-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4L92xwHpQG/X/nGyX2+sB+0piNcdqnbo6S9YSsI+48s3P0ar8VTFpCzpmBhUY7J uxYudTAoIuGXvU1Z9Jm2qw== 0000950152-96-002526.txt : 19960517 0000950152-96-002526.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950152-96-002526 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEARINGS INC /OH/ CENTRAL INDEX KEY: 0000109563 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MACHINERY, EQUIPMENT & SUPPLIES [5080] IRS NUMBER: 340117420 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02299 FILM NUMBER: 96567536 BUSINESS ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 BUSINESS PHONE: 2168818900 MAIL ADDRESS: STREET 1: 3600 EUCLID AVE CITY: CLEVELAND STATE: OH ZIP: 44115 FORMER COMPANY: FORMER CONFORMED NAME: BROWN JIM STORES INC DATE OF NAME CHANGE: 19600201 10-Q 1 BEARINGS 10-Q 1 FORM 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1996 ------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission File Number 1-2299 ------------ BEARINGS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0117420 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3600 Euclid Avenue, Cleveland, Ohio 44115 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 881-2838 --------------------- None - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Shares of common stock outstanding on April 30, 1996 12,350,718 ------------------------------------- (No par Value) 2 BEARINGS, INC. -------------- INDEX - -------------------------------------------------------------------------------- Page No. Part I: FINANCIAL INFORMATION Item 1: Financial Statements Statements of Consolidated Income - Three Months and Nine Months Ended March 31, 1996 and 1995 2 Consolidated Balance Sheets - March 31, 1996 and June 30, 1995 3 Statements of Consolidated Cash Flows Nine Months Ended March 31, 1996 and 1995 4 Statements of Consolidated Shareholders' Equity - Nine Months Ended March 31, 1996 and Year Ended June 30, 1995 5 Notes to Consolidated Financial Statements 6 - 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 9 - 11 Part II: OTHER INFORMATION Item 1: Legal Proceedings 12 - 13 Item 6: Exhibits and Reports on Form 8-K 13 - 15 Signatures 15 3 PART I: FINANCIAL INFORMATION ITEM I: Financial Statements BEARINGS, INC. AND SUBSIDIARIES ------------------------------- STATEMENTS OF CONSOLIDATED INCOME (Unaudited) (Thousands, except per share amounts) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended March 31 March 31 1996 1995 1996 1995 ---------------------- ---------------------- Net Sales $ 296,064 $ 277,029 $ 848,263 $ 774,540 --------- --------- --------- --------- Cost and Expenses Cost of sales 220,454 206,788 630,544 577,505 Selling, distribution and administrative 62,663 60,690 183,494 173,128 --------- --------- --------- --------- 283,117 267,478 814,038 750,633 --------- --------- --------- --------- Operating Income 12,947 9,551 34,225 23,907 --------- --------- --------- --------- Interest Interest expense 2,426 2,123 6,879 5,653 Interest income (199) (57) (375) (217) --------- --------- --------- --------- 2,227 2,066 6,504 5,436 --------- --------- --------- --------- Income Before Income Taxes 10,720 7,485 27,721 18,471 --------- --------- --------- --------- Income Taxes Federal 3,665 2,469 9,563 6,185 State and local 933 667 2,332 1,565 --------- --------- --------- --------- 4,598 3,136 11,895 7,750 --------- --------- --------- --------- Net Income $ 6,122 $ 4,349 $ 15,826 $ 10,721 ========= ========= ========= ========= Net Income per share $ 0.50 $ 0.37 $ 1.29 $ 0.93 ========= ========= ========= ========= Cash dividends per common share $ 0.14 $ 0.12 $ 0.40 $ 0.35 ========= ========= ========= =========
See notes to consolidated financial statements. 2 4 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- CONSOLIDATED BALANCE SHEETS (Amounts in thousands) - --------------------------------------------------------------------------------
March 31 June 30 1996 1995 --------- --------- (Unaudited) Assets ------ Current assets Cash and temporary investments $ 13,238 $ 4,789 Accounts receivable, less allowance of $3,153 and $2,300 156,088 145,680 Inventories (at LIFO) 132,346 112,596 Other current assets 2,619 2,307 --------- --------- Total current assets 304,291 265,372 --------- --------- Property - at cost Land 11,762 11,783 Buildings 59,604 57,365 Equipment 70,497 68,926 --------- --------- 141,863 138,074 Less accumulated depreciation 61,664 58,802 --------- --------- Property - net 80,199 79,272 --------- --------- Other assets 23,531 14,587 --------- --------- TOTAL ASSETS $ 408,021 $ 359,231 ========= ========= Liabilities and Shareholders' Equity - ------------------------------------ Current liabilities Notes payable $ 50,025 $ 18,575 Current portion of long-term debt 11,429 5,714 Accounts payable 49,473 53,722 Compensation and related benefits 21,415 18,248 Other accrued liabilities 16,050 15,558 --------- --------- Total current liabilities 148,392 111,817 Long-term debt 68,571 74,286 Deferred income taxes 918 918 Other liabilities 8,889 6,809 --------- --------- TOTAL LIABILITIES 226,770 193,830 --------- --------- Shareholders' Equity Preferred Stock - no par value; 2,500 shares authorized; none issued or outstanding Common stock - no par value; 30,000 shares authorized; 13,954 shares issued 10,000 10,000 Additional paid-in capital 6,180 11,311 Income retained for use in the business 191,438 177,402 Less 1,591 and 2,266 treasury shares - at cost (20,997) (29,253) Less shares held in trust for deferred compensation plans (3,078) (1,426) Less unearned restricted common stock compensation (2,292) (2,633) --------- --------- TOTAL SHAREHOLDERS' EQUITY 181,251 165,401 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 408,021 $ 359,231 ========= =========
See notes to consolidated financial statements. 3 5 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- STATEMENTS OF CONSOLIDATED CASH FLOWS (Unaudited) (Amounts in thousands)
Nine Months Ended March 31 -------------------- 1996 1995 - ---------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income $ 15,826 $ 10,721 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 10,193 9,995 Provision for losses on accounts receivable 1,966 901 Gain on sale of property (889) (136) Amortization of restricted common stock compensation and goodwill 723 492 Treasury shares contributed to employee benefit plans 2,402 2,206 Changes in current assets and liabilities, net of effects from acquisition of businesses: Accounts receivable (9,539) (14,216) Inventories (17,329) (15,226) Other current assets 1,537 (950) Accounts payable and accrued expenses (1,583) 9,698 Other - net 956 966 - ---------------------------------------------------------------------------------- Net Cash provided by Operating Activities 4,263 4,451 - ---------------------------------------------------------------------------------- Cash Flows from Investing Activities Property purchases (13,210) (7,356) Proceeds from property sales 3,667 1,038 Acquisition of businesses, less cash acquired (4,328) (1,839) Deposits and other (8,451) (685) - ---------------------------------------------------------------------------------- Net Cash used in Investing Activities (22,322) (8,842) - ---------------------------------------------------------------------------------- Cash Flows from Financing Activities Net borrowings under line-of-credit agreements 31,450 4,410 Exercise of stock options 1,219 3,915 Dividends paid (4,799) (3,999) Purchase of treasury shares (1,362) (3,874) - ---------------------------------------------------------------------------------- Net Cash provided by Financing Activities 26,508 452 - ---------------------------------------------------------------------------------- Increase (decrease) in cash and temporary investments 8,449 (3,939) Cash and temporary investments at beginning of period 4,789 10,935 - ---------------------------------------------------------------------------------- Cash and Temporary Investments at End of Period $ 13,238 $ 6,996 ================================================================================== Supplemental Cash Flow Information Cash paid during the period for: Income taxes $ 12,933 $ 9,802 Interest $ 6,297 $ 6,352
See notes to consolidated financial statements. 4 6 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY For the Nine Months Ended March 31, 1996 (Unaudited) and Year Ended June 30, 1995 (Amounts in thousands)
Income Shares of Additional Retained Treasury Common Stock Common Paid-in for Use in Shares Outstanding Stock Capital the Business - at Cost ============================================================================================================================ Balance at July 1, 1994 11,319 $10,000 $6,962 $165,807 ($32,278) Net income 16,909 Cash dividends - $.47 per share (5,397) Purchase of common stock for treasury (180) (3,874) Treasury shares issued for: 401-(k) Savings Plan contributions 140 1,124 1,788 Exercise of stock options 225 1,565 2,789 Restricted common stock awards 138 1,232 1,727 Deferred compensation plans 46 428 595 Amortization of restricted common stock compensation Other 83 - ---------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1995 As previously reported 11,688 10,000 11,311 177,402 (29,253) Pooling of interests with Engineered Sales, Inc. 486 (6,530) 3,009 6,408 - ---------------------------------------------------------------------------------------------------------------------------- Balance as restated 12,174 10,000 4,781 180,411 (22,845) Net income 15,826 Cash dividends - $.40 per share (4,799) Purchase of common stock for treasury (57) (1,362) Treasury shares issued for: Retirement Savings Plan contributions 100 1,113 1,289 Exercise of stock options 103 (119) 1,338 Deferred compensation plans 42 392 564 Restricted common stock awards 1 13 19 Amortization of restricted common stock compensation Other - ---------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 12,363 $10,000 $6,180 $191,438 ($20,997) ============================================================================================================================
See notes to consolidated financial statements.
Shares Held in Unearned Trust for Restricted Total Deferred Common Stock Shareholders' Compensation Plans Compensation Equity ======================================================= $150,491 16,909 (5,397) (3,874) 2,912 4,354 ($2,959) ($1,023) 326 326 (403) (320) - ------------------------------------------------------- (1,426) (2,633) 165,401 2,887 - ------------------------------------------------------- (1,426) (2,633) 168,288 15,826 (4,799) (1,362) 2,402 1,219 (956) (32) 373 373 (696) (696) - ------------------------------------------------------- ($3,078) ($2,292) $181,251 =======================================================
5 7 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of March 31, 1996, and the results of operations for the three months and nine months ended March 31, 1996 and 1995, and cash flows for the nine months ended March 31, 1996 and 1995. The results of operations for the three and nine month periods ended March 31, 1996 are not necessarily indicative of the results to be expected for the fiscal year. Cost of sales for interim financial statements are computed using estimated gross profit percentages which are adjusted throughout the year based upon available information. Adjustments to actual cost are made based on the annual physical inventory and the effect of year-end inventory quantities on LIFO costs. 2. NET INCOME PER SHARE Net income per share was computed using the weighted average number of common shares outstanding for the period. All share and per share data have been restated to reflect a three for two stock split effective on December 4, 1995. Average shares outstanding for the computation of net income per share were as follows:
Three Months Ended Nine Months Ended March 31 March 31 1996 1995 1996 1995 ------------------ ---------------- 12,341 11,624 12,285 11,516
6 8 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- 3. BUSINESS COMBINATIONS On February 9, 1996 the Company exchanged 486 shares of Bearings, Inc. common stock for all of the outstanding shares of Engineered Sales, Inc., a distributor of hydraulic, pneumatic and electro-hydraulic components, systems and related fluid power engineering services. This business combination is accounted for as a pooling of interests. Previously reported financial results for the current fiscal year have been restated to include Engineered Sales for the entire nine month period ended March 31, 1996. The prior years' consolidated financial statements have not been restated because the effects are not material. Separate results of operations for Engineered Sales prior to the acquisition are not included as these amounts are not material. During the quarter ended September 30, 1995 the Company acquired the assets of two distributors of drive products and rubber products, for a total of $4,328. The acquisitions of these businesses were accounted for as purchases and their results of operations are included in the accompanying consolidated financial statements from their respective acquisition dates. Results of operations for these acquisitions are not material for all periods presented. Goodwill recognized in connection with these combinations is being amortized over 15 years. 4. LONG-TERM COMMITMENT During the quarter ended March 31, 1996 the Company entered into a twenty year lease agreement with the Cleveland-Cuyahoga County Port Authority (the Port) in connection with the construction of a new corporate headquarters facility. Lease payments are to begin upon completion of construction in July 1997 and the facility portion of the lease will be accounted for as an operating lease. The Company will also have a capital lease for $2,000 of furniture, fixtures and equipment as part of the agreement. Payments under this lease commitment are $1,486 in 1998; $1,486 in 1999; $1,486 in 2000; and $1,486 in 2001; $1,486 in 2002 and $35,880 after 2002. In connection with the lease agreement the Company has also agreed to guarantee repayment of $5,678 of bonds issued by the Port and Cuyahoga County to fund construction of the new headquarters facility. 7 9 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) - -------------------------------------------------------------------------------- 5. RECENTLY ISSUED ACCOUNTING STANDARD In October 1995, the Financial Accounting Standards Board issued Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", which the Company will be required to adopt for the fiscal year ending June 30, 1997. As permitted by SFAS 123, the Company does not intend to change its method of accounting for stock-based compensation. The Company has not yet determined the pro forma disclosures for employee awards granted in the fiscal year ending June 30, 1996, which will be presented in the notes to financial statements for the year ending June 30, 1997. 6. RETIREMENT PLAN MERGER On July 1, 1995, The Bearings, Inc. Employees' Profit-Sharing Trust was merged into The Bearings, Inc 401(k) Savings Plan. The merged plan is known as The Bearings, Inc. Retirement Savings Plan. 7. INTEREST RATE SWAP Effective March 1, 1996 the Company entered into a two year interest rate swap agreement with a major bank that effectively converts $15,000 of variable rate borrowings to a fixed rate. Under this agreement, the Company receives payments at variable rates based on LIBOR, as determined at monthly intervals and makes payments at a fixed interest rate of 5.29%. Net interest earned under this agreement reduced interest expense. The interest rate swap agreement has nominal carrying value. 8. SUBSEQUENT EVENT In April 1996 approximately one quarter of the unearned restricted common stock vested on an accelerated basis due to price performance of the Company's stock. Previously, the expense for vesting of these shares was being recognized over a six year period. 8 10 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The following is Management's discussion and analysis of certain significant factors which have affected the Company's: (1) financial condition at March 31, 1996 and June 30, 1995 and (2) results of operations during the periods included in the accompanying Statements of Consolidated Income and Consolidated Cash Flows. FINANCIAL CONDITION Liquidity and Working Capital - ------------------------------ Cash provided by operating activities was $4.2 million in the nine months ended March 31, 1996. This compares to $4.5 million of cash provided by operating activities in the same period a year ago. Cash flow from operations depends primarily upon generating operating income and controlling the investment in inventory and receivables. The Company has continuing programs to monitor and control these investments. During the nine month period ended March 31, 1996 inventories increased approximately $17.3 million and accounts receivable increased by $9.5 million. These increases are primarily attributable to the increase in sales volume and to improved customer fill rates. Working capital at March 31, 1996 was $155.9 million compared to $153.6 million at June 30, 1995. The current ratio was 2.1 at March 31, 1996 and 2.4 at June 30, 1995. This decrease is primarily due to a portion of long-term debt becoming current and an increase in short-term notes payable from the increase in inventory. Capital Resources - ----------------- Capital resources are obtained from income retained in the business, borrowings under the Company's lines of credit and long-term debt. Average combined short-term and long-term borrowing was $113.5 million for the nine months ended March 31, 1996 and $97.9 million during the year ended June 30, 1995. The average effective interest rate on the short-term borrowings for the nine months ended March 31, 1996 increased to 6.1% from an average rate of 5.7% for the nine months ended March 31, 1995 due to higher prevailing short-term interest rates. The Company has $110 million of short-term lines of credit with commercial banks which provide for payment of interest at various interest rate options, none of which are in excess of the banks' prime rate. The Company had $50.0 million of borrowings under these short-term bank lines of credit at March 31, 1996. Unused bank lines of credit of $60.0 million are available for future short-term financing needs. 9 11 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The Company entered into a twenty year lease agreement with the Cleveland-Cuyahoga County Port Authority in connection with the construction of a new corporate headquarters facility. Lease payments are to begin upon completion of construction in July 1997. See Note 4 of the Notes to Consolidated Financial Statements. Management expects that capital resources provided from operations, available lines of credit and long-term debt will be sufficient to finance normal working capital needs and capital expenditure programs. Management also believes that additional long-term debt and line of credit financing could be obtained if desired. RESULTS OF OPERATIONS - --------------------- A summary of the period-to-period changes in principal items included in the statements of consolidated income follows:
Increase (Decrease) (Dollars in thousands) Three Months Ended Nine Months Ended March 31 March 31 1996 and 1995 1996 and 1995 Percent Percent Amount Change Amount Change ------- ------- ------- ------- Net sales $19,035 6.9% $73,723 9.5% Cost of sales 13,666 6.6% 53,039 9.2% Selling, distribution and administrative expenses 1,973 3.3% 10,366 6.0% Operating income 3,396 35.6% 10,318 43.2% Interest expense -net 161 7.8% 1,068 19.6% Income before income taxes 3,235 43.2% 9,250 50.1% Income taxes 1,462 46.6% 4,145 53.5% Net income 1,773 40.8% 5,105 47.6%
10 12 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - -------------------------------------------------------------------------------- Three Months Ended March 31, 1996 and 1995 - ------------------------------------------ Increases in sales for the quarter were primarily due to volume and price increases. Gross profit, as a percentage of sales, increased from 25.4% to 25.5%. Selling, distribution and administrative expenses increased by 3.3% from higher compensation expense due to an increase in the number of associates from recent acquisitions, loss on the disposal of data processing equipment and higher bad debt expense. Interest expense-net for the quarter increased by 7.8% from higher short-term interest rates and increased average borrowing. The Company has an outstanding swap agreement at March 31, 1996. See Note 7 of the Notes to the Consolidated Financial Statements. Income taxes as a percentage of income before taxes was 42.9% in the three months ended March 31, 1996 and 41.9% in the three months ended March 31, 1995. As a result of the above factors, net income increased by 40.8% compared to the same quarter of last year. Income per share increased by 35.1% due to an increase in income and the increase in the average shares outstanding. Nine Months Ended March 31, 1996 and 1995 - ----------------------------------------- Increases in sales for the period were primarily due to volume and price increases. Gross profit, as a percentage of sales, increased from 25.4% to 25.7%. Selling, distribution and administrative expenses increased by 6.0% from higher bad debts and higher compensation expense and hospitalization costs from an increase in the number of associates due to recent acquisitions. Interest expense-net for the period increased by 19.6% from higher short-term interest rates and increased average borrowing. The Company has an outstanding swap agreement at March 31, 1996. Income taxes as a percentage of income before taxes was 42.9% in the nine months ended March 31, 1996 and 42.0% in the nine months ended March 31, 1995. As a result of the above factors, net income increased by 47.6% compared to the same period last year. Income per share increased by 38.7% due to an increase in income and the increase in the average shares outstanding. 11 13 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings. ------------------ (a) The Company incorporates by reference herein the description of the cases captioned SAMMIE ADKINS, ET AL. V. A. P. GREEN INDUSTRIES, INC., ET AL., Summit County, Ohio, Court of Common Pleas, Case No. ACV 88-7-2398 (and related cases) found in Item 3 "Pending Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended June 30, 1995 and Item 1 "Legal Proceedings" contained in the Company's Form 10-Q for the quarter ended December 31, 1995. Notwithstanding possible indemnification from suppliers and insurance, the Company believes, based on circumstances presently known, that these cases are not material to its business or its financial condition. (b) The Company incorporates by reference herein the description of the cases captioned IN RE: ROBERT LEE BICKHAM, ET AL. V. METROPOLITAN LIFE INSURANCE CO., ET AL., 22nd Judicial District Court for the Parish of Washington, Louisiana, Case No. 70,760-E; and IDA MAE WILLIAMS, ET AL. V. METROPOLITAN LIFE INSURANCE COMPANY, ET AL., 22nd Judicial District Court for the Parish of Washington, Louisiana, Case No. 72,986-F, found in Item 3 "Pending Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended June 30, 1995. In March 1996, the Company was served with the Second Supplemental and Amending Petition in a related case, BENNIE L. ADAMS, ET AL. V. METROPOLITAN LIFE INSURANCE CO., ET AL., 22nd Judicial District Court for the Parish of Washington, Louisiana, Case No. 72,154-B. This case involves 89 persons or heirs of persons who were allegedly exposed to asbestos-containing products while employed at the Bogalusa, Louisiana, Paper Mill and/or Box Factory. The allegations made in the ADAMS case are substantially identical to those made in the BICKHAM and WILLIAMS cases. Notwithstanding 12 14 potential indemnification from suppliers and insurance, the Company believes, based on circumstances presently known, that these cases are not material to its business or its financial condition. (c) The Company also incorporates by reference herein the description of the case captioned KING BEARING, INC. V. CARYL EDMUND ORANGES, ET AL., Superior Court of the State of California, County of Orange, Case No. 53-42-31 found in Item 3 "Pending Legal Proceedings" contained in the Company's Form 10-K for the fiscal year ended June 30, 1995. The case is now pending in the California Court of Appeal. The Company believes that this case will have no material adverse effect on its business or financial condition. (d) Bearings, Inc. and/or one of its subsidiaries is a defendant in several employment-related lawsuits. Based on circumstances presently known, the Company believes that these cases are not material to its business or its financial condition. ITEM 6. Exhibits and Reports on Form 8-K. --------------------------------- (a) Exhibits. --------- Exhibit No. Description ----------- ----------- 4(a) Amended and Restated Articles of Incorporation of Bearings, Inc., filed with the Ohio Secretary of State on October 18, 1988 (filed as Exhibit 4(a) to the Bearings, Inc. Form 8-K dated October 21, 1988, SEC File No. 1-2299, and incorporated here by reference). 