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EXHIBIT 10.10B
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PARTICIPATION AGREEMENT
Dated as of January 10, 1997
among
ASSET XI HOLDINGS COMPANY, L.L.C., as Lessor
EAGLE USA AIRFREIGHT, INC., as Lessee
and
BANK ONE, TEXAS, N.A., as Lender
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Lease Financing
for Eagle USA Airfreight, Inc.
Corporate Headquarters and Warehouse Facility
▇▇▇▇▇▇ County, Texas
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TABLE OF CONTENTS
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SECTION 1 DEFINITIONS; INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 ACQUISITION, CONSTRUCTION AND LEASE; LOAN;
NATURE OF TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease. . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2 Funding of Construction Costs; Loan and Contribution. . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.3 Nature of Transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.4 Amounts Due Hereunder and Under Lease and Loan Agreement. . . . . . . . . . . . . . . . . . . 4
SECTION 2.5 Controlling Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.6 Permitted Applications of Loan Advances and Contribution Advances. . . . . . . . . . . . . . 5
SECTION 2.7 Covenants Concerning the Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3 CONDITIONS PRECEDENT; DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.1 Conditions to the Obligations of the Lessor and the Lender on the Closing Date. . . . . . . . 8
SECTION 3.2 Conditions to Subsequent Fundings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.3 Completion Date Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.4 Conditions to the Obligations of the Lessee. . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.5 Appraisal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4 REPRESENTATIONS AND COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.1 Representations of the Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.2 Representations and Covenants of the Lessor. . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.3 Covenant of Lender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.4 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 5 COVENANTS OF THE LESSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.1 Qualification as to Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.2 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.3 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.4 Affirmative and Negative Covenants of Lessee. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6 TRANSFERS BY LESSOR AND LENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.1 Lessor Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.2 Lender Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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SECTION 7 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.1 General Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.2 Environmental Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 7.3 Proceedings in Respect of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 7.4 General Tax Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.5 Increased Costs, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7.6 End of Term Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 7.7 Exculpations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 7.8 Role of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.9 Lender's Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.10 Lessor's Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.1 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.4 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.5 Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.6 Parties in Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.8 No Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.9 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.11 Submission to Jurisdiction; Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.12 Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 8.13 Waiver of Consumer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
APPENDIX I Definitions and Interpretation
APPENDIX II Form of Request for Loan Advance
APPENDIX III Loan Payment Schedule
EXHIBIT A Form of Ground Lease
EXHIBIT B Form of Lease
EXHIBIT C Form of Loan Agreement
EXHIBIT D Form of Mortgage
EXHIBIT E Form of Assignment of Lease and Rents
EXHIBIT F Form of Non-Disturbance and Attornment Agreement
EXHIBIT G Form of Security Agreement and Assignment
EXHIBIT H Form of Opinion of Counsel to the Lessee
EXHIBIT I Form of Opinion of Counsel to the Lessor
EXHIBIT J Form of Architect's Certificate
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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of January 10, 1997, is among
ASSET XI HOLDINGS COMPANY, L.L.C., a Massachusetts limited liability company,
as Lessor, EAGLE USA AIRFREIGHT, INC., a Texas corporation, as Lessee, and BANK
ONE TEXAS, N.A., a national banking association, as Lender.
W I T N E S E T H:
WHEREAS, in accordance with the terms and provisions of this
Participation Agreement, the Ground Lease, Lease, the Loan Agreement, the Note
and the other Operative Documents, (i) the Lessor has acquired a leasehold
interest in the Land and has agreed to lease the Land to the Lessee, (ii) the
Lessee has agreed to construct the Improvements on the Land for the Lessor and
has agreed to lease the Improvements from the Lessor as part of the Leased
Property under the Lease, (iii) the Lessor and the Lessee wish to obtain, and
the Lender has agreed to provide, funding in the amount of up to $7,600,000 for
the acquisition of the Land and the development and construction of the
Improvements, and (iv) Lessor has agreed to make Contribution Advances from its
own equity resources in an aggregate sum not to exceed $400,000 to pay a
portion of the cost of acquisition of the Land and the development and
construction of the Improvements;
NOW, THEREFORE, in consideration of the mutual agreements contained in
this Participation Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1
DEFINITIONS; INTERPRETATION
Unless the context shall otherwise require, capitalized terms used and
not defined herein shall have the meanings assigned thereto in Appendix I
hereto for all purposes hereof and the rules of interpretation set forth in
Appendix I hereto shall apply to this Participation Agreement.
SECTION 2
ACQUISITION, CONSTRUCTION AND LEASE; LOAN;
NATURE OF TRANSACTION
SECTION 2.1 Agreement to Acquire, Construct, Fund and Lease.
(a) Land. Subject to the terms and conditions of this
Participation Agreement, on the Closing Date (i) the Lessor shall acquire the
leasehold interest in the Land created by the Ground Lease, (ii) the Lessor
shall sublease the Land to the Lessee pursuant to the Lease and (iii) the
Lessee shall lease the Land from the Lessor pursuant to the Lease.
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(b) Improvements. Subject to the terms and conditions of
this Participation Agreement and the other Operative Documents, (i) the Lessee
has agreed, pursuant to the terms of the Lease, to construct and install the
Improvements on the Land for the Lessor, (ii) the Lessor has agreed to obtain
funding for all or a portion of the Development Costs of the Leased Property,
(iii) the Lessor has agreed to lease the Improvements as part of the Leased
Property to the Lessee pursuant to the Lease and (iv) the Lessee has agreed to
lease the Improvements from the Lessor pursuant to the Lease.
SECTION 2.2 Funding of Construction Costs; Loan and Contribution.
(a) Subject to the terms and conditions of this
Participation Agreement and the Loan Agreement, the Lender has agreed to make
the Loan to the Lessor up to the amount of its Loan Commitment in order finance
Development Costs of the Leased Property. Subject to the terms and conditions
of this Participation Agreement, the Lessor has agreed to make available to the
Lessee Contribution Advances up to the amount of its Equity Commitment for the
payment of Development Costs from and after the Closing Date through the
Completion Date. As provided in subsection (b) below, (i) the Lender shall
from time to time, upon the receipt of a Funding Requisition from the Lessee,
make Loan Advances as requested in such Funding Requisition, and the Lessor
shall from time to time, make Contribution Advances as requested in such
Funding Requisition. Except as provided in subsection (c) of this Section,
Lessor, in turn, shall remit the proceeds of each Loan Advance and each
Contribution Advance to Lessee, and Lessee shall use the proceeds of each such
Loan Advance and each such Contribution Advance to pay, or reimburse itself for
paying, Development Costs, as provided in Section 2.6 hereof. Except as
provided in Sections 2.2 (c) and 2.2 (d), Lessor hereby directs the Lender to
make disbursements of each Loan Advance and each Contribution Advance directly
to the Lessee or as otherwise directed in the applicable Funding Requisition.
Lessor will only direct the Lender otherwise if an Event of Default has
occurred and is continuing. The Loan shall (i) be a term and construction loan
consisting of the aggregate total of the Loan Advances, (ii) be in an amount
not to exceed the Loan Commitment, (iii) bear interest as to each Loan Advance
from the date such Loan Advance was made in accordance with Section 2.4 of the
Loan Agreement, payable on each Loan Payment Date, (iv) bear interest as to
overdue amounts at the Overdue Rate, (v) be repayable as to principal as
provided in Appendix III to the Loan Agreement, commencing on the nineteenth
(19th) Loan Payment Date, with a final scheduled Loan Payment Date on the
Scheduled Termination Date, (vi) be evidenced by the Note and (vii) have the
other terms and conditions as provided in the Loan Agreement and the Note. The
Contribution shall (i) be in an amount not to exceed the Equity Commitment,
(ii) be repayable in full (subject to the provisions of Section 15.6 of the
Lease) on the Scheduled Termination Date, (iii) bear a pre-tax cumulative
return equal to the Contribution Return, and (iv) be subject to such other
terms and conditions as the Lessor and the Lessee shall agree. Under the
Lease, the Lessee agrees to pay the Facility Rent to Lessor in respect of the
Contribution Return on each Rent Payment Date after the Completion Date.
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(b) Within five (5) Business Days after the Closing Date,
and on any date thereafter to and including the third Business Day next
preceding the Completion Date, the Lessee, acting for itself and on behalf of
the Lessor, shall have the right to submit to the Lessor and the Lender a
Funding Requisition requesting Loan Advances and Contribution Advances. Each
such Funding Requisition shall be addressed jointly to the Lessor and the
Lender and be substantially in the form attached hereto as Appendix II. Each
Funding Requisition shall (i) request that the Lender and the Lessor make a
Loan Advance and a Contribution Advance (together, a "Funding"), as the case
may be, for Development Costs incurred and not previously reimbursed or paid,
(ii) specify the date not less than three Business Days later than the delivery
of the Funding Requisition on which the Funding is to be made (the "Funding
Date") (provided that if a Funding Requisition requests a Loan Advance for a
Base Rate Loan and the stated Funding Date therein is not a Loan Payment Date,
the Funding Date for the related Contribution Advance shall be deferred until
the next Loan Payment Date), (iii) specify the respective amounts of the Loan
Advance and Contribution Advance to be made with respect to such Funding, (iv)
be irrevocable, and (v) request a Funding of at least $100,000 or such lesser
amount as shall be equal to the difference between the Total Commitments and
the sum of the outstanding principal balance of the Note and the Contribution
(the "Remaining Commitments"). Each Funding Requisition shall constitute a
representation and warranty by the Lessee to the Lender and the Lessor that all
the conditions precedent to such Funding have been satisfied, including but not
limited to those contained in Section 3.2 hereof. Notwithstanding anything to
the contrary contained herein, the Funding Date with respect to any Funding
Requisition after the initial Funding shall be a Loan Payment Date, except that
a Funding Requisition which requests a Loan Advance for a Base Rate Loan may
request a Funding Date with respect to such Loan Advance on any Business Day.
The Lender and the Lessor hereby severally (but not jointly) promise and agree
that, to the extent of the Remaining Commitments, (i) upon the receipt by the
Lender of a properly completed Funding Requisition and so long as all
conditions precedent to the Lender's obligation to make Loan Advances shall
have been satisfied or waived by the Lender, the Lender shall, on the Funding
Date, make a Loan Advance in an amount equal to the product of the Funding
requested therein multiplied by the Lender Ratio in immediately available funds
(for the account of the Lessor) to the Lessee or to such other Person or
Persons as may be specified in such written Funding Requisition, and (ii) upon
the receipt by the Lessor of a properly completed Funding Requisition and so
long as all conditions precedent to the Lessor's obligation to make
Contribution Advances shall have been satisfied or waived by the Lessor, the
Lessor shall, on the Funding Date, make a Contribution Advance in an amount
equal to the product of the Funding requested therein, multiplied by the Equity
Ratio, plus any deferred and unfunded Contribution Advances related to a
Funding which included a Loan Advance for a Base Rate Loan borrowed since the
immediately preceding Loan Payment Date, all in immediately available funds to
Lessee or to such other Person or Persons as may be specified in the applicable
Funding Requisition.
(c) On each Loan Payment Date to and including the
Completion Date, the Lender, without the necessity or requirement of (i) the
submission of a Funding Requisition, (ii) satisfaction of the conditions
precedent set forth in Section 3.2 hereof, or (iii) any notice to or consent of
Lessor or Lessee, shall make a Loan Advance in an amount equal to the interest
due
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and payable to the Lender on the Note on such Loan Payment Date, and the
proceeds of such Loan Advance shall be retained by the Lender to pay all of the
interest then due and payable under the Note; provided, however, that the
Lender shall not be obligated to make a Loan Advance in respect of interest if
an Event of Default shall have occurred and is then continuing. The Lender
shall promptly notify the Lessee of the date and amount of each such Loan
Advance made in respect of this Section 2.2(c).
(d) On each Loan Payment Date to and including the
Completion Date, the Lessor, without the necessity or requirement of (i) the
submission of a Funding Requisition, (ii) satisfaction of the conditions
precedent set forth in Section 3.2 hereof, or (iii) any notice to or consent of
the Lessee, shall be deemed to have made a Contribution Advance in an amount
equal to the Contribution Return then accrued and unpaid with respect to the
Contribution, and the Contribution shall be increased by such amount as payment
of the Contribution Return then so accrued and unpaid. The Lessor shall
promptly notify the Lessee of the date and amount of each such Contribution
Advance deemed to have been made in respect of this Section 2.2(d).
(e) In no event shall the aggregate of all Loan Advances
in respect of the Loan at any time outstanding exceed the Loan Commitment, nor
shall the Contribution at any time outstanding exceed the Equity Commitment.
SECTION 2.3 Nature of Transaction. Notwithstanding the provisions of
Section 4.4 and Section 7.4 hereof, each party hereto acknowledges and agrees
that none of the Lessee, the Lender, the Lessor, the Financial Advisor nor any
other Person has made any representations or warranties to such party
concerning the tax, financial, accounting or legal characteristics or treatment
of the Operative Documents and that each party has obtained and relied solely
upon the advice of its own tax, accounting and legal advisors concerning the
Operative Documents and the accounting, tax, financial and legal consequences
of the transactions contemplated therein.
SECTION 2.4 Amounts Due Hereunder and Under Lease and Loan Agreement.
