and (D) containing Demolition Costs, Increased Cost of
Construction and "Ordinance or Law Coverage" or "Enforcement"
endorsements if any of the Improvements or the use of the
Property shall at any time constitute legal non-conforming
structures or uses or the ability to rebuild the Improvements
is restricted or prohibited. The Full Replacement Cost may be
redetermined from time to time by an appraiser or contractor
designated and paid by Lender or by an engineer or appraiser
in the regular employ of the insurer. No omission on the part
of Lender to request any such appraisals shall relieve
Borrower of any of its obligations under this Subsection;
(ii) comprehensive general liability
insurance against claims for personal injury, bodily injury,
death or property damage occurring upon, in or about the
Property, such insurance (A) to be on the so-called
"occurrence" form with a combined single limit of not less
than $1,000,000.00 and not less than $3,000,000.00 if the
Property has one or more elevators, as well as liquor license
insurance in a minimum amount of $2,000,000.00 if any part of
the Property is covered by a liquor license; (B) to continue
at not less than the aforesaid limit until required to be
changed by Lender in writing by reason of changed economic
conditions making such protection inadequate; (C) to cover at
least the following hazards: (1) premises and operations; (2)
products and completed operations on an "if any" basis; (3)
independent contractors; (4) blanket contractual liability for
all written and oral contracts; (5) contractual liability
covering the indemnities contained in Article 11 hereof to the
extent the same is available; and (D) to be without
deductible;
(iii) business income insurance (A) with
loss payable to Lender; (B) covering losses of income and
Rents derived from the Property and any non-insured property
on or adjacent to the Property resulting from any risk or
casualty whatsoever; (C) containing an extended period of
indemnity endorsement which provides that after the physical
loss to the Improvements and Personal Property has been
repaired, the continued loss of income will be insured until
such income either returns to the same level it was at prior
to the loss, or the expiration of twelve (12) months from the
date of the loss, whichever first occurs, and notwithstanding
that the policy may expire prior to the end of such period;
and (D) in an amount equal to 100% of the projected gross
income from the Property for a period of twelve (12) months.
The amount of such business income insurance shall be
determined by Lender prior to the date hereof and at least
once each year thereafter based on
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Borrower's reasonable estimate of the gross income from the
Property for the succeeding twelve (12) month period. All
insurance proceeds payable to Lender pursuant to this
Subsection 3.2(a) shall be held by Lender and shall be applied
to the obligations secured hereunder from time to time due and
payable hereunder and under the Note; provided, however, that
nothing herein contained shall be deemed to relieve Borrower
of its obligations to pay the obligations secured hereunder on
the respective dates of payment provided for in the Note
except to the extent such amounts are actually paid out of the
proceeds of such business income insurance;
(iv) at all times during which structural
construction, repairs or alterations are being made with
respect to the Improvements: (A) owner's contingent or
protective liability insurance covering claims not covered by
or under the terms or provisions of the above mentioned
commercial general liability insurance policy; and (B) the
insurance provided for in Subsection 3.2(a)(i) written in a
so-called builder's risk completed value form (1) on a
non-reporting basis, (2) against all risks insured against
pursuant to Subsection 3.2(a)(i), (3) including permission to
occupy the Property, and (4) with an agreed amount endorsement
waiving co-insurance provisions;
(v) workers' compensation, subject to the
statutory limits of the state in which the Property is
located, and employer's liability insurance with a limit of at
least $1,000,000.00 per accident and per disease per employee,
and $1,000,000.00 for disease aggregate in respect of any work
or operations on or about the Property, or in connection with
the Property or its operation (if applicable);
(vi) if required by Lender, and if available
in the area where the Property is located, earthquake or
sinkhole insurance in the amount reasonably required by
Lender;
(vii) comprehensive boiler and machinery
insurance (without exclusion for explosion), if applicable, in
amounts as shall be reasonably required by Lender and covering
all boilers or other pressure vessels, machinery and equipment
located at or about the Property (including, without
limitation, electrical equipment, sprinkler systems, heating
and air conditioning equipment, refrigeration equipment and
piping);
(viii) flood hazard insurance if any portion
of the Improvements is currently or at any time in the future
located in a federally designated "special flood hazard area,"
flood hazard insurance in an amount equal to the lesser of (a)
the outstanding principal balance of the Note, (b) the Full
Replacement Cost, or (c) the maximum amount of such insurance
available under the National Flood Insurance Act of 1968, the
Flood Disaster Protection Act of 1973 or the National Flood
Insurance Reform Act of 1994, as each may be amended; and
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(ix) such other insurance and in such
amounts as Lender from time to time may reasonably request
against such other insurable hazards which at the time are
commonly insured against for property similar to the Property
located in or around the region in which the Property is
located, including, without limitation, earthquake insurance
(in the event the Property is located in an area with a high
degree of seismic activity), mine subsidence insurance and
environmental insurance.
(b) All insurance provided for in Subsection 3.2(a)
hereof shall be obtained under valid and enforceable policies (the
"Policies" or in the singular, the "Policy"), in such forms and, from
time to time after the date hereof, in such amounts as may from time to
time be reasonably satisfactory to Lender, issued by financially sound
and responsible insurance companies authorized to do business in the
state in which the Property is located as admitted or unadmitted
carriers which, in either case, have been approved by Lender and which
have a general policy rating of A- or better and a financial class of
VIII or better by A.M. Best Co. or claims paying ability rating of A or
better issued by Standard & Poor's Ratings Group (each such insurer
shall be referred to below as a "Qualified Insurer"). Such Policies
shall not be subject to invalidation due to the use or occupancy of the
Property for purposes more hazardous than the use of the Property at
the time such Policies were issued. Not less than thirty (30) days
prior to the expiration dates of the Policies theretofore furnished to
Lender pursuant to Subsection 3.2(a), certified copies of the Policies
marked "premium paid" or accompanied by evidence satisfactory to Lender
of payment of the premiums due thereunder (the "Insurance Premiums"),
shall be delivered by Borrower to Lender; provided, however, that in
the case of renewal Policies, Borrower may furnish Lender with binders
therefor to be followed by the original Policies or certified copies
thereof when issued.
(c) Borrower shall not obtain (i) separate insurance
concurrent in form or contributing in the event of loss with that
required in Subsection 3.2(a) to be furnished by, or which may be
reasonably required to be furnished by, Borrower, or (ii) any umbrella
or blanket liability or casualty Policy unless, in each case, Lender's
interest is included therein as provided in this Security Instrument
and such Policy is issued by a Qualified Insurer. If Borrower obtains
separate insurance or an umbrella or a blanket Policy, Borrower shall
notify Lender of the same and shall cause certified copies of each
Policy to be delivered as required in Subsection 3.2(a). Any blanket
insurance Policy shall specifically allocate to the Property the amount
of coverage from time to time required hereunder and shall otherwise
provide the same protection as would a separate Policy insuring only
the Property in compliance with the provisions of Subsection 3.2(a).
(d) All Policies of insurance provided for or
contemplated by Subsection 3.2(a) shall name Lender, its successors and
assigns, including any servicers, trustees or other designees of
Lender, and Borrower as the insured or additional insured, as their
respective interests may appear, and in the case of property damage,
boiler and machinery, and flood insurance, shall contain a so-called
New York standard non-contributing Lender clause in favor of Lender
providing that the loss thereunder shall be payable to Lender.
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(e) All Policies of insurance provided for in
Subsection 3.2(a) shall contain clauses or endorsements to the effect
that:
(i) no act or negligence of Borrower, or
anyone acting for Borrower, or of any tenant under any Lease
or other occupant, or failure to comply with the provisions of
any Policy which might otherwise result in a forfeiture of the
insurance or any part thereof, shall in any way affect the
validity or enforceability of the insurance insofar as Lender
is concerned;
(ii) the Policy shall not be materially
changed (other than to increase the coverage provided on the
Property thereby) or canceled without at least thirty (30)
days' prior written notice to Lender and any other party named
therein as an insured;
(iii) each Policy shall provide that the
issuers thereof shall give written notice to Lender if the
Policy has not been renewed thirty (30) days prior to its
expiration; and
(iv) Lender shall not be liable for any
Insurance Premiums thereon or subject to any assessments
thereunder.
(f) Borrower shall furnish to Lender within thirty
(30) calendar days after Lender's request therefor, a statement
certified by Borrower or a duly authorized officer of Borrower of the
amounts of insurance maintained in compliance herewith, of the risks
covered by such insurance and of the insurance company or companies
which carry such insurance and, if requested by Lender, verification of
the adequacy of such insurance by an independent insurance broker or
appraiser acceptable to Lender.
(g) If at any time Lender is not in receipt of
written evidence that all insurance required hereunder is in full force
and effect and Borrower does not provide such evidence within five (5)
days after notice from Lender, Lender shall have the right but not the
obligation, without notice to Borrower, to take such action as Lender
deems necessary to protect its interest in the Property, including,
without limitation, the obtaining of such insurance coverage as Lender
in its sole discretion deems appropriate, and all expenses incurred by
Lender in connection with such action or in obtaining such insurance
and keeping it in effect shall be paid by Borrower to Lender upon
demand and until paid shall be secured by this Security Instrument and
shall bear interest at the Default Rate (as hereinafter defined).
(h) If the Property shall be damaged or destroyed, in
whole or in part, by fire or other casualty, Borrower shall give prompt
notice thereof to Lender.
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(i) In case of loss covered by Policies, Lender may
either (1) settle and adjust any claim without the consent of
Borrower, or (2) allow Borrower to agree with the insurance
company or companies on the amount to be paid upon the loss;
provided, that Borrower may adjust losses aggregating not in
excess of $100,000.00 if such adjustment is carried out in a
competent and timely manner, and provided that in any case
Lender shall and is hereby authorized to collect and receipt
for any such insurance proceeds (provided Borrower may collect
insurance proceeds for losses of less than $1,000); and the
reasonable expenses incurred by Lender in the adjustment and
collection of insurance proceeds shall become part of the Debt
and be secured hereby and shall be reimbursed by Borrower to
Lender upon demand (unless deducted by and reimbursed to
Lender from such proceeds).
(ii) In the event of any insured damage to
or destruction of the Property or any part thereof (herein
called an "Insured Casualty"), if (A) in the reasonable
judgment of Lender, the Property can be restored within six
(6) months after insurance proceeds are made available to an
economic unit not less valuable (including an assessment by
Lender of the impact of the termination of any Leases due to
such Insured Casualty) and not less useful than the same was
prior to the Insured Casualty, and after such restoration will
adequately secure the outstanding balance of the Debt, and (B)
no Event of Default (hereinafter defined) shall have occurred
and be then continuing, then the proceeds of insurance shall
be applied to reimburse Borrower for the cost of restoring,
repairing, replacing or rebuilding the Property or part
thereof subject to Insured Casualty, as provided below; and
Borrower hereby covenants and agrees forthwith to commence and
diligently to prosecute such restoring, repairing, replacing
or rebuilding; provided, however, in any event Borrower shall
pay all reasonable costs (and if required by Lender, Borrower
shall deposit the total thereof with Lender in advance) of
such restoring, repairing, replacing or rebuilding in excess
of the net proceeds of insurance made available pursuant to
the terms hereof.
(iii) Except as provided above, the proceeds
of insurance collected upon any Insured Casualty shall, at the
option of Lender in its sole discretion, be applied to the
payment of the Debt or applied to reimburse Borrower for the
cost of restoring, repairing, replacing or rebuilding the
Property or part thereof subject to the Insured Casualty, in
the manner set forth below. Any such application to the Debt
shall not be considered a voluntary prepayment requiring
payment of the prepayment consideration provided in the Note,
and shall not reduce or postpone any payments otherwise
required pursuant to the Note, other than the final payment on
the Note.
(iv) If proceeds of insurance, if any, are
made available to Borrower for the restoring, repairing,
replacing or rebuilding of the Property, Borrower hereby
covenants to restore, repair, replace or rebuild the same to
be of at least equal value and of substantially the same
character as prior to such damage or
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destruction, all to be effected in accordance with applicable
law and plans and specifications reasonably approved in
advance by Lender.
(v) If Borrower is entitled to reimbursement
out of insurance proceeds held by Lender, such proceeds shall
be disbursed from time to time upon Lender being furnished
with (1) evidence reasonably satisfactory to it (which
evidence may include inspection[s] of the work performed) that
the restoration, repair, replacement and rebuilding covered by
the disbursement has been completed in accordance with plans
and specifications approved by Lender, (2) evidence reasonably
satisfactory to it of the estimated cost of completion of the
restoration, repair, replacement and rebuilding, (3) funds,
or, at Lender's option, assurances reasonably satisfactory to
Lender that such funds are available, sufficient in addition
to the proceeds of insurance to complete the proposed
restoration, repair, replacement and rebuilding, and (4) such
architect's certificates, waivers of lien, contractor's sworn
statements, title insurance endorsements, bonds, plats of
survey and such other evidences of cost, payment and
performance as Lender may reasonably require and approve; and
Lender may, in any event, require that all plans and
specifications for such restoration, repair, replacement and
rebuilding be submitted to and approved by Lender prior to
commencement of work. With respect to disbursements to be made
by Lender: (A) no payment made prior to the final completion
of the restoration, repair, replacement and rebuilding shall
exceed ninety percent (90%) of the value of the work performed
from time to time; (B) funds other than proceeds of insurance
shall be disbursed prior to disbursement of such proceeds; and
(C) at all times, the undisbursed balance of such proceeds
remaining in the hands of Lender, together with funds
deposited for that purpose or irrevocably committed to the
satisfaction of Lender by or on behalf of Borrower for that
purpose, shall be at least sufficient in the reasonable
judgment of Lender to pay for the cost of completion of the
restoration, repair, replacement or rebuilding, free and clear
of all liens or claims for lien and the costs described in
Subsection 3.2(h)(vi) below. Any surplus which may remain out
of insurance proceeds held by Lender after payment of such
costs of restoration, repair, replacement or rebuilding shall
be paid to any party entitled thereto. In no event shall
Lender assume any duty or obligation for the adequacy, form or
content of any such plans and specifications, nor for the
performance, quality or workmanship of any restoration,
repair, replacement and rebuilding.
(vi) Notwithstanding anything to the
contrary contained herein, the proceeds of insurance
reimbursed to Borrower in accordance with the terms and
provisions of this Security Instrument shall be reduced by the
reasonable costs (if any) incurred by Lender in the adjustment
and collection thereof and in the reasonable costs incurred by
Lender of paying out such proceeds (including, without
limitation, reasonable attorneys' fees and costs paid to third
parties for inspecting the restoration, repair, replacement
and rebuilding and reviewing the plans and specifications
therefor).
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Section 3.3 PAYMENT OF TAXES, ETC.
(a) Borrower shall pay all taxes, assessments, water
rates, sewer rents, governmental impositions, and other charges,
including without limitation, vault charges and license fees for the
use of vaults, chutes and similar areas adjoining the Land, now or
hereafter levied or assessed or imposed against the Property or any
part thereof (the "Taxes"), all ground rents, maintenance charges and
similar charges, now or hereafter levied or assessed or imposed against
the Property or any part thereof (the "Other Charges"), and all charges
for utility services provided to the Property as same become due and
payable. Borrower will deliver to Lender, promptly upon Lender's
request, evidence satisfactory to Lender that the Taxes, Other Charges
and utility service charges have been so paid or are not then
delinquent. Borrower shall not allow and shall promptly cause to be
paid and discharged any lien or charge whatsoever which may be or
become a lien or charge against the Property. Except to the extent sums
sufficient to pay all Taxes and Other Charges have been deposited with
Lender in accordance with the terms of this Security Instrument,
Borrower shall furnish to Lender paid receipts for the payment of the
Taxes and Other Charges prior to the date the same shall become
delinquent.
(b) After prior written notice to Lender, Borrower,
at its own expense, may contest by appropriate legal proceeding,
promptly initiated and conducted in good faith and with due diligence,
the amount or validity or application in whole or in part of any of the
Taxes, provided that (i) no Event of Default has occurred and is
continuing under the Note, this Security Instrument or any of the Other
Loan Documents, (ii) Borrower is permitted to do so under the
provisions of any other mortgage, deed of trust or deed to secure debt
affecting the Property, (iii) such proceeding shall suspend the
collection of the Taxes from Borrower and from the Property or Borrower
shall have paid all of the Taxes under protest, (iv) such proceeding
shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower is subject and
shall not constitute a default thereunder, (v) neither the Property nor
any part thereof or interest therein will be in danger of being sold,
forfeited, terminated, canceled or lost, (vi) Borrower shall have set
aside and deposited with Lender adequate reserves for the payment of
the Taxes, together with all interest and penalties thereon, unless
Borrower has paid all of the Taxes under protest, and (vii) Borrower
shall have furnished the security as may be required in the proceeding,
or as may be requested by Lender to insure the payment of any contested
Taxes, together with all interest and penalties thereon.
Section 3.4 CONDEMNATION. Borrower shall promptly give Lender notice of
the actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. Lender is hereby irrevocably appointed as
Borrower's attorney-in-fact, coupled with an interest, with exclusive power to
collect, receive and retain any award or payment for said condemnation or
eminent domain and to make any compromise or settlement in connection with such
proceeding, subject to the provisions of this Security Instrument.
Notwithstanding any taking by any public or
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quasi-public authority through eminent domain or otherwise (including but not
limited to any transfer made in lieu of or in anticipation of the exercise of
such taking), Borrower shall continue to pay the Debt at the time and in the
manner provided for its payment in the Note and in this Security Instrument and
the Debt shall not be reduced until any award or payment therefor shall have
been actually received and applied by Lender, after the deduction of expenses of
collection, to the reduction or discharge of the Debt. Lender shall not be
limited to the interest paid on the award by the condemning authority but shall
be entitled to receive out of the award interest at the rate or rates provided
herein or in the Note. Borrower shall cause the award or payment made in any
condemnation or eminent domain proceeding, which is payable to Borrower, to be
paid directly to Lender. Lender may apply any award or payment to the reduction
or discharge of the Debt whether or not then due and payable (such application
to be free from any prepayment consideration provided in the Note, except that
if an Event of Default, or an event which with notice and/or the passage of
time, or both, would constitute an Event of Default, has occurred, then such
application shall be subject to the full prepayment consideration computed in
accordance with the Note). If the Property is sold, through foreclosure or
otherwise, prior to the receipt by Lender of the award or payment, Lender shall
have the right, whether or not a deficiency judgment on the Note shall have been
sought, recovered or denied, to receive the award or payment, or a portion
thereof sufficient to pay the Debt.
Section 3.5 USE AND MAINTENANCE OF PROPERTY. Borrower shall cause the
Property to be maintained and operated in a good and safe condition and repair
and in keeping with the condition and repair of properties of a similar use,
value, age, nature and construction. Borrower shall not use, maintain or operate
the Property in any manner which constitutes a public or private nuisance or
which makes void, voidable, or cancelable, or increases the premium of, any
insurance then in force with respect thereto. The Improvements and the Personal
Property shall not be removed, demolished or materially altered (except for
normal replacement of the Personal Property with items of the same utility and
of equal or greater value) without the prior written consent of Lender not to be
unreasonably withheld or delayed. Borrower shall promptly repair, replace or
rebuild any part of the Property which may be destroyed by any casualty, or
become damaged, worn or dilapidated or which may be affected by any proceeding
of the character referred to in Section 3.4 hereof and shall complete and pay
for any structure at any time in the process of construction or repair on the
Land. Borrower shall not initiate, join in, acquiesce in, or consent to any
change in any private restrictive covenant, zoning law or other public or
private restriction, limiting or defining the uses which may be made of the
Property or any part thereof. If under applicable zoning provisions the use of
all or any portion of the Property is or shall become a nonconforming use,
Borrower will not cause or permit the nonconforming use to be discontinued or
abandoned without the express written consent of Lender. Borrower shall not take
any steps whatsoever to convert the Property, or any portion thereof, to a
condominium or cooperative form of management.
Section 3.6 WASTE. Borrower shall not commit or suffer any waste of the
Property or, without first obtaining such additional insurance as may be
necessary to cover a proposed change in use of the Property, make any change in
the use of the Property which will in any way materially increase the risk of
fire or other hazard arising out of the operation of the Property, or take any
action that might invalidate or give cause for cancellation of any Policy, or do
or permit to be done
MORGAN GUARANTY TRUST COMPANY
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thereon anything that may in any way impair the value of the Property or the
security of this Security Instrument. Borrower will not, without the prior
written consent of Lender, permit any drilling or exploration for or extraction,
removal, or production of any minerals from the surface or the subsurface of the
Land, regardless of the depth thereof or the method of mining or extraction
thereof.
Section 3.7 COMPLIANCE WITH LAWS; ALTERATIONS.
(a) Borrower shall promptly comply with all existing
and future federal, state and local laws, orders, ordinances,
governmental rules and regulations or court orders affecting or which
may be interpreted to affect the Property, or the use thereof,
including, but not limited to, the Americans with Disabilities Act (the
"ADA") (collectively "Applicable Laws").
(b) Notwithstanding any provisions set forth herein
or in any document regarding Lender's approval of alterations of the
Property, Borrower shall not alter the Property in any manner which
would increase Borrower's responsibilities for compliance with
Applicable Laws without the prior written approval of Lender not to be
unreasonably withheld or delayed. Lender's approval of the plans,
specifications, or working drawings for alterations of the Property
shall create no responsibility or liability on behalf of Lender for
their completeness, design, sufficiency or their compliance with
Applicable Laws. The foregoing shall apply to tenant improvements
constructed by Borrower or by any of its tenants. Lender may condition
any such approval upon receipt of a certificate of compliance with
Applicable Laws from an independent architect, engineer, or other
person acceptable to Lender.
(c) Borrower shall give prompt notice to Lender of
the receipt by Borrower of any notice related to a violation of any
Applicable Laws and of the commencement of any proceedings or
investigations which relate to compliance with Applicable Laws.
(d) Borrower shall take appropriate measures to
prevent and will not engage in or knowingly permit any illegal
activities at the Property.
Section 3.8 BOOKS AND RECORDS.