4(b) Code of Regulations of Bearings, Inc., adopted September 6, 1988 (filed as Exhibit 4(b) to the Bearings, Inc. Form 8-K dated October 21, 1988, SEC File No. 13 15 1-2299, and incorporated here by reference). 4(c) Certificate of Amendment of Amended and Restated Articles of Incorporation of Bearings, Inc. filed with the Ohio Secretary of State on October 27, 1988 (filed as Exhibit 4(c) to the Bearings, Inc. Form 10-Q for the Quarter Ended September 30, 1988, SEC File No. 1-2299, and incorporated here by reference). 4(d) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) filed with the Ohio Secretary of State on October 18, 1988 (filed as Exhibit 4 to the Bearings, Inc. Form 10-K for the fiscal year ended June 30, 1989, SEC File No. 1-2299, and incorporated here by reference). 4(e) Certificate of Amendment of Amended and Restated Articles of Incorporation of Bearings, Inc. filed with the Ohio Secretary of State on October 17, 1990 (filed as Exhibit 4(e) to the Bearings, Inc. Form 10-Q for the quarter ended September 30, 1990, SEC File No. 1-2299, and incorporated here by reference). 4(f) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Bearings, Inc. and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Bearings, Inc. Form 10-Q for the quarter ended September 30, 1992, SEC File No. 1-2299, and incorporated here by reference). 4(g) Amendment to $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Bearings, Inc. and The Prudential Insurance Company of America. 10 Lease dated as of March 1, 1996, between Bearings, Inc. and the Cleveland-Cuyahoga County Port Authority, for a new corporate headquarters facility. 14 16 11 Computation of Net Income Per Share. 27 Financial Data Schedule. (b) The Company did not file, nor was it required to file, a Report on Form 8-K with the Securities and Exchange Commission during the quarter ended March 31, 1996. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BEARINGS, INC. (Company) Date: May 14, 1996 By: /s/ John C.Robinson -------------------- John C. Robinson President & Chief Operating Officer Date: May 14, 1996 By: /s/ John R.Whitten ------------------- John R. Whitten Vice President-Finance & Treasurer 15 17 BEARINGS, INC. EXHIBIT INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 Exhibit No. Description Page ----------- ----------- ---- 4(a) Amended and Restated Articles of Incorporation of Bearings, Inc., filed with the Ohio Secretary of State on October 18, 1988 (filed as Exhibit 4(a) to the Bearings, Inc. Form 8-K dated October 21, 1988, SEC File No. 1-2299, and incorporated here by reference). 4(b) Code of Regulations of Bearings, Inc., adopted September 6, 1988 (filed as Exhibit 4(b) to the Bearings, Inc. Form 8-K dated October 21, 1988, SEC File No. 1-2299, and incorporated here by reference). 4(c) Certificate of Amendment of Amended and Restated Articles of Incorporation of Bearings, Inc., filed with the Ohio Secretary of State on October 27, 1988 (filed as Exhibit 4(c) to the Bearings, Inc. Form 10-Q for the Quarter Ended September 30, 1988, SEC File No. 1-2299, and incorporated here by reference). 4(d) Certificate of Merger of Bearings, Inc. (Ohio) and Bearings, Inc. (Delaware) 18 filed with the Ohio Secretary of State on October 18, 1988 (filed as Exhibit 4 to the Bearings, Inc. Form 10-K for the fiscal year ended June 30, 1989, SEC File No. 1-2299, and incorporated here by reference). 4(e) Certificate of Amendment of Amended and Restated Articles of Incorporation of Bearings, Inc. filed with the Ohio Secretary of State on October 17, 1990 (filed as Exhibit 4(e) to the Bearings, Inc. Form 10-Q for the quarter ended September 30, 1990, SEC File No. 1-2299, and incorporated here by reference). 4(f) $80,000,000 Maximum Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Bearings, Inc. and The Prudential Insurance Company of America (filed as Exhibit 4(f) to the Bearings, Inc. Form 10-Q for the quarter ended September 30, 1992, SEC File No. 1-2299, and incorporated here by reference). 4(g) Amendment to $80,000,000 Maximum Attached Aggregate Principal Amount Note Purchase and Private Shelf Facility dated October 31, 1992 between Bearings, Inc. and The Prudential Insurance Company of America. 10 Lease dated as of March 1, 1996, Attached between Bearings, Inc. and the Cleveland-Cuyahoga County Port Authority, for a new corporate headquarters facility. 19 11 Computation of Net Income Per Share. Attached 27 Financial Data Schedule. Attached EX-4.G 2 EXHIBIT 4(G) 1 Exhibit 4(g) - -------------------------------------------------------------------------------- The PRUDENTIAL [LOGO] PRUDENTIAL CAPITAL GROUP Two Prudential Plaza, Suite 5600 Chicago, IL 60601-6716 312 540-0931 Fax: 312 540-4222 March 28, 1996 Bearings, Inc. 3600 Euclid Avenue Cleveland, Ohio 44115-2515 Attention: John R. Whitten Vice President-Finance and Treasurer Ladies & Gentlemen: Reference is made to that certain Note Purchase and Private Shelf Agreement dated as of October 31, 1992 (the "Note Agreement") between Bearings, Inc., an Ohio corporation (the "Company"), and The Prudential Insurance Company of America ("Prudential"), pursuant to which the Company issued and sold and Prudential purchased the Company's 7.82% senior note in the original principal amount of $80,000,000, due December 8, 2002. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Note Agreement. Pursuant to the request of the Company and in accordance with the provisions of paragraph 11C of the Note Agreement, the parties hereto agree as follows: SECTION 1. AMENDMENT. From and after the date this letter becomes effective in accordance with Section 2 below, (A) paragraphs 5 and 6 of the Note Agreement are amended and restated in their entirety so as to read as set forth, respectively, in paragraphs 5 and 6 of EXHIBIT A attached hereto and (i) cross references to paragraphs 5 or 6, as the case may be, shall be deemed to refer to paragraphs 5 or 6, as the case may be, as amended hereby and (ii) the definitions of the following terms appearing in paragraph 10 of the Note Agreement are amended and restated so as to read as set forth in EXHIBIT A attached hereto: "Called Principal", "Debt", "Discounted Value" and "Settlement Date" and (B) the following definitions set forth in EXHIBIT A attached hereto are hereby added to paragraph 10B in appropriate alphabetical order: "County Bonds Guaranty", "Inducement Agreement" and "Project Bond Guaranty". In addition, the amounts "$1,000,000" and "$5,000,000" appearing in paragraph 7A(iii) of the Note Agreement are hereby deleted and the amounts "$5,000,000" and "$10,000,000" are hereby respectively substituted therefor. SECTION 2. CONDITIONS PRECEDENT. This letter shall be and become effective as of March 28, 1996 upon the return by the Company to Prudential of a counterpart hereof duly executed by the Company. 2 Bearings, Inc. March 28, 1996 Page 2 SECTION 3. REFERENCE TO AND EFFECT ON NOTE AGREEMENT. Upon the effectiveness of this letter, each reference to the Note Agreement in any other document, instrument or agreement shall mean and be a reference to the Note Agreement as modified by this letter. Except as specifically set forth in Section 1 hereof, the Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. SECTION 4. GOVERNING LAW. THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE. SECTION 5. COUNTERPARTS; SECTION TITLES. This letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. The section titles contained in this letter are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Very truly yours, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA By: /s/ Mark Hoffmeister ______________________________________ Vice President Agreed and accepted: BEARINGS, INC. By: _____________________________ John R. Whitten Vice President-Finance and Treasurer 3 EXHIBIT A TO AMENDMENT NO. 1 DATED MARCH 28, 1996 5. AFFIRMATIVE COVENANTS. 5A. FINANCIAL STATEMENTS. The Company covenants that it will deliver to each Significant Holder in triplicate: (i) as soon as practicable and in any event within 60 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; PROVIDED, HOWEVER, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i); (ii) as soon as practicable and in any event within 120 days after the end of each fiscal year, consolidated statements of income, stockholders' equity, and cash flows of the Company and its Subsidiaries for such year, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Required Holder(s) and, reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to scope of the audit and satisfactory in substance to the Required Holder(s); PROVIDED, HOWEVER, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii); (iii) promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices and reports as it shall send to its public stockholders and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any 1 4 governmental body or agency succeeding to the functions of the Securities and Exchange Commission), excluding registration statements on Form S-8 and reports filed under Section 16 of the Securities Exchange Act of 1934; (iv) promptly upon receipt thereof, a copy of each other report submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary; and (v) with reasonable promptness, such other financial data as such Significant Holder may reasonably request. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Significant Holder an Officer's Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraph 6 and stating that, to the best of their knowledge based upon reasonable inquiry, there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each Significant Holder a report of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default, or, if they have obtained knowledge of any Event of Default or Default, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that immediately after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each Significant Holder an Officer's Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. 5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term "qualified institutional buyer" shall have the meaning specified in Rule 144A under the Securities Act. 5C. INSPECTION OF PROPERTY. The Company covenants that it will permit any Person designated by any Significant Holder in writing, at such Significant Holder's expense, to visit and 2 5 inspect any of the properties of the Company and its Subsidiaries, to examine the corporate books and financial records of the Company and its Subsidiaries and obtain copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants, all at such reasonable times as the Company and such Significant Holder shall agree but in any event within three Business Days from request and during normal business hours. 5D. COVENANT TO SECURE NOTES EQUALLY. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6B(1) (unless the prior written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured. 5E. MAINTENANCE OF INSURANCE. The Company covenants that it and each Subsidiary shall maintain, with financially sound and reputable insurers, insurance in such amounts and against such liabilities and hazards as is ordinarily carried by companies similarly situated in the same or similar lines of business. 6. NEGATIVE COVENANTS. Unless the Required Holders shall otherwise consent in writing, the Company agrees to observe and perform each of the negative covenants set forth below so long as any Note shall remain outstanding. 6A(1). LIQUIDITY. The Company covenants that it will not permit Consolidated Current Assets less Consolidated Current Liabilities determined at the end of any fiscal quarter to fall below an amount equal to $125,000,000. 6A(2). CURRENT RATIO. The Company covenants that it will not permit the ratio (expressed as a percentage) of Consolidated Current Assets to Consolidated Current Liabilities determined at the end of any fiscal quarter to fall below 150%. 6A(3). CONSOLIDATED TANGIBLE NET WORTH. The Company covenants that it will not permit Consolidated Tangible Net Worth determined at the end of any fiscal quarter to fall below $115,000,000 PLUS an amount equal to 30% of annual Consolidated Net Income (less 0% in the event of a loss), applied at the end of each fiscal year commencing with the fiscal year ending June 30, 1996. 6B. CREDIT AND OTHER RESTRICTIONS. The Company covenants that it will not and will not permit any Subsidiary to: 6B(1). LIEN RESTRICTIONS. Create, incur, assume or suffer to exist any Lien upon any of its property or assets, whether now owned or hereafter acquired (whether or not provision is made 3 6 for the equal and ratable securing of Notes in accordance with the provisions of paragraph 5D hereof), except: (i) Liens for taxes or other governmental charges not yet due or which are being actively contested in good faith by appropriate proceedings; (ii) Liens incidental to the conduct of its business or the ordinary operation or use of its property which were not incurred in connection with the borrowing of money or obtaining credit or advances; (iii) Liens on property or assets of a Subsidiary to secure obligations of such Subsidiary to the Company or another Subsidiary; (iv) Liens identified on EXHIBIT G to this Agreement; (v) Liens relating to the ledger balances, consignments, and other similar arrangements and other Liens (including Liens consisting of Capitalized Lease Obligations and/or purchase money security interests) to secure Debt, provided that (x) the Debt to which the Lien relates is permitted by paragraph 6B(2) and (y) the aggregate amount of Debt (plus, without duplication, the aggregate amount of such ledger balances, consignments and other similar arrangements) secured by such Liens does not exceed at any time 20% of Consolidated Tangible Net Worth; and (vi) Liens consisting of survey exceptions, minor encumbrances, easements and rights of way, or zoning or other restrictions as to the use of real properties; PROVIDED, HOWEVER, that such Liens in the aggregate do not materially impair the usefulness of such property in the business of the Company and its Subsidiaries, taken as a whole. 6B(2). DEBT RESTRICTION. Create, incur, assume or suffer to exist any Debt, except: (i) Debt in existence on March 28, 1996; (ii) Debt of any Subsidiary to the Company or to any other Subsidiary; and (iii) additional Debt of the Company; PROVIDED, HOWEVER, that the aggregate principal amount of consolidated Debt of the Company and its Subsidiaries shall not exceed at any time an amount equal to 58% of Consolidated Capitalization. 6B(3). LOANS, ADVANCES AND INVESTMENTS. Make or permit to remain outstanding loans or advances to, or own, purchase or acquire any stock obligations or securities of, or any other 4 7 interest in, or make any capital contributions to, any Person (collectively, "INVESTMENTS"), except that the Company or any Subsidiary may: (i) make or permit to remain outstanding loans or advances to any Subsidiary; (ii) own, purchase or acquire stock, obligations or securities of a Subsidiary or of a corporation which immediately after such purchase or acquisition will be a Subsidiary; (iii) acquire and own (a) stock of the Company so long as no Default or Event of Default exists after giving effect to the acquisition thereof and (b) stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Company or any Subsidiary; (iv) own, purchase or acquire prime commercial paper, banker's acceptances and certificates of deposit in the United States and Canadian commercial banks (having capital resources in excess of $100 million U.S.), repurchase agreements with respect to the foregoing, in each case due within one year from the date of purchase and payable in the United States in United States dollars, obligations of the United States Government or any agency thereof, and obligations guaranteed by the United States Government; (v) make or permit to remain outstanding relocation, travel and other like advances to officers and employees in the ordinary course of business; (vi) permit to remain outstanding Investments existing on March 28, 1996; and (vii) make other Investments not in excess of 15% of Consolidated Tangible Net Worth. 6B(4). DISPOSITION OF CERTAIN ASSETS. Sell, lease, transfer or otherwise dispose of any assets of the Company or any Subsidiary other than in the ordinary course of business, unless the net book value of the assets sold, leased, transferred or otherwise disposed of outside of the ordinary course of business in the then most recent 24 month period together with the net book value of any assets then proposed to be sold, leased, transferred or otherwise disposed of outside of the ordinary course of business do not exceed 30% of Consolidated Tangible Net Worth. For purposes of this paragraph and paragraph 6B(2), a sale of the Company's or its Subsidiaries' receivables in connection with financing of the Company or any of its Subsidiaries under a securitization program shall be deemed to constitute Debt of the Company or any such Subsidiary and not a sale of assets. 5 8 6B(5). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Sell or otherwise dispose of, or part with control of, any shares of stock or debt of any Subsidiary, except to the Company or any Subsidiary, and except that all shares of stock and debt of any Subsidiary at the time owned by or owed to the Company and all Subsidiaries may by sold as an entirety for fair market value (as determined in good faith by the Board of Directors of the Company) provided that the net book value of the assets of such Subsidiary, together with the net book value of the assets of the Company and any other Subsidiaries sold during the then most recent 24 month period do not exceed 30% of Consolidated Tangible Net Worth. 6B(6). MERGER AND CONSOLIDATION. Merge with or consolidate into any other company, except (i) Subsidiaries may be merged into the Company, (ii) the Company may merge with another entity provided that the Company is the surviving corporation and no Default or Event of Default under this Agreement would exist after giving effect to the merger or as a result thereof and (iii) the Company may be merged into a Subsidiary or a newly created entity organized under the laws of any state of the United States which has conducted no previous business and at the time of such merger shall have no liabilities, if, in either case, the surviving corporation assumes the obligations of the Company under the Notes in a manner reasonably satisfactory to the Required Holders of the Notes. 6B(7). SALE OR DISCOUNT OF RECEIVABLES. Sell with recourse, discount or pledge any of its notes receivable or accounts receivable other than receivables sold constituting Debt under clause (vii) of the definition thereof provided that (i) the aggregate face amount of all such receivables sold shall not exceed $70,000,000, and (ii) after giving effect to such sale, the Company is in compliance with paragraph 6B(2). 6B(8). LEASE OBLIGATIONS. Lease real property or personal property (excluding data processing equipment, vehicles, and other equipment leased in the ordinary course of business) for terms exceeding three years if after giving effect thereto the aggregate amount of all payments in any fiscal year payable by the Company and its Subsidiaries would exceed an aggregate of 15% of Consolidated Tangible Net Worth. 6B(9). RESTRICTED TRANSACTIONS. Deal directly or indirectly with an Affiliate, any Person related by blood, adoption, or marriage to any Affiliate or any Person owning 5% or more of the Company's stock, provided that (i) the Company may deal with such Persons in the ordinary course of business at arm's length, (ii) the Company may make loans or advances to officers permitted by paragraph 6B(3) and (iii) in addition to the foregoing, so long as the stock of the Company is publicly held, the Company may deal with such Persons so long as the aggregate amount of such transactions does not exceed $100,000 in any fiscal year. 6 9 10. DEFINITIONS. 10A. YIELD-MAINTENANCE TERMS. "CALLED PRINCIPAL" shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. "DISCOUNTED VALUE" shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (as converted to reflect the periodic basis on which interest on such Note is payable, if payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal. "SETTLEMENT DATE" shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires. 10B. OTHER TERMS. "AUTHORIZED OFFICER" shall mean (i) in the case of the Company, its chief executive officer, its chief operating officer, its chief financial officer, its corporate secretary, and any vice president of the Company designated as an "Authorized Officer" of the Company for the purpose of this Agreement in an Officer's Certificate executed by the Company's chief executive officer or chief financial officer and delivered to Prudential, and (ii) in the case of Prudential, any vice president and any officer of Prudential designated as its "Authorized Officer" for the purpose of this Agreement in a certificate executed by one of its Authorized Officers or a member of its Law Department. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after the date of this Agreement shall have been an Authorized Officer of Prudential and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential. "COUNTY BONDS GUARANTY" shall have the meaning assigned to such term in the Inducement Agreement. "DEBT" shall mean and include, (i) any obligation payable for borrowed money (including 7 10 capitalized lease obligations but excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation); (ii) indebtedness payable which is secured by any lien on property owned by the Company or any Subsidiary; (iii) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) in connection with the obligation, stock or dividends of any Person (other than under the Project Bonds Guaranty and the County Bonds Guaranty); (iv) obligations under any contract providing for the making of loans, advances or capital contributions to any Person, in each case in order to enable such Person primarily to maintain working capital, net worth or any other balance sheet condition or to pay debts, dividends or expenses; (v) ledger balances, consignments and other similar arrangements but only to the extent required to be shown as debt on the consolidated balance sheet of the Company in accordance with generally accepted accounting principles; (vi) obligations under any other contract which, in economic effect, is substantially equivalent to a guarantee; (vii) the face amount of receivables sold to any Person for the purpose of enabling such Person to incur Debt or sell interests in such receivables to finance the purchase price of such receivables, and (viii) guaranteed purchase contracts which are required to be shown as debt on the Company's consolidated balance sheet in accordance with generally accepted accounting principles (but not including guaranteed purchase contracts to the extent that the obligations thereunder are not required to be shown as debt on the Company's consolidated balance sheet in accordance with generally accepted accounting principles); all as determined in accordance with generally accepted accounting principles. The term Debt shall not include (a) obligations under the Company's compensation or benefit plans in effect from time to time to the extent not required to be shown as debt on the consolidated balance sheet of the Company prepared in accordance with generally accepted accounting principles and (b) trade payables incurred in the ordinary course of business (including ledger balances, consignments and other similar arrangements) to the extent such trade payables (including ledger balances, consignments and other similar arrangements) are not required to be shown as debt on the consolidated balance sheet of the Company prepared in accordance with generally accepted accounting principles. "INDUCEMENT AGREEMENT" shall mean that certain Inducement Agreement dated as of March 1, 1996 between the Company and Prudential. "PROJECT BOND GUARANTY" shall have the meaning assigned to such term in the Inducement Agreement. 8 EX-10 3 EXHIBIT 10 1 EXHIBIT 10 ---------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LEASE between CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, Lessor and BEARINGS, INC., Lessee _____________________________________________ Dated as of March 1, 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS (This Table of Contents is not a part of the Lease but rather is for convenience of reference only.)