Anything else herein, in the Loan Agreement or elsewhere to the contrary
notwithstanding, it is the intention of the Lessee, the Lessor and the Lender
that (i) during the period from the Closing Date to the Completion Date,
payment of interest on the Loan on each Loan Payment Date shall be made from a
Loan Advance automatically made by the Lender, as provided in Section 2.2(c) of
this Participation Agreement, (ii) during the period from the Closing Date to
the Completion Date, payment of Contribution Return on the Contribution on each
Loan Payment Date shall be made from a Contribution Advance automatically
deemed to have been made by the Lessor, as provided in Section 2.2(d) of this
Participation Agreement, (iii) from and after the Completion Date, the Lessee
shall be obligated, pursuant to the terms of the Lease, to pay Basic Rent on
each Rent Payment Date in respect of principal and interest due on the Note and
the Contribution Return, (iv) if the Lessee elects the Purchase Option or
becomes obligated to purchase the Leased Property under the Lease, the sum of
(A) the principal amount of the Note, all interest thereon and Breakage Costs,
if any, with respect thereto and all other obligations of the Lessee owing to
the Lender under the Operative Documents plus (B) the
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outstanding Contribution, all accrued and unpaid Contribution Return prorated
to the date of payment, Lessor's Breakage Costs, if any, and all other
obligations of the Lessee owing to the Lessor under the Operative Documents,
shall be paid in full by the Lessee and (v) upon an Event of Default resulting
in an acceleration of the Lessee's obligation to purchase the Leased Property
under the Lease, the amounts then due and payable by the Lessee under the Lease
shall include the sum of (A) all amounts necessary to pay in full the Loan,
accrued interest and Breakage Costs, if any, and all other obligations of the
Lessee owing to the Lender under the Operative Documents plus (B) the
outstanding Contribution, all accrued and unpaid Contribution Return prorated
to the date of payment, Lessor's Breakage Costs, if any, and all other
obligations of the Lessee owing to the Lessor under the Operative Documents,
provided that (vi) in the event Lessee effectively exercises the Remarketing
Option pursuant to the provisions of Section 15.6 of the Lease and duly and
timely fulfills the provisions of clauses (i) through (xiii) of Section 15.6 of
the Lease, Lessee's obligations shall be limited as provided in Section 15.6 of
the Lease. The foregoing notwithstanding, the parties hereto acknowledge and
agree that the obligations of the Lessor (including its members, incorporators,
stockholders, directors, officers, employees and agents) hereunder, under the
Loan Agreement, the Lease and the other Operative Documents are non-recourse as
provided in Section 4.2 of the Loan Agreement and Section 18.12 of the Lease.
SECTION 2.5 Controlling Agreements. In the event of any conflict
between this Participation Agreement and any other Operative Document, this
Participation Agreement shall control. In the event of any conflict between
the Lease and any other Operative Document to which the Lessee is not a party,
the Lease shall control.
SECTION 2.6 Permitted Applications of Loan Advances and Contribution
Advances. The parties hereto agree that the Lessee may apply the proceeds of
Loan Advances and Contribution Advances made under the Loan Agreement for the
payment (or the reimbursement by the Lessee of itself for the payment) of any
or all of the following items (any combination or all of the items together,
the "Development Costs"): (i) costs of Construction of the Improvements,
including costs related to letters of credit, surety bonds, security deposits
or other security in connection with the Construction, the Construction
Contract, any municipal sewer or utility contract, any permit or consent for
any Governmental Authority or other Person, or any other obligation or
requirement relating to the Construction, (ii) capitalized interest on the Loan
and capitalized Contribution Return with respect to the Contribution (but only
to the extent and pursuant to the procedures set forth in Section 2.2(c) and
Section 2.2(d)) and (iii) "soft costs" related to the foregoing, including
architect's fees, engineering fees, permit and license fees and charges,
testing, survey costs, title charges and attorneys' fees and other related
costs and expenses properly attributable to any of the foregoing Development
Costs. The Lessee covenants not to use any Loan Advances or Contribution
Advances to pay, or reimburse itself for paying, for trade fixtures, personal
property or equipment which does not constitute part of the Improvements or to
use the proceeds of Loan Advances or Contribution Advances for working capital.
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SECTION 2.7 Covenants Concerning the Construction.
(a) Changes in Construction Documents. No change will be made in
the Plans and Specifications, the terms and conditions of the Construction
Contract, or the identity of the General Contractor without the prior written
consent of the Lender. The Lender's approval of the Plans and Specifications
shall be for lending purposes only and shall not constitute an assumption of
liability by the Lender with respect to the Lessee, General Contractor, or any
other present or future tenant, occupant or purchaser of the Leased Property.
(b) Conduct of the Construction. The Construction shall commence
within 30 days after the Closing Date. The Improvements shall be completed
prior to the Completion Deadline. In the event of a Construction Force Majeure
Event, the Completion Deadline shall be extended by a period of time equal to
the Construction Force Majeure Event, but in no event to a date later than
January 31, 1999. The Improvements will be constructed substantially in
accordance with the Plans and Specifications and in compliance with all
Applicable Laws. The Improvements will be located entirely upon the Land.
Title to the Leased Property will, during the Construction and on the
Completion Date, be free from all liens, claims, and encumbrances, except for
those created by or arising under the Operative Documents, taxes and
assessments which are a lien but not yet due and payable, liens that are bonded
off in accordance with Sections 53.171 et. seq. or Section 53.201 et. seq. of
the Texas Property Code, as amended, within 30 days of the filing of such lien,
and in any event prior to the commencement of an action to foreclose on such
lien, and any other liens or exceptions which are approved in writing by the
Lender.
(c) Inspections of Construction Records. During normal business
hours and at any time an Event of Default has occurred as is continuing, the
Lessee will make available for inspection by a duly authorized representative
of the Lender any of the Lessee's and General Contractor's books and records
insofar as they relate to the Leased Property at such times as requested by the
Lender when requested to do so and will furnish to the Lender any information
regarding its business affairs and its financial condition.
(d) Reimbursements. The Lessee will reimburse the Lender promptly
for all construction loan costs paid by the Lender in accordance with the
Operative Documents, including but not limited to the costs of title insurance
policies, title examinations, recording fees, surveys, fees of counsel for
services rendered and out-of-pocket expenses for which the Lender is entitled
to be reimbursed pursuant to the Operative Documents, all of which the Lender
is authorized to deduct from the proceeds of disbursements hereunder.
(e) Fixtures and Equipment. No personal property of any kind
intended to be part of the Improvements or paid for with the proceeds of
Advances will be purchased or acquired by the Lessee under any conditional
sales contract or security agreement or any lease agreement, and all such
personal property will be fully paid for before payment therefor becomes past
due or in any event within 30 days after delivery thereof; provided, however,
that the foregoing shall not apply to amounts withheld and unpaid on account of
bona fide disputes with the suppliers thereof.
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(f) Inspections of the Construction. The Lessee shall allow the
Lender and its agents, at all times during normal business hours and at any
time that an Event of Default has occurred and is continuing, (i) the right of
entry and free access to the site of the Improvements and the right to inspect
all work done, labor performed and materials furnished in and about the
Improvements; and (ii) to require to be replaced or otherwise corrected any
material or work that does not comply with the Plans and Specifications.
(g) Insurance Prior to the Completion Date. The Lessee shall
submit to the Lender for its review and approval evidence of builder's risk
insurance coverage or permanent insurance coverage appropriate and satisfactory
to the Lender, on the Leased Property. All insurance policies shall name the
Lessee and the Lender as an additional insured and shall be issued by carriers
with a Best's Insurance Reports policy holder's rating of A+ and a financial
size category acceptable to the Lender and shall include a standard mortgagee
clause (without contribution) in favor of and acceptable to the Lender. The
policies shall provide for the following coverages and any other coverages that
the Lender may from time to time reasonably require:
(1) Builder's "all risk" hazard coverage in the amount of the
replacement cost of the Improvements and all other
improvements and personality on the Leased Property. If the
policy is written on a coinsurance basis, the policy must
contain an agreed amount endorsement as evidence that the
coverage is in an amount sufficient to insure the full amount
of the Loan. Such insurance shall be 100% non-reporting
policies;
(2) Public liability insurance in such amounts (at least
$5,000,000 for personal injury, death or property damage
arising out of any one accident) and with a deductible
satisfactory to the Lender;
(3) Flood hazard coverage, if appropriate, in an amount acceptable
to the Lender and with a deductible acceptable to the Lender;
and
(4) Worker's compensation insurance (including employer's
liability insurance, if available and requested by the Lender)
for all employees, if any, of the Lessee and for all
employees, if any, of the Lessee's managing agent(s) and
contractor(s) engaged on or with respect to the Leased
Property or the Construction in such amounts as are
satisfactory to the Lender, or, if such limits are established
by law, in such amounts. The Lessee may satisfy the
requirements of this clause (4) with respect to employees of
the Lessee's agents and contractors through separate policies
provided by each agent or contractor.
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The initial policies shall be prepaid and the Lessee shall deliver to the
Lender and the Lessee prior to the Closing Date copies of all such policies,
together with original certificates therefor. Copies of all renewal policies
and original certificates therefor shall be deposited with the Lender as
evidence of such insurance. All policies shall contain provisions for thirty
days' written notice to the Lender prior to expiration or cancellation. The
Lessee expressly agrees to permit the Lender to maintain insurance in force by
payment of premiums from undisbursed Loan proceeds. The Lender hereby agrees
that the insurance coverages required to be obtained and maintained by the
Lessee hereunder may be obtained and maintained in the form of blanket
insurance policies, covering both the Leased Property and other properties and
projects owned by the Lessee. Written evidence satisfactory to the Lender of
the existence and coverage of such blanket policies shall be delivered to the
Lender prior to the Closing Date.
(h) Notice of Default. The Lessee shall notify the Lender in
writing within three days of the occurrence thereof of any Default or Event of
Default.
(i) Compliance with Texas Property Code. The Lessee shall fully
comply with Sections 53.101, 53.106 and 53.124(c) of the Texas Property Code.
(j) Construction Bank Account. The Lessee may, at its option,
maintain with the Lender a commercial operating account. All Loan Advances
made by the Lender and all Contribution Advances issued by the Lender on behalf
of the Lessor may be made by depositing the amount thereof directly into such
operating account.
(k) Limitation on Location of Improvements. No portion of the
Improvements shall be constructed in or on that portion of the Land lying
within Block 3, Unrestricted Reserve "F", World/Houston International Business
Center, Section One, a subdivision in ▇▇▇▇▇▇ County, Texas, according to the
map or plat thereof recorded in Volume 278, Page 25 of the ▇▇▇▇▇▇ County Map
records, being an area approximately 537.04 feet in length and 8.03 feet in
width, the southern boundary of which is the southern boundary of said Block 3,
Unrestricted Reserve "F", World/Houston International Business Center, and the
northern boundary of which is a portion of the northern boundary of the Land.
SECTION 3
CONDITIONS PRECEDENT; DOCUMENTS
SECTION 3.1 Conditions to the Obligations of the Lessor and the
Lender on the Closing Date. The obligations of the Lessor and the Lender to
carry out their respective obligations under Section 2 of this Participation
Agreement to be performed on the Closing Date shall be subject to the
fulfillment to the satisfaction of, or waiver by, each such party (acting
directly or through its counsel) on or prior to the Closing Date of the
following conditions precedent:
(a) Documents. The following documents shall have been
executed and delivered by the respective parties thereto:
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(i) Participation Agreement. Counterparts of
this Participation Agreement, duly executed by the parties
hereto, shall have been delivered to each of the parties
hereto.
(ii) Ground Lease. Counterparts of the Ground
Lease (substantially in the form of Exhibit A), duly executed
by the Lessor and the Ground Lessor, shall have been delivered
to the Lessor, together with a memorandum thereof in
recordable form;
(iii) Lease. The original of the Lease
(substantially in the form of Exhibit B), together with the
Memorandum of Lease, each duly executed by the Lessee and the
Lessor, provided that the Memorandum of Lease shall be
executed in recordable form, shall have been delivered to the
Lender.
(iv) Loan Agreement, Deed of Trust, Assignment of
Lease and Rents, Note, Non-Disturbance and Attornment
Agreement. Counterparts of the Loan Agreement (substantially
in the form of Exhibit C), duly executed by the Lessor and the
Lender, shall have been delivered to each of the Lessor and
the Lender; counterparts of the Deed of Trust (substantially
in the form of Exhibit D), duly executed by the Lessee and in
recordable form, shall have been delivered to each of the
Lessor and the Lender; the Assignment of Lease and Rents
(substantially in the form of Exhibit E), duly executed by the
Lessor, consented to by the Lessee and in recordable form,
shall have been delivered to the Lender; the Note
(substantially in the form attached as an exhibit to the Loan
Agreement) payable to the order of the Lender, duly executed
by the Lessor, shall have been delivered to the Lender and the
Non-Disturbance and Attornment Agreement (substantially in the
form of Exhibit F) duly executed by the Lessee, Lessor and
Lender and in recordable form shall have been delivered to the
Lender, the Lessor and the Lessee.
(v) Title and Title Insurance. The Lessor and
the Lender shall receive from the Title Insurance Company,
respectively, a Texas form of Leasehold Owner's Policy in the
amount of the Estimated Development Costs (the "Owner's Title
Policy") and a Texas form of Leasehold Loan Policy of title
insurance in the amount of the Loan Commitment (the "Lender's
Title Policy"), each issued by the Title Insurance Company, in
each case, each acceptable in form and substance to Lessee and
the Lender (the Owner's Title Policy and the Lender's Title
Policy, collectively the "Title Policies"). The Title
Policies (A) shall be dated as of the Closing Date, (B) to the
extent permitted under Applicable Law, shall include coverage
over the general exceptions to such Title Policy and shall
contain such affirmative endorsements as to easements and
rights-of-way, encroachments, the nonviolation of covenants
and restrictions, survey matters and other matters as the
Lender and the Lessor shall reasonably request and (C) shall
not contain a "pending disbursements" exception except as to
mechanics' lien claims and except
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as to limiting coverage to the amount of Loan Advances
actually disbursed from time to time.
(vi) Security Agreement and Assignment. The
Security Agreement and Assignment (substantially in the form
of Exhibit G), duly executed by the Lessee, with an
acknowledgement and consent thereto satisfactory to the Lessor
and the Lender duly executed by the General Contractor and
complete copy of the Construction Contract certified by the
Lessee shall have been delivered to the Lender.