(a) Borrower shall keep accurate books and records of
account in accordance with sound accounting principles in which full,
true and correct entries shall be promptly made with respect to
Borrower, the Property and the operation thereof, and will permit all
such books and records (including without limitation all contracts,
statements, invoices, bills and claims for labor, materials and
services supplied for the construction, repair or operation to Borrower
of the Improvements) to be inspected or audited and copies made by
Lender and its representatives during normal business hours and at any
other reasonable times. Borrower represents that its chief executive
office is as set forth in the
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introductory paragraph of this Security Instrument and that all books
and records pertaining to the Property are maintained at the Property
or such other location as may be expressly disclosed to Lender in
writing. Borrower will furnish, or cause to be furnished, to Lender on
or before forty-five (45) calendar days after the end of each calendar
quarter the following items, each certified by Borrower as being true
and correct, in such format and in such detail as Lender or its
servicer may request:
(i) a written statement (rent roll) dated as
of the last day of each such calendar quarter identifying each
of the Leases by the term, space occupied, rental required to
be paid (including percentage rents and tenant sales),
security deposit paid, any rental concessions, all rent
escalations, any rents paid more than one (1) month in
advance, any special provisions or inducements granted to
tenants, any taxes, maintenance and other common charges paid
by tenants, all vacancies and identifying any defaults or
payment delinquencies thereunder; and
(ii) quarterly and year-to-date operating
statements prepared for each calendar quarter during each such
reporting period detailing the total revenues received, total
expenses incurred, total cost of all capital improvements,
total debt service and total cash flow.
(b) Within ninety (90) calendar days following the
end of each calendar year, Borrower shall furnish a statement of the
financial affairs and condition of the Borrower and the Property
including a statement of profit and loss for the Property in such
format and in such detail as Lender or its servicer may request, and
setting forth the financial condition and the income and expenses for
the Property for the immediately preceding calendar year prepared by an
independent certified public accountant. Borrower shall deliver to
Lender copies of all income tax returns, requests for extension and
other similar items contemporaneously with its delivery of same to the
Internal Revenue Service (which income tax returns may be on a
consolidated basis).
(c) Borrower will permit representatives appointed by
Lender, including independent accountants, agents, attorneys,
appraisers and any other persons, to visit and inspect during its
normal business hours and at any other reasonable times any of the
Property and to make photographs thereof, and to write down and record
any information such representatives obtain, and shall permit Lender or
its representatives to investigate and verify the accuracy of the
information furnished to Lender under or in connection with this
Security Instrument or any of the Other Loan Documents and to discuss
all such matters with its officers, employees and representatives.
Borrower will furnish to Lender at Borrower's expense all evidence
which Lender may from time to time reasonably request as to the
accuracy and validity of or compliance with all representations and
warranties made by Borrower in the Loan Documents and satisfaction of
all conditions contained therein. Any inspection or audit of the
Property or the books and records of Borrower, or the procuring of
documents and financial and other information, by or on behalf of
Lender, shall be for Lender's protection only, and shall not constitute
any assumption of responsibility or liability
MORGAN GUARANTY TRUST COMPANY
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by Lender to Borrower or anyone else with regard to the condition,
construction, maintenance or operation of the Property, nor Lender's
approval of any certification given to Lender nor relieve Borrower of
any of Borrower's obligations.
(d) Lender agrees that for a period of two years from the
receipt of any Confidential Information (as hereinafter defined), all
Confidential Information will be treated by Lender (which for purposes
of this paragraph shall include its affiliates, directors, officers and
employees) as confidential in all respects. The term "Confidential
Information" shall mean all information, whether written or oral, which
is disclosed by the Borrower pursuant to this Agreement and clearly
marked as confidential by the Borrower, but shall not include: (a)
information which, prior to disclosure to Lender, was already in
Lender's possession; (b) information which is publicly disclosed by
someone other than Lender in violation of this paragraph; (c)
information which is obtained by Lender from a third party that (i)
Lender does not know to have violated, or to have obtained such
information in violation of, any obligation to the Borrower or its
affiliates with respect to such information, and (ii) does not require
Lender to refrain from disclosing such information; and (d) information
which is required to be disclosed by Lender or its outside counsel
under applicable securities laws or compulsion of law (whether by oral
question, interrogatory, subpoena, civil investigative demand or
otherwise) or by order of any court or governmental or regulatory body
to whose supervisory authority Lender is subject, or to Lender's
independent auditors, accountants or attorneys provided such auditors,
accountants or attorneys are informed that such information is
confidential.
Section 3.9 PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay
when due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Property and never permit to exist
beyond the due date thereof in respect of the Property or any part thereof any
lien or security interest, even though inferior to the liens and the security
interests hereof, and in any event never permit to be created or exist in
respect of the Property or any part thereof any other or additional lien or
security interest other than the liens or security interests hereof, except for
the Permitted Exceptions (as hereinafter defined).
Section 3.10 PERFORMANCE OF OTHER AGREEMENTS. Borrower shall observe
and perform each and every term to be observed or performed by Borrower pursuant
to the terms of any agreement or recorded instrument affecting or pertaining to
the Property, or given by Borrower to Lender for the purpose of further securing
an obligation secured hereby and any amendments, modifications or changes
thereto.
ARTICLE 4 - SPECIAL COVENANTS
Borrower covenants and agrees that:
Section 4.1 PROPERTY USE. The Property shall be used only for an office
building and manufacturing facility, warehouse facility and factory store, and
for no other use without the prior written consent of Lender, which consent may
be withheld in Lender's sole and absolute discretion.
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Section 4.2 ERISA.
(a) It shall not engage in any transaction which
would cause any obligation, or action taken or to be taken, hereunder
(or the exercise by Lender of any of its rights under the Note, this
Security Instrument and the Other Loan Documents) to be a non-exempt
(under a statutory or administrative class exemption) prohibited
transaction under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
(b) It shall deliver to Lender such certifications or
other evidence from time to time throughout the term of the Security
Instrument, as requested by Lender in its sole discretion, that (i)
Borrower is not an "employee benefit plan" as defined in Section 3(3)
of ERISA, which is subject to Title I of ERISA, or a "governmental
plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is
not subject to state statutes regulating investments and fiduciary
obligations with respect to governmental plans; and (iii) one or more
of the following circumstances is true:
(i) Equity interests in Borrower are
publicly offered securities, within the meaning of 29 C.F.R.
ss. 2510.3-101(b)(2);
(ii) Less than twenty-five percent (25%) of
each outstanding class of equity interests in Borrower are
held by "benefit plan investors" within the meaning of 29
C.F.R. ss. 2510.3-101(f)(2); or
(iii) Borrower qualifies as an "operating
company" or a "real estate operating company" within the
meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or an investment
company registered under The Investment Company Act of 1940.
Section 4.3 SINGLE PURPOSE ENTITY. Borrower covenants and agrees that
it has not and shall not:
(a) engage in any business or activity other than the
acquisition, ownership, operation and maintenance of the Property, and
activities incidental thereto;
(b) acquire or own any material asset other than (i)
the Property, and (ii) such incidental Personal Property as may be
necessary for the operation of the Property;
(c) merge into or consolidate with any person or
entity or dissolve, terminate or liquidate in whole or in part,
transfer or otherwise dispose of all or substantially all of its assets
or change its legal structure, without in each case Lender's consent;
(d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under
the laws of the jurisdiction of its organization or formation, or
without the prior written consent of Lender, amend, modify,
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terminate or fail to comply with the provisions of Borrower's
Partnership Agreement, Articles or Certificate of Incorporation,
Articles of Organization, Operating Agreement or similar organizational
documents, as the case may be;
(e) own any subsidiary or make any investment in or
acquire the obligations or securities of any other person or entity
without the consent of Lender;
(f) commingle its assets with the assets of any of
its general partner(s), if Borrower is a partnership, its managing
members, if Borrower is a limited liability company, or its principal
shareholders, if Borrower is a corporation (in each case, "Principal"),
affiliates, or of any other person or entity;
(g) incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than the
Debt, except in the ordinary course of its business of owning and
operating the Property, provided that such debt is not evidenced by a
note and is paid when due;
(h) fail to pay its debts and liabilities from its
assets as the same shall become due;
(i) fail to maintain its records, books of account
and bank accounts separate and apart from those of the general
partners, members, principals and affiliates of Borrower, the
affiliates of a general partner or member of Borrower, and any other
person or entity;
(j) enter into any contract or agreement with any
general partner, member, principal or affiliate of Borrower, any
guarantor of all or a portion of the Debt (a "Guarantor") or
Indemnitor, or any general partner, member, principal or affiliate
thereof, except upon terms and conditions that are intrinsically fair
and substantially similar to those that would be available on an
arms-length basis with third parties other than any general partner,
member, principal or affiliate of Borrower, Guarantor or Indemnitor, or
any general partner, member, principal or affiliate thereof;
(k) seek dissolution or winding up in whole, or in
part;
(l) fail to correct any known misunderstandings
regarding the separate identity of Borrower;
(m) hold itself out to be responsible (or pledge its
assets as security) for the debts of another person;
(n) make any loans or advances to any third party,
including any general partner, member, principal or affiliate of
Borrower, or any general partner, member, principal or affiliate
thereof;
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(n) fail to file its own tax returns or to use
separate stationary, invoices and checks;
(o) agree to, enter into or consummate any
transaction which would render Borrower unable to furnish the
certification or other evidence referred to in Subsection 4.2(b)
hereof;
(p) fail either to hold itself out to the public as a
legal entity separate and distinct from any other entity or person or
to conduct its business solely in its own name in order not (i) to
mislead others as to the entity with which such other party is
transacting business, or (ii) to suggest that Borrower is responsible
for the debts of any third party (including any general partner,
member, principal or affiliate of Borrower, or any general partner,
member, principal or affiliate thereof);
(q) fail to allocate fairly and reasonably among
Borrower and any third party (including, without limitation, any
Guarantor) any overhead for shared office space;
(r) fail to pay the salaries of its own employees and
maintain a sufficient number of employees for its contemplated business
operations;
(s) file or consent to the filing of any petition,
either voluntary or involuntary, to take advantage of any applicable
insolvency, bankruptcy, liquidation or reorganization statute, or make
an assignment for the benefit of creditors; or
(t) hold itself out as or be considered as a
department or division of (i) any general partner, principal, member or
affiliate of Borrower, (ii) any affiliate of a general partner of
Borrower, or (iii) any other person or entity; or
(u) fail at any time to have at least one independent
director that is not and has not been for at least three (3) years a
director, officer, employee, trade creditor or shareholder (or spouse,
parent, sibling or child of the foregoing) of (i) Borrower, (ii)
Principal, (iii) any general partner, principal or affiliate of
Borrower or of Principal, or (iv) any affiliate of any general partner
of Borrower or of Principal.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
Section 5.1 BORROWER'S REPRESENTATIONS. Borrower represents and
warrants to Lender that each of the representations and warranties set forth in
that certain Closing Certificate of even date herewith executed by Borrower in
favor of Lender are true and correct as of the date hereof and are hereby
incorporated and restated in this Security Instrument by this reference.
Section 5.2 WARRANTY OF TITLE. Borrower represents and warrants that it
has good and marketable title to the Property and has the right to grant,
bargain, sell, pledge, assign, warrant,
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transfer and convey the same and that Borrower possesses an unencumbered fee
simple absolute estate in the Land and the Improvements and that it owns the
Property free and clear of all liens, encumbrances and charges whatsoever except
for those exceptions shown in the title insurance policy insuring the lien of
this Security Instrument (the "Permitted Exceptions"). Borrower shall, at its
sole cost and expense, forever warrant, defend and preserve the title and the
validity and priority of the lien of this Security Instrument and shall, at its
sole cost and expense, forever warrant and defend the same to Trustee and Lender
against the claims of all persons whomsoever.
Section 5.3 STATUS OF PROPERTY.
(a) No portion of the Improvements is located in an
area identified by the Secretary of Housing and Urban Development or
any successor thereto as an area having special flood hazards pursuant
to the National Flood Insurance Act of 1968 or the Flood Disaster
Protection Act of 1973, as amended, or any successor law, or, if
located within any such area, Borrower has obtained and will maintain
the insurance prescribed in Section 3.2 hereof.
(b) Borrower has obtained all necessary certificates,
permits, licenses and other approvals, governmental and otherwise,
necessary for the use, occupancy and operation of the Property and the
conduct of its business (including, without limitation, certificates of
completion and certificates of occupancy) and all required zoning,
building code, land use, environmental and other similar permits or
approvals, all of which are in full force and effect as of the date
hereof and not subject to revocation, suspension, forfeiture or
modification.
(c) The Property and the present and contemplated use
and occupancy thereof are to the best knowledge of Borrower in full
compliance with all Applicable Laws, including, without limitation,
zoning ordinances, building codes, land use and environmental laws,
laws relating to the disabled (including, but not limited to, the ADA)
and other similar laws.
(d) The Property is served by all utilities required
for the current or contemplated use thereof. All utility service is
provided by public utilities and the Property has accepted or is
equipped to accept such utility service.
(e) All public roads and streets necessary for
service of and access to the Property for the current or contemplated
use thereof have been completed, are serviceable and are physically and
legally open for use by the public.
(f) The Property is served by public water and sewer
systems.
(g) The Property is free from damage caused by fire
or other casualty. There is no pending or, to the best knowledge of
Borrower, threatened condemnation proceedings affecting the Property or
any portion thereof.
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(h) All costs and expenses of any and all labor,
materials, supplies and equipment used in the construction of the
Improvements have been paid in full and no notice of any mechanics' or
materialmen's liens or of any claims of right to any such liens have
been received.
(i) Borrower has paid in full for, and is the owner
of, all furnishings, fixtures and equipment (other than tenants'
property) used in connection with the operation of the Property, free
and clear of any and all security interests, liens or encumbrances,
except the lien and security interest created hereby.
(j) All liquid and solid waste disposal, septic and
sewer systems located on the Property are to the best knowledge of
Borrower in a good and safe condition and repair and in compliance with
all Applicable Laws.
(k) All Improvements lie within the boundary of the
Land.
(l) The Property will be managed solely by the
Borrower, and no property manager shall be retained or appointed
without the prior written consent of Lender. Such property manager and
any property management agreement shall be satisfactory to Lender in
its sole discretion, and as a condition to Lender's approval such
property manager shall execute and deliver a lien waiver and
subordination agreement satisfactory to Lender in its sole discretion
which also provides Lender the right, at its option, to terminate the
property management agreement or assume Borrower's obligations
thereunder upon an Event of Default.
Section 5.4 NO FOREIGN PERSON. Borrower is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended, and the related Treasury Department regulations, including temporary
regulations.
Section 5.5 SEPARATE TAX LOT. The Property is assessed for real estate
tax purposes as one or more wholly independent tax lot or lots, separate from
any adjoining land or improvements not constituting a part of such lot or lots,
and no other land or improvements is assessed and taxed together with the
Property or any portion thereof.
ARTICLE 6 - OBLIGATIONS AND RELIANCES
Section 6.1 RELATIONSHIP OF BORROWER AND LENDER. The relationship
between Borrower and Lender is solely that of debtor and creditor, and Lender
has no fiduciary or other special relationship with Borrower, and no term or
condition of any of the Note, this Security Instrument and the other Loan
Documents shall be construed so as to deem the relationship between Borrower and
Lender to be other than that of debtor and creditor.
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Section 6.2 NO RELIANCE ON LENDER. The general partners, members,
principals and (if Borrower is a trust) beneficial owners of Borrower are
experienced in the ownership and operation of properties similar to the
Property, and Borrower and Lender are relying solely upon such expertise and
business plan in connection with the ownership and operation of the Property.
Borrower is not relying on Lender's expertise, business acumen or advice in
connection with the Property.
Section 6.3 NO LENDER OBLIGATIONS.
(a) Notwithstanding the provisions of Subsections
1.1(e) and 1.1(l) or Section 1.2, Lender is not undertaking (i) any
obligations under the Leases; or (ii) any obligations with respect to
such agreements, contracts, certificates, instruments, franchises,
permits, trademarks, licenses and other documents.
(b) By accepting or approving anything required to be
observed, performed or fulfilled or to be given to Lender pursuant to
this Security Instrument, the Note or the Other Loan Documents,
including without limitation, any officer's certificate, balance sheet,
statement of profit and loss or other financial statement, survey,
appraisal, or insurance policy, Lender shall not be deemed to have
warranted, consented to, or affirmed the sufficiency, legality or
effectiveness of same, and such acceptance or approval thereof shall
not constitute any warranty or affirmation with respect thereto by
Lender.
Section 6.4 RELIANCE. Borrower recognizes and acknowledges that in
accepting the Note, this Security Instrument and the Other Loan Documents,
Lender is expressly and primarily relying on the truth and accuracy of the
warranties and representations set forth in Article 5 and that certain Closing
Certificate of even date herewith executed by Borrower, without any obligation
to investigate the Property and notwithstanding any investigation of the
Property by Lender; that such reliance existed on the part of Lender prior to
the date hereof; that such warranties and representations are a material
inducement to Lender in accepting the Note, this Security Instrument and the
Other Loan Documents; and that Lender would not be willing to make the Loan (as
hereinafter defined) and accept this Security Instrument in the absence of the
warranties and representations as set forth in Article 5 and such Closing
Certificate.
ARTICLE 7 -FURTHER ASSURANCES
Section 7.1 RECORDING FEES. Borrower will pay all taxes, filing,
registration or recording fees, and all expenses incident to the preparation,
execution, acknowledgment and/or recording of the Note, this Security
Instrument, the Other Loan Documents, any note or deed of trust supplemental
hereto, any security instrument with respect to the Property and any instrument
of further assurance, and any modification or amendment of the foregoing
documents, and all federal, state, county and municipal taxes, duties, imposts,
assessments and charges arising out of or in connection with the execution and
delivery of this Security Instrument, any deed of trust supplemental hereto, any
security instrument with respect to the Property or any instrument of
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further assurance, and any modification or amendment of the foregoing documents,
except where prohibited by law so to do.
Section 7.2 FURTHER ACTS. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, deeds of trust, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
reasonably require, for the better assuring, conveying, assigning, transferring,
and confirming unto Lender the property and rights hereby granted, bargained,
sold, conveyed, confirmed, pledged, assigned, warranted and transferred or
intended now or hereafter so to be, or which Borrower may be or may hereafter
become bound to convey or assign to Lender, or for carrying out the intention or
facilitating the performance of the terms of this Security Instrument or for
filing, registering or recording this Security Instrument, or for complying with
all Applicable Laws. Borrower, on demand, will execute and deliver and hereby
authorizes Lender to execute in the name of Borrower or without the signature of
Borrower to the extent Lender may lawfully do so, one or more financing
statements, chattel mortgages or other instruments, to evidence more effectively
the security interest of Lender in the Property. Borrower grants to Lender an
irrevocable power of attorney coupled with an interest for the purpose of
exercising and perfecting any and all rights and remedies available to Lender at
law and in equity, including without limitation such rights and remedies
available to Lender pursuant to this Section 7.2.
Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP
LAWS.
(a) If any law is enacted or adopted or amended after
the date of this Security Instrument which imposes a tax, either
directly or indirectly, on the Debt or Lender's interest in the
Property, requires revenue or other stamps to be affixed to the Note,
this Security Instrument, or the Other Loan Documents, or imposes any
other tax or charge on the same, Borrower will pay the same, with
interest and penalties thereon, if any. If Lender is advised by counsel
chosen by it that the payment of tax by Borrower would be unlawful or
taxable to Lender or unenforceable or provide the basis for a defense
of usury, then Lender shall have the option, by written notice of not
less than ninety (90) calendar days, to declare the Debt immediately
due and payable.
(b) Borrower will not claim or demand or be entitled
to any credit or credits on account of the Debt for any part of the
Taxes or Other Charges assessed against the Property, or any part
thereof, and no deduction shall otherwise be made or claimed from the
assessed value of the Property, or any part thereof, for real estate
tax purposes by reason of this Security Instrument or the Debt. If such
claim, credit or deduction shall be required by law, Lender shall have
the option, by written notice of not less than ninety (90) calendar
days, to declare the Debt immediately due and payable.
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Section 7.4 CONFIRMATION STATEMENT.
(a) After request by Lender, Borrower, within ten
(10) days, shall furnish Lender or any proposed assignee with a
statement, duly acknowledged and certified, confirming to Lender (or
its designee) (i) the amount of the original principal amount of the
Note, (ii) the unpaid principal amount of the Note, (iii) the rate of
interest of the Note, (iv) the terms of payment and maturity date of
the Note, (v) the date installments of interest and/or principal were
last paid, and (vi) that, except as provided in such statement, there
are no known defaults or events which with the passage of time or the
giving of notice or both, would constitute an event of default under
the Note or this Security Instrument; provided, however, Lender shall
not be entitled hereunder to receive more than one (1) such statement
in each calendar year.
(b) Subject to the provisions of the Leases, if
Borrower shall deliver to Lender, promptly upon request (but not more
frequently than once annually so long as Borrower is not in default
hereunder), duly executed estoppel certificates from any one or more
lessees as required by Lender attesting to such facts regarding the
Lease as Lender may require, including but not limited to attestations
that each Lease covered thereby is in full force and effect with no
defaults thereunder on the part of any party, that none of the Rents
have been paid more than one month in advance, and that the lessee
claims no defense or offset against the full and timely performance of
its obligations under the Lease.
(c) Upon any transfer or proposed transfer
contemplated by Section 14.1 hereof, at Lender's request, Borrower, any
Guarantors and any Indemnitors shall provide an estoppel certificate to
the Investor (defined in Section 16.1) or any prospective Investor in
such form, substance and detail as Lender, such Investor or prospective
Investor may require.
Section 7.5 SPLITTING OF SECURITY INSTRUMENT. This Security Instrument
and the Note shall, at any time after an Event of Default and until the same
shall be fully paid and satisfied, at the sole election of Lender, be split or
divided into two or more notes and two or more security instruments, each of
which shall cover all or a portion of the Property to be more particularly
described therein. To that end, Borrower, upon written request of Lender, shall
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered by the then owner of the Property, to Lender and/or its designee or
designees substitute notes and security instruments in such principal amounts,
aggregating not more than the then unpaid principal amount of Debt, and
containing terms, provisions and clauses similar to those contained herein and
in the Note, and such other documents and instruments as may be required by
Lender.