Page ---- Preambles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS Section 1.1 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 1.4 Captions and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE II LEASE OF PROJECT Section 2.1 Lease; Lease Term; Possession and Use . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.2 Loan Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.3 Representations of the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.4 Representations of the Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.5 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE III RENTAL PAYMENTS AND ADDITIONAL PAYMENTS Section 3.1 Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.2 Additional Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.3 Place of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.4 Obligations Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 3.5 Past Due Rent, Additional Payments and Rentals . . . . . . . . . . . . . . . . . . . . 14 Section 3.6 Assignment of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.7 No Abatement of Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE IV LESSEE'S OWN PERSONAL PROPERTY Section 4.1 Installation of the Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . 15 ARTICLE V MAINTENANCE AND USE OF PROJECT Section 5.1 Compliance with Legal and Insurance Requirements . . . . . . . . . . . . . . . . . . . 17 Section 5.2 Maintenance and Use of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 5.3 Alterations, Additions and Improvements . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.4 Removals and Substitutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 5.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.7 Performance by Lessor of Lessee's Requirements . . . . . . . . . . . . . . . . . . . . 21
- i - 3 ARTICLE VI TAXES, MECHANICS' LIENS AND INSURANCE Section 6.1 Taxes, Other Governmental Charges and Utility Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 6.2 Mechanics' and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.4 Workers' Compensation and Unemployment Coverage . . . . . . . . . . . . . . . . . . . . 23 Section 6.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.6 Payment of Amounts Not Paid by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE VII DAMAGE, DESTRUCTION AND CONDEMNATION Section 7.1 Damage to or Destruction of Project . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.2 Use of Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.3 Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Section 7.4 Investment and Disbursement of Net Proceeds . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.5 Lessee's Own Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VIII FURTHER REPRESENTATIONS AND AGREEMENTS RESPECTING THE PROJECT Section 8.1 Right of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 8.2 Lessee to Maintain its Corporate Existence; Conditions Under Which Exceptions Permitted . . . . . . . . . . . . . . . . . . . . 27 Section 8.3 Title of Project Site . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Section 8.5 No Warranty of Condition or Suitability . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE IX TERMINATION OF LEASE Section 9.1 Option to Terminate on Payment of Rental Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.2 Termination of Lease on Substantial Casualty or Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.3 Option to Purchase Lessor's Interest in Project . . . . . . . . . . . . . . . . . . . . 30 Section 9.4 Conveyance on Exercise of Option to Purchase . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE X EVENTS OF DEFAULT Section 10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 10.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 10.3 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 10.4 Lessee to Pay Attorneys' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 35 Section 10.5 No Additional Waiver Implied by One Waiver . . . . . . . . . . . . . . . . . . . . . . 35
- ii - 4 ARTICLE XI ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE OF PORTIONS OF PROJECT Section 11.1 Subleasing by Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 11.2 Mortgage and Assignment of Lease by Lessor . . . . . . . . . . . . . . . . . . . . . . 36 Section 11.3 Restrictions on Transfer and Encumbrance of Project by the Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 11.4 Release of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 11.5 Granting Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 11.6 No Abatement or Diminution of Payments . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 11.7 Payment on Release or Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 11.8 Lessor to Apply Lease Payments to Debt Amortization During Any Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . 38 ARTICLE XII MISCELLANEOUS Section 12.1 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.2 Surrender of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.5 Amendments, Changes and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.6 Execution Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 12.8 Extent of Covenants; No Personal Liability . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.11 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.12 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.13 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 12.14 Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 12.15 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 12.16 Extension of Lease Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Exhibit A - PROJECT FACILITIES Exhibit B - PROJECT SITE Exhibit C - RENTAL PAYMENT AMOUNTS
- iii - 5 LEASE THIS LEASE made and entered into as of March 1, 1996, between CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY, as lessor (the "Lessor"), a body corporate and politic, duly organized and validly existing under the laws of the State of Ohio, and BEARINGS, INC., as lessee (the "Lessee"), a corporation for profit organized and existing under the laws of the State of Ohio (all terms used as defined terms being used as defined in Article I of this Lease), WITNESSETH: WHEREAS, pursuant to and in accordance with the provisions of the Ohio Constitution and the Act, and a resolution adopted by the Legislative Authority on March 25, 1996, the Lessor has determined, upon the terms and conditions hereinafter set forth, to lease the Project to the Lessee and the Lessee desires, upon the terms and conditions hereinafter set forth, to lease the Project from the Lessor; and WHEREAS, the Lessor and the Lessee each have full right and lawful authority to enter into this Lease and to perform and observe the provisions hereof on their respective parts to be performed and observed; NOW THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, the parties hereto agree as follows: (Balance of Page Intentionally Left Blank) 6 ARTICLE I DEFINITIONS Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms elsewhere defined in this Lease or by reference to the Project Bond Indenture, the words and terms set forth in Section 1.2 of this Lease shall have the meanings set forth therein unless the context or use indicates another or different meaning or intent and such definitions shall be equally applicable to both the singular and plural forms of any of the words and terms herein: Section 1.2. DEFINITIONS. As used herein: "Act" means Sections 4582.01 to 4582.20, both inclusive, of the Ohio Revised Code, as enacted and amended. "Additional Bonds" means the Additional Bonds of the Lessor which may be issued under and as defined in the Project Bond Indenture. "Additional Payments" means the amounts required to be paid by the Lessee pursuant to the provisions of Section 3.2 hereof. "Assignment of Lease" means the Assignment of Lease, dated as of even date herewith, transferring all right, title and interest of the Lessor in and to this Lease to the Project Bond Trustee. "Authorized Lessee Representative" means the person at the time designated to act on behalf of the Lessee by written certificate furnished to the Lessor containing the specimen signature of such person and signed on behalf of the Lessee by the Chair, the President, a Vice President, the Treasurer, the Secretary or the Assistant Secretary of the Lessee. Such certificate may designate an alternate or alternates who shall have the same authority, duties and powers as the Authorized Lessee Representative. In the event that all such incumbents become unavailable or unable to act and the Lessee fails to designate at least one replacement within ten business days after notice to the Lessee from the Lessor of such unavailability or inability to act, the Lessor may appoint a successor. "Bonds" means the Project Bonds and any Additional Bonds. "Bond Service Charges" means, for any period or payable at any time, the principal of and interest and any premium due on the Bonds for that period or payable at that time whether due at maturity or upon acceleration or redemption. "CDP" means Cleveland Development Partnership I, Limited Partnership, a Delaware limited partnership. "CDP Note" means the revenue note issued by the Lessor to evidence the Lessor's limited obligation to repay a loan made to the Lessor by CDP in the aggregate principal amount of $2,500,000. "City" means the City of Cleveland, Ohio, a municipal corporation organized and existing under its Charter and the Constitution and laws of the State. - 2 - 7 "City of Cleveland Notes" means, collectively, the City of Cleveland UDAG Note, the City of Cleveland NDIF Note and the City of Cleveland J.C. Hub Note. "City of Cleveland J.C. Hub Note" means the revenue note which will be issued by the Lessor, if needed and subject to the approval of Cleveland City Council, to evidence its limited obligation to repay a loan to be made to the Lessor by the City in the principal amount of $900,000. "City of Cleveland NDIF Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the City in the principal amount of $3,000,000. "City of Cleveland UDAG Note" means the revenue note issued by the Lessor to evidence its limited obligations to repay a loan made to the lessor by the City in the principal amount of $1,000,000. "City Grant" means the grant in the amount of $1,000,000 made by the State and assigned by the City to the Lessor to be used for acquisition of a portion of the Project Site. "Completion Date" means the date specified as such in the certificate furnished pursuant to Sections 2.2 and 4.6 of the Project Service Agreement. "Consumer Price Index Increase" means the percentage of increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as finally issued for Cleveland, Ohio by the Bureau of Labor Statistics of the United States Department of Labor, or any successor thereto, from that index as issued for the month of the execution and delivery of this Lease. In the event such index should be abolished and no substitute provided, then any index, service or publication which, in the judgment of the Lessor, most nearly provides the measurement now being provided by the Consumer Price Index shall be used in place of the Consumer Price Index. "County" means the County of Cuyahoga, Ohio, a county and political subdivision organized and existing under the Constitution and laws of the State. "County Bond Holder" means any registered owner of all or a portion of the County's $1,800,000 Taxable Development Revenue Bonds, Series 1996 (Bearings, Inc. Project), the proceeds of which were used by the County to make a loan to the Lessor, repayment of which is evidenced by the County Note. "County Grant" means the grant in the amount of $300,000 approved by the County for the purpose of providing funds for the acquisition of personal property included in the Project Facilities. "County Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the County in the aggregate principal amount of $1,800,000. "Director" means The Director of Development of the State of Ohio, acting on behalf of the State. "Discounted Rent" shall mean the amount of the Rental Payments, determined in the manner set forth in Section 9.2 of this Lease, to be paid in full satisfaction of the Lessee's obligation to pay the remaining Rental Payments hereunder in the event that, as a result of the occurrence of any of the events described in Section 9.2 of this Lease, the Lessee shall have - 3 - 8 certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate the Lease. "Engineer" means Gilberti Spittler International, Cleveland, Ohio or another individual or firm qualified to practice the profession of engineering or architecture under the laws of the State, designated by the Lessor and acceptable to the Lessee. "Environmental Damages" means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, costs, and expenses of investigation and defense of any claim, whether or not such claim is ultimately defeated, and of any good faith settlement of judgment, of whatever kind or nature, contingent or otherwise, matured or unmatured, foreseeable or unforeseeable, including without limitation reasonable attorneys' fees and disbursements and consultants' fees, any of which are incurred at any time as a result of the existence of Hazardous Materials upon, about, beneath the Project Site or migrating or threatening to migrate to or from the Project Site, or the existence of a violation of Environmental Requirements pertaining to the Project Site, regardless of whether the existence of such Hazardous Materials or the violation of Environmental Requirements arose prior to the present ownership or operation of the Project Site, and including without limitation: (i) Fees incurred for the services of attorneys, consultants, contractors, experts, laboratories and all other costs incurred in connection with the investigation or remediation of such Hazardous Materials or violation of Environmental Requirements including, but not limited to, the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration or monitoring work required by any federal, state or local governmental agency or political subdivision, or reasonably necessary to make full economic use of the Project Site or any other property [in a manner consistent with its current use] or otherwise expended in connection with such conditions, and including without limitation any attorneys' fees, costs and expenses incurred in enforcing this agreement or collecting any sums due hereunder; and (ii) Liability to any third person or governmental agency to indemnify such person or agency for costs expended in connection with the items referenced in subparagraph (i) herein. "Environmental Requirements" means all applicable present and future statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, concessions, franchises, and similar items, of all governmental agencies, departments, commissions, boards, bureaus, or instrumentalities of the United States, states and political subdivisions thereof and all applicable judicial, administrative, and regulatory decrees, judgments, and orders relating to the protection of human health or the environment, including, without limitation: (i) All requirements, including but not limited to those pertaining to reporting, licensing, permitting, investigation, and remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials or wastes whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of chemical substances, pollutants, contaminants, or hazardous or toxic substances, materials, or wastes, whether solid, liquid, or gaseous in nature; and - 4 - 9 (ii) All requirements pertaining to the protection of the health and safety of employees or the public. "Essential Lessor Personal Property" has the meaning assigned in Section 5.2(f). "Event of Default" means any of the events described as an event of default in Section 10.1 hereof. "Fair Market Value" of any property as of any date shall mean the rental payment in money or the cash price that would be obtained in an arm's-length lease or sale, as the case may be, between an informed and willing third party lessee or buyer (under no compulsion to lease or purchase) and an informed and willing lessor or seller (under no compulsion to lease or sell) of the property in question, and shall be determined on the basis that the Project has been maintained in accordance with the requirements of this Lease (but otherwise on an "as-is" basis). Whenever Fair Market Value is to be determined hereunder and the parties cannot agree on the Fair Market Value, the determination shall be made according to the arbitration provision set forth in Section 12.13 hereof. Fair Market Value shall be determined without regard to and exclusive of modifications (other than substitutions) and additions to the Project during the Lease Term paid for by the Lessee. "Grants" means, collectively, the County Grant, the City Grant and the State Grant. "Hazardous Materials" means any substance: (i) the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law; (ii) which is or becomes defined as a "hazardous waste," "hazardous substance," pollutant or contaminant under any federal, state or local statute, regulation, rule or ordinance or amendments promulgate thereto including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. section 9601 ET SEQ.), as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. Section 6901 ET SEQ., the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 ET SEQ., the Clean Air Act, 42 U.S.C. Section 741 ET SEQ., the Clean Water Act, 33 U.S.C. Section 7401 ET SEQ., the Total Substances Control Act, 15 U.S.C. Section Section 2601-2629 and the Safe Drinking Water Act, 42 U.S.C. Section Section 300f-300j; (iii) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or become regulated by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States, the State of Ohio or any political subdivision; (iv) the presence of which on the Project Site causes or threaten to cause a nuisance upon the Project Site or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about the Project Site; - 5 - 10 (v) without limitation which contains gasoline, diesel fuel or other petroleum hydrocarbons; (vi) without limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation; or (vii) without limitation asbestos and radon gas. "Holder" means the person in whose name a Bond is registered on the books kept and maintained for the registration and transfer of Bonds pursuant to the Project Bond Indenture. "Independent Counsel" means an attorney acceptable to the Lessor duly admitted to practice law before the highest court of the State and who is not a salaried employee of the Lessor or the Lessee. "Insurance Requirements" means all material provisions of any insurance policy covering or applicable to the Project or any part thereof, all material requirements of the issuer of any such policy, and all material orders, rules, regulations or other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to or affecting the Project or any part thereof. "Interest Rate for Advances" means the rate of twelve percent (12%) per year or a rate which is two percent (2%) per year plus the annual interest rate then charged by the Project Bond Trustee to its most creditworthy commercial borrowers in its lending capacity as a bank, whichever is, in whole or in part, greater and lawfully chargeable. "Lease" means this Lease, as it may be duly amended and supplemented from time to time in accordance with its terms. "Lease Term" means the period commencing on the date of delivery of this Lease and, unless earlier terminated as herein provided, ending on March 1, 2016, or the date to which this Lease is extended pursuant to the provisions of this Lease, whichever is latest. "Legal Requirements" means all laws, statutes, codes, acts, ordinances, resolutions, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, directions and requirements of all governments and departments, commissions, boards, courts, authorities, agencies, officials and officers of governments, foreseen or unforeseen, ordinary or extraordinary, which now or at any time hereafter may be applicable to the Project or any part thereof, or any use or condition of the Project or any part thereof. "Legislative Authority" means the Board of Directors of the Lessor. "Lenders" means, collectively, the Project Bond Trustee, the County Bond Holders, the City, the County, CDP and the Director. "Lessor Personal Property" has the meaning assigned in Section 5.2(f) hereof. "Loan Agreements" is used as defined in the Project Service Agreement. "Moveable Personal Property" means, collectively or separately, the furniture, furnishings, equipment and other personal property to be acquired with the proceeds of the Project Debt, the Grants and any deposits made by the Lessee in the Corporation Account of the Project Fund created under the Project Bond Indenture, and installed in the Project Facilities and - 6 - 11 generally described in part II of Exhibit A hereto (and more specifically identified in requests to disburse funds therefor pursuant to Section 4.2 of the Project Service Agreement, in the certificate to be given by the Authorized Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project Service Agreement), together with any substitutions therefor, less any removals of such personal property, all in the manner and to the extent provided in this Lease. "Net Proceeds", when used with respect to any insurance proceeds or condemnation award, means the gross proceeds thereof less the payment of all expenses, including reasonable attorneys' fees, incurred in connection with the collection of such gross proceeds. "Notes" means, collectively, the County Note, the City of Cleveland Notes, the CDP Note and the State Loan Note. "Notice Address" means: (a) As to the Lessee: Bearings, Inc. 3600 Euclid Avenue Cleveland, Ohio 44115 Attention: Chief Financial Officer and a copy to the General Counsel at the same address (b) As to the Lessor: Cleveland-Cuyahoga County Port Authority 101 Erieside Avenue Cleveland, Ohio 44114 Attention: Executive Director and Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A. The Halle Building, Suite 900 1228 Euclid Avenue Cleveland, Ohio 44115 Attention: Anthony Garofoli (c) As to the Project The Huntington National Bank Bond Trustee: 41 South High Street Columbus, Ohio 43215 Attention: Corporate Trust Department and The Huntington National Bank 917 Euclid Avenue Cleveland, Ohio 44115 Attention: Corporate Trust Department and - 7 - 12 The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Attention: Managing Director (d) As to the Director: Director of Development Ohio Department of Development 77 South High Street - 29th Floor Columbus, Ohio 43215 (e) As to the County: Board of Cuyahoga County Commissioners County Administration Building 1219 Ontario Street Cleveland, Ohio 44113 Attention: County Administrator and The Prudential Insurance Company of America c/o Prudential Capital Group Two Prudential Plaza Suite 5600 Chicago, Illinois 60601 Attention: Managing Director (f) As to the City: City of Cleveland Cleveland City Hall 601 Lakeside Avenue, N.E. Cleveland, Ohio 44114 Attention: Director of Law (g) As to CDP Cleveland Development Partnership I 1801 Euclid Avenue, Suite 1020 Cleveland, Ohio 44114 Attention: Director or such different address notice of which is given under Section 12.3 hereof. "Person" or words importing persons means firms, associations, partnerships (including, without limitation, general, limited and limited liability partnerships), joint ventures, societies, estates, trusts, corporations, limited liability companies, public or governmental bodies, other legal entities and natural persons. "Plans and Specifications" means the plans and specifications for the Project as filed with the Lessor, and as such may be completed in accordance herewith and changed from time to time as herein provided. "Project" means the Project Site and the Project Facilities together constituting "port authority facilities" as defined in the Act. - 8 - 13 "Project Bond Indenture" means the Trust Indenture dated as of even date with this Lease between the Lessor and the Project Bond Trustee, as amended and supplemented from time to time. "Project Bonds" means the $18,835,000 aggregate principal amount of revenue bonds of the Lessor designated "Taxable Headquarters Revenue Bonds, Series 1996 (Bearings, Inc. Project)", including both Series A and Series B thereof. "Project Bond Trustee" means The Huntington National Bank, until a successor Project Bond Trustee shall have become such pursuant to the applicable provisions of the Project Bond Indenture, and thereafter "Project Bond Trustee" shall mean the successor Project Bond Trustee. "Project Debt" means the Project Bonds, any Additional Bonds that may hereafter be issued, and the Notes. "Project Facilities" means the facilities generally identified in Exhibit A hereto (and more particularly described in the Plans and Specifications or, with respect to personal property, to be more specifically identified in requests to disburse funds therefor pursuant to Section 4.2 of the Project Service Agreement, or in the certificate to be given by the Authorized Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project Service Agreement), together with any additions and improvements thereto, modifications thereof and substitutions therefor, less any removals of such property, all in the manner and to the extent in this Lease provided. "Project Purposes" means acquiring, constructing, equipping, furnishing, improving and otherwise developing real and personal property, or any combination thereof, comprising port authority facilities to be used as the headquarters of the Lessee and as may otherwise be permitted by this Lease and the Project Service Agreement. "Project Service Agreement" means the Project Service and Indemnity Agreement dated as of even date herewith among the Lessor, the Lessee and to the extent set forth therein, the Lenders named therein, as the same may be amended and supplemented from time to time. "Project Site" means the real estate described in Exhibit B hereto and the Lessor's interest therein, together with any additions thereto and less any removals therefrom, in the manner and to the extent provided in this Lease. "Rental Payments" means the rent required to be paid by the Lessee to the Lessor as provided in Sections 3.1 and 3.3 hereof. "Rental Payment Date" means the last business day of each calendar month commencing with the last business day in June, 1997. "Required Property Insurance Coverage" means at any time insurance in the amount of (i) the then full insurable value of the Project Facilities or (ii) the then total unpaid principal amount of the Bonds and the Notes then outstanding, whichever is greater, provided that the coverage shall not be less than an amount that would result in coinsurance, insuring the Project Facilities against loss or damage by fire and extended coverage risks and containing loss deductible provisions of not to exceed $1,000,000; provided that the amounts of such deductible may be increased on each January 1 by the Consumer Price Index Increase to the extent that such Consumer Price Index Increase had not previously been utilized to increase such deductible. - 9 - 14 "Required Public Liability Insurance Coverage" means comprehensive general accident and public liability insurance with coverage limits in the minimum amounts of $10,000,000 as to death or bodily injury in each occurrence and $10,000,000 as to property damage with a loss deductible clause of not to exceed $5,000,000; provided that the amounts of coverage shall be, and any deductible may be, increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase. "State" means the State of Ohio. "State Grant" means the grant or grants in the amount of $500,000 approved by the State for the purpose of providing funds for the acquisition of personal property included in the Project Facilities and related improvements, which will be available on or about April 1, 1996. "State Loan Note" means the revenue note issued by the Lessor to evidence its limited obligation to repay a loan made to the Lessor by the Director in the aggregate principal amount of $6,000,000. Section 1.3. INTERPRETATION. Any reference herein to the Lessor, to the Legislative Authority or to any member or officer of either includes entities or officials succeeding to their respective functions, duties or responsibilities pursuant to or by operation of law or lawfully performing their functions. Any reference to a section or provision of the Constitution of the State or the Act, or to a section, provision or chapter of the Ohio Revised Code or to any statute of the United States of America, includes that section, provision or chapter as amended, modified, revised, supplemented or superseded from time to time; provided, that no amendment, modification, revision, supplement or superseding section, provision or chapter shall be applicable solely by reason of this provision, if it constitutes in any way a limitation, restriction or impairment of the rights or obligations of the Lessor or the Lessee under this Lease or the rights of any other person under this Lease. Unless the context indicates otherwise, words importing the singular number include the plural number, and vice versa; the terms "hereof", "hereby", "herein", "hereto", "hereunder" and similar terms refer to this Lease; and the term "hereafter" means after, and the term "heretofore" means before, the date of execution and delivery of this Lease. Words of any gender include the correlative words of the other genders, unless the sense indicates otherwise. Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in this Lease are solely for convenience of reference and in no way define, limit or describe the scope or intent of any Articles, Sections, subsections, paragraphs, subparagraphs or clauses hereof. (End of Article I) - 10 - 15 ARTICLE II LEASE OF PROJECT Section 2.1. LEASE; LEASE TERM; POSSESSION AND USE. Upon and subject to the provisions herein set forth, the Lessor does hereby lease to the Lessee, and the Lessee does hereby lease from the Lessor, the Project for the Lease Term. Possession of the Project shall be delivered by the Lessor and accepted by the Lessee on the Completion Date; provided that from and after the commencement of the Lease Term, the Lessee and its agents and independent contractors shall have the right to enter upon the Project Site for purposes of inspection and taking actions in accordance with this Lease to (i) determine that acquisition, construction, improvement, furnishing, equipping and development of the Project is being made in accordance with the Project Service Agreement and the Plans and Specifications and (ii) prepare to occupy and use the Project. Upon delivery of possession and during the Lease Term, the Lessee shall have the right to use the Project for the Project Purposes. Section 2.2. LOAN AGREEMENTS. The Lessee hereby approves the Loan Agreements, and all commitments of the Lessor, and the Lessee thereunder, acknowledges all rights of the City, the County, CDP, the Director, the Project Bond Trustee, the Holders and the County Bond Holders under the Loan Agreements, and all obligations of the Lessor thereunder, and, for itself and its successors and assigns and any permitted sublessees, covenants and agrees to the extent set forth in the Loan Agreements, to abide by all covenants and agreements set forth therein with respect to the Lessee and covenants and agrees, subject to the express provisions of this Lease, to cooperate with the Lessor to, and not impair the ability of the Lessor to, satisfy its obligations thereunder and not to impede the City, the County, CDP, the Director, the Project Bond Trustee, any Holder or any County Bond Holder in the exercise of their respective rights thereunder. Section 2.3. REPRESENTATIONS OF THE LESSOR. The Lessor represents that: (a) it is duly organized and validly existing under the laws of the State; (b) it is not in violation of or in conflict with any provisions of the laws of the State or any agreement or instrument to which the Lessor is a party or by which it is bound which would impair its ability to carry out its obligations contained in this Lease and the Project Service Agreement; (c) it is empowered to enter into the transactions contemplated by this Lease and the Project Service Agreement; and (d) it has duly authorized the execution, delivery and performance of this Lease and the Project Service Agreement. Section 2.4. REPRESENTATIONS OF THE LESSEE. The Lessee represents that: (a) It is a corporation for profit organized and existing under the laws of the State. (b) It has full corporate power and authority to execute, deliver and perform this Lease and to enter into and carry out the transactions contemplated by this Lease. That execution, delivery and performance, and such entering into and carrying out of those transactions, do not, and will not, violate any provision of law applicable to the Lessee or the Lessee's Articles of Incorporation or its Code of Regulations and do not, and will not, conflict with or result in a default under any agreement or instrument to which the Lessee is a party or by which it is bound, which would impair its ability to carry out its obligations contained in this Lease or resulting from those transactions. This Lease has, and to the extent required the transactions contemplated by this Lease have, by proper action, been duly - 11 - 16 authorized, and this Lease has been duly executed and delivered by the Lessee and all steps necessary have been taken to constitute this Lease a valid and binding obligation of the Lessee. (c) The provision of financial assistance to be made available to it with respect to the Project, including the terms of this Lease and the commitments therefor made by the Lessor, have induced the Lessee to continue, within the boundaries of the Lessor, that business of the Lessee to be conducted by use of the Project and such business will preserve jobs and employment opportunities within the jurisdiction of the Lessor. (d) It presently intends to use or operate the Project during the Lease Term in a manner consistent with the Project Purposes and knows of no reason why the Project will not be so operated. If, in the future, there is a cessation of that operation, it will use its best efforts to resume that operation or accomplish an alternative use by the Lessee or others which will be consistent with the Act and this Lease. Section 2.5. RECORDATION. The Lessee, at its expense, shall cause financing statements, including all necessary amendments, supplements and appropriate continuation statements, to be filed, and to be kept filed, in such manner and in such places as may be required, and to take such other actions, in order to establish, preserve and protect the security interest created by this Lease with respect to the Moveable Equipment as a valid, perfected security interest therein (including without limitation, any such properties acquired after the execution hereof), and without limiting the generality of the foregoing, will execute, deliver and cause to be recorded such financing statements as shall be necessary or appropriate in connection with the acquisition, construction, furnishing, equipping and otherwise developing of the Project. If requested by the Lessor but in each case not more than once in each calendar year, the Lessee, at its expense, will furnish or cause to be furnished to the Lessor an opinion of Independent Counsel, specifying that the action required to be taken by the Lessee to comply with this Section 2.5 since the date of this Lease or the date of the most recent such opinion has been taken or stating that no such action is necessary. (End of Article II) - 12 - 17 ARTICLE III RENTAL PAYMENTS AND ADDITIONAL PAYMENTS Section 3.1. RENTAL PAYMENTS. The Lessee shall make Rental Payments to the Lessor, whether or not construction of the Project has been completed, on or before each Rental Payment Date in immediately available funds commencing with the last business day of June, 1997 in the respective amounts shown for each such month in Exhibit C hereto. Section 3.2. ADDITIONAL PAYMENTS. The Lessee agrees to make Additional Payments as follows: (a) To the Lessor, payment for or reimbursement of any and all costs, expenses and liabilities incurred by the Lessor in satisfaction of any obligations of the Lessee hereunder not performed by the Lessee. (b) To the Lessor, reimbursement for or prepayment of expenses paid or to be paid by the Lessor and incurred as a result of a request by the Lessee or in enforcing performance by or the obligations of the Lessee under this Lease. Section 3.3. PLACE OF PAYMENTS. The Lessee shall make all Rental Payments and Additional Payments directly to the Lessor at its principal office or at such other office for the delivery of such payments as the Lessee is given notice of in writing (at least five business days before the applicable payment) in accordance with Section 12.3 hereof. Section 3.4. OBLIGATIONS UNCONDITIONAL. The obligations of the Lessee to make Rental Payments, Additional Payments and any other payments required hereunder shall be absolute and unconditional and the Lessee shall make such payments without abatement, diminution or deduction regardless of any cause or circumstances whatsoever including, without limitation, any defense, set-off, recoupment or counterclaim which the Lessee may have or assert against the Lessor or any other Person. The Lessee (i) will not suspend or discontinue any such payments, (ii) will perform and observe all of its other agreements contained in this Lease and (iii) will not terminate this Lease except as expressly permitted hereby, for any cause including, without limitation, failure to complete the Project Facilities, failure of title to the Project or any portion thereof, any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Project, commercial frustration of purpose, any change in the tax or other laws or administrative rulings of or administrative actions by or under authority of the United States of America, the State or any political subdivision thereof or any failure of the Lessor, any Lender, any Holder, any County Bond Holder or any other person to perform and observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with this Lease, the Project Service Agreement, the Loan Agreements or otherwise. The obligations and liabilities of the Lessee hereunder shall in no way be released, discharged or otherwise affected for any reason, including, without limitation: (i) any defect in the condition, quality or fitness for use of the Project or any part thereof; (ii) any damage to, removal, abandonment, salvage, loss, scrapping or destruction of or any requisition or taking of the Project or any part thereof; (iii) any restriction, prevention or curtailment of or interference with any use of the Project or any part thereof; (iv) any defect in title to the Project or any encumbrance on such title; (v) any change, waiver, extension, indulgence or other action or omission in respect of any obligation or liability of Lessor; (vi) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to Lessor or Lessee or any action taken with respect to this Lease by any trustee or receiver of Lessor or Lessee, or by any court, in any such proceeding; (vii) any claim which Lessee has or - 13 - 18 might have against any person, including, without limitation, Lessor, any Lender, any Holder or any County Bond Holder; (viii) any failure on the part of Lessor or any other person to perform or comply with any of the terms hereof or of any other agreement, including, without limitation, any Loan Agreement; (ix) any invalidity or unenforceability or disaffirmance of this Lease or any provision hereof; or (x) any other occurrence whatsoever, whether similar or dissimilar to the foregoing, whether or not Lessee shall have notice or knowledge of any of the foregoing; provided, however, that this provision does not represent a waiver of any claims that Lessee may have against Lessor, any Lender, any Holder or any County Bond Holder. This Lease shall be non-cancelable by Lessee and, to the extent permitted by law, Lessee waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease or the Project Facilities, or to any diminution or reduction of Rental Payments or Additional Payments payable by Lessee hereunder. All payments by Lessee made hereunder as required hereby shall be final, and, except as provided herein, Lessee will not seek to recover any such payment or any part thereof from Lessor or any other person. If for any reason whatsoever this Lease shall be terminated in whole or in part by operation of law or otherwise, Lessee will nonetheless pay an amount equal to each Rental Payment and any other amount payable by Lessee hereunder at the time and in the manner that such Rental Payment or other payment would have become due and payable under the terms of this Lease if it had not been terminated in whole or in part. Nothing contained in this Section shall be construed to release the Lessor from the performance of any of the agreements on its part contained in this Lease, and in the event the Lessor should fail to perform any such agreement on its part, the Lessee may institute such action against the Lessor as the Lessee may deem necessary to compel performance or recover its damages for nonperformance so long as such action shall not be inconsistent with the agreements of the Lessee contained in the preceding sentences. The Lessee may, however, at its own cost and expense and in its own name or, to the extent lawful, in the name of the Lessor, prosecute or defend any action or proceeding or take any other action involving third Persons which the Lessee deems reasonably necessary in order to secure or protect its right of possession, occupancy and use hereunder, and in such event the Lessor hereby agrees to cooperate fully with the Lessee, but at the Lessee's expense, and to take all action necessary to effect the substitution of the Lessee for the Lessor in any such action or proceeding if the Lessee shall so request. Section 3.5. PAST DUE RENT, ADDITIONAL PAYMENTS AND RENTALS. If the Lessee fails to make any Rental Payment, Additional Payment or other payment hereunder, the item in default shall continue as an obligation of the Lessee until such payment shall have been fully paid. During the default period, the portion of any such Rental Payment, any Additional Payment or other payment in default shall bear interest at the Interest Rate for Advances until such amount (including all such interest) is paid. Section 3.6. ASSIGNMENT OF LEASE. The Lessee acknowledges that the Lessor may sell, assign, transfer and convey all of its right, title and interest in and to this Lease, including the Rental Payments, to the Project Bond Trustee. The Lessee further acknowledges that, upon the execution and delivery of the Assignment of Lease, the Lessor, as assignor, will have neither any interest under this Lease, nor any obligations or rights with respect to this Lease, and all such interest, obligations and rights of the Lessor hereunder shall be vested irrevocably in the Project Bond Trustee, as assignee. Section 3.7. NO ABATEMENT OF RENTAL PAYMENTS. Except as specifically provided in this Lease to the contrary, no action pursuant to any provision of this Lease shall abate in any way payment of Rental Payments or any Additional Payments payable hereunder. (End of Article III) - 14 - 19 ARTICLE IV LESSEE'S OWN PERSONAL PROPERTY Section 4.1. INSTALLATION OF THE LESSEE'S OWN PERSONAL PROPERTY. From time to time, in its sole discretion and at its own expense, the Lessee may, and may permit any of its licensees or sublessees to, install personal property on the Project Site or in the Project Facilities, including without limitation, personal property which becomes in whole or in part a fixture when installed. All personal property so installed shall remain the sole property of the Lessee or the licensee or sublessee, as the case may be, unless it is a fixture necessary to the structural integrity of the Project Facilities (other than a trade fixture) or is essential for the faithful and efficient administration, maintenance and operation of the Project Facilities, in which case such personal property shall become and be deemed to be property of the Lessor and part of the Project, and with that exception, the Lessor and the Lenders shall have no interest in that personal property. Any damage to the Project Facilities caused by the removal of the personal property or fixtures which remain the property of the Lessee shall be repaired by the Lessee at the Lessee's sole expense so as to restore the Project Facilities to their original condition. The personal property which is the sole property of the Lessee or a licensee or sublessee may be modified or removed at any time, but without causing any damage to the Project, if there is then no Event of Default under this Lease, and if an Event of Default then exists, may be modified or removed if a certificate of the Authorized Lessee Representative has been delivered to the Lessor and the Project Bond Trustee stating that such modification or removal will not prevent the Project from being operated or used for the Project Purposes. Nothing contained in this Lease shall prevent the Lessee or any of its licensees or sublessees from acquiring personal property (other than any personal property purchased pursuant to Section 4.7 of the Project Agreement) under a lease or under a conditional sale, installment purchase or lease sale contract, or subject to a vendor's lien or security agreement, as security for the unpaid portion of the purchase price thereof or to prevent a vendor so secured from exercising its remedies; provided, however, that no lien or security interest shall attach to any part of the Project. The Lessee shall pay or cause to be paid, as they become due, the purchase price of, and all costs and expenses in connection with, the acquisition and installation of any personal property installed by the Lessee or any of its licensees or sublessees pursuant to this Section. The Lessee may, at its expense, in good faith contest those purchase prices, costs and expenses. In the event of a contest, the Lessee may permit the purchase prices, costs and expenses contested to remain unpaid during the period of the contest and any appeal unless the Lessor shall notify the Lessee that, in the reasonable opinion of Lessor, by nonpayment the interests of the Lessor or the Lessee in the Project Site or the Project Facilities will be materially endangered or the Project Site or the Project Facilities or any part of either or both will be subject to imminent loss or forfeiture, in which event those purchase prices, costs and expenses shall be paid promptly by the Lessee. The Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in any such contest. From time to time, the Lessor shall execute and deliver such documents as the Lessee may properly and reasonably request to evidence that particular items of personal property installed on or removed from the Project pursuant to this Section, are not part of the Project for purposes of this Lease or that fixtures have been removed as provided in this Lease. In the event any removal of property pursuant to this Section causes damage to any portion of - 15 - 20 the Project, the Lessee shall restore the same or repair such damage to the condition existing prior to such removal at its sole expense. The Lessee shall execute and deliver such documents (if any) as the Lessor may properly and reasonably request in connection with any action taken by the Lessee in conformity with this Section. Any action taken by the Lessee pursuant to this Section shall not entitle the Lessee to any abatement or diminution of the Rental Payments or Additional Payments payable hereunder. Upon the termination of this Lease, any such personal property not removed from the Project Site by the Lessee pursuant to this Section 4.1 shall become the exclusive property of the Lessor. (End of Article IV) - 16 - 21 ARTICLE V MAINTENANCE AND USE OF PROJECT Section 5.1. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS. The Lessee, at its expense, will promptly comply or cause compliance with all Legal Requirements and Insurance Requirements, and will procure, maintain and comply (or cause compliance) in all material respects with all permits, licenses and other authorizations required for any use of the Project or any part thereof then being made or anticipated to be made by the Lessee, and for the proper operation and maintenance of the Project or any part thereof during the Lease Term, and will comply in all material respects with any instruments of record as of the date of initial delivery of the Project Bonds in force and currently burdening the Project or any part thereof or hereafter approved in writing by the Lessee. The Lessee may, at its expense and after prior notice to the Lessor, contest by appropriate legal proceedings conducted in good faith and with due diligence any Legal Requirement and postpone compliance therewith pending the completion of such contest provided that such postponement does not, in the reasonable opinion of the Lessor, subject the Project, or any part thereof, to imminent loss or forfeiture or subject the Lessor to any criminal liability. Section 5.2. MAINTENANCE AND USE OF PROJECT. (a) Subject to Article VII hereof, the Lessee, at its expense, will keep or cause the Project to be kept in good repair, working order and condition (ordinary wear and tear excepted) and will make all necessary or appropriate repairs, replacements and renewals thereof, interior, exterior, structural and non-structural, ordinary and extraordinary and foreseen and unforeseen so that the Project can be used for the Project Purposes. (b) The Lessee will not do, or permit to be done, any act or omission or thing which might materially impair the value or usefulness of the Project or any part thereof, will not commit or permit any material waste of the Project or any part thereof, and will not permit any unlawful occupation, business or trade to be conducted on the Project or any part thereof. (c) The Lessee shall also, at its expense, promptly comply with all rights of way or use, privileges, franchises, servitudes, licenses, easements, tenements, hereditaments and appurtenances forming a part of the Project and all instruments creating or evidencing the same, in each case, to the extent that (i) compliance therewith is required of the Lessee under the terms thereof and (ii) the same are currently of record or subsequently approved in writing by the Lessee. (d) The Lessee shall remove regularly all trash, litter and debris from the Project Site at the Lessee's expense and shall maintain the Project Site in a neat and safe manner. (e) The Lessee agrees to permit the Lessor and its employees and agents to enter upon the Project at all reasonable times to inspect the same, but no such inspection shall unreasonably interfere with the Lessee's operation and use of the Project and shall be subject to reasonable safety and security regulations, and no such inspection shall be conducted without reasonable prior notice and the failure of the Lessor to make any such inspection shall not impose any liability upon either for - 17 - 22 its failure to do so. The Lessee shall have the right to have its representative in attendance at any such inspection. (f) The Lessee covenants and agrees to obtain and maintain within the Project Facilities all moveable equipment, furnishings and other personal property (including any personal property which upon installation becomes a fixture) acquired by the Lessor, or acquired pursuant to disbursement requests submitted pursuant to Section 4.2 of the Project Service Agreement, and any property acquired pursuant to this Article V as a substitution or replacement for any such property (collectively, "Lessor Personal Property"). The Lessee further covenants and agrees (notwithstanding clause (ii) of the first sentence of Section 5.4 hereof) to replace promptly any worn out or obsolete Lessor Personal Property with other personal property of similar value and use if the worn out or obsolete Lessor Personal Property is essential for the efficient or proper operation or maintenance of the Project Facilities for the Project Purposes in accordance herewith and as it is then being used (the "Essential Lessor Personal Property"). The Lessee further covenants and agrees that no Essential Lessor Personal Property will be removed or relocated without securing a replacement therefor. The Lessee further agrees that title to any Lessor Personal Property acquired in replacement of Lessor Personal Property pursuant to this Section, or in substitution therefor pursuant to Section 5.4 hereof, shall vest immediately in the Lessor and such personal property so acquired shall be and be considered for all purposes a part of the Project Facilities as if originally a part thereof. Without limiting the foregoing, the Lessee shall promptly upon such replacement or substitution deliver a bill of sale or other similar evidence of title to the Lessor, and Lessor shall promptly deliver to the Lessee a release of any interest in any Lessor Personal Property so replaced by the Lessee. Any action taken by the Lessee pursuant to this Section shall not entitle the Lessee to any abatement or diminution of the Rental Payments or any Additional Payments payable hereunder. Section 5.3. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. The Lessee may, in its discretion and at its expense, make from time to time any alterations, additions, or improvements to the Project which it may deem desirable for its business purposes provided that no such alterations, additions, or improvements shall adversely affect the structural integrity or strength of any improvements constituting a part of the Project Facilities, substantially reduce the value of the Project or materially interfere with the use and operation thereof as a headquarters building. All alterations, additions, and improvements so made to the Project Facilities by the Lessee shall become and be deemed to be the property of Lessor and constitute a part of the Project. At the end of the Lease Term the Lessee shall have no obligation, but may, in its discretion and at its expense, remove any such alteration, addition or improvement, provided that upon such removal the Lessee is required to restore the Premises to their original condition. Any free standing buildings or other free standing structures erected and paid for by the Lessee shall be the property of the Lessee but shall be removed at the Lessee's expense at the expiration or termination of the Lease Term unless the Lessor shall have agreed to accept such buildings or structures in which event they need not be removed and shall become property of the Lessor at the conclusion of the Lease Term. Section 5.4. REMOVALS AND SUBSTITUTIONS. Subject to the requirements of Section 5.2 with respect to Essential Lessor Personal Property, in any instance where the Lessee, in its reasonable discretion, determines that any item of Lessor Personal Property shall have become inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary or should otherwise be replaced, the Lessee may remove such items; provided, that such removal (taking into account any substitutions) shall not impair the operation of the Project and that any damage caused to any portion of the Project as a result of such removal is restored or repaired at Lessee's sole - 18 - 23 cost; and provided, further, that the Lessee (i) substitutes and installs other items of property having equal or greater value (but not necessarily having the same function in the operation of the Project), which such substituted property shall be free from liens and encumbrances and shall be the property of Lessor and become part of the Project, without taking account of personal property previously designated to be the property of Lessor as Lessor Personal Property as required by Section 5.2 or 5.4 hereof, or (ii) in the case of removal of property without substitution, promptly pays to the Lessor an amount equal to (A) if the removed property is sold or scrapped, the proceeds of such sale or the scrap value thereof, (B) if the removed property is used as a trade-in for property not to be installed as part of the Project, the trade-in credit received by the Lessee, or (C) in the case of the retention of such removed property by the Lessee for use at locations other than at the Project, the Fair Market Value, less the Excess Value, of such property. If, prior to or concurrently with any such removal, the Lessee shall have acquired and installed personal property with its own funds which has become a part of the Project Facilities, the Lessee may credit the amount so spent, or, if such property was acquired more than six (6) months prior to the date on which the credit is to be made, the Fair Market Value of such property, against the requirement that it either substitute other property or make payment under this Section on account of such removal, provided that such previously acquired and installed property meets the requirements for substituted property under clause (i) of the next preceding sentence of this Section. "Excess Value" shall mean the amount by which the then Fair Market Value of replacement Lessor Personal Property exceeds the Fair Market Value of replaced Lessor Personal Property at the time of its replacement. The Authorized Lessee Representative shall promptly report to the Lessor each such removal, substitution, sale or other disposition, shall take such actions as are required to vest title to any such replacement or substitution property (including any property substituted pursuant to the next preceding sentence) in the Lessor, and shall pay to the Lessor such amounts as are required by the provisions of clause (ii) of the second preceding sentence of this Section (but after taking into account any credits available pursuant to the next preceding sentence) to be paid to the Lessor promptly after the sale, trade-in or other disposition requiring such payment; provided, however, that no such payment need be made until the amount to be paid to the Lessor on account of all such sales, trade-ins or other dispositions not previously paid aggregates at least $100,000. Except as otherwise provided in the Project Bond Indenture, any amounts so paid shall be made available to the Lessee for use for, alterations, additions or improvements to the Project, or the acquisition and installation of personal property within the Project Facilities, which alterations, additions, improvements or personal property shall be the property of Lessor and become a part of the Project for all purposes of this Lease, and the Lessee shall promptly deliver to the Lessor a bill of sale or other appropriate evidence of title thereto. Upon the request of the Lessee, the Lessor shall promptly execute and deliver to the Lessee appropriate instruments releasing any property removed pursuant to this Section from the Project and this Lease. Section 5.5. INDEMNIFICATION. In order to induce the Lessor to undertake the duties, obligations and responsibilities set forth herein, the Lessee releases the Lessor from, agrees that the Lessor shall not be liable for, and indemnifies the Lessor against, all liabilities, obligations, claims, damages, costs and expenses (including, without limitation, reasonable attorney's fees and expenses except as may be limited by law or judicial decision or order) imposed upon, incurred or asserted against the Lessor on account of: (a) ownership of any interest in the Project; (b) any loss or damage to property or any accident or injury to or death of or loss by any person that may be occasioned by any cause whatsoever pertaining to activities pursuant to Sections 4.1, 5.3 and 5.4 of this Lease or the maintenance, operation and use of the Project or any part thereof or the adjoining sidewalks, curbs, vaults and vault space, if any, streets, alleys or ways; (c) any use, disuse or condition of the Project or any part thereof or the adjoining sidewalks, curbs, vaults and vault space, streets, alleys or ways, or arising from any act or failure to act by the Lessee, or any of its agents, contractors, servants, employees, sublessees or licensees; (d) any failure of compliance of Lessee with the provisions of Section 4115.05 and - 19 - 24 any other applicable provision of Chapter 4115, Ohio Revised Code; (e) without limitation on the provisions of Section 5.6 hereof, all risk of loss or expense arising out of the existence in, on or about the Project of Hazardous Materials, whether arising prior to or during the Lease Term and regardless of whether the same arise out of the release by the Lessee of such materials, and including without limitation civil and criminal fines and penalties, and (f) any claim, action or proceeding brought with respect to the matters set forth in (a), (b), (c), (d) and (e) above. The Lessee shall promptly notify the Lessor of any knowledge it may receive of any risk of loss or expense under clause (e) of the next preceding sentence. The Lessee agrees to indemnify the Lessor for and to hold it harmless against all liabilities, claims, costs and expenses incurred without negligence or bad faith on the part of the Lessor on account of any action taken or omitted to be taken by the Lessor in accordance with the terms of this Lease or any related instruments or any action taken at the request of or with the consent of the Lessee, including the costs and expenses of the Lessor in defending itself against any such claim, action or proceeding brought in connection with the exercise or performance of any of its powers or duties under this Lease or any related instrument. The Lessee agrees to indemnify the Lessor for and to hold it harmless against all liabilities, claims, costs and expenses incurred without negligence or bad faith on its part arising from the issuance, sale, trading or redemption or purchase of the Bonds, or performance by the Lessor of its obligations under the Project Bond Indenture with respect to, the Project Bonds, and the provision by the Lessee of any information or certification furnished in connection therewith concerning the Project Bonds, the Project or the Lessee. In case any action or proceeding is brought against the Lessor in respect of which indemnity may be sought hereunder, the Lessor promptly shall give notice of that action or proceeding to the Lessee, and the Lessee upon receipt of that notice shall have the obligation and the right to assume the defense of the action or proceeding; provided, that failure to give that notice shall not relieve the Lessee from any of its obligations under this Section except to the extent that such failure prejudices the defense of the action or proceeding by the Lessee. At its own expense, an indemnified party may employ separate counsel and participate in the defense. The Lessee shall not be liable for any settlement made without its consent. The indemnifications set forth above are intended to and shall include the indemnification of all affected officials, directors, officers and employees of the Lessor. Those indemnifications are intended to and shall be enforceable to the full extent permitted by law and shall survive the termination or expiration of this Lease. Section 5.6. ENVIRONMENTAL MATTERS. (a) Throughout the Lease Term, Lessee or its employees, contractors or agents shall (i) not use or occupy or permit the Project Site to be used or occupied, nor do or permit anything to be done in or on the Project Site, in whole or in part, which will cause or be apt to cause structural damage to the Project Site, or will constitute a public or private nuisance or will cause pollution or contamination of the air, water and/or ground or will violate any applicable Environmental Requirements with respect to the Project Site. (ii) not permit any material waste, damage or injury to the Project Site. (iii) not unlawfully store at, dispose of, emit or release from, or locate, spill or leak in, upon, over or through the Project Site any toxic or Hazardous - 20 - 25 Material waste, substance or material of any kind or nature, including without limitation, asbestos and radon. Notwithstanding the foregoing, the Lessee shall not be deemed to be in default under this Section 5.2(a) for any violation of this subsection which does not require an investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law. (b) Lessee, its successors and assigns agree to indemnify, defend, reimburse and hold harmless the Lessor from and against any and all Environmental Damages arising from the presence of Hazardous Materials upon, about or beneath the Project Site or migrating to or from the Project Site, or arising in any manner whatsoever out of the violation of any Environmental Requirements pertaining to the Project Site and activities thereon, or the breach of any warranty or covenant or the inaccuracy of any representation of Lessee contained in this Lease. Moreover, Lessee agrees to indemnify the Lessor for any and all Environmental Damages which are incurred by the Lessor which shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings, even if such claims, suits or proceedings are groundless, false or fraudulent, and conducting all negotiations of any description, and paying and discharging, when and as the same become due, any and all judgments, penalties or other sums due against the Lessor. The Lessor, at its sole expense, may employ additional counsel of its choice to associate with counsel representing Lessee. (c) In the event Lessee shall become aware of or receive notice or other communication concerning any actual, alleged, suspected or threatened violation of Environmental Requirements, or liability of Lessee for Environmental Damages in connection with the Project Site or past or present activities of any person thereon, or that any representation set forth in this agreement is not or is no longer accurate, including but not limited to notice or other communication concerning any actual or threatened investigation, inquiry, lawsuit, claim, citation, directive, summons, proceeding, complaint, notice, order, writ, or injunction, relating to same, then Lessee shall deliver to the Lessor, within ten days of the receipt of such notice or communication by Lessee, a written description of said violation, liability, correcting information, or actual or threatened event or condition, together with copies of any documents evidencing same to the Notice Address for the Lessor. Receipt of such notice shall not be deemed to create any obligation on the part of Lessor to defend or otherwise respond to any such notification. Lessee's obligations and duties, which are set forth in this section, to the Lessor shall continue unabated until the Lessor has no environmental obligations or liabilities under any local, state or federal laws and any rules or regulations thereunder. Section 5.7. PERFORMANCE BY LESSOR OF LESSEE'S REQUIREMENTS. If the Lessee shall fail to do or perform any act or thing required to be done by it under the terms of this Lease, the Lessor may, at its sole option, after reasonable notice to the Lessee with respect thereto and reasonable opportunity afforded to the Lessee to do and perform the same, itself or by its employees, enter the Project and do and perform the same on the Lessee's behalf and at the Lessee's cost and expense; and the Lessee shall, forthwith upon receipt of notice of the amount of such cost and expense, pay the same to the Lessor as Additional Payments under Section 3.2, together with interest thereon at the Interest Rate for Advances, from the date of each payment by the Lessor to the date of repayment (including such interest) by the Lessee. (End of Article V) - 21 - 26 ARTICLE VI TAXES, MECHANICS' LIENS AND INSURANCE Section 6.1. TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES. This is a net lease and, in addition to paying the Rental Payments and Additional Payments hereunder, except to the extent that certain costs are paid pursuant to Section 4.2 of the Project Service Agreement, Lessee shall be responsible for and shall pay any and all expenses of owning, operating, maintaining and repairing the Project incurred from and after the date hereof until the expiration of the Lease Term and any and all other costs, charges, assessments, expenses and taxes of every kind and character, ordinary or extraordinary, arising out of or incurred in connection with the use or occupancy of the Project or the execution, delivery and performance by Lessee of this Lease, whether or not such cost, charge, assessment, expense or tax is expressly referred to herein, so as to allow the Lessor to receive the Rental Payments as net rent. Without limiting the generality of the foregoing, the Lessee shall pay, as the same respectively become due, all taxes, assessments, whether general or special, and governmental charges of any kind whatsoever that may at any time during the Lease Term be lawfully assessed or levied against or with respect to the Project (including, without limitation, any taxes levied upon or with respect to the revenues, income or profits of the Lessee from the Project) which, if not paid, may become or be made a lien on the Project or any part thereof, or a charge on such revenues, income and profits therefrom, and all utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project during the Lease Term; provided, that with respect to special assessments or other governmental charges that lawfully may be paid in installments over a period of years, the Lessee shall be obligated to pay only such installments as are required to be paid during the Lease Term. The Lessee may, at its expense, in good faith contest any such taxes, assessments and other charges and, in the event of any such contest, during the period of such contest and any appeal therefrom, may permit the taxes, assessments or other charges so contested to remain unpaid unless the Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor, by nonpayment of any such items the Project or any part of the Project will be materially affected or the Project or any part thereof will be subject to imminent loss or forfeiture, in which event such taxes, assessments or charges shall be paid or provisions for payment by deposit or bonding shall be made promptly by the Lessee. Section 6.2. MECHANICS' AND OTHER LIENS. The Lessee shall not suffer or permit any mechanics' or other liens to be filed or exist (i) against the Project, nor (ii) against any account or fund in which Rental Payments, Additional Payments or proceeds of the Bonds, the Notes or the Grants are deposited, by reason of work, labor, services or materials supplied or claimed to have been supplied to, for, or in connection with the Project or to the Lessee or anyone holding the Project or any part thereof through or under the Lessee, or otherwise; provided, however, that if any such liens shall at any time be filed, the Lessee shall, within ninety days after notice of the filing thereof but subject to the right to contest hereinafter set forth, cause the same to be discharged of record by payment, deposit, bonding, order of a court of competent jurisdiction or otherwise. The Lessee shall have the right, but at its own cost and expense, to contest the validity or the amount of any such lien by appropriate proceedings timely instituted, unless the Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor, by nonpayment of any such items any part of the Project or moneys in such an account or fund will be subject to imminent loss or forfeiture, in which event the Lessee shall promptly cause such lien to be discharged as aforesaid. Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in any such contest (except as any such lien is asserted by the Lessor in which event the Lessee shall have the right to contest such lien as if it were the owner of the Project). - 22 - 27 If the Lessee shall fail to cause such lien to be discharged, or to contest the validity or amount thereof, within the period aforesaid, then, in addition to any other right or remedy of the Lessor, the Lessor may, but shall not be obligated to, discharge the same by deposit or by bonding. Section 6.3. INSURANCE. The Lessee shall keep the Project Facilities continuously insured in the amount and with the coverage of the Required Property Insurance Coverage and shall keep and maintain, with respect to the Project, Required Public Liability Insurance Coverage, provided, that through the Completion Date, the Lessee shall provide all-risk builders risk insurance covering the then insurable value of the Project. Subject to the next paragraph of this section, such insurance shall name the Lessor, the Lenders, the Holders and the County Bond Holders as, with respect to Public Liability Required Insurance Coverage, additional insureds and, with respect to Required Property Insurance Coverage, the Lessor, the Lenders, the Holders and the County Bond Holders as loss payees, as their respective interests may appear, and shall be obtained and maintained by means of policies with generally recognized, responsible insurance companies qualified to do business in the State, in conjunction with other companies through an insurance trust or other arrangements reasonably satisfactory to the Lessor. The insurance to be provided may be by blanket policies. Each policy of insurance shall be written so as not to be subject to cancellation or substantial modification without not less than thirty days' advance written notice to the Lessor and the Lenders. The Lessee shall deposit with the Lessor certificates or other evidence reasonably satisfactory to the Lessor that the insurance required hereby has been obtained and is in full force and effect and, at least 30 days prior to the expiration of any such insurance, the Lessee shall furnish the Lessor with evidence reasonably satisfactory to the Lessor that such insurance has been renewed or replaced. All policies providing the Required Property Insurance Coverage shall contain a clause requiring all proceeds resulting from any claim for loss or damage, if the proceeds of such claim are in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such increase), to be paid to the Lessor or its designee, and any Net Proceeds of insurance providing such coverage shall be paid and applied as provided in Section 7.2 hereof. The proceeds of insurance providing Required Public Liability Insurance Coverage shall be applied toward the extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid. Section 6.4. WORKERS' COMPENSATION AND UNEMPLOYMENT COVERAGE. The Lessee shall maintain, or cause to be maintained in connection with the Project, the workers' compensation and unemployment coverages required of it by the applicable laws of the State. Section 6.5. WAIVER OF SUBROGATION. Notwithstanding any other provision of this Lease to the contrary, it is mutually agreed that the Lessor shall not be responsible for damage by fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief to the property of the Lessee and the Lessee shall not be responsible for damage to the property of the Lessor by the same perils as mentioned above regardless of the negligence of either party. The Lessee will cause each insurance carrier issuing any policy required by this Lease to waive all rights of subrogation against the Lessor, the Lenders and the Holders. Section 6.6. PAYMENT OF AMOUNTS NOT PAID BY LESSEE. If the Lessee fails to (i) pay taxes, assessments and other governmental or utility charges as required by Section 6.1 hereof, (ii) pay or discharge mechanics' or other liens as required by Section 6.2 hereof, (iii) maintain and keep in force the insurance required by Section 6.3 hereof or (iv) maintain required workers' compensation and unemployment coverage as required by Section 6.4 hereof, the Lessor may (but shall not be obligated to) advance funds to pay any such required charges or - 23 - 28 items after ten business days' prior written notice to the Lessee. Any funds so advanced shall be payable by the Lessee on demand as Additional Payments pursuant to Section 3.2 hereof and shall bear interest from the date of advancement to the date the Lessor is repaid (including such interest) at the Interest Rate for Advances. (End of Article VI) - 24 - 29 ARTICLE VII DAMAGE, DESTRUCTION AND CONDEMNATION Section 7.1. DAMAGE TO OR DESTRUCTION OF PROJECT. In case of any damage to or destruction of the Project Facilities or any part thereof, the Lessee will promptly give or cause to be given written notice thereof to the Lessor and the Lenders generally describing the nature and extent of such damage or destruction. Unless such damage or destruction is such that the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, there shall be no abatement or diminution of Rental Payments and the Lessee shall, whether or not the Net Proceeds of insurance, if any, received on account of such damage or destruction shall be sufficient for such purpose, promptly commence and complete, or cause to be commenced and completed, repair or restoration of the Project Facilities as nearly as practicable to the value, condition and character thereof existing immediately prior to such damage or destruction, with such changes or alterations, however, as the Lessee may deem necessary for proper operation of the Project and to which the Lessor has consented, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, Lessee may under certain circumstances relating to damage or destruction terminate this Lease and/or acquire the Project as set forth in Article IX. Section 7.2. USE OF INSURANCE PROCEEDS. In connection with the repair or restoration of the Project Facilities pursuant to Section 7.1 hereof, Net Proceeds of Required Property Insurance Coverage not in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such increase) shall be paid to the Lessee for application of as much as may be necessary for such repair and restoration. If such Net Proceeds are in excess of $500,000 (increased on each January 1 by ten percent for each ten percent increase in the Consumer Price Index Increase not theretofore the subject of such an increase) the Net Proceeds shall be paid to and held by the Lessor or its designee, as described in the second paragraph of Section 6.3 hereof, in a separate insurance loss account, for application of as much as may be necessary of the Net Proceeds for the payment of the costs of repair, rebuilding or restoration, either on completion thereof or as the work progresses as directed by the Lessee or otherwise provided in the Project Bond Indenture. Any balance of the Net Proceeds held by the Lessor or its designee remaining after payment of all costs of such repair, rebuilding or restoration shall, except as otherwise provided in the Project Bond Indenture, be made available to Lessee for alterations, additions or improvements to the Project thereafter during the Lease Term. If, in lieu of repair and restoration, the Lessee has certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, any Net Proceeds received by the Lessor or its designee prior to such prepayment shall be credited against the Discounted Rent payable by the Lessee pursuant to this Lease, and after such prepayment, no further Rental Payments shall be due hereunder. Section 7.3. EMINENT DOMAIN. If title to or the temporary use of the Project, or any part thereof, shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Lessee will promptly give or cause to be given written notice thereof to the Lessor, the Lenders, the Holders and the County Bond Holders describing the nature and extent of such taking. Any Net Proceeds received from any award made in such eminent domain proceedings shall be paid to and held by or on behalf of the Lessor or its designee in a separate condemnation award account and, unless the taking is such that the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate - 25 - 30 this Lease in accordance with Article IX hereof, shall, except as otherwise provided in the Project Bond Indenture, be made available to Lessee to be applied in one of the following ways: (a) The restoration of the Project Facilities to substantially the same condition as existing prior to the exercise of the power of eminent domain; (b) The acquisition by construction or otherwise of other improvements acceptable to the Lessor and suitable for the Lessee's operations on the Project Site (which improvements shall be deemed property of the Lessor and a part of the Project). The balance of any net Proceeds remaining after application to (a) and (b) above shall, except as otherwise provided in the Project Bond Indenture, be made available to the Lessee for alterations, additions and improvements to the Project thereafter during the Lease Term. If the Lessee shall have certified that it will prepay all remaining Rental Payments by paying the Discounted Rent and terminate this Lease in accordance with Article IX hereof, any Net Proceeds received from any award made in such eminent domain proceeding shall be credited against the Discounted Rent payable by the Lessee pursuant to this Lease, and after such prepayment no further Rental Payments shall be due hereunder. If the Lessee shall not have so certified, there shall be no abatement or diminution of Rental Payments. Section 7.4. INVESTMENT AND DISBURSEMENT OF NET PROCEEDS. All moneys received by or on behalf of the Lessor or its designee constituting Net Proceeds may, pending application, be invested and shall, to the extent to be used for repair, rebuilding, improvement, restoration, acquisition or construction, be disbursed as provided in or pursuant to the Project Bond Indenture and the Project Service Agreement for the investment and disbursement of moneys in the Proceeds Account of the Project Fund created under the Project Bond Indenture. Section 7.5. LESSEE'S OWN PERSONAL PROPERTY. The Lessee or any permitted assignee or sublessee of the Lessee shall be entitled to the net proceeds of any insurance claims or eminent domain award for damage or destruction or taking of its personal property (including with respect to the net proceeds resulting from any taking, the value to the Lessee, if any, determined by the court to be represented by the Lessee's leasehold interest). (End of Article VII) - 26 - 31 ARTICLE VIII FURTHER REPRESENTATIONS AND AGREEMENTS RESPECTING THE PROJECT Section 8.1. RIGHT OF ACCESS. The Lessee agrees that inspections may be made as provided in Section 5.2 hereof. The Lessee further agrees that the Lessor, the Lenders, the Holders and any County Bond Holder and their employees and agents shall be provided such access to the Project upon reasonable notice to the Lessee, as may be reasonably necessary to cause to be completed the Project Facilities and thereafter for the proper maintenance of the Project in the event of failure by the Lessee to perform any of its obligations. Section 8.2. LESSEE TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS UNDER WHICH EXCEPTIONS PERMITTED. The Lessee agrees that during the Lease Term it will maintain its corporate existence, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation or permit one or more other corporations to consolidate with or merge into it; provided, that the Lessee may, without violating the agreement contained in this Section, consolidate with or merge into another corporation, or permit one or more other corporations to consolidate with or merge into it, or sell or otherwise transfer to another corporation all or substantially all of its assets as an entirety and thereafter dissolve, provided that if the surviving, resulting or transferee corporation, as the case may be, is other than the Lessee, such surviving, resulting or transferee corporation assumes in writing all of the obligations of the Lessee herein and either obtains the consent of the Lessor or has a net worth at least equal to that of the Lessee prior to dissolution, sale, consolidation or merger, and provided further that such consolidation, merger, sale or transfer does not violate any provision of any other agreement with any Lender, any Holder or any County Bond Holder to which the Lessee is a party. Net worth shall be determined in accordance with generally accepted accounting principles consistently applied. If consolidation, merger or sale or other transfer is made as provided in this Section, the provisions of this Section shall continue in full force and effect and no further consolidation, merger or sale or other transfer shall be made except in compliance with the provisions of this Section. Section 8.3. TITLE OF PROJECT SITE. Written evidence as to the status of title to the Project Site as of the date of delivery of this Lease has been made available to the Lessee and the Lessor. The Lessee and the Lessor agree that such title is satisfactory and that all defects in and liens and encumbrances on such title, as set forth in such evidence as exclusions from coverage and exceptions, do not materially impair the Lessee's use or the value of the Project Site. Section 8.4. NO WARRANTY OF CONDITION OR SUITABILITY. The Lessor does not make any warranty, either express or implied, as to the suitability or utilization of the Project for the Project Purposes, or as to the condition of the Project or whether the Project is or will be suitable for the Lessee's purposes or needs. Lessor and Lessee agree that the Project is being leased to Lessee, and Lessee hereby accepts possession of the Project, "as-is, where-is, with all faults," with no right of set-off or reduction in the Rental Payments, and that such transaction shall be without representation or warranty of any kind or nature whatsoever by Lessor, or any officer, director, employee, agent or attorney of Lessor, or any other party related in any way to any of the foregoing (all of which parties are collectively referred to as the "Lessor Parties"), whether express, implied, statutory or otherwise, including, without limitation, title, warranty of income potential, operating expenses, uses, condition, merchantability, habitability, - 27 - 32 compliance with designs, specifications or legal requirements, absence of latent defects, or fitness for a particular purpose, and Lessor, for itself and each of the other Lessor Parties does hereby disclaim and renounce any such representation or warranty. Nothing in this Section 8.4 shall affect the representations made by the Lessor under Section 2.3 hereof. (End of Article VIII) - 28 - 33 ARTICLE IX TERMINATION OF LEASE Section 9.1. OPTION TO TERMINATE ON PAYMENT OF RENTAL PAYMENTS. The Lessee shall have the option to terminate this Lease when payment of the Discounted Rent (as defined in Section 9.2 hereof but exclusive of clause (4) of that definition) shall have been made to the Lessor. Such option shall be exercised by the Lessee giving the Lessor, each of the Lenders, the Holders and the County Bond Holders notice of such termination and, upon such payments or, to the extent applicable, provision for payments, such termination shall forthwith become effective. Section 9.2. TERMINATION OF LEASE ON SUBSTANTIAL CASUALTY OR CONDEMNATION. If the Project shall have been damaged or destroyed, or title to or the temporary use of all or substantially all of the Project shall have been taken under the exercise of the power of eminent domain by any governmental authority, or other Person acting under governmental authority, to such an extent that, in the opinion of the Board of Directors of the Lessee, it is not economically feasible to repair, rebuild, restore or replace the Project to substantially the condition thereof immediately preceding the damage, destruction or taking (because for example, without limitation, of the occurrence of an uninsurable casualty), then, within 90 days following the date on which the event authorizing that exercise occurred (the date of the occurrence of any damage or destruction or the date of entry of a final order in any eminent domain proceeding), the Authorized Lessee Representative shall provide the Lessor with a copy of the action of the Board of Directors making such determination and with its certification that (i) it will prepay all of the remaining Rental Payments by paying the Discounted Rent on the date required as set forth below, (ii) upon such payment it will terminate this Lease and (iii) the Lessee has irrevocably taken such steps as are necessary under the Project Service Agreement to terminate the Project Service Agreement, in accordance with its terms, on or prior to such date. Copies of those certificates shall be provided to the Lenders. In the event that such certification is given, such certifications shall be irrevocable and the Lessee shall pay the Discounted Rent (less any amounts on deposit with the Lessor or its designee and available therefor pursuant to Article VII hereof, including without limitation, the Net Proceeds of Required Property Insurance Coverage or Net Proceeds of any eminent domain or similar payments) to the Lessor on or prior to the business day preceding the next Interest Payment Date (as defined in the Project Bond Indenture) occurring at least 35 days after delivery of the certification (and all copies thereof) pursuant to the preceding two sentences, which date shall be specified in the certification of the Authorized Lessee Representative. The Discounted Rent is irrevocably agreed and acknowledged by the parties to be the sum of the following amounts (collectively being the "Discounted Rent" as used and defined herein): (1) an amount of money which will be sufficient pursuant to the Project Bond Indenture to pay all outstanding principal of and premium with respect to the Bonds and to pay any accrued, but unpaid interest on the Bonds to such Interest Payment Date; and (2) an amount of money which will be sufficient to pay all outstanding principal of the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Notes, to such Interest Payment Date; and - 29 - 34 (3) an amount of money (or provision therefor satisfactory to the Lessor) equal to the Additional Payments and other amounts payable hereunder accrued and to accrue to such Interest Payment Date; and (4) an amount of money sufficient to raze the damaged structures and level and seed the sites of such structures, which amount shall be placed in a segregated account to be so used solely for such purpose. In the event the Net Proceeds of Required Property Insurance Coverage or the Net Proceeds of any eminent domain or similar payments are received subsequent to the payment by the Lessee of the Discounted Rent, such Net Proceeds shall be paid to the Lessee. The mutual agreements contained in this Section 9.2 are independent of, and constitute an agreement separate and distinct from, any other provisions of this Lease and any other agreements between the Lessor and the Lessee and shall be unaffected by any fact or circumstance which might impair or be alleged to impair the validity of those other provisions. Upon acquisition of the Bonds and the Notes by the Lessee, the Bonds, and the Notes shall be surrendered for cancellation, this Lease shall be terminated (subject to survival of such provisions hereof as are intended to survive termination of this Lease), all right, title and interest of the Lessee or the Lessor in or to the Project will revert to and vest in the Lessor, as the fee owner of the Project Facilities and the Lessee shall terminate the Project Service Agreement. Section 9.3. OPTION TO PURCHASE LESSOR'S INTEREST IN PROJECT. The Lessee is hereby granted an option to purchase all interests of the Lessor in the Project upon the termination of the Lease Term pursuant to Section 9.1 or 9.2 of this Lease, or at the expiration of the Lease Term, in any such case, by payment to the Lessor of the following sums, as applicable. In the case of a termination pursuant to Section 9.1 of this Lease or at the expiration of the Lease Term (other than when the termination or expiration results from the insolvency or bankruptcy of either the Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga), the Lessee shall pay to the Lessor the sum of (x) $100.00; and (y) an amount of money which is the greater of (a) the Fair Market Value of the Project (other than the Moveable Personal Property) minus an amount equal to the future value of the Lessee's original equity contribution to the acquisition of Permanent Parcel No. 103-07-036, as shown on the Cuyahoga County 1994 General Tax Duplicate, compounded monthly at an 8% annual interest rate from the date of the equity contribution to the date of purchase of the Project or (b) the amount required to retire in full the Bonds and the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Bonds and the Notes, to the specified purchase date. In the case of a termination pursuant to Section 9.2 of this Lease (and assuming with respect to a condemnation proceeding that the Lessee has not taken steps to initiate or encourage the condemnation proceeding), or in the case of (a) a termination pursuant to Section 9.1 of this Lease or (b) at the expiration of the Lease Term and, in the case of either clause (a) or clause (b), resulting from the insolvency or bankruptcy of either the Cleveland-Cuyahoga County Port Authority or the County of Cuyahoga, the Lessee shall pay to the Lessor the sum of (x) $100.00; and - 30 - 35 (y) the amount of money required to retire in full the Bonds and the Notes plus any interest and service charges accrued, but unpaid, along