(vii) Survey. The Lessee shall have delivered, or
shall have caused to be delivered, to the Lessor and the
Lender, at the Lessee's expense, an accurate survey of the
Leased Property certified to the Lessor and the Lender in a
form satisfactory to the Lessor and the Lender and showing no
state of facts unsatisfactory to the Lessor or the Lender and
prepared within sixty (60) days of the Closing Date by a
licensed surveyor selected by Lessee and reasonably
satisfactory to Lender. Such survey shall (A) be acceptable
to the Title Insurance Company, (B) show no encroachments on
the Land by structures owned by others, and no encroachments
from any part of the Leased Property onto any land owned by
others, except for such encroachments which, in the judgment
of the Lender and its counsel, do not impair in any material
respect the value of the Leased Property or the suitability of
the Leased Property for its intended use, and (C) disclose no
state of facts objectionable to the Lessor, the Lender or the
Title Insurance Company.
(viii) Evidence of Insurance. The Lessor and the
Lender have received from the Lessee certificates of insurance
evidencing compliance with the provisions of both Section 2.7
hereof and Article IX of the Lease (including the naming of
the Lessor and/or the Lender as additional insured or loss
payees with respect to such insurance), in form and substance
reasonably satisfactory to the Lessor and the Lender.
(ix) Lessee's Resolutions and Incumbency
Certificate, Etc. Each of the Lender and the Lessor shall
have received (A) a certificate of the Secretary or an
Assistant Secretary of the Lessee attaching and certifying as
to (1) the resolution of the Lessee's Board of Directors (or
an appropriate committee of such Board) duly authorizing the
execution, delivery and performance by the Lessee of each
Operative Document to which the Lessee is or will be a party,
(2) the incumbency and signatures of Persons authorized to
execute and deliver Operative Documents on the Lessee's
behalf, (3) the Lessee's certificate of incorporation,
certified as of a recent date by the Secretary of State of the
state of the Lessee's incorporation and (4) the Lessee's
by-laws and (B) a good standing certificate for the Lessee
from the appropriate officer of the State of Texas.
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(x) Recording Fees; Transfer Taxes. To the
extent not covered by the Lender's Title Policy, the Lender
shall have received satisfactory evidence of the payment by
the Lessee of all recording and filing fees and taxes with
respect to any recordings or filings made of the Memorandum of
Lease, the Mortgage, the Assignment of Lease and Rents and the
Subordination and Nondisturbance Agreement.
(xi) Opinion of Lessee's Counsel. The opinion of
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Lessee's general counsel, dated the
Closing Date, and being substantially in the form set forth in
Exhibit H and containing such other matters as the parties to
whom such opinion is addressed shall reasonably request, shall
have been delivered and addressed to each of the Lessor and
the Lender.
(xii) Lessor's Resolution and Incumbency
Certificate. The Lender shall have received a certificate of
the managing member of the Lessor attaching and certifying as
to (A) the managing member's resolution authorizing the
execution, delivery and performance by it of each Operative
Document to which the Lessor is or will be a party and (B) the
incumbency and signatures of Person(s) authorized to execute
and deliver such documents on the Lessor's behalf.
(xiii) Opinion of Lessor's Counsel. The Opinion of
Ropes and ▇▇▇▇, Boston, Massachusetts dated the Closing Date,
substantially is the form of Exhibit I shall have been
delivered and addressed to each of the Lessee and the Lender.
(xiv) Soil Analysis and Environmental Report. The
Lender and the Lessor shall have received and approved (i)
soil analysis report relating to the Leased Property in form
and content satisfactory to the Lender and (ii) an
environmental report which shall certify results related to
toxic and other hazardous substances on the Leased Property.
(xv) Plans and Specifications. Copies of the
Plans and Specifications.
(xvi) Architect Certificate. An certification from
the Architect, substantially is the form of Exhibit J shall
have been delivered to each of the Lessor and the Lender.
(xvii) Utilities. Evidence that all utility
services necessary for construction and use of the
Improvements (including without limitation, electric, gas,
telephone, water and sewer service) are available to the
Leased Property, and the Lessee has the right to connect to
and use all utility services without restriction; and that all
necessary easements to provide such utility services to the
Improvements have been obtained.
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(xviii) Zoning. Evidence of compliance with
applicable zoning ordinances or similar land use restrictions.
(xix) Governmental Authorizations. All
authorizations, if any, required by an governmental authority
for the operation of the Leased Property for the purposes
contemplated by the Plans and Specifications, which are
presently procurable.
(xx) Waiver of Option. An original instrument, in
a form satisfactory to the Lender, executed by Ithaca
Investments, Ltd., a Texas limited liability partnership (the
"Developer"), in recordable form, shall have been delivered to
the Lender waiving the Developer's option to repurchase the
Land created in that certain Declaration of Covenants,
Conditions and Restrictions dated October 5, 1993, recorded in
the Real Property Records of ▇▇▇▇▇▇ County, Texas under File
Number P500092.
(b) Litigation. No action or proceeding shall have been
instituted or, to the Lessee's knowledge, threatened nor shall any governmental
action, suit, proceeding or investigation be instituted or, to the Lessee's
knowledge, threatened before any Governmental Authority, nor shall any order,
judgment or decree have been issued or proposed to be issued by any
Governmental Authority, to set aside, restrain, enjoin or prevent the
performance of this Participation Agreement or any of the other Operative
Documents or any transaction contemplated hereby or thereby or which would
materially adversely affect the Leased Property or any transaction contemplated
by the Operative Documents or which would result in a Material Adverse Effect.
(c) Legality. In the opinion of the Lender, the Lessor
or their respective counsel, the transactions contemplated by the Operative
Documents shall not violate any Applicable Law, and no change shall have
occurred or been proposed in Applicable Law that would make it illegal for the
Lender or the Lessor to participate in any of the transactions contemplated by
the Operative Documents.
(d) No Events. (i) No Default, Event of Default, Event
of Loss or Event of Taking shall have occurred and be continuing and (ii) no
action shall be pending or, to the Lessee's knowledge, threatened by a
Governmental Authority to initiate a Condemnation or an Event of Taking.
(e) Representations. Each representation and warranty of
the parties hereto or to any other Operative Document contained herein or in
any other Operative Document shall be true and correct in all material respects
as though made on and as of the Closing Date.
(f) No Material Adverse Effect. There shall not have
occurred any event having a Material Adverse Effect since June 30, 1996.
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(g) Fees and Transaction Expenses. The Lessee shall have
paid (i) the remaining $100,000 of the fee owed to the Financial Advisor and
(ii) the reasonable fees and expenses of the Lessor, the Lender and their
respective counsel.
SECTION 3.2 Conditions to Subsequent Fundings. Notwithstanding
anything to the contrary contained herein, or in any other Operative Document,
neither the Lender nor the Lessor shall have any obligation to make any Loan
Advance or Contribution Advance, as the case may be, pursuant to the initial or
any subsequent Funding Requisition, unless each of the following conditions
shall have been satisfied or waived by the Lender with respect to such Funding:
(a) Deliveries. On or prior to each Funding
subsequent to the Initial Loan Advance, the Lessee shall deliver, or cause to
be delivered, the following:
(i) Plans and Specifications. Detailed
architectural, structural, mechanical, and electrical Plans and Specifications
for the Improvements, to the extent not already delivered, to the Lender,
provided, however, that no Advance shall be required to be made for any portion
of Construction of the Improvements until the Plans and Specifications for such
portion of the Improvements shall have been delivered to and approved by the
Lender;
(ii) Title Policy Endorsement. An endorsement to
the Title Policies (A) indicating that since the last Funding Date there has
been no change in the state of title and no survey exceptions not theretofore
approved by the Lessor and the Lender and (B) increasing the coverage of the
Title Policies by an amount equal to the Funding then being made so that the
total amount insured equals, in the case of the Lender's Title Policy, the
total amount of Loan Advances disbursed by the Lender, and in the case of
Lessor's Title Policy, a like amount plus in addition, the amount of the
Contribution, and, in each case, changing the effective date of the Title
Policies to the Funding Date. At the Lender's discretion, any Funding may be
made through the Title Insurance Company. Prior to each Funding Date, the
Lessee shall furnish the Title Insurance Company with lien waivers as required
by the Title Insurance Company through the time of the Funding. No title
indemnities for purposes of insuring around any objection to or condition of
title shall be issued or provided by the Lessee or the Lessor to the Title
Insurance Company without the prior written consent of the Lender;
(iii) Engineer's Certificate. If applicable, a
certification from the Architect or from an engineer approved by the Lender
that the Improvements have been or are being erected within the property
boundaries of the Land and in accordance with all applicable set back
requirements and the approved site plan;
(iv) Improvements Permit. All building permits or
other authorizations required by any Governmental Authority for the
Construction to the extent not previously obtained;
(v) [reserved]
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(b) No Events. (i) No Default, Event of Default, Event
of Loss or Event of Taking shall have occurred and be continuing and (ii) no
action shall be pending or threatened by a Governmental Authority to initiate a
Condemnation or an Event of Taking;
(c) Requisition. Together with the Funding Requisition,
the Lessee shall submit to the Lender a requisition using AIA Form G702 and 703
accompanied by a cost breakdown, the accuracy of which shall be certified by
the Lessee, the Architect and the General Contractor, and such other
information and documentation required hereunder. The Approved Budget shall
serve as the disbursement control for each line item. Neither the Lender nor
the Lessor shall be required to make a Funding for any line item in excess of
the amount shown in the Approved Budget for such line item; provided, however,
that the Lender shall not unreasonably withhold its consent to a reallocation
of amounts within line items in the Approved Budget (other than the line item
for interest reserve) as long as the total cost of the Construction does not
increase;
(d) Timing. Fundings Requisitions after the Initial
Funding shall not be made more often than once a month and the total amount of
all Fundings shall not at any time exceed an amount equal to the sum of the
hard costs of the work completed to date as certified by the Architect on the
aforesaid AIA draw request forms and the soft costs incurred. The Lender
reserves the right to review and approve invoices for all hard and soft costs.
Prior to each Advance, the Lender or its agents may inspect the Leased Property
to verify that the related Funding Requisition accurately reflects the amount
of the Construction with respect thereto;
(e) Loan Out of Balance. If, in the sole judgment of the
Lender, and determined at any time while the Loan is outstanding, the cost of
the Construction increases, the Lessee shall be required to invest the
increased amount in the Construction or deposit such increased amount with the
Lender in an account pledged to the Lessor as security for the Lease and other
Operative Documents in a manner reasonably satisfactory to the Lender or to
provide the Lender such other assurances as to the availability of the funds as
subject to the Lender's approval prior to any Loan Advance;
(f) Completion Deadline. If at any time the Lender
shall, in its sole judgment, estimate and give notice to the Lessee that
substantial completion of the Construction will not occur on or before the
Completion Deadline, then neither the Lender nor the Lessor shall have any
obligation to make further Advances until such time as the Lessee shall have
delivered to the Lender evidence satisfactory to Lender that substantial
completion of the Improvements will occur on or before the Completion Deadline;
(g) Approval of Contracts. Neither the Lender nor the
Lessor shall have any obligation to make any Advances for any Development Costs
due from the Lessee under a contract or subcontract for the Construction if
such contract or subcontract is required to be, but has not been, approved by
the Lender and such approval by the Lender has not been unreasonably withheld
or delayed. Although the Lessee shall not be required to provide to the Lender
the subcontracts for the Construction as a condition precedent to making the
Initial
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Funding, the Lender reserves the right, upon written notice to the Lessee, to
require the Lessee to provide such subcontracts for subsequent Advances;
(h) Compliance with Plans and Specifications. If the
Lender or the Lessor should at any time determine that any part of the work
performed on, or materials incorporated into, the Improvements does not comply
in any material respect with the Plans and Specifications, whether or not the
Development Cost of any such work or materials shall have been included in a
Funding Requisition theretofore made, then neither the Lender nor the Lessor
shall have any obligation to make any further Advances until such work is
corrected, or material is changed, to comply with the Plans and Specifications
and the Lender and the Lessor have received satisfactory evidence to them of
such change and compliance, and Lender and the Lessor shall respectively have
the right to offset against the amount of any subsequent Advance the cost of
the nonconforming work or materials included in prior Fundings.
Notwithstanding the foregoing, the Lender and the Lessor shall continue to make
Advances for other work and materials if, prior to the determination by the
Lender or the Lessor of such nonconformance, the Lessee and/or the Architect
have previously made a similar determination, and the Lessee has delivered to
the Lender and the Lessor evidence reasonably satisfactory to the Lender and
the Lessor that the General Contractor has agreed to correct such work or to
change such materials without requesting an Advance for the cost thereof, and
the General Contractor diligently pursues such work and changes to completion
within 90 days after the determination of the need for corrective action;
(i) Defects in Construction. If the Lender or the Lessor
should at any time reasonably determine that any part of the work performed on
the Improvements has not been performed in a good and workmanlike manner,
whether or not the Development Cost of any such work shall have been included
in a Funding Requisition theretofore made, neither the Lender nor the Lessor
shall have any obligation to make any further Advances until such work is
corrected so as to have been performed in a good and workmanlike manner and the
Lender and the Lessor have received satisfactory evidence of such correction,
and Lender and the Lessor shall have the right to offset against the amount of
any subsequent Advances by the cost of the nonconforming work or materials
included in prior Fundings. Notwithstanding the foregoing, the Lender and the
Lessor shall continue to make Advances for other work and materials if, prior
to the determination by the Lender or the Lessor of such nonconformance, the
Lessee and/or the Architect have previously made a similar determination, and
the Lessee has delivered to the Lender and the Lessor evidence reasonably
satisfactory to the Lender and the Lessor that the General Contractor has
agreed to correct such work or to change such materials without requesting an
Advance for the cost thereof, and the General Contractor diligently pursues
such work and changes to completion within 90 days after the determination of
the need for corrective action; and
(j) Compliance with Codes. If the Lender or the Lessor
should at any time determine that any part of the work performed on, or
materials incorporated into, the Improvements does not comply with all
applicable building codes or other Applicable Law, whether or not the
Development Cost of any such work or materials shall have been included
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in a Funding Requisition theretofore made, then neither the Lender nor the
Lessor shall have any obligation to make any further Advances until such work
is corrected, or material is changed, to cause the same to comply with all
applicable building codes or other Applicable Law and the Lender and the Lessor
have received satisfactory evidence of such correction or change and of such
compliance, and the Lender and the Lessor shall have the right to offset
against the amount of any subsequent Advances for other work and materials by
the cost of the nonconforming work as materials included in prior Fundings.