Section 7.6 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an
officer of Lender as to the loss, theft, destruction or mutilation of the Note
or any Other Loan Document which is not of public record, and, in the case of
any such mutilation, upon surrender and cancellation of such Note or Other Loan
Document, Borrower, at its expense, will issue, in lieu thereof, a replacement
Note or Other Loan Document, dated the date of such lost, stolen, destroyed
MORGAN GUARANTY TRUST COMPANY
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or mutilated Note or Other Loan Document in the same principal amount thereof
and otherwise of like tenor, provided Lender indemnifies Borrower against the
claims of any third party attempting to enforce the lost Note against Borrower.
ARTICLE 8 - DUE ON SALE/ENCUMBRANCE
Section 8.1 LENDER RELIANCE. Borrower acknowledges that Lender has
examined and relied on the creditworthiness of Borrower and experience of
Borrower and its principals in owning and operating properties such as the
Property in agreeing to make the Loan, and will continue to rely on Borrower's
ownership of the Property as a means of maintaining the value of the Property as
security for repayment of the Debt and the performance of the Other Obligations.
Borrower acknowledges that Lender has a valid interest in maintaining the value
of the Property so as to ensure that, should Borrower default in the repayment
of the Debt or the performance of the Other Obligations, Lender can recover the
Debt by a sale of the Property.
Section 8.2 NO SALE/ENCUMBRANCE.
(a) Borrower agrees that Borrower shall not, without
the prior written consent of Lender, sell, convey, mortgage, grant,
bargain, encumber, pledge, assign, or otherwise transfer the Property
or any part thereof or permit the Property or any part thereof to be
sold, conveyed, mortgaged, granted, bargained, encumbered, pledged,
assigned, or otherwise transferred. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk
of default hereunder in order to declare the Debt immediately due and
payable upon Borrower's sale, conveyance, mortgage, grant, bargain,
encumbrance, pledge, assignment, or transfer of the Property without
Lender's consent.
(b) Subsection 8.2(a) shall apply to: (i) an
installment sales agreement wherein Borrower agrees to sell the
Property or any part thereof for a price to be paid in installments;
(ii) an agreement by Borrower leasing all or a substantial part of the
Property for other than actual occupancy by a space tenant thereunder
or a sale, assignment or other transfer of, or the grant of a security
interest in, Borrower's right, title and interest in and to any Leases
or any Rents; (iii) if Borrower, Guarantor, or any general partner of
Borrower or Guarantor is a corporation, any merger, consolidation or
the voluntary or involuntary sale, conveyance or transfer of such
corporation's stock (or the stock of any corporation directly or
indirectly controlling such corporation by operation of law or
otherwise) or the creation or issuance of new stock in one or a series
of transactions by which an aggregate of more than ten percent (10%) of
such corporation's stock shall be vested in a party or parties who are
not now stockholders (provided, however, in no event shall this subpart
[iii] apply to any Guarantor whose stock, shares or partnership
interests are traded on a nationally recognized stock exchange); (iv)
if Borrower, Guarantor, or any general partner of Borrower or Guarantor
is a limited liability company or limited partnership, the voluntary or
involuntary sale, conveyance or transfer by which an aggregate of more
than fifty percent (50%) of the ownership interest in such limited
liability company or more than fifty percent (50%) of the limited
partnership interests in such limited partnership shall be vested in
parties not having
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an ownership interest as of the date of this Security Instrument; and
(v) if Borrower, any Guarantor or any general partner of Borrower or
any Guarantor is a limited or general partnership or joint venture, the
change, removal or resignation of a general partner, managing partner
or joint venturer or the transfer of all or any portion of the
partnership interest of any general partner, managing partner or joint
venturer.
Section 8.3 EXCLUDED AND PERMITTED TRANSFERS.
(a) A sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer within the meaning of this Article 8
shall not include (i) transfers made by devise or descent or by
operation of law upon the death of a joint tenant, partner, member or
shareholder, subject, however, to all the following requirements: (A)
written notice of any transfer under this Section 8.3 , whether by
will, trust or other written instrument, operation of law or otherwise,
is provided to Lender or its servicer, together with copies of such
documents relating to the transfer as Lender or its servicer may
reasonably request, (B) control over the management and operation of
the Property is retained by one or more of Poore Brothers, Inc. (the
"Original Principals", whether one or more) at all times prior to the
death or legal incapacity of all the Original Principals and is
thereafter assumed by persons who are acceptable in all respects to
Lender in its sole and absolute discretion, (C) no such transfer by any
of the Original Principals will release the respective estate from any
liability as a Guarantor, and (D) no such transfer, death or other
event has any adverse effect either on the bankruptcy-remote status of
Borrower under the requirements of any national rating agency for the
Securities (hereinafter defined) or on the status of Borrower as a
continuing legal entity liable for the payment of the Debt and the
performance of all other obligations secured hereby, (ii) transfers
otherwise by operation of law in the event of a bankruptcy, or (iii) a
Lease of a portion of the Property to a space tenant.
(b) Notwithstanding any provision of this Security
Instrument to the contrary, the prohibitions in Subsection 8.2(a) shall
not apply to (i) an inter vivos or testamentary transfer of all or any
portion of the Property to one or more family members of a trust in
which all of the beneficial interest is held by one or more family
members of Original Principal or a partnership or limited liability
company in which a majority of the capital and profits interests are
held by one or more family members of Original Principal, or (ii) any
inter vivos or testamentary transfer or issuance of capital stock in
Borrower or the general partner of Borrower to one or more family
members of Original Principal a trust in which all of the beneficial
interest is held by one or more family members of Original Principal or
a partnership or limited liability company in which a majority of the
capital and profits interests are held by one or more family members of
Original Principal; provided, that any inter vivos transfer of all or
any portion of the Property or any inter vivos transfer or issuance of
capital stock in Borrower or Borrower's general partner is made in
connection with Original Principal bona fide, good faith estate
planning and that the person(s) with voting control of Borrower or the
management of the Property are (i) the same person(s) who had such
voting control and management rights immediately prior to the transfer
in question, or (ii) reasonably acceptable to Lender. Lender
acknowledges that Original Principal and/or
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Original Principal's spouse are acceptable to exercise voting control
of Borrower and the management of the Property. As used herein, "family
members" shall include the spouse, children and grandchildren and any
lineal descendants.
(c) Notwithstanding the provisions of Section 8.2
above, Lender will give its consent to a sale or transfer of Property,
if (but only if) no Event of Default under the Loan Documents has
occurred and is continuing, and if each of the following conditions
precedent have been fully satisfied (as determined in Lender's sole and
absolute discretion): (i) the grantee's or transferee's integrity,
reputation, financial condition, character and management ability are
satisfactory to Lender in its sole discretion, (ii) the grantee's or
transferee's (and its sole general partner's) single purpose and
bankruptcy remote character are satisfactory to Lender in its sole
discretion, (iii) Lender has obtained such estoppels from any
guarantors of the Note or replacement guarantors and such other legal
opinions, Securities and similar matters as Lender may require, (iv)
all of Lender's costs and expenses associated with the sale or transfer
(including reasonable attorneys' fees) are paid by Borrower or the
grantee or transferee, (v) the payment of a transfer fee not to exceed
1% of the then unpaid principal balance of the loan evidenced by the
Note and secured hereby (the "Loan"), (vi) the execution and delivery
to Lender of a written assumption agreement and substitute guaranty (in
its sole and absolute discretion) and such modifications to the Loan
Documents executed by such parties and containing such terms and
conditions as Lender may require in its sole and absolute discretion
prior to such sale or transfer (provided that in the event the Loan is
included in a REMIC and is a performing Loan, no modification to the
terms and conditions shall be made or permitted that would cause (A)
any adverse tax consequences to the REMIC or any holders of any
Mortgage-Backed Pass-Through Securities, (B) the Security Instrument to
fail to be a Qualifying Security Instrument under applicable federal
law relating to REMIC's, (C) the Security Instrument to fail to be a
Qualifying Security Instrument under applicable federal law relating to
REMIC's, or (D) result in a taxation of the income from the Loan to the
REMIC or cause a loss of REMIC status), and (vii) the delivery to
Lender of an endorsement (at Borrower's sole cost and expense) to
Lender policy of title insurance then insuring the lien created by this
Security Instrument in form and substance acceptable to Lender in its
sole judgment.
(d) Without limiting the foregoing, if Lender shall
consent to any such transfer, the written assumption agreement
described in Subsection 8.3(c)(vi) above shall provide for the release
of Borrower and, if approved by Lender, each Guarantor and Indemnitor
of personal liability under the Note and Other Loan Documents, but as
to acts or events occurring, or obligations arising, after the closing
of such transfer.
Section 8.4 NO IMPLIED FUTURE CONSENT. Lender's consent to one sale,
conveyance, alienation, mortgage, encumbrance, pledge or transfer of the
Property shall not be deemed to be a waiver of Lender's right to require such
consent to any future occurrence of same. Any sale, conveyance, alienation,
mortgage, encumbrance, pledge or transfer of the Property made in contravention
of this Article 8 shall be null and void and of no force and effect.
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Section 8.5 COSTS OF CONSENT. Borrower agrees to bear and shall pay or
reimburse Lender on demand for all reasonable expenses (including, without
limitation, all recording costs, reasonable attorneys' fees and disbursements
and title search costs) incurred by Lender in connection with the review,
approval and documentation of any such sale, conveyance, alienation, mortgage,
encumbrance, pledge or transfer.
Section 8.6 CONTINUING SEPARATENESS REQUIREMENTS. In no event shall any
of the terms and provisions of this Article 8 amend or modify the terms and
provisions contained in Section 4.3 herein.
ARTICLE 9 - DEFAULT
Section 9.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) if any portion of the Debt is not paid prior to
the tenth (10th) calendar day after the same is due or if the entire
Debt is not paid on or before the maturity date, along with applicable
prepayment premiums, if any;
(b) if Borrower, or Principal, if applicable,
violates or does not comply with any of the provisions of Article 8;
(c) if any representation or warranty of Borrower or
of its members, general partners, principals, affiliates, agents or
employees, or of any Guarantor or Indemnitor made herein or in the
Environmental Indemnity or in any other Loan Document, in any
guaranty, or in any certificate, report, financial statement or other
instrument or document furnished to Lender shall have been false or
misleading in any material respect when made;
(d) if Borrower or any Guarantor or any Indemnitor
shall make an assignment for the benefit of creditors or if Borrower or
any Guarantor or Indemnitor shall admit in writing its inability to
pay, or Borrower's or any Guarantor's or any Indemnitor's failure to
pay its debts as they become due;
(e) if (i) Borrower or any subsidiary or general
partner or member of Borrower, or any Guarantor or any Indemnitor shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, conservatorship or relief of
debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any
substantial part of its assets, or Borrower or any subsidiary or
general partner or member of Borrower, or any Guarantor or any
Indemnitor shall make a general
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assignment for the benefit of its creditors; or (ii) there shall be
commenced against Borrower or any subsidiary or general partner or
member of Borrower, or any Guarantor or any Indemnitor any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) calendar days; or (iii) there shall
be commenced against Borrower or any subsidiary or general partner or
member of Borrower or any Guarantor or any Indemnitor any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial
part of its assets which results in the entry of any order for any such
relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) calendar days from the entry
thereof; or (iv) Borrower or any subsidiary or general partner or
member of Borrower, or any Guarantor or any Indemnitor shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) or (iii)
above; or (v) Borrower or any subsidiary or general partner or member
of Borrower, or any Guarantor or any Indemnitor shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due;
(f) subject to Borrower's right to contest certain
liens as provided in this Security Instrument, if the Property becomes
subject to any mechanic's, materialman's or other lien other than a
lien for local real estate taxes and assessments not then due and
payable and the lien shall remain undischarged of record (by payment,
bonding or otherwise) for a period of thirty (30) calendar days;
(g) if any federal tax lien is filed against
Borrower, any general partner of Borrower, any Guarantor, any
Indemnitor or the Property and same is not discharged of record within
ninety (90) calendar days after same is filed;
(h) except as permitted in this Security Instrument,
the actual or threatened alteration, improvement, demolition or removal
of any of the Improvements without the prior consent of Lender;
(i) damage to the Property in any manner which is not
covered by insurance, which lack of coverage arises solely as a result
of Borrower's failure to maintain the insurance required under this
Security Instrument;
(j) in the event a managing agent is ever retained or
appointed for the Property in compliance with the terms of this
Security Instrument and without Lender's prior consent (i) the managing
agent for the Property resigns or is removed, (ii) the ownership,
management or control of such managing agent is transferred to a person
or entity other than the general partner, managing partner or managing
member or Principal of the Borrower, or (iii) there is any material
change in the property management agreement of the Property;
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(k) this Security Instrument shall cease to
constitute a first-priority lien on the Property (other than in
accordance with its terms);
(l) seizure or forfeiture of the Property, or any
portion thereof, or Borrower's interest therein, resulting from
criminal wrongdoing or other unlawful action of Borrower, its
affiliates, or any tenant in the Property under any federal, state or
local law;
(m) if Borrower consummates a transaction which would
cause this Security Instrument or Lender's exercise of its rights under
this Security Instrument, the Note or the Other Loan Documents to
constitute a nonexempt prohibited transaction under ERISA or result in
a violation of a state statute regulating governmental plans,
subjecting Lender to liability for a violation of ERISA or a state
statute;
(n) if any default occurs under the Environmental
Indemnity given by Borrower and Indemnitor to Lender and other
Indemnified Parties (as hereinafter defined) and such default continues
after the expiration of applicable notice and grace periods, if any;
(o) if any default occurs under any guaranty or
indemnity executed in connection herewith and such default continues
after the expiration of applicable grace periods, if any; and
(p) if Borrower, any Guarantor or any Indemnitor, as
the case may be, shall continue to be in default under any other term,
covenant or condition of this Security Instrument or any Other Loan
Documents (excluding the Note) for thirty (30) calendar days after
notice from Lender; provided that if such default cannot reasonably be
cured within such thirty (30) calendar day period and Borrower (or such
Guarantor or Indemnitor as the case may be) shall have commenced to
cure such default within such thirty (30) calendar day period and
thereafter diligently and expeditiously proceeds to cure the same, such
thirty (30) calendar day period shall be extended for so long as it
shall require Borrower (or such Guarantor or Indemnitor as the case may
be) in the exercise of due diligence to cure such default, it being
agreed that no such extension shall be for a period in excess of sixty
(60) calendar days.
Section 9.2 DEFAULT INTEREST. Borrower will pay, from the date of an
Event of Default through the earlier of the date upon which the Event of Default
is cured or the date upon which the Debt is paid in full, interest on the unpaid
principal balance of the Note at a per annum rate equal to the lesser of (a)
five percent (5%) plus the Applicable Interest Rate (as defined in the Note),
and (b) the maximum interest rate which Borrower may by law pay or Lender may
charge and collect (the "Default Rate").
ARTICLE 10 - RIGHTS AND REMEDIES
Section 10.1 REMEDIES. Upon the occurrence of any Event of Default,
Borrower agrees that Lender may take such action, by or through Trustee, by
Lender itself or otherwise, without
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notice or demand, as it deems advisable to protect and enforce its rights
against Borrower and in and to the Property, including, but not limited to, the
following actions, each of which may be pursued concurrently or otherwise, at
such time and in such order as Lender may determine, in its sole discretion,
without impairing or otherwise affecting the other rights and remedies of
Lender:
(a) Right to Perform Borrower's Covenants. If
Borrower has failed to keep or perform any covenant whatsoever
contained in this Security Instrument or the Other Loan Documents,
Lender may, but shall not be obligated to any person to do so, perform
or attempt to perform said covenant and any payment made or expense
incurred in the performance or attempted performance of any such
covenant, together with any sum expended by Lender that is chargeable
to Borrower or subject to reimbursement by Borrower under the Loan
Documents, shall be and become a part of the "Debt", and Borrower
promises, upon demand, to pay to Lender, at the place where the Note is
payable, all sums so incurred, paid or expended by Lender, with
interest from the date when paid, incurred or expended by Lender at the
Default Rate.
(b) Right of Entry. Lender may, prior or subsequent
to the institution of any foreclosure proceedings, enter upon the
Property, or any part thereof, and take exclusive possession of the
Property and of all books, records, and accounts relating thereto and
to exercise without interference from Borrower any and all rights which
Borrower has with respect to the management, possession, operation,
protection, or preservation of the Property, including without
limitation the right to rent the same for the account of Borrower and
to deduct from such Rents all costs, expenses, and liabilities of every
character incurred by Lender in collecting such Rents and in managing,
operating, maintaining, protecting, or preserving the Property and to
apply the remainder of such Rents on the Debt in such manner as Lender
may elect. All such costs, expenses, and liabilities incurred by Lender
in collecting such Rents and in managing, operating, maintaining,
protecting, or preserving the Property, if not paid out of Rents as
hereinabove provided, shall constitute a demand obligation owing by
Borrower and shall bear interest from the date of expenditure until
paid at the Default Rate, all of which shall constitute a portion of
the Debt. If necessary to obtain the possession provided for above,
Lender may invoke any and all legal remedies to dispossess Borrower,
including specifically one or more actions for forcible entry and
detainer, trespass to try title, and restitution. In connection with
any action taken by Lender pursuant to this Subsection 10.1(b), Lender
shall not be liable for any loss sustained by Borrower resulting from
any failure to let the Property, or any part thereof, or from any other
act or omission of Lender in managing the Property unless such loss is
caused by the willful misconduct of Lender, nor shall Lender be
obligated to perform or discharge any obligation, duty, or liability
under any Lease or under or by reason hereof or the exercise of rights
or remedies hereunder. Borrower shall and does hereby agree to
indemnify Lender for, and to hold Lender harmless from, any and all
liability, loss, or damage, which may or might be incurred by Lender
under any such Lease or under or by reason hereof or the exercise of
rights or remedies hereunder, and from any and all claims and demands
whatsoever which may be asserted against Lender by reason of any
alleged obligations or undertakings on its part to perform or discharge
any of the terms, covenants, or agreements contained in any
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such Lease. Should Lender incur any such liability, the amount thereof,
including without limitation costs, expenses, and reasonable attorneys'
fees, together with interest thereon from the date of expenditure until
paid at the Default Rate, shall be secured hereby, and Borrower shall
reimburse Lender therefor immediately upon demand. Nothing in this
Subsection 10.1(b) shall impose any duty, obligation, or responsibility
upon Lender for the control, care, management, leasing, or repair of
the Property, nor for the carrying out of any of the terms and
conditions of any such Lease; nor shall it operate to make Lender
responsible or liable for any waste committed on the Property by the
tenants or by any other parties, or for any hazardous substances or
environmental conditions on or under the Property, or for any dangerous
or defective condition of the Property or for any negligence in the
management, leasing, upkeep, repair, or control of the Property
resulting in loss or injury or death to any tenant, licensee, employee,
or stranger. Borrower hereby assents to, ratifies, and confirms any and
all actions of Lender with respect to the Property taken under this
subsection.
(c) Right to Accelerate. Lender may, without notice
(except as provided in Section 9.1(p) above) demand, presentment,
notice of nonpayment or nonperformance, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, or any other
notice or any other action, all of which are hereby waived by Borrower
and all other parties obligated in any manner whatsoever on the Debt,
declare the entire unpaid balance of the Debt immediately due and
payable, and upon such declaration, the entire unpaid balance of the
Debt shall be immediately due and payable.
(d) Foreclosure-Power of Sale. Lender may institute a
proceeding or proceedings, judicial, or nonjudicial, by advertisement
or otherwise, for the complete or partial foreclosure of this Security
Instrument or the complete or partial sale of the Property under power
of sale or under any applicable provision of law. Lender may, through
the Trustee, sell the Property, and all estate, right, title, interest,
claim and demand of Borrower therein, and all rights of redemption
thereof, at one or more sales, as an entirety or in parcels, with such
elements of real and/or personal property, and at such time and place
and upon such terms as it may deem expedient, or as may be required by
applicable law, and in the event of a sale, by foreclosure or
otherwise, of less than all of the Property, this Security Instrument
shall continue as a lien and security interest on the remaining portion
of the Property.
(e) Rights Pertaining to Sales. Subject to the
requirements of applicable law and except as otherwise provided herein,
the following provisions shall apply to any sale or sales of all or any
portion of the Property under or by virtue of Subsection 10.1(d) above,
whether made under the power of sale herein granted or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and
sale:
(i) Trustee or Lender may conduct any number
of sales from time to time. The power of sale set forth above
shall not be exhausted by any one or more such sales as to any
part of the Property which shall not have been sold, nor by
any
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sale which is not completed or is defective in Lender's
opinion, until the Debt shall have been paid in full.
(ii) Any sale may be postponed or adjourned
by public announ cement at the time and place appoint ed for
such sale or for such postpo ned or adjour ned sale without
further notice.
(iii) After each sale, Lender, Trustee or an
officer of any court empowered to do so shall execute and
deliver to the purchaser or purchasers at such sale a good and
sufficient instrument or instruments granting, conveying,
assigning and transferring all right, title and interest of
Borrower in and to the property and rights sold and shall
receive the proceeds of said sale or sales and apply the same
as specified in the Note. Each of Trustee and Lender is hereby
appointed the true and lawful attorney-in-fact of Borrower,
which appointment is irrevocable and shall be deemed to be
coupled with an interest, in Borrower's name and stead, to
make all necessary conveyances, assignments, transfers and
deliveries of the property and rights so sold, Borrower hereby
ratifying and confirming all that said attorney or such
substitute or substitutes shall lawfully do by virtue thereof.
Nevertheless, Borrower, if requested by Trustee or Lender,
shall ratify and confirm any such sale or sales by executing
and delivering to Trustee, Lender or such purchaser or
purchasers all such instruments as may be advisable, in
Trustee's or Lender's judgment, for the purposes as may be
designated in such request.
(iv) Any and all statements of fact or other
recitals made in any of the instruments referred to in
Subsection 10.1(e)(iii) given by Trustee or Lender shall be
taken as conclusive and binding against all persons as to
evidence of the truth of the facts so stated and recited.
(v) Any such sale or sales shall operate to
divest all of the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of Borrower in
and to the properties and rights so sold, and shall be a
perpetual bar both at law and in equity against Borrower and
any and all persons claiming or who may claim the same, or any
part thereof or any interest therein, by, through or under
Borrower to the fullest extent permitted by applicable law.