with any premium on the Bonds and the Notes, to the specified purchase date. Any amount required to the paid by the Lessee pursuant to this Section 9.3 in order to purchase all interests of the Lessor in the Project shall be reduced by the amount previously paid by the Lessee pursuant to either Section 9.1 or Section 9.2 hereof as Discounted Rent (to the extent of clauses (1) and (2) of that definition) in connection with the termination of the Lease. If the Lessee exercises its option to purchase in connection with its option pursuant to Section 9.2 of this Lease, it shall do so within the time and in the manner as is provided in that Section. If the Lessee exercises its option pursuant to this Section, the Lessee shall give written notice to the Lessor and the Lenders at least six months prior to the purchase date. Section 9.4. CONVEYANCE ON EXERCISE OF OPTION TO PURCHASE. Upon exercise by the Lessee of its option under Section 9.3 hereof and upon payment of all amounts payable by the Lessee in connection therewith, the Lessor will deliver, or cause to be delivered, to the Lessee such quitclaim deeds, bills of sale, instruments and other documents conveying to the Lessee all of the Lessor's interests in the Project, as the Project then exists, subject to (a) liens and encumbrances, if any, to which title to the Project was subject at the commencement of the Lease Term; (b) liens and other encumbrances created by the Lessee or to or in the creation or suffering of which the Lessee consented or acquiesced or in the creation of which it participated; (c) liens and other encumbrances for taxes, governmental charges or special assessments not then delinquent; (d) liens and other encumbrances resulting from the failure of the Lessee to observe or perform any of its covenants, agreements or obligations under this Lease; and (e) if the option under Section 9.3 hereof is exercised in connection with the exercise by the Lessee of its option under Section 9.2 hereof pursuant to the provisions of Section 9.2(a) hereof, the rights and title of the condemning authority. If the option under Section 9.3 hereof is exercised in connection with the exercise by Lessee of the option under Section 9.2 hereof pursuant to the provisions of paragraph (a) of that Section, the Lessee, upon payment of the option price to Lessor, shall be entitled to all insurance proceeds in connection with the damage or destruction or, at the Lessee's option, the Lessee shall be entitled to credit such net proceeds against the payment of the option price. No further action of the Legislative Authority shall be required to authorize or to effect the conveyance contemplated in this Section, and upon the payment by the Lessee of all amounts payable by the Lessee in connection therewith and upon satisfaction by the Lessee of all other requirements therefor, the Executive, either alone or together with any other officer or - 31 - 36 officers deemed by the Executive to be appropriate, is authorized and directed hereby to execute and deliver any instruments and documents necessary or advisable to effect the conveyance. (End of Article IX) - 32 - 37 ARTICLE X EVENTS OF DEFAULT Section 10.1. EVENTS OF DEFAULT. Each of the following shall be an "Event of Default": (a) The Lessee shall fail (i) to pay in full any Rental Payment on or prior to any Rental Payment Date and such failure continues for a period of five (5) calendar days thereafter, or (ii) to pay in full the Discounted Rent on or prior to the date established for the payment thereof pursuant to Section 9.2 of this Lease or (iii) to maintain any of the insurance required by Section 6.3 of this Lease or fail to maintain the required levels of insurance for a period of five (5) calendar days. (b) The Lessee shall fail to make any payment, other than a Rental Payment or a payment of Discounted Rent, required to be made under this Lease or the Project Service Agreement, which failure shall continue for a period of 30 days after written notice (unless the Lessor shall agree in writing to an extension of such time prior to its expiration) specifying such failure and requesting that it be remedied, given by the Lessor to the Lessee. (c) The Lessee shall fail to observe and perform any of its other covenants, conditions or agreements contained herein for a period of 60 days after written notice (unless the Lessor shall agree in writing to an extension of such time prior of its expiration) specifying such failure and requesting that it be remedied, given by the Lessor to the Lessee; provided, however, that if such failure is other than the payment of money and is of such a nature that it cannot be corrected within such 60 day period, then such failure shall not constitute an Event of Default so long as the Lessee notifies the Lessor of its intention to cure such failure as soon as possible after such 60 day period, institutes curative action within such 60 day period, diligently pursues such action to completion, and cures such failure within a reasonable period of time, not to exceed 120 days, after such 60 day period. (d) Any representation or warranty by the Lessee contained in this Lease is false or misleading in any material respect. (e) The Lessee shall: (A) (i) admit in writing its inability to pay its debts generally as they become due; or (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act; or (iii) make an assignment for the benefit of creditors; or (iv) consent to the appointment of a receiver for itself or of the whole or any substantial part of its property; or (B) file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof; or (C) if a petition in bankruptcy is filed against it, be adjudicated a bankrupt, or have a court of competent jurisdiction enter an order or decree appointing, without the consent of the Lessee, a receiver or trustee for the Lessee or for the whole or substantially all of its property, or have a court of competent jurisdiction enter an order or decree approving a petition filed against it seeking reorganization or arrangement of the Lessee under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any state thereof, if any such adjudication, order or decree under this clause (C) shall not be vacated or set aside or stayed within 90 days from the date of the entry thereof. - 33 - 38 (f) The Lessee shall fail, within 90 days after the commencement of any proceeding against the Lessee seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, to have such proceeding dismissed, or, within 90 days after the appointment without the consent or acquiescence of the Lessee, of any trustee, receiver or liquidator of the Lessee or any material part of its properties, to have such appointment vacated, or the Lessee shall be adjudicated as a bankrupt or insolvent. (g) Any "Event of Default", as defined in the Inducement Agreement dated as of the date hereof, between the Lessee and the original purchaser of the Bonds shall have occurred. Section 10.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall have happened and be subsisting, any one or more of the following remedial steps may be taken: (a) The Lessor may declare all Rental Payments, together with any Additional Payments and other amounts payable hereunder to be immediately due and payable, whereupon, to the extent permitted by law, the same shall become immediately due and payable; (b) The Lessor may re-enter and take possession of the Project without terminating the Lease and sublease the Project for the account of the Lessee, holding the Lessee liable for the difference between the rent and other amounts payable by such sublessee in such subleasing and the aggregate of the Rental Payments, Additional Payments and other amounts payable by the Lessee hereunder; (c) The Lessor may terminate this Lease, exclude the Lessee from possession of the Project and lease the Project to another, but holding the Lessee liable for all Rental Payments, Additional Payments and other amounts payable hereunder up to the effective date of such leasing; (d) The Lessor may have access to and inspect, examine and make copies of the books and records and any and all accounts, data and income tax and other tax returns of the Lessee, only, however, insofar as they pertain to the Project; (e) The Lessor may take whatever action at law or in equity may appear necessary or desirable to collect the Rental Payments, Additional Payments and other amounts then due and thereafter to become due, or to enforce performance and observance of any other obligation or agreement of the Lessee, under this Lease. After the termination of the Lease or of Lessee's right of possession, the Lessor shall, to the extent required under applicable law, use reasonable efforts to mitigate damages by reletting the Project, in whole or in part, either in its own name or as agent for the Lessee, for a term or terms, that at the Lessor's option, may be for the remainder of the then current Lease Term or for any longer or shorter period. The Lessor may waive and rescind any declaration made pursuant to subparagraph (a) of the first paragraph of this Section and waive and rescind the consequences of such declaration and of the Event of Default with respect to which such declaration has been made, provided that no such waiver or rescission shall extend to or affect any subsequent or other default or impair any right consequent thereon. The Lessor and the Lessee acknowledge that the Lessor has borrowed money from several sources in order to provide the moneys necessary to acquire the Project Site and - 34 - 39 construct, improve, furnish, equip and develop the Project Facilities and that the Lessor, with the knowledge of the Lessee, has contractually obligated itself to use the Rental Payments to repay its borrowings and that an Event of Default under Section 10.1 hereof would eliminate future Rental Payments and the source to be used to repay the Lessor's borrowings. The Lessor and the Lessee agree that amounts paid pursuant to paragraph (a) of this Section are liquidated damages and not a penalty and will permit the Lessor to repay the borrowings that would have been repaid from Rental Payments during the Lease Term so that the Lenders, the Holders and the County Bond Holders do not suffer any loss by reason of the breach by the Lessee of the terms of this Lease. The Lessor shall give prompt notice to each of the Lenders of an Event of Default under this Lease and of any waiver thereof and of any rescission of an acceleration. Section 10.3. NO REMEDY EXCLUSIVE. No remedy conferred or reserved by this Lease is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Lease or now or hereafter existing at law, in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Lessor to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice, other than such notice as may be expressly required herein or by applicable law. Section 10.4. LESSEE TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event of Default occurs and the Lessor, any Lender, any Holder or any County Bond Holder employs attorneys or incurs other expenses for the enforcement of any obligation or agreement of the Lessee contained herein or in any other agreement to which the Lessee is a party, the Lessee shall, on demand therefor and to the extent permitted by law, reimburse the reasonable fees of such attorneys and such other expenses so incurred. Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the event any agreement contained in this Lease should be breached by either party and thereafter waived by the other party, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. (End of Article X) - 35 - 40 ARTICLE XI ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE OF PORTIONS OF PROJECT Section 11.1. SUBLEASING BY LESSEE. The Project may be subleased in whole or in part, by the Lessee without the necessity of obtaining the consent of the Lessor; provided that if the Lessee and its subsidiaries are occupying and using less than 90 percent of the usable space of the Project Facilities, then ten business days prior to executing any sublease the Lessee shall provide notice to the Lessor specifying the name of the sublessee, the nature of its business, the use to be made of the subleased space, the number of persons anticipated to be employed in the subleased space, whether any hazardous or flammable materials will be located in the space and any remodeling that is to be accomplished to accommodate the sublessee; subject, however, to each of the following conditions: (a) No subletting shall relieve the Lessee from primary liability for any of its obligations hereunder, and in the event of any such subletting the Lessee shall continue to remain primarily and fully liable for the Rental Payments and Additional Payments and for performance and observance of the agreements on its part herein provided to be performed and observed by it. (b) Any sublease from the Lessee must retain for the Lessee such rights and interests as will permit it fully to perform its obligations under this Lease. (c) The Lessee shall, prior to the delivery thereof, furnish or cause to be furnished to the Lessor a true and complete copy of each such proposed sublease, together with, after delivery, a fully executed original counterpart of such sublease. (d) Any sublease from the Lessee shall not materially impair fulfillment of the purposes of the Act to be accomplished by operation of the Project. Section 11.2. MORTGAGE AND ASSIGNMENT OF LEASE BY LESSOR. In accordance with applicable laws, the Lessor may grant a security interest or an assignment of its interest in the Project, and may mortgage and grant a security interest in the Project, to one or more of the Lenders and the County Bond Holders, as security for payment of the Bonds and the Notes. If requested by any such Lender or by the County Bond Holders, Lessee will execute and deliver such agreement or agreements as may be reasonably required by such Lender or by the County Bond Holders to subordinate Lessee's interest in this Lease to any such mortgage, security interest or assignment and will join in the execution of any such mortgage, security interest or assignment to the extent necessary to subject any interest Lessee may have in any property for which Lessee provided moneys pursuant to Section 4.7 of the Project Service Agreement, any additions, modifications or improvements made pursuant to Section 5.3 hereof, any replacements pursuant to Section 5.4 hereof, and any property restored pursuant to Article VII hereof. Upon request of any such Lender or the County Bond Holders, Lessee will agree to become a tenant to the new owner of the Project after the purchase on any foreclosure sale or conveyance in lieu of foreclosure on the same terms and conditions of this Lease and will execute such instruments as may be necessary or appropriate to evidence such agreement. It shall be a condition of any such mortgage, security interest or assignment of interest in the Project that such Lender or the County Bond Holders shall expressly agree in its mortgage, security agreement or assignment, that (A) on behalf of itself, its successors and assigns, in the event of foreclosure of the Project or conveyance of the Project in lieu of foreclosure which occurs prior to the end of the Lease Term, and provided that there is no outstanding Event of Default, Lessee shall have the right - 36 - 41 to remain in possession of the Project and no such foreclosure or conveyance in lieu of foreclosure shall divest, impair, modify, abrogate or otherwise adversely affect any interests or rights whatsoever of Lessee under this Lease, and (B) within fifteen (15) business days after a request therefor by Lessee, such Lender or the County Bond Holders shall execute a separate non-disturbance agreement with Lessee which shall contain the provisions required by the terms of clause (A) hereinabove. Section 11.3. RESTRICTIONS ON TRANSFER AND ENCUMBRANCE OF PROJECT BY THE LESSOR. The Lessor agrees that, so long as no Event of Default has occurred and is continuing under this Lease and except as otherwise provided in this Lease, it will not, directly or indirectly, sell, assign, transfer, convey, grant any easement or encumbrance or otherwise dispose of the Project or any portion thereof during the Lease Term, nor will it create or suffer to be created by, through and under it any debt, lien or charge thereon (except the lien or charge for taxes, governmental charges or special assessments) or make any pledge or assignment of or create any lien or encumbrance upon the rents, revenues and receipts derived from the sale, lease or other use or disposition of the Project, other than as provided in Section 11.2 hereof, or as a result of foreclosure by a Lender or by the County Bond Holders on the interest of Lessor mortgaged as described in Section 11.2 or transfer in lieu of such foreclosure, or as approved by the Lessee. Section 11.4. RELEASE OF PROJECT. The Lessee hereby reserves the right and the Lessor hereby agrees, at any time and from time to time, to amend this Lease to effect the release of and removal from this Lease and the leasehold estate created hereby of any part of or interest in the Project and the conveyance or transfer for Fair Market Value of such part or interest to the Lessee or one of its subsidiaries or to a grantee so long as that grantee is approved by the Lessee and the Lessor which approval shall not be unreasonably withheld or delayed; provided, that such amendment shall not be effective until and unless there are deposited with the Lessor the following: (a) An executed copy of said amendment. (b) A certificate of the Authorized Lessee Representative (i) stating that to his knowledge no Event of Default exists and the Lessee is not in default under any of the provisions of this Lease, (ii) giving, if applicable, an adequate legal description of that portion of the Project to be released, (iii) stating the purpose for which the release is desired, (iv) stating that the improvements, if any, to be constructed upon that portion of the Project to be released are consistent with, or not inconsistent with, the purposes of the Act, (v) requesting such release and (vi) approving such amendment. (c) Evidence of the authority of the officer of the Lessee who executed such amendment. (d) A certificate of the Chair, the President or a Vice President of the Lessee or an opinion of counsel for the Lessee stating that, to the best of his or her knowledge after due inquiry, the Lessee is not in default under this Lease. (e) A fully executed counterpart of the instrument conveying or transferring the interest proposed to be released. (f) A certificate of an Engineer, acceptable to the Lessor, dated not more than sixty days prior to the date of the release and stating that, in the opinion of such Engineer, (i) the release of the portion of the Project so proposed to be released is - 37 - 42 necessary or desirable in order to benefit the Project, or such portion is not needed for the operation of the Project, and (ii) the release so proposed to be made will not impair the usefulness of the Project as furthering the Project Purposes, and will not destroy or materially impair means of ingress to and egress from the Project. (g) An appraisal from an appraiser satisfactory to the Lessee and the Lessor, establishing the Fair Market Value of that portion of the Project to be released. The Lessor shall execute and deliver such documents as the Lessee may properly request in order to effect any release pursuant to this Section. Any release pursuant to this Section may be made for the purpose of conveying the part or interests released to the Lessee. Section 11.5. GRANTING EASEMENTS. The Lessee may grant or release, as the case may be, those easements, licenses, rights-of-way or use (including without limitation, the dedication of public highways), party wall rights, rights of lateral support and other rights and privileges in the nature of easements with respect to the Project which may be lawful and which do not unreasonably interfere in the proper and efficient use and operation of the Project and do not materially impair the value of the Project. The Lessee covenants and agrees that it will deliver to the Lessor at least ten days prior to the effectiveness of the executed grant or release (a) a copy of the instrument of grant or release, and (b) a certificate of the Authorized Lessee Representative stating that in his opinion the grant or release (i) will not interfere with the proper and efficient use and operation of the Project for the Project Purposes and (ii) will not destroy or materially impair means of ingress to or egress from the Project or the Project Facilities. Section 11.6. NO ABATEMENT OR DIMINUTION OF PAYMENTS. No grant, release, removal or conveyance effected under any of the provisions of this Lease shall entitle the Lessee to any abatement or diminution of the Rental Payments or Additional Payments payable hereunder. Section 11.7. PAYMENT ON RELEASE OR CONVEYANCE. Any grant, release, removal or conveyance under Section 11.4 or 11.5 of this Lease shall be made only for consideration which is equal to or greater than the appraised value or which the Authorized Lessee Representative certifies, and the Lessor acknowledges, is a fair and adequate consideration. Any moneys received as such consideration shall be paid to the Lessor and used by the Lessor for, or made available to the Lessee (which shall promptly deliver a bill of sale or other similar evidence of title to the Lessor) for use for, capital alterations, additions or improvements to the Project or the acquisition of personal property for the Project (which capital alterations, additions or improvements and any such personal property shall become a part of the Project for all purposes of this Lease) thereafter during the Lease term. Section 11.8. LESSOR TO APPLY LEASE PAYMENTS TO DEBT AMORTIZATION DURING ANY EXTENSION OF LEASE TERM. In the event that Lessee extends the Lease Term pursuant to Section 12.16 of this Lease, Lessor agrees to apply all Rental Payments received during that extension of the Lease Term to the amortization of debt issued by the Cleveland-Cuyahoga County Port Authority to refinance the Project Debt in accordance with the provisions contained in any trust indenture, loan agreement or similar instrument entered into by the Port Authority in connection with that refinancing directing the application of Rental Payments to debt amortization. (End of Article XI) - 38 - 43 ARTICLE XII MISCELLANEOUS Section 12.1. QUIET ENJOYMENT. The Lessor covenants with the Lessee that, so long as the Lessee shall have paid all Rental Payments, Additional Payments and other payments due hereunder, as and when due, and performed and observed the other covenants and agreements on its part to be performed and observed hereunder, the Lessee shall and may peaceably and quietly have, hold and enjoy the Project without let or hindrance from any Person whatsoever; provided that from and after delivery of the Assignment of Lease, with respect to the Project Bond Trustee, as assignee or its successors or assigns, such covenant to provide the peaceable and quiet enjoyment of the Project shall be limited to Persons claiming by, through or under the assignee. Section 12.2. SURRENDER OF PROJECT. Upon the termination or expiration of this Lease, the Lessee shall surrender peaceably and promptly possession of the Project, leaving same in good