Notwithstanding the foregoing, the Lender and the Lessor shall continue to make
Advances for other work and materials if, prior to the determination by the
Lender or the Lessor of such nonconformance, the Lessee and/or the Architect
have previously made a similar determination, and the Lessee has delivered to
the Lender and the Lessor evidence reasonably satisfactory to the Lender and
the Lessor that the General Contractor has agreed to correct such work or to
change such materials without requesting an Advance for the cost thereof, and
the General Contractor diligently pursues such work and changes to completion
within 90 days after the determination of the need for corrective action.
SECTION 3.3 Completion Date Conditions. The occurrence of the
Completion Date shall be subject to the fulfillment or satisfaction of, or
waiver by, each party hereto (acting directly or through its counsel) of the
following conditions precedent:
(a) Title Policy Endorsements. The Lessee shall have
furnished to the Lender the following endorsements to its Title Policy (each of
which shall be subject to no exceptions other than those set forth in Schedule
B to its Title Policy): (i) a date-down endorsement (redating and confirming
the coverage provided under the Title Policy and each endorsement thereto) and
(ii) a comprehensive endorsement, in each case, effective as of a date not
earlier than the date of completion of the Construction.
(b) Construction Complete. The Construction shall have
been completed substantially in accordance with the Plans and Specifications
and all Applicable Laws, and the Improvements are ready for occupancy and
operation in the ordinary course of Lessee's business. All fixtures,
equipment, materials and other property contemplated under the Plans and
Specifications to be incorporated or installed in the Leased Property shall
have been incorporated or installed free and clear of all liens except for
Permitted Liens.
(c) Lessee Certification. The Lessee shall have
furnished the Lessor and the Lender with both (i) a certification of the Lessee
that:
(A) all amounts owing to third parties for the
Construction have been paid in full (other than contingent
obligations for which the Lessee has made adequate reserves or
claims being defended in good faith), and to Lessee's
knowledge no litigation or proceedings are pending, or to the
best of the Lessee's knowledge are threatened, against the
Leased Property or the Lessee which would materially adversely
affect (1) the enforceability or priority of this
Participation Agreement or the other Operative Documents and
(2) the ability of the Lessee to
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fully perform its obligations pursuant to and as contemplated
by the terms and provisions of this Participation Agreement
and the other Operative Documents;
(B) all consents, licenses and permits and other
governmental authorizations or approvals required for the
Construction and operation of the Leased Property have been
obtained;
(C) the Leased Property has available all
services of public facilities and other utilities necessary
for use and operation of the Leased Property for its intended
purposes including, without limitation, adequate water, gas
and electrical supply, storm and sanitary sewerage facilities,
telephone and other required public utilities and means of
access between the Improvements and public highways for
pedestrians and motor vehicles;
(D) all agreements, easements and other rights,
public or private, which are necessary to permit the lawful
use and operation of the Leased Property as the Lessee intends
to use the Leased Property under the Lease and which are
necessary to permit the lawful intended use and operation of
all then intended utilities, driveways, roads and other means
of egress and ingress to and from the same have been obtained
and are in full force and effect and the Lessee has no
knowledge of any pending modification or cancellation of any
of the same, and the use of the Leased Property does not
depend on any variance, special exception or other municipal
approval, permit or consent that has not been obtained for its
continuing legal use;
(E) the Construction has been completed
substantially in accordance with the Plans and Specifications
and all Applicable Laws and the Leased Property is ready for
occupancy and operation; and
(F) the Leased Property is in compliance with all
applicable zoning laws and regulations; and
(ii) copies of (A) all final lien waivers regarding the Construction,
together with sworn statements from contractors, subcontractors and material
suppliers and (B) true and complete copies of an "as built" or "record" set of
the Plans and Specifications, and a plat of survey of the Leased Property "as
built" showing all paving, driveways, fences and exterior improvements and
copies of all licenses and permits required by any Governmental Authority
having jurisdiction over the use and occupancy of the Leased Property and for
the operation thereof, including copies of a certificate or certificates of
occupancy for the Leased Property or other legally equivalent permission to
occupy the Leased Property from the Governmental Authority having jurisdiction.
(d) Cutoff Date. The Completion Date shall occur on or prior to
the Completion Deadline.
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SECTION 3.4 Conditions to the Obligations of the Lessee. The
obligations of the Lessee to lease from the Lessor and construct the Leased
Property are subject to the fulfillment on the Closing Date to the satisfaction
of, or waiver by the Lessee of, the following conditions precedent:
(a) General Conditions. The conditions set forth in
Sections 3.1 that require fulfillment by the Lessor and the Lender shall have
been satisfied.
(b) Legality; Desired Accounting Treatment. In the
opinion of the Lessee or its counsel, the transactions contemplated by the
Operative Documents shall not violate any Applicable Law, and no change shall
have occurred, or, with respect to tax laws, shall have been proposed, in
Applicable Law that would make it illegal for the Lessee to participate in any
of the transactions contemplated by the Operative Documents. In addition, the
Lessee shall have no obligation to proceed with the actions contemplated on its
part on the Closing Date if, on or prior to the Closing Date, the Lessee shall
have been advised in writing by its accountants that the Lease will not
constitute an operating lease for purposes of the Lessee's financial reporting.
SECTION 3.5 Appraisal. Lessee agrees to supply the Lender, within
60 days of the Completion Date, with an appraisal report for the Land and the
Improvement, which appraisal report shall be prepared by an independent
appraising firm, and be in form and substance, reasonably acceptable to the
Lender. In the event that the appraised Fair Market Sales Value of the Land
and the Improvement is less than the amount of the Loan Advances and the
Contribution Advances previously made (or deemed made), Lessee agrees to
promptly pay to the Lender an amount equal to the amount by which such Loan
Advances exceed the aforesaid appraised value, which amount shall be applied in
accordance with Section 3 of the Loan Agreement. Any such payment of a portion
of the Loan under the circumstances described in this Section 3.5 shall be
without any premium or penalty to Lessee, but Lessee shall pay Supplemental
Rent in an amount of the Breakage Costs, if any.
SECTION 4
REPRESENTATIONS AND COVENANTS
SECTION 4.1 Representations of the Lessee. Effective as of the date
of execution hereof and as of the Closing Date, the Lessee represents and
warrants to each of the other parties hereto as follows:
(a) Organization; Corporate Powers. The Lessee (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Texas, (ii) is duly qualified as a foreign corporation and
in good standing under the laws of each other jurisdiction where such
qualification is required and where the failure to be duly qualified and in
good standing would have a Material Adverse Effect and (iii) has all requisite
corporate power and authority to own, operate and encumber its property and
assets and to conduct its business as presently conducted and as proposed to be
conducted in connection with and following the consummation of the transactions
contemplated by the Operative Documents.
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(b) Authority. The Lessee has the requisite corporate
power and authority to execute, deliver and perform the Operative Documents
executed or to be executed by it. The execution, delivery and performance (or
recording or filing, as the case may be) of the Operative Documents, and the
consummation of the transactions contemplated on the part of the Lessee
thereby, have been duly approved by the Board of Directors of the Lessee and no
other corporate proceedings on the part of the Lessee are necessary to
consummate the transactions so contemplated.
(c) Due Execution and Delivery of Operative Documents.
The Operative Documents executed by the Lessee have been duly executed and
delivered (or recorded or filed, as the case may be) by the Lessee, and, in
each case, constitute its legal, valid and binding obligation, enforceable
against it in accordance with each such Operative Document of its respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or limiting creditors'
rights generally or by equitable principles generally.
(d) No Conflict. The execution, delivery and performance
of each Operative Document to which it is a party by the Lessee and each of the
transactions contemplated thereby do not and will not (i) violate any
Applicable Law or Contractual Obligation of the Lessee the consequences of
which violation, singly or in the aggregate, would have a Material Adverse
Effect, (ii) result in or require the creation or imposition of any Lien
whatsoever on the Leased Property (other than Permitted Liens) or (iii) require
any approval of stockholders which has not been obtained.
(e) Governmental Consents. Except as have been made,
obtained or given, no filing or registration with, consent or approval of,
notice to, with or by any Governmental Authority is required to authorize, or
is required in connection with, the execution, delivery and performance by the
Lessee of the Operative Documents, the use of the proceeds of the Loans made to
effect the acquisition of the leasehold interest in the Land and the
Construction of the Improvements, or the legality, validity, binding effect or
enforceability of any Operative Document.
(f) Governmental Regulation. The Lessee is not an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
(g) Requirements of Law. The Lessee is in compliance
with all Requirements of Law applicable to Lessee and its business, in each
case where the failure to so comply would have a Material Adverse Effect,
either individually or together with other such cases.
(h) Rights in Respect of the Leased Property. The Lessee
is not a party to any contract or agreement to sell any interest in the Leased
Property or any part thereof other than pursuant to the Participation
Agreement, the Ground Lease and the Lease.
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(i) Hazardous Materials.
(i) Except in full compliance with all Applicable
Law there are no Hazardous Materials present at, upon, under or within the
Leased Property or released or transported to or from the Leased Property.
(ii) No Governmental Actions have been taken, or
are in process or have been threatened, which could reasonably be expected to
subject the Leased Property, the Lender or the Lessor to any Claims or Liens
under any Environmental Law which would have a materially adverse effect on the
Lessor, the Lender or the Leased Property.
(iii) The Lessee has all Environmental Permits
necessary to operate the Leased Property in accordance with Environmental Laws
and is complying with and has at all times complied with all such Environmental
Permits.
(iv) With respect to the Leased Property, no
notice, notification, demand, request for information, citations, summons,
complaint or order has been issued or filed to or with respect to the Lessee,
and no penalty has been assessed on the Lessee and no investigation or review
is pending or threatened by any Governmental Authority or other Person with
respect to any alleged violation or liability of the Lessee under any
Environmental Law. No material notice, notification, demand, request for
information, citation, summons, complaint or order has been issued or filed to
or with respect to any other Person, no material penalty has been assessed on
any other Person and no investigation or review is pending or threatened by any
Governmental Authority or other Person relating to the Leased Property with
respect to any alleged material violation or liability under any Environmental
Law by any other Person.
(v) The Leased Property and each portion thereof
are presently in compliance with all Environmental Laws, and there are no
present or past facts, circumstances, activities, events, conditions or
occurrences regarding the Leased Property (including, without limitation, the
release or presence of Hazardous Materials) that could reasonably be
anticipated to (A) form the basis of a Claim against the Leased Property, the
Lender, the Lender or the Lessee, (B) cause the Leased Property to be subject
to any restrictions on ownership, occupancy, use or transferability under any
Environmental Law, (C) require the filing or recording of any notice or
restriction relating to the presence of Hazardous Materials in the real estate
records in the county or other appropriate municipality in which the Leased
Property is located or (D) prevent or interfere with the continued operation
and maintenance of the Leased Property as contemplated by the Operative
Documents.
(j) Leased Property. The present condition and use of
the Leased Property conforms with all conditions or requirements of all
existing permits and approvals issued with respect to the Leased Property, and
the present use of the Leased Property and the Lessee's future intended use of
the Leased Property under the Lease does not violate any Applicable Law. No
notices, complaints or orders of violation or non-compliance have been issued
or threatened or contemplated by any Governmental Authority with respect to the
Leased Property or any
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present or intended future use thereof. All agreements, easements and other
rights, public or private, which are necessary to permit the lawful use and
operation of the Leased Property as the Lessee intends to use the Leased
Property under the Lease and which are necessary to permit the lawful intended
use and operation of all presently intended utilities, driveways, roads and
other means of egress and ingress to and from the same have been, or in the
reasonable judgment of the Lessee will be, obtained and are in full force and
effect and the Lessee has no actual knowledge of any pending modification or
cancellation of any of the same.
(k) Qualification of Lessee Representations. The
representations of the Lessee set forth in this Section are qualified by the
conditions that (i) all representations are made and given to the best of the
Lessee's knowledge after due inquiry, (ii) where a representation involves
compliance by the Lessee with an Applicable Law or an Environmental Law such
representation is deemed to be compliance by the Lessee in all material
respects with any such law and (iii) where a representation involves conduct on
the part of the Lessee that does not violate an Applicable Law or an
Environmental Law such representation is deemed to exclude Lessee's
non-material violations of any such law.
SECTION 4.2 Representations and Covenants of the Lessor. Effective
as of the date of execution hereof and as of the Closing Date, the Lessor
represents and warrants to the Lender and the Lessee as follows:
(a) Due Organization; Limited Purpose. The Lessor is a
limited liability company duly organized and validly existing in good standing
under the laws of the State of Massachusetts; is duly qualified as a foreign
limited liability company and in good standing under the laws of the State of
Texas; and has full power, authority and legal right as a limited liability
company to execute, deliver and perform its obligations under this
Participation Agreement and each other Operative Document to which it is or
will be a party. The Lessor further represents, covenants and warrants that
(i) it has been formed and exists for the sole purpose of, and will not engage
in any business or other activity except as necessary in connection with,
acquiring and owning the Leased Property and taking the actions contemplated on
the Lessor's part under the Operative Documents and (ii) except for obligations
and indebtedness of the Lessor represented by and set forth in the Operative
Documents and except for obligations or indebtedness of the Lessor arising
directly or indirectly from the Lessee's failure to discharge the Lessee's
obligations under the Operative Documents, the Lessor will not create, incur,
suffer to be created or incurred, or guarantee any obligation or indebtedness.
(b) Due Authorization; Enforceability, Etc. The
Participation Agreement and each other Operative Document to which the Lessor
is or will be a party have been or will be duly authorized, executed and
delivered by or on behalf of the Lessor and are, or upon execution and delivery
will be, legal, valid and binding obligations of the Lessor enforceable against
it in accordance with their respective terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and by general equitable principles.