(vi) Upon any such sale or sales, Lender may
bid for and acquire the Property and, in lieu of paying cash
therefor, may make settlement for the purchase price by
crediting against the Debt the amount of the bid made
therefor, after deducting therefrom the expenses of the sale,
the cost of any enforcement proceeding hereunder, and any
other sums which Trustee or Lender is authorized to deduct
under the terms hereof, to the extent necessary to satisfy
such bid.
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(vii) Upon any such sale, it shall not be
necessary for Trustee, Lender or any public officer acting
under execution or order of court to have present or
constructively in its possession any of the Property.
(f) Lender's Judicial Remedies. Lender, or Trustee
upon written request of Lender, may proceed by suit or suits, at law or
in equity, to enforce the payment of the Debt to foreclose the liens
and security interests of this Security Instrument as against all or
any part of the Property, and to have all or any part of the Property
sold under the judgment or decree of a court of competent jurisdiction.
This remedy shall be cumulative of any other nonjudicial remedies
available to Lender under this Security Instrument, the Note or the
Other Loan Documents. Proceeding with a request or receiving a judgment
for legal relief shall not be or be deemed to be an election of
remedies or bar any available nonjudicial remedy of Lender.
(g) Lender's Right to Appointment of Receiver.
Lender, as a matter of right and (i) without regard to the sufficiency
of the security for repayment of the Debt and without notice to
Borrower, (ii) without any showing of insolvency, fraud, or
mismanagement on the part of Borrower, (iii) without the necessity of
filing any judicial or other proceeding other than the proceeding for
appointment of a receiver, and (iv) without regard to the then value of
the Property, shall be entitled to the appointment of a receiver or
receivers for the protection, possession, control, management and
operation of the Property, including (without limitation), the power to
collect the Rents, enforce this Security Instrument and, in case of a
sale and deficiency, during the full statutory period of redemption (if
any), whether there be a redemption or not, as well as during any
further times when Borrower, except for the intervention of such
receiver, would be entitled to collection of such Rents. Borrower
hereby irrevocably consents to the appointment of a receiver or
receivers. Any receiver appointed pursuant to the provisions of this
subsection shall have the usual powers and duties of receivers in such
matters.
(h) Commercial Code Remedies. Exercise any and all
rights and remedies granted to a secured party upon default under the
Uniform Commercial Code, including, without limiting the generality of
the foregoing: (i) the right to take possession of the Personal
Property or any part thereof, and to take such other measures as Lender
may deem necessary for the care, protection and preservation of the
Personal Property, and (ii) request Borrower at its expense to assemble
the Personal Property and make it available to Lender at a convenient
place acceptable to Lender. Any notice of sale, disposition or other
intended action by Lender with respect to the Personal Property sent to
Borrower in accordance with the provisions hereof at least five (5)
days prior to such action, shall constitute commercially reasonable
notice to Borrower.
(i) Apply Escrow Funds. Lender may apply any Funds
(as defined in the Escrow Agreement) and any other sums held in escrow
or otherwise by Lender in accordance with the terms of this Security
Instrument or any Other Loan Document to the payment of the following
items in any order in its uncontrolled discretion:
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(i) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid principal
balance of the Note;
(iv) Amortization of the unpaid principal
balance of the Note; and
(v) All other sums payable pursuant to the
Note, this Security Instrument and the Other Loan Documents,
including without limitation advances made by Lender pursuant
to the terms of this Security Instrument.
(j) Other Rights. Lender (i) may surrender the
Policies maintained pursuant to this Security Instrument or any part
thereof, and upon receipt shall apply the unearned premiums as a credit
on the Debt, and, in connection therewith, Borrower hereby appoints
Lender as agent and attorney-in-fact (which is coupled with an interest
and is therefore irrevocable) for Borrower to collect such premiums;
and (ii) may apply the Tax and Insurance Escrow Fund (as defined in the
Escrow Agreement) and/or the Replacement Escrow Fund (as defined in the
Escrow Agreement) and any other funds held by Lender toward payment of
the Debt; and (iii) shall have and may exercise any and all other
rights and remedies which Lender may have at law or in equity, or by
virtue of any of the Loan Documents, or otherwise.
(k) Discontinuance of Remedies. In case Lender shall
have proceeded to invoke any right, remedy, or recourse permitted under
the Loan Documents and shall thereafter elect to discontinue or abandon
same for any reason, Lender shall have the unqualified right so to do
and, in such event, Borrower and Lender shall be restored to their
former positions with respect to the Debt, the Loan Documents, the
Property or otherwise, and the rights, remedies, recourses and powers
of Lender shall continue as if same had never been invoked.
(l) Remedies Cumulative. All rights, remedies, and
recourses of Lender granted in the Note, this Security Instrument and
the Other Loan Documents, any other pledge of collateral, or otherwise
available at law or equity: (i) shall be cumulative and concurrent;
(ii) may be pursued separately, successively, or concurrently against
Borrower, the Property, or any one or more of them, at the sole
discretion of Lender; (iii) may be exercised as often as occasion
therefor shall arise, it being agreed by Borrower that the exercise or
failure to exercise any of same shall in no event be construed as a
waiver or release thereof or of any other right, remedy, or recourse;
(iv) shall be nonexclusive; (v) shall not be conditioned upon Lender
exercising or pursuing any remedy in relation to the Property prior to
Lender bringing suit to recover the Debt; and (vi) in the event Lender
elects to bring suit on the Debt and obtains a judgment against
Borrower prior to exercising any remedies in relation to the Property,
all liens and security interests, including the lien of this
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Security Instrument, shall remain in full force and effect and may be
exercised thereafter at Lender's option.
(m) Bankruptcy Acknowledgment. In the event the
Property or any portion thereof or any interest therein becomes
property of any bankruptcy estate or subject to any state or federal
insolvency proceeding, then Lender shall immediately become entitled,
in addition to all other relief to which Lender may be entitled under
this Security Instrument, to obtain (i) an order from the Bankruptcy
Court or other appropriate court granting immediate relief from the
automatic stay pursuant to ss. 362 of the Bankruptcy Code so to permit
Lender to pursue its rights and remedies against Borrower as provided
under this Security Instrument and all other rights and remedies of
Lender at law and in equity under applicable state law, and (ii) an
order from the Bankruptcy Court prohibiting Borrower's use of all "cash
collateral" as defined under ss. 363 of the Bankruptcy Code. In
connection with such Bankruptcy Court orders, Borrower shall not
contend or allege in any pleading or petition filed in any court
proceeding that Lender does not have sufficient grounds for relief from
the automatic stay. Any bankruptcy petition or other action taken by
the Borrower to stay, condition, or inhibit Lender from exercising its
remedies are hereby admitted by Borrower to be in bad faith and
Borrower further admits that Lender would have just cause for relief
from the automatic stay in order to take such actions authorized under
state law.
(n) Application of Proceeds. The proceeds from any
sale, lease, or other disposition made pursuant to this Security
Instrument, or the proceeds from the surrender of any insurance
policies pursuant hereto, or any Rents collected by Lender from the
Property, or the Tax and Insurance Escrow Fund or the Replacement
Escrow Fund (as defined in the Escrow Agreement) or proceeds from
insurance which Lender elects to apply to the Debt pursuant to Article
3 hereof, shall be applied by Trustee, or by Lender, as the case may
be, to the Debt in the following order and priority: (1) to the payment
of all expenses of advertising, selling, and conveying the Property or
part thereof, and/or prosecuting or otherwise collecting Rents,
proceeds, premiums or other sums including reasonable attorneys' fees
and a reasonable fee or commission to Trustee, not to exceed five
percent of the proceeds thereof or sums so received; (2) to that
portion, if any, of the Debt with respect to which no person or entity
has personal or entity liability for payment (the "Exculpated
Portion"), and with respect to the Exculpated Portion as follows:
first, to accrued but unpaid interest, second, to matured principal,
and third, to unmatured principal in inverse order of maturity; (3) to
the remainder of the Debt as follows: first, to the remaining accrued
but unpaid interest, second, to the matured portion of principal of the
Debt, and third, to prepayment of the unmatured portion, if any, of
principal of the Debt applied to installments of principal in inverse
order of maturity; (4) the balance, if any or to the extent applicable,
remaining after the full and final payment of the Debt to the holder or
beneficiary of any inferior liens covering the Property, if any, in
order of the priority of such inferior liens (Trustee and Lender shall
hereby be entitled to rely exclusively on a commitment for title
insurance issued to determine such priority); and (5) the cash balance,
if any, to the Borrower. The application of proceeds of sale or other
proceeds as otherwise provided herein shall be deemed to be a payment
of the Debt like any other payment. The balance of
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the Debt remaining unpaid, if any, shall remain fully due and owing in
accordance with the terms of the Note and the other Loan Documents.
Lender shall have the right to seek a deficiency judgment against
Borrower to enforce any liability of Borrower arising under Section 10
of the Note.
Section 10.2 RIGHT OF ENTRY. Lender and its agents shall have the right
to enter and inspect the Property at all reasonable times.
ARTICLE 11 - INDEMNIFICATION; SUBROGATION
Section 11.1 GENERAL INDEMNIFICATION.
(a) Borrower shall indemnify, defend and hold Lender
and Trustee harmless against: (i) any and all claims for brokerage,
leasing, finder's or similar fees which may be made relating to the
Property or the Debt, and (ii) any and all liability, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses
(including Lender's reasonable attorneys' fees, together with
reasonable appellate counsel fees, if any) of whatever kind or nature
which may be asserted against, imposed on or incurred by Lender or
Trustee in connection with the Debt, this Security Instrument, the
Property, or any part thereof, or the exercise by Lender or Trustee of
any rights or remedies granted to it under this Security Instrument;
provided, however, that nothing herein shall be construed to obligate
Borrower to indemnify, defend and hold harmless Lender from and against
any and all liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs and expenses enacted against, imposed on
or incurred by Lender by reason of Lender's willful misconduct or gross
negligence.
(b) If Lender is made a party defendant to any
litigation or any claim is threatened or brought against Lender
concerning the secured indebtedness, this Security Instrument, the
Property, or any part thereof, or any interest therein, or the
construction, maintenance, operation or occupancy or use thereof, then
Lender shall notify Borrower of such litigation or claim and Borrower
shall indemnify, defend and hold Lender harmless from and against all
liability by reason of said litigation or claims, including reasonable
attorneys' fees (together with reasonable appellate counsel fees, if
any). The right to such attorneys' fees (together with reasonable
appellate counsel fees, if any) and expenses incurred by Lender in any
such litigation or claim, whether or not any such litigation or claim
is prosecuted to judgment. If Lender commences an action against
Borrower to enforce any of the terms hereof or to prosecute any breach
by Borrower of any of the terms hereof or to recover any sum secured
hereby, Borrower shall pay to Lender its reasonable attorneys' fees
(together with reasonable appellate counsel fees, if any) and expenses
shall be deemed to have accrued on the commencement of such action, and
shall be enforceable whether or not such action is prosecuted to
judgment. If Borrower breaches any term of this Security Instrument,
Lender may engage the services of an attorney or attorneys to protect
its rights hereunder, and in the event of such engagement following any
breach by Borrower, Borrower shall pay Lender reasonable attorneys'
fees (together with reasonable appellate
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counsel fees, if any) and expenses incurred by Lender, whether or not
an action is actually commenced against Borrower by reason of such
breach. All references to "attorneys" in this Subsection 11.1(b) and
elsewhere in this Security Instrument shall include without limitation
any attorney or law firm engaged by Lender and Lender's in-house
counsel, and all references to "fees and expenses" in this Subsection
11.1(b) and elsewhere in this Security Instrument shall include without
limitation any fees of such attorney or law firm and any allocation
charges and allocation costs of Lender's in-house counsel.
(c) A waiver of subrogation shall be obtained by
Borrower from its insurance carrier and, consequently, Borrower waives
any and all right to claim or recover against Lender, its officers,
employees, agents and representatives, for loss of or damage to
Borrower, the Property, Borrower's property or the property of others
under Borrower's control from any cause insured against or required to
be insured against by the provisions of this Security Instrument.
Section 11.2 ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at its sole
cost and expense, protect, defend, indemnify, release and hold harmless the
Indemnified Parties from and against any and all Losses (as hereinafter defined)
imposed upon or incurred by or asserted against any Indemnified Parties (other
than those arising solely from a state of facts that first came into existence
after Lender acquired title to the Property through foreclosure or a deed in
lieu thereof), and directly or indirectly arising out of or in any way relating
to any one or more of the following: (a) any presence of any Hazardous
Substances (as hereinafter defined) in, on, above, or under the Property; (b)
any past, present or future Release (as hereinafter defined) of Hazardous
Substances in, on, above, under or from the Property; (c) any activity by
Borrower, any person or entity affiliated with Borrower, and any tenant or other
user of the Property in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other Release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
the Property of any Hazardous Substances at any time located in, under, on or
above the Property; (d) any activity by Borrower, any person or entity
affiliated with Borrower, and any tenant or other user of the Property in
connection with any actual or proposed Remediation (as hereinafter defined) of
any Hazardous Substances at any time located in, under, on or above the
Property, whether or not such Remediation is voluntary or pursuant to court or
administrative order, including but not limited to any removal, remedial or
corrective action; (e) any past, present or threatened non-compliance or
violations of any Environmental Law (as hereinafter defined) (or permits issued
pursuant to any Environmental Law) in connection with the Property or operations
thereon, including but not limited to any failure by Borrower, any person or
entity affiliated with Borrower, and any tenant or other user of the Property to
comply with any order of any governmental authority in connection with any
Environmental Laws; (f) the imposition, recording or filing or the future
imposition, recording or filing of any Environmental Lien (as hereinafter
defined) encumbering the Property; (g) any administrative processes or
proceedings or judicial proceedings in any way connected with any matter
addressed in this Section 11.2; (h) any misrepresentation or inaccuracy in any
representation or warranty or material breach or failure to perform any
covenants or other obligations under the Environmental Indemnity of even date
executed by Borrower and Indemnitor; and (i) any diminution in value of
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the Property in any way connected with any occurrence or other matter referred
to in this Section 11.2.
The term "Environmental Law" means any present and future federal,
state and local laws, statutes, ordinances, rules, regulations and the like, as
well as common law, relating to protection of human health or the environment,
relating to Hazardous Substances, relating to liability for or costs of
Remediation or prevention of Releases of Hazardous Substances or relating to
liability for or costs of other actual or threatened danger to human health or
the environment. The term "Environmental Law" includes, but is not limited to,
the following statutes, as amended, any successor thereto, and any regulations
promulgated pursuant thereto, and any state or local statutes, ordinances,
rules, regulations and the like addressing similar issues: the Comprehensive
Environmental Response, Compensation and Liability Act; the Emergency Planning
and Community Right-to-Know Act; the Hazardous Substances Transportation Act;
the Resource Conservation and Recovery Act (including but not limited to
Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act;
the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the
Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal
Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide
Act; the Endangered Species Act; the National Environmental Policy Act; and the
River and Harbors Appropriation Act. The term "Environmental Law" also includes,
but is not limited to, any present and future federal, state and local laws,
statutes, ordinances, rules, regulations and the like, as well as common law:
conditioning transfer of property upon a negative declaration or other approval
of a governmental authority of the environmental condition of the Property;
requiring notification or disclosure of Releases of Hazardous Substances or
other environmental condition of the Property to any governmental authority or
other person or entity, whether or not in connection with transfer of title to
or interest in property; imposing conditions or requirements in connection with
permits or other authorization for lawful activity; relating to nuisance,
trespass or other causes of action related to the Property; and relating to
wrongful death, personal injury, or property or other damage in connection with
any physical condition or use of the Property.
The term "Environmental Lien" includes but is not limited to any lien
or other encumbrance imposed pursuant to Environmental Law, whether due to any
act or omission of Borrower or any other person or entity.
The term "Hazardous Substances" includes but is not limited to any and
all substances (whether solid, liquid or gas) defined, listed, or otherwise
classified as pollutants, hazardous wastes, hazardous substances, hazardous
materials, extremely hazardous wastes, or words of similar meaning or regulatory
effect under any present or future Environmental Laws or that may have a
negative impact on human health or the environment, including but not limited to
petroleum and petroleum products, asbestos and asbestos-containing materials,
polychlorinated biphenyls, lead, lead-based paints, radon, radioactive
materials, flammables and explosives.
The term "Indemnified Parties" includes but is not limited to
Lender, any person or entity who is or will have been involved in originating
the Loan evidenced by the Note, any person or entity who is or will have been
involved in servicing the Loan, any person or entity in
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whose name the encumbrance created by this Security Instrument is or will have
been recorded, persons and entities who may hold or acquire or will have held a
full or partial interest in the Loan (including but not limited to those who may
acquire any interest in Securities, as well as custodians, trustees and other
fiduciaries who hold or have held a full or partial interest in the Loan for the
benefit of third parties), as well as the respective directors, officers,
shareholders, partners, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assign of any and all of the foregoing (including but not limited to any
other person or entity who holds or acquires or will have held a participation
or other full or partial interest in the Loan or the Property, whether during
the term of the Loan or as part of or following foreclosure pursuant to the
Loan) and including but not limited to any successors by merger, consolidation
or acquisition of all or a substantial part of Lender's assets and business.
The term "Losses" includes but is not limited to any claims, suits,
liabilities (including but not limited to strict liabilities), administrative or
judicial actions or proceedings, obligations, debts, damages, losses, costs,
expenses, diminutions in value, fines, penalties, charges, fees, expenses, costs
of Remediation (whether or not performed voluntarily), judgments, award, amounts
paid in settlement, foreseeable and unforeseeable consequential damages,
litigation costs, attorneys' fees, engineer's fees, environmental consultants'
fees and investigation costs (including but not limited to costs for sampling,
testing and analysis of soil, water, air, building materials, and other
materials and substances whether solid, liquid or gas), of whatever kind or
nature, and whether or not incurred in connection with any judicial or
administrative proceedings.
The term "Release" with respect to any Hazardous Substance includes but
is not limited to any release, deposit, discharge, emission, leaking, leaching,
spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping,
dumping, disposing or other movement of Hazardous Substances.
The term "Remediation" includes but is not limited to any
response, remedial, removal, or corrective action; any activity to cleanup,
detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance;
any actions to prevent, cure or mitigate any Release of any Hazardous Substance;
any action to comply with any Environmental Laws or with any permits issued
pursuant thereto; any inspection, investigation, study, monitoring, assessment,
audit, sampling and testing, laboratory or other analysis, or evaluation
relating to any Hazardous Substances or to anything referred to in this Article
11.
Section 11.3 EXCLUDED OCCURRENCES. Notwithstanding any provision of
this Security Instrument to the contrary, where after the date of this Security
Instrument there shall occur an event (including, without limitation, a Release)
for which Borrower would have an obligation under this Security Instrument to
indemnify, defend, protect or hold harmless the Indemnified Parties, then
Borrower shall have no such obligation to indemnify, defend, protect, release
and hold harmless the Indemnified Parties from and against Losses for acts or
omissions the cause(s) of which is outside or beyond the control of Borrower.
For purposes of this Section 11.3, Borrower shall be deemed and construed to
have control over the acts and omissions of all tenants and subtenants of the
Property and each of their respective agents, vendors, guests, invitees,
licencees,
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servants, employees, officers, directors, representatives, contractors,
subcontractors, affiliates and subsidiaries.
Section 11.4 DUTY TO DEFEND AND ATTORNEYS AND OTHER FEES AND EXPENSES.
Upon written request by any Indemnified Party, Borrower shall defend such
Indemnified Party (if requested by any Indemnified Party, in the name of the
Indemnified Party) by attorneys and other professionals approved by the
Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may,
in their sole and absolute discretion, engage their own attorneys and other
professionals to defend or assist them, and, at the option of Indemnified
Parties, their attorneys shall control the resolution of claim or proceeding.
Upon demand, Borrower shall pay or, in the sole and absolute discretion of the
Indemnified Parties, reimburse, the Indemnified Parties for the payment of
reasonable fees and disbursements of attorneys, engineers, environmental
consultants, laboratories and other professionals in connection therewith.
Section 11.5 SURVIVAL OF INDEMNITIES. Notwithstanding any provision of
this Security Instrument or any other Loan Document to the contrary, the
provisions of Section 11.1 and Section 11.2, and Borrower's obligations
thereunder, shall survive (a) the repayment of the Note, (b) the foreclosure of
this Security Instrument, and (c) the release (or reconveyance, as applicable)
of the lien of this Security Instrument.
ARTICLE 12 - SECURITY AGREEMENT
Section 12.1 SECURITY AGREEMENT. This Security Instrument is both a
real property mortgage and a "security agreement" within the meaning of the
Uniform Commercial Code. The Property includes both real and personal property
and all other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property. Borrower by executing and delivering this Security
Instrument has granted and hereby grants to Lender, as security for the
Obligations, a security interest in the Property to the full extent that the
Property may be subject to the Uniform Commercial Code (said portion of the
Property so subject to the Uniform Commercial Code being called in this
paragraph the "Collateral"). Borrower hereby agrees with Lender to execute and
deliver to Lender, in form and substance satisfactory to Lender, such financing
statements, continuation statements, other uniform commercial code forms and
shall pay all expenses and fees in connection with the filing and recording
thereof, and such further assurances as Lender may from time to time, reasonably
consider necessary to create, perfect, and preserve Lender's security interest
herein granted. This Security Instrument shall also constitute a "fixture
filing" for the purposes of the Uniform Commercial Code. All or part of the
Property are or are to become fixtures. Information concerning the security
interest herein granted may be obtained from the parties at the addresses of the
parties set forth in the first paragraph of this Security Instrument. If an
Event of Default shall occur, Lender, in addition to any other rights and
remedies which they may have, shall have and may exercise immediately and
without demand, any and all rights and remedies granted to a secured party upon
default under the Uniform Commercial Code, including, without limiting the
generality of the foregoing, the right to take possession of the Collateral or
any part thereof, and to take such other measures as Lender may deem necessary
for the care, protection and preservation of the Collateral. Upon request or
demand of Lender, Borrower shall at its expense assemble the
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Collateral and make it available to Lender at a convenient place acceptable to
Lender. Borrower shall pay to Lender on demand any and all expenses, including
legal expenses and attorneys' fees, incurred or paid by Lender in protecting the
interest in the Collateral and in enforcing the rights hereunder with respect to
the Collateral. Any notice of sale, disposition or other intended action by
Lender with respect to the Collateral sent to Borrower in accordance with the
provisions hereof at least ten (10) days prior to such action, shall constitute
commercially reasonable notice to Borrower. The proceeds of any disposition of
the Collateral, or any part thereof, may be applied by Lender to the payment of
the Obligations in such priority and proportions as Lender in its discretion
shall deem proper. In the event of any change in name, identity or structure of
any Borrower, such Borrower shall notify Lender thereof, it being understood and
agreed, however, that no such additional documents shall increase Borrower's
obligations under the Note, this Security Instrument and the Other Loan
Documents. Borrower hereby irrevocably appoints Lender as its attorney-in-fact,
coupled with an interest, to file with the appropriate public office on its
behalf any financing or other statements signed only by Lender, as Borrower's
attorney-in-fact, in connection with the Collateral covered by this Security
Instrument. Notwithstanding the foregoing, Borrower shall appear and defend in
any action or proceeding which affects or purports to affect the Property and
any interest or right therein, whether such proceeding effects title or any
other rights in the Property (and in conjunction therewith, Borrower shall fully
cooperate with Lender in the event Lender is a party to such action or
proceeding).