condition and repair (ordinary wear and tear excepted) and subject to damage, destruction and taking by eminent domain if the Lessee has elected to terminate this Lease pursuant to Section 9.1 of this Lease. Section 12.3. NOTICES. All notices, certificates, requests or other communications hereunder shall be by first-class mail, postage prepaid, courier service, delivery charges prepaid, facsimile transmission (if the sender's system can confirm receipt of the transmission), or delivery addressed to the appropriate Notice Address and deemed effective on receipt, with a duplicate copy of such notice to be provided to any Lessor which shall have requested such notices and provided a Notice Address to the Lessor and the Lessee. The Lessee, the Lessor, and any other person to receive notices as provided in the definitions of Notice Address may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, requests or other communications shall be sent. Section 12.4. BINDING EFFECT. This Lease shall inure to the benefit of and shall be binding in accordance with its terms upon the Lessor, the Lessee, the Lenders, the Holders and the County Bond Holders and their respective successors and assigns. Section 12.5. AMENDMENTS, CHANGES AND MODIFICATIONS. This Lease may not be effectively amended, changed, modified, altered or terminated except in writing signed by both the Lessor and the Lessee. Section 12.6. EXECUTION COUNTERPARTS. This Lease may be executed in counterpart, and in any number of counterparts, each of which shall be regarded as an original and all of which shall constitute but one and the same instrument. Section 12.7. SEVERABILITY. If any provision of this Lease, or any covenant, stipulation, obligation, agreement, act, or action, or part thereof made, assumed, entered into, or taken thereunder or any application thereof, is for any reason held to be illegal or invalid, such illegality or invalidity shall not affect any other provision or any other covenant, stipulation, obligation, agreement, act or action or part thereof, made, assumed, entered into, or taken, each of which shall be construed and enforced as if such illegal or invalid portion were not contained herein. Nor shall such illegality or invalidity of any application thereof affect any legal and valid application thereof, and each such provision, covenant, stipulation, obligation, agreement, act, or action, or part shall be deemed to be effective, operative, made, entered into or taken in the manner and to the full extent permitted by law. - 39 - 44 Section 12.8. EXTENT OF COVENANTS; NO PERSONAL LIABILITY. All covenants, stipulations, obligations and agreements of the Lessor contained in this Lease shall be effective to the extent authorized and permitted by applicable law. No covenant, stipulation, obligation or agreement contained in this Lease shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future member, officer, agent or employee of the Lessor or the Lessee in other than his official capacity, and neither the members of the Legislative Authority or any director or other officer of the Lessor or the Lessee shall be subject to any personal liability or accountability by reason of the covenants, stipulations, obligations or agreements contained in this Lease or other instruments referred to herein. Section 12.9. CAPTIONS. The table of contents, captions and headings in this Lease are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Lease. Section 12.10. GOVERNING LAW. This Lease shall be governed exclusively by and construed in accordance with the laws of the State. Section 12.11. ESTOPPEL CERTIFICATE. Upon the written request of either the Lessor or the Lessee, as the case may be, the Lessor and the Lessee agree to deliver to the other a statement in writing and certified that this Lease is a true and exact copy of the lease between the parties, that there are no amendments thereto (or stating what amendments there may be and attaching copies thereof), that to the extent the same are true this Lease is in full force and effect, there are no offsets, defenses or counterclaims with respect to the payment of any obligations under the terms of this Lease or under the performance of any other terms, covenants and conditions thereof, that there are no defaults or if there are defaults, setting forth the nature of such defaults, the status of the Rental Payments and other payments due under the terms of this Lease and such other information reasonably requested by the Lessor or the Lessee. The Lessor and the Lessee agree to promptly supply the aforesaid instrument to the other party but no later than ten days after receipt of a written request therefor. The Lessor and the Lessee agree that any statement as aforesaid may be relied upon by any prospective purchaser, mortgagee, assignee, sublessee or any other Person concerning the Project. Section 12.12. RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be deemed or construed by the parties hereto, or by any third party, as creating the relationship of principal and agent, or of partnership or joint venture between the parties hereto, it being understood and agreed that neither the method of computation of Rental Payments or Additional Payments nor any other provision contained in this Lease, nor any acts of the parties to this Lease, shall be deemed to create any relationship between the parties hereto other than the relationship of landlord and tenant. Section 12.13. ARBITRATION. If any controversy concerning the determination of Fair Market Value ("Controversy") shall arise under this Lease which is not resolved by the parties hereto, at the request of either of the parties hereto, and unless otherwise prohibited by law, such Controversy shall be determined in Cleveland, Ohio by three disinterested arbitrators, one of whom shall be chosen by the Lessor, one by the Lessee and a third by the two so chosen. The arbitrators shall as promptly as possible determine the Fair Market Value. The Lessee shall pay the fees and expenses of that arbitration. Each arbitrator shall have at least 15 years experience in appraising commercial office projects. The party hereto requesting arbitration, as aforesaid, shall give notice in writing to the other party of such desire, naming therein the arbitrator selected by it. In the event the other party shall fail, within a period of thirty business days after the giving of such notice, to notify the other in writing of the arbitrator selected by it, or in the event the two arbitrators chosen - 40 - 45 shall fail, within fifteen business days after their selection, to agree upon the third, or if the arbitrator shall die, resign or become incapable of acting as an arbitrator, then a judge of the Probate Division of the Common Pleas Court of Cuyahoga County, Ohio shall, on request of the party not in default, appoint, within fifteen days after such request, an arbitrator or arbitrators, to fill the place or places remaining vacant. The Ohio rules of evidence and civil procedure shall apply to any arbitration hereunder. Each side shall be limited in its rights of discovery to discovery permitted by the arbitrators. The decision of any two of the arbitrators in conformity with the foregoing direction shall be final and conclusive upon the parties hereto. The decision of the arbitrators shall be in writing, signed in duplicate by any two of said arbitrators, and a copy shall be delivered to each of the parties hereto. Judgment upon such decision may be entered in any court of competent jurisdiction and shall be specifically enforceable to the full extent permitted by law. Except as hereinbefore in this Section provided, the rules of the American Arbitration Association (or of any successor thereto) shall apply to any arbitration proceeding hereunder. Section 12.14. OTHER AGREEMENTS. Nothing herein shall be construed nor is intended to limit or in any manner adversely affect the rights, privileges or remedies afforded to any mortgagee of the Lessor or any other Person under any other agreement executed in connection with the execution and delivery of this Lease and the Project Service Agreement or the issuance of the Bonds and the Notes. Section 12.15. NO MERGER. The acquisition by Lessee or Lessor, or any other Person, of any greater or lesser estate in the Project or any portion thereof shall in no event result in a merger or extinguishment of the estate created hereby. Section 12.16. EXTENSION OF LEASE TERM. The Lessee is granted an option to extend the Lease Term for two (2) ten (10) year periods with the first such period commencing March 1, 2016 (the "first extension") and the second March 1, 2026 (the "second extension"). To exercise the option to extend this Lease, the Lessee must notify the Lessor that it is exercising the option, designating the period therein for which the option is exercised, not later than eighteen (18) months prior to the commencement of the period for which the option is exercised. The Rental Payment to be paid on the first business day of each month by the Lessee as rent for the Project during the first extension shall be that amount necessary to amortize, through a refinancing by the Cleveland-Cuyahoga County Port Authority (the "Authority"), the (i) Unamortized Debt (as defined in Section 9(g) of the resolution adopted by the Board of the Authority on March 25, 1996), (ii) deferred interest on the CDP Note (as deferred in the Project Service Agreement), (iii) the Amortized Principal (as defined in the Escrow and Transfer Agreement dated as of March 1, 1996 between the City and the Project Bond Trustee) and (iv) reasonable costs of issuance relating to the refinancing, such refinancing to be repayable over ten years in equal monthly installments of principal and interest and bearing interest at a Fair Market Interest Rate (but not to exceed a rate of 12% per year) plus an Authority fee of not to exceed 1/2 of 1% per year less the monthly amount required to amortize an amount of money equal to the amount, if any, provided by the Lessee under the Guaranty Agreement dated as of March 1, 1996 from the Lessee to the Trustee repayable over ten years in equal monthly installments of principal and interest and bearing interest at a Fair Market Interest Rate (but not to exceed a rate of 12% per year). As used herein, Fair Market Interest Rate means that rate of interest to be borne by the debt ("Debt") issued in connection with the refinancing referred to in the previous sentence which is determined by a reputable investment banking firm selected by the Authority to be a fair market rate of interest for securities of comparable maturity and credit quality as the Debt. The Rental Payment to be paid on the first business day of each month by the Lessee as rent for the Project during the second extension shall be $5.00 per square foot. (End of Article XII) - 41 - 46 IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to be duly executed in their respective names, all as of the date hereinbefore written. Signed and acknowledged in CLEVELAND-CUYAHOGA COUNTY the presence of: PORT AUTHORITY ______________________________ By: _____________________________________ Name: Chair ______________________________ Attest: _________________________________ Name: Secretary (Witnesses as to Lessor) Signed and acknowledged in BEARINGS, INC. the presence of: ______________________________ By: _____________________________________ Name: Vice President ______________________________ By: _____________________________________ Name: Assistant Secretary (Witnesses as to the Lessee) Approved as to form: ________________________________________ General Counsel Cleveland-Cuyahoga County Port Authority - 42 - 47 STATE OF OHIO ) ) ss: COUNTY OF CUYAHOGA ) On this ______ day of March, 1996, before me a Notary Public in and for said County and State, personally appeared Reverend Sterling E. Glover and Howard W. Broadbent, Chair of the Board of Directors and Secretary of, the Cleveland-Cuyahoga County Port Authority, respectively, and acknowledged the execution of the foregoing instrument, and that the same is their voluntary act and deed on behalf of said Cleveland-Cuyahoga County Port Authority and the voluntary act and deed of said Cleveland-Cuyahoga County Port Authority. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official seal on the day and year aforesaid. (SEAL) ___________________________________ Notary Public STATE OF OHIO ) ) ss: COUNTY OF CUYAHOGA ) On this _______ day of March, 1996, before me a Notary Public in and for said County and State, personally appeared Robert C. Stinson and Fred D. Bauer, Vice President and Assistant Secretary, respectively, of Bearings, Inc. the corporation which executed the foregoing instrument, who acknowledged that they did sign said instrument as such officer, for and on behalf of said corporation and by authority granted in its by-laws and by its Board of Directors; that the same is their voluntary act and deed on behalf of said corporation and the voluntary act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official seal on the day and year aforesaid. (SEAL) ___________________________________ Notary Public This instrument was prepared by: Richard K. Desmond, Esq. Squire, Sanders & Dempsey 4900 Society Center 127 Public Square Cleveland, Ohio 44114-1304 - 43 - 48 EXHIBIT A PROJECT FACILITIES ------------------ [Description of Headquarters Building and Moveable Personal Property] A-1 49 Exhibit B PROJECT SITE The land referred to in this policy is described as follows: Situated in the City of Cleveland, County of Cuyahoga and State of Ohio and known as being a part of Original Ten Acre Lots Nos. 88, 89 and 90 and bounded and described as follows: Beginning at a stone monument on the centerline of East 36th Street at a point North 00(Degree) 04' 35" East, 49.50 feet of the intersection of the centerlines of said East 36th Street (60 feet wide) and Euclid Avenue (99 feet wide); Thence North 89(Degree) 57' 58" West, 30 feet to the principal place of beginning at the intersection of the westerly right of way line of said East 36th Street with the northerly right of way of said Euclid Avenue; Thence North 89(Degree) 57' 58" West, 776.72 feet along the northerly right of way of said Euclid Avenue to the southeasterly corner of the property conveyed to Midtown Professional Center Partnership by Deed dated August 29, 1988 in Volume 88-4592, Page 31 of Cuyahoga County Records; Thence North 00(Degree) 11' 39" East, 381.79 feet along the easterly property line of Midtown Professional Center Partnership to the southwesterly corner of the property conveyed to Teamsters Joint Council No. 41 by Deed dated July 16, 1986 in Volume 86-4345, Page 17 of Cuyahoga County Records; Thence South 89(Degree) 57' 56" East, 161.95 feet along the southerly property line Teamsters Joint Council No. 41 to the southeasterly corner of said property; Thence North 00(Degree) 10' 42" East, 230.97 feet along the easterly line of said Teamsters Joint Council No. 41 property to the northeasterly corner thereof; Thence South 83(Degree) 46' 25" East, 486.87 feet along the former southerly right of way line of Chester Avenue (86 feet wide) to the northwesterly corner of the property conveyed to Donna E. Stratton by Deed dated January 24, 1990 in Volume 90-0447, Page 5 of Cuyahoga County Records; Thence South 00(Degree) 08' 00" West, 225.67 feet along the westerly line of said Donna E. Stratton property to an angle point therein; 50 Thence South 44(Degree) 53' 25" East, 27.91 feet along the southwesterly line of said Donna E. Stratton property to an angle point therein; Thence South 89(Degree) 55' 25" East, 65.00 feet along the southerly line of said Donna E. Stratton property to the southeasterly corner thereof; Thence North 00(Degree) 04' 35" East, 75.00 feet along an easterly line of said Donna E. Stratton property to an angle point therein; Thence South 89(Degree) 55' 25" East, 45.00 feet along a southerly line of said Donna E. Stratton property to a point on the westerly right of way line of East 36th Street (60 feet wide); Thence South 00(Degree) 04' 35" West, 389.72 feet along said westerly right of way line of East 36th Street to the principal place of beginning and containing 8.962 acres, more or less, as determined by Ralph C. Tyler, Registered Surveyor No. 4236 State of Ohio, in August 1995, but subject to all legal highways and easements of record. The basis of bearing of this description is Plat Volume 127, Page 11 of the Cuyahoga County Record of Plats. 51 EXHIBIT C RENTAL PAYMENT AMOUNTS ----------------------
Year Amount Year Amount ---- ------ ---- ------ 07/01/97 156,622.28 03/01/2002 161,288.62 08/01/97 156,592.33 04/01/2002 201,633.66 09/01/97 156,562.36 05/01/2002 201,341.79 10/01/97 156,907.40 06/01/2002 201,049.91 11/01/97 156,877.45 07/01/2002 215,853.20 12/01/97 159,816.49 08/01/2002 215,561.32 01/01/98 159,786.35 09/01/2002 215,269.44 02/01/98 159,756.58 10/01/2002 214,977.57 03/01/98 159,726.62 11/01/2002 214,685.70 04/01/98 160,071.65 12/01/2002 214,393.82 05/01/98 160,041.70 01/01/2003 214,101.95 06/01/98 160,011.73 02/01/2003 213,810.08 07/01/98 159,981.79 03/01/2003 213,518.20 08/01/98 159,951.82 04/01/2003 213,226.32 09/01/98 159,921.87 05/01/2003 212,934.44 10/01/98 160,266.91 06/01/2003 212,642.56 11/01/98 160,236.95 07/01/2003 212,350.70 12/01/98 160,206.98 08/01/2003 212,058.82 01/01/99 160,177.04 09/01/2003 216,766.95 02/01/99 160,147.08 10/01/2003 216,442.65 03/01/99 160,117.11 11/01/2003 216,118.36 04/01/99 160,462.16 12/01/2003 215,794.07 05/01/99 160,432.19 01/01/2004 215,469.78 06/01/99 160,402.24 02/01/2004 215,145.49 07/01/99 160,372.29 03/01/2004 214,821.20 08/01/99 160,342.33 04/01/2004 219,496.90 09/01/99 160,312.37 05/01/2004 219,138.89 10/01/99 160,657.41 06/01/2004 218,780.90 11/01/99 160,627.45 07/01/2004 218,422.90 12/01/99 160,597.49 08/01/2004 218,064.90 01/01/2000 160,567.54 09/01/2004 217,706.91 02/01/2000 160,537.57 10/01/2004 217,348.90 03/01/2000 160,507.62 11/01/2004 216,990.89 04/01/2000 160,852.66 12/01/2004 216,632.90 05/01/2000 160,822.69 01/01/2005 216,274.90 06/01/2000 160,792.74 02/01/2005 215,916.90 07/01/2000 160,762.79 03/01/2005 215,558.90 08/01/2000 160,732.83 04/01/2005 215,200.90 09/01/2000 160,702.87 05/01/2005 214,842.89 10/01/2000 161,047.61 06/01/2005 214,484.90 11/01/2000 161,017.95 07/01/2005 219,126.90 12/01/2000 160,987.99 08/01/2005 218,736.49 01/01/2001 160,958.04 09/01/2005 218,346.07 02/01/2001 160,928.08 10/01/2005 217,955.65 03/01/2001 160,898.12 11/01/2005 217,565.24 04/01/2001 161,243.16 12/01/2005 217,174.81 05/01/2001 161,213.20 01/01/2006 216,784.41 06/01/2001 161,183.24 02/01/2006 216,393.99 07/01/2001 161,153.29 03/01/2006 216,003.57 08/01/2001 161,123.33 04/01/2006 215,613.15 09/01/2001 161,093.37 05/01/2006 215,222.73 10/01/2001 161,438.41 06/01/2006 214,832.31 11/01/2001 161,408.45 07/01/2006 214,441.91 12/01/2001 161,378.49 08/01/2006 214,051.49 01/01/2002 161,348.54 09/01/2006 213,661.07 02/01/2002 161,318.58 10/01/2006 213,270.65
C-1 52
Year Amount Year Amount ---- ------ ---- ------ 11/01/2006 212,880.23 09/01/2011 218,313.86 12/01/2006 212,489.81 10/01/2011 217,696.40 01/01/2007 212,099.41 11/01/2011 217,078.95 02/01/2007 211,708.99 12/01/2011 216,461.49 03/01/2007 221,318.57 01/01/2012 215,844.02 04/01/2007 220,865.77 02/01/2012 220,226.58 05/01/2007 220,412.98 03/01/2012 219,576.69 06/01/2007 219,960.19 04/01/2012 218,926.81 07/01/2007 219,507.40 05/01/2012 218,276.95 08/01/2007 219,054.61 06/01/2012 217,627.07 09/01/2007 218,601.81 07/01/2012 216,977.10 10/01/2007 218,149.02 08/01/2012 216,327.32 11/01/2007 217,696.24 09/01/2012 215,677.44 12/01/2007 217,243.44 10/01/2012 215,027.56 01/01/2008 216,790.65 11/01/2012 214,377.70 02/01/2008 216,337.86 12/01/2012 213,727.81 03/01/2008 215,885.07 01/01/2013 213,077.93 04/01/2008 215,432.27 02/01/2013 217,428.08 05/01/2008 214,979.48 03/01/2013 216,745.78 06/01/2008 219,526.69 04/01/2013 216,063.48 07/01/2008 219,040.18 05/01/2013 215,381.20 08/01/2008 223,553.69 06/01/2013 214,698.89 09/01/2008 223,034.78 07/01/2013 214,016.60 10/01/2008 222,515.86 08/01/2013 213,334.32 11/01/2008 221,996.94 09/01/2013 212,652.02 12/01/2008 221,478.03 10/01/2013 211,969.73 01/01/2009 220,959.11 11/01/2013 211,287.45 02/01/2009 220,440.19 12/01/2013 210,605.16 03/01/2009 219,921.28 01/01/2014 219,922.86 04/01/2009 219,402.36 02/01/2014 219,174.44 05/01/2009 218,883.44 03/01/2014 218,426.03 06/01/2009 218,364.53 04/01/2014 217,677.61 07/01/2009 217,845.61 05/01/2014 221,929.19 08/01/2009 217,326.69 06/01/2014 221,150.81 09/01/2009 216,807.78 07/01/2014 220,372.45 10/01/2009 216,288.86 08/01/2014 219,594.06 11/01/2009 220,769.94 09/01/2014 218,815.69 12/01/2009 220,218.61 10/01/2014 218,037.32 01/01/2010 219,667.28 11/01/2014 217,258.95 02/01/2010 219,115.94 12/01/2014 221,480.57 03/01/2010 218,564.61 01/01/2015 220,669.78 04/01/2010 218,013.28 02/01/2015 219,858.98 05/01/2010 217,461.95 03/01/2015 219,048.20 06/01/2010 216,910.61 04/01/2015 218,237.40 07/01/2010 216,359.27 05/01/2015 217,426.62 08/01/2010 215,807.95 06/01/2015 216,615.81 09/01/2010 215,256.61 07/01/2015 215,805.03 10/01/2010 214,705.27 08/01/2015 214,994.24 11/01/2010 214,153.94 12/01/2010 213,602.61 01/01/2011 218,051.28 02/01/2011 217,467.54 03/01/2011 216,883.78 04/01/2011 216,300.03 05/01/2011 215,716.28 06/01/2011 215,132.53 07/01/2011 219,548.78 08/01/2011 218,931.33
C-2 53 [The first sixty Lease rental payments are subsidized by $1,876,000 of proceeds from a Neighborhood Development Investment Fund loan made by the City of Cleveland to the Cleveland-Cuyahoga County Port Authority. As a result of these subsidies, each of the first sixty rental payments to be made by Bearings is $37,500 lower than the amount shown in Exhibit C.] EX-11 4 EXHIBIT 11 1 EXHIBIT 11 BEARINGS, INC. AND SUBSIDIARIES ------------------------------- Computation of Net Income Per Share (Unaudited) (Thousands, except per share amounts) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended March 31 March 31 1996 1995 1996 1995 ------- ------- ------- ------- Average Shares Outstanding (B) ------------------------------ 1. Average common shares outstanding 12,341 11,624 12,285 11,516 2. Net additional shares outstanding assuming stock options exercised and proceeds used to purchase treasury stock 255 177 274 204 ------- ------- ------- ------- 3. Adjusted average common shares outstanding for fully diluted computation 12,596 11,801 12,559 11,720 ======= ======= ======= ======= Net Income ---------- 4. Net income as reported in statements of consolidated income $ 6,122 $ 4,349 $15,826 $10,721 ======= ======= ======= ======= Net Income Per Share (B) ------------------------ 5. Net income per average common share outstanding (4/1) $ 0.50 $ 0.37 $ 1.29 $ 0.93 ======= ======= ======= ======= 6. Net income per common share on a fully dilutive basis (4/3) $ 0.49(A) $ 0.37(A) $ 1.26(A) $ 0.91(A) ======= ======= ======= ======= (A) Fully diluted net income per share is not presented as the dilutive effect is less than 3%. (B) All share and per share data have been restated to reflect the three for two stock split effective December 4, 1995.
EX-27 5 EXHIBIT 27
5 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 13,238 0 159,241 3,153 132,346 304,291 141,863 61,664 408,021 148,392 0 10,000 0 0 171,251 408,021 848,263 848,263 630,544 630,544 181,528 1,966 6,504 27,721 11,895 15,826 0 0 0 15,826 1.29 1.26
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