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(c) No Conflict. The execution and delivery by the
Lessor of this Participation Agreement and each other Operative Document to
which the Lessor is or will be a party are not or will not, and the performance
by the Lessor of its obligations under each and will not, violate its
certificate of formation or Operating Agreement, do not and will not contravene
any Applicable Law and do not and will not contravene any provision of, or
constitute a default under, any Contractual Obligation of the Lessor, and the
Lessor possesses all requisite regulatory authority to undertake and perform
its obligations under the Operative Documents.
(d) Litigation. There are no pending or threatened
actions or proceedings against the Lessor before any court, arbitrator or
administrative agency that would have a material adverse effect upon the
ability of the Lessor to perform its obligations under this Participation
Agreement or any other Operative Documents to which it is or will be a party.
(e) Lessor Liens. No Lessor Liens or other Liens created
by acts or omissions of the Lessor (other than Liens created by the Operative
Documents) exist on the Closing Date on the Leased Property, or any portion
thereof, and the execution, delivery and performance by the Lessor of this
Participation Agreement or any other Operative Document to which it is or will
be a party will not subject the Leased Property, or any portion thereof, to any
Lessor Liens or other Liens created by the Lessor (other than by the Operative
Documents). Except for Liens against the Leased Property created by the
Operative Documents, Permitted Liens (other than Lessor Liens), Liens
(including Lessor Liens) arising directly or indirectly from the Lessee's
failure to discharge the Lessee's obligations under the Operative Documents,
the Lessor further represents and warrants that it will not create, suffer to
be created or permit any Liens on the Leased Property.
(f) Employee Benefit Plans. The Lessor is not and will
not be making its Contribution Advances hereunder, and is not performing its
obligations under the Operative Documents, with the assets of an "employee
benefit plan" (as defined in Section 3(3) of ERISA) which is subject to Title I
of ERISA, or "plan" (as defined in Section 4975(e)(1) of the Code).
SECTION 4.3 Covenant of Lender. Upon payment by Lessee of the
purchase price for the Leased Property pursuant to Article XV of the Lease,
Lender will release the lien of the Operative Documents against the Leased
Property.
SECTION 4.4 Tax Treatment. (a) The parties hereto agree that it is
the Lessee's intention that for Federal, state and local income Tax purposes
(i) the Lease be treated as the repayment and security provisions of a loan to
the Lessee, all rights to the principal and interest of which have been
assigned by the Lessor to the Lender, (ii) the Lessee be treated as the legal
and beneficial owner entitled to any and all benefits of ownership of the
Property or any part thereof and (iii) all payments of Basic Rent during the
Lease Term be treated as payments of interest and principal, as the case may
be, to the Lender.
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(b) The Lessee agrees that neither it nor any member of any
affiliated group of which it is or may become a member (whether or not
consolidated or combined returns are filed for such affiliated group for
Federal, state or local income Tax purposes) will at any time take any action,
directly or indirectly, or file any return or other document inconsistent with
the intended income Tax treatment set forth in Section 4.4 (a) hereof, and the
Lessee agrees that the Lessee and any such Affiliates will file such returns,
maintain such records, take such actions and execute such documents as may be
appropriate to facilitate the realization of such intended income Tax
treatment.
(c) The Lessor and the Lender each agree that, except to the
extent required by law, neither it nor any member of any affiliated group of
which it is or may become a member (whether or not consolidated or combined
returns are filed for such affiliated group for Federal, state or local income
Tax purposes) will at any time take any action, directly or indirectly, or file
any return or other document claiming, or asserting that it is entitled to the
income Tax benefits, deductions and/or credits which, pursuant to the intended
income Tax treatment set forth in Section 4.4 (a) hereof, would otherwise be
claimed or claimable by the Lessee, and that it and any such Affiliates will at
the expense of the Lessee file such returns, maintain such records, take such
actions, and execute such documents (as reasonably requested by the Lessee from
time to time) as may be appropriate to facilitate the realization of, and as
shall be consistent with, such intended income Tax treatment, other than
engaging in any contest of such treatment with any taxing authority, and if any
such filing, maintenance, action or execution requested by the Lessee would
result in any additional income Tax liability or expense payable by it or any
Affiliate, or could reasonably be expected to result in liability or expense
payable by it or any Affiliate, then the Lessee will provide an indemnity
against such income Tax liability or other liability satisfactory to the Lessor
or the Lender, as the case may be, in the Lessor's or the Lender's sole
opinion, as the case may be.
SECTION 5
COVENANTS OF THE LESSEE
SECTION 5.1 Qualification as to Corporate Status. The Lessee shall
remain a validly existing corporation organized under the laws of the State of
Texas or any other State of the United States of America and shall remain
qualified to do business in the State.
SECTION 5.2 Further Assurances. Upon the written request of the
Lessor or the Lender, the Lessee, at its own cost and expense, will cause all
financing statements (including precautionary financing statements), fixture
filings and other similar documents to be recorded or filed at such places and
times in such manner as may be necessary to preserve, protect and perfect the
interest of the Lessor and the Lender in the Leased Property as contemplated by
the Operative Documents.
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SECTION 5.3 Reporting.
(a)Financial Statements. The Lessee shall deliver or cause to
be delivered to the Lender:
(i) As soon as practicable, and in any event within
forty-five (45) days after the close of each of the first three
quarterly accounting periods in each Fiscal Year, the consolidated
condensed balance sheet of the Lessee and its Subsidiaries as at the
end of such quarterly period and the related consolidated condensed
statements of operations for such quarterly period and for the elapsed
portion of the current Fiscal Year ended with the last day of such
quarterly period, and setting forth comparative consolidated figures
for the related period in the prior Fiscal Year, which financial
statements shall be certified by a duly authorized officer of the
Lessee that they fairly present the consolidated financial condition
of the Lessee and its Subsidiaries as at the dates indicated, subject
to changes resulting from audit and normal year-end adjustments;
(ii) As soon as practicable, and in any event within one
hundred twenty (120) days after the end of each Fiscal Year,
consolidated balance sheets of the Lessee and its Subsidiaries as at
the end of such Fiscal Year and the related consolidated statements of
earnings, stockholders' equity and changes in cash-flows of the Lessee
and its Subsidiaries for such Fiscal Year, setting forth in
comparative form the consolidated figures for the Lessee and its
Subsidiaries for the previous Fiscal Year, all in reasonable detail
and accompanied by a report thereon of Price Waterhouse, L.L.P. or
other independent public accountants of recognized national standing
selected by the Lessee which report shall be unqualified as to the
scope of audit and as to the status of the Lessee and its Subsidiaries
as a going concern and shall state that such consolidated financial
statements present fairly the financial position of the Lessee and its
Subsidiaries as at the dates indicated and the results of their
operations and changes in their financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with
prior years (or, in the event of a change in accounting principles,
such accountants' concurrence with such change) and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally
accepted auditing standards;
(iii) Together with each delivery of any financial
statements pursuant to clauses (i) and (ii) of this subsection, an
officer's certificate of the Lessee, executed by a duly authorized
officer of the Lessee, stating that the signer has instituted
procedures for the review of the terms of this Participation Agreement
and the principal Operative Documents and the review in reasonable
detail of the transactions and conditions of the Lessee and its
Subsidiaries taken as a whole during the accounting period covered by
such financial statements, and that such review has not disclosed the
existence during or at the end of such accounting period, and that the
signer does not have knowledge of the existence as at the date of such
officer's certificate, of any condition or event which constitutes an
Event of Default, or, if any such condition or event existed or
exists,
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specifying the nature and period of existence thereof and what action
the Lessee has taken, is taking and proposes to take with respect
thereto and stating that, to the best of such officer's knowledge, the
financial statements delivered pursuant to clause (i) of this
subsection present fairly the financial position of the Lessee and its
Subsidiaries as at the dates indicated and the results of their
operations and changes in their financial position for the periods
indicated in conformity with GAAP consistently applied;
(iv) Promptly, and in any event within five (5) Business
Days after the Lessee obtains knowledge thereof, notice of (A) the
occurrence of any event which constitutes an Event of Default which
notice shall specify the nature thereof, the period of existence
thereof and what action the Lessee propose to take with respect
thereto and (B) any litigation or governmental proceedings pending
against the Lessee which the Lessee determines it will disclose in the
Lessee's reports filed on Forms 10-K or 10-Q with the SEC (notice
being due within five Business Days of such determination); and
(v) With reasonable promptness, such information with
respect to the financial condition of the Lessee or the Leased
Property as from time to time may be reasonably requested by the
Lender; provided, however, that the Lender shall keep such information
confidential, except in connection with enforcement or exercise of the
Lender's rights under this Participation Agreement or otherwise
available at law or in equity and provided, further, that the Lender
may disclose such information to the extent necessary to respond to
inquiries of bank regulatory authorities or to comply with legal
process or any other legal disclosure obligations, or to the extent
such information has been made publicly available by parties other
than the Lender.
(b) Other Reports. Promptly after the same are available
to it, the Lessee shall deliver to the Lessor copies of all regular and
periodic reports and other reports and filings (if any) made by the Lessee with
the SEC, and promptly upon transmission thereof, copies of all proxy
statements, financial statements, notices and reports as the Company shall send
to its shareholders.
SECTION 5.4 Financial Covenants of Lessee.
(a) The Lessee shall not permit Consolidated Tangible
Net Worth, as determined as of the last day of any fiscal quarter, to be less
than the sum of (i) $25,000,000 plus (ii) an amount equal to 30% of the sum of
Consolidated Net Income for each fiscal quarter from and including the fiscal
quarter in which the Closing Date occurred (provided that any net loss for any
fiscal quarter shall be excluded from such calculation).
(b) The Lessee shall not permit Consolidated Net Worth,
as determined as of the last day of any fiscal quarter, to be less than (i)
$45,000,000 plus (ii) an amount equal to 30% of the sum of Consolidated Net
Income for each fiscal quarter from and including the fiscal quarter in which
the Closing Date occurred (provided that any net loss for any fiscal quarter
shall be excluded from such calculation).
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(c) The Lessee shall not permit the Fixed Charge
Coverage Ratio for any period of four consecutive fiscal quarters to be less
than 1.50 to 1.00.
SECTION 6
TRANSFERS BY LESSOR AND LENDER
SECTION 6.1 Lessor Transfers. The Lessor shall not assign, convey,
encumber or otherwise transfer all or any portion of its right, title or
interest in, to or under the Leased Property or the Lease (except pursuant to
the Mortgage, the Assignment of Lease and Rents or pursuant to Article VI of
the Lease) or any of the Operative Documents without obtaining the prior
written consent of the Lender and the Lessee.
SECTION 6.2 Lender Transfers. The Lender shall not assign, convey or
otherwise transfer all or any portion of its right, title or interest in, to or
under any of the Operative Documents without the prior written consent of the
Lessee and the Lessor (such consent not to be unreasonably withheld); provided,
however, that without the prior written consent of or notice to the Lessor or
the Lessee, the Lender may sell participating interests in the Loan to such
banks and other financial institutions as the Lender shall, in its sole
discretion, determine.
SECTION 7
INDEMNIFICATION
SECTION 7.1 General Indemnification. The Lessee agrees, whether or
not any of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After-Tax Basis, from and against, any and all Claims by any
third-party that may be imposed on, incurred by or asserted against such
Indemnitee, whether or not such Indemnitee shall also be indemnified as to any
such Claim by any other Person (except to the extent such claim is covered by
the insurance required by the Lease) and in any way relating to or arising out
of:
(i) any of the Operative Documents or any of the
transactions contemplated thereby, and any amendment, modification or
waiver in respect thereof;
(ii) the Land or any part thereof or interest therein;
(iii) the purchase, design, construction, preparation,
installation, inspection, delivery, non- delivery, acceptance,
rejection, ownership, management, possession, operation, rental,
lease, sublease, repossession, maintenance, repair, alteration,
modification, addition or substitution, storage, transfer or title,
redelivery, use, financing, refinancing, disposition, operation,
condition, sale (including, without limitation, any sale pursuant to
the Lease), return or other disposition of all or any part or any
interest in the Leased Property or the imposition of any Lien (or
incurring of any liability to refund or pay over any amount as a
result of any Lien) thereon, including
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without limitation (A) Claims or penalties arising from any violation
of law or in tort (strict liability or otherwise), (B) latent or other
defects, whether or not discoverable, (C) any Claim based upon a
violation or alleged violation of the terms of any restriction,
easement, condition or covenant or other matter affecting title to the
Leased Property, (D) the making of any Alterations in violation of any
standards imposed by any insurance policies required to be maintained
by the Lessee pursuant to the Lease which are in effect at any time
with respect to the Leased Property or any part thereof, (E) any Claim
for patent, trademark or copyright infringement and (F) Claims arising
from any public improvements with respect to the Leased Property
resulting in any change or special assessments being levied against
the Leased Property or any Claim for utility "tap-in" fees;
(iv) the breach or alleged breach by the Lessee of any
representation or warranty made by it or deemed made by it in any
Operative Document or any certificate required to be delivered under
any Operative Document;
(v) the retaining or employment of any broker, finder or
financial advisor by the Lessee to act on its behalf in connection
with this Participation Agreement, or the authorization of any broker
or financial adviser retained or employed by any other Person who or
which acts on Lessee's behalf, or the incurring of any fees or
commissions to which the Lessor or the Lender might be subjected by
virtue of their entering into the transactions contemplated by this
Participation Agreement;
(vi) the existence of any Lien on or with respect to the
Leased Property, the Construction, any Basic Rent or Supplemental
Rent, including any Liens which arise out of the possession, use,
occupancy, construction, repair or rebuilding of or title to or
interest of any Person in the Leased Property or by reason of labor or
materials furnished or claimed to have been furnished to the Lessee or
any of its contractors or agents or by reason of the financing of any
personalty or equipment purchased or leased by the Lessee or
Alterations constructed by the Lessee, except in all cases the Liens
listed as items (i) and (ii) in the definition of Permitted Liens; or
(vii) any breach of any requirement, condition, restriction
or limitation in the Ground Lease;
provided, however, that the Lessee shall not be required to indemnify any
Indemnitee under this Section for (x) any Claim to the extent that such Claim
results from the willful misconduct or gross negligence of such Indemnitee
(provided that the exception set forth in this clause (x) shall not apply to
Lessor Indemnitees, which the Lessee shall, in any event, be obligated to
indemnify, except as provided in Section 18.12 of the Lease), (y) any Claim
resulting from Lessor Liens which the Lessor is responsible for discharging
under the Operative Documents or (z) any Claim which occurs or arises out of a
time when the Lessee was not an owner, lessee or otherwise using or in
possession of the Leased Property or any part thereof. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or
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termination of and shall be separate and independent from any remedy under the
Lease or any other Operative Document.