ARTICLE 13 - WAIVERS
Section 13.1 MARSHALLING AND OTHER MATTERS. Borrower hereby waives, to
the extent permitted by law, the benefit of all appraisement, valuation, stay,
extension, reinstatement and redemption laws now or hereafter in force and all
rights of marshalling in the event of any sale hereunder of the Property or any
part thereof or any interest therein. Further, Borrower hereby expressly waives
any and all rights of redemption from sale under any order or decree of
foreclosure of this Security Instrument on behalf of Borrower, and on behalf of
each and every person acquiring any interest in or title to the Property
subsequent to the date of this Security Instrument and on behalf of all persons
to the extent permitted by applicable law.
Section 13.2 WAIVER OF NOTICE. Borrower shall not be entitled to any
notices of any nature whatsoever from Lender except with respect to matters for
which this Security Instrument specifically and expressly provides for the
giving of notice by Lender to Borrower and except with respect to matters for
which Lender is required by applicable law to give notice, and Borrower hereby
expressly waives the right to receive any notice from Lender with respect to any
matter for which this Security Instrument does not specifically and expressly
provide for the giving of notice by Lender to Borrower.
Section 13.3 SOLE DISCRETION OF LENDER. Wherever pursuant to this
Security Instrument Lender exercises any right given to it to approve or
disapprove, or any arrangement or term is to be satisfactory to Lender, the
decision of Lender to approve or disapprove or to decide that arrangements or
terms are satisfactory or not satisfactory shall be in the sole discretion of
Lender
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and shall be final and conclusive, except as may be otherwise expressly and
specifically provided herein.
Section 13.4 SURVIVAL. The indemnifications made pursuant to Article
11, shall continue indefinitely in full force and effect and shall survive and
shall in no way be impaired by: any satisfaction or other termination of this
Security Instrument, any assignment or other transfer of all or any portion of
this Security Instrument or Lender's interest in the Property (but, in such
case, shall benefit both Indemnified Parties and any assignee or transferee),
any exercise of Lender's rights and remedies pursuant hereto including but not
limited to foreclosure or acceptance of a deed in lieu of foreclosure, any
exercise of any rights and remedies pursuant to the Note or any of the Other
Loan Documents, any transfer of all or any portion of the Property (whether by
Borrower or by Lender following foreclosure or acceptance of a deed in lieu of
foreclosure or at any other time), any amendment to this Security Instrument,
the Note or the Other Loan Documents, and any act or omission that might
otherwise be construed as a release or discharge of Borrower from the
obligations pursuant hereto.
Section 13.5 WAIVER OF TRIAL BY JURY.
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS
SECURITY INSTRUMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH INCLUDING, BUT NOT
LIMITED TO THOSE RELATING TO (A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN
LENDER AND BORROWER; (B) USURY OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS
OF UNCONSCIONABLE ACTS, DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR
DEALING, LACK OF COMMERCIAL REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS
FIDUCIARY, TRUST OR CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION,
CONTROL, ALTER EGO, INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD,
MISREPRESENTATION, DURESS, COERCION, UNDUE INFLUENCE, INTERFERENCE OR
NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS INTERFERENCE WITH PRESENT OR PROSPECTIVE
BUSINESS RELATIONSHIPS OR OF ANTITRUST; OR (F) SLANDER, LIBEL OR DAMAGE TO
REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND
VOLUNTARILY BY BORROWER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING
AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWER.
Section 13.6 WAIVER OF AUTOMATIC OR SUPPLEMENTAL STAY. In the event of
the filing of any voluntary or involuntary petition under the Bankruptcy Code by
or against Borrower (other than an involuntary petition filed by or joined in by
Lender), the Borrower shall not
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assert, or request any other party to assert, that the automatic stay under ss.
362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict,
condition, reduce or inhibit the ability of Lender to enforce any rights it has
by virtue of this Security Instrument, or any other rights that Lender has,
whether now or hereafter acquired, against any guarantor of the Debt. Further,
Borrower shall not seek a supplemental stay or any other relief, whether
injunctive or otherwise, pursuant to ss. 105 of the Bankruptcy Code or any other
provision therein to stay, interdict, condition, reduce or inhibit the ability
of Lender to enforce any rights it has by virtue of this Security Instrument
against any guarantor of the Debt. The waivers contained in this paragraph are a
material inducement to Lender's willingness to enter into this Security
Instrument and Borrower acknowledges and agrees that no grounds exist for
equitable relief which would bar, delay or impede the exercise by Lender of
Lender's rights and remedies against Borrower or any guarantor of the Debt.
ARTICLE 14 - NOTICES
Section 14.1 NOTICES. All notices or other written communications
hereunder shall be deemed to have been properly given (i) upon delivery, if
delivered in person or by facsimile transmission with receipt acknowledged, (ii)
one (1) Business Day after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly maintained
by the U.S. Postal Service and sent by registered or certified mail, postage
prepaid, addressed as follows:
If to Borrower: La Cometa Properties, Inc.
3500 South La Cometa Drive
Goodyear, Arizona 85338
Attention: Chief Financial Officer
Facsimile No.: (602) 925-2363
If to Trustee: First American Title Insurance Company
111 West Monroe
Phoenix, Arizona 85003
If to Lender: Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260-0060
Attention: Nancy Alto, Commercial Mortgage Finance Group
Loan Servicing
Facsimile No.: (212) 648-5274
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
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For purposes of this Subsection, "Business Day" shall mean a day on
which commercial banks are not authorized or required by law to close in New
York, New York.
ARTICLE 15 - APPLICABLE LAW
Section 15.1 GOVERNING LAW; JURISDICTION. This Security Instrument
shall be governed by and construed in accordance with applicable federal law and
the laws of the state where the Property is located, without reference or giving
effect to any choice of law doctrine. Borrower hereby irrevocably submits to the
jurisdiction of any court of competent jurisdiction located in the state in
which the Property is located in connection with any proceeding arising out of
or relating to this Security Instrument.
Section 15.2 USURY LAWS. This Security Instrument and the Note are
subject to the express condition that at no time shall Borrower be obligated or
required to pay interest on the Debt at a rate which could subject the holder of
the Note to either civil or criminal liability as a result of being in excess of
the maximum interest rate which Borrower is permitted by applicable law to
contract or agree to pay. If by the terms of this Security Instrument or the
Note, Borrower is at any time required or obligated to pay interest on the Debt
at a rate in excess of such maximum rate, the rate of interest under the
Security Instrument and the Note shall be deemed to be immediately reduced to
such maximum rate and the interest payable shall be computed at such maximum
rate and all prior interest payments in excess of such maximum rate shall be
applied and shall be deemed to have been payments in reduction of the principal
balance of the Note. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Note until payment in full so that the rate or amount of
interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
Section 15.3 PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers
and remedies provided in this Security Instrument may be exercised only to the
extent that the exercise thereof does not violate any applicable provisions of
law and are intended to be limited to the extent necessary so that they will not
render this Security Instrument invalid, unenforceable or not entitled to be
recorded, registered or filed under the provisions of any applicable law. If any
term of this Security Instrument or any application thereof shall be invalid or
unenforceable, the remainder of this Security Instrument and any other
application of the term shall not be affected thereby.
ARTICLE 16 - SECONDARY MARKET
Section 16.1 TRANSFER OF LOAN. Lender may, at any time, sell, transfer
or assign the Note, this Security Instrument and the Other Loan Documents, and
any or all servicing rights with respect thereto, or grant participations
therein or issue mortgage pass-through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (the "Securities"). Lender may forward to each purchaser,
transferee, assignee, servicer, participant, investor in such Securities or any
Rating Agency (as hereinafter defined) rating such Securities
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(collectively, the "Investor") and each prospective Investor, all documents and
information which Lender now has or may hereafter acquire relating to the Debt
and to Borrower, any Guarantor, any Indemnitor and the Property, whether
furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender
determines necessary or desirable. The term "Rating Agency" shall mean each
statistical rating agency that has assigned a rating to the Securities.
ARTICLE 17 - COSTS
Section 17.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges
and confirms that Lender shall impose certain administrative processing and/or
commitment fees in connection with (a) the extension, renewal, modification,
amendment and termination (excluding the scheduled maturity of the Note) of its
loans, (b) the release or substitution of collateral therefor, or (c) obtaining
certain consents, waivers and approvals with respect to the Property (the
occurrence of any of the above shall be called an "Event"). Borrower hereby
acknowledges and agrees to pay, immediately, upon demand, all such fees (as the
same may be increased or decreased from time to time), and any additional fees
of a similar type or nature which may be imposed by Lender from time to time,
upon the occurrence of any Event.
Section 17.2 ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower shall pay
all reasonable legal fees incurred by Lender in connection with (i) the
preparation of the Note, this Security Instrument and the Other Loan Documents
and (ii) the items set forth in Section 17.1 above, and (b) Borrower shall pay
to Lender on demand any and all reasonable expenses, including legal expenses
and attorneys' fees, incurred or paid by Lender in protecting its interest in
the Property or Personal Property and/or collecting any amount payable or in
enforcing its rights hereunder with respect to the Property or Personal
Property, whether or not any legal proceeding is commenced hereunder or
thereunder and whether or not any default or Event of Default shall have
occurred and is continuing, together with interest thereon at the Default Rate
from the date of payment or incurring by Lender until paid by Borrower.
ARTICLE I8 - DEFINITIONS
Section 18.1 GENERAL DEFINITIONS. Unless the context clearly indicates
a contrary intent or unless otherwise specifically provided herein, words used
in this Security Instrument may be used interchangeably in singular or plural
form and the word "Borrower" shall mean "each Borrower and any subsequent owner
or owners of the Property or any part thereof or any interest therein," the word
"Lender" shall mean "Lender and any subsequent holder of the Note," the word
"Note" shall mean "the Note and any other evidence of indebtedness secured by
this Security Instrument," the word "person" shall include an individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, the word "Property" shall include
any portion of the Property and any interest therein, and the phrases
"attorneys' fees", "legal fees" and "counsel fees" shall include any and all
attorneys', paralegal and law clerk fees and disbursements, including, but not
limited to, fees and disbursements at the pre-trial, trial and appellate levels
incurred or paid by Lender in protecting its interest in the Property, the
Leases and the Rents and enforcing its rights hereunder.
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ARTICLE 19 - MISCELLANEOUS PROVISIONS
Section 19.1 NO ORAL CHANGE. This Security Instrument, the Note, and
the Other Loan Documents and any provisions hereof or thereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Borrower or Lender, but only by an
agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
Section 19.2 LIABILITY. If Borrower consists of more than one person,
the obligations and liabilities of each such person hereunder shall be joint and
several. This Security Instrument shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns forever.
Section 19.3 INAPPLICABLE PROVISIONS. If any term, covenant or
condition of the Note or this Security Instrument is held to be invalid, illegal
or unenforceable in any respect, the Note and this Security Instrument shall be
construed without such provision.
Section 19.4 HEADINGS, ETC. The headings and captions of various
Sections of this Security Instrument are for convenience of reference only and
are not to be construed as defining or limiting, in any way, the scope or intent
of the provisions hereof.
Section 19.5 DUPLICATE ORIGINALS; COUNTERPARTS. This Security
Instrument may be executed in any number of duplicate originals and each
duplicate original shall be deemed to be an original. This Security Instrument
may be executed in several counterparts, each of which counterparts shall be
deemed an original instrument and all of which together shall constitute a
single Security Instrument. The failure of any party hereto to execute this
Security Instrument, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
Section 19.6 NUMBER AND GENDER. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa.
Section 19.7 SUBROGATION. If any or all of the proceeds of the Note
have been used to extinguish, extend or renew any indebtedness heretofore
existing against the Property, then, to the extent of the funds so used, Lender
shall be subrogated to all of the rights, claims, liens, titles, and interests
existing against the Property heretofore held by, or in favor of, the holder of
such indebtedness and such former rights, claims, liens, titles, and interests,
if any, are not waived but rather are continued in full force and effect in
favor of Lender and are merged with the lien and security interest created
herein as cumulative security for the repayment of the Debt, the
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performance and discharge of Borrower's obligations hereunder, under the Note
and the Other Loan Documents and the performance and discharge of the Other
Obligations.
Section 19.8 ENTIRE AGREEMENT. The Note, this Security Instrument and
the Other Loan Documents constitute the entire understanding and agreement
between Borrower and Lender with respect to the transactions arising in
connection with the Debt and supersede all prior written or oral understandings
and agreements between Borrower and Lender with respect thereto. Borrower hereby
acknowledges that, except as incorporated in writing in the Note, this Security
Instrument and the Other Loan Documents, there are not, and were not, and no
persons are or were authorized by Lender to make, any representations,
understandings, stipulations, agreements or promises, oral or written, with
respect to the transaction which is the subject of the Note, this Security
Instrument and the Other Loan Documents.
ARTICLE 20 - TRUSTEE
Trustee may resign by the giving of notice of such resignation in
writing or verbally to Lender. If Trustee shall die, resign, or become
disqualified from acting in the execution of this trust, or if, for any reason,
Lender shall prefer to appoint a substitute trustee or multiple substitute
trustees, or successive substitute trustees or successive multiple substitute
trustees, to act instead of the aforenamed Trustee, Lender shall have full power
to appoint a substitute trustee (or, if preferred, multiple substitute trustees)
in succession who shall succeed (and if multiple substitute trustees are
appointed, each of such multiple substitute trustees shall succeed) to all the
estates, rights, powers, and duties of the aforenamed Trustee. Such appointment
may be executed by any authorized agent of Lender, and if such Lender be a
corporation and such appointment be executed in its behalf by any officer of
such corporation, such appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without proof of any action by
the board of directors or any superior officer of the corporation. Borrower
hereby ratifies and confirms any and all acts which the aforenamed Trustee, or
his successor or successors in this trust, shall do lawfully by virtue hereof.
If multiple substitute Trustees are appointed, each of such multiple substitute
Trustees shall be empowered and authorized to act alone without the necessity of
the joinder of the other multiple substitute trustees, whenever any action or
undertaking of such substitute trustees is requested or required under or
pursuant to this Security Instrument or applicable law. Any substitute Trustee
appointed pursuant to any of the provisions hereof shall, without any further
act, deed, or conveyance, become vested with all the estates, properties,
rights, powers, and trusts of its or his predecessor in the rights hereunder
with like effect as if originally named as Trustee herein; but nevertheless,
upon the written request of Lender or of the substitute Trustee, the Trustee
ceasing to act shall execute and deliver any instrument transferring to such
substitute Trustee, upon the trusts herein expressed, all the estates,
properties, rights, powers, and trusts of the Trustee so ceasing to act, and
shall duly assign, transfer and deliver any of the property and moneys held by
such Trustee to the substitute Trustee so appointed in the Trustee's place. No
fees or expenses shall be payable to Trustee, except in connection with a
foreclosure of the Property or any part thereof or in connection with the
release of the Property following payment in full of the Debt.
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ARTICLE 21 - INCORPORATION BY REFERENCE
The exculpation provisions set forth in Section 10 of the Note are
hereby incorporated in this Security Instrument by this reference.
ARTICLE 22 - MANAGEMENT
Borrower agrees that it will not enter into any agreement for
management of the Property without first obtaining the written approval of such
manager by Lender, which approval shall not be unreasonably withheld.
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IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by
Borrower the day and year first above written.
BORROWER:
Witness: LA COMETA PROPERTIES, INC.
/s/ Jacqueline P. Ferrell By: /s/ Eric J. Kufel
- --------------------------------- -------------------------------------
Name: Eric J. Kufel
-----------------------------------
Title: President
----------------------------------
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 30 day of May,
1997, by Eric Kufel, the President of La Cometa Properties, Inc., a Arizona
corporation, on behalf of the corporation.
/s/ Heather Hudak
----------------------------------
Notary Public
My Commission Expires:
OFFICIAL SEAL
HEATHER L. HUDAK
[SEAL] Notary Public - State of Arizona
MARICOPA COUNTY
My Comm. Expires Oct. 30, 1998
- ---------------------------------
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EXHIBIT A
Legal Description
Lots 2A and 3A, of AIRPORT COMMERCENTER SUBDIVISION NO. 3 AMENDED,
according to the plat of record in the office of the County Recorder of Maricopa
County, Arizona, recorded in Book 287 of Maps, Page 1.
Loan No. DHC#V00138
GUARANTY
THIS GUARANTY ("Guaranty") is executed as of June 4, 1997, by POORE
BROTHERS, INC., a Delaware corporation, (singularly and collectively referred to
as "Guarantor"), for the benefit of MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
New York banking corporation ("Lender").
A. La Cometa Properties, Inc., an Arizona corporation ("Borrower") is
indebted to Lender with respect to a loan ("Loan") pursuant to that certain
Fixed Rate Note dated of even date herewith, payable to the order of Lender in
the original principal amount of $2,000,000.00 (together with all renewals,
modifications, increases and extensions thereof, the "Note"), which is secured
by the liens and security interests created by that certain Deed of Trust and
Security Agreement, of even date herewith (the "Security Instrument"), and
further evidenced, secured or governed by the other Loan Documents (as defined
in the Note); and
B. Lender is not willing to make the Loan, or otherwise extend credit,
to Borrower unless Guarantor unconditionally guarantees payment and performance
to Lender of the Guaranteed Obligations (as hereinafter defined); and
C. Guarantor is the owner of a direct or indirect interest in Borrower,
and Guarantor will directly benefit from Lender's making the Loan to Borrower.
NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower
thereunder, and to extend such additional credit as Lender may from time to time
agree to extend under the Loan Documents, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
Section 1.1 Guaranty of Obligation. Guarantor hereby absolutely,
irrevocably and unconditionally guarantees to Lender (and its successors and
assigns), jointly and severally, the payment and performance of the Guaranteed
Obligations as and when the same shall be due and payable, whether by lapse of
time, by acceleration of maturity or otherwise. Guarantor hereby absolutely,
irrevocably and unconditionally covenants and agrees that it is liable, jointly
and severally, for the Guaranteed Obligations as a primary obligor, and that
each Guarantor shall fully perform, jointly and severally, each and every term
and provision hereof.
Section 1.2 Definition of Guaranteed Obligations. As used herein, the
term "Guaranteed Obligations" shall be deemed to include, and Guarantor shall
also be liable for, and shall indemnify,
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defend and hold Lender harmless from and against, any and all Losses (as
hereinafter defined) incurred or suffered by Lender and arising out of or in
connection with the matters listed below:
(a) the misapplication or misappropriation of Rents (as
defined in the Security Instrument) after an Event of Default;
(b) the misapplication or misappropriation of insurance
proceeds or condemnation awards;
(c) Borrower's failure to return or to reimburse Lender for
all Personal Property (as defined in the Security Instrument) taken from the
Property (as defined in the Security Instrument) by or on behalf of Borrower and
not replaced with Personal Property of the same utility and of the same or
greater value;
(d) any act of actual waste or arson by Borrower, any
principal, affiliate, general partner or member thereof or by any Indemnitor (as
defined in the Security Instrument) or any Guarantor;
(e) any fees or commissions paid by Borrower to any principal,
affiliate, general partner or member of Borrower, any Indemnitor or any
Guarantor in violation of the terms of this Guaranty, the Security Instrument or
the other Loan Documents; or
(f) Borrower's failure to comply with the provisions of
Section 11.2 of the Security Instrument.
In addition, in the event (i) of any fraud, wilful misconduct or
material misrepresentation by Borrower or by any Guarantor or Indemnitor in
connection with the Loan, (ii) an Event of Default arising under Sections 4.3 or
8.2 of the Security Instrument, or (iii) the Property or any material part
thereof becomes an asset in (a) a voluntary bankruptcy or insolvency proceeding,
or (b) an involuntary bankruptcy or insolvency proceeding commenced by any
affiliate of the Borrower, then the Guaranteed Obligations shall also include
the unpaid balance of the Debt (as defined in the Security Instrument).
For purposes of this Guaranty, the term "Losses" includes any and all
claims, suits, liabilities (including, without limitation, strict liabilities),
actions, proceedings, obligations, debts, damages, losses, costs, expenses,
diminutions in value, fines, penalties, charges, fees, expenses, judgments,
awards, amounts paid in settlement, punitive damages, foreseeable and
unforeseeable consequential damages, of whatever kind or nature (including but
not limited to attorneys' fees and other costs of defense).
Section 1.3 NATURE OF GUARANTY. This Guaranty is an irrevocable,
absolute, continuing guaranty of payment and performance, is joint and several
and is not a guaranty of collection. This Guaranty shall continue to be
effective with respect to any Guaranteed Obligations arising or created after
any attempted revocation by Guarantor and after (if Guarantor is a natural
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person) Guarantor's death (in which event this Guaranty shall be binding upon
Guarantor's estate and Guarantor's legal representatives and heirs). The fact
that at any time or from time to time the Guaranteed Obligations may be
increased or reduced shall not release or discharge the obligation of Guarantor
to Lender with respect to Guaranteed Obligations. This Guaranty may be enforced
by Lender and any subsequent holder of the Note and shall not be discharged by
the assignment or negotiation of all or part of the Note.
Section 1.4 GUARANTEED OBLIGATIONS NOT REDUCED BY OFFSET. The
Guaranteed Obligations and the liabilities and obligations of Guarantor to
Lender hereunder, shall not be reduced, discharged or released because or by
reason of any existing or future offset, claim or defense of Borrower, or any
other party, against Lender or against payment of the Guaranteed Obligations,
whether such offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or
otherwise.