SECTION 7.2 Environmental Indemnity. Without limitation of Section
7.1, the Lessee agrees to indemnify, hold harmless and defend each Indemnitee
from and against any and all Claims (including without limitation third party
Claims for personal injury or real or personal property damage), losses
(including but not limited to any loss of value of the Leased Property),
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings (including informal proceedings) and orders, judgments, remedial
action, requirements, enforcement actions of any kind, and all reasonable and
documented costs and expenses incurred in connection therewith (including but
not limited to reasonable and documented attorneys' and/or paralegals' fees and
expenses), including, but not limited to, all costs incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work by any federal, state or local government agency,
arising directly or indirectly, in whole or in part, out of:
(i) the presence on or under the Land of any Hazardous
Materials, or any releases or discharges of any Hazardous Materials
on, under, from or onto the Land;
(ii) any activity, including, without limitation,
construction, carried on or undertaken on or off the Land, and whether
by the Lessee, or any predecessor in title or any employees, agents,
contractors or subcontractors of the Lessee, or any predecessor in
title, or any other Persons (including such Indemnitee), in connection
with the handling, treatment, removal, storage, decontamination,
clean-up, transport or disposal of any Hazardous Materials that at any
time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Land;
(iii) loss of or damage to any property or the environment
(including, without limitation, clean-up costs, response costs,
remediation and removal costs, cost of corrective action, costs of
financial assurance, fines and penalties and natural resource
damages), or death or injury to any Person, and all expenses
associated with the protection of wildlife, aquatic species,
vegetation, flora and fauna, and any mitigative action required by or
under Environmental Laws;
(iv) any claim concerning lack of compliance with
Environmental Laws, or any act or omission causing an environmental
condition that requires remediation or would allow any governmental
agency to record a lien or encumbrance on the land records; or
(v) any residual contamination on or under the Land, or
affecting any natural resources, and any contamination of any property
or natural resources arising in connection with the generation, use,
handling, storage, transport or disposal of any such Hazardous
Materials, and irrespective of whether any of such activities were or
will be undertaken in accordance with applicable laws, regulations,
codes and ordinances;
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in any case arising or occurring (y) prior to or during the Lease Term or (z)
at any time during which the Lessee or any Affiliate thereof owns any interest
in or otherwise occupies or possesses the Leased Property or any portion
thereof; provided, however, that the Lessee shall not be required to indemnify
any Indemnitee under this Section for any Claim to the extent that such Claim
results from the willful misconduct or gross negligence of such Indemnitee
(except that the exception set forth in the immediately preceding proviso shall
not apply to Lessor Indemnitees, which the Lessee shall, in any event, be
obligated to indemnify, except as provided in Section 18.12 of the Lease). It
is expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of and shall be separate and independent
from any remedy under the Lease or any other Operative Document.
SECTION 7.3 Proceedings in Respect of Claims. The obligations and
liabilities of the Lessee with respect to any Claims for which, if valid,
Lessee is obligated to provide indemnification pursuant to the provisions of
Section 7.1 and Section 7.2 ("Indemnified Claims"), shall be subject to the
following terms and conditions:
(a) Whenever an Indemnitee shall have received notice
that an Indemnified Claim has been asserted or threatened against such
Indemnitee, the Indemnitee shall promptly notify the Lessee of such Claim,
together with supporting facts and data within the possession or knowledge of
the Indemnitee related thereto, provided that the failure to deliver such
notice shall not relieve the Lessee of its indemnification obligations
hereunder except to the extent that such failure prejudices the Lessee. With
respect to any amount that the Lessee is requested by an Indemnitee to pay by
reason of Section 7.1 or 7.2, such Indemnitee shall, if so requested by the
Lessee and prior to any payment, submit such additional information to the
Lessee as the Lessee may reasonably request and which is in the possession of
such Indemnitee to substantiate properly the requested payment.
(b) Lessee shall defend, at its expense, such Indemnified
Claim with counsel of its choice reasonably satisfactory to the Indemnitee,
provided, however, that if an Event of Default has occurred and is continuing,
the Indemnitee shall have the right, upon notice to and at the expense of
Lessee, to undertake the defense of such Claim during the continuance of such
Event of Default. The Indemnitee shall promptly notify the Lessee of any
compromise or settlement proposal with respect to any such Claim and shall not
unreasonably refuse to accept any such proposal if the same is acceptable to
the Lessee. The Indemnitee may participate in a reasonable manner at its own
expense and with its own counsel in any proceeding conducted by the Lessee in
accordance with the foregoing. The Lessee shall not enter into any settlement
or other compromise with respect to any Claim which is entitled to be
indemnified under Section 7.1 or 7.2 without the prior written consent of the
Lender acting individually and on behalf of the affected Indemnitee (and Lessor
hereby irrevocably so authorizes Lender to grant such consent on behalf of
Lessor and the Lessor Indemnitees), which consent shall not be unreasonably
withheld. The Lessee and each Indemnitee are and shall be bound to cooperate
with each other in good faith in connection with the defense of any such
action, suit or proceeding in providing any information and bear witness or
give testimony which may be requested by counsel for any of such parties.
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(c) Unless an Event of Default shall have occurred and be
continuing, no Indemnitee shall enter into any settlement or other compromise
with respect to any Claim which is entitled to be indemnified under Section 7.1
or 7.2 without the prior written consent of the Lessee, which consent shall not
be unreasonably withheld (it being agreed that it will not be unreasonable for
the Lessee to withhold consent if such compromise or settlement adversely
affects a material right or property interest of the Lessee, including, without
limitation, Lessee's use, title or possession of the Leased Property), unless
such Indemnitee waives its right to be indemnified under Section 7.1 or 7.2
with respect to such Claim, provided that no Indemnitee shall enter into any
settlement which would adversely affect Lessee's use, title to or possession of
the Leased Property without Lessee's prior written consent.
(d) Upon payment in full of any Claim by the Lessee
pursuant to Section 7.1 or 7.2 to or on behalf of an Indemnitee, the Lessee,
without any further action, shall be subrogated to any and all claims that such
Indemnitee may have relating thereto (other than claims in respect of insurance
policies maintained by such Indemnitee at its own expense) including claims
(subject to the provisions of this Section 7 and Section 18.12 of the Lease)
against another Indemnitee and such Indemnitee shall execute such instruments
of assignment and conveyance, evidence of claims and payment and such other
documents, instruments and agreements as may be necessary to preserve any such
Claims and otherwise cooperate with the Lessee and give such further assurances
as are necessary or advisable to enable the Lessee vigorously to pursue such
Claims.
(e) Any amount payable to an Indemnitee pursuant to
Section 7.1 or 7.2 shall be paid to such Indemnitee promptly upon receipt of a
written demand therefor from such Indemnitee, accompanied by a written
statement describing in reasonable detail the basis for such indemnity and the
computation of the amount so payable, and if requested by the Lessee, such
determination shall be verified by a nationally recognized independent
accounting firm mutually acceptable to the Lessee and the Indemnitee at the
expense of the Lessee.
(f) If Lessee fails to assume the defense of an
Indemnified Claim within a reasonable time (and in any event not more than 30
days) after receipt of notice thereof from the Indemnitee, the Indemnitee will
(upon delivering notice to such effect to the Lessee) have the right to
undertake, at the Lessee's cost and expense, the defense, compromise or
settlement of such Claim on behalf of and for the account and risk of the
Lessee, subject to the right of the Lessee (provided no Event of Default shall
have occurred and remained outstanding) to assume the defense of such Claim at
any time prior to the settlement, compromise or final determination thereof,
and provided however, that the Indemnitee shall not enter into any such
compromise or settlement without the written consent of the Lessee, which shall
not be unreasonably withheld, as aforesaid, and provided further that no
Indemnitee shall enter into any such settlement which would adversely affect
Lessee's use, title to or possession of the Leased Property without Lessee's
prior written consent. In the event the Indemnitee assumes the defense of any
such Claim, the Indemnitee will cooperate with the Lessee in keeping the Lessee
reasonably informed of the progress of any such defense, compromise or
settlement.
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(g) Nothing contained in this Section 7.3 shall be deemed
to expand the obligation of the Lessee to defend or be responsible for
indemnification of the Indemnitees with respect to any Claim beyond the
specific indemnification obligations set forth in Sections 7.1, 7.2, 7.4, or
elsewhere in the Operative Documents.
SECTION 7.4 General Tax Indemnity.
(a) Except as otherwise provided in this Section, the
Lessee shall pay on an After-Tax Basis, and on written demand shall indemnify
and hold each Tax Indemnitee harmless from and against, any and all fees
(including, without limitation, documentation, recording, license and
registration fees), taxes (including, without limitation, income, gross
receipts, sales, rental, use, turnover, value-added, property, excise and stamp
taxes), levies, imposts, duties, charges, assessments or withholdings of any
nature whatsoever, together with any penalties, fines or interest thereon or
additions thereto (any of the foregoing being referred to herein as "Taxes" and
individually as a "Tax" (for the purposes of this Section, the definition of
"Taxes" excludes amounts imposed on, incurred by, or asserted against each Tax
Indemnitee as the result of any prohibited transaction, within the meaning of
Section 406 or 407 of ERISA or Section 4975(c) of the Code, arising out of the
transactions contemplated hereby or by any other Operative Document)) imposed
on or with respect to any Tax Indemnitee, the Lessee, the Leased Property or
any portion thereof or the Land, or any sublessee or user thereof, by the
United States or by any state or local government or other taxing authority in
the United States in connection with or in any way relating to (i) the
acquisition, financing, mortgaging, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership,
possession, rental, lease, sublease, maintenance, repair, storage, transfer of
title, redelivery, use, operation, condition, sale, return or other application
or disposition of all or any part of the Leased Property or the imposition of
any Lien, other than a Lessor Lien (or incurrence of any liability to refund or
pay over any amount as a result of any Lien, other than a Lessor Lien) thereon,
(ii) Basic Rent or Supplemental Rent or the receipts or earnings arising from
or received with respect to the Leased Property or any part thereof, or any
interest therein or any applications or dispositions thereof, (iii) the Leased
Property, the Land or any part thereof or any interest therein, (iv) all or any
of the Operative Documents, any other documents contemplated thereby and any
amendments and supplements thereto and (v) otherwise with respect to or in
connection with the transactions contemplated by the Operative Documents.
(b) Section 7.4(a) shall not apply to:
(i) Taxes on, based on, or measured by or with
respect to, net income of the Lessor and the Lender (including,
without limitation, minimum Taxes, capital gains Taxes, Taxes on or
measured by items of tax preference or alternative minimum Taxes)
other than (A) any such Taxes that are, or are in the nature of,
sales, use, license, rental or property Taxes, (B) withholding Taxes
imposed by the United States or any state (1) on payments with
respect to the Note, to the extent imposed by reason of a change in
Applicable Law occurring after the Closing Date or (2) on Rent, to the
extent the net payment of Rent after deduction of such withholding
Taxes would be less than
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amounts currently payable with respect to the Note and (C) any
increase in any franchise taxes based on or otherwise measured by net
income, estate, inheritance, transfer, income tax or gross income or
gross receipts tax in lieu of net income over the term of the Lease,
net of any decrease in such taxes realized by such Tax Indemnitee, to
the extent that such tax increase or decrease would not have occurred
if on the Closing Date the Lessor had advanced funds to the Lessee in
the form of a loan secured by the Leased Property in an amount equal
to the Loan, with debt service for such loan equal to the portion of
the Basic Rent attributable to the Loan payable on each Rent Payment
Date and a principal balance at the maturity of such loan in an amount
equal to the Loan at the end of the Lease Term;
(ii) Taxes on, based on, or in the nature of or
measured by, Taxes on doing business, business privilege, capital,
capital stock, net worth, or mercantile license or similar taxes other
than (A) any increase in such Taxes imposed on such Tax Indemnitee by
any state, net of any decrease in such taxes realized by such Tax
Indemnitee, to the extent that such tax increase or decrease would not
have occurred if on the Closing Date the Lessor had advanced funds to
the Lessee in the form of a loan secured by the Leased Property in an
amount equal to the Loan, with debt service for such loan equal to the
portion of the Basic Rent attributable to the Loan payable on each
Rent Payment Date and a principal balance at the maturity of such loan
in an amount equal to the Loan at the end of the Lease Term or (B) any
Taxes that are or are in the nature of sales, use, rental, license or
property Taxes;
(iii) Taxes that result from any act, event or
omission, or are attributable to any period of time, that occurs after
the earliest of (A) the expiration of the Lease Term with respect to
the Leased Property and, if the Leased Property is required to be
returned to the Lessor in accordance with the Lease, such return and
(B) the discharge in full of the Lessee's obligations to pay the Lease
Balance, or any amount determined by reference thereto, with respect
to the Leased Property and all other amounts due under the Lease,
unless such Taxes relate to acts, events or matters occurring prior to
the earliest of such times or are imposed on or with respect to any
payments due under the Operative Documents after such expiration or
discharge;
(iv) Taxes imposed on a Tax Indemnitee that result
from any voluntary sale, assignment, transfer or other disposition by
such Tax Indemnitee or any related Tax Indemnitee of any interest in
the Leased Property or any part thereof, or any interest therein or
any interest or obligation arising under the Operative Documents
(including a sale of an interest in the Note) or from any sale,
assignment, transfer or other disposition of any interest in such Tax
Indemnitee or any related Tax Indemnitee, it being understood that
each of the following shall not be considered a voluntary sale: (A)
any substitution, replacement or removal of any of the property by the
Lessee shall not be treated as a voluntary action of any Tax
Indemnitee, (B) any sale or transfer resulting from the exercise by
the Lessee of any termination option, any purchase option or sale
option, (C) any sale or transfer while an Event of Default shall have
occurred and be
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continuing under the Lease and (D) any sale or transfer resulting from
the Lessor's exercise of remedies under the Lease;
(v) any Tax which is being contested in
accordance with the provisions of Section 7.4(c), during the pendency
of such contest;
(vi) any Tax that is imposed on a Tax Indemnitee
as a result of such Tax Indemnitee's gross negligence or willful
misconduct (other than gross negligence on the part of the Lessor and
the incorporators, stockholders, directors, officers, employees and
agents of the Lessor or gross negligence or willful misconduct imputed
to the Lessor or the Lender solely by reason of their respective
interests in the Leased Property);
(vii) any Tax that results from a Tax Indemnitee
engaging, with respect to the Leased Property, in transactions other
than those permitted by the Operative Documents; or
(viii) to the extent any interest, penalties or
additions to tax result in whole or in part from the failure of a Tax
Indemnitee to file a return that it is required to file in a proper
and timely manner, unless such failure (A) results from the
transactions contemplated by the Operative Documents in circumstances
where the Lessee did not give timely notice to Lessor (and the Lessor
otherwise had no actual knowledge) of such filing requirement that
would have permitted a proper and timely filing of such return or (B)
results from the failure of the Lessee to supply information necessary
for the proper and timely filing of such return that was not in the
possession of the Lessor.
(c) If any claim shall be made against any Tax Indemnitee
or if any proceeding shall be commenced against any Tax Indemnitee (including a
written notice of such proceeding) for any Taxes as to which the Lessee may
have an indemnity obligation pursuant to this Section, or if any Tax Indemnitee
shall determine that any Taxes as to which the Lessee may have an indemnity
obligation pursuant to this Section may be payable, such Tax Indemnitee shall
promptly notify the Lessee. The Lessee shall be entitled, at its expense, to
participate in and to the extent that the Lessee desires to, assume and control
the defense thereof; provided, however, that the Lessee shall not be entitled
to assume and control the defense of any such action, suit or proceeding (but
the Tax Indemnitee shall then contest, at the sole cost and expense of the
Lessee, on behalf of the Lessee) if and to the extent that (A) an Event of
Default has occurred and is continuing, (B) such action, suit or proceeding
involves matters which are unrelated to the transactions contemplated by the
Operative Documents and if determined adversely could be materially detrimental
to the interests of such Tax Indemnitee notwithstanding indemnification by the
Lessee or (C) such action, suit or proceeding involves the federal or any state
income tax liability of the Tax Indemnitee. With respect to any contests
controlled by a Tax Indemnitee, (i) if such contest relates to the federal or
any state income tax liability of such Tax Indemnitee, such Tax Indemnitee
shall be required to conduct such contest only if the Lessee shall have
provided to such Tax Indemnitee an opinion of independent tax counsel selected
by the Lessee and reasonably satisfactory to the Tax Indemnitee stating that a
reasonable
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basis exists to contest such claim or (ii) in the case of an appeal of an
adverse determination of any contest relating to any Taxes, an opinion of such
counsel to the effect that such appeal is more likely than not to be
successful; provided, however, such Tax Indemnitee shall in no event be
required to appeal an adverse determination to the United States Supreme Court.
The Tax Indemnitee may participate in a reasonable manner at its own expense
and with its own counsel in any proceeding conducted by the Lessee in
accordance with the foregoing. Each Tax Indemnitee shall at the Lessee's
expense supply the Lessee with such information and documents reasonably
requested by the Lessee as are necessary or advisable for the Lessee to
participate in any action, suit or proceeding to the extent permitted by this
Section. Unless an Event of Default shall have occurred and be continuing, no
Tax Indemnitee shall enter into any settlement or other compromise with respect
to any Claim which is entitled to be indemnified under this Section without the
prior written consent of the Lessee, which consent shall not be unreasonably
withheld (it being agreed that it will not be unreasonable for Lessee to
withhold consent if such compromise or settlement would adversely affect
material rights or property interests of the Lessee, including, without
limitation, Lessee's use, title or possession of the Leased Property), unless
such Tax Indemnitee waives its right to be indemnified under this Section with
respect to such Claim, provided the settlement would not adversely affect
materials rights or property interests of the Lessee, including, without
limitation, Lessee's use, title or possession of the Leased Property.
Notwithstanding anything contained herein to the contrary, (i) a Tax Indemnitee
will not be required to contest (and the Lessee shall not be permitted to
contest) a Claim with respect to the imposition of any Tax if such Tax
Indemnitee shall waive its right to indemnification under this Section with
respect to such Claim (and any related Claim with respect to other taxable
years the contest of which is precluded as a result of such waiver) and (ii) no
Tax Indemnitee shall be required to contest any Claim if the subject matter
thereof shall be of a continuing nature and shall have previously been decided
adversely, unless there has been a change in law which in the opinion of the
Lessee's counsel creates substantial authority for the success of such contest.
Each Tax Indemnitee and the Lessee shall consult in good faith with each other
regarding the conduct of such contest controlled by either.
(d) If (i) a Tax Indemnitee shall obtain a credit or refund
of any Taxes paid by the Lessee pursuant to this Section or (ii) by reason of
the incurrence or imposition of any Tax for which a Tax Indemnitee is
indemnified hereunder or any payment made to or for the account of such Tax
Indemnitee by the Lessee pursuant to this Section, such Tax Indemnitee at any
time realizes a reduction in any Taxes for which the Lessee is not required to
indemnify such Tax Indemnitee pursuant to this Section, which reduction in
Taxes was not taken into account in computing such payment by the Lessee to or
for the account of such Tax Indemnitee, then such Tax Indemnitee shall promptly
pay to the Lessee the amount of such credit or refund, together with the amount
of any interest received by such Tax Indemnitee on account of such credit or
refund or an amount equal to such reduction in Taxes, as the case may be;
provided, however, that no such payment shall be made so long as an Event of
Default shall have occurred and be continuing; and provided, further, that the
amount payable to the Lessee by any Tax Indemnitee pursuant to this subsection
shall not at any time exceed the aggregate amount of all indemnity payments
made by the Lessee under this Section to such Tax Indemnitee and all related
Tax Indemnitees with respect to the Taxes which gave rise to a credit or refund
or with
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respect to the Tax which gave rise to a reduction in Taxes less the amount of
all prior payments made to the Lessee by such Tax Indemnitee and related Tax
Indemnitees under this Section. Each Tax Indemnitee agrees to act in good
faith to claim such refunds and other available Tax benefits, and take such
other actions as may be reasonable to minimize any payment due from the Lessee
pursuant to this Section and to maximize the amount of any Tax savings
available to it. The disallowance or reduction of any credit, refund or other
tax savings with respect to which a Tax Indemnitee has made a payment to the
Lessee under this subsection shall be treated as a Tax for which the Lessee is
obligated to indemnify such Tax Indemnitee hereunder.
(e) Any Tax indemnifiable under this Section shall be
paid directly when due to the applicable taxing authority if direct payment is
practicable and permitted. If direct payment to the applicable taxing
authority is not permitted or is otherwise not made, any amount payable to a
Tax Indemnitee pursuant to this Section shall be paid within thirty (30) days
after receipt of a written demand therefor from such Tax Indemnitee accompanied
by a written statement describing in reasonable detail the amount so payable,
but not before the date that the relevant Taxes are due. Any payments made
pursuant to this Section shall be made directly to the Tax Indemnitee entitled
thereto or the Lessee, as the case may be, in immediately available funds at
such bank or to such account as specified by the payee in written directions to
the payor, or, if no such direction shall have been given, by check of the
payor payable to the order of the payee by certified mail, postage prepaid at
its Address as set forth in this Participation Agreement. Upon the request of
any Tax Indemnitee with respect to a Tax that the Lessee is required to pay,
the Lessee shall furnish to such Tax Indemnitee the original or a certified
copy of a receipt for Lessee's payment of such Tax or such other evidence of
payment as is reasonably acceptable to such Tax Indemnitee.
(f) If the Lessee knows of any report, return or
statement required to be filed with respect to any Taxes that are subject to
indemnification under this Section, the Lessee shall, if the Lessee is
permitted by Applicable Law, timely file such report, return or statement (and,
to the extent permitted by law, show ownership of the Leased Property in the
Lessee except to the extent contrary to financial reporting requirements);
Provided, however, that if the Lessee is not permitted by Applicable Law or
does not have access to the information required to file any such report,
return or statement, the Lessee will promptly so notify the appropriate Tax
Indemnitee, in which case Tax Indemnitee will file such report. In any case in
which the Tax Indemnitee will file any such report, return or statement, Lessee
shall, upon written request of such Tax Indemnitee, provide such Tax Indemnitee
with such information as is reasonably available to the Lessee.
(g) At the Lessee's request, the amount of any indemnity
payment by the Lessee or any payment by a Tax Indemnitee to the Lessee pursuant
to this Section shall be verified and certified by an independent public
accounting firm selected by the Lessee and reasonably acceptable to the Tax
Indemnitee. Unless such verification shall disclose an error in Lessee's favor
of 5% or more, the costs of such verification shall be borne by the Lessee. In
no event shall the Lessee have the right to review the Tax Indemnitee's tax
returns or receive any other confidential information from the Tax Indemnitee
in connection with such verification.
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The Tax Indemnitee agrees to cooperate with the independent public accounting
firm performing the verification and to supply such firm with all information
reasonably necessary to permit it to accomplish such verification; provided,
however, that the information provided to such firm by such Tax Indemnitee
shall be for its confidential use. The parties agree that the sole
responsibility of the independent public accounting firm shall be to verify the
amount of a payment pursuant to this Participation Agreement and that matters
of interpretation of this Participation Agreement are not within the scope of
the independent accounting firm's responsibilities.
SECTION 7.5 Increased Costs, etc.
(a) Changes; Legal Restrictions. Subject to the
provisions of Section 8.12, in the event that after the date hereof (i) the
adoption of or any change in any law, treaty, rule, regulation, guideline or
determination of a court or Governmental Authority or any change in the
interpretation or application thereof by a court or Governmental Authority or
(ii) compliance by the Lender with any request or directive (whether or not
having the force of law) from any central bank or other Governmental Authority:
(A) does or will subject the Lender to any tax,
duty or other charge of any kind which the Lender determines
to be applicable to the Operative Documents or the Loan or
change the basis of taxation of payments to the Lender of
principal, interest, invested amount, yield, fees or any other
amount payable hereunder, except for taxes imposed on or
measured by the overall net income of the Lender; or
(B) does or will impose, modify, or hold
applicable, in the determination of the Lender, any reserve,
special deposit, liquidity ratio, compulsory loan, FDIC
insurance or similar requirement against assets held by, or
deposits or other liabilities in or for the account of,
advances or loans by, commitments made, or other credit
extended by, or any other acquisition of funds by, the Lender;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining the Loan or to reduce any amount receivable
thereunder and the Lender gives the Lessee notice of any of the foregoing and
the approximate amount of such cost increase within 120 days after the calendar
year in which such increased costs were incurred by the Lender, then, in any
such case, the Lessee shall promptly pay to the Lender on an After-Tax Basis,
within thirty (30) days after demand made in writing by the Lender to the
Lessee, such amount or amounts (based upon an allocation thereof by the Lender
to the financing transactions contemplated by the Operative Documents and
affected by this Section) as may be reasonably necessary to compensate the
Lender for any such additional cost incurred or reduced amount received. The
Lender shall deliver to the Lessee a written statement of the costs or
reductions claimed and the basis therefor, and the allocation made by the
Lender of such costs and reductions shall be conclusive, absent demonstrable
error.
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(b) Capital Adequacy. Subject to the provisions of Section 8.12,
if the Lender shall have determined that, after the date hereof, the adoption
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
by any Governmental Authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by the Lender with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such Governmental Authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Lender's capital as a consequence of its obligations hereunder (including,
without limitation, the Loan) to a level below that which the Lender could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender's policies with respect to capital adequacy), then from time to
time, within thirty (30) days after demand made in writing by the Lender to the
Lessee, the Lessee shall pay to the Lender such additional amount or amounts as
will compensate the Lender for such reduction. The Lender, upon determining in
good faith that any additional amounts will be payable pursuant to this
subsection, will give prompt written notice thereof to the Lessee which notice
shall show in reasonable detail the basis for calculation of such additional
amounts. Such notice shall be conclusive absent demonstrable error.
SECTION 7.6 End of Term Indemnity. In the event that at the end of the
Lease Term (i) the Lessor elects the option set forth in Section 15.6 of the
Lease and (ii) after the Lessor receives the sales proceeds from the Leased
Property under Section 15.6 or 15.7 of the Lease together with the Lessee's
payment of the Recourse Deficiency Amount, the Lessor shall not have received
the entire Lease Balance, then the Lessor or the Lender may obtain, at the
Lessee's sole cost and expense, an appraisal report from the Appraiser (or if
the Appraiser is not available, another appraiser reasonably satisfactory to
the Lessor or the Lender, as the case may be) in form and substance
satisfactory to the Lessor and the Lender to establish the reason for any
decline in value of the Leased Property from that anticipated for such date in
the appraisal delivered on the Closing Date. The Lessee shall promptly
reimburse the Lessor for the amount equal to such decline in value to the
extent that appraisal report delivered pursuant to the preceding sentence
concludes that such decline was due to (i) extraordinary use, failure to
maintain, to repair, to restore, to rebuild or to replace the Leased Property
in a manner consistent with reasonable preservation of its value, failure to
comply with all Applicable Laws, failure to use, workmanship, method of
installation or removal or maintenance, repair, rebuilding or replacement, or
any other cause or condition within the reasonable power of the Lessee to
control or effect resulting in the Improvements failing to constitute an
office/warehouse and/or light manufacturing facility (excepting in each case
ordinary wear and tear), (ii) any Alteration made to, or any rebuilding of, the
Leased Property or any part thereof by the Lessee, (iii) any restoration or
rebuilding carried out by the Lessee or any condemnation of any portion of the
Leased Property pursuant to Article XI of the Lease (after taking into account
any Award in respect thereof) or (iv) any use of the Leased Property or any
part thereof by the Lessee other than as permitted pursuant to Article VIII of
the Lease. The parties hereto acknowledge and agree that the obligation
imposed upon the Lessee under this Section arises from a higher standard of
maintenance of the Leased Property than that required under Article VII of the
Lease
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and is applicable whether or not the Lessee has failed to comply with any such
other obligations under the Operative Documents.