Section 1.5 PAYMENT BY GUARANTOR. If all or any part of the Guaranteed
Obligations shall not be punctually paid when due, whether at maturity or
earlier by acceleration or otherwise, Guarantor shall, immediately upon demand
by Lender, and without presentment, protest, notice of protest, notice of
non-payment, notice of intention to accelerate the maturity, notice of
acceleration of the maturity, or any other notice whatsoever, pay in lawful
money of the United States of America, the amount due on the Guaranteed
Obligations to Lender at Lender's address as set forth herein. Such demand(s)
may be made at any time coincident with or after the time for payment of all or
part of the Guaranteed Obligations, and may be made from time to time with
respect to the same or different items of Guaranteed Obligations. Such demand
shall be deemed made, given and received in accordance with the notice
provisions hereof.
Section 1.6 NO DUTY TO PURSUE OTHERS. It shall not be necessary for
Lender (and Guarantor hereby waives any rights which Guarantor may have to
require Lender), in order to enforce this Guaranty against Guarantor, first to
(i) institute suit or exhaust its remedies against Borrower or others liable on
the Loan or the Guaranteed Obligations or any other person, (ii) enforce
Lender's rights against any collateral which shall ever have been given to
secure the Loan, (iii) enforce Lender's rights against any other guarantors of
the Guaranteed Obligations, (iv) join Borrower or any others liable on the
Guaranteed Obligations in any action seeking to enforce this Guaranty, (v)
exhaust any remedies available to Lender against any collateral which shall ever
have been given to secure the Loan, or (vi) resort to any other means of
obtaining payment of the Guaranteed Obligations. Lender shall not be required to
mitigate damages or take any other action to reduce, collect or enforce the
Guaranteed Obligations. Guarantor, upon the advice of legal counsel, and fully
informed of the consequences, hereby expressly waives and relinquishes any right
or remedy which it may have, or be entitled to assert, by reason of the
provisions of A.R.S. Section 12-1641, 42, et seq., A.R.S. Section 44-142, and 16
A.R.S. Rules of Civil Procedure 17(f), or by reason of any other provision of
Arizona law pertaining to the rights of sureties or guarantors.
Section 1.7 WAIVERS. Guarantor agrees to the provisions of the Loan
Documents, and hereby waives notice of (i) any loans or advances made by Lender
to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension
of the Note or of any other Loan Documents, (iv)
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the execution and delivery by Borrower and Lender of any other loan or credit
agreement or of Borrower's execution and delivery of any promissory notes or
other documents arising under the Loan Documents or in connection with the
Property, (v) the occurrence of any breach by Borrower or Event of Default, (vi)
Lender's transfer or disposition of the Guaranteed Obligations, or any part
thereof, (vii) sale or foreclosure (or posting or advertising for sale or
foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest,
proof of non-payment or default by Borrower, or (ix) any other action at any
time taken or omitted by Lender, and, generally, all demands and notices of
every kind in connection with this Guaranty, the Loan Documents, any documents
or agreements evidencing, securing or relating to any of the Guaranteed
Obligations and the obligations hereby guaranteed.
Section 1.8 PAYMENT OF EXPENSES. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty, Guarantor
shall, immediately upon demand by Lender, pay Lender all costs and expenses
(including court costs and reasonable attorneys' fees) incurred by Lender in the
enforcement hereof or the preservation of Lender's rights hereunder. The
covenant contained in this section shall survive the payment and performance of
the Guaranteed Obligations.
Section 1.9 EFFECT OF BANKRUPTCY. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership or other debtor relief law,
or any judgment, order or decision thereunder, Lender must rescind or restore
any payment, or any part thereof, received by Lender in satisfaction of the
Guaranteed Obligations, as set forth herein, any prior release or discharge from
the terms of this Guaranty given to Guarantor by Lender shall be without effect,
and this Guaranty shall remain in full force and effect. It is the intention of
Borrower and Guarantor that Guarantor's obligations hereunder shall not be
discharged except by Guarantor's performance of such obligations and then only
to the extent of such performance.
Section 1.10 DEFERMENT OF RIGHTS OF SUBROGATION, REIMBURSEMENT AND
CONTRIBUTION
(a) Notwithstanding any payment or payments made by any
Guarantor hereunder, no Guarantor will assert or exercise any right of Lender or
of such Guarantor against Borrower to recover the amount of any payment made by
such Guarantor to Lender by way of subrogation, reimbursement, contribution,
indemnity, or otherwise arising by contract or operation of law, and such
Guarantor shall not have any right of recourse to or any claim against assets or
property of Borrower, whether or not the obligations of Borrower have been
satisfied, all of such rights being herein expressly waived by such Guarantor.
Each Guarantor agrees not to seek contribution or indemnity or other recourse
from any other guarantor. If any amount shall nevertheless be paid to a
Guarantor by Borrower or another Guarantor prior to payment in full of the
Obligations (hereinafter defined), such amount shall be held in trust for the
benefit of Lender and shall forthwith be paid to Lender to be credited and
applied to the Obligations, whether matured or unmatured. The provisions of this
paragraph shall survive the termination of this Guaranty, and any satisfaction
and discharge of Borrower by virtue of any payment, court order or any
applicable law.
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(b) Notwithstanding the provisions of Section 1.10(a), each
Guarantor shall have and be entitled to (1) all rights of subrogation otherwise
provided by applicable law in respect of any payment it may make or be obligated
to make under this Guaranty and (2) all claims it would have against any other
Guarantor in the absence of Section 1.10(a) and to assert and enforce same, in
each case on and after, but at no time prior to, the date (the "Subrogation
Trigger Date") which is 91 days after the date on which all sums owed to Lender
under the Loan Documents (the "Obligations") have been paid in full, if and only
if (x) no Event of Default of the type described in Section 9.1(c) or Section
9.1(d) of the Security Instrument with respect to Lender or any other Guarantor
has existed at any time on and after the date of this Guaranty to and including
the Subrogation Trigger Date and (y) the existence of each Guarantor's rights
under this Section 1.10(b) would not make such Guarantor a creditor (as defined
in the Bankruptcy Code, as such term is hereinafter defined) of Borrower or any
other Guarantor in any insolvency, bankruptcy, reorganization or similar
proceeding commenced on or prior to the Subrogation Trigger Date.
1.11 BANKRUPTCY CODE WAIVER. It is the intention of the parties that
the Guarantor shall not be deemed to be a "creditor" or "creditors" (as defined
in Section 101 of the United States Bankruptcy Code [the "Bankruptcy Code"]) of
Borrower, or any other guarantor, by reason of the existence of this Guaranty,
in the event that Borrower or any other guarantor, becomes a debtor in any
proceeding under the Bankruptcy Code, and in connection herewith, Guarantor
hereby waives any such right as a "creditor" under the Bankruptcy Code. This
waiver is given to induce Lender to make the Loan evidenced by the Note to
Borrower. After the Loan is paid in full and there shall be no obligations or
liabilities under this Guaranty outstanding, this waiver shall be deemed to be
terminated.
1.12 "BORROWER". The term "Borrower" as used herein shall include any
new or successor corporation, association, partnership (general or limited),
joint venture, trust or other individual or organization formed as a result of
any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower
or any interest in Borrower.
ARTICLE 2
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR'S
OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and agrees that
Guarantor's obligations under this Guaranty shall not be released, diminished,
impaired, reduced or adversely affected by any of the following, and waives any
common law, equitable, statutory or other rights (including without limitation
rights to notice) which Guarantor might otherwise have as a result of or in
connection with any of the following:
Section 2.1 MODIFICATIONS. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the Guaranteed
Obligations, Note, Loan Documents, or other document, instrument, contract or
understanding between Borrower and Lender, or any other parties, pertaining to
the Guaranteed Obligations or any failure of Lender to notify Guarantor of any
such action.
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Section 2.2 ADJUSTMENT. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lender to Borrower or any
Guarantor.
Section 2.3 CONDITION OF BORROWER OR GUARANTOR. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation, disability,
dissolution or lack of power of Borrower, Guarantor or any other party at any
time liable for the payment of all or part of the Guaranteed Obligations; or any
dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or
all of the assets of Borrower or Guarantor, or any changes in the shareholders,
partners or members of Borrower or Guarantor; or any reorganization of Borrower
or Guarantor.
Section 2.4 INVALIDITY OF GUARANTEED OBLIGATIONS. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed Obligations,
or any document or agreement executed in connection with the Guaranteed
Obligations, for any reason whatsoever, including without limitation the fact
that (i) the Guaranteed Obligations, or any part thereof, exceed the amount
permitted by law, (ii) the act of creating the Guaranteed Obligations or any
part thereof, is ultra vires, (iii) the officers or representatives executing
the Note or the other Loan Documents or otherwise creating the Guaranteed
Obligations acted in excess of their authority, (iv) the Guaranteed Obligations
violate applicable usury laws, (v) Borrower has valid defenses, claims or
offsets (whether at law, in equity or by agreement) which render the Guaranteed
Obligations wholly or partially uncollectible from Borrower, (vi) the creation,
performance or repayment of the Guaranteed Obligations (or the execution,
delivery and performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed Obligations) is
illegal, uncollectible or unenforceable, or (vii) the Note or any of the other
Loan Documents have been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon regardless
of whether Borrower or any other person be found not liable on the Guaranteed
Obligations or any part thereof for any reason.
Section 2.5 RELEASE OF OBLIGORS. Any full or partial release of the
liability of Borrower on the Guaranteed Obligations, or any part thereof, or of
any co-guarantors, or any other person or entity now or hereafter liable,
whether directly or indirectly, jointly, severally, or jointly and severally, to
pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or
any part thereof, it being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Obligations in full without
assistance or support of any other party, and Guarantor has not been induced to
enter into this Guaranty on the basis of a contemplation, belief, understanding
or agreement that other parties will be liable to pay or perform the Guaranteed
Obligations, or that Lender will look to other parties to pay or perform the
Guaranteed Obligations.
Section 2.6 OTHER COLLATERAL. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment, for all or any
part of the Guaranteed Obligations.
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Section 2.7 RELEASE OF COLLATERAL. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including without
limitation negligent, willful, unreasonable or unjustifiable impairment) of any
collateral, property or security, at any time existing in connection with, or
assuring or securing payment of, all or any part of the Guaranteed Obligations.
Section 2.8 CARE AND DILIGENCE. The failure of Lender or any other
party to exercise diligence or reasonable care in the preservation, protection,
enforcement, sale or other handling or treatment of all or any part of such
collateral, property or security, including but not limited to any neglect,
delay, omission, failure or refusal of Lender (i) to take or prosecute any
action for the collection of any of the Guaranteed Obligations, or (ii) to
foreclose, or initiate any action to foreclose, or, once commenced, prosecute to
completion any action to foreclose upon any security therefor, or (iii) to take
or prosecute any action in connection with any instrument or agreement
evidencing or securing all or any part of the Guaranteed Obligations.
Section 2.9 UNENFORCEABILITY. The fact that any collateral, security,
security interest or lien contemplated or intended to be given, created or
granted as security for the repayment of the Guaranteed Obligations, or any part
thereof, shall not be properly perfected or created, or shall prove to be
unenforceable or subordinate to any other security interest or lien, it being
recognized and agreed by Guarantor that Guarantor is not entering into this
Guaranty in reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the collateral for the
Guaranteed Obligations.
Section 2.10 OFFSET. The Note, the Guaranteed Obligations and the
liabilities and obligations of Guarantor to Lender hereunder, shall not be
reduced, discharged or released because of or by reason of any existing or
future right of offset, claim or defense of Borrower against Lender, or any
other party, or against payment of the Guaranteed Obligations, whether such
right of offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or
otherwise.
Section 2.11 MERGER. The reorganization, merger or consolidation of
Borrower into or with any other corporation or entity.
Section 2.12 PREFERENCE. Any payment by Borrower to Lender is held to
constitute a preference under bankruptcy laws, or for any reason Lender is
required to refund such payment or pay such amount to Borrower or someone else.
Section 2.13 OTHER ACTIONS TAKEN OR OMITTED. Any other action taken or
omitted to be taken with respect to the Loan Documents, the Guaranteed
Obligations, or the security and collateral therefor, whether or not such action
or omission prejudices Guarantor or increases the likelihood that Guarantor will
be required to pay the Guaranteed Obligations pursuant to the terms hereof, it
is the unambiguous and unequivocal intention of Guarantor that Guarantor shall
be obligated to pay the Guaranteed Obligations when due, notwithstanding any
occurrence, circumstance, event, action, or omission whatsoever, whether or not
contemplated, and whether or
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not otherwise or particularly described herein, which obligation shall be deemed
satisfied only upon the full and final payment and satisfaction of the
Guaranteed Obligations.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into the Loan Documents and extend credit to
Borrower, Guarantor represents and warrants to Lender as follows:
Section 3.1 BENEFIT. Guarantor is an affiliate of Borrower, is the
owner of a direct or indirect interest in Borrower, and has received, or will
receive, direct or indirect benefit from the making of this Guaranty with
respect to the Guaranteed Obligations.
Section 3.2 FAMILIARITY AND RELIANCE. Guarantor is familiar with, and
has independently reviewed books and records regarding, the financial condition
of Borrower and is familiar with the value of any and all collateral intended to
be created as security for the payment of the Note or Guaranteed Obligations;
provided, however, Guarantor is not relying on such financial condition or the
collateral as an inducement to enter into this Guaranty.
Section 3.3 NO REPRESENTATION BY LENDER. Neither Lender nor any other
party has made any representation, warranty or statement to Guarantor in order
to induce Guarantor to execute this Guaranty.
Section 3.4 GUARANTOR'S FINANCIAL CONDITION. As of the date hereof, and
after giving effect to this Guaranty and the contingent obligation evidenced
hereby, Guarantor is, and will be, solvent, and has and will have assets which,
fairly valued, exceed its obligations, liabilities (including contingent
liabilities) and debts, and has and will have property and assets sufficient to
satisfy and repay its obligations and liabilities.
Section 3.5 LEGALITY. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions contemplated
hereunder do not, and will not, contravene or conflict with any law, statute or
regulation whatsoever to which Guarantor is subject or constitute a default (or
an event which with notice or lapse of time or both would constitute a default)
under, or result in the breach of, any indenture, mortgage, deed of trust,
charge, lien, or any contract, agreement or other instrument to which Guarantor
is a party or which may be applicable to Guarantor. This Guaranty is a legal and
binding obligation of Guarantor and is enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors' rights.
Section 3.6 SURVIVAL. All representations and warranties made by
Guarantor herein shall survive the execution hereof.
Section 3.7 REVIEW OF DOCUMENTS. Guarantor has examined the Note and
all of the Loan Documents.
MORGAN GUARANTY TRUST COMPANY
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Section 3.8 LITIGATION. Except as otherwise disclosed to Lender, there
are no proceedings pending or, so far as Guarantor knows, threatened before any
court or administrative agency which, if decided adversely to Guarantor, would
materially adversely affect the financial condition of Guarantor or the
authority of Guarantor to enter into, or the validity or enforceability of this
Guaranty.
Section 3.9 TAX RETURNS. Guarantor has filed all required federal,
state and local tax returns and has paid all taxes as shown on such returns as
they have become due. No claims have been assessed and are unpaid with respect
to such taxes.
ARTICLE 4
SUBORDINATION OF CERTAIN INDEBTEDNESS
Section 4.1 SUBORDINATION OF ALL GUARANTOR CLAIMS. As used herein, the
term "Guarantor Claims" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon are direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include, without
limitation, all rights and claims of Guarantor against Borrower (arising as a
result of subrogation or otherwise) as a result of Guarantor's payment of all or
a portion of the Guaranteed Obligations to the extent the provisions of Section
1.4 hereof are unenforceable. Any indebtedness of Borrower to Guarantor now or
hereafter existing (including, but not limited to, any rights to subrogation
Guarantor may have as a result of any payment by Guarantor under this Guaranty),
together with any interest thereon, shall be, and such indebtedness is, hereby
deferred, postponed and subordinated to the prior payment in full of the Debt.
Until payment in full of the Debt (and including interest accruing on the Note
after the commencement of a proceeding by or against Borrower under the
Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and
the regulations adopted and promulgated pursuant thereto (collectively, the
"Bankruptcy Code") which interest the parties agree shall remain a claim that is
prior and superior to any claim of Guarantor notwithstanding any contrary
practice, custom or ruling in cases under the Bankruptcy Code generally),
Guarantor agrees not to accept any payment or satisfaction of any kind of
indebtedness of Borrower to Guarantor and hereby assigns such indebtedness to
Lender, including the right to file proof of claim and to vote thereon in
connection with any such proceeding under the Bankruptcy Code, including the
right to vote on any plan of reorganization.
Section 4.2 CLAIMS IN BANKRUPTCY. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Guarantor as debtor, Lender shall have the right to prove
its claim in any such proceeding so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to Lender. Should Lender receive, for
application upon the
MORGAN GUARANTY TRUST COMPANY
9
<PAGE>
Guaranteed Obligations, any such dividend or payment which is otherwise payable
to Guarantor, and which, as between Borrower and Guarantor, shall constitute a
credit upon the Guarantor Claims, then upon payment to Lender in full of the
Guaranteed Obligations, Guarantor shall become subrogated to the rights of
Lender to the extent that such payments to Lender on the Guarantor Claims have
contributed toward the liquidation of the Guaranteed Obligations, and such
subrogation shall be with respect to that portion of the Guaranteed Obligations
which would have been unpaid if Lender had not received dividends or payments
upon the Guarantor Claims.
Section 4.3 PAYMENTS HELD IN TRUST. In the event that, notwithstanding
anything to the contrary in this Guaranty, Guarantor should receive any funds,
payment, claim or distribution which is prohibited by this Guaranty, Guarantor
agrees to hold in trust for Lender an amount equal to the amount of all funds,
payments, claims or distributions so received, and agrees that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions so received except to pay them promptly to Lender, and Guarantor
covenants promptly to pay the same to Lender.
Section 4.4 LIENS SUBORDINATE. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Guarantor Claims shall be and remain
inferior and subordinate to any liens, security interests, judgment liens,
charges or other encumbrances upon Borrower's assets securing payment of the
Guaranteed Obligations, regardless of whether such encumbrances in favor of
Guarantor or Lender presently exist or are hereafter created or attach. Without
the prior written consent of Lender, Guarantor shall not (i) exercise or enforce
any creditor's right it may have against Borrower, or (ii) foreclose, repossess,
sequester or otherwise take steps or institute any action or proceedings
(judicial or otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's relief or
insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security
interest, collateral rights, judgments or other encumbrances on assets of
Borrower held by Guarantor.
ARTICLE 5
MISCELLANEOUS
Section 5.1 WAIVER. No failure to exercise, and no delay in exercising,
on the part of Lender, any right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
Section 5.2 NOTICES. Any notice, demand, statement, request or consent
made hereunder shall be in writing and shall be deemed to be received by the
addressee on the day such notice is tendered to a nationally recognized
overnight delivery service or on the third day following
MORGAN GUARANTY TRUST COMPANY
10
<PAGE>
the day such notice is deposited with the United States Postal Service first
class certified mail, return receipt requested, in either instance, addressed to
the address, as set forth below, of the party to whom such notice is to be
given, or to such other address as either party shall in like manner designate
in writing. The addresses of the parties hereto are as follows:
Guarantor: Poore Brothers, Inc.
---------- 3500 South La Cometa Drive
Goodyear, Arizona 85338
Attention: Chief Financial Officer
Facsimile No.: (602) 925-2363
Lender: Morgan Guaranty Trust Company of New York
------- 60 Wall Street
New York, New York 10230-0060
Attention: Nancy Alto, Commercial Mortgage Finance
Group Loan Servicing
Facsimile No.: (212) 648-5274
Section 5.3 GOVERNING LAW; JURISDICTION. This Guaranty shall be
governed by and construed in accordance with the laws of the State in which the
real property encumbered by the Security Instrument is located and the
applicable laws of the United States of America. Guarantor hereby irrevocably
submits to the jurisdiction of any court of competent jurisdiction located in
the state in which the Property is located in connection with any proceeding out
of or relating to this
Section 5.4. INVALID PROVISIONS. If any provision of this Guaranty is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Guaranty, such provision shall be fully
severable and this Guaranty shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part of this Guaranty,
and the remaining provisions of this Guaranty shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Guaranty, unless such continued
effectiveness of this Guaranty, as modified, would be contrary to the basic
understandings and intentions of the parties as expressed herein.
Section 5.5 AMENDMENTS. This Guaranty may be amended only by an
instrument in writing executed by the party or an authorized representative of
the party against whom such amendment is sought to be enforced.
Section 5.6 PARTIES BOUND; ASSIGNMENT. This Guaranty shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, assigns and legal representatives; provided, however, that Guarantor
may not, without the prior written consent of Lender, assign any of its rights,
powers, duties or obligations hereunder.
MORGAN GUARANTY TRUST COMPANY
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<PAGE>
Section 5.7 HEADINGS. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Guaranty.
Section 5.8 RECITALS. The recital and introductory paragraphs hereof
are a part hereof, form a basis for this Guaranty and shall be considered prima
facie evidence of the facts and documents referred to therein.
Section 5.9 COUNTERPARTS. To facilitate execution, this Guaranty may be
executed in as many counterparts as may be convenient or required. It shall not
be necessary that the signature or acknowledgment of, or on behalf of, each
party, or that the signature of all persons required to bind any party, or the
acknowledgment of such party, appear on each counterpart. All counterparts shall
collectively constitute a single instrument. It shall not be necessary in making
proof of this Guaranty to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.
Section 5.10 RIGHTS AND REMEDIES. If Guarantor becomes liable for any
indebtedness owing by Borrower to Lender, by endorsement or otherwise, other
than under this Guaranty, such liability shall not be in any manner impaired or
affected hereby and the rights of Lender hereunder shall be cumulative of any
and all other rights that Lender may ever have against Guarantor. The exercise
by Lender of any right or remedy hereunder or under any other instrument, or at
law or in equity, shall not preclude the concurrent or subsequent exercise of
any other right or remedy.
Section 5.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE
AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S GUARANTY OF THE
GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A
FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY
AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.
Section 5.12 WAIVER OF RIGHT TO TRIAL BY JURY. GUARANTOR HEREBY AGREES
NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES
ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT
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12
<PAGE>
ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE
MORTGAGE, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTOR, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR.
EXECUTED as of the day and year first above written.
GUARANTOR:
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
--------------------------------
Print Name: Eric J. Kufel
------------------------
Title: President
-----------------------------
MORGAN GUARANTY TRUST COMPANY
13
FINOVA
FINOVA Capital Corporation
95 N. Route 17 South
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 712-3300
EQUIPMENT LEASE
No. 5778300
FINOVA Capital Corporation, (herein called "Lessor"), with its
principal place of business at Dial Tower, Dial Corporation Center,
Phoenix, Arizona, hereby agrees to lease to the Lessee named on the
signature page hereof (herein called "Lessee") and Lessee hereby
agrees to lease and rent from Lessor, the equipment described on any
attached schedule(s), (herein with all replacement parts, repairs,
additions, and accessories called "Equipment"), on the terms and
conditions hereof and as set forth on any schedule (herein called
"Schedule"). Lessee agrees that, at the option of Lessor, any Schedule
shall be a separately enforceable Lease which incorporates all of the
terms and conditions set forth herein.
1. ORDERING AND INSTALLATION OF EQUIPMENT. Lessee hereby requests Lessor to
order the Equipment from a supplier (herein called "Supplier"), and to arrange
for delivery thereof to Lessee at Lessee's expense. Lessee agrees to install or
cause the Equipment to be installed at the location set forth on the Schedule
thereof (the "Location") at the Lessee's cost.
2. DISCLAIMER OF WARRANTIES AND WAIVER AND DEFENSES.
LESSOR, NEITHER BEING THE MANUFACTURE, NOR A SUPPLIER, NOR A DEALER IN THE
EQUIPMENT, MAKES NO WARRANTIES, EXPRESS OR IMPLIED, TO ANYONE, AS TO DESIGN,
CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE EQUIPMENT OR ITS
MATERIAL OR WORKMANSHIP. LESSOR ALSO DISCLAIMS ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR THE USE OR PURPOSE WHETHER ARISING BY OPERATION OF LAW OR
OTHERWISE. LESSOR FURTHER DISCLAIMS ANY LIABILITY FOR LOSS, DAMAGE OR INJURY TO
LESSEE OR THIRD PARTIES AS A RESULT OF ANY DEFECTS, LATENT OR OTHERWISE, IN THE
EQUIPMENT WHETHER ARISING FROM THE APPLICATION OF THE LAWS OF STRICT LIABILITY
OR OTHERWISE. AS TO THE LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS". LESSEE
ACKNOWLEDGES THAT LESSEE HAS SELECTED THE SUPPLIER OF THE EQUIPMENT AND THAT
LESSOR HAS NOT RECOMMENDED SUPPLIER. LESSOR SHALL HAVE NO OBLIGATION TO INSTALL,
MAINTAIN, ERECT, TEST, ADJUST OR SERVICE THE EQUIPMENT. REGARDLESS OF CAUSE,
LESSEE AGREES NOT TO ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR FOR LOSS OF
ANTICIPATORY PROFITS OR ANY OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES,
NOR SHALL LESSOR BE RESPONSIBLE FOR ANY DAMAGES OR COSTS WHICH MAY BE ASSESSED
AGAINST LESSEE IN ANY ACTION FOR INFRINGEMENT OF ANY UNITED STATES LETTERS
PATENT. LESSOR MAKES NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR TAX OR
ACCOUNTING PURPOSES. If the Equipment is unsatisfactory for any reason, Lessee
shall make claim on account thereof solely against the manufacturer, the
Supplier or any dealer and shall nevertheless pay Lessor all rent and other
charges payable under the Lease. Lessor hereby assigns to
<PAGE>
Lessee, any rights which Lessor may have against the Supplier, the manufacturer
or any dealer for breach of warranty or other representations respecting the
Equipment. Lessee understands and agrees that neither the Manufacturer, the
Supplier, any dealer nor any agent of the foregoing is an agent of Lessor or is
authorized to waive or alter any term or condition of this Lease.
3. TERM AND RENT. The Lease term of each Schedule shall commence as of the
date that any of the Equipment under such Schedule is delivered to Lessee or
Lessee's Agent, or such later date as Lessor designates in writing (the
"Commencement Date") and shall continue until the obligations of Lessee under
this Lease shall have been fully performed. Advance rentals shall not be
refundable if the Lease term for any reason does not commence or if this Lease
or any Schedule is duly terminated by Lessor. The sum of all periodic
installments of rent indicated on any Schedule shall constitute the aggregate
rent reserved. The aggregate rent reserved shall be payable periodically in
advance, in the installments indicated on any Schedule, the first such payment
being due on the Commencement Date, or such later date as Lessor designates in
writing (the "First Payment Date"), and subsequent payments shall be due on the
same day of each successive rent period thereafter until the balance of the rent
and any charges or expenses payable by Lessee under this Lease shall have been
paid in full. If the First Payment Date is later than the Commencement Date,
Lessee shall, on the First Payment Date, in addition to the periodic rent, pay
Lessor interim rent from the Commencement Date to the First Payment Date at a
daily rate equal to the periodic installment of rent divided by the number of
days of the period. Lessee's obligation to pay all rent shall be absolute and
unconditional and not subject to any abatement, set-off, defense or counterclaim
for any reason whatsoever.
4. NON-CANCELABLE LEASE. NEITHER THE LEASE NOR ANY SCHEDULE CAN BE CANCELED
BY LESSEE DURING THE TERM HEREOF OR THEREOF.
5. LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE. If within ninety (90)
days from the date Lessor orders the Equipment, the same has not been delivered,
installed and accepted by Lessee (in form satisfactory to Lessor) for all
purposes of this Lease, Lessor may, on ten (10) days' written notice to Lessee,
terminate this Lease and the related Schedule and its obligations to Lessee.
6. TITLE, RECORDING, DOCUMENTATION, ADMINISTRATIVE FEES AND PERSONAL
PROPERTY. The Equipment is, and shall at all times remain, the property of
Lessor, and except as herein set forth, Lessee shall have no right, title or
interest therein. If Lessor supplies Lessee with labels indicating that the
Equipment is owned by Lessor, Lessee shall affix such labels to and keep them in
a prominent place on the Equipment. Lessee hereby authorizes Lessor to insert in
this Lease or any Schedule the serial numbers, and other identification data, of
Equipment when determined by Lessor. In order to perfect Lessor's security
interest in the Equipment in the event this Lease is determined to be a security
agreement, Lessee hereby grants Lessor a security interest in the Equipment and
authorizes Lessor, at Lessee's expense, to cause this Lease, or any statement or
other instrument in respect of this Lease showing the interest of Lessor in the
Equipment, including Uniform Commercial Code Financing Statements, to be filed
or recorded, and grants Lessor, where permitted, the right to execute Lessee's
name thereto. Lessee agrees to pay or reimburse Lessor for its costs and out of
the pocket expenses relating to any searches undertaken by Lessor, or any
filing, recording, stamp fees or taxes arising from the filing or recording of
any such instrument or statement and any other costs, expenses or charges
incurred by Lessor in documenting, administering and terminating this Lease.
Lessee shall, as its expense, protect and defend Lessor's title to the Equipment
against all persons claiming against or through Lessee, at all times keeping the
Equipment free from any legal process or encumbrance whatsoever including but
not limited to liens, attachments, levies and executions, and shall give Lessor
immediate written notice thereof and shall indemnify Lessor from any loss caused
thereby. Upon Lessor's request, Lessee shall execute or obtain from third
parties and deliver to Lessor such further instruments and assurances as Lessor
deems necessary or advisable for the confirmation or perfection of Lessor's
rights hereunder. The Equipment is, and shall at all times be and remain,
personal property notwithstanding that the Equipment or any part thereof may now
be, or hereafter become, in any manner affixed or attached to real property or
any improvements thereon.
2
<PAGE>
7. CARE, USE, LOCATION AND ALTERATION. Lessee shall assess sole cost and
expense, service, repair, overhaul and maintain each item of Equipment in good
operating order and in the condition when delivered to Lessee, ordinary wear and
tear expected. All such maintenance shall be consistent with prudent industry
practice and all maintenance practices recommended by the Supplier or
manufacturer and meet all legal and regulatory requirements. Upon request,
Lessee shall provide Lessor with evidence of such compliance. Lessee shall
maintain logs of the maintenance and service of the Equipment and permit Lessor,
on reasonable prior notice to inspect the Equipment and the right to make copies
of the logs and service reports. Lessee shall forthwith correct any deficiencies
disclosed by such inspection. Lessee shall use the Equipment solely for business
purposes, in compliance with all applicable laws, ordinances, regulations, and
the conditions of all insurance policies required to be maintained by Lessee
pursuant to the Lease. Lessee shall make all additions, modifications and
improvements to the Equipment required by applicable law and except for such
required changes, shall not alter the Equipment without Lessor's prior written
consent. Lessee shall replace all worn, lost, stolen or destroyed parts of the
Equipment with replacement parts at least meeting the standards required herein,
all of which shall become the property of Lessor, except for such additions,
modifications and improvements that can be readily removed without causing
damage to, or impairing the commercial value or utility of, such equipment,
which shall remain Lessee's property and may be removed by Lessee at its expense
before the Equipment is surrendered to Lessor. Lessee shall repair all damage to
any item resulting from such installation or removal. If Lessee has not
purchased an item of Equipment pursuant to any option to purchase granted to
Lessee at the end of the Lease term for such item, Lessor shall be entitled to
purchase any such addition, modification and improvements from Lessee for its
then fair market value. The Equipment shall not be removed from the Location
without Lessor's prior written consent.
8. NOTICE AND CONDITIONS OF REDELIVERY. Lessee shall provide Lessor not
less than One Hundred Twenty (120) days prior written notice of its intention to
exercise its option to purchase the Equipment if granted on the related Schedule
or return the Equipment to Lessor ( the "Required Notice"). If Lessee shall have
timely provided such Required Notice and has elected to return the Equipment to
Lessor upon the expiration of the Term of the Schedule, Lessee shall, at its
sole expense, return the Equipment covered thereby, freight prepaid, to Lessor
in a manner and to a location within the continental United States designated by
Lessor in the condition and repair required by the terms of this Lease, free of
all liens and advertising insignia. If Lessee shall fail to return any item of
Equipment as provided herein, Lessee shall be responsible for all costs and
expense incurred by Lessor in returning the Equipment to such required condition
or any reduction in value as a result thereof. If the Equipment or its component
parts were packed or crated for shipping when new, Lessee shall pack or crate
the same carefully and in accordance with any recommendations of the Supplier or
manufacturer before redelivering the item to Lessor. Lessee shall also deliver
to Lessor the plans, specifications, operating manuals, software documentation,
discs, warranties and other documents furnished by the manufacturer or Supplier
of the Equipment and such other documents in Lessee's possession relating to the
maintenance and method of operation of such Equipment. At Lessor's written
request, Lessee shall provide free storage for any item of Equipment for a
period not to exceed sixty (60) days after the expiration of the Schedule term
before returning such item to Lessor and permit Lessor access to the Equipment
for inspection and/or resale. If Lessee fails to timely provide such Required
Notice the Equipment shall continue to be held and Leased hereunder, and this
Lease and the related Schedule term shall thereupon be extended for a period
ending one hundred twenty (120) days following receipt by Lessor of Lessee's
notice of intent to return the Equipment, for the fair market rental value of
the Equipment as determined by Lessor not to exceed the periodic installment of
rent with respect to such Equipment for such period. If Lessee has timely
provided the Required Notice but upon expiration Lessee does not immediately
return the Equipment to Lessor, (unless otherwise requested by Lessor) the
Equipment shall continue to be held and leased hereunder, and this Lease and the
related Schedule term shall thereupon be extended for successive thirty (30) day
periods at the fair market rental value of the Equipment as determined by Lessor
not to exceed the periodic installment of rent with respect to such Equipment
for such period.
9. RISK OF LOSS. Lessee shall bear all risks of loss of and damage to the
Equipment from any cause and the occurrence of such loss or damage shall not
relieve Lessee of any obligation hereunder. In the event of loss or damage,
Lessee, at its option, provided it is not in default hereunder, otherwise at
3
<PAGE>
Lessor's option, shall: (a) place the damaged Equipment in good repair,
condition and working order; or (b) replace lost or damaged Equipment with like
equipment in good repair, condition and working order with documentation
creating clear title thereto in Lessor; or (c) pay to Lessor the then present
value computed at five (5%) percent per annum of both the unpaid balance of the
aggregate rent reserved under the Lease and related Schedule and the value of
Lessor's residual interest in the Equipment. Upon Lessor's receipt of such
payment, Lessee and/or Lessee's insurer shall be entitled to Lessor's interest
in said item for salvage purpose, in its then condition and location, as is,
without warranty, express or implied.
10. INSURANCE. Until redelivered to Lessor, Lessee shall maintain and
deliver evidence to Lessor of such insurance required by, written by insurers,
and in amounts satisfactory to Lessor. Should Lessee fail to provide such
insurance coverage, Lessor may obtain coverage for part or all of the term of
this Lease or any Schedule or such period beyond the term as is required by the
insurance company issuing such coverage protecting interests of Lessor and
Lessee or the interest of Lessor only. The proceeds of such insurance, at the
option of Lessee, provided it is not in default hereunder, otherwise at Lessor's
option, shall be applied toward (i) the replacement, restoration or repair of
the Equipment or (ii) payment of the obligations of Lessee hereunder. Lessee
hereby appoints Lessor as Lessee's attorney-in-fact to make claims for, receive
payment of, and execute and endorse all documents, checks, or drafts for loss or
damage under any said insurance policies.
11. NET LEASE: TAXES. Lessee intends the rental payments hereunder to be
net to Lessor, and Lessee shall pay all sales, use, excise, stamp, documentary
and ad valorem taxes, license and registration fees, assessments, fines,
penalties and similar charges imposed on the ownership, possession or use of the
Equipment during the term of this Lease or any Schedule; shall pay all taxes
(except Lessor's Federal or State net income taxes) imposed on Lessor or Lessee
with respect to the rental payments hereunder, and shall reimburse Lessor upon
demand for any taxes paid by or advanced by Lessor. Unless Lessee is otherwise
directed by Lessor, in writing, Lessor shall file for and pay all personal
property taxes assessed with respect to the Equipment during the term of this
Lease and Lessee shall, upon Lessor's demand, forthwith reimburse Lessor for the
full amount of such taxes without regard to any discounts obtained by Lessor due
to early payment or otherwise. Lessor may if it elects, estimate such personal
property taxes and bill Lessee periodically in advance therefor.
12. INDEMNITY. Lessee shall hold Lessor harmless from, indemnify and defend
Lessor against, any and all claims, actions, suits, proceedings, costs expenses,
damages and liabilities, including attorney's fees arising out of, connected
with or resulting from the Equipment or this Lease or any Schedule, including,
without limitation, the manufacturer, selection, delivery, possession, use,
operation or return of the Equipment. These indemnities shall survive the
termination or expiration of this Lease or any Schedule.
13. DEFAULT AND REMEDIES. If (i) Lessee defaults in any payment required
under this Lease or any Schedules or under any other lease or agreement between
Lessor and Lessee, or (ii) Lessee breaches any of the representations or
warranties contained herein or fails to perform any of the terms, covenants or
conditions of this Lease or any Schedule or (iii) a petition in bankruptcy,
arrangement, insolvency or reorganization is filed by or against Lessee or any
guarantor of Lessee's obligations hereunder, or (iv) Lessee or any guarantor of
Lessee's obligations makes an assignment for the benefit of creditors, or (v)
without Lessor's written consent, Lessee sells all or a substantial part of
Lessee's assets or a majority of Lessee's voting stock is transferred, or (vi)
during the term of the Lease or any Schedule there is a material adverse change
in the financial condition of Lessee or any guarantor of Lessee's obligation
then Lessor may, to the extent permitted by law, exercise any one or more of the
following remedies: (a) to declare the entire balance of rent for the full term
of any or all Schedules covered hereby immediately due and payable and to
similarly accelerate the balance under any other leases or agreements between
Lessor and Lessee without notice or demand, (b) to sue for and recover all
rents, and other monies due and to become due under any or all Schedules
hereunder and the residual value of the Equipment covered thereby discounted to
the date of default at five (5%) percent per annum; (c) to require Lessee at
Lessee's expense, to assemble all the Equipment at a place reasonably designated
by Lessor, (d) to remove any physical obstructions for removal of the Equipment
from the place where the Equipment is located and take possession of any or all
items of Equipment, without demand or notice,
4
<PAGE>
whatever same may by located, disconnecting and separating all such Equipment
from any other property, with or without any court order or pre- taking hearing
or other process of law, it being understood that facility of repossession in
the event of default is a basis for the financial accommodation reflected by
this Lease. Lessee hereby waives any and all damages occasioned by such
retaking. Lessor may, at its option, use, ship, store, repair or lease all
Equipment so removed and sell or otherwise dispose of any such Equipment at a
private or public sale. Lessor may expose and resell the Equipment at Lessee's
premises at reasonable business hours without being required to remove the
Equipment. In the event Lessor takes possession of the Equipment, Lessor shall
give Lessee credit for any sums received by Lessor from the sale, or present
value of the rental, of the Equipment computed at the implicit rate of the
Schedule after deduction of the expenses of the sale or rental. Lessee shall
also be liable for and shall pay to Lessor on demand (a) all expenses incurred
by Lessor in connection with the enforcement of any of Lessor's remedies,
including all expenses of repossession, storing, shipping, repairing and selling
the Equipment, (b) Lessor's reasonable attorney's fees and (c) interest on all
sums due Lessor from the date of default until paid at the rate of one and
one-half (1.5%) percent per month, but only to the extent permitted by law.
Lessor and Lessee acknowledge the difficulty in establishing a value for the
unexpired Lease term and owing to such difficulty agree that the provision of
this paragraph represents an agreed measure of damages and are not to be deemed
a forfeiture or penalty.
Whenever any payment hereunder is not made by Lessee within ten (10) days when
due, Lessee agrees to pay to Lessor, not later than one month thereafter, an
amount calculated at the rate of ten cents per one dollar of each such delayed
payment, as an administrative fee to offset Lessor's collection costs, but only
to the extent allowed by law. Such amount shall be payable in addition to all
amounts payable by Lessee as a result of exercise of any of the remedies herein
provided.
All remedies of Lessor hereunder are cumulative, are in addition to any other
remedies provided for by law, and may, to the extent permitted by law, be
exercised concurrently or separately. The exercise of any one remedy shall not
be deemed to be an election of such remedy or to preclude the exercise of any
other remedy. No failure on the part of the Lessor to exercise and no delay in
exercising any right or remedy shall operate as a waiver thereof or modify the
terms of this Lease. A waiver of default by Lessor on any one occasion shall not
be deemed a waiver of any other or subsequent default. In the event this Lease
is determined to be a security agreement, Lessor's recovery shall in no event
exceed the maximum permitted by law.
14. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS. In the event Lessee
fails to comply with any provision of this Lease, Lessor shall have the right,
but shall not be obligated, to effect such compliance on behalf of Lessee upon
ten (10) days prior written notice to Lessee. In such event, all monies advanced
or expended by Lessor, and all expenses of Lessor in effecting such compliance,
shall be deemed to be additional rent, and shall be paid by Lessee to Lessor at
the time of the next periodic payment of rent.
15. ASSIGNMENT: QUIET ENJOYMENT. LESSOR MAY, WITHOUT LESSEE'S CONSENT,
ASSIGN THIS LEASE OR ANY SCHEDULE AND/OR THE RENTALS DUE THEREUNDER OR SELL OR
GRANT A SECURITY INTEREST IN THE EQUIPMENT AND LESSEE AGREES THAT NO ASSIGNEE OF
LESSOR SHALL BE BOUND TO PERFORM ANY DUTY, COVENANT OR CONDITION OR WARRANTY
(EXPRESS OR IMPLIED) ATTRIBUTABLE TO LESSOR AND LESSEE FURTHER AGREES NOT TO
RAISE ANY CLAIM OR DEFENSE ARISING OUT OF THIS LEASE OR OTHERWISE AGAINST LESSOR
AS A DEFENSE, COUNTERCLAIM OR OFFSET TO ANY ACTION BY ANY ASSIGNEE
5
<PAGE>
HEREUNDER. NOTWITHSTANDING ANY ASSIGNMENT BY LESSOR, PROVIDING LESSEE IS NOT IN
DEFAULT HEREUNDER, LESSEE SHALL QUIETLY ENJOY USE OF THE EQUIPMENT, SUBJECT TO
THE TERMS AND CONDITIONS OF THE LEASE.
WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN, TRANSFER,
PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THE EQUIPMENT OR ANY INTEREST
THEREIN, OR SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN LESSEE OR LESSEE'S EMPLOYEES.
16. NOTICES. Service of all notices under this Lease shall be sufficient if
given personally or mailed to the intended party at its respective address set
forth herein, or at such other address as said party may provide in writing from
time to time. Any such notice mailed to said address shall be effective three
(3) days following the date when deposited in the United States mail, duly
addressed and with postage prepaid.
17. REPRESENTATIONS AND COVENANTS OF LESSEE. Lessee represents that all
financial and other information furnished to Lessor was, at the time of
delivery, true and correct. During the term of the Lease, Lessee shall provide
Lessor, on an ongoing basis, audited annual financial statements within ninety
(90) days of each fiscal year end and quarterly financial statements within
sixty (60) days of each quarter signed by Lessee's chief financial officer and
such interim financial statements as Lessor requests.