SECTION 7.7 Exculpation. The Lender has and shall have no
liability or obligation whatsoever or howsoever in connection with the
construction, completion or management of the Improvements, and has no
obligation except to make Loan Advances as provided in this Participation
Agreement and the Loan Agreement, and the Lender is not obligated to inspect
the Improvements; nor is the Lender liable and under no circumstances
whatsoever shall the Lender be or become liable for the performance or default
of any contractor or subcontractor, or for any failure to construct, complete,
protect or insure the Improvements, or any part thereof, or for the payment of
any cost or expense incurred in connection therewith, or for the performance or
non-performance of any obligation of the Lessor or the Lessee to the Lender or
to any other person, firm or entity without limitation; and nothing, including
without limitation, any disbursement of Loan Advances or acceptance of any
document or instrument, shall be construed as a representation or warranty,
express or implied, on the Lender's part. Further, the Lessee shall be solely
responsible for all aspects of the Lessee's business and conduct in connection
with the construction, completion and management of the Improvements including,
but not limited to:
(a) The quality and suitability of the Plans and
Specifications;
(b) Supervision of the work of Construction;
(c) The qualifications, financial condition and
performance of all architects, engineers,
contractors, subcontractors and material suppliers
and consultants;
(d) Conformance of the work of Construction and the
Improvements to the requirements of all Applicable
Laws and public and private restrictions and
requirements and to the requirements of this
Participation Agreement;
(e) The quality and suitability of all materials and
workmanship; and
(f) The accuracy of all requests for the disbursement of
Loan proceeds and the proper application of disbursed
Loan proceeds.
The Lender shall have no obligation to supervise, inspect or
inform the Lessee, the Lessor or any third party of any aspect of the work or
construction of the Improvements or any other matter referred to above. Any
inspection or review made by or on behalf of the Lender shall be made for the
purpose of determining whether or not the obligations of the Lessee under this
Participation Agreement are being properly discharged, and neither the Lessee,
the Lessor nor any third party shall be entitled to rely upon any such
inspection or review.
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The Lender owes no duty of care to the Lessee or the Lessor or
any third person to protect against or inform the Lessee, the Lessor or any
third person of the existence of negligent, faulty, inadequate or defective
design or construction of the Improvements.
SECTION 7.8 Role of Lender. Any term or condition hereof or
of any of the other Operative Documents to the contrary notwithstanding, the
Lender shall not have, and by its execution and acceptance of this
Participation Agreement hereby expressly disclaims, any obligation or
responsibility for the management, conduct or operation of the Improvements or
business and affairs of the Lessee and any term or condition hereof, or of any
of the other Operative Documents, permitting the Lender to disburse funds,
whether from the proceeds of the Loan or otherwise, or to take or refrain from
taking any action with respect to the Lessee or the Improvements shall be
deemed to be solely for the benefit of the Lender and may not be relied upon by
any other person. Further, the Lender shall not have, has not assumed and by
its execution and acceptance of this Participation Agreement hereby expressly
disclaims, any liability or responsibility for the payment or performance of
any indebtedness or obligation of the Lessee or the Lessor and no term or
condition hereof, or of any of the other Operative Documents, shall be
construed otherwise.
SECTION 7.9 Lender's Benefits. All conditions precedent to
the obligation of Lender to make any Loan Advance are imposed hereby solely for
the benefit of Lender. No party other than the Lessor may require
satisfaction of any such condition precedent. No other party (including the
Lessor) shall be entitled to assume that Lender will refuse to make any Loan
Advance in the absence of strict compliance with such conditions precedent. Any
requirement of this Participation Agreement and any requirement of the Loan
Agreement may be waived by Lender, in whole or in part, at any time. Any
requirement herein or in any other Operative Document of submission of evidence
to Lender of the existence or non-existence of a fact shall be deemed, also, to
be a requirement that the fact shall exist or not exist, as the case may be,
and without waiving any condition or obligation of the Lessee or the Lessor,
Lender may at all times independently establish to its satisfaction such
existence or non-existence.
SECTION 7.10 Lessor's Benefits. All conditions precedent to
the obligation of Lessor to make any Contribution Advance are imposed hereby
solely for the benefit of Lessor. No party other than the Lender may require
satisfaction of any such condition precedent. No other party (including the
Lender) shall be entitled to assume that Lessor will refuse to make any
Contribution Advance in the absence of strict compliance with such conditions
precedent. Any requirement of this Participation Agreement and any requirement
of the Loan Agreement may be waived by Lessor, in whole or in part, at any
time. Any requirement herein or in any other Operative Document of submission
of evidence to Lessor of the existence or non-existence of a fact shall be
deemed, also, to be a requirement that the fact shall exist or not exist, as
the case may be, and without waiving any condition or obligation of the Lessee
or the Lessor, Lender may at all times independently establish to its
satisfaction such existence or non-existence.
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SECTION 8
MISCELLANEOUS
SECTION 8.1 Survival of Agreements. The indemnities of the
parties provided for in Section 7 of this Participation Agreement, shall
survive the termination or expiration of this Participation Agreement and any
of the other Operative Documents (including, without limitation, the
termination of the Lease pursuant to Section 15.7 thereof in connection with the
Lessee's payment of the Recourse Deficiency Amount), any disposition of any
interest of the Lessor, or the Lender in the Leased Property and shall be and
continue in effect notwithstanding any investigation made by any party hereto
or to any of the other Operative Documents and the fact that any such party may
waive compliance with any of the other terms, provisions or conditions of any
of the Operative Documents. The representations, warranties, covenants and
agreements of the parties provided for in the Operative Documents shall not be
merged into the Ground Lease or the Deed.
SECTION 8.2 Notices. Unless otherwise specified herein or in
an applicable Operative Document, it shall, for purposes of this Participation
Agreement and the other Operative Documents, be sufficient service or giving of
any notice, request, complaint, demand, instruction or other instrument or
document to any Person, if it is in writing to the Address set forth below.
Any notice given by telecopy or facsimile transmission shall be deemed given
when sent provided confirmed by regular U.S. mail. Any notice given by mail
shall be deemed to be given when sent by registered or certified mail, return
receipt requested. Any notice sent by any party hereto under the Operative
Documents shall also be sent to the other parties to this Participation
Agreement. The parties hereto may designate, by notice given to each of the
other parties, any further or different addresses than those set forth below to
which subsequent notices shall be sent. For purposes of the Operative
Documents (but subject to the preceding sentence), the Address of the Lessee,
the Lender and the Lessor is as follows:
(i) Lessee Eagle USA Airfreight, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) Lender Bank One, Texas, N.A.
Bank One Center
7th Floor
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(iii) Lessor Asset XI Holdings Company, L.L.C.
c/o JH Management Corporation
Room 520
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 8.3 Counterparts. This Participation Agreement may
be executed by the parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 8.4 Amendments. No Operative Document nor any of the
terms thereof may be terminated, amended, supplemented, waived or modified with
respect to any party thereto except with the prior written consent of such
party thereto and, in all cases, the Lender and the Lessee. If and to the
extent that this Participation Agreement, the Loan Agreement, the Note, the
Lease, the Assignment of Lease and Rents or the Mortgage constitutes an
amendment, supplement, termination, waiver or other modification to any
Operative Document, each of the parties hereto, by its execution of this
Participation Agreement, shall be deemed to have given its written consent to
such amendment supplement, termination, waiver or other modification.
SECTION 8.5 Headings, Etc. The Table of Contents and
headings of the various Sections of this Participation Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
SECTION 8.6 Parties in Interest. Except as expressly
provided herein, none of the provisions of this Participation Agreement is
intended for the benefit of any Person except the parties hereto, their
successors and their permitted assigns.
SECTION 8.7 Governing Law. THIS PARTICIPATION AGREEMENT HAS
BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.
SECTION 8.8 No Recourse. No recourse shall be had for any
claims under this Participation Agreement against any incorporator,
shareholder, officer, manager, member or director, past, present or future, of
Lessor or of any successor or of Lessor's constituent members or other
affiliates or of JH Management Corporation, or against JH Management
Corporation, either directly or through Lessor or any successor, whether by
virtue of any constitution, statute or rule of law or by the enforcement of any
assessment or penalty or
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otherwise, all such liability being, by acceptance hereof and as part of the
consideration for the acceptance hereof, expressly waived and released.
SECTION 8.9 Expenses.
(a) Expenses of Lessor and Lender. The
reasonable fees, expenses and disbursements (including reasonable counsel fees)
of the Lessor and the Lender in connection with the Operative Documents
incurred from and after the Closing Date shall be paid by the Lessee as
Supplemental Rent upon demand therefor by the Lessor, provided that no such
fees shall be payable by Lessee unless specifically authorized by the Operative
Documents.
(b) Amendments Supplements and Appraisal. The
Lessee agrees to pay all reasonable and documented out-of-pocket costs and
expenses of the Lessor and the Lender in connection with the successful
amendment or supplementing of the Operative Documents and the documents and
instruments referred to therein (including, without limitation, the fees and
disbursements of counsel for the Lessor and the Lender).
SECTION 8.10 Severability. Any provision of this
Participation Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
SECTION 8.11 Submission to Jurisdiction; Waivers. Each party
hereto hereby irrevocably and unconditionally (i) submits for itself and its
property in any legal action or proceeding relating to this Participation
Agreement or any other Operative Document, or for recognition and enforcement
of any judgment in respect thereof, to the non-exclusive general jurisdiction
of the courts of the State of Texas, the courts of the United States of America
for the District of Texas and appellate courts from any thereof, (ii) consents
that any such action or proceedings may be brought to such courts, and waives
any objection that it may now or hereafter have to the venue of any such action
or proceeding in any court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same, (iii) agrees that
service of process in any such action or proceeding may be effected by mailing
a copy thereof by registered or certified mail (or any substantially similar
form of mail), postage prepaid, to such party at its address set forth in
Section 8.2 or at such other address of which the other parties hereto shall
have been notified pursuant to Section 8.2 and (iv) agrees that nothing herein
shall affect the right to effect service of process in any other manner
permitted by law.
SECTION 8.12 Limitation on Interest. Any provision to the
contrary contained in this Participation Agreement or in any of the other
Operative Documents notwithstanding, it is expressly provided that in no case
or event shall the aggregate of (i) all interest payable by the Lessee or the
Lessor and (ii) the aggregate of any other amounts accrued or paid pursuant to
this Participation Agreement or any of the other Operative Documents, which
under applicable laws
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are or may be deemed to constitute interest, ever exceed the maximum rate of
interest which could lawfully be contracted for, charged or received. In this
connection, it is expressly stipulated and agreed that it is the intent of the
Lessee, the Lessor and the Lender to contract in strict compliance with the
applicable usury laws of the ▇▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ (whichever
permit the higher rate of interest) from time to time in effect. In
furtherance thereof, none of the terms of this Participation Agreement or any
of the other Operative Documents shall ever be construed to create a contract
to pay, as consideration for the use, forbearance or detention of money,
interest at a rate in excess of the maximum contract interest rate permitted to
be contracted for, charged or received by the applicable laws of the United
States or the State of Texas (whichever permit the higher rate of interest).
The Lessee, the Lessor and the other parties now or hereafter becoming liable
for payment of any indebtedness under this Participation Agreement or any other
Operative Documents shall never be liable for interest in excess of the maximum
rate that may be lawfully contracted for or charged under the laws of the ▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ (whichever permit the higher rate of
interest). If under any circumstances the aggregate amounts paid include
amounts which by law are deemed interest which would exceed the maximum amount
of interest which could lawfully have been contracted for, charged or received,
the parties stipulate that such amounts will be deemed to have been paid as a
result of an error on the part of the parties, and the party receiving such
excess payment shall promptly, upon discovery of such error or upon notice
thereof from the party making such payment, refund the amount of such excess or
at the Lender's option, credit such excess against any unpaid principal balance
owing. To the maximum extent permitted by applicable law, all amounts
contracted for, charged or received for the use, forbearance, or detention of
money shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of the Loan. The provisions of
this Section 8.12 shall control all of the Operative Documents.
Section 8.13 Waiver of Consumer Rights. Each of the parties
hereto does hereby represent and warrant with and to each of the other parties
hereto that (a) it is not in a significantly disparate bargaining position, (b)
it is represented by legal counsel in seeking or acquiring goods or services
and such legal counsel was not directly nor indirectly identified, suggested or
selected by another party hereto, (c) it has knowledge and experience in
financial and business matters that enable it to evaluate the merits and risks
of a transaction, including the transaction evidenced by the Operative
Documents, and (d) the Operative Documents are not a result of any disparity in
bargaining position among the Lessee, the Lessor and the Lender and were
negotiated on an arms-length basis and represent the bargained-for agreement of
parties. EACH PARTY WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., BUSINESS & COMMERCE
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF ITS OWN SELECTION, IT VOLUNTARILY CONSENTS TO
THIS WAIVER.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Participation
Agreement to be executed by their respective duly authorized officers as of the
day and year first above written.
EAGLE USA AIRFREIGHT, INC., as Lessee
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Financial Officer
ASSET XI HOLDINGS COMPANY, L.L.C.,
as Lessor
By Asset Holdings Corporation I, a
Delaware corporation, its managing
member
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Vice President
BANK ONE, TEXAS, N.A., as Lender
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
Title: Vice President
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APPENDIX I
Filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996 and incorporated by reference herein.