18. GOVERNING LAW; JURISDICTION; VENUE; SERVICE OF PROCESS; WAIVER OF TRIAL
BY JURY. THIS LEASE SHALL BE BINDING WHEN ACCEPTED IN WRITING BY THE LESSOR AND
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA, PROVIDED, HOWEVER, IN THE
EVENT THIS LEASE OR ANY PROVISION HEREOF IS NOT ENFORCEABLE UNDER THE LAWS OF
THE STATE OF ARIZONA THEN THE LAWS OF THE STATE WHERE THE EQUIPMENT IS LOCATED
SHALL GOVERN. ANY DISPUTE UNDER THIS LEASE SHALL BE LITIGATED BY LESSEE ONLY IN
FEDERAL OR STATE COURTS LOCATED IN MARICOPA COUNTY, ARIZONA, AND LESSEE
IRREVOCABLY SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS AND WAIVES ANY
OBJECTION THAT MAY EXIST AS TO VENUE OR CONVENIENCE OF SUCH FORUMS. NOTHING
CONTAINED HEREIN SHALL PRECLUDE LESSOR FROM COMMENCING ANY ACTION IN ANY COURT
HAVING JURISDICTION THEREOF. SERVICE OF PROCESS IN ANY SUCH ACTION SHALL BE
SUFFICIENT IF SERVED BY CERTIFIED MAIL RETURN RECEIPT REQUESTED TO THE ADDRESS
OF THE PARTY SET FORTH FOLLOWING THE SIGNATURES AT THE END OF THIS LEASE. TO THE
EXTENT PERMITTED BY LAW, LESSEE WAIVES TRIAL BY JURY IN ANY ACTION BY OR AGAINST
LESSOR HEREUNDER.
19. GENERAL. This Lease inures to the benefit of and is binding upon the
heirs, legatees, personal representatives, successors and assigns of the parties
hereto. Time is of the essence of this Lease. This Lease and all Schedules
attached hereto contain the entire agreement between Lessor and Lessee, and no
modification of the Lease or any Schedule shall be effective unless in writing
and executed by an executive officer of Lessor. If more than one Lessee is named
in this Lease, the liability of each shall be joint and several. In the event
any provision of this Lease should be unenforceable, then such provision shall
be deemed deleted, however, no other provision hereof shall be affected thereby.
20. FINANCE LEASE STATUS. Lessor and Lessee agree that if Article 2A -
Leases of the Uniform Commercial Code ("Code") governs the terms of this Lease,
then this Lease will be deemed a "finance lease". By executing this Lease,
Lessee acknowledges that (a) Lessor has advised Lessee of (i) the identity of
the Supplier; (ii) that Lessee may have rights under the "supply contract" as
defined in the Code, pursuant to which Lessor is purchasing the Equipment, and
(iii) that Lessee may contact the Supplier for a description of any such rights.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES ANY AND ALL RIGHTS AND
REMEDIES CONFERRED UPON A LESSEE BY THE CODE, INCLUDING SECTIONS 2A - 508
THROUGH 522 THEREOF.
6
<PAGE>
21. PUBLICITY. Lessor is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION POORE BROTHERS ARIZONA, INC.
BY: /s/ P. Marchant BY: /s/ Eric Kufel
------------------------------- ----------------------------------
PRINTED NAME: P. Marchant PRINTED NAME: Eric J. Kufel
--------------------- ------------------------
TITLE: VP TITLE: President & CEO
---------------------------- -------------------------------
Taxpayer Identification no.:86-0793689
----------
ADDRESS: ADDRESS:
95 N. ROUTE 17 SOUTH, P.O. BOX 907 2664 S. LITCHFIELD ROAD
PARAMUS, NEW JERSEY 07653 GOODYEAR, ARIZONA 85338
DATE ACCEPTED: 7/11/97 DATED: 4/4/97
-------------------- -------------------------------
7
<PAGE>
FINOVA Capital Corporation
95 N. Route 17 South
P.O. Box 907
Paramus, New Jersey 07653
Telephone (201) 712-3300
MASTER LEASE SCHEDULE
NO. 5778300 TO EQUIPMENT LEASE NO. 5778300 (THE "LEASE")
----------- --------
EQUIPMENT LEASED: SUPPLIER:
See Schedule "A" attached hereto and
made a part hereof.
LOCATION OF EQUIPMENT:
3500 S. La Cometa Drive
Goodyear, Arizona 85338
TERM OF SCHEDULE: 60 MONTHS
--
RENTAL PAYMENTS $9,680.56
---------
RENTAL PAYMENT FREQUENCY: X MONTHLY QUARTERLY ANNUALLY
--- --- ---
ADVANCE RENTALS $9,680.56 PAYABLE AT THE TIME OF SIGNING OF THIS SCHEDULE TO BE
APPLIED TO THE FIRST RENTAL PAYMENT.
ADDITIONAL TERMS AND CONDITIONS
1. LEASE OF EQUIPMENT. Lessor hereby agrees to lease to Lessee, and Lessee
hereby agrees to lease and rent from Lessor the Equipment listed above, or on
any Schedule attached hereto, for the term and the rental payments provided
herein, all subject to the terms and conditions of the Lease.
2. OPTION TO PURCHASE. Provided Lessee is not in default under the Lease or this
Schedule or under any other Lease or agreement with Lessor, and notwithstanding
any provisions to the contrary contained in the Lease between the parties
described above, Lessee agrees that if Lessor, at the expiration or termination
of the Lease, offers to sell the leased equipment to Lessee, Lessee agrees that
it shall purchase, as of such date, all of Lessor's right, title and interest,
in and to the equipment for an amount equal to $47,303.00 ("Purchase Price").
Lessee shall also pay any and all sales, transfer or other taxes and imposts,
including but not limited to, title and transfer fees, if any, arising by reason
of the sale and purchase of the equipment together with any and all rentals or
other amounts remaining unpaid and pursuant to the Lease.
It is understood that the sale, conveyance or transfer by Lessor or its assignee
pursuant hereto shall be AS-IS, WHERE-IS, WITHOUT WARRANTIES OF ANY KIND.
<PAGE>
3. ADDITIONAL TERMS WITH RESPECT TO THE CARE AND USE OF THE EQUIPMENT. In
addition to Lessee's obligations under Paragraph 7 of the Lease, Lessee shall
maintain the Equipment in accordance with the manufactures' guidelines for
preventive maintenance, retain copies of all maintenance contracts and records
relating to the Equipment and provide the same to Lessor upon request.
4. ADDITIONAL TERMS WITH RESPECT TO THE CONDITIONS OF REDELIVERY. In addition to
Lessee's obligation under Paragraph 8 of the Lease, Lessee shall (i) cause the
Equipment to be deinstalled and re-certified for maintenance by the original
manufacture, (ii) return all manuals, maintenance records, cables and
re-certification letter to Lessor, (iii) return and convey to Lessor at no cost
to Lessor all upgrades and/or enhancements made to the Equipment that is
inherent to the functioning of the Equipment.
BASIS OF INDEXING. If on the Commencement Date, the highest yield on five
(5) year Treasury Notes, as published in The Wall Street Journal, with a
maturity date on or closest to the maturity date of this Schedule (the "Index"),
exceeds 6.04% (the "Yield"), the Monthly Rental Payment provided herein shall
automatically be increased for the full term to reflect such increase in the
Yield. As soon as practicable thereafter, Lessor shall provide Lessee with
written notice of any increase in the Monthly Rental Payment. Lessor's
calculations shall be conclusive absent manifest error.
6. This Master Lease Schedule cancels and supersedes previous Master Lease
Schedule dated April 4, 1997.
LESSOR: LESSEE:
FINOVA CAPITAL CORPORATION POORE BROTHERS ARIZONA, INC
BY: /s/ P Marchant BY: /s/ Thomas W. Freeze
--------------------------- ----------------------------
PRINTED NAME: P Marchant PRINTED NAME: Thomas W. Freeze
----------------- ------------------
TITLE: VP TITLE: VP & CFO
------------------------ -------------------------
ADDRESS: ADDRESS:
95 N. ROUTE 17 SOUTH, P.O. BOX 907 2664 S. LITCHFIELD ROAD
PARAMUS, NEW JERSEY 07653 GOODYEAR, ARIZONA 85338
DATE ACCEPTED: 7/11/97 DATED: 6/9/97
---------------- -------------------------
<PAGE>
Schedule "A" to Master Lease Schedule No. 5778300 dated _______, 1997 to
Equipment Lease No. 5778300 dated ______, 1997 between FINOVA CAPITAL
CORPORATION as Lessor and Poore Brothers Arizona, Inc. as Lessee.
xTWF
----
Initial
Hayssen Packaging Machine
Serial #V16407
Model # Ultima SF
Hayssen Packaging Machine
Serial #V16271
Model # Ultima SF
Hayssen Packaging Machine
Serial #V16284
Model # Ultima SF
Ishida Scale
Serial #P-285-336
Model #CCW-S-212
Ishida Scale
Serial #P-283-268
Model #CCW-202-RLC-S
Ishida Scale
Serial #P-282-098
Model #CCW-202-RLC
3 Metalek In-Line Metal Detectors
3 Hayssen Packaging machines with Ishida scales, Meal Detectors and Fallas
Conveyors
1 AS-42R Air Sweep 42" Remote Blower System
1 PSSW-21 Potato Slice Speed Wash.-2100#
xTWF
----
INITIAL
I
EXHIBIT 11-1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
POORE BROTHERS, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss ........................................ (570,760) (8,859) (1,049,180) (212,743)
Weighted average common shares outstanding ...... 6,982,594 3,473,624 7,004,826 3,492,078
---------- ---------- ---------- ----------
Common stock equivalents from stock options
and warrants .................................... * 758,412 (1) 758,412(1)
---------- ---------- ---------- ----------
Total weighted average common shares outstanding 7,004,826 4,232,036 6,982,594 4,250,490
---------- ---------- ---------- ----------
Loss per common sgare and common share equivalent $ (.08) $ (0.00) $ (0.15) $ (0.05)
---------- ---------- ---------- ----------
</TABLE>
(1) Anti-dilutive common stock equivalents included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83.
* Not included as they are anti-dilutive.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997,
INCLUDED WITH FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 953,473
<SECURITIES> 2,003,436
<RECEIVABLES> 2,325,806
<ALLOWANCES> 136,000
<INVENTORY> 475,880
<CURRENT-ASSETS> 5,700,209
<PP&E> 7,009,345
<DEPRECIATION> 586,485
<TOTAL-ASSETS> 14,615,115
<CURRENT-LIABILITIES> 1,989,248
<BONDS> 5,242,598
0
0
<COMMON> 70,516
<OTHER-SE> 7,312,753
<TOTAL-LIABILITY-AND-EQUITY> 14,615,115
<SALES> 7,613,814
<TOTAL-REVENUES> 7,613,814
<CGS> 5,904,052
<TOTAL-COSTS> 5,904,052
<OTHER-EXPENSES> 2,668,236
<LOSS-PROVISION> 21,500
<INTEREST-EXPENSE> 90,706
<INCOME-PRETAX> (1,049,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,049,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049,180)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
POORE BROTHERS, INC. 1995 STOCK OPTION PLAN (as amended)
1. Purpose. The Poore Brothers, Inc. 1995 Stock Option Plan
(the "Plan") is intended to provide incentives which will attract and retain
highly competent persons as directors, officers and key employees of Poore
Brothers, Inc. (the "Company") and its subsidiaries by providing them
opportunities to acquire shares of Common Stock, par value $.01 per share
("Common Stock"), of the Company.
2. Administration. The Plan will be administered by a
committee of the Board of Directors (the "Committee") which shall be comprised
of one or more directors who shall be ineligible to receive options while
serving as a member of the Committee; provided, however, that if the Common
Stock of the Company becomes registered under the Securities Exchange Act of
1934, as amended (the "1934 Act"), members of the Committee must qualify as
disinterested persons within the meaning of Rule 16b-3 under the 1934 Act; and
provided further, however, that, in the absence of a Committee, all of the
authority and powers granted to the Committee under the Plan may be exercised by
the then-serving members of the Board of Directors of the Company. The Committee
is authorized, subject to the provisions of the Plan, to establish such rules
and regulations as it deems necessary for proper administration of the Plan and
to make such determinations and interpretations and to take such action in
connection with the Plan as it deems necessary or advisable. All determinations
and interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board, no member
of the Committee and no employee of the Company or its subsidiaries shall be
liable for any act or failure to act hereunder, by any other member or employee
or by an agent to whom duties in connection with the administration of this Plan
have been delegated or, except in circumstances involving his bad faith, gross
negligence or fraud, for any act or failure to act by the member or employee.
3. Participants. Participants will consist of such directors,
officers and key employees of the Company or its subsidiaries as the Committee
in its sole discretion determines to be significantly responsible for the
success and future growth and profitability of the Company and whom the
Committee may designate from time to time to receive Stock Options under the
Plan. Designation of a participant in any year shall not require the Committee
to designate such person to receive a Stock Option in any other year or, once
designated, to receive the same type or amount of Stock Option as granted to the
participant in any year. The Committee shall consider such factors as it deems
pertinent in selecting participants and in determining the type and amount of
their respective Stock Options.
4. Shares Reserved under the Plan. One Million Five Hundred
Thousand (1,500,000) shares of authorized but unissued shares of Common Stock
are reserved for issue and may be issued in connection with Stock Options
granted under the
<PAGE>
Plan. Any shares subject to Stock Options or issued under such options may
thereafter be subject to new options under this Plan if there is a lapse,
expiration or termination of any such options prior to issuance of the shares or
if shares are issued under such options and thereafter are reacquired by the
Company pursuant to rights reserved by the Company upon issuance thereof,
subject to any Securities and Exchange Commission rules regarding the
availability of such shares, if applicable.
5. Stock Options. Stock Options will consist of awards from
the Company, in the form of agreements, which will enable the holder to purchase
a specific number of shares of Common Stock, at set terms and at a fixed
purchase price, subject to adjustment as hereinafter provided. Stock Options may
be "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code ("Incentive Stock Options") or Stock Options which do not
constitute Incentive Stock Options ("Nonqualified Stock Options"). The Committee
will have the authority to grant to any participant one or more Incentive Stock
Options, Nonqualified Stock Options, or both types of Stock Options. Each Stock
Option shall be subject to such terms and conditions consistent with the Plan as
the Committee may impose from time to time, subject to the following
limitations:
a) Exercise Price. Each Stock Option granted
hereunder shall have such per-share exercise price as the Committee may
determine at the date of grant; provided, however, that the per-share exercise
price for Incentive Stock Options shall not be less than 100% of the Fair Market
Value of the Common Stock on the date the option is granted; and provided,
further, that the per-share exercise price for Nonqualified Stock Options shall
not be less than 85% of the Fair Market Value of the Common Stock on the date
the option is granted.
b) Payment of Exercise Price. The option exercise
price may be paid by check or, in the discretion of the Committee, by the
delivery of shares of Common Stock, or a combination thereof, or such other
consideration as the Committee may deem appropriate.
c) Exercise Period. Stock Options granted under the
Plan shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided, however, that no
Stock Options shall be exercisable earlier than six months after the date they
are granted. In addition, Stock Options shall not be exercisable later than ten
years after the date they are granted. All Stock Options shall terminate at such
earlier times and upon such conditions or circumstances as the Committee shall
in its discretion set forth in such Stock Option at the date of grant.
d) Limitations on Incentive Stock Options. Incentive
Stock Options may be granted only to participants who are employees of the
Company or one of its subsidiaries (within the meaning of Section 424(f) of the
Internal Revenue Code) at the date of grant. The aggregate Fair Market Value
(determined as of the time the option
2
<PAGE>
is granted) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by a participant during any calendar year
(under all option plans of the Company) shall not exceed $100,000.00. Incentive
Stock Options may not be granted to any participant who, at the time of grant,
owns stock possessing (after the application of the attribution rules of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company, unless the option price is fixed at not less
than 110% of the Fair Market Value of the Common Stock on the date of grant and
the exercise of such option is prohibited by its terms after the expiration of
five years from the date of grant of such option.
6. Adjustment Provisions.
a) If the Company shall at any time change the number
of issued shares of Common Stock without new consideration to the Company (such
as by stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the Common Stock), the total number of shares available for Stock
Options under this Plan shall be appropriately adjusted and the number of shares
covered by each outstanding Stock Option and the reference price shall be
adjusted so that the net value of such Stock Option shall not be changed.
(1) In the case of any sale of assets,
merger, consolidation, combination or other corporate reorganization or
restructuring of the Company with or into another corporation which results in
the outstanding Common Stock being converted into or exchanged for different
securities, cash or other property, or any combination thereof (an
"Acquisition"), subject to the provisions of this Plan and any limitation
applicable to the Stock Option, any participant to whom a Stock Option has been
granted shall have the right thereafter and during the term of the Stock Option,
to receive upon exercise thereof in whole or in part the Acquisition
Consideration (as defined below) receivable upon the Acquisition by a holder of
the number of shares of Common Stock which might have been obtained upon
exercise of the Stock Option or portion thereof, as the case may be, immediately
prior to the Acquisition.
The term "Acquisition Consideration" shall mean the kind and
amount of securities, cash or other property or any combination thereof
receivable in respect of one share of Common Stock upon consummation of an
Acquisition.
(b) Notwithstanding any other provision of this Plan,
the Committee may authorize the issuance, continuation or assumption of Stock
Options or provide for other equitable adjustments after changes in the Common
Stock resulting from any other merger, consolidation, sale of assets,
acquisition of property or stock, recapitalization reorganization or similar
occurrence upon such terms and conditions as it may deem equitable and
appropriate.
3
<PAGE>
7. Nontransferability.
a) Each Stock Option granted under the Plan to a
participant shall not be transferable and shall be exercisable, during the
participant's lifetime, only by the participant.
b) If the participant shall cease to be either a
director or a regular full-time employee of the Company or its subsidiaries for
any reason other than a termination for cause or a termination by reason of
death, any unexercised portion of said Stock Option shall terminate sixty (60)
days after the date of the termination of employment, or upon the expiration of
the Stock Option, whichever shall first occur.
c) If the event that the participant's employment is
terminated for cause, the unexercised portion of the Stock Option shall
terminate immediately upon the giving of the notice of such termination. For
purposes of this paragraph, "for cause" shall mean incompetence, gross
negligence, insubordination, conviction of a felony or willful misconduct by the
participant as determined in good faith by the Board of Directors of the
Company, the Committee or the Board of Directors of the subsidiary of the
Company by which the participant is employed. Nothing in this Plan or in any
Stock Option granted pursuant to this Plan shall confer on any participant the
right to continue in the employ of the Company or any of its subsidiaries, or
interfere in any way with the right of the Company or any of its subsidiaries to
terminate the participant's employment at any time.
d) In the event of the death of the participant, the
participant's estate shall have the privilege of exercising any Stock Options
not theretofore exercised by the participant, to the extent that the participant
was entitled to exercise such rights on the date of the participant's death; but
in such event, the period of time within which the purchase or exercise may be
made shall be the earlier of (a) 180 days next succeeding the death of the
participant or (b) the expiration of the term of the Stock Option.
8. Other Provisions. The award of any Stock Option under the
Plan may also be subject to such other provisions (whether or not applicable to
any Stock Option awarded to any other participant) as the Committee determines
appropriate, including without limitation, provisions for the installment
purchase of Common Stock under Stock Options, provisions to assist the
participant in financing the acquisition of Common Stock, provisions for the
forfeiture of, or restrictions on resale or other disposition of shares acquired
under any form of Stock Option, provisions for the acceleration of
exercisability or vesting of Stock Options in the event of a change of control
of the Company, provisions for the payment of the value of Stock Options to
participants in the event of a change of control of the Company, provisions for
the forfeiture of, or provisions to comply with federal and state securities
laws, or
4
<PAGE>
understandings or conditions as to the participant's employment in addition to
those specifically provided for under the Plan.
9. Fair Market Value. For purposes of this Plan and any Stock
Options awarded hereunder, "Fair Market Value" shall be the average of the
highest and lowest sale prices for the Company's Common Stock on the date of
calculation (or on the last preceding trading date if the Company's Common Stock
was not traded on the date of calculation) if the Company's Common Stock is
readily tradable on a national securities exchange or other market system, and
if the Company's Common Stock is not readily tradable, Fair Market Value shall
mean the amount determined in good faith by the Committee as the fair market
value of the Common Stock of the Company.
10. Withholding. All payments or distributions made pursuant
to the Plan shall be net of any amounts required to be withheld pursuant to
applicable federal, state and local tax withholding requirements. If the Company
proposes or is required to distribute Common Stock pursuant to the Plan, it may
require the recipient to remit to it an amount sufficient to satisfy such tax
withholding requirements prior to the delivery of any certificates for such
Common Stock. The Committee may, in its discretion and subject to such rules as
it may adopt, permit a participant to pay all or a portion of the federal, state
and local withholding taxes arising in connection with the exercise of a
Nonqualified Stock Option by election to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount to be withheld.
11. Tenure. A participant's right, if any, to continue to
serve the Company or a subsidiary of the Company as an officer, director,
employee, or otherwise, shall not be enlarged or otherwise affected by his
designation as a participant under the Plan.
12. Duration, Amendment and Termination. No Stock Option shall
be granted more than ten years after the date of the approval of the Plan by the
stockholders of the Company, provided, however, that the terms and conditions
applicable to any Stock Option granted prior to such date may thereafter be
amended or modified by mutual agreement between the Company and the participant
or such other persons as may then have an interest therein. Also, by mutual
agreement between the Company and a participant hereunder or under any other
present or future plan of the Company, Stock Options may be granted to such
participant in substitution and exchange for, and in cancellation of, any Stock
Options previously granted such participant under the Plan, or any other present
or future plan of the Company. The Board of Directors may amend the Plan from
time to time or terminate the Plan at any time. However, no action authorized by
this paragraph shall reduce the amount of any existing Stock Option or change
the terms and conditions thereof without the participant's consent. No amendment
of the Plan shall, without approval of the stockholders of the Company, (i)
materially increase the total number of shares which may be issued under the
Plan; (ii) materially increase the amount or type of Stock Options that may be
granted under the Plan; (iii) materially modify the requirements as to
eligibility for Stock Options under the
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Plan; (iv) result in any member of the Committee losing his or her status as a
disinterested person under Rule 16b-3 under the 1934 Act; or (vi) extend the
term of this Plan.
13. Governing Law. The Plan, Stock Options granted hereunder
and action taken in connection herewith shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
14. Government Regulations. The Plan and the grant and
exercise of Stock Options hereunder, and the obligation of the Company to sell
and deliver shares under such Benefits, shall be subject to all applicable laws,
rules and regulations, including without limitation all applicable federal and
state securities laws.
15. Stockholder Approval. The Plan was adopted by the Board of
Directors of the Company on May 25, 1995. The Plan and any Stock Options granted
thereunder shall be null and void if stockholder approval is not obtained within
twelve (12) months of the adoption of the Plan by the Board of Directors.
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